<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22173
---------------
TOTAL CONTROL PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-3209178
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
2001 NORTH JANICE AVENUE
MELROSE PARK, ILLINOIS 60160
(Address of principal executive offices) (Zip Code)
(708) 345-5500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ______
----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON NOVEMBER 16, 1998:
8,032,818 SHARES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
A S S E T S 1998 1998
----------- ---- ----
<S> <C> <C>
CURRENT ASSETS: (unaudited)
Cash and cash equivalents $ 1,882,735 $ 1,205,066
Trade receivables, net of allowances of $365,000 and $420,000 at March 31
and September 30, 1998, respectively 11,172,301 13,825,740
Raw materials inventory 5,803,680 10,499,679
Work in process and finished goods inventory 7,716,857 6,793,201
Prepaid and deferred expenses-
Taxes 575,864 1,095,721
Other 523,264 776,588
----------- -----------
Total current assets 27,674,701 34,195,995
----------- -----------
PROPERTY AND EQUIPMENT, net 3,885,919 4,621,599
OTHER ASSETS:
Goodwill, net 24,134,357 29,816,694
Receivables from officers 2,285,519 2,211,017
Other long-term assets 2,818,843 3,065,661
----------- -----------
Total other assets 29,238,719 35,093,372
----------- -----------
$60,799,339 $73,910,966
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, September 30,
1998 1998
---- ----
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 48,589 $ 20,334
Accounts payable 3,661,530 3,462,035
Accrued expenses-
Income taxes 2,513,956 1,178,079
Commissions 693,295 412,312
Payroll 1,097,314 2,081,425
Amounts due to former shareholders of acquired subsidiaries - 2,340,000
Other 2,463,295 2,550,837
Deferred revenue 997,433 863,056
----------- -----------
Total current liabilities 11,475,412 12,908,078
----------- -----------
LONG-TERM LIABILITIES:
Notes payable to bank 12,988,616 20,618,258
Other 769,119 540,256
----------- -----------
Total long-term liabilities 13,757,735 21,158,514
----------- -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARY 1,141,333 859,713
SHAREHOLDERS' EQUITY:
Common stock, no par value; 22,500,000 shares authorized; 7,932,185 and 8,032,818
shares issued and outstanding at March 31 and September 30, 1998, respectively 35,053,113 35,137,567
Class C Exchangeable common stock of subsidiary, no par value; unlimited shares
authorized; 737,112 shares issued and outstanding at March 31 and September 30,
1998, respectively 4,641,110 4,641,110
Common stock issuable - 1,500,000
Accumulated deficit (5,228,678) (2,291,882)
Other (40,686) (2,134)
----------- -----------
Total shareholders' equity 34,424,859 38,984,661
----------- -----------
$ 60,799,339 $ 73,910,966
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBR 30, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
---------- -------
<S> <C> <C>
NET SALES $12,423,470 $20,905,840
COST OF GOODS SOLD 5,255,350 10,152,533
----------- -----------
Gross profit 7,168,120 10,753,307
----------- -----------
OPERATING EXPENSES:
Sales and marketing 2,959,300 3,733,126
Research and development 1,220,548 1,850,757
General and administrative 940,048 1,545,402
Amortization of goodwill 140,400 587,822
----------- -----------
Income from operations 1,907,824 3,036,200
----------- -----------
OTHER INCOME (EXPENSES):
Interest, net (24,410) (364,904)
Earnings in foreign joint venture 36,412 29,269
Other income, net 6,680 36,710
----------- -----------
Income before income taxes and
minority interest 1,926,506 2,737,275
PROVISION FOR INCOME TAXES 837,000 1,177,000
----------- -----------
Income before minority interest 1,089,506 1,560,275
MINORITY INTEREST IN (INCOME) LOSS OF SUBSIDIARY (1,624) 164,853
----------- -----------
Net income $ 1,087,882 $ 1,725,128
----------- -----------
----------- -----------
BASIC NET INCOME PER SHARE $ 0.16 $ 0.21
----------- -----------
----------- -----------
DILUTED NET INCOME PER SHARE $ 0.14 $ 0.20
----------- -----------
----------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Basic shares 6,916,000 8,033,000
Plus dilutive effect of stock options and Class
C Exchangeable common stock of subsidiary 962,000 792,000
----------- -----------
Diluted shares 7,878,000 8,825,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
NET SALES $24,910,858 $37,832,077
COST OF GOODS SOLD 10,910,759 18,125,405
----------- -----------
Gross profit 14,000,099 19,706,672
----------- -----------
OPERATING EXPENSES:
Sales and marketing 6,009,795 7,161,690
Research and development 2,478,525 3,424,742
General and administrative 2,041,207 2,845,991
Amortization of goodwill 280,800 1,144,743
----------- -----------
Income from operations 3,189,772 5,129,506
----------- -----------
OTHER INCOME (EXPENSES):
Interest, net (66,240) (589,417)
Earnings in foreign joint venture 45,289 92,355
Other income (expense), net 5,700 43,732
----------- -----------
Income before income taxes and
minority interest 3,174,521 4,676,176
PROVISION FOR INCOME TAXES 1,372,000 2,021,000
----------- -----------
Income before minority interest 1,802,521 2,655,176
MINORITY INTEREST IN LOSS OF SUBSIDIARY 133,899 281,620
----------- -----------
Net income $ 1,936,420 $ 2,936,796
----------- -----------
----------- -----------
BASIC NET INCOME PER SHARE $ 0.28 $ 0.37
----------- -----------
----------- -----------
DILUTED NET INCOME PER SHARE $ 0.25 $ 0.33
----------- -----------
----------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Basic shares 6,916,000 8,006,000
Plus dilutive effect of stock options and Class
C Exchangeable common stock of subsidiary 932,000 842,000
----------- -----------
Diluted shares 7,848,000 8,848,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period $ 1,936,420 $ 2,936,796
Adjustments to reconcile net income to net cash provided
by (used in) operating activities-
Minority interest in loss of subsidiary (133,899) (281,620)
Depreciation and amortization 686,810 1,885,187
Earnings in foreign joint venture (45,289) (92,355)
Changes in operating assets and liabilities-
Trade receivables (334,090) (1,034,285)
Inventory (985,081) (1,656,138)
Prepaid expenses and other assets (279,329) (522,337)
Accounts payable, accrued expenses and other
liabilities 844,103 (2,287,421)
Deferred revenue 71,511 (134,377)
----------- -----------
Net cash provided by (used in) operating
activities 1,761,156 (1,186,550)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for businesses acquired, net and other acquisition
costs (105,388) (5,761,661)
Purchases of property and equipment (682,946) (1,081,823)
Proceeds from disposal of asset held for sale 2,147,499 -
Purchases of other assets (398,032) (363,661)
----------- -----------
Net cash provided by (used in) investing
activities 961,133 (7,207,145)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in notes payable to bank (986,603) 8,129,642
Payments on long-term debt and notes payable (382,284) (528,255)
Proceeds from sale of common stock of subsidiary - 114,639
Payment of offering costs (379,463) -
----------- -----------
Net cash (used in) provided by financing
activities (1,748,350) 7,716,026
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 973,939 (677,669)
CASH AND CASH EQUIVALENTS, beginning of period 221,967 1,882,735
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,195,906 $ 1,205,066
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for-
Income taxes $ 355,000 $ 2,717,000
Interest 113,631 670,000
----------- -----------
----------- -----------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Note receivable from shareholder in connection with disposal of
asset held for sale $ 2,000,000 $ -
Common stock issuable as earnout payment to former shareholders
of Computer Dynamics, Inc. (Note 3) - 1,500,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
TOTAL CONTROL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,1998
(Unaudited)
NOTE 1
The consolidated financial information herein is unaudited, other than the
Consolidated Balance Sheet information as of March 31, 1998, which is derived
from the Company's audited financial statements.
In the opinion of the Company, the accompanying interim consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Company's financial
position as of September 30, 1998, the results of operations for the three
and six months ended September 30, 1998 and 1997 and changes in cash flows
for the six months ended September 30, 1998 and 1997.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes included in the Company's 1998 annual report on Form
10-K filed with the Securities and Exchange Commission.
The results for the quarter and the six months ended September 30, 1998, are
not necessarily indicative of the results to be expected for the entire year.
NOTE 2
On June 5, 1998, the Company acquired substantially all of the net operating
assets of the Deeco Systems (Deeco) division of Lucas Automation and Control
Engineering, Inc., a designer and manufacturer of flat panel factory
automation products. The consideration paid by the Company in conjunction
with the acquisition consisted of $5.5 million cash funded by the Company's
existing line of credit facility. The Company accounted for this transaction
as a purchase and the excess of purchase price over the fair value of
identified net assets acquired of approximately $2.8 million has been
recorded as goodwill and is being amortized over seventeen years from the
date of acquisition.
Additionally, the Company is obligated to pay an earn-out of up to $2 million
if certain financial targets are attained for the twelve-month period ending
January 31, 1999.
As a result of this transaction, the Company's bank amended the covenants
related to the Company's existing line of credit agreement. The Company was
in compliance with these covenants as of September 30, 1998.
7
<PAGE>
As part of this transaction, the Company created a wholly owned subsidiary,
Deeco Systems, Inc.
At the date of acquisition, the Company announced its plans to close the
Deeco facility and merge its operations into the operations of Computer
Dynamics, Inc. (CDI), at the Company's Greenville, South Carolina, facility.
All non-sales employees will be relocated or terminated. The Company expects
to exit this activity during fiscal 1999. The Company expects to incur
relocation and severance costs of approximately $660,000 and facility related
costs of approximately $250,000 as the costs to exit this activity and
involuntarily terminate employees. The majority of these relocation and
severance costs will be paid in the quarter ending December 31, 1998. These
costs were accrued for as payroll related accruals and other accrued expenses
and included as a component of purchase price and captured as a portion of
total goodwill recorded related to this transaction in accordance with EITF
Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination".
NOTE 3
Under the terms of the Taylor acquisition, the Company was obligated to make
payments of contingent consideration based on revenue attainment of its
Taylor subsidiary. The initial contingent payment period ended on September
30, 1997, for which the contingent consideration paid was approximately $1.1
million. The final contingent payment period ended on September 30, 1998, and
the Company estimates contingent consideration for that period to be
approximately $1 million. The Company has recorded this estimate of the
contingent consideration obligation as additional goodwill at September 30,
1998 and this goodwill will be amortized over the remaining useful life of
the goodwill of five years. In the accompanying consolidated balance sheet,
the Company has offset interest payments due the Company from Neil R. Taylor,
the former principal shareholder of Taylor Industrial Software, Inc. (Taylor)
and a member of the Company's board of directors, against a portion of the
contingent consideration due.
Under the terms of the CDI transaction, the Company may be obligated to make
payments of contingent consideration based on the year over year growth in
earnings of its CDI subsidiary for five years from the date of acquisition.
The agreement calls for such contingent consideration to be paid 50% in cash
and 50% in common stock of the Company. The first contingent payment period
ended on September 30, 1998, for which the Company estimates the contingent
consideration to total $3 million. The Company has recorded the portion of
the contingent consideration payable in common stock of the Company as Common
Stock Issuable. Based on the estimated value of the contingent consideration,
the Company will issue approximately 230,000 shares of common stock related
to this payment. The Company has recorded this contingent consideration
obligation as additional goodwill in the accompanying consolidated
8
<PAGE>
balance sheet at September 30, 1998 and this goodwill will be amortized over
the remaining useful life of the goodwill of 16 years.
NOTE 4
During the quarter ended September 30, 1998, the Company extended its line of
credit agreements with a bank. As amended, the agreements expire July 31,
2000. All other terms of the line of credit agreements remained substantially
the same.
Subsequent to September 30, 1998, the Company entered into a $500,000
installment note agreement with a bank. The note calls for monthly principal
and interest payments of $9,842 from October 31, 1998 through March 31, 2004.
The note bears interest at 6.75% and is secured by the general business
assets of the Company.
NOTE 5
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." This statement defines comprehensive income as net income plus
non-owner changes in equity. Comprehensive income for the three and six
months ended September 30, 1997 and 1998, is as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,936,420 $ 2,936,796 $ 1,087,882 $ 1,725,128
Non-owner changes in equity (18,575) 38,552 (15,518) 31,728
------------ ------------ ------------ ------------
Comprehensive income $ 1,917,845 $ 2,975,348 $ 1,072,364 $ 1,756,856
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
NOTE 6
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments
9
<PAGE>
embedded in hybrid contracts that were issued, acquired, or substantively
modified after March 31, 1998 (and, at the company's election, before
April 1, 1998).
The Company has not yet quantified the impacts of adopting Statement 133 on
its financial statements and has not determined the timing of or method of
its adoption of Statement 133. However, the Statement could increase
volatility in earnings and other comprehensive income.
10
<PAGE>
ITEM 2. 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 include closed architecture control and PLC operator
interface devices, industrial computers and flat panel monitors and open
architecture control software and systems, and are sold primarily through an
international network of independent distributors.
The Company's net sales include revenues from sales of products, software
license fees, software maintenance and services. The Company's principal
operator interface product line, QuickPanel, accounted for 64.0% and 37.8% of
net sales for the six months ended September 30, 1997 and 1998, respectively.
A key element of the Company's strategy has been to expand the breadth of its
factory floor automation products offered through its distributor network in
order to provide innovative solutions for automation to end users. In
September 1996, the Company acquired a controlling interest in Taylor
Industrial Software, Inc. (Taylor), an Edmonton, Alberta-based developer of
PC-control software, client/server program management software, graphical
operator interface software and PLC configuration and support software. In
October 1997, the Company acquired substantially all of the net assets of
Computer Dynamics, Inc. (CDI), a South Carolina-based manufacturer of
industrial computers. On December 31, 1997, the Company acquired
substantially all of the net assets of SensorPulse Corp. (SensorPulse), a
Massachusetts-based designer and developer of industrial signal conditioning
products and networked input/output (I/O) devices. In June 1998, the Company
acquired the net assets of the Deeco Systems (Deeco) division of Lucas
Automation and Control Engineering, Inc., a designer and manufacturer of flat
panel factory automation products. These acquisitions 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 these new technologies into the
Company's traditional products.
All of these acquisitions (including the Company's acquisition of Cincinnati
Dynacomp, Inc. (Cincinnati) in January 1996) were accounted for as purchases
in accordance with Accounting Principles Board Opinion No. 16. In connection
with the Company's acquisitions, the Company has recorded approximately $32.6
million 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 periods ranging from 7 to 17 years.
11
<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. Such quarterly fluctuations in
results of operations may adversely affect the market price of the Company's
Common Stock, no par value (the "Common Stock"). A substantial portion of the
Company's sales for each quarter results from orders received in 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 large
part, on the Company's expectations of future revenues. 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.
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause results to differ materially from
forward-looking statements which may be deemed to have been made in this Form
10-Q, or which are otherwise made by or on behalf of the Company. Such
factors include, but are not limited to, changing market conditions, the
availability and cost of supply materials for the Company's products, the
timely development and market acceptance of the Company's products, the Year
2000 issues discussed below, and other risks detailed under the caption "Risk
Factors" in Item 1 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1998, or otherwise described herein or detailed from
time to time in the Company's Securities and Exchange Commission filings.
The Year 2000 or "Y2K" problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a major system failure or miscalculations.
As a part of the initial phase of the Company's Year 2000 compliance program,
the Company conducted a comprehensive internal review of its computer systems
and products to identify the systems that could be affected by the Year 2000
problem, including both "information technology" systems (such as software
that processes financial and other information) and non-information
technology (such as micro-processors embedded in the Company's products). The
Company is in the process of completing the final phase of its Year 2000
compliance program, which involves (1) the implementation of its existing
12
<PAGE>
remediation plan to resolve the Company's internal Year 2000 issues, (2) the
identification of any potential Year 2000 issues with the Company's material
vendors and suppliers, and (3) the testing of potentially affected Company
product for Year 2000 compliance and communication of results to customers.
The Company expects to be completed with the implementation of its
remediation plan by March 31, 1998.
The Company presently believes that, with modifications to existing software
and converting to new software, the Year 2000 issue will not pose significant
operational problems for the Company's internal computer systems as so
modified and converted. However, if such modifications and conversions are
not completed on a timely basis, the Year 2000 problem may have a material
adverse impact on the operations of the Company. In addition, in the event
that any of the Company's significant suppliers do not successfully and
timely achieve Year 2000 compliance, the Company's business or operations
could be adversely affected. The Company has yet to make a final
determination of the aggregate amount of costs that will be incurred in
connection with making its systems Year 2000 compliant; however, the
Company's management believes the total cost will not exceed $200,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
NET SALES. Net sales increased 68% to $20.9 million for the three-month
period ended September 30, 1998 compared to $12.4 million for the three month
period ended September 30, 1997. This increase resulted primarily from growth
in the Company's industrial computer and flat panel monitor product line
related to the CDI and Deeco acquisitions.
GROSS PROFIT. Cost of goods sold consists primarily of expenses for
components and subassemblies, subcontracted labor, direct labor and
manufacturing overhead. Gross profit increased 50% to $10.8 million for the
three months ended September 30, 1998 from $7.2 million for the three months
ended September 30, 1997. Gross margin decreased to 51.4% for the three
months ended September 30, 1998 from 57.7% for the three months ended
September 30, 1997. This decrease reflects a shift in total revenue from
higher margin operator interface and software products to lower margin
industrial computer and flat panel monitor products sold primarily through
CDI and Deeco.
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, trade shows, distributor
promotions and depreciation on equipment used for sales related activities.
Sales and marketing expenses increased 26% to $3.7 million for the three
months ended September 30, 1998 from $3.0 million for the three months ended
September 30, 1997. Approximately $900,000 of the increase related to the
operations of CDI, Deeco and SensorPulse. Additionally, the Company's
transition from independent sales representatives to an increase in employees
in its field sales force resulted in an increase in payroll and related costs
of approximately $200,000 offset by a reduction in independent sales
representative sales commissions of approximately $300,000 and marketing
related costs of approximately $100,000.
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 52% to $1.9
million for the three months ended September 30, 1998
13
<PAGE>
from $1.2 million for the three months ended September 30, 1997. The increase
resulted primarily from increased costs related to CDI, Deeco and SensorPulse
acquisitions offset by savings from consolidating existing software
development at the Company's Edmonton facility of approximately $65,000.
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 64% to
$1.5 million for the three months ended September 30, 1998 from $940,000 for
the three months ended September 30, 1997. Approximately $700,000 of the
increase related to the acquisitions of CDI, Deeco and SensorPulse offset by
savings primarily related to the Company's restructuring charge in March 1998.
AMORTIZATION OF GOODWILL. Amortization of goodwill relates to the Cincinnati,
Taylor, CDI, SensorPulse and Deeco acquisitions, which are being amortized
over seven to seventeen years from the date of acquisition. Amortization
expense increased to $588,000 for the three months ended September 30, 1998
from $140,000 for the three months ended September 30, 1997 due to an
increase in total Taylor goodwill related to the $1.1 million earn-out
payment to the former Taylor shareholders in fiscal 1998 and the
approximately $2.5 million increase related to the sale of the Company's
labor scheduling product line in September 1997. The remaining increase
related to the inclusion of CDI, SensorPulse and Deeco for the three months
ended September 30, 1998. Under the terms of the Taylor and CDI acquisitions,
the Company may be obligated to pay contingent consideration. For the year
ended September 30, 1998, the Company will pay approximately $1 million to
the former shareholders of Taylor and approximately $3 million (50% in cash
and 50% in common stock of the Company) to the former shareholders of CDI.
These payments will increase goodwill and be amortized over the remaining
useful lives of the related goodwill.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net was a net
expense of approximately $300,000 for the three months ended September 30,
1998 from net income of $19,000 for the three months ended September 30,
1997. The increase in expense primarily related to an increase in average
debt outstanding as debt was used to finance all or part of the CDI, Deeco
and SensorPulse acquisitions.
14
<PAGE>
PROVISION FOR INCOME TAXES. Provision for income taxes increased to $1.2
million for the three months ended September 30, 1998 from $837,000 for the
three months ended September 30, 1997. The effective tax rate for the
three-month periods ended September 30, 1998 and 1997, was 43%.
MINORITY INTEREST IN LOSS OF SUBSIDIARY. A minority interest representing
Digital Electronic's 38.5% share (39% for the three month period ended
September 30, 1997) 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 increased an additional 0.5% effective September 30, 1998, based on
the estimated amount of contingent consideration paid by the Company in
connection with the acquisition. The minority interest benefit of $(1,600)
and $165,000 for the three months ended September 30, 1997 and 1998,
respectively, represents the minority interest share of the (income) loss
recorded by Taylor during the period.
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
NET SALES. Net sales increased 52% to $37.8 million for the six-month period
ended September 30, 1998 compared to $24.9 million for the six-month period
ended September 30, 1997. This increase resulted primarily from growth in the
Company's industrial computer and flat panel monitor product line related to
the CDI (acquired October 1997) and Deeco (acquired June 1998) acquisitions.
GROSS PROFIT. Gross profit increased 41% to $19.7 million for the six months
ended September 30, 1998 from $14.0 million for the six months ended
September 30, 1997. Gross margin decreased to 52.1% for the six months ended
September 30, 1998 from 56.2% for the six months ended September 30, 1997.
This decrease primarily relates to a shift in total revenue from higher
margin operator interface and software products to lower margin industrial
computer and flat panel monitor products sold primarily through CDI and Deeco.
SALES AND MARKETING. Sales and marketing expenses increased 19% to $7.2
million for the six months ended September 30, 1998 from $6.0 million for the
six months ended September 30, 1997. Approximately $1.4 million of the
increase related to the operations of CDI, Deeco and SensorPulse.
Additionally, the Company's transition from independent sales representatives
to an increase in employees in its field sales force resulted in an increase
in payroll and related costs of approximately $550,000 offset by a reduction
in independent sales representative sales commissions of approximately
$650,000 and marketing related costs of approximately $100,000.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 38% to
$3.4 million for the six months ended September 30, 1998 from $2.5 million
for the six months ended September 30, 1997. The increase resulted primarily
from increased costs related to CDI, Deeco and SensorPulse acquisitions
offset by savings from consolidating existing software development at that
Company's Edmonton facility of approximately $170,000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 39%
to $2.8 million for the six months ended September 30, 1998 from $2.0 million
for the six months ended September 30, 1997. Approximately $1.1 million of
the increase related to the acquisitions of CDI, Deeco and SensorPulse offset
by savings primarily related to the Company's restructuring charge in
March 1998
15
<PAGE>
and the timing of payment of certain professional fees primarily related to
the Company's income tax filings.
AMORTIZATION OF GOODWILL. Amortization expense increased to $1.1 million for
the six months ended September 30, 1998 from $281,000 for the six months
ended September 30, 1997 due to an increase in total Taylor goodwill related
to the $1.1 million earn-out payment to the former Taylor shareholders in
fiscal 1998 and the approximately $2.5 million increase related to the sale
of the Company's labor scheduling product line in September 1997. The
remaining increase related to the inclusion of CDI, SensorPulse and Deeco for
the six months ended September 30, 1998.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net was a net
expense of approximately $450,000 for the six months ended September 30, 1998
and increased from net expense of $15,000 for the six months ended September
30, 1997. The increase in expense primarily related to an increase in average
debt outstanding as debt was used to finance all or part of the CDI, Deeco
and SensorPulse acquisitions.
PROVISION FOR INCOME TAXES. Provision for income taxes increased to $2.0
million for the six months ended September 30, 1998 from $1.4 million for the
six months ended September 30, 1997. The effective tax rate for the six-month
periods ended September 30, 1998 and 1997 was 43%.
MINORITY INTEREST IN LOSS OF SUBSIDIARY. The minority interest benefit of
$282,000 and $134,000 recorded for the six months ended September 30, 1998
and 1997, respectively, represents the minority interest share of the loss
recorded by Taylor during the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has bank lines of credit aggregating $19.0 million. The
amount that the Company is entitled to borrow under such lines of credit is
based on 80.0% to 85.0% of eligible trade accounts receivable and 50.0% of
eligible inventory, up to $8.0 million, of its respective operations. Based
on this formula, the Company would have had approximately $8.4 million and
$1.6 million of available borrowings under its lines of credit at March 31 and
September 30, 1998, respectively. 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 July 31, 2000. The interest rate on borrowings
under the lines of credit varies based on certain financial ratios from LIBOR
plus 1.5% to LIBOR plus 2%, or in the case of a $1.0 million line of credit
related to Taylor, the bank's prime lending rate.
In connection with the acquisition of CDI, the Company also borrowed
$4.0 million pursuant to a term note with its bank. Interest is calculated at
the bank's prime rate and is payable monthly. Principal of $250,000 is paid
quarterly, and commencing September 30, 1998, all cash flow in excess of the
debt service coverage, as defined, shall be applied to pay down the
outstanding principal balance on the note. The note is secured by
substantially all of the Company's assets.
Subsequent to September 30, 1998, the Company executed a $500,000
installment note agreement with a bank. The note calls for monthly principal
and interest payments of $9,842 from October 31, 1998 through March 31, 2004.
The note bears interest at 6.75% and is secured by the general business
assets of the Company.
16
<PAGE>
Cash provided by (used in) operating activities was $1,761,000 and
$(1,187,000) for the six months ended September 30, 1997 and 1998,
respectively. In 1997 the Company's cash flow from operations related
primarily to income for the period, non-cash charges for depreciation
amortization and growth in payables and accruals combined with reductions in
accounts receivable and inventory balances during the period. In 1998, the
Company experienced increased income and non-cash charges for depreciation
and amortization offset by increases in accounts receivable, inventory and
prepaid and other expenses and reductions in accounts payable, accrued
expenses and deferred revenue.
Net cash provided by (used in) investing activities totaled $961,000 and
$(7,207,000) for the six months ended September 30, 1997 and 1998,
respectively. In 1997, cash was generated from the sale of the Company's
production scheduling software product line (TESS), offset by purchases of
property and equipment and other assets. In 1998, the activities consisted
primarily of the purchase of the net assets of Deeco, amounts paid to third
parties for new product development and purchases of property and equipment.
Net cash (used in) provided by financing activities totaled $(1,748,000)
and $7,716,000 for the six months ended September 30, 1997 and 1998,
respectively. In 1997, the cash generated from the sale of TESS was used to
pay down a portion of outstanding debt. Also, the Company continued to pay
certain amounts related to the Company's initial public offering in March of
1997. In 1998, the activities consisted of borrowings to finance the
Company's acquisition of Deeco and the sale of common stock through the
Company's stock option and employee stock purchase plans, offset by payments
made on debt primarily related to the acquisition of CDI.
See the Company's Annual Report on Form 10-K for a discussion of
payments of contingent consideration under the terms of the Cincinnati,
Taylor, CDI, SensorPulse and Deeco Transactions which the Company may become
obligated to pay.
Management believes funds generated from operations and borrowings
available under the existing bank credit facilities or replacement facilities
will be sufficient to finance the Company's operations at least through the
end of fiscal 1999. Specifically, as noted previously, the Company is
obligated to pay approximately $2.3 million in earn-out payments during the
quarter ending December 31, 1998. It is management's expectation that it will
be able to fund these expenditures through additional financing with the
Company's bank. 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.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1996, Wesco Distribution Incorporated ("Wesco"), a former distributor of
Cincinnati, initiated litigation against one of its customers, Joslyn
Sterilizer, Inc. ("Joslyn") to collect approximately $50,000 of invoices for
computer software and equipment purchased by the customer, including
equipment supplied by Cincinnati. The customer then filed a counterclaim
against Wesco alleging that the software and equipment contained defects and
seeking damages in the amount of approximately $1.6 million. On February 14,
1997, Wesco impleaded Tara Products, Inc. ("Tara"), the Company's
wholly-owned subsidiary, which has been dissolved, seeking indemnification
from Tara for damages suffered by Wesco resulting from any product defects.
This suit (the "Lawsuit") was filed in the New York Supreme Court for Monroe
County. On May 23, 1997, the New York Supreme Court for Monroe County
dismissed Wesco's third-party complaint against Tara without prejudice on the
grounds that under a distribution agreement between Wesco and Tara's
predecessor, any litigation between the two companies must be brought in the
Court of Common Pleas for Claremont County, Ohio. Wesco may still seek
indemnification from the Company in Ohio. While the Company has not conducted
any formal investigation or taken any discovery, it believes that Tara would
have a meritorious defense to such an action.
On May 7, 1997, Joslyn filed a complaint against Tara, the Company and Tara's
predecessors, Cincinnati Electrosystems Inc., and Cincinnati Dynacomp, Inc.,
in the Supreme Court for Monroe County, New York, alleging substantially the
same facts against those defendants as it did against Wesco in the
counterclaim. In response to Joslyn's complaint, the defendant's filed a
motion for summary judgement which was granted in part and denied in part.
With respect to such matters that it was unsuccessful, the Company filed a
response on January 19, 1998. On September 24, 1998, the Court set a deadline
of December 31, 1998 to complete written discovery, and March 31, 1999 to
complete depositions. The Company believes that it and the other defendants
have meritorious defenses, and the Company intends to vigorously defend this
action. There can be no assurance, however, that the defendants will prevail
in this action. If the defendants do not prevail, or if they settle the
action, the Company could be required to make payments to Joslyn. The Company
does not, however, believe that any such payments, if required to be made,
would have a material adverse effect on the Company's financial condition or
results of operations.
The Company is not involved in any other material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT LIST
<TABLE>
<CAPTION>
(a) Exhibits
Number Exhibit
<S> <C>
3.1(a) Amendment No. 1 to the Company's Amended and Restated Articles of
Incorporation.
10.1 Amendment No. 2 to the Company's 1996 Employee Stock Option Plan.
10.2 Loan and Security Agreement, dated July 15, 1998, between the Company
and American National Bank & Trust Company of Chicago.
10.3 $18,000,000 Secured Promissory Note of the Company, dated July 15,
1998, payable to American National Bank & Trust Company of Chicago.
10.4 $1,000,000 Secured Promissory Note of Taylor Industrial Software,
Inc., dated July 15, 1998, payable to American National Bank & Trust
Company of Chicago.
10.5 $500,000.00 Secured Installment Note of the Company, dated October 1,
1998, payable to American National Bank & Trust Company of Chicago.
10.6 $500,000 Secured Promissory Note of Controls Automation Technology
Systems, Inc., a Missouri corporation, payable to the Company.
11.1 Statement regarding computation of per share
earnings
27.1 Financial Data Schedule (EDGAR version only)
(b). Reports on Form 8-K filed for the quarter ended September 30,
1998:
None.
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOTAL CONTROL PRODUCTS, INC..
(Registrant)
By: /s/ Nicholas T. Gihl
-----------------------------
Nicholas T. Gihl
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Peter A. Nicholson
------------------------------
Peter A. Nicholson
Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: November 16, 1998
<PAGE>
AMENDMENT NO. 1 TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF TOTAL CONTROL PRODUCTS, INC.
RESOLVED: That the second sentence of Article FIFTH of the Corporation's
Amended and Restated Articles of Incorporation is hereby deleted in its
entirety and replaced by the following:
"The number of directors of the Corporation shall not be less than five nor
more than ten. The board of directors shall from time to time set the
number of members to serve on the board of directors. "
<PAGE>
TOTAL CONTROL PRODUCTS, INC.
1996 Stock Option Plan
AMENDMENT NO. 2
The Board of Directors of Total Control Products, Inc., an Illinois
corporation (the "Corporation"), authorized an amendment (the "Amendment") to
the Total Control Products, Inc. 1996 Stock Option Plan (the "Plan") on May
8, 1998, which was approved by the shareholders of the Corporation at the
annual meeting of shareholders on August 27, 1998. The first sentence of
Section 2 of the Plan is hereby deleted in its entirety and replaced with the
following:
"The aggregate number of shares which may be issued under options is
1,100,000 shares of the Company's common stock subject to the adjustments
hereinafter provided."
Except as specifically set forth herein, the Plan shall remain in full force
and effect and shall not be waived, modified, superseded or otherwise
affected by this Amendment.
Total Control Products, Inc.
By: /s/ Peter Nicholson,
Peter Nicholson, Secretary
<PAGE>
EXHIBIT 10.2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), made as of the 15th
day of July, 1998, by and between AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO ("Bank"), a national banking association with its principal place of
business at 120 South LaSalle Street, Chicago, Illinois 60603, and TOTAL
CONTROL PRODUCTS, INC. ("Borrower"), an Illinois corporation with its
principal place of business at 2001 N. Janice, Melrose Park, Illinois 60163
has reference to the following facts and circumstances:
A. Pursuant to Borrower's request, Bank 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, including without limitation the Pension
Benefit Guaranty Corporation) taxes, levies, assessments, charges,
liens, claims or encumbrances upon and/or
1
<PAGE>
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, municipal or
otherwise, including without limitation, any instrumentality,
division, agency, body or department thereof).
2
<PAGE>
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, laminations 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 Borrowers 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.
2.4 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 "Borrowing Base" minus any Letter of Credit
Obligations. As used
3
<PAGE>
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 Obligors 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 thirty five (35) days and an event of
default 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 to 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 up to the lesser of (i)
S9,000,000.00; or (ii) 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.
4
<PAGE>
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), 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) all investment property, including but not limited
to 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
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where Borrower keeps the Collateral are specified at the end of this
Paragraph and Borrower shall not 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's 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) 7640 Pelham Road, Greenville, South Carolina 29615
2) 31047 Genstar Road, Haywood California 9544-783
3) 1002 10045-111 Street, Edmonton Canada P5K2M5.
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) 7640 Pelham Road, Greenville, South Carolina 29615
3) 31047 Genstar Road, Haywood California 9544-783
4) 1002 10045-111 Street, Edmonton Canada P5K2M5
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 the 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.
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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.
3.12 At the request of Bank, Borrower shall instruct the Obligors 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)
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 greater than $25,000; (g)
it is not owing by any Obligor involved in any bankruptcy or insolvency
proceeding; (h) it is not owing by any affiliate of Borrower; (i) it is not
unpaid more than ninety (90) days after the date of such invoice; (j) it is
not 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 at any time upon an Event of Default reduce the
percentage set forth in clause (j) above upon seven (7) days prior notice to
Borrower.
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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 Obligors in connection therewith) of all then existing Eligible
Accounts multiplied by the Advance Rate.
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 Borrowers 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 collectability
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 Bank's 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
reasonable 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
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Obligor and of any allowances, credits and/or other monies granted by
Borrower to any Obligor; (b) not permit or 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 upon an Event of Default, now and at any
time or times hereafter, at its option, without notice thereof to Borrower:
(a) to notify any or all Obligors that the Accounts and Special Collateral
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
reasonably 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
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(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.
Unless Borrower provides Bank with evidence of the insurance
coverage required by this Agreement, Bank may purchase insurance at
Borrower's expense to protect Bank's interests in the Collateral. This
insurance may, but need not, protect Borrower's interests. The coverage Bank
purchases may not pay any claim that Borrower makes or any claim that is made
against Borrower in connection with the Collateral. Borrower may later
cancel any insurance purchased by Bank, but only after providing Bank with
evidence that Borrower has obtained insurance as required by this Agreement.
If Bank purchases insurance for the Collateral, Borrower will be responsible
for the costs of that insurance, including interest and other charges Bank
may impose in connection with the placement of the insurance, until the
effective date of the cancellation or expiration of the insurance. The costs
of the insurance may be added to Borrower's total outstanding balance or
obligation. The costs of the insurance may be more than the cost of the
insurance Borrower is able to obtain on its own.
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.
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 all 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)
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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 which fairly present
the financial position and results of operations of Borrower for such period;
(c) schedule of accounts payable and accounts receivable by the I 5th 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 will maintain its primary depository relationship with
Bank and will establish such accounts and maintain balances therein with Bank
sufficient to cover the cost of all Bank services provided; provided however,
that nothing herein shall require Borrower to keep and maintain a specific
minimum balance in such account.
6.5 Borrower warrants and represents to and covenants with Bank that
Borrower shall not permit its Tangible Net Worth (as hereinafter defined) to
be at any time less than $7,000,000.00. "Tangible Net Worth" shall mean the
value of the total assets of Borrower plus debt subordinated to Bank, as
determined in accordance with the generally accepted accounting principles
("GAAP") after subtracting therefrom the aggregate amount of any intangible
assets of Borrower as determined in accordance with GAAP, including prepaid
expenses, other officer accounts receivable, goodwill, franchises, licenses,
patents, capitalized research and development, trademarks, tradenames,
copyrights and brand names, minus the aggregate of all contingent and
non-contingent liabilities of Borrower. Tangible balance sheet items include
investment in joint ventures, deferred inocme taxes no greater than fiscal
year end 1998 levels, and nonrefundable life insuracne and any other liquid
deposit within current assets.
6.6 Borrower warrants and represents to and covenants with Bank that
Borrower shall maintain a ratio of Liabilities to Tangible Net Worth (as
hereinafter defined) of not more than 4.75 to 1.0 at all times.
"Liabilities" shall mean at all times all liabilities of Borrower that would
be shown on a balance sheet of Borrower prepared in accordance with GAAP,
except for minority interest.
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7. DEFAULT
7.1 The occurrence of any one of the following events shall constitute
a default by the Borrower ("Event of Default") unda 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
after a 30 day cure period; (c) occurrence of a default or Event of Default
under any of the Other Agreements heretofore, now or at any time hereby
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 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 greater than $50,000, 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 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 appointment of a conservator
for all or any prtion 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 Intemal 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; (1) 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.
7.2 All of Bank's rights 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
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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.
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
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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 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 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 unda
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.
14
<PAGE>
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, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any and all 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
15
<PAGE>
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 Bank's 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 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 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 TO 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, 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.
TOTAL CONTROL PRODUCTS, INC.
AN ILLINOIS CORPORATION
By: /s/ Nicholas T. Gihl
---------------------------
Nicholas T. Gihl, President
Accepted this 15th. day of July, 1998, 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/ W.M. Roberts
Its: VP
16
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE (SECURED)
$18,000,000.00 CHICAGO, ILLINOIS JULY 15, 1998
DUE JULY 31, 2000
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 EIGHTEEN 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 31, 2000.
This Note restates and replaces a Promissory Note (Secured) in the
principal amount of $l8,000,000.00, dated September 24, 1997 executed by
Borrower in favor of Bank (the "Prior Note") and is not a repayment or
novation of the Prior Note.
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."
Borrower may draw up to EIGHTEEN THOUSAND AND NO/100 DOLLARS
($18,000.00) hereunder for Corporate VISA, pursuant to Borrower's VISA
Business Card Agreement (the "Corporate VISA sub-facility").
The unpaid principal balance of Borrower's Liabilities due hereunder
shall bear interest from the date of disbursement until paid, computed as
follows: a) at a daily rate equal to the daily rate equivalent of 0.00DEG. /.
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
b) Borrower may choose to borrow at LABOR + 150, +175 or +200 basis points,
as set forth in the London Interbank Offered Rate Borrowing Agreement of 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%.
<PAGE>
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, 1998, 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 Borrowers 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 BORROWER 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 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, 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
<PAGE>
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 greater than $50,000, 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 11 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 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
<PAGE>
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
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; (1) 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.
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 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.
<PAGE>
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. BOMOWER
HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION BROUGHT AGAINST BOMOWER 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.
2001 N. Janice TOTAL CONTROL PRODUCTS, INC.
Melrose Park, Illinois 60163 an Illinois Corporation
By: /s/ Nicholas T. Gihl
Nicholas T. Gihl, President
<PAGE>
EXHIBIT 10.4
PROMISSORY NOTE (SECURED)
$1,000,000.00 CHICAGO, ILLINOIS JULY 15, 1998
DUE JULY 31, 2000
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 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 31, 2000.
This Note restates and replaces a Promissory Note (Secured) in the
principal amount of $1,000,000.00, dated July 31, 1997, executed by Borrower
in favor of Bank (the "Prior Note") and is not a repayment or novation of the
Prior Note.
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."
Borrower may draw up to EIGHTEEN THOUSAND AND NO/100 DOLLARS
($18,000.00) hereunder for Corporate VISA pursuant to Borrower's VISA
Business Card Agreement (the "Corporate VISA sub-facility").
The unpaid principal balance of Borrower's Liabilities due hereunder
shall bear interest from the date of disbursement until paid, computed AT A
DAILY RATE EQUAL TO THE DAILY RATE EQUIVALENT OF 0.00% 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.
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, 1998, 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
Page 1 of 5
<PAGE>
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 BORROWER PURSUANT TO LOAN
AND SECURITY AGREEMENT DATED NOVEMBER 25, 1996, 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 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, 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
Page 2 of 5
<PAGE>
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, 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 arc 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 greater than $50,000, 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 11 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 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 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; (1) 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.
Upon the occurrence of an Event of Default after any cure perio , at
Bank's option, with written 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
Page 3 of 5
<PAGE>
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
Page 4 of 5
<PAGE>
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.
BOMOWER.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.
#1 1002 10045-111 Street TAYLOR INDUSTRIAL SOFTWARE, INC.
Edmonton, Alberta a(n)______________________corporation
Canada
TSK2M5 By: /s/ Nicholas T. Gihl
Nicholas T. Gihl, President
FEIN: 36-3209178
Page 5 of 5
<PAGE>
EXHIBIT 10.5
INSTALLMENT NOTE (SECURED)
$500,000.00 CHICAGO, ILLINOIS OCTOBER 1, 1998
DUE: MARCH 31, 2004
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 FIVE HUNDRED THOUSAND AND NO/100 DOLLARS,
which sum shall be due on March 31, 2004, and shall be payable in successive
monthly installments of principal and interest in the aggregate amount of
$9,841.73; with the final installment equal to the balance of all amounts due
hereunder. The first installment shall be due on the last day of October,
1998, ant successive installments shall be paid on the same day of each
month, thereafter until paid.
This Note restates and replaces a Promissory Note (Secured) in the
principal amount of $350,000.00, dated July 15, 1998 executed by Borrower in
favor of Bank (the "Prior Note") and is not a replacement or novation of the
Prior Note.
Borrower's obligations ant 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 ant 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 at a
daily rate equal to the daily rate equivalent of 6.75% per annum (computed on
the basis of a 360-day year and actual days elapsed); 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%.
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.
Page 1 of 5
<PAGE>
To secure the prompt payment to Bank of Borrowers Liabilities and the
prompt, full and faithful performance by Borrower of all of the provision. 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 dividends thereon,
securities , cash, cash equivalent and other property now or at any time or
times hereafter in the possession or under the control of Bank or its bailed
for any purpose; (b) ALL BUSINESS ASSETS OF BORROWER, PURSUANT TO LOAN AND
SECURITY AGREEMENT DATED JULY 15, 1998. AS AMENDED FROM TIME TO TIME, BY AND
BETWEEN BORROWER AND BANK; and (c) all substitutions, renewals, improvements,
accessions or additions therein, 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 duo from Bank to Borrower, or any
monies, cash, cash equivalents, securities, instruments, documents or over
assess 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 therefor, 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 (1) 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 cause of action or claims which Borrower may
now or hereafter have for any asserted lose 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 the Bank, its officers, agents or employees, except for willful
misconduct.
Page 2 of 5
<PAGE>
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 an 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 proper 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 11 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, nomination 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 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 Col1ateral; and/or (iv) Bank may
sell or
Page 3 of 5
<PAGE>
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 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 hereunder.
This Note shall be deemed to have been submitted by Borrower to Bank ant
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.
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 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
Page 4 of 5
<PAGE>
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.
"BORROWER"
Total Control Products, Inc.,
an Illinois corporation
BY: Nicholas T. Gihl
Nicholas T. Gihl, President
2001 N. Janice
Melrose Park, IL 60163
FEIN: 36-3209178
Page 5 of 5
<PAGE>
SECURED NOTE
$500,000 May 16, 1998
FOR VALUE RECEIVED, the undersigned, Controls Automation Technology
Systems, Inc., a Missouri corporation ("CAT"), hereby promises to pay to the
order of Total Control Products, Inc., an Illinois corporation (together with
its successors and assigns, "Lender"), the principal sum of Five Hundred
Thousand Dollars ($500,000) on or before May 16, 2003 (or such earlier date
as the principal sum shall become due as provided below), or, if less, the
aggregate unpaid principal amount of all loans outstanding under this Note,
together with interest on the principal sum outstanding from time to time at
a rate per annum equal to two percent (2%) in excess of the Prime Rate (as
defined below), calculated on the basis of a 365-day year and the actual
number of days elapsed. CAT shall pay to Lender all interest accrued
hereunder on the first and second year anniversaries of this Note and on the
date of each payment of principal as set forth hereafter. CAT further agrees
to pay on demand all costs and expenses incurred by Lender in endeavoring to
enforce this Note (including, without limitation, court costs and reasonable
attorneys' fees and disbursements) and/or any related agreements (all such
principal, costs and expenses and all other amounts payable hereunder,
together with interest thereon, are referred to herein, collectively, as
"Liabilities").
Beginning on October 1, 2000 and on the first day of each calendar
quarter thereafter through April 1, 2003, CAT shall pay Lender an amount
equal to one-eleventh (1/11) of the outstanding principal balance of this
Note. All Liabilities remaining outstanding shall be due and payable in full
on May 16, 2003.
Any Liabilities that are not paid to Lender when due will accrue
interest, from the date due until paid, at a rate per annum equal to four
percent (4%) in excess of the Prime Rate (as defined below), calculated on
the basis of a 365-day year and the actual number of days elapsed or the
maximum rate permitted under applicable law. All payments hereunder shall be
made to Lender in lawful U.S. currency at its place of business at 2001 North
Janice Avenue, Melrose Park, Illinois 60160. Any payments received will be
applied by Lender (i) first, to the payment of all costs and expenses
incurred by Lender in endeavoring to enforce this Note; (ii) second, to the
payment of accrued and unpaid interest as of the date of payment; and (iii)
third, to the payment of any principal amount due hereunder.
As used in this Note, "Prime Rate" shall mean the "prime rate" of
interest quoted from time to time by THE WALL STREET JOURNAL as the "base
rate on corporate loans at large U.S. money center commercial banks."
However, in the event that THE WALL STREET JOURNAL ceases to quote a "prime
rate" of the type described, "Prime Rate" shall mean the per annum rate of
interest quoted from time to time as the "Bank Prime Loan" rate for "This
week" in Statistical Release H.15 (519) published from time to time by the
Federal Reserve Board.
<PAGE>
The prompt payment when due of all Liabilities and satisfaction of
all other obligations and liabilities of CAT to Lender, whether now existing
or hereafter arising or created, howsoever evidenced or created, are secured
by a security interest created by this Note. Reference is made to that
certain Shareholders Agreement, dated as of the date hereof, by and among CAT
and all of its shareholders (the "Shareholders Agreement"), which is
incorporated in this Note by this reference as though set forth below, for a
statement of the covenants and agreements in such agreement, a statement of
the rights and remedies afforded by such agreement and all other matters
therein.
CAT hereby grants, conveys, mortgages, hypothecates, pledges, sets
over, transfers and assigns to Lender, and grants to Lender a continuing
security interest in, all of CAT's personal property, wherever located,
owned, licensed, leased, consigned, arising or acquired, whether now existing
or hereafter coming into existence, including, without limitation, all
accounts, goods (including all consumer goods, equipment, motor vehicles,
fixtures and inventory), general intangibles, instruments, securities,
chattel paper, documents and letters of credit, together with all accessions,
additions, attachments, improvements, substitutions and replacements thereto
and therefor, all products thereof, all accessories, parts and other property
used in connection therewith, all books, ledgers, books of account, records,
writing, data bases, information and other property relating to,
incorporating or referring to any of the foregoing, and all proceeds,
products, offspring, rents, issues, profits and returns of and from any of
the foregoing (collectively, the "Collateral").
CAT hereby represents and warrants to Lender, and covenants with
Lender, as follows:
(a) CAT is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the
requisite power and authority to enter into and perform its obligations
under this Note, and to enter into the transactions contemplated hereby.
Concurrently herewith, CAT has delivered to Lender true, correct and
complete copies (certified as such by the Secretary), in each case, as
amended, supplemented and otherwise modified and in effect on the date
hereof, of (i) the Certificate of Incorporation of CAT, (ii) proper
consents of the directors of CAT authorizing and approving the execution,
delivery and performance of this Note and the transactions contemplated
thereby, and (iii) the Shareholders Agreement. The Shareholders Agreement
is in full force and effect, and, together with the Articles of
Incorporation and the By-Laws, constitute the only governing documents of
CAT.
(b) The execution and delivery of this Note and the Shareholders
Agreement, the consummation of the transactions contemplated hereby and
thereby (including, the borrowings evidenced hereby), and the performance
by CAT of its obligations hereunder and thereunder, have been duly
authorized by all necessary corporate action. This Note and the
Shareholders Agreement have been duly executed and delivered by CAT and
constitute legal, valid and binding obligations of CAT, enforceable against
CAT in
<PAGE>
accordance with their respective terms.
(c) The execution and delivery by CAT of this Note and the
Shareholders Agreement, the consummation of the transactions contemplated
hereby and thereby, and the performance by CAT of its obligations hereunder
and thereunder, are not in contravention of its Certificate of
Incorporation, bylaws or other organizational or governing instruments, or
any law, rule, regulation, judgment, order or decree of any governmental
authority binding upon or applicable to it or its properties, and does not
contravene any provision of, or constitute a default under, any other
agreement, indenture, mortgage or other instrument to which it is a party
or by which it or its property is bound, or require any consent or approval
of, or filing or registration with, any governmental authority or other
person or entity.
(d) There is no action, suit, investigation or proceeding pending or,
to the best of CAT's knowledge, threatened, before any court, governmental
agency or arbitrator, nor has any order, judgment or decree been issued,
or, to the best of CAT's knowledge, threatened, by any court, governmental
agency or arbitrator which could materially adversely affect the business,
condition (financial or otherwise), operations or properties of CAT or
adversely affect its ability to fulfill any of its obligations under this
Note or under the Shareholders Agreement.
(e) Until payment in full of the Liabilities and satisfaction of all
other liabilities and obligations of CAT to Lender, CAT will furnish to
Lender, in form and substance reasonably satisfactory to Lender, certified
to be true, correct and complete by an executive officer of CAT, such
financial statements and other reports with respect to CAT, or its
properties or operations, as Lender reasonably may request, including,
without limitation, copies of all reports and statements as and when
provided to the shareholders of CAT or the Board of Directors of CAT.
(f) Lender acknowledges that CAT is a start-up company that has not
conducted any material operations prior to the date hereof, and therefor,
Lender has received no financial statements from CAT as of the date of this
Note.
(g) CAT has filed all tax returns and reports required by law to have
been filed by it and has paid all taxes and governmental charges thereby
shown to be owing, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books.
(h) To the best of CAT's knowledge, no conditions exist at, on or
under any property now or previously owned or leased by CAT or any other
property, which could
3
<PAGE>
give rise to any material liability under any Environmental Law. As
used herein, "Environmental Laws" means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations and
guidelines (including consent decrees and administrative orders)
relating to public health and safety or protection of the environment.
(i) All factual information heretofore or contemporaneously furnished
by or on behalf of CAT to Lender for purposes of or in connection with this
Note is, and all such factual information hereafter furnished by or on
behalf of CAT to Lender will be, true and accurate in every material
respect on or as of the date such information is furnished, and such
information does not, or when furnished shall not, omit to state any
material fact necessary to make such information not misleading.
(j) (i) Except for the security interest granted by this Note, (A)
CAT owns the Collateral free and clear of any lien, security interest, claim
or encumbrance, (B) no financing statement (or other evidence of a lien)
covering any Collateral or proceeds of any Collateral is on file in any
public office, and (C) CAT will keep all Collateral free from any lien,
security interest, claim or encumbrance; (ii) CAT will keep the tangible
Collateral in good order and repair, will not waste or destroy any Collateral
and will not use Collateral in violation of any applicable statute,
regulation, ordinance or other law; (iii) CAT will notify Lender in writing
at least thirty (30) days prior to any change in CAT's name, address or
identity and will not change its ownership or corporate structure; (iv) all
of the Collateral is kept at the principal residences of each of Gary
Peterson, Thomas Richards, Steven Hobkirk and Michael Stahlman, each of which
is located in the state of Missouri (except for any vehicles while in
transit), and CAT promptly will notify Lender at least thirty (30) days prior
to any change in location of any Collateral and will not remove any of the
Collateral from the State of Missouri without Lender's prior written consent,
except for removals from the state due to customer off-site visits; (v)
except in the ordinary course of CAT's business consistent with past
practices, CAT will not sell or offer to sell, assign, lease or otherwise
dispose of Collateral or any interest in Collateral without Lender's prior
written consent; (vi) the loan evidenced by this Note will be used by CAT
solely for business purposes and not for household, consumer or agricultural
purposes; and (vii) CAT will take all actions reasonably requested by Lender
to assure the continued protection, validity and perfection of Lender's
security interest in all Collateral and other rights hereunder, including,
without limitation, by delivery to Lender of appropriate financing statements
duly executed by CAT and ready for filing.
Each of the following events or occurrences shall constitute a
"default" under this Note: (a) CAT shall fail to pay any Liability when due
(and such failure shall continue for a period of five (5) days after the due
date); (b) any representation or warranty of CAT made hereunder, in the
Shareholders Agreement or in any related agreement or instrument furnished to
4
<PAGE>
Lender is or shall become incorrect or misleading in any material respect;
(c) CAT shall fail to duly perform any of its obligations hereunder or in the
Shareholders Agreement within twenty days after receipt of written notice of
such failure ; (d) a default shall occur in (i) the payment when due (subject
to applicable grace periods), whether by acceleration or otherwise, of any
indebtedness (other than indebtedness described in clause (a) above) of CAT
or (ii) the performance or observance of any obligation, covenant or
condition with respect to such indebtedness, if the effect of such default is
to accelerate, or to permit the acceleration of, the maturity of such
indebtedness; (e) any judgment or order for the payment of money in excess of
$5,000 shall be rendered against CAT which is not discharged, stayed or
indemnified against to the satisfaction of Lender within ten (10) days; (f)
CAT shall become insolvent, a receiver, trustee or custodian is appointed for
CAT or any part of its property, or any proceeding is commenced by or against
CAT under any bankruptcy, reorganization, debt arrangement or insolvency law;
or (g) the holder of any lien on or security interest in any property of CAT
constituting Collateral shall take any action to enforce such lien or
security interest.
Upon a default, and at any time after a default, Lender at its
option will have all rights and remedies of a secured party under the Uniform
Commercial Code of the State of Illinois ("UCC") and other applicable laws.
In addition to the foregoing rights and remedies, upon a default, and at any
time after a default, Lender shall have the right to declare all Liabilities
to be immediately due and payable, whereupon all such amounts shall become
immediately due and payable, without further notice, demand or presentment of
any kind (provided that in the event of a default described in clause (f) of
the foregoing paragraph, all Liabilities automatically shall become due and
payable, without declaration, notice, demand or presentment of any kind), and
shall have the right to take immediate and exclusive possession of any or all
Collateral and sell, assign, lease or otherwise dispose of it at public or
private sale. If notification of intended disposition of Collateral is
required by law, the requirements of reasonable notice will be met if notice
of time and place of any public sale of Collateral, or the time after which
any private sale or other intended disposition of Collateral is to be made,
is mailed, postage prepaid, to CAT at least ten (10) days before the sale or
disposition. All rights and remedies of Lender after a default shall be
cumulative. No waiver by Lender of any default will waive any other default
or the same default on a different occasion.
CAT hereby authorizes and empowers Lender, and appoints Lender as
attorney in fact of CAT (which authorization, power and appointment, being
coupled with an interest, is irrevocable until payment in full of all
Liabilities and payment and performance in full of all liabilities and
obligations of CAT under this Note), at any time after a default, in Lender's
sole and absolute discretion, to: (a) request, in CAT's name, Lender's name
or the name of a third party, confirmation from any account debtor or party
obligated under or with respect to any Collateral of the amount shown by the
accounts or other Collateral to be payable, or any other matter stated
therein; (b) endorse in CAT's name and to collect any chattel paper, checks,
notes, drafts, instruments or other items of payment tendered to or received
by Lender in payment of any account or other obligation owing to CAT; (c)
notify, either in CAT's name or Lender's
5
<PAGE>
name, and/or to require CAT to notify, any account debtor or other person
obligated under or in respect of any Collateral, of the fact of Lender's lien
thereon and of the collateral assignment thereof to Lender; and (d) demand,
collect, surrender, release or exchange all or any part of any Collateral or
any amounts due thereunder or with respect thereto, or compromise or extend
or renew for any period (whether or not longer than the initial period) any
and all sums which are now or may hereafter become due or owing upon or with
respect to any of the Collateral, or enforce, by suit or otherwise, payment
or performance of any of the Collateral either in Lender's own name or in the
name of CAT. Under no circumstances shall Lender be under any duty to act in
regard to any of the foregoing matters and nothing herein shall be deemed an
assignment to, or assumption by, Lender of any obligations or liabilities
under or with respect to any Collateral, all of which obligations and
liabilities shall remain CAT's sole responsibility. The costs relating to
any of the foregoing matters, including reasonable attorneys' fees and
out-of-pocket expenses, and the cost of any bank account or accounts which
may be required hereunder, shall be borne solely by CAT and, to the extent
that the same are incurred by Lender, shall be deemed part of the Liabilities
payable upon demand of Lender.
All notices and other communications in connection with this Note
shall be sent in writing to Lender or to CAT, as the case may be, at their
respective addresses set forth above (or to such other address as either
party shall notify the other party in writing), and any such notice or other
communication shall be deemed delivered one (1) business day after being sent
by nationally-recognized private courier, five (5) business days after being
sent by certified U.S. mail, or upon actual receipt when sent by any other
means.
This Note evidences loans which the Lender, in its sole discretion,
from time to time may make to CAT. On the terms and subject to the
conditions set forth in this Note, prior to the fifth anniversary of the date
of this Note, CAT may from time to time borrow, prepay and reborrow such
loans, up to a maximum principal amount of five hundred thousand dollars
($500,000) at any time outstanding, so long as immediately before and after
giving such loans, (a) there is no default which has occurred and is
continuing, nor any event or circumstance that, with the lapse of time or
notice or both, would constitute a default; each request by CAT for a loan
hereunder and its acceptance of such loan shall constitute a representation
and warranty by CAT to the Lender that no such default, event or circumstance
then exists; (c) each request for a loan hereunder is accompanied by evidence
that such loan was authorized in writing by the member of the Board of
Directors of CAT appointed by Lender and by at least one other member of the
Board of Directors of CAT; provided, however, that Lender shall not be
entitled to loan in excess of two hundred thousand dollars ($200,000) to CAT
under this Note, unless such additional loan is approved by the Board of
Directors of Lender; and (d) all loans under this Note must be made in
increments of $25,000 or any multiple thereof.
CAT HEREBY (A) CONSENTS, AT LENDER'S ELECTION AND WITHOUT LIMITING
LENDER'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER
6
<PAGE>
JURISDICTION, TO THE JURISDICTION AND VENUE OF ANY COURT (FEDERAL OR STATE)
SITUATED IN COOK COUNTY, ILLINOIS, (B) WAIVES ANY OBJECTION TO IMPROPER VENUE
AND FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION BROUGHT IN COOK COUNTY,
ILLINOIS, AND (C) CONSENTS TO SERVICE OF PROCESS BY CERTIFIED MAIL, POSTAGE
PREPAID, ADDRESSED TO BORROWER AT ITS REGISTERED AGENT. CAT HEREBY WAIVES
TRIAL BY JURY IN ALL PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE AND THE
TRANSACTIONS CONTEMPLATED HEREBY.
CAT irrevocably waives diligence in collection or protection,
presentment, protest, notice of protest, demand, dishonor, default,
non-payment, creation and existence of any Liabilities and any security or
collateral for any Liabilities, and all other matters or things relating to
the Liabilities, this Note or any other agreement or instrument to which CAT
and Lender are parties, including any extension before, at or after maturity
of this Note.
If any provision of this Note is prohibited by or invalid under
applicable law, that provision will be ineffective to the extent of the
prohibition or invalidity, without invalidating the rest of that provision or
the remaining provisions of this Note. This Note will be governed and
construed in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely within Illinois, without regard
to the conflict of laws principles of Illinois. Terms used herein relating
to the Collateral, unless otherwise defined, shall have the meanings, if any,
provided in the UCC. This Note shall bind CAT and CAT's successors, legal
representatives and assigns, and will inure to the benefit of Lender and its
successors, legal representatives and assigns. No provision of this Note may
be waived, amended, released or otherwise changed, except by a writing signed
by the party against which enforcement is sought.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the day
and year written first above.
CONTROLS AUTOMATION TECHNOLOGY
SYSTEMS, INC.
By: /s/ Gary C. Peterson
___________________________________
Gary C. Peterson, President
8
<PAGE>
EXHIBIT A
TO THE
UCC-1 FINANCING STATEMENT
ISSUED BY
CONTROLS AUTOMATION TECHNOLOGY SYSTEMS, INC. ("DEBTOR")
IN FAVOR OF
TOTAL CONTROL PRODUCTS, INC. ("SECURED PARTY")
All of Debtor's personal property, wherever located, owned, licensed,
leased, consigned, arising or acquired, whether now existing or hereafter
coming into existence, including, without limitation, all accounts, goods
(including all consumer goods, equipment, motor vehicles, fixtures and
inventory), general intangibles, instruments, securities, chattel paper,
documents and letters of credit, together with all accessions, additions,
attachments, improvements, substitutions and replacements thereto and
therefor, all products thereof, all accessories, parts and other property
used in connection therewith, all books, ledgers, books of account, records,
writing, data bases, information and other property relating to,
incorporating or referring to any of the foregoing, and all proceeds,
products, offspring, rents, issues, profits and returns of and from any of
the foregoing.
9
<PAGE>
Total Control Products, Inc. and Subsidiaries
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- --------------------------
<S> <C> <C> <C> <C>
COMPUTATION OF NET INCOME PER SHARE: 1997 1998 1997 1998
---- ---- ---- ----
Net income ............................................................ $1,087,882 $1,725,128 $1,936,420 $2,936,796
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares outstanding - Basic Shares .................... 6,916,465 8,032,818 6,916,465 8,005,916
Dilutive effect of stock options ...................................... 223,988 54,857 194,366 105,275
Conversion of Class C Exchangeable common stock of subsidiary ......... 737,112 737,112 737,112 737,112
---------- ---------- ---------- ----------
Diluted Shares Outstanding ............................................ 7,877,565 8,824,787 7,847,943 8,848,303
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share .............................................. $ 0.16 $ 0.21 $ 0.28 $ 0.37
Diluted earnings per share ............................................ $ 0.14 $ 0.20 $ 0.25 $ 0.33
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TOTAL
CONTROL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31 AND SEPTEMBER 30, 1998 AND FOR EACH OF THE SIX MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,205,066
<SECURITIES> 0
<RECEIVABLES> 14,245,740
<ALLOWANCES> (420,000)
<INVENTORY> 17,292,880
<CURRENT-ASSETS> 34,195,995
<PP&E> 6,928,069
<DEPRECIATION> (2,306,470)
<TOTAL-ASSETS> 73,910,966
<CURRENT-LIABILITIES> 12,908,078
<BONDS> 0
0
0
<COMMON> 36,637,567
<OTHER-SE> 2,347,094
<TOTAL-LIABILITY-AND-EQUITY> 73,910,966
<SALES> 37,832,077
<TOTAL-REVENUES> 37,832,077
<CGS> 18,125,405
<TOTAL-COSTS> 18,125,405
<OTHER-EXPENSES> 14,577,166
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 589,417
<INCOME-PRETAX> 4,676,176
<INCOME-TAX> 2,021,000
<INCOME-CONTINUING> 2,936,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,936,796
<EPS-PRIMARY> .37
<EPS-DILUTED> .33
</TABLE>
