<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TOTAL CONTROL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Illinois 3823 36-3209178
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code) Identification
organization) Number)
</TABLE>
------------------------
2001 North Janice Avenue
Melrose Park, Illinois 60160
(708) 345-5500
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
Nicholas Gihl
President and Chief Executive Officer
Total Control Products, Inc.
2001 North Janice Avenue
Melrose Park, Illinois 60160
Tel: (708) 345-5500
Fax: (708) 345-5670
(Address, including zip code and telephone number, including area code, of agent
for service)
------------------------
WITH COPIES TO
Michel J. Feldman, Esq. John A. Burgess, Esq.
Arthur Don, Esq. Brent B. Siler, Esq.
D'ANCONA & PFLAUM HALE AND DORR
30 North LaSalle Street 60 State Street
Suite 2900 Boston, Massachusetts 02109
Chicago, Illinois 60602 Tel: (617) 526-6000
Tel:(312) 580-2000 Fax: (617) 526-5000
Fax: (312) 580-0923
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE FEE(2)
<S> <C> <C> <C> <C>
Common Stock, no par value per share............. 3,162,500 Shares $10.00 $31,625,000 $9,583.33
</TABLE>
(1) Includes 412,500 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
2,750,000 SHARES
TOTAL CONTROL PRODUCTS, INC.
[LOGO]
COMMON STOCK
------------
Of the 2,750,000 shares of Common Stock offered hereby, 1,650,000 shares are
being sold by the Company and 1,100,000 shares are being sold by the Selling
Shareholders. See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $8.00 and $10.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. Application has been made to have the Common Stock approved for quotation
and trading on the Nasdaq National Market under the trading symbol "TCPS."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS (2)
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
Total (3).............................. $ $ $ $
<CAPTION>
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $700,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
412,500 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to receipt and acceptance by them and to their right to reject any order in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made at the offices of Adams, Harkness & Hill, Inc., Boston,
Massachusetts, on or about , 1997.
ADAMS, HARKNESS & HILL, INC. A.G. EDWARDS & SONS, INC.
The date of this Prospectus is , 1997.
<PAGE>
-------------------
The Company was incorporated in Illinois in 1983. Unless the context otherwise
requires, references in this Prospectus to "Total Control" and the "Company"
refer to Total Control Products, Inc. and its subsidiaries. Unless the context
otherwise indicates, references to the Company also include Taylor, a company of
which 61.0% of the voting shares are owned by the Company. The Company's
executive offices are located at 2001 North Janice Avenue, Melrose Park,
Illinois, 60160, and its telephone number is 708-345-5500.
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
QuickPanel and Smart Panel Plus are registered trademarks of Total Control
Products, Inc. Grey-Line, QuickMarquee, QuickDesigner, SmartPanel, SmartTouch,
SmartMarquee and SmartScreen are trademarks of Total Control Products, Inc.
ProWorx, ProcessWindow, SecurWorx and Waltz are trademarks of Taylor Industrial
Software Inc., a subsidiary of the Company. All other trademarks used herein are
trademarks of their respective owners.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE
RISK FACTORS RELATED TO THE PURCHASE OF COMMON STOCK OF THE COMPANY. SEE "RISK
FACTORS."
THE COMPANY
Total Control Products, Inc. ("Total Control" or the "Company") designs,
develops and markets products and technology for the control segment of the
industrial automation market. The Company's broad range of products are used to
define, monitor and maintain the operation, sequencing and safety of industrial
equipment and machinery on the factory floor. These products range from closed
architecture programmable logic controller ("PLC") operator interfaces to open
architecture control software and systems, and are sold primarily through an
international network of independent distributors with over 200 sales locations.
End-users of the Company's products include Abbott Laboratories, The Boeing
Company, The Coca-Cola Company, The Dow Chemical Company, Eastman-Kodak Company,
Ford Motor Company, General Motors Corporation, Nabisco, Inc. and USX
Corporation.
The market for control segment products has been dominated by large
manufacturers selling proprietary products. These proprietary products have many
inherent limitations including fixed, vendor-defined functionality, closed
architectures and limited networking capabilities, all of which result in a high
cost of ownership. The Company believes that a migration is occurring gradually
in this marketplace towards open systems-based products. Open systems allow
manufacturers to benefit from standard networking protocols, intuitive graphical
user interfaces, enhanced application software functionality and the continued
cost reductions and performance increases associated with standards-based
products. Furthermore, the availability of a standardized, easy-to-support
operating system, such as Windows NT, allows industrial automation products to
be based upon an open architecture platform with widespread market acceptance.
To serve the diverse needs of this marketplace, the Company offers a broad
range of control segment products. The Company's principal product line,
QuickPanel and similar products, has gained a leadership position in the
operator interface market and accounted for over 65% of the Company's net sales
in the seven months ending October 31, 1996. The Company believes that this
product line delivers price/performance leadership and has allowed the Company
to gain greater visibility and an enhanced reputation both with its independent
distributors and with end-users. The Company is beginning to invest substantial
resources in developing future generations of the QuickPanel product line aimed
at giving it the functionality of an open standards, interoperable network
computer.
The Company believes that industrial automation products for the control
segment are best marketed and sold through independent distributors. The Company
seeks to establish and maintain relationships with the leading industrial
automation distributors in each of the geographic areas in which it competes.
The Company's strategy for growth includes expanding its network of distributors
as well as continuing to develop products that, from price, performance and
support perspectives, satisfy the selling requirements of its distributors.
The industrial automation marketplace continues to be highly competitive and
fragmented and the Company believes that opportunities exist to acquire
companies, assets and product lines which will allow it to expand its product
portfolio and to leverage its operating infrastructure and distributor network.
In September 1996, the Company acquired a controlling interest in Taylor
Industrial Software Inc. ("Taylor"), a developer of PC-control software,
client/server program management software, graphical operator interface software
and PLC configuration and support software (the "Taylor Transaction"). In
January 1996, the Company acquired Cincinnati Dynacomp, Inc. ("Cincinnati"), a
manufacturer of lower-end operator interface products (the "Cincinnati
Transaction").
The Company believes that its broad product line, its international network
of independent distributors and its substantial base of end-users position it to
become a leading worldwide provider of products in the control segment of the
industrial automation market.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company.................................................. 1,650,000 shares
The Selling Shareholders..................................... 1,100,000 shares
Common Stock to be outstanding after the offering.............. 7,624,428 shares(1)
Use of proceeds................................................ For repayment of certain indebtedness, working
capital and general corporate purposes
Proposed Nasdaq National Market symbol......................... TCPS
</TABLE>
- ------------------
(1) Excludes 995,122 shares of Common Stock reserved for issuance under the
Company's stock option plans, of which 325,122 shares were subject to
outstanding options as of October 31, 1996 at a weighted average exercise
price of $2.68 per share, and 250,000 shares of Common Stock reserved for
issuance under the Company's discount stock purchase plan. See "Management
-- Stock Compensation Plans."
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED MARCH 31, ENDED OCTOBER 31,
---------------------------------------------- -----------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996(1) 1995 1996 1996(1)
--------- --------- --------- ------------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 11,723 $ 17,063 $ 25,743 $ 40,682 $ 13,486 $ 21,240 $ 24,785
Cost of goods sold......................... 6,304 9,689 15,370 21,729 8,079 11,639 11,956
--------- --------- --------- ------------- --------- --------- -------------
Gross profit............................... 5,419 7,374 10,373 18,953 5,407 9,601 12,829
Operating expenses:
Sales and marketing...................... 2,904 3,486 4,989 8,633 2,615 4,370 5,984
Research and development................. 1,188 1,517 1,952 4,526 1,029 1,862 2,675
General and administrative............... 1,167 1,238 1,601 4,592 755 2,049 3,536
Change in estimated useful life of
software development costs............. 466 -- -- -- -- -- --
Charge for purchased research and
development............................ -- -- -- -- -- 4,893 4,893
--------- --------- --------- ------------- --------- --------- -------------
Income (loss) from operations.............. (306) 1,133 1,831 1,202 1,008 (3,573) (4,259)
Interest (expense) and other income, net... (96) (164) (169) (72) (39) (303) 76
--------- --------- --------- ------------- --------- --------- -------------
Income (loss) before income taxes and
minority interest........................ (402) 969 1,662 1,130 969 (3,876) (4,183)
Provision for (benefit from) income
taxes.................................... (155) 247 665 611 400 346 297
--------- --------- --------- ------------- --------- --------- -------------
Income (loss) before minority interest..... (247) 722 997 519 569 (4,222) (4,480)
Minority interest in loss of subsidiary.... -- -- -- 213 -- 1,831 2,019
--------- --------- --------- ------------- --------- --------- -------------
Net income (loss).......................... (247) 722 997 732 569 (2,391) (2,461)
Accretion to redemption value of common
stock.................................... (76) (208) (1,606) -- (1,124) (4,961) --
--------- --------- --------- ------------- --------- --------- -------------
Net income (loss) available to common
shareholders............................. $ (323) $ 514 $ (609) $ 732 $ (555) $ (7,352) $ (2,461)
--------- --------- --------- ------------- --------- --------- -------------
--------- --------- --------- ------------- --------- --------- -------------
Net income (loss) per share available to
shareholders(2).......................... $ (0.07) $ 0.09 $ (0.11) $ (0.10) $ (1.30)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding(2).. 4,343 5,972 5,633 5,633 5,673
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income (loss)(3)............. $ 1,006 $ (2,386)
--------- ---------
--------- ---------
Pro forma net income (loss) per share(4)... $ 0.16 $ (0.40)
--------- ---------
--------- ---------
Pro forma weighted average number of common
and common equivalent shares
outstanding(4)........................... 6,107 6,042
--------- ---------
--------- ---------
Pro forma as adjusted net income (loss) per
share(5)................................. $ 0.10 $ (0.32)
------------- -------------
------------- -------------
Pro forma as adjusted weighted average
number of common and common equivalent
shares outstanding(5).................... 7,690 7,662
------------- -------------
------------- -------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
OCTOBER 31, 1996
-------------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(6) ADJUSTED(6)(7)
--------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 323 $ 323 $ 323
Working capital................................................ 6,400 4,540 10,665
Total assets................................................... 29,044 29,044 29,001
Long-term debt, net of current maturities...................... 9,576 7,326 340
Redeemable common stock........................................ 13,172 -- --
Stockholders' equity (deficit)................................. (5,467) 8,094 21,205
</TABLE>
- ------------------
(1) Gives effect to the following transactions as if they had occurred at the
beginning of fiscal 1996, as further described in the introduction and Notes
to the Unaudited Pro Forma As Adjusted Condensed Consolidated Financial
Statements included elsewhere in this Prospectus: (i) the Cincinnati
Transaction and Taylor Transaction and the related purchase accounting
effects; and (ii) the sale by the Company of 1,650,000 shares of Common
Stock offered by it hereby, and the application of the estimated net
proceeds thereof to repay certain indebtedness as described under "Use of
Proceeds," and the elimination of the accretion to redemption value of
common stock resulting from the Put Elimination.
(2) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements.
(3) Gives effect to the elimination of the accretion to redemption value of
common stock resulting from the Put Elimination and the elimination of
interest expense related to the Debenture Conversion.
(4) Computed based upon (i) the pro forma net income (loss) described in Note 3
above and (ii) the pro forma weighted average number of common and common
equivalent shares outstanding computed on the basis described in Note 1 of
Notes to Consolidated Financial Statements.
(5) Pro forma as adjusted net income (loss) per share is computed based upon (i)
the pro forma as adjusted net income (loss) available to common shareholders
calculated as described in Note 1 above and (ii) the weighted average number
of common and common equivalent shares outstanding, as further adjusted to
reflect the following transactions as if they had occurred at the beginning
of fiscal 1996: (a) the sale by the Company of 1,650,000 shares of Common
Stock offered by it hereby and the application of the net proceeds therefrom
to repay certain indebtedness as described under "Use of Proceeds" and (b)
the issuance of Common Stock upon the Debenture Conversion.
(6) Gives effect to the Put Elimination, the Debenture Conversion, the PIK
Issuance and the reclassification from long-term to short-term of a $2.0
million note payable, which becomes due 10 days after the closing of the
offering.
(7) Adjusted to give effect to the sale by the Company of the 1,650,000 shares
of Common Stock offered by it hereby and the application of the estimated
net proceeds therefrom to repay certain indebtedness as described under "Use
of Proceeds."
------------------------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; (II) GIVES EFFECT TO A
THREE-FOR-ONE STOCK SPLIT OF THE COMMON STOCK AND THE CLASS C EXCHANGEABLE
SHARES OF TAYLOR (THE "TAYLOR EXCHANGEABLE SHARES") TO BE EFFECTED IN DECEMBER
1996; (III) ASSUMES THE CONVERSION OF THE TAYLOR EXCHANGEABLE SHARES INTO AN
AGGREGATE OF 767,112 SHARES OF THE COMMON STOCK OF THE COMPANY (THE "TAYLOR
CONVERSION"); (IV) GIVES EFFECT TO THE ISSUANCE OF 27,999 SHARES OF COMMON STOCK
REQUIRED TO BE ISSUED UPON REPAYMENT OF A $2.0 MILLION PROMISSORY NOTE THAT WILL
BE PAID UPON THE CLOSING OF THIS OFFERING (THE "PIK ISSUANCE"); AND (V) GIVES
EFFECT TO THE ISSUANCE OF 339,366 SHARES OF COMMON STOCK UPON CONVERSION OF A
CONVERTIBLE DEBENTURE OF THE COMPANY THAT WILL OCCUR UPON THE CLOSING OF THIS
OFFERING (THE "DEBENTURE CONVERSION"). CERTAIN PORTIONS OF THIS PROSPECTUS ALSO
GIVE EFFECT TO THE AUTOMATIC TERMINATION UPON THE CLOSING OF THIS OFFERING OF
THE RIGHTS OF CERTAIN SHAREHOLDERS TO REQUIRE THE COMPANY TO REPURCHASE THEIR
SHARES OF COMMON STOCK OR TAYLOR EXCHANGEABLE SHARES (THE "PUT ELIMINATION").
SEE "USE OF PROCEEDS," "DESCRIPTION OF CAPITAL STOCK -- TAYLOR EXCHANGEABLE
SHARES," AND "-- CONVERTIBLE SUBORDINATED DEBENTURE" AND NOTE 7 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING THE COMMON STOCK OFFERED
BY THIS PROSPECTUS.
QUARTERLY VARIATIONS IN OPERATING RESULTS. Results of the Company's
operations have fluctuated from quarter to quarter in the past, and may
fluctuate significantly in the future. Such fluctuations may result from a
variety of factors, including the timing of new product introductions by the
Company, its competitors or third parties, the loss of any of its significant
distributors, currency fluctuations, disruption in the supply of components for
the Company's products, changes in product mix or capacity utilization, the
timing of orders from major customers, personnel changes, production delays or
inefficiencies, seasonality and other factors affecting sales and results of
operations. Such quarterly fluctuations in results of operations may adversely
affect the market price of the Common Stock. A substantial portion of the
Company's sales for each quarter results from orders received in that quarter.
Consequently, the Company is dependent upon obtaining orders for shipment in a
particular quarter to achieve its sales objectives for that quarter.
Furthermore, the Company has often recognized a substantial portion of its sales
in the last month of a quarter, with sales frequently concentrated in the last
weeks or days of a quarter. A substantial portion of the Company's operating
expenses are primarily related to personnel, development of new products,
marketing programs and facilities. The level of spending for such expenses
cannot be adjusted quickly, and is based, in significant part, on the Company's
expectations of future revenue. If actual revenue levels are below management's
expectations, the Company's business, financial condition and results of
operations may be materially adversely affected. The Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
DEPENDENCE UPON DIGITAL ELECTRONICS CORPORATION. The Company is
substantially dependent upon its relationship with Digital Electronics
Corporation, a corporation located in Osaka, Japan ("Digital Electronics"),
which is the Company's sole supplier of the flat panel displays that are the
principal hardware component incorporated in the graphics-based operator
interface products that represent the Company's best selling product line. For
fiscal 1994, 1995 and 1996 and for the seven months ended October 31, 1996,
sales from this product line accounted for 45.9%, 61.9%, 70.7% and 65.5%,
respectively, of the Company's net sales. The Company has no contractual
arrangement obligating Digital Electronics to continue to supply these
components to the Company or setting prices for the purchase of these
components. The inability of the Company to obtain this hardware platform from
Digital Electronics, significant delays or shortages in production or
significant price increases by Digital Electronics would have a material adverse
effect on the Company. Although the Company has the exclusive right in North and
South America to market and distribute all hardware products manufactured by
Digital Electronics pursuant to the terms of a distribution agreement, which
expires in April 2005, there can be no assurance that Digital Electronics will
continue to manufacture such products. At any time, Digital Electronics could
become a direct competitor of the Company outside of North and South America
and, upon expiration of the distribution agreement in April 2005, Digital
Electronics could become a direct competitor of the Company in North America and
South America. The Company is also dependent on the ability of Digital
Electronics to continue to develop its hardware technology to meet rapidly
changing customer requirements and competing technologies. The Company is
currently engaged in certain product development efforts with Digital
Electronics which are important to the Company's future strategic position. The
historic business relationship between the Company and Digital Electronics has
been based to a significant extent on personal relationships between members of
the management of the two companies and the previous dealings of the entities.
If those relationships were to change, or if the management of the Company or
Digital Electronics were to change, this could result in a material adverse
effect on the relationship between the Company and Digital Electronics and, in
turn, on the business, financial condition and results of operations of the
Company. The Company believes that the relationship between Digital Electronics
and the Company has been and remains good. However, there can be no assurance
that the relationship will continue on a satisfactory basis. Digital Electronics
is not affiliated
6
<PAGE>
with Digital Equipment Corporation. Digital Electronics is also a shareholder of
the Company and Taylor, and has certain other relationships with the Company.
See "Recent Acquisitions -- Taylor Transaction" and "Certain Transaction."
DEPENDENCE ON DISTRIBUTORS. The Company derives substantially all of its
revenue from sales of its products through its network of distributors. The
Company expects that sales through its distributors will continue to account for
a substantial portion of its revenue for the foreseeable future. In particular,
sales to one distributor, McNaughton-McKay Electric Company, accounted for
13.9%, 9.5% and 9.0% of the Company's net sales in fiscal 1995 and 1996 and the
seven months ended October 31, 1996, respectively. None of the Company's
distributors are under the control of the Company or sell the Company's products
on an exclusive basis, and there can be no assurance that future sales by
distributors will continue at present levels or increase. Each of the Company's
distributors may cease marketing the Company's products with limited notice and
with little or no penalty. There can be no assurance that the Company's
independent distributors will continue to offer the Company's products, or that
the Company will be able to recruit additional or replacement distributors. The
loss of one or more of the Company's major distributors could have a material
adverse effect on the Company's business, financial condition and results of
operations. Many of the Company's distributors offer industrial automation
products that compete with products offered by the Company. For example, the
Company believes that approximately 25% of the Company's net sales for fiscal
1996 resulted from sales by distributors that also offer products manufactured
by Allen-Bradley Co. ("Allen-Bradley"), a direct competitor of the Company.
There can be no assurance that the Company's distributors will give priority to
the marketing of the Company's products as compared to competitors' products.
Any reduction or delay in sales of the Company's products by its distributors
would have a material adverse effect on the business, financial condition and
results of operations of the Company.
PRODUCT CONCENTRATION. Sales from the Company's QuickPanel product and
similar products represented 70.7% and 65.5% of the Company's net sales in
fiscal 1996 and for the seven months ended October 31, 1996, respectively. The
Company expects that sales of these products will continue to account for a
substantial portion of the Company's net sales. Declines in demand for these
products, whether as a result of competition, technological change or otherwise,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Products."
CURRENCY EXCHANGE RATE FLUCTUATIONS. The Company experiences foreign
currency exchange gains and losses in the ordinary course of its business due to
exchange rate fluctuations among a variety of currencies. Purchases of flat
panel screens from Digital Electronics, which constituted 61.1% and 51.5% of the
Company's cost of goods sold for fiscal 1996 and for the seven months ended
October 31, 1996, respectively, are transacted in Japanese Yen. As a result,
fluctuations in the exchange rate between the U.S. Dollar and the Yen may have a
material impact on the ability of the Company to maintain its gross margins. In
addition, Taylor is located in Edmonton, Alberta and, although most of its sales
are denominated in U.S. Dollars, most of its expenses are incurred in Canadian
Dollars. The Company currently attempts to hedge a portion of its potential risk
with respect to fluctuations in the Yen, and is investigating hedging Canadian
Dollars. While such foreign currency hedging transactions may moderate the
overall effect of currency fluctuations, the Company expects that such
fluctuations will continue, and there can be no assurance that the Company will
be successful in its hedging activities or that exchange rate fluctuations will
not otherwise have a material adverse effect on the Company's financial
condition or results of operations, or cause significant fluctuations in
quarterly results of operations.
EFFECT OF RECENT ACQUISITIONS; RISKS ASSOCIATED WITH FUTURE
ACQUISITIONS. In 1996, the Company acquired Cincinnati and a controlling
interest in Taylor (collectively, the "Acquired Businesses"). The Company has no
significant history of operations on a combined basis with either of the
Acquired Businesses. There can be no assurance that the Company will be
successful in integrating the operations and personnel of the Acquired
Businesses into its business, incorporating acquired technologies into its
7
<PAGE>
product lines, establishing and maintaining uniform standards, controls,
procedures and policies, avoiding the impairment of relationships with employees
and customers as a result of changes in management or overcoming other problems
that may be encountered in connection with the integration of the Acquired
Businesses. Accordingly, the historical financial statements and pro forma
financial information presented in the Prospectus may not be indicative of the
results that would have been obtained had the acquisitions occurred on the date
assumed therein. In connection with the acquisition of the Acquired Businesses,
the Company recorded goodwill, which will be amortized over future periods, and
recognized certain one-time acquisition-related charges.
A part of the Company's business strategy is to continue its growth through
strategic acquisitions. Identifying and pursuing future acquisition
opportunities and integrating acquired products and businesses will require a
significant amount of management time and skill. There can be no assurance that
the Company will be able to identify suitable acquisition candidates, consummate
any acquisition on acceptable terms or successfully integrate any acquired
business into the Company's operations. If the Company were to proceed with one
or more significant future acquisitions in which the consideration consists of
cash, a substantial portion of the Company's available cash (possibly including
a portion of the proceeds of this offering) could be used to consummate the
acquisitions. If the Company were to consummate one or more significant
acquisitions in which the consideration consists of stock, shareholders of the
Company could suffer a significant dilution of their interests in the Company.
Many business acquisitions must be accounted for as a purchase. Most of the
businesses that might become attractive acquisition candidates for the Company
are likely to have significant goodwill and intangible assets, and acquisition
of these businesses, if accounted for as a purchase, would typically result in
substantial goodwill amortization charges to the Company. In addition, such
acquisitions could involve acquisition-related charges. See "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Recent Acquisitions" and Unaudited Pro
Forma As Adjusted Condensed Consolidated Statements and the Notes thereto.
EFFECT OF OBLIGATION TO MAKE CONTINGENT PAYMENTS. Beginning in fiscal 1998,
the Company may become obligated under the terms of the Taylor Transaction and
the Cincinnati Transaction to make payments of contingent consideration which
could be substantial in amount. These contingent payments could require the use
of significant capital resoures, which could materially adversely affect the
Company's business and financial position. The Company could be required to
raise additional capital to finance these payments, and there can be no
assurance that such capital will be available to the Company on favorable terms,
if at all.
RISKS OF SERVING CYCLICAL INDUSTRIES. The end-users of the Company's
products include manufacturers in a number of industries which are cyclical in
nature, including the automotive and packaging industries. Such industries have
historically experienced periodic downturns as well as short-term fluctuations
which often have had an adverse effect on the demand for industrial machinery
and equipment in those industries and on the related demand for products like
those of the Company that are used to control such machinery and equipment.
Downturns in these industries could have a material adverse effect on the
Company's business, financial condition and results of operations.
EFFECT OF RAPID GROWTH ON EXISTING RESOURCES. The Company has grown rapidly
in recent years. A continuing period of rapid growth could place a significant
strain on the Company's management, operations and other resources. The
Company's ability to manage its growth will require it to continue to invest in
its operational, financial and management information systems, and to attract,
retain, motivate and effectively manage its employees. The inability of the
Company's management to attract such new employees and manage its growth
effectively could have a material adverse effect on the business, financial
condition and results of operations of the Company.
TECHNOLOGICAL CHANGE; DIFFICULTIES AND RISKS ASSOCIATED WITH NEW PRODUCT
DEVELOPMENT AND INTRODUCTION. The market for the Company's products is
characterized by rapidly changing technology,
8
<PAGE>
evolving industry standards and frequent new product introductions. The
Company's near-term success and future growth are substantially dependent upon
continuing market acceptance of its existing products, and on the Company's
ability to develop new products to meet changing customer requirements and
emerging industry standards. In addition, the Company's growth is in part
dependent on the ability of Digital Electronics to maintain its development and
supply of advanced hardware platforms for the Company's graphics-based operator
interface products. There can be no assurance that products or technologies of
the Company's competitors will not render the Company's products or technologies
noncompetitive or obsolete. The Company's future success is dependent to a
significant degree on its ability to develop products in a timely manner that
operate in an open architecture environment. There can be no assurance that the
Company will be successful in developing new products or product extensions,
that unanticipated problems or delays in future development and production will
not be encountered, or that, once developed, the Company's products will meet
the requirements of its customers or gain market acceptance. See "Business --
Strategy," "-- Products," and "-- Product Development."
SIGNIFICANCE OF DEVELOPING MARKET. The market for standards-based,
interoperable software tools and products in the industrial automation industry
is new and rapidly evolving. The Company's future success is dependent to a
significant degree upon broad market acceptance of the type of open architecture
products on which the Company is focusing its development efforts. There can be
no assurance that the market for such products will continue to develop or grow,
that the Company's product offerings will gain market acceptance, that the
Company will be able to offer in a timely manner, if at all, further product
developments utilizing open architecture technology or that the Company's
end-users will choose the Company's products for use. The failure of any of
these events to occur would have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Business --
Strategy," "-- Products" and "-- Product Development."
PARTIALLY OWNED SUBSIDIARY. The Company owns 61.0% of the Class A Shares of
Taylor (the "Taylor Class A Shares"), and Digital Electronics owns the remaining
39.0% of such shares. Digital Electronics, as the minority shareholder of
Taylor, will be entitled to a portion of the economic benefits of the business
operated by Taylor and will have influence over the business and operation of
Taylor, including certain fundamental corporate transactions requiring
shareholder approval. Both the Company and Digital Electronics pay a a royalty
to Taylor based on their sales of Taylor software products.
DEPENDENCE ON OUTSIDE SUPPLIERS. The Company is dependent on outside
vendors to manufacture many of the components and subassemblies used in the
Company's products. Although substantially all of the components used in the
Company's products are available from multiple sources (other than the flat
panel screens supplied by Digital Electronics), the Company may experience
shortages in supply from its suppliers due to various factors, including
increases in market demand for certain components which occur from time to time
and the limited capacity of certain suppliers. The Company believes that the
partial or complete loss of one or more of its suppliers is not likely to have a
material long-term impact on its operations. Such a loss, however, could in the
short term result in significant production delays, require the Company to seek
alternative sources of supply and increase its cost of goods sold and,
therefore, could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION. Competition in the industrial automation industry is intense
and characterized by rapidly advancing technologies. The Company faces
substantial competition in all of its product lines and competition may increase
if new competitors enter the market or if existing competitors expand their
product offerings. The Company believes that over time this competition may have
the effect of reducing average selling prices of comparable products offered by
competitors, and thus, in order to maintain sales, the Company may be forced to
increase unit volumes or increase the performance of its products in order to
offset or reduce any decreases in selling prices. In the event such price
reductions become necessary, the Company's ability to maintain gross margins
will depend on its ability to reduce its cost of goods sold in an amount
sufficient to compensate for any decreases in selling prices. Certain of the
9
<PAGE>
Company's competitors and potential competitors have substantially greater name
recognition and financial, technical, marketing and other resources than the
Company. Such competitors or potential competitors may be able to exert leverage
or other competitive pressures on distributors to give priority to their own
products at the expense of the Company's products. To the extent the Company is
unable to compete effectively against its competitors, its business, financial
condition and results of operations could be materially adversely affected. The
Company believes its ability to effectively compete in the industrial automation
market depends on factors both within and outside its control, including the
ability of the Company to meet evolving market requirements, the timing and
success of new products developed by the Company and its competitors, product
performance and price, distribution and customer support, product reputation,
customers' assessment of the Company's financial resources and its technical and
service expertise. There can be no assurance that the Company will be able to
compete successfully with respect to these and other factors, and such
competitive pressures could adversely affect the Company's business, financial
condition and results of operations.
PRODUCT LIABILITY EXPOSURE. The use of the Company's products in systems
that interact directly on the factory floor, where the failure of the system
could cause substantial property damage or personal injury, could expose the
Company to significant product liability claims. Although the Company has not
experienced product liability claims to date, the sale and support of its
products may entail the risk of such claims. A successful product liability
claim brought against the Company, or product recall involving the Company's
products, could have a material adverse effect upon the Company's business,
financial condition and results of operations. The Company maintains product
liability insurance, but there can be no assurance that such insurance will be
sufficient to cover any claims or that it will continue to be available on
reasonable terms, if at all. The Company's contracts typically contain
limitations of liability, disclaimers of warranties, damage limitations, and
indemnifications against third party claims, which provisions may not be
effective in all circumstances and jurisdictions. Taylor's software license
agreements with its customers typically contain similar limitations and
provisions but consist of "shrink wrap" licenses that are not signed by
licensees and, therefore, it is possible that such licenses may be unenforceable
under the laws of certain jurisdictions.
DEPENDENCE ON CHIEF EXECUTIVE OFFICER AND OTHER EXECUTIVE OFFICERS. The
Company depends to a significant degree on its senior management and other
officers and key employees, especially its Chief Executive Officer, Nicholas
Gihl. The loss of Mr. Gihl's services, the loss of service of one or more of the
Company's other executive officers or the inability to hire or retain qualified
personnel could adversely affect the Company's business, financial condition and
results of operations. See "Management."
PROPRIETARY TECHNOLOGY AND PRODUCT PROTECTION; POTENTIAL INFRINGEMENT. The
Company's success depends in part on its ability to maintain the proprietary and
confidential aspects of its products. The Company does not own any significant
patents, and relies on a combination of copyrights, employee non-disclosure
agreements and other means to establish and protect its proprietary rights.
There can, however, be no assurance that the precautions taken by the Company
adequately protect the Company's technology. In addition, many of the Company's
competitors have obtained or developed, and may be expected to obtain or develop
in the future, patents, copyrights or other proprietary rights that cover or
affect products that perform functions similar to those performed by products
offered by the Company. The inability of the Company for any reason to protect
existing technology or otherwise acquire necessary technology could prevent
distribution or licensing of the Company's products, which would have a material
adverse effect on the business, financial condition and results of operations of
the Company. In addition, although the Company believes that its products do not
infringe patents, copyrights, or other proprietary rights of third parties,
there can be no assurance that the Company is aware of all patents, copyrights
or other proprietary rights that may be infringed by the Company's products,
that infringement does not exist or that infringement may not be alleged by
third parties in the future. If infringement is alleged, there can be no
assurance that the necessary licenses would be available on acceptable terms, if
at all, or that the Company would prevail in any related litigation.
Intellectual property litigation can be extremely protracted and expensive even
if the Company ultimately prevails, and involvement in such
10
<PAGE>
litigation could have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Business --
Intellectual Property."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE. Prior to the offering contemplated hereby, there has been no public
market for the Common Stock, and there can be no assurance that an active public
market for the Common Stock will develop or be maintained after this offering.
The initial public offering price will be determined solely by negotiations
between the Company and the Underwriters, and may not bear any relationship to
the market price of the Common Stock after this offering. The stock market has
from time to time experienced extreme price and volume fluctuations, which often
have been unrelated to the operating performance of particular companies. Any
announcement with respect to any variance in net sales or earnings from levels
generally expected by securities analysts for a given period could have an
immediate and significant effect on the trading price of the Common Stock. In
addition, factors such as announcements of technological innovations or new
products by the Company, its competitors or other third parties, as well as
changing market conditions in the industrial automation industry, may have a
significant impact on the market price of the Common Stock. See "Underwriting."
PREFERRED STOCK; STAGGERED BOARD AND ANTI-TAKEOVER EFFECTS OF CORPORATE
PROVISIONS. The Board of Directors of the Company (the "Board of Directors")
has the authority to issue, without vote or action of the shareholders,
1,000,000 shares of Preferred Stock, no par value ("Preferred Stock"), in one or
more series; to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, redemption prices and liquidation preferences; and to determine the
designation and the number of shares constituting any series. The issuance of
any Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company and may adversely affect the voting and other
rights of the holders of Common Stock. At present, the Company has no plans to
issue any Preferred Stock. The Company has also implemented a staggered Board of
Directors consisting of three three-year classes. These and other provisions in
the Company's Articles of Incorporation and By-laws and of Illinois law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company. See "Description of Capital Stock -- Certain Statutory Provisions"
and "-- Certain Charter and By-law Provisions."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of shares of Common Stock in
the public market after this offering could have a negative impact on the market
price of the Common Stock, and could adversely affect the Company's ability to
raise additional capital in the future. See "Shares Eligible for Future Sale."
CONTROL BY EXISTING SHAREHOLDERS. Upon the completion of this offering, the
current executive officers, directors and principal shareholders of the Company
will beneficially own approximately 66.7% of the outstanding shares of the
Common Stock of the Company. In addition, members of the Sparacino family,
including Julius J. Sparacino, the co-founder of the Company and the Chairman
Emeritus of the Board of Directors, his children and their spouses, including
Nicholas Gihl, the Chairman, President and Chief Executive Officer of the
Company, will own approximately 34.1% of the outstanding shares of the Common
Stock of the Company. Accordingly, such persons, if they act together, will have
effective control over the Company through their ability to control the election
of directors and all other matters that require action by the Company's
shareholders, irrespective of how other shareholders may vote. Among other
things, such persons could prevent or delay a change in control of the Company
which may be favored by a majority of the remaining shareholders. Such ability
to prevent or delay such a change in control of the Company also may have an
adverse effect on the market price of Common Stock. See "Management -- Executive
Officers and Directors" and "Principal and Selling Shareholders."
DILUTION. Investors who purchase shares of Common Stock in this offering,
at an assumed initial public offering price of $9.00 per share, will incur
immediate dilution in pro forma net tangible book value of $7.61 per share. See
"Dilution."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,650,000 shares of
Common Stock offered by it hereby at an assumed initial public offering price of
$9.00 per share, after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company, are estimated to be
approximately $13.1 million. The Company will not receive any proceeds from the
sale of shares by the Selling Shareholders in this offering.
The Company intends to use the net proceeds of the offering to repay
approximately $13.1 million of indebtedness, consisting of (a) indebtedness of
approximately $5.6 million owed to certain shareholders of the Company, (b)
substantially all of the outstanding balance of the Company's revolving line of
credit facility ($7.0 million as of October 31, 1996) and (c) other indebtedness
of approximately $700,000. The indebtedness to shareholders to be repaid
includes the following indebtedness incurred by the Company and Taylor in order
to finance a portion of the Taylor Transaction in September 1996, all of which
will become due and payable upon the closing of this offering: (i) a $2.2
million promissory note payable by Taylor to Neil R. Taylor which bears interest
at a rate of 12.5% per annum until March 19, 1997, and 15.0% per annum
thereafter, payable monthly, (ii) a $2.0 million promissory note payable by the
Company to A.B. Siemer which bears interest at a rate of 20.0% per annum (13.0%
of which is payable in cash and 7.0% of which is payable in shares of Common
Stock of the Company), payable monthly after December, 1996 and (iii) a $1.0
million promissory note payable by the Company to Digital Electronics which
bears interest at a rate of 5.0% per annum, payable quarterly. Additionally, the
shareholder indebtedness to be repaid includes (i) a $200,000 promissory note
payable to Julius Sparacino, due December 1997, bearing interest at 10.0% and
(ii) indebtedness of Taylor owed to Mr. Taylor and his spouse of approximately
$230,000, bearing interest at the Canadian prime rate. See "Recent Acquisitions"
and "Certain Transactions."
Any remaining net proceeds of the offering would be used by the Company for
working capital and other general corporate purposes, including potential future
acquisitions of products or businesses that expand, complement or otherwise
relate to the Company's current business and products. The Company does not
presently have any agreements or commitments with respect to any potential
acquisitions or investments, nor are any negotiations regarding any such
transactions ongoing. Pending any such uses, the Company will invest the net
proceeds in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, to fund
the development and growth of its business and does not anticipate paying any
cash dividends in the foreseeable future. In addition, the Company's line of
credit facility includes provisions which could have the effect of limiting the
Company's ability to pay cash dividends on its Common Stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of October 31, 1996 on an actual, pro forma and pro forma as adjusted
basis. The information set forth in the table below is qualified by the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus, and should be read in conjunction with such Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
OCTOBER 31, 1996
------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
----------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current portion of long-term debt................... $ 4,124 $ 6,124 $ --
----------- ------------- --------------
----------- ------------- --------------
Long-term debt, net of current portion:
Revolving notes payable to bank....................................... $ 7,033 $ 7,033 $ 340
Subordinated notes payable to shareholders............................ 2,200 200 --
Convertible notes..................................................... 250 -- --
Other................................................................. 93 93 --
----------- ------------- --------------
Total long-term debt, net......................................... 9,576 7,326 340
----------- ------------- --------------
Minority interest in subsidiary......................................... 1,543 1,543 1,543
Redeemable common stock:
Common Stock, no par value, 22,500,000 shares authorized, 1,604,658
shares outstanding(3)............................................... 8,462 -- --
Class C Exchangeable common stock of subsidiary, no par value,
convertible into Common Stock of the Company, 767,112 shares issued
and outstanding(4).................................................. 4,710 -- --
Shareholders' equity (deficit):
Common Stock, no par value, 22,500,000 shares authorized, 3,235,293,
5,207,316 and 6,857,316 shares issued and outstanding, actual, pro
forma and pro forma as adjusted, respectively(3).................... 565 9,417 22,527
Class C Exchangeable common stock of subsidiary, no par value,
convertible into Common Stock of the Company, 767,112 shares issued
and outstanding, pro forma and pro forma as adjusted(4)............. -- 4,710 4,710
Retained deficit........................................................ (6,022) (6,022) (6,022)
Foreign currency translation adjustment................................. (10) (10) (10)
----------- ------------- --------------
Total shareholders' equity (deficit).............................. (5,467) 8,095 21,205
----------- ------------- --------------
Total capitalization............................................ $ 18,824 $ 16,964 $ 23,088
----------- ------------- --------------
----------- ------------- --------------
</TABLE>
- ----------------
(1) Gives effect to the Debenture Conversion, the PIK Issuance, the Put
Elimination and the reclassification from long-term to short-term of a $2.0
million note payable, which becomes due 10 days after the closing of the
offering.
(2) As adjusted to reflect the sale of 1,650,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $9.00
per share and the application of the estimated net proceeds therefrom to
repay certain indebtedness as described under "Use of Proceeds."
(3) Excludes 995,122 shares of Common Stock reserved for issuance under the
Company's stock option plans, of which 325,122 shares were subject to
outstanding options as of October 31, 1996, and 250,000 shares of Common
Stock reserved for issuance under the Company's discount stock purchase
plan. See "Management-- Stock Compensation Plans." Gives effect to an
amendment of the Company's Articles of Incorporation effective subsequent to
October 31, 1996 increasing the number of authorized shares of Common Stock.
(4) The Taylor Exchangeable Shares, which are exchangeable at any time for
Common Stock of the Company, are non-voting and have no rights to the
earnings, assets or dividends of Taylor. See Note 7 of Notes to Consolidated
Financial Statements.
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<PAGE>
DILUTION
The pro forma net tangible book deficit of the Common Stock as of October
31, 1996 was approximately $(2.5 million) or $(0.42) per share. The pro forma
net tangible book value per share represents the excess of the Company's total
liabilities over total tangible assets, divided by the total number of shares of
Common Stock outstanding, after giving effect to the Put Elimination, the Taylor
Conversion, the PIK Issuance and the Debenture Conversion.
After giving effect to the sale by the Company of the 1,650,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $9.00
per share, and the receipt of the net proceeds therefrom, the pro forma net
tangible book value of the Company (total tangible assets less total
liabilities) as of October 31, 1996 would have been approximately $10.6 million,
or $1.39 per share. This represents an immediate increase in pro forma net
tangible book value of $1.81 per share to existing shareholders and an immediate
dilution in pro forma net tangible book value of $7.61 per share to purchasers
of Common Stock in this offering, as illustrated in the following table:
<TABLE>
<CAPTION>
Assumed initial public offering price per share............. $ 9.00
<S> <C> <C>
Pro forma net tangible book deficit per share as of
October 31, 1996........................................ $ (0.42)
Increase per share attributable to new shareholders....... 1.81
---------
Pro forma net tangible book value per share as of October
31, 1996 after the offering............................... 1.39
---------
Dilution per share to new shareholders...................... $ 7.61
---------
---------
</TABLE>
The following table summarizes as of October 31, 1996, after giving effect
to the Taylor Conversion, the PIK Issuance and the Debenture Conversion, the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing shareholders
and by new shareholders.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ --------------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders.............................. 5,974,428 78.4% $ 7,355,103 33.1% $ 1.23
New shareholders................................... 1,650,000 21.6 14,850,000 66.9 9.00
----------- ----- -------------- -----
Total.......................................... 7,624,428 100.0% $ 22,205,103 100.0%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>
The foregoing table assumes no exercise of any stock options subsequent to
October 31, 1996, or the Underwriters' over-allotment option. As of December 20,
1996, an aggregate of 995,122 shares were reserved under the Company's stock
option plans, of which options to purchase an aggregate of 325,122 shares at a
weighted average exercise price of $2.68 per share were outstanding, and 250,000
shares of Common Stock reserved for issuance under the Company's discount stock
purchase plan. To the extent such options are exercised, there will be further
dilution to new shareholders.
The sale of shares by the Selling Shareholders in this offering will reduce
the number of shares held by existing shareholders to 4,874,428 shares, or
approximately 63.9% of the total number of shares of Common Stock outstanding
immediately after this offering (60.7% if the Underwriters' over-allotment
option is exercised in full), and will increase the number of shares held by new
shareholders to 2,750,000 shares, or 36.1% of the total number of shares of
Common Stock outstanding immediately after this offering (3,162,500 shares or
39.3% if the Underwriter's over-allotment option is exercised in full). See
"Principal and Selling Shareholders."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected statement of operations data for each of the three
years in the period ended March 31, 1996 and balance sheet data at March 31,
1995 and 1996 have been derived from the consolidated financial statements of
the Company included elsewhere in this Prospectus that have been audited by
Arthur Andersen LLP, independent public accountants, as indicated by their
report thereon contained elsewhere herein. The selected statement of operations
data for the two years in the period ended March 31, 1993 and balance sheet data
as of March 31, 1992, 1993 and 1994 has been derived from consolidated financial
statements of the Company not included in the Prospectus that have been audited
by Arthur Andersen LLP, independent public accountants. The selected statement
of operations data and balance sheet data for the seven months ended October 31,
1995 and 1996 and the balance sheet data as of October 31, 1995 and 1996 have
been derived from the Company's unaudited consolidated financial statements for
such periods included elsewhere in this Prospectus which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements and contain all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the financial condition and
results of operations for such periods. The selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, the Unaudited Pro Forma As Adjusted Condensed Consolidated
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The pro forma financial data are provided for comparative purposes
only and may not be indicative of the results that would have been achieved if
the transactions reflected therein had occurred at the beginning of fiscal 1996.
15
<PAGE>
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED MARCH 31, ENDED OCTOBER 31,
-------------------------------------------------------------------- --------------------
PRO FORMA
AS ADJUSTED
1992 1993 1994 1995 1996 1996(1) 1995 1996
--------- --------- --------- --------- --------- ------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 7,546 $ 10,582 $ 11,723 $ 17,063 $ 25,743 $ 40,682 $ 13,486 $ 21,240
Cost of goods sold................ 3,321 5,365 6,304 9,689 15,370 21,729 8,079 11,639
--------- --------- --------- --------- --------- ------------- --------- ---------
Gross profit...................... 4,225 5,217 5,419 7,374 10,373 18,953 5,407 9,601
Operating expenses:
Sales and marketing............. 2,103 2,688 2,904 3,486 4,989 8,633 2,615 4,370
Research and development........ 1,106 1,217 1,188 1,517 1,952 4,526 1,029 1,862
General and administrative...... 608 933 1,167 1,238 1,601 4,592 755 2,049
Change in estimated useful life
of software development
costs......................... -- -- 466 -- -- -- -- --
Charge for purchased research
and development............... -- -- -- -- -- -- -- 4,893
--------- --------- --------- --------- --------- ------------- --------- ---------
Income (loss) from operations..... 408 379 (306) 1,133 1,831 1,202 1,008 (3,573)
Interest (expense) and other
income, net..................... (33) (78) (96) (164) (169) (72) (39) (303)
--------- --------- --------- --------- --------- ------------- --------- ---------
Income (loss) before income taxes
and minority interest........... 375 301 (402) 969 1,662 1,130 969 (3,876)
Provision for (benefit from)
income taxes.................... 146 128 (155) 247 665 611 400 346
--------- --------- --------- --------- --------- ------------- --------- ---------
Income (loss) before minority
interest........................ 229 173 (247) 722 997 519 569 (4,222)
Minority interest in loss of
subsidiary...................... -- -- -- -- -- 213 -- 1,831
--------- --------- --------- --------- --------- ------------- --------- ---------
Net income (loss)................. 229 173 (247) 722 997 732 569 (2,391)
Accretion to redemption value of
common stock.................... -- -- (76) (208) (1,606) -- (1,124) (4,961)
--------- --------- --------- --------- --------- ------------- --------- ---------
Net income (loss) available to
common shareholders............. $ 229 $ 173 $ (323) $ 514 $ (609) $ 732 $ (555) $ (7,352)
--------- --------- --------- --------- --------- ------------- --------- ---------
--------- --------- --------- --------- --------- ------------- --------- ---------
Net income (loss) per share
available to shareholders (2)... $ 0.06 $ 0.04 $ (0.07) $ 0.09 $ (0.11) $ (0.10) $ (1.30)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average number of common
and common equivalent shares
outstanding (2)................. 4,330 4,330 4,343 5,972 5,633 5,633 5,673
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss)(3).... $ 1,006 $ (2,386)
--------- ---------
--------- ---------
Pro forma net income (loss) per
share (4)....................... $ 0.16 $ (0.40)
--------- ---------
--------- ---------
Pro forma weighted average number
of common and common equivalent
shares outstanding (4).......... 6,107 6,042
--------- ---------
--------- ---------
Pro forma as adjusted net income
(loss) per share (5)............ $ 0.10
-------------
-------------
Pro forma as adjusted weighted
average number of common and
common equivalent shares
outstanding (5)................. 7,690
-------------
-------------
<CAPTION>
PRO FORMA
AS ADJUSTED
1996(1)
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $ 24,785
Cost of goods sold................ 11,956
-------------
Gross profit...................... 12,829
Operating expenses:
Sales and marketing............. 5,984
Research and development........ 2,675
General and administrative...... 3,536
Change in estimated useful life
of software development
costs......................... --
Charge for purchased research
and development............... 4,893
-------------
Income (loss) from operations..... (4,259)
Interest (expense) and other
income, net..................... 76
-------------
Income (loss) before income taxes
and minority interest........... (4,183)
Provision for (benefit from)
income taxes.................... 297
-------------
Income (loss) before minority
interest........................ (4,480)
Minority interest in loss of
subsidiary...................... 2,019
-------------
Net income (loss)................. (2,461)
Accretion to redemption value of
common stock.................... --
-------------
Net income (loss) available to
common shareholders............. $ (2,461)
-------------
-------------
Net income (loss) per share
available to shareholders (2)...
Weighted average number of common
and common equivalent shares
outstanding (2).................
Pro forma net income (loss)(3)....
Pro forma net income (loss) per
share (4).......................
Pro forma weighted average number
of common and common equivalent
shares outstanding (4)..........
Pro forma as adjusted net income
(loss) per share (5)............ $ (0.32)
-------------
-------------
Pro forma as adjusted weighted
average number of common and
common equivalent shares
outstanding (5)................. 7,662
-------------
-------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
OCTOBER 31, 1996
MARCH 31, ---------------------------------------
----------------------------------------------------- PRO PRO FORMA AS
1992 1993 1994 1995 1996 ACTUAL FORMA(6) ADJUSTED(6)(7)
--------- --------- --------- --------- --------- --------- ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 66 $ 74 $ 89 $ 62 $ 19 $ 323 $ 323 $ 323
Working capital............... 1,972 1,894 2,651 3,590 7,391 6,400 4,540 10,665
Total assets.................. 4,540 5,006 5,462 7,584 15,983 29,044 29,044 29,001
Long-term debt, net of current
maturities.................. 555 530 510 500 6,201 9,576 7,326 340
Redeemable common stock....... -- -- 1,000 1,455 3,561 13,172 -- --
Stockholders' equity
(deficit)................... 2,351 2,487 1,940 2,454 1,843 (5,467) 8,094 21,205
</TABLE>
- ------------------
(1) Gives effect to the following transactions as if they had occurred at the
beginning of fiscal 1996, as further described in the introduction and Notes
to the Unaudited Pro Forma As Adjusted Condensed Consolidated Financial
Statements included elsewhere in this Prospectus: (i) the Cincinnati
Transaction and Taylor Transaction and the related purchase accounting
effects; and (ii) the sale by the Company of 1,650,000 shares of Common
Stock offered by it hereby, and the application of the estimated net
proceeds thereof to repay certain indebtedness as described under "Use of
Proceeds," and the elimination of the accretion to redemption value of
common stock resulting from the Put Elimination.
(2) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements.
(3) Gives effect to the elimination of the accretion to redemption value of
common stock resulting from the Put Elimination and the elimination of
interest expense related to the Debenture Conversion.
(4) Computed based upon (i) the pro forma net income (loss) described in Note 3
above and (ii) the pro forma weighted average number of common and common
equivalent shares outstanding computed on the basis described in Note 1 of
Notes to Consolidated Financial Statements.
(5) Pro forma as adjusted net income (loss) per share is computed based upon (i)
the pro forma as adjusted net income (loss) available to common shareholders
calculated as described in Note 1 above and (ii) the weighted average number
of common and common equivalent shares outstanding, as further adjusted to
reflect the following transactions as if they had occurred at the beginning
of fiscal 1996: (a) the sale by the Company of 1,650,000 shares of Common
Stock offered by it hereby and the application of the net proceeds therefrom
to repay certain indebtedness as described under "Use of Proceeds" and (b)
the issuance of Common Stock upon the Debenture Conversion.
(6) Gives effect to the Put Elimination, the Debenture Conversion, the PIK
Issuance and the reclassification from long-term to short-term of a $2.0
million note payable, which becomes due 10 days after the closing of the
offering.
(7) Adjusted to give effect to the sale by the Company of the 1,650,000 shares
of Common Stock offered by it hereby and the application of the estimated
net proceeds therefrom to repay certain indebtedness as described under "Use
of Proceeds."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops and markets products and technology for the
control segment of the industrial automation market. The Company's broad range
of products are used to define, monitor and maintain the operation, sequencing
and safety of industrial equipment and machinery on the factory floor. These
products range from closed architecture PLC operator interfaces to open
architecture control software and systems, and are sold primarily through an
international network of independent distributors with over 200 sales locations.
End-users of the Company's products include Abbott Laboratories, The Boeing
Company, The Coca-Cola Company, The Dow Chemical Company, Eastman-Kodak Company,
Ford Motor Company, General Motors Corporation, Nabisco, Inc. and USX
Corporation.
The Company's net sales include revenues from sales of products, software
license fees, software maintenance and services. The Company's principal product
line, QuickPanel and similar products, has gained a leadership position in the
operator interface market. It has been the Company's most successful product
line, accounting for over 70% and 65% of net sales in fiscal 1996 and the seven
months ended October 31, 1996, respectively. This product line delivers
price/performance leadership and has allowed the Company to gain visibility and
enhance its reputation both with distributors and with end-users.
A key element of the Company's strategy has been to expand the breadth of
products offered through its distributor network in order to maximize operating
leverage. In September 1996, the Company acquired a controlling interest in
Taylor, an Alberta-based developer of PC-control software, client/server program
management software, graphical operator interface software and PLC configuration
and support software. This acquisition expanded the Company's product line,
allowing it to capitalize on the growing trends towards interoperable technology
products, and gave the Company a platform from which to develop new products
incorporating this software technology into the Company's traditional products.
In January 1996, the Company acquired Cincinnati, which strengthened the
Company's product offerings in the lower-end of the operator interface market.
In connection with both of these acquisitions, the Company may become obligated
to make payments of contingent consideration which could be substantial in
amount. Both of these acquisitions were accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16. In connection with
the Taylor Transaction, approximately $4.9 million was charged as an expense at
the acquisition date related to the purchase of incomplete research and
development projects and other acquisition costs. In connection with the Taylor
Transaction and the Cincinnati Transaction, the Company recorded approximately
$2.5 million and $2.0 million, respectively, of goodwill (which will be
increased in the event any future contingent consideration is paid), which is
being amortized on a straight-line basis over 7 and 15 years, respectively.
Following the Taylor Transaction, the Company engaged a broker to commence the
sale of Taylor's labor scheduling software product line. The revenues, expenses
and resulting net loss associated with this product line since the date of
acquisition have not been reflected in the Company's statement of operations.
See "Recent Acquisitions."
All of the Company's purchases of flat panel displays are from Digital
Electronics and are transacted in Japanese Yen, while substantially all of the
Company's sales are in U.S. Dollars. These purchases from Digital Electronics
accounted for 61.1% and 51.5%, respectively, of the Company's total cost of
goods sold for fiscal 1996 and the seven months ended October 31, 1996. The
Company's financial performance, including its gross margin, may be
substantially impacted by changes in the Yen/Dollar exchange rate. The Company
attempts to hedge a portion of this exchange rate risk, but there can be no
assurance that the Company will be successful in its hedging activities or that
certain exchange rate fluctuations will not otherwise have a material adverse
effect on the Company's financial condition or results of operations, or cause
significant fluctuations in results of operations.
18
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results as a
percentage of net sales for each of the periods indicated.
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED MARCH 31, OCTOBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................................... 53.8 56.8 59.7 59.9 54.8
--------- --------- --------- --------- ---------
Gross profit............................................... 46.2 43.2 40.3 40.1 45.2
Operating expenses:
Sales and marketing...................................... 24.8 20.4 19.4 19.4 20.6
Research and development................................. 10.1 8.9 7.6 7.6 8.8
General and administrative............................... 10.0 7.3 6.2 5.6 9.6
Change in estimated useful life of software development
costs.................................................. 4.0 -- -- -- --
Charge for purchased research and development............ -- -- -- -- 23.0
--------- --------- --------- --------- ---------
Income (loss) from operations.............................. (2.7) 6.6 7.1 7.5 (16.8)
Interest expense and other income, net..................... (0.8) (1.0) (0.7) (0.3) (1.4)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and minority interest.... (3.5) 5.6 6.4 7.2 (18.2)
Provision for (benefit from) income taxes.................. (1.3) 1.4 2.6 3.0 1.6
--------- --------- --------- --------- ---------
Income (loss) before minority interest..................... (2.2) 4.2 3.8 4.2 (19.8)
Minority interest in loss of subsidiary.................... -- -- -- -- 8.6
--------- --------- --------- --------- ---------
Net income (loss).......................................... (2.2) 4.2 3.8 4.2 (11.2)
Accretion to redemption value of common stock.............. (0.6) (1.2) (6.2) (8.3) (23.4)
--------- --------- --------- --------- ---------
Net income (loss) available to common shareholders......... (2.8)% 3.0% (2.4)% (4.1)% (34.6)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SEVEN MONTHS ENDED OCTOBER 31, 1996 AND OCTOBER 31, 1995
NET SALES. Net sales increased 57.5% to $21.2 million for the seven months
ended October 31, 1996 compared to $13.5 in the comparable period of the prior
fiscal year. This increase resulted from the growth in sales of the Company's
graphics-based operator interface products and from sales of products acquired
as a result of the Cincinnati Transaction and the results of Taylor for the one
month ended October 31, 1996.
GROSS PROFIT. Cost of goods sold consists primarily of expenses for
components and subassemblies, subcontracted labor, direct labor, manufacturing
overhead, and provisions for excess and obsolete inventory. Gross profit
increased 77.6% to $9.6 million for the seven months ended October 31, 1996 from
$5.4 million in the comparable prior period. Gross margin increased to 45.2% for
the seven months ended October 31, 1996 from 40.1% in the comparable prior
period. This increase was attributable to a reduction in the material cost
primarily in the QuickPanel product line due to favorable Yen fluctuations,
partially offset by increases in direct labor and manufacturing overhead costs
as a percentage of sales related to the Cincinnati acquisition. In addition, the
Company benefited from one month's sales of higher gross margin Taylor software
products.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel costs, sales commissions paid to the Company's independent sales
representatives, advertising, product literature,
19
<PAGE>
trade shows, distributor promotions and depreciation on equipment used for sales
related activities. Sales and marketing expenses increased 67.1% to $4.4 million
for the seven months ended October 31, 1996 from $2.6 million in the comparable
prior period. The higher expense level resulted primarily from increased
commissions due to higher sales volume, increased advertising and distributor
promotional programs, and increased salary and benefits due to increased
personnel and costs associated with the operations of Cincinnati and Taylor.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel costs, engineering supplies, development equipment,
depreciation and overhead costs. Research and development expenses increased
80.9% to $1.9 million for the seven months ended October 31, 1996 from $1.0
million in the comparable prior period. The higher expense level resulted
primarily from increased salary, related benefits and employee procurement
expenses due to increases in personnel headcount, including product development
costs related to Cincinnati and Taylor.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel costs related to finance, information systems, and
general management functions, as well as professional fees related to legal,
audit and tax services. General and administrative expenses increased 171.6% to
$2.0 million for the seven months ended October 31, 1996 from $755,000 for the
comparable prior period. The higher expense level related primarily to
additional personnel and facility costs resulting from the operations of
Cincinnati, additional personnel and facility costs associated with one month's
operating results of Taylor, the goodwill amortization related to the Cincinnati
and Taylor acquisitions and higher personnel and associated overhead costs
necessary to support the growth of the Company.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT. Purchased research and
development and other acquisition expenses relating to the acquisition of Taylor
totaled approximately $4.9 million and were charged to expense at the
acquisition date in September 1996. Of this expense, $4.7 million represents the
estimated fair value of Taylor's incomplete research and development projects as
determined by independent appraisal.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net increased
to $303,000 for the seven months ended October 31, 1996 from $38,000 in the
comparable prior period. The increase primarily relates to an increase in
average debt outstanding used to fund the acquisition of Cincinnati and
increased working capital needs.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. Provision for income taxes
decreased to $346,000 for the seven months ended October 31, 1996 from $400,000
in the comparable prior period. The effective tax rate for the period ended
October 31, 1996 was 42.0%, after giving effect to the impact on taxable income
of the charge for purchased research and development of approximately $4.7
million, as compared to the effective tax rate of approximately 41.3% in the
comparable prior period.
MINORITY INTEREST IN LOSS OF SUBSIDIARY. A minority interest representing
Digital Electronic's 39.0% share of the net income or loss of Taylor is recorded
on the Company's statements of operations. The Company's ownership of Taylor
Class A Shares may increase by up to 4.0% based on the amount of contingent
consideration paid by the Company in connection with the acquisition. To the
extent the equity interest of the Company in Taylor increases, the percentage
applied to calculate minority interest will be reduced by a corresponding
amount. The minority interest benefit recorded of $1.8 million for the seven
months ended October 31, 1996 represents the minority interest share of the loss
recorded by Taylor, primarily incurred as a result of the charge for purchased
research and development of $4.7 million recorded at the acquisition date in
September 1996.
ACCRETION TO REDEMPTION VALUE OF COMMON STOCK. The Company has issued
redeemable Common Stock and Taylor has issued redeemable Taylor Exchangeable
Shares. The redemption rights will automatically terminate upon the closing of
this offering. The Company recorded these redeemable shares at
20
<PAGE>
their estimated redemption values at the date of issuance and subsequent changes
in such redemption value in each reporting period are being accreted. The
accretion to redemption value of Common Stock increased to $5.0 million for the
seven months ended October 31, 1996 from $1.1 million in the comparable prior
period. Approximately $4.9 million of the accretion recorded for the seven
months ended October 31, 1996 was attributable to an increase in the estimated
fair value of the Common Stock from $2.33 per share to $6.06 per share. The
remaining accretion was due to the increase in redemption value using the
effective interest method for the 767,112 redeemable Taylor Exchangeable Shares
issued in connection with the Taylor Transaction. The accretion recorded for the
prior period ended October 31, 1995 is based on the accretion on a straight line
basis of the increase in the estimated fair market value of the Common Stock
from $1.00 per share to $2.33 per share.
FISCAL YEARS ENDED MARCH 31, 1996 AND MARCH 31, 1995
NET SALES. Net sales increased 50.9% to $25.7 million for fiscal 1996
compared to $17.1 million for fiscal 1995. This increase resulted primarily from
the growth in sales of the Company's graphics-based operator interface products
and the increase in net sales from products acquired as a result of the
Cincinnati Transaction in January 1996.
GROSS PROFIT. Gross profit increased 40.7% to $10.4 million for fiscal 1996
from $7.4 million for fiscal 1995. Gross margin decreased to 40.3% for fiscal
1996 compared to 43.2% for fiscal 1995. This decrease in gross margin was
attributable primarily to growth in sales of the QuickPanel product line and an
increase in material cost as a percentage of net sales for such product line due
to unfavorable Yen variances, partially offset by benefits gained through direct
labor and fixed manufacturing leverage.
SALES AND MARKETING. Sales and marketing expenses increased 43.1% to $5.0
million for fiscal 1996 from $3.5 million for fiscal 1995. The higher expense
level resulted primarily from increased salary, benefits and commissions related
to increased personnel and higher sales volume and increased advertising and
distributor promotional programs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 28.7%
to $2.0 million for fiscal 1996 from $1.5 million for fiscal 1995. The higher
expense level related primarily to additional costs associated with an increase
in engineering personnel and contract engineering costs, as well as additional
personnel costs related to Cincinnati.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
29.3% to $1.6 million for fiscal 1996 from $1.2 million for fiscal 1995. The
higher expense level related primarily to additional costs associated with the
operations of Cincinnati and additional personnel and associated overhead costs
necessary to support the overall growth of the Company.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net increased
3.0% to $169,000 for fiscal 1996 from $164,000 for fiscal 1995. The increase
relates to an increase in the amount outstanding under the Company's line of
credit and a term loan payable to its bank primarily used to finance both the
acquisition of Cincinnati and increases in working capital needs. Other, net for
fiscal 1995 includes costs related to terminated acquisition activities.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. Provision for income taxes
increased to $665,000 for fiscal 1996 from $247,000 for fiscal 1995. The
effective tax rate for fiscal 1996 was 40.0% compared to 25.5% for fiscal 1995.
The increase in the effective tax rate was primarily due to the recognition of
research and development credits which were fully utilized in fiscal 1995.
ACCRETION TO REDEMPTION VALUE OF COMMON STOCK. The accretion to redemption
value of common stock increased to $1.6 million for fiscal 1996 from $208,000
for fiscal 1995. This increase was attributable to an increase in the estimated
fair value of the Common Stock from $1.00 per share to $2.33 per share.
21
<PAGE>
FISCAL YEARS ENDED MARCH 31, 1995 AND MARCH 31, 1994
NET SALES. Net sales increased 45.6% to $17.1 million for fiscal 1995
compared to $11.7 million for fiscal 1994. This increase resulted primarily from
growth in sales of the Company's QuickPanel product line and other
graphics-based operator interface products, and to a lesser extent, growth in
the sales of its industrial computer products.
GROSS PROFIT. Gross profit increased 36.1% to $7.4 million for fiscal 1995
from $5.4 million for fiscal 1994. Gross margin decreased to 43.2% for fiscal
1995 compared to 46.2% for fiscal 1994. This decrease was attributable primarily
due to growth in the sales of the QuickPanel product line, which contributed a
lower gross margin than the product mix in the prior period, partially offset by
decreases in material costs and direct labor and fixed manufacturing leverage.
SALES AND MARKETING. Sales and marketing expenses increased 20.0% to $3.5
million for fiscal 1995 from $2.9 million for fiscal 1994. The higher expense
level resulted primarily from increased sales commissions related to higher
sales volume, increased advertising and distributor promotional programs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 27.7%
to $1.5 million for fiscal 1995 from $1.2 million for fiscal 1994. Higher
expense levels related to increases in engineering personnel and the associated
salaries and benefits.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
6.1% to $1.24 million for fiscal 1995 from $1.17 million for fiscal 1994. The
higher expense level related primarily to additional personnel costs and
professional fees.
CHANGE IN ESTIMATED USEFUL LIFE OF SOFTWARE DEVELOPMENT COSTS. As a result
of a change in the Company's estimate of the useful life of its capitalized
software development costs, as well as management's belief that the amount of
costs incurred from the time technological feasibility is established for the
Company's internally developed software and the time to market are not material,
a non-recurring charge of $466,000 was incurred in fiscal 1994 to write-off the
remaining portion of internally developed software costs which had been
capitalized in March 1993.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net increased
70.8% to $164,000 for fiscal 1995 from $96,000 for fiscal 1994. The increase
relates primarily to costs related to terminated acquisition activities
partially offset by a decrease in the amount outstanding on the Company's line
of credit.
PROVISION FOR (BENEFIT FROM) INCOME TAXES. Provision for (benefit from)
income taxes was $247,000 for fiscal 1995 and ($155,000) for fiscal 1994. The
effective tax rate for fiscal 1995 was 25.5% compared to (38.6)% for fiscal
1994. The increase in the effective tax rate is primarily due to pre-tax income,
offset in part by the utilization of certain research and development tax
credits.
ACCRETION TO REDEMPTION VALUE OF COMMON STOCK. The accretion to redemption
value of common stock increase is attributable to an increase in the estimated
fair value of the Common Stock.
22
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated quarterly
statement of operations data for each of the eight quarters ending with the
quarter ended September 30, 1996. In the opinion of management, this information
has been prepared on the same basis as the audited consolidated financial
statements contained herein and includes all adjustments, consisting only of
normal recurring adjustments, that the Company considers necessary to present
fairly this information in accordance with generally accepted accounting
practices. This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
The Company's operating results for any one quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1995 1995 1995 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 4,869 $ 4,886 $ 5,368 $ 5,946 $ 6,331 $ 8,098
Cost of goods sold............................ 2,766 2,818 3,170 3,633 3,785 4,782
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................................. 2,103 2,068 2,198 2,313 2,546 3,316
Operating expenses:
Sales and marketing......................... 892 996 1,040 1,137 1,221 1,591
Research and development.................... 351 432 406 468 493 585
General and administrative.................. 311 333 316 317 364 604
Charge for purchased research and
development............................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations................. 549 307 436 391 468 536
Interest expense and other, net............... (13) (106) (14) (15) (30) (110)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and minority
interest.................................... 536 201 422 376 438 426
Provision for (benefit from) income taxes..... 137 52 169 150 175 171
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest........ 399 149 253 226 263 255
Minority interest in loss of subsidiary....... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) before accretion............ $ 399 $ 149 $ 253 $ 226 $ 263 $ 255
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
JUNE 30, SEPT. 30,
1996 1996
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 9,077 $ 8,218
Cost of goods sold............................ 5,167 4,633
----------- -----------
Gross profit.................................. 3,910 3,585
Operating expenses:
Sales and marketing......................... 1,716 1,731
Research and development.................... 695 765
General and administrative.................. 853 834
Charge for purchased research and
development............................... -- 4,893
----------- -----------
Income (loss) from operations................. 646 (4,638)
Interest expense and other, net............... (103) (128)
----------- -----------
Income (loss) before income taxes and minority
interest.................................... 543 (4,766)
Provision for (benefit from) income taxes..... 218 (26)
----------- -----------
Income (loss) before minority interest........ 325 (4,740)
Minority interest in loss of subsidiary....... -- (1,835)
----------- -----------
Net income (loss) before accretion............ $ 325 $ (2,905)
----------- -----------
----------- -----------
</TABLE>
The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of net sales for each of the eight quarters
ending with the quarter ended September 30, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1995 1995 1995 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................ 56.8 57.7 59.1 61.1 59.8 59.1
----- ----- ----- ----- ----- -----
Gross profit.................................. 43.2 42.3 40.9 38.9 40.2 40.9
Operating expenses:
Sales and marketing......................... 18.3 20.4 19.4 19.1 19.3 19.6
Research and development.................... 7.2 8.8 7.6 7.9 7.7 7.2
General and administrative.................. 6.4 6.8 5.8 5.3 5.8 7.5
Charge for purchased research and
development............................... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Income (loss) from operations................. 11.3 6.3 8.1 6.6 7.4 6.6
Interest expense and other, net............... (0.3) (2.2) (0.3) (0.3) (0.5) (1.3)
----- ----- ----- ----- ----- -----
Income (loss) before income taxes and minority
interest.................................... 11.0 4.1 7.8 6.3 6.9 5.3
Provision for (benefit from) income taxes..... 2.8 1.1 3.1 2.5 2.8 2.1
----- ----- ----- ----- ----- -----
Income (loss) before minority interest........ 8.2 3.0 4.7 3.8 4.1 3.2
Minority interest in loss of subsidiary....... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Net income (loss) before accretion............ 8.2% 3.0% 4.7% 3.8% 4.1% 3.2%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
JUNE 30, SEPT. 30,
1996 1996
----------- -----------
<S> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales..................................... 100.0% 100.0%
Cost of goods sold............................ 56.9 56.4
----- -----
Gross profit.................................. 43.1 43.6
Operating expenses:
Sales and marketing......................... 18.9 21.1
Research and development.................... 7.7 9.3
General and administrative.................. 9.4 10.0
Charge for purchased research and
development............................... -- 59.6
----- -----
Income (loss) from operations................. 7.1 (56.4)
Interest expense and other, net............... (1.1) (1.6)
----- -----
Income (loss) before income taxes and minority
interest.................................... 6.0 (58.0)
Provision for (benefit from) income taxes..... 2.4 (0.3)
----- -----
Income (loss) before minority interest........ 3.6 (57.7)
Minority interest in loss of subsidiary....... -- (22.3)
----- -----
Net income (loss) before accretion............ 3.6% (35.4)%
----- -----
----- -----
</TABLE>
23
<PAGE>
Results of the Company's operations have fluctuated from quarter to quarter
in the past, and may fluctuate significantly in the future. Such fluctuations
may result from a variety of factors, including the timing of new product
introductions by the Company, its competitors or third parties, the loss of any
of its significant distributors, currency fluctuations, disruption in the supply
of components for the Company's products, changes in product mix or capacity
utilization, the timing of orders from major customers, personnel changes,
production delays or inefficiencies, seasonality and other factors affecting
sales and results of operations. A substantial portion of the Company's sales
for each quarter results from orders received in that quarter. Consequently, the
Company is dependent upon obtaining orders for shipment in a particular quarter
to achieve its sales objectives for that quarter. Furthermore, the Company has
often recognized a substantial portion of its sales in the last month of a
quarter, with sales frequently concentrated in the last weeks or days of a
quarter. A substantial portion of the Company's operating expenses are related
to personnel, development of new products, marketing programs and facilities.
The level of spending for such expenses cannot be adjusted quickly, and is
based, in significant part, on the Company's expectations of future revenue. If
actual revenue levels are below management's expectations, the Company's
business, financial condition and results of operations may be materially
adversely affected. The Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indicators of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the acquisition of a majority interest in Taylor, the Company had
historically funded its operations, including its acquisition of Cincinnati,
primarily through cash flow from operations, private placements of securities
and proceeds from borrowings under its bank line of credit.
In order to finance the Taylor Transaction, the Company entered into a $2.0
million subordinated shareholder note payable, which is due on the earlier of
September 20, 1999 or 10 days after the completion of an initial public
offering. The note bears interest at 20.0%, of which 13.0% is payable in cash on
a monthly basis after December 1996 and 7.0% is payable in Common Stock valued
at $5.00 per share, with a minimum of 27,999 shares issuable even if the note is
repaid within the first year. Additionally, the Company entered into a $2.2
million note with the former principal shareholder of Taylor. The note bears
interest at 12.5% per annum until March 19, 1997, and at 15.0% per annum
thereafter, payable on a monthly basis. The note is required to be paid in full
following the closing of a registered initial public offering of any class of
stock of the Company or upon the sale of Taylor's labor scheduling software
product line currently held for sale by the Company. Finally, the Company
entered into a loan agreement with Digital Electronics, whereby Digital
Electronics loaned the Company $5.0 million. In September 1996, $4.0 million of
such loan was converted into 39.0% of the outstanding Taylor Class A Shares. The
remaining $1.0 million of the Digital Electronics indebtedness is represented by
an unsecured promissory note, accruing interest at a rate of 5.0% per annum and
is due upon the earlier of the completion of an initial public offering or
August 31, 1997. See "Recent Acquisitions -- Taylor Transaction" and "Certain
Transactions."
Beginning in fiscal 1998, the Company may become obligated under the terms
of the Taylor Transaction and the Cincinnati Transaction to make payments of
contingent consideration which could be substantial in amount. These contingent
payments could require the use of significant capital resources.
The Company has bank lines of credit aggregating $10.0 million. The amount
that the Company is entitled to borrow under such lines of credit is based on
eligible trade accounts receivable and inventory of its respective operations.
All funds advanced pursuant to the lines of credit are secured by substantially
all of the assets of the Company, and such lines of credit expire on July 1998.
The interest rate on borrowings under the lines of credit is the bank's prime
lending rate or LIBOR plus 2.0%, at the option of
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the Company or, in the case of $1.0 million of the line of credit, the bank's
prime lending rate. See Note 4 to Consolidated Financial Statements.
Cash (used in) provided by operating activities was $(140,000) in fiscal
1994, $75,000 in fiscal 1995, $(411,000) in fiscal 1996 and $(1.4 million) for
the seven months ended October 31, 1996. In fiscal 1994, 1995 and 1996 and the
seven months ended October 31, 1996, the Company experienced increases in
receivables and inventory as a result of increases in the Company's sales
volume, which was partially offset by increases in accounts payable and accrued
expenses in fiscal 1994 and 1995.
Net cash used in investing activities totaled $207,000, $295,000, $1.9
million and $6.1 million for fiscal 1994, 1995, 1996 and the seven months ended
October 31, 1996, respectively. These activities consisted primarily of
purchases of personal property and equipment and other assets in fiscal 1994 and
1995. For fiscal 1996 and the seven months ended October 31, 1996, investing
activities were primarily related to the Cincinnati Transaction and Taylor
Transaction, respectively.
Management believes the proceeds from this offering, together with cash flow
from operations and borrowings available under the existing bank credit
facilities or replacement facilities will be sufficient to finance the Company's
operations for at least the next 12 months. In the event the Company acquires
one or more businesses or products, the Company's capital requirements could
increase substantially, and there can be no assurance that additional capital
will be available on terms acceptable to the Company, if at all.
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BUSINESS
Total Control designs, develops and markets products and technology for the
control segment of the industrial automation market. The Company's broad range
of products are used to define, monitor and maintain the operation, sequencing
and safety of industrial equipment and machinery on the factory floor. These
products range from closed architecture programmable logic controller operator
interfaces to open architecture control software and systems, and are sold
primarily through an international network of independent distributors with over
200 sales locations. End-users of the Company's products include Abbott
Laboratories, The Boeing Company, The Coca-Cola Company, The Dow Chemical
Company, Eastman-Kodak Company, Ford Motor Company, General Motors Corporation,
Nabisco, Inc. and USX Corporation.
THE INDUSTRIAL AUTOMATION INDUSTRY
Industrial manufacturing processes have become increasingly complex and
difficult to manage, especially at the factory floor level. While trying to
respond to such complexities, manufacturers are simultaneously under increased
competitive pressures to lower costs, increase quality and efficiency and meet
customer delivery deadlines. These pressures are often further complicated by
the additional burden of compliance with governmental regulations, safety
procedures and internal information reporting needs. To manage the complexity of
the manufacturing environment and to satisfy these requirements, manufacturers
must collect and analyze large amounts of data concerning their operations on a
timely, comprehensive and efficient basis. Industrial automation provides
solutions to these challenges.
The industrial automation industry can be divided into three segments:
planning, execution and control. Products in the PLANNING segment translate
information, such as customer orders and material purchases, into a
comprehensive plan for the manufacture of products. Products in the EXECUTION
segment schedule and monitor plant resources to ensure that machines produce
products in accordance with the production plan. Products in the CONTROL
segment, upon which the Company primarily focuses, allow users to define,
monitor and maintain the operation, sequencing and safety of industrial
equipment and machinery on the factory floor.
Specifically, control functions include supervisory controls, which allow
individual machines to interact with each other; operator interfaces, which
allow a human operator to communicate with an individual machine; and
controllers, including programmable logic controllers ("PLCs") and industrial
computers, which intelligently control the operation of a machine. Harbor
Research, Inc. projects that annual sales of control segment products in those
categories in which the Company currently offers products will grow from $8.6
billion in 1995 to over $12.8 billion in 2000. This market is presently
dominated by proprietary control products from manufacturers of PLCs such as
Allen-Bradley, Siemens Energy and Automation, Inc. and GE Fanuc Automation North
America, Inc.
Proprietary control products have many inherent limitations, including
fixed, vendor-defined functionality and difficulty in programming, integrating
and networking with other proprietary products and systems. As manufacturers
benefited from the increasing automation of individual machines, difficulties
remained in integrating proprietary control function products into different
parts of the manufacturing process. With little communication ability among
these products, multiple "islands of information" within a manufacturing
operation resulted as products from one vendor could not easily share
information with products from another vendor, forcing a manufacturer to depend
upon a single vendor. For the manufacturer, this resulted in a high cost of
ownership and the inability to take advantage of the inherent cost and
performance benefits associated with standards-based products.
In response to these problems, the Company believes end-users in the control
segment of the industrial automation marketplace are beginning to migrate
towards open systems-based products. This
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migration is occurring gradually as manufacturers build new facilities and
replace or upgrade existing facilities. By moving to interoperable products,
manufacturers can benefit from standard networking protocols which provide
enhanced connectivity, intuitive graphical user interfaces, enhanced application
software functionality and the continued cost reductions associated with general
purpose hardware. The availability of a standardized, easy-to-support operating
system, such as Windows NT, allows industrial automation products to be based
upon an open architecture platform with widespread market acceptance. In
addition, the Company believes the advent of relatively low cost network
computers, linked together through Internet or intranet protocols and
technologies, will allow manufacturers and end-users greater communication and
functionality in automation systems. Eventually, the Company believes these
trends may result in the development of network computer systems which combine
PLC and operator interface functionality to control the actions of machines on
the factory floor.
Distributors are an integral part of the technological evolution occurring
in the industrial automation marketplace. Traditionally, a substantial portion
of industrial automation products have been sold through the use of independent
distributors because they provide vendors with broad geographic and account
coverage. Distributors also provide customers with a broad product line and
local support and service and generally have well established, long-standing
relationships with customers. As competitive pressures force distributors to
limit the number of vendors and product lines they represent, the Company
believes distributors will seek to represent vendors who offer a comprehensive
line of products that will fill the needs of customers who have not migrated
towards open systems as well as those who demand a line of products based on
interoperable software and hardware. Because distributors base their business on
satisfying the demands of their customer base, they need to offer a migration
path from traditional industrial automation technology to products based on open
systems technology.
The technology shift in the market for control products is similar to the
transition in the office environment towards open client/server computing. The
Company believes that an opportunity exists for vendors that can offer, through
distribution, control segment products which span the range from proprietary,
closed architecture products to standards-based open-system products.
THE TOTAL CONTROL ADVANTAGE
Total Control believes that it offers to its distributors one of the most
complete and versatile lines of control segment products available, ranging from
lower-end operator interface products to sophisticated open architecture control
software and systems. The Company's graphics-based operator interfaces have the
ability to communicate with most major proprietary systems on the factory floor,
as well as to communicate among each of these major proprietary systems.
As manufacturers begin to introduce sophisticated, networked information
management systems, the ability to communicate with each machine on the factory
floor becomes critical, making the Company's products a natural bridge between
old and new technology. The availability and cost advantage of open systems
technology is accelerating the introduction of new products on the factory
floor, and in turn accelerating the requirement for distributors to carry a line
of products that spans the functionality spectrum. The Company believes that its
broad line of control segment products, its international network of independent
distributors and its substantial base of end-users position it to become a
leading worldwide provider of products and technology in the control segment of
the industrial automation market.
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STRATEGY
The Company's goal is to become a leading worldwide provider of products and
technology in the control segment of the industrial automation market. Key
elements of the Company's strategy are as follows:
LEVERAGE THE SUCCESS OF QUICKPANEL. The Company's principal product line,
QuickPanel and other similar products, has gained a leadership position in its
market. It has been the Company's most successful product line, accounting for
over 70% and 65% of net sales in fiscal 1996 and the seven months ended October
31, 1996, respectively. The Company believes that this product line delivers
price/ performance leadership and has allowed the Company to gain visibility and
enhance its reputation both with distributors and with end-users. The Company is
beginning to invest substantial resources in developing future generations of
the QuickPanel product line aimed at giving it the functionality of a
standards-based interoperable network computer and allowing the Company to
extend the functionality of the product into the open systems environment.
DEVELOP PRODUCTS FOR SALE THROUGH INDEPENDENT DISTRIBUTORS. The Company
utilizes an international network of independent distributors with over 200
sales locations that specialize in sales of industrial automation products. The
Company believes that, because distributors are seeking to make their operations
more efficient by reducing the number of approved vendors from which they buy
products, they have come to rely on the Company to provide a broad range of
products which serve the control segment of the market. The Company is focused
on developing industrial automation products that, from price, performance and
support perspectives, satisfy the selling requirements of its distributors, and
the Company does not currently anticipate designing or marketing products that
are not suitable for its existing independent distributors. As the industrial
automation industry moves from proprietary systems to open architecture
technology, the Company anticipates that a wide variety of new and existing
hardware and software technologies will converge, providing a broader range of
sales opportunities for both the Company and its distributors.
EXPAND THE NETWORK OF INDEPENDENT DISTRIBUTORS. Since the Company's
decision in 1994 to channel its sales efforts through distributors, the Company
has increased the number of distributor sales locations from approximately 130
in October 1994 to approximately 200 in October 1996. The Company seeks to
establish and maintain relationships with the leading industrial automation
product distributors in each of the geographic market areas in which it competes
and periodically evaluates its distributors' market positions. The Company
believes that by offering a comprehensive migration path from closed to open
architecture products in the industrial automation industry, its mindshare among
distributors will continue to be enhanced, making it an attractive choice for
distributors.
LEVERAGE THE TREND TOWARDS OPEN SYSTEMS. The Company believes it is
positioned to gain a leadership position in the next generation of industrial
automation technologies. Because the Company is migrating its products to
object-oriented software products that run in the Microsoft operating
environment, the Company believes it will be in a position to benefit from the
expected rapid acceptance of Microsoft Windows NT on the factory floor. The
Company's goal is to provide cost effective distributed client/server products
that can improve factory productivity and enhance business management and
control.
SEEK PRODUCT PORTFOLIO EXPANSION OPPORTUNITIES. The industrial automation
industry continues to be highly competitive and fragmented. The Company believes
that this fragmentation will allow it to continue to acquire companies, assets
and product lines in this market, although the Company does not currently have
any planned acquisitions. This strategy will allow the Company to continue to
expand its product portfolio and leverage its distribution channel in order to
continue to build market share. The Company's acquisition strategy has been and
will continue to be to seek companies, assets and products
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that are attractive to the Company's current end-user base, require
technological understanding similar to the Company's current products, and can
be easily marketed through its independent distributors.
FOCUS RESOURCES ON STRATEGIC AREAS. The Company's strategy is to maximize
flexibility and efficiency in the development of its products in order to
quickly and inexpensively bring them to market. The Company seeks to use the
most efficient methods available to implement this strategy, including building
strategic alliances, such as the Company's relationship with Digital
Electronics. The Company intends to continue to limit spending in non-strategic
areas by using third party suppliers for most of its hardware and manufacturing
needs, thereby eliminating the need to build and maintain costly manufacturing
infrastructures.
PRODUCTS
The Company's products are used to define, monitor and maintain the
operation, sequencing and safety of industrial equipment and machinery on the
factory floor. The Company offers a wide range of products, from proprietary PLC
operator interfaces to open architecture control software and systems. The
Company designs these products to satisfy the price and performance
characteristics demanded by its distributors and end-users, and sells products
to its distributors at a discount from the end-user list price for such
products. The table below summarizes the Company's principal product offerings
and the typical list price range for the products:
<TABLE>
<CAPTION>
REPRESENTATIVE U.S.
PRODUCT CLASS PRODUCTS OFFERED END-USER LIST PRICES
- -------------------------------------- ------------------------------------------------ -----------------------
<S> <C> <C>
Graphics-based Operator Interfaces QuickPanel and QuickPanel Junior $1,240 - $ 6,995
Smart Panel and Smart Panel Plus 3,750 - 6,000
SmartScreen 3,750 - 7,850
SmartTouch 2,000 - 7,000
Software Tools ProcessWindow (MMI software) 280 - 2,100
ProWorx (PLC support software) 750 - 3,500
Waltz (PC-based control software) 175 - 3,290
SecurWorx (version control software) 7,000 - 42,750
QuickDesigner (configuration software) 595 - 895
Text-based Operator Interfaces MessageCenter 400 - 1,100
Grey-Line 600 - 1,000
SmartMarquee and QuickMarquee 3,500 - 13,500
Keypad panels 300 - 1,000
Industrial Computer Workstations TCS Family $3,500 - $15,000
</TABLE>
GRAPHICS-BASED OPERATOR INTERFACE PRODUCTS. These products are easy-to-use
displays which allow human machine operators to monitor and program industrial
equipment by receiving and inputting information through a display screen. The
Company has sold over 30,000 units in this class since 1989, and sales from
these graphics-based product lines represented more than 70% and 65% of the
Company's net sales in fiscal 1996 and for the seven months ended October 31,
1996, respectively.
The Company's products in this category consist of monochrome and color
graphical displays on either a flat panel or a cathode ray tube ("CRT") based
screen. These products offer graphical touchscreen operator interfaces that are
cost-effective replacements to a variety of discrete devices, from push buttons
to message centers. The trend in this product class is towards smaller, flat
panel-based displays as opposed to the more bulky CRT screens. The QuickPanel
flat panel product line has eight separate models, while the CRT-based
SmartScreen is sold in a variety of screen sizes and configurations. All of
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these units are designed for single operator stations and include connectivity
technology to communicate with proprietary PLCs. The Company's graphics-based
operator interface products can communicate with over 20 major PLCs and PLC
networks including Allen-Bradley Remote I/O-TM-, Data Highway PLUS-TM-, Modicon
Modbus Plus-TM-, and GE Genius I/O-TM-. Consequently, these products are capable
of serving as bridges to open systems products and technology.
SOFTWARE TOOLS. The Company's software tools are described below:
PROCESSWINDOW. ProcessWindow is a graphical operator interface software
program that enhances the man-machine interface ("MMI") that occurs between
a human operator and a particular piece of factory equipment. The product
provides a variety of information management and display capabilities that
can be programed by the user, runs under Windows 3.1 and NT and is capable
of communicating with many different control systems. In addition, it can be
linked to the Company's ProWorx and Waltz software products.
PROWORX. ProWorxPlus and ProWorx IV are software tools which support the
operation of PLCs. These products allow a human operator to easily and
efficiently program a PLC to control the parameters of a machine's
operation. Each of the products in this class run on DOS- or Windows-
compatible PCs, and support PLCs manufactured by Allen-Bradley and Modicon.
WALTZ. The Company's Waltz control software is a PC-based control
product that allows a machine operator to have direct PC control over the
operation of a machine without the necessity of a PLC. Waltz runs on Windows
NT and includes an IEC 1131-3 compatible editor, a controller, communication
drivers to various types of input/output systems, and an operator interface
based on the Company's ProcessWindow software. By utilizing general purpose
computers and high-performance, real-time operating systems, such as Windows
NT, this software tool allows manufacturers to reduce dependency on
proprietary PLCs, and addresses an important need in the shift towards open
systems.
SECURWORX. Users of multiple PLCs and other programmable devices may be
faced with hundreds of controllers on a particular site, each containing
unique application programs, connected by means of a local area network. As
human operators make changes to the programming of a particular PLC, the
Company's SecurWorx client/server database management software provides
version control management as well as password protection. SecurWorx
produces an audit trail of the controller program changes and is integrated
with the Company's ProWorx software.
QUICKDESIGNER. QuickDesigner is a Windows compatible software design
tool used with the Company's flat panel operator interface products. This
software tool allows users to configure the display features on the
graphical flat panel touchscreen to meet their individual needs.
TEXT-BASED OPERATOR INTERFACES. These products, such as Grey-Line,
MessageCenter and QuickMarquee, report on the operation of industrial equipment
by sending textual messages to the machine operator through the use of a digital
display apparatus, with display sizes ranging from one quarter inch to eight
inches. This allows the machine operator to review messages as needed, rather
than having to constantly monitor a complicated control panel filled with push
buttons, pilot lights and selector switches. These products, although the most
basic types of operator interfaces, are still widely popular and allow the
Company to provide a broad range of products for the control segment of the
industrial automation market.
INDUSTRIAL COMPUTER WORKSTATIONS. The Company offers the TCS family of
ruggedized, open architecture computers, workstations and stand alone computers
and monitors specifically designed for the harsh requirements of the factory
floor. The products vary based on size, mounting configurations, display types,
memory, storage devices, key pads and touchscreen options. In addition, the TCS
family of industrial computers is also available bundled with the Company's
software products.
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PRODUCTS UNDER DEVELOPMENT. The Company intends to focus its product
development efforts on incorporating the high-end functionality of the Company's
software tools into its existing text-based and graphics-based operator
interface products. This development would allow the graphics-based products to
offer the same control and networking functionality that is currently available
in the software tools. The Company believes the resulting products would provide
enhanced price/performance leadership, allowing open architecture to be
available at the lower end of the product spectrum and providing the end-user
the benefit of enhanced flexibility, connectivity and functionality without
having to convert its control systems to PC-based systems.
SERVICE AND SUPPORT. The Company maintains an inventory of spare parts and
service stock. The shipment of spare parts and the performance of repair service
on out-of-warranty products is a small, but high margin part of the Company's
business. For its software products, the Company offers annual customer support
contracts that entitle the purchaser to free phone support and software upgrades
during the length of the contract.
END-USERS
The Company has shipped over 66,000 units for use worldwide, with an
installed base for its operator interface/industrial computer products of over
33,000 units, and an installed base for its software tools consisting of over
7,000 licensees, which have over 33,000 authorized licensed seats. The following
list provides a selection of the Company's end-user base.
<TABLE>
<CAPTION>
AEROSPACE PHARMACEUTICALS METALS/GLASS
<S> <C> <C>
The Boeing Company Abbott Laboratories Aluminum Company of North
National Aeronautics and Baxter International, Inc. America
Space Administration Eli Lilly and Company Ball Container Corporation
AUTOMOTIVE Pfizer Inc. Kaiser Aluminum and Chemical,
Allied Signal Inc. The Upjohn Company Inc.
BMW of North America, Inc. FOOD LTV Steel Company, Inc.
Chrysler Corporation American Crystal Sugar Reynolds Metals Company
Cooper Tire & Rubber Company Company USX Corporation
Ford Motor Company Frito-Lay, Inc. CONSUMER PRODUCTS
General Motors Corporation Nabisco, Inc. Eastman Kodak Company
Goodyear Tire & Rubber Phillip Morris Companies, Kimberly-Clark Corporation
Company Inc. Lever Brothers Company
Lear Seating Corporation Quaker Oats Company Ralston Purina Company
Saturn Corporation PETROCHEMICAL Scott Paper Company
TRW, Inc. Chevron Corporation Weyerhaeuser Company, Inc.
The Dow Chemical Company BEVERAGE
E.I. Dupont de Nemours and The Coca-Cola Company
Company Miller Brewing Company
H.B. Fuller Company The Stroh Brewery Company
Tetra Pak Inc.
</TABLE>
SALES, MARKETING AND SUPPORT
The Company's products are sold in more than 25 countries, primarily through
an international network of independent distributors having approximately 200
sales locations. The Company seeks to establish and maintain relationships with
the leading industrial automation distributors in each of the geographic market
areas in which it competes, and periodically evaluates its distributors' market
positions. The Company's distributors typically provide customer training,
application engineering and
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support. The Company believes that its commitment to service and support has
been and will continue to be a significant factor in its success. As of October
31, 1996, the Company's sales, marketing and technical support organization
consisted of 71 employees and 43 independent sales representatives. This
organization is managed by regional sales managers located in Atlanta, Georgia;
Cincinnati, Ohio; San Francisco, California; Pittsburgh, Pennsylvania; Melrose
Park, Illinois; Edmonton, Alberta; Sao Paulo, Brazil; and Birmingham, England.
This organization supports the Company's independent distributors and
complements their selling efforts by targeting large end-users, system
integrators, original equipment manufacturers and others.
In addition to its network of independent distributors, the Company
maintains a 40.0%-owned joint venture investment in ProFace, N.V. ("ProFace"), a
distributor located in the Netherlands. ProFace is the European distributor of
both the Company's and Digital Electronics' products.
PRODUCT DEVELOPMENT
The Company maintains an active product development program, including a
joint development arrangement with Digital Electronics for certain projects. The
Company's strategy is to develop new product offerings and existing product
extensions which are responsive to customer demands and satisfy the needs of the
Company's distributors. A significant portion of the Company's product
development expenses are targeted to developing products that will provide
additional functionality requested by the Company's end-users.
As of October 31, 1996, the Company had a total product development staff of
84 full-time employees, including software, electronic and mechanical design
engineers, product managers, application engineers and directly associated staff
members involved in technical documentation and product support. During fiscal
1994, 1995 and 1996 and the seven months ended October 31, 1996, research and
development expenses were 10.1%, 8.9%, 7.6% and 8.8% of net sales, respectively.
The Company anticipates that it will continue to commit substantial resources to
product development efforts in the future.
SUPPLY RELATIONSHIP WITH DIGITAL ELECTRONICS
Digital Electronics is the Company's sole supplier of the flat panel screens
that are the principal hardware component incorporated in its graphics-based
operator interface products, the Company's best selling product class. During
fiscal 1994, 1995 and 1996 and for the seven months ended October 31, 1996,
sales from this product class accounted for 45.9%, 61.9%, 70.7% and 65.5%,
respectively, of the Company's net sales. Digital Electronics is not under a
contractual obligation to continue to supply the flat panel screens and there is
no formal agreement between the Company and Digital Electronics with respect to
pricing. A disruption in the supply of products from Digital Electronics or a
significant price increase could have a material adverse impact on the Company's
business, financial condition and results of operations until an alternative
source of supply could be established. The Company has the exclusive right to
market and distribute in North and South America all hardware products
manufactured by Digital Electronics pursuant to the terms of a distribution
agreement, which expires in April 2005. See "Risk Factors -- Dependence Upon
Digital Electronics Corporation" and "Certain Transactions."
MANUFACTURING AND SUPPLY
The Company performs final assembly and testing for substantially all of its
products at its Melrose Park and Edmonton facilities, which are ISO-9001
certified. The assembly process encompasses the assembly of sheet metal parts,
keyboards, displays and electronic circuit boards into finished goods and the
duplication of software products on disks or other electronic media. The Company
subcontracts the assembly of circuit boards and the fabrication of sheet metal
and front panel bezels. The Company uses a
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number of firms for these subcontracted services and is not materially dependent
upon any third party that performs these services.
Except for the flat panel displays purchased from Digital Electronics,
substantially all of the components used in the Company's products are available
from multiple sources and the Company maintains more than one source of supply
for all material components. However, the Company may experience supply
shortages due to various factors, including increases in market demand for
certain components and the limited capacity of certain suppliers. Although the
Company believes that the partial or complete
loss of one or more of its suppliers, other than Digital Electronics, is not
likely to have a material long-term impact on its operations, such a loss could
in the short term result in significant production delays, require the Company
to seek alternative sources of supply and increase its cost of goods sold and,
therefore, could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
Competition in the industrial automation industry is intense and
characterized by rapidly advancing technologies. The Company faces substantial
competition in all of its product lines and competition may increase if new
competitors enter the market or if existing competitors expand their product
offerings. Competitors include large PLC manufacturers, including Allen-Bradley
(a subsidiary of Rockwell International, Inc.), Eaton Corp., GE Fanuc Automation
North America, Inc. (a joint venture between General Electric Corporation and
Fanuc Limited), Groupe Schneider S.A. (consisting of Modicon, Inc., Schneider
S.A., Square D Co. and Telemechanique, Inc.) and Siemens Energy and Automation,
Inc. (the U.S. subsidiary of Siemens A.G.). Competitors also include software
developers, such as IDT, Inc. (a subsidiary of Eaton Corp.), Intellution Inc. (a
subsidiary of Emerson Electric Corporation), Nematron, Inc. and Wonderware, Inc.
Many of these competitors are larger and have significantly greater resources
than the Company. These competitors, as well as potential future competitors,
may have greater name recognition and a larger installed base than the Company.
The Company believes that over time this competition may have the effect of
reducing average selling prices of comparable products, and thus, in order to
maintain sales, the Company may be forced to increase unit volumes or increase
the performance of its products in order to offset or reduce any decreases in
selling prices. In the event such price reductions become necessary, the
Company's ability to maintain gross margins will depend on its ability to reduce
cost of goods sold in an amount sufficient to compensate for any decreases in
selling prices. The Company's competitors could in the future introduce products
with more features and lower prices than the Company's product offerings, bundle
existing or new products with other products or systems to compete with the
Company or exert leverage or other competitive pressures on distributors to give
priority to their own products at the expense of the Company's products. As the
market for industrial automation and process control solutions develops, a
number of companies with significantly greater resources than the Company may
attempt to increase their presence in the market by acquiring and/or forming
strategic alliances with competitors of the Company.
INTELLECTUAL PROPERTY
The Company's success depends in part on its ability to maintain the
proprietary and confidential aspects of its products as they are released. The
Company does not own any significant patents, and relies on a combination of
copyrights, employee non-disclosure agreements and other means to establish and
protect its proprietary rights. There can be no assurance that the precautions
taken by the Company adequately protect the Company's technology. In addition,
many of the Company's competitors have obtained or developed, and may be
expected to obtain or develop in the future, patents, copyrights or other
proprietary rights that cover or affect products that perform functions similar
to the products offered by the Company. The inability of the Company for any
reason to protect existing technology or
33
<PAGE>
otherwise acquire necessary technology could prevent distribution or licensing
of the Company's products, which would have a material adverse effect on the
business, financial condition and results of operations of the Company. The
Company licenses its software products primarily under "shrink wrap" license
agreements that are not signed by licensees and, therefore, may be unenforceable
under the laws of certain foreign jurisdictions. In addition, in some instances
the Company licenses its software products under agreements that give licensees
limited access to the source code of the Company's products. Accordingly,
despite precautions taken by the Company, it may be possible for unauthorized
third parties to copy certain portions of the Company's products or to obtain
and use information that the Company regards as proprietary.
Certain technology used in the Company's products is licensed from third
parties. These licenses generally require the Company to pay royalties and to
fulfill confidentiality obligations. In the future, it may be necessary or
desirable for the Company to seek additional licenses of intellectual property
rights held by third parties. There can be no assurance that such licenses will
be available on favorable terms, if at all.
The Company believes that, due to the rapid pace of innovation within its
industry, factors such as the technological and creative skills of its personnel
are more important to establishing and maintaining a technology leadership
position than are the various legal protection of its technology. The Company
believes that its products and technology do not infringe any existing
proprietary rights of others, although there can be no assurance that third
parties will not assert infringement claims in the future.
EMPLOYEES
As of October 31, 1996, the Company had a total of 243 full-time employees,
of which 84 were in product development, 71 were in sales and marketing, 54 were
in manufacturing and operations and 34 were in general and administrative
functions. The Company also hires temporary employees as needed. None of the
employees are represented by a labor union or subject to a collective bargaining
agreement. The Company believes that its employee relations are good.
FACILITIES
The Company's headquarters and principal manufacturing facilities are
located in Melrose Park, Illinois, in a 39,000 square foot leased facility, of
which approximately 24,000 square feet is used for manufacturing and storage.
The facility is owned by a partnership which is controlled by officers and major
shareholders of the Company. See "Certain Transactions." This facility is leased
through April 2002. In addition, the Company leases a 22,000 square foot
facility in Edmonton, Alberta. The Company also leases sales offices. As part of
the acquisition of Cincinnati, the Company became the primary obligor of a
26,500 square foot facility in Cincinnati, Ohio. The Company is currently
involved in negotiations for the sublease of this facility through the remainder
of the original lease term, which expires in August 2000. The Company
anticipates that it will be necessary in the near future to lease additional
inventory storage space, and management believes suitable space is available to
meet this need in the Melrose Park vicinity. With the exception of such
additional inventory storage space, the Company believes that its facilities are
adequate for its current needs.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- ----------- ---------------------------------------------------------------------
<S> <C> <C>
Nicholas T. Gihl(1)............. 40 Chairman, Chief Executive Officer and President, Director
Dennis Marrano.................. 47 Senior Vice President of Operations
Peter A. Nicholson.............. 33 Senior Vice President and Chief Financial Officer, Treasurer,
Secretary
Kevin O'Connor.................. 36 Senior Vice President of Sales
Neil R. Taylor.................. 47 Senior Vice President of Software Development, Director
Frank Wood...................... 49 Senior Vice President of Product Development and Marketing
Julius J. Sparacino(1).......... 59 Chairman Emeritus, Director
A.B. Siemer(1)(3)............... 59 Director
Edward T. Hurd(2)(3)............ 58 Director Nominee(4)
Donald J. Kramer(2)(3).......... 64 Director Nominee(4)
</TABLE>
- --------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
(4) Term will become effective upon the closing of this offering.
Mr. Gihl co-founded the Company in 1982, along with Mr. Sparacino, and has
served as President of the Company since April 1994. From the Company's founding
in 1982 to March 1994, Mr. Gihl served as Executive Vice President. Mr. Gihl has
served as a director of the Company since the Company's founding. Mr. Gihl
became Chairman in December 1996. Prior to co-founding the Company, from October
1979 to November 1982, Mr. Gihl served in several design engineering and
electronic development positions and as a Design Supervisor at Mark Controls, a
manufacturer of energy management systems. Mr. Gihl is married to the daughter
of Mr. Sparacino.
Mr. Marrano joined the Company in April 1985 as Director of Manufacturing
and has served in various positions with the Company since that time, most
recently as the Senior Vice President of Operations since April 1996.
Mr. Nicholson has served as Senior Vice President and Chief Financial
Officer, Treasurer and Secretary of the Company since June 1996. From June 1995
to May 1996, Mr. Nicholson served as Vice President of Finance of Mama Tish's
Italian Specialties, Inc., a manufacturer and marketer of frozen dessert
products. From July 1985 to May 1995, Mr. Nicholson was employed by Arthur
Andersen LLP, most recently as a manager in the audit and business advisory
practice area. Mr. Nicholson is a Certified Public Accountant.
Mr. O'Connor has served as the Company's Senior Vice President of Sales
since February 1996. Mr. O'Connor served as the Company's Vice President of
Sales and Marketing from March 1994 to February 1996 and as a regional sales
manager from December 1992 to March 1994. From August 1983 to December 1992, Mr.
O'Connor served as a Regional Sales Engineer for McNaughton-McKay Electric
Company, a distributor of industrial automation products.
Mr. Taylor has served as Senior Vice President of Software Development and a
director of the Company since the consummation of the Taylor Transaction in
September 1996. Mr. Taylor co-founded Taylor, a developer and marketer of
industrial automation software products, in 1979. Mr. Taylor served as the
Chairman of the Board of Taylor from inception to September 1996, and President
of Taylor from inception to September 1991.
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<PAGE>
Mr. Wood has served as Senior Vice President of Product Development and
Marketing of the Company since February 1996. From September 1995 to February
1996, and May 1993 to July 1993, Mr. Wood served as a consultant in the
industrial automation market. From August 1993 to September 1995, Mr. Wood
served as Vice President of Sales and Marketing of Promise Systems Corp., a
developer and marketer of software. From October 1988 to April 1993, Mr. Wood
served as Vice President of Marketing for AEG Modicon, Inc., a developer,
manufacturer and marketer of programmable logic controllers and other industrial
automation products.
Mr. Sparacino co-founded the Company in 1982 and has served as a director
since that time. Mr. Sparacino served as the Chairman from 1982 to December
1996, when he became Chairman Emeritus. From 1982 to April 1994, Mr. Sparacino
served as President of the Company.
Mr. Siemer has served as a director of the Company since December 1993. Mr.
Siemer is the President of Desco Corporation, an industrial and manufacturing
holding company. Mr. Siemer was elected to the Board of Directors pursuant to
the terms of a Shareholders Agreement which will expire upon the closing of this
offering. See "Certain Transactions."
Mr. Hurd will become a director effective upon the closing of this offering.
From 1990 to February 1995, Mr. Hurd was President of Industrial Control, a
division of Honeywell Inc., and served as Executive Vice President of Honeywell
Inc. from February 1995 to April 1996. Mr. Hurd has been an independent
consultant since April 1996. Mr. Hurd is also a director of Moore Products Co.,
a manufacturer of industrial products for the process control industry.
Mr. Kramer will become a director effective upon the closing of this
offering. From January 1990 to March 1996, Mr. Kramer was a Special Limited
Partner of TA Associates, a venture capital investing firm, and was a general
partner of TA Associates for the five years preceeding January 1990. Since March
1996, Mr. Kramer has been a private investor. Mr. Kramer is also a director of
Robotic Vision Systems, Inc., a designer, manufacturer and installer of machine
vision-based products.
Executive officers of the Company are appointed by the Board of Directors
and serve, subject to their removal or resignation, until their successors have
been duly elected and qualified.
EMPLOYMENT AGREEMENTS
The Company has entered into written employment agreements with Messrs.
Gihl, Marrano, Nicholson, Taylor and Wood. Each of the employment agreements
provides for an employment term of one year. After the expiration of the initial
term, the employment agreements automatically renew for successive one year
periods unless either party delivers written notice of its desire to terminate
the agreement at least 90 days prior to the expiration of the term. The base
salaries for Messrs. Gihl, Marrano, Nicholson, Taylor and Wood under their
respective employment agreements is $200,000, $110,000, $110,000, $125,000 and
$110,000, respectively.
Each of the employment agreements contains a noncompetition covenant whereby
the employee agrees that for a period lasting from the date of the agreement to
one year after the termination of his employment with the Company, he will not
engage in any business that competes with the Company anywhere in the United
States. In addition, each employee has agreed to be bound by the terms of a
confidentiality provision requiring the employee to hold the Company's
confidential information in the strictest confidence for the longest period
permitted by law.
Under the terms of these agreements, the employee's employment with the
Company may be terminated prior to the expiration of the term for "cause," as
defined in the agreements. In the event of termination for cause or if the
employee voluntarily terminates his employment, the Company's obligations under
the agreement cease and the employee forfeits all his rights to receive any
compensation or benefits, except for salary and benefits for services already
performed as of the date of termination. In addition, if the Company terminates
an employee's employment for any reason other than death, disability or cause,
including the decision by the Company not to renew the term of employment, the
36
<PAGE>
Company must pay the employee designated severance amounts. In the case of
Messrs. Gihl, Marrano and Nicholson, the employee may also become entitled to
severance under designated circumstances involving his decision to terminate his
employment with the Company.
Under the terms of these agreements, the employees are entitled to bonus
amounts based upon the Company meeting certain financial targets. Mr. Gihl's
agreement provides for a minimum bonus of $5,000 per quarter, Mr. Nicholson's
agreement provides for a minimum bonus of $25,000 for fiscal 1997, and Mr.
Wood's agreement provides for a minimum bonus of $4,000 per quarter. Mr.
Marrano's agreement provides for a special bonus of $7,500 payable for fiscal
1997 in addition to the formula bonus. Mr. Nicholson's agreement provides for a
signing bonus of $50,000, payable on the earlier of the completion of an initial
public offering by the Company or in installments of $13,333 on each anniversary
of his employment agreement. In addition, Mr. Nicholson is entitled to a
one-time $25,000 bonus upon the consummation of certain designated business
transactions, which was earned upon the consummation of the Taylor Transaction
and is payable upon the earlier of January 1, 1998 or the completion of an
initial public offering.
STAGGERED BOARD OF DIRECTORS
Pursuant to the Company's Articles of Incorporation, upon the closing of
this offering the Board of Directors will be divided into three classes of
directors serving staggered three-year terms. The terms of Class I directors
(Messrs. Siemer and Taylor) expire in 1998; the terms of Class II directors
(Messrs. Sparacino and Kramer) expire in 1999; and the terms of Class III
directors (Messrs. Gihl and Hurd) expire in 2000. All directors of each class
will hold their positions until the annual meeting of shareholders held during
the year in which the terms of the directors in such class expire, or until
their respective successors are elected and qualified.
COMPENSATION OF DIRECTORS
Directors are not currently paid fees, but are reimbursed for travel
expenses incurred in attending board meetings. Following completion of this
offering, non-employee directors will be reimbursed for their out of pocket
expenses incurred to attend each committee or board meeting, up to an amount not
to exceed $10,000 per director per year. In addition, non-employee directors
will participate in the 1996 Non-Employee Directors Stock Option Plan. See
"Stock Compensation Plans -- 1996 Non-Employee Directors Stock Option Plan."
DIRECTOR COMMITTEES
The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee.
The Executive Committee is empowered to act with all authority granted to
the Board of Directors between board meetings, except with respect to those
matters required by Illinois law or by the Company's By-laws to be subject to
the power and authority of the Board of Directors as a whole. Messrs. Gihl,
Siemer and Sparacino are the current members of the Executive Committee.
The functions of the Audit Committee are to recommend annually to the Board
of Directors the appointment of the independent public accountants of the
Company, to discuss and review the scope and the fees of the prospective annual
audit and to review the results thereof with the Company's independent public
accountants, to review and approve non-audit services of the independent public
accountants, to review compliance with existing major accounting and financial
policies of the Company, to review the adequacy of the financial organization of
the Company and to review management's procedures and policies relative to the
adequacy of the Company's internal accounting controls. Messrs. Hurd and Kramer
will serve on the Audit Committee beginning immediately after the closing of
this offering.
37
<PAGE>
The functions of the Compensation Committee are to review and approve annual
salaries and bonuses for all executive officers, to review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto and to administer the Company's various stock
plans. Messrs. Hurd and Kramer will serve on the Compensation Committee
beginning immediately after the closing of this offering.
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid by the
Company for fiscal 1996 to the Company's Chief Executive Officer and to the
other executive officers of the Company whose total annual salary and bonus for
such year exceeded $100,000 (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION(3)
- ---------------------------------------------------------------------- ----------- --------- -----------------
<S> <C> <C> <C>
Nicholas T. Gihl
Chairman, President and Chief Executive Officer................. $ 130,000 $ -- $ 8,452
Julius J. Sparacino(2)
Chairman Emeritus............................................... 110,000 -- 9,511
Kevin O'Connor
Senior Vice President of Sales.................................. 101,250 32,375 4,686
Dennis Marrano
Senior Vice President of Operations............................. 101,250 32,375 1,011
</TABLE>
- ------------------
(1) Pursuant to the terms of their employment agreements with the Company, Mr.
Nicholson, who has served as Senior Vice President and Chief Financial
Officer, Treasurer and Secretary of the Company since June 1996, receives
annual base salary of $110,000, Mr. Taylor, the Vice President of Technology
of the Company since September 1996, receives annual base salary of
$125,000, and Mr. Wood, who has served as Senior Vice President of Product
Development and Marketing of the Company since February 1996, receives
annual base salary of $110,000.
(2) At March 31, 1996, Mr. Sparacino served as the Chairman of the Company.
(3) Other compensation consists of matching contributions under the Company's
401(k) plan, car allowances and Company-sponsored life insurance premiums.
The following table provides certain specified information concerning
unexercised options held under the 1993 Stock Plan as of March 31, 1996 by the
Named Executive Officers. No options were granted to or exercised by any Named
Executive Officer in fiscal 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MARCH 31,1996(#) AT MARCH 31, 1996($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Nicholas T. Gihl............................. -- -- $ -- $ --
Julius J. Sparacino.......................... -- -- -- --
Kevin O'Connor............................... 66,396 33,198 542,455 271,228
Dennis Marrano............................... 14,574 29,148 116,592 233,184
</TABLE>
- ------------------
(1) There was no public trading market for the Common Stock on March 31, 1996.
Accordingly, solely for purposes of this table, the values in these columns
have been calculated on the basis of the assumed initial public offering
price of $9.00 per share (rather than a determination of the fair market
value of Common Stock on March 31, 1996), less the applicable option
exercise price.
38
<PAGE>
STOCK COMPENSATION PLANS
1996 STOCK OPTION PLAN. The Company has adopted the 1996 Stock Option Plan
(the "1996 Plan"), under which the Compensation Committee may grant options to
purchase up to 550,000 shares of Common Stock to management, employees and
advisors of the Company. The 1996 Plan provides for the grant of incentive stock
options ("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and non-statutory stock options
that do not qualify as incentive stock options under Section 422 of the Code
("Non-Statutory Options"). No options have been granted under the 1996 Plan.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. The Company has adopted the
1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), under
which 120,000 shares of Common Stock have been authorized for issuance. All
non-employee directors will receive an option to purchase 12,000 shares of
Common Stock under the Directors' Plan on the day after each annual meeting of
the shareholders of the Company, provided that he or she then continues to serve
as a member of the Board of Directors. All such grants will be Non-Statutory
Options. The options granted under the Directors' Plan are exercisable beginning
six months from the date of grant. No options have been granted under the
Directors' Plan.
1996 DISCOUNT STOCK PURCHASE PLAN. The Company has established the 1996
Discount Stock Purchase Plan (the "Purchase Plan") and reserved 250,000 shares
of Common Stock for issuance thereunder. Pursuant to the Purchase Plan, eligible
employees of the Company may be given an opportunity to purchase Common Stock of
the Company through payroll deductions during six-month purchase periods
commencing on the first March 31 or September 30 occuring after the closing of
this offering. Eligible employees become participants in the Purchase Plan by
delivering to the Company, prior to the commencement of the purchase period, an
agreement authorizing a payroll deduction of up to 10.0% of such employee's base
compensation during the purchase period. The purchase price per share at which
shares are sold in an offering under the Purchase Plan is the lesser of (i)
85.0% of the fair market value of a share of Common Stock on the first day of
the purchase period, or (ii) 85.0% of the fair market value of a share of Common
Stock on the last day of that purchase period. Rights granted under the Purchase
Plan are intended to qualify for favorable federal income tax treatment
associated with rights granted under an employee stock purchase plan under the
provisions of Section 423 of the Code. No shares have been issued under the
Purchase Plan.
1993 STOCK OPTION PLAN. In 1993, the Company adopted the 1993 Stock Option
Plan, under which 375,000 shares of Common Stock have been reserved for issuance
(the "1993 Stock Plan"). There are currently options to purchase 325,122 shares
of Common Stock outstanding under the 1993 Stock Plan at a weighted average
price per share of $2.68, of which 95,544 are exercisable as of October 31,
1996. The Company's Board of Directors has adopted a resolution that no future
grants of options may be made under the 1993 Stock Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has not had a Compensation Committee prior to this
offering and the functions of the Compensation Committee have been performed by
the Board of Directors as a whole. Immediately following the closing of the
offering, the Compensation Committee will become effective and will be composed
of Messrs. Hurd and Kramer. For information concerning certain transactions and
relationships among the Company and the members of the Board of Directors, see
"Recent Acquisitions -- Taylor Transaction" and "Certain Transactions."
39
<PAGE>
RECENT ACQUISITIONS
TAYLOR TRANSACTION
In September 1996, the Company completed a series of transactions resulting
in its holding 61.0% of the Class A Shares of Taylor. In the first step of this
transaction, the Company acquired all of the voting stock of Taylor in exchange
for aggregate consideration of $7.4 million, the right to receive contingent
consideration as described below and 767,112 Taylor Exchangeable Shares. Of the
$7.4 million, $2.2 million was in the form of a promissory note from Taylor to
Neil R. Taylor, the former majority shareholder of Taylor, and the remainder was
paid in cash at the closing. The 767,112 Taylor Exchangeable Shares are
convertible into 767,112 shares of Common Stock of the Company at any time at
the election of the holders of such shares. Taylor's Articles of Organization
provide that if the Company has not effected an initial public offering of any
class of its capital stock prior to September 19, 1997, the holders of the
Taylor Exchangeable Shares will have the right to sell their shares to Taylor or
the Company for an aggregate amount equal to $6.0 million payable over three
years. See "Description of Capital Stock -- Taylor Exchangeable Shares."
The $2.2 million promissory note issued to Neil R. Taylor accrues interest
on the principal sum outstanding from time to time at a rate of 12.5% per annum
until March 19, 1997, and at a rate of 15.0% per annum thereafter. The Company
has guaranteed repayment of all amounts due under this note. The Company is
required to pay all amounts outstanding under such promissory note following the
closing of a registered initial public offering of any class of stock of the
Company. The note is secured by the assets of Taylor's labor scheduling software
product line. Upon a default under this note by Taylor or the Company, Mr.
Taylor would have the right to retain this product line in full satisfaction of
amounts due under the note. The Company will use a portion of the net proceeds
of this offering (or, if earlier, the sale of the labor scheduling software
product line) to repay this note.
Mr. Taylor and the former shareholders of Taylor also hold certain
registration rights with respect to their shares of Common Stock issuable upon
conversion of their Taylor Exchangeable Shares. See "Description of Capital
Stock -- Registration Rights."
Under the Taylor Transaction, the former shareholders of Taylor are also
entitled to receive certain contingent consideration pursuant to an earn-out
formula. Under such formula, if the actual consolidated revenues of Taylor ("Net
Revenues") between October 1, 1996 and September 30, 1997 exceed $8.0 million,
Taylor will pay the former shareholders an aggregate amount equal to $1.0
million, and to the extent that Net Revenues during such period exceed $9.2
million, Taylor will pay to the former shareholders an aggregate amount, not to
exceed $3.0 million, equal to 50.0% of such excess. In addition, for the period
between October 1, 1997 and September 30, 1998, if Net Revenues exceed $8.0
million, Taylor will pay to the former shareholders an aggregate amount equal to
$1.0 million, and to the extent that Net Revenues during such period exceed
$10.6 million, the Company will pay to the former shareholders an aggregate
amount, not to exceed $3.0 million, equal to 50.0% of such excess. The Company
has guaranteed the payment of all amounts of contingent consideration by Taylor
to the former shareholders of Taylor.
Digital Electronics originally loaned the Company an aggregate of $5.0
million in order to consummate the Taylor Transaction. Immediately thereafter,
$4.0 million of the loan was converted into 3,900 Taylor Class A Shares,
representing 39.0% of the aggregate amount of such shares. The remaining $1.0
million of indebtedness is represented by an unsecured promissory note from the
Company payable to Digital Electronics, accruing interest at a rate of 5.0% per
annum, maturing on the earlier of August 31, 1997 or the completion of an
initial public offering of any class of capital stock of the Company. The
Company will use a portion of the net proceeds of this offering to repay this
note.
Pursuant to an arrangement with Digital Electronics, the Company agreed that
to the extent Taylor is required to make any payment of contingent consideration
to the former shareholders of Taylor, the Company will transfer funds to Taylor
in an amount equal to such contingent consideration. To the extent the Company
funds a portion of a contingent payout, the Company is permitted to cause Taylor
to issue additional Taylor Class A Shares to the Company in order to increase
the Company's ownership interest
40
<PAGE>
in the outstanding Taylor Class A Shares by the following percentage: 2.0%
multiplied by a fraction, the numerator of which is the entire contingent
consideration payable to the shareholders and the denominator of which is $4.0
million. If the entire amount of contingent consideration is paid to the former
Taylor shareholders, Digital Electronics' ownership interest in Taylor will be
decreased to 35.0% and the Company's interest will be increased to 65.0%.
To provide additional financing for the Taylor Transaction, the Company
borrowed $2.0 million from A.B. Siemer, a director and significant shareholder
of the Company, pursuant to a promissory note dated as of September 19, 1996.
The outstanding principal amount under this note is due and payable on the
earlier of September 19, 1999, or ten days after the closing of an initial
public offering of any class of capital stock of the Company. The unpaid
principal balance of this note bears interest at a rate equal to 20.0% per
annum, 13.0% of which is payable in cash and 7.0% of which is payable in shares
of Common Stock of the Company, valued at $5.00 per share, with a minimum of
27,999 shares issuable even if the note is paid in the first year. The cash
portion of accrued and unpaid interest is due and payable monthly after December
31, 1996, while the stock portion of accrued and unpaid interest is due and
payable on the last day of each calendar year beginning on December 31, 1997.
The Company will use a portion of the net proceeds of this offering to repay
this note in full.
The Taylor Transaction was accounted for under the purchase method of
accounting. For a further discussion of the accounting treatment of the Taylor
Transaction and certain accounting charges in connection therewith, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
CINCINNATI TRANSACTION
In January 1996, a wholly owned subsidiary of the Company merged with
Cincinnati. As consideration for the transaction, the shareholders of Cincinnati
received $499,990 in cash and the right to receive contingent consideration as
described below. In addition, the majority shareholder of Cincinnati received
150,003 shares of the Company's Common Stock. Under the terms of this
transaction, the former majority shareholder of Cincinnati has the right after
January 29, 1998 to require the Company to purchase all, but not less than all,
of the 150,003 shares issued to him for their then fair market value. This
shareholder has agreed to waive this right effective upon the closing of this
offering.
As additional contingent consideration, the former shareholders of
Cincinnati are entitled to the payment of certain contingent consideration. To
the extent sales of Cincinnati products and certain similar products of the
Company during calendar years 1996 and 1997 exceed Cincinnati's historical sales
volume, the Company will pay the former Cincinnati shareholders an amount equal
to 10.0% of the first $1.0 million of such excess, and 4.0% of any additional
excess. All payments of such contingent consideration to the former majority
shareholder for calendar years 1996 and 1997 shall be paid in shares of Common
Stock, valued at their then fair market value. To the extent net sales of the
Company in calendar years 1998, 1999 and 2000 exceed certain base targets, the
former majority shareholder of Cincinnati will receive 1.25% of such excess,
50.0% of which shall be paid in cash and 50.0% of which shall be paid in shares
of Common Stock, valued at their then fair market value. The Company may, at its
election, buy-out the payments of future contingent consideration due to the
former majority shareholder for calendar years 1998, 1999 and 2000. The
specified payments range from $2.0 million to $1.0 million depending on the
timing of such a buy-out.
Pursuant to a registration rights agreement entered into in connection with
the Cincinnati Transaction, the Company granted certain piggy-back registration
rights to the former majority shareholder with respect to the shares of Common
Stock issued to him. See "Shares Eligible for Future Sale -- Registration
Rights."
The Cincinnati Transaction was accounted for under the purchase method of
accounting. For a further discussion of the accounting treatment of the
Cincinnati Transaction and certain accounting charges in connection therewith,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
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<PAGE>
CERTAIN TRANSACTIONS
The Company is a party to a lease agreement, dated March 26, 1992, as
amended in December, 1996, with J&N Partnership, an Illinois general partnership
owned by Messrs. Sparacino and Gihl and Mr. Sparacino's sons and daughter (Mr.
Gihl's spouse), pursuant to which the Company leases its principal 39,000 square
foot office and manufacturing facility located in Melrose Park, Illinois. Annual
rent under the lease is $144,000 plus property taxes, insurance and utilities,
and the lease terminates in April 2002. The Company has also agreed pursuant to
the terms of the lease agreement to pay all expenses relating to occupancy and
maintenance of the leased premises.
At October 31, 1996, the Company was indebted to Mr. Sparacino, the
Company's co-founder and Chairman Emeritus, in the amount of $200,000, reflected
by an unsecured promissory note bearing interest at a rate equal to 10.0% per
annum. All principal and interest on this note is payable in December 1997.
At October 31, 1996, Mr. Gihl, an executive officer and significant
shareholder of the Company, was indebted to the Company in the amount of
$186,000 pursuant to two promissory notes bearing interest at a rate per annum
equal to 1.0% above the prime rate, maturing on December 16, 1998. Interest is
being accrued quarterly under these notes, and all amounts outstanding under
these notes are secured by a pledge of Mr. Gihl's shares of Common Stock.
The Company purchases all of the flat panel display screens that are the
principal hardware component incorporated in its graphics-based operator
interface product line from Digital Electronics, which owns 380,001 shares of
Common Stock, representing 7.9% of the outstanding Common Stock, and owns 39.0%
of the Taylor Class A Shares. Keizo Wada, the President and Chairman of Digital
Electronics, owns 18,000 shares of the Common Stock of the Company. Hardware
purchases by the Company from Digital Electronics totaled $3.1 million, $6.2
million, $8.8 million and $6.0 million for fiscal 1994, 1995 and 1996 and the
seven months ended October 31, 1996, respectively. Mr. Gihl is a member of the
Board of Directors of Digital Electronics. See "Risk Factors -- Dependence Upon
Digital Electronics Corporation."
In December 1996, Taylor entered into a two-year consulting agreement with
Digital Electronics whereby Digital Electronics has agreed to provide certain
product development and marketing consulting services to Taylor in exchange for
compensation of $200,000 per year. This agreement terminates in November 1998.
For information regarding certain transactions between the Company, Taylor,
Mr. Siemer and Digital Electronics in connection with the Taylor Transaction,
see "Recent Acquisitions -- Taylor Transaction."
Pursuant to a distribution agreement dated April 1, 1995, the Company has
the exclusive right to market and distribute in North and South America all of
Digital Electronics' hardware products. The distribution agreement expires on
April 1, 2005.
On July 22, 1994, Moritani America, Inc. ("Moritani America") and Digital
Electronics each purchased 125,001 shares of Common Stock of the Company for a
purchase price of $125,000 with a total of 250,002 shares of Common Stock being
sold for an aggregate purchase price of $250,000. Moritani America (which,
together with its parent, Moritani & Co., owns an aggregate of 291,501 shares of
the Company's Common Stock) acts as the import broker of Digital Electronics'
products on behalf of the Company. Under the terms of this transaction, Moritani
America and Digital Electronics have the right to require the Company at any
time to purchase all, but not less than all, of the shares purchased by each of
them under this transaction for a price equal to the lesser of (i) the original
purchase price, or (ii) the net book value per share as reflected on the
Company's consolidated balance sheet for the fiscal quarter most recently
completed. Moritani America and Digital Electronics have agreed to waive this
right effective upon the closing of this offering.
42
<PAGE>
In November 1995, the Company purchased a 40.0% interest in ProFace, N.V., a
joint venture among the Company, Digital Electronics and Moritani America
("Pro-Face"). ProFace, an industrial automation products distributor located in
the Netherlands, distributes the Company's and Digital Electronics' products in
Europe. This investment is accounted for by the Company under the equity method.
ProFace did not have significant operations during fiscal 1996. For the seven
months ended October 31, 1996, the Company's share of net earnings of the joint
venture was $79,000.
Neil Taylor, a director of the Company and its Senior Vice President of
Software Development, together with his wife, received a $2.2 million note,
$3,453,564 in cash, 575,334 Taylor Exchangeable Shares and the right to receive
certain contingent consideration in connection with the Taylor Transaction.
Prior to the Taylor Transaction, Neil Taylor and his wife loaned Taylor an
aggregate of $233,000. These loans bear interest at the Canadian prime rate. The
Company will repay this indebtedness with a portion of the proceeds of this
offering. See "Recent Acquisitions -- Taylor Transaction."
On December 16, 1993, the Company sold 1,204,653 shares of its Common Stock
to Mr. Siemer for a purchase price of $1.0 million. The agreement relating to
this purchase provides, among other things, that if the Company fails to effect
an initial public offering of its Common Stock or sale of the Company prior to
December 16, 1998, Mr. Siemer may require the Company to repurchase such
1,204,653 shares at their then fair market value. This right will terminate upon
the effectiveness of this offering. In connection with this transaction, the
Company entered into a shareholder agreement among the Company, Mr. Siemer and
the Company's other shareholders, pursuant to which, among other things, the
shareholders of the Company granted certain voting rights to Mr. Siemer. For so
long as Mr. Siemer owns a majority of the shares purchased in the transaction,
each of the shareholders agreed to vote all shares owned by them in favor of Mr.
Siemer's nominee to the Board of Directors. In addition, the shareholders agreed
to reciprocal rights of first refusal in the event of a proposed transfer of
shares and to certain preemptive rights with respect to the issuances of new
securities by the Company. The shareholder agreement and the rights granted to
Mr. Siemer pursuant to his stock purchase agreement will automatically terminate
upon the effectiveness of the registration statement filed in connection with
this offering. Mr. Siemer also holds certain registration rights with respect to
his shares of Common Stock. See "Description of Capital Stock -- Registration
Rights."
In July 1996, a company controlled by Mr. Siemer purchased from the Company
certain inventory and manufacturing rights relating to a text-based operator
interface product line for approximately $45,000. In addition, the Company and
Mr. Siemer have agreed to purchase arrangements permitting the company
controlled by Mr. Siemer to purchase designated Company products from time to
time at a prescribed mark-up from the Company's cost.
For information regarding other transactions between Mr. Siemer and the
Company, see "Recent Acquisitions -- Taylor Transaction."
The Company's Board of Directors has adopted a policy that any future
transactions between the Company and its officers, directors, affiliates or
controlling shareholders will be on terms which are considered to be no less
favorable to the Company than those obtainable in arm's length transactions with
unaffiliated third parties and must be approved by a majority of the
disinterested directors.
43
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of October 31, 1996 (after giving effect to the
Debenture Conversion and the PIK Issuance), and as adjusted to reflect the sale
of the shares offered pursuant to this Prospectus, by (i) each Named Executive
Officer, (ii) each director and director nominee of the Company, (iii) all
executive officers and directors as a group, (iv) each person who is known by
the Company to own beneficially more than 5.0% of the outstanding Common Stock
and (v) each Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OFFERING(2)
------------------------------ OF SHARES -------------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
---------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR
NOMINEES(3)
- ---------------------------------------------------
Nicholas T. Gihl................................... 647,700(4) 12.4% -- 647,700 9.4%
Dennis Marrano..................................... 80,148(5) 1.5 -- 80,148 1.2
Peter A. Nicholson................................. -- -- -- -- --
Kevin O'Connor..................................... 99,594 (6) 1.9 -- 99,594 1.4
Neil R. Taylor..................................... 575,334 (7) 9.9 -- 575,334 7.7
Frank Wood......................................... 52,800 (8) 1.0 -- 52,800 *
Julius J. Sparacino................................ 1,826,721 (9) 35.1 499,000 1,327,721 19.4
A.B. Siemer........................................ 1,232,652 10) 23.7 250,000 982,652 14.3
Edward T. Hurd..................................... -- -- -- -- --
Donald J. Kramer................................... -- -- -- -- --
All executive officers, directors and director
nominees as a group (10 persons)................. 4,514,949 11) 75.2 749,000 3,765,949 49.2
OTHER FIVE PERCENT SHAREHOLDERS
- ---------------------------------------------------
Digital Electronics Corporation.................... 398,001 12) 7.6 -- 398,001 5.8
8-2-52 Nanko-Higashi
Suminoe-ku, Osaka, 559 Japan
Moritani & Co., Ltd................................ 291,501 13) 5.6 -- 291,501 4.3
1-4-22 Yaesu, Chuo-Ku
Tokyo, 104 Japan
F. Quinn Stepan.................................... 357,738 14) 6.9 240,000 117,738 1.7
200 Linden Street
Winnetka, Illinois 60093
OTHER SELLING SHAREHOLDERS
- ---------------------------------------------------
Dennis Radage...................................... 191,778 3.6 96,000 95,778 1.4
John Sheridan...................................... 150,003 2.8 15,000 135,003 2.0
</TABLE>
- --------------
* Less than 1%.
(1) Unless otherwise indicated in the footnotes to this table, the Company
believes the individuals named in this table have sole voting and investment
power with respect to all shares of Common Stock reflected in this table.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Unless otherwise indicated, address is c/o Total Control Products, Inc.,
2001 North Janice Avenue, Melrose Park, Illinois 60160.
(4) Includes 575,700 shares held directly by Mr. Gihl, and 72,000 shares held
directly by Mr. Gihl's spouse.
44
<PAGE>
(5) Includes 15,000 shares owned by Mr. Marrano, and 65,148 shares issuable upon
the exercise of options exercisable within 60 days after October 31, 1996.
(6) Represents 99,594 shares issuable upon the exercise of options, all of which
are currently exercisable.
(7) Represents 513,966 shares issuable upon the conversion of Mr. Taylor's
Taylor Exchangeable Shares, and 61,368 shares issuable upon the conversion
of Taylor Exchangeable Shares owned by Mr. Taylor's spouse. Mr. Taylor
disclaims beneficial ownership of the shares issuable upon the conversion of
Taylor Exchangeable Shares owned by his spouse.
(8) Represents 52,800 shares issuable upon the exercise of options, all of which
will become exercisable upon the closing of this offering.
(9) Does not include an aggregate of 360,000 shares owned by Mr. Sparacino's
children.
(10) Includes 1,204,653 shares owned by Mr. Siemer, and 27,999 shares issuable
to Mr. Siemer upon the PIK Issuance.
(11) Includes the shares identified in Notes (4) through (10) above.
(12) Includes 18,000 shares owned by Keizo Wada, the President of Digital
Electronics Corporation.
(13) Includes 18,372 shares owned by Moritani America.
(14) Includes 18,372 shares owned by Mr. Stepan, and 339,366 shares issuable to
Mr. Stepan upon the Debenture Conversion.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 22,500,000 shares of
Common Stock, no par value per share, and 1,000,000 shares of Preferred Stock,
no par value per share. Immediately prior to the closing of this offering, after
giving effect to the Taylor Conversion, the PIK Issuance and the Debenture
Conversion, there will be 5,974,428 shares of Common Stock issued and
outstanding and held by 17 shareholders of record. Upon the closing of this
offering, there will be no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters on which shareholders are entitled or
permitted to vote. Such holders may not cumulate votes in the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all the directors
standing for election. The holders of Common Stock are entitled to receive such
dividends as may lawfully be declared by the Board of Directors out of funds
legally available therefor and to share pro rata in any other distribution to
the holders of Common Stock, subject to any preferential dividend rights of any
Preferred Stock then outstanding. See "Dividend Policy." The holders of Common
Stock are entitled to share ratably in the assets of the Company remaining after
payment of liabilities in the event of any liquidation, dissolution or winding
up of the affairs of the Company, subject to the prior rights of any Preferred
Stock then outstanding. The holders of Common Stock have no preemptive rights.
There are no conversion rights, redemption or sinking fund provisions or fixed
dividend rights with respect to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable, and the shares of Common Stock
to be issued in this offering, upon payment therefor, will be fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the Board of Directors,
without shareholder approval, to issue shares of Preferred Stock in classes or
series and to establish the designations, preferences, qualifications,
limitations or restrictions of any class or series with respect to the rate and
nature of dividends, the price and terms and conditions on which shares may be
redeemed, the terms and conditions for conversion or exchange into any other
class or series of the stock, voting rights and other terms. The Company may
issue, without approval of the holders of Common Stock, shares of Preferred
Stock which have voting, dividend or liquidation rights superior to the shares
of Common Stock and which may adversely affect the rights of holders of shares
of Common Stock. The issuance of shares of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of shares of Common Stock and could have the effect of discouraging,
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any shares of Preferred Stock.
TAYLOR EXCHANGEABLE SHARES
As part of the Taylor Transaction, the Company caused Taylor to issue
767,112 shares of Class C Exchangeable Shares to the former shareholders of
Taylor (the "Taylor Exchangeable Shares"). The Taylor Exchangeable Shares have
no voting rights or any right to dividends or distributions or to share in the
assets of Taylor upon its liquidation. Each Taylor Exchangeable Share is
convertible at any time into one share of Common Stock of the Company.
46
<PAGE>
CONVERTIBLE SUBORDINATED DEBENTURE
In September 1987, the Company issued a 6.0% Convertible Subordinated
Debenture to a shareholder of the Company in the principal amount of $300,000
(the "Convertible Debenture"). Interest is payable monthly on the outstanding
principal amount of the Convertible Debenture at a rate of 6.0% per annum. At
any time prior to December 1, 1997, the holder of the Convertible Debenture may
convert all or part of the principal balance thereunder into Common Stock at a
price of $0.74 per share. In June 1996, the shareholder converted $50,000 of the
Convertible Debenture into 67,872 shares of Common Stock. The shareholder
holding the Convertible Debenture has agreed that, upon the closing of this
offering, the outstanding balance of the Convertible Debenture will be converted
into 339,366 shares of Common Stock.
CERTAIN STATUTORY PROVISIONS
The Company is subject to Section 7.85 of the Business Corporation Act of
Illinois ("Section 7.85"). Section 7.85 prohibits a publicly held Illinois
corporation from engaging in a "business combination" with an "interested
shareholder," unless the proposed "business combination" receives (i) the
affirmative vote of the holders of at least 80% of the combined voting power of
the then outstanding shares of all classes and series of the corporation
entitled to vote generally in the election of directors (the "Voting Shares")
voting together as a single class, and (ii) the affirmative vote of a majority
of the combined voting power of the then outstanding Voting Shares held by
disinterested shareholders voting together as a single class. For purposes of
Section 7.85, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested shareholder, and
an "interested shareholder" is a person who, together with affiliates and
associates, owns (or within two years, did own) 10% or more of the combined
voting power of the outstanding Voting Shares.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Articles of Incorporation and By-laws contain a number of
provisions related to corporate governance and to the rights of shareholders. In
particular, the Company's By-laws provide that shareholders follow an advance
notification procedure for certain shareholder nominations of candidates for the
Board of Directors and for certain other shareholder business to be conducted at
any meeting of the shareholders. The existence of these provisions in the
Company's Articles of Incorporation and By-laws may have the effect of
discouraging a change in control of the Company and limiting shareholder
participation in certain transactions or circumstances by limiting shareholders'
participation to annual and special meetings of shareholders and making such
participation contingent upon adherence to certain prescribed procedures. The
affirmative vote of the holders of at least 75% of the outstanding voting stock
is required to amend the Articles of Incorporation.
In addition, the Company's Articles of Incorporation and By-laws provide
that the number of directors of the Company will be fixed at six, and unless the
Board of Directors otherwise determines, a majority of the directors then in
office may fill any vacancies on the Board of Directors. Certain provisions of
the Company's Articles of Incorporation and By-laws may impede changes in
majority control of the Board of Directors. The Company's Articles of
Incorporation provide that the Board of Directors will be divided into three
classes, with directors in each class elected for three-year staggered terms.
Thus, it would take two annual elections to replace a majority of the Company's
Board of Directors. The Articles of Incorporation further provide that directors
may be removed prior to the expiration of their terms only for cause, and that
there are no cumulative voting rights in the election of directors. The By-laws
of the Company provide that any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, shall be
filled for the remainder of the unexpired term by a majority vote of the
directors then in office.
47
<PAGE>
As discussed above under "Preferred Stock," the Articles of Incorporation
authorize the creation and issuance of one or more series of Preferred Stock. In
the event of a proposed merger, tender offer or other attempt to gain control of
the Company that the Board of Directors does not approve, it might be possible
for the Board of Directors to authorize the issuance of a series of Preferred
Stock with rights and preferences that would impede the completion of such a
transaction. An effect of the possible issuance of Preferred Stock, therefore,
may be to deter a future takeover attempt. The Board of Directors has no present
plans or understanding for the issuance of any Preferred Stock.
The provisions of the Articles of Incorporation and the By-laws summarized
above may tend to deter any potential unsolicited or hostile takeover attempt or
other efforts to obtain control of the Company and thereby deprive some
shareholders of opportunities to sell shares of the Company at higher than
market prices.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that, to
the fullest extent provided under Illinois law, limit the liability of its
directors and officers for monetary damages arising from a breach of their
fiduciary duties as directors or officers. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission, nor does it limit liability for (i) any breach of an officer or
director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) a transaction from which an officer or director derives
an improper personal benefit or (iv) an unlawful distribution to the Company's
shareholders. The Company's By-laws provide that the Company shall indemnify its
directors to the fullest extent permitted by Illinois law, including
circumstances in which indemnification is otherwise discretionary to the Company
under Illinois law and permit the Company in its discretion to similarly
indemnify its officers, employees and agents.
There is no pending litigation or proceeding involving a director, officer,
employee or agent of the Company in which indemnification will be required or
permitted. The Company is not aware of any threatened litigation or proceeding
which may result in a claim for such indemnification.
REGISTRATION RIGHTS AGREEMENTS
Following this offering, the holders of certain shares of Common Stock will
have certain rights to cause the Company to register those shares under the
Securities Act of 1933, as amended (the "Securities Act"). By separate
agreements, these registration rights apply to the 954,653 shares held by A.B.
Siemer, the 135,003 shares held by the former majority shareholder of
Cincinnati, and the 671,112 shares issuable to the former shareholders of Taylor
upon the conversion of Taylor Exchangeable Shares (collectively, the "Rights
Holders"). All of such registration rights agreements provide that the Rights
Holders' registration rights are subject to certain notice requirements and to
the condition that, in the case of any piggyback registration rights, the
underwriters of any offering have the right to limit the number of shares
included in such registration. The Company has agreed to bear the expenses of
all registrations under these registration rights agreements, except for
underwriting discounts, selling commissions and underwriters' expense
allowances, which are to be paid by the respective Rights Holders.
Pursuant to his registration rights agreement with the Company, Mr. Siemer
was granted registration rights with respect to the 954,653 shares held by him.
At any time prior to June 1, 2003, Mr. Siemer, or the holders of 50.0% of the
shares originally purchased by Mr. Siemer, as the case may be, have the right to
require the Company to register all or part of such shares under the Securities
Act, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. The Company is only
required to pay the cost for one such demand registration. In addition, Mr.
Siemer's registration rights agreement provides that in the event the Company
proposes to register any of its
48
<PAGE>
securities under the Securities Act at any time, Mr. Siemer will be entitled to
include all or a portion of such shares in such registration, subject to certain
exceptions. See "Certain Transactions."
In connection with the acquisition of Cincinnati, the Company granted
certain piggyback registration rights to the former majority shareholder with
respect to his 135,003 shares of Common Stock. In general, such registration
rights agreement provides that in the event the Company proposes to register any
of its securities under the Securities Act at any time after January 29, 1998,
the former majority shareholder will be entitled to include all or a portion of
his shares in such registration, subject to certain exceptions. Such
registration rights only apply in the case of a registration effective on or
after January 29, 1998.
Finally, as part of the Taylor Transaction, the Company granted certain
registration rights to the holders of Taylor Exchangeable Shares, exercisable
upon the conversion of such shares into shares of Common Stock of the Company.
Such rights are exercisable commencing seven months after the effective date of
an initial public offering of any class of the Company's securities, and expire
five years thereafter. The former shareholders of Taylor are entitled to require
the Company, on up to four occasions during such period, to register all or a
portion of such shares under the Securities Act, provided that the amount of
stock to be offered in such registrations must constitute over 2% of the
Company's outstanding Common Stock and have a fair market value over $1.0
million. If the holding period for any Taylor Exchangeable Shares is determined
by the Company to be not identified with the holding period under Rule 144(d)
under the Securities Act for the shares issuable upon conversion of the Taylor
Exchangeable Shares, then certain former shareholders of Taylor are entitled to
an aggregate of two additional demand registrations. The Company also granted to
the former shareholders of Taylor certain piggyback registration rights pursuant
to which, in the event the Company proposes to register any of its securities
under the Securities Act at any time, except in the Company's initial public
offering, such holders will be entitled to include all or a portion of their
shares in such registration, subject to certain exceptions. Finally,
registration rights for any of such shares subject to the registration rights
agreement expire once the holder of such shares is permitted to transfer all of
his shares in any three month period pursuant to Rule 144 under the Securities
Act.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock will be
.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
7,624,428 shares of Common Stock. Of these shares, the 2,750,000 shares of
Common Stock sold in this offering will be freely tradeable without restriction
under the Securities Act except for any shares purchased by "affiliates" of the
Company (as that term is defined in Rule 144 under the Securities Act), which
may generally only be sold in compliance with Rule 144.
The remaining 4,839,951 shares (the "Restricted Shares") were issued and
sold by the Company in private transactions in reliance upon exemptions under
the Securities Act. Restricted Shares generally may be sold in the public market
only if registered under the Securities Act or sold in compliance with Rule 144.
Of the Restricted Shares, 288,000 shares will be eligible for sale in the
public market in reliance on Rule 144(k) immediately following the closing of
this offering; all of these shares are subject to the lock-up agreements
described below. An additional 3,195,076 Restricted Shares will be eligible for
sale in the public market pursuant to Rule 144 and Rule 701 under the Securities
Act beginning approximately 90 days after the date of this Prospectus; all of
these shares are subject to the lock-up agreements described below.
Each executive officer, director and director nominee and all of the current
shareholders of the Company, who will, upon the closing of this offering, hold
an aggregate of 5,974,428 shares of Common Stock, together with the holders of
stock options to purchase an aggregate of 325,122 shares of Common Stock, have
agreed that they will not, without the prior written consent of Adams, Harkness
& Hill, Inc., offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock owned beneficially by them, other than as a bona fide gift or
gifts to or in trust for a person or entity who or which agrees in writing to be
bound by the foregoing restrictions, for a period of 180 days after the date of
this Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates of the
Company, whose Restricted Shares have been fully paid for and held for at least
two years from the later of the date of issuance by the Company or acquisition
from an affiliate of the Company, may sell such securities in brokers'
transactions or directly to market makers beginning approximately 90 days after
the date of this Prospectus, provided the number of shares sold in any
three-month period does not exceed the greater of 1% of the then outstanding
shares of the Common Stock (approximately 76,240 shares, based on the number of
shares to be outstanding after this offering) or the average weekly trading
volume in the public market during the four calendar weeks preceding the filing
of the seller's Form 144. Sales under Rule 144 are also subject to certain
notice of sale requirements and the availability of current public information
concerning the Company. After three years have elapsed from the later of the
issuance of Restricted Shares by the Company or their acquisition from an
affiliate of the Company, such shares may be sold without limitation, pursuant
to Rule 144(k), by persons who have not been affiliates of the Company for at
least three months. Rule 144 also provides that affiliates who are selling
shares that are not Restricted Shares must nonetheless comply with the same
restrictions applicable to Restricted Shares with the exception of the holding
period requirement.
Restricted Shares that have been issued in reliance on Rule 701 (such as
shares of Common Stock issued under the Company's 1993 Stock Option Plan) may be
resold by persons other than affiliates of the Company, beginning approximately
90 days after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and may be resold by affiliates of the Company under
Rule 144 without compliance with its two-year holding period requirement.
Rule 144A under the Securities Act would permit, subject to certain
conditions, the sale by the current holders of Restricted Shares of all or a
portion of their shares to certain "qualified institutional buyers," as defined
in Rule 144A.
50
<PAGE>
Certain shareholders of the Company hold registration rights. See
"Description of Capital Stock -- Registration Rights Agreements."
At October 31, 1996, the Company had outstanding options for 325,122 shares
of Common Stock, of which 95,544 were then exercisable (all of which are subject
to lock-up agreements). No sooner than 180 days after the date of this
Prospectus, the Company intends to file Form S-8 registration statements under
the Securities Act to register all shares of Common Stock issuable under its
stock plans. Those registration statements will become effective immediately
upon filing. Shares issued pursuant to those registration statements will be
eligible for resale in the public market, subject to the Rule 144 limitations
applicable to affiliates of the Company.
Prior to this offering there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial numbers of shares of Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through a sale of its equity securities.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Adams,
Harkness & Hill, Inc. and A.G. Edwards & Sons, Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Shareholders, the respective numbers of shares of
Common Stock set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
Adams, Harkness & Hill, Inc............................................................
A.G. Edwards & Sons, Inc...............................................................
---------------
Total.............................................................................. 2,750,000
---------------
---------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all shares offered hereby, if any
are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 412,500
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,750,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments in connection with the sale of the 2,750,000 shares of Common
Stock offered hereby.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Adams, Harkness & Hill,
Inc., except for the shares of Common Stock offered hereby and except that
52
<PAGE>
the Company may issue securities pursuant to the Company's stock plans. The
Company's officers, directors and certain other holders of Common Stock,
including the Selling Shareholders, who will hold in the aggregate 5,974,428
shares of Common Stock following the offering, have agreed with the Underwriters
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock owned beneficially by them, other than as a bona fide gift or gifts
to or in trust for a person or entity who or which agrees in writing to be bound
by the foregoing restrictions, for a period of 180 days after the date of this
Prospectus, without the prior written consent of Adams, Harkness & Hill, Inc.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance, estimates of
the business potential and earnings prospects of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
Application has been made to have the Common Stock approved for quotation
and trading on the Nasdaq National Market under the symbol "TCPS."
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by D'Ancona & Pflaum, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Hale and Dorr, Boston,
Massachusetts.
EXPERTS
The Consolidated Financial Statements of the Company and its subsidiaries
included in this Prospectus and elsewhere in this Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports. The
Consolidated Financial Statements of Taylor and its subsidiaries included in
this Prospectus and elsewhere in this Registration Statement have been audited
by Price Waterhouse, Chartered Accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report. The Financial Statements of Cincinnati
included in this Prospectus and Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at
53
<PAGE>
Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies may be obtained at prescribed rates from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and to furnish or make available
quarterly reports for the first three fiscal quarters of each fiscal year
containing certain unaudited interim financial information.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------------
<S> <C>
Total Control Products, Inc. and Subsidiaries:
Report of Independent Public Accountants...................................................... F-2
Consolidated Balance Sheets as of March 31, 1995 and 1996 and October 31, 1996 (unaudited) and
Pro Forma October 31, 1996 (unaudited)...................................................... F-3
Consolidated Statements of Operations for the Years Ended March 31, 1994, 1995 and 1996 and
the Seven Months Ended October 31, 1995 and 1996 (unaudited)................................ F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended March 31, 1994,
1995 and 1996 and the Seven Months Ended October 31, 1996 (unaudited)....................... F-6
Consolidated Statements of Cash Flows for the Years Ended March 31, 1994, 1995 and 1996 and
the Seven Months Ended October 31, 1995 and 1996 (unaudited)................................ F-7
Notes to Consolidated Financial Statements.................................................... F-9
Taylor Industrial Software, Inc.:
Report of Independent Public Accountants...................................................... F-28
Consolidated Balance Sheets as of March 31, 1995 and 1996..................................... F-29
Consolidated Statements of Operations and Retained Earnings for the Years Ended March 31,
1994, 1995 and 1996......................................................................... F-30
Consolidated Statements of Changes in Financial Position for the Years Ended March 31, 1994,
1995 and 1996............................................................................... F-31
Notes to Consolidated Financial Statments..................................................... F-32
Unaudited Condensed Consolidated Statements of Operations for the Six Months Ended September
26, 1995 and 1996........................................................................... F-42
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended September
26, 1995 and 1996........................................................................... F-43
Notes to Unaudited Condensed Consolidated Financial Statements................................ F-44
Cincinnati Dynacomp, Inc.:
Report of Independent Public Accountants...................................................... F-45
Statements of Operations for the Years Ended March 31, 1994 and 1995.......................... F-46
Statements of Cash Flows for the Years Ended March 31, 1994 and 1995.......................... F-47
Notes to Financial Statements................................................................. F-48
Unaudited Condensed Statements of Operations for the Ten Months Ended January 29, 1995 and
1996........................................................................................ F-52
Unaudited Condensed Statements of Cash Flows for the Ten Months Ended January 29, 1995 and
1996........................................................................................ F-53
Notes to Unaudited Condensed Financial Statements............................................. F-54
Unaudited Pro Forma As Adjusted Condensed Consolidated Financial Statements:
Unaudited Pro Forma As Adjusted Condensed Consolidated Financial Statements................... F-55
Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of Operations for the Year
Ended March 31, 1996........................................................................ F-56
Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of Operations for the Seven
Months Ended October 31, 1996............................................................... F-57
Notes to Unaudited Pro Forma As Adjusted Condensed Consolidated Financial Statements.......... F-58
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Total Control Products, Inc.:
We have audited the accompanying consolidated balance sheets of Total
Control Products, Inc. (an Illinois Corporation) and Subsidiary as of March 31,
1995 and 1996 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended March 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals 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 financial position of Total Control Products, Inc.
and Subsidiary as of March 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 22, 1996
F-2
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1995 1996
------------ ------------- OCTOBER 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 61,516 $ 19,058 $ 322,869
Trade receivables, net of allowance of $38,000 and $40,000 March
31, 1995 and 1996, respectively, and $90,000 at October 31,
1996............................................................ 2,692,084 4,949,696 6,587,954
Inventory......................................................... 3,642,576 5,915,393 7,934,108
Prepaid and deferred expenses:
Taxes........................................................... 99,493 460,310 1,282,377
Other........................................................... 189,328 326,052 494,774
------------ ------------- -------------
Total current assets.......................................... 6,684,997 11,670,509 16,622,082
------------ ------------- -------------
Property and equipment, net......................................... 537,602 1,435,254 2,161,623
Other assets:
Assets held for sale.............................................. -- -- 4,745,069
Goodwill, net..................................................... -- 1,959,523 4,363,124
Investment in foreign joint venture............................... -- 241,911 311,492
Receivable from officer........................................... 163,434 177,926 185,905
Other long-term assets............................................ 197,662 498,198 654,944
------------ ------------- -------------
Total other assets............................................ 361,096 2,877,558 10,260,534
------------ ------------- -------------
$ 7,583,695 $ 15,983,321 $ 29,044,239
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 31,
MARCH 31, -----------------------------
--------------------------- PRO FORMA
1995 1996 1996 1996 (NOTE 1)
------------ ------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt.............. $ 10,345 $ 95,110 $ 117,386 $ 117,386
Notes payable:
Bank............................................ 750,000 -- -- --
Related parties................................. -- 150,000 3,433,330 5,433,330
Other........................................... -- 187,878 574,091 574,091
Accounts payable.................................. 1,519,226 2,674,886 2,733,092 2,733,092
Accrued expenses:
Income taxes.................................... 297,470 119,893 10,379 10,379
Commissions..................................... 220,370 314,000 448,236 448,236
Payroll......................................... 66,973 185,476 725,833 725,833
Other........................................... 230,782 552,451 1,022,930 882,930
Deferred revenue.................................. -- -- 1,156,336 1,156,336
------------ ------------- ------------- --------------
Total current liabilities..................... 3,095,166 4,279,694 10,221,613 12,081,613
------------ ------------- ------------- --------------
Long-term liabilities:
Notes payable to bank............................. -- 5,650,000 7,032,558 7,032,558
Long-term debt, net of current maturities:
Related parties................................. 200,000 200,000 2,200,000 200,000
Other........................................... 300,000 351,343 343,066 93,066
Other............................................. 80,000 97,947 -- --
------------ ------------- ------------- --------------
Total long-term liabilities................... 580,000 6,299,290 9,575,624 7,325,624
------------ ------------- ------------- --------------
Commitments and contingencies (Note 6)
Minority interest in subsidiary..................... -- -- 1,542,931 1,542,931
Redeemable common stock:
Common stock, no par value; 22,500,000 shares
authorized; 1,454,655, 1,604,658, and 1,604,658
shares outstanding at March 31, 1995 and 1996
and October 31, 1996, respectively, at estimated
redemption value................................ 1,454,653 3,560,867 8,461,513 --
Class C Exchangeable common stock of subsidiary,
no par value; unlimited shares authorized;
767,112 shares outstanding...................... -- -- 4,710,000 --
Shareholder's equity (deficit):
Common stock, no par value; 22,500,000 shares
authorized; 3,167,421, 3,167,421, 3,235,293 and
5,207,316 shares issued and outstanding at March
31, 1995 and 1996 and October 31, 1996 actual
and pro forma, respectively..................... 515,093 515,093 565,093 9,416,606
Class C Exchangeable common stock of subsidiary,
no par value; unlimited shares authorized;
767,112 shares issued and outstanding at October
31, 1996 pro forma.............................. -- -- -- 4,710,000
Retained earnings (deficit)......................... 1,938,783 1,329,819 (6,022,658) (6,022,658)
Foreign currency translation adjustment............. -- (1,442) (9,877) (9,877)
------------ ------------- ------------- --------------
Total shareholders' equity (deficit).......... 2,453,876 1,843,470 (5,467,442) 8,094,071
------------ ------------- ------------- --------------
$ 7,583,695 $ 15,983,321 $ 29,044,239 $ 29,044,239
------------ ------------- ------------- --------------
------------ ------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED MARCH 31, ENDED OCTOBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $11,722,671 $17,062,669 $25,742,519 $13,486,331 $21,240,163
Cost of goods sold........................... 6,303,702 9,689,079 15,369,820 8,078,878 11,639,159
----------- ----------- ----------- ----------- -----------
Gross profit........................... 5,418,969 7,373,590 10,372,699 5,407,453 9,601,004
Operating expenses:
Sales and marketing........................ 2,903,536 3,486,465 4,988,962 2,615,820 4,369,858
Research and development................... 1,188,162 1,516,604 1,951,515 1,028,707 1,861,782
General and administrative................. 1,167,075 1,237,740 1,601,607 754,750 2,049,743
Change in estimated useful life of software
development costs........................ 465,852 -- -- -- --
Charge for purchased research and
development.............................. -- -- -- -- 4,893,000
----------- ----------- ----------- ----------- -----------
Income (loss) from operations.......... (305,656) 1,132,781 1,830,615 1,008,176 (3,573,379)
Other income (expense):
Interest expense, net...................... (95,726) (69,816) (189,864) (58,498) (378,647)
Earnings in foreign joint venture.......... -- -- -- -- 78,907
Other income(expense), net................. (492) (93,541) 21,489 19,489 (3,320)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest.................... (401,874) 969,424 1,662,240 969,167 (3,876,439)
Provision for (benefit from) income taxes.... (155,000) 247,200 665,000 400,000 346,000
----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest....... (246,874) 722,224 997,240 569,167 (4,222,439)
Minority interest in loss of subsidiary...... -- -- -- -- 1,830,608
----------- ----------- ----------- ----------- -----------
Net income (loss)............................ (246,874) 722,224 997,240 569,167 (2,391,831)
Accretion to redemption value of common
stock...................................... (75,547) (208,037) (1,606,204) (1,124,343) (4,960,646)
----------- ----------- ----------- ----------- -----------
Net income (loss) available to common
shareholders............................... $ (322,421) $ 514,187 (608,964) $ (555,176) (7,352,477)
----------- ----------- -----------
----------- ----------- -----------
Pro forma (Note 1)(unaudited):
Accretion to redemption value eliminated as
a result of the completion of initial
public offering.......................... 1,606,204 4,960,646
Interest expense eliminated due to debt
conversion, net of tax benefit........... 9,000 5,250
----------- -----------
Pro forma net income (loss)................ $ 1,006,240 $(2,386,581)
----------- -----------
----------- -----------
Net income (loss) per share available to
shareholders............................... $ (0.07) $ 0.09 $ (0.11) $ (0.10) $ (1.30)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding.............. 4,343 5,972 5,633 5,633 5,673
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro forma net income (loss) per share........ $ 0.16 $ (0.40)
----------- -----------
----------- -----------
Pro forma weighted average number of common
and common equivalent shares outstanding... 6,107 6,042
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TOTAL CONTROL PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK,
CUMULATIVE, NO PAR
VALUE, 9%, SERIES A COMMON STOCK, NO PAR
VOTING, 40,000 VALUE, 22,500,000 SHARES
SHARES AUTHORIZED AUTHORIZED FOREIGN TOTAL
-------------------- ------------------------- RETAINED CURRENCY SHAREHOLDERS'
SHARES SHARES EARNINGS TRANSLATION EQUITY
ISSUED COST ISSUED COST (DEFICIT) ADJUSTMENT (DEFICIT)
--------- --------- ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1993...... 40,000 $ 1,379 2,912,535 $ 713,524 $ 1,772,517 $ -- $ 2,487,420
Repurchase of common
stock.................... -- -- (240,735) (199,810) -- -- (199,810)
Issuance of common stock in
exchange for preferred
stock.................... (40,000) (1,379) 495,621 1,379 -- -- --
Accretion of redeemable
common stock............. -- -- -- -- (75,547) -- (75,547)
Net loss for the year...... -- -- -- -- (246,874) -- (246,874)
Dividends on preferred
stock.................... -- -- -- -- (25,500) -- (25,500)
--------- --------- ----------- ------------ -------------- ------------ --------------
Balance, March 31, 1994...... -- -- 3,167,421 515,093 1,424,596 -- 1,939,689
Accretion of redeemable
common stock............. -- -- -- -- (208,037) -- (208,037)
Net income for the year.... -- -- -- -- 722,224 -- 722,224
--------- --------- ----------- ------------ -------------- ------------ --------------
Balance, March 31, 1995...... -- -- 3,167,421 515,093 1,938,783 -- 2,453,876
Accretion of redeemable
common stock............. -- -- -- -- (1,606,204) -- (1,606,204)
Net income for the year.... -- -- -- -- 997,240 -- 997,240
Foreign currency
translation loss......... -- -- -- -- -- (1,442) (1,442)
--------- --------- ----------- ------------ -------------- ------------ --------------
Balance, March 31, 1996...... -- -- 3,167,421 515,093 1,329,819 (1,442) 1,843,470
Accretion of redeemable
common stock
(unaudited).............. -- -- -- -- (4,960,646) -- (4,960,646)
Net loss for the period
(unaudited).............. -- -- -- -- (2,391,831) -- (2,391,831)
Foreign currency
translation loss
(unaudited).............. -- -- -- -- -- (8,435) (8,435)
Issuance of common stock
related to conversion of
subordinated debentures
(unaudited).............. -- -- 67,872 50,000 -- -- 50,000
--------- --------- ----------- ------------ -------------- ------------ --------------
Balance, October 31, 1996
(unaudited)................ -- $ -- 3,235,293 $ 565,093 $ (6,022,658) $ (9,877) $ (5,467,442)
--------- --------- ----------- ------------ -------------- ------------ --------------
--------- --------- ----------- ------------ -------------- ------------ --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED MARCH 31, ENDED OCTOBER 31,
------------------------------------------- -----------------------------
1994 1995 1996 1995 1996
------------ -------------- ------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period............ $ (246,874) $ 722,224 $ 997,240 $ 569,167 $ (2,391,831)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Minority interest in loss of subsidiary... -- -- -- -- (1,830,608)
Charge for purchased research and
development............................. -- -- -- -- 4,893,000
Depreciation and amortization............. 735,703 282,978 288,585 194,157 364,931
Earnings in foreign joint venture......... -- -- -- -- (78,907)
Credit for deferred income taxes.......... (247,000) (64,000) (34,000) -- --
(Gain) loss on sale of property and
equipment............................... (9,004) 1,717 (11,515) (5,743) --
Changes in operating assets and
liabilities:
Trade receivables....................... (224,370) (993,326) (1,365,948) (595,209) (43,713)
Inventory............................... (681,125) (1,026,260) (195,952) (697,989) (1,840,515)
Prepaid expenses and other assets....... 27,575 (54,831) (78,717) (146,402) 4,718
Accounts payable, accrued expenses and
other liabilities..................... 504,661 1,206,941 (10,628) 1,225,049 (690,287)
Deferred revenue........................ -- -- -- -- 211,002
------------ -------------- ------------- ------------- --------------
Net cash (used in) provided by
operating activities................ (140,434) 75,443 (410,935) 543,030 (1,402,210)
------------ -------------- ------------- ------------- --------------
Cash flows from investing activities:
Cash paid for businesses acquired, net...... -- -- (792,350) -- (5,725,788)
Investment in foreign joint venture......... -- -- (243,353) -- --
Purchases of property and equipment......... (246,291) (323,032) (851,985) (355,232) (373,499)
Purchases of other assets................... (78,560) (59,100) (52,512) (22,513) (30,613)
Proceeds from asset disposals............... 21,701 28,745 15,616 9,845 12,194
(Increase) decrease in receivable from
officer................................... 95,850 58,420 (14,492) (8,602) (7,979)
------------ -------------- ------------- ------------- --------------
Net cash used in investing
activities.......................... (207,300) (294,967) (1,939,076) (376,502) (6,125,685)
------------ -------------- ------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED MARCH 31, ENDED OCTOBER 31,
------------------------------------------- -----------------------------
1994 1995 1996 1995 1996
------------ -------------- ------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in notes payable to
bank...................................... (300,000) 50,000 2,336,073 50,000 1,094,747
Proceeds from issuance of debt.............. -- -- -- -- 3,000,000
Payments of debt............................ (50,123) (18,754) (28,520) (6,490) (263,041)
Proceeds from sale of common stock of
subsidiary................................ -- -- -- -- 4,000,000
Proceeds from sale of common
stock..................................... 924,453 246,616 -- -- --
Repurchase of common stock.................. (199,810) -- -- -- --
Dividends paid on preferred stock........... (12,000) (85,500) -- -- --
------------ -------------- ------------- ------------- --------------
Net cash provided by financing
activities.............................. 362,520 192,362 2,307,553 43,510 7,831,706
------------ -------------- ------------- ------------- --------------
Increase (decrease) in cash and cash
equivalents................................. 14,786 (27,162) (42,458) 210,038 303,811
Cash and cash equivalents, beginning of
period...................................... 73,892 88,678 61,516 61,516 19,058
------------ -------------- ------------- ------------- --------------
Cash and cash equivalents, end of period...... $ 88,678 $ 61,516 $ 19,058 $ 271,554 $ 322,869
------------ -------------- ------------- ------------- --------------
------------ -------------- ------------- ------------- --------------
Supplemental Disclosure:
Cash paid during the year for:
Income taxes.............................. $ 77,225 $ 153,958 $ 873,140 $ 496,250 $ 409,380
Interest.................................. $ 113,449 $ 86,653 $ 201,259 $ 72,993 $ 303,256
------------ -------------- ------------- ------------- --------------
------------ -------------- ------------- ------------- --------------
Noncash Investing and Financing Activities:
Issuance of common stock in exchange for
preferred stock........................... $ 1,379 $ -- $ -- $ -- $ --
Netting due to right of offset of principal
shareholder receivable and preferred
dividends payable......................... $ 18,833 $ -- $ -- $ -- $ --
Issuance of common stock related to business
acquired.................................. $ -- $ -- $ 500,010 $ -- $ --
Conversion of subordinated debentures into
67,872 shares of common stock............. $ -- $ -- $ -- $ -- $ 50,000
Issuance of 767,112 shares of Class C
Exchangeable common stock of subsidiary
and $2.2 million note in connection with
the business acquired..................... $ -- $ -- $ -- $ -- $ 6,850,000
------------ -------------- ------------- ------------- --------------
------------ -------------- ------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Total Control Products, Inc., an Illinois corporation, together with its
wholly owned subsidiary, Tara Products, Inc., d/b/a Total Control - Cincinnati,
an Illinois corporation, and its majority-owned subsidiary, Taylor Industrial
Software, Inc., an Alberta corporation ("Taylor"), (collectively the "Company"),
designs, develops and markets products and technology for the control segment of
the industrial automation marketplace.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Total Control
Products, Inc. and its wholly owned subsidiary since its acquisition on January
29, 1996 and its majority-owned subsidiary since its acquisition on September
26, 1996. In connection with the Taylor transaction, the Company sold 39% of the
Taylor Class A Shares to Digital Electronics Corporation ("Digital
Electronics"), located in Osaka, Japan, which is the Company's largest supplier
(see Note 11), for an aggregate purchase price of $4.0 million. As a result, a
minority interest for 39% of the net income or loss of Taylor is recorded on the
Company's statement of operations. The Company's ownership of Taylor Class A
Common Shares may increase up to 4% based on the amount of contingent
consideration paid by the Company in connection with the acquisition. All
intercompany items and transactions have been eliminated in consolidation.
Additionally, the Company accounts for its 40% ownership interest in a
foreign joint venture on the equity method.
(C) REVENUE RECOGNITION
Net sales include revenues from operator interface products, software
license fees, software maintenance and services. Revenue from product sales and
software licenses are recognized upon shipment of the product to customers,
provided that there are no significant obligations remaining and collectibility
of the revenue is probable. The Company provides for estimated product returns
upon shipment of the products. Revenue from software maintenance contracts is
recognized ratably as it is earned over the term of the contract, generally one
year. Unearned software maintenance revenue is included in deferred revenue.
Service revenue is recognized as the service is provided. The Company recognizes
revenue from software license fees, service and maintenance in accordance with
the provisions of the American Institute of Certified Public Accountants,
Statement of Position No. 91-1 (SOP 91-1), Software Revenue Recognition.
(D) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments (with
original maturities of three months or less), principally time deposits and
other short term securities which are stated at cost, which approximates fair
value.
F-9
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) TRADE RECEIVABLES
The following summarizes trade receivables allowance activity for fiscal
1994, 1995 and 1996:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
March 31, 1993.................................................................... $ 9,152
Increase to operating expense................................................... 47,602
Charge to allowance............................................................. (26,754)
----------
March 31, 1994.................................................................... 30,000
Increase to operating expense................................................... 70,312
Charge to allowance............................................................. (62,312)
----------
March 31, 1995.................................................................... 38,000
Increase to operating expense................................................... 58,842
Charge to allowance............................................................. (56,842)
----------
March 31, 1996.................................................................... $ 40,000
----------
----------
</TABLE>
(F) INVENTORY
Inventory is stated at the lower of first-in, first-out cost or market.
Inventory at March 31, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Raw materials............................................................. $ 1,506,917 $ 2,071,150
Work in process and finished goods........................................ 2,135,659 3,844,243
------------- -------------
Inventory............................................................. $ 3,642,576 $ 5,915,393
------------- -------------
------------- -------------
</TABLE>
(G) PROPERTY AND EQUIPMENT
Property and equipment are as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1995 1996
------------- ------------- OCTOBER 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.................................... $ 1,271,053 $ 2,245,366 $ 2,401,110
Furniture and fixtures..................................... 35,885 82,861 291,315
Leasehold improvements..................................... -- 52,619 111,740
------------- ------------- -------------
1,306,938 2,380,846 2,804,165
Less-- Accumulated depreciation and amortization........... (769,336) (945,592) (642,542)
------------- ------------- -------------
Property and equipment, net........................... $ 537,602 $ 1,435,254 $ 2,161,623
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-10
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expenditures for maintenance and repairs are expensed as incurred. Property
and equipment are stated at cost and are depreciated using the straight-line
method over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ASSET DESCRIPTION USEFUL LIFE
- ---------------------------------------------------------------------------- --------------------------
<S> <C>
Machinery and equipment..................................................... 3-10 Years
Furniture and fixtures...................................................... 5-10 Years
Leasehold improvements...................................................... Shorter of asset life or
life of lease
</TABLE>
(H) INTANGIBLE ASSETS
Intangible assets relating to acquired businesses consist primarily of the
cost of purchased businesses in excess of market value of net assets acquired
("goodwill"). Such goodwill is being amortized on a straight-line basis over a
period ranging from seven to fifteen years. The accumulated amortization of
intangible assets amounted to approximately $23,000 and $135,000 as of March 31,
1996 and October 31, 1996, respectively.
On an ongoing basis, the Company measures realizability of goodwill by the
ability of the acquired business to generate current and expected future
operating income in excess of annual amortization. If such realizability is in
doubt, an adjustment is made to reduce the carrying value of the goodwill. To
date such adjustments have not been required.
(I) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The Company follows the translation principles established by Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation".
The net assets of the Company's majority-owned subsidiary and the Company's
investment in its foreign joint venture are translated at the exchange rate in
effect at the end of the periods presented. The revenues and expenses of the
Company's majority-owned subsidiary and the Company's ownership percentage of
the foreign joint venture's net income are translated at the average rates in
effect during the period. The Company's foreign joint venture had no significant
activity for the year ended March 31, 1996. Included in other income is the
Company's 40% share of the earnings of the foreign joint venture for the seven
months ended October 31, 1996 of approximately $79,000.
(J) RESEARCH AND DEVELOPMENT
The Company records its software development costs in accordance with SFAS
No. 86. Accordingly, these costs are expensed until the technological
feasibility of the software has been established. Thereafter, all significant
software development costs are capitalized until the product is available for
general release to customers. Subsequently, these costs are reported at the
lower of unamortized cost or net realizable value. As a result of market and
other business conditions, the time between establishment of technological
feasibility and general release has not been significant since April 1, 1993.
Accordingly, the Company has not capitalized any software development costs
during this time. During fiscal 1994,
F-11
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
because of technological, industry and business changes, the Company shortened
its estimate of the useful life of software development costs that were
capitalized at March 31, 1993. As a result, the Company amortized the remaining
net book value of these software development costs during fiscal 1994, which
resulted in an amortization expense of approximately $466,000.
(K) INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are determined based on the
estimated future tax effects of differences between the financial statement and
tax basis of assets and liabilities under the provisions of the enacted tax
laws.
(L) MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 sales and expenses during the period.
Actual results could differ from those estimates.
(M) FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Effective April 1, 1995, the Company adopted the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". The adoption
of SFAS No. 115 did not have a material impact on the Company's financial
statements.
The carrying value for current assets and current liabilities reasonably
approximates fair value due to the short maturity of these items. Since the
Company's long-term debt is not publicly quoted, fair value estimates are based
on each obligation's characteristics, including remaining maturities, interest
rate, credit rating, collateral, amortization schedule and liquidity. The
carrying amount for long-term debt other than the convertible subordinated
debentures approximates fair value. Recent company transactions provide an
indication that the fair value of the convertible subordinated debentures is
approximately $2.0 million.
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash investments and trade receivables.
The Company has cash investment policies that limit cash investments to
short-term low risk investments. With respect to trade receivables, the Company
grants unsecured credit to its customers. In doing so, the Company performs
ongoing credit evaluations of its customers' financial condition. A substantial
portion of accounts receivable are from customers located throughout the United
States. One customer accounted for approximately 14%, 14% and 10% of the
Company's net sales for fiscal 1994, 1995 and 1996, respectively, and
approximately 9% of the Company's net sales for both seven months ended October
31, 1995 and 1996. Additionally, the Company establishes accounts receivable
allowances based upon factors relating to the credit risk of specific customers,
historical trends and other information.
F-12
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) ACCRETION TO REDEMPTION VALUE OF COMMON STOCK
Accretion to redemption value of redeemable common stock represents the
change in the redemption value of outstanding common stock in each period. The
redemption values for certain common shares are based on (i) fair market values
of the class of stock or (ii) fixed amounts (See Note 7).
(O) STOCK SPLITS
In December 1996, the Company's Board of Directors declared a three-for-one
split of the Company's Common Stock, which has been retroactively reflected in
the accompanying consolidated financial statements. In December 1996, Taylor's
Board of Directors declared a three-for-one split of Taylor's Class C
Exchangeable Common Stock, which has been retroactively reflected in the
accompanying consolidated financial statements.
(P) NET INCOME (LOSS) PER SHARE AVAILABLE TO SHAREHOLDERS AND PRO FORMA AND
SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER SHARE
Net income (loss) per share available to shareholders is based on the
weighted average number of shares of common stock and common stock equivalents
outstanding, as adjusted for the stock split described above for all periods
presented. Common stock equivalents represent options, convertible stock and
convertible debt using the treasury stock method for all periods presented. Any
common stock options and convertible stock issued from one year prior to the
initial public filing with a price below the estimated initial public offering
price have been included as outstanding shares for all periods presented reduced
by the number of shares which could be purchased with proceeds from the exercise
of the options.
Pro forma net income (loss) per share is computed based upon pro forma net
income (loss) as described below and the weighted average number of shares
adjusted for the conversion of $250,000 of convertible debentures into 339,366
shares of Common Stock and the dilutive effect of any common stock equivalents,
as appropriate.
Supplemental pro forma net income (loss) per share for fiscal 1996 and the
seven months ended October 31, 1996 of $0.18 and $(0.31), respectively is
computed based upon (i) pro forma net income adjusted for the reduction in
interest expense, net of tax benefit of approximately $117,000 and $202,000 for
fiscal 1996 and the seven months ended October 31, 1996, respectively, resulting
from the application of the net proceeds of the contemplated offering to reduce
indebtedness of the Company and (ii) the pro forma weighted average number of
shares of Common Stock outstanding adjusted to reflect the sale by the Company
of approximately 292,000 and 901,000 shares of Common Stock in the offering
resulting in net proceeds sufficient to pay such indebtedness for fiscal 1996
and the seven months ended October 31, 1996, respectively.
F-13
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Q) INTERIM FINANCIAL DATA
In management's opinion, the unaudited interim financial statements for the
seven months ended October 31, 1995 and 1996 are presented on a basis consistent
with the audited financial statements, and all adjustments, consisting only of
normal recurring adjustments, which are necessary to present fairly the
operating results have been reflected. The results of operations for interim
periods are not necessarily indicative of operations for the full fiscal year.
(R) PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the accompanying unaudited pro forma consolidated statements of
operations for the year ended March 31, 1996 and the seven months ended October
31, 1996 reflect the change in net income available to common shareholders
resulting from the following events which will occur upon completion of the
offering contemplated by this prospectus: (i) the automatic termination of the
redemption provision of redeemable common stock; (ii) the conversion of $250,000
of subordinated debentures into 339,366 shares of the Company's Common Stock; or
(iii) the issuance of 27,999 shares of Common Stock related to the portion of
the interest payment of the $2.0 million shareholder note payable. Additionally,
the accompanying pro forma balance sheet as of October 31, 1996 reflects the
change in capitalization attributable to the above pro forma adjustments as if
the offering had closed on October 31, 1996 (excluding the effects of the
offering proceeds), and including the reclassification of a $2.0 million note
payable, which becomes due 10 days after the completion of the offering.
(S) NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which is effective for fiscal
1997. The Company has determined that it will elect the disclosure-only
alternative. The Company will be required to disclose the pro forma net income
or loss and per share amounts in the notes to the consolidated financial
statements using the fair value based method beginning in fiscal 1997 with
comparable disclosures for fiscal 1996. The Company has not yet determined the
impact of these pro forma adjustments.
2. ACQUISITIONS
On January 29, 1996, Total Control Products, Inc. acquired 100% of the
outstanding stock of Cincinnati Dynacomp, Inc. ("Cincinnati"), a manufacturer
and distributor of text based operator interface products, for $499,990 and
150,003 shares of the Company's Common Stock (which was assigned a fair value of
$500,010) and merged Cincinnati into its wholly owned subsidiary. Additionally,
the former shareholders of Cincinnati are entitled to contingent cash and Common
Stock consideration. To the extent calendar year 1996 and 1997 sales of
Cincinnati and certain similar company products exceed its historical sales
volume, the contingent consideration is equal to 10% for the first $1.0 million
of such excess and 4% of any further excess. All payments of such contingent
consideration to the former majority shareholder for calendar years 1996 and
1997 shall be paid in shares of Common Stock, valued
F-14
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
2. ACQUISITIONS (CONTINUED)
at their then fair market value. To the extent calendar year 1998, 1999 and 2000
sales of the Company exceed approximately $32.0 million in those respective
years, the former principal shareholder of Cincinnati receives 1.25% of such
excess of which 50% shall be paid in shares of the Company valued at their then
fair market value, with the agreement providing the Company a prepayment option
related to this contingent consideration ranging from $1.0 million to $2.0
million depending on the timing of such prepayment. All contingent consideration
is due 90 days after the respective calendar years on which such consideration
was based.
This acquisition was accounted for under the purchase method. Accordingly,
the purchase price was allocated to the net assets acquired based on their
estimated fair values. This treatment resulted in approximately $1.98 million of
cost in excess of net assets acquired at the date of acquisition. Such excess
(which will increase for any future contingent consideration paid) is being
amortized on a straight-line basis over 15 years. Cincinnati's results of
operations have been included in the consolidated results of operations since
the date of acquisition.
In fiscal 1996, the Company made an investment in a foreign joint venture,
which distributes industrial automation tools, including the Company's products.
The Company owns 40% of this joint venture, which is located in the Netherlands
and sells products throughout Europe, with the remaining 60% owned by the
Company's largest vendor (see Notes 7 and 11) and the distributor of this
vendor's product (see Note 7). This investment is accounted for under the equity
method.
On September 19, 1996, the Company entered into an agreement to acquire a
controlling interest in Taylor, a developer and marketer of industrial
automation software products located in Edmonton, Alberta. The transaction was
consummated on September 26, 1996 and the results of operations have been
included since that date. In exchange for 100% of the outstanding voting shares
of common stock of Taylor, the Company paid $7,389,817, which included $2.2
million in the form of a note payable to the former principal shareholder,
767,112 shares of Class C Exchangeable common stock of Taylor (convertible into
767,112 shares of the Company's Common Stock; see Note 7 for a description of
the features of the stock). In addition, the agreement provides for the payment
of a contingent cash consideration based on future revenues of Taylor. To the
extent the revenues of Taylor exceed $8.0 million in any of the two 12 month
periods following the acquisition, the Taylor shareholders will receive $1.0
million due 90 days after that respective 12 month period. Additionally, the
Taylor shareholders will receive cash consideration in the amount of 50% of the
revenue of Taylor in excess of $9.2 million and $10.6 million for the first and
second 12 month period after the acquisition, respectively, with the total
consideration capped at $3.0 million for any 12 month period related to this
provision. As further discussed in Note 7, the 767,112 shares of Taylor Class C
Exchangeable common stock exchanged may be redeemed at the holders' option for
$6.0 million (payable over a 3 year period) to the extent Total Control
Products, Inc. has not completed an initial public offering of its Common Stock
within 12 months from the date of acquisition. The $4.65 million value assigned
to the 767,112 shares of Class C Exchangeable common stock was based on
management's estimate of fair value, primarily based on the present value of the
potential redemption of the security as well as recent securities transactions.
The Company also incurred approximately $600,000 in direct expenses related to
the acquisition. The acquisition was accounted for using the
F-15
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
2. ACQUISITIONS (CONTINUED)
purchase method. Accordingly, the purchase price was allocated to assets
acquired based on their estimated fair values.
In connection with the transaction, the Company sold 39% of the Class A
voting shares of Taylor for
$4.0 million to Digital Electronics. To the extent the contingent consideration
described above is earned, the Company is required to contribute as equity into
Taylor a portion of the earnout payment and receive
additional equity interest in Taylor up to a maximum of 4% based on a formula
outlined in a letter of understanding between the Company and Digital. The $4.0
million investment in Taylor by Digital was greater than 39% of the equity of
the subsidiary, and this difference of approximately $600,000 was charged
against goodwill to properly reflect the Company's cost of the Taylor
acquisition.
In connection with the acquisition of Taylor, the Company engaged a broker
to commence the sale of one of the developed software product lines acquired.
The purchase price value assigned to these assets held for sale of approximately
$4.7 million is based on management's estimate of the expected gross proceeds to
be received using similar market multiples of recent sales of comparable product
lines less estimated applicable tax and direct costs of the disposal. The net
expenses in excess of revenue, (including the interest expense on related debt
expected to be retired from the proceeds from the sale of the $2.2 million note
payable described above and a $2.0 million subordinated note payable (described
in Notes 4 and 5)) of approximately $25,000 incurred by the Company since the
acquisition has not been reflected in the statement of operations of the
Company. It is management's belief that the sale of this product line will be
completed by June 30, 1997. The holder of the $2.2 million shareholder note
payable issued in connection with the acquisition has the right to prohibit the
sale of this product line if the net proceeds to the Company would be less than
the principal outstanding under the note.
Purchased research and development expense and other related acquisition
expenses relating to the acquisition of Taylor totaled $4.9 million and was
charged to expense as of the acquisition date in September, 1996. Of this
expense, approximately $4.7 million of the purchase price was allocated to
incomplete research and development that had not yet reached technological
feasibility and did not have a future alternative use, and was charged to
expense as of the acquisition date. The amount allocated to the purchased
incomplete research and development projects represents the estimated fair value
related to those projects determined by an independent appraisal. Proven
valuation procedures and techniques were utilized in determining the fair market
value of each intangible asset. To bring these projects to technological
feasibility, high-risk developmental and testing issues needed to be resolved,
which required substantial additional effort and testing.
The remaining excess purchase price over the estimated fair value of
identified net assets (which will increase for any future contingent
consideration) of approximately $2.5 million was assigned to goodwill and is
being amortized over 7 years. These estimates are preliminary and may be changed
based on actual results.
F-16
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
2. ACQUISITIONS (CONTINUED)
The following unaudited pro forma results of operations data fiscal 1995 and
1996 and the seven months ended October 31, 1996, assume the Cincinnati
acquisition occurred as of April 1, 1994 and the Taylor acquisition occurred as
of April 1, 1995 (in thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SEVEN MONTHS
ENDED
-------------------- OCTOBER 31,
1995 1996 1996
--------- --------- ------------
(U N A U D I T E D)
<S> <C> <C> <C>
Net sales......................................................... $ 27,616 $ 40,682 $ 24,785
Net income (loss)................................................. 584 375 (2,699)
Net income (loss) available to common shareholders................ 376 (1,231) (7,660)
Net income (loss) per common share................................ $ 0.06 $ (0.22) $ (1.35)
--------- --------- ------------
--------- --------- ------------
</TABLE>
3. INCOME TAXES
The components of the provision for (benefit from) income taxes for fiscal
1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
CURRENT:
U.S. Federal.................................................. $ 78,000 $ 252,000 $ 556,000
State......................................................... 14,000 59,200 143,000
------------ ----------- -----------
Total current................................................. 92,000 311,200 699,000
------------ ----------- -----------
DEFERRED:
U.S. Federal.................................................. (215,000) (52,000) (28,000)
State......................................................... (32,000) (12,000) (6,000)
------------ ----------- -----------
Total deferred................................................ (247,000) (64,000) (34,000)
------------ ----------- -----------
Total provision............................................... $ (155,000) $ 247,200 $ 665,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
F-17
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
3. INCOME TAXES (CONTINUED)
The provision for (benefit from) income taxes differs from the amounts which
would result by applying the applicable Federal income tax rate before income
taxes for fiscal 1994, 1995 and 1996 and the seven months ended October 31, 1995
and 1996 as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED MARCH 31, ENDED OCTOBER 31,
--------------------------------------- ---------------------------
1994 1995 1996 1995 1996
------------ ------------ ----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision for (benefit from)
income taxes computed at Federal
statutory rate.................. $ (136,637) $ 329,604 $ 565,162 $ 329,517 $ (1,317,989)
State income taxes, net of
Federal tax benefit............. (19,893) 48,471 83,112 47,974 42,422
Permanent differences:
Charge for purchased research
and development.............. -- -- -- -- 1,598,000
Other.......................... 1,530 11,925 16,726 22,509 23,567
Utilization of research and
development tax credits......... -- (142,800) -- -- --
------------ ------------ ----------- ----------- --------------
$ (155,000) $ 247,200 $ 665,000 $ 400,000 $ 346,000
------------ ------------ ----------- ----------- --------------
------------ ------------ ----------- ----------- --------------
</TABLE>
In conjunction with the Company's acquisition of Cincinnati, the Company
acquired net deferred tax assets of $595,000. A portion of the acquired deferred
tax assets relates to net operating loss carry forwards ("NOLs") of
approximately $500,000, which begin to expire in 2006. These NOLs will be
limited to approximately $60,000 per year, and, at such level, it is
management's opinion that these NOLs will not expire without being fully
utilized.
F-18
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
3. INCOME TAXES (CONTINUED)
Components of the net deferred income tax assets which are included in
current deferred tax assets and other long term assets on the accompanying
consolidated balance sheets, at March 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cumulative temporary differences:
Net operating loss carry forward from acquired entity....................... $ -- $ 180,000
Accrued expenses............................................................ 21,740 18,639
Alternative minimum tax credit carryforward................................. 39,169 --
Inventory, primarily reserves............................................... 55,030 314,309
Allowances for accounts receivable.......................................... 19,646 127,642
Deferred compensation....................................................... 31,200 35,418
Depreciation.................................................................. (3,862) 18,394
Basis difference in intangibles............................................... -- 99,863
Other temporary differences................................................... 2,625 (265)
----------- -----------
Total deferred income tax asset........................................... $ 165,548 $ 794,000
----------- -----------
----------- -----------
</TABLE>
Because management believes that the deferred tax asset will be fully
realized based on current estimates of future taxable income, future reversals
of existing taxable temporary differences or available tax planning strategies,
no valuation allowance has been recorded against the deferred tax asset.
4. NOTES PAYABLE
(A) BANK
At March 31, 1996, the Company had a revolving line-of-credit agreement with
a bank which allowed borrowings up to $5.5 million ($850,000 was available at
March 31, 1996), which was due on July 31, 1997, was secured by virtually all of
the Company's assets and was personally guaranteed by certain shareholders,
limited to $2.0 million. The note carried interest at the bank's prime lending
rate (8.25% at March 31, 1996, which was also the average borrowing rate on all
short term borrowings as of March 31, 1996). Additionally, the Company had a
term loan with the bank for $1.0 million due September 30, 1996.
In July 1996, the Company entered into a new revolving line-of-credit
agreement with a bank which allows borrowings up to $9.0 million (approximately
$2.3 million was available at October 31, 1996) based on 85% of eligible
accounts receivable and 50% of eligible inventory up to a maximum of $4.5
million as specified in the agreement. This revolving credit line expires on
July 17, 1998. Interest is at LIBOR plus 2% or prime (8.25% at October 31,
1996), at the Company's option, and is due monthly. The Company retired the
previously outstanding bank loans discussed above with the proceeds from this
new bank agreement.
F-19
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
All amounts outstanding under this agreement are secured by inventory,
receivables and all other general assets of the Company. Among other things, the
agreement requires compliance with specific financial covenants related to
tangible net worth, debt to tangible net worth ratio and cash flow coverage. As
of October 31, 1996, the Company was in compliance with these covenants.
Additionally, in November 1996, the Company entered into a line-of-credit
agreement with a bank allowing for borrowing up to $1.0 million ($636,000
available at October 31, 1996) based on 80% of eligible accounts receivables of
its majority-owned subsidiary. This revolving credit line expires November 25,
1998 and bears interest at prime (8.25% at October 31, 1996) and is due monthly.
All amounts under this line are secured by the general assets of the Company's
majority-owned subsidiary. The Company retired the previously outstanding bank
line-of-credit with the proceeds from this line, which was due on demand.
(B) NOTES PAYABLE TO RELATED PARTIES
In August 1996, the Company entered into a $1.0 million note payable with a
shareholder, Digital Electronics Corporation, which is due August 1997 or 10
days after the completion of an initial public offering of the Company's Common
Stock. Interest is at 5% per annum and is due quarterly.
Additionally, in connection with the acquisition of its majority-owned
subsidiary, Taylor, the Company entered into a $2.2 million note payable with
the former principal shareholder of Taylor. Scheduled principal payments are
$200,000 due March 1, 1997; $200,000 due October 1, 1997; $400,000 due each
March 1, 1998, 1999, 2000 and 2001; and $200,000 due September 1, 2001. The note
may be called earlier at the holder's option upon any of the following events:
(i) delivery of a 120-day notice after March 19, 1997; (ii) 10 days after the
completion of an initial public offering; (iii) the sale of a majority of the
common stock or substantially all of the assets of the Company; or (iv) upon the
sale of Taylor's labor scheduling software product line currently held for sale
by the Company. Interest is at 12.5% for the first six months and 15% thereafter
and is due monthly. This note is subordinated to the bank notes payable. This
shareholder also has a $233,000 note payable from Taylor, due on demand after
March 31, 1997. The note is secured by the intellectual property rights in the
software product line held for sale and provides for the holder to restrict the
sale of this product line to the extent that the sale proceeds are less than the
outstanding principal balance.
(C) OTHER
The Company has a $574,000 note payable to a Canadian governmental agency,
which bears interest at the Canadian prime rate (4.75% at October 31, 1996) plus
3%. Approximately $325,000 was due and paid in November 1996. Scheduled monthly
principal and interest payments of approximately $16,000 are due through August
1, 1997, with the remaining due at September 1, 1997. This loan is guaranteed by
the Company's Chief Executive Officer and the former principal shareholder of
Taylor.
F-20
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
5. LONG-TERM DEBT
Long-term debt at March 31, 1995 and 1996 and October 31, 1996, consists of
the following:
(A) RELATED PARTIES
<TABLE>
<CAPTION>
MARCH 31,
------------------------ OCTOBER 31,
1995 1996 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to shareholder, due earlier of (1) September 1999
or (2) 10 days after the completion of an initial public
offering of the Company's Common Stock, subordinate to bank
notes payable................................................ $ -- $ -- $ 2,000,000
Note payable to principal shareholder, 10%, subordinate to
convertible debentures, due December 1997.................... 200,000 200,000 200,000
----------- ----------- -------------
200,000 200,000 2,200,000
Less current maturities........................................ -- -- --
----------- ----------- -------------
Long-term portion.............................................. $ 200,000 $ 200,000 $ 2,200,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The $2.0 million shareholder note payable bears interest at 20.0%, of which
13.0% is due in cash, due monthly after December 1996, and 7.0% is payable in
Common Stock based on a value of $5.00 per share (27,999 shares annually). If
the note is retired within the first year of issuance, the shareholder is
entitled to the full 27,999 shares.
As discussed in Note 2, as it is management's intent to retire this note
payable with a portion of the anticipated proceeds from the asset held for sale,
expected interest expense from this note payable (including the deferred
financing cost related to the share issuance) during the estimated period the
asset will be held for sale, was offset against the anticipated proceeds in
deriving the carrying value of the asset held for sale.
F-21
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
(B) OTHER
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1995 1996
----------- ----------- OCTOBER 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Convertible subordinated debentures payable to an individual,
6%, convertible, at holders' option, into Common Stock at
$0.74 per share, due December 1997............................ $ 300,000 $ 300,000 $ 250,000
Capital lease obligations, interest at 10% to 12%, principal and
interest due in various monthly installments through September
1997 secured by the related equipment......................... 146,453 84,035
Other, 8.5%..................................................... 10,345 -- 126,417
----------- ----------- ------------
Total long-term debt........................................ 310,345 446,453 460,452
Less current maturities......................................... 10,345 95,110 117,386
----------- ----------- ------------
Long-term portion........................................... $ 300,000 $ 351,343 $ 343,066
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Total debt at March 31, 1996 matures as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------------------------------------------------------------------- -----------
<S> <C>
1997................................................................... $ 95,110
1998................................................................... 551,343
-----------
$ 646,453
-----------
-----------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company has an operating lease with a partnership owned by the principal
shareholder and a shareholder/officer. Monthly rental payments of $12,000 plus
property taxes, insurance and utilities are due through April 1997. In December
1996, the lease was renewed through April 2002, on similar terms.
The Company leases various other office space and office equipment under
operating leases that expire in various years through 2000. Subsequent to March
31, 1996, the Company entered into an additional office lease which requires
monthly rental payments of $1,969 through October 1999. Rent expense for fiscal
1994, 1995 and 1996 was approximately $187,000, $164,000 and $243,000,
respectively; and $104,000 and $312,000 for the seven months ended October 31,
1995 and 1996, respectively. Included in the table below on a net basis is
sublease income of approximately $54,000 for fiscal 1997
F-22
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
and 1998 and $27,000 for fiscal 1999 for two office locations that were leased
by Cincinnati. Minimum future lease payments under noncancelable operating
leases as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- --------------------------------------------------------------------- -------------
<S> <C>
1997................................................................. $ 486,365
1998................................................................. 471,398
1999................................................................. 425,073
2000................................................................. 334,005
2001................................................................. 105,027
-------------
$ 1,821,868
-------------
-------------
</TABLE>
Certain officers and employees of the Company have employment contracts
through 2000.
Under the terms of various agreements, the Company is obliged to pay
royalties on product sales at rates from 3.0% to 17.0%. The Company has made
certain advance payments in respect of future royalties. Prepaid royalties are
amortized to earnings based on actual sales realized over the term of the
applicable royalty agreement.
To manage its foreign currency risk related to its purchases of inventory
from a Japanese vendor (see Note 11), the Company hedges firm inventory purchase
commitments by entering into forward contracts to purchase Japanese Yen. This
hedging minimizes the impact of foreign exchange rate movements on the Company's
operating results. Gains and losses on the hedge positions are deferred and
included as a component of the transaction when it is completed. At October 31,
1996, the Company had outstanding forward contracts for the purchase of Japanese
Yen through January 19, 1997 of $1,551,852 to hedge equivalent outstanding
commitments transacted in Yen.
Following this offering, the holders of certain shares of Common Stock will
have certain rights to cause the Company to register those shares under the
Securities Act of 1933, as amended (the "Securities Act"). By separate
agreements, these registration rights apply to holders of 1,382,655 shares of
Common Stock of the Company, and the 767,112 shares issuable to the former
shareholders of Taylor upon the conversion of Taylor Class C Exchangeable common
stock (collectively, the "Rights Holders"). All of such registration rights
agreements provide that the Rights Holders' registration rights are subject to
certain notice requirements and to the condition that, in the case of any
piggyback registration rights, the underwriters of any offering have the right
to limit the number of shares included in such registration. The Company has
agreed to bear the expenses of all registrations under these registration rights
agreements, except for underwriting discounts, selling commissions and
underwriters' expense allowances, which are to be paid by the respective Rights
Holders.
The Company is not involved in any material legal proceedings.
7. REDEEMABLE COMMON STOCK ISSUANCES
During December 1993, the Company sold 1,204,653 shares of Common Stock for
$1.0 million. Included in the terms of the agreement related to this sale are
certain covenants, including a requirement
F-23
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
7. REDEEMABLE COMMON STOCK ISSUANCES (CONTINUED)
that the Company use its best efforts to effect a sale to an unrelated third
party of all or substantially all of its assets or complete an initial public
offering of its stock by December 16, 1998. The shareholder has the right to put
the shares to the Company at fair market value, as defined in the agreement, for
a two-year period in the event the Company is in violation of any of these
covenants. The Company was in compliance with these covenants at October 31,
1996. This put right automatically terminates upon the closing of a qualified
initial public offering.
In connection with the acquisition of Cincinnati (Note 2), the Company
issued 150,003 shares of Common Stock. Between January 29, 1998 and January 28,
2000, the shareholder has the right to put the shares to the Company at fair
value as defined in this agreement. This redemption right terminates upon the
closing of an initial public offering.
Although management has not obtained an appraisal of the fair market value
of the Company, certain equity transactions have occurred upon which management
has based its estimate of the potential redemption value of the aforementioned
shares. The estimated redemption values per share for the above referenced
shares were $0.83/share, $1.00/share and $2.33/share at March 31, 1994, 1995 and
1996, respectively, and $6.06/share at October 31, 1996.
During July 1994, the Company sold an aggregate of 250,002 shares of Common
Stock to Digital Electronics (See Note 11) and to a distributor of Digital
Electronics products in exchange for $250,000. The shareholders have the right
to put the shares at any time to the Company at the lesser of (a) the original
purchase price or (b) the net book value per share (on a fully diluted basis) as
reflected on the consolidated balance sheet of the Company for the fiscal
quarter most recently completed. Redeemable common stock of $250,000 which would
otherwise be classified as current liabilities has been classified as long-term
because the Company intends to refinance such borrowings on a long-term basis
with its committed long-term borrowing facilities which it has available. The
shareholders have agreed to terminate this right upon the closing of an initial
public offering. These shares are reflected at a redemption value of $250,000 on
the accompanying balance sheets.
In connection with the acquisition of Taylor, a portion of the consideration
exchanged by the Company was 767,112 shares of Class C Exchangeable common stock
of Taylor to the former holders of the voting common stock of Taylor. This
common stock is convertible at the holders' option into 767,112 shares of the
Company's Common Stock. This Class C Exchangeable common stock has no rights in
the assets or earnings of Taylor, has no voting rights and does not have the
right to the dividends of the Taylor Class A common stock outstanding. As a
result, this stock is not considered minority interest in Taylor; rather the
stock is treated as a redeemable stock of the Company. The Class C common
shareholders have the right to put the shares to the Company for $6.0 million
for a period of 10 days in the event the Company has not completed an initial
public offering of the Company's Common Stock by September 19, 1997.
The $6.0 million redemption amount is due quarterly over three years, with
interest at prime and is subordinated to the bank notes payable. This redeemable
stock has been recorded at $4.65 million, the present value of the redemption
price based on an approximate 15% discount rate and is being accreted to its
redemption value over the life of the security using the effective interest rate
method.
F-24
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
8. STOCK OPTION PLANS
(A) 1993 STOCK OPTION PLAN
The Company's 1993 Stock Option Plan (the "1993 Plan") provides for the
grant of common stock options.
Under the 1993 Plan, incentive stock options ("ISOs") may be granted to any
officer or employee of the Company. Nonqualified stock options may be granted to
any officer, employee, consultant, director or other agent of the Company. In
the case of ISOs, the exercise price paid shall be at least 100% (110% in
certain cases) of the fair market value of the Common Stock on the date of
grant. Options become exerciseable generally over three years or as determined
by the Board. Certain acceleration provisions exist related to a change in
control of the Company or an initial public offering of the Company's Common
Stock.
The following summarizes option activity:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICES
--------- ---------------
<S> <C> <C>
Outstanding at March 31, 1993.............................................. -- $ --
Granted.................................................................. 99,594 0.83
--------- ---------------
Outstanding at March 31, 1994.............................................. 99,594 0.83
Granted.................................................................. 43,722 1.00
--------- ---------------
Outstanding at March 31, 1995.............................................. 143,316 0.83 - 1.00
Granted.................................................................. 70,800 2.00 - 3.33
--------- ---------------
Outstanding at March 31, 1996.............................................. 214,116 0.83 - 3.33
Granted (unaudited)...................................................... 111,006 3.33 - 6.66
--------- ---------------
Outstanding at October 31, 1996 (unaudited)................................ 325,122 $ 0.83 - $6.66
--------- ---------------
--------- ---------------
</TABLE>
Subject to certain exceptions defined under the 1993 Plan related to an
employee's death, disability or termination, options expire ten years from the
date of grant. At March 31, 1996 and October 31, 1996, options to purchase
80,970 shares and 95,544 shares were exerciseable, respectively. In December
1996, the Board determined that no additional options will be granted under this
plan.
(B) 1996 STOCK OPTION PLAN
In December 1996, the Company adopted the 1996 Stock Option Plan under which
options may be granted to purchase up to 550,000 shares of Common Stock to
management, employees and advisors of the Company. This Plan provides for the
grant of ISOs and non-qualified stock options. No options have been granted
under this Plan.
(C) 1996 NON-EMPLOYEES DIRECTORS' STOCK OPTION PLAN
In December 1996, the Company adopted the 1996 Non-Employees Directors'
Stock Option Plan under which 120,000 shares of Common Stock have been
authorized for issuance. All non-employee directors will receive a stock option
to purchase 12,000 shares of Common Stock on the day after each
F-25
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
8. STOCK OPTION PLANS (CONTINUED)
annual meeting of shareholders of the Company, provided they are then serving as
a director of the Company. All grants will be non-qualified stock options.
Options granted under this Plan are exerciseable six months after the date of
grant. No options have been granted under this Plan.
(D) 1996 DISCOUNT STOCK PURCHASE PLAN
In December 1996, the Company adopted the 1996 Discount Stock Purchase Plan,
under which 250,000 shares of Common Stock have been reserved for issuance.
Eligible employees of the Company may purchase Common Stock of the Company
beginning on the first March 31 or September 30 following the closing of this
offering. Eligible employees participate in this Plan by authorizing payroll
deductions of up to 10% of their base compensation. The purchase price per share
is the lesser of (i) 85% of the fair market value of a share of Common Stock on
the date of the commencement of the applicable offering period, or (ii) 85% of
the fair market value of a share of Common Stock on the date of the end of such
period. No shares have been issued under this plan.
9. SHAREHOLDERS' AGREEMENT
Total Control Products, Inc. and its shareholders are party to a
shareholders' agreement whereby all of the Company's common shareholders have
certain preemptive rights. Purchases of shares shall be on terms comparable to
the terms of purchase for the remaining authorized shares. This agreement will
terminate by its terms upon the closing of an initial public offering.
10. BENEFIT PLANS
The Company has a 401(k) plan covering all employees of Total Control
Products, Inc. Employees must complete one month of service to participate.
Employee contributions are supplemented by Company contributions as defined in
the plan agreement. Company contributions to the plan totaled approximately
$19,000, $17,000 and $29,000 for fiscal 1994, 1995 and 1996, respectively; and
approximately $5,000 and $59,000 for the seven months ended October 31, 1995 and
1996, respectively. Additionally, the Company can make discretionary
profit-sharing contributions. The Company did not make a discretionary
profit-sharing contribution in fiscal 1994, 1995 or 1996; nor the seven months
ended October 31, 1995 or 1996.
The Canadian employees of the Company's subsidiary, Taylor, may contribute
on a pre-tax basis to a benefit plan, which does not provide for employer
sponsored contributions.
11. SIGNIFICANT VENDOR
A significant portion of the Company's purchases are made from a related
party, Digital Electronics. During fiscal 1994, 1995 and 1996, and the seven
months ended October 31, 1995 and 1996, approximately 52%, 70%, 74%, 70% and
60%, respectively, of the Company's total raw material purchases were made from
this vendor. The raw material component of cost of sales for fiscal 1994, 1995
and 1996 and the seven months ended October 31, 1995 and 1996 was approximately
85%, 89%, 89%, 91% and 84%, respectively.
F-26
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO EVENTS SUBSEQUENT TO JULY 22, 1996
AND AMOUNTS RELATED TO THE SEVEN MONTHS ENDED
OCTOBER 31, 1995 AND 1996 ARE UNAUDITED)
12. IPO REGISTRATION
In December 1996, the Company's Board of Directors authorized an amendment
to the Company's Articles of Incorporation increasing the number of authorized
shares of Common Stock to 22,500,000.
Additionally, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
permitting the Company to sell Common Stock to the public.
13. RECLASSIFICATIONS
Certain balances in the accompanying consolidated financial statements have
been reclassified to conform to current year presentation.
F-27
<PAGE>
AUDITORS' REPORT
To the Directors of
Taylor Industrial Software Inc.
We have audited the consolidated balance sheets of Taylor Industrial
Software Inc. as at March 31, 1995 and 1996 and the consolidated statements of
operations and retained earnings and changes in financial position for each of
the three years in the period ended March 31, 1996. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at March 31,
1995 and 1996 and the results of its operations and the changes in its financial
position for each of the three years in the period ended March 31, 1996 in
accordance with Canadian generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Edmonton, Canada
July 30, 1996, except for Notes 11 and 12 which are as of September 26, 1996
F-28
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
CONSOLIDATED BALANCE SHEETS
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1995 1996
------------- -------------
(RESTATED) (RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 20,469 $ 68,867
Accounts receivable (Note 6)...................................................... 2,409,672 2,348,291
Inventory......................................................................... 121,417 125,148
Prepaid expenses.................................................................. 187,332 224,713
Refundable investment tax credits (Note 2)........................................ 420,402 385,664
------------- -------------
3,159,292 3,152,683
Capital assets (Note 3)............................................................. 1,318,176 958,816
Prepaid royalties (Note 9).......................................................... 238,000 231,700
Deferred income taxes............................................................... -- 74,000
------------- -------------
$ 4,715,468 $ 4,417,199
------------- -------------
------------- -------------
LIABILITIES
Current liabilities:
Bank advances..................................................................... $ 116,563 $ 203,093
Operating bank loans (Note 4)..................................................... -- 249,050
Accounts payable and accrued liabilities.......................................... 582,909 592,025
Bonus payable..................................................................... 229,084 102,667
Income taxes payable.............................................................. 16,967 3,436
Deferred revenue.................................................................. 1,281,123 1,306,999
Current portion of long-term debt................................................. 42,422 251,767
------------- -------------
2,269,068 2,709,037
Long-term debt (Note 5)............................................................. 879,802 628,035
Shareholder advances (Note 6)....................................................... 313,195 313,195
Deferred income taxes............................................................... 74,000 --
SHAREHOLDERS' EQUITY
Share capital (Note 10)............................................................. 200 200
Retained earnings................................................................... 1,179,203 766,732
------------- -------------
1,179,403 766,932
------------- -------------
$ 4,715,468 $ 4,417,199
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1994 1995 1996
------------- -------------- --------------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C>
Software licences and other revenue............................... $ 8,523,708 $ 10,071,355 $ 10,364,600
Cost of revenue................................................... 743,504 805,385 703,032
------------- -------------- --------------
Gross margin...................................................... 7,780,204 9,265,970 9,661,568
Expenses:
Selling and marketing........................................... 2,637,865 3,424,084 3,984,638
General and administrative...................................... 2,381,147 2,887,330 2,592,445
Research and development (Note 7)............................... 2,568,258 3,077,857 3,404,856
------------- -------------- --------------
7,587,270 9,389,271 9,981,939
------------- -------------- --------------
Income (loss) from operations..................................... 192,934 (123,301) (320,371)
Other income (expenses):
Interest income................................................. 8,823 30,881 31,856
Interest expense................................................ (35,234) (34,494) (88,776)
Gain (loss) on foreign exchange................................. 115,326 (11,941) (132,034)
Gain (loss) on sale of capital assets........................... -- 1,217 (12,906)
------------- -------------- --------------
88,915 (14,337) (201,860)
------------- -------------- --------------
Income (loss) before income taxes................................. 281,849 (137,638) (522,231)
Provision for (recovery of) income taxes:
Current......................................................... 51,851 32,190 38,240
Deferred........................................................ 51,000 (34,000) (148,000)
------------- -------------- --------------
102,851 (1,810) (109,760)
------------- -------------- --------------
Net income (loss) for the year.................................... 178,998 (135,828) (412,471)
Retained earnings at beginning of year:
As previously reported.......................................... 1,568,499 1,597,448 1,479,956
Decrease in revenue due to change in accounting policy, net of
related income taxes (Note 12)................................ (224,454) (282,417) (300,753)
------------- -------------- --------------
As restated..................................................... 1,344,045 1,315,031 1,179,203
Dividends (Note 10)............................................... (208,012) -- --
------------- -------------- --------------
Retained earnings at end of year.................................. $ 1,315,031 $ 1,179,203 $ 766,732
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C>
Cash was provided by (used for) operations:
Net income (loss) for the year........................................ $ 178,998 $ (135,828) $ (412,471)
Add (deduct) non-cash items:
Amortization of capital assets...................................... 476,239 599,595 651,527
Loss (gain) on sale of capital assets............................... -- (1,217) 12,906
Deferred income taxes............................................... 51,000 (34,000) (148,000)
------------ ------------ ------------
706,237 428,550 103,962
Net change in non-cash working capital items (Note 13)............ (353,644) 509,728 (43,649)
------------ ------------ ------------
Total from operations................................................... 352,593 938,278 60,313
Investing activities:
Capital assets purchased.............................................. (646,202) (656,444) (312,073)
Proceeds from sale of capital assets.................................. -- 4,022 7,000
Advance payment on future royalties (Note 9).......................... -- (210,400) --
------------ ------------ ------------
(646,202) (862,822) (305,073)
Financing activities:
Loan repayments, Norsoft Inc.......................................... (120,000) (30,000) --
Loan proceeds -- Western Economic Diversification..................... 561,528 10,212 --
Loan repayments -- Western Economic Diversification................... -- -- (42,422)
Shareholder advances.................................................. 16,582 19,803 --
Dividends (Note 10)................................................... (208,012) -- --
------------ ------------ ------------
250,098 15 (42,422)
------------ ------------ ------------
Increase (decrease) in cash for the year................................ (43,511) 75,471 (287,182)
Cash at beginning of year............................................... (128,054) (171,565) (96,094)
------------ ------------ ------------
Cash at end of year..................................................... $ (171,565) $ (96,094) $ (383,276)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Cash is defined as cash net of bank advances and operating bank loans.
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These financial statements have been prepared in Canadian dollars (the
company's functional currency) and in accordance with the accounting principles
generally accepted in Canada. These principles conform, in all material
respects, with accounting principles generally accepted in the United States,
except as disclosed in Note 13.
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary companies, Taylor Industrial Software (USA) Inc.
and Taylor Industrial Software (UK) Limited. All significant intercompany
transactions have been eliminated.
(B) USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles 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 revenues and expenses during the period reported. Actual results
could differ from those estimates.
(C) REVENUE RECOGNITION
The company develops, licences and maintains productivity-enhancing
management and control software for manufacturing industries. Licence revenue
also includes revenue from the sale of certain software manufactured by third
parties. The company also provides training, consulting and post-contract
customer support for its products.
Licence revenue is recognized on shipment of the product. Revenues from
training and consulting are recognized at the time the service is performed.
Revenue from post-contract customer support is recognized ratably over the
period of the post-contract arrangement.
(D) RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred.
(E) INVENTORY
Inventory is recorded at the lower of average cost and net realizable value.
F-32
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) CAPITAL ASSETS
Capital assets are recorded at cost, net of investment tax credits, and are
amortized over the estimated useful lives of the capital assets using the
following rates and bases:
<TABLE>
<S> <C>
Office furniture and equipment 20% declining balance
Automotive equipment 30% declining balance
Computer equipment 33% straight-line
Computer software 33% straight-line
Development equipment 25% to 33% straight-line
Technology software 25% straight-line
Leasehold improvements 10% straight-line
</TABLE>
Development equipment consists primarily of industrial and computer
equipment which is used in the software development process. Technology software
consists primarily of licences for the use of third party software which has
alternative uses.
(G) INCOME TAXES
The company records items for income tax purposes in amounts which differ
from that reflected in the financial statements. The tax effect of these
differences are reflected in the financial statements as deferred income taxes.
(H) INVESTMENT TAX CREDITS
The company is entitled to scientific research and experimental development
("SRED") investment tax credits granted by the Canadian federal government. SRED
tax credits are received on qualified Canadian SRED expenditures (100%
refundable) and capital purchases (40% refundable, 60% non-refundable). As a
Canadian Controlled Private Corporation ("CCPC"), SRED tax credits are earned at
the rate of 35% on the first $2 million of qualified expenditures and 20% on
amounts in excess of $2 million. SRED tax credits reduce federal income taxes
currently payable and, to the extent these credits exceed income taxes currently
payable, may be received in cash from the federal government, subject to various
limitations which reduce the refundable amount relating to capital SRED
expenditures to 40%. The remaining 60% non-refundable portion of capital SRED
expenditures can be carried forward and applied to reduce federal taxes payable
in future years (NOTE 8).
The entitlement to SRED tax credits will change if the company loses its
CCPC status. CCPC status is lost when a company is public as defined in the
Income Tax Act (Canada), or is controlled by non-Canadian residents or a public
corporation. For federal tax purposes, non-CCPC corporations are entitled to
SRED tax credits at a rate of 20% of qualified expenditures, with no refundable
component available.
As a result of the purchase of the company on September 26, 1996 by Total
Control Products, Inc., a U.S. company (SEE NOTE 11), any subsequent SRED tax
credits will be earned at a rate of 20% of qualified expenditures, with no
refundable component available. This change in status has no effect on
investment tax credits earned for fiscal periods prior to September 26, 1996.
F-33
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SRED tax credits are accounted for as a reduction of the related
expenditures. The refundable portion of SRED tax credits is recorded in the year
in which they are earned. The non-refundable portion of SRED tax credits is
recorded at such time as the company has reasonable assurance that the credits
will be realized.
(I) TRANSLATION OF FOREIGN CURRENCIES
The company's foreign operations' financial statements are translated from
the foreign entity currency using the method for integrated foreign operations;
monetary items are translated at the rates prevailing at the balance sheet date
and non-monetary items are translated at historic rates. Revenues and expenses
are translated at weighted-average rates throughout the year except for
amortization which is translated at the same rates as the related capital asset.
Foreign exchange gains and losses are included in income.
2. REFUNDABLE SRED INVESTMENT TAX CREDITS
The company has recorded anticipated refunds of federal SRED investment tax
credits in the amount of $385,664 resulting from scientific research and
experimental development activities. This amount consists of 1996 credits
totaling $95,091, 1995 credits totaling $220,355 and the unpaid balance of 1994
credits totaling $70,218.
F-34
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------- ------------- -------------
<S> <C> <C> <C>
Office furniture and equipment............................ $ 666,407 $ 297,112 $ 369,295
Automotive equipment...................................... 7,000 1,050 5,950
Computer equipment........................................ 834,002 628,625 205,377
Computer software......................................... 110,399 78,650 31,749
Development equipment..................................... 1,227,350 1,058,610 168,740
Technology software....................................... 930,222 495,959 434,263
Leasehold improvements.................................... 248,929 146,127 102,802
------------- ------------- -------------
$ 4,024,309 $ 2,706,133 $ 1,318,176
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
MARCH 31, 1996
-------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------- ------------- -------------
<S> <C> <C> <C>
Office furniture and equipment............................ $ 707,910 $ 358,615 $ 349,295
Automotive equipment...................................... -- -- --
Computer equipment........................................ 986,350 805,905 180,445
Computer software......................................... 121,937 98,106 23,831
Development equipment..................................... 1,293,653 1,163,545 130,108
Technology software....................................... 930,222 728,515 201,707
Leasehold improvements.................................... 248,929 175,499 73,430
------------- ------------- -------------
$ 4,289,001 $ 3,330,185 $ 958,816
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
4. OPERATING BANK LOANS
The company has two operating bank loans with a Canadian chartered bank.
The Canadian dollar operating bank loan bears interest at bank prime rate
plus 0.5% and can be drawn to a maximum amount of $750,000.
The U.S. dollar operating bank loan bears interest at the bank's U.S. dollar
base rate plus 0.5% and can be drawn to a maximum amount of U.S. $200,000.
The operating loans are secured by a general assignment of book debts, a
general security agreement, a postponement agreement in the amount of $200,000,
and personal guarantees of the shareholders in the total amount of $330,000.
F-35
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1995 1996
----------- -------------
<S> <C> <C>
Loan payable to Western Economic Diversification, repayable in four equal
semi-annual instalments of $21,211, beginning April 30, 1995. Interest on
unpaid instalments will be charged at 3% above the bank rate, starting 30
days after any due date................................................... $ 84,844 $ 42,422
Loan payable to Western Economic Diversification, repayable in 30 equal
monthly instalments of $20,259, beginning April 1, 1996, and one
instalment of $20,265 on October 1, 1999. 75% of any investment tax
credits received subsequent to March 31, 1996, to a maximum of $209,345,
are to be applied to the loan balance within 15 days of receipt. Interest
at 3% above the bank rate, starting 30 days after due date, on unpaid
amounts will be charged................................................... 837,380 837,380
----------- -------------
922,224 879,802
Less current portion........................................................ 42,422 251,767
----------- -------------
$ 879,802 $ 628,035
----------- -------------
----------- -------------
</TABLE>
Principal repayments are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 251,767
1998..................................................... 243,108
1999..................................................... 243,108
2000..................................................... 141,819
</TABLE>
6. SHAREHOLDER ADVANCES
Shareholder advances in the amount of $313,195 (1995 - $313,195) are
unsecured, are due on demand after March 31, 1997, and bear interest at bank
prime rate on March 31 of the preceding year. Interest in the amount of $30,537
(1995 - $36,414) was expensed during the year.
Loans to a shareholder in the amount of $34,800 (1995 - $45,000), included
in accounts receivable, are unsecured and have no fixed terms of repayment. An
amount of $20,000 bears interest at bank prime rate plus 1%. Interest in the
amount of $1,950 (1995 - $1,250) was earned during the year.
7. RESEARCH AND DEVELOPMENT COSTS
Research and development costs expensed in the year are made up as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Research and development expenditures...................... $ 2,781,949 $ 3,323,942 $ 3,526,187
Less SRED investment tax credits........................... 213,691 246,085 121,331
------------- ------------- -------------
$ 2,568,258 $ 3,077,857 $ 3,404,856
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-36
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
8. NON-REFUNDABLE SRED INVESTMENT TAX CREDITS CARRIED FORWARD
The company has non-refundable SRED investment tax credits carried forward
amounting to $88,507 which can be used to reduce future federal Part I tax
payable. The benefit of these investment tax credits has not been recorded in
these financial statements. If not utilized, the SRED investment tax credits
will expire as follows:
<TABLE>
<S> <C>
1999...................................................... $ 21,529
2000...................................................... 35,358
2001...................................................... --
2002...................................................... 17,131
2003...................................................... 7,504
2004...................................................... 6,985
---------
$ 88,507
---------
---------
</TABLE>
9. COMMITMENTS
The company is obliged to make minimum payments for the use of its business
offices and office equipment for various terms up to May 2000. The payments
required during the next five fiscal years are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 259,216
1998..................................................... 248,169
1999..................................................... 222,423
2000..................................................... 112,735
2001..................................................... 8,336
</TABLE>
Rental expense on operating leases was $287,723 in 1994, $430,929 in 1995
and $447,163 in 1996.
Under the terms of various agreements, the company is obliged to pay
royalties on software sales at rates from 5% to 17%. The company has made
certain advance payments in respect of future royalties. Prepaid royalties are
amortized to earnings based on actual sales realized over the term of the
applicable royalty agreement.
10. SHARE CAPITAL
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Authorized
Unlimited number of Class "A" common voting shares....................................
Unlimited number of "First Preferred" non-voting redeemable and retractable shares....
Issued
100 Class "A" shares.................................................................. $ 100 $ 100
154,800 "First Preferred" shares...................................................... 100 100
--------- ---------
$ 200 $ 200
--------- ---------
--------- ---------
</TABLE>
F-37
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
10. SHARE CAPITAL (CONTINUED)
The "First Preferred" shares are redeemable and retractable at $11.03 per
share. The "First Preferred" shares are entitled to an annual cumulative
dividend at the rate of 4/5 of the bank prime lending rate on April 1 of each
year.
Cumulative undeclared dividends in the amount of $218,624 (1995 - $85,400)
have not been recorded. The dividends will be recorded when declared.
11. SUBSEQUENT EVENTS
As at April 30, 1996, the company amended its issued and outstanding Class
"A" common shares from 100 to 1,000,000.
In addition, on April 30, 1996 the company established an employee share
option plan whereby eligible employees are entitled to acquire common shares of
the company under certain conditions and obligations specified within the plan
at "market value". Market value is set by the Board in June of each year or at
such other time as the Board deems appropriate. As at September 26, 1996,
options to acquire 20,002 shares had been granted to certain employees.
Effective September 26, 1996, the company repurchased all of the outstanding
share options for an amount of $275,155. On this date, all of the issued and
outstanding Class "A" common shares and "First Preferred" shares were purchased
by Total Control Products, Inc., a U.S. company. Under the terms of the stock
purchase agreement, the former shareholders of the company are entitled to
receive certain contingent compensation pursuant to an earn-out formula. Under
such formula, if the actual consolidated revenues of the company ("Net
Revenues") between November 1, 1996 and September 30, 1997 exceed $8.0 million,
the company will pay the former shareholders an aggregate amount equal to $1.0
million, and to the extent that Net Revenues during such period exceed $9.2
million, the company will pay to the former shareholders an aggregate amount,
not to exceed $3.0 million, equal to 50% of such excess. In addition, for the
period between November 1, 1997 and September 30, 1998, if Net Revenues exceed
$8.0 million, the company will pay to the former shareholders an aggregate
amount equal to $1.0 million.
As a result of the purchase by Total Control Products, Inc., the company
ceased to be a Canadian Controlled Private Corporation ("CCPC") on September 26,
1996. Because of this, from September 26, 1996 forward, the company's effective
income tax rate will increase to 43.5% from 20%, investment tax credits on
qualifying Canadian SRED expenditures will be reduced from 35% to 20% and there
will be no refundable portion of investment tax credits. In addition, the
repayment terms on the loans from Western Economic Diversification have been
accelerated such that the loans will be repaid by March 31, 1997.
In connection with the purchase of the company by Total Control Products,
Inc., the company entered into a two-year consulting agreement with Digital
Electronics Corporation whereby Digital Electronics Corporation has agreed to
provide certain product development and marketing consulting services to the
company in exchange for compensation of U.S. $200,000 per year. This agreement
terminates in November 1998.
F-38
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
12. CHANGE IN ACCOUNTING POLICY
On September 26, 1996, the company retroactively changed its revenue
recognition policy to recognize the customer support portion of new licence
revenue ratably over the period of the post-contract arrangement. Previously,
revenue was recognized on shipment of the licence and the costs associated with
providing the post-contract customer support were accrued. Revenue was reduced
by $95,728 in 1994, and $31,336 in 1995 and was increased by $13,532 in 1996 to
reflect this change. This change in policy, net of related income taxes, had the
effect of reducing opening retained earnings in 1994 by $224,454, decreasing net
income in 1994 by $57,963 and in 1995 by $18,336, and increasing net income in
1996 by $8,148. The March 31, 1994, 1995 and 1996 opening retained earnings and
the financial statements for each of these periods have been restated to reflect
this change.
13. UNITED STATES ACCOUNTING PRINCIPLES
The financial statements of the company have been prepared in accordance
with accounting principles generally accepted in Canada. These principles
conform, in all material respects, with accounting principles generally accepted
in the United States, except for the following items:
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Retained earnings at end of year reported under Canadian
GAAP................................................... $ 1,315,031 $ 1,179,203 $ 766,732
Excess of redemption cost of redeemable retractable
"First Preferred" shares over carrying value, recorded
under U.S. GAAP(1)..................................... (1,707,900) (1,707,900) (1,707,900)
Cumulative undeclared dividends, recorded under U.S.
GAAP(2)................................................ -- (85,400) (218,624)
-------------- -------------- --------------
Deficit at end of year reported under U.S. GAAP......... $ (392,869) $ (614,097) $ (1,159,792)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1996
1995 ---------------------------
---------------------------- CANADIAN
CANADIAN GAAP U.S. GAAP GAAP U.S. GAAP
------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Dividends payable(2).................................. $ -- $ 85,400 $ -- $ 218,624
Redeemable retractable "First Preferred" shares(1).... -- 1,708,000 -- 1,708,000
Share capital(1)...................................... 200 100 200 100
Retained earnings (deficit)(1,2)...................... $ 1,179,203 $ (614,097) $ 766,732 $ (1,159,792)
------------- ------------- ----------- --------------
------------- ------------- ----------- --------------
</TABLE>
F-39
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
13. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash from operations reported under Canadian GAAP....................... $ 352,593 $ 938,278 $ 60,313
Advance payment on future royalties reclassified from investing
activities(3).......................................................... -- (210,400) --
------------ ------------ ------------
Cash from operations under U.S. GAAP.................................... 352,593 727,878 60,313
Cash from investing activities reported under Canadian GAAP............. (646,202) (862,822) (305,073)
Advance payment on future royalties reclassified to operations(3)....... -- 210,400 --
------------ ------------ ------------
Cash from investing activities under U.S. GAAP.......................... (646,202) (652,422) (305,073)
Cash from financing activities reported under Canadian GAAP............. 250,098 15 (42,422)
Increase (decrease) in operating bank loans and bank advances(4)........ 193,511 (205,002) 335,580
------------ ------------ ------------
Cash from financing activities under U.S. GAAP.......................... 443,609 (204,987) 293,158
------------ ------------ ------------
Increase (decrease) in cash for the year under U.S. GAAP................ 150,000 (129,531) 48,398
Cash at beginning of year under U.S. GAAP............................... -- 150,000 20,469
------------ ------------ ------------
Cash at end of year under U.S. GAAP..................................... $ 150,000 $ 20,469 $ 68,867
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- --------------
(1) Under Canadian GAAP, the redeemable retractable "First Preferred" shares are
included in shareholders' equity. Under U.S. GAAP, these shares are
classified as mandatorily redeemable shares outside of shareholders' equity
and are reported at full redemption amount. For years commencing on or after
January 1, 1996, Canadian GAAP would require the Company to present these
shares as liabilities measured at the redemption amount.
(2) Under Canadian GAAP, cumulative dividends on the redeemable retractable
"First Preferred" shares are not recorded until declared. Under U.S. GAAP,
cumulative dividends on mandatorily redeemable shares are accrued, even if
not declared, when they are payable at a future date.
(3) Under Canadian GAAP, cash outflows related to non-current assets may be
classified as investing activities. Under U.S. GAAP, cash outflows related
to investing activities are limited to disbursements for loans, payments to
acquire debt instruments or equity instruments of other enterprises, or
payments to acquire capital assets. Cash outflows not meeting these criteria
are classified as operating activities.
(4) Under Canadian GAAP, the statement of changes in financial position may be
based on cash net of bank advances and operating bank loans. Under U.S.
GAAP, the statement of cash flows is to be based on cash only, with
increases and decreases in bank advances and operating bank loans being
shown as financing activities.
F-40
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(STATED IN CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) (CONTINUED)
13. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The net change in non-cash working capital items is made up as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Decrease (increase) in:
Accounts receivable......................................... $ (628,399) $ 128,104 $ 61,381
Inventory................................................... (18,812) (16,062) (3,731)
Prepaid expenses............................................ (30,607) 5,985 (37,381)
Refundable investment tax credits........................... 17,063 17,222 34,738
Prepaid royalties........................................... 255,745 -- 6,300
Increase (decrease) in:
Accounts payable and accrued liabilities.................... 151,966 (3,382) 9,116
Bonus payable............................................... (31,136) 59,970 (126,417)
Income taxes payable........................................ 8,041 (2,653) (13,531)
Deferred revenue............................................ (77,505) 320,544 25,876
------------ ------------ ------------
Net change in non-cash working capital items.................. $ (353,644) $ 509,728 $ (43,649)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Other information related to cash payments during the year follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income taxes.................................................. $ 18,954 $ 9,114 $ 25,531
Interest...................................................... 18,626 14,689 55,239
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
* * * * * *
F-41
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 26,
----------------------------
1995 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net sales........................................................................... $ 4,568,390 $ 4,791,072
Cost of sales....................................................................... 383,007 427,522
------------- -------------
Gross profit........................................................................ 4,185,383 4,363,550
Research and development, selling, general, and adminstrative expenses.............. 4,847,992 5,303,261
------------- -------------
Income from operations.............................................................. (662,609) (939,711)
Interest expense, net............................................................... (17,971) (39,517)
------------- -------------
Net income (loss) before taxes...................................................... (680,580) (979,228)
------------- -------------
Provision for (recovery of) income taxes
Current........................................................................... 19,000 --
Deferred.......................................................................... (156,000) (130,000)
------------- -------------
(137,000) (130,000)
------------- -------------
Net loss for the period............................................................. $ (543,580) $ (849,228)
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-42
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 26,
--------------------------
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss for the period............................................................. $ (543,580) $ (849,227)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Deferred income taxes............................................................. (156,000) (130,000)
Loss (gain) on sale of capital assets............................................. 500 (3,029)
Depreciation and amortization..................................................... 318,079 277,246
Change in non-cash working capital items:
Accounts receivable............................................................. 773,628 655,990
Inventories..................................................................... (57,077) (142,014)
Prepaid expenses and other...................................................... 8,039 (5,849)
Accounts payable and accrued liabilities........................................ (546,320) 434,657
Deferred revenue................................................................ (237,816) (20,830)
------------ ------------
Net cash provided by (used in) operating activities........................... (440,547) 216,944
------------ ------------
Cash flows from investing activities:
Purchase of capital assets.......................................................... (290,052) (88,515)
Proceeds from sale of capital assets................................................ -- 3,029
------------ ------------
Net cash used in investing activities......................................... (290,052) (85,486)
------------ ------------
Cash flows from financing activities:
Repayment of long-term debt......................................................... (21,211) (109,210)
------------ ------------
Net cash used in financing activities......................................... (21,211) (109,210)
------------ ------------
Net change in cash.................................................................... (751,810) 22,248
Cash, beginning of period............................................................. (96,094) (383,276)
------------ ------------
Cash, end of period................................................................... $ (847,904) $ (361,028)
------------ ------------
------------ ------------
</TABLE>
Cash is defined as cash net of bank advances and operating bank loans.
The accompanying notes are an integral part of these condensed financial
statements.
F-43
<PAGE>
TAYLOR INDUSTRIAL SOFTWARE INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1996
(STATED IN CANADIAN DOLLARS)
NOTE 1. BASIS OF PRESENTATION
As noted in the audited financial statements of Taylor Industrial Software
Inc. ("Taylor") presented elsewhere in this Prospectus, the historical financial
statements of Taylor, including the accompanying unaudited condensed financial
statements have been prepared in accordance with accounting principles generally
accepted in Canada. These principles conform, in all material respects, with the
accounting principles generally accepted in the United States, except for the
items indicated in Note 13 of the audited financial statements of Taylor
included elsewhere in this Prospectus and as indicated below:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 26,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash used in financing activities reported under Canadian GAAP.............. $ (21,211) $ (109,210)
Increase (decrease) in operating bank loans and bank
advances(1)............................................................... 553,912 (60,563)
------------ ------------
Cash provided by (used in) financing activities under U.S. GAAP............. 532,701 (169,773)
------------ ------------
Decrease in cash for the period under U.S. GAAP............................. (197,898) (38,315)
Cash at beginning of the period under U.S. GAAP............................. 20,469 68,867
------------ ------------
Cash at end of the period under U.S. GAAP................................... $ (177,429) $ 30,552
------------ ------------
------------ ------------
</TABLE>
- --------------
(1) Under Canadian GAAP, the statement of changes in financial position may be
based on cash net of bank advances and operating bank loans. Under U.S.
GAAP, the statement of cash flows is to be based on cash only, with
increases and decreases in bank advances and operating loans being shown as
financing activities.
The functional currency of Taylor is the Canadian dollar. As such, these
balances have not been translated into U.S. dollars.
Additionally, the accompanying unaudited condensed statements have been
prepared in accordance with generally accepted accounting practices for interim
periods. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included elsewhere
in this prospectus.
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors
Cincinnati Dynacomp, Inc.
Milford, Ohio
We have audited the accompanying statements of operations and cash flows of
Cincinnati Dynacomp, Inc. for the years ended March 31, 1994 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Cincinnati Dynacomp, Inc.
for the years ended March 31, 1994 and 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
August 28, 1995
F-45
<PAGE>
CINCINNATI DYNACOMP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1994 1995
------------- --------------
<S> <C> <C>
Net sales.......................................................................... $ 9,732,883 $ 10,553,408
Cost of sales...................................................................... 7,640,097 8,364,526
------------- --------------
Gross profit....................................................................... 2,092,786 2,188,882
Selling, general and administrative expenses....................................... 1,907,717 1,898,873
------------- --------------
Income from operations............................................................. 185,069 290,009
Other income (expense):
Interest expense............................................................... (249,084) (359,793)
Other income, net.............................................................. 59,631 76,416
------------- --------------
Net income (loss) before income taxes.............................................. (4,384) 6,632
Provision for income taxes......................................................... -- --
------------- --------------
Net income (loss).................................................................. $ (4,384) $ 6,632
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
CINCINNATI DYNACOMP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ (4,384) $ 6,632
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization...................................................... 291,267 393,865
Gain on sale of assets............................................................. (2,097) (287)
Change in deferred income.......................................................... (43,447) --
Change in assets and liabilities, net of effects of merger (Note 1):
Accounts receivable.............................................................. 78,310 382,321
Inventories...................................................................... (101,178) (139,439)
Prepaid expenses and other....................................................... 40,580 13,666
Accounts payable................................................................. (66,884) (285,379)
Accrued liabilities.............................................................. (237,829) (86,472)
----------- -----------
Net cash provided by (used in) operating activities............................ (45,662) 284,907
----------- -----------
Cash flows from investing activities:
Additions to capitalized software, development costs, and other assets............. (22,286) (133,574)
Purchase of property and equipment................................................. (81,905) (78,561)
Proceeds from sale of assets....................................................... 11,845 3,050
----------- -----------
Net cash used in investing activities.......................................... (92,346) (209,085)
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under line-of-credit agreements.......................... 98,426 (423,657)
Net borrowings from stockholders................................................... 19,808 --
Proceeds from long-term debt....................................................... 150,000 500,835
Payment on long-term debt.......................................................... (130,226) (153,000)
----------- -----------
Net cash provided by (used in) financing activities............................ 138,008 (75,822)
----------- -----------
Net change in cash..................................................................... -- --
Cash, beginning of year................................................................ 300 300
----------- -----------
Cash, end of year...................................................................... $ 300 $ 300
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............................................. $ 263,300 $ 351,200
----------- -----------
----------- -----------
Supplemental noncash investing and financing information:
Purchase of equipment by issuing notes payable..................................... $ 50,820 $ 48,479
Capital contribution through reduction of stockholder notes........................ 62,707 --
Purchase of the stock of Dynacomp by assuming net liabilities and issuing a $75,000
note payable..................................................................... $ 270,463 $ --
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
CINCINNATI DYNACOMP, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
Cincinnati Dynacomp, Inc. (the "Corporation"), an Ohio corporation,
develops, manufactures and markets industrial automation tools. Its products
consist primarily of operator interfaces for programmable logic controllers.
(B) PROPERTY AND EQUIPMENT
Expenditures for repairs, maintenance and minor renewals are expensed as
incurred. Property and equipment are reported at cost and depreciated primarily
using the straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Machinery and equipment.................................................. 5 years
Furniture and fixtures................................................... 5 years
Exhibits and demonstrators............................................... 3-5 years
Computer equipment....................................................... 3-4 years
</TABLE>
Leasehold improvements are depreciated over the life of the underlying asset
or the term of the lease, whichever is shorter.
(C) CAPITALIZED SOFTWARE COSTS
Software development costs incurred internally to create computer software
products are charged to research and development expense until technological
feasibility has been established for the product. Thereafter, all software
production costs are capitalized and subsequently reported at the lower of
amortized cost or net realizable value. Capitalized costs are amortized based on
current and projected future revenue for each product with an annual minimum
amount equal to straight-line amortization over three years. Amortization
expense was $182,953 and $107,066 in 1994 and 1995, respectively.
(D) DEVELOPMENT COSTS
Development costs are capitalized costs relating to tailoring a product for
a specific customer. These costs are amortized over the actual units sold based
on the number of units expected to be sold.
(E) GOODWILL
The excess of the acquisition cost over the net assets of the Dynacomp
merger discussed below is being amortized using the straight-line method over 15
years. Amortization expense related to goodwill was $3,656 and $21,221, for the
years ended March 31, 1994 and 1995, respectively.
(F) INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards ("SFAS")
No. 109 effective April 1, 1993. Previously, the Corporation accounted for
income taxes using the deferred method set forth in Accounting Principles Board
Opinion No. 11. The cumulative effect resulting from the adoption of SFAS No.
109 was the recognition of a net deferred tax asset totaling $235,000 at April
1, 1993. However, because of recent losses and considering the amount of the
taxable income which would be generated in future years, the Corporation
provided a valuation allowance of $235,000 offsetting the effect of adopting
SFAS No. 109 on the financial statements at April 1, 1993.
F-48
<PAGE>
CINCINNATI DYNACOMP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) REVENUE RECOGNITION
Revenues are recognized when the product is shipped.
(H) RESEARCH AND DEVELOPMENT EXPENSES
Engineering research and development expenses related to present and future
products are charged to expense as incurred. Total expenditures on research and
development were $117,406 and $181,946 in 1994 and 1995, respectively, and are
included in selling, general and administrative expenses.
(I) PROFIT-SHARING PLAN
The Corporation has a noncontributory profit-sharing plan covering
substantially all employees. Contributions to the profit-sharing plan are made
at the discretion of the Board of Directors. No contributions were declared in
1994 or 1995.
(J) CONCENTRATION OF CREDIT RISK
The Corporation designs and manufactures several lines of electronic
equipment and related software products for a variety of industries which are
located throughout the United States and overseas. The Corporation performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral.
(K) MERGER
Cincinnati Electrosystems, Inc. ("CEI") entered into a merger agreement with
Logan Blake Industrial Corporation (d/b/a Dynacomp) that provided for Dynacomp
to be merged into CEI which was renamed Cincinnati Dynacomp, Inc. The former
stockholders of Dynacomp were to receive shares of the Corporation in the
merger.
The operations were merged effective November 1, 1993 and are included in
the accompanying financial statement from that date. However, prior to the
shares in the Corporation being issued, the CEI stockholders asserted that the
financial condition of Dynacomp was not as represented prior to the merger and
refused to issue shares to the Dynacomp stockholders without an adjustment. One
of the Dynacomp stockholders agreed not to take any shares and, in August 1994,
the other settled for a $75,000 payment and forgiveness of a $20,000 obligation
to the Corporation in lieu of receiving shares of the Corporation. The
accompanying financial statements reflect the effects of the August 1994
settlement.
The merger has been accounted for as a purchase. Financial information
necessary to disclose pro forma results of operations for the years ended March
31, 1993 and 1994 is not available.
2. NOTE PAYABLE AND LONG-TERM DEBT
The Corporation's line-of-credit agreement contains various financial
covenants including minimum net worth and working capital requirements, and
current asset to current liability and total liability to net worth requirements
and dividend payment restrictions. The Corporation obtained waivers dated August
22, 1995 from the lender for covenants with which it did not comply at March 31,
1995. The
F-49
<PAGE>
CINCINNATI DYNACOMP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)
average interest rates during the years ended March 31, 1994 and 1995 were 9.0%
and 11.5%, respectively.
The Corporation also obtained waivers dated August 22, 1995 from the lender
for long term debt covenants with which it did not comply at March 31, 1995.
Aggregate maturities of long-term debt at March 31, 1995 are:
<TABLE>
<S> <C>
1996..................................................................... $ 237,337
1997..................................................................... 638,261
1998..................................................................... 30,000
1999..................................................................... 15,000
---------
Total.................................................................... $ 920,598
---------
---------
</TABLE>
3. LEASED PROPERTY
The Corporation leases office and plant facilities under a lease which
commenced February 15, 1993 with monthly installments of $4,417 from February
1993 through July 1993, $17,668 from August 1993 through March 1994, and $19,780
from April 1994 through July 2000. Lease expense is recorded based on the
average monthly lease payment computed over the life of the lease.
The Corporation also leases machinery and equipment under operating leases
which expire at various dates through 1995. Total lease expense under all
operating leases was $265,353 and $307,888 in 1994 and 1995, respectively.
Future minimum lease payments under operating leases having initial or
remaining noncancelable lease terms as of March 31, 1995 totaled $1,515,677 and
are payable as follows: $321,016 in 1996, $307,116 in 1997, $289,460 in 1998,
$261,360 in 1999, $237,825 in 2000 and $98,900 thereafter.
4. COMMON STOCK
The Corporation and its stockholders have entered into a stock purchase
agreement which provides for the purchase, by the stockholders or the
Corporation, of any shares of common stock which become available in the event
any stockholder dies, or terminates his employment with the Corporation. The
agreement requires the Corporation to purchase all shares owned by a stockholder
who dies, and any shares not purchased by remaining stockholders in the event a
stockholder terminates employment with the Corporation.
If the Corporation redeems the shares, the purchase price is to be paid by a
promissory note payable in annual installments bearing interest at the prime
rate; the total of such payments cannot exceed 5% of stockholders' equity each
year.
F-50
<PAGE>
CINCINNATI DYNACOMP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The Corporation's income tax provision (benefit) at March 31, 1994 and 1995
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Current............................................................................ $ -- $ --
Deferred........................................................................... -- 3,700
--------- ---------
Total.............................................................................. -- 3,700
Change in valuation allowance...................................................... -- (3,700)
--------- ---------
Total.............................................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes differs from the amounts which would result
by applying the applicable Federal income tax rate before income taxes for the
fiscal years ended March 31, 1994 and 1995 as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Provision computed at Federal statutory rate...................................... $ (1,491) $ 2,255
State income taxes, net of Federal tax benefit.................................... (217) 328
Other............................................................................. 1,708 (2,583)
--------- ---------
Provision for income taxes........................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
At March 31, 1995, the Corporation had net operating loss carryforwards
totaling $463,000 which may be carried forward for 15 years to offset future
taxable income. These carryovers will expire in fiscal years 2006 and 2008. In
addition, the Corporation had tax credits totaling $98,400 which may be carried
forward for 15 years to offset future tax liabilities, subject to certain
restrictions contained in the Internal Revenue Code. Such carryforwards expire
in fiscal years 2001 through 2009.
* * * * * *
F-51
<PAGE>
CINCINNATI DYNACOMP INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED JANUARY 29,
--------------------
1995 1996
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales.................................................................................... $ 8,931 $ 7,324
Cost of sales................................................................................ 7,062 5,842
--------- ---------
Gross profit................................................................................. 1,869 1,482
Selling, general, and administrative expenses................................................ 1,629 1,439
--------- ---------
Income from operations....................................................................... 240 43
Other income (expense):
Interest expense........................................................................... (295) (312)
Other income, net.......................................................................... 4 (11)
--------- ---------
Loss before income taxes..................................................................... (51) (280)
Income tax provision......................................................................... -- --
--------- ---------
Net loss..................................................................................... $ (51) $ (280)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-52
<PAGE>
CINCINNATI DYNACOMP INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED JANUARY 29,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................................... $ (51) $ (280)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization............................................................. 248 262
Change in assets and liabilities:
Accounts receivable..................................................................... 417 609
Inventory............................................................................... (215) (147)
Prepaid expenses and other.............................................................. 33 (11)
Accounts payable........................................................................ 88 21
Accrued liabilities..................................................................... (79) 22
--------- ---------
Net cash provided by operating activities............................................. 441 476
--------- ---------
Cash flows from investing activities:
Additions to capiltalized software, development costs, and other assets..................... (115) (143)
Purchase of property and equipment.......................................................... (67) (62)
--------- ---------
Net cash used in investing activities................................................. (182) (205)
--------- ---------
Cash flows from financing activities:
Net borrowings (payments) under line-of-credit agreements................................... (149) 183
Return of capital paid to shareholders...................................................... -- (30)
Proceeds from long-term debt................................................................ 25 150
Payment on long-term debt................................................................... (135) (574)
--------- ---------
Net cash used in financing activities................................................. (259) (271)
--------- ---------
Net change in cash............................................................................ -- --
Cash, beginning of period..................................................................... -- --
--------- ---------
Cash, end of period........................................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-53
<PAGE>
CINCINNATI DYNACOMP INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed statements have been prepared in
accordance with generally accepted accounting practices for interim periods.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included elsewhere in this
prospectus.
In the opinion of management, the unaudited interim financial statements
reflect all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the Company's consolidated results of operations and cash
flows for all periods presented.
F-54
<PAGE>
UNAUDITED PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma As Adjusted Condensed Consolidated
Statements of Operations are based on the historical Consolidated Financial
Statements of Total Control Products, Inc. ("Total Control") included elsewhere
in this Prospectus, adjusted to give effect to (i) the acquisition by Total
Control of Cincinnati Dynacomp, Inc. ("Cincinnati") and the acquisition by Total
Control of a controlling interest in Taylor Industrial Software Inc. ("Taylor")
and (ii) the sale by Total Control of 1,650,000 shares of Common Stock in the
offering to which this Prospectus relates and the application of the estimated
net proceeds therefrom to repay certain indebtedness as set forth under "Use of
Proceeds" and (a) the elimination upon the closing of the offering of certain
redemption rights of Common Stock and (b) the automatic conversion of
convertible debentures into shares of Common Stock upon completion of the
offering. The Unaudited Pro Forma As Adjusted Condensed Consolidated Financial
Statements assume these events occurred on April 1, 1995.
The Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of
Operations for the year ended March 31, 1996 reflects the audited statement of
operations of Total Control and Taylor for the year ended March 31, 1996, and
the unaudited statement of operations of Cincinnati for the ten months ended
January 29, 1996 (the date of its acquisition), on a historical basis. The
Unaudited Pro Forma As Adjusted Condensed Consolidated Statement of Operations
for the seven months ended October 31, 1996 reflects the unaudited income
statement of Total Control for the seven months ended October 31, 1996, and the
unaudited income statements of Taylor for the six months ended September 26,
1996 (the date of its acquisition), on a historical basis.
The historical statements of operations of Taylor located elsewhere in this
Prospectus were prepared in accordance with accounting principles generally
accepted in Canada. These principles conform, in all material respects, with
accounting principles generally accepted in the United States, except for those
items disclosed in the notes to the financial statements of Taylor, none of
which impacted the historical statements of operations.
For the purpose of the preparation of the Unaudited Pro Forma As Adjusted
Condensed Consolidated Statements of Operations only, the historical statements
of operations for Taylor described above were translated from Canadian dollars
(Taylor's functional currency) to U.S. dollars at the approximate average
exchange rate for the respective periods.
The historical Taylor statements of operations presented include the
revenues and related expenses of Taylor's labor scheduling software product
line, which is being held for sale by the Company. No pro forma adjustment has
been made to eliminate the activity related to this product line.
The pro forma financial information is a presentation of historical results
with accounting and other adjustments. The pro forma financial information does
not reflect the effects of any of the anticipated changes to be made by the
Company in the operations from the historical operations.
The pro forma statements presented are provided for informational purposes
only and should not be construed to be indicative of the Company's results of
operations had the transactions been consummated on the date assumed and do not
project the Company's results of operations for any future period.
The Unaudited Pro Forma As Adjusted Condensed Consolidated Statements and
accompanying notes should be read in conjunction with the financial statements
and the financial information pertaining to Total Control, Cincinnati and Taylor
included elsewhere in this Prospectus.
F-55
<PAGE>
UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
CINCINNATI
(THROUGH
TOTAL JAN. 29, PRO FORMA PRO FORMA OFFERING
CONTROL 1996) TAYLOR ADJUSTMENTS COMBINED ADJUSTMENTS(F)
----------- ----------- --------- --------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 25,743 $ 7,324 $ 7,615 $ -- $ 40,682 $ --
Cost of goods sold................. 15,370 5,842 517 -- 21,729 --
----------- ----------- --------- ------ ----------- -------
Gross profit....................... 10,373 1,482 7,098 -- 18,953 --
Operating expenses:
Sales and marketing.............. 4,989 720 2,927 (3) (a) 8,633 --
Research and development......... 1,952 80 2,502 (8 (a) 4,526 --
General and administrative....... 1,601 639 1,904 448(a) 4,592 --
----------- ----------- --------- ------ ----------- -------
Income (loss) from operations...... 1,831 43 (235) (437 ) 1,202 --
Interest expense and other, net.... (169 ) (323 ) (147) (56 (c) (695 ) 623
----------- ----------- --------- ------ ----------- -------
Income before income taxes and
minority interest................ 1,662 (280 ) (382) (493 ) 507 623
Provision for (benefit from) income
taxes............................ 665 -- (80) (225 (d) 360 251
----------- ----------- --------- ------ ----------- -------
Income (loss) before minority
interest......................... 997 (280 ) (302) (268 ) 147 372
Minority interest in (income) loss
of subsidiary.................... -- -- -- 228(e) 228 (15 )
----------- ----------- --------- ------ ----------- -------
Net income (loss).................. 997 (280 ) (302) (40 ) 375 357
Accretion to redemption value of
common stock..................... (1,606 ) -- -- -- (1,606 ) 1,606
----------- ----------- --------- ------ ----------- -------
Net income (loss) available to
common shareholders.............. $ (609 ) $ (280 ) $ (302) $ (40 ) $ (1,231 ) $ 1,963
----------- ----------- --------- ------ ----------- -------
----------- ----------- --------- ------ ----------- -------
Net income (loss) per share
available to shareholders........ $ (0.11 ) $ (0.22 )
----------- ----------- --------- ------ ----------- -------
----------- ----------- --------- ------ ----------- -------
Weighted average number of common
shares outstanding............... 5,633 5,633 2,057(g)
----------- ----------- --------- ------ ----------- -------
----------- ----------- --------- ------ ----------- -------
<CAPTION>
PRO FORMA
AS ADJUSTED
-------------
<S> <C>
Net sales.......................... $ 40,682
Cost of goods sold................. 21,729
-------------
Gross profit....................... 18,953
Operating expenses:
Sales and marketing.............. 8,633
Research and development......... 4,526
General and administrative....... 4,592
-------------
Income (loss) from operations...... 1,202
Interest expense and other, net.... (72 )
-------------
Income before income taxes and
minority interest................ 1,130
Provision for (benefit from) income
taxes............................ 611
-------------
Income (loss) before minority
interest......................... 519
Minority interest in (income) loss
of subsidiary.................... 213
-------------
Net income (loss).................. 732
Accretion to redemption value of
common stock..................... --
-------------
Net income (loss) available to
common shareholders.............. $ 732
-------------
-------------
Net income (loss) per share
available to shareholders........ $ 0.10
-------------
-------------
Weighted average number of common
shares outstanding............... 7,690
-------------
-------------
</TABLE>
See accompanying notes to unaudited pro forma as adjusted
condensed consolidated statement of operations.
F-56
<PAGE>
UNAUDITED PRO FORMA AS ADJUSTED CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SEVEN MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
TAYLOR
(THROUGH
TOTAL SEPT. 26, PRO FORMA PRO FORMA OFFERING PRO FORMA
CONTROL 1996) ADJUSTMENTS COMBINED ADJUSTMENTS(F) AS ADJUSTED
--------- ----------- --------------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................ $ 21,240 $ 3,545 $ -- $ 24,785 $ -- $ 24,785
Cost of goods sold....................... 11,639 317 -- 11,956 -- 11,956
--------- ----------- ------ ----------- ------- ------------
Gross profit............................. 9,601 3,228 -- 12,829 -- 12,829
Operating expenses:
Sales and marketing.................... 4,370 1,667 (53) (a,b) 5,984 -- 5,984
Research and development............... 1,862 893 (80 ,b) 2,675 -- 2,675
General and administrative............. 2,049 1,362 125(a,b) 3,536 -- 3,536
Charge for purchased research and
development.......................... 4,893 -- -- 4,893 -- 4,893
--------- ----------- ------ ----------- ------- ------------
Loss from operations..................... (3,573) (694 ) 8 (4,259 ) -- (4,259 )
Interest expense and other, net.......... (303) (30 ) -- (333 ) 409 76
--------- ----------- ------ ----------- ------- ------------
Loss before income taxes and minority
interest............................... (3,876) (724 ) 8 (4,592 ) 409 (4,183 )
Provision for (benefit from) income
taxes.................................. 346 (96 ) (117 (d) 133 164 297
--------- ----------- ------ ----------- ------- ------------
Loss before minority interest............ (4,222) (628 ) 125 (4,725 ) 245 (4,480 )
Minority interest in (income) loss of
subsidiary............................. 1,830 -- 196(e) 2,026 (7 ) 2,019
--------- ----------- ------ ----------- ------- ------------
Net loss for the period.................. (2,392) (628 ) 321 (2,699 ) 238 (2,461 )
Accretion to redemption value of common
stock.................................. (4,961) -- -- (4,961 ) 4,961 --
--------- ----------- ------ ----------- ------- ------------
Net loss available to common
shareholders........................... $ (7,353) $ (628 ) $ 321 $ (7,660 ) $ 5,199 $ (2,461 )
--------- ----------- ------ ----------- ------- ------------
--------- ----------- ------ ----------- ------- ------------
Net loss per share available to
shareholders........................... $ (1.30) $ (1.35 ) $ (0.32 )
--------- ----------- ------ ----------- ------- ------------
--------- ----------- ------ ----------- ------- ------------
Weighted average number of common shares
outstanding............................ 5,673 5,673 1,989(g) 7,662
--------- ----------- ------ ----------- ------- ------------
--------- ----------- ------ ----------- ------- ------------
</TABLE>
See accompanying notes to unaudited pro forma as adjusted
condensed consolidated statement of operations.
F-57
<PAGE>
NOTES TO
UNAUDITED PRO FORMA AS ADJUSTED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes identify the pro forma adjustments made to the historical
amounts in the pro forma unaudited condensed consolidated financial statements:
(a). Represents an increase in depreciation and amortization expense
based on the useful lives assigned in connection with the acquisition for
(i) the net decrease in depreciation expense of $14,000 related to the net
decrease in the depreciable basis of certain assets for the year ended March
31, 1996 and an increase in depreciation expense of $16,000 for the increase
in the depreciable basis of certain assets for the seven months ended
October 31, 1996, and (ii) an increase in amortization expense for the year
ended March 31, 1996 and the seven months ended October 31, 1996 of
approximately $451,000 and $179,000, respectively, related to the
amortization of goodwill related to the acquisitions of Cincinnati and
Taylor. These pro forma adjustments do not give effect to the impact on
goodwill amortization, if any, related to any future contingent earnout
payments for these acquisitions as none has been earned to date.
(b) Represents a decrease in operating expenses to eliminate $202,000 of
compensation expense related to the purchase by Taylor of outstanding
employee stock option arrangements, which is included in the results of
Taylor for the six months ended September 26, 1996 results of Taylor, in
connection with the terms of the acquisition of Taylor.
(c) Represents an increase in interest expense associated with the debt
incurred to finance the acquisition of Cincinnati for the year ended March
31, 1996. Interest expense on debt incurred in connection with the
acquisition of Taylor is expected to be eliminated with the proceeds
anticipated to be received from the sale of assets included in the Taylor
purchase currently held for sale and, as such, no pro forma adjustment
related to this interest expense is recorded.
(d) Represents the income tax effects of the pro forma adjustments at an
assumed effective income tax rate of 40% for the pro forma adjustments,
except for pro forma adjustments related to Taylor, for which an effective
rate of 43% was assumed. The amortization expense and compensation expense
described above in Note (a) (ii) and Note (b) were not tax effected.
Additionally, the tax benefit of $112,000 for the loss incurred by
Cincinnati for the ten months ended January 29, 1996 was recorded. Finally,
an adjustment of $93,000 and $110,000 were recorded to increase the tax
benefit recorded in the Taylor statements of operations for the year ended
March 31, 1996 and the seven months ended October 31, 1996, respectively, as
a result of the change in tax rate from 20% to 43% applied to the taxable
income of Taylor due to the change in ownership.
(e) Represents the minority interest of 39% in the pro forma loss of
Taylor Industrial Software Inc.
(f) Represents the impact of the offering. Interest expense is decreased
as a result of applying the net proceeds of the offering to repay certain
indebtedness as described under "Use of Proceeds." Provision for income
taxes is increased for the decrease in interest expense using the effective
tax rates as described in Note (d). Minority interest is increased by the
39% share of the decrease in the pro forma loss of Taylor resulting from
these adjustments. In addition, accretion to redemption value of common
stock is eliminated to reflect the automatic termination of the redemption
rights upon the closing of the offering.
(g) Represents the increase in weighted average shares outstanding for
(i) the issuance of 1,650,000 shares of common stock to be sold by the
Company in the offering contemplated by this Prospectus and (ii) the
issuance of 407,239 shares and 339,366 shares of Common Stock issuable for
the year ended March 31, 1996 and the seven months ended October 31, 1996,
respectively, upon the automatic conversion of a convertible debentures upon
the closing of the offering and, in the case of the year ended March 31,
1996, the conversion of a portion of the debenture in June 1996.
F-58
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 12
Dividend Policy................................ 12
Capitalization................................. 13
Dilution....................................... 14
Selected Consolidated Financial Data........... 15
Management's Discussion and Analysis Of
Financial Condition and Results of
Operations................................... 18
Business....................................... 26
Management..................................... 35
Recent Acquisitions............................ 40
Certain Transactions........................... 42
Principal and Selling Shareholders............. 44
Description of Capital Stock................... 46
Shares Eligible for Future Sale................ 50
Underwriting................................... 52
Legal Matters.................................. 53
Experts........................................ 53
Additional Information......................... 53
Index to Financial Statements.................. F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS.THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,750,000 SHARES
TOTAL CONTROL PRODUCTS, INC.
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
Adams, Harkness & Hill, Inc.
A.G. Edwards & Sons, Inc.
, 1997
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts. All of the amounts shown are
estimated except the Securities and Exchange Commission registration fee, the
Nasdaq National Market filing fee and the NASD filing fee.
<TABLE>
<CAPTION>
TO BE PAID BY
THE REGISTRANT
- ------------------------------------------------------------------------------
<S> <C>
SEC registration fee.......................................................... $ 9,583
NASD filing fee............................................................... 3,663
Nasdaq National Market........................................................ *
Blue Sky fees and expenses.................................................... *
Printing and engraving expenses............................................... *
Legal fees and expenses....................................................... *
Accounting fees and expenses.................................................. *
Transfer agent and registrar fees............................................. *
Miscellaneous................................................................. *
--------------
Total......................................................................... $ *
--------------
--------------
</TABLE>
- --------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has adopted provisions in its Articles of Incorporation that, to
the fullest extent provided under Illinois law, limit the liability of its
directors and officers for monetary damages arising from a breach of their
fiduciary duties as directors or officers. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission, nor does it limit liability for (i) any breach of the director's
duty of loyalty to the Company or its shareholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) a transaction from which a director derives an improper personal
benefit or (iv) an unlawful distribution to the Company's shareholders. The
Company's By-laws provide that the Company shall indemnify its directors to the
fullest extent permitted by Illinois law, including circumstances in which
indemnification is otherwise discretionary to the Company under Illinois law,
and permit the Company in its discretion to similarly indemnify its officers,
employees and agents.
The form of Underwriting Agreement filed as Exhibit 1.1 provides for the
indemnification of the Company, its controlling persons, its directors and its
officers by the Underwriters against certain liabilities, including liabilities
under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since April 1, 1993, the Company has issued and sold the following
unregistered securities (as adjusted for the three-for-one stock split):
1. On December 16, 1993, the Company entered into an Agreement for the
Purchase and Sale of Stock with A.B. Siemer pursuant to which Mr. Siemer
purchased 1,204,653 shares of Common Stock for a total consideration of $1.0
million.
II-1
<PAGE>
2. On December 16, 1993, the Company exercised its option to redeem the
40,000 shares of outstanding Preferred Stock owned by Mr. Julius J. Sparacino.
Mr. Sparacino received 495,621 shares of Common Stock in exchange for the 40,000
shares of Preferred Stock.
3. On July 22, 1994, the Company entered into an Agreement for the Purchase
and Sale of Stock with Moritani America, Inc., pursuant to which Moritani
America, Inc. purchased 125,001 shares of Common Stock for total consideration
of $125,000.
4. On July 22, 1994, the Company entered into an Agreement for the Purchase
and Sale of Stock with Digital Electronics Corporation, pursuant to which
Digital Electronics Corporation purchased 125,001 shares of Common Stock for
total consideration of $125,000.
5. On January 29, 1996, Tara Products, Inc., a wholly owned subsidiary of
the Company, entered into a merger agreement with Cincinnati Inc., pursuant to
which John Sheridan was issued 150,003 shares of Common Stock.
6. On June 24, 1996, F. Quinn Stepan converted $50,000 of that certain 6%
Convertible Subordinated Debenture for 67,872 shares of Common Stock at a price
of $0.74 per share.
7. On September 19, 1996, the Company caused Taylor to issue 767,112 Class
C Exchangeable Shares which are convertible into 767,112 shares of Common Stock.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The Company has issued incentive stock options to purchase an aggregate of
325,122 shares of its Common Stock to Company officers, employees and directors
pursuant to the 1993 Stock Plan. There have been no exercises of any outstanding
stock options.
The issuances described above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving a public offering. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated and Amended Articles of Incorporation of the Registrant, to be
effective December , 1996
3.2 Revised and Restated By-laws of the Registrant, to be effective December
, 1996
3.3 Articles of Incorporation of Registrant, as amended
3.4 By-laws of the Registrant, as amended
4.1 Articles of Incorporation and By-laws of the Company (included in
Exhibits 3.1 and 3.2)
*4.2 Form of Stock Certificate
*5.1 Opinion of D'Ancona & Pflaum
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------
<C> <S>
10.1 1996 Employee Stock Option Plan
10.2 1996 Non-Employee Director Stock Option Plan
10.3 1996 Employee Discount Stock Purchase Plan
10.4 1993 Employee Stock Option Plan, as amended
10.5 Employment Agreement by and between the Company and Nicholas Gihl
10.6 Employment Agreement by and between the Company and Neil R. Taylor
10.7 Employment Agreement by and between the Company and Frank Wood
10.8 Employment Agreement by and between the Company and Peter Nicholson
10.9 Employment Agreement by and between the Company and Dennis Marrano
10.10 Employment Agreement by and between Tara Products, Inc. and John
Sheridan, as amended
10.11 Loan and Security Agreement by and between the Company and American
National Bank
10.12 Promissory Note between American National Bank and Trust Company of
Chicago and Taylor Industrial Software Inc.
10.13 Basic Agreement by and between the Company and Digital Electronics
Corporation
10.14 Development Agreement by and between the Company and Digital Electronics
Corporation
10.15 Consulting Agreement by and between Taylor Industrial Software Inc. and
Digital Electronics Corporation
10.16 Stock Purchase Agreement by and among the Company and the stockholders of
Taylor Industrial Software Inc.
10.17 Exchange Agreement by and among the Company, Taylor Industrial Software
Inc., Neil R. Taylor, Dennis Radage and Merle Taylor, as amended
10.18 Support Agreement by and between the Company and Taylor Industrial
Software Inc.
10.19 $2,000,000 Promissory Note of the Company payable to A.B. Siemer
10.20 Merger Agreement by and among Tara Products, Inc., the Company,
Cincinnati Dynacomp, Inc. and each of the stockholders of Cincinnati
Dynacomp, Inc.
10.21 Registration Rights Agreement by and between the Company and A.B. Siemer.
10.22 Registration Rights Agreement by and among the Company, Neil R. Taylor,
Dennis Radage and Merle Taylor.
10.23 Registration Rights Agreement by and between the Company and John
Sheridan
10.24 $200,000 Promissory Note of the Company payable to Julius J. Sparacino
10.25 $111,486.36 Promissory Note of Nicholas Gihl payable to the Company
10.26 $35,767.25 Promissory Note of Nicholas Gihl payable to the Company
10.27 Lease Agreement, by and between First National Bank of La Grange, as
Trustee u/t/a #308 and the Company, as extended
10.28 Agreement by and between the Company and Digital Electronics Corporation
11.1 Statement regarding computation of per share earnings
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Price Waterhouse, Chartered Accountants
*23.4 Consent of D'Ancona & Pflaum (to be included in Exhibit 5.1)
23.5 Consent of Edward Hurd
23.6 Consent of Donald Kramer
24.1 Powers of Attorney (included on Page II-5)
</TABLE>
- --------------
* To be filed by amendment
All schedules are omitted since the required information is not present, or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions (see response to Item 14 above),
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto authorized, in the City of Chicago and the
State of Illinois on the 20th day of December, 1996.
TOTAL CONTROL PRODUCTS, INC.
AN ILLINOIS CORPORATION
By: /s/ NICHOLAS T. GIHL
-----------------------------------------
Nicholas T. Gihl
President
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned directors and
officers of Total Control Products, Inc., an Illinois corporation, which is
filing a Registration Statement on Form S-1 with the Securities and Exchange
Commission, under the provisions of the Securities Act of 1933, as amended,
hereby constitute and appoint Nicholas T. Gihl, Julius J. Sparacino and Peter
Nicholson and each of them, each of their true and lawful attorneys-in-fact and
agents; with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign such
Registration Statement and any or all pre-effective and post-effective
amendments to the Registration Statement, including a Prospectus or an amended
Prospectus therein and any subsequent registration statement for the same
offering that may be filed under Rule 462(b) under the Securities Act of 1933,
as amended, and all other documents in connection therewith to be filed with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all interests and purposes as each of them might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman, President, Chief
/s/ NICHOLAS T. GIHL Executive Officer and
- ------------------------------ Director (principal December 20, 1996
Nicholas T. Gihl executive officer)
Senior Vice President and
/s/ PETER NICHOLSON Chief Financial Officer
- ------------------------------ (principal financial and December 20, 1996
Peter Nicholson accounting officer)
/s/ NEIL TAYLOR
- ------------------------------ Director December 20, 1996
Neil Taylor
/s/ JULIUS J. SPARACINO
- ------------------------------ Chairman Emeritus and December 20, 1996
Julius J. Sparacino Director
/s/ A.B. SIEMER
- ------------------------------ Director December 20, 1996
A.B. Siemer
II-6
<PAGE>
DRAFT
TOTAL CONTROL PRODUCTS, INC.
3,162,500 Shares(1)
Common Stock
(par value $.01 per share)
______________
Underwriting Agreement
, 1997
Adams, Harkness & Hill, Inc.
A.G. Edwards & Sons, Inc.
As representatives of the several
Underwriters named in Schedule I hereto,
c/o Adams, Harkness & Hill, Inc.
60 State Street
Boston, Massachusetts 02109
Dear Sirs:
Total Control Products, Inc., an Illinois corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you and the several Underwriters named in Schedule I hereto (collectively,
the "Underwriters"), for whom you are acting as representatives (the
"Representatives") an aggregate of 1,650,000 shares (the "Company Firm Shares")
and, at the election of the Underwriters, up to 412,500 additional shares (the
"Optional Shares") of common stock of the Company, no par value per share
("Common Stock"), and certain stockholders of the Company named in Schedule II
hereto (the "Selling Stockholders"), propose, subject to the terms and
conditions stated herein, to sell to the Underwriters an aggregate of 1,100,000
shares (the "Selling Stockholder Firm Shares", and together with the Company
Firm Shares, the "Firm Shares") of Common Stock. The Firm Shares and the
Optional Shares which the Underwriters elect to purchase pursuant to Section 3
hereof are herein collectively called the "Shares".
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
- ------------------
(1) Includes 412,500 shares subject to an option to purchase additional
shares to cover over-allotments.
<PAGE>
Company represents and warrants to, and agrees with, each of the Underwriters
that:
(a) A registration statement on Form S-1 (File No. 333-______)
(the "Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement including any pre-effective
amendments thereto and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to
you for each of the other Underwriters, have been declared effective by
the Commission in such form; other than a registration statement, if
any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no
other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose
has been initiated or, to the Company's knowledge, threatened by the
Commission (any preliminary prospectus included in the Initial
Registration Statement and incorporated by reference in the Rule 462(b)
Registration Statement, if any, or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the Act
is hereinafter called a "Preliminary Prospectus"; the various parts of
the Initial Registration Statement and the Rule 462(b) Registration
Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 6(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Initial Registration Statement at the time it was
declared effective or the Rule 462(b) Registration Statement, if any, at
the time it became effective, each as amended at the time such part of
such registration statement became effective, are hereinafter
collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the
-2-
<PAGE>
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through you expressly for use therein. The Company and the Selling
Stockholders acknowledge that the statements set forth under the heading
"Underwriting" in the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the Registration Statement;
(c) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through you
expressly for use therein;
(d) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to
the Registration Statement by the Act or by the rules and regulations
thereunder which have not been described or filed as required; the
contracts so described in the Prospectus to which the Company or any of
its subsidiaries is a party have been duly authorized, executed and
delivered by the Company or its subsidiaries, constitute valid and
binding agreements of the Company or its subsidiaries and are
enforceable against and by the Company or its subsidiaries in accordance
with their respective terms, and are in full force and effect on the
date hereof; and neither the Company nor any of its subsidiaries, nor,
to
-3-
<PAGE>
the best of the Company's knowledge, any other party is in breach of or
default under any of such contracts;
(e) The Company does not own or control, directly or indirectly,
any corporation, association or other entity other than the subsidiaries
listed in Exhibit 21 to the Registration Statement. Each of the Company
and its subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its respective
jurisdiction of organization, each with full power and authority
(corporate and otherwise) to own its properties and conduct its business
as described in the Prospectus, and each has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction;
(f) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in
the Prospectus any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the general affairs, prospects, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(g) Neither the Company nor any subsidiary of the Company owns any
real property; any real property and buildings held under lease by the
Company are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the
Company and its subsidiaries; the Company owns or leases all such
properties as are necessary to its operations as now conducted or as
proposed to be conducted, except where the failure to so own or lease
would not result
-4-
<PAGE>
in a material adverse change in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company;
(h) The Company has an authorized capitalization as set forth in
the Prospectus, and all the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform in all material respects to the
description of the Common Stock contained in the Prospectus; all of the
issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and
non-assessable and, except as otherwise disclosed in the Prospectus, are
owned directly by the Company, free and clear of all liens,
encumbrances, equities or claims; except as disclosed in the Prospectus,
neither the Company nor any subsidiary has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or
purchase any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or obligations; and
the description of the Company's stock option and stock purchase plans
and the options or other rights granted and exercised thereunder set
forth in the Prospectus accurately and fairly presents in all material
respects the information required to be shown with respect to such
plans, options and rights;
(i) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued and fully paid and non-assessable and
will conform in all material respects to the description of the Common
Stock contained in the Prospectus; no preemptive rights or other rights
to subscribe for or purchase exist with respect to the issuance and sale
of the Shares by the Company pursuant to this Agreement; no stockholder
of the Company has any right which has not been waived or terminated to
require the Company to register the sale of any shares of capital stock
owned by such stockholder under the Act in the public offering
contemplated by this Agreement (except with respect to the Shares to be
sold by the Selling Stockholders pursuant to this Agreement); and no
further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of
the Shares to be sold by the Company as contemplated herein;
-5-
<PAGE>
(j) The Company has full corporate power and authority to enter
into this Agreement, this Agreement has been duly authorized, executed
and delivered by the Company, constitutes a valid and binding obligation
of the Company and is enforceable against the Company in accordance with
its terms;
(k) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject,
nor will such action result in any violation of the provisions of the
Articles of Organization or By-laws of the Company or any of its
subsidiaries or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required for
the issue and sale of the Shares or the consummation by the Company of
the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws or the by-laws and rules of the
National Association of Securities Dealers, Inc. (the "NASD") in
connection with the purchase and distribution of the Shares by the
Underwriters;
(l) There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge,
threatened to which the Company or any of its subsidiaries is or may be
a party or of which property owned or leased by the Company or any of
its subsidiaries is or may be the subject, or related to environmental
or discrimination matters, which actions, suits or proceedings, could
reasonably be expected, individually or in the aggregate, to prevent or
adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company; no labor disturbance
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by the employees of the Company or any of its subsidiaries exists or, to
the knowledge of the Company, is imminent which might be expected to
materially affect adversely such general affairs, management, financial
position, stockholders' equity or results of operations; and neither the
Company nor any of its subsidiaries is a party or subject to the
provisions of any material injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other governmental body;
(m) The Company and its subsidiaries possess all licenses,
certificates, authorizations or permits issued by the appropriate
governmental or regulatory agencies or authorities that are necessary to
enable them to own, lease and operate their respective properties and to
carry on their respective businesses as presently conducted and which
are material to the Company and its subsidiaries, and neither the
Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
license, certificate, authority or permit which, singly or in the
aggregate, would be expected to materially and adversely affect the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries;
(n) Arthur Andersen LLP, Deloitte & Touche and Price Waterhouse,
who have certified certain financial statements of the Company,
Cincinnati/Dynacomp, Inc. ("Cincinnati/Dynacomp") and Taylor Industrial
Software Inc. ("Taylor"), are independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder;
(o) The consolidated financial statements and schedules of the
Company, Cincinnati/Dynacomp and Taylor, and the related notes thereto,
included in the Registration Statement and the Prospectus present fairly
in all material respects the financial position of the Company as of the
respective dates of such financial statements and schedules, and the
results of operations and cash flows of the Company for the respective
periods covered thereby; such statements, schedules and related notes
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and to the extend indicated in
the Registration Statement or Prospectus, have been certified by the
independent public accountants named in paragraph (n) above; no other
financial statements or schedules are required to be included in the
Registration Statement; and the selected financial data set forth in the
Prospectus
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<PAGE>
under the captions "Capitalization" and "Selected Consolidated Financial
Data" fairly present in all material respects the information set forth
therein on the basis stated in the Registration Statement; the pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly in all material
respects the information shown therein, have been prepared in accordance
with the rules and regulations under the Act and have been properly
compiled on the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances
referred to therein;
(p) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient legal or
contractual rights to use the trademarks, trade names, patent rights,
copyrights, licenses, approvals and governmental authorizations to
conduct their business as now conducted; the Company has no knowledge of
any material infringement by the Company or any of its subsidiaries of
trademark, trade name rights, patent rights, copyrights, licenses, trade
secret or other similar rights of others; and there is no claim being
made against the Company regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which could have
a material adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries;
(q) The Company and each of its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns
and have paid all taxes shown as due thereon, except in cases where the
Company has received an extension to file such return or is contesting
the payment of such taxes in good faith and has established sufficient
reserves therefor, and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company or any of its subsidiaries which could materially and adversely
affect the general affairs, management, financial position,
stockholders' equity or results of operation of the Company;
(r) The Company is not, and upon the consummation of the
transactions contemplated by this Agreement and the application by the
Company of the net proceeds from the sale of Shares by it hereunder as
described in the Prospectus under the caption "Use of Proceeds" will not
be, an
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<PAGE>
"investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an investment company, as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(s) Each of the Company and its subsidiaries maintains insurance
of the types and in the amounts which it deems adequate for its
business, all of which insurance is in full force and effect;
(t) Neither the Company nor any of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to
any candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
foreign, federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof;
(u) The Company has not taken and will not take, directly or
indirectly through any of its directors, officers or controlling
persons, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares; and
(v) The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to register the Common Stock, has filed an application
to list the Common Stock on the Nasdaq National Market and has received
notification that the listing has been approved, subject to notice of
issuance of the Shares.
2. REPRESENTATIONS OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder represents and warrants to, and agrees with, each of the
Underwriters that:
(a) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement
and the Power-of-Attorney and Custody Agreement (the "Custody Agreement")
hereinafter referred to, and for the sale and delivery of the Shares to
be sold by such Selling Stockholder hereunder, have been obtained; and
such Selling Stockholder has full right, power and authority
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<PAGE>
to enter into this Agreement and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(b) This Agreement and the Custody Agreement have each been duly
authorized, executed and delivered by such Selling Stockholder and each
such document constitutes a valid and binding obligation of such Selling
Stockholder, enforceable in accordance with its terms;
(c) No consent, approval, authorization or order of, or any filing
or declaration with, any court or governmental agency or body is
required in connection with the sale of the Shares by such Selling
Stockholder or the consummation by such Selling Stockholder of the
transactions on its part contemplated by this Agreement and the Custody
Agreement, except such as have been obtained under the Act or the rules
and regulations thereunder and such as may be required under state
securities or Blue Sky laws or the by-laws and rules of the NASD in
connection with the purchase and distribution by the Underwriters of the
Shares;
(d) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the performance by such Selling Stockholder of this
Agreement and the Custody Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, or give any party a right to terminate any of its
obligations under, or result in the acceleration of any obligation
under, any indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which
such Selling Stockholder is a party or by which such Selling Stockholder
or any of its properties is bound or affected, [or violate or conflict
with the Certificate of Incorporation or By-laws of such Selling
Stockholder] or any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to
such Selling Stockholder;
(e) Such Selling Stockholder has, and at the Closing Date will
have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances,
equities or claims; and, upon delivery of such Shares and payment
therefor pursuant hereto, good and valid title to such Shares, free and
clear of all liens, encumbrances, equities or claims, will pass to
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<PAGE>
each of the several Underwriters who have purchased such Shares in good
faith and without notice of any such lien, encumbrance, equity or claim
or any other adverse claim within the meaning of the Uniform Commercial
Code;
(f) Such Selling Stockholder will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock within
180 days after the date of the Prospectus otherwise than hereunder or
with the written consent of Adams, Harkness & Hill, Inc.;
(g) Such Selling Stockholder has not taken and will not at any
time take, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result in, or which will constitute,
stabilization of the price of shares of Common Stock to facilitate the
sale or resale of any of the Shares;
(h) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and
any further amendments or supplements to the Registration Statement and
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(i) Such Selling Stockholder has reviewed the Registration
Statement and Prospectus and, although such Selling Stockholder has not
independently verified the accuracy or completeness of all the
information contained therein, nothing has come to the attention of such
Selling Stockholder that would lead such Selling Stockholder to believe
that on the Effective Date, the Registration Statement contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the
Prospectus contained and, at each Time of Delivery, contains any untrue
statement of a material fact or omitted or omits to state
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<PAGE>
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, each Selling
Stockholder agrees to deliver to you prior to or at the Closing Date a
properly completed and executed United States Treasury Department Form W-9
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
Each Selling Stockholder represents and warrants that one or more
certificates in negotiable form representing and/or convertible debentures or
shares exchangeable for shares of common stock of the Company convertible
into all of the Shares to be sold by such Selling Stockholder (together, in
the case of the Convertible Debenture or the Taylor Exchangeable Shares, as
defined in the Registration Statement, with a conversion or exchange form
duly executed) have been placed in custody under the Custody Agreement, in
the form heretofore furnished to you, duly executed and delivered by such
Selling Stockholder to the Custodian (as defined in the Custody Agreement),
and that such Selling Stockholder has duly executed and delivered a
power-of-attorney, in the form heretofore furnished to you and included in
the Custody Agreement (the "Power-of-Attorney"), appointing
[Julius J. Sparacino,] Nicholas Gihl and Peter Nicholson, and each of them,
as such Selling Stockholder's attorney-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Stockholder, to determine (subject to the provisions of the Custody
Agreement) the purchase price to be paid by the Underwriters to such Selling
Stockholder as provided in Section 3 hereof, to authorize the delivery of the
Shares to be sold by such Selling Stockholder hereunder and otherwise to act
on behalf of such Selling Stockholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement.
Each Selling Stockholder specifically agrees that the Shares represented
by the certificates (or the Convertible Debenture or the Taylor Exchangeable
Shares) held in custody for such Selling Stockholder under the Custody
Agreement are subject to the interests of the Underwriters hereunder, and
that the arrangements made by such Selling Stockholder for such custody, and
the appointment by such Selling Stockholder of the Attorneys-in-Fact by the
Power-of-Attorney, are to that extent irrevocable. Each Selling Stockholder
specifically agrees that the obligations of such Selling Stockholder
hereunder shall not be terminated by
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<PAGE>
operation of law, whether by the death or incapacity of such Selling
Stockholder or, in the case of an estate or trust, by the death or incapacity
of any executor or trustee or the termination of such estate or trust, or in
the case of a partnership or corporation, by the dissolution of such
partnership or corporation, or by the occurrence of any other event. If such
Selling Stockholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be dissolved, or if such
Corporation or partnership should be dissolved, or if any other such event
should occur, before the delivery of the Shares hereunder, certificates
representing the Shares to be sold by such Selling Stockholder shall be
delivered by or on behalf of such Selling Stockholder in accordance with the
terms and conditions of this Agreement and of the Custody Agreement, and
actions taken by the Attorneys-in-Fact pursuant to the Power-of-Attorney
shall be as valid as if such death, incapacity, termination, dissolution or
other event had not occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such death,
incapacity, termination, dissolution or other event.
3. SHARES SUBJECT TO SALE. (a) On the basis of the representations,
warranties and agreements of the Company and the Selling Stockholders
contained herein, and subject to the terms and conditions of this Agreement,
(i) the Company agrees to issue and sell the Company Firm Shares to the
several Underwriters, (ii) the Selling Stockholders agree to sell the Selling
Stockholder Firm Shares in the respective amounts shown on Schedule II to the
several Underwriters, and (iii) each of the Underwriters agrees, severally
and not jointly, to purchase from the Company and the Selling Stockholders,
at a purchase price per share of $ , the respective number of Firm Shares
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Firm Shares by a fraction, the numerator
of which is the aggregate number of Firm Shares to be purchased by such
Underwriter as set forth opposite the name of such Underwriter in Schedule I
hereto and the denominator of which is the aggregate number of Firm Shares to
be purchased by all the Underwriters and (b) in the event and to the extent
that the Underwriters shall exercise the election to purchase Optional Shares
as provided below, (i) the Company agrees to issue and sell the Optional
Shares to the several Underwriters, and (ii) each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase
price per share set forth in clause (a) of this Section 3, that portion of
the number of Optional Shares as to which such election shall have been
exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of
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<PAGE>
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of the Optional Shares which all
of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 412,500 Optional Shares at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised by written notice from you to the Company,
given at any time (but not more than once) within a period of 30 calendar
days after the date of this Agreement and setting forth the aggregate number
of Optional Shares to be purchased and the date on which such Optional Shares
are to be delivered, as determined by you but in no event earlier than the
First Time of Delivery (as defined in Section 5 hereof) or, unless you and
the Company otherwise agree in writing, earlier than two or later than three
business days after the date of such notice.
4. OFFERING. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale
upon the terms and conditions set forth in the Prospectus.
5. CLOSING. Certificates in definitive form for the Shares to be
purchased by each Underwriter hereunder, and in such denominations and
registered in such names as Adams, Harkness & Hill, Inc. may request upon at
least forty-eight hours' prior notice to the Company, shall be delivered by
or on behalf of the Company to you for the account of such Underwriter,
against payment by such Underwriter or on its behalf of the purchase price
therefor by wire transfer or certified or official bank check or checks
payable in same day funds, payable to the order of the Company and of the
Custodian, on behalf of the Selling Stockholders, respectively, in New York
Clearing House funds, all at the office of Adams, Harkness & Hill, Inc., 60
State Street, Boston, Massachusetts 02109. The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
Boston time, on such date, not later than the third (or, if the Firm Shares
are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after
4:30 P.M. Washington, D.C. time, the fourth) full business day following the
first date that any of the Shares are released by you for sale to the public,
or such other time and date as you and the Company may agree upon in writing,
and, with respect to the Optional Shares, 9:30 a.m., Boston time, on the date
specified by you in the written notice given by you of the Underwriters'
election to purchase such
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<PAGE>
Optional Shares, or at such other time and date as you and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery," such time and date for delivery
of the Optional Shares, if not the First Time of Delivery, is herein called
the "Second Time of Delivery," and each such time and date for delivery is
herein called a "Time of Delivery." Such certificates will be made available
for checking and packaging at least twenty four hours prior to each Time of
Delivery at such location as you may specify.
6. COVENANTS OF THE COMPANY. The Company agrees with each of the
Underwriters:
(a) To prepare the Prospectus in a form reasonably approved by you
and to file such Prospectus pursuant to Rule 424(b) under the Act not
later than Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus which shall be disapproved by you
promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when the Registration Statement,
or any amendment thereto, has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed
and to furnish you copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or
of any request by the Commission for the amending or supplementing of
the Registration Statement or Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, to use promptly its
best efforts to obtain its withdrawal;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be
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<PAGE>
necessary to complete the distribution of the Shares, provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus in
such quantities as you may from time to time reasonably request, and if
at any time within the nine-month period referred to in Section 10(a)(3)
of the Act, the delivery of a prospectus is required in connection with
the offering or sale of the Shares, and if at such time any events shall
have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary during such same period to amend or
supplement the Prospectus in order to comply with the Act, to notify you
and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time after such nine-month period, upon your request but
at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than fifteen months after the
effective date of the Registration Statement (as defined in Rule
158(c)), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and
the rules and regulations of the Commission thereunder (including at the
option of the Company Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of
the Company's equity securities or any other securities convertible into
or exchangeable for its Common Stock or other equity securities, other
than options to purchase shares of Common Stock under the stock
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option plans described in the Prospectus under the caption "Management -
Stock Option Plans" at an exercise price not less than the initial
public offering price, without the prior written consent of Adams,
Harkness & Hill, Inc.;
(f) To the extent and during the period required by the Exchange
Act, the Nasdaq National Market or any national securities exchange on
which any class of securities of the Company is listed, to furnish to
its stockholders as soon as practicable after the end of each fiscal
year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flow of the Company and its
consolidated subsidiaries certified by independent public accountants)
and, to furnish or make available to its stockholders, as soon as
practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary
financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders generally,
and deliver to you as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission, the
Nasdaq National Market or any national securities exchange on which any
class of securities of the Company is listed;
(h) To use the net proceeds acquired by it from the sale of the
Shares in the manner specified in the Prospectus under the caption "Use
of Proceeds" and in a manner such that the Company will not become an
"investment company" as that term is defined in the Investment Company
Act;
(i) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act;
(j) Not to file with the Commission any registration statement on
Form S-8 relating to shares of its Common Stock prior to 180 days after
the effective date of the Registration Statement; and
(k) Not to accelerate the vesting of any option issued under any
stock option plan such that any such option may be exercised within 180
days from the date of the Prospectus.
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7. COVENANTS OF THE SELLING STOCKHOLDER. Each Selling Stockholder
agrees to pay or cause to be paid all taxes, if any, on the transfer and sale
of the Shares to be sold by such Selling Stockholder hereunder, fees and
expenses, if any, of counsel and accountants specially retained by such
Selling Stockholder, the fees and expenses of the Custodian, if any, and its
pro rata share (based on the percentage which the number of Shares sold by
such Selling Stockholder bears to the total number of Shares sold) of all
underwriting discounts and commissions.
8. EXPENSES. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following:
(i) the fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation, printing and
filing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost
of printing or producing any Agreement among Underwriters, this Agreement,
the Blue Sky Memoranda and any other documents in connection with the
offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 6(b) hereof, including the fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (iv) the filing
fees and the reasonable fees and expenses of counsel to the Underwriters
incident to securing any required review by the NASD of the terms of the sale
of the Shares; (v) the cost of preparing stock certificates; (vi) the cost
and charges of any transfer agent or registrar; and (vii) all other costs and
expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, Section 10 and Section 13
hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers
they may make.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in their discretion, to the condition that all
representations and warranties and other statements of the Company and the
Selling Stockholders herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company and the Selling Stockholders shall
each have performed all of their respective
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obligations hereunder theretofore to be performed, and the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 6(a) hereof; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with
to your reasonable satisfaction;
(b) Hale and Dorr, counsel to the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to this Agreement, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) D'Ancona & Pflaum, counsel to the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Illinois, with power and authority (corporate and other)
to own its properties and conduct its business as described in the
Registration Statement and Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and to its knowledge all of the issued shares of
capital stock of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and, to the best of
such counsel's knowledge, were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for
or purchase any securities which have not been waived; the Shares
have been duly authorized and when issued and paid for as
contemplated by this Agreement will be validly issued, fully paid
and non-assessable; and the Shares conform in all material respects
to the description of the Common Stock contained in the Prospectus;
no preemptive
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rights or other rights to subscribe for or purchase exist with
respect to the issuance and sale of the Shares by the Company
pursuant to this Agreement arising by operation of law, under the
charter or by-laws of the Company or, to the best of such counsel's
knowledge, otherwise; to the best of such counsel's knowledge, no
stockholder of the Company has any right which has not been waived
to require the Company to register the sale of any shares of
capital stock owned by such stockholder under the Act in the public
offering contemplated by this Agreement (except with respect to the
Shares to be sold by such Selling Stockholders pursuant to this
Agreement); and no further approval or authority of the
stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares to be sold by the
Company as contemplated herein;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or
leases real property or has employees (such counsel being entitled
to rely in respect of the opinion in this clause upon certificates
of public officials and in respect of matters of fact upon
certificates of officers of the Company, provided that such counsel
shall state that they believe that both you and they are justified
in relying upon such certificates);
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of organization; and all of the issued
shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable,
and, except as otherwise disclosed in the Prospectus, are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect
of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying
upon such opinions and certificates);
(v) To the best of such counsel's knowledge and
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other than as set forth in the Prospectus, there are no legal or
governmental proceedings, actions or suits pending or threatened to
which the Company or any of its subsidiaries is or may be a party
or of which property owned or leased by the Company or any of its
subsidiaries is or may be the subject, or related to environmental
or discrimination matters, which actions, suits or proceedings,
could, if determined adversely to the Company, individually or in
the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse
change in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company or its subsidiaries, taken as a whole; no labor disturbance
by the employees of the Company or any of its subsidiaries exists
or is imminent which might be expected to affect adversely such
general affairs, management, financial position, stockholders'
equity or results of operations; and neither the Company nor any of
its subsidiaries is a party or subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or governmental body;
(vi) The Company has full corporate power and authority to
enter into this Agreement and this Agreement has been duly
authorized, executed and delivered by the Company; this Agreement
is a valid and binding agreement of the Company, and is enforceable
against the Company in accordance with its terms.
(vii) The issuance and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
agreement listed as an exhibit to the Registration Statement or
described in the Registration Statement or Prospectus, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any
subsidiary or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its properties;
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(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the
Act of the Shares, and such consents, approval, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws or the by-laws and rules of the NASD in
connection with the purchase and distribution of the Shares by the
Underwriters;
(ix) To the best of such counsel's knowledge, there are no
contracts or other documents required to be described in the
Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the rules and regulations
thereunder which have not been described or filed as required; the
contracts so described in the Prospectus are in full force and
effect on the date hereof; and neither the Company nor any of its
subsidiaries is in breach of or default under any such contract;
(x) The statements under the captions "Risk Factors -
Preferred Stock; Staggered Board and Anti-Takeover Effects of
Corporate Provisions," "Risk Factors -Shares Eligible for Future
Sale," "Business - Supply Relationship with Digital Electronics,"
"Recent Acquisitions," "Certain Transactions," "Management -
Employment Agreements," "Management - Stock Option Plans,"
"Description of Capital Stock" and "Shares Eligible for Future
Sale" in the Prospectus, insofar as such statements constitute a
summary of documents referred to therein or matters of law, are
accurate summaries and fairly and correctly present, in all
material respects, the information called for with respect to such
documents and matters;
(xi) No transfer taxes are required to be paid in connection
with the sale and delivery of the Shares to the Underwriters
hereunder;
(xii) The Company is not, and upon the consummation of the
transactions contemplated by this Agreement and the application by
the Company of the net proceeds from the sale of Shares by it
hereunder as described in the Prospectus under the caption "Use of
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Proceeds" will not be, an "investment company" or an "affiliated
person" of, or "promoter" or principal underwriter" for, an
"investment company" as defined in the Investment Company Act;
(xiii) The Shares have been duly authorized for inclusion on
the Nasdaq National Market System, subject to notice of issuance;
(xiv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements, financial data and related schedules therein, as to
which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act and the
rules and regulations thereunder; and
(xv) The Registration Statement has become effective under the
Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued by the Commission nor has any proceeding been instituted or
contemplated for that purpose under the Act; and the Prospectus has
been filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations under the Act within the time period required
thereby.
Such counsel shall also state that they have participated in the
preparation of the Registration Statement and Prospectus and nothing has
come to their attention that would give them reason to believe that, as
of its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of Delivery
(other than the financial statements, financial data and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements, financial data and related schedules therein, as to which
such counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or
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the Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the financial
statements, financial data and related schedules therein, as to which
such counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as required.
(d) [D'Ancona & Pflaum], special counsel to the Selling
Stockholders, shall have furnished to you their written opinion, dated
such Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of each Selling
Stockholder; the Custodian has been duly and validly authorized to
act as the custodian of the Shares to be sold by each Selling
Stockholders; to the best of such counsel's knowledge, the
performance of this Agreement and the Custody Agreement and the
consummation of the transactions therein contemplated by such
Selling Stockholders does not conflict with, result in a breach of,
or constitute a default under, any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease, contract
or other agreement or instrument to which such Selling Stockholder
is a party or by which such Selling Stockholder or any of his
properties are bound or affected, or violate or conflict with (i)
the Certificate of Incorporation or By-laws of such Selling
Stockholder, (ii) any judgment, ruling, decree or order known to
such counsel or (iii) to the best of such counsel's knowledge, any
statute, rule or regulation of any court or other governmental
agency or body applicable to such Selling Stockholder (except that
such counsel need express no opinion as to state securities or Blue
Sky laws or as to compliance with the antifraud provisions of
federal and state securities laws); and to the best of such
counsel's knowledge, no consent, approval, authorization or order
of, or any filing or declaration with, any court or governmental
agency or body is required for
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consummation by such Selling Stockholder of the transactions on its
part contemplated by this Agreement and the Custody Agreement,
except such as may be required under state securities or Blue Sky
laws or the by-laws and rules of the NASD in connection with the
purchase and distribution by the Underwriters of the Shares (as to
which such counsel need express no opinion) and such as have been
obtained or made under the Act or the rules and regulations
thereunder;
(ii) Each Selling Stockholder has full corporate power and
authority to enter into this Agreement and the Custody Agreement
and to sell, transfer and deliver the Shares to be sold by such
Selling Stockholder; immediately prior to the date hereof, such
Selling Stockholder was the sole registered owner of the Shares to
be sold by such Selling Stockholder on the date hereof; upon
registration of the Shares to be sold by such Selling Stockholder
in the names of the Underwriters in the stock records of the
Company, assuming the Underwriters purchased such Shares in good
faith and without notice of any adverse claim within the meaning of
the Uniform Commercial Code, the Underwriters will have acquired
all rights of such Selling Stockholder in such Shares free of any
adverse claim, any lien in favor of the Company and any
restrictions on transfer imposed by the Company; and
(iii) Each of this Agreement and the Custody Agreement is a
valid and binding agreement of such Selling Stockholder,
constitutes a valid and binding obligation of such Selling
Stockholder and is enforceable against such Selling Stockholder in
accordance with its terms.
(e) On the effective date of the Registration Statement and the
effective date of the most recently filed post-effective amendment to
the Registration Statement and also at each Time of Delivery, each of
Arthur Andersen LLP, Deloitte & Touche and Price Waterhouse shall have
furnished to you a letter or letters, dated the respective date of
delivery thereof, in form and substance satisfactory to you;
(f) (i) Neither the Company nor any of its subsidiaries have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or
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governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have
been any change in the capital stock or long-term debt of the Company or
any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any
of the following: (i) additional material governmental restrictions, not
in force and effect on the date hereof, shall have been imposed upon
trading in securities generally or minimum or maximum prices shall have
been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD,
or trading in securities generally shall have been suspended on either
such Exchange or in the over the counter market by the NASD, or a
general banking moratorium shall have been established by federal or New
York authorities, (ii) an outbreak of major hostilities or other
national or international calamity or any substantial change in
political, financial or economic conditions shall have occurred or shall
have accelerated or escalated to such an extent, as, in the judgment of
the Representatives, to affect adversely the marketability of the
Shares, or (iii) there shall be any action, suit or proceeding pending
or threatened, or there shall have been any development or prospective
development involving particularly the business or properties or
securities of the Company or any of its subsidiaries or the transactions
contemplated by this Agreement, which, in the judgment of the
Representatives, may materially and adversely affect the Company's
business or earnings and make it impracticable or inadvisable to offer
or sell the Shares;
(h) The Shares to be sold by the Company at such Time of Delivery
shall have been accepted for quotation, subject to notice of issuance,
on the Nasdaq National Market; and
(i) Each director and executive officer of the Company
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and stockholders of the Company's capital stock or of securities
convertible into or exchangeable for the Company's capital stock holding
at least the number of shares described in the Prospectus, [each holder
of Taylor Exchangeable Shares] and holders of options to purchase at
least the number of shares of Common Stock as described in the
Prospectus shall have executed and delivered to you agreements in which
such holder undertakes, for 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of the
Company's equity securities or any other securities convertible into or
exchangeable for its Common Stock or other equity securities, without
the prior written consent of Adams, Harkness & Hill, Inc.; and
(j) The Company and the Selling Stockholders shall have furnished
or caused to be furnished to you at such Time of Delivery certificates
of officers of the Company and of the Selling Stockholders respectively,
satisfactory to you, as to the accuracy of the representations and
warranties of the Company and of such Selling Stockholders,
respectively, herein at and as of such Time of Delivery, as to the
performance by the Company and such Selling Stockholders of all of their
obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request and
the Company shall have furnished or caused to be furnished certificates
as to the matters set forth in subsections (a) and (g) of this Section,
and as to such other matters as you may reasonably request.
10. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and the Selling
Stockholders, jointly and severally, will indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, 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, in light of the circumstances in
which they were made, not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or
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claim as such expenses are incurred; provided, however, that the Company and
the Selling Stockholders shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through you expressly for use therein; and, provided further,
that the aggregate liability of each Selling Stockholder under the indemnity
agreement in this Section 8 (including the contribution agreement set forth
in Section 8(d)) shall not exceed the total initial public offering price of
the Shares sold by such Selling Stockholder under this Agreement, less
underwriters' discounts.
(b) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities
to which the Company or such Selling Stockholder may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, 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, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through you
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the
Company or such Selling Stockholder in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under such
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subsection except to the extent the indemnified party is materially
prejudiced as a proximate result of such failure and in any event, shall not
relieve the indemnifying party from any liability which it may have otherwise
then on account of this indemnification agreement. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of any
judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability arising
out of such action or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of any
indemnified party.
(d) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c)
above, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative
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benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholders, respectively, bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Selling Stockholders on the one hand or the Underwriters
on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above
in this subsection (d). The amount paid or payable by an indemnified party
as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim,
except as limited by (c) above. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 10 shall be in addition to any
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liability which the Company and the Selling Stockholders may otherwise have
and shall extend, upon the same terms and conditions, to each person, if any,
who controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriter under this Section 10 shall be in addition to
any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company and to each person, if any, who controls the Company within the
meaning of the Act.
11. TERMINATION. (a) If any Underwriter shall default in its obligation
to purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled
to a further period of thirty-six hours within which to procure another party
or other parties satisfactory to you to purchase such Shares on such terms.
In the event that, within the respective prescribed periods, you notify the
Company that you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the purchase of such Shares,
you or the Company shall have the right to postpone such Time of Delivery for
a period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Company agrees to file
promptly any amendments to the Registration Statement or the Prospectus which
in your opinion may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any person substituted under this
Section with like effect as if such person had originally been a party to
this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, then the Company
shall have the right to require each non-defaulting Underwriter to purchase
the number of Shares which such Underwriter agreed to purchase hereunder at
such Time of Delivery and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of Shares
which such Underwriter agreed to purchase hereunder) of the Shares of such
defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve
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a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company
to sell the Optional Shares) shall thereupon terminate, without liability on
the part of any non-defaulting Underwriter or the Company, except for the
expenses to be borne by the Company and the Underwriters as provided in
Section 8 hereof and the indemnity and contribution agreements in Section 10
hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
12. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters,
as set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or
on behalf of any Underwriter or any controlling person of any Underwriter, or
the Company, or any officer or director or controlling person of the Company
and shall survive delivery of and payment for the Shares.
13. EXPENSES UPON TERMINATION. If this Agreement shall be terminated
pursuant to Section 11 hereof, the Company shall not then be under any
liability to any Underwriter except as provided in Section 8 and Section 10
hereof; but, if for any other reason this Agreement is terminated, other than
due to (i) any material default or material breach of this Agreement by any
Underwriter, or (ii) any event identified under Section 9(g) hereof, the
Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for
the purchase, sale and delivery of the Shares not so delivered, but the
Company shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Section 8 and
Section 10 hereof.
14. NOTICE. In all dealings hereunder, you shall act on
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behalf of each of the Underwriters, and the parties hereto shall be entitled
to act and rely upon any statement, request, notice or agreement on behalf of
any Underwriter made or given by you jointly or by Adams, Harkness & Hill,
Inc. on behalf of you as the Representatives; and in all dealing with any
Selling Stockholder hereunder, you and the Company shall be entitled to act
and rely upon any statement, request, notice or agreement on behalf of such
Selling Stockholder made or given by any or all of the Attorneys-in-Fact for
such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the Representatives in care of Adams,
Harkness & Hill, Inc., 60 State Street, Boston, MA 02109, Attention: Joseph
W. Hammer; if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: President; and if to the Selling
Stockholders shall be delivered or sent by mail, telex or facsimile
transmission to the Attorneys-in-Fact, c/o the Company; provided, however,
that any notice to an Underwriter pursuant to Section 10(d) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriter's Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company by you on request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
15. MISCELLANEOUS. (a) This Agreement shall be binding upon, and
inure solely to the benefit of, the Underwriters and the Company and, to the
extent provided in Sections 10 and 12 hereof, the officers and directors of
the Company and each person who controls the Company or any Underwriter, and
their respective heirs, executors, administrators, successors and assigns,
and no other person shall acquire or have any right under or by virtue of
this Agreement. No purchaser of any of the Shares from any Underwriter shall
be deemed a successor or assign by reason merely of such purchase.
(b) Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
(d) This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts
-33-
<PAGE>
shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us six counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters
and the Company. It is understood that your acceptance of this letter on
behalf of each of the Underwriters is pursuant to the authority set forth in
a form of Agreement among Underwriters, the form of which shall be submitted
to the Company and the Selling Stockholders for examination, upon request,
but without warranty on your part as to the authority of the signors thereof.
-34-
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-Fact by the Selling Stockholders pursuant to a
validly existing and binding Power-of-Attorney which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
TOTAL CONTROL PRODUCTS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
SELLING STOCKHOLDERS
By:
-------------------------
Name:
-----------------------
Title: Attorney-in-Fact
Accepted as of the date
hereof at Boston, Massachusetts
ADAMS, HARKNESS & HILL, INC.
A.G. EDWARDS & SONS, INC.
By:
-----------------------------
(Adams, Harkness & Hill, Inc.
On behalf of each of
the Underwriters)
-35-
<PAGE>
SCHEDULE I
Number
of
Optional
Total Shares
Number to be
of Purchased
Firm if
Shares Maximum
to be Option
Purchased Exercised
--------- ---------
Adams, Harkness & Hill, Inc.....
A.G. Edwards & Sons, Inc........
Total........................
-36-
<PAGE>
SCHEDULE II
Number of Firm
Shares to be
Sold by Selling
Stockholder
-----------------
Name of Selling Stockholder
- ---------------------------
[ ]...................
[ ]...................
Total........................
-37-
<PAGE>
Exhibit 3.1
TOTAL CONTROL PRODUCTS, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
FIRST. The name of the corporation is TOTAL CONTROL PRODUCTS, INC.
(the "Corporation").
SECOND. The purposes of the Corporation are to engage in any lawful act,
activity or business for which a corporation may be organized under the Illinois
Business Corporation Act of 1983, as amended.
THIRD. The name and address of the Corporation's agent for service of
process in this State is Michel J. Feldman, 30 North LaSalle, Suite 2900,
Chicago, Illinois, 60602.
FOURTH. The Corporation is authorized to issue a total of 23,500,000
shares of stock, consisting of 22,500,000 shares of common stock, no par value
per share (the "Common Shares") and 1,000,000 shares of preferred stock, no par
value per share (the "Preferred Shares"). The holders of the Common Shares and
the holders of the Preferred Shares shall not be entitled to exercise cumulative
voting or preemptive rights.
Section A
Common Shares
1. VOTING RIGHTS. Except as otherwise provided by law, each Common Share
shall entitle the holder thereof to one (1) vote in any matter submitted to a
vote of shareholders of the Corporation.
<PAGE>
2. DIVIDENDS AND DISTRIBUTIONS. Subject to the express terms of the
Preferred Shares outstanding from time to time, the holders of the Common Shares
shall be entitled to receive such dividends and distributions as may from time
to time be declared by the Board of Directors of the Corporation.
Section B
Preferred Shares
Subject to the terms contained in any designation of a series of
Preferred Shares, the Board of Directors of the Corporation is expressly
authorized, at any time and from time to time, to issue Preferred Shares in
one or more series, and for such consideration as the Board of Directors of
the Corporation may determine, and to fix, by resolution or resolutions, the
following provisions for shares of any class or classes of Preferred Shares
or any series of any class of Preferred Shares.
1. the designation of such class or series, the number of shares to
constitute such class or series which may be increased or decreased (but not
below the number of shares of that class or series then outstanding) by
resolution of the Board of Directors of the Corporation, and the stated value
thereof if different from the par value thereof;
2. whether the shares of such class or series shall have voting
rights, in addition to any voting rights provided by law, and if so, the
terms of such voting rights;
3. the dividends, if any, payable on such class or series, whether any
such dividends shall be cumulative, and if so, from what dates, the
conditions and dates upon which such
2
<PAGE>
dividends shall be payable, and the preference or relation such dividends
shall bear to the dividends payable on any shares of stock of any class or
any other series of the same class;
4. whether the shares of such class or series shall be subject to
redemption by the Corporation, and if so, prices and other conditions of such
redemption;
5. the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such class or series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any distribution
of the assets, of the Corporation;
6. whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and if so, the extent and manner in
which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
7. whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of stock of any class or any other series
of the same class or any other securities and if so, the price or prices or
the rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
8. the limitations and restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the payment of dividends
or the making of other distributions on, and upon purchase, redemption or
other acquisition by the Corporation of the Common Shares or shares or stock
of any class or any other series of the same class;
3
<PAGE>
9. the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series of
the same class or of any other class;
10. the ranking (be it PARI PASSU, junior or senior) of each class or
series vis-a-vis any other class or series of any class of Preferred Shares
as to the payment of dividends, the distribution of assets and all other
matters; and
11. any other powers, preferences and other rights and any
qualifications, limitations and restrictions thereof, insofar as they are not
inconsistent with the provisions of this Amended and Restated Articles of
Incorporation, to the full extent permitted in accordance with the laws of
the State of Illinois.
The powers, preferences and other rights of each class or series of
Preferred Shares and the qualifications, limitations or restrictions thereof,
if any, may differ from those of any and all other series at any time
outstanding.
FIFTH. The members of the governing board shall be called directors of
the Corporation. The number of directors of the Corporation shall be six (6).
The directors shall be divided into three (3) classes designated as Class I,
Class II and Class III, respectively. Each class shall consist, as nearly as
may be possible, of one-third of the total number of directors constituting the
entire board of directors. Effective upon the closing of an initial public
offering of the Corporation under the Securities Act of 1933, the Corporation
shall designate the slate of directors to be elected by the shareholders as
Class I, Class II and Class III directors. The initial term of office of the
Class I directors shall expire at the annual meeting of the shareholders held in
4
<PAGE>
the year 1998. The initial term of office of the Class II directors shall
expire at the annual meeting of shareholders held in the year 1999. The
initial term of office of the Class III directors shall expire at the annual
meeting of shareholders held in the year 2000. At each annual meeting of the
shareholders after the annual meeting held in the year 1997, successors to
the class of directors whose term expires at the annual meeting shall be
elected for a three (3) year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly as possible, but in
no case shall a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be
elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. The annual meeting of
shareholders shall be held each year on a date and at a time designated by
the Board of Directors of the Corporation.
Subject to the rights, if any, of holders of any series of Preferred
Shares then outstanding, any vacancy on the Board of Directors that results
from an increase in the number of directors or by reason of the vacancy
following the annual meeting of the shareholders held in the year 1997 may be
filled by a majority of the Board of Directors then in office, provided that
a quorum is present, and any other vacancy occurring in the Board of
Directors may be filled by a majority of the directors then in office, even
if less than a quorum. Any directors elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class. Any director elected to fill
a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his predecessor.
5
<PAGE>
SIXTH. Special meetings of the shareholders, for any purpose or purposes
(except to the extent otherwise provided by law or this Amended and Restated
Articles of Incorporation), may only be called by the Chairman of the Board,
the President, any three (3) directors then in office or by the holders of
not less than one-fifth of all outstanding shares entitles to vote on the
matter for which the meeting is called. Such request shall state the purpose
or purposes of the proposed meeting.
SEVENTH. In furtherance and not in limitation of the powers conferred
by the laws of Illinois, the Board of Directors is expressly authorized and
empowered to make, alter, amend and repeal the by-laws of the Corporation in
any respect not inconsistent with the laws of the State of Illinois or with
this Amended and Restated Articles of Incorporation.
EIGHTH. Notwithstanding the provisions of this Amended and Restated
Articles of Incorporation and any provisions of the By-laws of the
Corporation, no provision of these Amended and Restated Articles of
Incorporation shall be amended, modified or repealed, unless so adopted by
the affirmative vote or consent of the holders of not less than
three-quarters (75%) of the total voting power of all then outstanding shares
entitled to vote in the election of Directors of the Corporation, voting as a
single class; provided however, that in the event the Board of Directors of
the Corporation shall, by resolution adopted by a majority of the Directors
then in office, recommend to the shareholders the adoption of any such
amendment, the shareholders of record holding a majority of the total voting
power of all then outstanding shares entitled to vote
6
<PAGE>
in the election of Directors of the Corporation, voting as a single class,
may amend, modify or repeal any or all of such provisions.
NINTH. The books of the Corporation may be kept at such place within or
without the State of Illinois as the By-laws of the Corporation may provide
or as may be designated from time to time by the Board of Directors of the
Corporation.
TENTH. The capital stock, after the amount of the subscription price
has been paid in full, shall not be subject to assessment to pay the debts of
the Corporation.
ELEVENTH. The Corporation is to have perpetual existence.
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or its Shareholders for monetary damages for breach
of fiduciary duty as a director or officer, except for liability (a) for any
breach of the director's duty of loyalty to the Corporation or its
Shareholders; (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) under Section 8.65
of the Illinois Business Corporation Act, as the same exists or hereafter may
be amended; or (d) for any transaction from which the director derived an
improper personal benefit.
If the Illinois Business Corporation Act hereafter is amended to
authorize the further elimination or limitation of the liability of
directors, then the liability of the Corporation's directors
7
<PAGE>
shall be eliminated or limited to the full extent authorized by the Illinois
Business Corporation Act, as so amended.
Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any
right or protection of a director or officer of the Corporation existing at
the time of such repeal or modification.
THIRTEENTH 1. To the extent not prohibited by law, the Corporation
shall indemnify any person who was or is a party, or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Corporation) by reason of the fact that he
or she is or was a director of the Corporation, or who is or was serving at
the request of the Corporation as a director of another Corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, if such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he or she reasonably believed to be in or not opposed to the
best interests of the Corporation or, with respect to any criminal action or
proceeding, that the person had reasonable cause to believe that his or her
conduct was unlawful.
8
<PAGE>
2. To the extent not prohibited by law, the Corporation shall
indemnify any person who was or is a party, or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director of the Corporation, or is or was
serving at the request of the Corporation as a director of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
if such person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation
provided that, no indemnification shall be made with respect to any claim,
issue, or matter as to which such person has been adjudged to have been
liable to the Corporation, unless, and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper.
3. Any indemnification under subsection 1 or 2 of this Article
THIRTEENTH (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification
of the director is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Subsections 1 and 2 of this
Article. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable
or, even if obtainable, a quorum of disinterested directors so directs, by
9
<PAGE>
advice of independent legal counsel, or (c) by the shareholders. In any
determination denying indemnification, the burden of proof shall be on the
Corporation to prove by clear and convincing evidence that indemnification
should not be allowed.
4. Notwithstanding any other provisions of this Article THIRTEENTH,
expenses incurred in defending a civil or criminal action, suit or proceeding
shall, unless the Board of Directors determines otherwise, be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director to
repay such amount, if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Corporation as authorized in this Article
THIRTEENTH.
5. Notwithstanding any other provisions of this Article THIRTEENTH, to
the extent that a director of the Corporation has been successful, on the
merits or otherwise, in the defense of any action, suit or proceeding
referred to in subsections 1 and 2 of this Article THIRTEENTH or in defense
of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys fees) actually and reasonably incurred
by such person in connection therewith.
6. The indemnification and advancement of expenses provided by or
granted under the other subsections of this Article THIRTEENTH shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote
of shareholders or disinterested directors or otherwise, both as to action in
his or her official capacity and as to action in another capacity while
holding such office.
10
<PAGE>
7. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
Corporation or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of his or her status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under
the provisions of this Article THIRTEENTH.
8. If the Corporation has paid indemnity or has advanced expenses to a
director, officer, employee or agent, the Corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders meeting.
9. For purposes of this Article THIRTEENTH, references to "the
Corporation" shall include, in addition to the surviving Corporation, any
merging Corporation (including any Corporation having merged with a merging
Corporation) absorbed in a merger which, if its separate existence had
continued would have had the power and authority to indemnify its directors,
officers, and employees or agents, so that any person who was a director,
officer, employee or agent of such merging Corporation, or was serving at the
request of such merging Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article THIRTEENTH with respect to the surviving Corporation as such person
would have with respect to such merging Corporation if its separate existence
had continued.
11
<PAGE>
For purposes of this Article THIRTEENTH, references to other
enterprises, shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by
such director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; A person who acted in good
faith and in a manner he or she reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interest
of the Corporation" as referred to in this Article THIRTEENTH.
10. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and to the
advancement of expenses, to any officer, employee or agent of the Corporation
to the fullest extent of the provisions of this Article THIRTEENTH with
respect to the indemnification and advancement of expense of directors of the
Corporation.
11. The indemnification and advancement of expenses provided by or
granted under this Article THIRTEENTH shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employees or agent and shall inure to the benefit of the
heirs, executors, and administrators of that person.
12. Any payments made to any indemnified party under these Articles of
Incorporation or under any other right to indemnification shall be deemed to
be an ordinary and necessary business
12
<PAGE>
expense of the Corporation, and payment thereof shall not subject any person
responsible for the payment, or the Board of Directors, to any action for
corporate waste or to any similar action.
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
TOTAL CONTROL PRODUCTS, INC.
(AN ILLINOIS CORPORATION)
(adopted on December , 1996)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 PRINCIPAL OFFICE. . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 MEETINGS OF SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 ANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . 1
Section 2.4 NOTICE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . 1
Section 2.5 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . 2
Section 2.6 CLOSING OF TRANSFER BOOKS AND FIXING
OF RECORD DATE. . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.7 VOTING LISTS. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.8 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.9 MANNER OF ACTING. . . . . . . . . . . . . . . . . . . . . . 3
Section 2.10 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.11 VOTING OF SHARES BY CERTAIN HOLDERS . . . . . . . . . . . . 3
Section 2.12 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS. . . . . . . 4
Section 2.13 INFORMAL ACTION BY SHAREHOLDERS . . . . . . . . . . . . . . 6
ARTICLE 3 DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 GENERAL POWERS. . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2 NUMBER, TENURE AND QUALIFICATION. . . . . . . . . . . . . . 7
Section 3.3 REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4 SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.6 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.7 MANNER OF ACTING. . . . . . . . . . . . . . . . . . . . . . 8
Section 3.8 VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.9 RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.10 COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11 PRESUMPTION OF ASSENT . . . . . . . . . . . . . . . . . . . 9
Section 3.12 COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.13 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . 10
Section 3.14 INFORMAL ACTION BY DIRECTORS . . . . . . . . . . . . . . . 10
Section 3.15 RELIANCE ON BOOKS. . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 4 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.1 NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.2 ELECTION AND TERM OF OFFICE. . . . . . . . . . . . . . . . 11
Section 4.3 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 11
ii
<PAGE>
Section 4.4 VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.5 CHAIRMAN OF THE BOARD OF DIRECTORS . . . . . . . . . . . . 11
Section 4.6 THE PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.7 CHIEF FINANCIAL OFFICER. . . . . . . . . . . . . . . . . . 12
Section 4.8 VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.9 TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.10 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.11 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES . . . . . . 13
Section 4.12 SALARIES . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 5 SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES . . . . . . 13
Section 5.1 REGULATION . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.2 CERTIFICATES FOR SHARES. . . . . . . . . . . . . . . . . . 13
Section 5.3 CANCELLATION OF CERTIFICATES . . . . . . . . . . . . . . . 14
Section 5.4 LOST, STOLEN OR DESTROYED CERTIFICATES . . . . . . . . . . 14
Section 5.5 TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . 14
Section 5.6 FACSIMILE SIGNATURE. . . . . . . . . . . . . . . . . . . . 15
ARTICLE 6 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 7 FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 8 DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 9 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 10 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 10.1 ACTIONS OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION . . . . . . . . . . . . . . . . . 16
Section 10.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. . . . . . . 16
Section 10.3 AUTHORIZATION OF INDEMNIFICATION . . . . . . . . . . . . . 16
Section 10.4 PAYMENT OF EXPENSES IN ADVANCE . . . . . . . . . . . . . . 17
Section 10.5 SUCCESSFUL DEFENSES. . . . . . . . . . . . . . . . . . . . 17
Section 10.6 PROVISIONS NOT EXCLUSIVE . . . . . . . . . . . . . . . . . 17
Section 10.7 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 10.8 NOTICE TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . 17
Section 10.9 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 10.10 INDEMNIFICATION OF OFFICERS, EMPLOYEES
AND AGENTS OF THE CORPORATION. . . . . . . . . . . . . . . 18
Section 10.11 CONTINUATION OF RIGHTS. . . . . . . . . . . . . . . . . . 18
Section 10.12 PAYMENTS A BUSINESS EXPENSE. . . . . . . . . . . . . . . . 18
ARTICLE 11 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
iii
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AMENDED AND RESTATED BY-LAWS
OF
TOTAL CONTROL PRODUCTS, INC.
ARTICLE 1
OFFICES
Section 1.1 PRINCIPAL OFFICE. The principal office of the
corporation shall be in Melrose Park, Illinois, and the corporation may have
such other offices, either within or without the State of Illinois, as it may
require from time to time.
Section 1.2 REGISTERED OFFICE. The registered office of the
corporation required by The Business Corporation Act (the "Act") to be
maintained in the State of Illinois may be, but need not be, identical with
the principal office in the State of Illinois, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
Section 2.1 PLACE OF MEETINGS. All meetings of the shareholders may be
held at such place as shall be designated from time to time by the Board of
Directors and stated in the notice of meeting or in a duly executed waiver of
notice thereof. If no designation is made, the place of meeting shall be the
principal office of the corporation.
Section 2.2 ANNUAL MEETINGS. An annual meeting of the shareholders,
commencing in 1997, shall be held each year within 180 days after the close of
the immediately preceding fiscal year of the corporation, at such time and place
as will be designated by the Board of Directors.
Section 2.3 SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes (except to the extent provided by applicable law, the
Articles of Incorporation or these By-laws), may only be called by the Chairman
of the Board, the President, any three (3) directors then in office or by the
holders of not less than one-fifth of all outstanding shares entitled to vote on
the matter for which the meeting is called. Such request shall state the
purpose or purposes of the proposed meeting
Section 2.4 NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days (or in a case involving a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of assets,
not less
<PAGE>
than twenty days) nor more than sixty days before the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board,
President, the Secretary or the officer or persons calling the meeting, to
each shareholder of record entitled to vote at the meeting. If mailed, the
notice shall be deemed to be delivered when deposited in the United States
mail, addressed to the shareholder at his or her address as it appears on the
records of the corporation, with postage thereon prepaid. Only such business
shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the corporation's notice of meeting.
Section 2.5 WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of these By-laws or under the provisions of the
Articles of Incorporation or under the provisions of the Act or otherwise, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time, stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute waiver of notice thereof unless the person at the meeting objects to
the holding of the meeting because proper notice was not given.
Section 2.6 CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. For
the purpose of determining shareholders entitled to notice of or to vote at
any meeting of shareholders, or shareholders entitled to receive payment of
any dividend, or in order to make a determination of shareholders for any
other proper purpose, the Board of Directors may provide that the share
transfer books shall be closed for a stated period, but not to exceed, in any
case, sixty days. If the share transfer books shall be closed for the purpose
of determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten days (or in a case
involving a merger, consolidation, share exchange, dissolution or sale, lease
or exchange of assets, at least twenty days) immediately preceding the
meeting. In lieu of closing the share transfer books, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty days and, in
case of a meeting of shareholders, not less than ten days (or in a case
involving a merger, consolidation, share exchange, dissolution or sale, lease
or exchange of assets, not less than twenty days) immediately preceding such
meeting. If the share transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of
a dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at
any meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment of the meeting.
Section 2.7 VOTING LISTS. The officer or agent who has charge of the
transfer books for shares of the corporation shall make, within twenty days
after the record date for a meeting of shareholders, or ten days before each
such meeting, whichever is earlier, a complete list of shareholders entitled
to vote at such meeting, arranged in alphabetical order, with the address of
and the number of shares held by each, which list, for a period of ten days
prior to such
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meeting, shall be kept on file at the registered office of the corporation
and shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of meeting and
shall be subject to the inspection of any shareholder during the whole time
of the meeting. The original share ledger or transfer book, or a duplicate
thereof kept in the State of Illinois, shall be prima facie evidence as to
who are the shareholders entitled to examine such list or share ledger or
transfer book or to vote at any meeting of shareholders. Failure to comply
with the requirements of this section shall not affect the validity of any
action taken at such meeting.
Section 2.8 QUORUM. Unless otherwise provided in the Articles of
Incorporation, a majority of the outstanding shares of the corporation, entitled
to vote on a matter, represented in person or by proxy, shall constitute a
quorum for consideration of such matter at a meeting of shareholders, but in no
event shall a quorum consist of less than one-third of the outstanding shares
entitled so to vote. If, however, such quorum shall not be present or
represented by proxy at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, the
Chairman of the Board or the President, shall have power to adjourn the meeting,
from time to time, without notice other than announcement at the meeting, except
as hereinafter provided, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting.
Section 2.9 MANNER OF ACTING. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on a matter shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by the Act or the Articles of
Incorporation or these By-laws, in which case such express provision shall
govern and control the decision of such question.
Section 2.10 PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered
in the name of another corporation domestic or foreign, may be voted by such
officer, agent, proxy or other legal representative authorized to vote such
shares under the law of incorporation of such corporation. The corporation
may treat the president or other person holding the position of chief
executive officer of such other corporation as authorized to vote such
shares, together with any other person indicated and any other holder of an
office indicated by the corporate shareholder to the corporation as a person
or as an officer authorized to vote such shares. Such persons and
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<PAGE>
officers indicated shall be registered by the corporation on the transfer
books for shares and included in any voting list prepared in accordance with
Section 2.7.
Shares registered in the name of a deceased person, a minor ward or
person under legal disability may be voted by his or her administrator,
executor, or court-appointed guardian, either in person or by proxy, without a
transfer of such shares into the name of such administrator. executor, or court-
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by Proxy.
Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name, if authority to
do so is contained in an appropriate order of the court by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be
voted, directly or indirectly; at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but shares
of its own stock held by it in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding sharer entitled to vote
at any given time.
Section 2.12 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
(A) ANNUAL MEETINGS OF SHAREHOLDERS. (1) Nominations of persons for
election to the Board of Directors of the corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (a) by or at the direction of the Board of Directors; or (b) by
any shareholder of the corporation who was a shareholder of record at the time
of giving of notice provided for in these By-Laws, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in these By-
Laws.
(2) For nominations or other business to be properly brought before
an annual meeting by a shareholder pursuant to clause (b) of paragraph (A)(1) of
this By-Law, the shareholder must have given timely notice thereof in writing to
the Secretary of the corporation and such other business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's notice
shall be delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the 60th day, nor earlier
than the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to such
annual
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meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
corporation. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a
shareholder's notice as described above. Such shareholders notice shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as it director if elected; (b) as to any other business that
the shareholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as they appear
on the corporations book, and of such beneficial owner and (ii) the class and
number of shares of the corporation which are owned beneficially and of
record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this By-Law to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the corporation is increased and
there is no public announcement by the corporation naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's annual meeting, a
shareholders notice required by this By-law shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the corporation.
(B) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected pursuant to the
corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any shareholder of the
corporation who is a shareholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law. In the event
the corporation calls a special meeting of shareholders for the purpose of
electing one or more directors to the Board of Directors, any such shareholder
may nominate a person or persons (as the case may be), for election of such
position(s) as specified in the corporation's notice of meeting, if the
shareholders' notice required by paragraph (A)(2) of this By-Law shall be
delivered to the Secretary at the
5
<PAGE>
principal executive offices of the corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting
or the 10th day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at each meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time
period for the giving of a shareholders notice as described above.
(C) GENERAL. (1) Only such persons who are nominated in accordance
with the procedures set forth in this By-Law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Chairman of
the meeting shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made or proposed, as
the case may be, in accordance with the procedures set forth in this By-1aw and,
if any proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of shareholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of preferred stock to elect directors under
specified circumstances.
Section 2.13 INFORMAL ACTION BY SHAREHOLDERS. With the exception of
dissolution of this corporation, any action required to be taken at a meeting
of the shareholders, or any other action which may be taken at a meeting of
the shareholders may be taken without a meeting and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed (i) by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voting or (ii)
by all of the shareholders entitled to vote with respect to the subject
matter thereof. If such consent is signed by less than all of the
shareholders entitled to vote, then such consent shall become effective only
if at least 5 days prior to the execution of the consent a notice in writing
is delivered to all the shareholders entitled to vote with respect to the
subject matter thereof and, after the effective date of the consent, prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be delivered in writing to those shareholders
who have not consented in writing.
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Dissolution of this corporation may be authorized by the unanimous
consent in writing of the holders of all outstanding shares entitled to vote
on dissolution.
ARTICLE 3
DIRECTORS
Section 3.1 GENERAL POWERS. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not, by the Articles of Incorporation, the
Act or these By-laws, directed or required to be exercised or done by the
shareholders.
Section 3.2 NUMBER, TENURE AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be as set forth in the
Articles of Incorporation. Each director shall hold office for the period set
forth in the Articles of Incorporation. Directors need not be residents of the
State of Illinois nor shareholders of the corporation.
Section 3.3 REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this By-law, immediately
after, and at the same place, as the annual meeting of shareholders. The Board
of Directors may provide by resolution, the time and place, either within or
without the State of Illinois, for the holding of additional regular meetings in
which case no other notice need be given.
Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
President or any three directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place, either within or
without the State of Illinois, as the place for holding any special meeting of
the Board of Directors.
Section 3.5 NOTICE. Written notice of any special meeting of directors
shall be given as follows:
By mail to each director at his business address at least three days
prior to the meeting; or
By personal delivery, telegram or facsimile to each director at his
business address at least 24 hours prior to the meeting, or in the event such
notice is given on a Saturday, Sunday or holiday, to each director at his
residence address at least 24 hours prior to the meeting.
If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage thereon
prepaid. If notice is given by telegram
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such notice shall be deemed to be delivered when the telegram is delivered to
the telegraph company. If notice is given by facsimile, such notice shall he
deemed given when sent with confirmation of receipt.
Any director may waive notice of any meeting. The attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 3.6 QUORUM. A majority of the total number of directors which
the corporation would have if there were no vacancies (the "Whole Board") shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. If less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice until a quorum shall be present.
Unless specifically prohibited by the Articles of Incorporation,
members of the Board of Directors or of any committee of the Board of Directors
may participate in and act at any meeting of such Board of Directors or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in such a meeting shall constitute attendance at the
meeting of the person or persons so participating.
Section 3.7 MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors unless a greater number is required by the Articles of
Incorporation.
Section 3.8 VACANCIES. Any vacancy occurring in the Board of Directors
that results from an increase in the number of directors or from the death,
resignation or removal of a Director may be filled as provided in the Articles
of Incorporation. A director appointed by the Board of Directors to fill a
vacancy shall serve for a period of time as set forth in the Articles of
Incorporation.
Section 3.9 RESIGNATION. A director may resign at any time by giving
written notice to the Board of Directors, its chairman, or to the president or
secretary of the corporation. A resignation is effective when the notice is
given unless the notice specifies a future date. The pending vacancy may be
filled before the effective date, but the successor shall not take office until
the effective date.
Section 3.10 COMPENSATION. The Board of Directors, irrespective of
any personal interest of any of the members, shall have the authority to fix
the compensation of Directors. The Directors may be paid their expenses, if
any, of attendance at each meeting of the Board of
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Directors and may be paid a fixed sum for attendance at meetings or a stated
salary as Directors. These payments shall not preclude any Director from
serving the corporation in any other capacity and receiving compensation
therefor. Member of special or standing committees may be allowed like
compensation.
Section 3.11 PRESUMPTION OF ASSENT. A director of the corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to
the action taken unless his dissent is entered in the minutes of the meeting
or unless he files his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment of the meeting or
forwards such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. Such right to dissent does
not apply to a director who voted in favor of such action.
Section 3.12 COMMITTEES. The Board of Directors, by resolution,
adopted by a majority of directors, may create one or more committees and
appoint members of the Board of Directors to serve on the committee or
committees. Each committee shall have two or more members, who serve at the
pleasure of the Board of Directors.
Unless the appointment by the Board of Directors requires a greater
number, a majority of any committee shall constitute a quorum and a majority
of a quorum is necessary for committee action. A committee may act by
unanimous consent in writing without a meeting and, subject to the provisions
of these By-laws or action by the Board of Directors, the committee by
majority vote of its members shall determine the time and place of meetings
and the notice required therefor.
To the extent specified by the Board of Directors or in the
Articles of Incorporation or these By-laws, each committee may exercise the
authority of the Board of Directors under the Act; provided, however, a
committee may not:
(1) authorize distributions, except for dividends to be paid with
respect to shares of any preferred or special classes or any series
thereof;
(2) approve or recommend to shareholders any act the Act requires to
be approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its
committees;
(4) elect or remove officers to fix the compensation of any member of
the committee;
(5) adopt, amend or repeal these By-laws;
(6) approve a plan of merger not requiring shareholder approval;
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(7) authorize or approve reacquisition of shares, except according to
a general formula or method prescribed by the Board;
(8) authorize or approve the issuance or sale, or contract for sale,
of shares or determine the designation and relative rights, preferences,
and limitations of a series of shares, except that the Board of Directors
may direct a committee to fix the specific terms of the issuance or sale or
contract for sale or the number of shares to be allocated to particular
employees under an employee benefit plan; or
(9) amend, alter, repeal or take action inconsistent with any
resolution or action of the Board of Directors when the resolution or
action of the Board of Directors provides by its terms that it shall not be
amended, altered or repealed by action of a committee.
Section 3.13 REMOVAL OF DIRECTORS. Any Director may be removed from
office as a Director, at any time, but only for cause, by the affirmative vote
of at least a majority of the outstanding shares then entitled to vote in the
election of Directors, voting as a single class, except that no director shall
be removed at a meeting of shareholders unless the notice of such meeting shall
state that a purpose of the meeting is to vote upon the removal of one or more
directors named in the notice. Only the named director or directors may be
removed at such meeting.
The provisions of the first paragraph of this Section 3.13 shall not
preclude the circuit court of the county in which the corporation's registered
office is located from removing a director of the corporation from office in a
proceeding commenced either by the corporation or by shareholders of the
corporation holding at least 10 percent of the outstanding shares of any class
if the court finds (1) the director is engaged in fraudulent or dishonest
conduct or has grossly abused his or her position to the detriment of the
corporation, and (2) removal is in the best interest of the corporation. If the
court removes a director, it may bar the director from reelection for a period
prescribed by the court. If such a proceeding is commenced by the shareholders,
they shall make the corporation a party defendant.
Section 3.14 INFORMAL ACTION BY DIRECTORS. Any action required to be
taken at a meeting of the Board of Directors, or any other action which may be
taken at a meeting of the Board of Directors or a committee thereof may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the, directors entitled to vote with respect to the
subject matter thereof or by all the members of such committee, as the case may
be.
Section 3.15 RELIANCE ON BOOKS. A member of the Board of Directors or
a member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon
the books of account or reports made to the corporation by any of its
officers, or by an independent certified public accountant, or by an
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appraiser selected with reasonable care by the Board of Directors or by
any committee, or in relying in good faith upon other records of the
corporation.
ARTICLE 4
OFFICERS
Section 4.1 NUMBER. The Board of Directors shall have full
discretion to appoint officers for the corporation. These officers may
include a Chairman of the Board of Directors, a President, a Chief Financial
Officer, one or more Vice Presidents, a Treasurer and a Secretary, each of
whom shall be elected by the Board of Directors. The Board of Directors may
appoint other officers if deemed necessary who shall have such authority and
shall perform such duties as from time to time may be prescribed by the Board
of Directors. Any two or more offices may be held by the same person.
Section 4.2 ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected by the Board of Directors. Vacancies may be
filled or new offices filled at any meeting of the Board of Directors. Each
officer shall hold office until his successor has been duly elected and has
been qualified or until his death or until he shall resign or has been
removed in the manner hereinafter provided.
Section 4.3 REMOVAL. Any officer or agent of the corporation may be
removed by the Board of Directors, with or without cause, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
Section 4.4 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors.
Section 4.5 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board shall have executive authority to see that all orders and resolutions of
the Board of Directors are carried into effect and, subject to the control
vested in the Board of Directors by statute, by the Articles of Incorporation or
by these By-Laws, shall administer and be responsible for the overall management
of the business and affairs of the corporation. He shall preside at all
meetings of the shareholders and of the Board of Directors, and in general shall
perform all duties incident to the office of the Chairman of the Board and such
other duties as from time to time may be assigned to him by the Board of
Directors.
Section 4.6 THE PRESIDENT. The President shall perform such duties as
may from time to time be assigned by the Board of Directors or the Chairman of
the Board, and in the absence or disability of the Chairman of the Board, shall
perform, the duties of the Chairman of the Board.
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Section 4.7 CHIEF FINANCIAL OFFICER. The Chief Financial Officer (if
any) shall act in an executive financial capacity. He shall assist the
Chairman and the President in the general supervision of the corporation's
financial policies and affairs and shall have the power to perform the duties
of the corporation, in the absence or disability of the Chairman of the Board
and the President.
Section 4.8 VICE PRESIDENT. Any one or more of the Vice Presidents may
be designated by the Board of Directors as an Executive Vice President, Senior
Vice President or such other designation as the Board of Directors may deem
appropriate. In the absence of the Chairman of the Board or the President or in
the event of their inability or refusal to act, the Executive Vice President
shall perform the duties and exercise the functions of the Chairman or the
President. If there is no Executive Vice President, or if there is more than
one, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties or exercise any of such functions;
if such determination is not made by the Board of Directors, the President may
make such determination. Any Senior Vice President may sign, with the Secretary
or an Assistant Secretary, certificates for shares of the corporation; and shall
perform those other duties which from time to time may be assigned to him by the
Board of Directors or by the Chairman.
Section 4.9 TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever and deport all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article V of these By-laws; and (b) in general, perform
all duties incident to the office of Treasurer and all other duties as from time
to time may be assigned to him by the Board of Directors or the Chairman. If
required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in the sum and with a surety or sureties as the
Board of Directors shall determine.
Section 4.10 SECRETARY. The Secretary shall: (a) keep the minutes of the
shareholders and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-laws or as required by law; (c) be custodian of
the corporate records and, if the corporation has a corporate seal, of the seal
of the corporation and see that the seal of the corporation is affixed to all
certificates for shares prior to the issue thereof and to all documents, the
execution of which on behalf of the corporation under its seal is duly
authorized in accordance with the provisions of these By-laws; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the Secretary by such shareholder; (c) sign, with the President or a Vice
President, certificates for shares of the corporation, the issue of which shall
have been authorized by resolution of the Board of Directors; (f) have general
charge of the share transfer books of the corporation; and (g) in general,
perform all duties incident to the office of Secretary and all other duties as
from time to time may be assigned to him by the Board of Directors or the chief
executive officer.
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Section 4.11 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
Assistant Secretaries as thereunto authorized by the Board of Directors may sign
with the President or a Vice President certificates for shares of the
corporation, the issue of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers and Assistant Secretaries, in
general, shall perform such duties as shall be assigned to them by the Treasurer
or the Secretary, respectively, or by the Board of Directors or the Chairman.
The Assistant Treasurers shall, respectively, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in sums and
with sureties as the Board of Directors shall determine.
Section 4.12 SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors or a committee thereof, and no officer
shall be prevented from receiving such salary by reason of the fact that he is
also a Director of the corporation.
ARTICLE 5
SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES
Section 5.1 REGULATION. The Board of Directors may make such rules and
regulations as it may deem expedient concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
Section 5.2 CERTIFICATES FOR SHARES. The shares of the corporation
shall be represented by certificates which shall be signed by the Chairman of
the Board, the President, the Chief Financial Officer or a Vice President and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, shall be numbered serially for each class of shares, or series
thereof, as they are issued and may be scaled with the seal, or a facsimile of
the seal, of the corporation. If a certificate is countersigned by a transfer
agent or registrar, other than the corporation itself or its employee, any other
signatures or countersignatures on the certificate may be facsimiles. If the
corporation shall be authorized to issue shares of more than one class, every
certificate representing shares issued by the corporation shall set forth upon
the face or back of the certificate a full or summary statement of all of the
designations, preferences, qualifications, limitations, restrictions and special
or relative rights of the shares of each class authorized to be issued and, if
the corporation shall be authorized to issue any preferred or special class in
series, the variations in the relative rights and preferences between the shares
of each such series so far as the same have been fixed and determined and the
authority of the Board of Directors to fix and determine the relative rights and
preferences of subsequent series. This statement may be omitted from the
certificate if it shall be set forth upon the face or back of the certificate
that such statement, in full, will be furnished by the corporation to any
shareholder upon request and without charge.
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Each certificate representing shares shall also state the name of the
corporation, the date of issue, that the corporation is organized under the laws
of the State of Illinois, the name of the person to whom it is issued, the
number and class of shares and the designation of the series, if any, which the
certificate represents. Each certificate shall be otherwise in such form as may
be prescribed by the Board of Directors and as shall conform to the rules of any
Stock Exchange on which the shares may be listed.
Section 5.3 CANCELLATION OF CERTIFICATES. All certificates surrendered
to the corporation for transfer shall be canceled and no new certificates shall
be issued in lieu thereof until the former certificate for a like number of
shares shall have been surrendered and canceled, except as herein provided with
respect to lost, stolen or destroyed certificates.
Section 5.4 LOST, STOLEN OR DESTROYED CERTIFICATES. Any shareholder
claiming that his certificate for shares is lost, stolen or destroyed may make
an affidavit or limitation of that fact and provide the same to the Secretary of
the corporation, accompanied by a signed application for a new certificate.
Thereupon, and if requested by the Board of Directors, upon the giving of a
satisfactory bond of indemnity to the corporation, a new certificate may be
issued representing the same number, class and series of shares as were
represented by the certificate alleged to be lost, stolen or destroyed.
Section 5.5 TRANSFER OF SHARES. The corporation may from time to time
enter into an agreement or agreements with one or more of its shareholders
restricting the transferability of its shares in accordance with the general
corporate purpose to have its shares owned by persons actively engaged in the
corporate business. Subject to the terms of any such agreement, shares of the
corporation shall be transferable on the books of the corporation by the holder
thereof, in person or by his duly authorized attorney, upon the surrender and
cancellation of a certificate or certificates for a like number of shares. Upon
presentation and surrender of a certificate for shares properly endorsed and
payment of all required taxes if any the transferee shall be entitled to a new
certificate or certificates in lieu thereof. As against the corporation, a
transfer of shares can be made only on the books of the corporation and in the
manner hereinabove provided, and the corporation shall be entitled to treat the
holder of record of any share as the owner thereof and shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as expressly provided by the statutes of the State of Illinois.
Section 5.6 FACSIMILE SIGNATURE. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
ARTICLE 6
14
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CONTRACTS
Except as otherwise required by law, the Articles of Incorporation or these
By-laws, any contracts or other instruments may be executed and delivered in the
name and on behalf of the corporation by such officer or officers of the
corporation as the Board of Directors may from time to time direct. Such
authority may be general or confined to specific instances, as the Board may
determine.
ARTICLE 7
FISCAL YEAR
The fiscal year of the corporation shall end on the 31st day of March in
each calendar year.
ARTICLE 8
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions prodded by law and the Articles of Incorporation.
ARTICLE 9
SEAL
The Board of Directors may provide a corporate seal which shall be in the
form of a circle and shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois."
ARTICLE 10
INDEMNIFICATION
Section 10.1 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of
15
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the corporation) by reason of the fact that he or she is or was a director of
the corporation, or who is or was serving at the request of the corporation
as a director of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, if such person
acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his or her conduct was unlawful.
Section 10.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party, or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was a director of the corporation, or is or was
serving at the request of the corporation as a director of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, if such person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation provided that no
indemnification shall be made with respect to any claim, issue, or matter as to
which such person has been adjudged to have been liable to the corporation,
unless, and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper.
Section 10.3 AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under Sections 10.1 and 10.2 of this Article (unless ordered by a court) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Sections 10.1 and 10.2 of this Article. Such determination shall be
made (1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such it quorum is not obtainable or, even if obtainable, a quorum of
disinterested directors so directs, by advice of independent legal counsel, or
(3) by the shareholders. In any determination denying indemnification, the
burden of proof shall be on the corporation to prove by clear and convincing
evidence that indemnification should not be allowed.
Section 10.4 PAYMENT OF EXPENSES IN ADVANCE. Notwithstanding any
other provisions of this Article 10, expenses incurred in defending a civil
or criminal action, suit or proceeding shall, unless the Board of Directors
determines otherwise, be paid by the corporation
16
<PAGE>
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director to repay such
amount, if it shall ultimately be determined that he or she is not entitled
to be indemnified by the corporation as authorized in this Article 10.
Section 10.5 SUCCESSFUL DEFENSES. Notwithstanding any other provisions
of this Article 10, to the extent that a director of the corporation has been
successful, on the merits or otherwise, in the defense of any action, suit or
proceeding referred to in Sections 10.1 and 10.2 of this Article or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys fees) actually and reasonably incurred by such
person in connection therewith.
Section 10.6 PROVISIONS NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by or granted under the other Sections of this
Article 10 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any by-
law, agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
Section 10.7 INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation. or who is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
Or arising out of his or her status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of this Article 10.
Section 10.8 NOTICE TO SHAREHOLDERS. If the corporation has paid
indemnity or has advanced expenses to a director, officer, employee or agent,
the corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders meeting.
Section 10.9 DEFINITIONS. For purposes of this Article 10, references to
"the corporation" shall include, in addition to the surviving corporation, any
merging corporation (including any corporation having merged with a merging
corporation) absorbed in a merger which, if its separate existence had continued
would have had the power and authority to indemnify its directors, officers, and
employees or agents, so that any person who was a director, officer, employee or
agent of such merging corporation, or was serving at the request of such merging
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article 10 with respect to the surviving
corporation as such person would have with respect to such merging corporation
if its separate existence had continued.
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For purposes of this Article 10, references to other enterprises,
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; A person who acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interest of the corporation" as referred to in
this Article 10.
SECTION 10.10 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS OF THE
CORPORATION. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and to the advancement
of expenses, to any officer, employee or agent of the corporation to the fullest
extent of the provisions of this Article 10 with respect to the indemnification
and advancement of expense of directors of the corporation.
SECTION 10.11 CONTINUATION OF RIGHTS. The indemnification and
advancement of expenses provided by or granted under this Article 10 shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employees or agent and shall inure to
the benefit of the heirs, executors, and administrators of that person.
SECTION 10.12 PAYMENTS A BUSINESS EXPENSE. Any payments made to any
indemnified party under these By-Laws or under any other right to
indemnification shall be deemed to be an ordinary and necessary business expense
of the corporation, and payment thereof shall not subject any person responsible
for the payment, or the Board of Directors, to any action for corporate waste or
to any similar action.
ARTICLE 11
AMENDMENTS
Unless the power to make, alter, amend or repeal these By-laws is reserved
to the shareholders by the Articles of Incorporation, these By-laws may be made,
altered, amended or repealed only by the Board of Directors.
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EXHIBIT 3.3
ARTICLES OF INCORPORATION
We, the incorporator(s), being one or more natural persons of the age of twenty-
one years or more or a corporation for the purpose of forming a corporation
under "The Business Corporation Act" of the State of Illinois, do hereby adopt
the following Articles of Incorporation:
ARTICLE ONE The name of the corporation is: Total Control Products, Inc.
---------------------------------
ARTICLE TWO The name and address of the initial registered agent and
registered office are:
Registered Agent Frank A. Reynolds, Jr.
-----------------------------------------------
Registered Office 111 W. Washington , Suite 1340
-----------------------------------------------
Chicago, Illinois 60602 Cook
-----------------------------------------------
ARTICLE THREE The duration of the corporation is perpetual.
ARTICLE FOUR The purposes for which the corporation is organized are:
manufacture, sale, and distribution of computer programs, control
panels, and similar electronic products in the computer field.
ARTICLE FIVE Paragraph 1: The number of shares which the Corporation shall
be authorized to issue, itemized by class, series and par value,
if any, is
Number of shares
Class Series Par Value Per Share authorized
-------------------------------------------------------------
Common None N/A 7,500,000
Paragraph 2: The holders of shares of capital stock of the
corporation shall have preemptive rights to acquire unissued
shares of the corporation or right to subscribe to or acquire
shares to the extent provided in a Shareholders Agreement among
the corporation and each of the shareholders of the corporation.
Nothing herein shall prohibit the corporation from granting
options or other rights to acquire capital stock of the
corporation pursuant to an agreement approved by the Board of
Directors of the corporation.
ARTICLE SIX The number of shares which the corporation proposes to issue
without further report to the Secretary of State, itemized by
class, series and par value, if any, and the consideration to be
received by the corporation therefor (EXPRESSED IN DOLLARS) are:
<PAGE>
<TABLE>
Par Value Number of Shares Total Consideration
Class Series per share to be issued to be received therefore
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common -- no par value -- 10,000 $10,000
--------------------------------------------------------------------------------
Total $10,000
----------------
</TABLE>
ARTICLE SEVEN The corporation will not commence business until at least one
thousand dollars has been received as consideration for the
issuance of shares.
ARTICLE EIGHT The number of directors to be elected at the first meeting of the
shareholders is 3 .
-----
ARTICLE NINE All the property of the corporation is to be located in this
State and all of its business is to be transacted at or from
places of business in this state, or the incorporator(s) elect to
pay the initial franchise tax on the basis of the entire
consideration to be received for the issuance of shares.
ARTICLE TEN Paragraph 1: The right to transfer shares of the corporation is
restricted in that no shareholder shall be entitled to transfer
any share or shares in the capital of the corporation to any
person who is not a shareholder of the corporation unless the
transfer has been approved by the board of directors of the
corporation.
Paragraph 2: The number of shareholders of the corporation,
exclusive of persons who are in its employment and are
shareholders of the corporation and exclusive of persons who,
having been formerly in the employment of the corporation, were,
while in that employment, shareholders of the Corporation, and
have continued to be shareholders of the corporation after
termination of that employment, is limited to not more than fifty
(50) persons, two or more persons who are the joint registered
owners of one or more shares being counted as one shareholder.
Paragraph 3: Any invitation to the public to subscribe for
securities of the corporation is prohibited.
Paragraph 4: The corporation has a lien on the shares of a
shareholder or his legal representative for a debt of that
shareholder to the corporation.
<PAGE>
BY-LAWS
OF
TOTAL CONTROL PRODUCTS, INC.
ARTICLE I
OFFICES
The corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose office is identical with such
registered office, and may have other offices within or without the state.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall be
held on the first Tuesday in March of each year for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called either by the president, by the board of directors or by the holders of
not less than one-fifth of all the outstanding shares of the corporation, for
the purpose or purposes stated in the call of the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, as the place of meeting for any annual meeting or for any special meeting
called by the board of directors. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be at the offices of the
corporation.
<PAGE>
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date, and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than forty days before the date of the meeting, or in the case of a
merger or consolidation not less than twenty nor more than forty days before the
meeting, either personally or by mail, by or at the direction of the president,
or the secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of shares or for the purpose of any other lawful action,
the board of directors of the corporation may fix in advance a record date which
shall not be more than sixty days and, for a meeting of shareholders, not less
than ten days, or in the case of a merger or consolidation not less than twenty
days, before the date of such meeting. If no record date is fixed, the record
date for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be the date on which notice of the meeting is
mailed, and the record date for the determination of shareholders for any other
purpose shall be the date on which the board of directors adopts the resolution
relating thereto. A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
transfer books for shares of the corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of the shareholder,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be open to inspection
by any shareholder for any purpose germane to the meeting, at any time during
usual business hours. Such list shall also be produced and kept open at the
time and place of the meeting and may be inspected by any shareholder during the
whole time of the meeting. The original share ledger or transfer book, or a
duplicate thereof kept in this State, shall be prima facie evidence as to who
are the shareholders entitled to examine such list or share ledger or transfer
book or to vote at any meeting of shareholders.
<PAGE>
SECTION 7. QUORUM. The holders of a majority of the outstanding shares of
the corporation, present in person or represented by proxy, shall constitute a
quorum at any meeting of shareholders; provided that if less than a majority of
the outstanding shares are represented at said meeting, a majority of the shares
so represented may adjourn the meeting at any time without further notice. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting shall be the act of the shareholders, unless the vote
of a greater number or voting by classes is required by The Business Corporation
Act, the articles of incorporation or these by-laws. At any adjourned meeting
at which a quorum shall be present, any business may be transacted which might
have been transacted at the original meeting. Withdrawal of shareholders from
any meeting shall not cause failure of a duly constituted quorum at that
meeting.
SECTION 8. PROXIES. Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of class,
shall be entitled to one vote upon each matter submitted to vote at a meeting of
shareholders.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent, or proxy as the by-laws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such corporation may
determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person, may be voted by his administrator, executor, court appointed
guardian, or conservator, either in person or by proxy without a transfer of
such shares into the name of such administrator, executor, court appointed
guardian, or conservator. Shares standing in the name of a trustee may be voted
by him, either in person or by proxy.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Any number of shareholders may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote or otherwise represent
their share, for a period not to exceed ten years, by entering
<PAGE>
into a written voting trust agreement specifying the terms and conditions of the
voting trust, and by transferring their shares to such trustee or trustees for
the purpose of the agreement. Any such trust agreement shall not become
effective until a counterpart of the agreement is deposited with the corporation
at its registered office. The counterpart of the voting trust agreement so
deposited with the corporation shall be subject to the same right of examination
by a shareholder of the corporation, in person or by agent or attorney, as are
the books and records of the corporation, and shall be subject to examination by
any holder of a beneficial interest in the voting trust, either in person or by
agent or attorney, at any reasonable time for any proper purpose.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
SECTION 11. CUMULATIVE VOTING. In all elections for directors, every
shareholder shall have the right to vote, in person or by proxy, the number of
shares owned by him, for as many persons as there are directors to be elected,
or to cumulate said shares, and give one candidate as many votes as the number
of directors multiplied by the number of his shares shall equal, or to
distribute them on the same principle among as many candidates as he shall see
fit.
SECTION 12. INSPECTORS. At any meeting of shareholders, the presiding
officer may, or upon the request of any shareholder shall appoint one or more
persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented
at the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there be more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
<PAGE>
SECTION 14. VOTING BY BALLOT. Voting on any question or in any election
may be by voice unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business of the corporation shall be
managed by its board of directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the corporation shall be three . Each director shall hold office until the next
annual meeting of shareholders or until his successor shall have been elected
and qualified. Directors need not be residents of Illinois or shareholders of
the corporation. The number of directors may be increased or decreased from
time to time by the amendment of this section; but no decrease shall have the
effect of shortening the term of any incumbent director.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this by-law, immediately after
the annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any two directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place as the place for holding any special meeting of the board of
directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
days previous thereto by written notice to each director at his business
address. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegram company. The attendance of a director at
any meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by these
by-laws shall constitute a quorum for transaction of business at any meeting of
the board of directors, provided that if less than a majority of such number of
directors are present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
<PAGE>
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
SECTION 8. VACANCIES. Any vacancy occurring in the board of directors and
any directorship to be filled by reason of an increase in the number of
directors, may be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose.
SECTION 9. ACTION WITHOUT A MEETING. Unless specifically prohibited by the
articles of incorporation or by-laws, any action required to be taken at a
meeting of the board of directors, or any other action which may be taken at a
meeting of the board of directors, or of any committee thereof may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors or all the members of the
committee shall have the same effect as a unanimous vote, and may be stated as
such in any document filed with the Secretary of State or with anyone else.
Section 10. COMPENSATION. The board of directors, by the affirmative vote
of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers, or otherwise. By resolution of the board of directors the directors
may be paid their expenses, if any, of attendance at each meeting of the board.
No such payment previously mentioned in this section shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
SECTION 12. EXECUTIVE COMMITTEE. The board of directors, by resolution
adopted by a majority of the number of directors fixed by the by-laws or
otherwise, may designate two or more directors to constitute an executive
committee, which committee, to the extent provided in such resolution, shall
have and exercise all of the authority of the board of directors in the
management of the corporation, except as otherwise required by law. Vacancies
in the membership of the committee shall be filled by the board of directors at
a regular or special meeting of the board of directors. The executive committee
shall keep regular minutes of its proceedings and report the same to the board
when required.
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a president,
one or more vice-presidents, a treasurer, a secretary, and such other officers
as may be elected or appointed by the board of directors. Any two or more
offices may be held by the same person, except the offices of president and
secretary: provided, however, that in cases where all of the shares of a
corporation are owned of record by one shareholder and the articles of
incorporation or by-laws provide that the number of directors shall be one, the
offices of president and secretary may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the board of directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. Election of an officer shall
not of itself create contract rights.
SECTION 3. REMOVAL. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. PRESIDENT. The president shall be the principal executive
officer of the corporation. Subject to the direction and control of the board
of directors, he shall be in charge of the business of the corporation; he shall
see that the resolutions and directions of the board of directors are carried
into effect except in those instances in which that responsibility is
specifically assigned to some other person by the board of directors; and, in
general, he shall discharge all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time. He shall preside at all meetings of the shareholders and of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, he may execute for the corporation certificates for its shares,
and any contracts, deeds, mortgages, bonds, or other instruments which the board
of directors has authorized to be executed, and he may accomplish such execution
either under or without the seal of the corporation and either individually or
with the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument. He may vote all securities which the corporation is entitled
to vote except as and to the extent such authority shall be vested in a
different officer or agent of the corporation by the board of directors.
<PAGE>
SECTION 5. THE VICE-PRESIDENTS. The vice-president (or in the event there
be more than one vice-president, each of the vice-presidents) shall assist the
president in the discharge of his duties as the president may direct and shall
perform such other duties as from time to time may be assigned to him by the
president or by the board of directors. In the absence of the president or in
the event of his inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated by the board of directors, or by the president if the board of
directors has not made such a designation, or in the absence of any designation,
then in the order of seniority of tenure as vice-president) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. Except in those instances
in which the authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is expressly
prescribed by the board of directors or these by-laws, the vice-president
(or each of them if there are more than one) may execute for the corporation
certificates for its shares and any contracts, deeds, mortgages, bonds or other
instruments which the board of directors has authorized to be executed, and he
may accomplish such execution either under or without the seal of the
corporation and either individually or with the secretary, any assistant
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
SECTION 6. THE TREASURER. The treasurer shall be the principal accounting
and financial officer of the corporation. He shall: (a) have charge of and be
responsible for the maintenance of adequate books of account for the
corporation; (b) have charge and custody of all funds and securities of the
corporation, and be responsible therefor and for the receipt and disbursement
thereof; and (c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the president
or by the board of directors. If required by the board of directors, the
treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the board of directors may determine.
SECTION 7. THE SECRETARY. The secretary shall: (a) record the minutes of
the shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation; (d) keep a register of
the post-office address of each shareholder which shall be furnished to the
secretary by such shareholder; (e) sign with the president, or a vice-president,
or any other officer thereunto authorized by the board of directors,
certificates for shares of the corporation, the issue of which shall have been
authorized by the board of directors, and any contracts, deeds, mortgages,
bonds, or other instruments which the board of directors has authorized to be
executed, according to the requirements of the form of the instrument, except
when a different mode of execution is expressly prescribed by the board of
directors or these by-laws; (f) have general charge of the stock transfer books
of the corporation; (g) perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him by the
president or by the board of directors.
<PAGE>
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers and assistant secretaries shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or by the
president or the board of directors. The assistant secretaries may sign with
the president, or a vice-president, or any other officer thereunto authorized by
the board of directors, certificates for shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
SECTION 9. SALARIES. The salaries of the officers shall be fixed from time
to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the board of directors may
select.
<PAGE>
ARTICLE VI
CERTIFICATES FOR SHARES AND
THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be signed by the president or a vice president or by such
officer as shall be designated by resolution of the board of directors and by
the secretary or an assistant secretary, and shall be sealed with the seal or a
facsimile of the seal of the corporation. If both of the signatures of the
officers be by facsimile, the certificate shall be manually signed by or on
behalf of a duly authorized transfer agent or clerk. Each certificate
representing shares shall be consecutively numbered or otherwise identified, and
shall also state the name of the person to whom issued, the number and class of
shares (with designation of series, if any), the date of issue, that the
corporation is organized under Illinois law, and the par value or a statement
that the shares are without par value. If the corporation is authorized and
does issue shares of more than one class or of series within a class, the
certificate shall also contain such information or statement as may be required
by law.
The name and address of each shareholder, the number and class of shares
held and the date on which the certificates for the shares were issued shall be
entered on the books of the corporation. The person in whose name shares stand
on the books of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares has
allegedly been lost or destroyed the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 3. TRANSFERS OF SHARES. Transfers of shares of the corporation
shall be recorded on the books of the corporation and, except in the case of a
lost or destroyed certificate, shall be made on surrender for cancellation of
the certificate for such shares. A certificate presented for transfer must be
duly endorsed and accompanied by proper guaranty of signature and other
appropriate assurances that the endorsement is effective.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
<PAGE>
ARTICLE VIII
DIVIDENDS
The board of directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE IX
SEAL
The corporate seal shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Illinois". The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of these
by-laws or under the provisions of the articles of incorporation or under the
provisions of The Business Corporation Act of the State of Illinois, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI
AMENDMENTS
The power to make, alter, amend, or repeal the by-laws of the corporation
shall be vested in the board of directors, unless reserved to the shareholders
by the articles of incorporation. The by-laws may contain any provisions for
the regulation and management of the affairs of the corporation not inconsistent
with law or the articles of incorporation.
<PAGE>
TOTAL CONTROL PRODUCTS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. Under this 1996 Stock Option Plan (the "Plan") of
Total Control Products, Inc. (the "Company"), options may be granted to eligible
employees, directors and advisors to purchase shares of the Company's capital
stock. The Plan is designed to enable the Company and its subsidiaries to
attract, retain, and motivate their employees, directors and advisors by
providing for or increasing the proprietary interest of such individuals in the
Company. The Plan provides for options which qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as options which do not so qualify ("Nonstatutory
Options"). Any option granted under this Plan shall be clearly identified as
either an Incentive Option or a Nonstatutory Option.
2. STOCK SUBJECT TO PLAN. The aggregate number of shares which may be
issued under options is 550,000 shares of the Company's common stock subject to
the adjustments hereinafter provided. Such number of shares shall be reserved
by the Company for options granted under this plan. The shares which may be
issued or delivered under the Plan may be either authorized but unissued shares
or treasury shares or partly each. Shares of stock subject to the unexercised
portions of any options granted under this Plan which expire or terminate or are
cancelled may again be subject to options under the Plan.
3. ELIGIBILITY. The employees eligible to be considered for the grant of
Incentive Options hereunder are any person (including directors) regularly
employed by the Company or its subsidiaries on a full-time, salaried basis. All
such employees and all nonemployed directors or advisors of the Company or its
subsidiaries shall be eligible to receive Nonstatutory Options hereunder.
4. $100,000 INCENTIVE OPTION EXERCISE LIMITATION. The aggregate fair
market value of the stock for which Incentive Options granted to any one
eligible employee under this Plan and under all incentive stock option plans of
the Company, its parent(s) and subsidiaries, may be their terms first become
exercisable during any calendar year shall not exceed $100,000, determining fair
market value of the stock subject to any option as of the time that option is
granted. If the date on which one or more Incentive Options could be first
exercised would be accelerated pursuant to any other provision of the Plan or
any stock option agreement referred to in Section 10, or an amendment thereto,
and the acceleration of such exercise date would result in a violation of the
restriction set forth in the preceding sentence, then notwithstanding any such
other provision the exercise date of such Incentive Options shall be accelerated
only to the extent, if any, that is permitted under Section 422 of the Code and
the exercise date of the Incentive Options with the lowest option prices shall
be accelerated first.
5. OPTION PRICE. The purchase price at which each stock option may be
exercised (the "Option Price") shall be such price as the Administrator (as
hereinafter defined), in its discretion, shall determine, and, in the case of
Incentive Options, shall not be less than one hundred percent (100%) of the fair
market value per share of the common stock covered by the
<PAGE>
Incentive Option on the date of grant, except that in the case of an
Incentive Option granted to an employee who, immediately prior to such grant,
owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any subsidiary (a "Ten
Percent Employee"), the Option Price shall not be less than one hundred ten
percent (110%) of such fair market value on the date of grant. For purposes
of this Section 5, the fair market value of the common stock shall be
determined as provided in Section 11. For purposes of this Section 5, an
individual (a) shall be considered as owning not only shares of the common
stock owned individually but also all shares that are at the time owned,
directly or indirectly, by or for the spouse, ancestors, lineal descendants
and brothers and sisters (whether by the whole or half blood) of such
individual, and (b) shall be considered as owning proportionately any shares
owned, directly or indirectly by or for any corporation, partnership, estate
or trust in which such individual shall be a shareholder, partner or
beneficiary.
6. EXERCISE OF OPTION. The option agreement may provide for partial
exercise in installments. Exercisable options may be exercisable in full or in
part. The period of time in which an option may be exercised shall be the
period designated in the option. In the case of an Incentive Option such period
shall not exceed ten (10) years from the date the option is granted and with
respect to a Ten Percent Employee, such period of time shall not exceed five (5)
years from the date the Incentive Option is granted. No Nonstatutory Option
shall be exercisable after the expiration of ten years from the date of grant.
An option to the extent exercisable at any time may be exercised in whole or in
part.
7. PAYMENT OF OPTION PRICE. Payment for stock purchased under any
exercise of an option granted under this Plan shall be made in full in cash
concurrently with such exercise. Alternatively:
a. such payment may be made in whole or in part with shares of the same
class of stock as that then subject to the option, delivered in lieu of
cash concurrently with such exercise, the shares so delivered to be valued
on the basis of the fair market value of stock (determined in a manner
provided in Section 11 hereof) on the day preceding the date of exercise
provided that the Company is not then prohibited from purchasing or
acquiring shares of such stock; and/or
b. such payment may be made in whole or in part by delivering to the
Company a promissory note in the form of note attached hereto as Exhibit A;
provided that if the Company becomes subject to the Securities and Exchange
Act of 1934, payment by promissory note shall be subject to any applicable
margin restrictions which may then be in effect as to the Company and,
shall be subject to the provisions of Section 23 herein.
8. NONTRANSFERABILITY. Any option granted under this Plan shall by its
terms be nontransferable by the optionee other than by will or the laws of
descent and distribution and is exercisable during the optionee's lifetime only
by him or by his guardian or legal representative.
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<PAGE>
9. TERMINATION OF OPTION. In the case of Incentive Options:
a. If the employment or other service to the Company of an optionee
(whether employee, nonemployed director, or advisor) who is not disabled
within the meaning of Section 422(c)(6) of the Code (a "Disabled Optionee")
is voluntarily terminated without cause or a subsidiary or an optionee
retires under any retirement plan of the Company or a subsidiary, any then
outstanding stock option held by such an optionee shall be exercisable, to
the extent exercisable on the date of termination of employment or service,
by such an optionee at any time prior to the expiration date of such stock
option or within three months after the date of termination of employment
or service, whichever is the shorter period.
b. If the employment of an optionee who is a Disabled Optionee is
voluntarily terminated without cause or if the service of a nonemployed
director or advisor terminates because such individual becomes a Disabled
Optionee, any then outstanding stock option held by such an optionee shall
be exercisable in full, to the extent exercisable on the date of
termination of employment or service, by such an optionee at any time prior
to the expiration date of such stock option or within one year after the
date of such termination of employment or service, whichever is the shorter
period;
c. Following the death of an optionee during employment or of a
nonemployed director or advisor while serving as a director or advisor of
the Company or a subsidiary, any outstanding stock option held by such an
optionee at the time of death shall be exercisable in full, to the extent
exercisable on the date of the death of the optionee, by the person or
person entitled to do so under the Will of the optionee, or if the optionee
shall fail to make testamentary disposition of the stock option or shall
die intestate, by the legal representative of the optionee at any time
prior to the expiration date of such stock option or within one year after
the date of death, whichever is the shorter period.
For all options issued hereunder, if the Company terminates the employment
of an optionee for cause, all outstanding options held by the optionee at the
time of such termination shall automatically terminate unless the Administrator
notifies the optionee that his options will not terminate. A termination "for
cause" is a termination on account of the optionee's fraudulent, dishonest or
felonious conduct resulting in losses to the Company or substantial potential or
actual liability of the Company to another person.
Whether termination of employment or other service is a termination "for
cause" and whether an optionee is disabled within the meaning of Section
422(c)(6) of the Code shall be determined in each case, in its discretion, by
the Administrator and any such determination by the Administrator shall be final
and binding.
10. WRITTEN OPTION AGREEMENT. All options granted pursuant to the Plan
shall be evidenced by written option agreements. Such option agreements shall
comply with and be
3
<PAGE>
subject to all of the terms, conditions, and limitations set forth in this
Plan and such further provisions, not inconsistent with this Plan, as the
Administrator shall deem appropriate.
11. DETERMINATION OF FAIR MARKET VALUE. Fair market value of the common
stock shall be determined in good faith by the Administrator in accordance with
a valuation method which is consistent with the guidelines set forth in Treasury
Regulation 1.421-7(e)(2) or any applicable regulations issued pursuant to
Section 422 of the Code. Fair market value shall be determined without regard
to any restriction other than a restriction which, by its terms, will never
lapse.
12. ADJUSTMENTS. If the outstanding shares of stock of the class then
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities, as a result of
one or more reorganizations, recapitalization, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities for which options may thereafter
be exercised. The Administrator shall make such adjustments as it may deem
fair, just and equitable to prevent substantial dilution or enlargement of the
rights granted to or available for optionees. No adjustment provided for in
this Section 12 shall require the Company to issue or sell a fraction of a share
or other security.
If any such adjustment provided for in this Section 12 requires the
approval of shareholders in order to enable the Company to Grant Incentive
Options, then no such adjustment shall be made without the required shareholder
approval. Notwithstanding the foregoing, in the case of Incentive Options, if
the effect of any such adjustment would be to cause the stock option to fail to
continue to qualify as an Incentive Option or to cause a modification, extension
or renewal of such stock option within the meaning of Section 424 of the Code,
the Administrator may elect that such adjustment not be made but rather shall
use reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Administrator, in its sole discretion, shall deem equitable
and which will not result in any disqualification, modification, extension or
renewal (within the meaning of Section 424 of the Code) of such Incentive
Option.
13. ADMINISTRATION. The Plan shall be administered by a person or persons
(the "Administrator") appointed by the Board of Directors of the Company. Any
vacancy occurring in the position of Administrator shall be filled by
appointments by the Board.
The Administrator may interpret the Plan, prescribe, amend and rescind any
rules or regulations necessary or appropriate for the administration of the
Plan, and make such other determination and take such other action it deems
necessary or advisable, except as otherwise expressly reserved for the Board of
Directors of the Company. Without limiting the generality of the foregoing, the
Administrator may, in its discretion, treat all or any portion of any period
during which a participant is on military or other approved leave of absence
from the Company or a subsidiary as a period of employment of such participant
by the Company or such subsidiary, as the case may be, for purposes of accrual
of his rights under his awards; provided, however, that no ISO may be awarded to
an employee while he is on leave of absence.
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<PAGE>
14. LIMITATIONS RESPECTING INCENTIVE OPTIONS. It is the intent of the
Company and its subsidiaries to conform strictly to the requirements of Code
Section 422 with regard to Incentive Options granted pursuant to this Plan.
Therefore, notwithstanding any other provision of this Plan, nothing herein with
regard to Incentive Options shall contravene any requirement set forth in Code
Section 422 and if inconsistent provisions are otherwise found herein, they
shall be deemed void and unenforceable or automatically amended to conform, as
the case may be.
15. RIGHT AS A SHAREHOLDER. An optionee, or his executor, administrator
or legatee if he be deceased, shall have no rights as a shareholder with respect
to any stock covered by his option under the date of issuance of the stock
certificate to him or such stock after receipt of the consideration in full set
forth in the option agreement or as may be approved by the Administrator.
Except as provided in Section 12 hereof, no adjustments shall be made for
dividends, whether ordinary or extraordinary, whether in cash, securities, or
other property, for distributions in which the record date is prior to the date
for which the stock certificate is issued.
16. MODIFICATION, EXTENSION AND RENEWAL. Subject to the conditions of,
and within the limitations prescribed in, Section 14, hereof, the Administrator
may modify, extend or renew options which are outstanding as granted under the
Plan if otherwise consistent herewith. Notwithstanding the foregoing, no
modification shall, without the prior written consent of the optionee, alter,
impair or waive any rights or obligations of any option theretofore granted
under the Plan.
17. INVESTMENT PURPOSES, ETC. Prior to the issuance or delivery of any
shares of the common stock under the Plan, the person exercising the stock
option may be required to (a) represent and warrant that the shares of the
common stock to be acquired upon exercise of the stock option are being acquired
for investment for the account of such person and not with a view to resale or
other distribution thereof, (b) represent and warrant that such person will not,
directly or indirectly, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any such shares (except for a pledge of shares issued or delivered
upon payment in whole or in part of the option price with a promissory note as
contemplated by Section 7) unless the transfer, sale, assignment, pledge,
hypothecation or other disposition of the shares is pursuant to effective
registrations under the 1933 Act and applicable state or foreign securities laws
or pursuant to appropriate exemptions from any such registrations, (c) execute
such further documents as may be reasonably required by the Administrator upon
exercise of the option or any part thereof, including but not limited to stock
transfer restrictions. The certificate or certificates representing the shares
of the common stock to be issued or delivered upon exercise of a stock option
may bear a legend evidencing the foregoing and other legends required by any
applicable securities laws. Furthermore, nothing herein or any option granted
hereunder shall require the Company or an subsidiary to issue any stock upon
exercise of any option if the issuance would, in the opinion of counsel for the
Company, constitute a violation of the Securities Act of 1933, as amended, the
Illinois securities laws, or any other applicable rule or regulation then in
effect.
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18. NO RIGHT TO CONTINUED EMPLOYMENT. This Plan, and any option granted
under this Plan, shall not confer upon any optionee any right with respect to
continued employment by or service to the Company or any subsidiary, nor shall
they alter, modify, limit or interfere with any right or privilege of the
Company or any subsidiary under any employment or service contract heretofore or
hereinafter executed with any optionee, including the right to terminate any
optionee's employment, directorship, or advisory service, at any time for or
without cause.
19. DISPOSITION OF INCENTIVE OPTION SHARES. Except (a) as provided in
options to the Company and other holders of the stock contained in stock
transfer restriction agreements to which the Company is a party, or (b) in
connection with reorganizations or other transactions described in Section 12
hereof, no stock acquired by the exercise of an Incentive Option granted under
the Plan shall be transferable, otherwise than by will or the laws of descent
and distribution, within two (2) years after the date the option was granted or
within one (1) year after the transfer of such share of stock to the optionee
pursuant to the exercise of the option. Each certificate representing the
acquired shares shall bear a legend to this effect.
20. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the options
granted hereunder and the obligation of the Company to sell and deliver stock
under such options, shall be subject to all applicable federal and state laws,
rules, regulations and to such approvals by any government or regulatory
authority or investigative agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of stock prior to (a)
the listing of any such stock to be acquired pursuant to the exercise of any
option on any stock exchange on which the stock may then be listed, and (b) the
compliance with any registration requirements or qualification of such shares
under any federal or state securities laws, or obtaining any ruling or waiver
from any government body which the Company or it subsidiaries shall, in their
sole discretion, determine to be necessary or advisable, or which, in the
opinion of counsel to the Company or its subsidiaries, is otherwise required.
21. CORPORATE REORGANIZATIONS. Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation of the Company as a
result of which the outstanding securities of the class the subject to options
hereunder are changed into or exchanged for cash or property or securities not
of the Company's issue, or upon a sale of substantially all the property of the
Company to, or the acquisition of stock representing more than eighty percent
(80%) of the voting power of the stock of the Company then outstanding by,
another corporation or person, the Plan shall terminate, and all options
theretofore granted hereunder shall terminate, unless provision be made in
writing in connection with such transaction for the continuance of the Plan
and/or for the assumption of options theretofore granted, or the substitution
for such options of options covering the stock of a successor employer
corporation, or a parent or a subsidiary thereof, with appropriate adjustments
as to the number and kind of shares and prices, in which event the Plan and
options theretofore granted shall continue in the manner and under the terms so
provided. If the Plan and unexercised options shall terminated pursuant to the
foregoing sentence, all persons entitled to exercise any unexercised portions of
options then outstanding shall have the right, at such prior to the consummation
of the transaction causing such termination
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as the Company shall designate, to exercise the unexercised portions of their
options, including the portions thereof which would, but for this Section 21,
not yet be exercisable.
22. FINANCIAL ASSISTANCE. The Company is vested with authority under this
Plan to assist any employee to whom an option is granted hereunder (including
any director or officer of the Company or any of its subsidiaries who is also an
employee) in the payment of the purchase price payable on exercise of that
option, by lending the amount of such purchase price to such employee on such
terms and at such rates of interest and upon such security (or unsecured) as
shall have been authorized by or under authority of the Board.
23. WITHHOLDING. If, upon exercise of any Nonstatutory Option (or any
Incentive Option which is treated as a Nonstatutory Option because it fails to
meet the requirements set forth herein for Incentive Options), the optionee
fails to tender payment to the Company for any federal income tax withholding,
the Administrator shall withhold from the optionee sufficient shares or
fractional shares having a fair market value (determined under Section 11) equal
to any amount which the Company is required to withhold under the Code. The
Administrator shall also withhold any required cash amounts upon exercise of
Stock Appreciation Rights.
24. AMENDMENT AND TERMINATION. The Board may alter, amend, suspend or
terminated this Plan, provided that no such action shall deprive an optionee,
without his consent, of any option granted to the optionee pursuant to this Plan
or of any of such optionee's rights under such option. Except as herein
provided no such action of the Board, unless approved by the shareholders of the
Company within twelve months prior to twelve months after such action, may:
a. increase the maximum number of shares for which options granted under
this plan may be exercised;
b. reduce the minimum permissible exercise price;
c. extend the ten-year duration of this Plan set forth herein; or
d. alter the class of employees eligible to receive options under the
Plan.
25. PLAN DATE AND DURATION. The Plan shall take effect on the date it is
adopted by the Board of Directors of the Company. Options may not be granted
under this Plan more than ten years after the date of the adoption of this Plan,
or of shareholder approval thereof, whichever is earlier.
26. GOVERNING LAW. All questions arising with respect to the provisions
of the Plan shall be determined by application of the laws of the state of
Illinois except to the extent that Illinois laws are preempted by any federal
statute, regulation, judgment or court order, including but not limited to, the
Code.
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EXHIBIT 10.2
TOTAL CONTROL PRODUCTS, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. Under this 1996 Non-Employee Directors' Stock
Option Plan (the "Plan") of Total Control Products, Inc. (the "Company"),
options may be granted to eligible non-employee directors to purchase shares of
the Company's capital stock. The Plan is designed to enable the Company and its
subsidiaries to attract, retain, and motivate their non-employee directors by
providing for or increasing the proprietary interest of such individuals in the
Company, and by more closely aligning their interests with those of the
Company's shareholders. The Plan provides for options that do not qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). As such, all options granted under the Plan are to be
nonstatutory options.
2. STOCK SUBJECT TO PLAN. The aggregate number of shares that may be
issued pursuant to options hereunder is 120,000 shares of the Company's common
stock, subject to the adjustments hereinafter provided. Such number of shares
shall be reserved by the Company for options granted under this plan. The
shares that may be issued or delivered under the Plan may be either authorized
but unissued shares or treasury shares or a combination of both types of shares.
Shares of stock subject to the unexercised portions of any options granted under
this Plan that expire or terminate or are canceled may again be subject to
options under the Plan.
3. ELIGIBILITY. All members of the Company's Board of Directors (the
"Board") who are not full-time employees of the Company ("Non-Employee
Directors") shall participate in the Plan.
4. AUTOMATIC GRANTS. Each Non-Employee Director shall receive an option to
purchase 12,000 shares of the Company's common stock as of the next business day
following the close of each annual meeting of the Company's shareholders that
occurs after the Effective Date and during the term of the Plan; provided that
such Non-Employee Director continues to serve as a director of the Company on
such business day.
5. OPTION PRICE. The purchase price at which each stock option may be
exercised (the "Option Price") shall be 100% of the fair market value of the
Company's stock on the date of such grant, as determined under Section 11.
6. EXERCISE OF OPTION. The options granted under the Plan shall be
exercisable six months after the date of grant. No option shall be exercisable
after the expiration of ten years from the date of the grant. An option, to the
extent exercisable at any time, may be exercised in whole or in part.
7. PAYMENT OF OPTION PRICE. Payment for stock purchased under any
exercise of an option granted under this Plan shall be made in full, in cash,
concurrently with such exercise.
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8. NONTRANSFERABILITY. Any option granted under this Plan shall, by its
terms, be nontransferable by the grantee other than by will or the laws of
descent and distribution, and during the grantee's lifetime shall be exercisable
only by him, his guardian, or his legal representative.
9. TERMINATION OF OPTION. An option shall terminate and shall not be
exercised if the grantee ceases to be a member of the Board. Notwithstanding
the above:
a. If the grantee's directorship is terminated by reason other than any
act of (a) fraud or intentional misrepresentation, or
(b) embezzlement, misappropriation, or conversion of assets or
opportunities of the Company or its subsidiaries, grantee may exercise
his option, at any time within the three month period following the
date he ceased to be a director; and
b. If the grantee dies prior to the expiration date of the option, his
option may be exercised at any time within 18 months following his
death by the person or persons to whom his rights under the option
passed by will or by the laws of descent or distribution, but only to
the extent that it was exercisable on the date that he ceased to be a
director; in no case, however, shall the 18-month period extend beyond
the expiration date of the option.
10. WRITTEN OPTION AGREEMENT. All options granted pursuant to the Plan
shall be evidenced by written option agreements. Such option agreements shall
comply with and be subject to all of the terms, conditions, and limitations set
forth in this Plan and such further provisions, not inconsistent with this Plan,
as the Administrator shall deem appropriate.
11. DETERMINATION OF FAIR MARKET VALUE. Fair market value of the common
stock shall be determined in good faith by the Administrator. Fair market value
shall be determined without regard to any restriction (other than a restriction
that, by its terms, will never lapse).
12. ADJUSTMENTS. If the outstanding shares of stock of the class then
subject to this Plan are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities for which options may thereafter
be exercised. The Administrator shall make such adjustments as it may deem
fair, just and equitable to prevent substantial dilution or enlargement of the
rights granted to or available for grantees. No adjustment provided for in this
Section 12 shall require the Company to issue or sell a fraction of a share or
other security.
13. ADMINISTRATION. The Plan shall be administered by a person or persons
(the "Administrator") appointed by the Board of Directors of the Company. Any
vacancy occurring in the position of Administrator shall be filled by
appointments by the Board.
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The Administrator may interpret the Plan, prescribe, amend and rescind any
rules or regulations necessary or appropriate for the administration of the
Plan, and make any other determination and take any other action as it, in its
sole discretion, deems necessary or advisable, except as otherwise expressly
reserved for the Board of Directors of the Company.
14. RIGHTS AS A SHAREHOLDER. A grantee, or his executor, administrator or
legatee if he be deceased, shall have no rights as a shareholder with respect to
any stock covered by his option until the date of issuance of the stock
certificate to him or such stock after receipt of the consideration in full set
forth in the option agreement, or as may be approved by the Administrator.
Except as provided in Section 12 hereof, no adjustments shall be made for
dividends, whether ordinary or extraordinary, whether in cash, securities, or
other property, for distributions in which the record date is prior to the date
for which the stock certificate is issued.
15. MODIFICATION, EXTENSION AND RENEWAL. The Administrator may modify,
extend or renew options that are outstanding as granted under the Plan if
otherwise consistent herewith. Notwithstanding the foregoing, no modification
shall, without the prior written consent of the grantee, alter, impair or waive
any rights or obligations of any option theretofore granted under the Plan.
16. INVESTMENT PURPOSES, ETC.. Prior to the issuance or delivery of any
options or shares of the common stock under the Plan, the person being granted
or exercising the stock option may be required to (a) represent and warrant that
the shares of the common stock to be acquired upon exercise of the stock option
are being acquired for investment for the account of such person and not with a
view to resale or other distribution thereof; (b) represent and warrant that
such person will not, directly or indirectly, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of any such shares unless the transfer, sale,
assignment, pledge, hypothecation or other disposition of the shares is pursuant
to effective registrations under the Securities Act of 1933 and applicable state
or foreign securities laws or pursuant to appropriate exemptions from any such
registrations; (c) execute such further documents as may be reasonably required
by the Administrator upon exercise of the option or any part thereof, including
but not limited to stock transfer restrictions. The certificate or certificates
representing the shares of the common stock to be issued or delivered upon
exercise of a stock option may bear a legend evidencing the foregoing and other
legends required by any applicable securities laws. Furthermore, nothing
herein, nor any option granted hereunder, shall require the Company or an
subsidiary to issue any stock upon exercise of any option if the issuance would,
in the opinion of counsel for the Company, constitute a violation of the
Securities Act of 1933, as amended, the Illinois or any other state's applicable
securities laws, or any other applicable rule or regulation then in effect.
17. NO RIGHT TO SERVICE. Neither this Plan nor any option granted under
this Plan shall confer upon any grantee any right with respect to continued
service to the Company or any subsidiary, nor shall they alter, modify, limit or
interfere with any right or privilege of the Company or any subsidiary under any
service contract heretofore or hereinafter executed with any
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grantee, including the right to terminate any grantee's directorship, at any
time for or without cause.
18. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the options
granted hereunder, and the obligation of the Company to sell and deliver stock
under such options, shall be subject to all applicable federal and state laws,
rules and regulations, and to such approvals by any government or regulatory
authority or investigative agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of stock prior to
(a) the listing of any such stock to be acquired pursuant to the exercise of
any option on any stock exchange on which the stock may then be listed; and
(b) the compliance with any registration requirements or qualification of
such shares under any federal or state securities laws, or obtaining any
ruling or waiver from any government body that the Company or it subsidiaries
shall, in their sole discretion, determine to be necessary or advisable, or
that, in the opinion of counsel to the Company or its subsidiaries, is
otherwise required.
19. CORPORATE REORGANIZATIONS. Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation of the Company as a
result of which the outstanding securities of the class subject to options
hereunder are changed into or exchanged for cash or property or securities not
of the Company's issue, or upon a sale of substantially all the property of the
Company to, or the acquisition of stock representing more than eighty percent
(80%) of the voting power of the stock of the Company then outstanding by
another corporation or person, the Plan shall terminate, and all options
theretofore granted hereunder shall terminate, unless provision be made in
writing in connection with such transaction for the continuance of the Plan
and/or for the assumption of options theretofore granted, or the substitution
for such options of options covering the stock of a successor employer
corporation, or a parent or a subsidiary thereof, with appropriate adjustments
as to the number and kind of shares and prices, in which event the Plan and
options theretofore granted shall continue in the manner and under the terms so
provided. If the Plan and unexercised options shall terminated pursuant to the
foregoing sentence, all persons entitled to exercise any unexercised portions of
options then outstanding shall have the right, at such time prior to the
consummation of the transaction causing such termination as the Company shall
designate, to exercise the unexercised portions of their options.
20. WITHHOLDING. If, upon exercise of any option, the grantee fails to
tender payment to the Company for any federal or state income tax withholding,
the Administrator shall withhold from the grantee sufficient shares or
fractional shares having a fair market value (as determined under Section 11)
equal to any amount that the Company is required to withhold under the Code or
State law.
21. AMENDMENT AND TERMINATION. The Board may alter, amend, suspend or
terminate this Plan, provided that no such action shall deprive a grantee,
without his consent, of any option granted to the grantee pursuant to this Plan
or of any of such grantee's rights under such option. Notwithstanding the
above, however, the Plan shall not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement Income
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Security Act of 1974, as amended, or the rules thereunder. Except as herein
provided, no such action of the Board, unless approved by the shareholders of
the Company within twelve months prior to twelve months after such action, may:
a. increase the maximum number of shares for which options granted under this
plan may be exercised;
b. reduce the minimum permissible exercise price;
c. extend the ten-year duration of this Plan set forth herein; or
d. alter the class of directors eligible to receive options under the Plan.
22. NO DISCRETION. No member of the Board shall exercise any discretion
with regard to the amount, price, or timing of option grants under the Plan in
contravention of the formula plan requirements of Rule 16b-3(c)(2).
23. EFFECTIVE DATE AND DURATION. The Plan shall take effect on
December 1, 1996 (the "Effective Date"), subject to the adoption of the Plan
by the Board of Directors and the approval of the Plan by the Company's
shareholders within twelve months of the Effective Date. Options may not be
granted under this Plan more than ten years after the date of the Effective
Date.
24. GOVERNING LAW. All questions arising with respect to the provisions
of the Plan shall be determined by application of the laws of the State of
Illinois, except to the extent that Illinois laws are preempted by any federal
statute, regulation, judgment or court order, including but not limited to, the
Code.
25. HEADINGS. The titles of Sections of the Plan are provided for
convenience only, and are not to be used in the construction or interpretation
of this document.
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TOTAL CONTROL PRODUCTS, INC.
1996 DISCOUNT STOCK PURCHASE PLAN
ARTICLE I
ESTABLISHMENT OF EMPLOYEE STOCK PURCHASE PLAN
1.1. Total Control Products, Inc. (the "Company"), an Illinois
corporation, established this 1996 Discount Stock Purchase Plan (the "Plan") to
provide a means for eligible employees to purchase Common Stock of the Company
("Common Stock") through payroll deductions, to give its employees an incentive
to promote the best interests of the Company and to allow them to participate in
the Company's economic progress. The Plan is intended to constitute an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986 (the
"Code"). The provisions of the Plan shall be construed in a manner consistent
with the Code and the Regulations thereunder.
1.2. 250,000 shares of Common Stock are reserved for issuance to and
purchase by Participants under the Plan, subject to adjustment in accordance
with Article VI. The shares of Common Stock subject to the Plan shall be either
shares of authorized but unissued Common Stock or shares of Common Stock
reacquired by the Company. Shares of Common Stock involved in any unexercised
portion of any terminated option may again be subject to options granted under
the Plan.
1.3. The Plan shall become effective on December 15, 1996 (the "Effective
Date"), provided that it is approved within one year of the Effective Date at a
duly-held stockholders' meeting by stockholders of the Company holding a
majority of the Company's voting stock. If the Plan fails to be approved by
shareholders as provided in the previous sentence, the Plan and any actions
taken by the Company pursuant to the Plan will be deemed null and void from the
inception.
ARTICLE II
CERTAIN DEFINITIONS
In addition to those terms defined in Article I, the following terms, when
used herein, have the following meanings:
2.1. "ACCOUNT" means the Employee Stock Purchase Account established for a
Participant under Section 4.3.
2.2. "BASIC COMPENSATION" means an Employee's regular salary or wages
immediately prior to a Purchase Period divided by the number of Purchase Periods
per year, increased by any
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deductions or withholdings, but excluding compensation reductions under any
plan described by Sections 125, 401(k) or 408(k) of the Code, non-qualified
deferred compensation, overtime, bonuses and amounts paid in reimbursement
for expenses.
2.3. "BOARD" means the Board of Directors of the Company.
2.4. "COMMITTEE" means the Compensation Committee of the Board, which shall
consist of not less than two members who are (and shall remain Committee members
only so long as they continue to be) "disinterested persons" as defined in Rule
16b-3 under the Securities Exchange Act of 1934.
2.5. "ELIGIBLE EMPLOYEE" means each Employee who, as of the first day of a
Purchase Period:
(i) has been an Employee for two years (or such lesser period
established by the Committee, but in no event less than six months);
(ii) is not, as of the day preceding the first day of the Purchase
Period, deemed for purposes of Section 423(b) (3) of the Code to own stock
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company;
(iii) is customarily employed for at least 20 hours per week; and
(iv) is customarily employed for at least 5 months per year.
2.6. "EMPLOYEE" means any person employed by the Company, any parent of the
Company or any subsidiary of the Company, as defined by Sections 424(e) or (f)
of the Code.
2.7. "EXERCISE DATE" means the last day of a Purchase Period; provided,
however, that if such date is not a business day, the "Exercise Date" shall mean
the next preceding business day.
2.8. "PARTICIPANT" means an Eligible Employee who is participating In the
Plan under Article IV.
2.9. "PURCHASE PERIOD" means a period of six months or such shorter period
as may be established by the Board. The first Purchase Period shall begin as of
the first March 31 or September 31 after the closing of the Company's registered
public offering and shall be a period of six months. The last Purchase Period
under the Plan shall terminate on or before the date of termination of the Plan
provided in Section 9.3. Upon the retirement of a Participant, the Purchase
Period as to that Participant shall terminate on his last day on the payroll as
an Employee.
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2.10. CONSTRUCTION. The masculine gender includes the feminine, the
singular number includes the plural and the plural number includes the singular
unless the context otherwise requires.
ARTICLE III
ADMINISTRATION
3.1. The Plan shall be administered by the Committee, which will have the
authority to make rules and regulations for the administration of the Plan, and
whose interpretation and decisions with respect to the Plan shall be final and
conclusive.
ARTICLE IV
OPTIONS; PARTICIPATION
4.1. (a) Each Eligible Employee shall be granted an option effective on
the first day of each Purchase Period to purchase the number of shares of Common
Stock (subject to adjustment in accordance with Article VI) as is determined by
dividing: (a) an amount equal to 10% of the Employee's present rate of Basic
Compensation projected over the Purchase Period by (b) 85% of the fair market
value of a share of Common Stock on the first day of the Purchase Period.
(b) If, as of the first day of a Purchase Period, any Eligible Employee
who is granted an option under paragraph (a) would be deemed for purposes of
Section 423(b)(3) of the Code to own stock (including the shares he would be
entitled to purchase for that Purchase Period) possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company, the
maximum number of shares which such Eligible Employee shall be entitled to
purchase under the option granted to him under paragraph (a) shall be reduced so
that if he purchased all the shares of Common Stock covered by such option, the
shares of stock of the Company which he is deemed to own under Section 423(b)(3)
of the Code would be one less than that which would give him 5% of the total
combined voting power or value of all classes of stock of the Company.
4.2. An Eligible Employee may elect to become a Participant completing a
"Stock Purchase Agreement" in such form and manner as the Committee provides.
In the Stock Purchase Agreement, the Eligible Employee shall authorize regular
payroll deductions of any full percentage between 1% and 10% of his Basic
Compensation. Options granted to Eligible Employees who fail to authorize
payroll deductions will automatically lapse. If a Participant's payroll
deductions allow him to purchase fewer than the maximum number of shares of
Common Stock to which his option entitles him, the option with respect to the
shares which he does not purchase will lapse as of the last day of the Purchase
Period.
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4.3. (a) The Committee will cause an Employee Stock Purchase Account to be
established for each Participant under the Plan. Payroll deductions made under
Section 4.2 will be credited to each Participant's Account.
(b) The Company shall credit the amounts credited to Participants'
Accounts with interest at rates equal to the rates paid during each Purchase
Period by the First Money Market Account (maintained by The First National Bank
of Chicago) for accounts of less than $50,000. Such interest shall be credited
to each Participant's Account as of each Exercise Date. Any balance to be
refunded to a Participant pursuant to the Plan shall also be credited with
interest at the time of refund.
ARTICLE V
PURCHASE OF SHARES
5.1. The purchase price per share of Common Stock under the Plan as of any
Exercise Date shall be the lesser of: (a) 85% of the fair market value of a
share of Common Stock on the first day of the Purchase Period, or (b) 85% of the
fair market value of a share of Common Stock on the Exercise Date for that
Purchase Period. "Fair market value" on any day shall be the average of the
highest and lowest market price of a share of Common Stock reported by the
National Association of Securities Dealers Automated Quotation System or other
stock exchange, if the Stock is so listed. If no such sale of a share of Common
Stock occurred on the first day or the last day of a Purchase Period, then the
market prices shall be determined with reference to transactions on the next
preceding day on which there was a sale of Common Stock. If the Common Stock is
not traded on a stock exchange, then "Fair Market Value" shall be determined by
the Compensation Committee.
5.2. (a) If as of any Exercise Date there is credited to a Participant's
Account an amount at least equal to the purchase price of a share of Common
Stock for the current Purchase Period, as determined under Section 5.1, the
Participant shall buy and the Company shall sell the largest number of whole
shares of Common Stock which can be purchased under the Participant's option
with the amount in his Account. Any balance remaining in the Participant's
Account shall be carried forward and credited for use in the next Purchase
Period, unless, within 30 days after the Exercise Date, the Participant requests
that the balance be refunded to him in cash.
(b) No Participant may, in any calendar year, purchase a number of shares
of Common Stock under this Plan which have an aggregate fair market value
(measured as of the first day of the Purchase Period) in excess of $25,000 when
aggregated with all other shares of Common Stock which he may be entitled to
purchase in such year under all other employee stock purchase plans of the
Company and its parent and subsidiary corporations, if any, which meet the
requirements of Section 423(b) of the Code.
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5.3. (a) Shares of Common Stock purchased by a Participant shall, for all
purposes, be deemed to have been issued and sold at the close of business on the
Exercise Date. Prior to that date, the Participant shall have no rights or
privileges of a stockholder of the Company with respect to such shares.
(b) Within a reasonable time after the Exercise Date, the Company shall
issue and deliver a certificate for the number of shares of Common Stock
purchased by a Participant for the Purchase Period, which certificate shall be
registered either in the Participant's name, or jointly in the names of the
Participant and his or her spouse, as the Participant shall designate in his
Stock Purchase Agreement. Such designation may be changed at any time by filing
notice with the Committee.
ARTICLE VI
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
6.1. The aggregate number of shares of Common Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Common Stock
covered by each outstanding option, and the purchase price under each such
option shall be appropriately adjusted for any increase or decrease in the
number of outstanding shares of Common Stock resulting from a stock split or
other subdivision or consolidation of shares of Common Stock or for the other
capital adjustments or payments of stock dividends or distributions or other
increases or decreases in the outstanding shares of Common Stock affected
without receipt of consideration by the Company.
6.2. Subject to any required action by the Company's stockholders, if the
Company is the surviving corporation in any merger or consolidation, any option
granted hereunder shall cover the securities to which a holder of the number of
shares of Common Stock would have been entitled pursuant to the terms of the
merger or consolidation, but a dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving entity shall
cause every option outstanding hereunder to terminate.
6.3. The foregoing adjustments shall be determined by the Committee in its
sole discretion. Any such adjustment shall provide for the elimination of any
fractional share which might otherwise become subject to an option.
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ARTICLE VII
TERMINATION OF PARTICIPATION
7.1. A Participant may withdraw from the Plan at any time prior to the
Exercise Date of a Purchase Period by filing a notice of withdrawal. Upon a
Participant's withdrawal, payroll deductions under his Stock Purchase Agreement
shall cease and the entire amount credited to his Account shall be refunded to
him. Any Participant who withdraws from the Plan may again become a Participant
at the start of the next Purchase Period in accordance with Article IV.
7.2. (a) Upon a Participant's termination of employment for any reason
other than retirement or death, no payroll deduction may be made from any
compensation due him and the entire balance credited to his Account shall be
automatically refunded.
(b) If a Participant retires from the Company pursuant to its retirement
policy then in effect, no payroll deduction shall be made from any compensation
due him as of the date of his retirement. Such a Participant may, prior to
retirement, however, elect:
(i) to receive the balance of his Account as of the date of his
retirement in a cash refund;
(ii) to purchase, as of the date of his retirement, shares of
Common Stock with the then balance in his Account; or
(iii) to make a contribution to his Account prior to his retirement
date in any amount up to that which, when added to the then value of his
Account, would allow him to buy the maximum number of shares available
under his option for such Purchase Period and to purchase, as of the date
of his retirement, such shares.
(c) Upon the death of a Participant, no payroll deduction shall be
made from any compensation due him at time of death, and the entire balance in
the deceased Participant's Account shall be paid to the Participant's designated
beneficiary, if any, under the Company's group life insurance program, or
otherwise to his estate.
7.3. Payroll deductions shall cease during a period of absence from
work due to a Participant's temporary layoff, authorized leave of absence
without pay or disability for which benefits are payable under the Company's
long term disability plan. If a Participant returns to active service prior to
the Exercise Date for the current Purchase Period, payroll deductions shall be
resumed, and he shall be entitled to elect, within ten days after his return to
active service (but not later than the Exercise Date for the Purchase Period)
(a) to make up the deficiency in his Account by an immediate lump sum cash
payment equal to the aggregate of the amounts that would have been withheld from
him if he had not been absent, (b) to have future deductions
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uniformly increased to adjust for such deficiency, or (c) not to make up such
deficiency and to reduce the number of shares to be purchased. A Participant
who does not make a timely election pursuant to this Section shall be deemed
to have elected alternative (c). If the Participant shall not return to
active service prior to the Exercise Date for the current Purchase Period,
his share purchase agreement shall be terminated and the balance in his
Account shall be refunded, or, if the Participant so elects, shall be used to
purchase shares of Common Stock under Article V.
ARTICLE VIII
MISCELLANEOUS
8.1. The right to purchase shares of Common Stock under this Plan is
exercisable only by the Participant during his lifetime and is not transferable
by him. If a Participant attempts to transfer his right to purchase shares
under the Plan, he shall be deemed to have requested withdrawal from the Plan
and the provisions of Section 7.1 hereof shall apply with respect to such
Participant.
8.2. Granting of an option under this Plan shall impose no obligation on
the Eligible Employee to exercise such option.
8.3. Granting of an option under this Plan shall imply no right to
continued employment with the Company, compensation level of position for any
Eligible Employee. Nothing in this Plan shall be deemed the Company's guarantee
or representation with respect to the current or future value of Company Stock.
8.4. Any notice which an Eligible Employee or Participant files pursuant
to this Plan shall be in writing and shall be delivered personally or by mail
addressed to the Compensation Committee, c/o The Company.
8.5. The Company shall not be required to repurchase from any Participant
shares of Common Stock acquired under this Plan.
8.6. Except as provided in federal law, the provisions of the Plan shall be
construed in accordance with the laws of the State of Illinois.
8.7. In connection with the purchase of Company Stock hereunder, each
Participant will execute any stock restriction agreement, voting agreement or
any other agreement designated by the Committee on or before the first day of
the applicable Purchase Period.
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ARTICLE IX
AMENDMENT AND TERMINATION
9.1. The Board may, without the consent of the Participants, amend the Plan
at any time, provided that no such action shall adversely affect options
previously granted hereunder, and provided that no such action by the Board,
without approval of the Company's stockholders may: (a) increase the total
number of shares of Common Stock which may be purchased by all Participants,
except as contemplated in Article VI; (b) change the class of Employees eligible
to receive options under the Plan; (c) decrease the purchase price; (d) extend a
Purchase Period; or (e) extend the term of the Plan.
9.2. If on any Exercise Date the aggregate funds which may be used to
purchase shares of Common Stock pursuant to Article V hereof would result in the
purchase of shares in excess of the number of shares of Common Stock then
available for purchase under the Plan, the Committee shall proportionately
reduce the number of shares which would otherwise be purchased by each
Participant on the Exercise Date in order to eliminate such excess, the Plan
shall automatically terminate after such Exercise Date and any remaining balance
credited to the Account of a Participant shall be refunded to him.
9.3. The Plan shall continue in effect through December 14, 2006, unless
terminated prior to that date under Section 9.2. In addition, the Board of
Directors shall have the right to terminate the Plan at any time.
9.4. In the event of the expiration of the Plan or its termination, all
options then outstanding under the Plan shall automatically be cancelled and the
entire amount credited to the Account of each Participant hereunder shall be
refunded to him.
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TOTAL CONTROL PRODUCTS, INC.
1993 INCENTIVE STOCK OPTION PLAN
D'Ancona & Pflaum
30 N. LaSalle Street
Chicago, Illinois
(312) 580-2000
<PAGE>
TOTAL CONTROL PRODUCTS, INC.
1993 INCENTIVE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. Under this 1993 Incentive Stock Option Plan of
Total Control Products, Inc., eligible employees may be granted the opportunity
to purchase shares of the Company's common stock under specified terms and
conditions. The Plan is designed to enable the Company to attract, retain and
motivate its employees by providing for or increasing the proprietary interests
of such individuals in the Company. The Plan provides for options which qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended.
2. DEFINITIONS. The following terms, when appearing in the text of this
Plan in capitalized form, will have the meanings set out below.
(a) "BOARD" will mean the Board of Directors of the Company.
(b) "CAUSE" will mean, in connection with the termination of an Optionee's
employment with the Company: (i) conviction of a felony; (ii) gross
negligence in the performance of the Optionee's duties; (iii) deliberate
material injury to the Company; or (iv) breach of the Company's internal
financial controls. "Breach of the Company's internal financial controls"
means: (A) actions prohibited by a written conflict of interest or business
ethics policy of the Company made known to the Optionee; (B) engaging or
acquiescing in any transaction or transactions which taken together are
material and which are not promptly and accurately recorded on the books
and records of the Company; or (C) engaging in any transaction in the cash
or other assets of the Company for the Optionee's own benefit which is not
DE MINIMIS and which is not approved or ratified by the Board, either by
specific resolution or the adoption of a general policy. If the Company
could have terminated an employee's employment for Cause, but lacked actual
knowledge of any act or omission described above at the time of
termination, the termination will nevertheless be deemed for Cause upon the
later discovery of such act or omission. A determination that a
termination is for Cause, as defined above, will be effective only for the
purpose of the Plan and will not be determinative with respect to any other
contact or arrangement between the Company and the employee, unless the
Company makes a specific determination to the contrary.
(c) "CHANGE IN CONTROL" will mean circumstances under which any of the
following events occur:
(i) within any two-year period and as a result of a tender offer or
exchange offer for securities of the Company (other than by the
Company), or as a result of a proxy contest, merger, consolidation, or
sale of assets, or as a result of any combination of the foregoing, a
majority of the members of the Board no longer consists of individuals
who constituted the Board at the beginning of such two-year period or
who are new Board members whose election or nomination for election by
the
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Company's shareholders is not approved by a vote of at least two-
thirds of the Board members still in office who were Board members at
the beginning of such two-year period; or
(ii) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation regardless of which entity
is the surviving company, other than a merger or consolidation in
which the voting securities of the Company which were outstanding
immediately prior to the merger or consolidation continue to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the combined
voting power of the voting securities of the Company and the surviving
entity which are outstanding immediately after such merger or
consolidation.
Notwithstanding the foregoing, a Change in Control will not occur under
circumstances that include: (i) an initial public offering of the common
stock of the Company; or (ii) the conversion of any preferred stock of the
Company or convertible debt that are outstanding on the Effective Date into
common stock of the Company.
(d) "CODE" will mean the Internal Revenue Code of 1986, as the same may
from time to time be amended.
(e) "COMMITTEE" will mean the Board. The Committee shall have the duty
and power to administer this Plan, including, but not limited to the duties
and powers of designating Optionees, granting Options and fixing the terms
of Option Agreements in a manner consistent with this Plan.
(f) "COMPANY" will mean Total Control Products, Inc., an Illinois
corporation and, in the appropriate circumstances, any successor in
interest.
(g) "DISABLED OPTIONEE" will mean an Optionee who is disabled within the
meaning of Section 422(c)(6) of the Code.
(h) "EFFECTIVE DATE" will mean November 15, 1993; provided, however, that
if this Plan is not approved by the shareholders of the Company by November
14, 1994, it will be null and void as if it had never been effective.
(i) "FAIR MARKET VALUE" will mean, with respect to the common stock of the
Company, the price at which the stock would change hands between an
informed, able and willing buyer and seller, neither of which is under a
compulsion to enter into the transaction. Fair Market Value will be
determined in good faith by the Committee in accordance with a valuation
method which is consistent with the guidelines set forth in Treasury
Regulation 1.421-7(e)(2) or any applicable regulations issued pursuant to
Section 422 of the Code. Fair Market Value will be determined without
regard to any restriction other than a restriction which, by its terms,
will never lapse.
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(j) "OPTION" will mean the grant to an eligible employee of the
opportunity to purchase a specified number of shares of the common stock of
the Company pursuant to the terms and conditions of this Plan and an Option
Agreement.
(k) "OPTION AGREEMENT" will mean an agreement entered into between a
representative of the Committee (acting on the behalf of the Company) and
an individual Optionee and specifying the terms and conditions of the
Option granted to the Optionee, which terms and conditions will recite or
incorporate by reference: (i) the provisions of this Plan which are not
subject to variation; and (ii) the variable terms and conditions of the
Option which will apply to that Optionee.
(l) "OPTIONEE" will mean an eligible employee (and, under the appropriate
circumstances, his guardian, representative, heir, legatee or successor in
interest) who has been granted an Option.
(m) "PLAN" will mean this Total Control Products, Inc. 1993 Incentive
Stock Option Plan, as the same may from time to time be amended.
(n) "TEN PERCENT EMPLOYEE" will mean an employee who, immediately prior to
the grant of an Option, owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock (excluding
treasury and authorized, but unissued shares) of the Company. An employee
will be: (i) considered as owning not only shares of stock owned
personally, but also all shares that are at the time owned, directly or
indirectly, by or for the spouse, ancestors, lineal descendants and
brothers and sisters (whether by the whole or half blood) of the employee;
and (ii) considered as owning proportionately any shares owned, directly or
indirectly by or for any corporation, partnership, estate or trust in which
such individual is a shareholder, partner or beneficiary. Stock which may
be purchased pursuant to the Option will not be deemed to be owned by the
employee.
3. STOCK SUBJECT TO PLAN. The aggregate number of shares which may be
issued under Options is 100,000 shares of the Company's common stock, subject to
the adjustments hereinafter provided. Furthermore, the total number of shares
subject to all options granted in any calendar year may not exceed 1% of the
shares of the Company's stock outstanding as of the previous December 31,
subject to any adjustments provided herein (except that an initial grant on
November 15, 1993 for 33,198 shares shall not be subject to such 1% limit). The
shares which may be issued or delivered under the Plan may be either authorized
but unissued shares or treasury shares or partly each. Shares of stock subject
to the unexercised portions of any Options which expire or terminate or are
cancelled may again be subject to Options under the Plan.
4. ELIGIBILITY AND GRANT. The employees eligible to be considered for
the grant of Options hereunder are any individuals regularly employed by the
Company on a full-time, salaried basis as management or highly compensated
employees. However, Julius J. Sparacino and Nicholas Gihl shall not be eligible
to receive options hereunder. The Committee referred to in Section 13 will
designate, from among the eligible employees, those who will be granted Options
and will specify the
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<PAGE>
number of shares of the Company's common stock each such employee will be
entitled to purchase pursuant to the Option. The Committee may make such
grants at any time and in any amounts that it, in its discretion, may
designate, subject to the other relevant limitations set out in this Plan.
No Options will be granted under this Plan after the day prior to the tenth
(10th) anniversary of: (i) the date this Plan is adopted; or (ii) the date
this Plan is approved by the shareholders of the Company, whichever date
occurs first.
5. $100,000 EXERCISE LIMITATION. The aggregate Fair Market Value of the
stock with respect to which an Option (under this Plan and all incentive stock
option plans of the Company, its parent(s) and subsidiaries) is exercisable for
the first time by an Optionee during a calendar year will not exceed $100,000.
For this purpose, Fair Market Value will be determined as of the time the Option
is granted. To the extent any grant of Options would, by its terms, be in
conflict with the preceding sentence, either of itself or when considered in
connection with earlier grants to the same employee, the earliest exercise date
of the last granted Option will be deferred until the earliest time that will be
in compliance with this Section. If the date on which one or more Options could
be first exercised is accelerated pursuant to any other provision of the Plan or
any Option Agreement, or an amendment thereto, and the acceleration of such
exercise date results in a violation of the restriction set forth in the first
sentence of this Section, then notwithstanding any such other provision, the
exercise date of such Options will be accelerated only to the extent, if any,
that, after acceleration, the limitation of this Section is satisfied.
6. OPTION PRICE. The price or consideration that must be supplied by the
Optionee to the Company in order to exercise his Option will be determined
according to the following rules.
(a) GENERAL RULE The purchase price at which each Option may be exercised
(the "Option Price") will be determined as of the date of grant by the
Committee as one hundred percent (100%) of the then Fair Market Value per
share of the common stock covered by the Option.
(b) TEN PERCENT EMPLOYEES In the case of an Option granted to a Ten
Percent Employee, the Option Price will not be less than one hundred ten
percent (110%) of such Fair Market Value on the date of grant.
7. EXERCISE OF OPTION. The manner in which an Optionee may exercise his
Option will be determined according to the following rules.
(a) FULL OR PARTIAL EXERCISE The Option Agreement may provide for partial
exercise in installments. Exercisable Options may be exercisable in full
or in part.
(b) PERIOD OF EXERCISE The period of time in which an Option may be
exercised will be the period designated in the Option Agreement by the
Committee. Such period will not exceed ten (10) years from the date the
Option is granted. However, with respect to a Ten Percent Employee, such
period of time will not exceed five (5) years from the date the Option is
granted.
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(c) FIRST DATE EXERCISABLE The Committee will specify in the Option
Agreement when an Option will first become exercisable, which date will
never be earlier than six (6) months after the date of grant.
(d) DELIVERIES, SHAREHOLDER AGREEMENT. In order to exercise all or part
of an Option, the Optionee will deliver to the Company:
(i) the Notice of Exercise attached to his Option Agreement;
(ii) the consideration required by Section 8; and
(iii) the documents described in Section 17.
As additional consideration for the grant of an Option, and as a condition
subsequent to exercise, all Optionees also must execute and abide by that
certain Stockholders Agreement by and among the stockholders of the Company
as it may exist from time to time, and shall be subject to any repurchase
rights, right of first refusal or other similar provision for the benefit
of the other stockholders which may be set forth therein. If an Optionee
fails to comply with this requirement within thirty (30) days after
exercise, he shall be obligated to surrender his shares to the Company and
the Company shall refund the exercise price. The Option shall be
cancelled.
8. PAYMENT OF OPTION PRICE. Payment for stock purchased under any
exercise of an Option will be made in full in cash concurrently with such
exercise. Payment may also be made according to one of the following
alternatives:
(a) STOCK Payment may be made in whole or in part with shares of the same
class of stock that is subject to the Option, delivered in lieu of cash
concurrently with such exercise. The shares so delivered will be valued on
the basis of the Fair Market Value of the stock on the day preceding the
date of exercise. However, this alternative method of payment will not be
available if the Company is, at the time of attempted exercise, prohibited
from purchasing or acquiring the shares of tendered stock. Further, the
Company may reject any payment in stock which will result in a charge to
the Company's earnings. Generally, this means that stock tendered as
payment first must be held by Optionee for at least six months.
(b) NOTE With the prior consent of the Company, payment may be made in
whole or in part by delivering to the Company a promissory note in the form
of note attached hereto as Exhibit A; provided that if the Company becomes
subject to the Securities and Exchange Act of 1934, payment by promissory
note will be subject to any applicable margin restrictions which may then
be in effect as to the Company and, further, will be subject to the
provisions of Section 22 herein.
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9. NONTRANSFERABILITY. Every Option will, by its terms, be
nontransferable by the Optionee other than by will or the laws of descent and
distribution and is exercisable during the Optionee's lifetime only by him or by
his guardian or legal representative.
10. TERMINATION AND ACCELERATION OF OPTION. Options will terminate and
the exercise date of Options may be accelerated according to the following
rules.
(a) TERMINATION WITHOUT CAUSE If the employment of an Optionee who is not
a Disabled Optionee is terminated without Cause and for reasons other than
death, any Option will be exercisable by such an Optionee at any time prior
to the expiration date of such Option or within three months after the date
of termination of employment, whichever is the shorter period. All Options
not exercisable or not exercised under this subsection will expire.
(b) DISABLED OPTIONEE If the employment of an Optionee who is a Disabled
Optionee is terminated without Cause, his Option will be exercisable in
full, to the extent permitted by Section 5 of the Plan by such an Optionee
at any time prior to the expiration date of such Option or within one year
after the date of such termination of employment, whichever is the shorter
period. All Options not exercisable or not exercised under this subsection
will expire.
(c) DEATH OF OPTIONEE If the employment of an Optionee terminates on
account of his death, his Option will be exercisable in full, to the extent
permitted by Section 5 of the Plan, by the person or persons entitled to do
so under the will of the Optionee, or, if the Optionee fails to make
testamentary disposition of the Option, by the legal representative of the
Optionee's estate at any time prior to the expiration date of such Option
or within one year after the date of death, whichever is the shorter
period. All Options not exercisable or not exercised under this subsection
will expire.
(d) TERMINATION FOR CAUSE If the Company terminates the employment of an
Optionee for Cause, all outstanding Options held by the Optionee at the
time of such termination will automatically terminate unless the Committee
notifies the Optionee that his Options will not terminate. If an Option is
exercised after the act or omission of the employee that defines the
termination as a termination for Cause, but before the Company determines
that termination is for Cause, such exercise will be void AB INITIO and
shall be reversed by the parties.
(e) CHANGE IN CONTROL In the event of a Change in Control, all Options
that were granted at least six (6) months prior to the Change in Control
will become immediately exercisable, subject to the provisions of Section 5
and subsection 10(d) or any other provisions set forth in the Option
Agreement.
11. WRITTEN OPTION AGREEMENT. All Options will be evidenced by written
Option Agreements. Option Agreements will comply with and be subject to all of
the terms, conditions and limitations set forth in this Plan and such further
provisions, not inconsistent with this Plan, as the Committee will deem
appropriate.
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<PAGE>
12. ADJUSTMENTS. Changes or adjustments in the Option price, number of
shares subject to an Option or other specifics as the Committee should decide
will be considered or made pursuant to the following rules.
(a) GENERAL RULE If the outstanding common stock of the Company is
increased or decreased, or is changed into or exchanged for a different
number or kind of shares or securities, as a result of one or more
reorganizations, recapitalizations, stock splits, reverse stock splits,
stock dividends or the like, appropriate adjustments will be made in the
exercise price or the number and/or kind of shares or securities for which
Options may thereafter be granted under this Plan and for which Options
then outstanding under this Plan may thereafter be exercised. The
Committee will make such adjustments as it may deem fair, just and
equitable to prevent substantial dilution or enlargement of the rights
granted to or available for Optionees. No adjustment provided for in this
Section 12 will require the Company to issue or sell a fraction of a share
or other security. Nothing in this subsection will be construed to require
the Company to make any specific or formula adjustment.
(b) PROHIBITED ADJUSTMENT. If any such adjustment provided for in this
Section 12 requires the approval of shareholders in order to enable the
Company to grant or amend Options, then no such adjustment will be made
without the required shareholder approval. Notwithstanding the foregoing,
if the effect of any such adjustment would be to cause the Option to fail
to continue to qualify under Section 422 of the Code or to cause an event
described in Section 424(h) of the Code, the Committee may omit such
adjustment.
(c) FURTHER LIMITATIONS. Nothing in this Section will entitle the
Optionee to adjustment of his Option in the following circumstances:
(i) the issuance or sale of additional shares of the Company's
common stock, through public offering or otherwise;
(ii) a Change in Control;
(iii) the issuance or authorization of an additional class of
stock of the Company; and
(iv) the conversion of convertible preferred stock or debt of the
Company into common stock.
13. ADMINISTRATION. The Plan will be administered by a committee of at
least two members of the Board who are "outside directors" within the meeting of
Section 162(m) of the Code. Any vacancy occurring on the Committee may be
filled by appointment by the Board. The Board may remove any Committee member
at its discretion. An individual Committee member will not participate in any
deliberations or decisions relating to the grant or administration of Options
with respect to which he is or may be the Optionee.
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<PAGE>
The Committee will interpret the Plan, prescribe, amend and rescind any
rules or regulations necessary or appropriate for the administration of the
Plan, and make such other determinations and take such other actions it deems
necessary or advisable, except as otherwise expressly reserved for the Board.
14. CONFORMITY WITH SECTION 422. It is the intent of the Company that the
Plan and its administration conform strictly to the requirements of Section 422
of the Code with regard to Options. Therefore, notwithstanding any other
provision of this Plan, nothing herein will contravene any requirement set forth
in Section 422 of the Code and if inconsistent provisions are otherwise found
herein, they will be deemed void and unenforceable or automatically amended to
conform, as the case may be.
15. RIGHTS AS A SHAREHOLDER. An Optionee will have no rights as a
shareholder with respect to any stock covered by his Option until the date of
issuance of the stock certificate to him after receipt of the consideration in
full set forth in the Option Agreement. Except as provided in Section 12
hereof, no adjustments will be made for dividends, whether ordinary or
extraordinary, whether in cash, securities, or other property, for distributions
for which the record date is prior to the date on which the Option is exercised.
16. MODIFICATION EXTENSION AND RENEWAL. Subject to the conditions of, and
within the limitations prescribed in, Section 14, hereof, the Committee may
modify, extend or renew outstanding Options. Notwithstanding the foregoing, no
modification will, without the prior written consent of the Optionee, alter,
impair or waive any rights or obligations associated with any Option earlier
granted under the Plan. Further, but subject to Section 12, the Committee may
not change the number of shares of the Company's common stock issuable under the
Plan or the class of employees who are eligible to participate in the Plan. The
Committee has the right to waive any restriction set forth in this Plan or any
Option Agreement and such right shall be an implicit term of any Option
Agreement.
17. INVESTMENT PURPOSES, ETC. Unless the transfer, sale, assignment,
pledge, hypothecation or other disposition of the shares may be accomplished at
the time of exercise pursuant to effective registrations under the Securities
Act of 1933 and any applicable state or foreign securities laws or pursuant to
appropriate exemptions from any such registrations, prior to the issuance or
delivery of any shares of the common stock under the Plan, the person exercising
the Option may be required to:
(a) represent and warrant that the shares of the common stock to be
acquired upon exercise of the Option are being acquired for investment for
the account of such person and not with a view to resale or other
distribution thereof;
(b) represent and warrant that such person will not, directly or
indirectly, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any such shares (except for a pledge of shares issued or
delivered upon payment in whole or in part of the Option price with a
promissory note as contemplated by Section 8); and
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(c) execute such further documents as may be reasonably required by the
Committee upon exercise of the Option or any part thereof.
The certificate or certificates representing the shares of the common stock to
be issued or delivered upon exercise of an Option may bear a legend evidencing
the foregoing and other legends required by any applicable securities laws.
Furthermore, nothing herein or any Option granted hereunder will require the
Company to issue any stock upon exercise of any Option if the issuance would, in
the opinion of counsel for the Company, constitute a violation of the Securities
Act of 1933, as amended, the Illinois securities laws, or any other applicable
rule or regulation then in effect.
18. NO RIGHT TO CONTINUED EMPLOYMENT. This Plan, and any Option granted
under this Plan, will not confer upon any Optionee any right with respect to
continued employment by the Company nor shall they alter, modify, limit or
interfere with any right or privilege of the Company under any employment
agreement heretofore or hereinafter executed with any Optionee, including the
right to terminate any Optionee's employment at any time for or without Cause,
to change his level of compensation or to change his responsibilities or
position.
19. NOTICE OF DISQUALIFYING DISPOSITIONS. The Committee will notify each
Optionee that he will lose the tax benefits of Section 421 of the Code if he
disposes of stock acquired by the exercise of an Option, other than by will or
the laws of descent and distribution, within two (2) years after the date of
grant or within one (1) year after exercise.
20. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the Options
granted hereunder and the obligation of the Company to sell and deliver stock
under such Options, will be subject to all applicable federal and state laws,
rules, regulations and to such approvals by any government or regulatory
authority or investigative agency as may be required. The Company will not be
required to issue or deliver any certificates for shares of stock prior to (a)
the listing of any such stock to be acquired pursuant to the exercise of any
Option on any stock exchange on which the stock may then be listed, and (b) the
compliance with any registration requirements or qualification of such shares
under any federal or state securities laws, or obtaining any ruling or waiver
from any government body which the Company will, in its sole discretion,
determine to be necessary or advisable, or which, in the opinion of counsel to
the Company, is otherwise required.
21. CORPORATE REORGANIZATIONS. Except where a transaction described below
constitutes or occurs in connection with a Change in Control or an initial
public offering of the common stock of the Company, upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company as a result of which the outstanding securities of the class then
subject to Options hereunder are changed into or exchanged for cash or property
or securities not of the Company's issue, or upon a sale of substantially all
the property of the Company to, or the acquisition of stock representing more
than eighty percent (80%) of the voting power of the stock of the Company then
outstanding, by another corporation or person, the Plan and all Options will
terminate. The result described above will not occur if provision is made in
writing in connection with such transaction for the continuance of the Plan
and/or for the assumption of Options earlier granted, or the substitution for
such Options of options covering the stock of a successor employer
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corporation, or a parent or a subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices, in which event
the Plan and Options theretofore granted will continue in the manner and
under the terms so provided.
22. FINANCIAL ASSISTANCE. The Company may assist any Optionee (including
any director or officer of the Company) in the payment of the purchase price
payable on exercise of an Option, by lending the amount of such purchase price
to such Optionee on such terms and at such rates of interest and upon such
security (or unsecured) as is authorized by the Board.
23. AMENDMENT AND TERMINATION. The Board may alter, amend, suspend or
terminate this Plan, provided that no such action will deprive an Optionee,
without his consent, of any Option granted to him or of any of his rights under
such Option. The Plan shall terminate automatically as of midnight, November
14, 2003. Except as herein provided, no such action of the Board, unless
approved by the shareholders of the Company within twelve months prior or twelve
months after such action, may:
(a) increase the maximum number of shares for which Options granted under
the Plan may be exercised;
(b) reduce the minimum permissible exercise price;
(c) extend the ten-year duration of this Plan set forth above; or
(d) alter the class of employees eligible to receive Options.
24. GOVERNING LAW. All questions arising with respect to the provisions
of the Plan will be determined by application of the Code and the laws of the
state of Illinois except to the extent that Illinois laws are preempted by any
federal law.
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TOTAL CONTROL PRODUCTS, INC.
1993 INCENTIVE STOCK OPTION PLAN
AMENDMENT NO. 1
Section 16 of the Total Control Products, Inc. 1993 Incentive Stock
Option Plan (the "Plan") allows the Board of Directors of Total Control
Products, Inc. (the "Company") to amend the Plan at any time. Accordingly,
Section 13 of the Plan is amended to read as follows:
"13. ADMINISTRATION. The Plan will be administered by the
Committee. The Committee has the authority to interpret the Plan,
prescribe, amend and rescind any rules or regulations necessary or
appropriate for the administration of the Plan, and make such other
determinations and take such other actions it deems necessary or
advisable. All determinations by the Committee shall be final and
binding."
Except as amended hereby, the provisions of the Plan shall remain in full
force and effect, and no further approval of this Amendment by the
shareholders of the Company shall be required to effectuate its terms.
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TOTAL CONTROL PRODUCTS, INC.
1993 Stock Option Plan
AMENDMENT NO. 2
Section 23 of the Total Control Products, Inc 1993 Stock Option Plan (the
"Plan") authorizes the Board of Directors of Total Control Products, Inc., an
Illinois corporation, to amend the Plan at any time, subject to certain
limitations. Effective as of June 1, 1996, Section 3 of the Plan shall be
replaced by the following:
"3. STOCK SUBJECT TO THE PLAN. The aggregate number of shares that
may be issued under Options is 125,000 shares of the Company's common stock
(determined as of June 1, 1996), subject to the adjustments hereinafter
provided. The shares that may be issued or delivered under the Plan may be
either authorized but unissued or treasury shares, or partly each. Shares
of stock subject to the unexercised portions of any Options that expire or
terminate or are cancelled may again be subject to Options under the Plan."
Except as amended by this document, the provisions of the Plan shall remain in
effect.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of December 19, 1996 by
and between Nicholas Gihl ("Gihl") and Total Control Products, Inc., an Illinois
corporation (the "Company").
R E C I T A L S:
A. The Company desires to employ Gihl as an executive officer of the
Company and Gihl desires to be so employed by the Company, all on the terms and
subject to the conditions set forth herein.
B. The Company desires to bind Gihl to certain restrictive covenants and
Gihl agrees to be so bound, all on the terms and subject to the conditions set
forth herein.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TERM. Subject to the terms and conditions set forth herein and unless
sooner terminated as hereinafter provided, the Company shall employ Gihl and
Gihl agrees to serve as an employee of the Company from the date hereof to and
including December 31, 1997 (the "Employment Term"). After the expiration of
the Employment Term, Gihl's employment hereunder shall automatically renew for
successive one year periods (each, a "Renewal Term") unless either party hereto
delivers written notice to the other party hereto, at least ninety (90) days
prior to the expiration of the Employment Term or any Renewal Term thereof, as
the case may be, of his or its desire to terminate Gihl's employment with the
Company. The Employment Term and any Renewal Term thereof are collectively
referred to herein as the "Term".
2. EMPLOYMENT DUTIES. During the Term, Gihl shall serve as the Chief
Executive Officer, President and Chairman of the Board of the Company. Gihl
shall report directly to the Board of Directors of the Company (the "Board") and
shall be responsible for the operations of the Company. Gihl shall faithfully,
diligently and competently perform such duties and responsibilities and shall
perform such other duties and responsibilities as may from time to time be
assigned to him by the Board.
3. COMPENSATION. As compensation for the services to be performed and
the duties and responsibilities to be assumed by Gihl during the Term, the
Company shall pay to Gihl the following compensation:
(a) A salary (the "Salary") in an amount equal to $200,000 per
annum. The Company shall review the Salary payable to Gihl on January 1 of
each year during the
<PAGE>
Term beginning on January 1, 1997 and any increases in Salary shall be made
at the sole discretion of the Company. The Salary shall be payable to Gihl
in accordance with the Company's ordinary payment practices for salaried
employees.
(b) Gihl shall be entitled to participate in the Company's
executive bonus plan (the "Bonus") on the same terms as the
participation of other executives of TCP; provided, however, that,
during the Term, Gihl shall receive a Bonus of not less than $5,000 per
quarter. In no event shall any Bonus be paid to Gihl for any fiscal year
of the Company unless Gihl is employed throughout the entire fiscal year.
The Bonus shall be determined from the Company's internal accounting
records, which shall be finally approved by the Board or any compensation
committee thereof. The Bonus awarded to Gihl in respect of any particular
fiscal year shall be paid at the same time as bonuses are paid to other
executives of the Company.
4. VACATIONS. Gihl shall be entitled to reasonable vacations in
accordance with the Company's policies applicable to its senior executives
generally, which shall be taken at such time or times as shall be mutually
determined by the Company and Gihl. The minimum to which Gihl will be entitled
is four (4) weeks vacation for each twelve (12) month period Gihl is employed by
the Company.
5. STOCK OPTIONS. Effective upon the consummation of the Company's
initial public offering of any class of common stock (the "Initial Public
Offering"), Gihl shall receive a stock option grant under the Total Control
Products, Inc. 1996 Stock Option Plan of 50,000 option shares to be
exercisable at a price equal to the offering price per share in the Initial
Public Offering. Such options shall vest ratably over a three-year period,
subject to certain change-of-control provisions contained in the option
agreement. Gihl may receive any such additional stock option grants during the
Term as are determined by the Compensation Committee of the Board in accordance
with its policies regarding stock option grants to senior executives generally.
6. BENEFITS.
(a) During the Term, Gihl shall be entitled to participate in such
employee benefit plans and programs as are maintained by the Company, to
the extent that his position, tenure, compensation, age, health and other
qualifications make him eligible to participate. The Company does not
promise the adoption or continuance of any particular plan or program
during the Term, and Gihl's (and his dependents') participation in any such
plan or program shall be subject to the provisions, rules, regulations and
laws applicable thereto.
(b) During the Term, Gihl shall be entitled to such other fringe
benefits as are provided to employees of the Company with comparable
positions, tenure and compensation as Gihl.
7. REIMBURSEMENT OF EXPENSES. During the Term, Gihl shall be entitled to
prompt reimbursement for ordinary, necessary and reasonable out-of-pocket trade
or business expenses which Gihl incurs in connection with performing his duties
under this Agreement. The
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<PAGE>
reimbursement of all such expenses shall be made upon presentation of
evidence reasonably satisfactory to the Company of the amounts and nature of
such expenses and shall be subject to the reasonable approval of the Board.
8. RESTRICTIVE COVENANTS. Gihl acknowledges and agrees that (a) through
his continuing services to the Company, he will learn valuable trade secrets and
other proprietary information relating to the Company's business; (b) Gihl's
services to the Company are unique in nature; (c) the Company's business is
national in scope; and (d) the Company would be irreparably damaged if Gihl was
to provide services to any person or entity in violation of the restrictions
contained in this Agreement. Accordingly, as an inducement to the Company to
enter into this Agreement, Gihl agrees that during the Term and for one year
thereafter (such period being referred to herein as the "Restricted Period"),
Gihl shall not, directly or indirectly, either for himself or for any other
person or entity, without the prior written consent of the Company:
(a) anywhere in the United States, engage or participate in, or
assist, advise or be connected with (including as an employee, owner,
partner, shareholder, officer, director, advisor, consultant, agent or
(without limitation by the specific enumeration of the foregoing)
otherwise), or permit his name to be used by or render services for, any
person or entity engaged in, or making plans to engage in, a business that
competes with the business conducted by, or proposed to be conducted by,
the Company (a "Competing Business");
(b) take any action which might divert from the Company or any of its
Affiliates (as defined herein) any opportunity (each, an "Opportunity")
which would be within the scope of the Company's or such Affiliate's then
business and shall offer each Opportunity to the Company, which the Company
may, in its sole discretion, decide to pursue or not;
(c) solicit, attempt to solicit, aid in the solicitation of or accept
any orders from any person or entity who is or has been a customer of the
Company or its Affiliates, at any time during the period beginning one year
prior to the date hereof through the Restrictive Period, to purchase
products or services from any person or entity which products or services
could have been supplied or performed, as the case may be, by the Company
or its Affiliates (other than from the Company or its Affiliates);
(d) solicit, attempt to solicit or aid in the solicitation of any
person or entity who is or has been a customer, supplier, licensor,
licensee or person or entity having any other business relationship with
the Company or any of its Affiliates, at any time during the period
beginning one year prior to the date hereof through the Restrictive Period,
to cease doing business with or alter its business relationship with the
Company or its Affiliates; or
(e) solicit or hire any person or entity who is a director, officer,
employee, independent contractor or agent of the Company or any of its
Affiliates to perform
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<PAGE>
services for any person or entity other than the Company or its Affiliates
or to terminate his or her employment with the Company or its Affiliates.
As used herein, an "Affiliate" shall mean and include any person or entity
which controls a party, which such party controls or which is under common
control with such party. "Control" means the power, direct or indirect, to
direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise.
9. DISCLOSURE OF CONFIDENTIAL INFORMATION. Gihl recognizes that he will
occupy a position of trust and confidence with the Company as to Confidential
Information (as herein defined) pertaining to the Company and its Affiliates.
As an inducement for the Company to enter into this Agreement, Gihl therefore
agrees that:
(a) for the longest period permitted by law from the date of this
Agreement, Gihl and each Affiliate of Gihl shall hold in the strictest
confidence and shall not, other than as required by law, without the prior
written consent of the Company, use for his own benefit or that of any
third party or disclose to any person, firm or corporation (except the
Company, an Affiliate of the Company or employees of the Company and its
Affiliates) any Confidential Information. For purposes of this Agreement,
intending that the term shall be broadly construed to include anything
protectible as a trade secret under applicable law, "Confidential
Information" shall mean all information, and all documents and other
tangible items which record information relating to or useful in connection
with the Company's business (including the business of any of the Company's
Affiliates), which at the time or times concerned is protectible as a trade
secret under applicable law, and which has been or is from time to time
disclosed to or known by Gihl.
(b) Gihl and each Affiliate of Gihl (and if deceased, their personal
representatives) shall promptly following a request therefor from the
Company return to the Company, without retaining copies, all tangible items
which are or which contain Confidential Information. Gihl shall also
surrender all computer print-outs, laboratory books, floppy disks and other
such media for storing software and information, work papers, files, client
lists, telephone and/or address books, rolodex cards, internal memoranda,
appointment books, calendars, keys and other tangible things entrusted to
Gihl by the Company or authored in whole or in part by Gihl within the
scope of his duties to the Company even if such things do not contain
Confidential Information; and
(c) at the request of the Company made at any time or from time to
time hereafter, Gihl and each Affiliate of Gihl (and if deceased, their
personal representatives) shall make, execute and deliver all applications,
papers, assignments, conveyances, instruments or other documents and shall
perform or cause to be performed such other lawful acts as the Company may
reasonably deem necessary or desirable to implement any of the provisions
of this Agreement, and shall give testimony and cooperate with the Company,
its Affiliates or their respective representatives in any controversy or
legal
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<PAGE>
proceedings involving the Company, its Affiliates or their respective
representatives with respect to any Confidential Information.
10. INVENTIONS. Gihl acknowledges that in his capacity as an executive
officer of the Company, he will be involved in (i) the conception or making of
improvements, discoveries, inventions or the like (whether patentable or
unpatentable and whether or not reduced to practice), (ii) the authorship of
copyrightable works or (iii) the development of trade secrets relating to the
Company. Gihl acknowledges that all such intellectual property is the exclusive
property of the Company. Gihl hereby waives any rights he may have in or to
such intellectual property, and Gihl hereby assigns to the Company all right,
title and interest in and to such intellectual property. At the Company's
request and at no expense to Gihl, Gihl shall execute and deliver all such
papers, including, without limitation, any assignment documents, and shall
provide such cooperation as may be necessary or desirable, or as the Company may
reasonably request, in order to enable the Company to secure and exercise its
rights to such intellectual property.
11. SPECIFIC PERFORMANCE. Gihl agrees that any violation by him of
Sections 8, 9 or 10 of this Agreement would be highly injurious to the Company
and its Affiliates and would cause irreparable harm to the Company and its
Affiliates. By reason of the foregoing, Gihl consents and agrees that if he
violates any provision of Sections 8, 9 or 10 of this Agreement, the Company and
its Affiliates shall be entitled, in addition to any other rights and remedies
that it may have, to apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any continuing violation of, the provisions of such section. In the event Gihl
breaches a covenant contained in this Agreement, the Restricted Period
applicable to Gihl with respect to such breached covenant shall be extended for
the period of such breach. Gihl also recognizes that the territorial, time and
scope limitations set forth in Sections 8 and 9 are reasonable and are properly
required for the protection of the Company and its Affiliates and in the event
that any such territorial, time or scope limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Company and Gihl agree, and Gihl
submits, to the reduction of any or all of said territorial, time or scope
limitations to such an area, period or scope as said court shall deem reasonable
under the circumstances. Gihl represents, warrants and acknowledges that he has
available to him sufficient other means of support so that observance of the
covenants contained in Sections 8, 9 and 10 shall not deprive him of his ability
to earn a livelihood or support his dependents.
12. TERMINATION FOR CAUSE. During the Term, Gihl's employment with the
Company may be terminated by the Board "for cause", which shall include (a)
Gihl's conviction for, or plea of nolo contendere to, a felony or a crime
involving moral turpitude; (b) Gihl's commission of an act which the Board, in
its reasonable discretion, determines involved personal dishonesty or fraud
involving personal profit in connection with Gihl's employment with the Company;
(c) Gihl's commission of an act which the Board shall have found to have
involved willful misconduct or gross negligence on the part of Gihl in the
conduct of his duties hereunder; or (d) Gihl's breach of any material provision
of this Agreement where such breach continues for a period of ten (10) days
after Gihl's receipt of written notice of such breach from the Company. In the
event of termination under this Section 12, the Company's obligations under this
Agreement shall cease
5
<PAGE>
and Gihl shall forfeit all his rights to receive any compensation or benefits
under this Agreement, except that Gihl shall be entitled to his Salary and
benefits for services already performed as of the date of termination of
Gihl's employment hereunder.
13. GOOD REASON. Gihl shall be entitled to terminate his employment
hereunder at any time for Good Reason. For the purposes of this Agreement, Gihl
shall have "Good Reason" to terminate his employment hereunder (i) upon a
significant demotion or material adverse change in his duties and
responsibilities; (ii) upon a significant reduction in Salary, Bonus or in
fringe benefits provided to him; (iii) upon a requirement to relocate, except
for office relocations that would not increase Gihl's one-way commute distance
by more than fifty (50) miles from the most recent principal residence selected
by Gihl prior to notice of relocation; (iv) upon a material breach by the
Company of its agreements and covenants set forth herein; or (v) within one (1)
year of a Change of Control (as defined herein).
14. DEATH OR DISABILITY.
(a) This Agreement shall terminate upon Gihl's death.
(b) If Gihl becomes permanently disabled (determined as provided
below) during the Term, his employment with the Company shall terminate as
of the date such permanent disability is determined. Gihl shall be
considered to be permanently disabled for purposes of this Agreement if he
is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the Company and is
(i) not expected to recover from his disability within a period of six (6)
months from the commencement of the disability; or (ii) not expected to be
able to perform his material duties of his regular position with the
Company for a period of six (6) months in any consecutive twelve (12) month
period as a result of the same disability. If at any time Gihl claims or
is claimed to be permanently disabled, a physician acceptable to both Gihl,
or his personal representative, and the Company (which acceptances shall
not be unreasonably withheld) shall be retained by the Company and shall
examine Gihl. Gihl shall cooperate fully with the physician. If the
physician determines that Gihl is permanently disabled, the physician shall
deliver to the Company a certificate certifying both that Gihl is
permanently disabled and the date upon which the condition of permanent
disability commenced. The determination of the physician shall be
conclusive.
(c) Gihl's right to his compensation and benefits under this
Agreement shall cease upon his death or disability, except that Gihl (or
his estate or heirs) shall be entitled to his Salary and a pro rata portion
of his Bonus and benefits for services already performed as of the date of
his death or disability.
15. EFFECT OF TERMINATION.
(a) If the Company terminates Gihl's employment hereunder for any
reason other than for cause, death or disability, but including upon the
decision of the Company not to
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<PAGE>
renew the term of Gihl's employment hereunder pursuant to Section 1 of this
Agreement, or Gihl terminates this Agreement for Good Reason, (i) the Company
shall pay Gihl in one lump sum an amount equal to (A)twenty-four (24) times
the greater of (I) his monthly Salary as of the date of termination; or (II)
his highest monthly Salary during the prior twelve month period; plus (B) two
(2) times the Bonus paid to Gihl for the Company's fiscal year immediately
prior to the date of such termination; (ii) all unvested stock options
granted to Gihl shall vest and become immediately exercisable; and (iii) the
Company shall continue Gihl's medical insurance benefits for a period equal
to twenty-four (24) months.
(b) If Gihl terminates his employment with the Company for any reason
whatsoever other than for Good Reason, the Company's obligations under this
Agreement shall cease and Gihl shall forfeit all his rights to receive any
compensation or benefits under this Agreement, except that Gihl shall be
entitled to his Salary and benefits for services already performed as of the
date of termination of this Agreement.
(c) Any amounts payable to Gihl pursuant to this Section 15, shall be
paid in full in a lump sum not more than sixty (60) days following the date of
termination of Gihl's employment hereunder.
(d) Gihl shall not be required to mitigate the amount of any payment
contemplated by this Section 15 (whether by seeking new employment or in any
other manner), nor shall any such payment be reduced by any earnings that Gihl
may receive from any other source.
16. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean the occurrence of any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (collectively, a "person") of Beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of twenty (20%) percent or more of the then
outstanding shares of common stock of the Company (collectively, the
"Outstanding Common Stock"); provided, however, that the following shall not
constitute a Change of Control: (i) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion privilege);
(ii) any acquisition by an Underwriter (as such term is defined in Section 2(11)
of the Securities Act of 1933, as amended) for the purpose of making a public
offering; (iii) any acquisition by the Company; or (iv) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company;
(b) The liquidation of all or substantially all of the assets of the
Company; or
(c) If within two (2) years of: (i) the completion of a tender offer
or exchange offer for the voting stock of the Company (other than a tender offer
or exchange offer by the
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Company) or a proxy contest in connection with the election of members of the
Board; (ii) a merger, consolidation, transfer or sale of twenty percent (20%)
or more of the book value of the gross assets of the Company measured at the
time of such merger, consolidation, transfer or sale in one (1) or more
transactions; (iii) the acquisition by any person, directly or indirectly, of
the Beneficial Ownership of securities of the Company representing twenty
percent (20%) or more of the Outstanding Common Stock; or (iv) any
combination of the foregoing, Gihl is not a member of the Board and a
majority of the Board shall not consist of: (A) persons who were directors of
the Company on the effective date of the Company's initial public offering of
any class of its capital stock or, prior to such initial public offering,
persons who were directors of the Company as of December 1, 1996; or (B)
persons who were elected or nominated for election as directors with the
approval of a majority of the persons referred to in paragraph 14(c)(iv)(A)
above.
17. MISCELLANEOUS.
(a) All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given (i) when delivered in person at the
time of such delivery or by telecopy with receipt of transmission
indicating the date and time (provided, however, that notice delivered by
telecopy shall only be effective if such notice is also delivered by hand
or deposited in the United States mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
telecopy), (ii) when received if given by a nationally recognized overnight
courier service or (iii) two (2) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail,
addressed as follows:
if to Gihl:
Nicholas Gihl
433 Hillside Ave.
Elmhurst, IL 60126
Fax: 630-617-5327
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If to the Company:
Total Control Products, Inc.
2001 N. Janice Avenue
Melrose Park, Illinois 60160
Attn: Chief Executive Officer
Fax: (708) 345-5670
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel Feldman
Telecopier: (312) 580-0923
and/or to such other address or addressees as may be designated by notice
given in accordance with the provisions hereof.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted
assigns. As to Gihl, this Agreement is a personal service contract and
shall not be assignable by Gihl, but all obligations and agreements of Gihl
hereunder shall be binding upon and enforceable against Gihl and Gihl's
personal representatives, heirs, legatees and devices.
(c) The parties adopt the Recitals to this Agreement and agree and
affirm that construction of this Agreement shall be guided thereby; this
Agreement contains all of the agreements between the parties with respect
to the subject matter hereof; and this Agreement supersedes all other
agreements, oral or written, between the parties hereto with respect to the
subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the waiving party. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect.
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(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this
Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
(h) Notwithstanding anything to the contrary contained herein, Gihl's
rights and obligations under Sections 8, 9, 10, 11 and 15 shall survive the
expiration or termination of this Agreement.
(i) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the State of Illinois applicable to contracts made in that
State (other than any conflict of laws rule which might result in the
application of the laws of any other jurisdiction).
(j) Gihl hereby expressly submits and consents in advance to the
jurisdiction of the federal and state courts of the State of Illinois for
all purposes in connection with any action or proceeding arising out of or
relating to this Agreement.
(k) The Company shall require any successor (whether direct or
indirect and either by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets, by an agreement in substance and form satisfactory to Gihl, to
assume this Agreement and to agree expressly to perform this Agreement in
the same manner and to the same extent as the Company would be required to
perform it in the absence of a succession. Regardless of such assumption,
the Company shall remain liable for performance of this Agreement if the
successor corporation fails to perform this Agreement.
(l) All costs, including any legal fees and other expenses incurred
(including all such fees and expenses incurred by Gihl in contesting or
disputing any termination under this Agreement or in seeking to obtain or
enforce any of his rights or benefits under this Agreement), shall be paid
by the Company. All costs, including legal fees and other expenses
incurred in defending or asserting the validity and enforceability of this
Agreement against challenge by any person in any forum shall be paid by the
Company.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
/s/ Nicholas Gihl
----------------------------------
Nicholas Gihl
THE COMPANY:
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
------------------------------
Title:
--------------------------
11
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of September 19, 1996 by
and between Neil Taylor ("Taylor") and Taylor Industrial Software Inc., an
Alberta corporation (the "Company").
R E C I T A L S:
A. The Company desires to employ Taylor as an executive officer of the
Company and Taylor desires to be so employed by the Company, all on the terms
and subject to the conditions set forth herein.
B. The Company desires to bind Taylor to certain restrictive covenants
and Taylor agrees to be so bound, all on the terms and subject to the conditions
set forth herein.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TERM. Subject to the terms and conditions set forth herein and unless
sooner terminated as hereinafter provided, the Company shall employ Taylor and
Taylor agrees to serve as an employee of the Company from the date hereof to and
including September ___, 1999 (the "Employment Term"). After the expiration of
the Employment Term, Taylor's employment hereunder shall automatically renew for
successive one year periods (each, a "Renewal Term") unless either party hereto
delivers written notice to the other party hereto, at least ninety (90) days
prior to the expiration of the Employment Term or any Renewal Term thereof, as
the case may be, of his or its desire to terminate Taylor's employment with the
Company. The Employment Term and any Renewal Term thereof are collectively
referred to herein as the "Term".
2. EMPLOYMENT DUTIES. During the Term, Taylor shall serve as the
___________ of the Company and as the head of the TESS Business Unit. Taylor
shall report directly to the Board of Directors of the Company. Taylor shall
faithfully, diligently and competently perform such duties and responsibilities
as may from time to time be assigned to him by the Board of Directors of the
Company (the "Board"). Taylor agrees that at all times during the Term and
thereafter, (a) the Company shall have the right to display, and may use in its
advertising the name and portrait of Taylor; (b) if applicable, the Company
shall have the right to advertise its business as being carried on in the manner
and tradition and according to the standards established by Taylor; and (c)
Taylor will not knowingly or intentionally do any act or say any thing which
will or may impair, damage, or destroy the good will and esteem for the Company
of its suppliers, employees, patrons, customers and others who may at any time
have or have had business relations with the Company.
<PAGE>
3. COMPENSATION. As compensation for the services to be performed and
the duties and responsibilities to be assumed by Taylor during the Term, the
Company shall pay to Taylor a salary (the "Salary") in an amount equal to $U.S.
125,000 per annum. The Company shall review the Salary payable to Taylor after
the expiration of each one year period during the Term beginning on the date
hereof and any increases in Salary shall be made at the sole discretion of the
Company. The Salary shall be payable to Taylor in accordance with the Company's
ordinary payment practices for salaried employees.
4. BENEFITS.
(a) During the Term, Taylor shall be entitled to participate in such
employee benefit plans and programs as are maintained by the Company, to
the extent that his position, tenure, compensation, age, health and other
qualifications make him eligible to participate. The Company does not
promise the adoption or continuance of any particular plan or program
during the Term, and Taylor's (and his dependents') participation in any
such plan or program shall be subject to the provisions, rules, regulations
and laws applicable thereto.
(b) During the Term, Taylor shall be entitled to such other fringe
benefits as are provided to employees of the Company with comparable
positions, tenure and compensation as Taylor.
5. REIMBURSEMENT OF EXPENSES. During the Term, Taylor shall be entitled
to prompt reimbursement for ordinary, necessary and reasonable out-of-pocket
trade or business expenses which Taylor incurs in connection with performing his
duties under this Agreement. The reimbursement of all such expenses shall be
made upon presentation of evidence reasonably satisfactory to the Company of the
amounts and nature of such expenses and shall be subject to the reasonable
approval of the Board.
6. RESTRICTIVE COVENANTS. Taylor acknowledges and agrees that (a)
through his past and continuing services to the Company, he will learn valuable
trade secrets and other proprietary information relating to the Company's
business; (b) Taylor's services to the Company are unique in nature; (c) the
Company's business is international in scope; and (d) the Company would be
irreparably damaged if Taylor was to provide services to any person or entity in
violation of the restrictions contained in this Agreement. Accordingly, as an
inducement to the Company to enter into this Agreement, Taylor agrees that
during the Term and for two years thereafter (such period being referred to
herein as the "Restricted Period"), Taylor shall not, directly or indirectly,
either for himself or for any other person or entity, without the prior written
consent of the Company:
(a) anywhere in the United States or Canada, engage or participate
in, or assist, advise or be connected with (including as an employee,
owner, partner, shareholder, officer, director, advisor, consultant, agent
or (without limitation by the specific enumeration of the foregoing)
otherwise), or permit his name to be used by or render services for, any
person or entity engaged in, or making plans to engage in, a business that
2
<PAGE>
competes with the business conducted by, or proposed to be conducted by,
the Company or Total Control Products, Inc. ("TCP"), the majority
shareholder of the Company (a "Competing Business");
(b) solicit, attempt to solicit, aid in the solicitation of or accept
any orders from any person or entity who is or has been a customer of the
Company or its Affiliates, at any time during the period beginning one year
prior to the expiration of the Term through the Restricted Period, to
purchase products or services from any person or entity which products or
services could have been supplied or performed, as the case may be, by the
Company or its Affiliates (other than from the Company or its Affiliates);
(c) solicit, attempt to solicit or aid in the solicitation of any
person or entity who is or has been a customer, supplier, licensor,
licensee or person or entity having any other business relationship with
the Company or any of its Affiliates, at any time during the period
beginning one year prior to the expiration of the Term through the
Restrictive Period, to cease doing business with or alter its business
relationship with the Company or its Affiliates; or
(d) solicit or hire any person or entity who is a director, officer,
employee, independent contractor or agent of the Company or any of its
Affiliates to perform services for any person or entity other than the
Company or its Affiliates or to terminate his or her employment with the
Company or its Affiliates.
Additionally, as an inducement to the Company to enter into this Agreement,
Taylor agrees that during the Term, Taylor shall not, directly or indirectly,
either for himself or for any other person or entity, without the prior written
consent of the Company, take any action which might divert from the Company or
any of its Affiliates (as defined herein) any opportunity (each, an
"Opportunity") which would be within the scope of the Company's or such
Affiliate's then business and shall offer each Opportunity to the Company, which
the Company may, in its sole discretion, decide to pursue or not. As used
herein, an "Affiliate" shall mean and include any person or entity which
controls a party, which such party controls or which is under common control
with such party. For purposes of this Agreement, the Affiliates of the Company
shall specifically include TCP. "Control" means the power, direct or indirect,
to direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise. Notwithstanding the
foregoing, the ownership of up to 5% of the issued capital stock of any publicly
traded company by itself shall not constitute a violation of any provision of
this Section 6. Notwithstanding the foregoing, actions taken by Taylor pursuant
to the terms of that certain Secured Note dated as of the date hereof executed
by the Company in favor of Taylor shall not constitute a violation of the
provisions of this Section 6.
3
<PAGE>
7. DISCLOSURE OF CONFIDENTIAL INFORMATION. Taylor recognizes that he
will occupy a position of trust and confidence with the Company as to
Confidential Information (as herein defined) pertaining to the Company and its
Affiliates. As an inducement for the Company to enter into this Agreement,
Taylor therefore agrees that:
(a) for the longest period permitted by law from the date of this
Agreement, Taylor and each Affiliate of Taylor shall hold in the strictest
confidence and shall not, other than as required by law, without the prior
written consent of the Company, use for his own benefit or that of any
third party or disclose to any person, firm or corporation (except the
Company, an Affiliate of the Company or employees of the Company and its
Affiliates) any Confidential Information. For purposes of this Agreement,
intending that the term shall be broadly construed to include anything
protectible as a trade secret or confidential information under applicable
law, "Confidential Information" shall mean all information, and all
documents and other tangible items which record information relating to or
useful in connection with the Company's business (including the business of
any of the Company's Affiliates), which at the time or times concerned is
protectible as a trade secret or confidential information under applicable
law, and which has been or is from time to time disclosed to or known by
Taylor either before or after the date hereof.
(b) Taylor and each Affiliate of Taylor (and if deceased, their
personal representatives) shall promptly following a request therefor from
the Company return to the Company, without retaining copies, all tangible
items which are or which contain Confidential Information. Taylor shall
also surrender all computer print-outs, laboratory books, floppy disks and
other such media for storing software and information, work papers, files,
client lists, telephone and/or address books, rolodex cards, internal
memoranda, appointment books, calendars, keys and other tangible things
entrusted to Taylor by the Company or authored in whole or in part by
Taylor within the scope of his duties to the Company even if such things do
not contain Confidential Information; and
(c) at the request of the Company made at any time or from time to
time during the Restricted Period, Taylor and each Affiliate of Taylor (and
if deceased, their personal representatives) shall make, execute and
deliver all applications, papers, assignments, conveyances, instruments or
other documents and shall perform or cause to be performed such other
lawful acts as the Company may reasonably deem necessary or desirable to
implement any of the provisions of this Agreement, and shall give testimony
and cooperate with the Company, its Affiliates or their respective
representatives in any controversy or legal proceedings involving the
Company, its Affiliates or their respective representatives with respect to
any Confidential Information.
8. INVENTIONS. Taylor acknowledges that in his capacity as an executive
officer of the Company, whether before or after the date hereof, he will be
involved in (i) the conception or making of improvements, discoveries,
inventions or the like (whether patentable or unpatentable and whether or not
reduced to practice), (ii) the authorship of copyrightable works or (iii) the
development of trade secrets or confidential information relating to the
Company. Taylor
4
<PAGE>
acknowledges that all such intellectual property is the exclusive property of
the Company. Taylor hereby waives any rights he may have in or to such
intellectual property, and Taylor hereby assigns to the Company all right,
title and interest in and to such intellectual property, including, without
limitation, all copyright, neighboring rights and similar rights, title or
interest. Taylor waives any moral rights he may have under the Copyright Act
or a similar law. At the Company's request and at no expense to Taylor,
Taylor shall execute and deliver all such papers, including, without
limitation, any assignment documents, and shall provide such cooperation as
may be necessary or desirable, or as the Company may reasonably request, in
order to enable the Company to secure and exercise its rights to such
intellectual property.
9. SPECIFIC PERFORMANCE. Taylor agrees that any violation by him of
Sections 6, 7 or 8 of this Agreement would be highly injurious to the Company
and its Affiliates and would cause irreparable harm to the Company and its
Affiliates. By reason of the foregoing, Taylor consents and agrees that if he
violates any provision of Sections 6, 7 or 8 of this Agreement, the Company and
its Affiliates shall be entitled, in addition to any other rights and remedies
that they may have, to apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any continuing violation of, the provisions of such section. In the event
Taylor breaches a covenant contained in this Agreement, the Restricted Period
applicable to Taylor with respect to such breached covenant shall be extended
for the period of such breach. Taylor also recognizes that the territorial,
time and scope limitations set forth in Sections 6 and 7 are reasonable and are
properly required for the protection of the Company and its Affiliates and in
the event that any such territorial, time or scope limitation is deemed to be
unreasonable by a court of competent jurisdiction, the Company and Taylor agree,
and Taylor submits, to the reduction of any or all of said territorial, time or
scope limitations to such an area, period or scope as said court shall deem
reasonable under the circumstances. Taylor represents, warrants and
acknowledges that he has available to him sufficient other means of support so
that observance of the covenants contained in Sections 6, 7 and 8 shall not
deprive him of his ability to earn a livelihood or support his dependents.
10. TERMINATION FOR CAUSE. During the Term, Taylor's employment with the
Company may be terminated by the Board "for cause", which shall include (a)
Taylor's conviction for an indictable offence or a crime involving moral
turpitude; (b) Taylor's commission of an act which the Board, in its reasonable
discretion, determines involved personal dishonesty or fraud involving personal
profit in connection with Taylor's employment with the Company; (c) Taylor's
commission of an act which the Board shall have found to have involved willful
misconduct or gross negligence on the part of Taylor in the conduct of his
duties hereunder; or (d) Taylor's breach of any material provision of this
Agreement. In the event of termination under this Section 10, the Company's
obligations under this Agreement shall cease and Taylor shall forfeit all his
rights to receive any compensation or benefits under this Agreement, except that
Taylor shall be entitled to his Salary and benefits for services already
performed as of the date of termination of this Agreement.
5
<PAGE>
11. DEATH OR DISABILITY.
(a) This Agreement shall terminate upon Taylor's death.
(b) If Taylor becomes permanently disabled (determined as provided
below) during the Term, his employment with the Company shall terminate as
of the date such permanent disability is determined. Taylor shall be
considered to be permanently disabled for purposes of this Agreement if he
is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the Company and is
(i) not expected to recover from his disability within a period of six (6)
months from the commencement of the disability; or (ii) not expected to be
able to perform his material duties of his regular position with the
Company for a period of six (6) months in any consecutive twelve (12) month
period as a result of the same disability. If at any time Taylor claims or
is claimed to be permanently disabled, a physician acceptable to both
Taylor, or his personal representative, and the Company (which acceptances
shall not be unreasonably withheld) shall be retained by the Company and
shall examine Taylor. Taylor shall cooperate fully with the physician. If
the physician determines that Taylor is permanently disabled, the physician
shall deliver to the Company a certificate certifying both that Taylor is
permanently disabled and the date upon which the condition of permanent
disability commenced. The determination of the physician shall be
conclusive.
(c) Taylor's right to his compensation and benefits under this
Agreement shall cease upon his death or disability, except that Taylor (or
his estate or heirs) shall be entitled to his Salary and benefits for
services already performed as of the date of his death or disability.
12. EFFECT OF TERMINATION. The Company may terminate Taylor's employment
hereunder at any time for any reason. Upon termination of Taylor's employment
with the Company for any reason other than death, disability or cause, the
Company shall pay Taylor his Salary through the remainder of the Employment Term
in accordance with the Company's ordinary payment practices for salaried
employees; provided, however, that upon termination for any reason other than
death, disability or cause, Taylor shall receive his Salary for at least a
period of twelve months. Taylor shall accept such payment in full satisfaction
of any and all obligations he may have against the Company, whether statutory or
otherwise, and shall thereafter release the Company form any and all claims,
both present and future, that he may have against it.
6
<PAGE>
13. MISCELLANEOUS.
(a) All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given (i) when delivered in person at the
time of such delivery or by telecopy with receipt of transmission
indicating the date and time (provided, however, that notice delivered by
telecopy shall only be effective if such notice is also delivered by hand
or deposited in the United States or Canadian mail, postage prepaid,
registered or certified mail, on or before two (2) business days after its
delivery by telecopy), or (ii) when received if given by a nationally
recognized overnight courier service, addressed as follows:
if to Taylor:
Neil Taylor
7711 - 139 Street
Edmonton, Alberta
T5R 0E9
with a copy to:
Macleod Dixon
3700, 400 Third Avenue S.W.
Calgary, Alberta, Canada T2P 4H2
Attention: John Ramsay
Fax: (403) 264-5973
If to the Company:
c/o Total Control Products, Inc.
2001 N. Janice Avenue
Melrose Park, Illinois 60160
Attn: Nic Gihl, President
Fax: (708) 345-5670
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel Feldman
Telecopier: (312) 580-0923
and/or to such other address or addressees as may be designated by notice
given in accordance with the provisions hereof.
7
<PAGE>
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted
assigns. As to Taylor, this Agreement is a personal service contract and
shall not be assignable by Taylor, but all obligations and agreements of
Taylor hereunder shall be binding upon and enforceable against Taylor and
Taylor's personal representatives, heirs, legatees and devices.
(c) The parties adopt the Recitals to this Agreement and agree and
affirm that construction of this Agreement shall be guided thereby; this
Agreement contains all of the agreements between the parties with respect
to the subject matter hereof; and this Agreement supersedes all other
agreements, oral or written, between the parties hereto with respect to the
subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the waiving party. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect.
(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this
Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
(h) Notwithstanding anything to the contrary contained herein,
Taylor's rights and obligations under Sections 6, 7, 8 and 9 shall survive
the expiration or termination of this Agreement.
(i) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the Alberta.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
/s/ Neil Taylor
-------------------------------
Neil Taylor
THE COMPANY:
TAYLOR INDUSTRIAL SOFTWARE INC.
By: /s/ Nicholas Gihl
----------------------------
Title:
-------------------------
9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of February 9, 1996 by and
between Frank Wood ("Wood") and Total Control Products, Inc., an Illinois
corporation (the "Company").
R E C I T A L S:
A. The Company desires to employ Wood as an executive officer of the
Company and Wood desires to be so employed by the Company, all on the terms and
subject to the conditions set forth herein.
B. The Company desires to bind Wood to certain restrictive covenants and
Wood agrees to be so bound, all on the terms and subject to the conditions set
forth herein.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TERM. Subject to the terms and conditions set forth herein and unless
sooner terminated as hereinafter provided, the Company shall employ Wood and
Wood agrees to serve as an employee of the Company from the date hereof to and
including February 9, 1997 (the "Employment Term"). After the expiration of the
Employment Term, Wood's employment hereunder shall automatically renew for
successive one year periods (each, a "Renewal Term") unless either party hereto
delivers written notice to the other party hereto, at least ninety (90) days
prior to the expiration of the Employment Term or any Renewal Term thereof, as
the case may be, of his or its desire to terminate Wood's employment with the
Company. The Employment Term and any Renewal Term thereof are collectively
referred to herein as the "Term".
2. EMPLOYMENT DUTIES. During the Term, Wood shall serve as the Senior
Vice President of Marketing and Product Development of the Company. Wood shall
report directly to the President of the Company and shall be responsible for all
aspects of the Company's Marketing and Engineering operations. Wood shall
faithfully, diligently and competently perform such duties and responsibilities
and shall perform such other duties and responsibilities as may from time to
time be assigned to him by the President or the Board of Directors of the
Company (the "Board").
3. COMPENSATION. As compensation for the services to be performed and
the duties and responsibilities to be assumed by Wood during the Term, the
Company shall pay to Wood the following compensation:
<PAGE>
(a) A salary (the "Salary") in an amount equal to $110,000 per annum.
The Company shall review the Salary payable to Wood after the expiration of
each six month period during the Term beginning on the date hereof and any
increases in Salary shall be made at the sole discretion of the Company.
The Salary shall be payable to Wood in accordance with the Company's
ordinary payment practices for salaried employees.
(b) Wood shall be entitled to participate in the Company's
executive bonus plan (the "Bonus") on the same terms as the participation
of other executives of TCP; provided, however, that, during the Term, Wood
shall receive a Bonus of not less than $4,000 per quarter. In no event
shall any Bonus be paid to Wood for any fiscal year of the Company unless
Wood is employed throughout the entire fiscal year. The Bonus shall be
determined from the Company's internal accounting records, which shall be
finally approved by the Board or any compensation committee thereof. The
Bonus awarded to Wood in respect of any particular fiscal year shall be
paid at the same time as bonuses are paid to other executives of the
Company.
4. BENEFITS.
(a) During the Term, Wood shall be entitled to participate in such
employee benefit plans and programs as are maintained by the Company, to
the extent that his position, tenure, compensation, age, health and other
qualifications make him eligible to participate. The Company does not
promise the adoption or continuance of any particular plan or program
during the Term, and Wood's (and his dependents') participation in any such
plan or program shall be subject to the provisions, rules, regulations and
laws applicable thereto.
(b) During the Term, Wood shall be entitled to such other fringe
benefits as are provided to employees of the Company with comparable
positions, tenure and compensation as Wood.
5. REIMBURSEMENT OF EXPENSES. During the Term, Wood shall be entitled to
prompt reimbursement for ordinary, necessary and reasonable out-of-pocket trade
or business expenses which Wood incurs in connection with performing his duties
under this Agreement. The reimbursement of all such expenses shall be made upon
presentation of evidence reasonably satisfactory to the Company of the amounts
and nature of such expenses and shall be subject to the reasonable approval of
the Board. Additionally, Wood shall be entitled to (a) an immediate payment of
$6,000 to defray a portion of Wood's indirect moving costs; and (b)
reimbursement for all reasonable and normal moving expenses incurred by Wood to
relocate to the Chicago area.
6. RESTRICTIVE COVENANTS. Wood acknowledges and agrees that (a) through
his continuing services to the Company, he will learn valuable trade secrets and
other proprietary information relating to the Company's business; (b) Wood's
services to the Company are unique in nature; (c) the Company's business is
national in scope; and (d) the Company would be irreparably damaged if Wood was
to provide services to any person or entity in violation of the restrictions
2
<PAGE>
contained in this Agreement. Accordingly, as an inducement to the Company to
enter into this Agreement, if the Company terminates Wood for any reason other
than for cause or Wood terminates this Agreement for any reason, Wood agrees
that during the Term and for one year thereafter (such period being referred to
herein as the "Restricted Period"), Wood shall not, directly or indirectly,
either for himself or for any other person or entity, without the prior written
consent of the Company:
(a) anywhere in the United States, engage or participate in, or
assist, advise or be connected with (including as an employee, owner,
partner, shareholder, officer, director, advisor, consultant, agent or
(without limitation by the specific enumeration of the foregoing)
otherwise), or permit his name to be used by or render services for, any
person or entity engaged in, or making plans to engage in, a business
capacity that directly competes with the business conducted by, or proposed
to be conducted by, the Company (a "Competing Business");
(b) take any action which might divert from the Company or any of its
Affiliates (as defined herein) any opportunity (each, an "Opportunity")
which would be within the scope of the Company's or such Affiliate's then
business and shall offer each Opportunity to the Company, which the Company
may, in its sole discretion, decide to pursue or not;
(c) solicit, attempt to solicit, aid in the solicitation of or accept
any orders from any person or entity who is or has been a customer of the
Company or its Affiliates, at any time during the period beginning one year
prior to the date hereof through the Restrictive Period, to purchase
products or services from any person or entity which products or services
could have been supplied or performed, as the case may be, by the Company
or its Affiliates (other than from the Company or its Affiliates);
(d) solicit, attempt to solicit or aid in the solicitation of any
person or entity who is or has been a customer, supplier, licensor,
licensee or person or entity having any other business relationship with
the Company or any of its Affiliates, at any time during the period
beginning one year prior to the date hereof through the Restrictive Period,
to cease doing business with or alter its business relationship with the
Company or its Affiliates; or
(e) solicit or hire any person or entity who is a director, officer,
employee, independent contractor or agent of the Company or any of its
Affiliates to perform services for any person or entity other than the
Company or its Affiliates or to terminate his or her employment with the
Company or its Affiliates.
As used herein, an "Affiliate" shall mean and include any person or entity
which controls a party, which such party controls or which is under common
control with such party. "Control" means the power, direct or indirect, to
direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise.
3
<PAGE>
7. DISCLOSURE OF CONFIDENTIAL INFORMATION. Wood recognizes that he will
occupy a position of trust and confidence with the Company as to Confidential
Information (as herein defined) pertaining to the Company and its Affiliates.
As an inducement for the Company to enter into this Agreement, Wood therefore
agrees that:
(a) for the longest period permitted by law from the date of this
Agreement, Wood and each Affiliate of Wood shall hold in the strictest
confidence and shall not, other than as required by law, without the prior
written consent of the Company, use for his own benefit or that of any
third party or disclose to any person, firm or corporation (except the
Company, an Affiliate of the Company or employees of the Company and its
Affiliates) any Confidential Information. For purposes of this Agreement,
intending that the term shall be broadly construed to include anything
protectible as a trade secret under applicable law, "Confidential
Information" shall mean all information, and all documents and other
tangible items which record information relating to or useful in connection
with the Company's business (including the business of any of the Company's
Affiliates), which at the time or times concerned is protectible as a trade
secret under applicable law, and which has been or is from time to time
disclosed to or known by Wood.
(b) Wood and each Affiliate of Wood (and if deceased, their personal
representatives) shall promptly following a request therefor from the
Company return to the Company, without retaining copies, all tangible items
which are or which contain Confidential Information. Wood shall also
surrender all computer print-outs, laboratory books, floppy disks and other
such media for storing software and information, work papers, files, client
lists, telephone and/or address books, rolodex cards, internal memoranda,
appointment books, calendars, keys and other tangible things entrusted to
Wood by the Company or authored in whole or in part by Wood within the
scope of his duties to the Company even if such things do not contain
Confidential Information; and
(c) at the request of the Company made at any time or from time to
time hereafter, Wood and each Affiliate of Wood (and if deceased, their
personal representatives) shall make, execute and deliver all applications,
papers, assignments, conveyances, instruments or other documents and shall
perform or cause to be performed such other lawful acts as the Company may
reasonably deem necessary or desirable to implement any of the provisions
of this Agreement, and shall give testimony and cooperate with the Company,
its Affiliates or their respective representatives in any controversy or
legal proceedings involving the Company, its Affiliates or their respective
representatives with respect to any Confidential Information.
8. INVENTIONS. Wood acknowledges that in his capacity as an executive
officer of the Company, he will be involved in (i) the conception or making of
improvements, discoveries, inventions or the like (whether patentable or
unpatentable and whether or not reduced to practice), (ii) the authorship of
copyrightable works or (iii) the development of trade secrets relating to the
Company. Wood acknowledges that all such intellectual property is the exclusive
property of the Company. Wood hereby waives any rights he may have in or to
such intellectual
4
<PAGE>
property, and Wood hereby assigns to the Company all right, title and
interest in and to such intellectual property. At the Company's request and
at no expense to Wood, Wood shall execute and deliver all such papers,
including, without limitation, any assignment documents, and shall provide
such cooperation as may be necessary or desirable, or as the Company may
reasonably request, in order to enable the Company to secure and exercise its
rights to such intellectual property.
9. SPECIFIC PERFORMANCE. Wood agrees that any violation by him of
Sections 6, 7 or 8 of this Agreement would be highly injurious to the Company
and its Affiliates and would cause irreparable harm to the Company and its
Affiliates. By reason of the foregoing, Wood consents and agrees that if he
violates any provision of Sections 6, 7 or 8 of this Agreement, the Company and
its Affiliates shall be entitled, in addition to any other rights and remedies
that it may have, to apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any continuing violation of, the provisions of such section. In the event Wood
breaches a covenant contained in this Agreement, the Restricted Period
applicable to Wood with respect to such breached covenant shall be extended for
the period of such breach. Wood also recognizes that the territorial, time and
scope limitations set forth in Sections 6 and 7 are reasonable and are properly
required for the protection of the Company and its Affiliates and in the event
that any such territorial, time or scope limitation is deemed to be unreasonable
by a court of competent jurisdiction, the Company and Wood agree, and Wood
submits, to the reduction of any or all of said territorial, time or scope
limitations to such an area, period or scope as said court shall deem reasonable
under the circumstances. Wood represents, warrants and acknowledges that he has
available to him sufficient other means of support so that observance of the
covenants contained in Sections 6, 7 and 8 shall not deprive him of his ability
to earn a livelihood or support his dependents.
10. TERMINATION FOR CAUSE. During the Term, Wood's employment with the
Company may be terminated by the Board "for cause", which shall include (a)
Wood's failure to relocate to the Chicago area within six months from the date
hereof; (b) Wood's conviction for, or plea of nolo contendere to, a felony or a
crime involving moral turpitude; (c) Wood's commission of an act which the
Board, in its reasonable discretion, determines involved personal dishonesty or
fraud involving personal profit in connection with Wood's employment with the
Company; (d) Wood's commission of an act which the Board shall have found to
have involved willful misconduct or gross negligence on the part of Wood in the
conduct of his duties hereunder; or (e) Wood's breach of any material provision
of this Agreement. In the event of termination under this Section 10, the
Company's obligations under this Agreement shall cease and Wood shall forfeit
all his rights to receive any compensation or benefits under this Agreement,
except that Wood shall be entitled to his Salary and benefits for services
already performed as of the date of termination of Wood's employment hereunder.
5
<PAGE>
11. DEATH OR DISABILITY.
(a) This Agreement shall terminate upon Wood's death.
(b) If Wood becomes permanently disabled (determined as provided
below) during the Term, his employment with the Company shall terminate as
of the date such permanent disability is determined. Wood shall be
considered to be permanently disabled for purposes of this Agreement if he
is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the Company and is
(i) not expected to recover from his disability within a period of six (6)
months from the commencement of the disability; or (ii) not expected to be
able to perform his material duties of his regular position with the
Company for a period of six (6) months in any consecutive twelve (12) month
period as a result of the same disability. If at any time Wood claims or
is claimed to be permanently disabled, a physician acceptable to both Wood,
or his personal representative, and the Company (which acceptances shall
not be unreasonably withheld) shall be retained by the Company and shall
examine Wood. Wood shall cooperate fully with the physician. If the
physician determines that Wood is permanently disabled, the physician shall
deliver to the Company a certificate certifying both that Wood is
permanently disabled and the date upon which the condition of permanent
disability commenced. The determination of the physician shall be
conclusive.
(c) Wood's right to his compensation and benefits under this
Agreement shall cease upon his death or disability, except that Wood (or
his estate or heirs) shall be entitled to his (i) Salary and a pro rata
portion of his Bonus and benefits for services already performed as of the
date of his death or disability; and (ii) in the case of termination for
disability, his Salary for a period of eighteen months from the date of the
determination of such disability in accordance with the Company's ordinary
payment practices for salaried employees and shall continue Wood's medical
insurance benefits during such eighteen month period to the extent Wood is
not entitled to receive similar benefits from a subsequent employer.
12. EFFECT OF TERMINATION. If the Company terminates Wood's employment
hereunder for any reason other than death, disability or cause, but including
upon the decision of the Company not to renew the term of Wood's employment
hereunder pursuant to Section 1 of this Agreement, the Company shall pay Wood
his Salary for a period of one year from the date of termination in accordance
with the Company's ordinary payment practices for salaried employees and shall
continue Wood's medical insurance benefits during such one year period to the
extent Wood is not entitled to receive similar benefits from a subsequent
employer. If Wood terminates his employment with the Company for any reason
whatsoever, the Company's obligations under this Agreement shall cease and Wood
shall forfeit all his rights to receive any compensation or benefits under this
Agreement, except that Wood shall be entitled to his Salary and benefits for
services already performed as of the date of termination of this Agreement.
6
<PAGE>
13. MISCELLANEOUS.
(a) All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given (i) when delivered in person at the
time of such delivery or by telecopy with receipt of transmission
indicating the date and time (provided, however, that notice delivered by
telecopy shall only be effective if such notice is also delivered by hand
or deposited in the United States mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
telecopy), (ii) when received if given by a nationally recognized overnight
courier service or (iii) two (2) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail,
addressed as follows:
if to Wood:
Frank Wood
20 Teague Drive
North Salem, Massachusetts 03079
Fax:
with a copy to:
-----------------
-----------------
-----------------
Attn:
Fax:
If to the Company:
Total Control Products, Inc.
2001 N. Janice Avenue
Melrose Park, Illinois 60160
Attn: Nic Gihl, President
Fax: (708) 345-5670
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel Feldman
Telecopier: (312) 580-0923
and/or to such other address or addressees as may be designated by notice
given in accordance with the provisions hereof.
7
<PAGE>
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted
assigns. As to Wood, this Agreement is a personal service contract and
shall not be assignable by Wood, but all obligations and agreements of Wood
hereunder shall be binding upon and enforceable against Wood and Wood's
personal representatives, heirs, legatees and devices.
(c) The parties adopt the Recitals to this Agreement and agree and
affirm that construction of this Agreement shall be guided thereby; this
Agreement contains all of the agreements between the parties with respect
to the subject matter hereof; and this Agreement supersedes all other
agreements, oral or written, between the parties hereto with respect to the
subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the waiving party. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect.
(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this
Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
(h) Notwithstanding anything to the contrary contained herein, Wood's
rights and obligations under Sections 6, 7, 8 and 9 shall survive the
expiration or termination of this Agreement.
(i) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the State of Illinois applicable to contracts made in that
State (other than any conflict of laws rule which might result in the
application of the laws of any other jurisdiction).
(j) Wood hereby expressly submits and consents in advance to the
jurisdiction of the federal and state courts of the State of Illinois for
all purposes in connection with any action or proceeding arising out of or
relating to this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
/s/ Frank Wood
---------------------------------
Frank Wood
THE COMPANY:
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
----------------------------
Nic Gihl, President
9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into effective as of June 1,
1996 by and between Peter Nicholson ("Nicholson") and Total Control Products,
Inc., an Illinois corporation (the "Company").
R E C I T A L S:
A. The Company desires to employ Nicholson as an executive officer of the
Company and Nicholson desires to be so employed by the Company, all on the terms
and subject to the conditions set forth herein.
B. The Company desires to bind Nicholson to certain restrictive covenants
and Nicholson agrees to be so bound, all on the terms and subject to the
conditions set forth herein.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TERM. Subject to the terms and conditions set forth herein and unless
sooner terminated as hereinafter provided, the Company shall employ Nicholson
and Nicholson agrees to serve as an employee of the Company from the date hereof
to and including December 31, 1997 (the "Employment Term"). After the
expiration of the Employment Term, Nicholson's employment hereunder shall
automatically renew for successive one year periods (each, a "Renewal Term")
unless either party hereto delivers written notice to the other party hereto, at
least ninety (90) days prior to the expiration of the Employment Term or any
Renewal Term thereof, as the case may be, of his or its desire to terminate
Nicholson's employment with the Company. The Employment Term and any Renewal
Term thereof are collectively referred to herein as the "Term".
2. EMPLOYMENT DUTIES. During the Term, Nicholson shall serve as the
Chief Financial Officer of the Company. Nicholson shall report directly to the
President of the Company and shall be responsible for all aspects of the
Company's accounting and financial records. Nicholson shall faithfully,
diligently and competently perform such duties and responsibilities and shall
perform such other duties and responsibilities as may from time to time be
assigned to him by the President or the Board of Directors of the Company (the
"Board").
3. COMPENSATION. As compensation for the services to be performed and
the duties and responsibilities to be assumed by Nicholson during the Term, the
Company shall pay to Nicholson the following compensation:
(a) A salary (the "Salary") in an amount equal to $110,000 per annum.
The Company shall review the Salary payable to Nicholson on January 1 of
each year during
<PAGE>
the Term beginning on January 1, 1997 and any increases in Salary shall be
made at the sole discretion of the Company. The Salary shall be payable
to Nicholson in accordance with the Company's ordinary payment practices
for salaried employees.
(b) Nicholson shall be entitled to receive the following bonus
payments from the Company:
(i) Effective as of the date of this Agreement, Nicholson shall
be entitled to receive a signing bonus equal to $50,000. Such bonus
shall be payable, without interest, on the earlier of (A) no later
than ten (10) days after the consummation of an initial public
offering of any class of the Company's capital stock; or (B) one-third
(1/3) of such bonus on each of the first, second and third year
anniversaries of this Agreement; provided however, that if Nicholson
voluntarily terminates his employment hereunder for any reason
whatsoever, all remaining unpaid portions of such bonus as of the date
of termination shall be payable on the fifth year anniversary of this
Agreement.
(ii) Effective as of the consummation of the first acquisition by
the Company after the date hereof of any competing business with the
Company where the consideration paid for such acquisition exceeds
$1,000,000 in the aggregate, Nicholson shall be entitled to receive a
bonus equal to $25,000. Such bonus shall be payable, without
interest, on the earlier of (A) no later than ten (10) days after the
consummation of an initial public offering of any class of the
Company's capital stock; or (B) January 1, 1998.
(iii) If Nicholson does not earn the bonus listed in
subparagraph (ii) above prior to March 31, 1997, then Nicholson shall
be entitled to receive a bonus equal to the following: 25,000
multiplied by the following fraction: the numerator of which is the
number of days Nicholson has been employed by the Company since
June 1, 1996 and the denominator of which is 300. The amount of such
bonus earned by Nicholson shall be due and payable on April 1, 1997.
(iv) In addition to the foregoing, Nicholson shall be entitled to
participate in the Company's executive bonus plan (the "Bonus") on the
same terms as the participation of other executives of the Company.
In no event shall any Bonus be paid to Nicholson for any fiscal year
of the Company unless Nicholson is employed throughout the entire
fiscal year. The Bonus shall be determined from the Company's
internal accounting records, which shall be finally approved by the
Board or any compensation committee thereof. The Bonus awarded to
Nicholson in respect of any particular fiscal year shall be paid at
the same time as bonuses are paid to other executives of the Company.
For fiscal year 1997, this amount will not be less than $25,000.
2
<PAGE>
4. BENEFITS.
(a) During the Term, Nicholson shall be entitled to participate in
such employee benefit plans and programs as are maintained by the Company,
to the extent that his position, tenure, compensation, age, health and
other qualifications make him eligible to participate. The Company does
not promise the adoption or continuance of any particular plan or program
during the Term, and Nicholson's (and his dependents') participation in any
such plan or program shall be subject to the provisions, rules, regulations
and laws applicable thereto.
(b) During the Term, Nicholson shall be entitled to such other fringe
benefits as are provided to employees of the Company with comparable
positions, tenure and compensation as Nicholson.
5. REIMBURSEMENT OF EXPENSES. During the Term, Nicholson shall be
entitled to prompt reimbursement for ordinary, necessary and reasonable
out-of-pocket trade or business expenses which Nicholson incurs in connection
with performing his duties under this Agreement. The reimbursement of all such
expenses shall be made upon presentation of evidence reasonably satisfactory to
the Company of the amounts and nature of such expenses and shall be subject to
the reasonable approval of the Board.
6. RESTRICTIVE COVENANTS. Nicholson acknowledges and agrees that (a)
through his continuing services to the Company, he will learn valuable trade
secrets and other proprietary information relating to the Company's business;
(b) Nicholson's services to the Company are unique in nature; (c) the Company's
business is national in scope; and (d) the Company would be irreparably damaged
if Nicholson was to provide services to any person or entity in violation of the
restrictions contained in this Agreement. Accordingly, as an inducement to the
Company to enter into this Agreement, Nicholson agrees that during the Term and
for one year thereafter (such period being referred to herein as the "Restricted
Period"), Nicholson shall not, directly or indirectly, either for himself or for
any other person or entity, without the prior written consent of the Company:
(a) anywhere in the United States, engage or participate in, or
assist, advise or be connected with (including as an employee, owner,
partner, shareholder, officer, director, advisor, consultant, agent or
(without limitation by the specific enumeration of the foregoing)
otherwise), or permit his name to be used by or render services for, any
person or entity engaged in, or making plans to engage in, a business that
competes with the business conducted by, or proposed to be conducted by,
the Company (a "Competing Business");
(b) take any action which might divert from the Company or any of its
Affiliates (as defined herein) any opportunity (each, an "Opportunity")
which would be within the scope of the Company's or such Affiliate's then
business and shall offer each
3
<PAGE>
Opportunity to the Company, which the Company may, in its sole discretion,
decide to pursue or not;
(c) solicit, attempt to solicit, aid in the solicitation of or accept
any orders from any person or entity who is or has been a customer of the
Company or its Affiliates, at any time during the period beginning one year
prior to the date hereof through the Restrictive Period, to purchase
products or services from any person or entity which products or services
could have been supplied or performed, as the case may be, by the Company
or its Affiliates (other than from the Company or its Affiliates);
(d) solicit, attempt to solicit or aid in the solicitation of any
person or entity who is or has been a customer, supplier, licensor,
licensee or person or entity having any other business relationship with
the Company or any of its Affiliates, at any time during the period
beginning one year prior to the date hereof through the Restrictive Period,
to cease doing business with or alter its business relationship with the
Company or its Affiliates; or
(e) solicit or hire any person or entity who is a director, officer,
employee, independent contractor or agent of the Company or any of its
Affiliates to perform services for any person or entity other than the
Company or its Affiliates or to terminate his or her employment with the
Company or its Affiliates.
As used herein, an "Affiliate" shall mean and include any person or entity
which controls a party, which such party controls or which is under common
control with such party. "Control" means the power, direct or indirect, to
direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise.
7. DISCLOSURE OF CONFIDENTIAL INFORMATION. Nicholson recognizes that he
will occupy a position of trust and confidence with the Company as to
Confidential Information (as herein defined) pertaining to the Company and its
Affiliates. As an inducement for the Company to enter into this Agreement,
Nicholson therefore agrees that:
(a) for the longest period permitted by law from the date of this
Agreement, Nicholson and each Affiliate of Nicholson shall hold in the
strictest confidence and shall not, other than as required by law, without
the prior written consent of the Company, use for his own benefit or that
of any third party or disclose to any person, firm or corporation (except
the Company, an Affiliate of the Company or employees of the Company and
its Affiliates) any Confidential Information. For purposes of this
Agreement, intending that the term shall be broadly construed to include
anything protectible as a trade secret under applicable law, "Confidential
Information" shall mean all information, and all documents and other
tangible items which record information relating to or useful in connection
with the Company's business (including the business of any of the Company's
Affiliates), which at the time or times concerned is protectible as a trade
secret under applicable law, and which has been or is from time to time
disclosed to or known by Nicholson.
4
<PAGE>
(b) Nicholson and each Affiliate of Nicholson (and if deceased, their
personal representatives) shall promptly following a request therefor from
the Company return to the Company, without retaining copies, all tangible
items which are or which contain Confidential Information. Nicholson shall
also surrender all computer print-outs, laboratory books, floppy disks and
other such media for storing software and information, work papers, files,
client lists, telephone and/or address books, rolodex cards, internal
memoranda, appointment books, calendars, keys and other tangible things
entrusted to Nicholson by the Company or authored in whole or in part by
Nicholson within the scope of his duties to the Company even if such things
do not contain Confidential Information; and
(c) at the request of the Company made at any time or from time to
time hereafter, Nicholson and each Affiliate of Nicholson (and if deceased,
their personal representatives) shall make, execute and deliver all
applications, papers, assignments, conveyances, instruments or other
documents and shall perform or cause to be performed such other lawful acts
as the Company may reasonably deem necessary or desirable to implement any
of the provisions of this Agreement, and shall give testimony and cooperate
with the Company, its Affiliates or their respective representatives in any
controversy or legal proceedings involving the Company, its Affiliates or
their respective representatives with respect to any Confidential
Information.
8. INVENTIONS. Nicholson acknowledges that in his capacity as an
executive officer of the Company, he will be involved in (i) the conception or
making of improvements, discoveries, inventions or the like (whether patentable
or unpatentable and whether or not reduced to practice), (ii) the authorship of
copyrightable works or (iii) the development of trade secrets relating to the
Company. Nicholson acknowledges that all such intellectual property is the
exclusive property of the Company. Nicholson hereby waives any rights he may
have in or to such intellectual property, and Nicholson hereby assigns to the
Company all right, title and interest in and to such intellectual property. At
the Company's request and at no expense to Nicholson, Nicholson shall execute
and deliver all such papers, including, without limitation, any assignment
documents, and shall provide such cooperation as may be necessary or desirable,
or as the Company may reasonably request, in order to enable the Company to
secure and exercise its rights to such intellectual property.
9. SPECIFIC PERFORMANCE. Nicholson agrees that any violation by him of
Sections 6, 7 or 8 of this Agreement would be highly injurious to the Company
and its Affiliates and would cause irreparable harm to the Company and its
Affiliates. By reason of the foregoing, Nicholson consents and agrees that if
he violates any provision of Sections 6, 7 or 8 of this Agreement, the Company
and its Affiliates shall be entitled, in addition to any other rights and
remedies that it may have, to apply to any court of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce, or
prevent any continuing violation of, the provisions of such section. In the
event Nicholson breaches a covenant contained in this Agreement, the Restricted
Period applicable to Nicholson with respect to such breached covenant shall be
5
<PAGE>
extended for the period of such breach. Nicholson also recognizes that the
territorial, time and scope limitations set forth in Sections 6 and 7 are
reasonable and are properly required for the protection of the Company and its
Affiliates and in the event that any such territorial, time or scope limitation
is deemed to be unreasonable by a court of competent jurisdiction, the Company
and Nicholson agree, and Nicholson submits, to the reduction of any or all of
said territorial, time or scope limitations to such an area, period or scope as
said court shall deem reasonable under the circumstances. Nicholson represents,
warrants and acknowledges that he has available to him sufficient other means of
support so that observance of the covenants contained in Sections 6, 7 and 8
shall not deprive him of his ability to earn a livelihood or support his
dependents.
10. TERMINATION FOR CAUSE. During the Term, Nicholson's employment with
the Company may be terminated by the Board "for cause", which shall include (a)
Nicholson's conviction for, or plea of nolo contendere to, a felony or a crime
involving moral turpitude; (b) Nicholson's commission of an act which the Board,
in its reasonable discretion, determines involved personal dishonesty or fraud
involving personal profit in connection with Nicholson's employment with the
Company; (c) Nicholson's commission of an act which the Board shall have found
to have involved willful misconduct or gross negligence on the part of Nicholson
in the conduct of his duties hereunder; or (d) Nicholson's breach of any
material provision of this Agreement where such breach continues for a period of
ten (10) days after Nicholson's receipt of written notice of such breach from
the Company. In the event of termination under this Section 10, the Company's
obligations under this Agreement shall cease and Nicholson shall forfeit all his
rights to receive any compensation or benefits under this Agreement, except that
Nicholson shall be entitled to his Salary and benefits for services already
performed as of the date of termination of Nicholson's employment hereunder.
11. GOOD REASON. Nicholson shall be entitled to terminate his employment
hereunder at any time for Good Reason. For the purposes of this Agreement,
Nicholson shall have "Good Reason" to terminate his employment hereunder (i)
upon a significant demotion or material adverse change in his duties and
responsibilities; (ii) upon a significant reduction in Salary or in fringe
benefits provided to him; (iii) upon a requirement to relocate, except for
office relocations that would not increase Nicholson's one-way commute distance
by more than fifty (50) miles from the most recent principal residence selected
by Nicholson prior to notice of relocation; (iv) upon a material breach by the
Company of its agreements and covenants set forth herein; or (v) within one (1)
year of a Change of Control (as defined herein).
12. DEATH OR DISABILITY.
(a) This Agreement shall terminate upon Nicholson's death.
(b) If Nicholson becomes permanently disabled (determined as provided
below) during the Term, his employment with the Company shall terminate as
of the date such permanent disability is determined. Nicholson shall be
considered to be permanently disabled for purposes of this Agreement if he
is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the
6
<PAGE>
Company and is (i) not expected to recover from his disability within a
period of six (6) months from the commencement of the disability; or
(ii) not expected to be able to perform his material duties of his
regular position with the Company for a period of six (6) months in any
consecutive twelve (12) month period as a result of the same disability.
If at any time Nicholson claims or is claimed to be permanently
disabled, a physician acceptable to both Nicholson, or his personal
representative, and the Company (which acceptances shall not be
unreasonably withheld) shall be retained by the Company and shall
examine Nicholson. Nicholson shall cooperate fully with the physician.
If the physician determines that Nicholson is permanently disabled, the
physician shall deliver to the Company a certificate certifying both
that Nicholson is permanently disabled and the date upon which the
condition of permanent disability commenced. The determination of the
physician shall be conclusive.
(c) Nicholson's right to his compensation and benefits under this
Agreement shall cease upon his death or disability, except that Nicholson
(or his estate or heirs) shall be entitled to his Salary and a pro rata
portion of his Bonus and benefits for services already performed as of the
date of his death or disability.
13. EFFECT OF TERMINATION.
(a) If the Company terminates Nicholson's employment hereunder for
any reason other than cause, death, disability or within one year after a Change
of Control, but including upon the decision of the Company not to renew the term
of Nicholson's employment hereunder pursuant to Section 1 of this Agreement, the
Company shall (i) pay Nicholson in one lump sum an amount equal to three (3)
times the greater of (A) his monthly Salary as of the date of termination; or
(B) his highest monthly Salary during the prior twelve month period; and (ii)
continue Nicholson's medical insurance benefits during such three month period
to the extent Nicholson is not entitled to receive similar benefits from a
subsequent employer.
(b) If Nicholson terminates his employment hereunder for Good Reason
or the Company terminates Nicholson's employment within one year after a Change
of Control (other than for cause), the Company shall (i) pay Nicholson in one
lump sum an amount equal to (A) six (6) times the greater of (I) his monthly
Salary as of the date of termination; or (II) his highest monthly Salary during
the prior twelve month period; plus (B) if such termination occurs prior to the
Company's consummation of an initial public offering of any class of its capital
stock, an amount equal to fifty percent (50%) of the greater of (I) his annual
Salary as of the date of termination; or (II) his highest monthly Salary during
the prior twelve month period multiplied by twelve (12); and (ii) continue
Nicholson's medical insurance benefits during such six month period to the
extent Nicholson is not entitled to receive similar benefits from a subsequent
employer.
(c) If Nicholson terminates his employment with the Company for any
reason whatsoever other than for Good Reason, the Company's obligations under
this Agreement shall cease and Nicholson shall forfeit all his rights to receive
any compensation or benefits under this
7
<PAGE>
Agreement, except that Nicholson shall be entitled to his Salary and benefits
for services already performed as of the date of termination of this
Agreement.
14. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean the occurrence of any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (collectively, a "person") of Beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of twenty (20%) percent or more of the then
outstanding shares of common stock of the Company (collectively, the
"Outstanding Common Stock"); provided, however, that the following shall not
constitute a Change of Control: (i) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion privilege);
(ii) any acquisition by an Underwriter (as such term is defined in Section 2(11)
of the Securities Act of 1933, as amended) for the purpose of making a public
offering; (iii) any acquisition by the Company; or (iv) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company;
(b) The liquidation of all or substantially all of the assets of the
Company; or
(c) If within two (2) years of: (i) the completion of a tender offer
or exchange offer for the voting stock of the Company (other than a tender offer
or exchange offer by the Company) or a proxy contest in connection with the
election of members of the Board; (ii) a merger, consolidation, transfer or sale
of twenty percent (20%) or more of the book value of the gross assets of the
Company measured at the time of such merger, consolidation, transfer or sale in
one (1) or more transactions; (iii) the acquisition by any person, directly or
indirectly, of the Beneficial Ownership of securities of the Company
representing twenty percent (20%) or more of the Outstanding Common Stock; or
(iv) any combination of the foregoing, Mr. Nicholas Gihl is not a member of the
Board and a majority of the Board shall not consist of: (A) persons who were
directors of the Company on the effective date of the Company's initial public
offering of any class of its capital stock or, prior to such initial public
offering, persons who were directors of the Company as of December 1, 1996; or
(B) persons who were elected or nominated for election as directors with the
approval of a majority of the persons referred to in paragraph 14(c)(iv)(A)
above.
8
<PAGE>
15. MISCELLANEOUS.
(a) All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given (i) when delivered in person at the
time of such delivery or by telecopy with receipt of transmission
indicating the date and time (provided, however, that notice delivered by
telecopy shall only be effective if such notice is also delivered by hand
or deposited in the United States mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
telecopy), (ii) when received if given by a nationally recognized overnight
courier service or (iii) two (2) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail,
addressed as follows:
if to Nicholson:
Peter Nicholson
16800 S. Lee St.
Orland Park, IL 60462
If to the Company:
Total Control Products, Inc.
2001 N. Janice Avenue
Melrose Park, Illinois 60160
Attn: Nic Gihl, President
Fax: (708) 345-5670
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel Feldman
Telecopier: (312) 580-0923
and/or to such other address or addressees as may be designated by notice
given in accordance with the provisions hereof.
9
<PAGE>
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted
assigns. As to Nicholson, this Agreement is a personal service contract
and shall not be assignable by Nicholson, but all obligations and
agreements of Nicholson hereunder shall be binding upon and enforceable
against Nicholson and Nicholson's personal representatives, heirs, legatees
and devices.
(c) The parties adopt the Recitals to this Agreement and agree and
affirm that construction of this Agreement shall be guided thereby; this
Agreement contains all of the agreements between the parties with respect
to the subject matter hereof; and this Agreement supersedes all other
agreements, oral or written, between the parties hereto with respect to the
subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the waiving party. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect.
(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this
Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
(h) Notwithstanding anything to the contrary contained herein,
Nicholson's rights and obligations under Sections 6, 7, 8, 9 and 13 shall
survive the expiration or termination of this Agreement.
(i) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the State of Illinois applicable to contracts made in that
State (other than any conflict of laws rule which might result in the
application of the laws of any other jurisdiction).
(j) Nicholson hereby expressly submits and consents in advance to the
jurisdiction of the federal and state courts of the State of Illinois for
all purposes in connection with any action or proceeding arising out of or
relating to this Agreement.
10
<PAGE>
(k) The Company shall require any successor (whether direct or
indirect and either by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets, by an agreement in substance and form satisfactory to Nicholson, to
assume this Agreement and to agree expressly to perform this Agreement in
the same manner and to the same extent as the Company would be required to
perform it in the absence of a succession. Regardless of such assumption,
the Company shall remain liable for performance of this Agreement if the
successor corporation fails to perform this Agreement.
(l) All costs, including any legal fees and other expenses incurred
(including all such fees and expenses incurred by Nicholson in contesting
or disputing any termination under this Agreement or in seeking to obtain
or enforce any of his rights or benefits under this Agreement), shall be
paid by the Company. All costs, including legal fees and other expenses
incurred in defending or asserting the validity and enforceability of this
Agreement against challenge by any person in any forum shall be paid by the
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
/s/ Peter Nicholson
-------------------------------
Peter Nicholson
THE COMPANY:
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
-------------------------
Nic Gihl, President
11
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of September 30, 1996 by
and between Dennis Marrano ("Marrano") and Total Control Products, Inc., an
Illinois corporation (the "Company").
R E C I T A L S:
A. The Company desires to employ Marrano as the Senior Vice President of
Operations of the Company and Marrano desires to be so employed by the Company,
all on the terms and subject to the conditions set forth herein.
B. The Company desires to bind Marrano to certain restrictive covenants
and Marrano agrees to be so bound, all on the terms and subject to the
conditions set forth herein.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TERM. Subject to the terms and conditions set forth herein and unless
sooner terminated as hereinafter provided, the Company shall employ Marrano and
Marrano agrees to serve as an employee of the Company from the date hereof to
and including September 30, 1997 (the "Employment Term"). After the expiration
of the Employment Term, Marrano's employment hereunder shall automatically renew
for successive one year periods (each, a "Renewal Term") unless either party
hereto delivers written notice to the other party hereto, at least ninety (90)
days prior to the expiration of the Employment Term or any Renewal Term thereof,
as the case may be, of his or its desire to terminate Marrano's employment with
the Company. The Employment Term and any Renewal Term thereof are collectively
referred to herein as the "Term".
2. EMPLOYMENT DUTIES. During the Term, Marrano shall serve as the Senior
Vice President of Operations of the Company. Marrano shall report directly to
the President of the Company and shall be responsible for all aspects of the
Company's manufacturing and customer service activities. Marrano shall
faithfully, diligently and competently perform such duties and responsibilities
and shall perform such other duties and responsibilities as may from time to
time be assigned to him by the President or the Board of Directors of the
Company (the "Board").
3. COMPENSATION. As compensation for the services to be performed and
the duties and responsibilities to be assumed by Marrano during the Term, the
Company shall pay to Marrano the following compensation:
<PAGE>
(a) A salary (the "Salary") in an amount equal to $110,000 per annum.
The Company shall review the Salary payable to Marrano on January 1 of each
year during the Term beginning on January 1, 1997 and any increases in
Salary shall be made at the sole discretion of the Company. The Salary
shall be payable to Marrano in accordance with the Company's ordinary
payment practices for salaried employees.
(b) Marrano shall be entitled to participate in the Company's
executive bonus plan (the "Bonus") on the same terms as the participation
of other executives of the Company; provided, however, that in addition to
the Bonus payable to Marrano for the Company's fiscal year ending March 31,
1997, the Company shall pay Marrano a bonus in the amount equal to $7,500.
In no event shall any Bonus be paid to Marrano for any fiscal year of the
Company unless Marrano is employed throughout the entire fiscal year. The
Bonus shall be determined from the Company's internal accounting records,
which shall be finally approved by the Board or any compensation committee
thereof. The Bonus awarded to Marrano in respect of any particular fiscal
year shall be paid at the same time as bonuses are paid to other executives
of the Company.
4. BENEFITS.
(a) During the Term, Marrano shall be entitled to participate in such
employee benefit plans and programs as are maintained by the Company, to
the extent that his position, tenure, compensation, age, health and other
qualifications make him eligible to participate. The Company does not
promise the adoption or continuance of any particular plan or program
during the Term, and Marrano's (and his dependents') participation in any
such plan or program shall be subject to the provisions, rules, regulations
and laws applicable thereto.
(b) During the Term, Marrano shall be entitled to such other fringe
benefits as are provided to employees of the Company with comparable
positions, tenure and compensation as Marrano.
5. REIMBURSEMENT OF EXPENSES. During the Term, Marrano shall be entitled
to prompt reimbursement for ordinary, necessary and reasonable out-of-pocket
trade or business expenses which Marrano incurs in connection with performing
his duties under this Agreement. The reimbursement of all such expenses shall
be made upon presentation of evidence reasonably satisfactory to the Company of
the amounts and nature of such expenses and shall be subject to the reasonable
approval of the Board.
6. RESTRICTIVE COVENANTS. Marrano acknowledges and agrees that (a)
through his continuing services to the Company, he will learn valuable trade
secrets and other proprietary information relating to the Company's business;
(b) Marrano's services to the Company are unique in nature; (c) the Company's
business is national in scope; and (d) the Company would be irreparably damaged
if Marrano was to provide services to any person or entity in violation of the
restrictions contained in this Agreement. Accordingly, as an inducement to the
Company to enter
2
<PAGE>
into this Agreement, Marrano agrees that during the Term and for one year
thereafter (such period being referred to herein as the "Restricted Period"),
Marrano shall not, directly or indirectly, either for himself or for any
other person or entity, without the prior written consent of the Company:
(a) anywhere in the United States, engage or participate in, or
assist, advise or be connected with (including as an employee, owner,
partner, shareholder, officer, director, advisor, consultant, agent or
(without limitation by the specific enumeration of the foregoing)
otherwise), or permit his name to be used by or render services for, any
person or entity engaged in, or making plans to engage in, a business that
competes with the business conducted by, or proposed to be conducted by,
the Company (a "Competing Business");
(b) take any action which might divert from the Company or any of its
Affiliates (as defined herein) any opportunity (each, an "Opportunity")
which would be within the scope of the Company's or such Affiliate's then
business and shall offer each Opportunity to the Company, which the Company
may, in its sole discretion, decide to pursue or not;
(c) solicit, attempt to solicit, aid in the solicitation of or accept
any orders from any person or entity who is or has been a customer of the
Company or its Affiliates, at any time during the period beginning one year
prior to the date hereof through the Restrictive Period, to purchase
products or services from any person or entity which products or services
could have been supplied or performed, as the case may be, by the Company
or its Affiliates (other than from the Company or its Affiliates);
(d) solicit, attempt to solicit or aid in the solicitation of any
person or entity who is or has been a customer, supplier, licensor,
licensee or person or entity having any other business relationship with
the Company or any of its Affiliates, at any time during the period
beginning one year prior to the date hereof through the Restrictive Period,
to cease doing business with or alter its business relationship with the
Company or its Affiliates; or
(e) solicit or hire any person or entity who is a director, officer,
employee, independent contractor or agent of the Company or any of its
Affiliates to perform services for any person or entity other than the
Company or its Affiliates or to terminate his or her employment with the
Company or its Affiliates.
As used herein, an "Affiliate" shall mean and include any person or entity
which controls a party, which such party controls or which is under common
control with such party. "Control" means the power, direct or indirect, to
direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise.
3
<PAGE>
7. DISCLOSURE OF CONFIDENTIAL INFORMATION. Marrano recognizes that he
will occupy a position of trust and confidence with the Company as to
Confidential Information (as herein defined) pertaining to the Company and its
Affiliates. As an inducement for the Company to enter into this Agreement,
Marrano therefore agrees that:
(a) for the longest period permitted by law from the date of this
Agreement, Marrano and each Affiliate of Marrano shall hold in the
strictest confidence and shall not, other than as required by law, without
the prior written consent of the Company, use for his own benefit or that
of any third party or disclose to any person, firm or corporation (except
the Company, an Affiliate of the Company or employees of the Company and
its Affiliates) any Confidential Information. For purposes of this
Agreement, intending that the term shall be broadly construed to include
anything protectible as a trade secret under applicable law, "Confidential
Information" shall mean all information, and all documents and other
tangible items which record information relating to or useful in connection
with the Company's business (including the business of any of the Company's
Affiliates), which at the time or times concerned is protectible as a trade
secret under applicable law, and which has been or is from time to time
disclosed to or known by Marrano.
(b) Marrano and each Affiliate of Marrano (and if deceased, their
personal representatives) shall promptly following a request therefor from
the Company return to the Company, without retaining copies, all tangible
items which are or which contain Confidential Information. Marrano shall
also surrender all computer print-outs, laboratory books, floppy disks and
other such media for storing software and information, work papers, files,
client lists, telephone and/or address books, rolodex cards, internal
memoranda, appointment books, calendars, keys and other tangible things
entrusted to Marrano by the Company or authored in whole or in part by
Marrano within the scope of his duties to the Company even if such things
do not contain Confidential Information; and
(c) at the request of the Company made at any time or from time to
time hereafter, Marrano and each Affiliate of Marrano (and if deceased,
their personal representatives) shall make, execute and deliver all
applications, papers, assignments, conveyances, instruments or other
documents and shall perform or cause to be performed such other lawful acts
as the Company may reasonably deem necessary or desirable to implement any
of the provisions of this Agreement, and shall give testimony and cooperate
with the Company, its Affiliates or their respective representatives in any
controversy or legal proceedings involving the Company, its Affiliates or
their respective representatives with respect to any Confidential
Information.
8. INVENTIONS. Marrano acknowledges that in his capacity as an executive
officer of the Company, he will be involved in (i) the conception or making of
improvements, discoveries, inventions or the like (whether patentable or
unpatentable and whether or not reduced to practice), (ii) the authorship of
copyrightable works or (iii) the development of trade secrets relating to the
Company. Marrano acknowledges that all such intellectual property is the
exclusive property of the Company. Marrano hereby waives any rights he may have
in or to such
4
<PAGE>
intellectual property, and Marrano hereby assigns to the Company all right,
title and interest in and to such intellectual property. At the Company's
request and at no expense to Marrano, Marrano shall execute and deliver all
such papers, including, without limitation, any assignment documents, and
shall provide such cooperation as may be necessary or desirable, or as the
Company may reasonably request, in order to enable the Company to secure and
exercise its rights to such intellectual property.
9. SPECIFIC PERFORMANCE. Marrano agrees that any violation by him of
Sections 6, 7 or 8 of this Agreement would be highly injurious to the Company
and its Affiliates and would cause irreparable harm to the Company and its
Affiliates. By reason of the foregoing, Marrano consents and agrees that if he
violates any provision of Sections 6, 7 or 8 of this Agreement, the Company and
its Affiliates shall be entitled, in addition to any other rights and remedies
that it may have, to apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any continuing violation of, the provisions of such section. In the event
Marrano breaches a covenant contained in this Agreement, the Restricted Period
applicable to Marrano with respect to such breached covenant shall be extended
for the period of such breach. Marrano also recognizes that the territorial,
time and scope limitations set forth in Sections 6 and 7 are reasonable and are
properly required for the protection of the Company and its Affiliates and in
the event that any such territorial, time or scope limitation is deemed to be
unreasonable by a court of competent jurisdiction, the Company and Marrano
agree, and Marrano submits, to the reduction of any or all of said territorial,
time or scope limitations to such an area, period or scope as said court shall
deem reasonable under the circumstances. Marrano represents, warrants and
acknowledges that he has available to him sufficient other means of support so
that observance of the covenants contained in Sections 6, 7 and 8 shall not
deprive him of his ability to earn a livelihood or support his dependents.
10. TERMINATION FOR CAUSE. During the Term, Marrano's employment with the
Company may be terminated by the Board "for cause", which shall include (a)
Marrano's conviction for, or plea of nolo contendere to, a felony or a crime
involving moral turpitude; (b) Marrano's commission of an act which the Board,
in its reasonable discretion, determines involved personal dishonesty or fraud
involving personal profit in connection with Marrano's employment with the
Company; (c) Marrano's commission of an act which the Board shall have found to
have involved willful misconduct or gross negligence on the part of Marrano in
the conduct of his duties hereunder; or (d) Marrano's breach of any material
provision of this Agreement. In the event of termination under this Section 10,
the Company's obligations under this Agreement shall cease and Marrano shall
forfeit all his rights to receive any compensation or benefits under this
Agreement, except that Marrano shall be entitled to his Salary and benefits for
services already performed as of the date of termination of Marrano's employment
hereunder.
11. GOOD REASON. Marrano shall be entitled to terminate his employment
hereunder at any time for Good Reason. For the purposes of this Agreement,
Marrano shall have "Good Reason" to terminate his employment hereunder upon (i)
a significant demotion or material adverse change in his duties and
responsibilities; (ii) a significant reduction in Salary or in fringe benefits
provided to him; (iii) a requirement to relocate, except for office relocations
that would
5
<PAGE>
not increase Marrano's one-way commute distance by more than fifty (50) miles
from the most recent principal residence selected by Marrano prior to notice
of relocation; or (iv) a material breach by the Company of its agreements and
covenants set forth herein.
12. DEATH OR DISABILITY.
(a) This Agreement shall terminate upon Marrano's death.
(b) If Marrano becomes permanently disabled (determined as provided
below) during the Term, his employment with the Company shall terminate as
of the date such permanent disability is determined. Marrano shall be
considered to be permanently disabled for purposes of this Agreement if he
is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the Company and is
(i) not expected to recover from his disability within a period of six (6)
months from the commencement of the disability; or (ii) not expected to be
able to perform his material duties of his regular position with the
Company for a period of six (6) months in any consecutive twelve (12) month
period as a result of the same disability. If at any time Marrano claims
or is claimed to be permanently disabled, a physician acceptable to both
Marrano, or his personal representative, and the Company (which acceptances
shall not be unreasonably withheld) shall be retained by the Company and
shall examine Marrano. Marrano shall cooperate fully with the physician.
If the physician determines that Marrano is permanently disabled, the
physician shall deliver to the Company a certificate certifying both that
Marrano is permanently disabled and the date upon which the condition of
permanent disability commenced. The determination of the physician shall
be conclusive.
(c) Except as otherwise provided in Section 13 below, Marrano's right
to his compensation and benefits under this Agreement shall cease upon his
death or disability, except that Marrano (or his estate or heirs) shall be
entitled to his Salary and a pro rata portion of his Bonus and benefits for
services already performed as of the date of his death or disability.
13. EFFECT OF TERMINATION. If the Company terminates Marrano's employment
hereunder for any reason other than cause, but including upon the decision of
the Company not to renew the term of Marrano's employment hereunder pursuant to
Section 1 of this Agreement, or if Marrano terminates his employment hereunder
for Good Reason, the Company shall pay Marrano an amount equal to $150,000 in
one lump sum payment. If Marrano terminates his employment with the Company for
any reason whatsoever other than for Good Reason, the Company's obligations
under this Agreement shall cease and Marrano shall forfeit all his rights to
receive any compensation or benefits under this Agreement, except that Marrano
shall be entitled to his Salary and benefits for services already performed as
of the date of termination of this Agreement.
6
<PAGE>
14. MISCELLANEOUS.
(a) All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given (i) when delivered in person at the
time of such delivery or by telecopy with receipt of transmission
indicating the date and time (provided, however, that notice delivered by
telecopy shall only be effective if such notice is also delivered by hand
or deposited in the United States mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
telecopy), (ii) when received if given by a nationally recognized overnight
courier service or (iii) two (2) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail,
addressed as follows:
if to Marrano:
Dennis Marrano
4N762 Country Club Dr.
-----------------------
West Chicago, IL 60185
-----------------------
Fax:
with a copy to:
------------------
------------------
------------------
Attn:
Fax:
If to the Company:
Total Control Products, Inc.
2001 N. Janice Avenue
Melrose Park, Illinois 60160
Attn: Nic Gihl, President
Fax: (708) 345-5670
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel Feldman
Telecopier: (312) 580-0923
and/or to such other address or addressees as may be designated by notice
given in accordance with the provisions hereof.
7
<PAGE>
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted
assigns. As to Marrano, this Agreement is a personal service contract and
shall not be assignable by Marrano, but all obligations and agreements of
Marrano hereunder shall be binding upon and enforceable against Marrano and
Marrano's personal representatives, heirs, legatees and devices.
(c) The parties adopt the Recitals to this Agreement and agree and
affirm that construction of this Agreement shall be guided thereby; this
Agreement contains all of the agreements between the parties with respect
to the subject matter hereof; and this Agreement supersedes all other
agreements, oral or written, between the parties hereto with respect to the
subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the waiving party. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect.
(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this
Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
(h) Notwithstanding anything to the contrary contained herein,
Marrano's rights and obligations under Sections 6, 7, 8, 9 and 13 shall
survive the expiration or termination of this Agreement.
(i) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the State of Illinois applicable to contracts made in that
State (other than any conflict of laws rule which might result in the
application of the laws of any other jurisdiction).
(j) Marrano hereby expressly submits and consents in advance to the
jurisdiction of the federal and state courts of the State of Illinois for
all purposes in connection with any action or proceeding arising out of or
relating to this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
/s/ Dennis Marrano
----------------------------------
Dennis Marrano
THE COMPANY:
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
-----------------------------
Nic Gihl, President
9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of January 29, 1996 by and
between John Sheridan ("Employee") and Tara Products, Inc. (the "Company").
R E C I T A L S:
A. The Company desires to employ Employee as an executive officer of the
Company and Employee desires to be so employed by the Company, all on the terms
and subject to the conditions set forth herein.
B. The Company desires to bind Employee to certain restrictive covenants
and Employee agrees to be so bound, all on the terms and subject to the
conditions set forth herein.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. TERM. Subject to the terms and conditions set forth herein and unless
sooner terminated as hereinafter provided, the Company shall employ Employee and
Employee agrees to serve as an employee of the Company from the date hereof to
and including December 31, 2000 (the "Employment Term"). Upon the expiration of
the Employment Term, the Company and Employee may agree to continue Employee's
employment with the Company upon terms and conditions to be mutually agreed upon
by the parties hereto. The Employment Term and any renewal term thereof are
collectively referred to herein as the "Term".
2. EMPLOYMENT DUTIES. During the Term, Employee shall serve as the
Vice President of Business Development of the Company. Employee shall
faithfully, diligently and competently perform such duties and
responsibilities as are commensurate with his position with the Company,
including such services, duties and responsibilities as may from time to time
be assigned to him by the Board of Directors of the Company (the "Board").
Employee agrees to devote his business time (as directed by the Company),
attention and energies to the performance of his duties hereunder and in
furtherance of the Company's best interests.
3. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings: (i) "Actual Company Sales" means the actual
sales by the Company of Products (net of returns, allowances and discounts)
during each calendar year of the Employment Term, as determined from the
Company's internal accounting records; (ii) "Actual TCP Sales" means the actual
aggregate sales (net of returns, allowances and discounts) by TCP, any entity
which owns or controls over 50% of the outstanding securities of TCP (the
"Parent"), the Company and all other Subsidiaries of TCP or the Parent during
calendar years 1998, 1999 and 2000, as determined from each such entities'
internal accounting records; (iii) "Base Company
<PAGE>
Sales" means the target net sales of Products by the Company during each
calendar year of the Employment Term as set forth on EXHIBIT A attached
hereto; (iv) "Base TCP Sales" means the target net sales by Parent, TCP and
TCP's and the Parent's Subsidiaries (including the Company) during calendar
years 1998, 1999 and 2000 as set forth on EXHIBIT B attached hereto;
(v)"Products" means the products set forth on EXHIBIT C attached hereto; (vi)
"Subsidiary" means any corporation or other organization, whether
incorporated or unincorporated, of which at least seventy-five percent (75%)
of the voting securities or other voting interests are owned or controlled,
directly or indirectly, by any such person; and (vii) "TCP" means Total
Control Products, Inc., the parent of the Company. For purposes of
determining Actual TCP Sales, (a) only TCP's or its Parent's pro rata portion
of the sales (based upon ownership amounts) of any subsidiary of TCP or the
Parent shall be included into the calculation of Actual TCP Sales; and (b)
only the Parent's net sales multiplied by its pro rata ownership interest of
TCP shall be included in the calculation of Actual TCP Sales. Additionally,
for purposes of this Agreement, "Fair Market Value" shall mean the fair
market value of each share of TCP Stock (as defined below) based upon the
value of TCP as a going concern (but without regard to a minority discount or
lack of marketability of TCP Stock) divided by the aggregate number of shares
of TCP Stock outstanding as of the determination date of Fair Market Value
and prior to giving effect to the transaction giving rise to such
calculation, all on a fully diluted basis. The Fair Market Value shall be
determined by the mutual agreement of Employee and TCP. If Employee and TCP
are unable to agree upon the Fair Market Value within twenty (20) days after
the date giving rise to the calculation of Fair Market Value, the Fair Market
Value shall be determined by a qualified third party mutually agreed upon by
Employee and TCP. If Employee and TCP are unable to agree on the selection
of a qualified third party to determine the Fair Market Value within ten days
after the expiration of the twenty day period referred to above, each of
Employee and TCP shall select their own valuation advisor within ten days
after the expiration of such ten day period, who shall then agree upon a
qualified third party to perform the valuation, and the valuation by such
third party shall be binding on Employee and TCP. In the event that either
Employee or TCP fail to appoint a valuation advisor within the time period
specified above, the other party may instruct its valuation advisor to
complete the valuation and the results of that valuation shall be binding on
both parties. TCP shall cooperate with the valuation advisor undertaking the
valuation pursuant to this Agreement and shall provide the valuation advisor
access to all necessary information and personnel upon reasonable advance
notice during normal business hours.
4. COMPENSATION. Subject to the conditions contained herein, as
compensation for the services to be performed and the duties and
responsibilities to be assumed by Employee during the Employment Term, the
Company shall pay to Employee a salary (the "Salary") in an amount equal to
$200,000 per annum. The Salary shall be payable to Employee in accordance with
the Company's ordinary payment practices for salaried employees.
Notwithstanding the foregoing, Employee shall only be entitled to a pro rata
portion of his Salary for any partial calendar year during the Employment Term.
5. BONUS. If in any calendar year during the Employment Term, Actual
Company Sales is greater than 125% of Base Company Sales for such calendar year,
Employee shall be entitled to participate in TCP's executive bonus plan on the
same terms as the participation of
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other executives of TCP; provided, however, that for purposes of such
participation, Employee's Salary shall be deemed to be equal to $120,000 (the
"Bonus").
6. CONTINGENT CONSIDERATION. For calendar years 1998, 1999 and 2000,
except to the extent as otherwise provided herein,, to the extent that Actual
TCP Sales during such calendar year exceeds Base TCP Sales for such calendar
year, the Company shall pay Employee an amount equal to one and one-quarter
percent (1.25%) of such excess ("Contingent Consideration"). Fifty Percent
(50%) of the Contingent Consideration otherwise payable to Employee shall be
payable in shares of Common Stock, no par value per share, of TCP ("TCP Stock")
based upon the Fair Market Value of each share of TCP Stock.
7. PAYMENT OF BONUS AND CONTINGENT CONSIDERATION. As soon as practicable
after the close of the Company's books for each calendar year during the
Employment Term, but in any event, no later than 90 days after the end of such
calendar year, the Company will determine the final aggregate amount of the
Bonus and the Contingent Consideration, if any, for such preceding calendar year
based upon the Company's internal accounting records, and shall notify Employee
in writing of the amount of each Contingent Consideration and Bonus, if any (the
"Compensation Notice"). Employee may, within forty-five (45) days after
receipt of the Compensation Notice, deliver the Company written notice (the
"Dispute Notice") identifying any dispute that Employee may have with respect to
the amounts set forth in the Compensation Notice. If a Dispute Notice is not
delivered by Employee to the Company within such forty-five day period, the
amount of the Contingent Consideration and Bonus, if any, set forth in the
Compensation Notice shall be final and binding on the parties hereto. Within
fifteen (15) days following the Company's receipt of a Dispute Notice, the
Company and Employee shall in good faith attempt to agree upon the Contingent
Consideration and Bonus, if any, for such calendar year. If the Company and
Employee cannot agree to the amount of the Contingent Consideration and Bonus,
if any, for such calendar year, they shall jointly submit their dispute to the
Cincinnati, Ohio office of Coopers & Lybrand (the "Arbiter") for final
determination, whose determination shall be made within ninety (90) days of the
date the dispute is submitted to the Arbiter. The fees and expenses of the
Arbiter shall be shared equally between Employee and the Company. The Arbiter's
determination as to the amount of Contingent Consideration and Bonus for such
calendar year shall be final and binding on the parties hereto. The Bonus and
Contingent Consideration awarded to Employee in respect of any particular
calendar year shall be paid to Employee within fifteen days of the final
determination of the Contingent Consideration and Bonus, if any, without
interest. In connection with the determination of the Contingent
Consideration, Employer and TCP shall give Employee and the Arbiter, as
applicable, reasonable access to the portion of its books and records which are
relevant to the calculation of the Contingent Consideration during normal
business hours upon reasonable advance notice.
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<PAGE>
8. BENEFITS.
(a) During the Term, Employee shall be entitled to participate in
such employee benefit plans and programs as are maintained by the Company,
to the extent that his position, tenure, compensation, age, health and
other qualifications make him eligible to participate. The Company does
not promise the adoption or continuance of any particular plan or program
during the Term, and Employee's (and his dependents') participation in any
such plan or program shall be subject to the provisions, rules, regulations
and laws applicable thereto.
(b) During the Term, Employee shall be entitled to such other fringe
benefits as are provided to employees of the Company with comparable
positions, tenure and compensation as Employee.
9. REIMBURSEMENT OF EXPENSES. During the Term, Employee shall be
entitled to prompt reimbursement for ordinary, necessary and reasonable
out-of-pocket trade or business expenses which Employee incurs in connection
with performing his duties under this Agreement. Employee shall also receive a
$700 per month car allowance for so long as certain of the officers of TCP
receive such an allowance. The reimbursement of all such expenses shall be made
upon presentation of evidence reasonably satisfactory to the Company of the
amounts and nature of such expenses and shall be subject to the reasonable
approval of the Board.
10. RESTRICTIVE COVENANTS. Employee acknowledges and agrees that (a)
through his continuing services to the Company, he will learn valuable trade
secrets and other proprietary information relating to the Company's business;
(b) Employee's services to the Company are unique in nature; (c) the Company's
business is international in scope; and (d) the Company would be irreparably
damaged if Employee was to provide services to any person or entity in violation
of the restrictions contained in this Agreement. Accordingly, as an inducement
to the Company to enter into this Agreement, Employee agrees that while he is
either employed by the Company or receiving any payments from the Company
pursuant to the terms of this Agreement (such period being referred to herein as
the "Restricted Period"), Employee shall not, directly or indirectly, either for
himself or for any other person or entity, without the prior written consent of
the Company:
(a) anywhere in the world, engage or participate in, or assist,
advise or be connected with (including as an employee, owner, partner,
shareholder, member, manager, officer, director, advisor, consultant, agent
or (without limitation by the specific enumeration of the foregoing)
otherwise), or permit his name to be used by or render services for, any
person or entity engaged in, or making plans to engage in, a business which
competes in any manner with the business conducted or proposed to be
conducted by the Company and any of its Affiliates (a "Competing
Business");
(b) take any action which might divert from the Company or any of its
Affiliates (as defined herein) any opportunity (each, an "Opportunity")
which would be
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<PAGE>
within the scope of the Company's or such Affiliate's then business and
shall offer each Opportunity to the Company, which the Company may, in
its sole discretion, decide to pursue or not;
(c) solicit, attempt to solicit, aid in the solicitation of or accept
any orders from any person or entity who is or has been a customer of the
Company or its Affiliates, at any time during the period beginning one year
prior to the date hereof through the Restrictive Period, to purchase
products or services from any person or entity which products or services
could have been supplied or performed, as the case may be, by the Company
or its Affiliates (other than from the Company or its Affiliates);
(d) solicit, attempt to solicit or aid in the solicitation of any
person or entity who is or has been a customer, supplier, licensor,
licensee or person or entity having any other business relationship with
the Company or any of its Affiliates, at any time during the period
beginning one year prior to the date hereof through the Restrictive Period,
to cease doing business with or alter its business relationship with the
Company or its Affiliates; or
(e) solicit or hire any person or entity who is a director, officer,
employee, independent contractor or agent of the Company or any of its
Affiliates to perform services in competition with the Company or its
Affiliates for any person or entity other than the Company or its
Affiliates or to terminate his or her employment with the Company or its
Affiliates.
As used herein, an "Affiliate" shall mean and include any person or entity
which controls a party, which such party controls or which is under common
control with such party, and with respect to the Company, the term "Affiliate"
shall specifically include TCP. "Control" means the power, direct or indirect,
to direct or cause the direction of the management and policies of a person or
entity through voting securities, contract or otherwise.
11. DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee recognizes that he
will occupy a position of trust and confidence with the Company as to
Confidential Information (as herein defined) pertaining to the Company and its
Affiliates. As an inducement for the Company to enter into this Agreement,
Employee therefore agrees that:
(a) during the Term and for a period of two years thereafter,
Employee and each Affiliate of Employee shall hold in the strictest
confidence and shall not, other than as required by law, without the prior
written consent of the Company, use for his own benefit or that of any
third party or disclose to any person, firm or corporation (except the
Company, an Affiliate of the Company or employees of the Company and its
Affiliates) any Confidential Information. For purposes of this Agreement,
intending that the term shall be broadly construed to include anything
protectible as a trade secret under applicable law, "Confidential
Information" shall mean all information, and all documents and other
tangible items which record information relating to or useful in connection
with
5
<PAGE>
the Company's business (including the business of any of the Company's
Affiliates), which at the time or times concerned is protectible as a trade
secret under applicable law, and which has been or is from time to time
disclosed to or known by Employee. Notwithstanding the foregoing, the term
"Confidential Information shall not include any information that becomes
generally known to and available for use by the public or in the trade,
other than as a result of Employee's acts or omissions to act.
(b) Employee and each Affiliate of Employee (and if deceased, their
personal representatives) shall promptly following a request therefor from
the Company return to the Company, without retaining copies, all tangible
items which are or which contain Confidential Information. Employee shall
also surrender all computer print-outs, laboratory books, floppy disks and
other such media for storing software and information, work papers, files,
client lists, telephone and/or address books, rolodex cards, internal
memoranda, appointment books, calendars, keys and other tangible things
entrusted to Employee by the Company or authored in whole or in part by
Employee within the scope of his duties to the Company or its predecessor,
even if such things do not contain Confidential Information; and
(c) at the request of the Company made at any time or from time to
time hereafter, Employee and each Affiliate of Employee (and if deceased,
their personal representatives) shall make, execute and deliver all
applications, papers, assignments, conveyances, instruments or other
documents and shall perform or cause to be performed such other lawful acts
as the Company may reasonably deem necessary or desirable to implement any
of the provisions of this Agreement, and shall give testimony and cooperate
with the Company, its Affiliates or their respective representatives in any
controversy or legal proceedings involving the Company, its Affiliates or
their respective representatives with respect to any Confidential
Information.
12. INVENTIONS. Employee acknowledges that in his capacity as an
executive of the Company, he may be involved in (i) the conception or making of
improvements, discoveries, inventions or the like (whether patentable or
unpatentable and whether or not reduced to practice), (ii) the authorship of
copyrightable works or (iii) the development of trade secrets relating to the
Company. Employee acknowledges that all such intellectual property is the
exclusive property of the Company. Employee hereby waives any rights he may
have in or to such intellectual property, and Employee hereby assigns to the
Company all right, title and interest in and to such intellectual property. At
the Company's request and at no expense to Employee, Employee shall execute and
deliver all such papers, including, without limitation, any assignment
documents, and shall provide such cooperation as may be necessary or desirable,
or as the Company may reasonably request, in order to enable the Company to
secure and exercise its rights to such intellectual property.
13. SPECIFIC PERFORMANCE. Employee agrees that any violation by him of
Sections 10, 11 or 12 of this Agreement would be highly injurious to the Company
and its Affiliates and would cause irreparable harm to the Company and its
Affiliates. By reason of the foregoing, Employee
6
<PAGE>
consents and agrees that if he violates any provision of Sections 10, 11 or
12 of this Agreement, the Company and its Affiliates shall be entitled, in
addition to any other rights and remedies that they may have, to apply to any
court of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce, or prevent any continuing violation of, the
provisions of such section. In the event Employee breaches a covenant
contained in this Agreement, the Restricted Period applicable to Employee
with respect to such breached covenant shall be extended for the period of
such breach. Employee also recognizes that the territorial, time and scope
limitations set forth in Sections 10 and 11 are reasonable and are properly
required for the protection of the Company and its Affiliates and in the
event that any such territorial, time or scope limitation is deemed to be
unreasonable by a court of competent jurisdiction, the Company and Employee
agree, and Employee submits, to the reduction of any or all of said
territorial, time or scope limitations to such an area, period or scope as
said court shall deem reasonable under the circumstances. Employee
represents, warrants and acknowledges that he has available to him sufficient
other means of support so that observance of the covenants contained in
Sections 10, 11 and 12 shall not deprive him of his ability to earn a
livelihood or support his dependents.
14. TERMINATION FOR CAUSE. During the Term, Employee's employment with
the Company may be terminated by the Board "for cause", which shall include (a)
Employee's conviction for, or plea of nolo contendere to, a felony or a crime
involving moral turpitude (excluding, minor traffic violations); (b) Employee's
commission of an act which involves personal dishonesty or fraud involving
personal profit in connection with Employee's employment with the Company; (c)
Employee's commission of an act which involves willful misconduct or gross
negligence on the part of Employee in the conduct of his duties hereunder; (d)
Employee's material breach of the provisions of Sections 10, 11 or 12 of this
Agreement; or (e) Employee's failure to cure any material breach of any other
material provision of this Agreement within ten (10) days after Employee's
receipt of written notice of such breach.
15. TERMINATION FOR GOOD REASON. During the Employment Term, Employee may
terminate his employment with the Company "for good reason". For purposes of
this Agreement, termination "for good reason" shall mean termination due to (a)
a substantial change in Employee's title, position and/or responsibilities with
the Company; or (b) a forced relocation of Employee by the Company to a location
not within 50 miles of the Cincinnati metropolitan area.
16. DEATH OR DISABILITY.
(a) This Agreement shall terminate upon Employee's death.
(b) If Employee becomes permanently disabled (determined as provided
below) during the Term, his employment with the Company shall terminate as
of the date such permanent disability is determined. Employee shall be
considered to be permanently disabled for purposes of this Agreement if he
is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the Company and is
(i) not expected to recover from his disability within a period of six (6)
months from the commencement of the disability; or (ii) not expected to be
able to
7
<PAGE>
perform his material duties of his regular position with the
Company for a period of six (6) months in any consecutive twelve (12) month
period as a result of the same disability. If at any time Employee claims
or is claimed to be permanently disabled, a physician acceptable to both
Employee, or his personal representative, and the Company (which
acceptances shall not be unreasonably withheld) shall be retained by the
Company and shall examine Employee. Employee shall cooperate fully with
the physician. If the physician determines that Employee is permanently
disabled, the physician shall deliver to the Company a certificate
certifying both that Employee is permanently disabled and the date upon
which the condition of permanent disability commenced. The determination
of the physician shall be conclusive.
17. EFFECT OF TERMINATION.
(a) Upon the termination of Employee's employment hereunder (i) by the
Company for any reason other than for cause; or (ii) by the Employee for good
reason, Employee shall be entitled to receive his Salary, Bonus and Contingent
Consideration (pursuant to this Agreement and that certain Merger Agreement (the
"Merger Agreement") dated as of the date hereof among Employee, the Company, TCP
and certain other parties) through the remainder of the Employment Term on the
same terms and at the same times as provided herein and the Merger Agreement, as
the case may be.
(b) Upon the termination of Employee's employment hereunder (i) by Employee
for any reason (other than for good reason) at any time after the one year
anniversary from the date hereof (the "Anniversary Date"); or (ii) by the
Company at any time during the Employment Term for cause, Employee shall be
entitled to receive, in Employee's sole discretion, either (x) the Bonus and
Contingent Consideration (to be paid to Employee either pursuant to this
Agreement or pursuant to the terms of the Merger Agreement) though the remainder
of the Employment Term, to be paid to Employee on the same terms and at the same
times as provided herein and in the Merger Agreement, plus the lesser of (A) the
Salary through the remainder of the Employment Term, to be paid to Employee on
the same terms and at the same times as provided herein; or (B) an amount equal
to $200,000 to be paid by the Company to Employee within ____ days of the
termination date of Employee's employment hereunder; or (y) the Salary through
the remainder of the Employment Term to be paid to Employee on the same terms
and at the same times as provided herein. If Employee, in his sole discretion,
elects to receive the consideration set forth in 17(b)(y) above, Employee shall
forfeit all rights to receive Bonus and Contingent Consideration accruing after
the date of termination either pursuant to this Agreement or the Merger
Agreement.
(c) In the event Employee terminates his employment for any reason on or
prior to the Anniversary Date (other than for good reason), the Company's
obligations under this Agreement shall cease and Employee shall forfeit all his
rights to receive any Contingent Consideration under the Merger Agreement and
any compensation or benefits under this Agreement, including any Bonus and/or
Contingent Consideration, except that Employee shall be entitled to his Salary
and benefits for services already performed as of the date of termination of
this Agreement.
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<PAGE>
Notwithstanding anything to the contrary contained herein, if at any time
Employee's employment with the Company is terminated for any reason
whatsoever (other than by Employee for good reason), and at the time of such
termination, the Company had grounds to terminate Employee's employment
hereunder for cause, the Company can elect, in its sole discretion, to
terminate Employee's employment hereunder for cause, in which case, Employee
would only be entitled to the compensation set forth in Section 17(b) and not
the compensation set forth in Section 17(a).
18. MISCELLANEOUS.
(a) All notices required or permitted to be given hereunder shall be
in writing and shall be deemed given (i) when delivered in person at the
time of such delivery or by telecopy with receipt of transmission
indicating the date and time (provided, however, that notice delivered by
telecopy shall only be effective if such notice is also delivered by hand
or deposited in the United States mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
telecopy), (ii) when received if given by a nationally recognized overnight
courier service or (iii) two (2) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail,
addressed as follows:
if to Employee:
John Sheridan
_________________
_________________
with a copy to:
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202-3957
Attention: Phil Schultz
Fax: (513) 381-0205
If to the Company:
Total Control Products, Inc.
2001 North Janice Avenue
Melrose Park, Illinois 60160
Attention: Nicholas Gihl, President
Fax: (708) 345-5670
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<PAGE>
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel J. Feldman
Telecopier: (312) 580-0923
and/or at such other addresses and/or to such other addressees as may be
designated by notice given in accordance with the provisions hereof.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, successors and permitted
assigns. As to Employee, this Agreement is a personal service contract and
shall not be assignable by Employee, but all obligations and agreements of
Employee hereunder shall be binding upon and enforceable against Employee
and Employee's personal representatives, heirs, legatees and devices.
(c) The parties adopt the Recitals to this Agreement and agree and
affirm that construction of this Agreement shall be guided thereby. This
Agreement contains all of the agreements between the parties with respect
to the subject matter hereof. This Agreement supersedes all other
agreements, oral or written, between the parties hereto with respect to the
subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No
waiver of any provisions of this Agreement shall be valid unless in writing
and signed by the waiving party. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall,
for any reason, be invalid or unenforceable, such provisions (or portions
thereof) shall be ineffective only to the extent of such invalidity or
unenforceability, and the remaining provisions of this Agreement (or
portions thereof) shall nevertheless be valid, enforceable and of full
force and effect.
(f) The section or paragraph headings or titles herein are for
convenience of reference only and shall not be deemed a part of this
Agreement.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original and all of which taken together
shall constitute a single instrument.
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(h) Notwithstanding anything to the contrary contained herein,
Employee's rights and obligations under Sections 10, 11, 12 and 13 shall
survive the expiration or termination of this Agreement for the periods
specified in such sections.
(i) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the State of Ohio applicable to contracts made in that State
(other than any conflict of laws rule which might result in the application
of the laws of any other jurisdiction).
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
/s/ John Sheridan
-------------------------------
John Sheridan
THE COMPANY:
TARA PRODUCTS, INC.
By: /s/ Nicholas Gihl
----------------------------
Title: Vice President
-------------------------
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<PAGE>
AMENDMENT
Reference is hereby made to that certain Employment Agreement (the
"Agreement") dated as of January 29, 1996 between Tara Products, Inc.
("Employer") and John Sheridan ("Employee"). Capitalized terms used herein
and not otherwise defined herein, shall have the meanings ascribed to them in
the Agreement.
Notwithstanding anything to the contrary contained in the Agreement, (a)
at any time after the date hereof, Employer may, in its sole discretion,
elect to pay the following amount to Employee (50% of which shall be paid in
shares of TCP Stock as provided in Section 6 of the Agreement) in full
satisfaction of all Contingent Consideration for calendar years 1998, 1999
and 2000 otherwise owed to Employee during the Employment Term pursuant to
the terms of the Agreement and this amendment to the Agreement (the
"Amendment"): (i) if such payment is made at any time prior to the payment of
Contingent Consideration for calendar year 1998, an amount equal to
$2,000,000; (ii) if such payment is made at any time prior to the payment of
Contingent Consideration for calendar year 1999 but after the payment for
calendar year 1998, an amount equal to $1,666,667; and (iii) if such payment
is made at any time prior to the payment of Contingent Consideration for
calendar year 2000 but after the payment for calendar year 1999, an amount
equal to $1,000,000 ("Termination Payment"); and (b) if at any time after the
date hereof, an Asset Sale (as hereinafter defined) occurs, or the
shareholders of TCP as of the date hereof fail to own, either directly or
indirectly, at least 50% of the outstanding TCP Stock (other than as a result
of a public sale of shares of TCP Stock) or TCP fails to own, either directly
or indirectly, over 50% of the outstanding stock of Employer (other than as a
result of a merger by Employer with and into TCP) (each, a "Triggering
Event"), then Employer shall either (i) pay the Termination Payment to
Employee in cash (with no portion being paid in shares of TCP Stock) in full
satisfaction of all Contingent Consideration otherwise owed to Employee
during the Employment Term pursuant to the terms of the Agreement and this
Amendment; or (ii) pay Employee the Contingent Consideration otherwise due
and payable to Employee pursuant to the terms of the Agreement and this
Amendment in cash (with no portion being paid in shares of TCP Stock) subject
to the following: (A) if the Triggering Event occurs at any time prior to the
payment of Contingent Consideration for calendar year 1998, Employer shall
guaranty a minimum payment of Contingent Consideration in an aggregate amount
of $1,000,000 during the Employment Term, but the aggregate amount of
Contingent Consideration payable to Employee during the Employment Term shall
not exceed $3,375,000; (B) if the Triggering Event occurs at any time prior
to the payment of Contingent Consideration for calendar year 1999 but after
the payment for calendar year 1998, Employer shall guaranty a minimum payment
of Contingent Consideration in an aggregate amount of $812,500 during the
remainder of the Employment Term, but the aggregate amount of Contingent
Consideration payable to Employee during the remainder of the Employment Term
shall not exceed $2,562,500; and (C) if the Triggering Event occurs at any
time prior to the payment of Contingent Consideration for calendar year 2000
but after the payment for calendar year 1999, Employer shall guaranty a
minimum payment of Contingent Consideration in an aggregate amount of
$500,000 during the remainder of the Employment Term, but the aggregate
amount of Contingent Consideration payable to Employee during the remainder
of the Employment Term shall not exceed $1,437,500.
<PAGE>
Upon the sale of any product line, division or equity interest (each, a
"Sold Product Line") by Employer to any third party where the Sold Product
Line or sales therefrom would have been included in the calculation of Actual
TCP Sales and where such sale would not constitute a sale of all or
substantially all of Employer's assets, for the calendar year in which any
such sale occurs and for each succeeding calendar year during the Employment
Term, Actual TCP Sales shall be computed as if such sale did not occur and
the future sales for the Sold Product Line shall be projected for the
remainder of the Employment Term at the same rate of growth as Employer's
sales growth for such Sold Product Line for the calendar year in the year
prior to such sale.
Neither TCP nor Employer shall not be entitled to sell all or
substantially all of its assets (each, an "Asset Sale") unless the purchaser
in such Asset Sale agrees to assume in writing the terms of the Agreement and
this Amendment. Notwithstanding the foregoing, if a Triggering Event occurs
and (a) if Actual TCP Sales for the calendar year prior to the consummation
of the Triggering Event is greater than $35,000,000, then each of the amounts
of Contingent Consideration and Termination Payments set forth above shall
remain the same; (b) if Actual TCP Sales for the calendar year prior to the
consummation of the Triggering Event is less than or equal to $35,000,000 but
greater than $25,000,000, then each of the amounts of Contingent
Consideration and Termination Payments set forth above shall be reduced by an
amount equal to the applicable amount set forth above multiplied by the
following fraction: the numerator of which is $35,000,000 minus Actual TCP
Sales for the calendar year prior to the consummation of the Triggering Event
and the denominator of which is $10,000,000; (c) if Actual TCP Sales for the
calendar year prior to the consummation of the Triggering Event is less than
or equal to $25,000,000, then Employee shall not be entitled to any
additional Contingent Consideration after the date of the Asset Sale; and (d)
any Termination Payment or Contingent Consideration paid or payable to
Employee after a Triggering Event shall be paid in cash (with no portion paid
in shares of TCP Stock).
Dated: as of January 29, 1996
/s/ John Sheridan
- --------------------------------
John Sheridan
TARA PRODUCTS, INC.
By: /s/ Nicholas Gihl
-----------------------------
Nick Gihl, Vice President
<PAGE>
AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO
=============================================================================
LOAN AND SECURITY AGREEMENT
(All ASSETS WITH ADVANCE RATE)
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THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), made as of the 17th
day of July, 1996, by and between AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO ("Bank"), a national banking association with its principal place of
business at 33 North LaSalle Street, Chicago, Illinois 60690, and TOTAL CONTROL
PRODUCTS, INC., an Illinois corporation and TARA PRODUCTS, INC., an Illinois
corporation (collectively referred to as "Borrower"), with their principal place
of business at 2001 N. Janice Street, Melrose Park, IL 60160 has reference to
the following facts and circumstances:
A. Pursuant to Borrower's request, Rank heretofore, now and from time to time
hereafter, has and/or may loan or advance monies, extend credit, and/or extend
other financial accommodations to or for the benefit of Borrower.
B. To secure repayment of the same and all of "Borrower's Liabilities" (as
hereinafter defined), Borrower wishes to provide Bank with a security interest
in and/or collateral assignment of Borrower's assets.
NOW, THEREFORE, in consideration of terms and conditions set forth herein
and of any loans or extensions of credit heretofore, now or hereafter made to or
for the benefit of Borrower by Bank, the parties hereto agree as follows:
1. DEFINITIONS AND TERMS
1.1 When used herein, the words, terms and/or phrases set forth below
shall have the following meanings:
A. "ACCOUNTS": all present and future rights of Borrower to payment for
goods sold or leased or for services rendered, which are not evidenced
by instruments or chattel paper, and whether or not they have been
earned by performance.
B. "BORROWER'S LIABILITIES": all obligations and liabilities of Borrower
to Bank (including without limitation all debts, claims, indebtedness
and attorneys' fees and expenses as provided for in Paragraph 8.13)
whether primary, secondary, direct, contingent, fixed or otherwise,
including Rate Hedging Obligations (as defined in subparagraph L
herein), heretofore, now and/or from time to time hereafter owing, due
or payable, however evidenced, created, incurred, acquired or owing
and however arising, whether under this Agreement or the "Other
Agreements" (hereinafter defined) or by operation of law or otherwise.
C. "CHARGES", all national, federal, state, county, city, municipal
and/or other governmental (or any instrumentality, division, agency,
body or department thereof,
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including without limitation the Pension Benefit Guaranty Corporation)
taxes, levies, assessments, charges, liens, claims or encumbrances
upon and/or relating to the "Collateral" (as hereinafter defined),
Borrower's Liabilities, Borrower's business, Borrower's ownership
and/or use of any of its assets, and/or Borrower's income and/or gross
receipts.
D. "COLLATERAL": shall have the meaning set forth in Paragraph 3.2.
E. "INDEBTEDNESS": (i) indebtedness for borrowed money or for the
deferred purchase price of property or services; (ii) obligations as
lessee under leases which shall have been or should be, in accordance
with generally accepted accounting principles, recorded as capital
leases: (iii) obligations under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) or (ii) above; and (iv) liabilities with
respect to unfunded vested benefits under plans covered by Title IV of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and in effect from time to time.
F. "LETTER OF CREDIT OBLIGATIONS": shall mean any and all existing and
future indebtedness, obligations and liabilities of every kind, nature
and character, direct or indirect, absolute or contingent, of the
Borrower to Bank, arising under, pursuant to or in connection with any
letter of credit issued under the Maximum Revolving Facility.
G. "LOANS": shall mean collectively any Revolving Loans as defined in
Paragraph 2.5 and Term Loans as defined in Paragraph 2.6.
H. "MAXIMUM REVOLVING FACILITY": shall mean the maximum amount of the
Revolving Loans as evidenced by a revolving note(s) which amount Bank
has agreed to consider as a ceiling on the outstanding principal
balance of Revolving Loans (other than Term Loans) to be made by Bank
pursuant to this Agreement.
I. "OBLIGOR": any Person who is and/or may become obligated to Borrower
under or on account of "Accounts."
J. "OTHER AGREEMENTS": all agreements, instruments and documents,
including without limitation, guaranties, mortgages, deeds of trust,
notes, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, subordination agreements,
financing statements and all other written matter heretofore, now
and/or from time to time hereafter executed by and/or on behalf of
Borrower and delivered to Bank.
K. "PERSONS": any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, entity, party or government
(whether national, federal, state, county, city,
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municipal or otherwise, including without limitation, any
instrumentality, division, agency, body or department thereof).
L. "RATE HEDGING OBLIGATIONS": shall mean any and all obligations of the
Borrower, whether absolute or contingent and howsoever and whenever
created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefor),
under (i) any and all agreements designed to protect the Borrower from
the fluctuations of interest rates, exchange rates or forward rates
applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to: interest rate swap
agreements, dollar-denominated or cross-currency interest rate
exchange agreements, forward currency exchange agreements, interest
rate cap, floor or collar agreements, forward rate currency agreements
or agreements relating to interest rate options, puts and warrants,
and (ii) any and all agreements relating to cancellations, buy backs,
reversals, terminations or assignments of any of the foregoing.
1.2 Except as otherwise defined in this Agreement or the Other
Agreements, all words, terms and/or phrases used herein and therein shall be
defined by the applicable definition therefor (if any) in the Illinois
Uniform Commercial Code.
2. LOANS
2.1 Loans made by Bank to Borrower pursuant to this Agreement shall be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Except as otherwise provided in this Agreement or in any notes executed and
delivered by Borrower to Bank in connection herewith, the principal portion of
Borrower's Liabilities shall be payable by Borrower to Bank on the maturity
date(s) described in any such note(s) or other instruments evidencing Borrower's
Liabilities (as the same may be amended, renewed or replaced) and all costs,
fees and expenses payable hereunder or under the Other Agreements, shall be
payable by Borrower to the Bank on demand, in either case at Bank's principal
place of business or such other place as Bank shall specify in writing to
Borrower.
2.2 All of Borrower's Liabilities shall constitute one obligation secured
by Bank's security interest in the Collateral and by all other security
interests, liens, claims and encumbrances heretofore, now and/or from time to
time hereafter granted by Borrower to Bank.
2.3 Each loan made by Bank to Borrower pursuant to this Agreement or the
Other Agreements shall constitute an automatic warranty and representation by
Borrower to Bank that there does not then exist an "Event of Default" (as
hereinafter defined) or any event or condition, which with notice, lapse of time
and/or the making of such loan would constitute an Event of Default.
2. This Agreement shall be in effect until all of Borrower's Liabilities
have been paid in full and any and all commitments of Bank to make loans have
terminated.
2.5 Provided that an Event of Default does not then exist or would not
then be created or any event which with notice or lapse of time or both would
constitute an Event of Default does not then exist, Bank shall advance to
Borrower on a revolving credit basis (the "Revolving Loans") up to the lesser of
(i) the Maximum Revolving Facility minus any Letter of Credit Obligations, or
(ii) the
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"Borrowing Base" minus any Letter of Credit Obligations. As used herein,
"Borrowing Base" shall mean up to 85% ("Advance Rate") of the face amount (less
maximum discounts, credits or allowances which may be taken by or granted to
Obligor in connection therewith) of all then existing "Eligible Accounts" (as
hereinafter defined) that are scheduled on the most recent schedule of accounts
delivered to Bank. If applicable, any amount calculated pursuant to Paragraph
2.9, shall be included in the Borrowing Base. Notwithstanding any contrary
provision contained herein, Bank may elect at its option to at any time and upon
sixty (60) days prior written notice to Borrower change the foregoing method of
calculating the Borrowing Base by reducing the advances against Eligible
Accounts, or to deduct reserves from the Borrowing Base.
2.6 Bank may from time to time advance Borrower term loans ("Term Loans")
in such amounts and on such terms and conditions as the Bank and Borrower from
time to time may agree in writing.
2.7 Notwithstanding anything contained in this Agreement or the Other
Agreements to the contrary, the principal portion of Borrower's outstanding
liabilities due at any one time under the Revolving Loans shall not exceed the
lesser of: (i) the Maximum Revolving Facility minus the amount of all Letter of
Credit Obligations, or (ii) the Borrowing Base minus the amount of all Letter of
Credit Obligations.
2.8 Bank's commitment to loan shall expire on the earlier of: (i) the date
on which Borrower's Liabilities mature under the terms of any note given by
Borrower to Bank, or (ii) the occurrence of an Event of Default pursuant to
Section 7 hereof.
2.9 The Borrowing Base shall also include the lessor of: (i)
$4,500,000.00; or (ii) up to 50% of the "Value" of "Eligible Inventory" (each
term as hereinafter defined) set forth in the Designation of Inventory then most
recently delivered by Borrower to Bank, which amount shall be reduced by 100% of
the Value of any reductions in such Eligible Inventory made since the date of
such Designation of Inventory. "Value" shall mean the lesser of Borrower's cost
thereof calculated on a first-in, first-out basis or the wholesale market value
thereof. "Eligible Inventory" shall mean any "Inventory" (as hereinafter
defined) which meets each of the following requirements: (a) it is in condition
to be sold in the ordinary course of Borrower's business; (b) in case of goods
held for sale or lease, it is (except as Bank may otherwise consent in writing)
new and unused; (c) it is subject to a first priority, fully perfected security
interest in favor of Bank; (d) it is owned by Borrower and is not subject to any
other lien or security interest whatsoever except for: (i) the security interest
in favor of Bank, (ii) tax liens for taxes not past due, and (iii) warehouse
liens for warehouse charges not past due; and (e) Bank has reasonably
determined, it is not unacceptable for any reason, including, but without
limitation, due to age, type, category and/or quantity. Any Inventory which is
at any time Eligible Inventory, but which subsequently fails to meet any of the
foregoing requirements shall forthwith cease to be Eligible Inventory.
"Inventory" shall mean all goods held by Borrower for sale or lease, or
furnished by Borrower under contract of service, or held by Borrower as raw
materials, work in progress or materials used or consumed in a business.
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3. COLLATERAL: GENERAL TERMS
3.1 To secure the prompt payment to Bank of Borrower's Liabilities and the
prompt, full and faithful performance by Borrower of all of the provisions to be
kept, observed or performed by Borrower under this Agreement and/or the Other
Agreements, Borrower grants to Bank a security interest in and to, and
collaterally assigns to Bank, all of Borrower's property, wherever located,
whether now or hereafter existing, owned, licensed, leased (to the extent of
Borrower's leasehold interest therein), consigned (to the extent of Borrower's
ownership therein), consigned (to the extent of Borrower's ownership
therein), arising and/or acquired, including without limitation all of
Borrower's: (a) Accounts, chattel paper, tax refunds, contract rights,
leases, leasehold interests, letters of credit, instruments, documents,
documents of title, patents, copyrights, trademarks, tradenames, licenses,
goodwill, beneficial interests and general intangibles; (b) all goods whose
sale, lease or other disposition by Borrower have given rise to Accounts and
have been returned to or repossessed or stopped in transit by Borrower; (c)
certificated and uncertificated securities; (d) goods, including without
limitation all its consumer goods, machinery, equipment, farm products,
fixtures and inventory; (e) liens, guaranties and other rights and privileges
pertaining to any of the Collateral; (f) monies, reserves, deposits, deposit
accounts and interest or dividends thereon, cash or cash equivalents; (g) all
property now or at any time or times hereafter in the possession or under the
control of Bank or its bailee; (h) all accessions to the foregoing, all
litigation proceeds pertaining to the foregoing and all substitutions,
renewals, improvements and replacements of and additions to the foregoing;
and (i) all books, records and computer records in any way relating to the
Collateral herein described.
3.2 All of the aforesaid property and products and proceeds of the
foregoing in Paragraph 3.1 above, including without limitation, proceeds of
insurance policies insuring the foregoing are herein individually and
collectively called the "Collateral", The terms used herein to identify the
Collateral shall have the same meaning as are assigned to such terms as of the
date hereof in the Illinois Uniform Commercial Code.
3.3 Borrower shall make appropriate entries upon its financial statements
and its books and records disclosing Bank's security interest in the Collateral.
3.4 Borrower shall execute and deliver to Bank, at the request of Bank,
all agreements, instruments and documents ("Supplemental Documentation") that
Bank reasonably may request, in form and substance acceptable to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and to
consummate the transactions contemplated in or by this Agreement and the Other
Agreements. Borrower agrees that a carbon, photographic or photostatic copy, or
other reproduction of this Agreement or of any financing statement, shall be
sufficient to evidence Bank's security interest.
3.5 Bank shall have the right, at any time during Borrower's usual
business hours, to inspect the Collateral and all related records (and the
premises upon which it is located) and to verify the amount and condition of or
any other matter relating to the Collateral.
3.6 Borrower warrants and represents to and covenants with Bank that: (a)
Bank's security interest in the Collateral is now and at all times hereafter
shall be perfected and have a first priority except as expressly agreed to in
writing by the Bank; (b) the offices and/or locations where Borrower keeps the
Collateral are specified at the end of this Paragraph and Borrower shall not
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remove such Collateral therefrom except as may occur in the ordinary course of
business, and shall not keep any of such Collateral at any other offices or
locations unless Borrower gives Bank written notice thereof at least thirty (30)
days prior thereto and the same is within the United States of America; and (c)
the addresses specified at the end of this Paragraph include and designate
Borrower's principal executive office, principal place of business and other
offices and places of business and are Borrower' sole offices and places of
business. Borrower, by written notice delivered to Bank at least thirty (30)
days prior thereto, shall advise Bank of Borrower's opening of any new office or
place of business or its closing of any existing office or place of business and
any new office or place of business shall be within the United States of
America. Borrower has places of business at the address shown at the beginning
of this Agreement and at the locations listed below:
1) 502 Technecenter Drive, Suite A, Millford, OH 45150
2) 111 Deerwood Rd., Ste. 200, San Ramon, CA.94583
3) 2872 Woodcock Blvd., Ste. 105, Atlanta, GA. 30341
All of the Collateral currently owned by Borrower and all of the Collateral
hereafter acquired is, or will be held or stored at the locations listed below:
1) The address of the Borrower shown at the beginning of this Agreement;
2) 502 Technecenter Drive, Suite A, Millford, OH 45150
3) 111 Deerwood Rd., Ste. 200, San Ramon, CA. 94583
4) 2872 Woodcock Blvd., Ste. 105, Atlanta, Ga. 30341
3.7 At the request of Bank, Borrower shall receive, as the sole and
exclusive property of Bank and as trustee for Bank, all monies, checks, notes,
drafts and all other payments for and/or proceeds of Collateral which come into
the possession or under the control of Borrower and immediately upon receipt
thereof, Borrower shall remit the same (or cause the same to be remitted), in
kind, to Bank or at Bank's direction.
3.8 Upon demand or upon an Event of Default, Bank may take control of, in
any manner, and may endorse Borrower's name to any of the items of payment or
proceeds described in Paragraph 3.7 above and, pursuant to the provisions of
this Agreement, Bank shall apply tile same to and on account of Borrower's
Liabilities.
3.9 Bank may, at its option, at any time or times hereafter, but shall
be under no obligation to pay, acquire and/or accept an assignment of any
security interest, lien, encumbrance or claim asserted by any Person against
the Collateral.
3.10 Immediately upon Borrower's receipt of that portion of the Collateral
evidenced by an agreement, instrument and/or document ("Special Collateral"),
Borrower shall mark the same to show that such Special Collateral is subject to
a security interest in favor of Bank and shall deliver the original thereof to
Bank, together with appropriate endorsement and/or specific evidence of
assignment (in form and substance acceptable to Bank) thereof to Bank.
3.11 Regardless of the adequacy of any Collateral securing Borrower's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from Bank to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in possession or
control of Bank or its bailee for any purpose may, upon demand or an Event of
Default or event or condition which with notice or lapse of time would
constitute an Event of Default, be reduced to cash and applied by Bank to or
setoff by Bank against Borrower's Liabilities hereunder.
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3.12 At the request of Bank, Borrower shall instruct the Obligor of its
Accounts to make payments directly to a lockbox or cash collateral account
maintained by Bank in Borrower's name. All such collections shall be Bank's
property to be applied against Borrower's Liabilities, and not Borrower's
property. Bank may endorse Borrower's name to any of the items of payment or
proceeds described herein.
4. COLLATERAL: ACCOUNTS
4.1 An "Eligible Account" is an Account of Borrower which meets each of
the following requirements: (a) it arises from the sale or lease of goods,
such goods having been shipped or delivered to the Obligor thereof, or from
services rendered to the Obligor; (b) it is a valid, legally enforceable
obligation of the Obligor thereunder, and is not subject to any offset,
counterclaim or other defense on the part of such Obligor denying liability
thereunder in whole or in part; (c) it is subject to a perfected security
interest in favor of Bank and is not subject to any other lien or security
interest whatsoever, except those of Bank; (d) it is evidenced by an invoice
(dated not later than the date of shipment to the Obligor or performance and
having a due date not more than thirty (30) days after the date of invoice)
with exception to dated terms as indicated in "I" rendered to such Obligor,
and is not evidenced by any instrument or chattel paper; (e) it is payable in
United States dollars; (f) it is not owing by any Obligor residing, located
or having its principal activities or place of business outside the United
States of America or who is not subject to service of process in the United
States of America; (g) it is not owing by any Obligor involved in any
bankruptcy or insolvency proceeding; (h) it is not owing by dated terms
within 30 days past due, any affiliate of Borrower; (i) it is not unpaid more
than ninety (90) days after the date of such invoice; (j) it is but owing by
an Obligor which shall have failed to pay in full any invoice evidencing any
account within ninety (90) days after the date of such invoice, unless the
total invoice amounts of such Obligor which have not been paid within ninety
(90) days of the date represents less than 25% of the total invoice amounts
then outstanding of such Obligor; and (k) it is not an Account as to which
Bank, at any time or times hereafter, determines, in good faith, that the
prospect of payment or performance by the Obligor thereof is or will be
impaired. Notwithstanding the foregoing, Accounts with respect to which the
Account Debtor is the United States of America or any department, agency or
instrumentality thereof, shall not be included as an Eligible Account unless,
with respect to any such Account, Borrower has complied to Bank's
satisfaction with the provisions of the Federal Assignment of Claims Act of
1940, including, without limitation, executing and delivering to Bank all
statements of assignment and/or notification which are in form and substance
acceptable to Bank and which are deemed necessary by Bank to effectuate the
assignment to Bank of such Accounts. An Account which is at any time an
Eligible Account, but which subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be an Eligible Account. Bank may in
its sole discretion upon an event of default reduce the percentage set forth
in clause (j) above upon seven (7) days prior notice to Borrower. Borrower,
immediately upon demand from Bank, shall pay to Bank an amount of money equal
to the monies advanced by Bank to Borrower upon an Account that is no longer
an Eligible Account. Borrower warrants and represents to and covenants with
Bank that the principal portion of Borrower's Liabilities represented by
Revolving Loans made by Bank to Borrower, pursuant to Paragraph 2.5 above,
shall not exceed the total of the then outstanding amounts (less maximum
discounts, credits and allowances which may be taken by or granted to Obligor
in connection therewith) then existing Eligible Accounts multiplied by the
Advance Rate.
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4.2 With respect to Accounts, except as otherwise disclosed by Borrower to
Bank in writing, Borrower warrants and represents to Bank that: (a) they are
genuine, are in all respects what they purport to be and are not evidenced by a
judgment; (b) they represent undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in the invoices and other
documents delivered to Bank With respect thereto; (c) the amounts shown on any
Schedule of Accounts and/or all invoices and statements delivered to Bank with
respect thereto are actually and absolutely owing to Borrower and are not in any
way contingent; (d) no payments have been made or shall be made thereon except
payments immediately delivered to Bank pursuant to this Agreement; (e) there are
no setoffs, counterclaims or disputes existing or asserted with respect thereto
and Borrower has not made any agreement with any Obligor thereof for any
deduction therefrom except a regular discount allowed by Borrower in the
ordinary course of its business for prompt payment; (f) there are no facts,
events or occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder, which may be shown on
any schedule of accounts and on all invoices, and statements delivered to Bank
with respect thereto; (g) to the best of Borrower's knowledge, all Obligors have
the capacity to contract and are solvent; (h) the services furnished and/or
goods sold or leased giving rise thereto are not subject to any lien, claim,
encumbrance or security interest except that of bank; (i) Borrower has no
knowledge of any fact or circumstance which would impair the validity or
collectibility thereof; (j) to the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Obligor which
might result in any material adverse change in its financial condition; and (k)
Borrower has filed a Notice of Business Activities Report or a Certificate of
Authority or similar report with the appropriate office or department in states
where Account Obligors are located and where such reports are required as a
condition to commencing or maintaining an action in the courts of such states,
or Borrower has demonstrated to Bank's satisfaction that it is exempt from any
such requirements under such state's law.
4.3 Any of Bank's officers, employees or agents shall have the right, at
any time or times hereafter, in Banks name or in the name of a nominee of Bank,
to verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, facsimile or otherwise and to sign Borrower's name on any
verification of Accounts and notices thereof to Obligors. All costs, fees and
expenses relating thereto incurred by Bank (or for which Bank becomes obligated)
shall be part of Borrower's Liabilities, payable by Borrower to Bank on
demand.
4.4 Unless Bank notifies Borrower in writing that Bank suspends any one
or more of the following requirements, Borrower shall: (a) promptly upon
Borrower's learning thereof, inform Bank, in writing, of any material delay in
Borrower's performance of any of its obligations to any Obligor and of any
assertion of any claims, offsets or counterclaims by any Obligor and of any
allowances, credits and/or other monies granted by Borrower to any Obligor; (b)
not permit or a agree to any extension, compromise or settlement with respect to
Accounts which constitute, in the aggregate, more than 5% of all Accounts then
owing to Borrower; and (c) keep all goods returned by any Obligor and all goods
repossessed or stopped in transit by Borrower from any Obligor segregated from
other property of Borrower, immediately notify Bank, of Borrower's possession
of such goods, and hold the same as trustee for Bank until otherwise directed in
writing by Bank.
4.5 Bank shall have the right, now and at any time or time hereafter, at
its option, without notice thereof to Borrower (a) to notify any or all Obligor
that the Accounts and Special Collateral
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have been assigned to Bank and the Bank has a security interest therein; (b) to
direct such Obligors to make all payments due from them to Borrower upon the
Accounts and Special Collateral directly to Bank; and (c) to enforce payment of
and collect, by legal proceedings or otherwise, the Accounts and Special
Collateral in the name of Bank and Borrower.
4.6 Borrower, irrevocably, hereby designates, makes, constitutes and
appoints Bank (and all Persons designated by Bank) as Borrower's true and lawful
attorney (and agent-in-fact), with power, upon an Event of Default, or an event
or condition which with notice or lapse of time would constitute an Event of
Default, without notice to Borrower and in Borrower's or Bank's name: (a) to
demand payment of Accounts; (b) to enforce payment of the Accounts by legal
proceedings or otherwise; (c) to exercise all of Borrower's rights and remedies
with respect to the collection of the Accounts; (d) to settle, adjust,
compromise, discharge, release, extend or renew the Accounts; (e) to settle,
adjust or compromise any legal proceedings brought to collect the Accounts;
(f) to sell or assign the Accounts upon such terms, for such amounts and at such
time or times as Bank deems advisable; (g) to prepare, file and sign Borrower's
name on any Notice of Lien, Assignment or Satisfaction of Lien or similar
document in connection with the Accounts and Special Collateral; or (h) to
prepare, file and sign Borrower's name on any Proof of Claim in Bankruptcy or
similar document against any Obligor.
5. WARRANTIES, REPRESENTATIONS AND COVENANTS:
INSURANCE AND TAXES
5.1 Borrower, at its sole cost and expense. shall keep and maintain: (a)
the Collateral insured for the full insurable value against all hazards and
risks ordinarily insured against by other owners or users of such properties in
similar businesses; and (b) business interruption insurance and public liability
and property damage insurance relating to Borrower's ownership and use of its
assets. All such policies of insurance shall be in a form with insurers and in
such amounts as may be satisfactory to Bank. Borrower shall deliver To Bank the
original (or certified) copy of each policy of insurance, or a certificate of
insurance, and evidence of payment of all premiums for each such policy. Such
policies of insurance (except those of public liability) shall contain a
standard form lender's loss payable clause, in form and substance acceptable To
Bank, showing loss payable to Bank, and shall provide that; (i) the insurance
companies will give Bank at least thirty (30) days written notice before any
such policy or policies of insurance shall be altered or canceled; and (ii) no
act or default of Borrower or any other Person shall effect the right of Bank to
recover under such policy or policies of insurance in case of loss or damage.
Borrower hereby directs all insurers under such policies of insurance (except
those of public liability) to pay all proceeds payable thereunder directly to
Bank and hereby authorizes Bank to make, settle, and adjust claims under such
policies of insurance and endorse the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance.
5.2 Borrower shall pay promptly, when due, all Charges, and shall not
permit any Charges to arise, or to remain and will promptly discharge the same.
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6. WARRANTIES, REPRESENTATIONS AND COVENANTS:
GENERAL
6.1 Borrower warrants and represents to and covenants with Bank that: (a)
Borrower has the right, power and capacity and is duly authorized and empowered
to enter into, execute, deliver and perform this Agreement and Other Agreements;
(b) the execution, delivery and/or performance by Borrower of this Agreement and
Other Agreements shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in Borrower's Articles of incorporation, By-Laws, Articles
of Partnership, Articles of Organization, Operating Agreement or similar
document, or contained in any agreement, instrument or document to which
Borrower is now or hereafter a party or by which it is or may be bound; (c)
Borrower has and at all times hereafter shall have good, indefeasible and
merchantable title to and ownership of the Collateral, free and clear of all
liens, claims, security interests and encumbrances except those of Bank, (d)
Borrower is now and at a times hereafter, shall be solvent and generally paying
its debts as they mature and Borrower now owns and shall at all times hereafter
own property which, at a fair valuation, is greater than the sum of its debts;
(e) Borrower is not and will not be during the term hereof in violation of any
applicable federal, state or local statute, regulation or ordinance that, in any
respect materially and adversely affects its business, property, assets,
operations or condition, financial or otherwise; and (f) Borrower is not in
default with respect to any indenture, loan agreement, mortgage, deed or other
similar agreement relating to the borrowing of monies to which it is a party or
by which it is bound.
6.2 Borrower warrants and represents to and covenants with Bank that
Borrower shall not, without Bank's prior written consent thereto: (a) grant a
security interest in or assign any of the Collateral to any Person or permit,
grant, or suffer a lien, claim or encumbrance upon any of the Collateral, (b)
sell or transfer any of the Collateral not in the ordinary course of business;
(c) enter into any transaction not in the ordinary course of business which
materially and adversely affects the Collateral or Borrower's ability to repay
Borrower's Liabilities or Indebtedness; (d) other than as specifically permitted
in or contemplated by this Agreement, encumber, pledge, mortgage, sell, lease or
otherwise dispose of or transfer, whether by sale, merger, consolidation or
otherwise, any of Borrower's assets; and (e) incur Indebtedness except: (i)
unsecured trade debt in the ordinary course of business; (ii) renewals or
extensions of existing Indebtedness and interest thereon; and (iii) Indebtedness
that is unsecured and is to Persons who execute and deliver to Bank in form and
substance acceptable to Bank and its counsel subordination agreements
subordinating their claims against Borrower therefor to the payment of
Borrower's Liabilities.
6.3 Borrower warrants and represents to and covenants with Bank that
Borrower shall furnish to Bank: (a) as soon as available but not later than
ninety (90) days after the close of each fiscal year of Borrower, financial
statements, which shall include, but not be limited to, balance sheets, income
statements and statements of cash flow of Borrower prepared in accordance with
generally accepted accounting principles, consistently applied, audited by a
firm of independent certified public accountants selected by Borrower and
acceptable to Bank, (b) as soon as available but not later than forty-five (45)
days after the end of each month hereafter, financial statements of Borrower
certified by Borrower to be prepared in accordance with generally accepted
accounting principles fairly present the financial position and results of
operations of Borrower for such period; (c) schedule of accounts
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<PAGE>
payable and accounts receivable by the 15th of every month or otherwise as Bank
may direct; and (d) such other data and information (financial and otherwise) as
Bank, from time to time, may request.
6.4 Borrower warrants and represents to and covenants with Bank that
Borrower shall not permit its "Tangible Net Worth" (as hereinafter defined)
to be less than $3,000,000.00 measured on a quarterly basis. Tangible Net
Worth shall mean the value of the tangible assets of Borrower as determined
in accordance with the generally accepted accounting principles after
subtracting therefrom the aggregate amount of any intangible assets of
Borrower as determined in accordance with generally accepted accounting
principles, including without limitation, other (related employee) accounts
receivable, goodwill, franchises, licenses, patents, trademarks, tradenames,
copyrights and brand names, minus the aggregate of all contingent and
non-contingent liabilities of Borrower plus subordinated debt. Specifically
investment in joint ventures will be considered tangible provided acceptable
financial statements are provided and their strength is deemed appropriate.
6.5 Borrower warrants and represents to and covenants with Bank that
Borrower shall not permit its Debt (total Liabilities minus subordinated debt)
to Tangible Net Worth Ratio to exceed 4.0:1, to be measured on a quarterly
basis. As of March 31, 1997, and thereafter, Borrower shall not permit its Debt
to Tangible Net Worth Ratio to exceed 3.0:1, to be measured on a quarterly
basis.
6.6 Borrower warrants and represents to and covenants with Bank that
Borrower shall not permit its Cash Flow (as hereinafter defined) to be less than
125% of current maturities of long term debt exclusive of $9,000,000 promissory
note severed. Cash Flow shall mean the net income of Borrower plus depreciation
and amortization less less increases in "Due froms".
6.7 Borrower warrants and represents to and covenants with Bank that
Borrower shall not permit aggregate acquisitions in excess of $1,000,000.00
without Bank concurrence.
7. DEFAULT
7.1 The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Agreement: (a) if
Borrower fails to pay any of Borrower's Liabilities when due and payable or
declared due and payable (whether by scheduled maturity, required payment,
acceleration, demand or otherwise); (b) if Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Agreement or any of the Other Agreements; (c)
occurrence of a default or Event of Default under any of the Other Agreements
heretofore, now or at any time hereafter delivered by or an behalf of Borrower
to Bank; (d) occurrence of a default or an Event of Default under any agreement,
instrument or document heretofore, now or at any time hereafter delivered to
Bank by any guarantor of Borrower's Liabilities or by any Person which has
granted to Bank a security interest or lien in such Person's real or personal
property to secure the payment of Borrower's Liabilities; (e) if the Collateral
or any other of Borrower's assets are attached, seized, subjected to a writ, or
are levied upon or become subject to any lien or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors; (f)
if a notice of lien, levy or assessment is filed of record or given to Borrower
with respect to all or any of Borrower's assets by any federal, state, local
department or agency; (g) if Borrower or any guarantor of Borrower's Liabilities
becomes insolvent or generally fails to pay or admits in writing its inability
to pay debts as they become due, if a petition under Title 11 of the United
States Code or any similar law or regulation is filed by or against Borrower or
any such
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<PAGE>
guarantor, if Borrower or any such guarantor shall make an assignment for the
benefit of creditors, if any case or proceeding is filed by or against
Borrower or any such guarantor for its dissolution or liquidation, if
Borrower or any such guarantor is enjoined, restrained or in any way
prevented by court order from conducting all or any material part of its
business affairs; (h) the death or incompetency of Borrower or any guarantor
of Borrower's Liabilities, or the appointment of a conservator for all or any
portion of Borrower's assets or the Collateral; (i) the revocation,
termination, or cancellation of any guaranty of Borrower's Liabilities
without written consent of Bank; (j) if a contribution failure occurs with
respect to any pension plan maintained by Borrower or any corporation, trade
or business that is, along with Borrower, a member of a controlled group of
corporations or controlled group of trades or businesses (as described in
Sections 414(b) and (c) of the Internal Revenue Code of 1986 or Section 4001
of ERISA) sufficient to give rise to a lien under Section 302(f) of ERISA;
(k) if Borrower or any guarantor of Borrower's Liabilities is in default in
the payment of any obligations, indebtedness or other liabilities to any
third party and such default is declared and is not cured within the time, if
any, specified therefor in any agreement governing the same; (l) if any
material statement, report or certificate made or delivered by Borrower, any
of Borrower's partners, officers, employees or agents or any guarantor of
Borrower's Liabilities is not true and correct; or (m) if Bank is reasonably
insecure.
7.2 All of Bank's nights and remedies under this Agreement and the Other
Agreements are cumulative and non-exclusive.
7.3 Upon an Event of Default or the occurrence of any one of the events
described in Paragraph 7.1, without notice by Bank to or demand by Bank of
Borrower, Bank shall have no further obligation to and may then forthwith cease
advancing monies or extending credit to or for the benefit of Borrower under
this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to or demand by Bank of Borrower, Borrower's Liabilities shall be
immediately due and payable.
7.4 Upon an Event of Default, Bank, in its sole and absolute discretion,
may exercise any one or more of the rights and remedies accruing to a secured
party under the Uniform Commercial Code of the relevant state and any other
applicable law upon default by a debtor.
7.5 Upon an Event of Default, Borrower, immediately upon demand by Bank,
shall assemble the Collateral and make it available to Bank at a place or places
to be designated by Bank which is reasonably convenient to Bank and Borrower.
Borrower recognizes that in the event Borrower fails to perform, observe or
discharge any of its obligations or liabilities under this Agreement or the
Other Agreements, no remedy of law will provide adequate relief to Bank, and
agrees that Bank shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.
7.6 Upon an Event of Default, without notice, demand or legal process of
any kind, Bank may take possession of any or all of the Collateral (in addition
to Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
into any of Borrower's premises where any of the Collateral may be or is
supposed to be, and search for, take possession of, remove, keep and store any
of the Collateral until the same shall be sold or otherwise disposed of, and
Bank shall have the right to store the same in any of Borrower's premises
without cost to Bank.
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<PAGE>
7.7 Any notice required to be given by Bank of a sale, lease, or other
disposition of the Collateral or any other intended action by Bank,
(i) deposited in the United States mail, postage prepaid and duly addressed to
Borrower at the address specified at the beginning of this Agreement, or
(ii) sent via certified mail, return receipt requested, or (iii) sent via
facsimile, or (iv) delivered personally, not less than ten (10) days prior to
such proposed action, shall constitute commercially reasonable and fair
notice to Borrower.
7.8 Upon an Event of Default, Borrower agrees that Bank may, if Bank deems
it reasonable, postpone or adjourn any such sale of the Collateral from time to
time by an announcement at the time and place of sale or by announcement at the
time and place of such postponed or adjourned sale, without being required to
give a new notice of sale. Borrower agrees that Bank has no obligation to
preserve rights against prior parties to the Collateral. Further, to the extent
permitted by law, Borrower waives and releases any cause of action and claim
against Bank as a result of Bank's possession, collection or sale of the
Collateral, any liability or penalty for failure of Bank to comply with any
requirement imposed on Bank relating to notice of sale, holding of sale or
reporting of sale of the Collateral, and any right of redemption from such sale.
8. GENERAL
8.1 Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Liabilities and Borrower agrees that Bank shall have the continuing
exclusive right to apply and re-apply any and all such payments in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records.
8.2 Borrower covenants, warrants and represents to Bank that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true from the time of Borrower's execution of this
Agreement to the end of the original term and each renewal term hereof. All of
Borrower's warranties, representations, undertakings. and covenants contained in
this Agreement or the Other Agreements shall survive the termination or
cancellation of the same.
8.3 The terms and provisions of this Agreement and the Other Agreements
shall supersede any prior agreement or understanding of the parties hereto, and
contain the entire agreement of the parties hereto with respect to the matters
covered herein. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank. Except for the provisions of Section 2 hereof which shall terminate as
provided in paragraph 2.8, this Agreement shall continue in full force and
effect so long as any portion or component of Borrower's Liabilities shall be
outstanding. Should a claim ("Recovery Claim") be made upon the Bank at any
time for recovery of any amount received by the Bank in payment of Borrower's
Liabilities (whether received from Borrower or otherwise) and should the Bank
repay all or part of said amount by reason of (1) any judgment, decree or order
of any court or administrative body having jurisdiction over Bank or any of its
property, or (2) any settlement or compromise of any such Recovery Claim
effected by the Bank with the claimant (including Borrower), this Agreement and
the security interests granted Bank hereunder shall continue in effect with
respect to the amount so repaid to the same extent as if such amount had never
originally been received by the Bank, notwithstanding any prior
13
<PAGE>
termination of this Agreement, the return of this Agreement to Borrower, or the
cancellation of any note or other instrument evidencing Borrower's Liabilities.
Borrower may not sell, assign or transfer this Agreement, or the Other
Agreements or any portion thereof.
8.4 Bank's failure to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Bank of an Event of Default by Borrower under this
Agreement or the Other Agreements shall not suspend, waive or affect any other
Event of Default by Borrower under this Agreement or the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the Other Agreements
and no Event of Default by Borrower under this Agreement or the Other Agreements
shall be deemed to have been suspended or waived by Bank unless such suspension
or waiver is by an instrument in writing signed by an officer of Bank and
directed to Borrower specifying such suspension or waiver.
8.5 If any provision of this Agreement or the Other Agreements or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Agreement and the Other Agreements
shall be severable in any such instance.
8.6 This Agreement and the Other Agreements shall be binding upon and
inure to the benefit of the successors and assigns of Borrower and Bank. This
provision, however, shall not be deemed to modify Paragraph 8.3 hereof.
8.7 Borrower hereby appoints Bank as Borrower's agent and attorney-in-fact
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any agreement, instrument or document which Bank may
reasonably deem necessary or advisable to accomplish the purposes hereof which
appointment is irrevocable and coupled with an interest. All monies paid for
the purposes herein, and all costs, fees and expenses paid or incurred in
connection therewith, shall be part of Borrower's Liabilities, payable by
Borrower to Bank on demand.
8.8 This Agreement, or a carbon, photographic or other reproduction of
this Agreement or of any Uniform Commercial Code financing statement covering
the Collateral or any portion thereof shall be sufficient as a Uniform
Commercial Code financing statement and may be filed as such.
8.9 Except as otherwise provided in the Other Agreements, if any provision
contained in this Agreement is in conflict with, or inconsistent with, any
provision in the Other Agreements, the provision contained in this Agreement
shall govern and control.
8.10 Except as otherwise specifically provided in this Agreement, Borrower
waives any and all notice or demand which Borrower might be entitled to receive
by virtue of any applicable statute or law, and waives presentment, demand and
protest and notice of presentment, protest, default, dishonor, non-payment,
maturity, release, compromise, settlement, extension or renewal of any and all
14
<PAGE>
agreements, instruments or documents at any time held by Bank on which Borrower
may in any way be liable.
8.11 Until Bank is notified by Borrower to the contrary in writing by
registered or certified mail directed to Bank's principal place of business, the
signature upon this Agreement or upon any of the Other Agreements of any
partner, manager, employee or agent of the Borrower, or of any other Person
designated in writing to Bank by any of the foregoing, shall bind Borrower and
be deemed to be the duly authorized act of Borrower.
8.12 This Agreement and the Other Agreements shall be governed and
controlled by the internal laws of the State of Illinois; and not the law of
conflicts.
8.13 If at anytime or times hereafter, whether or not Borrower's
Liabilities are outstanding at such time, Bank: (a) employs counsel for advice
or other representation, (i) with respect to the Collateral, this Agreement, the
Other Agreements or the administration of Borrower's Liabilities, (ii) to
represent Bank in any litigation, arbitration, contest, dispute, suit or
proceeding or to commence, defend or intervene or to take any other action in or
with respect to any litigation, arbitration, contest, dispute, suit or
proceeding (whether instituted by Bank, Borrower or any other Person) in any way
or respect relating to the Collateral, this Agreement, the Other Agreements, or
Borrower's affairs, or (iii) to enforce any rights of Bank against Borrower or
any other Person which may be obligated to Bank by virtue of this Agreement or
the Other Agreements, including, without limitation, any Obligor; (b) takes any
action with respect to administration of Borrower's Liabilities or to protect,
collect, sell, liquidate or otherwise dispose of the Collateral, and/or (c)
attempts to or enforces any of Banks rights or remedies under this Agreement or
the Other Agreements, including, without limitation, Bank's rights or remedies
with respect to the Collateral, the reasonable costs and expenses incurred by
Bank in any manner or way with respect to the foregoing, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
8.14 BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANKS SOLE AND ABSOLUTE
ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT
OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL
SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE
OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER
HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
8.15 BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (II) ARISING FROM
ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT,
15
<PAGE>
THE OTHER AGREEMENTS, OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT,
AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year specified at the beginning hereof.
BORROWER:
TOTAL CONTROL PRODUCTS, INC., an
Illinois corporation
By: /s/Nicholas Gihl
-------------------------------
Nicholas Gihl, President
TARA PRODUCTS, INC., an
Illinois corporation
By: /s/Nicholas Gihl
--------------------------------
Nicholas Gihl, Secretary
Accepted this 17th day of July, 1996, at Bank's principal place of business
in the City of Chicago, State of Illinois.
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/William Robertson
---------------------------
Print or Type Name: William Robertson
-------------------
Its: V.P.
----------------------------------
16
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AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO
==============================================================================
PROMISSORY NOTE (SECURED)
==============================================================================
$9,000,000.00 CHICAGO, ILLINOIS JULY 17, 1996
DUE JULY 17, 1998
FOR VALUE RECEIVED, the undersigned jointly and severally if more than one)
("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO ("Bank"), at its principal place of business in Chicago,
Illinois or such other place as Bank may designate from time to time hereafter,
the principal sum of NINE MILLION AND NO/100 DOLLARS, or such lesser principal
sum as may then be owed by Borrower to Bank hereunder, which sum shall be due
and payable on July 17, 1998.
Borrower's obligations and liabilities to Bank under this Note, and all
other obligations and liabilities of Borrower to Bank (including without
limitations, debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, including those evidenced in rate
hedging agreements designed to protect the Borrower from the fluctuation of
interest rates. heretofore, now and/or from time to time hereafter owing, due
or payable, however evidenced, created, incurred, acquired or owing and
however arising, whether under this Note, any agreement, instrument or
document heretofore, now or from time to time hereafter executed and
delivered to Bank by or on behalf of Borrower, or by oral agreement or
operation of law or otherwise shall be defined and referred to herein as
"Borrower's Liabilities."
The unpaid principal balance of Borrower's Liabilities due hereunder shall
bear interest from the date of disbursement until paid, computed as follows: AT
A DAILY RATE EQUAL TO THE DAILY RATE EQUIVALENT OF 0.0% PER ANNUM (computed on
the basis of a 360-day year and actual days elapsed) in excess of the rate of
interest announced or published publicly from time to time by Bank as its prime
or base rate of interest (THE "BASE RATE"); OR THE LIBOR RATE + 200 BASIS POINTS
as set north in the London Interbank Offered Rate Borrowing Agreement or even
date herewith PROVIDED, HOWEVER, that in the event that any of Borrower's
Liabilities are not paid when due, the unpaid amount of Borrower's Liabilities
shall bear interest after the due date until paid at a rate equal to the sum of
the rate that would otherwise be in effect plus 3%.
The rate of interest to be charged by Bank to Borrower shall fluctuate
hereafter from time to time concurrently with, and in an amount equal to, each
increase or decrease in the Base Rate, whichever is applicable.
Accrued interest shall be payable by Borrower to Bank on the same day of
each month, and at maturity, commencing with the last day of July, 1996, or as
billed by Bank to Borrower, at Bank's principal place of business, or at such
other place as Bank may designate from time to time hereafter. After maturity,
accrued interest on all of Borrower's Liabilities shall be payable on demand.
Borrower warrants and represents to Bank that Borrower shall use the
proceeds represented by this Note solely for proper business purposes and
consistently with all applicable laws and statutes.
To secure the prompt payment to Bank of Borrower's Liabilities and the
prompt, fill and faithful performance by Borrower of all of the provisions to
be kept, observed or performed by Borrower under this Note and/or any other
agreement, instrument or document heretofore, now and/or from time to time
hereafter delivered by or on behalf of Borrower to Bank, Borrower grants to Bank
a security interest in and to the following property: (a) all of Borrower's now
existing and/or owned and hereafter arising or acquired monies, reserves,
deposits, deposit accounts and interest or dividends thereon, securities, cash,
cash equivalents and other property now or at any time or times hereafter in the
possession or under the control of Bank or its bailee for any purpose; (b) All
business assets of Total Control Products, Inc., an Illinois corporation and
Tara Products, Inc., an Illinois corporation, pursuant to Loan and Security
Agreement of even date herewith as amended from time to time by and between
Borrower and Bank; and (c) all substitutions, renewals, improvements, accessions
or additions thereto, replacements, offspring, rents, issues, profits, returns,
products and proceeds thereof, including without limitation
<PAGE>
proceeds of insurance policies insuring the foregoing collateral (all of the
foregoing property is referred to herein individually and collectively as
"Collateral").
Regardless of the adequacy of the Collateral, any deposits or other sums at
any time credited by or payable or due from Bank to Borrower, or any monies,
cash, cash equivalents, securities, instruments, documents or other assets of
Borrower in the possession or control of Bank or its bailee for any purpose, may
be reduced to cash and applied by Bank to or setoff by Bank against Borrower's
Liabilities.
Borrower agrees to deliver to Bank immediately upon Bank's demand, such
additional collateral as Bank may request from time to time should the value
of the Collateral (in Bank's sole and exclusive opinion) decline,
deteriorate, depreciate or become impaired, or should Bank deem itself
insecure for any reason whatsoever, including without limitation a change in
the financial condition of Borrower or any party liable with respect to
Borrower's Liabilities, and does hereby grant to Bank a continuing security
interest in such other collateral, which shall be deemed to be a part of the
Collateral. Borrower shall execute and deliver to bank, at any time upon
Bank's demand, all agreements, instruments, documents and other written
matter that Bank may request, in form and substance acceptable to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral or
any additional collateral. Borrower agrees that a carbon, photographic or
photostatic copy, or other reproduction, of this Note or of any financing
statement shall be sufficient as a financing statement.
Bank may take, and Borrower hereby waives notice of, any action from time
to time that Bank may deem necessary or appropriate to maintain or protect the
Collateral, and Bank's security interest therein, and in particular Bank may at
any time (i) transfer the whole or any part of the collateral into the name of
the Bank or its nominee, (ii) collect any amounts due on Collateral directly
from persons obligated thereon, (iii) take control of any proceeds and products
of Collateral, and/or (iv) sue or make any compromise or settlement with respect
to any Collateral. Borrower hereby releases Bank from any and all causes of
action or claims which Borrower may now or hereafter have for any asserted loss
or damage to borrower claimed to be caused by or arising from: (a) Bank's taking
any action permitted by this paragraph; (b) any failure of Bank to protect,
enforce or collect in whole or in part any of the collateral; and/or (C) any
other act or omission to act on the part of Bank, its officers, agents or
employees, except for willful misconduct.
The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Note: (a) if Borrower
fails to pay any of Borrower's Liabilities when due and payable or declared
due and payable (whether by scheduled maturity, required payment,
acceleration, demand or otherwise); (b) if Borrower or any guarantor of any
of Borrower's Liabilities fails or neglects to perform, keep or observe any
term, provision, condition, covenant, warranty or representation contained in
this Note; (c) occurrence of a default or event of default under any
agreement, instrument or document heretofore, now or at any time hereafter
delivered by or on behalf of Borrower to Bank; (d) occurrence of a default or
an event of default under any agreement, instrument or document heretofore,
now or at any time hereafter delivered to Bank by any guarantor of Borrower's
Liabilities or by any person or entity which has granted to Bank a security
interest or lien in and to some or all of such person's or entity's real or
personal property to secure the payment of Borrower's Liabilities; (e) if the
Collateral or any other of Borrower's assets are attached, seized, subjected
to a writ, or are levied upon or become subject to any lien or come within
the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors; (f) if a notice of lien, levy or assessment is filed of
record or given to Borrower with respect to all or any of Borrower's assets
by any federal, state or local department or agency; (g) if Borrower or any
guarantor of Borrower's Liabilities becomes insolvent or generally fails to
pay or admits in writing its inability to pay debts as they become due, if a
petition under Title II of the United States Code or any similar law or
regulation is filed by or against Borrower or any such Guarantor, if Borrower
or any such guarantor shall make an assignment for the benefit of creditors,
if any case or proceeding is filed by or against Borrower or any such
guarantor for its dissolution or liquidation, or if Borrower or any such
guarantor is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs; (h) the death or
incompetency of Borrower or any guarantor of Borrower's Liabilities, or the
appointment of a conservator for all or any portion of Borrower's assets or
the Collateral; (i) the revocation, termination or cancellation of any
guaranty of Borrower's Liabilities without written consent of Bank; (j) if a
contribution failure occurs with respect to any pension plan maintained by
Borrower or any corporation, trade or business that is, along with Borrower,
a member of a controlled group of corporations or a controlled group of
trades or businesses (as described in Sections 414(b) and (c) of the Internal
Revenue Code of 1986 or Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended, "ERISA") sufficient to give rise to a lien
under Section 302(f) of ERISA; (k) if Borrower or any
<PAGE>
guarantor of Borrower's Liabilities is in default in the payment of any
obligations, indebtedness or other liabilities to any third party and such
default is declared and is not cured within the time, if any, specified therefor
in any agreement governing the same; (l) if any material statement, report or
certificate made or delivered by Borrower, any of Borrower's partners, officers,
employees or agents or any guarantor of Borrower's Liabilities is not true and
correct; or (m) if Bank is reasonably insecure.
Upon the occurrence of an Event of Default, at Bank's option, without
notice by Bank to or demand by Bank of Borrower: (i) all of Borrower's
Liabilities shall be immediately due and payable; (ii) Bank may exercise any
one or more of the rights and remedies accruing to a secured party under the
Uniform Commercial Code of the relevant jurisdiction and any other applicable
law upon default by a debtor; (iii) Bank may enter, with or without process of
law and without breach of the peace, any premises where the Collateral is or
may be located, and may seize or remove the Collateral from said premises and/or
remain upon said premises and use the same for the purpose of collecting,
preparing and disposing of the Collateral; and/or (iv) Bank may sell or
otherwise dispose of the Collateral at public or private sale for cash or
credit, provided, however, that Borrower shall be credited with the net proceeds
of any such sale only when the same are actually received by Bank.
Upon an Event of Default, Borrower, immediately upon demand by Bank, shall
assemble the Collateral and make it available to Bank at a place or places to be
designated by Bank which is reasonably convenient to Bank and Borrower.
All of Bank's rights and remedies under this Note are cumulative and
non-exclusive. The acceptance by Bank of any partial payment made hereunder
after the time when any of Borrower's Liabilities become due and payable will
not establish a custom or waive any rights of Bank to enforce prompt payment
hereof. Bank's failure to require strict performance by Borrower of any
provision of this Note shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any waiver
of an Event of Default hereunder shall not suspend, waive or affect any other
Event of Default hereunder. Borrower and every endorser waive presentment,
demand and protest and notice of presentment, protest, default, non-payment,
maturity, release, compromise, settlement, extension or renewal of this Note,
and hereby ratify and confirm whatever Bank may do in this regard. Borrower
further waives any and all notice or demand to which Borrower might be
entitled with respect to this Note by virtue of any applicable statute or law
(to the extent permitted by law).
Borrower agrees to pay, immediately upon demand by Bank, any and all
costs, fees and expenses (including reasonable attorneys' fees, costs and
expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder,
and (ii) in representing Bank in any litigation, contest, suit or dispute, or
to commence, defend or intervene or to take any action with respect to any
litigation, contest, suit or dispute (whether instituted by Bank, Borrower or
any other person) in any way relating to this Note, Borrower's Liabilities or
the Collateral, and to the extent not paid the same shall become part of
Borrower's Liabilities.
This Note shall be deemed to have been submitted by Borrower to Bank and
to have been made at Bank's principal place of business. This Note shall be
governed and controlled by the internal laws of the State of Illinois and not
the law of conflicts.
Advances under this Note may be made by Bank upon oral or written request
of any person authorized to make such requests on behalf of Borrower
("Authorized Person"). Borrower agrees that Bank may act on requests which
Bank in good faith believes to be made by an Authorized Person, regardless of
whether such requests are in fact made by an Authorized Person. Any such
advance shall be conclusively presumed to have been made by Bank to or for
the benefit of Borrower. Borrower does hereby irrevocably confirm, ratify
and approve all such advances by Bank and agrees to indemnify Bank against
any and all losses and expenses (including reasonable attorneys' fees) and
shall hold Bank harmless with respect thereto.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER IRREVOCABLY AGREES THAT,
SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY
<PAGE>
RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT,
COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH, OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR
RELATED TO THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT,
AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
TOTAL CONTROL PRODUCTS, INC., an
2001 N. Janice Street Illinois corporation
- ------------------------------
Melrose Park, IL 60160 /s/ Nicholas Gihl
- ------------------------------ ------------------------------
Nicholas Gihl, President
- ------------------------------
FEIN OR SSN
TARA PRODUCTS, INC., an Illinois
corporation
2001 N. Janice Street
- ------------------------------
Melrose Park, IL 60160 /s/ Nicholas Gihl
- ------------------------------ ------------------------------
Nicholas Gihl, Secretary
- ------------------------------
FEIN OR SSN
<PAGE>
Exhibit 10.12
[LOGO] [LETTERHEAD]
- --------------------------------------------------------------------------------
1,000,000.00 Chicago, Illinois November 25, 1996
Due: November 25, 1998
FOR VALUE RECEIVED, the undersigned (jointly and severally if more than
one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in
Chicago, Illinois or such other place as Bank may designate from time to time
hereafter, the principal sum of ONE MILLION AND 00/100 DOLLARS, or such lesser
principal sum as may then be owed by Borrower to Bank hereunder, which sum shall
be due and payable on November 25, 1998.
Borrower's obligations and liabilities to Bank under this Note, and all
other obligations and liabilities of Borrower to Bank (including without
limitation all debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, including those evidenced in rate
hedging agreements designed to protect the Borrower from the fluctuation of
interest rates, heretofore, now and/or from time to time hereafter owing, due or
payable, however evidenced, created, incurred, acquired or owing and however
arising, whether under this Note, any agreement, instrument or document
heretofore, now or from time to time hereafter executed and delivered to Bank by
or on behalf of Borrower, or by oral agreement or operation of law or otherwise
shall be defined and referred to herein as "Borrower's Liabilities."
The unpaid principal balance of Borrower's Liabilities due hereunder shall
bear interest from the date of disbursement until paid, computed as follows: at
a daily rate equal to the daily rate equivalent of 0.0% per annum (computed on
the basis of a 360-day year and actual days elapsed) in excess of the rate of
interest announced or published publicly from time to time by Bank as its prime
or base rate of interest (the "Base Rate"); PROVIDED, HOWEVER, that in the event
that any of Borrower's Liabilities are not paid when due, the unpaid amount of
Borrower's Liabilities shall bear interest after the due date until paid at a
rate equal to the sum of the rate that would otherwise be in effect plus 3%.
The rate of interest to be charged by Bank to Borrower shall fluctuate
hereafter from time to time concurrently with, and in an amount equal to, each
increase or decrease in the Base Rate, whichever is applicable.
Unless expressly stated otherwise, the "$" symbol shall mean United States
of America dollars.
Accrued interest shall be payable by Borrower to Bank on the same day of
each month, and at maturity, commencing with the last day of December, 1996, or
as billed by Bank to Borrower, at Bank's principal place of business, or at such
other place as Bank may designate from time to time hereafter. After maturity,
accrued interest on all of Borrower's Liabilities shall be payable on demand.
Borrower warrants and represents to Bank that Borrower shall use the
proceeds represented by this Note solely for proper business purposes and
consistently with all applicable laws and statutes.
To secure the prompt payment to bank of Borrower's Liabilities and the
prompt, full and faithful performance by Borrower of all of the provisions to be
kept, observed or performed by Borrower under this Note and/or any other
agreement, instrument or document heretofore, now and/or from time to time
hereafter delivered by or on behalf of Borrower to Bank, Borrower grants to Bank
a security interest in and to the following property: (a) all of Borrower's now
existing and/or owned and hereafter arising or acquired monies, reserves,
deposits, deposit accounts and interest or dividends thereon, securities, cash,
cash equivalents and other property now or at any time or times hereafter in the
possession or under the control of Bank or its bailee for any purpose; (b) All
business assets of Taylor Industrial Software, Inc., a(n) _________ corporation,
pursuant to Loan and Security Agreement of even date herewith as amended from
time to time by and between Borrower and Bank; and (c) all substitutions,
renewals, improvements, accesions or additions thereto,
<PAGE>
replacements, offspring, rents, issues, profits, returns, products and proceeds
thereof, including without limitation proceeds of insurance policies insuring
the foregoing collateral (all of the foregoing property is referred to herein
individually and collectively as "Collateral").
Regardless of the adequacy of the Collateral, any deposits or other sums
at any time credited by or payable or due from Bank to Borrower, or any
monies, cash, cash equivalents, securities, instruments, documents or other
assets of Borrower in the possession or control of Bank or its bailee for any
purpose, may be reduced to cash and applied by Bank to or set off by Bank
against Borrower's Liabilities.
Borrower agrees to deliver to Bank immediately upon Bank's demand, such
additional collateral as Bank may request from time to time should the value of
the Collateral (in Bank's sole and exclusive opinion) decline, deteriorate,
depreciate or become impaired, or should Bank deem itself insecure for any
reason whatsoever, including without limitation a change in the financial
condition of Borrower or any party liable with respect to Borrower's
Liabilities, and does hereby grant to Bank a continuing security interest in
such other collateral, which shall be deemed to be a part of the Collateral.
Borrower shall execute and deliver to Bank, at any time upon Bank's demand, all
agreements, instruments, documents and other written matter that Bank may
request, in form and substance acceptable to Bank, to perfect and maintain
perfected Bank's security interest in the Collateral or any additional
collateral. Borrower agrees that a carbon, photographic or photostatic copy, or
other reproduction, of this Note or of any financing statement, shall be
sufficient as a financing statement.
Bank may take, and Borrower hereby waives notice of, any action from time
to time that Bank may deem necessary or appropriate to maintain or protect the
Collateral, and Bank's security interest therein, and in particular Bank may at
any time (i) transfer the whole or any part of the Collateral into the name of
the Bank or its nominee, (ii) collect any amounts due on Collateral directly
from persons obligated thereon, (iii) take control of any proceeds and products
of Collateral, and/or (iv) sue or make any compromise or settlement with respect
to any Collateral. Borrower hereby releases Bank from any and all causes of
action or claims which Borrower may now or hereafter have for any asserted loss
or damage to Borrower claimed to be caused by or arising from : (a) Bank's
taking any action permitted by this paragraph; (b) any failure of Bank to
protect, enforce or collect in whole or in part any of the Collateral; and/or
(c) any other act or omission to act on the part of Bank, its officers, agents
or employees, except for willful misconduct.
The occurrence of any one of the following events shall coincided a default
by the Borrower ("Event of Default") under this Note: (a) if Borrower fails to
pay any of Borrower's Liabilities when due and payable or declared due and
payable (whether by scheduled maturity, required payment, acceleration, demand
or otherwise); (b) if Borrower or any guarantor of any of Borrower's Liabilities
fails or neglects to perform, keep or observe any term, provision, condition,
covenant, warranty or representation contained in this Note; (c) occurrence of a
default or event of default under any agreement, instrument or document
heretofore, now or at any time hereafter delivered by or on behalf of Borrower
to Bank; (d) occurrence of a default or an event of default under any agreement,
instrument or document heretofore, now or at any time hereafter delivered to
Bank by any guarantor of Borrower's Liabilities or by any person or entity which
has granted to Bank a security interest or lien in and to some or all of such
person's or entity's real or personal property to secure the payment of
Borrower's Liabilities; (e) if the Collateral or any other of Borrower's assets
are attached, seized, subjected to a writ, or are levied upon or become subject
to any lien or come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors; (f) if a notice of lien, levy or
assessment is filed of record or given to Borrower with respect to all or any of
Borrower's assets by any federal, state or local department or agency; (g) if
Borrower or any guarantor of Borrower's Liabilities becomes insolvent or
generally fails to pay or admits in writing its inability to pay debts as they
become due, if a petition under Title II of the United States Code or any
similar law or regulation is filed by or against Borrower or any such guarantor,
if Borrower or any such guarantor shall make an assignment for the benefit of
creditors, if any case or proceeding is filed by or against Borrower or any such
guarantor for its dissolution or liquidation, or if Borrower or any such
guarantor is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs; (h) the death or
incompetency of Borrower or any guarantor of Borrower's Liabilities, or the
appointment of a conservator for all or any portion of Borrower's assets or the
Collateral; (i) the revocation, termination or cancellation of any guaranty of
Borrower's Liabilities without written consent of Bank; (j) if a contribution
failure occurs with respect to any pension plan maintained by Borrower or any
corporation, trade or business that is, along with Borrower, a member of a
controlled group of corporations or a controlled group of trades or businesses
(as described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or
Section
<PAGE>
4001 or the Employee Retirement Income Security Act of 1974, as amended,
"ERISA") sufficient to give rise to a lien under section 302(l) of ERISA; (k) if
Borrower or any guarantor of Borrower's Liabilities is in default in the payment
of any obligations, indebtedness or other liabilities to any third party and
such default is declared and is not cured within the time, if any, specified
therefor in any agreement governing the same; (l) if any material statement,
report or certificate made or delivered by Borrower, any of Borrower's partners,
officers, employees or agents or any guarantor of Borrower's Liabilities is not
true and correct; or (m) if Bank is reasonably insecure.
Upon the occurrence of an Event of Default, at Bank's option, without
notice by Bank to or demand by Bank of Borrower: (i) all of Borrower's
Liabilities shall be immediately due and payable; (ii) Bank may exercise any one
or more of the rights and remedies accruing to a secured party under the Uniform
Commercial Code of the relevant jurisdiction and any other applicable law upon
default by a debtor; (iii) Bank may enter, with or without process of law and
without breach of the peace, any premises where the Collateral is or may be
located, and may seize or remove the Collateral from said premises and/or remain
upon said premises and use the same for the purpose of collecting, preparing and
disposing of the Collateral; and/or (iv) Bank may sell or otherwise dispose of
the collateral at public or private sale for cash or credit, provided, however,
that Borrower shall be credited with the net proceeds of any such sale only when
the same are actually received by Bank.
Upon an Event of Default, Borrower, immediately upon demand by Bank, shall
assemble the Collateral and make it available to Bank at a place or places to be
designated by Bank which is reasonably convenient to Bank and Borrower.
All of Bank's rights and remedies under this Note are cumulative and
non-exclusive. The acceptance by Bank of any partial payment made hereunder
after the time when any of Borrower's Liabilities become due and payable will
not establish a custom or waive any rights of Bank to enforce prompt payment
hereof. Bank's failure to require strict performance by Borrower of any
provision of this Note shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any waiver of
an Event of Default hereunder shall not suspend, waive or effect any other Event
of Default hereunder. Borrower and every endorser waive presentment, demand and
protest and notice of presentment, protest, default, non-payment, maturity,
release, compromise, settlement, extension or renewal of this Note, and hereby
ratify and confirm whatever Bank may do in this regard. Borrower further
waives any and all notice or demand to which Borrower might be entitled with
respect to this Note by virtue of any applicable statute or law (to the extent
permitted by law).
Borrower agrees to pay, immediately upon demand by Bank, any and all
costs, fees and expenses (including reasonable attorneys' fees, costs and
expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder,
and (ii) in representing Bank in any litigation, contest, suit or dispute,
(whether instituted by Bank, Borrower or any other person) in any way
relating to this Note, Borrower's Liabilities or the Collateral, and to the
extent not paid the same shall be come part of Borrower's Liabilities.
This Note shall be deemed to have been submitted to Borrower to Bank and to
have been made at Bank's principal place of business. This Note shall be
governed and controlled by the internal laws of the State of Illinois and not
the law of conflicts.
Advances under this Note may be made by Bank upon oral or written request
of any person authorized to make such requests on behalf of Borrower
("Authorized Person"). Borrower agrees that Bank may act on requests which Bank
in good faith believes to be made by an Authorized Person, regardless of whether
such requests are in fact made by an Authorized Person. Any such advance shall
be conclusively presumed to have been made by Bank to or for the benefit of
Borrower. Borrower does hereby irrevocably confirm, ratify and approve all such
advances by Bank and agrees to indemnify Bank against any and all losses and
expenses (including reasonable attorneys' fees) and shall hold Bank harmless
with respect thereto.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER IRREVOCABLY AGREES THAT,
SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS
<PAGE>
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT,
COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR
(II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO
THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES
THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
#1002, 10045-111 Street TAYLOR INDUSTRIAL SOFTWARE, INC.
Edmonton, Canada T5K2MS a(n) _____________________ corporation
FEIN: _________________ By: /s/ Nicholas Gihls
-----------------------------------
Nicholas Gihls, President
By /s/ Peter Nicholson
-----------------------------------
Peter Nicholson, Vice-President
<PAGE>
The Basic Agreement
Between
Total Control Products, Inc. And Digital Electronics Corp.
This agreement is made and entered into and made effective as of this 1st day of
---
April, 1995 by and between the following parties (hereinafter called "the
- -----
Parties"):
Total Control Products, Inc. (hereinafter called "TCP")
2001 N. Janice Ave.
Melrose Park, IL 60160 U.S.A.
Digital Electronics Corp. (hereinafter called "Digital")
8-2-52 Nanko Higashi
Suminoe-ku, Osaka 559 Japan
1. Definition
"The Software Product(s)", as used in this agreement, shall mean the software
product(s) co-developed by the Parties. "the Digital's Hardware Product(s)"
shall mean the hardware which is manufactured by Digital. "European
Joint-Venture Company" shall mean the company which will be founded by the
Parties in Europe.
2. Property Right of The Software Product(s)
The property right of the Software Product(s) shall be belonged to both TCP
and Digital.
3. Sales Territory
TCP's sales territory is North and South America. Digital's sales territory
is Asia and Oceania. European Joint-Venture Company's sales territory is
Europe.
4. Exclusivity
Digital shall not provide the Digital's Hardware Product(s) other than the
companies within their sales territory as mentioned section 3 above.
5. The market information
The Parties shall provide their market information such as the sales amount,
the major distributors, competitors and the market trends in each three (3)
months.
6. The software royalty
(1). The software sales for the Digital's Hardware Products shall have no
royalty.
(2). The software sales for the non-Digital's Hardware Products shall be
involved the royalty payment. The amount of the royalty shall be
discussed and fixed in another agreement.
7. Termination
This agreement shall remain enforced for ten (10) years from the effective
date. The Parties shall discuss this agreement two (2) years before the
agreement is terminated.
<PAGE>
In witness of conclusion, the Parties sign this agreement in duplicate and each
party holds one of them.
Total Control Products, Inc. Digital Electronics Corp.
by /s/ Nic Gihl by /s/ Keizo Wada
----------------------------- -----------------------------
Nic Gihl Keizo Wada
President President
<PAGE>
DEVELOPMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the ___ day of __________, 1996,
by and between TOTAL CONTROL PRODUCTS, INC., an Illinois corporation ("Total
Control") and DIGITAL ELECTRONICS CORPORATION, a company organized under the
laws of Japan ("Digital Electronics").
W I T N E S S E T H:
WHEREAS, Total Control is engaged of the business of designing, developing
and packaging control level products and technology for distribution into the
industrial automation marketplace;
WHEREAS, Digital Electronics is engaged of the business of designing,
manufacturing and marketing products for the industrial automation industry on
an international basis; and
WHEREAS, Digital Electronics and Total Control desire to enter into this
Agreement to set forth their mutual rights and obligations with respect to
product development projects they may enter into now or in the future, all upon
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties agree as follows:
1. DEFINITIONS. For the purpose of this Agreement, the following terms
shall have the meanings stated in this Section 1:
(a) "Digital Intellectual Property" means any and all of the following
that is owned by Digital on, or any time after, the date hereof : (i) trade
secrets, unpatented formulations, manufacturing methods and other know-how, (ii)
copyrights, (iii) all patents on and pending applications to patent any
technology or design; (iv) all registrations of and applications to register
copyrights; and (v) computer software, including systems, applications, program
listings, manuals and documentation (whether owned by Digital Electronics or
licensed by Digital Electronics from third parties).
(b) "Total Control Intellectual Property" means any and all of the
following that is owned by Total Control on, or any time after, the date
hereof : (i) trade secrets, unpatented formulations, manufacturing methods
and other know-how, (ii) copyrights, (iii) all patents on and pending
applications to patent any technology or design; (iv) all registrations of
and applications to register copyrights; and (v) computer software,
including systems, applications, program listings, manuals and documentation
(whether owned by Total Control or licensed by Total Control from third
parties).
(c) "Joint Intellectual Property" means all works of authorship,
inventions, discoveries, improvements, designs, reports, analyses, drawings,
apparatuses, processes, software,
<PAGE>
firmware or any improvements, enhancements or documentation of or to the same
that is made or conceived by the parties in the course of performing this
Agreement.
2. JOINT DEVELOPMENT EFFORTS. The parties agree to work together from
time to time in order to design and develop new or enhanced product offerings
for use in the industrial automation industry; provided, that the parties
expressly acknowledge that neither party is under any obligation to complete
the design or development of any such new or enhanced product offerings. The
parties acknowledge that the exact design specifications and parameters of such
new or enhanced product offerings have not been finalized as of the date hereof.
3. OWNERSHIP.
(a) Notwithstanding anything to the contrary contained herein, Digital
Electronics shall own and retain its right, title and interest in all Digital
Electronics Intellectual Property, and Total Control shall own and retain its
right, title and interest in all Total Control Intellectual Property.
(b) Ownership and all right, title and interest in all Joint Intellectual
Property shall be jointly held by Digital Electronics and Total Control. Either
party shall be allowed to exploit the use of such Joint Intellectual Property
without obtaining the consent of the other. If any of the Joint Intellectual
Property becomes patented, the parties shall mutually agree upon an acceptable
royalty arrangement.
4. TERM; TERMINATION. This Agreement shall remain in effect for a period
commencing on the date of this Agreement through the fifth anniversary of the
date hereof (the "Term"), and may be terminated upon 60 days notice by either
Total Control or Digital Electronics upon written notice being delivered to the
other.
5. NO JOINT VENTURE; INDEPENDENT CONTRACTOR. Digital Electronics and
Total Control are independent contractors and nothing in this Agreement is
intended to create an employment relationship, joint venture, license agreement
or partnership between the parties. Neither party shall hold itself out as, or
take any action from which others might infer that it is, a partner, agent or
joint venturer of the other party. In addition, neither party shall take any
action which binds, or purports to bind, the other party.
6. ARBITRATION. (a) All disputes, differences or questions arising out
of or relating to this Agreement, or the validity, interpretation, breach,
violation, or termination thereof, shall be finally and solely determined and
settled by arbitration at Chicago, Illinois, U.S.A. in accordance with then
existing Commercial Arbitration Rules of the American Arbitration Association.
The parties also agree that the number of arbitrators shall be three (3), and
the language to be used in the arbitral proceedings shall be English. In any
such arbitration proceedings, the arbitrators shall adopt and apply (i) the
substantive laws of the State of Illinois, USA, and (ii) the provisions of the
-2-
<PAGE>
Federal Rules of Civil Procedure relating to discovery so that each party shall
allow and obtain discovery of any matter not privileged which is relevant to the
subject matter involved in the arbitration to the same extent as if such
arbitration were a civil action pending in a United States District Court. The
arbitrators may grant any remedy or relief deemed to be just and equitable,
including, not limited to, specific performance and injunctive relief. Judgment
upon any arbitration awards may be entered and enforced in any court of
competent jurisdiction.
(b) In the event any claims or actions, including arbitration, are
instituted to enforce any of the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs, including all costs
related to the arbitration, and expenses.
(c) In no event shall any of the parties hereto be liable to another
for payment of any consequential damages resulting from the default in the
performance of their respective obligations under this Agreement.
7. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
8. NOTICES. All notices, reports and payments made pursuant to this
Agreement shall be made in writing and shall be deemed sufficient if
delivered or mailed by registered mail as follows: if to Digital Electronics,
at 8-2-52, Nanko-Higashi, Suminoe-Ku, Osaka, Japan, or such other address
Digital Electronics may hereafter designate in writing; if to Total Control,
c/o Total Control Products, Inc., 2001 North Janice Avenue, Melrose Park,
Illinois 60160, or such other address Total Control may hereafter designate
in writing.
9. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the parties hereto and supersedes any and all previous agreements,
written or oral among the parties relating to the subject matter hereof. No
amendment or modification of the terms of this Agreement shall be binding upon
any party unless reduced to writing and signed by both the parties hereto.
10. SEVERABILITY. In the event any provision of this Agreement is held
invalid, the remaining provisions shall not be affected thereby.
11. GOVERNING LAW. This Agreement shall be construed according to the
internal laws of the State of Illinois, without giving effect to its laws
governing the conflict of laws.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
DIGITAL ELECTRONICS TOTAL CONTROL
CORPORATION PRODUCTS, INC.
By: /s/ K. Wada By: /s/ Nicholas Gihl
------------------------ ------------------------
Name: Keizo Wada Name:
---------------------- -----------------------
Title: President Title:
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<PAGE>
CONSULTING AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 1st day of November, 1996,
by and between TAYLOR INDUSTRIAL SOFTWARE INC., an Alberta corporation (the
"Company") and DIGITAL ELECTRONICS CORPORATION, a company organized under the
laws of Japan ("Digital Electronics").
W I T N E S S E T H:
WHEREAS, the Company is engaged of the business of developing and marketing
PLC configuration software, graphic operator software, client server program
management software and PC control software;
WHEREAS, Digital Electronics is engaged of the business of designing,
manufacturing and marketing products for the industrial automation industry on
an international basis; and
WHEREAS, the Company wishes to retain the services of Digital Electronics
for the purpose of consulting with the Company with respect to the development
of products for the industrial automation industry and the international
marketing and sale of its existing and future product offerings, and Digital
Electronics is willing to act in such capacity, all upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties agree as follows:
1. ENGAGEMENT. The Company hereby retains Digital Electronics, and
Digital Electronics accepts such position, upon and subject to the terms and
conditions set forth herein.
2. TERM; TERMINATION. The Company agrees to retain Digital Electronics
for a period commencing on the date of this Agreement through November 1st, 1998
(the "Term"). Following the expiration of the Term, this Agreement will
automatically terminate be of no further force or effect.
3. DUTIES. Digital Electronics shall consult, assist and advise the
Company with respect to the development of products for the industrial
automation industry and the international marketing and sale of its existing and
future product offerings. Such services shall be available to the Company upon
request made to Digital Electronics by the President of the Company. Digital
Electronics shall devote such time, attention and energy as may be necessary to
respond to proper requests by the Company for services hereunder.
Notwithstanding anything to the contrary contained herein, Digital Electronics
shall not, by virtue of this Agreement, become involved in the management of,
nor otherwise have any management responsibility of any nature whatsoever with
respect to the Company.
<PAGE>
4. INDEPENDENT CONTRACTOR. Digital Electronics and the Company agree
that Digital Electronics is an independent contractor. Digital Electronics
shall not hold itself out as, and shall not take any action from which others
might infer that it is, a partner, agent or joint venturer of the Company. In
addition, Digital Electronics shall take no action which binds, or purports to
bind, the Company.
5. COMPENSATION. The Company agrees to pay Digital Electronics as
follows: (a) $200,000.00 on the first anniversary of the date of this Agreement,
and (b) $200,000.00 upon the second anniversary of the date of this Agreement.
6. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
7. NOTICES. All notices, reports and payments made pursuant to this
Agreement shall be made in writing and shall be deemed sufficient if delivered
or mailed by registered mail as follows: if to Digital Electronics, at
8-2-52, Nanko-Higashi, Suminoe-Ku, Osaka, Japan, or such other address
Digital Electronics may hereafter designate in writing; if to the Company,
c/o Total Control Products, Inc., 2001 North Janice Avenue, Melrose Park,
Illinois 60160, or such other address the Company may hereafter designate in
writing.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto and supersedes any and all previous agreements,
written or oral among the parties relating to the subject matter hereof. No
amendment or modification of the terms of this Agreement shall be binding upon
any party unless reduced to writing and signed by both the parties hereto.
9. SEVERABILITY. In the event any provision of this Agreement is held
invalid, the remaining provisions shall not be affected thereby.
10. GOVERNING LAW. This Agreement shall be construed according to the
internal laws of the State of Illinois, without giving effect to its laws
governing the conflict of laws.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
DIGITAL ELECTRONICS TAYLOR INDUSTRIAL
CORPORATION SOFTWARE INC.
By: /s/ K. Wada By: /s/ NICHOLAS GIHL
------------------------ -------------------------
Name: KEIZO WADA Name:
---------------------- -----------------------
Title: PRESIDENT Title:
--------------------- ----------------------
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<PAGE>
Exhibit 10.16
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of September 19th, 1996 among each of the
stockholders of Taylor Industrial Software Inc., an Alberta corporation (the
"Company"), all of whom are listed on the Stockholders List attached hereto as
EXHIBIT A (collectively "Sellers" and individually a "Seller") 697621 Alberta
Ltd. an Alberta corporation ("TCP"), and Total Control Products, Inc., an
Illinois corporation ("Parent").
R E C I T A L S
A. Sellers own all of the outstanding First Preferred Shares ("First
Preferred Shares") and Common Shares ("Common Shares") of the Company. For
purposes of this Agreement, the First Preferred Shares and the Common Shares are
collectively referred to herein as the "Shares".
B. TCP desires to purchase all the outstanding First Preferred Shares and
certain of the outstanding Common Shares from Sellers and Sellers desire to sell
such Shares to TCP, on the terms and subject to the conditions herein contained.
C. All references herein to the Company, Parent or TCP shall include
their respective successors and assigns.
A G R E E M E N T S
Therefore, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES; CLOSING AND MANNER OF PAYMENT
1.1 AGREEMENT TO PURCHASE AND SELL SHARES. Effective as of the date
hereof, TCP hereby purchases from Sellers, and Sellers hereby sell to TCP, all
of the outstanding First Preferred Shares and 685,000 Common Shares ("Common
Shares"), free and clear of all options, proxies, voting trusts, voting
agreements, judgments, pledges, charges, escrows, rights of first refusal or
first offer, mortgages, indentures, claims, transfer restrictions, liens,
equities, encumbrances, security interests and other encumbrances of every kind
and nature whatsoever, whether arising by agreement, operation of law or
otherwise (collectively, "Claims"). Each Seller shall sell to TCP all of the
First Preferred Shares owned by him or her and the number of Common Shares set
forth opposite his or her name on EXHIBIT A attached hereto.
<PAGE>
1.2 PURCHASE PRICE. The purchase price for each First Preferred Share
shall be equal to $9.18385 per share for an aggregate purchase price equal to
$1,421,660 (the "Preferred Purchase Price"). The aggregate purchase price for
the Common Shares shall be equal to $5,968,157 (the "Common Purchase Price").
For purposes of this Agreement, the Preferred Purchase Price and the Common
Purchase Price are collectively referred to herein as the "Purchase Price".
Each Seller shall receive that portion of the Purchase Price as is equal to the
following: (a) the number of First Preferred Shares being sold by such Seller
pursuant to this Agreement multiplied by $9.18385; plus (b) the amount set forth
opposite his or her name on EXHIBIT A attached hereto.
1.3 MANNER OF PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid
or satisfied at the Closing (as herein defined) by a wire transfer of
immediately available funds to such bank account or accounts as Sellers shall
designate by written notice delivered to TCP on or prior to the date hereof;
provided, however, that payment of $2,200,000 of the Purchase Price otherwise
payable to Neil Taylor shall be deferred and such deferred amount shall be
evidenced by the delivery of a promissory note in form attached hereto as
EXHIBIT B (the "Seller Note"). If TCP shall so pay Purchase Price, including
the delivery of the Seller Note, TCP shall have no responsibility for the
disbursement thereof from said account or accounts to Sellers.
1.4. ADDITIONAL PAYOUT.
(a) DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "AFFILIATE" means, with respect to a particular person, any person
or entity which Controls that person, which that person Controls, or which is
under common control with that person. For purposes of this Agreement, any
affiliate of TCP, Parent or the Company shall specifically not include Digital
Electronics Corporation ("Digital").
(ii) "CONTROL" means the power, direct or indirect, to direct or
cause the direction of the management and policies of a person or entity through
voting securities, contract or otherwise.
(iii) "DISPOSITION" shall mean, with respect to any Product, a sale,
transfer, assignment, exclusive licence or sublicense or any other disposition
of such Product and, with respect to a Subsidiary, the sale of shares of the
Subsidiary effecting a transfer of Control of such Subsidiary or the sale, lease
or exchange of all of substantially all of the assets of such Subsidiary.
(iv) "DISPOSITION AMOUNT" shall mean 100% of the gross proceeds of any
Disposition of a Product or Subsidiary.
(v) "FIRST EARNOUT PERIOD" shall mean the 12 month period beginning on
the first day of the month immediately following the date of this Agreement and
the term "SECOND EARNOUT PERIOD" shall mean the 12 month period immediately
following the First Earnout Period and the term "EARNOUT PERIODS" shall mean the
First Earnout Period and the Second Earnout Period collectively.
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(vi) "PRODUCT" means any product or any product line owned or held by
the Company or its Subsidiaries on the date hereof and at any time during the
Earnout Periods.
(vii) "NET REVENUES" shall mean the actual consolidated revenues of
the Company and its Subsidiaries (net of returns, allowances and discounts)
during each of the Earnout Periods as determined in accordance with Canadian
generally accepted accounting principles ("CANADIAN GAAP") applied on a
consistent basis during each of the Earnout Periods, as adjusted pursuant to the
table set forth in EXHIBIT C attached hereto. Notwithstanding the foregoing and
for greater certainty, no revenue item shall be included twice in the
calculation of Net Revenues and the calculation of Net Revenues shall not
include any Goods and Services Tax or any other sales or taxes collected on
behalf of any taxing authority.
(viii) "RESELL" and "RESOLD" shall include a sale, transfer,
assignment, lease, licence or sublicense.
(b) CONTINGENT CONSIDERATION. (i) If Net Revenues during the First Earnout
Period exceed eight million dollars ($8,000,000), the Company shall pay to
Sellers an aggregate amount equal to one million dollars ($1,000,000); (ii) to
the extent that Net Revenues during the First Earnout Period exceed nine million
two hundred thousand dollars ($9,200,000), the Company shall pay to Sellers an
aggregate amount equal to fifty percent (50%) of such excess; provided, however,
that the payment pursuant to this Section 1.4(b)(ii) shall not exceed three
million dollars ($3,000,000); (iii) if Net Revenues during the Second Earnout
Period exceed eight million dollars ($8,000,000), the Company shall pay to
Sellers an aggregate amount equal to one million dollars ($1,000,000); and (iv)
to the extent that Net Revenues during the Second Earnout Period exceed ten
million six hundred thousand dollars ($10,600,000), the Company shall pay to
Sellers an aggregate amount equal to fifty percent (50%) of such excess;
provided, however, that the payment pursuant to this Section 1.4(b)(iv) shall
not exceed three million dollars ($3,000,000) (collectively, the "Contingent
Consideration"). For purposes of this Agreement, any Contingent Consideration
paid to Sellers shall be deemed additional Common Purchase Price.
(c) PAYMENT OF CONTINGENT CONSIDERATION. As soon as practicable after the
end of each Earnout Period, but in any event, no later than 90 days after the
end of each Earnout Period, TCP will determine the final aggregate amount of Net
Revenues for such preceding Earnout Period and shall deliver to Sellers a
special audit report detailing the calculation of the Net Revenues for such
Earnout Period (the "Contingent Notice"), together with a certified cheque
payable to each of the Sellers in an amount equal to such Seller's portion of
the Contingent Consideration for such Earnout Period as set forth on EXHIBIT A
attached hereto. The Contingent Notice shall be prepared by TCP and shall be
audited by Arthur Andersen, LLP (the "ACCOUNTANTS"). Any Seller may, within
twenty (20) days after receipt of the Contingent Notice, deliver to TCP and each
other Seller, written notice (the "Dispute Notice") identifying any dispute that
such Seller may have with respect to the calculation of Net Revenues for such
Earnout Period. If a Dispute Notice is not delivered by any Seller to TCP
within such twenty day period, the calculation of Net Revenues as set forth in
the Contingent Notice shall be final and binding on the parties hereto,
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excepting fraud and wilful misconduct by TCP or any of its officers, directors
or agents. Within twenty (20) days following TCP's receipt of a Dispute Notice,
TCP and the disputing Seller(s) shall in good faith attempt to agree upon the
Contingent Consideration, if any, for such Earnout Period. If TCP and the
disputing Seller(s) cannot agree to the amount of the Contingent Consideration,
if any, for such Earnout Period, they shall jointly submit their dispute to the
Edmonton office of Ernst & Young (the "Arbiter") for final determination, whose
determination shall be made within ninety (90) days of the date the dispute is
submitted to the Arbiter. The fees and expenses of the Arbiter shall be shared
equally between TCP and the disputing Seller(s); provided, however, that the
Arbiter shall have the discretion to award the payment of its fees and each
party's costs and expenses, including, without limitation, reasonable attorneys
fees, if the Arbiter determines that a party to the proceeding acted
unreasonably in disputing the amount of the Contingent Consideration. The
Arbiter's determination as to the amount of Contingent Consideration for such
Earnout Period shall be final and binding on the parties hereto. The remainder
of the Contingent Consideration, if any, or the amount of Contingent
Consideration to be refunded to the Company, if any, shall be paid by the
Company to Sellers (in proportion to each of their respective percentage
interests in the Contingent Consideration as set forth on EXHIBIT A attached
hereto) or by Sellers (severally in proportion to each of their respective
interests in the Contingent Consideration and not jointly), to the Company, as
the case may be, upon the final determination of the Contingent Consideration,
with interest at the prime rate of interest as announced from time to time by
American National Bank and Trust Company of Chicago. In connection with the
determination of the Contingent Consideration by the Arbiter, TCP shall give the
Sellers, their agents and the Arbiter, as applicable, reasonable access to the
portion of the books and records of TCP, the Company and their respective
Subsidiaries which are relevant to the calculation of the Contingent
Consideration during normal business hours upon reasonable advance notice during
the period from the delivery of the Contingent Notice to the final determination
of the amount of the Contingent Consideration for such Earnout Period.
1.5. DOLLAR FIGURES. Unless otherwise expressly noted herein, all dollar
figures contained herein shall be deemed references to U.S. Dollars. Any
required conversion of Canadian Dollars into U.S. Dollars shall be made as of
the date the calculation is made based upon the exchange rates set forth in the
Wall Street Journal on the date immediately preceding the date the calculation
is made.
1.6. CLOSING. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at the offices of Macleod Dixon,
400-3rd Avenue S.W., Calgary, Alberta at 10:00 a.m. on the date hereof. At
the Closing, the Sellers shall deliver to TCP certificates evidencing all of
the outstanding First Preferred Shares and certificates representing 685,000
Common Shares duly endorsed in blank, or accompanied by valid stock powers
duly executed in blank, in proper form for transfer. The parties shall also
deliver such other documents (including articles of incorporation, incumbency
certificates, good standing certificates, opinions, certificates of
independent legal advice, lien searches and resignations) as are reasonably
required or requested in order to effectuate the consummation of the
transaction contemplated hereby. All documents to be delivered by a party
shall be in form and substance reasonably satisfactory to the other party and
its counsel.
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<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF TCP. TCP and Parent jointly and
severally represent and warrant to Sellers as follows:
(a) ORGANIZATION. TCP is a corporation duly incorporated and organized,
validly existing and in good standing, under the laws of the Alberta, Canada.
TCP has full corporate power and authority to carry on its business as such
business is now being conducted. Parent is a corporation duly incorporated and
organized, validly existing and in good standing, under the laws of the State of
Illinois. Parent has full corporate power and authority to carry on its
business as such business is now being conducted.
(b) POWER, AUTHORITY AND ENFORCEABILITY. TCP and Parent have full
corporate power and authority to enter into and perform this Agreement and all
agreements to be executed and delivered by TCP and Parent in connection herewith
to the extent each is a party thereto (collectively, "TCP's Ancillary
Documents"). The execution and delivery by TCP and Parent of this Agreement and
TCP's Ancillary Documents to the extent each is a party thereto and the
performance by TCP and Parent of their respective obligations hereunder and
thereunder have been duly authorized and approved by all requisite corporate
action. This Agreement is, and when executed and delivered, TCP's Ancillary
Documents will be, the legal, valid and binding obligations of TCP and Parent to
the extent each is a party thereto enforceable against TCP and Parent in
accordance with their respective terms to the extent each is a party thereto.
This Agreement has been, and when executed and delivered TCP's Ancillary
Documents will be, duly executed and delivered by a duly authorized officer of
TCP and Parent to the extent each is a party thereto.
(c) CONSENTS. No consent, authorization, order or approval of, or filing
or registration with, any government, any political subdivision, agency, and any
entity, exercising executive, legislative, judicial, regulatory or
administrative functions of government (each, a "Government Authority") is
required for or in connection with the consummation by TCP and Parent of the
transaction contemplated by this Agreement or by TCP's Ancillary Documents, with
the exception of the filing of a notice under the terms of the Investment Canada
Act.
(d) NO VIOLATION. Neither the execution and delivery of this Agreement or
TCP's Ancillary Documents by TCP or Parent, nor the consummation by TCP or
Parent of the transaction contemplated hereby or thereby, will conflict with or
result in a breach of any of the terms, conditions or provisions of TCP's or
Parent's Articles of Incorporation or by-laws, or of any statute or
administrative regulation, or of any order, writ, injunction, judgment or decree
of any court or governmental authority or of any arbitration award or agreement
binding on TCP or Parent.
(e) NO DEFAULT. Neither TCP nor Parent is a party to any unexpired,
undischarged or unsatisfied written or oral contract, agreement, indenture,
mortgage, debenture, note or other instrument under the terms of which
performance by TCP or Parent according to the terms of this
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Agreement will be a default or an event of acceleration, or grounds for
termination, or whereby timely performance by TCP or Parent according to the
terms of this Agreement may be prohibited, prevented or delayed.
(f) BROKERAGE FEES. Except for payments due to Blitzer & Associates,
neither TCP, Parent nor any of their respective Affiliates has dealt with any
person or entity who is or may be entitled to a broker's commission, finder's
fee, investment banker's fee or similar payment for arranging the transaction
contemplated hereby or introducing the parties to each other.
2.2 REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers, jointly and
severally, represent and warrant to TCP that, except as set forth in the
schedule delivered by Sellers to TCP concurrently herewith and identified as the
"Disclosure Schedule":
(a) DEFINITIONS. For purposes of this Section 2.2, (i) the term
"Subsidiary" shall mean any corporation or other organization, whether
incorporated or unincorporated, of which at least fifty percent (50%) of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such person or by any one or more of its
subsidiaries.
(b) ORGANIZATION (i) Each of the Company and its Subsidiaries (each of
which is listed in the Disclosure Schedule), (A) is a corporation or other legal
entity duly incorporated and organized, validly existing and in good standing
under the laws of its jurisdiction of organization and such other jurisdiction
into which it has been continued or in which it has qualified as a foreign or
extra provincial corporation; (B) has all requisite power and authority to own
or lease, and operate its properties and assets, and to carry on its business as
now conducted and as proposed to be conducted; (C) is duly qualified or licensed
to do business and is in good standing in all jurisdictions in which it owns or
leases property or in which the conduct of its business requires it to so
qualify or be licensed; and (D) has obtained all licenses, permits, franchises
and other governmental authorizations necessary to the ownership or operation of
its properties or the conduct of its business.
(ii) All of the issued and outstanding shares of capital stock of the
Company's Subsidiaries are duly authorized, have been validly issued, and are
fully paid and nonassessable and, except as set forth in the Disclosure
Schedule, are legally and beneficially, directly or indirectly wholly-owned by
the Company free and clear of Claims. The following information for each
Subsidiary of the Company is listed in the Disclosure Schedule, if applicable:
(i) its name and jurisdiction of incorporation or organization; (ii) the
location of its chief executive office; (iii) a summary of its lines of business
and products; (iv) its authorized capital stock; (v) the number of issued and
outstanding shares of capital stock; and (v) the record owner or owners of such
shares of capital stock.
(iii) The Company has no subsidiaries (other than its Subsidiaries),
and does not own any legal or beneficial, direct or indirect, interest in any
corporation, joint venture, partnership, association or other entity. Since
January 1, 1990, neither the Company nor any of its Subsidiaries have (i)
disposed of the capital stock or assets of any ongoing business (or portion
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thereof) outside of the ordinary course of business, or (ii) purchased the
business and/or assets of another person, firm or corporation (whether by
purchase of stock, assets, merger or otherwise).
(c) POWER, AUTHORITY AND ENFORCEABILITY. The Company has full power and
authority to enter into and perform this Agreement and all agreements executed
and delivered by the Company in connection herewith (collectively, "Sellers'
Ancillary Documents"). The execution and delivery by the Company of Sellers'
Ancillary Documents and the performance by the Company of its obligations
thereunder have been duly authorized and approved by the Board of Directors of
the Company. The Agreement is, and when executed and delivered, Sellers'
Ancillary Documents will be, the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms. When executed, Sellers' Ancillary Documents will be duly executed and
delivered by a duly authorized officer of the Company to the extent the Company
is a party thereto.
(d) NO CONSENT. No consent, authorization, order or approval of, or
filing or registration with any Governmental Authority is required for or in
connection with the consummation by the Company of the transaction contemplated
by this Agreement or by Sellers' Ancillary Documents.
(e) NO VIOLATION. Neither the execution and delivery of this Agreement or
Sellers' Ancillary Documents by the Company, nor the consummation by the Company
of the transaction contemplated hereby or thereby, will conflict with or result
in a breach of any of the terms, conditions or provisions of the Company's
Articles of Incorporation or by-laws, or of any statute or administrative
regulation, or of any order, writ, injunction, judgment or decree of any court
or governmental authority or of any arbitration award to which the Company is a
party or by which the Company is bound.
(f) ORGANIZATIONAL DOCUMENTS. True and complete copies of the constating
documents and all amendments thereto, the by-laws as amended and currently in
force, all stock records, and all corporate minute books and records of the
Company and each of its Subsidiaries have been furnished for inspection to TCP.
Said stock records accurately reflect all stock transactions and the current
stock ownership of the Company and each of its Subsidiaries. The corporate
minute books and records of the Company and each of its Subsidiaries contain
true and complete copies of all resolutions properly adopted by the shareholders
and/or the board of directors of the Company and each of its Subsidiaries and
any other action formally taken by them respectively as such.
(g) CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of: (i) an unlimited number of First Preferred Shares, of which
one hundred fifty-four thousand eight hundred (154,800) shares are issued and
outstanding; and (ii) an unlimited number of Common Shares, of which one million
(1,000,000) shares are issued and outstanding. There are no shares of capital
stock of the Company of any other class authorized, issued or outstanding. All
of the issued and outstanding First Preferred Shares and Common Shares have been
validly issued, are fully paid and nonassessable, and are owned beneficially and
of record by Sellers. The Sellers own the numbers of First Preferred Shares and
Common Shares set forth opposite their respective names on EXHIBIT A, free and
clear of all Claims. There are no outstanding subscriptions, options, warrants,
rights (including preemptive rights), calls, convertible securities
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or other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Company or obligating the
Company to issue any securities of any kind.
(h) BOOKS AND RECORDS. The Company's and each of its Subsidiaries' books,
accounts and records are, and have been, maintained in the Company's and each of
its Subsidiaries' usual, regular and ordinary manner, in accordance with
Canadian GAAP consistently applied, and all transactions to which the Company
and each of its Subsidiaries is or has been a party are properly reflected
therein.
(i) FINANCIAL STATEMENTS. The Disclosure Schedule contains true and
complete copies of the audited consolidated balance sheets, statements of
income, retained earnings, cash flows and notes to financial statements
(together with any supplementary information thereto) of the Company and its
Subsidiaries as of and for the years ended March 31, 1994, 1995 and 1996. The
financial statements described in the preceding sentence are hereinafter
referred to as the "Financial Statements". The Disclosure Schedule also
contains true and complete copies of the unaudited consolidated balance sheet
and statements of income, retained earnings and cash flows of the Company and
its Subsidiaries as of and for the three month period ended June 30, 1996. The
financial statements described in the preceding sentence are referred to herein
as the "Interim Financial Statements". The Financial Statements and the Interim
Financial Statements present accurately and completely the consolidated
financial position of the Company and its Subsidiaries as of the dates thereof
and the consolidated results of operations and cash flows of the Company and its
Subsidiaries for the periods covered by said statements, all in accordance with
GAAP consistently applied.
(j) LIABILITIES. Neither the Company nor any of its Subsidiaries has any
material obligation or liability of any nature whatsoever (direct or indirect,
matured or unmatured, absolute, accrued, contingent or otherwise), whether or
not required by Canadian GAAP consistently applied to be provided or reserved
against on a balance sheet (all the foregoing herein collectively being referred
to as the "Liabilities") except for: (i) Liabilities expressly provided for or
reserved against in the Financial Statements or the Interim Financial
Statements; (ii) Liabilities which have been incurred by the Company or any of
its Subsidiaries subsequent to June 30, 1996 in the ordinary course of the
Company's or any of its Subsidiaries' businesses and consistent with past
practice; (iii) Liabilities under the executory portion of any written purchase
order, sales order, lease, agreement or commitment of any kind by which the
Company or any of its Subsidiaries is bound and which was entered into in the
ordinary course of the Company's or any of its Subsidiaries' business and
consistent with past practice; and (iv) Liabilities under the executory portion
of Permits (as herein defined), Environmental Permits (as herein defined),
licenses and governmental directives and agreements issued to, or entered into
by, the Company or any of its Subsidiaries in the ordinary course of business.
None of the Liabilities described in subparagraphs (i) through (iv) of this
paragraph (j) relates to or has arisen out of a breach of contract, breach of
warranty, tort or infringement by or against the Company or any of its
Subsidiaries or any claim or lawsuit involving the Company or any of its
Subsidiaries.
(k) TITLE TO ASSETS. The Company and each of its Subsidiaries have good
and marketable title to their respective assets, free and clear of any liens,
claims, encumbrances and security
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interests, except for liens imposed by statute securing the payment of taxes
which are not due at the relevant time. No unreleased mortgage, trust deed,
chattel mortgage, security agreement, financing statement or other instrument
encumbering any of the Company's or any of its Subsidiaries' assets has been
recorded, filed, executed or delivered. There is no agreement, option or
other right or privilege outstanding in favor of any person for the purchase
from the Company or any of its Subsidiaries of the business or any of the
assets of the Company or any of its Subsidiaries out of the ordinary course
of business.
(l) INSURANCE. The Disclosure Schedule contains a true and correct list
and description (including coverages, deductibles and expiration dates) of all
insurance policies and bonds which are owned by the Company or any of its
Subsidiaries or which name the Company or any of its Subsidiaries as an insured
(or loss payee), including, without limitation, those which pertain to the
Company's assets, employees or operations. All such insurance policies and
bonds are in full force and effect with all premiums due thereof paid and the
Company or any of its Subsidiaries has not received notice of cancellation of
any such insurance policies or bonds.
(m) BANK INFORMATION. The Disclosure Schedule contains a list showing:
(i) the name of each bank, safe deposit company or other financial institution
in which the Company or any of its Subsidiaries has an account, lock box or safe
deposit box; (ii) the names of all persons authorized to draw thereon or to have
access thereto and the names of all persons and entities, if any, holding powers
of attorney from the Company or any of its Subsidiaries; and (iii) all
instruments or agreements to which the Company or any of its Subsidiaries is a
party as an endorser, surety or guarantor, other than checks endorsed for
collection or deposit in the ordinary course of business.
(n)(i) TAXES. As used in this Agreement, the following terms shall have
the following meanings: (A) the term "Taxes" means all federal, provincial,
local, foreign and other net income, gross income, gross receipts, sales, use,
value-added, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes,
fees, assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto,
and the term "Tax" means any one of the foregoing Taxes; (B) the term "Returns"
means all returns, declarations, reports, elections, statements and other
documents required to be filed in respect of Taxes, and the term "Return" means
any one of the foregoing Returns; (C) the term "Code" means the Income Tax Act
(Canada). All citations to the Code, or to any regulations promulgated
thereunder, shall include any amendments or any substitutes or successor
provisions thereto.
(ii) As of the date hereof, there have been properly completed and
filed on a timely basis and in correct form all Returns required to be
filed by the Company or any of its Subsidiaries. As of the time of filing,
the foregoing Returns correctly reflected the facts regarding the income,
business, assets, operations, activities, status, tax pool balances or
other matters of the Company or any of its Subsidiaries or any other
information required to be shown thereon. An extension of time within
which to file any Return which has not been filed has not been requested or
granted.
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(iii) With respect to all amounts in respect of Taxes imposed upon the
Company or any of its Subsidiaries, or for which the Company or any of its
Subsidiaries is or could be liable to any taxing authority with respect to
all taxable periods or portions of periods ending on or before the date
hereof, all applicable tax laws have been fully complied with, and all
amounts required to be paid by the Company or any of its Subsidiaries to
any taxing authority on or before the date hereof, have been paid.
(iv) To the knowledge of each Seller, no issues have been raised (and
are currently pending) by any taxing authority in connection with any of
the Returns. Neither the Company nor any of its Subsidiaries has entered
into any agreement or other arrangement or executed any waiver providing
for any extension of time within which (A) to file any Return covering any
Taxes for which the Company or any of its Subsidiaries is or may be liable;
(B) the Company or any of its Subsidiaries is required to pay or remit any
Taxes or amounts on account of Taxes; or (C) any taxing authority may
assess or collect Taxes for which the Company or any of its Subsidiaries is
or may be liable. The Disclosure Schedule sets forth (A) the taxable years
of the Company and each of its Subsidiaries as to which the respective
statutes of limitations with respect to Taxes have not expired, and (B)
with respect to such taxable years sets forth those years for which
examinations have been completed, those years for which examinations are
presently being conducted, those years for which examinations have not been
initiated, and those years for which required Returns have not yet been
filed. All assessments made or threatened as a result of any examinations
have been fully paid, or are fully reflected as a liability in the
Financial Statements and the Interim Financial Statements, or are being
contested and an adequate reserve therefor has been established and is
fully reflected as a liability in the Financial Statements and the Interim
Financial Statements.
(v) The Canadian federal and provincial income and capital tax
liabilities of the Company and each of its Subsidiaries have been assessed
by the relevant taxing authority and notices of assessment have been issued
to the Company or its Subsidiaries by the relevant taxing authority for all
taxation years ending prior to [March 31, 1996].
(vi) To Sellers' knowledge, there are no assessments, actions, suits,
proceedings, investigations, audits or claims now pending or threatened
against the Company or any of its Subsidiaries in respect of any Taxes and
there are no matters under discussion with any taxing authority relating to
Taxes or assessments.
(vii) The Company and each of its Subsidiaries has duly and timely
withheld from any amount paid or credited by it to or for the account or
benefit of any Person, including any of its employees, officers and
directors and any non-resident Person, the amount of all Taxes and other
deductions required by any applicable law, rules or regulations to be
withheld from any such amount and has duly and timely remitted the same to
the appropriate taxing or other governmental authority or agency.
(viii) Neither the Company nor any of its Subsidiaries has sold or
acquired any assets or services for less than fair market value to or from
any Person with whom it does not deal at arm's length within the meaning of
the INCOME TAX ACT (Canada).
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(ix) The Sellers are not non-residents of Canada within the meaning
of the INCOME TAX ACT (Canada).
(o) AFFILIATE TRANSACTIONS. The Disclosure Schedule sets forth every
business relationship (other than normal employment relationships) between the
Company or any of its Subsidiaries, on the one hand, and any of the Company's or
any of its Subsidiaries' respective officers, directors, employees or
shareholders or members of their families (or any entity in which any of them
has a material financial interest, directly or indirectly), on the other hand
(each, a "Related Party"). None of said parties (other than the Company or any
of its Subsidiaries) owns any assets which are used in the Company's or any of
its Subsidiaries' businesses, or is engaged in any business which competes with
the Company's or any of its Subsidiaries' businesses.
(p) INTERIM TRANSACTIONS. Since March 31, 1996, neither the Company nor
any of its Subsidiaries has:
(a) sold, assigned, leased, exchanged, transferred or otherwise
disposed of any of its assets or property, except for sales of inventory
and cash applied in the payment of its liabilities, in the usual and
ordinary course of business consistent with the Company's or any of its
Subsidiaries' past practices;
(b) suffered any theft, casualty, damage, destruction or loss, or
interruption in use, of any asset or property (whether or not covered by
insurance), on account of fire, flood, riot, strike or other hazard or Act
of God;
(c) made or suffered any material change in the conduct or nature of
any aspect of its business;
(d) waived any right or compromised any debt or claim arising out of
the conduct of, or with respect to, its business;
(e) made (or committed to make) capital expenditures in an amount
which exceeds $10,000 for any item or $50,000 in the aggregate;
(f) made any change in accounting methods or principles;
(g) discharged any liability except in the usual and ordinary course
of business in accordance with past practices, or prepaid any liability;
(h) borrowed any money or issued any bonds, debentures, notes or
other corporate securities, including without limitation, those evidencing
borrowed money;
(i) increased the compensation payable to any employee, except for
normal increases in the ordinary course of business consistent with past
practices;
(j) hired or terminated any employee who has an annual salary in
excess of $40,000;
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(k) issued or sold any securities or rights to acquire securities of
any class;
(l) paid, declared or set aside any dividend or other distribution on
its securities of any class or purchased, exchanged or redeemed any of its
securities of any class;
(m) entered into any transaction with any Related Party; or
(n) without limitation by the enumeration of any of the foregoing,
entered into any transaction other than in the usual and ordinary course of
business in accordance with past practices (the foregoing representation
and warranty shall not be deemed to be breached by virtue of the entry by
Sellers into this Agreement or their consummation of the transaction
contemplated hereby).
(q) MATERIAL ADVERSE CHANGE. Since March 31, 1996, neither the Company
nor any of its Subsidiaries has suffered or been threatened with any material
adverse change in the business, operations, assets, liabilities, financial
condition or prospects of the Company or any of its Subsidiaries, including,
without limiting the generality of the foregoing, the existence or threat of a
labor dispute, or any material adverse change in, or loss of, any relationship
between the Company or any of its Subsidiaries and any of their respective
customers, suppliers or key employees.
(r) CONTRACTS. The Disclosure Schedule correctly and completely lists all
contracts, leases, and agreements to which the Company or any of its
Subsidiaries is a party and which relates to the conduct of the Company's or any
of its Subsidiaries' businesses and either (a) requires the payment or receipt
of an annual amount in excess of $25,000; or (b) relates to employment and
employment related agreements, covenants not to compete, confidentiality
agreements, collective bargaining agreements or agreements with trade unions or
associations, loan agreements, notes, security agreements or sales
representative, distribution, franchise, advertising and similar agreements.
All contracts, leases and other instruments referred to in this paragraph (r)
are in full force and binding upon the parties thereto. No default by the
Company or any of its Subsidiaries has occurred thereunder and, to the best of
the Sellers' knowledge, no default by the other contracting parties has occurred
thereunder. No event, occurrence or condition exists which, with the lapse of
time, the giving of notice, or both, or the happening of any further event or
condition, would become a default by the Company or any of its Subsidiaries
thereunder.
(s) NO DEFAULTS. Neither the Company, any of its Subsidiaries nor any
Seller is a party to, or bound by, any unexpired, undischarged or unsatisfied
written or oral contract, agreement, indenture, mortgage, debenture, note or
other instrument under the terms of which performance by the Company, any of its
Subsidiaries or Sellers according to the terms of this Agreement will be a
default or an event of acceleration, or grounds for termination, or whereby
timely performance by Sellers of this Agreement may be prohibited, prevented or
delayed.
(t) PERMITS. The Disclosure Schedule contains a true and correct copy of
every license, permit, registration and governmental approval, agreement and
consent applied for, pending by, issued or given to the Company or any of its
Subsidiaries, and every agreement with governmental
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authorities (federal, provincial, local or foreign) entered into by the
Company or any of its Subsidiaries, which is in effect or has been applied
for or is pending (the "Permits"). Such Permits constitute all licenses,
permits, registrations, approvals and agreements and consents which are
required in order for the Company or any of its Subsidiaries to conduct its
business as presently conducted.
(u) PENSION AND BENEFIT PLANS (i) The Disclosure Schedule sets forth all
the employee benefits, welfare, bonus, profit sharing, deferred compensation,
stock option, stock purchase or stock compensation, retirement, hospitalization
insurance, medical and dental insurance, disability insurance or similar plans
or practices relating to the employees of the Company or any of its Subsidiaries
(the "plans") which as of the date hereof are currently maintained or
contributed to, or at any time within the last five (5) calendar years were
maintained or contributed to by the Company or any of its Subsidiaries, or in
which any employee or former employee of the Company or any of its Subsidiaries
is or was eligible to participate and with respect to the Company or any of its
Subsidiaries has any actual or potential liability.
(ii) Sellers have furnished to TCP true, correct and complete copies
of (A) the plan documents of each plan and all amendments thereto; (B) the
most current summary plan description of each plan (and any summary of
material modifications thereto); (C) all related trust agreements,
insurance contracts and other funding agreements (and all amendments
thereto) which implements the plans; (D) the two most recent actuarial
valuations prepared for each plan, that is a defined benefit pension plan,
or contains defined benefit component; (E) the two most recent financial
statements prepared for each plan with respect to which a financial
statement is required to be prepared or has been prepared; (F) the two most
recent annual returns for each plan with respect to which an annual return
is required to be prepared and filed; (G) all material written employee
communications with respect to each plan; (H) proof of registered status of
each plan; (I) all professional opinions (whether or not internally
prepared) with respect to the plans; (J) all material internal memoranda
concerning the plans; and (K) copies of material correspondence with all
regulatory authorities with respect to each plan.
(iii) The plans have been established, qualified, invested and
administered in all respects, in accordance with all applicable laws and in
accordance with all understandings between the Company or any of its
Subsidiaries and the employees of the Company or any of its Subsidiaries
and are in good standing under all applicable laws and no events have
occurred which could jeopardize such status.
(iv) All obligations (including, without limitation, fiduciary and
funding obligations and payment of any taxes, penalties or fees payable
under applicable laws) required to be performed in connection with the
plans pursuant to their terms and applicable laws have been performed and
there are no outstanding defaults or violations by any party thereto.
(v) None of the plans, nor any related trusts or other funding media
thereunder, is subject to any pending investigation, examination or other
proceeding, action or claim initiated by any governmental agency or
instrumentality, or by any other party (other than
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routine claims for benefits), and there exists no state of facts which
after notice or lapse of time or both, could reasonably be expected to
give rise to any such proceeding, action or claim or affect the
registration of any of the plans. Further, should any matter arise which
could affect the registration of any of the plans, the Company or one of
its Subsidiaries will, in a timely fashion, take or cause to be taken
all steps required to ensure that registration does not affect it.
(vi) There are no outstanding liabilities under the plans for taxes,
penalties or fees under any applicable laws.
(vii) The plans are duly registered where required by applicable
laws.
(viii) All contributions or premiums required to be made by the
Company and each of its Subsidiaries under the terms of the plans or by
applicable laws have been made in a timely fashion in accordance with the
terms of the plans and applicable laws and neither the Company nor its
Subsidiaries have any liability (other than liabilities accruing after the
date hereof) with respect to any of the plans. Contributions and premiums
are to be paid on an accrual basis for the period up to closing, even
though they are not otherwise required to be made until a later date in
respect of the period that includes closing.
(ix) Each of the plans is fully funded or fully insured or both on an
ongoing and solvency basis in accordance with the actuarial method and
assumptions set out in the most recent actuarial valuation prepared for
each plan and in accordance with the applicable laws and generally accepted
actuarial practice.
(x) No amendments have been made to the plans and no improvements to
the plans have been promised in writing except such amendments which may be
necessary to implement the transactions contemplated hereby. No material
changes or events which the Company or any of its Subsidiaries is aware to
have occurred which have a material affect on the financial or actuarial
statements in respect of the plans required to be provided to TCP under
this Agreement. There have been no improper applications, withdrawals or
transfers of assets by the Company or any of its Subsidiaries from or under
the plans or the funds relating thereto.
(xi) The assets of the plans are properly invested and no facts or
circumstances exist which could adversely affect the tax-exempt status of
the funds held thereunder, or subject such funds to any tax penalties under
applicable laws and no taxes are exigible thereon. None of the plans
enjoy any special tax status under the INCOME TAX ACT (Canada), or under
other applicable legislation, nor have any advance tax rulings been sought
or received in respect of any plan.
(xii) Neither the Company nor any of its Subsidiaries nor their agents
have not breached any fiduciary obligations with respect to the
administration of the plans or the funds relating thereto.
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(v) EMPLOYEES. With respect to employees of the Company or any of its
Subsidiaries: (i) there are no pending or threatened unfair labor practice
charges or employee grievance charges or outstanding orders under applicable
federal or provincial Occupational Health and Safety legislation; (ii) there is
no request for (or current) union representation, labor strike, dispute,
slowdown or stoppage pending or threatened against or directly affecting the
Company or any of its Subsidiaries; (iii) no grievance or arbitration proceeding
arising out of or under collective bargaining agreements is pending and no
claims therefor exist; (iv) the employment of each of the Company's or any of
its Subsidiaries' employees is terminable at will without cost to the Company or
any of its Subsidiaries except for payments of accrued salaries or wages and
vacation pay, subject to such notice requirements or financial payments in lieu
thereof pursuant to applicable law and other obligations required by applicable
law; (v) no employee or former employee has any right to be rehired by the
Company or any of its Subsidiaries prior to the Company's or any of its
Subsidiaries' hiring a person not previously employed by the Company or any of
its Subsidiaries; and (vi) a true and complete list of all employees who are
employed by the Company or any of its Subsidiaries as of July 31, 1996 has been
described in a confidential memo delivered to Parent and said list correctly
reflects their salaries, wages, other compensation, dates of employment and
positions. The Company and each of its Subsidiaries is up to date in making
employment insurance payments required by the Employment Insurance Act (Canada),
payments required by the Pension Benefits Standards Act, 1985 (Canada),
withholding payments required by the Income Tax Act (Canada), and workers
compensation payments required pursuant to any relevant Workers Compensation
Legislation including without limitation the Workers Compensation Act (Alberta),
and payments to any other pension or insurance programs to which the Company or
any of its Subsidiaries may be a party, including the payment of any union or
association dues or fees.
(w) LITIGATION. There is no litigation or proceeding, in law or in
equity, and there are no proceedings or governmental investigations known to
Sellers before any commission or other administrative authority, pending or, to
the best of Sellers' knowledge, threatened against the Company or any of its
Subsidiaries, or any of their respective officers, directors or Affiliates, with
respect to or affecting the Company's or any of its Subsidiaries' assets,
operations, business, products, sales practices or financial condition, or
related to the consummation of the transaction contemplated hereby.
(x) WARRANTIES. Neither the Company nor any of its Subsidiaries has made
any oral or written warranties with respect to the quality or absence of defects
of its products or services which it has sold or performed which are in force as
of the date hereof except as are described in the Disclosure Schedule. There
are no material claims pending, anticipated or threatened against the Company or
any of its Subsidiaries with respect to the quality of or absence of defects in
such products or services.
(y) ARBITRATION AWARDS. Neither the Company nor any of its Subsidiaries
is a party to, or bound by, any decree, order or arbitration award (or agreement
entered into in any administrative, judicial or arbitration proceeding with any
governmental authority) with respect to or affecting the properties, assets,
personnel or business activities of the Company or any of its Subsidiaries.
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(z) COMPLIANCE WITH LAWS. The Company and each of its Subsidiaries has
been and is now conducting its business in the ordinary course and neither the
Company nor any of its Subsidiaries is in violation of, or delinquent in respect
to, any decree, order or arbitration award or law, statute, or regulation of or
agreement with, or Permit from, any federal, provincial or local governmental
authority (or to which the property, assets, personnel or business activities of
the Company or any of its Subsidiaries is subject or to which it, itself, is
subject), including, without limitation, federal, provincial or local laws,
statutes and regulations relating to equal employment opportunities, fair
employment practices, unfair labor practices, terms of employment, occupational
health and safety, wages and hours, discrimination, and zoning ordinances and
building codes. Copies of all notices of violation of any of the foregoing
which the Company or any of its Subsidiaries has received within the past three
years are attached to the Disclosure Schedule.
(aa) ENVIRONMENTAL LAWS. The Company, each of its Subsidiaries and their
respective assets and businesses are in compliance with all Environmental Laws
(as herein defined) and Environmental Permits (as herein defined) and there are
no Hazardous Materials (as herein defined) located on, in, or under any or
Leased Premises and no conviction has occurred and no penalties have been
assessed under any Environmental Laws. A copy of any notice, demand, request
for information, summons, order, citation, inquiry or complaint which the
Company or any of its Subsidiaries has received in the past five years of any
alleged violation of any Environmental Law or Environmental Permit is contained
in the Disclosure Schedule, and all violations alleged in said notices have been
corrected. The Company and each of its Subsidiaries possesses all Environmental
Permits which are required for the operation of their respective businesses and
all Environmental Permits are in full force and effect and the Company and each
of its Subsidiaries is in compliance with the terms and conditions thereof.
Copies of all Environmental Permits issued to the Company or any of its
Subsidiaries are contained in the Disclosure Schedule. As used in this
Agreement, (i) "Environmental Laws" means all federal, provincial and local
laws, statutes, regulations, ordinances, rules, regulations, by-laws and
policies, or other legislation of any kind, and any judicial or administrative
interpretation thereof, including, without limitation, all court or
administrative orders, decrees, judgements and arbitration awards, and the
common law, which pertain to environmental matters, health, safety or natural
resources or contamination of any type whatsoever; (ii) "Environmental Permits"
means licenses, permits, registrations, governmental approvals, agreements and
consents which are required under or are issued pursuant to Environmental Laws;
and (iii) "Hazardous Materials" means any toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise a
hazardous substance or any other chemicals, materials or substances otherwise
regulated, controlled or limited by any Environmental Law or for which a
standard is set by any Environmental Law or which are present in concentrations
or at locations that present a threat to human health or the environment.
(bb) REAL ESTATE. Neither the Company nor any of its Subsidiaries owns
any real estate. Neither the Company nor any of its Subsidiaries leases any
real estate other than the premises identified in the Disclosure Schedule as
being so leased (the "Leased Premises"). The Leased Premises are leased to the
Company or one of its Subsidiaries pursuant to written leases, true, correct and
complete copies of which are attached to the Disclosure Schedule. No material
expenditures are required to be made for the repair or maintenance of any
improvements on the
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Leased Premises. Neither the Company nor any of its Subsidiaries is in
default under any agreement relating to the Leased Premises nor is any
other party thereto in default thereunder. All options in favor of the
Company or any of its Subsidiaries to purchase any of the Leased
Premises, if any, are in full force and effect. The use, occupancy and
operation of the Leased Premises by the Company or any of its
Subsidiaries complies with all applicable laws, regulations, codes,
ordinances and statutes.
(cc) EQUIPMENT. The furniture, fixtures, vehicles, machinery, shelving,
racks, equipment, tools, dies, molds, jigs, fixtures and other tangible personal
property (other than inventory), including, without limitation, all physical
property located in all Computer Programs (as defined herein), owned or leased
by the Company or any of its Subsidiaries and used in any of their respective
operations (collectively, the "Equipment") constitutes all tangible personal
property necessary in order for the Company and each of its Subsidiaries to
conduct their respective businesses as they have been conducted in the past.
All Equipment is in good operating condition and repair (ordinary wear and tear
excepted). The Disclosure Schedule contains a complete list of all leased
Equipment.
(dd) ACCOUNTS RECEIVABLE. None of the account or trade receivables which
are reflected on the Financial Statements or the Interim Financial Statements
are subject to any counterclaim or set off. All of such account or trade
receivables arose out of bona fide, arms length transactions for the sale of
goods or performance of services.
(ee) INVENTORY. All of the Company's and each of its Subsidiaries'
inventory which is held for sale or resale, consists of items of a quantity and
quality useable and saleable in the normal course of business. The Company's
and each of its Subsidiaries' inventory is free from defects in materials and/or
workmanship.
(ff) INTELLECTUAL PROPERTY DEFINITIONS. (i) For purposes of this
Agreement, the following terms shall have the following meanings: (A) "Computer
Programs" shall mean all of the computer programs, computer systems, modules and
any related data and materials (whether in source code, object code or other
form) distributed by the Company or any of its Subsidiaries to others; (B)
"Intellectual Property" shall means all forms of industrial or intellectual
property and technology, including patents, inventions, whether made, conceived
or reduced to practice, all Trademarks, including the name "Taylor", designs,
processes, know-how, technology, formulae, customer lists, all trade secrets,
proprietary information and copyrights, now used in or necessary for the conduct
of the Company's or any of its Subsidiaries' businesses or developed, licenced
or acquired in connection with the Company's or any of its Subsidiaries'
businesses, including, without limiting the generality of the foregoing, all
rights or right to claim or make application, whether in equity or at law or
otherwise, under the laws of copyright, moral rights, neighboring rights,
patent, industrial design, design patent, mask work, integrated circuit
topography, trademark, confidential information or any other industrial or
intellectual property law; (C) "Technology" shall mean all of the intangible
property and assets of the Company or any of its Subsidiaries including all
ongoing business, accrued work in progress, all of the relationships of the
Company or any of its Subsidiaries with actual, perspective or potential
licensees or customers for any of the Computer Programs, technology or
consulting services of the Company or any of its Subsidiaries; and (D)
"Trademarks" shall mean all trademarks, service marks, or design marks,
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whether registered or not, slogans, trade names, trade dress and like
devices or means used to distinguish the products or services of the
Company or any of its Subsidiaries.
(gg) INTELLECTUAL PROPERTY REPRESENTATIONS. To the best knowledge,
information and belief of Sellers: (i) all of the Intellectual Property is valid
and subsisting and enforceable against any third party; (ii) the Trademarks have
all been used without interruption in the U.S.A. and Canada by the Company or
any of its Subsidiaries, and all Trademarks which are registered or are the
subject of an application for registration are used solely as registered or
applied for, as applicable; (iii) no other party has been permitted to use or
granted a license to use any of the Intellectual Property of the Company or any
of its Subsidiaries; (iv) the Company or any of its Subsidiaries is the sole
legal and beneficial owner of and is entitled to use the Intellectual Property
without payment of any royalty or other fees; (v) no proceedings have been
instituted or threatened that challenge the right of the Company or any of its
Subsidiaries to own, use or license others to use any of the Intellectual
Property or to distribute Computer Programs to others; (vi) no: (A) process,
method or algorithm used, practiced, performed, sold or licensed to any party;
(B) product, device or apparatus made, used, produced, sold or licensed to any
party; or (C) service provided by Company or any of its Subsidiaries or on their
behalf; nor the conduct of the Company's or any of its Subsidiaries' respective
businesses, infringe any patent, trademark, trade name, trade secret, know-how,
industrial design, design patent, utility model, integrated circuit topography,
mask work, copyright, moral rights, neighboring right or other industrial or
intellectual property or other right owned or used by another nor is the subject
of any pending or threatened legal, administrative or regulatory proceedings or
outstanding court order; (vii) neither the Company nor any of its Subsidiaries
has any pending or potential claim, demand or allegation charging any party with
violation of its rights with respect to the Intellectual Property, Computer
Programs or Technology nor does the Company or any of its Subsidiaries know of
any such claim; (viii) there is no patent or patent application nor
investigation by any person that would adversely affect the Company's or any of
its Subsidiaries' respective businesses or any product, apparatus, method,
process or design of the Company or any of its Subsidiaries; (ix) there is no
government restriction or any limitation, domestic or foreign, on the manner in
which any of the Intellectual Property may be used or licensed; (x) the Company
and each of its Subsidiaries has promptly identified any invention made,
conceived or reduced to practice and has promptly filed applicable patent
applications for protection of any such invention any has, until such filing of
the first patent application has occurred, kept the invention strictly secret
and not permitted any disclosure, public use nor publication of the elements of
the invention nor other means by which the elements of the invention may become
available to the public; (xi) all of the Technology and Computer Programs were
created by employees of the Company or any of its Subsidiaries working within
the scope of the employment; (xii) in each case of development of Computer
Programs and Technology set out in the Disclosure Schedule, the Company or its
Subsidiaries has obtained either a duly executed assignment of all copyright,
trademarks, obligations of confidence, property rights or any other right, title
or interest in and to such Computer Programs and Technology as may have been
developed or had such individual duly execute an employment agreement with the
Company or any of its Subsidiaries which employment agreement shall, in addition
to its other terms, transfer all such copyright, trademarks, obligations of
confidence, property rights and any other right, title or interest in such prior
developed Computer Programs and Technology or any part thereof to the Company or
any of its Subsidiaries; (xiii) none of the Intellectual Property rights nor
Computer Programs of the Company or any of its Subsidiaries
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violates or infringes any rights of others and neither the Company nor
any of its Subsidiaries has received any notice of any claim or threat
of such a violation or infringement; (xiv) neither Sellers, nor any
shareholder, officer, director or employee or former employee of the
Company or any of its Subsidiaries or any third party has disclosed any
confidential information of the Company or any of its Subsidiaries
except in the ordinary course of business of the Company or any of its
Subsidiaries or with the authority of the Company or any of its
Subsidiaries; (xv) the Company and each of its Subsidiaries has obtained
waivers of moral rights from any authors of any Computer Programs of the
Company or any of its Subsidiaries such that the Company or its
Subsidiaries may enjoy uninterrupted use, sale, distribution,
modification, alteration and attribution of or for each such Computer
Program; and (xvi) the Company and each of its Subsidiaries has obtained
assignments or waivers of all applicable neighboring rights from any
authors of any Computer Programs of the Company or any of its
Subsidiaries such that the Company or its Subsidiaries may enjoy
uninterrupted use, sale, distribution, reproduction, modification,
alteration, public display, publication and attribution of or for each
such Computer Program.
(hh) COMPUTER PROGRAMS, EQUIPMENT AND TECHNOLOGY: To the best knowledge,
information and belief of Sellers: (i) all rights in the Computer Programs and
the Technology are good, valid, subsisting and enforceable by the Company or
its Subsidiaries and no further rights other than those under third party
licenses are necessary or desirable to use, manufacture, reproduce, market,
distribute, display, adapt, modify, create, derivative works, sell or license
any products, Computer Programs or Technology of Company or any of its
Subsidiaries; (ii) the use, manufacture, reproduction, performance, operation,
marketing, distribution, display, adaptation, modification, creation of
derivative works, sale, licensing or other dealing with any of the products,
Computer Programs or Technology of the Company or any of its Subsidiaries does
not and will not infringe on any rights of any third party; (iii) all of the
Computer Programs distributed by the Company or any of its Subsidiaries have
been developed, tested and installed, and operate substantially in accordance
with Company's or any of its Subsidiaries' specifications and user documentation
therefor; (iv) neither the Company nor any of its Subsidiaries has provided any
end user of any of the Company's or any of its Subsidiaries' Computer Programs
except in circumstances where the use of that Computer Program is subject to the
provisions of the Company's end user license agreement (the "End User License
Agreements") copies of which have been listed in the Disclosure Schedule; (v)
Except as set forth in the End User License Agreements, neither the Company nor
any of its Subsidiaries has any obligation or commitment to develop, implement
or install modifications, corrections, enhancements, improvements or additional
functions of the Computer Programs distributed by the Company or any of its
Subsidiaries; (vi) the Company and each of its Subsidiaries has maintained their
Computer Programs, including, without limitation, all source code relating
thereto, as strictly confidential and a trade secret and has maintained
sufficient contractual and other arrangements to protect the confidentiality
thereof; and (vii) none of the Equipment or Technology, including without
limitation, any of the Computer Programs of the Company or any of its
Subsidiaries, contains any trade secret of a third party, there is and has been
no infringement or claim of infringement of any rights of third parties in or by
the use of such Equipment, Technology, including without limitation, the
Computer Programs of the Company or any of its Subsidiaries, there does not
exist any facts or circumstances which cause any of the rights represented by
the Technology to be unenforceable or which limit or restrict the scope of use,
publication, manufacture, distribution,
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display, adaptation, modification, creation of derivative works, sale or
licensing of any of the Computer Programs of the Company or any of its
Subsidiaries;
(ii) INTERFERENCE WITH EMPLOYEES. Neither the Company, any of its
Subsidiaries nor any Seller has taken any actions which were calculated to
dissuade, or had the effect of dissuading, any present employees,
representatives or agents of the Company or any of its Subsidiaries from
continuing an association with the Company or any of its Subsidiaries after the
Closing.
(jj) BROKERAGE COMMISSIONS. Neither Sellers, nor any of their Affiliates,
nor the Company or any of its Subsidiaries, have dealt with any person, firm or
corporation who is or may be entitled to a broker's commission, finder's fee,
investment banker's fee or similar payment for arranging the transaction
contemplated hereby or introducing the parties to each other.
(kk) ADDITIONAL DISCLOSURES. The representations and warranties of
Sellers in this Agreement, and all representations, warranties and statements of
Sellers contained in any schedule, financial statement, exhibit, list or
document delivered pursuant hereto or in connection herewith, do not contain any
misstatements of material fact or omit to state a material fact necessary in
order to make the representations, warranties or statements contained herein or
therein not misleading.
(ll) DOCUMENTS. The copies of all documents furnished by the Sellers to
TCP pursuant to or in connection with this Agreement are complete and accurate.
The information contained in the Disclosure Schedule is complete and accurate.
2.3 REPRESENTATIONS AND WARRANTIES OF CAPACITY. Each Seller, severally
and not jointly, represents and warrants to Parent and TCP that with respect to
himself, herself or itself only, (a) such Seller has full power and authority to
enter into and perform this Agreement and all agreements executed and delivered
by such Seller in connection herewith; (b) the Agreement is, and when executed
and delivered, Sellers' Ancillary Documents will be, the legal, valid and
binding obligations of such Seller, as appropriate, enforceable against such
Seller, as appropriate, in accordance with their respective terms; (c) no
consent, authorization, order or approval of, or filing or registration with any
Governmental Authority is required for or in connection with the consummation by
such Seller of the transaction contemplated by this Agreement or by Sellers'
Ancillary Documents; (d) neither the execution and delivery of this Agreement or
Sellers' Ancillary Documents by such Seller, nor the consummation by such Seller
of the transaction contemplated hereby or thereby, will conflict with or result
in a breach of any of the terms, conditions or provisions of any statute or
administrative regulation, or of any order, writ, injunction, judgment or decree
of any court or governmental authority or of any arbitration award to which such
Seller is a party or by which such Seller is bound; and (e) Cindel Holdings
Incorporated ("Cindel") (i) is a corporation duly incorporated and organized,
validly existing and in good standing, under the laws of Ontario, Canada; (ii)
the execution and delivery by Cindel of this Agreement and Seller's Ancillary
Documents to the extent Cindel is a party thereto and the performance by Cindel
of its obligations hereunder and thereunder have been duly authorized and
approved by all requisite corporate action; and (iii) this Agreement has been,
and when executed and delivered Seller's Ancillary Documents will be, duly
executed and delivered by a duly authorized officer of Cindel to the extent it
is a party thereto.
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ARTICLE 3
POST-CLOSING AGREEMENTS
3.1 POST-CLOSING AGREEMENTS. From and after the Closing, the parties
shall have the respective rights and obligations which are set forth in the
remainder of this Article 3.
3.2 INSPECTION OF RECORDS. Sellers, on the one hand, and TCP, on the
other hand, and their respective Affiliates, shall each retain and make their
respective books and records (including expired insurance policies and work
papers in the possession of their respective accountants) with respect to the
Company and each of its Subsidiaries available for inspection by the other
party, or by its duly accredited representatives, for reasonable business
purposes at all reasonable times during normal business hours, for a seven (7)
year period after the date hereof, with respect to all transactions of the
Company or any of its Subsidiaries occurring prior to and relating to the
Closing, and the historical financial condition, assets, liabilities, operations
and cash flows of the Company or any of its Subsidiaries. As used in this
Section 3.2, the right of inspection includes the right to make extracts or
copies. The representatives of a party inspecting the records of the other
party shall be reasonably satisfactory to the other party.
3.3 USE OF TRADEMARKS. Sellers shall, and shall cause their respective
Affiliates to, not use and shall not license or permit any third party to use,
any name, slogan, logo or trademark which is similar or deceptively similar to
any of the names or trademarks used in connection with the business of the
Company or any of its Subsidiaries.
3.4 HIRING AWAY EMPLOYEES. For a period of two (2) years from the date
hereof, Sellers shall, and shall cause their respective Affiliates to, not hire
or offer to hire any salaried, technical or professional employees,
representatives or agents of the Company or any of its Subsidiaries.
3.5 CONFIDENTIALITY. Each Seller agrees not to communicate or divulge to
any third party, or use for any purpose other than evaluating and carrying out
the transaction contemplated hereby, any Confidential Information regarding the
Company or any of its Subsidiaries, which information was obtained from any of
Sellers, the Company or any of its Subsidiaries. Intending that the term shall
be broadly construed to include anything predictable under applicable law,
"Confidential Information" means all information, and all documents and other
tangible items which record information, which at the time or times concerned is
predictable as a trade secret under applicable law. The preceding portions of
this Section 3.5 shall not apply to information (i) which was in the public
domain or independently received by Sellers from a third party with a right to
disclose such information, or (ii) to the extent that disclosure is required by
law. Each Seller shall advise the Company of any request, including a subpoena
or similar legal inquiry, to disclose any such Confidential Information, so that
the Company can seek appropriate legal relief.
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3.6 COVENANT NOT TO COMPETE. As an inducement for TCP to enter into this
Agreement, Neil Taylor agrees that: (a) from and after the Closing and
continuing for the lesser of two (2) years from the date hereof or the longest
time permitted by applicable law, neither Neil Taylor nor any of his Affiliates
shall do any one or more of the following, directly or indirectly: (a) engage or
participate, anywhere in the continental United States or Canada, as an owner,
partner, shareholder, consultant or (without limitation by the specific
enumeration of the foregoing) otherwise in any business which is competitive
with the Company's, TCP's, Parent's, or any of their respective Subsidiaries'
businesses, as conducted on the date hereof or as about to be conducted on the
date hereof (a "Competing Business"); or (b) solicit any customer of the
Company, TCP, Parent or any of their respective Subsidiaries which has been a
customer of the Company, TCP, Parent or any of their respective Subsidiaries
within the past one year, to purchase from any source other than the Company,
TCP, Parent or any of their respective Subsidiaries any product or service which
could be supplied by the Company, TCP, Parent or any of their respective
Subsidiaries. Notwithstanding the foregoing, (i) the ownership by Neil Taylor
of up to five percent (5%) of the issued capital stock of any publicly traded
company involved in a Competing Business by itself shall not constitute a
violation of any provision of this Section 3.6; and (ii) actions taken by Neil
Taylor pursuant to the terms of the Secured Note shall not constitute a
violation of any provisions of this Section 3.6.
(b) In the event of any breach of paragraph (a) of this Section 3.6, the
time period of the breached covenant shall be extended for the period of such
breach. Neil Taylor recognizes that the territorial, time and scope limitations
set forth in this Section 3.6 are reasonable and are required for the protection
of the Company, TCP, Parent and each of their respective Subsidiaries and in the
event that any such territorial, time or scope limitation is deemed to be
unreasonable by a court of competent jurisdiction, the Company and Neil Taylor
agree to the reduction of either or any of said territorial, time or scope
limitations to such an area, period or scope as said court shall deem reasonable
under the circumstances.
3.7 FURTHER ASSURANCES. The parties shall execute such further
documents, and perform such further acts, as may be necessary or
desirable to consummate the transactions contemplated by this Agreement
and to otherwise comply with the terms of this Agreement.
3.8 INJUNCTIVE RELIEF. Sellers specifically recognize that any breach of
Sections 3.3, 3.4, 3.5 or 3.6 of this Agreement will cause irreparable injury to
the Company, TCP, Parent and each of their respective Subsidiaries and that
actual damages may be difficult to ascertain, and in any event, may be
inadequate. Accordingly (and without limiting the availability of legal or
equitable, including injunctive, remedies under any other provisions of this
Agreement), each Seller agrees that in the event of any such breach, the Company
and TCP shall be entitled to injunctive relief in addition to such other legal
and equitable remedies that may be available.
3.9 TAX MATTERS. TCP and Parent hereby covenant that after the Closing
they shall cause the Company to duly prepare and file in a timely manner all Tax
Returns required to be filed by it, and pay all Taxes required to be paid by it
for the taxation year ending as a consequence of the Closing or any post-closing
amalgamation.
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3.10 PARENT GUARANTY. Parent guarantees to the Sellers the due and
punctual payment and performance in full of the obligations of TCP in this
Agreement and in any Ancillary Document (the "Obligations"). The Parent shall
be liable for the Obligations as a primary obligor, not merely as a surety.
This Guarantee is an unconditional, irrevocable and continuing guarantee of all
of the Obligations. The Parent shall indemnify and save the Sellers harmless
from and against all loss, cost, damage, expense, claims and liability which it
may at any time suffer or incur in connection with any failure by TCP to duly
and punctually pay or perform the Obligations. The Sellers shall not be bound
to seek or exhaust their recourse against TCP or any other person before being
entitled to payment under this Guarantee. Parent renounces the benefits of
discussion and division, if applicable.
ARTICLE 4
INDEMNIFICATION
4.1. GENERAL. From and after the Closing, the parties shall
indemnify each other as provided in this Article 4. As used in this
Agreement, the term "Damages" shall mean all liabilities, demands,
claims, actions or causes of action, regulatory, legislative or judicial
proceedings or investigations, assessments, levies, losses, fines,
penalties, damages, costs and expenses, including, without limitation,
reasonable attorneys', accountants', investigators', and experts' fees
and expenses, sustained or incurred in connection with the defense or
investigation of any claim for Damages.
4.2. SELLERS' INDEMNIFICATION OBLIGATIONS. Each of the Sellers shall
indemnify, save and keep TCP, Parent and their respective successors and
permitted assigns (each a "TCP Indemnitee" and collectively the "TCP
Indemnitees") forever harmless against and from all Damages sustained or
incurred by any TCP Indemnitee, as a result of or arising out of or by virtue
of:
(a) any inaccuracy in or breach of any representation and warranty made by
Sellers to TCP in this Agreement or in any Sellers' Ancillary Document;
(b) the breach by any Seller of, or failure of any Seller to comply with,
any of the covenants or obligations under this Agreement or any Sellers'
Ancillary Document to be performed by any Seller (including, without limitation,
their obligations under this Article 4); or
(c) without being limited by paragraphs (a) or (b) of this Section 4.2
(and without regard to the fact that any one or more of the items referred to in
this Section 4.2(c) may be disclosed in the Disclosure Schedule or in any
documents included or referred to therein or may be otherwise known to TCP at
the date of this Agreement or on the date hereof), (i) any action or failure to
act, in whole or in part, on or prior to the date hereof with respect to any
Plan which the Company or any of its Subsidiaries has at any time maintained or
administered or to which the Company or any of its Subsidiaries has at any time
contributed; (ii) the violation of any Environmental Law or the presence of any
Hazardous Materials upon, about or beneath the Leased Premises or any other
property on which the Company's or any of its Subsidiaries' respective
businesses has been conducted in the past or the migration to or from Leased
Premises
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or any other property on which the Company's or any of its Subsidiaries'
respective businesses has been conducted in the past prior to the date
hereof, or arising in any manner whatsoever out of the violation of any
Environmental Law pertaining to the Leased Premises or any other
property on which the Company's or any of its Subsidiaries' respective
businesses has been conducted in the past and the activities thereon,
whether foreseeable or unforeseeable, provided such violation commenced
prior to the date hereof; (iii) any liability for Taxes owed by the
Company or any of its Subsidiaries (whether or not shown on any Return)
or any liability of the Company or any of its Subsidiaries resulting
from amounts required to have been withheld and paid in connection with
payments by the Company or any of its Subsidiaries to employees,
independent contractors, creditors, shareholders or other third parties
arising in any period ending on or before the date hereof; and (iv) any
Damages incurred by the Company in connection with the matter involving
Welstead Automation as disclosed in item 2.2(j) of the Disclosure
Schedule.
4.3. TCP'S AND PARENT'S INDEMNIFICATION COVENANTS. TCP and
Parent, jointly and severally, shall indemnify, save and keep Sellers
and their respective successors and assigns ("Seller Indemnitees"),
forever harmless against and from all Damages sustained or incurred by
any Seller Indemnitee, as a result of or arising out of or by virtue of:
(a) any inaccuracy in or breach of any representation and warranty
made by TCP or Parent to Sellers herein or in any TCP's Ancillary Document; or
(b) any breach by TCP or Parent of, or failure by TCP or Parent to
comply with, any of its covenants or obligations under this Agreement or any
TCP's Ancillary Document to be performed by TCP or Parent (including without
limitation its obligations under this Article 4).
4.4. CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification hereunder, the claiming party (the "Indemnified Party") shall
promptly (and in no event more than 120 days after the later to occur of
incurring Damages or discovering the facts giving rise to the claim) notify the
indemnifying parties (the "Indemnifying Parties") of the claim and, when known,
the facts constituting the basis for such claim, provided that the Indemnified
Party's failure to give such notice shall not affect any rights or remedies of
the Indemnified Party hereunder with respect to indemnification for Damages
except to the extent that the Indemnifying Parties are materially prejudiced
thereby. In the event of any claim for indemnification hereunder resulting from
or in connection with any claim or legal proceedings by a third party, the
notice to the Indemnifying Parties shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The Indemnified
Party shall not settle or compromise any claim by a third party for which they
are entitled to indemnification hereunder, without the prior written consent of
the Indemnifying Parties (which shall not be reasonably withheld).
4.5. DEFENSE BY INDEMNIFYING PARTIES. In connection with any claim giving
rise to indemnity hereunder or resulting or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Parties, at their sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
they acknowledge to the Indemnified Party in writing their obligations to
indemnify the Indemnified Party with respect to all elements of such claim and
thereafter diligently conduct the defense thereof. The Indemnified Party shall
be entitled to participate in (but not control) the
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defense of any such action with their counsel and at their own expense.
If the Indemnifying Parties do not assume or fail to conduct in a
diligent manner the defense of any such claim or litigation resulting
therefrom, (a) the Indemnified Party may defend against such claim or
litigation, in such manner as it may deem appropriate, provided,
however, that the Indemnified Party shall not settle any such claim or
litigation without the prior written consent of the Indemnifying
Parties, which consent shall not be unreasonable withheld, and (b) the
Indemnifying Parties shall be entitled to participate in (but not
control) the defense of such action, with their counsel and at their own
expense. If the Indemnifying Parties thereafter seek to question the
manner in which the Indemnified Party defended such third party claim,
the Indemnifying Parties shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend
such third party claim in a reasonably prudent manner. Each party
agrees to cooperate fully with the other, such cooperation to include,
without limitation, attendance at depositions and the provision of
relevant documents as may be reasonably requested by the Indemnifying
Parties, provided that the Indemnifying Parties will hold the
Indemnified Party harmless from all of their out of pocket expenses,
incurred in connection with such cooperation by the Indemnified Party.
4.6 EXCEPTIONS TO INDEMNIFICATION OBLIGATIONS. Notwithstanding anything
to the contrary contained herein, (a) an Indemnified Party shall not be entitled
to maintain a claim against any Indemnifying Party in respect of any Damage of
any nature suffered or incurred by an Indemnified Party as a result of such
party's own gross negligence or wilful misconduct, or as a result of any
occurrence, matter or thing the occurrence, existence or non-disclosure of which
constitutes a breach of failure of any representation, warranty, covenant or
other obligation of any Indemnified Party hereunder; (b) an Indemnified Party
shall not be entitled to recover any indirect, incidental, consequential or
special damages from any Indemnifying Party; (c) each Indemnified Party shall be
obligated to use reasonable efforts to mitigate any Damages sustained by it in
connection with any matter for which an Indemnifying Party may have liability to
it; (d) except for claims for indemnification for a breach by Neil Taylor of
Section 3.6, which may only be asserted against Neil Taylor, each Seller shall
only be obligated to indemnify the TCP Indemnitees for a TCP Indemnitee's
aggregate claim for Damages multiplied by such Seller's indemnification
percentage set forth on EXHIBIT D attached hereto (the "Indemnification
Percentage"); (e) an Indemnified Party shall not be entitled to indemnification
pursuant to this Article IV (i) for any claim, or series of related claims, for
Damages which are less than $10,000 in the aggregate; and (ii) for any claim, or
series of related claims, for Damages that are equal to or exceed $10,000 in the
aggregate, until the total amount of Damages incurred by such Indemnified Party
with respect to such claims exceeds $50,000 in the aggregate; provided, however,
that once the aggregate amount of Damages incurred by such Indemnified Party
with respect to such claims exceeds $50,000 in the aggregate, such Indemnified
Party shall be entitled to indemnification from the Indemnifying Parties for all
amounts of Damages incurred with respect to such claims; (f) except in the case
of a matter involving fraud on the part of any Indemnifying Party, all claims
for indemnification pursuant to this Article IV must be asserted in writing and
delivered to the Indemnifying Party on or prior to the two year anniversary from
the date hereof, except for (i) claims for indemnification pursuant to Section
4.2(a) with respect to a breach of Sections 2.2(b), (c), (g) and (k) and Section
2.3 which may be asserted at any time after the date hereof; (ii) claims for
indemnification pursuant to Section 4.3(a) with respect to a breach of Sections
2.1(a) or (b) which may be asserted at any time after the date hereof; and (iii)
claims for indemnification pursuant to Section 4.2(a) with respect to a breach
of Section 2.2(n) or Section 4.2(c)(iii) which
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may be asserted at any time prior to the expiration of any applicable
statute of limitations (other than claims for Damages relating to sales
and use taxes which may only be asserted for a period of two years from
the date hereof); (g) each Seller's indemnification obligation hereunder
shall be limited to the following: (i) such Seller's Indemnification
Percentage; multiplied by (ii) $7,500,000; (h) the TCP Indemnitees'
indemnification obligation hereunder shall be limited to $6,000,000; and
(i) with respect to claims for Damages by a TCP Indemnitee relating to
sales and use taxes, (i) the $10,000 threshold set forth in subsection
4.6(e)(i) above, shall be deemed to be a $20,000 limitation; and (ii)
the aggregate claims for Damages by a TCP Indemnitee shall be limited to
fifty percent (50%) of such Damages.
4.7. SET-OFF. Upon the final resolution of a claim for indemnification
pursuant to this Article 4, TCP may, at its sole election, set off its right to
receive payment under this Agreement from each Seller, whether for a Seller's
breach or otherwise, against amounts owed by TCP to such Seller pursuant to the
terms of this Agreement and/or the Seller Note, on a dollar for dollar basis,
with any such set off being effective upon the final resolution of such claim
for indemnification.
4.8 EXCLUSIVITY. The provisions of this Article 4 shall apply to any
Claim for breach of any covenant, representation, warranty or other provision of
this Agreement or any Ancillary Document (other than a claim for specific
performance or injunctive relief) with the intent that all such Claims shall be
subject to the limitations and other provisions contained in Article 4.
ARTICLE 5
MISCELLANEOUS
51. PUBLICITY. Except as otherwise required by law or applicable stock
exchange rules, press releases concerning this transaction shall be made only
with the prior agreement of Sellers and TCP. Except as otherwise required by
law or applicable stock exchange rules, no such press releases or other
publicity shall state the amount of the consideration payable upon consummation
of the transaction contemplated by this Agreement.
52. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier. Notices delivered by hand by facsimile, or by
nationally recognized private carrier shall be deemed given on the first
business day following receipt; provided, however, that a notice delivered by
facsimile shall only be effective if such notice is also delivered by hand, or
deposited in the Canadian mail, postage prepaid, registered or certified mail,
on or before two (2) business days after its delivery by facsimile. All notices
shall be addressed as follows:
If to Neil Taylor or Merle Taylor:
7711 - 139 Street
Edmonton, Alberta
T5R 0E9
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with a copy to:
Macleod Dixon
3700, 400 Third Avenue S.W.
Calgary, Alberta, Canada T2P 4H2
Attention: John Ramsay
Fax: (403) 264-5973
If to Dennis Radage or Cindel Holdings Incorporated:
35 Cormack Crescent
Edmonton, Alberta
T6R 2E7
Fax: (403) 436-7857
with a copy to:
Macleod Dixon
3700, 400 Third Avenue S.W.
Calgary, Alberta, Canada T2P 4H2
Attention: John Ramsay
Fax: (403) 264-5973
If to TCP or Parent:
c/o Total Control Products, Inc.
2001 North Janice Avenue
Melrose Park, Illinois 60160
Attention: Nicholas Gihl, President
Fax: (708) 345-5670
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with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel J. Feldman
Fax: (312) 580-0923
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 5.2.
5.3. EXPENSES; TRANSFER TAXES. Except as otherwise provided herein, each
party hereto shall bear all costs, fees and expenses incurred by such party in
connection with, relating to or arising out of the negotiation, preparation,
execution, delivery and performance of this Agreement and all agreements
executed and delivered in connection herewith and the consummation of the
transaction contemplated hereby and thereby, including, without limitation,
attorneys', accountants', environmental consultants', brokers' and other
professional fees and expenses ("Costs"); provided, however, that (a) up to
$75,000 of the aggregate Costs incurred by the Sellers and/or the Company in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement, the Amalgamation Agreement, the Support
Agreement, the Share Exchange Agreement and any other agreement executed and
delivered in connection with any of the foregoing shall be paid by the Company;
(b) any Costs in excess of $75,000 incurred by the Company and/or the Sellers in
connection with any of the foregoing shall be the sole responsibility of the
Sellers; and (c) Sellers shall be solely responsible for all amounts owed to
Concord.
5.4. ENTIRE AGREEMENT. This Agreement and the instruments to be delivered
by the parties pursuant to the provisions hereof constitute the entire agreement
between the parties with respect to the subject matter hereof and shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives, successors and permitted assigns. Each Exhibit, Schedule
and the Disclosure Schedule, shall be considered incorporated into this
Agreement. Any amendments, or alternative or supplementary provisions to this
Agreement must be made in writing and duly executed by an authorized
representative or agent of each of the parties hereto.
5.5. SURVIVAL; NON-WAIVER. All representations and warranties shall
survive the Closing regardless of any investigation or lack of investigation by
any of the parties hereto. The failure in any one or more instances of a party
to insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed
by an authorized representative of the waiving party. A breach of any
representation, warranty or covenant shall not be affected by the fact that a
more general or more specific representation, warranty or covenant was not also
breached.
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5.6. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all
such counterparts shall constitute but one instrument.
5.7. SEVERABILITY. The invalidity of any provision of this
Agreement or portion of a provision shall not affect the validity of any
other provision of this Agreement or the remaining portion of the
applicable provision.
5.8. APPLICABLE LAW. This Agreement shall be governed by, and
interpreted and enforce in accordance with, the laws of the Province of
Alberta (excluding any conflict of laws, rule or principle which might
refer such interpretation to the laws of another jurisdiction) and the
laws of Canada applicable therein.
5.9. BINDING EFFECT; BENEFIT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their successors
and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer on any person other than the parties hereto, and
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
5.10. ASSIGNABILITY. This Agreement shall not be assignable by
either party without the prior written consent of the other party.
5.11. AMENDMENTS. This Agreement shall not be modified or amended
except pursuant to an instrument in writing executed and delivered on
behalf of each of the parties hereto.
5.12. HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
697621 ALBERTA LTD.
By:/s/ Nicholas Gihl
------------------------------
Title:___________________________
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
-----------------------------
Title:___________________________
SELLERS:
/s/ Neil R. Taylor
---------------------------------
Neil R. Taylor
/s/ Dennis A. Radage
---------------------------------
Dennis A. Radage
/s/ Merle D. Taylor
---------------------------------
Merle D. Taylor
CINDEL HOLDINGS INCORPORATED
By: /s/ Leila Radage
Title:___________________________
30
<PAGE>
EXHIBIT A
CURRENT OWNERSHIP
<TABLE>
<CAPTION>
% OF Allocation of
Contingent Cash For Sale
Common Consideration of Common
Shareholder Preferred Shares Common Shares Shares Sold Entitlement Share
- ----------- ---------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Neil R. Taylor 153,252 670,000 458,950 67.773505% $1,778,913
Plus Seller
Note
Merle D. Taylor 1,548 80,000 54,800 7.812485% $ 482,241
Dennis A. Radage -- 234,700 155,950 22.232794% $1,372,363
Cindel Holdings -- 15,300 15,300 2.181221% $ 134,640
Incorporated
</TABLE>
31
<PAGE>
EXHIBIT "B"
"NET REVENUES" shall be calculated with a view to including all revenue
directly and indirectly derived from the Products and business of the Company
and its subsidiaries and shall specifically include the revenues set out in
the following table without duplication:
PRODUCT(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
METHOD OF PROCESS OTHER
SALE WINDOW(1) WALTZ(1) PRODUCTS(1),(2) SUPPORT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TIS(3) 100% NR 100% NR 100% NR 100% CSP
- ------------------------------------------------------------------------------------------------------------------------
TIS Distributors 100% NR 100% NR 100% NR 100% CSP
- ------------------------------------------------------------------------------------------------------------------------
TCP(4) 24% SULP 24% SULP 24% SULP 40% CSP
Bundled(5)
- ------------------------------------------------------------------------------------------------------------------------
TCP(4) Unbundled(6)
- ------------------------------------------------------------------------------------------------------------------------
1st $2.5M/$3M pa(7) 100% NR 100% NR 100% NR 40% NR
- ------------------------------------------------------------------------------------------------------------------------
After 1st
$2.5M/$3M pa(8) 50% NR 50% NR 100% NR 40% NR
- ------------------------------------------------------------------------------------------------------------------------
Digital(9) 30% NR 30% NR n/a(10) n/a(11)
w/o CSP(10) w/o CSP(10)
- ------------------------------------------------------------------------------------------------------------------------
Disposition of a C + L (D DIVIDED BY E)(12) C + L (D DIVIDED BY E)(12) C + L (D DIVIDED BY E)(12) n/a
Product Line or
Subsidiary
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE DEFINITIONS
CSP = current and deferred revenues earned as a result of customer support
programs, including maintenance, support and updates.
NR = revenues earned as a result of sale of Products (where "sale" includes
license and resale, but not a disposition), which revenues are net of third
party distributors' discounts and commissions.
SULP = Single Unit List Price as of September 4, 1996
TIS DISTRIBUTOR = a distributor of Products appointed by TIS
w/o CSP = licenses offered without CSP
NOTES
1. All Products include derivate works.
2. "OTHER PRODUCTS" include Products, other than Process Window and Waltz,
offered by TIS on September 4, 1996.
3. TIS = the Company and its Subsidiaries
<PAGE>
- 2 -
4. If TCP assumes exclusive control or distribution of a Product or TIS makes
a Disposition to TCP of any Product or of any Subsidiary selling any
Product, then the revenue relating to such Product shall be treated for
the purposes of this table as if TIS had sold the Product through TIS
directly. TCP includes TCP's Affiliates and distributors.
5. "BUNDLED" SALES = software/hardware combined Product sales where the
software Product is installed when shipped.
6. UNBUNDLED = all sales other than Bundled sales.
7. 1ST $2.5M/$3M PA = up to the first $US 2,500,000 in revenue in the First
Earnout Period and up to the first $US 3,000,000 in revenue in the Second
Earnout Period from sales of Process Window and Waltz by TCP, TIS and TIS
Distributors, net of third party distributors' discounts and commissions
by TCP, TIS and TIS Distributors.
8. AFTER 1ST $2.5M/$3M PA = revenue in excess of $US 2,500,000 in the First
Earnout Period and revenue in excess of $3,000,000 in the Second Earnout
Period from sales of Process Window and Waltz by TCP, TIS and TIS
Distributors net of third party distributors' discounts and commissions.
9. Digital includes Digital's Affiliates.
10. Digital will not distribute Other Products.
11. Subject to further agreement.
12. If a Product or Subsidiary is disposed of to an entity other than TCP
during an Earnout Period, the calculation shall be as follows.
C = NR earned in the Earnout Period in which the disposition occurs, to
the date of the Disposition (without duplication of amounts included by
any other calculation).
D = number of days remaining after Disposition in the relevant Earnout
Period.
E = 730
L = amount received as a result of the Disposition;
and, for greater certainty, if a Disposition occurs during the First Earnout
Period the calculation shall be made for each of the Earnout Periods and
revenue applied appropriately, with the effect that for the Second Earnout
Period the amount added to the Net Revenues shall be equal to 50% of the
Disposition Amount.
<PAGE>
EXHIBIT C
Seller Indemnification Percentage
- ------ --------------------------
Neil R. Taylor 67.773505%
Merle D. Taylor 7.812485%
Dennis A. Radage 22.232794%
Cindel Holdings Incorporated 2.181221%
32
<PAGE>
EXCHANGE AGREEMENT
THIS AGREEMENT made as of September 26, 1996.
AMONG:
NEIL TAYLOR, an individual residing in the City of Calgary
in the Province of Alberta (hereinafter referred to as
"NEIL" and, together with Dennis and Merle, collectively
referred to as the "SHAREHOLDERS")
- and -
DENNIS RADAGE, an individual residing in the City of Calgary
in the Province of Alberta (hereinafter referred to as
"DENNIS" and, together with Neil and Merle collectively
referred to as the "SHAREHOLDERS")
- and -
MERLE TAYLOR, an individual residing in the City of Calgary
in the Province of Alberta (hereinafter referred to as
"MERLE" and, together with Neil and Dennis, collectively
referred to as the "SHAREHOLDERS")
- and -
TAYLOR INDUSTRIAL SOFTWARE INC., a corporation existing
under the laws of the Province of Alberta, (hereinafter
referred to as "TIS")
- and -
TOTAL CONTROL PRODUCTS, INC., a corporation existing under
the laws of the State of Illinois (hereinafter referred to
as "TCP")
WHEREAS Shareholders are the owners of 255,704 Class B Common Shares
(the "COMMON SHARES") in the capital of TIS;
AND WHEREAS pursuant to articles of amendment of TIS dated the date
hereof filed pursuant to the BUSINESS CORPORATIONS ACT (Alberta), TIS created a
new class of Exchangeable Non-Voting Shares of TIS (the "EXCHANGEABLE SHARES")
as part of the reorganization of the capital of TIS (the "REORGANIZATION");
<PAGE>
-2-
AND WHEREAS in the course of Reorganization, the Shareholders have
agreed to exchange with TIS all of their respective interests in the Common
Shares for Exchangeable Shares on the terms and conditions set forth in this
Agreement;
AND WHEREAS it is the intention of the parties hereto that Section 86
of the INCOME TAX ACT (Canada) shall apply with respect to the exchange of
shares provided for in this Agreement;
AND WHEREAS the parties hereto have agreed to provide certain exchange
privileges including exchange privileges in the event of an insolvency of TIS or
TCP;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Agreement, the payment by the Shareholders of $10.00
to TCP and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the following terms shall have the following
meanings:
(a) "AUTOMATIC EXCHANGE RIGHTS" means the benefit of the obligation of the
Parent to effect the automatic exchange of shares of Parent Common
Stock for Exchangeable Shares pursuant to Section 4.9 hereof.
(b) "BUSINESS DAY" means a day other than a Saturday, Sunday or a
statutory holiday in the City of Edmonton, Alberta or the City of
Chicago, Illinois.
(c) "COMMON SHARES " has the meaning ascribed thereto in the recitals
hereto.
(d) "EXCHANGE RIGHT" has the meaning ascribed thereto in Section 4.1
hereof.
(e) "EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares.
(f) "EXCHANGEABLE SHARES" has the meaning ascribed thereto in the recitals
hereto.
(g) "INITIAL PUBLIC OFFERING" means an initial underwritten offering of
TCP Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended, as a consequence of which
shares of TCP Common Stock are listed on a national securities
exchange or quoted on the national market system of the National
Association of Securities Dealers, Inc.
<PAGE>
-3-
(h) "INSOLVENCY EVENT" means the institution by TIS of any proceeding to
be adjudicated a bankrupt or insolvent or to be dissolved or wound up,
or the consent of TIS to the institution of bankruptcy, insolvency,
dissolution or winding up proceedings against it, or the filing of a
petition, answer or consent seeking dissolution or winding up under
any bankruptcy, insolvency or analogous laws, including without
limitation the COMPANIES CREDITORS' ARRANGEMENT ACT (Canada) and the
BANKRUPTCY AND INSOLVENCY ACT (Canada), and the failure by TIS to
contest in good faith any such proceedings commenced in respect of TIS
within 10 Business Days of becoming aware thereof, or the consent by
TIS to the filing of any such petition or to the appointment of a
receiver, or the making by TIS of a general assignment for the benefit
of creditors, or the admission in writing by TIS of its inability to
pay its debts generally as they become due, or TIS not being
permitted, pursuant to solvency requirements of applicable law, to
redeem any Retracted Shares pursuant to Section 4.6 or 5.6 of the
Exchangeable Share Provisions.
(i) "LIQUIDATION EVENT" has the meaning ascribed thereto in Section 4.9
hereof.
(j) "LIQUIDATION EVENT EFFECTIVE DATE" has the meaning ascribed thereto in
Section 4.9 hereof.
(k) "PURCHASE NOTE" means a promissory note issued by TCP and payable in
equal quarterly installments over a three year period, the first
quarterly payment to be paid on the last day of the calendar quarter
immediately following the Special Retraction Period, together with
interest on the unpaid principal balance at a rate equal to the prime
rate of interest as announced from time to time by the American
National Bank and Trust Company of Chicago, payable in arrears.
(l) "TCP COMMON STOCK" means the shares of common stock of TCP, with no
par value per share, having voting rights of one vote per share, and
any other securities into which such shares may be changed.
(m) "RETRACTED SHARES" has the meaning ascribed thereto in Section 4.6
hereof.
(n) "SHARE PURCHASE AGREEMENT" means the Stock Purchase Agreement made as
of September ___, 1996 among Neil Taylor, Merle Taylor, Dennis Radage,
Cindel Holdings Incorporated, Taylor Industrial Software Inc. and
Total Control Products, Inc.
(o) "SUPPORT AGREEMENT" means that certain support agreement made as of
even date hereof between TIS and TCP.
1.2 OTHER DEFINED TERMS
Each term denoted herein by initial capital letters and not otherwise
defined herein shall have the meaning ascribed thereto in the Exchangeable Share
Provisions, unless the context requires otherwise.
<PAGE>
-4-
1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of this agreement.
1.4 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and
vice versa. Words importing the use of any gender shall include all genders.
1.5 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
1.6 CURRENCY
All dollar figures contained herein shall be deemed to be references
to United States dollars.
ARTICLE 2
EXCHANGE OF SHARES
2.1 EXCHANGE OF SHARES
Shareholders hereby transfer, convey and set over unto TIS all of
their estate, rights, title and interests in and to the Common Shares for the
sole benefit of TIS absolutely in exchange for Exchangeable Shares on the basis
of one Exchangeable Share for each Common Share.
2.2 STATED CAPITAL OF EXCHANGEABLE SHARES
TIS covenants that the aggregate amount which it will add to the
stated capital of the Exchangeable Shares in respect of the Exchangeable Shares
issued pursuant to the terms of this Agreement shall equal the aggregate stated
capital of the Common Shares immediately prior to the acquisition and
cancellation of such Common Shares pursuant to the terms of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF TCP
TCP represents and warrants to the Shareholders as follows:
<PAGE>
-5-
(a) ORGANIZATION
TCP is a corporation duly organized, validly existing and in good
standing, under the laws of the State of Illinois, U.S.A. TCP has
full corporate power and authority to carry on its business as such
business is now being conducted.
(b) POWER, AUTHORITY AND ENFORCEABILITY
TCP has full corporate power and authority to enter into and perform
this Agreement. The execution and delivery by TCP of this Agreement
and the performance by TCP of its obligations hereunder have been duly
authorized and approved by all requisite corporate action. This
Agreement is the binding obligation of TCP enforceable against TCP in
accordance with its terms. This Agreement has been duly executed and
delivered by a duly authorized officer of TCP.
(c) CONSENTS
No consent, authorization, order or approval of, or filing or
registration with, any government, any political subdivision, agency,
and any entity, exercising executive, legislative, judicial,
regulatory or administrative functions of government (each, a
"GOVERNMENT AUTHORITY") is required for or in connection with the
consummation by TCP of the transactions contemplated by this
Agreement.
(d) NO VIOLATION
Neither the execution and delivery of this Agreement by TCP, nor the
consummation by TCP of the transactions contemplated hereby, will
conflict with or result in a breach of any of the terms, conditions or
provisions of TCP's Articles of Incorporation or by-laws, or of any
statute or administrative regulation, or of any order, writ,
injunction, judgment or decree of any court or governmental authority
or of any arbitration award or agreement binding on TCP.
(e) NO DEFAULT
TCP is not a party to any unexpired, undischarged or unsatisfied
written or oral contract, agreement, indenture, mortgage, debenture,
note or other instrument under the terms of which performance by TCP
according to the terms of this Agreement will be a default or an event
of acceleration, or grounds for termination, or whereby timely
performance by TCP according to the terms of this Agreement may be
prohibited, prevented or delayed.
(f) CAPITAL STOCK OF TCP
The authorized capital stock of TCP consists of 7,500,000 shares of
Common Stock, of which 1,613,317 shares are issued and outstanding.
There are no shares of capital stock of TCP of any other class
authorized, issued or outstanding. All of the issued
<PAGE>
-6-
and outstanding shares of TCP have been validly issued, are fully
paid and non-assessable. Except for stock options issued to
certain employees of TCP, a convertible debenture held by Quinn
Stepan and the exchange rights issued pursuant to this Agreement,
there are no subscriptions, options or warrants outstanding to
subscribe or purchase shares of capital stock of TCP. Upon
exercise of the Exchange Rights and the Automatic Exchange Rights,
(i) the shares of TCP Common Stock held in connection therewith
shall have been duly and validly authorized by all necessary
corporate action on the part to TCP; and (ii) such TCP shares
issued will be validly issued, fully paid and non-assessable.
(g) FINANCIAL STATEMENTS
Complete and accurate copies of (a) the audited balance sheets,
statements of income, retained earnings, cash flows and notes to
financial statements (together with any supplementary information
thereto) of TCP as of and for the year ended March 31, 1996 (the
"Financial Statements") and (b) the unaudited interim balance sheets,
statements of income, retained earnings, cash flows and notes to
financial statements of TCP as of and for the period April 1, 1996 to
August 31, 1996 (the "Interim Statements") have been previously
delivered to the Stockholders or made available for each of their
review. The Financial Statements and Interim Statements present
accurately and completely, in all material respects, the financial
position of TCP as of the dates thereof and the results of operations
and cash flows of TCP for the periods covered by said statements, all
in accordance with United States generally accepted accounting
principles consistently applied ("GAAP"), except in the case of the
Interim Statements, (i) omission of footnotes, and (ii) normal year
end adjustments.
(h) LIABILITIES
TCP has no obligations or liabilities of any nature whatsoever (direct
or indirect, matured or unmatured, absolute, accrued, contingent or
otherwise) required by GAAP to be provided or reserved against on a
balance sheet (all the foregoing herein collectively being referred to
as the "LIABILITIES") except for (I) Liabilities provided for or
reserved against the Interim Statements; (ii) Liabilities which have
been incurred by TCP subsequent to August 31, 1996 in the ordinary
course of TCP's business and consistent with past practice;
(iii) Liabilities under the executory portion of any written purchase
order, sales order, lease, agreement or commitment of any kind by
which TCP is bound and which was entered into in the ordinary course
of TCP's business and consistent with past practices; and
(iv) Liabilities under the executory portion of permits, environmental
permits, licenses and governmental directives and agreements issued
to, or entered into by, TCP in the ordinary course of business.
<PAGE>
-7-
(i) MATERIAL ADVERSE CHANGE
Since August 31, 1996, TCP and its subsidiaries, taken as a whole,
have not suffered or been threatened with any material adverse change
in the business, operations, assets, liabilities, financial condition
or prospects of TCP and its subsidiaries, taken as a whole.
3.2 COVENANTS OF TCP
TCP hereby covenants and agrees to take all steps required by law,
regulation or stock exchange rule, including if necessary the filing of a
prospectus and any other steps necessary to qualify for distribution the TCP
Common Stock which is issued in connection with the obligations of TCP under
this Agreement.
3.3 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder severally, and not jointly, and with respect to
himself or herself only, represents and warrants to TCP and TIS that:
(a) POWER, AUTHORITY AND ENFORCEABILITY
The Shareholder has full power and authority to enter into and perform
this Agreement. This Agreement is the binding obligation of the
Shareholder enforceable against the Shareholder in accordance with its
terms.
(b) NO CONSENT
No consent, authorization, order or approval of, or filing or
registration with, any Governmental Authority is required for or in
connection with the consummation by the Shareholder of the transaction
contemplated by this Agreement.
(c) NO VIOLATION
Neither the execution and delivery of this Agreement by the
Shareholder nor the consummation by the Shareholder of the transaction
contemplated hereby, will conflict with or result in a breach of any
of the terms, conditions or provisions of any statute or
administrative regulation, or of any order, writ, injunction, judgment
or decree of any court or governmental authority or of any arbitration
award to which the Shareholder is a party or by which the Shareholder
is bound.
(d) PURCHASE FOR OWN ACCOUNT
The Exchangeable Shares will be acquired for investment for the
Shareholder's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and the
Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing the Exchangeable Shares
(or the TCP
<PAGE>
-8-
Common Stock issuable upon exchange of the Exchangeable
Shares) (collectively, the "SECURITIES"). By executing this
Agreement, the Shareholder further represents that the Shareholder
does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or
to any third person, with respect to any of the Securities.
(e) KNOWLEDGE AND FINANCIAL CONDITION
The Shareholder has sufficient knowledge and experience in financial
and business matters such that he or she is capable of evaluating the
economic risks of an investment in the Securities. The Shareholder's
financial condition is currently adequate to bear the economic risks
of an investment in the Shares. The Shareholder has received such
written information respecting the business and financial condition of
TCP as the Shareholder has requested and has read and understands such
information, and is not relying on any other information (whether
written or oral) with respect to his or her decision to invest in the
Securities.
(f) FINANCIAL PROJECTIONS
The Shareholder understands that any financial projections provided by
TCP should be considered speculative and qualified by the assumptions
stated therein. The Shareholder understands that such projections are
based on assumptions believed to be reasonable at the time of their
preparation, but they are subject to a high degree of uncertainty and
cannot be relied upon as a prediction of future results.
(g) TAX CONSEQUENCES
The Shareholder understands and acknowledges that none of TCP or any
of its officers, directors, affiliates, employees, agents or advisors,
has made any representation, warranty or assurance regarding the tax
consequences of an investment in the Securities, and that he or she is
relying upon the advice of his or her own tax advisor with respect to
the tax consequences of such investments.
(h) TAX CONSEQUENCES
The Shareholder understands and acknowledges that none of TCP or any
of its officers, directors, affiliates, employees, agents or advisors,
has made any representation, warranty or assurance regarding the tax
consequences of an investment in the Securities, and that he or she is
relying upon the advice of his or her own tax advisor with respect to
the tax consequences of such investments.
(i) RESTRICTED SECURITIES
The Shareholder understands that the Securities are characterized as
"restricted securities" under the U.S. federal securities laws
inasmuch as they are being acquired in a transaction not involving a
public offering and that under such laws and
<PAGE>
-9-
applicable regulations such securities may be resold without
registration under the Securities Act of 1933, as amended (the
"ACT"), only in certain limited circumstances. In addition, the
Shareholder represents that the Shareholder is familiar with Rule
144 promulgated under the Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
(j) FURTHER LIMITATIONS ON DISPOSITION
Without in any way limiting the representations set forth above, the
Shareholder further agrees not to make any disposition of all or any
portion of the TCP Common Stock issued upon exchange of the
Exchangeable Shares unless and until:
(i) there is then in effect a registration statement under the Act
governing such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) the Shareholder shall have notified TCP of the proposed
disposition and shall have furnished TCP with a detailed
statement of the circumstances surrounding the proposed
disposition, and if reasonably requested by TCP, the Shareholder
shall have furnished TCP with an opinion of counsel, reasonably
satisfactory to TCP that such disposition will not require
registration of such shares under the Act.
ARTICLE 4
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
4.1 GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
RIGHTS
TCP hereby grants to the Shareholders (a) the right (the "EXCHANGE
RIGHT"), upon the occurrence and during the continuance of an Insolvency Event,
to require TCP to purchase from each or any Shareholder all or any part of the
Exchangeable Shares held by the Shareholder and (b) the Automatic Exchange
Rights, all in accordance with the provisions of this Agreement. TCP hereby
acknowledges receipt from the Shareholders of good and valuable consideration
(and the adequacy thereof) for the grant of the Exchange Right and the Automatic
Exchange Rights by TCP to the Shareholders.
4.2 LEGENDED SHARE CERTIFICATES
TIS will cause each certificate representing Exchangeable Shares to
bear an appropriate legend notifying the Shareholders of their rights to
exercise the Exchange Right and the Automatic Exchange Rights.
<PAGE>
-10-
4.3 PURCHASE PRICE
The purchase price payable by TCP for each Exchangeable Share to be
purchased by the TCP under the Exchange Right shall be an amount per share equal
to the Current Market Price of a share of TCP Common Stock on the last Business
Day prior to the day of closing of the purchase and sale of such Exchangeable
Shares under the Exchange Right. The purchase price for each such Exchangeable
Share so purchased will be satisfied only by TCP issuing and delivering or
causing to be delivered to the relevant Shareholder, one share of TCP Common
Stock, and no shareholder shall be entitled to any other assets of TCP or TIS in
connection with such purchase.
4.4 EXERCISE INSTRUCTIONS
Subject to the terms and conditions herein set forth, a Shareholder
shall be entitled, upon the occurrence and during the continuance of an
Insolvency Event, to exercise the Exchange Right with respect to all or any part
of the Exchangeable Shares registered in the name of such Shareholder on the
books of the Company. To cause the exercise of the Exchange Right, the
Shareholder shall deliver to TCP the certificates representing the Exchangeable
Shares which such Shareholder desires TCP to purchase, duly endorsed in blank,
and accompanied by such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the BUSINESS CORPORATIONS ACT
(Alberta) and the by-laws of TIS and such additional documents and instruments
as TCP may reasonably require together with a duly completed form of notice of
exercise of the Exchange Right, contained on the reverse of or attached to the
Exchangeable Share certificates, stating (i) that the Shareholder thereby
exercises the Exchange Right so as to require TCP to purchase from the
Shareholder the number of Exchangeable Shares specified therein, (ii) that such
Shareholder has good title to and owns all such Exchangeable Shares to be
acquired by TCP free and clear of all liens, claims and encumbrances, (iii) the
names in which the certificates representing the TCP Common Stock issuable in
connection with the exercise of the Exchange Right are to be issued and (iv) the
names and addresses of the person to whom such new certificates should be
delivered. If only a part of the Exchangeable Shares represented by any
certificate or certificates delivered to TCP are to be purchased by TCP under
the Exchange Right, a new certificate for the balance of such Exchangeable
Shares shall be issued to the Shareholder at the expense of TIS.
4.5 DELIVERY OF TCP COMMON STOCK; EFFECT OF EXERCISE
Promptly after receipt of the certificate representing the
Exchangeable Shares which the Shareholder desires TCP to purchase under the
Exchange Right (together with such documents and instruments of transfer and a
duly completed form of notice of exercise of the Exchange Right) (hereinafter
referred to as "RECEIPT OF THE EXCHANGEABLE SHARES"), duly endorsed for transfer
to TCP, which receipt by TCP shall constitute exercise of the Exchange Right by
the Shareholder of such Exchangeable Shares, TCP shall immediately thereafter
deliver or cause to be delivered to Shareholder of such Exchangeable Shares (or
to such other persons, if any, properly designated by the Shareholder), the
certificates for the number of shares of TCP Common Stock issuable in connection
with the exercise of the Exchange Right, which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any lien, claim or
encumbrance. Immediately upon receipt of the Exchangeable Shares, the closing
of the transaction of purchase and sale contemplated by the Exchange Right shall
be deemed to have occurred, and the Shareholder of such Exchangeable
<PAGE>
-11-
Shares shall be deemed to have transferred to TCP all of its right, title and
interest in and to such Exchangeable Shares and shall cease to be a holder of
such Exchangeable Shares and shall not be entitled to exercise any of the
rights of a holder in respect thereof, other than the right to receive such
holder's proportionate part of the total purchase price therefor, unless the
requisite number of shares of TCP Common Stock is not allotted, issued and
delivered by TCP to the Shareholder (or to such other persons, if any,
properly designated by such Shareholder), within five Business Days of the
receipt of the Exchangeable Shares by TCP, in which case the rights of the
Shareholder shall remain unaffected until such shares of the TCP Common Stock
are so allotted, issued and delivered by TCP Concurrently with such
Shareholder ceasing to be a holder of Exchangeable Shares, the Shareholder
shall be considered and deemed for all purposes to be the holder of the
shares of TCP Common Stock delivered to it pursuant to the Exchange Right.
4.6 EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION
In the event that a Shareholder has exercised its right under
Article 4 of the Exchangeable Share Provisions to require TIS to redeem any or
all of the Exchangeable Shares held by the Shareholder (the "RETRACTED SHARES")
and is notified by TIS pursuant to Section 4.6 of the Exchangeable Share
Provisions that TIS will not be permitted as a result of solvency requirements
of applicable law to redeem all such Retracted Shares, provided that TCP shall
not have exercised the Retraction Call Right with respect to the Retracted
Shares and that the Shareholder has not revoked the retraction request delivered
by the Shareholder to TIS pursuant to Section 4.1 of the Exchangeable Share
Provisions, the retraction request will constitute and will be deemed to
constitute an exercise of the Exchange Right with respect to those Retracted
Shares which TIS is unable to redeem. In any such event, TIS hereby agrees with
the Shareholder immediately to notify the Shareholder of such prohibition
against TIS redeeming all of the Retracted Shares and immediately to forward or
cause to be forwarded to TCP all relevant materials delivered by the Shareholder
to TIS (including without limitation a copy of the retraction request delivered
pursuant to Section 4.1 of the Exchangeable Share Provisions) in connection with
such proposed redemption of the Retracted Shares and the Shareholder will
thereupon exercise the Exchange Right with respect to the Retracted Shares that
TIS is not permitted to redeem and will require TCP to purchase such shares in
accordance with the provisions of this Article 4.
4.7 NOTICE OF INSOLVENCY EVENT
Immediately upon the occurrence of an Insolvency Event or any event
which makes an Insolvency Event imminent, TIS and TCP shall give written notice
thereof to each of the Shareholders by mailing to each Shareholder, at the
expense of TCP, a notice of such Insolvency Event in the form provided by TCP,
which notice shall contain a brief statement of the right of the Shareholders
with respect to the Exchange Right.
4.8 RESERVATION OF SHARES OF TCP COMMON STOCK
TCP hereby represents, warrants and covenants that it has irrevocably
reserved for issuance and will at all times keep available, free from pre-
emptive and other rights, out of its authorized and unissued capital stock such
number of shares of TCP Common Stock (a) as is equal to the sum of (i) the
number of Exchangeable Shares issued and outstanding from time to time and
<PAGE>
-12-
(ii) the number of Exchangeable Shares issuable upon the exercise of all rights
to acquire Exchangeable Shares outstanding from time to time and (b) as are now
and may hereafter be required to enable and permit TIS to meet its obligations
hereunder, under the Support Agreement and under the Exchangeable Share
Provisions.
4.9 AUTOMATIC EXCHANGE ON LIQUIDATION OF TCP
(a) TCP will give each of the Shareholders written notice of each of the
following events (a "LIQUIDATION EVENT") at the time set forth below:
(i) in the event of any determination by the Board of Directors of
TCP to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to TCP or to effect any other
distribution of assets of TCP among its Shareholders for the
purpose of winding up its affairs, at least 15 days prior to the
proposed effective date of such liquidation, dissolution,
winding-up or other distribution; and
(ii) immediately, upon the receipt by TCP of notice of any instituted
claim, suit, petition or other proceedings with respect to the
involuntary liquidation, dissolution or winding up of TCP or to
effect any other distribution of assets of TCP among its
Shareholders for the purpose of winding up its affairs.
Such notice shall include a brief description of the automatic
exchange of Exchangeable Shares for shares of TCP Common Stock
provided for in Section 4.9(b) hereof.
(b) In order that the Shareholders will be able to participate on a pro
rata basis with the Shareholders of TCP Common Stock in the
distribution of assets of TCP in connection with a Liquidation Event,
on the fifth Business Day prior to the effective date (the
"LIQUIDATION EVENT EFFECTIVE DATE") of a Liquidation Event all of the
then outstanding Exchangeable Shares shall be automatically exchanged
for shares of TCP Common Stock. To effect such automatic exchange,
TCP shall purchase each Exchangeable Share outstanding on the fifth
Business Day prior to the Liquidation Event Effective Date and held by
the Shareholders, and each Shareholder shall sell the Exchangeable
Shares held by it at such time, for a purchase price per share equal
to the Current Market Price of a share of TCP Common Stock on the
fifth Business Day prior to the Liquidation Effective Date, which
shall be satisfied in full by TCP issuing to the Shareholder one share
of TCP Common Stock. For greater certainty, the Shareholders shall
only be entitled to receive shares of TCP Common Stock in satisfaction
of their rights upon the occurrence of a Liquidation Event and shall
not be entitled to the other assets of TCP or TIS.
(c) On the fifth Business Day prior to the Liquidation Event Effective
Date, the closing of the transaction of purchase and sale contemplated
by the automatic exchange of Exchangeable Shares for TCP Common Stock
shall be deemed to have occurred, and each Shareholder of Exchangeable
Shares shall be deemed to have transferred to TCP
<PAGE>
-13-
all of the Shareholder's right, title and interest in and to such
Exchangeable Shares and shall cease to be a holder of such
Exchangeable Shares and TCP shall issue to the Shareholder the
shares of TCP Common Stock issuable upon the automatic exchange of
Exchangeable Shares for TCP Common Stock. Concurrently with such
Shareholder ceasing to be a holder of Exchangeable Shares, the
Shareholder shall be considered and deemed for all purposes to be
the holder of the shares of TCP Common Stock issued to it pursuant
to the automatic exchange of Exchangeable Shares for TCP Common
Stock and the certificates held by the Shareholder previously
representing the Exchangeable Shares exchanged by the Shareholder
with TCP pursuant to such automatic exchange shall thereafter be
deemed to represent the shares of TCP Common Stock issued to the
Shareholder by TCP pursuant to such automatic exchange. Upon the
request of a Shareholder and the surrender by the Shareholder of
Exchangeable Share certificates deemed to represent shares of TCP
Common Stock, duly endorsed in blank and accompanied by such
instruments of transfer as TCP may reasonably require, TCP shall
deliver or cause to be delivered to the Shareholder certificates
representing the shares of TCP Common Stock of which the
Shareholder is the holder.
ARTICLE 5
SALE RIGHT AND DIRECT PURCHASE OBLIGATION
5.1 SALE RIGHTS
If an Insolvency Event occurs at any time during the Special
Retraction Period, then each Shareholder shall be entitled (such entitlement
referred to herein as the "SALE RIGHT") for a period of ten Business Days
commencing upon the date of such Insolvency Event, to require TCP to purchase
all, but not less than all, of the Exchangeable Shares owned by such Shareholder
for a purchase price per share equal to $23.46463 (the "PER SHARE PRICE") and
payment of the Per Share Price shall be deferred in accordance with the terms of
the Purchase Note and evidenced by TCP issuing and delivering a Purchase Note to
such holder in the principal amount equal to the Per Share Price multiplied by
the number of Exchangeable Shares owned by such holder. To effect such Sale
Right, the holder shall provide written notice to TCP of his or her intention to
exercise the Sale Right and shall forthwith thereafter deliver to TCP the
certificate or certificates representing all of the Exchangeable Shares which
the holder owns, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the BUSINESS
CORPORATIONS ACT (Alberta) and the by-laws of TIS and such additional documents
and instruments as TCP may reasonably require. For greater certainty, TCP shall
not be required to purchase Exchangeable Shares and issue a Purchase Note to any
particular Shareholder if a Special Retraction Note or Special TCP Note has
already been issued to such Shareholder. In the event that the holder has
surrendered to TIS such certificate or certificates pursuant to the exercise of
such holder's Special Retraction Rights and due to an Insolvency Event is unable
to recover such certificate or certificates from TIS even though such holder has
withdrawn his or her Special Retraction Request, then such surrender to TIS
shall be deemed to be delivery to TCP for the purposes of exercise of the Sale
Right herein and TCP shall issue and deliver the Purchase Note to the holder
provided that the holder has
<PAGE>
-14-
withdrawn his or her Special Retraction Request in accordance with Section
5.7 of the Exchangeable Share Provisions and has not received a Special
Retraction Note from TIS.
ARTICLE 6
MISCELLANEOUS
6.1 NOTICES
All notices required or permitted to be given hereunder shall be in
writing and may be delivered by hand, by facsimile, by nationally recognized
private courier, or by Canadian mail. Notices delivered by mail shall be deemed
given three (3) business days after being deposited in the Canadian mail,
postage prepaid, registered or certified mail. Notices delivered by hand, by
facsimile, or by nationally recognized private courier shall be deemed given on
the first business day following receipt; provided, however, that a notice
delivered by facsimile shall only be effective if such notice is also delivered
by hand, or deposited in the Canadian mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
facsimile. All notices shall be addressed as follows:
If to Neil or Merle:
7711 - 139 St.
Edmonton, Alberta
T5R 0E9
Attention: Neil Taylor
(403) 484-0395
with a copy to:
Macleod Dixon
3700 - 400 Third Avenue SW
Calgary, Alberta
T2P 4H2
Attention: John Ramsay
Fax: (403) 264-5973
If to Dennis:
35 Cormack Crescent
Edmonton, Alberta
T6R 2E7
Attention: Dennis Radage
Fax: (403) 436-7857
<PAGE>
-15-
If to TCP:
c/o Total Control Products, Inc.
2001 North Janice Avenue
Melrose Park, Illinois
Attention: Nicholas Gihl, President
Fax: (708) 345-5670
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel J. Feldman
Fax: (312) 580-0923
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 6.1.
6.2 ENTIRE AGREEMENT
This Agreement and the instruments to be delivered by the parties
pursuant to the provisions hereof constitute the entire agreement between the
parties with respect to the subject matter hereof.
6.3 SURVIVAL; NON-WAIVER; LIMITATION OF LIABILITY
All representations and warranties shall survive the date hereof
regardless of any investigation or lack of investigation by any of the parties
hereto and shall expire after a period of two years from the date hereof, except
for the representations and warranties in Section 3.1(a), (b), (f) and 3.2(a)
which shall not expire. The covenants or conditions of this Agreement, to
exercise any right or privilege in this Agreement conferred, or the waiver by
said party of any breach of any of the terms, covenants or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party. A breach of any representation,
warranty or covenant shall not be affected by the fact that a more general or
more specific representation, warranty or covenant was not also breached. TCP's
liability for damages suffered by the Shareholders as a result of a breach of a
representation or warranty contained in Section 3.1 (together with all damages
suffered by TCP and TIS under the Share Purchase Agreement) shall be limited to
$6,000,000. The Shareholders' liability for damages suffered by TCP as a result
of a breach of a representation or warranty contained in Section 3.2 (together
with all damages suffered by TCP and TIS under the Share Purchase Agreement)
shall be limited to the following amounts respectively: Neil - $5,000,000;
Merle - $585,000; Dennis -
<PAGE>
-16-
$1,732,000. Each party's right to claim damages for a breach of
representations and warranties shall also be limited as set forth in Section
4.6(e) in the Share Purchase Agreement.
6.4 COUNTERPARTS
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original, and all such counterparts shall constitute
but one instrument.
6.5 SEVERABILITY
The invalidity of any provision of this Agreement or a portion of a
provision shall not affect the validity of any other provision of this Agreement
or the remaining portion of the applicable provision.
6.6 APPLICABLE LAW
This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects by
the internal laws of Alberta, Canada applicable to contracts made in that
region.
6.7 BINDING EFFECT; BENEFIT
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and their executors, legal representatives, heirs, successors
and permitted assigns. Nothing in this Agreement, express or implied, is
intended to confer on any person other than the parties hereto, and their
respective executors, legal representatives, heirs, successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
6.8 ASSIGNABILITY
This Agreement shall not be assignable by either party without the
prior written consent of the other party, such consent not to be unreasonably
withheld.
6.9 FURTHER ASSURANCES
The parties hereto each covenant with the other to do such things,
execute such documents and carry out such steps as may be required to implement
the terms of this Agreement.
6.10 ENFORCEABILITY
If any court of competent jurisdiction determines that any provision
of this Agreement is invalid or unenforceable, it shall not affect the validity
or enforceability of any other provision hereof and any such invalid or
unenforceable provision shall be deemed to be severable.
<PAGE>
-17-
6.11 HEADINGS
The headings contained in this Agreement are for convenience of
reference only and shall not affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF the parties hereto have executed and delivered this
Agreement effective as of the time and date first written above.
/s/ Neil R. Taylor
- ------------------------------------- -------------------------------------
WITNESS NEIL TAYLOR
/s/ Dennis A. Radage
- ------------------------------------- -------------------------------------
WITNESS DENNIS RADAGE
/s/ Merle Taylor
- ------------------------------------- -------------------------------------
WITNESS MERLE TAYLOR
TAYLOR INDUSTRIAL SOFTWARE INC.
Per: /s/ Nicholas Gihl
--------------------------------
TOTAL CONTROL PRODUCTS, INC.
Per: /s/ Nicholas Gihl
--------------------------------
<PAGE>
AMENDMENT NO. 1 TO
EXCHANGE AGREEMENT
THIS AMENDING AGREEMENT made as of December __, 1996.
AMONG:
NEIL TAYLOR, an individual residing in the City of Calgary
in the Province of Alberta (hereinafter referred to as
"NEIL" and, together with Dennis and Merle, collectively
referred to as the "SHAREHOLDERS")
- and -
DENNIS RADAGE, an individual residing in the City of Calgary
in the Province of Alberta (hereinafter referred to as
"DENNIS" and, together with Neil and Merle collectively
referred to as the "SHAREHOLDERS")
- and -
MERLE TAYLOR, an individual residing in the City of Calgary
in the Province of Alberta (hereinafter referred to as
"MERLE" and, together with Neil and Dennis, collectively
referred to as the "SHAREHOLDERS")
- and -
TAYLOR INDUSTRIAL SOFTWARE INC., a corporation existing
under the laws of the Province of Alberta, (hereinafter
referred to as "TIS")
- and -
TOTAL CONTROL PRODUCTS, INC., a corporation existing under
the laws of the State of Illinois (hereinafter referred to
as "TCP")
WHEREAS the parties entered into an agreement dated September 26, 1996
(the "AGREEMENT");
AND WHEREAS pursuant to articles of amendment of TIS filed pursuant to
the BUSINESS CORPORATIONS ACT (Alberta), TIS created a new class of Exchangeable
Non-Voting Shares of TIS (the "EXCHANGEABLE SHARES") as part of the
reorganization of the capital of TIS (the "REORGANIZATION");
<PAGE>
-2-
AND WHEREAS the Agreement provides, INTER ALIA, for the exchange of
Exchangeable Shares of TIS granted to the Shareholders into Common Shares of TCP
upon the occurrence of certain events, on the terms and conditions set forth in
the Agreement and the share provisions of the Exchangeable Shares;
AND WHEREAS TIS is in the process of filing articles of amendment (the
"Articles of Amendment") which will change each of the issued and outstanding
Exchangeable Shares into three issued and outstanding Exchangeable Shares and
will amend the Exchangeable Share provisions by adjusting the Special Retraction
Price and Special Purchase Price proportionately;
AND WHEREAS it is necessary to amend the Agreement to proportionately
adjust the Per Share Price to adjust for the stock split effected by the
Articles of Amendment;
AND WHEREAS the parties to the Agreement now wish to clarify and amend
certain provisions of the Agreement as set out in this Amending Agreement;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this Amending Agreement, the payment by the Shareholders
of $10.00 to TCP and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Amending Agreement, each term denoted herein by initial
capital letters and not otherwise defined herein shall have the meaning ascribed
thereto in the Agreement, unless the context requires otherwise.
1.2 OTHER DEFINED TERMS
Each term denoted herein by initial capital letters and not otherwise
defined herein shall have the meaning ascribed thereto in the Exchangeable Share
Provisions, unless the context requires otherwise.
1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this agreement into articles, sections and paragraphs
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of this agreement.
References to "Section" followed by a number refer to the
corresponding section of the Agreement.
<PAGE>
-3-
1.4 NUMBER, GENDER, ETC.
Words importing the singular number only shall include the plural and
vice versa. Words importing the use of any gender shall include all genders.
1.5 DATE FOR ANY ACTION
If any date on which any action is required to be taken under this
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
1.6 CURRENCY
All dollar figures contained herein shall be deemed to be references
to United States dollars.
ARTICLE 2
AMENDMENT OF THE AGREEMENT
The Agreement is amended as follows:
2.1 The following paragraph is substituted for Section 1.1(n):
"SHARE PURCHASE AGREEMENT" means the Stock Purchase Agreement made as
of September 19, 1996 among Neil Taylor, Merle Taylor, Dennis Radage,
Cindel Holdings Incorporated, Taylor Industrial Software Inc. and
Total Control Products, Inc.
2.2 The following paragraph is substituted for Section 5.1:
If an Insolvency Event occurs at any time during the Special
Retraction Period, then each Shareholder shall be entitled (such entitlement
referred to herein as the "SALE RIGHT") for a period of ten Business Days
commencing upon the date of such Insolvency Event, to require TCP to purchase
all, but not less than all, of the Exchangeable Shares owned by such Shareholder
for a purchase price per share equal to $7.8215433 (the "PER SHARE PRICE") and
payment of the Per Share Price shall be deferred in accordance with the terms of
the Purchase Note and evidenced by TCP issuing and delivering a Purchase Note to
such holder in the principal amount equal to the Per Share Price multiplied by
the number of Exchangeable Shares owned by such holder. To effect such Sale
Right, the holder shall provide written notice to TCP of his or her intention to
exercise the Sale Right and shall forthwith thereafter deliver to TCP the
certificate or certificates representing all of the Exchangeable Shares which
the holder owns, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the BUSINESS
CORPORATIONS ACT (Alberta) and the by-laws of TIS and such additional documents
and instruments as TCP may reasonably require. For greater certainty, TCP shall
not be required to purchase Exchangeable Shares and issue a Purchase Note to any
particular Shareholder if a Special Retraction Note or Special TCP Note has
already been issued to such Shareholder. In the event that the holder has
<PAGE>
-4-
surrendered to TIS such certificate or certificates pursuant to the exercise of
such holder's Special Retraction Rights and due to an Insolvency Event is unable
to recover such certificate or certificates from TIS even though such holder has
withdrawn his or her Special Retraction Request, then such surrender to TIS
shall be deemed to be delivery to TCP for the purposes of exercise of the Sale
Right herein and TCP shall issue and deliver the Purchase Note to the holder
provided that the holder has withdrawn his or her Special Retraction Request in
accordance with Section 5.7 of the Exchangeable Share Provisions and has not
received a Special Retraction Note from TIS.
ARTICLE 3
MISCELLANEOUS
3.1 ENTIRE AGREEMENT
This Amending Agreement and the instruments to be delivered by the
parties pursuant to the provisions hereof constitute the entire agreement
between the parties with respect to the subject matter hereof.
3.2 COUNTERPARTS
This Amending Agreement may be executed in multiple counterparts, each
of which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument. The Parties shall be entitled to rely upon
execution of this Amending Agreement and any documents contemplated by this
Amending Agreement by facsimile.
3.3 SEVERABILITY
The invalidity of any provision of this Amending Agreement or a
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
3.4 APPLICABLE LAW
This Amending Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of Alberta, Canada applicable to contracts made in
that region.
3.5 BINDING EFFECT; BENEFIT
This Amending Agreement shall inure to the benefit of and be binding
upon the parties hereto, and their executors, legal representatives, heirs,
successors and permitted assigns. Nothing in this Amending Agreement, express
or implied, is intended to confer on any person other than the parties hereto,
and their respective executors, legal representatives, heirs, successors and
permitted assigns any rights, remedies, obligations or liabilities under or by
reason of this Amending Agreement.
<PAGE>
-5-
3.6 FURTHER ASSURANCES
The parties hereto each covenant with the other to do such things,
execute such documents and carry out such steps as may be required to implement
the terms of this Amending Agreement.
3.7 ENFORCEABILITY
If any court of competent jurisdiction determines that any provision
of this Amending Agreement is invalid or unenforceable, it shall not affect the
validity or enforceability of any other provision hereof and any such invalid or
unenforceable provision shall be deemed to be severable.
3.8 HEADINGS
The headings contained in this Amending Agreement are for convenience
of reference only and shall not affect the meaning or interpretation of this
Amending Agreement.
3.9 EFFECTIVE DATE
This Agreement shall become effective at the time and date on which a
Certificate of Amendment is issued by the Alberta Registrar of Corporations
pursuant to the Articles of Amendment as defined in paragraph 4 of the recitals
to this Amending Agreement.
IN WITNESS WHEREOF the parties hereto have executed and delivered this
Amending Agreement as of the time and date first written above.
/s/ Neil R. Taylor
- ------------------------------------- -------------------------------------
WITNESS NEIL TAYLOR
/s/ Dennis Radage
- ------------------------------------- -------------------------------------
WITNESS DENNIS RADAGE
/s/ Merle Taylor
- ------------------------------------- -------------------------------------
WITNESS MERLE TAYLOR
TAYLOR INDUSTRIAL SOFTWARE INC.
Per: /s/ Nicholas Gihl
--------------------------------
TOTAL CONTROL PRODUCTS, INC.
Per: /s/ Nicholas Gihl
--------------------------------
<PAGE>
SUPPORT AGREEMENT
THIS AGREEMENT is made as of September 26th, 1996.
BETWEEN:
TOTAL CONTROL PRODUCTS, INC., a corporation existing under
the laws of the State of Illinois, (hereinafter referred to
as the "Parent")
- and -
TAYLOR INDUSTRIAL SOFTWARE INC., a corporation existing
under the laws of the Province of Alberta, (hereinafter
referred to as the "Corporation")
WHEREAS pursuant to articles of amendment of the Corporation filed
pursuant to the BUSINESS CORPORATIONS ACT (Alberta), the Corporation created a
new class of Exchangeable Non-Voting Shares of the Corporation (the
"Exchangeable Shares"), and thereafter, the Corporation and Parent entered into
an Exchange Agreement (the "Exchange Agreement") with each of the holders of
Class B Common Shares of the Corporation (the "Class B Shares") pursuant to
which such holders exchanged their Class B Shares for Exchangeable Shares and
Parent agreed, among other things, to provide such holders with certain exchange
privileges including the right to exchange each Exchangeable Share directly with
Parent for one share in the common stock of Parent upon an insolvency event
occurring with respect to the Parent or the Corporation (the "Parent Common
Stock") (such articles of amendment and the Exchange Agreement are herein
referred to as the "Reorganization");
AND WHEREAS the above-mentioned articles of amendment set forth the
rights, privileges, restrictions and conditions (collectively the "Exchangeable
Share Provisions") attaching to the Exchangeable Shares;
AND WHEREAS the parties hereto desire to make appropriate provision
and to establish a procedure whereby the Parent will take certain actions and
make certain payments and deliveries necessary to ensure that the Corporation
will be able to make certain payments and to deliver or cause to be delivered
shares of Parent Common Stock or notes of the Corporation in satisfaction of the
obligations of the Corporation under the Exchangeable Share Provisions with
respect to the payment and satisfaction of Purchase Prices and Special Purchase
Prices, all in accordance with the Exchangeable Share Provisions;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
<PAGE>
-2-
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINED TERMS. Each term denoted herein by initial capital letters
and not otherwise defined herein shall have the meaning ascribed thereto in the
Exchangeable Share Provisions, unless the context requires otherwise.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC. The division of this
agreement into articles, sections and paragraphs and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this agreement.
1.3 NUMBER, GENDER, ETC. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
1.4 DATE FOR ANY ACTION. If any date on which any action is required to
be taken under this agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
ARTICLE 2
COVENANTS OF THE PARENT AND THE CORPORATION
2.1 COVENANTS OF PARENT REGARDING EXCHANGEABLE SHARES. So long as any
Exchangeable Shares are outstanding the Parent will take all such actions and do
all such things as are necessary or desirable to enable and permit the
Corporation, in accordance with applicable law, to pay and otherwise perform its
obligations with respect to the satisfaction of the Retraction Price and the
Special Retraction Price, including without limitation all such actions and all
such things as are necessary or desirable to enable and permit the Corporation
to cause to be delivered shares of Parent Common Stock to the holders of
Exchangeable Shares, upon the retraction or redemption of the Exchangeable
Shares or Special Retraction Notes, as applicable, in accordance with the
provisions of Article 4 or Article 5 of the Exchangeable Share Provisions, as
the case may be and, without limiting the generality of the foregoing, (a) if
required by any law, regulation or stock exchange rule, the Parent will cause
the filing of a prospectus and any other steps necessary to qualify distribution
of the shares of Parent Common Stock and (b) the Parent will provide its
unconditional guarantee in support of the obligations of the Corporation
pursuant to the Special Retraction Notes.
2.2 RESERVATION OF SHARES OF PARENT COMMON STOCK. The Parent hereby
represents, warrants and covenants that it has irrevocably reserved for issuance
and will at all times keep available, free from pre-emptive and other rights,
out of its authorized and unissued capital stock such number of shares of Parent
Common Stock (or other shares of securities into which the Parent Common Stock
may be reclassified or changed as contemplated by section 2.5 hereof) (a) as is
equal to the sum of (i) the number of Exchangeable Shares issued and outstanding
from time to time and (ii) the number of Exchangeable Shares issuable upon the
exercise of all rights to acquire Exchangeable Shares outstanding from time to
time and (b) as are now and may hereafter be required
<PAGE>
-3-
to enable and permit the Corporation to meet its obligations hereunder, under
the Exchange Agreement or under the Exchangeable Share Provisions.
2.3 NOTIFICATION OF CERTAIN EVENTS. In order to assist the Parent to
comply with its obligations hereunder, the Corporation will give the Parent
notice of each of the following events at the time set forth below:
(a) immediately, upon receipt by the Corporation of a Retraction Request
or a Special Retraction Request (as defined in the Exchangeable Share
Provisions); and
(b) as soon as practicable upon the issuance by the Corporation of any
Exchangeable Shares or rights to acquire Exchangeable Shares.
2.4 DELIVERY OF SHARES OF PARENT COMMON STOCK. In furtherance of its
obligations under section 2.1 hereof, upon notice of any event which requires
the Corporation to cause to be delivered shares of Parent Common Stock to any
holder of Exchangeable Shares, the Parent shall forthwith issue and deliver the
requisite shares of Parent Common Stock to or to the order of the former holder
of the surrendered Exchangeable Shares, as the Corporation shall direct. All
such shares of Parent Common Stock shall be duly issued as fully paid and non-
assessable and shall be free and clear of any lien, claim, encumbrance, security
interest or adverse claim.
2.5 ECONOMIC EQUIVALENCE.
(a) The Parent will not without the prior approval of the Corporation and
the prior approval of the holders of the Exchangeable Shares given in
accordance with Section 6.2 of the Exchangeable Share Provisions:
(i) issue or distribute shares of Parent Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire shares of Parent Common Stock) to the holders of all or
substantially all of the then outstanding Parent Common Stock by
way of stock dividend or other distribution, other than an issue
of shares of Parent Common Stock (or securities exchangeable for
or convertible into or carrying rights to acquire shares of
Parent Common Stock) to holders of shares of Parent Common Stock
who exercise an option to receive dividends in Parent Common
Stock (or securities exchangeable for or convertible into or
carrying rights to acquire shares of Parent Common Stock) in lieu
of receiving cash dividends; or
(ii) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding shares of Parent
Common Stock entitling them to subscribe for or to purchase
shares of Parent Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of Parent
Common Stock); or
<PAGE>
-4-
(iii) issue or distribute to the holders of all or substantially
all of the then outstanding shares of Parent Common Stock
(A) shares or securities of the Parent of any class other
than Parent Common Stock (other than shares convertible into
or exchangeable for or carrying rights to acquire shares of
Parent Common Stock ), (B) rights, options or warrants other
than those referred to in subsection 2.5(a)(ii) above,
(C) evidences of indebtedness of the Parent or (D) assets of
the Parent other than cash dividends;
unless (i) the Corporation is permitted under applicable law to issue
or distribute the economic equivalent on a per share basis of such
rights, options, securities, shares, evidences of indebtedness or
other assets to holders of the Exchangeable Shares and (ii) (A) the
Corporation shall issue or distribute such rights, options,
securities, shares, evidences of indebtedness or other assets
simultaneously to holders of the Exchangeable Shares or (B) the
Liquidation Amount, Liquidation Call Purchase Price, Purchase Price
and Retraction Price in the Exchangeable Share Provisions and the
purchase price of the Exchangeable Shares under Sections 4.3 and 4.9
of the Exchange Agreement are all equitably adjusted.
(b) The Parent will not without the prior approval of the Corporation and
the prior approval of the holders of the Exchangeable Shares given in
accordance with Section 6.2 of the Exchangeable Share Provisions:
(i) subdivide, redivide or change the then outstanding shares of
Parent Common Stock into a greater number of shares of Parent
Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding
shares of Parent Common Stock into a lesser number of shares of
Parent Common Stock;
unless (i) the Corporation is permitted under applicable law to
simultaneously make the same or an economically equivalent change to,
or in the rights of holders of, the Exchangeable Shares and
(ii) (A) the same or an economically equivalent change is made to, or
in the rights of the holders of, the Exchangeable Shares or (B) the
Liquidation Amount, Liquidation Call Purchase Price, Purchase Price
and Retraction Price in the Exchangeable Share Provisions and the
purchase price of the Exchangeable Shares under Sections 4.3 and 4.9
of the Exchange Agreement are all equitably adjusted;
(c) Parent will not reclassify the shares of Parent Common Stock or effect
an amalgamation, merger or reorganization unless, at least ten
Business Days prior to such amalgamation, merger or reorganization,
the Parent shall deliver written notice of such event to each of the
holders of Exchangeable Shares who shall have the right to exchange
their Exchangeable Shares for shares of Parent Common Stock
immediately prior to such amalgamation, merger or reorganization.
<PAGE>
-5-
(d) The Parent will ensure that the record date for any event referred to
in Section 2.5(a) or 2.5(b) above, or if no record date is applicable
for such event the effective date for any such event, is not less than
five Business Days after the date on which such event is declared or
announced by the Parent (with simultaneous notice thereof to be given
by the Parent to the Corporation).
(e) The Board of Directors of the Corporation shall determine, in good
faith and in its sole discretion (with the assistance of such
reputable and qualified independent financial advisors and/or other
experts as the board may require), economic equivalence for the
purposes of any event referred to in subsection 2.5(a) or 2.5(b) above
and each such determination shall be conclusive and binding on the
Parent. In making each such determination, the following factors
shall, without excluding other factors determined by the board to be
relevant, be considered by the Board of Directors of the Corporation:
(i) in the case of any stock dividend or other distribution
payable in shares of Parent Common Stock, the number of
such shares issued in proportion to the number of shares of
Parent Common Stock previously outstanding;
(ii) in the case of the issuance of distribution of any rights,
options or warrants to subscribe for or purchase shares of
Parent Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of
Parent Common Stock), the relationship between the exercise
price of each such right, option or warrant and the current
market value (as determined by the Board of Directors of the
Corporation in the manner above contemplated) of a share of
Parent Common Stock;
(iii) in the case of the issuance or distribution of any other
form of property (including without limitation any shares or
securities of the Parent of any class other than Parent
Common Stock, any rights, options or warrants other than
those referred to in subsection 2.5(d)(ii) above, any
evidences of indebtedness of the Parent or any assets of the
Parent), the relationship between the fair market value (as
determined by the Board of Directors of the Corporation in
the manner above contemplated) of such property to be issued
or distributed with respect to each outstanding share of
Parent Common Stock and the current market value (as
determined by the Board of Directors of the Corporation in
the manner above contemplated) of a shares of Parent Common
Stock;
(iv) in the case of any subdivision, redivision or change of the
then outstanding shares of Parent Common Stock into a
greater number of shares of Parent Common Stock or the
reduction, combination or consolidation or change of the
then outstanding shares of Parent Common Stock into a lesser
number of shares of Parent Common Stock, the effect thereof
upon the then outstanding shares of Parent Common Stock; and
<PAGE>
-6-
(v) in all such cases, the general taxation consequences of the
relevant event to holders of Exchangeable Shares to the extent
that such consequences may differ from the taxation consequences
to holders of shares of Parent Common Stock as a result of
differences between taxation laws of Canada and the United States
(except for any differing consequences arising as a result of
differing marginal taxation rates and without regard to the
individual circumstances of holders of Exchangeable Shares).
2.6 TENDER OFFERS, ETC. In the event that a tender offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect to Parent
Common Stock (and "Offer") is proposed by the Parent or is proposed to the
Parent or its shareholders and is recommended by the Board of Directors of the
Parent, or is otherwise effected or to be, effected with the consent or approval
of the Board of Directors of the Parent, the Parent will use commercially
reasonable efforts in good faith to take all such actions and do all such things
as are necessary or desirable to enable and permit holders of Exchangeable
Shares to participate in such Offer to the same extent and on an economically
equivalent basis as the holders of shares of Parent Common Stock, without
discrimination. Without limiting the generality of the foregoing, the Parent
will use commercially reasonable efforts expeditiously and in good faith to
ensure that holders of Exchangeable Shares may participate in all such Offers
without being required to retract Exchangeable Shares as against the Corporation
(or, if so required, to ensure that any such retraction shall be effective only
upon, and shall be conditional upon, the closing of the Offer and only to the
extent necessary to tender or deposit to the Offer).
ARTICLE 3
GENERAL
3.1 TERM. This agreement shall come into force and be effective as of the
date hereof and shall terminate and be of no further force and effect at such
time as no Exchangeable Shares (or securities or rights convertible into or
exchangeable for or carrying rights to acquires Exchangeable Shares) are held by
any party other than the Parent.
3.2 CHANGES IN CAPITAL OF PARENT AND THE CORPORATION. Notwithstanding the
provisions of Section 3.4 hereof, at all times after the occurrence of any event
effected pursuant to Section 2.5 or 2.6 hereof, as a result of which either the
Parent Common Stock or the Exchangeable Shares or both in any way changed, this
agreement shall forthwith be amended and modified as necessary in order that it
shall apply with full force and effect, mutatis mutandis, to all new securities
into which the Parent Common Stock or the Exchangeable Shares or both are so
changed and the parties hereto shall execute and deliver an agreement in writing
giving effect to and evidencing such necessary amendments and modifications.
3.3 SEVERABILITY. If any provision of this agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this agreement shall not in any way be affected or impaired
thereby and this agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions.
<PAGE>
-7-
3.4 AMENDMENTS, MODIFICATIONS, ETC. This agreement may not be amended or
modified except by an agreement in writing executed by the Corporation and the
Parent and approved by the holders of the Exchangeable Shares in accordance with
Section 6.2 of the Exchangeable Shares Provisions.
3.5 PERMITTED AMENDMENTS. Notwithstanding the provisions of Section 3.4,
the parties to this agreement may in writing, at any time and from time to time,
without the approval of the holders of the Exchangeable Shares, amend or modify
this agreement for the purposes of:
(a) adding to the covenants of either or both parties for the protection
of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the Board of Directors of each of
the Corporation and the Parent, it may be expedient to make, provided
that each such board of directors shall be of the opinion that such
amendments or modifications will not be prejudicial to the interests
of the holders of the Exchangeable Shares; or
(c) making such changes or corrections with, on the advise of counsel to
the Corporation and the Parent, are required for the purpose of curing
or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake of manifest error.
3.6 MEETING TO CONSIDER AMENDMENTS. The Corporation, at the request of
the Parent, shall call a meeting or meetings of the holders of the Exchangeable
Shares for the purpose of considering any proposed amendment or modification
requiring approval pursuant to Section 3.4 hereof. Any such meeting or meetings
shall be called and held in accordance with the by-laws of the Corporation, the
Exchangeable Shares Provisions and all applicable laws.
3.7 AMENDMENTS ONLY IN WRITING. No amendment to or modification or waiver
of any of the provisions of this agreement otherwise permitted hereunder shall
be effective unless made in writing and signed by both of the parties hereto.
3.8 INUREMENT. This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
3.9 NOTICES TO PARTIES. All notices and other communications between the
parties shall be in writing and shall be deemed to have been given if delivered
personally or by confirmed telecopy to the parties at the following addresses
(or at such other address for either such party as shall be specified in like
notice):
<PAGE>
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(a) if to the Parent at: Total Control Products, Inc.
2001 North Janice Avenue
Melrose Park, Illinois
60160
Attention: Nicholas Gihl, President
Telecopy: (708) 345-5670
(b) if to the Corporation at: Taylor Industrial Software Inc.
1002, 10045-111 Street
Edmonton, Alberta
T5K 2M5
Attention: President
Telecopy: (403) 420-2049
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
3.10 COUNTERPARTS. This agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
3.11 APPLICABLE LAW. This agreement shall be construed and enforced in
accordance with the laws of the Province of Alberta and the laws of Canada
applicable therein.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be duly executed as of the date first above written.
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
------------------------------------
---------------------------------------
TAYLOR INDUSTRIAL SOFTWARE INC.
By: /s/ Nicholas Gihl
------------------------------------
---------------------------------------
<PAGE>
PROMISSORY NOTE
$2,000,000.00 September 20, 1996
Worthington, Ohio
FOR VALUE RECEIVED, Total Control Products ("Maker), an Illinois
corporation having its principal place of business at 2001 North Janice Avenue,
Melrose Park, Illinois 60160, promises to pay on or before the earlier of (i)
September 20, 1999, or (ii) ten (10) days after the closing of an initial public
offering of any class of capital stock of Maker (a "Public Offering") to the
order of A. B. Siemer ("Payee"), an individual residing at 2 Bottomly Crescent,
New Albany, Ohio 43054, or his successors or assigns, the principal sum of Two
Million Dollars ($2,000,000.00), together with interest from the date hereof on
the unpaid principal balance of this Note from time to time outstanding, as
follows:
(A) Interest shall accrue on the unpaid principal balance at a rate
per annum equal to thirteen percent (13%) and shall be computed on the basis of
a 365-day year for the actual number of days the unpaid principal amount hereof
is outstanding. Said interest is payable in arrears. The first payment of
interest shall be due and payable an December 20, 1996. Thereafter, interest
shall be due and payable on the 20th day of January, 1997 and continuing on the
20th day of each calendar month thereafter until this Note has been paid in
full.
(B) In addition to the interest provided for in (A) above, Maker
shall issue to Payee (or to his successors or assigns) on the earlier of (i)
September 20, 1997, or (ii) ten (10) days after the closing of a Public
Offering, as additional consideration for making the loan provided for in this
Note, a total of 9,333 fully paid and nonassessable
<PAGE>
shares of common stock of Maker (said number of shares being subject to
adjustment for any stock split, reverse stock split, stock dividend,
subdivision, reclassification, combination, exchange, merger,
recapitalization or other similar transaction of Maker occurring on or after
the date hereof (such events being hereinafter called "Adjustment Events")).
Said shares shall be issued to Payee even if the Note is repaid on or before
the scheduled date for issuance of the shares.
(C) In the event that any part of the outstanding principal balance
of this Note remains unpaid on September 20, 1997, Maker shall pay to Payee
(or to his successors or assigns), in addition to interest at the rate of 13%
per annum and the issuance of 9,333 shares as provided for above, an
additional amount of interest (the "Additional Interest") at the rate of
seven percent (7%) per annum on the unpaid principal balance of this Note
which shall begin to accrue on September 20, 1997 and shall be computed on
the basis of a 365-day year for the actual number of days the unpaid
principal is outstanding. The Additional Interest shall be paid in arrears
and shall be paid in fully paid and nonassessable shares of common stock of
Maker valued at $15.00 per share (such number of shares and such value being
subject to adjustment for Adjustment Events). For example, if the additional
7% interest is $140,000, Maker shall pay Payee an additional 9,333 ($140,000
DIVIDED BY $15.00) shares as such Additional Interest payment. Such
Additional Interest shall be due and payable on the 20th day of September of
1998 and 1999.
At the time of any issuance of common stock of Maker hereunder,
Maker shall deliver to Payee (or to his successors or assigns) a certificate
or certificates representing the number of shares of Maker's common stock so
issued.
-2-
<PAGE>
All payments received under the terms of this Note will be applied by
Payee first to any sums due under this Note other than principal or interest,
second to interest due and payable and third to principal due and payable under
this Note.
Principal, interest (other than the stock issuances provided for
above) and other sums payable in accordance with this Note shall be payable
in lawful money of the United States of America to Payee at Desco
Corporation, 150 Campus View Boulevard, East, Worthington, Ohio 43085, or
such other address of which Payee may from time to time give written notice
to Maker.
As a specifically bargained for inducement for Payee to make the loan
to Maker evidenced by this Note, Maker agrees that it will not incur any
indebtedness for borrowed money, other than (i) indebtedness for borrowed money
under credit facilities in effect an the date hereof and (ii) indebtedness for
borrowed money to fund working capital requirements up to an aggregate amount of
$2,000,000 (in addition to the permitted indebtedness described in clause (i)),
without Payee's consent.
At the option of Payee, the entire unpaid principal balance of this
Note, together with all accrued interest and other sums payable in accordance
with this Note (including all common stock of Maker issuable hereunder),
shall become immediately due and payable (and issuable), without notice or
demand (which Maker hereby expressly waives), upon the occurrence of any of
the following events ("Events of Default"), whether or not within the control
of Maker: (a) Maker fails to pay any installment of principal, interest or
any other sum payable in accordance with this Note within five (5) calendar
days after it is due; (b) Maker fails to issue any common stock issuable in
accordance with this Note when issuable or breaches any other non-
-3-
<PAGE>
monetary obligation of Maker pursuant to this Note and such failure or breach
continues for a period of ten (10) days after receipt of written notice from
Payee of such breach or failure; (c) American National Bank and Trust Company of
Chicago ("Bank") notifies Payee in writing that Maker (i) has breached, violated
or not performed any of its covenants under the loan agreement between Maker and
Bank or (ii) is otherwise in default pursuant to or in connection with Maker's
indebtedness to Bank or the loan agreement between Maker and Bank; (d) Maker
becomes insolvent or a receiver or custodian, as that term is defined under The
Bankruptcy Code of 1978, as amended. Title 11, U.S.C. (the "Bankruptcy Code),
of any of Maker's property is appointed or exists; (e) Maker makes any
assignment for the benefit of creditors or any petition initiating any case is
filed by or against Maker under any applicable chapter of the Bankruptcy Code
and, if such case is filed against Maker, such case is not dismissed within 60
days after Maker's receipt of notice of such case; or (f) Maker dissolves or
liquidates, or suspends or terminates its business activities.
Upon the occurrence of any Event of Default, Maker will pay to Payee
all attorneys' fees, court costs and expenses incurred by Payee in connection
with Payee's efforts to collect the indebtedness evidenced hereby and otherwise
to enforce this Note, and Payee may exercise from time to time any of the rights
and remedies available to Payee under this Note and applicable law.
No delay or failure on the part of Payee to exercise any of his rights
hereunder shall be deemed a waiver of such rights or of any other rights of
Payee, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or a waiver of such rights or any other right on any future occasion.
-4-
<PAGE>
Maker and all other persons now or hereafter liable, primarily or
secondarily, for the payment of the indebtedness evidenced hereby or any part
thereof waive presentment for payment, demand, notice of dishonor, protest and
notice of protest, and all notices of every kind and assent to all extension(s)
or postponement(s) of the time of payment or any other indulgences by Payee to
any substitutions, exchanges or releases of any security for this Note, and to
additions or releases of any other parties or persons primarily or secondarily
liable hereon.
Upon any transfer of this Note by Payee or by any subsequent
transferee, the transferee shall thereupon become vested with all rights,
benefits and privileges of Payee under this Note, and the term "Payee" shall
mean such subsequent transferee or transferee(s).
This Note and all rights and obligations under this Note shall be
governed by and construed under the local laws of the State of Ohio. If any
provision hereof is or becomes invalid or unenforceable under any law of
mandatory application, it is the intent of Maker, Payee and all parties
primarily or secondarily liable hereunder that
-5-
<PAGE>
such provision will be deemed severed and omitted herefrom, the remaining
portions hereto to remain in full force and effect as written.
IN WITNESS WHEREOF, the undersigned has delivered this Note on
the day and year first above written at Worthington, Ohio.
TOTAL CONTROL PRODUCTS
By: /s/ Nicholas Gihl
-------------------------------
Nicholas Gihl
Its President
-6-
<PAGE>
MERGER AGREEMENT
THIS MERGER AGREEMENT is made as of January 29, 1996 by and among Tara
Products, Inc. ("Merger Sub"), an Illinois corporation and the wholly-owned
subsidiary of Total Control Products, Inc., an Illinois corporation ("Parent"),
Parent, Cincinnati/Dynacomp, Inc., an Ohio corporation (the "Company"), and each
of the stockholders (collectively, "Sellers" and individually, a "Seller") of
the Company, who are listed on EXHIBIT A attached hereto.
WHEREAS, the Board of Directors of each of Parent and the Company have
determined that a business combination between Merger Sub and the Company is in
the best interests of their respective companies and stockholders, and
accordingly have agreed to effect the merger provided for herein upon the terms
set forth herein; and
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.3 of this
Agreement), the Company shall be merged with and into Merger Sub in accordance
with the laws of the States of Ohio and Illinois and the terms of this Agreement
(the "Merger"), whereupon the separate corporate existence of the Company shall
cease, and Merger Sub shall be the surviving corporation of the Merger
(sometimes referred to herein as the "Surviving Corporation").
1.2. CLOSING. The closing of the Merger (the "Closing") shall take place
at the offices of Taft Stettiniuos & Hollister, 425 Walnut, Cincinnati, Ohio at
10:00 a.m. on the date hereof. At the Closing, the Sellers shall deliver to
Merger Sub certificates evidencing all outstanding shares of common stock, $0.01
par value per share, of the Company for exchange into the consideration
described below (together with all rights then or thereafter attaching thereto)
duly endorsed in blank, or accompanied by valid stock powers duly executed in
blank, in proper form for transfer. The consideration to be paid to the
stockholders of the Company who do not deliver their respective stock
certificates to Parent at Closing shall be held in escrow by Parent until such
time as such certificates, duly endorsed in blank, or accompanied by valid stock
powers duly executed in blank, in proper form for transfer, are delivered to
Parent after Closing. The Company and each of John Sheridan ("Sheridan"), Dave
Flemming, Vern Dahl and Dennis Kehoe shall also enter into employment agreements
in the form attached hereto as EXHIBITS B, C, D, AND E, respectively (the
"Employment Agreements"). The parties shall also deliver such other documents
(including merger certificates, incumbency certificates, good standing
certificates, lien searches and resignations) as are reasonably required or
requested in order to effectuate the consummation of the transaction
contemplated hereby. All documents to be delivered by a party shall be in form
and substance reasonably satisfactory to the other party and its counsel.
<PAGE>
1.3. EFFECTIVE TIME. The parties hereto shall cause certificates of merger
to be properly executed and filed in accordance with the laws of the States of
Ohio and Illinois and the terms of this Agreement as soon as practicable after
the Closing. The parties hereto shall also take such further actions as may be
required under the laws of the States of Ohio and Illinois in connection with
the consummation of the Merger. The Merger shall become effective at such time
as the certificates of merger are duly filed with the Secretary of State of the
States of Ohio and Illinois or at such later time as is specified in the
certificates of merger (the "Effective Time"). From and after the Effective
Time, the Surviving Corporation shall possess all the rights, privileges, powers
and franchises and be subject to all of the restrictions, disabilities and
duties of the Company and Merger Sub, all as provided under applicable law.
1.4. CONVERSION OF SHARES.
(a) At the Effective Time: (i) each share of Common Stock, no par value
per share, of Merger Sub outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one share of Common Stock, no par
value per share, of the Surviving Corporation; and (ii) each share of Common
Stock, par value $0.01 per share (the "Company Stock"), of the Company
outstanding immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, shall be converted into
the right to receive $195.58 in cash; provided, however, that in connection with
the Merger, Sheridan shall receive 50,001 shares of common stock, no par value
per share, of Parent ("Parent Stock") and $35,683.62 in cash in exchange for his
shares of Company Stock.
(b) As a result of the Merger and without any action of the part of the
holder thereof, at the Effective Time, all shares of Company Stock shall cease
to be outstanding and shall be canceled and retired and shall cease to exist,
and each holder of shares of Company Stock shall thereafter cease to have any
rights with respect to such shares of Company Stock, except for the right to
receive, without interest, the consideration set forth in this Section 1.4 and
Section 1.5. Each share of Company Stock held by the Company as treasury stock
shall be canceled, and no payment shall be made with respect thereto.
1.5. ADDITIONAL PAYOUT.
(a) DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings: (i) "Actual Sales" means the actual sales by
the Surviving Corporation of Products (net of returns, allowances and discounts)
during calendar years 1996 and 1997, as determined from the Surviving
Corporation's internal accounting records; (ii) "Base Sales" means the target
net sales of Products by the Surviving Corporation during calendar years 1996
and 1997 as set forth on EXHIBIT F attached hereto; and (iii)"Products" means
the products set forth on EXHIBIT G attached hereto.
(b) CONTINGENT CONSIDERATION. During calendar years 1996 and 1997, (i)
for the first one million dollars ($1,000,000) by which Actual Sales during each
such calendar year exceeds Base Sales for each such calendar year, the Surviving
Corporation shall pay Sellers an aggregate
2
<PAGE>
amount equal to ten percent (10%) of such excess; and (ii) to the extent that
Actual Sales during each such calendar year exceeds the sum of Base Sales for
each such calendar year plus $1,000,000, the Surviving Corporation shall pay
Sellers an aggregate amount equal to four percent (4%) of such excess
(collectively, the "Contingent Consideration").
(c) PAYMENT OF CONTINGENT CONSIDERATION. As soon as practicable after the
close of the Surviving Corporation's books for calendar years 1996 and 1997, but
in any event, no later than 90 days after the end of each such calendar year,
the Surviving Corporation will determine the final aggregate amount of the
Contingent Consideration, if any, for such preceding calendar year based upon
the Surviving Corporation's internal accounting records, and shall notify
Sellers in writing of the amount of Contingent Consideration, if any (the
"Contingent Notice"). Sellers may, within forty-five (45) days after receipt of
the Contingent Notice, deliver to the Surviving Corporation written notice (the
"Dispute Notice") identifying any dispute that Sellers may have with respect to
the amount set forth in the Contingent Notice. If a Dispute Notice is not
delivered by Sellers to the Company within such forty-five day period, the
amount of the Contingent Consideration, if any, set forth in the Contingent
Notice shall be final and binding on the parties hereto. Within fifteen (15)
days following the Surviving Corporation's receipt of a Dispute Notice, the
Surviving Corporation and Sellers shall in good faith attempt to agree upon the
Contingent Consideration, if any, for such calendar year. If the Surviving
Corporation and Sellers cannot agree to the amount of the Contingent
Consideration, if any, for such calendar year, they shall jointly submit their
dispute to the Cincinnati, Ohio office of Coopers & Lybrand (the "Arbiter") for
final determination, whose determination shall be made within ninety (90) days
of the date the dispute is submitted to the Arbiter. The fees and expenses of
the Arbiter shall be shared equally between the Surviving Corporation and
Sellers. The Arbiter's determination as to the amount of Contingent
Consideration for such calendar year shall be final and binding on the parties
hereto. The Contingent Consideration awarded to Sellers in respect of any
particular calendar year shall be paid to Sellers within fifteen days of the
final determination of the Contingent Consideration, if any, without interest.
Each Seller shall be entitled to receive a pro rata portion of the aggregate
amount of Contingent Consideration payable to Sellers based upon each Seller's
pro rata ownership interest in the Company as set forth on EXHIBIT A attached
hereto. In connection with the determination of the Contingent Consideration,
Parent and the Surviving Corporation shall give Sellers and the Arbiter, as
applicable, reasonable access to the portion of its books and records which are
relevant to the calculation of the Contingent Consideration during normal
business hours upon reasonable advance notice.
(d) PAYMENT OF CONTINGENT CONSIDERATION TO SHERIDAN. Notwithstanding
anything to the contrary contained in this Section 1.5, as Contingent
Consideration for calendar years 1996 and 1997, Sheridan shall receive a number
of shares of Parent Stock equal to the following fraction (rounded to the
nearest whole share): the Contingent Consideration Sheridan is entitled to
receive with respect to such calendar year divided by the Fair Market Value of
each share of Parent Stock (as determined pursuant to the terms of Section 4.8
hereof).
3
<PAGE>
ARTICLE 2
CERTAIN MATTERS RELATING TO THE SURVIVING CORPORATION
2.1. CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
certificate of incorporation of Merger Sub in effect immediately prior to the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable law.
2.2. BY-LAWS OF THE SURVIVING CORPORATION. The By-Laws of Merger Sub in
effect immediately prior to the Effective Time shall be the By-Laws of the
Surviving Corporation until amended in accordance with applicable law.
2.3. DIRECTORS OF THE SURVIVING CORPORATION. The directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, to hold office until their successors are duly
appointed or elected in accordance with applicable law.
2.4. OFFICERS OF THE SURVIVING CORPORATION. The officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, to hold office until their successors are duly
appointed or elected in accordance with applicable law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Each of
Parent and Merger Sub represent and warrant to Sellers as follows:
(a) ORGANIZATION. Parent and Merger Sub are each corporations duly
organized, existing and in good standing, under the laws of the State of
Illinois. To the best of Parent's and Merger Sub's knowledge, Each of Parent
and Merger Sub have full corporate power and authority to carry on their
respective businesses as such businesses are now being conducted.
(b) POWER, AUTHORITY AND ENFORCEABILITY. Each of Parent and Merger Sub
has full corporate power and authority to enter into and perform this Agreement
and all agreements to be executed and delivered by Parent and/or Merger Sub at
the Closing in connection herewith, including, without limitation, the
Employment Agreements (collectively, "Parent's Ancillary Documents"). The
execution and delivery by each of Parent and/or Merger Sub of this Agreement and
Parent's Ancillary Documents and the performance by each of Parent and Merger
Sub of their respective obligations hereunder and thereunder have been duly
authorized and approved by all requisite corporate action. This Agreement is,
and when executed and delivered, Parent's Ancillary Documents will be, the
binding obligation of Parent and Merger Sub, as the case may be, enforceable
against Parent and Merger Sub, as the case may be, in accordance with
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their respective terms. This Agreement has been, and when executed and
delivered, Parent's Ancillary Documents will be, duly executed and delivered
by a duly authorized officer of Parent and/or Merger Sub, as the case may be.
(c) CONSENTS. To the best of Parent's and Merger Sub's knowledge, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body of the United States
or any state or political subdivision thereof is required for or in connection
with the consummation by Parent or Merger Sub of the transaction contemplated by
this Agreement or by Parent's Ancillary Documents.
(d) NO VIOLATION. To the best of Parent's and Merger Sub's knowledge,
neither the execution and delivery of this Agreement or Parent's Ancillary
Documents by Parent or Merger Sub, nor the consummation by Parent or Merger Sub
of the transaction contemplated hereby or thereby, will conflict with or result
in a breach of any of the terms, conditions or provisions of Parent's or Merger
Sub's Articles of Incorporation or by-laws, or of any statute or administrative
regulation, or of any order, writ, injunction, judgment or decree of any court
or governmental authority or of any arbitration award or agreement binding on
Parent or Merger Sub.
(e) NO DEFAULT. To the best of Parent's and Merger Sub's knowledge,
neither Parent nor Merger Sub is a party to any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage, debenture,
note or other instrument under the terms of which performance by Parent or
Merger Sub according to the terms of this Agreement will be a default or an
event of acceleration, or grounds for termination, or whereby timely performance
by Parent or Merger Sub according to the terms of this Agreement may be
prohibited, prevented or delayed.
(f) CAPITAL STOCK OF PARENT. The authorized capital stock of Parent
consists of a single class of 7,500,000 shares of common stock, no par value,
of which 1,540,692 shares of Parent Stock are issued and outstanding. There
are no shares of capital stock of Parent of any other class authorized,
issued or outstanding. All of the issued and outstanding shares of Parent
Stock have been validly issued, are fully paid and nonassessable. Except for
a convertible debenture held by F. Quinn Stephan and certain options issued
to certain employees of Parent under Parent's 1993 Incentive Stock Option
Plan, there are no subscriptions, options or warrants outstanding to
subscribe or purchase Parent Stock.
(g) FINANCIAL STATEMENTS. Complete and accurate copies of the audited
balance sheets, statements of income, retained earnings, cash flows and notes to
financial statements (together with any supplementary information thereto) of
Parent as of and for the year ended March 31, 1995 have been previously
delivered to the Company and Sellers or made available for each of their review.
The financial statements described in the preceding sentence are hereinafter
referred to as the "Parent Financial Statements". The Disclosure Schedule also
contains complete and accurate copies of the unaudited balance sheet and
statements of income, retained earnings and cash flows of Parent as of and for
the nine month period ended December 31, 1995. The financial statements
described in the preceding sentence are referred to herein as the "Parent
Interim Financial Statements". To the best of Parent's and Merger Sub's
knowledge, the Parent Financial
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Statements and the Parent Interim Financial Statements present accurately and
completely, in all material respects, the financial position of Parent as of
the dates thereof and the results of operations and cash flows of Parent for
the periods covered by said statements, all in accordance with GAAP
consistently applied, except that the Parent Interim Financial Statements
omit footnote disclosures and do not reflect normal year end adjustments.
(h) LIABILITIES. To the best of Parent's and Merger Sub's knowledge,
neither Parent nor Merger Sub have any obligation or liability of any nature
whatsoever (direct or indirect, matured or unmatured, absolute, accrued,
contingent or otherwise), whether or not required by GAAP to be provided or
reserved against on a balance sheet (all the foregoing herein collectively being
referred to as the "Liabilities") except for: (i) Liabilities provided for or
reserved against in the Parent Financial Statements or the Parent Interim
Financial Statements; (ii) Liabilities which have been incurred by Parent or
Merger Sub subsequent to December 31, 1995 in the ordinary course of Parent's or
Merger Sub's business and consistent with past practice; (iii) Liabilities under
the executory portion of any written purchase order, sales order, lease,
agreement or commitment of any kind by which Parent or Merger Sub is bound and
which was entered into in the ordinary course of Parent's or Merger Sub's
respective businesses and consistent with past practices; (iv) Liabilities under
the executory portion of Permits (as herein defined), Environmental Permits (as
herein defined), licenses and governmental directives and agreements issued to,
or entered into by, Parent or Merger Sub in the ordinary course of business; and
(v) Liabilities resulting from industry or economic trends generally. To the
best of Parent's and Merger Sub's knowledge, none of the Liabilities described
in subparagraphs (i) through (v) of this paragraph (h) relates to or has arisen
out of a breach of contract, breach of warranty, tort or infringement by or
against Parent or Merger Sub or any claim or lawsuit involving Parent or Merger
Sub.
(i) PARENT COMMON STOCK. The issuance and delivery by Parent of shares of
Parent Stock in connection with the Merger and this Agreement have been duly and
validly authorized by all necessary corporate action on the part of Parent. The
shares of Parent Stock to be issued in connection with the Merger and this
Agreement, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable.
(j) BROKERAGE FEES. Other than the fee to be paid by Parent to Mike
Blitzer & Associates in connection with the transaction contemplated by this
Agreement, to the best of Parent's and Merger Sub's knowledge, neither Parent,
Merger Sub, nor any of their respective Affiliates (as defined below) has dealt
with any person or entity who is or may be entitled to a broker's commission,
finder's fee, investment banker's fee or similar payment for arranging the
transaction contemplated hereby or introducing the parties to each other. As
used herein, an "Affiliate" is any person or entity which controls a party to
this Agreement, which that party controls, or which is under common control with
that party. For purposes of the preceding sentence, the term "Control" means
the power, direct or indirect, to direct or cause the direction of the
management and policies of a person or entity through voting securities,
contract or otherwise.
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3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS. The
Company and each Seller represent and warrant to Parent and Merger Sub that,
except as set forth in the schedule delivered by the Company to Parent and
Merger Sub concurrently herewith and identified as the "Disclosure Schedule":
(a) ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio. To the best
knowledge of the Company and each Seller, the Company has full corporate power
and authority to carry on its business as such business is now being conducted.
(b) FOREIGN QUALIFICATION. To the best knowledge of the Company and each
Seller, the Company has qualified as a foreign corporation, and is in good
standing, under the laws of all jurisdictions which require such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business operations of the Company. To the best knowledge of the Company
and each Seller, all jurisdictions in which the Company is qualified as a
foreign corporation are set forth in Section 2.2(b) of the Disclosure Schedule.
(c) POWER, AUTHORITY AND ENFORCEABILITY OF COMPANY. The Company has full
power and authority to enter into and perform this Agreement and all agreements
executed and delivered by the Company at the Closing in connection herewith
("Company's Ancillary Documents"). The execution and delivery by the Company of
this Agreement and Company's Ancillary Documents and the performance by the
Company of its obligations hereunder and thereunder have been duly authorized
and approved by the Board of Directors of the Company and unanimously by the
stockholders of the Company (other than by Ron Smith). The Agreement is, and
when executed and delivered, Company's Ancillary Documents will be, the binding
obligations of the Company enforceable against the Company in accordance with
their respective terms. This Agreement has been, and when executed and
delivered, Company's Ancillary Documents will be duly executed and delivered by
a duly authorized officer of the Company.
(d) POWER, AUTHORITY AND ENFORCEABILITY OF SELLERS. Each Seller has full
power and authority to enter into and perform this Agreement and all agreements
executed and delivered by such Seller at the Closing in connection herewith,
including, without limitation, the Employment Agreements ("Sellers' Ancillary
Documents"). The Agreement is, and when executed and delivered, Sellers'
Ancillary Documents will be, the binding obligation of each Seller, as
appropriate, enforceable against such Seller, as appropriate, in accordance with
their respective terms.
(e) NO CONSENT OF COMPANY. To the best knowledge of the Company, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body of the United States
or any state or political subdivision thereof is required for or in connection
with the consummation by the Company of the transaction contemplated by this
Agreement or by Company's Ancillary Documents.
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(f) NO CONSENT OF SELLERS. To the best knowledge of each Seller, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body of the United States
or any state or political subdivision thereof is required for or in connection
with the consummation by any Seller of the transaction contemplated by this
Agreement or by Sellers' Ancillary Documents.
(g) NO VIOLATION OF THE COMPANY. To the best knowledge of the Company,
neither the execution and delivery of this Agreement or Company's Ancillary
Documents by the Company, nor the consummation by the Company of the transaction
contemplated hereby or thereby, will conflict with or result in a breach of any
of the terms, conditions or provisions of the Company's Articles of
Incorporation or by-laws, or of any statute or administrative regulation, or of
any order, writ, injunction, judgment or decree of any court or governmental
authority or of any arbitration award to which the Company is a party or by
which the Company is bound.
(h) NO VIOLATION BY SELLERS. To the best knowledge of each Seller,
neither the execution and delivery of this Agreement or Sellers' Ancillary
Documents by Sellers, nor the consummation by Sellers of the transaction
contemplated hereby or thereby, will conflict with or result in a breach of any
of the terms, conditions or provisions of any statute or administrative
regulation, or of any order, writ, injunction, judgment or decree of any court
or governmental authority or of any arbitration award to which any Seller is a
party or by which any Seller is bound.
(i) ORGANIZATIONAL DOCUMENTS. To the best knowledge of the Company and
each Seller, true and complete copies of the Articles of Incorporation and all
amendments thereto, the by-laws as amended and currently in force, all stock
records, and all corporate minute books and records of the Company, have been
furnished for inspection to Parent. Said stock records accurately reflect the
current stock ownership of the Company. To the best knowledge of the Company
and each Seller, the corporate minute books and records of the Company contain
true and complete copies of all resolutions adopted by the stockholders or the
board of directors of the Company and any other action formally taken by them
respectively as such.
(j) CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of (a) 20,000 shares of Class A Common Stock, no par value per
share, of which 5,113 shares of are issued and outstanding; and (b) 5,000 shares
of Class B Preferred Stock, no par value per share, of which no shares of are
issued and outstanding. There are no shares of capital stock of the Company of
any other class authorized, issued or outstanding. All of the issued and
outstanding shares of Company Stock are owned beneficially and of record by
Sellers. All of the issued and outstanding shares of Company Stock have been
validly issued, are fully paid and nonassessable. There are no outstanding
subscriptions, options, warrants, rights (including preemptive rights), calls,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company to issue any securities of any kind.
(k) OWNERSHIP OF CAPITAL The Sellers own the numbers of shares of Company
Stock set forth opposite their respective names on EXHIBIT A, free and clear of
all options, proxies, voting
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trusts, voting agreements, judgements, pledges, charges, escrows, rights of
first refusal or first offer, mortgages, indentures, claims, transfer
restrictions, liens, equities, encumbrances, security interest and other
encumbrances of every kind and nature whatsoever ("Claims").
(l) BOOKS AND RECORDS. To the best knowledge of the Company and each
Seller, the Company's books, accounts and records are, and have been, maintained
in the Company's usual, regular and ordinary manner and all transactions to
which the Company is or has been a party are properly reflected therein.
(m) FINANCIAL STATEMENTS. The Disclosure Schedule contains complete and
accurate copies of the audited balance sheets, statements of income, retained
earnings, cash flows and notes to financial statements (together with any
supplementary information thereto) of the Company as of and for the years ended
March 31, 1994 and 1995. The financial statements described in the preceding
sentence are hereinafter referred to as the "Financial Statements". The
Disclosure Schedule also contains complete and accurate copies of the unaudited
balance sheet and statements of income, retained earnings and cash flows of the
Company as of and for the eight month period ended November 30, 1995. The
financial statements described in the preceding sentence are referred to herein
as the "Interim Financial Statements". To the best knowledge of the Company and
each Seller, the Financial Statements and the Interim Financial Statements
present accurately and completely the financial position of the Company as of
the dates thereof and the results of operations and cash flows of the Company
for the periods covered by said statements. To the best knowledge of the
Company and each Seller, the Financial Statements have been prepared in
accordance with GAAP consistently applied.
(n) LIABILITIES. To the best knowledge of the Company and each Seller,
the Company has no obligation or liability of any nature whatsoever (direct or
indirect, matured or unmatured, absolute, accrued, contingent or otherwise),
whether or not required by GAAP to be provided or reserved against on a balance
sheet (all the foregoing herein collectively being referred to as the
"Liabilities") except for: (i) Liabilities provided for or reserved against in
the Financial Statements or the Interim Financial Statements; (ii) Liabilities
which have been incurred by the Company subsequent to November 30, 1995 in the
ordinary course of the Company's business and consistent with past practice;
(iii) Liabilities under the executory portion of any written purchase order,
sales order, lease, agreement or commitment of any kind by which the Company is
bound and which was entered into in the ordinary course of the Company's
business and consistent with past practice; (iv) Liabilities under the executory
portion of Permits (as herein defined), Environmental Permits (as herein
defined), licenses and governmental directives and agreements issued to, or
entered into by, the Company in the ordinary course of business; and (v)
Liabilities resulting from industry or economic trends generally. To the best
knowledge of the Company and each Seller, none of the Liabilities described in
subparagraphs (i) through (v) of this paragraph (n) relates to or has arisen out
of a breach of contract, breach of warranty, tort or infringement by or against
the Company or any claim or lawsuit involving the Company.
(o) TITLE TO ASSETS. To the best knowledge of the Company and each
Seller, the Company has good and indefeasible title to its assets, free and
clear of any liens, claims,
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encumbrances and security interests, except for liens for non-delinquent
taxes. To the best knowledge of the Company and each Seller, no unreleased
mortgage, trust deed, chattel mortgage, security agreement, financing
statement or other instrument encumbering any of the Company's assets has
been recorded, filed, executed or delivered.
(p) INSURANCE. To the best knowledge of the Company and each Seller, the
Disclosure Schedule contains a true and correct list and description (including
coverages, deductibles and expiration dates) of all insurance policies which are
owned by the Company or which name the Company as an insured (or loss payee),
including, without limitation, those which pertain to the Company's assets,
employees or operations. To the best knowledge of the Company and each Seller,
all such insurance policies are in full force and effect and the Company has not
received notice of cancellation of any such insurance policies.
(q) BANK INFORMATION. To the best knowledge of the Company and each
Seller, the Disclosure Schedule contains a list showing: (i) the name of each
bank, safe deposit company or other financial institution in which the Company
has an account, lock box or safe deposit box; (ii) the names of all persons
authorized to draw thereon or to have access thereto and the names of all
persons and entities, if any, holding powers of attorney from the Company; and
(iii) all instruments or agreements to which the Company is a party as an
endorser, surety or guarantor, other than checks endorsed for collection or
deposit in the ordinary course of business.
(r)(i) TAXES. As used in this Agreement, the following terms shall have
the following meanings: (A) the term "Taxes" means all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, and the term "Tax"
means any one of the foregoing Taxes; (B) the term "Returns" means all returns,
declarations, reports, statements and other documents required to be filed in
respect of Taxes, and the term "Return" means any one of the foregoing Returns;
and (C) the term "Code" means the Internal Revenue Code of 1986, as amended.
All citations to the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments or any substitute or successor
provisions thereto.
(ii) There have been properly completed and filed on a timely basis
and in correct form all Returns required to be filed by the Company. As of
the time of filing, the foregoing Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status or
other matters of the Company or any other information required to be shown
thereon. An extension of time within which to file any Return which has
not been filed has not been requested or granted.
(iii) With respect to all amounts in respect of Taxes imposed upon the
Company, or for which the Company is or could be liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities
(as, for example, under tax allocation
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agreements), with respect to all taxable periods or portions of periods
ending on or before the date hereof, all applicable tax laws and agreements
have been fully complied with, and all amounts required to be paid by the
Company, to taxing authorities or others, on or before the date hereof have
been paid.
(iv) No issues have been raised (and are currently pending) by any
taxing authority in connection with any of the Returns. No waivers of
statutes of limitation with respect to the Returns have been given by or
requested from the Company. The Disclosure Schedule sets forth (A) the
taxable years of the Company as to which the respective statutes of
limitations with respect to Taxes have not expired, and (B) with respect to
such taxable years sets forth those years for which examinations have been
completed, those years for which examinations are presently being
conducted, those years for which examinations have not been initiated, and
those years for which required Returns have not yet been filed. All
deficiencies asserted or assessments made as a result of any examinations
have been fully paid, or are fully reflected as a liability in the
Financial Statements and the Interim Financial Statements, or are being
contested and an adequate reserve therefor has been established and is
fully reflected as a liability in the Financial Statements and the Interim
Financial Statements.
(s) AFFILIATE TRANSACTIONS. To the best knowledge of the Company and each
Seller, the Disclosure Schedule sets forth every business relationship (other
than normal employment relationships) between the Company, on the one hand, and
any of the Company's officers, directors, employees or stockholders or members
of their families (or any entity in which any of them has a material financial
interest, directly or indirectly), on the other hand. To the best knowledge of
the Company and each Seller, none of said parties (other than the Company) owns
any assets which are used in the Company's business, or is engaged in any
business which competes with the Company's business.
(t) INTERIM TRANSACTIONS. To the best knowledge of the Company and each
Seller, since November 30, 1995, the Company has not:
(i) sold, assigned, leased, exchanged, transferred or otherwise
disposed of any of its assets or property, except for sales of inventory
and cash applied in the payment of the Company's liabilities, in the usual
and ordinary course of business consistent with the Company's past
practices;
(ii) suffered any casualty, damage, destruction or loss, or
interruption in use, of any asset or property (whether or not covered by
insurance), on account of fire, flood, riot, strike or other hazard or Act
of God;
(iii) made or suffered any material change in the conduct or nature of
any aspect of the business of the Company;
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(iv) waived any right or compromised any debt or claim arising out of
the conduct of, or with respect to, the business of the Company, except in
the usual and ordinary course of business consistent with the Company's
past practices;
(v) made (or committed to make) capital expenditures in an amount
which exceeds $10,000 for any item or $25,000 in the aggregate;
(vi) made any change in accounting methods or principles;
(vii) discharged or prepaid any liability, except in the usual and
ordinary course of business in accordance with past practices;
(viii) borrowed any money or issued any bonds, debentures, notes or
other corporate securities, including without limitation, those evidencing
borrowed money, except that the gross borrowings under the Company's
revolving line of credit with Provident Bank have not increased by more
than $300,000 since November 30, 1995 or trade debt incurred by the Company
in the usual and ordinary course of business in accordance with past
practices;
(ix) increased the compensation payable to any employee, except for
normal increases in the ordinary course of business consistent with past
practices;
(x) hired or terminated any employee who has an annual salary in
excess of $20,000, or employees with aggregate annual salaries or wages in
excess of $50,000;
(xi) issued or sold any securities of any class;
(xii) paid, declared or set aside any dividend or other distribution on
its securities of any class or purchased, exchanged or redeemed any of its
securities of any class; or
(xiii) without limitation by the enumeration of any of the foregoing,
entered into any transaction other than in the usual and ordinary course of
business in accordance with past practices (the foregoing representation
and warranty shall not be deemed to be breached by virtue of the entry by
Sellers into this Agreement or their consummation of the transaction
contemplated hereby).
(u) MATERIAL ADVERSE CHANGE. To the best knowledge of the Company and
each Seller, since November 30, 1995, the Company has not suffered or been
threatened with any material adverse change in the business, operations, assets,
liabilities, financial condition or prospects of the Company, including, without
limiting the generality of the foregoing, the existence or threat of a labor
dispute, or any material adverse change in, or loss of, any relationship between
the Company and any of its customers, suppliers or key employees.
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(v) CONTRACTS. The Disclosure Schedule correctly and completely lists and
describes all contracts, leases, and agreements to which the Company is a party
and which relates to: employment and employment related agreements; covenants
not to compete; collective bargaining agreements; loan agreements; notes;
security agreements; sales representative, distribution, franchise, advertising
and similar agreements; leases and subleases of personal property or Leased
Premises (as herein defined); license agreements; purchase orders and purchase
contracts and sales orders and sales contracts in excess of $100,000 and to the
best knowledge of the Company and each Seller, computer generated lists for such
orders and contracts under $100,000. To the best knowledge of the Company and
each Seller, all contracts, leases and other instruments referred to in this
paragraph (v) are in full force and binding upon the parties thereto. To the
best knowledge of the Company and each Seller, no default by the Company has
occurred thereunder and no default by the other contracting parties has occurred
thereunder. To the best knowledge of the Company and each Seller, no event,
occurrence or condition exists which, with the lapse of time, the giving of
notice, or both, or the happening of any further event or condition, would
become a default by the Company thereunder.
(w) NO DEFAULTS BY COMPANY. To the best knowledge of the Company, the
Company is not a party to, or bound by, any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage, debenture,
note or other instrument under the terms of which performance by the Company
according to the terms of this Agreement will be a default or an event of
acceleration, or grounds for termination, or whereby timely performance by the
Company of this Agreement may be prohibited, prevented or delayed.
(x) NO DEFAULTS BY SELLERS. To the best knowledge of each Seller, none of
the Sellers is a party to, or bound by, any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage, debenture,
note or other instrument under the terms of which performance by Sellers
according to the terms of this Agreement will be a default or an event of
acceleration, or grounds for termination, or whereby timely performance by the
Company of this Agreement may be prohibited, prevented or delayed.
(y) PERMITS. To the best knowledge of the Company and each Seller, the
Disclosure Schedule contains a true and correct copy of every license, permit,
registration and governmental approval, agreement and consent applied for,
pending by, issued or given to the Company, and every agreement with
governmental authorities (Federal, state, local or foreign) entered into by the
Company, which is in effect or has been applied for or is pending (the
"Permits"). Such Permits constitute all licenses, permits, registrations,
approvals and agreements and consents which are required in order for the
Company to conduct its business as presently conducted.
(z) EMPLOYEE BENEFITS. (i) Neither the Company nor any corporation or
business which is now or at the relevant time was a member of a controlled group
of companies or trades or businesses including the Company, within the meaning
of Section 414 of the Code ("Related Company"), maintains, contributes to or has
any liability under, or at any time maintained, contributed to or had any
liability under, nor do the employees of the Company or any Related Company
receive or expect to receive as a condition of employment: (A) any non-
qualified
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deferred compensation or retirement plans or arrangements; (B) any qualified
defined contribution retirement plans or arrangements; (C) any qualified
defined benefit pension plan; (D) any other plan, program, agreement or
arrangement under which former employees of the Company or its beneficiaries
are entitled, or current employees of the Company will be entitled following
termination of employment, to medical, health or life insurance or other
benefits other than pursuant to benefit continuation rights granted by state
or federal law; or (E) any other employee benefit, health, welfare, medical,
disability, life insurance, stock, stock purchase or stock option plan,
program, agreement, arrangement or policy, except in each case as described
in the Disclosure Schedule. All such plans shall be referred to collectively
as "Plans", and any such plans which are employee pension benefit plans
within the meaning of Section 3(2) of ERISA shall be referred to as "Pension
Plans" and any such plans which are employee welfare benefit plans within the
meaning of Section 3(1) of ERISA shall be referred to as "Welfare Plans".
(ii) The Plans, and all related trusts, insurance contracts or other
funding arrangements or vehicles, comply in all respects, and have been
maintained in compliance, with the requirements of ERISA, the Code, other
Federal statutes and applicable state law (including, without limitation,
state insurance law, except where preempted by ERISA). The Pension Plan,
which is intended to be qualified is a Prototype Standardized Profit
Sharing Plan with CODA for which the Plan Sponsor has obtained an Opinion
Letter from the Internal Revenue Service ("IRS") dated February 8, 1993,
has been timely adopted by the Company. All required reports, notices and
descriptions with respect to the Plans have been appropriately filed or
distributed (including without limitation IRS Forms 5500 Annual Reports,
summary plan descriptions, summary annual reports and any notice of plan
amendment which is required prior to the effectiveness of such amendments)
and all required surety bonds have been properly and timely purchased and
maintained . The costs of administering the plans, including fees for the
trustees and other service providers which are customarily paid by the
Company, have been paid prior to the date hereof.
(iii) With respect to all Pension Plans of the Company and any
qualified employee pension benefit plan of a Related Company ("Related
Company Pension Plan"), all required contributions for all Plan years
ending prior to the date hereof have been made. Contributions with respect
to all current Plan years (i.e. from the first day of the current plan year
to the date hereof) have been made or accrued prior to the date hereof by
Company in accordance with the terms of the plan and past practice, with
respect to each Pension Plan which is a qualified defined contribution
plan. With respect to all other Plans, all required or recommended (in
accordance with plan terms and past practice) payments, premiums,
contributions, reimbursements or accruals for all periods ending prior to
or as of the date hereof have been made or properly accrued on the
financial statements. All of the Welfare Plans are fully insured. None of
the Plans has any material unfunded liabilities which are not reflected on
the Financial Statements and with respect to the Pension Plans, except as
set forth on the Disclosure Schedule, none of the Plans is a "top-heavy"
plan, as defined in Section 416 of the Code. The Company has no plans,
programs, arrangements or made any other commitments to its employees,
former employees or their beneficiaries under which it has any obligation
to provide any retiree or
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other employee benefit payments which are not adequately funded through a
trust or other funding arrangement. There have been no changes in the
operation or interpretation of any of the Plans since the most recent
annual report which would have any material effect on the cost of operating
or maintaining such Plans.
(iv) There have been no prohibited transactions as defined in Section
406 of ERISA or Section 4975 of the Code for which there is or may be any
liability under Section 4975 of the Code with respect to any of the Pension
Plans or the Welfare Plans or any parties in interest or disqualified
persons with respect to such Plans, nor has there been any reduction or
curtailment of accrued benefits with respect to any of the Plans. There
are no pending or threatened claims (other than routine claims for
benefits), lawsuits, or arbitrations which have been asserted or instituted
against the Plans, any fiduciaries thereof with respect to their duties to
the plans or the assets of any of the trusts under any of the Plans and
neither the Company nor any Seller has any knowledge of any facts which
would give rise to or could reasonably be expected to give rise to any such
claims, lawsuits or arbitrations. Neither the Company nor its directors,
officers, employees or any other "fiduciary", as such term is defined in
Section 3(21) of ERISA, has any liability for failure to comply with ERISA
or the Code or failure to act in connection with the administration or
investment of any Plan.
(v) None of the Pension Plans is a defined benefit pension plan
subject to Section 412 of the Code or Title IV of ERISA. Any Pension Plan
which has been terminated has done so in compliance with ERISA and the
Code, all required reports, certifications or notices, have been or will be
appropriately filed or distributed and an application for a favorable
determination letter has been or will be filed with the IRS.
(vi) No employee of the Company currently participates in any
"multiemployer plan" (as defined in Section 3(37) of ERISA or Section
414(f) of the Code) on account of such employee's employment with the
Company, and no person may reasonably expect to participate in such a plan
on account of such person's employment with the Company, nor does the
Company or any Related Company have any obligation to contribute to or
liability, potential liability or contingent liability (including without
limitation liability for past due contributions) with respect to any
multiemployer plan on behalf of any current or former employee. Neither
the Company nor any Related Company has incurred any current or potential
withdrawal liability under Section 4201 of ERISA (without regard to
subsequent reduction or waiver of such liability under Sections 4207 or
4208 thereof), as a result of a complete or partial withdrawal (or
potential partial withdrawal) from any multiemployer plan.
(vii) The Company has furnished the Parent with true and complete
copies of: (A) the plan documents and any related trusts or funding
vehicles, policies or contracts and the related summary plan descriptions
with respect to each Plan; (B) the most recent determination letters
received from the IRS regarding the Pension Plans and copies of any pending
applications, filings or notices with respect to any of the Plans with the
IRS, the
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Department of Labor or any other governmental agency; (C) the latest
financial statements and annual reports for each of the Plans and related
trusts or funding vehicles, policies or contracts as of the end of
the most recent plan year with respect to which the filing date for such
information has passed; (D) copies of all corporate resolutions or other
documents pertaining to the adoption of the Plans or any amendments thereto
or to the appointment of any fiduciaries thereunder and copies of any
investment management agreement thereunder and of any fiduciary insurance
policies, surety bonds, rules, regulations or policies, of the trustees or
of any committee thereunder; and (E) copies of any communications or
notices provided to employees or plan participants with respect to the
Plans along with information concerning the date and extent of distribution
of such communications.
(aa) EMPLOYEES. With respect to employees of the Company: (i) there are
no pending or, to the best knowledge of the Company and each Seller, threatened
unfair labor practice charges or employee grievance charges; (ii) there is no
request for (or current) union representation, labor strike, dispute, slowdown
or stoppage pending or, to the best knowledge of the Company and each Seller,
threatened against or directly affecting the Company; (iii) no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is pending and no claims therefor exist; (iv) no employee or former employee has
any right to be rehired by the Company prior to the Company's hiring a person
not previously employed by the Company; (v) except as required by Section 4980B
of the Code, the Company has no liability to provide medical benefits to former
employees of the Company or their spouses or dependents; and (vi) the Disclosure
Schedule contains a true and complete list of all employees who are employed by
the Company as of December 31, 1995 and said list correctly reflects their
salaries, wages, other compensation (other than benefits under the Plans,
Welfare Plans and Employee Benefit Plans), dates of employment and positions.
(bb) LITIGATION. To the best knowledge of the Company and each Seller,
there is no litigation or proceeding, in law or in equity, and there are no
proceedings or governmental investigations before any commission or other
administrative authority, pending or threatened against the Company, or any of
the Company's officers, directors or Affiliates, with respect to or affecting
the Company's operations, business, products, sales practices or financial
condition, or related to the consummation of the transaction contemplated
hereby.
(cc) WARRANTIES. To the best knowledge of the Company and each Seller, the
Company has not made any written warranties (nor has any Seller made any oral
warranties) with respect to the quality or absence of defects of its products or
services which it has sold or performed which are in force as of the date hereof
except as are described in the Disclosure Schedule.
(dd) ARBITRATION AWARDS. To the best knowledge of the Company and each
Seller, the Company is not a party to, or bound by, any decree, order or
arbitration award (or agreement entered into in any administrative, judicial or
arbitration proceeding with any governmental authority) with respect to or
affecting the properties, assets, personnel or business activities of the
Company.
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(ee) COMPLIANCE WITH LAWS. To the best knowledge of the Company and each
Seller, the Company is not in violation of, or delinquent in respect to, any
decree, order or arbitration award or law, statute, or regulation of or
agreement with, or Permit from, any Federal, state or local governmental
authority (or to which the property, assets, personnel or business activities of
the Company is subject or to which it, itself, is subject), including, without
limitation, Federal, state or local laws, statutes and regulations relating to
equal employment opportunities, fair employment practices, unfair labor
practices, terms of employment, occupational health and safety, wages and hours,
discrimination, and zoning ordinances and building codes. To the best knowledge
of the Company and each Seller, copies of all notices of violation of any of the
foregoing which the Company has received within the past three years are
attached to the Disclosure Schedule.
(ff) ENVIRONMENTAL LAWS. Both the Company and its assets and business are
in compliance with all Environmental Laws (as herein defined) and Environmental
Permits (as herein defined) and there are no Hazardous Materials (as herein
defined) located on, in, or under any Real Estate, Leased Premises or any other
real property that the Company's business was conducted on at any time prior to
the date hereof. A copy of any written notice, citation, inquiry or complaint
which the Company has received in the past three years of any alleged violation
of any Environmental Law or Environmental Permit is contained in the Disclosure
Schedule, and all violations alleged in said notices have been corrected. The
Company possesses all Environmental Permits which are required for the operation
of its business. Copies of all Environmental Permits issued to the Company are
contained in the Disclosure Schedule. As used in this Agreement, (i)
"Environmental Laws" means all current federal, state and local statutes,
regulations, ordinances, rules, regulations, all court orders and decrees and
arbitration awards, and the current common law, which pertain to environmental
matters or contamination of any type whatsoever; (ii) "Environmental Permits"
means licenses, permits, registrations, governmental approvals, agreements and
consents which are required under or are issued pursuant to Environmental Laws;
and (iii) "Hazardous Materials" means any toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise a
hazardous substance, or is otherwise regulated, controlled or limited by any
Environmental Law or for which a standard is set by any Environmental Law.
(gg) REAL ESTATE. The Company does not own any real estate other than the
premises identified in the Disclosure Schedule as being so owned (the "Real
Estate"). The Disclosure Schedule accurately sets forth the street addresses
and legal descriptions of the Real Estate. To the best knowledge of the Company
and each Seller, the Company holds fee simple title to the Real Estate, subject
only to real estate taxes not delinquent and to covenants, conditions,
restrictions and easements of record which are set forth in the Disclosure
Schedule, none of which makes title to the Real Estate unmarketable and none of
which are violated by the Company or will interfere with the Company's use
thereof. To the best knowledge of the Company and each Seller, the Real Estate
is not subject to any leases or tenancies. To the best knowledge of the Company
and each Seller, the improvements on the Real Estate are in good operating
condition and repair (ordinary wear and tear excepted). To the best knowledge of
the Company and each Seller, no material expenditures are required to be made
for the repair or maintenance of any improvements on the Real Estate.
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(hh) LEASED PREMISES. The Company does not lease any real estate other
than the premises identified in the Disclosure Schedule as being so leased (the
"Leased Premises"). To the best knowledge of the Company and each Seller, the
Leased Premises are leased to the Company pursuant to written leases, true,
correct and complete copies of which are attached to the Disclosure Schedule.
To the best knowledge of the Company and each Seller, no material expenditures
are required to be made for the repair or maintenance of any improvements on the
Leased Premises. To the best knowledge of the Company and each Seller, the
Company is not in default under any agreement relating to the Leased Premises
nor is any other party thereto in default thereunder. To the best knowledge of
the Company and each Seller, all options in favor of the Company to purchase any
of the Leased Premises, if any, are in full force and effect.
(ii) IMPROVEMENTS. To the best knowledge of the Company and each Seller,
the buildings and other facilities located on the Real Estate and the Leased
Premises are free of any latent structural or engineering defects known to the
Company or any of Sellers.
(jj) EQUIPMENT. To the best knowledge of the Company and each Seller, the
furniture, fixtures, vehicles, machinery, shelving, racks, equipment, tools,
dies, molds, jigs, fixtures and other tangible personal property (other than
inventory) owned or leased by the Company and used in its operations
(collectively, the "Equipment") constitutes all tangible personal property
necessary in order for the Company to conduct its business as it has been
conducted in the past. To the best knowledge of the Company and each Seller,
all Equipment is in good operating condition and repair (ordinary wear and tear
excepted). To the best knowledge of the Company and each Seller, the Disclosure
Schedule contains a complete list of all leased Equipment.
(kk) ACCOUNTS RECEIVABLE. To the best knowledge of the Company and each
Seller, the reserve contained in the Financial Statements and the Interim
Financial Statements for uncollectible accounts receivable is adequate. To the
best knowledge of the Company and each Seller, all of such trade receivables
arose out of bona fide, arms length transactions for the sale of goods or
performance of services.
(ll) INVENTORY. Neither the Company nor any Seller makes any express or
implied warranty of any kind whatsoever with respect to the inventory of the
Company, including, without limitation, any representation as to physical
condition or value of such inventory. Parent and Merger Sub hereby acknowledge
and agree that the inventory of the Company is being received "as is". ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO THE INVENTORY OF THE COMPANY ARE EXPRESSLY EXCLUDED.
(mm) INTELLECTUAL PROPERTY. To the best knowledge of the Company and each
Seller, the Disclosure Schedule identifies all of the following which are used
in the Company's business and in which the Company claims any ownership rights:
(i) all trademarks, service marks, slogans, trade names, trade dress and the
like (collectively with the associated goodwill of each, "Trademarks"), together
with information regarding all registrations and pending applications to
register any such rights; (ii) all common law Trademarks; (iii) all patents on
and pending
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applications to patent any technology or design; (iv) all registrations of
and applications to register copyrights; and (v) all written licenses of
rights in computer software, Trademarks, patents, copyrights, unpatented
formulations, manufacturing methods and other know-how, whether to or by the
Company. The rights required to be so identified, together with all
proprietary formulations, manufacturing methods, know-how and trade secrets
of the Company which are material to the Company's business are referred to
herein collectively as the "Intellectual Property".
(nn) VIOLATION OF INTELLECTUAL PROPERTY RIGHTS. To the best knowledge of
the Company and each Seller (i) the Company is the owner of or duly licensed to
use each Trademark and its associated goodwill; (ii) each Trademark
registration exists and has been maintained in good standing; (iii) each patent
and application included in the Intellectual Property exists, is owned by or
licensed to the Company, and has been maintained in good standing; (iv) each
copyright registration exists and is owned by the Company; (v) no other firm,
corporation, association or person claims the right to use in connection with
similar or closely related goods and in the same geographic area, any mark which
is identical or confusingly similar to any of the Trademarks; (vi) neither the
Company nor any of Sellers has any knowledge of any pending or threatened claim
that any third party asserts ownership rights in any of the Intellectual
Property; (vii) neither the Company nor any of Sellers has any knowledge of any
pending or threatened claim that the Company's use of any Intellectual Property
infringes any right of any third party; and (viii) neither the Company nor any
of Sellers has any knowledge of any pending or threatened claim that any third
party is infringing on any of the Company's rights in any of the Intellectual
Property.
(oo) INTERFERENCE WITH EMPLOYEES. To the best knowledge of the Company and
each Seller, neither the Company nor any Seller has taken any actions which were
calculated to dissuade any present employees, representatives or agents of the
Company from continuing an association with the Company after the Closing.
(pp) BROKERAGE COMMISSIONS. To the best knowledge of the Company and each
Seller, neither Sellers, nor any of their Affiliates, nor the Company, have
dealt with any person, firm or corporation who is or may be entitled to a
broker's commission, finder's fee, investment banker's fee or similar payment
for arranging the transaction contemplated hereby or introducing the parties to
each other.
(qq) ADDITIONAL DISCLOSURES. To the best knowledge of the Company and
each Seller, the representations and warranties of the Company and Sellers in
this Agreement, and all representations, warranties and statements of Sellers or
the Company contained in any schedule, financial statement, exhibit, list or
document delivered pursuant hereto or in connection herewith, do not contain any
misstatements of material fact or omit to state a material fact necessary in
order to make the representations, warranties or statements contained herein or
therein not misleading.
(rr) DOCUMENTS. To the best knowledge of the Company and each Seller, the
copies of all documents furnished by the Sellers or the Company to Parent
pursuant to or in connection with
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this Agreement are complete and accurate. To the best knowledge of the
Company and each Seller, the Disclosure Schedule contains complete and
accurate copies of all documents referred to therein. To the best knowledge
of the Company and each Seller, the information contained in the Disclosure
Schedule is complete and accurate.
3.3 SHERIDAN'S REPRESENTATION. Sheridan is acquiring the shares of Parent
Stock for his own account for investment and with no present intention of
distributing or reselling such shares or any part thereof in any transaction
which would constitute a "distribution" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"). Sheridan understands that shares of
Parent Stock have not been registered under the Securities Act or any state
securities laws and are being issued to Sheridan, in part, in reliance on the
foregoing representation.
3.4 DEFINITION OF KNOWLEDGE. For purposes of this Agreement, (a) the
knowledge of Sellers and the Company shall be deemed to be limited to the actual
knowledge of Sellers as of the date hereof, but without giving effect to imputed
knowledge; and (b) the knowledge of Parent and Merger Sub shall be deemed to be
limited to the actual knowledge of Nicholas Gihl, Julius Sparacino, Corby
Neumann and Dennis Marrano as of the date hereof, but without giving effect to
imputed knowledge.
ARTICLE 4
POST-CLOSING AGREEMENTS
4.1 POST-CLOSING AGREEMENTS. From and after the Closing, the parties
shall have the respective rights and obligations which are set forth in the
remainder of this Article 4.
4.2 INSPECTION OF RECORDS. Sellers, on the one hand, and Merger Sub and
Parent, on the other hand, and their respective Affiliates, shall each retain
and make their respective books and records (including expired insurance
policies and work papers in the possession of their respective accountants) with
respect to the Company available for inspection by the other party, or by its
duly accredited representatives, for reasonable business purposes at all
reasonable times during normal business hours, for a seven (7) year period after
the date hereof, with respect to all transactions of the Company occurring prior
to and relating to the Closing, and the historical financial condition, assets,
liabilities, operations and cash flows of the Company. As used in this Section
4.2, the right of inspection includes the right to make extracts or copies. The
representatives of a party inspecting the records of the other party shall be
reasonably satisfactory to the other party.
4.3 USE OF TRADEMARKS. Sellers shall, and shall cause their respective
Affiliates to, not use and shall not license or permit any third party to use,
any name, slogan, logo or trademark which is similar or deceptively similar to
any of the names or trademarks used in connection with the business of the
Company.
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4.4 HIRING AWAY EMPLOYEES. For a period of two (2) years from the date
hereof, Sellers shall, and shall cause their respective Affiliates to, not hire
or offer to hire any salaried, technical or professional employees,
representatives or agents of the Company.
4.5 FURTHER ASSURANCES. The parties shall execute such further documents,
and perform such further acts, as may be necessary to consummate the
transactions contemplated by this Agreement and to otherwise comply with the
terms of this Agreement.
4.6 INJUNCTIVE RELIEF. Sellers specifically recognize that any breach of
Sections 4.3 or 4.4 of this Agreement will cause irreparable injury to Parent
and the Surviving Corporation and that actual damages may be difficult to
ascertain, and in any event, may be inadequate. Accordingly (and without
limiting the availability of legal or equitable, including injunctive, remedies
under any other provisions of this Agreement), each Seller agrees that in the
event of any such breach, Parent and the Surviving Corporation shall be entitled
to injunctive relief in addition to such other legal and equitable remedies that
may be available.
4.7 RELEASE. Each Seller hereby acknowledges that (a) the consideration
to be received by Sheridan upon consummation of the Merger (the "Sheridan
Consideration") is substantially different than the consideration to be received
by each of the other Sellers upon consummation of the Merger; (b) since the
value of Parent Stock is not readily determinable, the Sheridan Consideration
may be proportionately greater than the consideration to be received by each of
the other Sellers; and (c) upon consummation of the Merger, certain of the
Sellers will enter into the Employment Agreements, pursuant to which, such
Sellers will receive Salaries, Bonus and/or Contingent Consideration based upon
the future profitability of the Company and/or Parent, as the case may be. Each
Seller (a) hereby consents and agrees to the payment of the Sheridan
Consideration to Sheridan in connection with the consummation of the Merger; (b)
hereby consents and agrees to the execution and delivery of the Employment
Agreements in connection with the consummation of the Merger; (c) for himself
and for his predecessors, successors, personal representatives, heirs, agents
and assigns (collectively, the "Seller Parties"), hereby releases and discharges
each of Parent, Merger Sub, the Company, the Surviving Corporation, and their
respective stockholders, directors, officers, employees, affiliates, attorneys,
agents and representatives and their predecessors, successors, personal
representatives, heirs, agents and assigns (collectively, the "Parent Parties"),
from any and all actions, causes of action, suits, charges, complaints, claims,
liabilities, obligations, controversies, assessments, judgments, proceedings,
deficiencies, losses, fines, penalties, costs, damages and expenses (including,
without limitation, expenses of investigation and attorney's and expert
witnesses' fees and disbursements), of any nature whatsoever, at law or in
equity which the Selling Parties had, now have, or hereafter may have against
any of the Parent Parties, relating to this Agreement or the transactions
contemplated hereby; and (d) hereby agrees that it will not initiate, assert,
file, participate in or otherwise be connected with any action which is based
on, in whole or in part, either directly or indirectly, this Agreement or the
transactions contemplated by this Agreement. Notwithstanding the provisions of
this Section 4.7, the Parent Parties shall not be released from their respective
obligations contained in this Agreement or the Employment Agreements, including,
without limitation, the Parent Parties obligations under Article 5 hereof.
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4.8 REPURCHASE OBLIGATION AND STANDSTILL PERIOD. At any time after the
two year anniversary of this Agreement (the "Anniversary Date") through the four
year anniversary of this Agreement (the "Put Period"), by delivery of written
notice of the exercise of such option by Sheridan to Parent at any time during
the Put Period (the "Notice Date"), Sheridan shall have the right to sell to
Parent, and Parent shall be required to purchase from Sheridan, all (but not
less than all) of the shares of Parent Stock owned by Sheridan for a purchase
price per share of Parent Stock equal to the Fair Market Value (as defined
below) (the "Purchase Price"). The aggregate Purchase Price shall be payable in
four equal quarterly installments beginning with last day of the second calendar
quarter after the Notice Date, together with interest on the unpaid principal
balance of the aggregate Purchase Price at a rate equal to the prime rate of
interest as announced from time to time by Northern Trust Bank plus two percent
(2%) per annum, payable quarterly in arrears. For purposes of this Agreement,
"Fair Market Value" shall mean the fair market value of each share of Parent
Stock based upon the value of Parent as a going concern (but without regard to a
minority discount or lack of marketability of Parent Stock) divided by the
aggregate number of shares of Parent Stock outstanding as of the determination
date of Fair Market Value and prior to giving effect to the transaction giving
rise to such calculation, all on a fully diluted basis. The Fair Market Value
shall be determined by the mutual agreement of Sheridan and Parent. If Sheridan
and Parent are unable to agree upon the Fair Market Value within twenty (20)
days after the date giving rise to the calculation of Fair Market Value, the
Fair Market Value shall be determined by a qualified third party mutually agreed
upon by Parent and Sheridan. If Parent and Sheridan are unable to agree on the
selection of a qualified third party to determine the Fair Market Value within
ten days after the expiration of the twenty day period referred to above, each
of Parent and Sheridan shall select their own valuation advisor within ten days
after the expiration of such ten day period, who shall then agree upon a
qualified third party to perform the valuation, and the valuation by such third
party shall be binding on Parent and Sheridan. In the event that either Parent
or Sheridan fail to appoint a valuation advisor within the time period specified
above, the other party may instruct its valuation advisor to complete the
valuation and the results of that valuation shall be binding on both parties.
Parent shall cooperate with the valuation advisor undertaking the valuation
pursuant to this Section 4.8 and shall provide the valuation advisor access to
all necessary information and personnel upon reasonable advance notice during
normal business hours. Sheridan hereby agrees that at any time prior to the
Anniversary Date, he shall not sell, assign, transfer or otherwise in any
manner, dispose of any shares of Parent Stock. Any proposed transfer by
Sheridan of shares of Parent Stock prior to the Anniversary Date shall be null
and void and of no force and effect.
ARTICLE 5
INDEMNIFICATION
5.1 GENERAL. From and after the Closing, the parties shall indemnify each
other as provided in this Article 5. As used in this Agreement, the term
"Damages" shall mean all liabilities, demands, claims, actions or causes of
action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, fines, penalties, damages, costs and expenses,
including,
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without limitation, reasonable attorneys', accountants', investigators', and
experts' fees and expenses, sustained or incurred in connection with the
defense or investigation of any claim for Damages.
5.2 SELLERS' INDEMNIFICATION OBLIGATIONS. Except as otherwise provided in
Section 5.4, Sellers shall indemnify, save and keep Parent, the Surviving
Corporation and their respective successors and permitted assigns (each a
"Parent Indemnitee" and collectively the "Parent Indemnitees") forever harmless
against and from all Damages sustained or incurred by any Parent Indemnitee, as
a result of or arising out of or by virtue of:
(a) any inaccuracy in or breach of any representation and warranty made by
the Company and/or Sellers to Parent or Merger Sub in this Agreement, in any
Company's Ancillary Document or in any Sellers' Ancillary Document;
(b) the breach by the Company or any Seller of, or failure of the Company
or any Seller to comply with, any of the covenants or obligations under this
Agreement, any Company's Ancillary Documents or any Sellers' Ancillary Document
to be performed by the Company or any Seller (including, without limitation,
their obligations under this Article 5); or
(c) without being limited by paragraphs (a) or (b) of this Section 5.2
(and without regard to the fact that any one or more of the items referred to in
this Section 5.2(c) may be disclosed in the Disclosure Schedule or in any
documents included or referred to therein or may be otherwise known to Parent,
Merger Sub or the Surviving Corporation at the date of this Agreement or on the
date hereof), (i) any action or failure to act, in whole or in part, on or prior
to the date hereof with respect to any Plan, Welfare Plan or Employee Benefit
Plan which the Company or any Related Company has at any time maintained or
administered or to which the Company or any Related Company has at any time
contributed; (ii) the violation of any Environmental Law or the presence or
release of any Hazardous Materials upon, about or beneath the Real Estate, the
Leased Premises or any other real property used in connection with the conduct
of the Company's business at any time prior to the date hereof or the migration
to or from the Real Estate, the Leased Premises or any other real property used
in connection with the conduct of the Company's business at any time prior to
the date hereof, or arising in any manner whatsoever out of the violation of any
Environmental Law pertaining to the Real Estate, the Leased Premises or any
other real property used in connection with the conduct of the Company's
business at any time prior to the date hereof and the activities thereon,
whether foreseeable or unforeseeable, provided such violation commenced prior to
the date hereof; (iii) any liability for Taxes owed by the Company (whether or
not shown on any Return) that were due and payable on or prior to the date
hereof; or (iv) any inaccuracy, if any, in the stock ownership of the Company as
set forth on EXHIBIT A attached hereto; provided, however, that if any such
claim by a person relates to a claim that such person acquired, either directly
or indirectly, shares of Company Stock from a Seller listed on EXHIBIT A
attached hereto, then a Parent Indemnitee shall only be entitled to recover
Damages from such Seller.
5.3 THE SURVIVING CORPORATION'S AND PARENT'S INDEMNIFICATION COVENANTS.
The Surviving Corporation and Parent shall indemnify, save and keep Sellers and
their respective successors and
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assigns ("Seller Indemnitees"), forever harmless against and from all Damages
sustained or incurred by any Seller Indemnitee, as a result of or arising out
of or by virtue of:
(a) any inaccuracy in or breach of any representation and warranty made
by Parent or Merger Sub to Sellers herein or in any Purchaser's Ancillary
Document;
(b) any breach by Parent or Merger Sub of, or failure by Parent or Merger
Sub to comply with, any of the covenants or obligations under this Agreement or
any Purchaser's Ancillary Document to be performed by Parent or Merger Sub
(including without limitation its obligations under this Article 5); or
(c) any third party claims to the extent caused by the acts or omissions
of the Surviving Corporation after the Effective Date which arise out of the
Surviving Corporation's operation of its business after the Effective Date.
5.4 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. Notwithstanding anything
to the contrary contained herein, (a) except to the extent provided below, each
Seller shall only be obligated to indemnify the Parent Indemnitees for a Parent
Indemnitee's aggregate claim for Damages multiplied by such Seller's percentage
interest in the Company as set forth on EXHIBIT A attached hereto (based upon
the assumption that Ron Smith is not a stockholder of the Company); (b) only a
Seller that breached the terms of Sections 3.2(d), (f), (h), (k) or (x) or the
terms of a Seller Ancillary Document to which such Seller is a party shall be
liable to the Purchaser Indemnitees for Damages cause by a breach of such
section or such agreement, as the case may be; (c) no party hereto shall be
obligated to indemnify any other party hereto (i) for any individual claim or
related claims for Damages unless the amount of any such claim or related claims
exceeds $1,000, and (ii) until and unless all claims or related claims for
Damages in excess of $1,000 exceed $20,000 in the aggregate, and then, only for
such excess claims; (d) neither Sellers nor the Parent Indemnitees shall be
liable for Damages pursuant to this Article 5 in excess of the sum of (i)
$500,000 in the aggregate; plus (ii) 50% (but 100% with respect to claims for
Damages under Section 5.2(c)(iv) or Section 5.2(a) relating to a breach of the
representations and warranties set forth in Section 3.2(j)) of the Contingent
Consideration payable to Sellers pursuant to Section 1.5 hereof; plus (iii) with
respect to claims for Damages against Sheridan, 50% (but 100% with respect to
claims for Damages under Section 5.2(c)(iv) or Section 5.2(a) relating to a
breach of the representations and warranties set forth in Section 3.2(j)) of the
aggregate compensation owed to Sheridan for Bonus and Contingent Consideration
(as such terms are defined in Sheridan's Employment Agreement); provided,
however, that the limitations contained in Sections 5.4(a), (c) and (d) shall
not apply to claims for Damages resulting from a breach of Section 5.2(c)(iv) or
Sections 3.2(d), (f), (h), (k) or (x) or a breach of a Seller's Ancillary
Document; (e) no party hereto shall be entitled to indemnification pursuant to
this Article 5 to the extent the indemnified party receives insurance proceeds
with respect to such claim for Damages; and (f) only Sheridan shall be liable to
Parent and the Surviving Corporation for a breach of Section 3.3 hereof.
5.5 TIME LIMITATION. A claim for Damages pursuant to this Article 5
(other than claims for Damages pursuant to Section 5.2(c)(ii), (iii) or (iv) or
Section 5.2(a) relating to a breach of the representations and warranties set
forth in Sections 3.2(j), 3.2(r) or (ff) must be asserted by the
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delivery of written notice of such claim by the party seeking indemnification
to the indemnifying party on or prior to July 29, 1997. A claim for Damages
pursuant to Section 5.2(c)(iv) or Section 5.2(a) relating to a breach of the
representations and warranties set forth in Section 3.2(j) may be asserted at
any time on or prior to the five year anniversary of the date hereof. A
claim for Damages pursuant to Section 5.2(c)(ii) or Section 5.2(a) relating
to a breach of the representations and warranties set forth in Section
3.2(ff) may be asserted at any time after the date hereof. A claim for
Damages pursuant to Section 5.2(c)(iii) or Section 5.2(a) relating to a
breach of the representations and warranties set forth in Section 3.2(r) may
be asserted at any time on or prior to expiration of the applicable statute
of limitations period.
5.6 SET-OFF. Upon the final resolution of a claim for indemnification, the
Parent Indemnitees may, at their sole election, set off their right to receive
payment under this Agreement from each Seller against amounts owed by the Parent
Indemnitees to such Seller (a) pursuant to Section 1.5 hereof; or (b) with
respect to claims for Damages against Sheridan, for Bonus and/or Contingent
Consideration payments (as defined in Sheridan's Employment Agreement), on a
dollar for dollar basis, with any such set off being effective upon the final
resolution of such claim for indemnification. Notwithstanding the foregoing,
the Parent Indemnitees shall deliver written notice to the effected Seller
concurrently with the exercise of its right of set-off pursuant to this Section
5.6.
ARTICLE 6
MISCELLANEOUS
6.1 PUBLICITY. Except as otherwise required by law or applicable stock
exchange rules, press releases concerning this transaction shall be made only
with the prior agreement of Sellers and Parent. Except as otherwise required by
law or applicable stock exchange rules, no such press releases or other
publicity shall state the amount of the consideration payable upon consummation
of the Merger.
6.2 NOTICES. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand by facsimile, or by nationally recognized private carrier
shall be deemed given on the first business day following receipt; provided,
however, that a notice delivered by facsimile shall only be effective if such
notice is also delivered by hand, or deposited in the United States mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile. All notices shall be addressed as
follows:
If to Sellers:
c/o Cincinnati/Dynacomp, Inc.
502 Technecenter Drive , Suite A
25
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Milford, OH 45150
Attention: John Sheridan and David Fleming
Fax: (513) 831-6852
with a copy to:
Keating, Muething & Klekamp
One East Fourth Street
1800 Provident Tower
Cincinnati, Ohio 45202
Attention: Laura Warren
Fax: (513) 579-6999
And to:
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202-3957
Attention: Phil Schultz
Fax: (513) 381-0205
If to Parent or Merger Sub:
Total Control Products, Inc.
2001 North Janice Avenue
Melrose Park, Illinois
Attention: Nicholas Gihl, President
Fax: (708) 345-5670
with a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Michel J. Feldman
Fax: (312) 580-0923
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 6.2.
6.3 EXPENSES; TRANSFER TAXES. Except as otherwise provided herein, each
party hereto shall bear all fees and expenses incurred by such party in
connection with, relating to or arising out of the negotiation, preparation,
execution, delivery and performance of this Agreement and the
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consummation of the transaction contemplated hereby, including, without
limitation, attorneys', accountants' and other professional fees and
expenses. Sellers shall pay the cost of all sales, use, excise and transfer
taxes, and all owners' title insurance premiums and surveyor's charges, which
may be payable in connection with the transaction contemplated hereby.
6.4 ENTIRE AGREEMENT. This Agreement and the instruments to be delivered
by the parties pursuant to the provisions hereof constitute the entire agreement
between the parties and shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
permitted assigns. Each Exhibit, Schedule and the Disclosure Schedule, shall be
considered incorporated into this Agreement. Any amendments, or alternative or
supplementary provisions to this Agreement must be made in writing and duly
executed by an authorized representative or agent of each of the parties hereto.
6.5 SURVIVAL; NON-WAIVER. All representations and warranties shall
survive the Closing regardless of any investigation or lack of investigation by
any of the parties hereto, for the periods specified in Section 5.5 hereof. The
failure in any one or more instances of a party to insist upon performance of
any of the terms, covenants or conditions of this Agreement, to exercise any
right or privilege in this Agreement conferred, or the waiver by said party of
any breach of any of the terms, covenants or conditions of this Agreement, shall
not be construed as a subsequent waiver of any such terms, covenants,
conditions, rights or privileges, but the same shall continue and remain in full
force and effect as if no such forbearance or waiver had occurred. No waiver
shall be effective unless it is in writing and signed by an authorized
representative of the waiving party. A breach of any representation, warranty
or covenant shall not be affected by the fact that a more general or more
specific representation, warranty or covenant was not also breached.
6.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
6.7 SEVERABILITY. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
6.8 APPLICABLE LAW. This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Illinois applicable to contracts
made in that State.
6.9 BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer
on any person other than the parties hereto, and their respective successors and
permitted assigns any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
6.10 ASSIGNABILITY. This Agreement shall not be assignable by either
party without the prior written consent of the other party.
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<PAGE>
6.11 AMENDMENTS. This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of each of
the parties hereto.
6.12 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
THE COMPANY: PARENT:
CINCINNATI/DYNACOMP, INC. TOTAL CONTROL PRODUCTS, INC.
By:/s/ John Sheridan By: /s/ Nicholas Gihl
----------------------------- -----------------------------
Title: President Title: President
------------------------- -------------------------
SELLERS:
/s/ John Sheridan
- -------------------------------- MERGER SUB:
John Sheridan
TARA PRODUCTS, INC.
/s/ Vern Dahl By: /s/ Nicholas Gihl
- -------------------------------- ------------------------------
Vern Dahl Title: Vice President
--------------------------
/s/ David B. Fleming
- -------------------------------
Dave Fleming
/s/ Dennis Kehoe
- -------------------------------
Dennis Kehoe
/s/ MaryAnn McGoron
- -------------------------------
MaryAnn McGoron
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/s/ Thomas A. Gertz
- -------------------------------
Thomas Gertz
/s/ Stephen Saskowsky
- -------------------------------
Stephen Saskowsky
/s/ Douglas P. Hickman
- -------------------------------
Douglas Hickman
30
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into as
the 16th day of December, 1993, by and between Total Control Products, Inc.,
an Illinois corporation ("TCP") and A. B. Siemer ("Investor"), an individual
having his residence at 350 Meditation Lane, Worthington, Ohio 43235.
PRELIMINARY STATEMENT
Pursuant to the Agreement for Purchase and Sale of Stock (the
"Investment Agreement") by and between TCP and Investor, dated December 16,
1993, Investor has agreed to purchase common stock of TCP representing 23.53%
of the fully-diluted shares of Common Stock, without par value, of TCP
("Common Stock"). Investor's agreement to purchase such shares of Common
Stock is on the condition that TCP agree to certain terms and conditions
related to the registration of securities of TCP, as set forth in this
Agreement.
TERMS AND CONDITIONS
In consideration of the mutual covenants and agreements contained
in this Agreement and the Investment Agreement, and intending to be legally
bound, the parties hereto agree as follows:
SECTION 1.0. DEFINITIONS. As used in this Agreement, the
following terms have the meanings indicated below or in the referenced
sections of this Agreement.
"Common Stock": TCP's Common Stock, without par value, as the same
may be constituted from time to time.
"Demand Registration": See SECTION 3.0(a) and 3.0(b).
"Exchange Act": The Securities Exchange Act of 1934, as amended
from time to time.
"Initial Public Offering": The first primary offering of Common
Stock by TCP registered pursuant to the Securities Act.
"Person": An individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, and a government entity or any department,
agency, or political subdivision thereof.
"Piggyback Registration": See SECTION 4.0(a).
<PAGE>
"Registrable Securities": The 401,551 shares of Common Stock to
be purchased by Investor pursuant to the Investment Agreement and any other
shares of Common Stock acquired by Investor after the date hereof.
"Registration Expenses": See SECTION 7.0.
"Restricted Securities": The Registrable Securities, subject to the
provisions of SECTION 2.0(a).
"SEC": The United States Securities and Exchange Commission.
"Securities Act": The Securities Act of 1933, as amended from time
to time.
"Underwritten registration or underwritten offering": A
registration in which securities of the Company are sold pursuant to a firm
commitment underwriting.
SECTION 2.0. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) REGISTRABLE SECURITIES. The securities entitled to the
benefits of this Agreement are those Registrable Securities that are
Restricted Securities. A Registrable Security ceases to be a Restricted
Security when (i) it is registered under the Securities Act and disposed of
in accordance with the registration statement covering it, or (ii) it is sold
or transferred in accordance with the requirements of Rule 144 (or similar
provisions then in effect) promulgated by the SEC under the Securities Act
("Rule 144").
(b) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a
holder of Registrable Securities whenever that Person owns, directly or
beneficially, or has the right to acquire Registrable Securities,
disregarding any legal restrictions upon the exercise of that right.
(c) MAJORITY OF REGISTRABLE SECURITIES. As used in this
Agreement, the term "majority of the Registrable Securities" means 51% or
more of the Registrable Securities being registered unless the text indicates
that it is 51% or more of the Registrable Securities then issued and
outstanding.
SECTION 3.0. DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. At any time after June 1, 1996 and
prior to June 1, 2003, the holders of a majority of the Registrable
Securities then issued and outstanding may demand that the Company register
all or part of their Registrable Securities under the Securities Act (a
"Demand Registration") on Forms S-1, S-2, S-3 (or similar forms then in
effect) promulgated by the SEC under the Securities Act. Within ten days
after receipt of a demand, the Company will notify in writing all holders of
Registrable Securities of the demand. Any holder who wants to include his or
its Registrable Securities in the Demand Registration must notify the
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Company within ten business days of receiving the notice of the Demand
Registration. Except as provided in this SECTION 3.0, the Company will
include in all Demand Registrations all Registrable Securities for which the
Company receives timely written demands for inclusion. All demands made
pursuant to this SECTION 3.0(a) must specify the number of Registrable
Securities to be registered and the intended method of disposing of the
Registrable Securities.
(b) FORM OF REGISTRATION. The Demand Registration will be on
Forms S-2 and S-3 whenever the Company is permitted to use either form (if
the Company would be permitted to use both forms for the Demand Registration,
the Company shall select which form to use), unless the holders of a majority
of the Registrable Securities or the underwriter reasonably request
registration on an expanded form. The Company will use its reasonable best
efforts to qualify for registration on Forms S-2 and S-3.
(c) REGISTRATION EXPENSES. The Company will pay all Registration
Expenses for (i) one Demand Registration on Form S-1 (or similar expanded
from then in effect) and (ii) one Demand Registration on Form S-2 or Form S-3
(or similar form then in effect). A registration initiated as a Demand
Registration for which the Company pays the Registration Expenses will not
count until it becomes effective and until at least 50% of the registered
securities requested to be included in that registration have actually been
sold. Except as specified herein, all expenses in connection with the Demand
Registrations that are not Registration Expenses or internal expenses of the
Company otherwise payable by the Company in accordance with SECTION 7(a)
shall be paid pro rata by the holders of the Registrable Securities included
in the registration.
(d) SELECTION OF UNDERWRITERS. The Company shall select the
investment banker(s) and manager(s) that will administrator the offering, as
long as the investment banker(s) and manager(s) are reasonably satisfactory
to the holders of a majority of the Registrable Securities requested to be
included in the offering, and the Company shall enter into a customary
underwriting agreement with those investment banker(s) and manager(s).
(e) PRIORITY ON DEMAND REGISTRATIONS. If the managing
underwriters give the Company and the holders of the Registrable Securities
being registered a written opinion that the number of Registrable Securities
requested to be included exceeds the number of securities that can be sold,
the Company will include in the registration only the number of Registrable
Securities that the underwriters believe can be sold. The number of
securities registered shall be allocated pro rata among the holders of
Registrable Securities on the basis of the total number of Registrable
Securities requested to be included in the registration.
(f) DELAY IN FILING. The Company may delay the filing of the
registration statement in connection with a Demand Registration for a period
of not more than 120 days upon the advice of the investment banker(s) and
manager(s) that will administer the offering that a delay is necessary or
appropriate under the circumstances. The Company may not use this right to
delay more than once during the term of this Agreement.
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(g) LIMITED PIGGYBACK RIGHT ON DEMAND REGISTRATIONS.
(1) Whenever the holders of Registrable Securities demand a
Demand Registration, the Company may notify in writing the other
holders of securities of the same type as the Registrable Securities
that are to be registered not later than the 5th day following the
Company's receipt of notice of exercise of the Demand Registration
right.
(2) The Company may include securities of the same type and
class of other holders in the Demand Registration, but only to the
extent that the managing underwriters give the Company their written
opinion that the total number or dollar amount of securities
requested to be included can be sold. If the number or dollar amount
of securities requested to be sold exceeds the amount that in the
opinion of the managing underwriters can be sold, the Company will
include in the registration: (i) first, all Registrable Securities,
and (ii) second, up to the full number of dollar amount of securities
requested to be included in the registration in excess of the number
or dollar amount of Registrable Securities to be registered
(allocated pro rata among the holders of the securities in such
proportions as the Company and those holders may agree).
(3) The holders of securities (including the Company) other than
Registrable Securities to be registered pursuant to this SECTION 3(g)
shall enter into the same agreement with the managing underwriters as
do the holders of the Registrable Securities.
(4) If the Company registers any of its securities of its own
behalf in a Demand Registration (in accordance with the provisions of
this SECTION 3.0(g), that Demand Registration shall count for the
purpose of determining the number of Demand Registrations for which
the Company is required under SECTION 3.0(c) to pay all Registration
Expenses, and the Company shall pay all of the Registration Expenses
of that registration.
(5) If any of the holders of any other securities of the Company
register those securities in a Demand Registration in accordance with
this Section 3.0(g), those holders shall pay the fees and expenses of
their counsel and their pro rata share of the Registration Expenses
not paid by the Company for any reason.
SECTION 4.0. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities under the Securities Act (except for the registration
of securities to be offered pursuant to an employee benefit plan on Form S-8
or any successor form then in effect) at any
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<PAGE>
time other than pursuant to a Demand Registration (a "Piggyback
Registration"), it will so notify in writing all holders of Registrable
Securities not later than the earlier to occur of (i) the 5th day following
the Company's receipt of notice of exercise of other demand registration
rights, or (ii) 30 days prior to the anticipated filing date. Subject to the
provisions of SECTIONS 4.0(c) and (d), the Company will include in the
Piggyback Registration all Registrable Securities with respect to which the
Company has received written requests for inclusion within 15 business days
after the applicable holder's receipt of the Company's notice. The holders
of Registrable Securities may withdraw all or any part of the Registrable
Securities from a Piggyback Registration at any time before the printing of
the preliminary prospectus relating to the Piggyback Registration. If a
Piggyback Registration is an underwritten offering effected under
SECTION 4.0(c), all Persons whose securities are included in the Piggyback
Registration must sell their securities on the same terms and conditions as
apply to the securities being issued and sold by the Company. If a Piggyback
Registration is an underwritten offering effected under SECTION 4.0(d), all
Persons whose securities are included in the Piggyback Registration must sell
their securities on the same terms and conditions as apply to the securities
being sold by the Person(s) initiating the Piggyback Registration. A
registration of Registrable Securities pursuant to this SECTION 4.0 shall not
be counted as a Demand Registration under SECTION 3.0
(b) PIGGYBACK EXPENSES. The Company shall pay to the holders of
the Registrable Securities included in a Piggyback Registration all
Registration Expenses of those holders.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company
and the managing underwriters give the Company their written opinion that the
total number or dollar amount of securities requested to be included in the
registration exceeds the number or dollar amount of securities that can be
sold, the Company will include the securities in the registration in the
following order of priority: first, all securities the Company proposes to
sell; second up to the full number or dollar amount of Registrable Securities
requested to be included in the registration (allocated pro rata among the
holders of Registrable Securities on the basis of the dollar amount or number
of Registrable Securities requested to be included); and third, any other
securities (provided they are of the same class as the securities sold by the
Company) requested to be included, allocated among the holders of the
securities in such proportions as the Company and those holders may agree.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders
of the Company's securities, and the managing underwriters give the Company
their written opinion that the dollar amount or number of securities
requested to be included in the registration exceeds the dollar amount or
number of securities that can be sold, the Company will include in the
registration: (1) to the extent of 50% of the number or dollar amount of
securities other than Registrable Securities that in the underwriter's
opinion can be sold, the securities requested to be included in the
registration, allocated among the holders of those securities in such
proportions as the Company and those holders may agree, and (2) to the extent
of the balance, the Registrable Securities requested to be
5
<PAGE>
included, allocated pro rata among the holders of Registrable Securities on
the basis of the dollar amount or number of securities requested to be
included. If after including all of the Registrable Securities the
underwriters determine that there are additional securities that can be sold,
then securities other than Registrable Securities may be added to the
registration.
(e) SELECTION OF UNDERWRITERS. If any Piggyback Registration is
an underwritten offering, the Company will select the investment banker(s)
and manager(s) that will administer the offering, as long as the investment
banker(s) and manager(s) are reasonably satisfactory to the holders of a
majority of the Registrable Securities, and shall enter into a customary
underwriting agreement with the investment banker(s) and manager(s).
(f) OTHER REGISTRATIONS. The Company agrees that after filing a
registration statement with respect to Registrable Securities pursuant to
SECTION 3.0 or this SECTION 4.0 that has not been withdrawn or abandoned, the
Company will not register any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities
under the Securities Act, whether on its own behalf or at the request of any
holder of those securities, until at least three months has elapsed from the
effective date of the previous registration. This three-month hiatus does
not apply to registrations of securities to be issued in connection with
employee benefit plans, to permit exercise or conversions of previously
issued options, warrants, or other convertible securities, or in connection
with a Demand Registration.
SECTION 5.0. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY SECURITIES HOLDERS. Each
holder of Registrable Securities whose securities are included in a
registration statement agrees not to make any public sale or distribution of
equity securities of the Company (except as part of the underwritten
registration), including a sale pursuant to Rule 144 under the Securities
Act, during the seven days prior to and the 90 days after the effective date
of any underwritten Demand Registration or any underwritten, Piggyback
Registration (or such longer period not to exceed 180 days as the
Underwriters may require) unless the managing underwriters agree otherwise.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS. The
Company agrees not to make any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for its equity securities, including a sale under Regulation D of the SEC or
under any exemption of the Securities Act (except as part of the underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
during the seven days prior to and the 90 days after the effective date of
any underwritten Demand Registration or any underwritten Piggyback
Registration unless the managing underwriters agree otherwise. The Company
also agrees to use its reasonable best efforts to cause each holder of its
privately placed equity securities, or any securities convertible into or
exchangeable or exercisable for its equity securities (other than Registrable
Securities), purchased from the Company at any time on or after the date of
this Agreement to agree not to make any public sale or distribution of those
securities, including a sale pursuant to Rule 144 (except as part of the
underwritten
6
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registration, if permitted), during the seven days prior to and the 90 days
after the effective date of the registration unless the managing underwriters
agree otherwise.
SECTION 6.0. REGISTRATION PROCEDURES.
(a) Whenever the holders of Registrable Securities request the
registration of any Registrable Securities pursuant to this Agreement, the
Company shall use its reasonable best efforts to register and to permit the
sale of the Registrable Securities in accordance with the intended method of
disposition. To carry out this obligation, the Company shall:
(1) prepare and file with the SEC, no later than 90 days after
receipt of a request to file a registration statement (subject to
SECTION 3(f)), a registration statement on the appropriate form and
use its reasonable best efforts to cause the registration statement
to become effective. At least ten days before filing a registration
statement or prospectus or at least three business days before filing
any amendments or supplements thereto, the Company will furnish to
the counsel of the holders of a majority of the Registrable
Securities being registered copies of all documents proposed to be
filed for that counsel's review and approval, which approval shall
not be unreasonably withheld or delayed;
(2) notify immediately each seller of Registrable Securities of
any stop order threatened or issued by the SEC and take all actions
reasonably required to prevent the entry of a stop order or if
entered to have it rescinded or otherwise removed;
(3) prepare and file with the SEC such amendments and
supplements to the registration statement and the corresponding
prospectus necessary to keep the registration statement effective
for 90 days or such shorter period as may be required to sell all
Registrable Securities covered by the registration statement; and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by the registration statement
during each period in accordance with the sellers' intended methods
of disposition as set forth in the registration statement;
(4) furnish to each seller of the Registrable Securities a
sufficient number of copies of the registration statement, each
amendment and supplement thereto (in each case including all
exhibits), the corresponding prospectus (including each preliminary
prospectus), and such other documents as a seller may reasonably
request to facilitate the disposition of the seller's Registrable
Securities;
(5) use its reasonable best efforts to register or qualify the
Registrable Securities under securities or blue sky laws of
jurisdictions in the United States of America as any seller
reasonably requests and will do any and all other acts and
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things that may be reasonably necessary or advisable to enable the
seller to consummate the disposition of the seller's Registrable
Securities as long as the Company is not required to qualify to do
business in connection with the registration or qualification;
(6) use its reasonable best efforts to cause the Registrable
Securities covered by the registration statement to be registered
with or approved by those governmental agencies or authorities
necessary to enable each seller to consummate the disposition of its
Registrable Securities;
(7) notify each seller of Registrable Securities, at any time
when a prospectus is required to be delivered under the Securities
Act, or any event as a result of which the prospectus or any document
incorporated therein by reference contains an untrue statement of a
material fact or omits to state any material fact necessary to make
the statements therein not misleading, and will prepare a supplement
or amendment to the prospectus or any such document incorporated
therein by reference so that thereafter the prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(8) cause all registered Registrable Securities to be listed on
each securities exchange, if any, on which similar securities issued
by the Company are then listed;
(9) provide an institutional transfer agent and registrar and a
CUSIP number for all Registrable Securities on or before the
effective date of the registration statement;
(10) enter into such customary agreements (including an
underwriting agreement in customary form) and take all other actions
in connection with those agreements as the holders of the Registrable
Securities being registered or the underwriters, if any, reasonably
request to expedite or facilitate the disposition of the Registrable
Securities;
(11) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant
to the registration statement, and any attorney, accountant, or other
agent of any seller or underwriter, all financial and other records,
pertinent corporate documents, and properties of the Company, and
cause the Company's officers, directors, and employees to supply all
information reasonably requested by any seller, underwriter, attorney,
accountant, or agent in connection with the registration statement;
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(12) obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering those
matters customarily covered by "cold comfort" letters as the holders
of the Registrable Securities being registered or the managing
underwriters reasonably request (and the letter shall be addressed to
holders of the Registrable Securities);
(13) furnish, at the request of any holder of Registrable
Securities being registered an opinion of the counsel representing
the Company for the purposes of the registration, in the form and
substance customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the holders
of Registrable Securities being registered; and
(14) use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement complying with the provisions of Section 11(a) of the
Securities Act and covering the period of at least twelve months,
but not more than eighteen months, beginning with the first month
after the effective date of the Registration Statement.
(b) From time to time, the Company may require each seller of
Registrable Securities subject to the registration to furnish to the Company
information regarding the distribution of the securities subject to the
registration.
(c) Each holder of Registrable Securities agrees by acquisition of
those securities that, upon receipt of any notice from the Company of any
event of the kind being described in SECTION 6.0(a)(7), the holder will
discontinue disposition of Registrable Securities until the holder receives
copies of the supplemented or amended prospectus contemplated by
SECTION 6.0 (a)(7). In addition, if the Company requests, the holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in the holder's possession, of the prospectus
covering the Registrable Securities current at the time of receipt of the
notice. If the Company gives any such notice, the time period mentioned in
SECTION 6.0(a)(3) shall be extended by the number of days elapsing between
the date of notice and the date that each seller receives the copies of the
supplemented or amended prospectus contemplated by SECTION 6.0(a)(3).
SECTION 7.0. REGISTRATION EXPENSES.
(a) All Registration Expenses incident to the Company's
performance of or compliance with this Agreement shall be paid as provided in
this Agreement. As used in this Agreement, the term "Registration Expenses"
includes without limitation all registration filing fees, professional fees,
and other expenses of compliance with federal, state, and other securities
laws (including fees and disbursements of counsel for the underwriters in
connection with state or other securities law qualifications and
registrations); printing expenses, messenger, telephone, and
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delivery expenses; fees and disbursements of counsel for the Company and for
the sellers of the Registrable Securities (subject to the provisions of
SECTION 7.0(b)); fees and disbursements of all independent certified public
accountants (including the expenses of any audit or "cold comfort" letters
required by or incident to performance of the obligations contemplated by
this Agreement); fees and expenses of the underwriters (excluding discounts
and commissions but including liability insurance if the Company so desires
or if the underwriters so require); fees and expenses of any special experts
retained by the Company at the request of the managing underwriters in
connection with the registration; and fees and expenses of other Persons
retained by the Company. The term "Registration Expenses" does not include
the Company's internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, and the fees and expenses incurred
in connection with the listing of the securities to be registered on each
securities exchange on which similar securities issued by the Company are
then listed, all of which shall be paid by the Company.
(b) In connection with each registration for which the Company is
required to pay the Registration Expenses of the holders of Registrable
Securities, the Company will promptly reimburse those holders for the
reasonable fees and disbursements of one law firm, selected by the holders of
a majority of the Registrable Securities, to serve as counsel to all the
holders.
(c) To the extent the Company is not required to pay Registration
Expenses, each holder of securities included in any registration will pay
those Registration Expenses allocable to the holder's securities so included,
and any Registration Expenses not allocable will be borne by all sellers in
proportion to the number of securities each registers.
SECTION 8.0. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. To the full extent permitted by
law, the Company agrees to indemnify each holder of Registrable Securities,
its officers and directors, and each Person who controls the holder (within
the meaning of the Securities Act and the Exchange Act) against all losses,
claims, damages, liabilities, and expenses caused by any untrue or allegedly
untrue statement of material fact contained in any registration statement,
prospectus, or preliminary prospectus or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, except to the extent the untrue statement
or omission resulted from information that the holder furnished in writing to
the Company expressly for use therein or by the holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto to any purchaser after the Company has furnished the
holder with a sufficient number of copies of the relevant documents. In
connection with a firm or best efforts underwritten offering, to the extent
required by the managing underwriters, the Company will indemnify the
underwriters, their officers and directors, and each Person who controls the
underwriters (within the meaning of the Securities Act and the Exchange Act).
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(b) INDEMNIFICATION BY HOLDERS OF SECURITIES. In connection with
any registration statement, each participating holder of Registrable
Securities will furnish to the Company in writing such information and
affidavits as the Company reasonably requests for use in connection with any
registration statement or prospectus and each holder agrees to indemnify, to
the extent permitted by law, the Company, its directors and officers, and
each Person who controls the Company (within the meaning of the Securities
Act and the Exchange Act) against any losses, claims, damages, liabilities,
and expenses resulting from any untrue or allegedly untrue statement of a
material fact or any omission or alleged omission of a material fact required
to be stated in the registration statement or prospectus or any amendment
thereof or supplement thereto necessary to make the statements therein not
misleading, but only to the extent that the untrue statement or omission is
contained in or omitted from any information or affidavit the holder
furnished in writings, or resulting from the holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto to any purchaser after the Company has furnished the
holder with a sufficient number of copies of the relevant documents.
(c) INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification under this Agreement will (1) give prompt notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (2) unless in the indemnified party's reasonable judgment
a conflict of interest may exist between the indemnified and indemnifying
parties with respect to the claim, permit the indemnifying party to assume
the defense of the claim with counsel reasonably satisfactory to the
indemnified party. If the indemnifying party does not assume the defense,
the indemnifying party will not be liable for any settlement made without its
consent (but that consent may not be unreasonably withheld). No indemnifying
party will consent to entry of any judgment or will enter into any settlement
that does not include as an unconditional term the claimant's or plaintiff's
release of the indemnified party from all liability concerning the claim or
litigation. An indemnifying party who is not entitled to or elects not to
assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by the
indemnifying party with respect to the claim, unless in the reasonable
judgment of any indemnified party and any other indemnified party with
respect to the claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of additional counsel.
SECTION 9.0. RULE 144 AND RULE 144A.
(a) If the Company files a registration statement pursuant to the
requirements of the Securities Act or Section 12 of the Exchange Act, the
Company covenants that it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required to file
such reports, it will, upon the request of any holder of Registrable
Securities, make publicly available other information), and it will take such
further action as any holder of Registrable Securities reasonably may
request, all to the extent required from time to time, to enable the holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act as amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any holder
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of Registrable Securities, the Company will deliver to the holder a written
statement as to whether it has complied with the Rule 144 or any successor
rule requirements. The Company also covenants that it will provide all such
information and it will take such further action as any holder of Registrable
Securities reasonably may request to enable the holder to sell Registrable
Securities without registration under the Securities Act within the
limitation of Rule 144A under the Securities Act, as amended from time to
time, or any successor rule requirements.
(b) If any proposed sale of Registrable Securities may be effected
by the holders thereof pursuant to Rule 144(k) without any adverse effect on
the proposed sale, including without limitation the contemplated sale price
or the quantity of Registrable Securities to be sold, then the holders of the
Registrable Securities covenant to rely upon Rule 144(k) in the sale thereof
in lieu of requesting a Demand Registration; provided, however, the holders
of Registrable Securities shall not be obligated to take any action so that
they are eligible to use or rely upon Rule 144(k) in connection with any sale
or distribution.
SECTION 10.0. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No
Person may participate in any underwritten registration without (a) agreeing
to sell securities on the basis provided in any properly approved
underwriting arrangements and (b) completing and executing all
questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents required by the underwriting arrangements.
SECTION 11.0. MISCELLANEOUS.
(a) ADJUSTMENTS AFFECTING SECURITIES. The Company will not take
any action, or permit any change to occur, with respect to the Registrable
Securities that would affect adversely the ability of the holders to include
those securities in a registration undertaken pursuant to this Agreement or
the marketability of the Registrable Securities in any registration.
(b) AMENDMENT. This Agreement may be amended or modified only by
a written agreement executed by the Company and the holders of a majority of
the Registrable Securities then issued and outstanding.
(c) ATTORNEYS' FEES. In any legal action or proceeding brought to
enforce any provision of this Agreement, the prevailing party shall be
entitled to recover all reasonable expenses, charges, court costs, and
attorneys' fees in addition to any other available remedy at law or in equity.
(d) BENEFIT OF PARTIES; ASSIGNMENT. All of the terms and
provisions of this Agreement shall be binding on and inure to the benefit of
the parties and their respective successors and assigns, including without
limitation all subsequent holders of securities entitled to the benefits of
this Agreement provided, however, the Company may not transfer or assign its
rights or obligations under his Agreement.
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(e) CAPTIONS. The captions of the sections and subsections of
this Agreement are solely for convenient reference and shall not be deemed to
affect the meaning or interpretation of any provision of this Agreement.
(f) COOPERATION. The parties agree that after execution of this
Agreement they will from time to time, upon the request of any other party
and without further consideration, execute, acknowledge, and deliver in
proper form any further instruments and take such other action as any other
party may reasonably require to carry out effectively the intent of this
Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same agreement.
(h) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the subject matter of this
Agreement. There are no promises, covenants, or undertakings other than
those expressly set forth or provided for in this Agreement.
(i) NO INCONSISTENT AGREEMENTS. Except with the prior written
consent of the holders of a majority of the Registrable Securities then
issued and outstanding, the Company will not enter into any agreement with
respect to its securities that shall grant to any Person registration rights
that are senior to, are in conflict with, or will interfere with the
practical realization of the rights provided under this Agreement.
(j) NOTICES. All notices, requests, demands, or other
communications that are required or may be given pursuant to the terms of
this Agreement shall be in writing and delivery shall be deemed sufficient in
all respects and to have been duly given on the date of service if delivered
personally to the party to whom notice is to be given, or on the third day
after mailing if mailed by first class mail - return receipt requested,
postage prepaid, and properly addressed to the addresses set forth in the
Investment Agreement or to such other address(es) as the respective parties
hereto shall from time to time designate to the other(s) in writing.
(k) SPECIFIC PERFORMANCE. Each of the parties agrees that damages
for a breach of or default under this Agreement would be inadequate and that
in addition to all other remedies available at law or in equity the parties
and their successors and assigns shall be entitled to specific performance or
injunctive relief, or both, in the event of a breach or a threatened breach
of this Agreement.
(l) VALIDITY OF PROVISIONS. Should any part of this Agreement for
any reason be declared by any court of competent jurisdiction to be invalid,
that decision shall, not affect the validity of the remaining portion, which
shall continue in full force and effect as if this Agreement had been
executed with the invalid portion eliminated, it being the intent of the
parties that they
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would have executed the remaining portion of the Agreement without including
any part or portion that may for any reason be declared invalid.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
-------------------------------------
/s/ A.B. Siemer
----------------------------------------
A. B. Siemer
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT" or sometimes the
"INVESTOR RIGHTS AGREEMENT") is made and entered into as of September 19, 1996,
by and among Total Control Products, Inc., an Illinois Corporation (the
"COMPANY"), and Neil R. Taylor, Merle D. Taylor and Dennis A. Radage
(collectively, the "INVESTORS").
RECITALS:
A. Pursuant to the terms of the Stock Purchase Agreement dated as of the
date hereof (the "PURCHASE AGREEMENT") among 697621 Alberta Ltd., an Alberta
corporation and the wholly-owned subsidiary of the Company ("TCP SUB"), TCP Sub
purchased all First Preferred Shares and certain Class A Common Shares of Taylor
Industrial Software Inc. ("TAYLOR") from the Investors.
B. Pursuant to the Articles of Amalgamation dated as of the date hereof
(the "AMALGAMATION AGREEMENT") TCP Sub and Taylor amalgamated and continued as
one company, of which the Company owns all of the outstanding voting interests
(the "AMALGAMATED COMPANY").
C. Pursuant to Articles of Amendment dated as of the date hereof, the
Amalgamated Company created a class of exchangeable shares (the "EXCHANGEABLE
SHARES") which are exchangeable for shares of common stock of the Company.
D. Pursuant to a Share Exchange Agreement dated as of the date hereof
(the "EXCHANGE AGREEMENT") between the Company, the Investors and TCP Sub, the
shares of the Amalgamated Company held by the Investors were exchanged (the
"EXCHANGE") for Exchangeable Shares.
E. The Amalgamated Company and the Company have entered into a Support
Agreement (the "SUPPORT AGREEMENT") dated as of the date hereof which agreement
binds the Company to aid in the Exchange.
F. As a condition to the Investors entering into the Exchange Agreement,
the Investors have required the Company to enter into this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
AGREEMENTS:
1. DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have the
following meanings:
AFFILIATE: A Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with a
specified Person.
COMMON STOCK: The common stock, no par value per share, of the Company.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended from time to
time, and the rules and regulations promulgated thereunder.
PERSON: An individual, partnership, corporation, limited liability
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
REGISTRABLE SECURITIES: (a) The shares of Common Stock issued or issuable
to an Investor upon the exchange of the Exchangeable Shares in accordance with
the terms and conditions of the Articles of the Amalgamated Company or the
Exchange Agreement and any other shares of Common Stock acquired by an Investor
and (b) any securities issued or issuable with respect to the shares of Common
Stock referred to in the foregoing clause (a) by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. For the purposes of this
Agreement, a Person holding Exchangeable Shares shall be deemed to hold the
Registrable Securities into which such Exchangeable Shares are exchangeable.
Any Registrable Security will cease to be a Registrable Security when (i) a
registration statement covering such Registrable Security has been declared
effective by the SEC and the Registrable Security has been disposed of pursuant
to such effective registration statement, (ii) the Registrable Security is sold
under circumstances in which all of the applicable conditions of Rule 144 (or
any similar provisions then in force) under the Securities Act are met, (iii)
the Registrable Security has been otherwise transferred, the Company has
delivered a new certificate or other evidence of ownership for it not bearing a
legend restricting further transfer, and it may be resold without subsequent
registration under the Securities Act, (iv) the Registrable Securities which are
owned by an Investor, or which the Investor has the right to acquire pursuant to
exchange of Exchangeable Shares, may be sold in the public market without
limitation as to manner of sale, or (v)(A) a favorable no-action letter is
obtained from the SEC confirming that the holding period of the Registerable
Securities for purposes of Rule 144 (or any similar provisions then in force) of
the
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Securities Act began at the time the Investors received the Exchangeable Shares;
(B) the holders of Registrable Securities re permitted to sell such securities
pursuant to Rule 144 of the Securities Act subject only to the volume
limitations set forth in such rule; and (C) based upon the sales volume of
Common Stock, the holders of all Registerable Securities would be entitled to
dispose of all of their remaining Registerable Securities under Rule 144 of the
Securities Act within in a period of six months. For the purposes of
determining a Person's right to any benefit afforded, or to exercise any rights
granted, to a holder of Registrable Securities hereunder, including any right to
receive notice, to give notice, to vote or to make certain elections, any
securities of the Company that are convertible into or exchangeable for
Registrable Securities shall be deemed to be that number of Registrable
Securities into which such securities may be converted or for which such
securities may be exchanged at any point in time.
REGISTRATION EXPENSES: See Section 5 hereof.
REGISTRATION STATEMENT: The Registration Statement of the Company that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus included therein, all amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended from time to time,
and the rules and regulations promulgated thereunder.
SIEMER AGREEMENT: The Registration Rights Agreement dated as of December
16, 1993 between the Company and A.B. Siemer.
UNDERWRITTEN OFFERING: An offering in which securities of the Company are
sold to an underwriter for reoffering to the public.
2. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. Except as otherwise provided herein and
subject to the terms of the Siemer Agreement, at any time after the
expiration of seven months following the effective date of an initial public
offering (an "INITIAL PUBLIC OFFERING") of any class of the Company's
securities under the Securities Act (the "EFFECTIVE TIME"), and during the
five year period commencing at the Effective Time, each of (x) Dennis Radage;
and (v) Merle and Neil Taylor may make two written requests (each, a "DEMAND
NOTICE") for registration under the Securities Act (each, a "DEMAND
REGISTRATION") of the Registrable Securities held by the Investors; PROVIDED,
HOWEVER, that the number of shares of Registrable Securities requested to be
registered (i) shall be greater than 2% of the shares of the class of the
Company's outstanding capital stock requested to be registered and (ii) shall
have a "fair market value" ( determined pursuant to the next sentence) in
excess of $1,000,000. For purposes of this Agreement, fair market value of
the Registrable
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Securities shall be determined as follows: (i) if the security is listed on any
established stock exchange or a national market system, including, without
limitation, the National Market System of the National Association of Securities
Dealers Automated Quotation System, its fair market value shall be the closing
sales price or the closing bid if no sales were reported, as quoted on such
system or exchange (or the largest such exchange) on the date of the Demand
Notice (or if there are no sales bids for such date, then for the last preceding
business day of such sales or bids), as reported in The Wall Street Journal or
similar publication; (ii) if the security is regularly quoted by a recognized
securities dealer but selling prices are not reported, its fair market value
shall be the mean between the high bid and low asked prices for the security on
the date of the Demand Notice (or if there are no quoted prices for such date,
then for the last preceding business day on which there were quoted prices); or
(iii) in the absence of an established market for the security, the fair market
value shall be determined in good faith by the Company's Board of Directors,
with reference to the Company's net worth, prospective earning power,
dividend-paying capacity and other relevant factors, including the goodwill of
the Company, the economic outlook in the Company's industry, the Company's
position in the industry and its management and the values of stock of other
corporations in the same or a similar line of business (all of such factors
determined as of the date of the Demand Notice).
Within ten days after receipt of each Demand Notice, the Company shall give
written notice of such registration request to all non-requesting holders of
Registrable Securities and all other holders of registerable securities of the
Company and shall, subject to the provisions of the following paragraph, include
in such registration all Registrable Securities with respect to which the
Company received written requests for inclusion therein within 15 days after the
receipt of the notice of such demand registration request by the applicable
holder. Both the Demand Notice and any request to have Registrable Securities
included in a Demand Registration will specify the number of shares of
Registrable Securities proposed to be sold and will also specify the intended
method of disposition thereof. A registration requested pursuant to this
Section 2(a) will not be deemed to have been effected unless the Registration
Statement relating thereto has become effective under the Securities Act;
PROVIDED, HOWEVER, that if, after such Registration Statement has become
effective, the offering of the Registrable Securities pursuant to such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, or by the
Company's failure to keep the Registration Statement effective or the prospectus
included therein current for the periods specified herein, such registration
will be deemed not to have been effected and the demanding Investors' right to
request a Demand Registration hereunder shall be reinstated. The Investors
requesting a registration pursuant to this Section 2(a) may, at any time prior
to the effective date of the Registration Statement relating to such
registration, revoke such request with respect to their Registrable Securities
by providing a written notice to the Company revoking such request.
If the Investor(s) making such demand so elect, the offering of
Registrable Securities pursuant to a Demand Registration shall be in the form
of an Underwritten Offering. If the managing underwriter or underwriters of
such offering advise the Company and the holders of Registrable Securities in
writing that in their opinion the number of shares of Registrable Securities
requested to be included in such offering is sufficiently large to materially
and adversely affect the success of such offering, the Company will include
in such offering the aggregate number of
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Registrable Securities which in the opinion of such managing underwriter or
underwriters can be sold without any such material adverse effect and the
Registrable Securities to be included in such registration shall be allocated,
(i) FIRST to A.B. Siemer to the extent Siemer is entitled to include securities
in the Demand Registration; (ii) SECOND to the Investors making such demand pro
rata in accordance with the number of Registerable Securities of each Investor
proposed to include in the Demand Registration, (iii) THIRD among the other
holders of Registrable Securities pro rata (according to the Registrable
Securities beneficially owned by such holders) to the extent necessary to reduce
the total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters, and (iv) FOURTH among
the Company and any other holders of registration rights in respect of
securities of the Company in accordance with the terms of the agreements
granting such rights. If fewer than one-half of the Registrable Securities
proposed to be included by the Investors are included in a Demand Registration,
then the Investor's right to request such Demand Registration shall be
reinstated. No Investor shall be entitled to effect a Demand Notice under this
Section 2(a) within 180 days after the closing date of an Underwritten Offering.
In the event that at any time the Company takes a position that the holding
period of the Exchangeable Shares may not be identified with the holding period
of the Registerable Securities under Rule 144(d), each of (a) Neil and Merle
Taylor; and (b) Dennis Radage shall be entitled to request at any time after the
completion of the Demand Registrations requested under this subsection 2(a), and
the Company shall be obligated to effect as soon as practicable after such
request, in accordance with the terms of this Agreement, one additional Demand
Registration pursuant to the terms hereof.
(b) INCIDENTAL REGISTRATION. If the Company proposes to file a
registration statement under the Securities Act (other than in connection with
the Initial Public Offering, a Registration Statement on Form S-4 or S-8 or any
form substituting therefor) with respect to an offering of any class of security
by the Company for its own account or for the account of any of its security
holders, then the Company shall give written notice of such proposed filing to
the holders of the Registrable Securities as soon as practicable (but in no
event less than thirty days before the anticipated filing date), and such notice
shall offer such holders the opportunity to register such number of Registrable
Securities as each such holder may request. Each holder of Registrable
Securities desiring to have its Registrable Securities registered under this
subsection 2(b) shall so advise the Company in writing within 15 days after the
date of receipt of such notice from the Company (which request shall set forth
the number of Registrable Securities for which registration is requested). The
Company shall include in such Registration Statement all such Registrable
Securities so requested to be included therein, and, if such registration is an
Underwritten Registration, the Company, shall use it best efforts to cause the
managing underwriter or underwriters to permit the Registrable Securities
requested to be included in the registration statement for such offering to be
included (on the same terms and conditions as similar securities of the Company
included therein to the extent appropriate); PROVIDED, HOWEVER, that if the
managing underwriter or underwriters of such offering deliver a written opinion
to the holders of such Registrable Securities that the total number of
securities that the Company, the holders of Registrable Securities, or such
other persons propose to include in such offering is such that the
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success of the offering would be materially and adversely affected by inclusion
of the securities requested to be included, then the amount of securities to be
offered for the accounts of the Company, the holders of Registrable Securities
and other holders registering securities pursuant to registration rights shall
be allocated as follows:
(i) if such registration has been initiated by the Company as a primary
offering, first to the securities sought to be included by the
Company, SECOND to the securities sought to be included by Siemer to
the extent permitted by the Siemer Agreement and THIRD to the
Registrable Securities sought to be included by the holders thereof
and the securities sought to be included by other holders of
registration rights, pro rata, on the basis of the number of
securities owned by each such holder; and
(ii) if such registration has been initiated by another holder of
registration rights (other than pursuant to Section 2(a) hereof),
FIRST to the securities sought to be included by Siemer to the
extent permitted by the Siemer Agreement, SECOND to the securities
sought to be included by such demanding holder, THIRD to the
Registrable Securities sought to be included by the holders thereof
and to all other securities sought to be included by other holders
of registration rights, pro rata, on the basis of the number of
securities owned by each such holder, and FOURTH to the securities
sought to be included by the Company.
If the number of Registrable Securities sought to be registered pursuant to
this Section 2(b) by a holder of Registrable Securities is reduced as provided
above, such holder shall have the right to withdraw such holder's request for
registration with respect to all of the Registrable Securities initially sought
to be registered.
3. HOLD-BACK AGREEMENT. Each holder of Registrable Securities agrees, if
requested by the managing underwriters in an Underwritten Offering, not to
effect any public sale or distribution of securities of the Company of the same
class as the securities included in the applicable registration statement,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such Underwritten Registration), during the 10-day period prior to the filing
of the registration statement with respect to such Underwritten Offering, and
during the 180-day period beginning on the effective date of the registration
statement with respect to such Underwritten Offering, to the extent timely
notified in writing by the Company or the managing underwriters.
Notwithstanding the foregoing, each holder of "Registerable Securities agrees to
enter into a lock-up agreement with the underwriters of any public registration
of the Company's securities in substantially the form entered into by the
directors, executive officers and holders of five percent of the Common Stock of
the Company.
4. REGISTRATION PROCEDURES. In connection with the Company registration
obligations pursuant to Section 2 hereof, the Company will use its best efforts
to effect such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will as expeditiously as possible:
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(a) prepare and file with the SEC, as soon as practicable, a Registration
Statement relating to the applicable registration on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements of the Company,
and use its best efforts to cause such Registration Statement to become
effective; PROVIDED that the Company shall have the right to delay filing or
effectiveness of a Registration Statement filed pursuant to Section 2(a) hereto
or the commencement of a public distribution of Registrable Securities, as
applicable, for up to 90 days if the Company's Board of Directors determines, in
good faith, that the filing or effectiveness thereof or the commencement of such
public distribution could materially interfere with a pending extraordinary
transaction involving the Company or bona fide financing plans of the Company or
would require disclosure of information, the premature disclosure of which would
be materially detrimental to the best interests of the Company; and PROVIDED
FURTHER that such right may not be exercised more than once in any twelve month
period;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for nine months with respect to a Demand
Registration on a form other than Form S-3 and two years with respect to a
Demand Registration on Form S-3, or such shorter period which will terminate
when all Registrable Securities covered by such Registration Statement have been
sold; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law; PROVIDED that the Company shall be
entitled to defer filing any of the foregoing for a period of sixty (60) days if
the Company shall in good faith and for valid business reasons defer such
filings, which valid business reasons shall include, without limitation, the
acquisition or divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 4(j) hereof, if applicable;
(c) notify the selling holders of Registrable Securities and the managing
underwriters, if any, promptly, and (if requested by any such Person) confirm
such advice in writing, (1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(2) of any request by the SEC for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (3) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, (4) if at any
time the representations and warranties of the Company contemplated by paragraph
(1) below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (6) of the
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happening of any event which makes any statement made in the Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(f) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(g) prior to any public offering of Registrable Securities, register or
qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any seller or
underwriter reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the Registration Statement;
(h) cooperate with the selling holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not beating
any restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(i) cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller
or sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities;
0) promptly upon the occurrence of any event contemplated by Section
4(c)(6) above, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus will
8
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not contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(k) cause all Registrable Securities covered by the Registration Statement
to be listed or approved for listing on each securities exchange on which
similar securities issued by the Company are then listed and approved for
quotation on NASDAQ if the Company's securities are then quoted on NASDAQ;
(l) enter into such agreements (including an underwriting agreement) and
take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in connection
therewith, whether or not an underwriting agreement is entered into and whether
or not the registration is an Underwritten Registration, (1) make such
representations, warranties, covenants and indemnities to the holders of such
Registrable Securities and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in primary underwritten
offerings; (2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a majority
of the Registrable Securities included in such registration, covering the
matters customarily covered in opinions requested in Underwritten Offerings and
such other matters as may be reasonably requested by such holders and
underwriters); and (3) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to the selling
holders of Registrable Securities and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters by underwriters in connection with primary
Underwritten Offerings;
(m) comply with all applicable rules and regulations of the SEC and make
available to its security holders, as soon as reasonably practicable, earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act),
covering any 12-month period (or 90 days after the end of any 12-month period if
such period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment or
reasonable efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the day of the first fiscal quarter of the
Company after the effective date of a Registration Statement; and
(n) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD");
(o) notify the Investors if the SEC advises the Company that the exchange
of the Exchangeable Shares for Registrable Securities is required as a condition
to the filing of any registration statement under Section 2. If such exchange is
required, the Company's obligation to register the Registrable Securities under
Section 2, shall be conditioned upon the exchange occurring prior to the filing
of the Registration Statement. If a registration statement must be withdrawn
9
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because the SEC takes the position that the exchange must be made before filing,
the expenses of such filing shall be borne by the Company pursuant to Section 5
and such prior filing shall not be deemed to satisfy the Company's obligation to
effect a registration under Section 2.
(p) keep the Investors advised of the status of any registration statement
filed under Section 2 and coordinate the effective date of such registration
statement with the Investors; and
(q) take such other lawful actions as shall be reasonable to facilitate
the registration of the Registrable Securities.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing and to enter into agreements related to the
distribution of the Registrable Securities that are designed to insure
compliance with the Exchange Act.
Each Investor hereby agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 4(j) hereof, such holder will forthwith
discontinue disposition of Registrable Securities until such holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
4(j) hereof, or until it is advised in writing (the "ADVICE") by the Company
that the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company such holder will deliver to the
Company (fit the Company's expense), all copies, other than permanent file
copies then in such holder's possession, of the Prospectus coveting such
Registrable Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the time periods regarding the
effectiveness of Registration Statements set forth in Section 2 hereof and
Section 4(b) hereof shall be extended by the number of days during the period
from and including the date of the giving of such notice pursuant to
Section 4(c) (6) hereof to the date when the selling holders of Registrable
Securities covered by such registration statement shall receive copies of the
supplemented or amended prospectus contemplated by Section 4(j) hereof or
the Advice.
5. REGISTRATION FEES. All expenses incident to the Company's performance
of or compliance with this Agreement, including without limitation: all
registration and filing fees; all fees associated with a required listing of the
Registrable Securities on any securities exchange; fees and expenses with
respect to filings required to be made with the NASD; fees and expenses of
compliance with securities or blue sky laws (including fees and disbursements of
counsel for the underwriters or holders of Registrable Securities in connection
with blue sky qualifications of the Registrable Securities and determination of
their eligibility for investment under the laws of such jurisdictions as the
managing underwriters or holders of a majority of the Registrable Securities
being sold may designate); printing expenses, messenger, telephone and delivery
expenses;, fees and disbursements of counsel for the Company and customary fees
and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters
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or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant to Section
4(l) hereof); fees and disbursements of counsel for the Investors in an
aggregate amount for all purposes under this Agreement and for all Demand and/or
Incidental Registration Rights not to exceed $20,000; securities acts liability
insurance, if the Company so desires; all internal expenses of the Company
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties); the expense of any annual
audit; and the fees and expenses of any Person, including special experts,
retained by the Company (all such expenses being herein called "REGISTRATION
EXPENSES") will be borne by the Company regardless of whether the Registration
Statement becomes effective. The Company shall not have any obligation to pay
any underwriting fees, discounts, or commissions attributable to the sale of
Registrable Securities.
6. INDEMNIFICATION: CONTRIBUTION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and hold
harmless each holder of Registrable Securities against all losses, claims,
damages, liabilities and expenses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by the holders of Registrable Securities expressly for use therein.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each holder of
Registrable Securities agrees to indemnify and hold harmless the Company, its
directors, officers, employees, agents, and Affiliates, each Person who controls
the Company (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and each other holder against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement of a
material fact or any omission of a material fact required to be stated in the
Registration Statement or Prospectus or preliminary prospectus or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
or affidavit so furnished in writing by such holder to the Company specifically
for inclusion in such Registration Statement or Prospectus.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; PROVIDED, HOWEVER that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed to pay such fees or expenses, (b) the indemnifying
party shall have failed to assume the defense of such claim and employ counsel
reasonably satisfactory to such Person or (c) based upon advice of counsel of
such Person, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims
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(in which case, if the Person notifies the indemnifying party in writing that
such Person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such Person), in each of which events the fees and
expenses of such counsel shall be at the expense of the indemnifying party. The
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld), but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the indemnifying party shall
indemnify and hold harmless the indemnified parties from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment.
No indemnified party will be required to consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff/ to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) CONTRIBUTION. If for any reason the indemnification provided for in
the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by, the preceding clauses (a)
and (b), then each indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and each such indemnifying party, but
also the relative fault of the indemnified party and each such indemnifying
party, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the selling holders on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
party's relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentations.
7. PARTICIPATION IN UNDERWRITTEN OFFERINGS. No Person may participate in
any Underwritten Offerings hereunder unless such Person (i) agrees to sell such
Person's securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnifies,
underwriting agreements, lock-up agreements and other documents required under
the terms of this Agreement and such underwriting arrangements. Nothing in this
Section 7 shall be construed to create any additional rights regarding the
registration of Registrable Securities in any Person otherwise than as set forth
herein.
From and after the Effective Time, until no Registerable Securities remain
outstanding, in order to facilitate the availability to the Investors and the
other holders of Registerable Securities of Form S-2 and Form S-3, if available,
and the exemption from registration provided by Rule 144 of the Securities Act,
if available, the Company hereby agrees to file in the manner and at the times
required all reports and other information required to be filed by the Company
pursuant to the Securities Exchange Act of 1934, as amended.
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8. MISCELLANEOUS.
(a) REMEDIES. Each party hereto, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its right under this
Agreement to the extent available under applicable law. Each party hereto
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of the Company and each of the Investors.
(c) NOTICES. All Notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or air courier guaranteeing overnight delivery:
(i) if to the Company: Total Control Products, Inc., 2001 North
Janice Avenue, Melrose Park, Illinois, Attention: Nicholas
Gihl, President, Fax: (708) 345-5670; with a copy to: D'Ancona
& Pflaum, 30 North LaSalle, Suite 2900, Chicago, Illinois
60602, Attention: Michael J. Feldman, Fax: (312) 580-0923.
(ii) if to Neil R. Taylor and/or Merle D Taylor: 7711 - 139 Street,
Edmonton, Alberta T5R 0E9, Fax: (403) 484-0395, with a copy to
Macleod Dixon, 3700 - 400 Third Avenue SW, Calgary, Alberta,
T2P 4H2, Attention: John Ramsay, Fax: (403) 264-5973.
(iii) if to Dennis A. Radage: 35 Cormack Crescent Edmonton, Alberta,
T6r 3E7, Fax: (403) 436-7857.
(iv) if to any transferee, at the address given by such transferee
to the Company.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities who agree in writing to
be bound by the obligations of holders of Registrable Securities set forth
herein; PROVIDED that holders of Registrable Securities may not assign their
rights under this Agreement except in connection with the permitted transfer of
Registrable Securities and then only insofar as relates to such Registrable
Securities. The rights to request a Demand Registration under Section 2(a)
hereof reserved to the Investors under this Agreement shall not be transferable,
but may be exercised by an Investor on behalf of a transferee of Registerable
Securities, and in such event
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the Registerable Securities held by such transferee shall be deemed to be held
by the Investor to which they were issued for the purpose of Section 2 hereof.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) HEADING. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
(h) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(i) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in (sic]
Alberta Agreement. respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date first written above.
TOTAL CONTROL PRODUCTS, INC.
By: /s/ Nicholas Gihl
---------------------------
Title:
------------------------
/s/ N.R. Taylor
------------------------------
Neil R. Taylor
/s/ D. Radage
------------------------------
Dennis A. Radage
/s/ Merle Taylor
------------------------------
Merle D. Taylor
15
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EXHIBIT 10.23
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into as of
the 29 day of January, 1996 by and between Total Control Products, Inc., an
Illinois corporation ("TCP") and John Sheridan ("Investor").
PRELIMINARY STATEMENT
Pursuant to the Merger Agreement (the "Investment Agreement") by and
between TCP, Investor, and various other parties dated as of the date hereof,
as partial consideration for the consummation of the transaction contemplated
by the Investment Agreement (the "Merger"), Investor has received 50,001
shares of common stock, no par value per share, of TCP ("Common Stock").
Investor's agreement to receive such shares of Common Stock upon consummation
of the Merger is on the condition that TCP agree to certain terms and
conditions related to the registration of securities of TCP, as set forth in
this Agreement.
TERMS AND CONDITIONS
In consideration of the mutual covenants and agreements contained in
this Agreement and the Investment Agreement, and intending to be legally
bound, the parties hereto agree as follows:
SECTION 1.0. DEFINITIONS. As used in this Agreement, the following
terms have the meanings indicated below or in the referenced sections of this
Agreement.
"Common Stock": TCP's Common Stock, without par value, as the same may
be constituted from time to time.
"Employment Agreement": That certain Employment Agreement dated as of
the date hereof between Tara Products, Inc. and Investor.
"Exchange Act": The Securities Exchange Act of 1934, as amended from
time to time.
"Initial Public Offering": The first primary offering of Common Stock
by TCP registered pursuant to the Securities Act.
"Person": An individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, and a government entity or any
department, agency, or political subdivision thereof.
"Piggyback Registration": See SECTION 3.0(a).
<PAGE>
"Registrable Securities": The 50,001 shares of Common Stock to be
received by Investor pursuant to the Investment Agreement and any other
shares of Common Stock acquired by Investor after the date hereof, including
without limitation, any additional shares of Common Stock received by
Investor pursuant to the terms of the Investment Agreement and pursuant to
the terms of the Employment Agreement.
"Registration Expenses": See SECTION 6.0.
"Restricted Securities": The Registrable Securities, subject to the
provisions of SECTION 2.0(a).
"SEC": The United States Securities and Exchange Commission.
"Siemer Agreement": That certain Registration Rights Agreement dated as
of December 16, 1993 between TCP and A.B. Siemer.
"Securities Act": The Securities Act of 1933, as amended from time to
time.
"Underwritten registration or underwritten offering": A registration in
which securities of TCP are sold pursuant to a firm commitment underwriting.
SECTION 2.0. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) REGISTRABLE SECURITIES. The securities entitled to the benefits of
this Agreement are those Registrable Securities that are Restricted
Securities. A Registrable Security ceases to be a Restricted Security when
(i) it is registered under the Securities Act and disposed of in accordance
with the registration statement covering it, or (ii) it is sold or
transferred in accordance with the requirements of Rule 144 (or similar
provisions then in effect) promulgated by the SEC under the Securities Act
("Rule 144").
(b) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a
holder of Registrable Securities whenever that Person owns, directly or
beneficially, or has the right to acquire Registrable Securities,
disregarding any legal restrictions upon the exercise of that right.
SECTION 3.0. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. If at any time after the second year anniversary
of the date hereof, TCP proposes to register any of its securities under the
Securities Act (except for the registration of securities on Form S-4 or to be
offered pursuant to an employee benefit plan on Form S-8 or any successor forms
then in effect) (a "Piggyback Registration"), it will so notify in writing all
holders of Registrable Securities not later than the earlier to occur of (i) the
5th day following TCP's receipt of notice of exercise of demand registration
rights, or (ii) 30 days prior to the anticipated filing date. Subject to the
provisions of SECTIONS 3.0(b) and the terms and provisions of the Siemer
Agreement, TCP will include in the Piggyback Registration all Registrable
Securities with respect to which TCP
- 2 -
<PAGE>
has received written requests for inclusion within 15 business days after the
applicable holder's receipt of TCP's notice. The holders of Registrable
Securities may withdraw all or any part of the Registrable Securities from a
Piggyback Registration at any time before the printing of the preliminary
prospectus relating to the Piggyback Registration. All Persons whose
securities are included in the Piggyback Registration must sell their
securities on the same terms and conditions as apply to the securities being
issued and sold by TCP or, if TCP is not issuing and selling shares, the
person who initiated the Piggyback Registration.
(b) PRIORITY ON REGISTRATIONS. If a Piggyback Registration is an
underwritten registration on behalf of TCP and the managing underwriters give
TCP their written opinion that the total number or dollar amount of
securities requested to be included in the registration exceeds the number or
dollar amount of securities that can be sold, TCP will include the securities
in the registration in the following order of priority: first, all securities
TCP proposes to sell; second, up to the full number or dollar amount of
Registrable Securities requested to be included in the registration pursuant
to the terms of the Siemer Agreement (allocated pro rata among the holders of
Registrable Securities under the Siemer Agreement on the basis of the dollar
amount or number of Registrable Securities under the Siemer Agreement
requested to be included); third, up to the full number or dollar amount of
Registrable Securities requested to be included in the registration pursuant
to the terms of this Agreement (allocated pro rata among the holders of
Registrable Securities under this Agreement on the basis of the dollar amount
or number of Registrable Securities under this Agreement requested to be
included) and fourth, any other securities (provided they are of the same
class as the securities sold by TCP) requested to be included, allocated
among the holders of the securities in such proportions as TCP and those
holders may agree.
(c) SELECTION OF UNDERWRITERS. If any Piggyback Registration is an
underwritten offering, TCP will select the investment banker(s) and manager(s)
that will administer the offering and shall enter into a customary underwriting
agreement with the investment banker(s) and manager(s).
(d) OTHER REGISTRATIONS. TCP agrees that after filing a registration
statement with respect to Registrable Securities pursuant to this SECTION 3.0
that has not been withdrawn or abandoned, TCP will not register any of its
equity securities or securities convertible or exchangeable into or exercisable
for its equity securities under the Securities Act, whether on its own behalf or
at the request of any holder of those securities, until at least three months
has elapsed from the effective date of the previous registration. This three-
month hiatus does not apply to registrations of securities to be issued in
connection with employee benefit plans, to permit exercise or conversions of
previously issued options, warrants, or other convertible securities.
SECTION 4.0. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY SECURITIES HOLDERS. Each holder of
Registrable Securities agrees not to make any public sale or distribution of
equity securities of TCP (except as part of the underwritten registration),
including a sale pursuant to Rule 144 under the Securities Act, during the seven
days prior to and the 90 days after the effective date of any underwritten
registration
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<PAGE>
of securities by TCP (or such longer period not to exceed 180 days as the
Underwriters may require) unless the managing underwriters agree otherwise.
(b) RESTRICTIONS ON PUBLIC SALE BY TCP AND OTHERS. TCP agrees not to
make any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for its equity
securities, including a sale under Regulation D of the SEC or under any
exemption of the Securities Act (except as part of the underwritten
registration or pursuant to registrations on Form S-8 or Form S-4 or any
successor forms), during the seven days prior to and the 90 days after the
effective date of any underwritten registration of securities by TCP unless
the managing underwriters agree otherwise. TCP also agrees to use its
reasonable best efforts to cause each holder of its privately placed equity
securities, or any securities convertible into or exchangeable or exercisable
for its equity securities (other than Registrable Securities), purchased from
TCP at any time on or after the date of this Agreement to agree not to make
any public sale or distribution of those securities, including a sale
pursuant to Rule 144 (except as part of the underwritten registration, if
permitted), during the seven days prior to and the 90 days after the
effective date of the registration unless the managing underwriters agree
otherwise.
SECTION 5.0. REGISTRATION PROCEDURES.
(a) Whenever the holders of Registrable Securities request the
inclusion of any Registrable Securities in a registration statement to be
filed pursuant to this Agreement, TCP shall use its reasonable best efforts
to register and to permit the sale of the Registrable Securities in
accordance with the intended method of disposition. To carry out this
obligation, TCP shall:
(1) prepare and file with the SEC a registration statement on the
appropriate form and use its reasonable best efforts to cause the
registration statement to become effective. At least ten days before
filing a registration statement or prospectus or at least three business
days before filing any amendments or supplements thereto, TCP will furnish
to the counsel of the holders of a majority of the Registrable Securities
being registered copies of all documents proposed to be filed for that
counsel's review;
(2) notify immediately each seller of Registrable Securities of any
stop order threatened or issued by the SEC and take all actions reasonably
required to prevent the entry of a stop order or if entered to have it
rescinded or otherwise removed;
(3) prepare and file with the SEC such amendments and supplements to
the registration statement and the corresponding prospectus necessary to
keep the registration statement effective for 90 days or such shorter
period as may be required to sell all Registrable Securities covered by the
registration statement; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by the
registration statement during each period in accordance with the sellers'
intended methods of disposition as set forth in the registration statement;
- 4 -
<PAGE>
(4) furnish to each seller of the Registrable Securities a sufficient
number of copies of the registration statement, each amendment and
supplement thereto (in each case including all exhibits), the corresponding
prospectus (including each preliminary prospectus), and such other
documents as a seller may reasonably request to facilitate the disposition
of the seller's Registrable Securities;
(5) use its reasonable best efforts to register or qualify the
Registrable Securities under securities or blue sky laws of jurisdictions
in the United States of America as any seller reasonably requests and will
do any and all other acts and things that may be reasonably necessary or
advisable to enable the seller to consummate the disposition of the
seller's Registrable Securities as long as TCP is not required to qualify
to do business in connection with the registration or qualification;
(6) use its reasonable best efforts to cause the Registrable
Securities covered by the registration statement to be registered with or
approved by those governmental agencies or authorities necessary to enable
each seller to consummate the disposition of its Registrable Securities;
(7) notify each seller of Registrable Securities, at any time when a
prospectus is required to be delivered under the Securities Act, of any
event as a result of which the prospectus or any document incorporated
therein by reference contains an untrue statement of a material fact or
omits to state any material fact necessary to make the statements therein
not misleading, and will prepare a supplement or amendment to the
prospectus or any such document incorporated therein by reference so that
thereafter the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(8) cause all registered Registrable Securities to be listed on each
securities exchange, if any, on which similar securities issued by TCP are
then listed;
(9) provide an institutional transfer agent and registrar and a CUSIP
number for all Registrable securities on or before the effective date of
the registration statement;
(10) enter into such customary agreements (including an underwriting
agreement in customary form) and take all other actions in connection with
those agreements as the holders of the Registrable Securities being
registered or the underwriters, if any, reasonably request to expedite or
facilitate the disposition of the Registrable Securities;
(11) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
the registration statement, and any attorney, accountant, or other agent of
any seller or underwriter, all financial and other records, pertinent
corporate documents, and properties of TCP, and cause TCP's officers,
directors, and employees to supply all information reasonably requested by
any seller, underwriter, attorney, accountant, or agent in connection with
the registration statement;
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<PAGE>
(12) obtain a "cold comfort" letter from TCP's independent public
accountants in customary form and covering those matters customarily
covered by "cold comfort" letters as the holders of the Registrable
securities being registered or the managing underwriters reasonably
request; and
(13) use its reasonable best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement complying
with the provisions of Section 11(a) of the Securities Act and covering the
period of at least twelve months, but not more than eighteen months,
beginning with the first month after the effective date of the Registration
Statement.
(b) From time to time, TCP may require each seller of Registrable
Securities subject to the registration to furnish to TCP information regarding
the distribution of the securities subject to the registration.
(c) Each holder of Registrable Securities agrees by acquisition of
those securities that, upon receipt of any notice from TCP of any event of
the kind described in SECTION 5.0(a)(7), the holder will discontinue
disposition of Registrable Securities until the holder receives copies of the
supplemented or amended prospectus contemplated by SECTION 5.0(a)(7). In
addition, if TCP requests, the holder will deliver to TCP (at TCP's expense)
all copies, other than permanent file copies then in the holder's possession,
of the prospectus covering the Registrable Securities current at the time of
receipt of the notice. If TCP gives any such notice, the time period
mentioned in SECTION 5.0(a)(3) shall be extended by the number of days
elapsing between the date of notice and the date that each seller receives
the copies of the supplemented or amended prospectus contemplated by SECTION
5.0(a)(3).
SECTION 6.0. REGISTRATION EXPENSES. All Registration Expenses
incident to TCP's performance of or compliance with this Agreement shall be
paid by TCP. As used in this Agreement, the term "Registration Expenses"
includes without limitation all registration filing fees, professional fees,
and other expenses of compliance with federal, state, and other securities
laws (including fees and disbursements of counsel for the underwriters in
connection with state or other securities law qualifications and
registrations); printing expenses, messenger, telephone, and delivery
expenses; fees and disbursements of counsel for TCP; fees and disbursements
of all independent certified public accountants (including the expenses of
any audit or "cold comfort" letters required by or incident to performance of
the obligations contemplated by this Agreement); fees and expenses of the
underwriters (excluding discounts and commissions but including liability
insurance if TCP so desires or if the underwriters so require); fees and
expenses of any special experts retained by TCP at the request of the
managing underwriters in connection with the registration; and fees and
expenses of other Persons retained by TCP. The term "Registration Expenses"
does not include any discounts and commissions of underwriters payable with
respect to the sale of shares of Registerable Securities, which expenses
shall be borne by the holder of shares of Registerable Securities sold.
- 6 -
<PAGE>
SECTION 7.0. INDEMNIFICATION.
(a) INDEMNIFICATION BY TCP. To the full extent permitted by law, TCP
agrees to indemnify each holder of Registrable Securities, its officers and
directors, and each Person who controls the holder (within the meaning of the
Securities Act and the Exchange Act) against all losses, claims, damages,
liabilities, and expenses caused by any untrue or allegedly untrue statement
of material fact contained in any registration statement, prospectus, or
preliminary prospectus or any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except to the extent the untrue statement
or omission resulted from information that the holder furnished in writing to
TCP expressly for use therein or by the holder's failure to deliver a copy of
the registration statement or prospectus or any amendments or supplements
thereto to any purchaser after TCP has furnished the holder with a sufficient
number of copies of the relevant documents. In connection with a firm or
best efforts underwritten offering, to the extent required by the managing
underwriters, TCP will indemnify the underwriters, their officers and
directors, and each Person who controls the underwriters (within the meaning
of the Securities Act and the Exchange Act).
(b) INDEMNIFICATION BY HOLDERS OF SECURITIES. In connection with any
registration statement, each participating holder of Registrable Securities
will furnish to TCP in writing such information and affidavits as TCP
reasonably requests for use in connection with any registration statement or
prospectus and each holder agrees to indemnify, to the extent permitted by
law, TCP, its directors and officers, and each Person who controls TCP
(within the meaning of the Securities Act and the Exchange Act) against any
losses, claims, damages, liabilities, and expenses resulting from any untrue
or allegedly untrue statement of a material fact or any omission or alleged
omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto
necessary to make the statements therein not misleading, but only to the
extent that the untrue statement or omission is contained in or omitted from
any information or affidavit the holder furnished in writing, or resulting
from the holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto to any purchaser after
TCP has furnished the holder with a sufficient number of copies of the
relevant documents.
(c) INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification
under this Agreement will (1) give prompt notice to the indemnifying party of
any claim with respect to which it seeks indemnification and (2) unless in the
indemnified party's reasonable judgment a conflict of interest may exist between
the indemnified and indemnifying parties with respect to the claim, permit the
indemnifying party to assume the defense of the claim with counsel reasonably
satisfactory to the indemnified party. If the indemnifying party does not
assume the defense, the indemnifying party will not be liable for any settlement
made without its consent (but that consent may not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or will enter into
any settlement that does not include as an unconditional term the claimant's or
plaintiff's release of the indemnified party from all liability concerning the
claim or litigation. An indemnifying party who is not entitled to or elects not
to assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by the
indemnifying party with respect to the claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may
- 7 -
<PAGE>
exist between the indemnified party and any other indemnified party with
respect to the claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of additional counsel.
SECTION 8.0. RULE 144 AND RULE 144A. If TCP files a registration
statement pursuant to the requirements of the Securities Act or Section 12 of
the Exchange Act, TCP covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if TCP is not required to file
such reports, it will, upon the request of any holder of Registrable
Securities, make publicly available other information), and it will take such
further action as any holder of Registrable Securities reasonably may
request, all to the extent required from time to time, to enable the holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act as amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any holder of
Registrable Securities, TCP will deliver to the holder a written statement as
to whether it has complied with the Rule 144 or any successor rule
requirements. TCP also covenants that it will provide all such information
and it will take such further action as any holder of Registrable Securities
reasonably may request to enable the holder to sell Registrable Securities
without registration under the Securities Act within the limitation of Rule
144A under the Securities Act, as amended from time to time, or any successor
rule requirements.
SECTION 9.0. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration without (a) agreeing to sell
securities on the basis provided in any properly approved underwriting
arrangements and (b) completing and executing all questionnaires, powers of
attorney, indemnities, underwriting agreements, and other documents required by
the underwriting arrangements.
SECTION 10.0. MISCELLANEOUS.
(a) ADJUSTMENTS AFFECTING SECURITIES. TCP will not take any action, or
permit any change to occur, with respect to the Registrable Securities that
would affect adversely the ability of the holders to include those securities in
a registration undertaken pursuant to this Agreement or the marketability of the
Registrable Securities in any registration.
(b) AMENDMENT. This Agreement may be amended or modified only by a
written agreement executed by TCP and the holders of a majority of the
Registrable Securities then issued and outstanding.
(c) ATTORNEYS' FEES. In any legal action or proceeding brought to enforce
any provision of this Agreement, the prevailing party shall be entitled to
recover all reasonable expenses, charges, court costs, and attorneys' fees in
addition to any other available remedy at law or in equity.
(d) BENEFIT OF PARTIES; ASSIGNMENT. All of the terms and provisions of
this Agreement shall be binding on and inure to the benefit of the parties and
their respective successors and assigns, including without limitation all
subsequent holders of securities entitled to the benefits of this
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<PAGE>
Agreement provided, however, TCP may not transfer or assign its rights or
obligations under this Agreement.
(e) CAPTIONS. The captions of the sections and subsections of this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any provision of this Agreement.
(f) COOPERATION. The parties agree that after execution of this Agreement
they will from time to time, upon the request of any other party and without
further consideration, execute, acknowledge, and deliver in proper form any
further instruments and take such other action as any other party may reasonably
require to carry out effectively the intent of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
(h) ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to the subject matter of this Agreement. There are no
promises, covenants, or undertakings other than those expressly set forth or
provided for in this Agreement.
(i) NO INCONSISTENT AGREEMENTS. Except with the prior written consent of
the holders of a majority of the Registrable Securities then issued and
outstanding, TCP will not enter into any agreement with respect to its
securities that shall grant to any Person registration rights that are senior
to, are in conflict with, or will interfere with the practical realization of
the rights provided under this Agreement.
(j) NOTICES. All notices, requests, demands, or other communications that
are required or may be given pursuant to the terms of this Agreement shall be in
writing and delivery shall be deemed sufficient in all respects and to have been
duly given on the date of service if delivered personally to the party to whom
notice is to be given, or on the third day after mailing if mailed by first
class mail - return receipt requested, postage prepaid, and properly addressed
to the addresses set forth in the Investment Agreement or to such other
addresses as the respective parties hereto shall from time to time designate to
the other(s) in writing.
(k) SPECIFIC PERFORMANCE. Each of the parties agrees that damages for a
breach of or default under this Agreement would be inadequate and that in
addition to all other remedies available at law or in equity the parties and
their successors and assigns shall be entitled to specific performance or
injunctive relief, or both, in the event of a breach or a threatened breach of
this Agreement.
(l) VALIDITY OF PROVISIONS. Should any part of this Agreement for any
reason be declared by any court of competent jurisdiction to be invalid, that
decision shall, not affect the validity of the remaining portion, which shall
continue in full force and effect as if this Agreement had been executed with
the invalid portion eliminated, it being the intent of the parties that they
would have executed
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<PAGE>
the remaining portion of the Agreement without including any part or portion
that may for any reason be declared invalid.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
TOTAL CONTROL PRODUCTS, INC.
By /s/ Nicholas Gihl
---------------------------
Title: President
-----------------------
/s/ John Sheridan
------------------------------
John Sheridan
<PAGE>
INSTALLMENT NOTE - NO SECURITY
$200,000.00 December 31, 1987
For Value Received, the undersigned promises to pay to the order of J.J.
Sparacino the principal sum of Two Hundred Thousand Dollars ($200,000) and
interest from December 31, 1987 on the balance of principal remaining from time
to time unpaid at the rate of ten percent (10%) per annum, such principal sum
and interest to be payable in installments as follows: Interest payable annually
(March). Payment of principal -- Two Hundred Thousand Dollars ($200,000) on the
31st day of December, 1997 subject to the attached Subordination Agreement.
All payments on account of the indebtedness represented by this Note shall
be applied first to accrued and unpaid interest and the remainder to principal.
Any installments of principal not paid when due shall bear interest after
maturity at the rate of seven percent per annum. Payments of both principal and
interest shall be made at the office of the corporation or such other place as
the legal holder hereof may from time to time in writing appoint.
It is hereby expressly understood and agreed that if default be made in the
payment of any of the said installments of principal or of interest, the
principal sum above mentioned, or any balance that may appear to be unpaid
thereon, together with all unpaid interest thereon, shall, at the option of the
legal holder hereof, become immediately due and payable, without notice, and
shall be collectible immediately or at any time after such default, anything
hereinbefore contained to the contrary notwithstanding. In the event of
default, the payee or legal holder hereof shall be entitled to reasonable costs
of collection, including reasonable attorney's fees.
The undersigned hereby authorizes, irrevocably, any attorney of any court
of record to appear for the undersigned in such court, in term time or vacation,
at any time after default in the payment of any installment of the principal
hereof, and confess judgment without process in favor of the payee or holder of
this Note for such amount as may appear to be unpaid thereon, together with
reasonable costs of collection including reasonable attorney's fees, and to
waive and release all errors which may intervene in any such proceedings, and
consent to immediate execution upon such judgment, hereby ratifying and
confirming all that said attorney may do by virtue hereof.
If this Note is signed by more than one person, the obligations and
authorizations hereunder shall be joint and several.
All parties hereto severally waive presentment for payment, notice of
dishonor and protest.
Attest: Total Control Products, Inc.
/s/ Nicholas Gihl By: /s/ J.J. Sparcino
- ---------------------------- -----------------------------
Secretary of the Corporation J.J. Sparacino, President
<PAGE>
SUBORDINATION AGREEMENT
The undersigned J.J. Sparacino agrees to and hereby does subordinate his
claim and right to receive payment of any and all his indebtedness of said
Company to him under the terms of this note, whether now existing or hereafter
created to that certain Agreement Regarding 6% Convertible Subordinated
Debentures due December 1, 1997, executed by and between the Company and F.
Quinn Stepan, and Subscription Agreement dated September 23, 1987.
ATTEST: TOTAL CONTROL PRODUCTS, INC.
/s/ Nicholas Gihl /s/ J.J. Sparacino
- ---------------------------- ----------------------------
Secretary of the Corporation President of the Corporation
<PAGE>
NON-NEGOTIABLE PROMISSORY NOTE
$111,486.36 December 16, 1993
Illinois Chicago,
FOR VALUE RECEIVED, the undersigned, Nicholas Gihl ("Maker"), hereby
promises to pay to the order of Total Control Products, Inc., an Illinois
corporation ("Payee"), the principal sum of One Hundred Eleven Thousand Four
Hundred Eight Six Dollars and Thirty Six Cents ($111,486.36) which amount shall
be due and payable on December 16, 1998. Interest shall accrue on the unpaid
balance of such principal sum beginning on the date hereof at a rate equal to
the prime rate as announced from time to time by Bank One, Columbus, N.A. plus
one percent (1%) per annum. Interest hereunder shall be payable on the first
day of each quarter commencing on January 1, 1994, in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts.
Maker hereby directs Payee to apply to the payment of any unpaid principal
amount due hereunder one-half (1/2) of the after-tax amount of any bonuses
payable by Payee to Maker as compensation for services rendered by Maker to
Payee with respect to Payee's fiscal year ended March 31, 1994 and each fiscal
year thereafter. For purposes of this Note, the after-tax amount of any bonus
shall be deemed to be the amount of the bonus payable by Payee to Maker
multiplied by the maximum marginal personal income taxes rate effective as to
such bonus under the Internal Revenue Code of 1986, as amended.
Except for the bonus payment referred to above, all payments on account of
the indebtedness evidenced by this Note shall be applied first to accrued and
unpaid interest and then to principal. Payments under this Note shall be made
by check or money order paid to the order of Payee and shall be delivered to
Payee at 2001 N. Janice Melrose Park, IL 60160, or to any other place that Payee
designates in writing to Maker at least ten (10) days prior to the due date of
any such payment.
Maker reserves the right to prepay all or any portion of the unpaid
principal sum and accrued interest of this Note without penalty, premium or
interest (other than accrued interest) at any time or times after the date
hereof. The amount of any such prepayment shall be applied first to accrued and
unpaid interest and then to the principal payments under this Note. Interest
shall immediately cease to accrue with respect to amounts of principal prepaid
hereon.
Maker hereby grants a security interest in and transfers, pledges, assigns
and delivers to Payee as collateral security 191,900 shares of common stock, no
par value per share, of Payee (the "Shares") to secure the payment of this Note.
The unpaid principal amount due hereunder, together with all accrued
interest thereon, shall become immediately due and payable if (i) Maker
enters into an agreement for the sale by Maker of all or any portion of the
Shares; or (ii) Maker shall fail to pay any principal or interest of this
Note when due and such failure shall continue for fifteen (15) calendar days.
In the event Maker fails to
<PAGE>
perform any of his covenants set forth in this Note, Payee or its assigns is
hereby empowered to sell the Shares and apply the proceeds of such sale in
satisfaction of all amounts due under this Note.
No delay or omission on the part of Payee in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy preclude any other or further exercise
thereof or exercise of any other right or remedy. Without limiting the
generality of the foregoing, in the event any payment by or on behalf of Maker
to Payee is held to constitute a preference under the bankruptcy laws now or
hereafter constituted, or other similar law, and by reason thereof Payee is
required to refund such payment or pay the amount thereof to any party, such
payment by or on behalf of Maker to Payee shall not constitute a release of
Maker from any liability hereunder to the extent of such payment. Maker hereby
waives demand, presentment, dishonor, notice of dishonor, protest, notice of
protest, notice of nonpayment and all other demands and notices in connection
with the enforcement of Payee's rights hereunder.
This Note, together with an additional Non-Negotiable Promissory Note (the
"Second Note") dated as of the date hereof in the principal amount of $35,095.79
executed by Maker in favor of Payee, are being executed and delivered by Maker
in substitution for (i) that certain Non-Negotiable Promissory Note dated as of
March 15, 1989 in the principal amount of $65,000 executed by Maker in favor of
Payee; (ii) that certain Non-Negotiable Promissory Note dated as of April 17,
1990 in the principal amount of $23,000 executed by Maker in favor of Payee; and
(iii) that certain Judgement Note dated as of April 15, 1992 in the principal
amount of $21,306 executed by Maker in favor of Payee (collectively, the
"Cancelled Notes"). Upon the execution and delivery of this Note and the Second
Note by Maker to Payee, each of the Cancelled Notes shall be cancelled and be
deemed null and void.
The obligations of Maker under this Note shall be binding upon and inure to
the benefit of Maker, Payee and their respective legal representatives, heirs,
successors and assigns.
This Note has been delivered by Maker in Chicago, Illinois and shall be
governed and construed in accordance with the laws of the State of Illinois.
MAKER:
/s/ Nicholas Gihl
-----------------------------
Nicholas Gihl
<PAGE>
Exhibit 10.26
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------
$35,767.25 December 16, 1993
Illinois Chicago,
FOR VALUE RECEIVED, the undersigned, Nicholas Gihl ("Maker"), hereby
promises to pay to the order of Total Control Products, Inc., an Illinois
corporation ("Payee"), the principal sum of Thirty Five Thousand Seven Hundred
Sixty Seven Dollars and Twenty Five Cents ($35,767.25) which amount shall be due
and payable on December 16, 1998. Interest shall accrue on the unpaid balance
of such principal sum beginning on the date hereof at a rate equal to the prime
rate as announced from time to time by Bank One, Columbus, N.A. plus one percent
(1%) per annum. Interest hereunder shall be payable on the first day of each
quarter commencing on January 1, 1994, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
At such time as the Non-Negotiable Promissory Note (the "Second Note")
dated as of the date hereof in the principal amount of $111,359.69 executed by
maker in favor of Payee has been paid in full, Maker hereby directs Payee to
apply to the payment of any unpaid principal amount due hereunder one-half
(1/2) of the after-tax amount of any bonuses payable by Payee to Maker as
compensation for services rendered by Maker to Payee with respect to Payee's
fiscal year ended March 31, 1994 and each fiscal year thereafter. For purposes
of this Note, the after-tax amount of any bonus shall be deemed to be the amount
of the bonus payable by Payee to Maker multiplied by the maximum marginal
personal income taxes rate effective as to such bonus under the Internal Revenue
Code of 1986, as amended.
Except for the bonus payment referred to above, all payments on account of
the indebtedness evidenced by this Note shall be applied first to accrued and
unpaid interest and then to principal. Payments under this Note shall be made
by check or money order paid to the order of Payee and shall be delivered to
Payee at 2001 N. Janice Melrose Park, IL 60160, or to any other place that Payee
designates in writing to Maker at least ten (10) days prior to the due date of
any such payment.
Maker reserves the right to prepay all or any portion of the unpaid
principal sum and accrued interest of this Note without penalty, premium or
interest (other than accrued interest) at any time or times after the date
hereof. The amount of any such prepayment shall be applied first to accrued and
unpaid interest and then to the principal payments under this Note. Interest
shall immediately cease to accrue with respect to amounts of principal prepaid
hereon.
Maker hereby grants a security interest in and transfers, pledges, assigns
and delivers to Payee as collateral security 191,900 shares of common stock, no
par value per share, of Payee (the "Shares") to secure the payment of this Note.
<PAGE>
The unpaid principal amount due hereunder, together with all accrued
interest thereon, shall become immediately due and payable if (i) Maker enters
into an agreement for the sale by Maker of all or any portion of the Shares; or
(ii) Maker shall fail to pay any principal or interest of this Note when due and
such failure shall continue for fifteen (15) calendar days. In the event Maker
fails to perform any of his covenants set forth in this Note, Payee or its
assigns is hereby empowered to sell the Shares and apply the proceeds of such
sale in satisfaction of all amounts due under this Note.
No delay or omission on the part of Payee in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy preclude any other or further exercise
thereof or exercise of any other right or remedy. Without limiting the
generality of the foregoing, in the event any payment by or on behalf of Maker
to Payee is held to constitute a preference under the bankruptcy laws now or
hereafter constituted, or other similar law, and by reason thereof Payee is
required to refund such payment or pay the amount thereof to any party, such
payment by or on behalf of Maker to Payee shall not constitute a release of
Maker from any liability hereunder to the extent of such payment. Maker hereby
waives demand, presentment, dishonor, notice of dishonor, protest, notice of
protest, notice of nonpayment and all other demands and notices in connection
with the enforcement of Payee's rights hereunder.
This Note, together with the Second Note, are being executed and delivered
by Maker in substitution for (i) that certain Non-Negotiable Promissory Note
dated as of March 15, 1989 in the principal amount of $65,000 executed by Maker
in favor of Payee; (ii) that certain Non-Negotiable Promissory Note dated as of
April 17, 1990 in the principal amount of $23,000 executed by Maker in favor of
Payee; and (iii) that certain Judgement Note dated as of April 15, 1992 in the
principal amount of $21,306 executed by Maker in favor of Payee (collectively,
the "Cancelled Notes"). Upon the execution and delivery of this Note and the
Second Note by Maker to Payee, each of the Cancelled Notes shall be cancelled
and be deemed null and void.
The obligations of Maker under this Note shall be binding upon and inure to
the benefit of Maker, Payee and their respective legal representatives, heirs,
successors and assigns.
This Note has been delivered by Maker in Chicago, Illinois and shall be
governed and construed in accordance with the laws of the State of Illinois.
MAKER:
/s/ Nicholas Gihl
--------------------------
Nicholas Gihl
<PAGE>
INDUSTRIAL BUILDING LEASE
DATE OF LEASE TERM OF LEASE MONTHLY RENT
BEGINNING ENDING
March 26, 1992 4/20/92 4/30/97 $12,000.00
Location of Premises
2001 North Janice, Melrose Park, Illinois
Purposes
Office and Warehouse space
LESSEE LESSOR
NAME Total Control Products, Inc. NAME AND First National Bank of
La Grange as Trustee u/t/a
BUSINESS No. 3081 dated March 18,
ADDRESS 2001 North Janice, ADDRESS c/o Julius J. Sparacino,
Melrose Park, Illinois beneficiary, 2001 N. Janice
Melrose Park, Illinois
In consideration of the mutual covenants and agreements herein stated,
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor solely
for the above purpose the premises designated above (the "Premises"),
together with the appurtenances thereto, for the above Term.
RENT 1. Lessee shall pay Lessor or Lessor's agent as rent for
the Premises the sum stated above, monthly in advance, until
termination of this lease, at Lessor's address stated
above or such other address as Lessor may designate in
writing.
CONDITION AND 2. Lessee has examined and knows the condition of the
UPKEEP OF Premises and has received the same in good order and repair,
PREMISES and acknowledges that no representations as to the condition
and repair thereof have been made by Lessor, or his agent,
prior to or at the execution of this Lease that are not
herein expressed; Lessee will keep the Premises including
all appurtenances, in good repair, replacing all broken
glass with glass of the same size and quality as that
broken, and will replace all damaged plumbing fixtures with
others of equal quality and will keep the Premises,
including adjoining alleys, in a clean and healthful
condition according to the applicable municipal
ordinances and the direction of the proper public
officers during the term of this lease at Lessee's
expense, and will without injury to the roof, remove all
snow and ice from the same when necessary and will remove
the snow and ice from the sidewalk abutting the Premises;
and upon the termination of the lease, in any way, will
yield up the Premises to Lessor, in good condition and
repair, loss by fire and ordinary wear excepted, and will
deliver the keys therefor at the place of payment and
said rent.
<PAGE>
LESSEE NOT TO 3. Lessee will not allow the Premises to be used for
MISUSE; SUBLET; any purpose that will increase the rate of insurance
ASSIGNMENT thereon, nor for any purpose other than that hereinbefore
specified, and will not load with machinery or goods
beyond the floor load rating prescribed by applicable
municipal ordinances, and will not allow the
Premises to be occupied in whole, or in part, by
any other person, and will not sublet the same or
any part thereof, nor assign this lease without
in each case the written consent of the Lessor first had,
and Lessee will not permit any transfer by operation of
law of the interest in the Premises acquired through the
lease, and will not permit the Premise to be used for any
unlawful purpose, or for any purpose that will injure the
reputation of the building or increase the fire hazard of
the building, or disturb the tenant or the neighborhood,
and will not permit the same to remain vacant or
unoccupied for more than ten consecutive days; and will
not allow any signs, cards or placards to be posted, or
placed thereon, nor permit any alteration of or addition
to any part of the Premises, except by written consent of
Lessor; all alterations and additions to the Premises
shall remain for the benefit of Lessor unless otherwise
provided in the consent aforesaid.
MECHANIC'S LIEN 4. Lessee will not permit any mechanic's lien or liens
placed upon the Premises or any building for improvement
thereon during the term hereof, and in case of
the filing of such lien Lessee will promptly
pay same. If default in payment thereof shall continue
for thirty (30) days after written notice thereof from
Lessor to the Lessee, the Lessor shall have the right and
privilege at Lessor's option of paying the same or any
portion thereof without inquiry as to the validity
thereof, and any amounts so paid, including expenses and
interest shall be so much additional indebtedness
hereunder due from Lessee to Lessor and shall be repaid
to Lessor immediately on rendition of bill therefor.
INDEMNITY FOR 5. Lessee covenants and agrees that he will
ACCIDENTS protect and save and keep the Lessor forever harmless
and indemnified against and from any penalty or damages
or charges imposed for any violation of any laws or
ordinances, whether occasioned by the neglect
of Lessee or those holding under Lessee, and that
Lessee will at all times protect, indemnify and
save and keep harmless the Lessor against and from any
and all loss, cost, damage or expense, arising out of or
from any accident or other occurrences on or about the
Premises, causing injury to any person or property
whomsoever or whatsoever and will protect, indemnify and
save and keep harmless the Lessor against and from any
and all claims and against and from any and all loss,
cost, damage or expense arising out of any failure of
Lessee in any respect to comply with and perform all the
requirements and provisions hereof.
NON-LIABILITY 6. Except as provided by Illinois
OF LESSOR statute, Lessor shall not be liable for any damage
occasioned by failure to keep the Premises
in repair, nor for any damage done or occasioned
by or from plumbing, gas, water, sprinkler,
steam or other pipes or sewerage or the bursting ,
leaking or running of any pipes, tank or plumbing
fixtures, in above, upon or about Premises or any
building or improvement thereon nor for any damage
occasioned by water, snow or ice being upon or coming
through the roof, skylights, traps door or otherwise, nor
for any damages arising from acts or neglect of any
owners or occupants of adjacent or contiguous property.
WATER, GAS AND 7. Lessee will pay, in addition to the rent above
ELECTRIC specified, all water, rents, gas and electric light and
CHARGES power bills taxed, levied or charged on the Premises,
for and during the time for which this lease is granted,
and in case said water rents and bills for gas, electric
light and power shall not be paid when due, Lessor shall
have the right to pay the same, which amounts so paid,
together with any sums paid by Lessor to keep the
Premises in a clean and healthy condition, as above
specified, are declared to be so much additional rent and
payable with the installment of rent next due thereafter.
<PAGE>
KEEP PREMISES 8. Lessor shall not be obliged to incur any expense
IN REPAIR for repairing any improvements upon said demised premises
or connected therewith, and the Lessee at his own expense
will keep all improvements in good repair (injury by
fire, or other causes beyond Lessee's control excepted)
as well as in good tenantable and wholesome condition,
and will comply with all local or general regulations,
laws and ordinances applicable thereto as well as lawful
requirements of all competent authorities in that behalf.
Lessee will, as far as possible, keep said improvements
from deterioration due to ordinary wear and from falling
temporarily out of repair. Lessee does not make repairs
as required hereunder promptly and adequately, Lessor may
but need not make such repairs and pay the costs thereof,
and such costs shall be so much additional rent
immediately due and payable by Lessee to Lessor.
ACCESS TO 9. Lessee will allow Lessor free access to the Premises
PREMISES for the purpose of examining or exhibiting same, or to make
any needful repairs, or alterations thereof which Lessor
may see fit to make and will allow to have placed upon
the Premises at all times notice of "For Sale" and "To
Rent", and will not interfere with same.
ABANDONMENT AND 10. If Lessee shall abandon or vacate the Premises,
RELETTING or if Lessee's right to occupy the Premises be
terminated by Lessor by reason of Lessee's breach of any
of the covenants herein, the same may be re-let by Lessee
for such rent and upon such terms as Lessor may deem fit;
and if a sufficient sum shall not thus be realized
monthly, after paying the expenses of such re-letting and
collecting to satisfy the rent hereby reserved, Lessee
agrees to satisfy and pay all deficiency monthly during
the remaining period of this lease.
HOLDING OVER 11. Lessee will, at the termination of this lease by
lapse of time or otherwise, yield up immediate position to
Lessor, and failing so to do, will pay as liquidated
damages, for the whole time such possession is ____ held,
the sum of __________________________ Dollars
($_________) per day; but the provisions of this clause
shall not be held as a waiver by Lessor of any right of
re-entry as hereinafter set forth; nor shall receipt of
said rent or any part thereof, or any other act in
apparent affirmance of tenancy, operate as a waiver of
the right to forfeit this lease and the term hereby
granted for the period still unexpired, for a breach of
any of the covenants herein.
EXTRA FIRE 12. There shall not be allowed, kept, or used on the
HAZARD Premises any inflammable or explosive liquid materials save
such as may be necessary for use in the business of the
Lessee, and in such case, any such instances shall be
delivered and stored in amount, and used, in accordance
with the rules of the applicable Board of Underwriters
and statutes and ordinances now or hereafter in force.
DEFAULT BY 13. If default be made in the payment of the above
LESSEE rent, or any part thereof, or in any of the covenants
herein contained to be kept by the Lessee, Lessor may at
any time thereafter at his election declare said lease
ended and reenter the Premises or any part thereof, with
or (to the extent permitted by law) without notice
process of law, and remove Lessee or any persons
occupying the same, without prejudice to any remedies
which might otherwise be used for arrears of rent, and
Lessor shall have at all times the right to distrain for
rent due and shall have a valid and first lien upon all
personal property which Lessee now owns, or may hereafter
acquire have an interest in, which is by law subject to
such distraint, as security for payment of the rent
herein reserved.
NO RENT 14. Lessee's covenant to pay rent is and shall be
DEDUCTION OR independent of each and every covenant of this Lease.
SET OFF Lessee agrees that any claim by Lessee against
Lessor shall not be deducted from rent nor set off
against any claim for rent in any action.
RENT AFTER 15. It is further agreed, by the parties hereto, that
NOTICE OR SUIT after the service of notice, or the commencement of or
after final judgment for possession of the Premises,
Lessor may receive and collect any rent due, and payment
of said rent shall not waive or affect said notice, said
suit, or said judgment.
PAYMENT OF 16. Lessee will pay and discharge all reasonable
COSTS costs, attorney's fees and expenses that shall be made
or incurred by Lessor in enforcing the covenants and
agreements of this lease.
<PAGE>
RIGHTS 17. The rights and remedies of Lessor under this
CUMULATIVE lease are cumulative. The exercise or use of any one or
more thereof shall not bar Lessor from exercise or use of
any other right or remedy provided herein or otherwise
provided by law, nor shall exercise nor use of any right
or remedy by Lessor waive any other right or remedy.
FIRE AND 18. In case the Premises shall be rendered
CASUALTY untenantable during the term of this lease by fire or
other casualty, Lessor at his option may terminate
the lease or repair the Premises within 60 days
thereafter. If Lessor elects to repair , this lease
shall remain in effect provided such repairs are
completed within said time. If Lessor shall not have
repaired the Premises within said time, then at the end
of such time the term hereby created terminate. If this
lease is terminated by reason of fire or casualty
as herein specified, rent shall be apportioned paid to
the day of such fire or other casualty.
SUBORDINATION 19. This lease is subordinate to all
mortgages which may now or hereafter affect the Premises.
PLURALS; 20. The words "Lessor" and "Lessee" wherever herein
SUCCESSORS occurring and used shall be construed to mean
"Lessors" and "Lessees" in case more than one person
constitutes either party to this lease; and all the
covenants and agreements contained shall be binding upon,
and inure to, their respective successors, heirs,
executors, administrators and assigns and may be
exercised by his or their attorney or agent.
SEVERABILITY 21. Whenever possible each provision of this lease
shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of
this lease shall be prohibited by or invalid under
applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity,
without invalidating remainder of such provision or
the remaining provisions of this lease.
22. Lessee shall pay all real estate taxes on the
property; all maintenance and repairs.
23. Lessee shall maintain insurance on the property
and shall name the Lessor as an additional named insured
under the extended fire and casualty insurance in the
amount of $900,000.
If this instrument is executed by a corporation, such execution has
been authorized by a duly adopted resolution of the Board of Directors of such
corporation.
This lease consists of __________ pages numbered 1 to __________,
including a rider consisting of __________ pages identified by Lessor and
Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this instrument
as of the Date of Lease stated above.
LESSEE: LESSOR:
Total Control Products, Inc. (SEAL) First National Bank of LaGrange (SEAL)
- ---------------------------- --------------------------------
as Trustee u/t/a #3081
by: /s/ Nicholas Gihl (SEAL) /s/ J. J. Sparacino (SEAL)
----------------------- -------------------------------
Nicholas T. Gihl, Julius J. Sparacino,
Vice President Beneficiary
<PAGE>
RIDER TO LEASE DATED MARCH 26, 1992
BETWEEN TOTAL CONTROL PRODUCTS, INC., LESSEE
AND FIRST NATIONAL BANK OF LA GRANGE UTA 3081
AS LESSEE
Paragraph 18 of said lease is hereby omitted and in lieu thereof, the following
Paragraph 18 shall be inserted:
18. In case the Premises shall be rendered untenantable during the term of
this lease by fire or other casualty, Lessor at his option may terminate the
lease or repair the Premises. If Lessor elects to repair, this lease shall
remain in effect provided such repairs are completed.
The following shall be a new Paragraph 24. to said lease:
24. Net Lease; No Counterclaim, Abatement, Etc. This lease is a net
lease, and Lessee shall pay all costs, charges, taxes, assessments and other
expenses of every character, foreseen or unforeseen, for the payment of which
Lessee or Lessor is or shall become liable by reason of Lessee's or Lessor's
estate, right, title or interest in the Premises, or that are connected with
or arise out of the possession, use, occupancy, maintenance, ownership, or
leasing, of the Premises or any portion thereof. The rent and all other sums
payable hereunder shall be paid without notice, demand, counterclaim, setoff,
deduction or defense and without abatement, suspension, deferment, diminution
or reduction and, notwithstanding any provision of present or future law to
the contrary, the obligations and liabilities of Lessee hereunder shall not
be released, discharged or otherwise affected for any reason, including
without limitation: (a) any defect in the condition, quality, merchantability
or fitness for use of the premises or any part thereof; (b) change of grade;
(c) any failure on the part of the Lessor to perform or comply with any of
the terms hereof or any other agreement with Lessee; (d) any impossibility or
illegality of performance of this Lease or any other agreement; (e) any
action of any government authority; (f) any damage to or destruction of or
any taking of the Premises or any part thereof; (g) any restriction,
prevention or curtailment of or interference with any use of the Premises or
any part thereof; (h) any title defect or encumbrance or any eviction from
the Premises or any part thereof by title paramount or otherwise; (i) any
change, waiver, extension, indulgence, or other action or omission in respect
of, or failure to perform or comply with, any obligation or liability of the
Lessor contained in this Lease or any other agreement; (j) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation
or other like case or proceeding relating to the Lessor or Lessee or any
action taken with respect to this Lease by any Trustee, receiver or custodian
of the Lessor or Lessee or by any court in any such case or proceeding; (k)
any claim, defense or right of setoff, foreseen or unforeseen, that Lessee
has or might have against the Lessor or any other Person; (1) any merger or
consolidation of Lessee with any other corporation or any sale, lease or
transfer of any or all of the assets of Lessee; or (m) any other cause
whatsoever, whether similar or dissimilar to the foregoing, whether or not
Lessee shall have notice or knowledge of any of the foregoing. This Lease
shall not be terminated or cancelled and Lessee waives, to the extent
permitted by law, all rights now or hereafter conferred by statute or
otherwise to quit, terminate
<PAGE>
or surrender this Lease or the Premises or any
part thereof, or to any abatement, suspension, deferment, diminution or
reduction of basic Rent or any other sum payable by Lessee hereunder.
Dated
----------------------------
Total Control Products, Inc. First National Bank of La Grange as
Trustee under Trust No. 3081
By: /s/ Nicholas Gihl By: /s/ J. J. Sparacino
------------------------------- --------------------------------
<PAGE>
EXTENSION OF LEASE
This Extension of Lease is made on December 20, 1996, between FIRST
NATIONAL BANK OF LA GRANGE, AS TRUSTEE U/T/A #3081 ("Lessor") and TOTAL CONTROL
PRODUCTS, INC., an Illinois corporation("Lessee"), who agree as follows:
24. RECITALS. This Extension of Lease is made with reference to the
following facts and objectives:
a. Lessor and Lessee entered into a written lease (the "Lease")
dated March 26, 1992, in which Lessor leased to Lessee, and Lessee
leased from Lessor, the premises commonly known as 2001 North Janice
Avenue, Melrose Park, Illinois (the "Premises").
b. The term of this Lease expires on April 30, 1997.
c. The parties desire to extend the term of the Lease for an
additional period of five (5) years following April 30, 1997.
25. EXTENSION OF TERM. The term of the Lease shall be extended for an
additional period of five (5) years following (the "Extension Period") from and
after the first day of May , 1997 (the "Commencement Date"), so that the term of
the Lease shall extent to April 30, 2002.
26. BASE RENT. The base rent for the Extension Period shall be the
monthly rate of Twelve Thousand Dollars ($12,000.00) due and payable on the
first day of each calendar month.
4. CPI ADJUSTMENT. On the first anniversary of the Commencement Date
and on each anniversary date thereafter in the event that the Base Index (the
term "Base Index" herein means the Consumer Price Index ("CPI") for the
second month preceding the month in which the Commencement Date falls - e.g.,
the CPI for March if the Commencement Date falls in May) shall be less than
the CPI for the second month preceding the anniversary of the Commencement
Date,
<PAGE>
then Tenant shall pay as additional rent an amount equal to the base rent
multiplied by a fraction which has as its numerator the CPI for such second
month preceding such anniversary and which has its denominator the Base
Index. For the purposes of the Lease, the term "Consumer Price Index" shall
mean the UNITED STATES CONSUMER PRICE INDEX FOR ALL URBAN CONSUMERS, as
published by the Bureau of Labor Statistics of the United States Department
of Labor. One-twelfth of said amount shall be payable by Tenant in each
month of the new Lease Year with each monthly payment of rent. As used in
this Article, the term "Lease Year" shall mean a 12-month period commencing
on the Commencement Date or any anniversary thereof except that the final
Lease Year shall be the period commencing on the last anniversary of the
Commencement Date during the term of the Lease and ending on April 30, 2002.
If the final Lease Year is lease than 12 months, all amounts shall be
appropriately prorated based upon a 365-day year.
* * * * *
Except as set forth in this Extension of Lease, all the provisions of the
Lease shall remain unchanged and in full force and effect.
FIRST NATIONAL BANK OF LA GRANGE TOTAL CONTROL PRODUCTS, INC.
AS TRUSTEE UNDER TRUST NO. 3081
By: /s/ J.J. Sparacino By: /s/ Nicholas Gihl
------------------------------- -----------------------------------
Title: Title:
---------------------------- --------------------------------
<PAGE>
August 26, 1996
Mr. Nicholas Gihl
President,
Total Control Products, Inc.
2001 N. Janice Avenue
Melrose Park, IL 60160 USA
Dear Nic;
The purpose of this letter is to set forth certain understandings and
agreements between Total Control Products, Inc. ("TCP") and Digital
Electronics Corporation ("DIGITAL") on the subject of joint investment of the
surviving company ("New Taylor").
1.1 DIGITAL will invest US$ 4 million for the equity of TCP's Canadian
Subsidiary ("Canco"). TCP will provide Canco with 12% of TCP stock as an
equity.
1.2 Canco will be merged with Taylor Industrial Software, Inc. ("Taylor")
and form New Taylor.
1.3 DIGITAL will have initially 39% equity of New Taylor without further
investment, subject to the adjustment based on the amount of earnout
paid to the former shareholders of Taylor discussed in section 1.4 below.
1.4 TCP will infuse a portion of the earnout payment as an equity infusion
to New Taylor in addition to the contribution outlined in section 2.1
below. If all US$ 8 million of the earnout is paid, the US$ 4 million
equity infusion made by DIGITAL in section 1.3 above will be reduced to
35%. The range of 4% will vary on a straight-line basis, using the
following formula:
The earnout amount earned each fiscal year divided by US$ 4 million
(maximum earnout per year) multiplied by 2.0%. This figure is subtracted
from DIGITAL's equity percentage (i.e., 39% for 3/31/1997). The
difference is then divided into US$ 4 million. This amount is compared
to US$ 10,256,411 (which is US$ 4 million divided by 39%). The difference
represents the additional equity contribution to be made by TCP.
1.5 TCP will compensate the interest (5% p.a.) of loan arranged by DIGITAL
to gather the above US$ 4 million to DIGITAL at quartery basis for
two(2) year period from the remittance date.
<PAGE>
In case that unexpected change of exchange rate between Yen and US
dollar happens, both parties shall discuss sincerely how to treat it.
2.1 TCP will contribute to Canco the rights to issue a special security that
is convertible to 12% of the outstanding stock of TCP as of the purchase
date of Taylor. This special class of stock will have a put right of
US$ 6 million, if TCP does not complete an initial public offering of
its stock. This put right will be an obligation of TCP, not Canco. This
contribution to Canco will be the infusion of capital into Canco that
will be in the form of equity, other than portions of any earnout
payments as outlined in section 1.4 above.
3.1 Apart from the above investment, DIGITAL will arrange US$ 1 million loan
for TCP with the same interest as referred in section 1.5 above.
3.2 TCP will pay back the loan arranged by DIGITAL until August 31, 1997 or
60 days after a completion of initial public offering of TCP's stock
which ever comes earlier. The interest theiron shall be paid by TCP to
DIGITAL at quarterly basis.
4.1 TCP and DIGITAL will mutually have rights to the products which are
developed and currently owned by Taylor after formation of New Taylor
("Products").
4.2 When TCP or DIGITAL wants to ask New Taylor to work for it
independently, both parties shall discuss to insure each party to have
same opportunity to such working in accordance with the contribution to
New Taylor.
4.3 DIGITAL shall have exclusive rights, including the right to modify, to
sell the Products in Asian and Oceanic market including Japan.
DIGITAL shall pay a royalty of 33% of actual sales price until the end of
August, 1998, then 25% from September, 1998 to New Taylor when actual
sales of Products is made.
4.4 Similarly TCP shall have the rights to North and South America market
and shall pay same amount of percentage of royalty to New Taylor.
4.5 As for European market TCP shall do business with the cooperation of
DIGITAL when such a case arises. TCP and DIGITAL shall have the rights
to share the benefit of the Products' sales and shall pay the
proportional amount of royalty to New Taylor in accordance with its
equity share.
<PAGE>
5. TCP will make a draft for this agreement and will also arrange a
separate agreement between DIGITAL and New Taylor as an Operational
agreement.
6. If there is any demand for a revision, or any subject which is not
described in the Letter, both parties shall sincerely discuss the matter.
Very truly yours,
Digital Electronics Corporation
By: /s/ Keizo Wada
-------------------------------------
Keizo Wada, President
Agreed and accepted to the ______ day
of August, 1996 by:
Total Control Products, Inc.:
By: /s/ Nicholas Gihl
- ----------------------------------
Nicholas Gihl, President
<PAGE>
Total Control Products, Inc. and Subsidiaries
Computation of earnings per share
<TABLE>
<CAPTION>
March 31, October 31,
-------------------------------------------------------------- ---------------------------
1992 1993 1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPUTATION OF NET INCOME (LOSS)
PER SHARE:
Net income (loss) available for
common shareholders........... $ 229,000 $ 173,000 $ (323,000) $ 514,000 $ (608,964) $ (555,176) $(7,352,477)
Interest on convertible debt,
net of tax benefit............ 10,800 10,800 - (a) 10,800 - (a) - (a) - (a)
---------- ---------- ---------- ---------- ----------- ------------ -----------
Net income adjusted for "as if
converted" common stock
equivalents................... $ 239,800 $ 183,800 $ (323,000) $ 524,800 $ (608,964) $ (555,176) $(7,352,477)
---------- ---------- ---------- ---------- ----------- ------------ -----------
---------- ---------- ---------- ---------- ----------- ------------ -----------
Weighted average shares
outstanding, exluding SAB 83
shares issued................. 2,912,535 2,912,535 3,332,402 4,544,678 4,622,076 4,622,076 4,662,735
Non-SAB 83 option grants
(granted prior to 12/20/95).... - - - (a) 9,252 - (a) - (a) - (a)
Conversion of subordinated
debentures..................... 407,240 407,240 - (a) 407,240 - (a) - (a) - (a)
SAB 83 shares..................... 1,010,426 1,010,426 1,010,426 1,010,426 1,010,426 1,010,426 1,010,426
---------- ---------- ---------- ---------- ----------- ------------ -----------
Adjusted weighted average
shares outstanding............. 4,330,201 4,330,201 4,342,828 5,971,596 5,632,502 5,632,502 5,673,161
---------- ---------- ---------- ---------- ----------- ------------ -----------
---------- ---------- ---------- ---------- ----------- ------------ -----------
Net income (loss) per share....... $ 0.06 $ 0.04 $ (0.07) $ 0.09 $ (0.11) $ (0.10) $ (1.30)
---------- ---------- ---------- ---------- ----------- ------------ -----------
---------- ---------- ---------- ---------- ----------- ------------ -----------
COMPUTATION OF PRO FORMA NET INCOME (LOSS)
PER SHARE:
Pro forma net income (loss) as calculated on
statement of operations....................... $1,006,000 $(2,386,581)
----------- ------------
----------- ------------
Weighted average shares outstanding.............. 5,632,502 5,673,161
Dilutive options................................. 67,485 -(a)
Debt conversion.................................. 407,240 368,455
----------- ------------
Pro forma weighted average shares outstanding.... 6,107,227 6,041,616
----------- ------------
----------- ------------
Pro forma net income (loss) per share............ $ 0.16 $ (0.40)
----------- ------------
----------- ------------
</TABLE>
(a) Not considered in earnings per share calculation as effect would be
anti-dilutive.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Tara Products, Inc., a wholly owned Illinois corporation.
Taylor Industrial Software Inc., ("Taylor") a majority owned Alberta, Canada
corporation.
Taylor has two wholly owned subsidiaries:
Taylor Industrial Software (USA), Inc., a wholly owned Nevada corporation.
Taylor Industrial Software (UK) Limited, a wholly owned United Kingdom
corporation.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated July 22, 1996, (and to all references to our Firm) included in or
made a part of this registration statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Chicago, Illinois
December 20, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Total Control
Products, Inc. on Form S-1 of our report dated August 28, 1995 appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Cincinnati, Ohio
December 20, 1996
<PAGE>
[LETTERHEAD]
December 18, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 of Total Control Products, Inc., of our
report dated July 30, 1996, except as to the change in accounting policy
described in Note 12 and the subsequent events described in Note 11 which are as
of September 26, 1996, relating to the financial statements of Taylor Industrial
Software Inc., which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Item 16. Exhibits and
Financial Statement Schedules" in such prospectus.
/s/ Price Waterhouse
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Chartered Accountants
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December 19, 1996
I, Edward Hurd, hereby consent to the use of my name in the Registration
Statement on Form S-1 for Total Control Products, Inc. and any amendment
thereto, as necessary, as a Director nominee.
/s/ Edward Hurd
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Edward Hurd
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December ___, 1996
I, Donald Kramer, hereby consent to the use of my name in the Registration
Statement on Form S-1 for Total Control Products, Inc. and any amendment
thereto, as necessary, as a Director nominee.
/s/ Donald Kramer
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Donald Kramer