<PAGE>
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1
This Information Statement is being mailed on or about December 30, 1998 to
holders of shares of Common Stock, no par value (the "Common Stock"), of Total
Control Products, Inc., an Illinois corporation (the "Company"), in connection
with the anticipated designation of persons (the "Designated Directors") to
the Board of Directors of the Company. Such designation is to be made pursuant
to the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
November 22, 1998 among the Company, GE Fanuc Automation North America, Inc.,
a Delaware corporation ("GE Fanuc"), and Orion Merger Corp., an Illinois
corporation and a wholly owned subsidiary of GE Fanuc (the "Offeror"). On
November 30, 1998, the Offeror commenced a tender offer (the "Offer") to
purchase all outstanding shares (the "Shares") of the Common Stock for $11.00
per share in cash (the "Offer Price").
NO ACTION IS REQUIRED BY THE SHAREHOLDERS OF THE COMPANY IN CONNECTION WITH
THE APPOINTMENT OF THE DESIGNATED DIRECTORS. However, Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 promulgated thereunder require the mailing to the Company's shareholders
of the information set forth in this Information Statement prior to a change
in a majority of the Company's directors other than at a meeting of the
Company's shareholders.
The Merger Agreement provides that, promptly after the Offeror acquires at
least two-thirds of the outstanding Shares pursuant to the Offer, the Offeror
will be entitled to designate up to that number of directors as will make the
percentage of the Designated Directors equal to the aggregate voting power of
the Shares held by GE Fanuc or any of its subsidiaries. In the event that
Designated Directors are elected to the Board of Directors of the Company,
until the effective time of the Merger (the "Effective Time"), the Board of
Directors will have at least three directors who are directors as of the date
of the Merger Agreement and who are not officers of the Company. The Company
has agreed, at the option of GE Fanuc, either to increase the size of the
Company's Board of Directors and/or obtain the resignation of such number of
its current directors as is necessary to enable the Designated Directors to be
elected or appointed to the Board.
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and certain other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which have been
delivered to shareholders of the Company. Certain other documents (including
the Merger Agreement) were filed with the Securities and Exchange Commission
(the "Commission") as exhibits to the Schedule 14D-9 and as exhibits to the
Tender Offer Statement on Schedule 14D-1 of the Offeror, GE Fanuc and General
Electric Company (the "Schedule 14D-1"). The exhibits to the Schedule 14D-9
and the Schedule 14D-1 may be examined at, and copies thereof may be obtained
from, the regional offices of and public reference facilities maintained by
the Commission (except that the exhibits thereto cannot be obtained from the
regional offices of the Commission) in the manner set forth in Section 8 of
the Offer to Purchase, as well as on the World Wide Web site maintained by the
Commission on the Internet at http://www.sec.gov.
The information contained in this Information Statement concerning GE Fanuc,
the Offeror and the Designated Directors has been furnished to the Company by
GE Fanuc. The Company assumes no responsibility for the accuracy or
completeness of such information.
At the close of business on December 16, 1998, there were (i) 8,046,206
Shares issued and outstanding and (ii) an aggregate of 10,017,684 Shares on a
fully diluted basis, each of which entitles its holder to one vote.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of December 16, 1998 by (i) each executive
officer of the Company, (ii) each director of the Company, (iii) all executive
officers and directors as a group and (iv) holders of more than 5% of the
Company's outstanding shares of Common Stock. Other than as set forth below,
there are no persons known by the Company to own beneficially more than 5% of
the outstanding Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT
OWNERSHIP(2) OF CLASS
-------------------- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS (1)
Nicholas T. Gihl................................ 664,366(3) 7.5%
Peter A. Nicholson.............................. 22,751(4) *
Kevin O'Connor.................................. 101,260 1.1
Neil R. Taylor.................................. 577,085(5) 6.5
Frank Wood...................................... 54,466(6) *
Julius J. Sparacino............................. 1,716,721(7) 19.4
A.B. Siemer..................................... 1,146,652(9) 13
Kevin Roach..................................... -- --
James Potach.................................... 5,666(8) *
Edward R. Hurd.................................. 12,000(9) *
Donald J. Kramer................................ 12,000(9) *
Tadashi Shimizu................................. 4,000(10) *
All directors and executive officer as a group
(11)........................................... 4,316,947 48.8
OTHER 5% HOLDERS
Susan Priester.................................. 1,251,386(12) 14.1
The Capital Group Companies (13)................ 547,000 6.2
T. Rowe Price Associates, Inc. (14)............. 475,000 5.4
</TABLE>
- --------
* Less than one percent
(1) Unless otherwise indicated, the address of each person listed in the
table is c/o Total Control Products, Inc., 2001 North Janice Avenue,
Melrose Park, Illinois 60160.
(2) Unless otherwise indicated in the footnotes to this table, the Company
believes the individuals named in this table have sole voting and
investment power with respect to all shares of Common Stock reflected in
this table.
(3) Includes 575,700 shares held directly by Mr. Gihl, 72,000 shares held
directly by Mr. Gihl's spouse, and 16,666 shares issuable upon the
exercise of stock options, all of which are currently exercisable.
(4) Includes 21,666 shares issuable upon the exercise of options, all of
which are currently exercisable.
(5) Represents 513,966 shares issuable upon the conversion of Mr. Taylor's
Class C Exchangeable Shares of Taylor Industrial Software, Inc., a
majority-owned subsidiary of the Company ("Taylor"), which shares are
convertible on a one-for-one basis into shares of Common Stock of the
Company, 61,368 shares issuable upon the conversion of Taylor
Exchangeable Shares owned by Mr. Taylor's spouse and 1,666 shares
issuable upon the exercise of options, all of which are currently
exercisable. Also includes 85 shares of Common Stock owned by Mr.
Taylor's son. Mr. Taylor disclaims beneficial ownership of the shares
issuable upon the conversion of Taylor Exchangeable Shares owned by his
spouse.
(6) Represents 54,466 shares issuable upon the exercise of options, all of
which are currently exercisable.
(7) Does not include shares owned by Mr. Sparacino's children, all of whom
are adults who do not reside with Mr. Sparacino. Mr. Sparacino disclaims
beneficial ownership of all such shares.
(8) Includes 5,666 shares issuable upon the exercise of options, all of which
are currently exercisable.
2
<PAGE>
(9) Includes 12,000 shares issuable upon the exercise of options, all of
which are currently exercisable.
(10) Includes 4,000 shares issuable upon the exercise of options, all of which
are currently exercisable.
(11) Includes the shares identified in Note (3) through (10) above.
(12) Includes 699,029 shares and a warrant to purchase 100,000 shares, each
held by the Estate of Kurt Priester, of which Ms. Priester is the
executor. Also includes 219,347 shares owned by KP One, Inc., all of the
capital stock of which is owned by the estate of Kurt Priester.
(13) The address of the Capital Group Companies is 333 South Hope Street, 52nd
Floor, Los Angeles, CA 90071.
(14) The address of T. Rowe Price Associates, Inc. is 100 East Pratt Street,
Baltimore, MD 21202.
CHANGE OF CONTROL
A change of control of the Company will occur if the Offeror acquires Shares
pursuant to the Offer. The Offeror estimates that the total amount of funds
required to purchase all Shares, on a fully diluted basis, pursuant to the
Offer and to pay fees and expenses related to the Offer and the Merger will be
approximately $116 million. The Offeror currently anticipates obtaining all of
the required funds from GE Fanuc. GE Fanuc currently intends to provide
approximately 70% of the funds from cash on hand and to borrow the remaining
funds from Barclays Bank PLC ("Barclays"). The funds to be borrowed from
Barclays will initially be loaned to Parent pursuant to a demand note bearing
interest at a rate equal to Barclay's base rate. Parent intends that such note
will be replaced shortly after the consummation of the Offer by a note from
Barclays due 30 days from the date of issuance and bearing interest at a rate
of LIBOR plus 30 basis points. Parent anticipates that this note will be
repaid with funds borrowed by Parent from Barclays under a new unsecured
$40,000,000 Term Loan (the "Term Loan") due eighteen months from the date of
borrowing. Borrowings thereunder will bear interest at a rate of LIBOR plus 30
basis points or Barclay's U.S. Dollar Base Rate, at the election of Parent.
Parent's obligations under the Term Loan will be guaranteed by its
subsidiaries, including the Company, as the Surviving Corporation after the
Merger (the "Surviving Corporation"). Parent anticipates that borrowings under
the Term Loan will be repaid from funds generated by Parent and its
subsidiaries (including the Surviving Corporation) or from funds contributed
to Parent by its stockholders.
While the foregoing represents the current intention of GE Fanuc and the
Offeror with respect to the financial arrangements for such funds, such
financial arrangements may change depending upon such factors as GE Fanuc and
the Offeror may deem appropriate.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company presently consists of seven members.
Pursuant to the Company's Amended and Restated Articles of Incorporation and
Bylaws, the Board of Directors of the Company may consist of no more than ten
members, classified into three classes, each with, as near as possible, one-
third of the members of the Board of Directors. It is expected that the
Designated Directors will assume office promptly following the purchase of
Shares by the Offeror. This step will be accomplished at a meeting or by
written consent of the Board of Directors providing that the size of the Board
will be increased and sufficient numbers of current directors will resign such
that, immediately following such action, the number of vacancies to be filled
by the Designated Directors will be available. It is currently not known which
of the current directors of the Company will resign.
GE Fanuc and the Offeror have informed the Company that they will choose the
Designated Directors from the persons listed below, each of whom has consented
to act as a director of the Company. The Designated Directors will constitute
a majority of the Board after they are appointed.
DESIGNATED DIRECTORS
<TABLE>
<CAPTION>
NAME AGE BACKGROUND INFORMATION
---- --- ----------------------
<S> <C> <C>
Thomas M. Cruz 35 Mr. Cruz has been a Staff Executive with General
Electric Company since February 1998. From November
1995 to February 1998 Mr. Cruz was a Business
Development Manager with General Electric Company and
from November 1993 to November 1995 he was a Program
Manager with General Electric Company.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BACKGROUND INFORMATION
---- --- ----------------------
<S> <C> <C>
Joseph M. Hogan 41 Mr. Hogan is the President and Chief Executive Officer
of GE Fanuc. Prior to assuming that position in
February 1998, Mr. Hogan was Staff Executive to John D.
Opie, Vice Chairman of the Board and Executive Officer
of General Electric Company from October, 1996 to
February 1998. Mr. Hogan was General Manager --
Marketing of GE Plastics, a division of General
Electric Company from November 1994 to September 1996
and LEXAN Business Leader at GE Plastics from February
1993 to November 1994.
John C. Kroon 59 Mr. Kroon has been the Vice President--Business
Development of GE Fanuc since February 1995. From
January 1991 to February 1995 Mr. Kroon was the
President--PLC/CIMPLICITY of GE Fanuc Automation
Europe, S.A., an affiliate of GE Fanuc that designs,
manufactures and sells products similar to those of GE
Fanuc in Europe.
Larry E. Pearson 56 Mr. Pearson has been the Senior Vice President--Finance
of GE Fanuc since October 1987.
Lawrence A. 46 Mr. Sollecito has been the Senior Vice President--
Sollecito CIMPLICITY Business of GE Fanuc since June 1998. From
January 1993 to June 1998, Mr. Sollecito was the
General Manager of the CIMPLICITY Business.
Vincent L. Tullo 46 Mr. Tullo has been the Senior Vice President--
Controller & I/O Business of GE Fanuc since September
1998. From May 1996 to September 1998, Mr. Tullo was
the Vice President--PLC Business of GE Fanuc and from
September 1993 to May 1996 he was the Eastern Operation
Manager, U.S. and Canada. Mr. Tullo first joined GE
Fanuc in 1987 as Region Manager.
</TABLE>
To the best of GE Fanuc's knowledge, none of GE Fanuc's designees
beneficially own any equity securities, or rights to acquire any equity
securities of the Company, or has been involved in any transactions with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules of the Commission.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The following is certain biographical information with respect to the
current members of the Board of Directors and Executive Officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE BACKGROUND INFORMATION
---- --- ----------------------
<S> <C> <C>
Nicholas T. Gihl 42 Chairman, Chief Executive Officer, President and
Director. Mr. Gihl co-founded the Company in 1982,
along with Mr. Sparacino, and has served as President
of the Company since April 1994. From the Company's
founding in 1982 to March 1994, Mr. Gihl served as
Executive Vice President of the Company. Mr. Gihl has
served as a director of the Company since the Company's
founding. Mr. Gihl became Chairman in December 1996.
Mr. Gihl is married to the daughter of Mr. Sparacino.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BACKGROUND INFORMATION
---- --- ----------------------
<S> <C> <C>
Peter A. Nicholson 35 Senior Vice President and Chief Financial Officer,
Treasurer and Secretary. Mr. Nicholson has served as
Senior Vice President and Chief Financial Officer,
Treasurer and Secretary of the Company since June 1996.
From June 1995 to May 1996, Mr. Nicholson served as
Vice President of Finance of Mama Tish's Italian
Specialties, Inc., a manufacturer and marketer of
frozen dessert products. From July 1985 to May 1995,
Mr. Nicholson was employed by Arthur Andersen LLP, most
recently as a manger in the audit and business advisory
practice area. Mr. Nicholson is a Certified Public
Accountant.
Kevin O'Connor 38 General Manager--Control Division. Mr. O'Connor has
served as the General Manager--Control Division since
March 1997. Mr. O'Connor served as the Company's Senior
Vice President of Sales from February 1996 to March
1997. Mr. O'Connor served as the Company's Vice
President of Sales and Marketing from March 1994 to
February 1996 and as a regional sales manager from
December 1992 to March 1994.
Frank Wood 51 General Manager--Operator Interface Division. Mr. Wood
has served as General Manager--Operator Interface
Division since March 1997. Mr. Wood served as Senior
Vice President of Product Development and Marketing of
the Company from February 1996 to March 1997. From
September 1995 to February 1996, and May 1993 to July
1993, Mr. Wood served as a consultant in the industrial
automation market. From August 1993 to September 1995,
Mr. Wood served as Vice President of sales and
Marketing of Promise Systems Corp., a developer and
marketer of manufacturing execution systems software.
James Potach 37 Senior Vice President of Sales. Mr. Potach served as
Senior Vice President of Sales since March 1997. He
served as Vice President of North American Sales of the
Company from January 1997 to March 1997 and as the
Southeast Regional Sales Manager of the Company from
February 1992 to January 1997.
Kevin Roach 37 President--SensorPulse. Mr. Roach has served as
President of SensorPulse Corp., a wholly owned
subsidiary of the Company since its acquisition by the
Company in December of 1997. Mr. Roach founded
SensorPulse Corp. in December of 1989 and served as
President and CEO until the acquisition.
Edward T. Hurd 60 Director. Mr. Hurd became a director of the Company in
March 1997. From 1990 to February 1995, Mr. Hurd was
President of Industrial Control, a division of
Honeywell Inc., a worldwide supplier of automation and
control products, systems and services, and served as
Executive Vice President of Honeywell Inc. from
February 1995 to April 1996. Mr. Hurd has been an
independent consultant since April 1996. Mr. Hurd is
also the Chairman of the Board of Moore Products Co., a
manufacturer of industrial products for the process
control industry.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NAME AGE BACKGROUND INFORMATION
---- --- ----------------------
<S> <C> <C>
Donald J. Kramer 66 Director. Mr. Kramer became a director of the Company
in March 1997. From January 1990 to March 1996, Mr.
Kramer was a Special Limited Partner of TA Associates,
a venture capital investing firm, and was a general
partner of TA Associates for the five years preceding
January 1990. Since March 1996, Mr. Kramer has been a
private investor. Mr. Kramer is also a director of
Robotic Vision Systems, Inc., a designer, manufacturer
and installer of machine vision-based products, and
Micro Component Technology, Inc., a supplier of semi-
conductor handling equipment.
Neil R. Taylor 49 Director. Mr. Taylor has served as a director of the
Company since the consummation of the Company's
acquisition of Taylor Industrial Software, Inc. in
September 1996. Mr. Taylor served as the Senior Vice
President of Software Development of the Company from
September 1996 to July 1998, when he resigned as an
executive officer of the Company. Mr. Taylor founded
Taylor, a developer and marketer of industrial
automation software products, in 1979. Mr. Taylor
served as the Chairman of the Board of Taylor from
inception to September 1996, and President of Taylor
from inception to September 1991.
Tadashi Shimizu 53 Director. Mr. Tadashi Shimizu co-founded Digital
Electronics Corporation, a Japanese corporation
("Digital"), in 1972 and has served as Vice President
of Digital since June 1996. He is one of the four
people who started Digital in 1972 and developed what
is commonly known today as the Graphical Display Panel.
Mr. Shimizu has served, since June 1995, as a
representative director at Digital. He also assumed the
position of Official Observer to Board Meetings of the
Company in May 1997 and was elected to the Company's
Board of Directors in August, 1998.
A.B. Siemer 61 Director. Mr. Siemer has served as a director of the
Company since December 1993. Mr. Siemer has been the
President of Desco Corporation, an industrial and
manufacturing holding company, for over thirty years.
Julius Sparacino 61 Director. Mr. Sparacino co-founded the Company in 1982
and has served as a director since that time. Mr.
Sparacino served as the Chairman of the Board of the
Company from 1982 to December 1996. From 1982 to April
1994, Mr. Sparacino served as President of the Company.
</TABLE>
BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors has established an Audit Committee, a
Compensation Committee and an Executive Committee.
The Board of Directors of the Company held nine meetings during the fiscal
year ended March 31, 1998 and has held 11 meetings during the current fiscal
year. Each director attended at least 75% of all meetings of the Board of
Directors and applicable Committees held during the last fiscal year and the
current fiscal year.
The functions of the Audit Committee are to recommend annually to the Board
of Directors the appointment of the independent public accountants of the
Company, to discuss and review the scope and the fees of the prospective
annual audit and to review the results thereof with the Company's independent
public accountants,
6
<PAGE>
to review and approve non-audit services of the independent public
accountants, to review compliance with existing major accounting and financial
policies of the Company, to review the adequacy of the financial organization
of the Company and to review management's procedures and policies relative to
the adequacy of the Company's internal accounting controls. Messrs. Kramer and
Siemer serve on the Audit Committee. During the fiscal year ended March 31,
1998, the Audit Committee met three times for the purposes of (i) reviewing
the arrangements and scope of the Company's annual audit; (ii) discussing the
matters of concern to the Committee with regard to the Company's financial
statements or other results of the audit and (iii) reviewing the Company's
internal accounting procedures and controls and the activities and
recommendations of the Company's independent public accountants. During the
current fiscal year the Audit Committee has met one time.
The functions of the Compensation Committee are to review and approve annual
salaries and bonuses for all executive officers, to review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto and to administer the Company's various stock
plans. Messrs. Hurd and Kramer serve on the Compensation Committee. The
Compensation Committee met four times during the fiscal year ended March 31,
1998 and three times during the current fiscal year.
The Executive Committee is empowered to act with all authority granted to
the Board of Directors between board meetings, except with respect to those
matters required by Illinois law or by the Company's Bylaws to be subject to
the power and authority of the Board of Directors as a whole. Messrs. Gihl,
Siemer and Sparacino are the current members of the Executive Committee. The
Executive Committee did not meet during the fiscal year ended March 31, 1998
or at any time during the current fiscal year.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION
The following Summary Compensation Table sets forth, for the periods
indicated, the cash compensation and certain other components of compensation
of those persons who were, at March 31, 1998, the Chief Executive Officer of
the Company and the other four most highly compensated executive officers of
the Company. Those listed in the table are hereinafter referred to as the
"Name Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
NAME OF PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) COMPENSATION($)(1)
- --------------------------- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Nicholas T. Gihl.................... 1998 $200,000 $75,000 $12,000
Chairman, President and 1997 193,867 60,000 12,178
Chief Executive Officer 1996 130,000 -- 8,229
Peter A. Nicholson.................. 1998 125,000 35,000 6,625
Senior Vice President 1997 91,667 100,000 831
and Chief Financial Officer 1996 -- -- --
Kevin O'Connor...................... 1998 125,000 14,500 12,330
General Manager-- 1997 110,000 24,750 11,802
Control Division 1996 101,250 32,375 4,461
Frank Wood.......................... 1998 125,000 16,000 4,260
General Manager-- 1997 110,000 24,750 1,489
Operator Interface Division 1996 15,865 -- --
James Potach........................ 1998 120,417 -- 8,955
Senior Vice President 1997 100,000 23,536 10,124
of Sales 1996 100,000 27,387 6,000
</TABLE>
- --------
(1) Other compensation consists of matching contributions under the Company's
401(k) plan and amounts paid for car allowance.
7
<PAGE>
OPTION GRANTS
The following table provides certain specified information concerning the
grant of options under the 1996 Plan during fiscal 1998 to the Named Executive
Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED (#) IN FISCAL YEAR PRICE ($/SH) DATE VALUE ($)
- ---- -------------------- -------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Nicholas T. Gihl........ -- 0% -- -- --
Peter A. Nicholson...... 5,000 2 $ 8.00 5/8/07 $ 8.00
Kevin O'Connor.......... 5,000 2 8.00 5/8/07 8.00
Frank Wood.............. 5,000 2 8.00 5/8/07 8.00
James Potach............ 10,000 4 10.00 2/2/08 10.00
</TABLE>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides certain specified information concerning fiscal
year option exercises and unexercised options at March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
SHARES (#) MARCH 31, 1998 (#) OPTIONS AT MARCH 31, 1998 ($)
ACQUIRED ON VALUE ($) ------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas T. Gihl........ -- -- 16,666 33,334 $ 41,665 $ 83,335
Peter A. Nicholson...... -- -- 10,000 25,000 71,700 155,900
Kevin O'Connor.......... -- -- 52,800 5,000 448,800 12,500
Frank Wood.............. -- -- 99,594 5,000 963,074 12,500
James Potach............ -- -- 5,666 15,334 32,845 27,675
</TABLE>
COMPENSATION OF DIRECTORS
Non-Employee directors are paid $1,500 for their attendance of each face-to-
face board meeting and $250 for their attendance at any committee meeting or
telephonic meeting of the Board of Directors, plus reimbursement for their out
of pocket expenses incurred to attend each committee or board meeting, up to a
total amount not to exceed $10,000 per director per year. In addition, non-
employee directors participate in the Directors' Plan, as described below
under "Stock Compensation Plans."
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Concurrently with the execution of the Merger Agreement, the Company entered
into new employment agreements with Mr. Gihl and Mr. Nicholson. Such
Employment Agreements will be effective upon the purchase of the Shares
pursuant to the Offer and their previous employment agreements will be of no
further force and effect. Mr. Gihl's employment agreement has a term of three
years and automatically renews for successive one year periods unless
otherwise terminated. Pursuant to his employment agreement, Mr. Gihl's initial
annual salary is $260,000 and his minimum annual bonus is $40,000, to be
increased based on achieving Company performance objectives. In addition, Mr.
Gihl will receive 5,000 shares of restricted stock of General Electric Company
(subject to the approval of the General Electric Company Board of Directors).
The restriction lapse date for 2,500 of such shares will be the last day for
the initial employment term and for the remaining 2,500 shares will be the
last day of the fifth year of Mr. Gihl's employment by the Company.
Mr. Nicholson's employment agreement has a term of two years and
automatically renews for successive one year periods unless otherwise
terminated. Pursuant to his employment agreement, Mr. Nicholson's initial
annual salary is $175,000 and his minimum annual bonus is $50,000. In
addition, if Mr. Nicholson remains employed by the Company for his initial
employment term, he will receive a bonus of $85,000.
8
<PAGE>
Pursuant to their employment agreements, in the event that Mr. Gihl or Mr.
Nicholson is terminated for a reason other than cause or terminates his
employment for good reason, as set forth in the applicable employment
agreement, he will receive a payment from the Company in one lump sum of an
amount equal to twenty-four times the greater of his monthly salary as of the
date of termination or his highest monthly salary during the prior twelve
month period, plus two times the bonus paid to him for the fiscal year
immediately prior to the date of such termination. In addition, the Company
will continue his medical insurance benefits for a period of twelve months or
until he is eligible for medical coverage under a plan of a successive
employer and will reimburse him for any excise taxes payable under the "excess
parachute payment" provisions of the Code.
The Company entered into an employment agreement with Mr. Wood effective
February 9, 1996 and with Mr. Roach effective January 1, 1998. The employment
agreement for Mr. Wood provides for an initial term of one year and the
initial term for Mr. Roach is four years. After the expiration of the initial
term, employment agreements automatically renew for successive one year
periods unless either party delivers written notice of its desire to terminate
the agreement at least 90 days prior to the expiration of the term. The base
salaries for Mr. Wood under his employment agreement is $125,000. The base
salary for Mr. Roach under his employment agreement is $90,000 for calendar
year 1998, $100,000 for calendar year 1999, $110,000 for calendar year 2000
and $125,000 for calendar year 2001. Mr. Wood's agreement provides for a
minimum bonus of $4,000 per quarter.
Under the terms of these agreements, the employee's employment with the
Company may be terminated prior to the expiration of the term for "cause," as
defined in the agreements. In the event of termination for cause or if the
employee voluntarily terminates his employment, the Company's obligations
under the agreement cease and the employee forfeits all his rights to receive
any compensation or benefits, except for salary and benefits for services
already performed as of the date of termination. In addition, if the Company
terminates an employee's employment under certain circumstances the Company
must pay the employee designated severance amounts. In particular, in the
event the Company terminates Mr. Wood's employment for any reason other than
death, disability or cause, including the decision not to renew the term of
his employment agreement, the Company shall pay Mr. Wood his base salary for a
period of one year following such termination and will continue his medical
insurance benefits during such period to the extent Mr. Wood is not entitled
to receive similar benefits from a subsequent employer. If the Company
terminates Mr. Roach's employment pursuant to the terms of his employment
agreement for any reason other than death, disability or cause, then the
Company will pay such officer all unpaid salary through the remainder of his
employment term in accordance with the Company's practices for salaried
employees.
STOCK COMPENSATION PLANS
The following is a summary description of the Company's stock compensation
plans. Pursuant to the Merger Agreement and resolutions adopted by the Board
of Directors, all options to purchase Shares granted under any of the plans,
to the extent not already exercisable, will become exercisable immediately
prior to the consummation of the Offer. Those persons holding options who do
not exercise the options will receive cash in an amount equal to (A) the
product of (1) the number of Shares subject to such option and (2) the excess,
if any, of the Offer Price over the exercise price per share for the purchase
of Shares subject to such option, minus (B) all applicable federal, state and
local taxes required to be withheld in respect of such payment promptly after
the consummation of the Offer.
1996 Stock Option Plan. In December, 1996 the Company adopted the 1996 Stock
Option Plan (the "1996 Plan"), which was amended in August, 1998, under which
the Compensation Committee may grant options to purchase up to 1,100,000
shares of Common Stock to management, employees and advisors of the Company.
The 1996 Plan provides for the grant of incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-statutory stock options that do not
qualify as incentive stock options under Section 422 of the Code ("Non-
Statutory Options"). As of December 16, 1998, there were options to purchase
652,213 shares of Common Stock outstanding under the 1996 Plan, all of which,
to the extent not already exercisable, will become exercisable immediately
prior to the consummation of the Offer.
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1996 Non-Employee Directors' Stock Option Plan. In December, 1996 the
Company adopted the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"), under which 120,000 shares of Common Stock have been
authorized for issuance. All non-employee directors will receive an option to
purchase 12,000 shares of Common Stock under the Directors' Plan on the day
after each annual meeting of shareholders of the Company, provided that he
then continues to serve as a member of the Board of Directors. All such grants
are Non-Statutory Options. As of December 16, 1998, there were options to
purchase 96,000 shares of Common Stock outstanding under the Director's Plan,
all of which, to the extent not already exercisable, will become exercisable
immediately prior to the consummation of the Offer.
1993 Stock Option Plan. In 1993, the Company adopted the 1993 Stock Option
Plan, under which 375,000 shares of Common Stock have been reserved for
issuance (the "1993 Stock Plan"). As of December 16, 1998 there were options
to purchase 166,806 shares of Common Stock outstanding under the 1993 Stock
Plan, all of which, to the extent not already exercisable, will become
exercisable immediately prior to the consummation of the Offer.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") reviews and approves compensation levels, including incentive
compensation and employment agreements, for the executive officers of the
Company, and acts as the administrative committee for the Company's stock
compensation plans. Messrs. Hurd and Kramer currently constitute the
Compensation Committee.
Compensation Philosophy and Objectives
The Compensation Committee strives to ensure that executive compensation is
competitive among companies in the Company's industry that are of comparable
size and complexity. Further, the Compensation Committee believes that the
Company's executive officers should be compensated consistent with the
following philosophy and objectives: (1) to support the Company's overall
business strategy and profitability goals; (2) to attract, retain and motivate
superior talent in the Company's industry; and (3) to promote the Company's
pay-for-performance philosophy.
It is the intention of the Compensation Committee to utilize a pay-for-
performance compensation strategy that is constructive towards the attainment
of the Company's sales growth and profitability goals.
Procedure for Establishing Compensation
Each fiscal year the Compensation Committee reviews and approves an annual
compensation plan for the Company's executive officers. The plan is based on
the recommendations of the Company's Chief Executive Officer. In addition, the
Compensation Committee proposes to the Board of Directors an annual
compensation plan for the Chief Executive Officer for approval.
The Compensation Committee believes, on the basis of its review of industry
data, that the base salaries of the Company's executive officers are
comparable to those of executive officers of similar companies in the
Company's industry.
In determining appropriate compensation levels for the Company's executive
officers and for the Chief Executive Officer, the compensation committee
relied on compensation survey data, taking into account variables such as
industry and nature of the business, size of the company, job comparability
and geography.
Executive Officer Compensation
The primary elements of the executive officers compensation program are base
salary, annual bonus compensation, long-term incentive compensation and
benefits.
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Base Salary. Base salaries are set within the range of salaries of executive
officers with comparable qualifications, experience and responsibilities at
other companies in the same or similar businesses and of comparable size and
complexity. Actual salary adjustments for executives are determined on a case
by case basis and vary based on factors including performance and job content
with no one factor given any particular weighting.
Annual Bonus Compensation. Bonus compensation available to executive
officers is generally keyed to achievement of certain sales growth and
profitability goals for their respective operating units.
Long-term Incentive Compensation. The Compensation Committee believes that
stock option grants provide a significant compensation opportunity for
executive officers and thereby serve the dual objectives of promoting
retention of executives and ensuring that the interests of the executives are
aligned with those of the Company's shareholders. Stock options are granted at
an option price equal to the fair market value of the Company's Common Stock
on the date of the grant and are generally vested over a three-year period.
Benefits. The Company's executive officers receive health and term life
insurance benefits and participate in the Company's 401(k) plan on the same
basis as other full-time employees. Additionally, certain executive officers
are provided car allowances. The Company's 1996 Discount Stock Purchase Plan,
which is generally available to all employees, including executive officers
except for Messrs. Gihl and Taylor as they are greater than 5% shareholders of
the Company, allows participants to purchase up to 10% of their base
compensation during the purchase period at the lesser of 85% of the fair
market value of the Common Stock on the first day or last day of that purchase
period.
Chief Executive Officer Compensation
The Compensation Committee determines compensation for the Chief Executive
Officer on an annual basis. Mr. Gihl's base salary in fiscal year 1998 was
$200,000. The Compensation Committee believes this base salary is consistent
and competitive with salaries paid to Chief Executive officers of companies
similar in size to the Company within the Company's industry. Mr. Gihl was
awarded a $75,000 bonus for fiscal year 1998 based on the sales growth and
profitability achieved by the Company in fiscal year 1998.
Compliance with Internal Revenue Code Section 162 (m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows tax deductions to public companies for
compensation over $1 million paid to a corporation's chief executive officer
and the four other most highly compensated executive officers. Qualifying
"performance-based" compensation will not be subject to the deduction limit if
certain requirements are met. The Compensation Committee has discussed and
considered and will continue to evaluate the potential impact Section 162(m)
has on the Company in making compensation determinations, but has not
established a set policy with respect to future compensation determinations.
Conclusion
The Compensation Committee believes that the executive compensation plan
discussed in this Proxy Statement is consistent with the overall corporate
strategy for continued growth in earnings and stockholder value.
The Compensation Committee
Edward T. Hurd
Donald J. Kramer
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PERFORMANCE GRAPH
The following graph compares the cumulative total return of Total Control
Products, Inc., the Nasdaq Stock Market (US companies) and the NASDAQ Lab
Apparatus & Analytic, Opt, Measuring & Controlling Instruments subgroup. This
graph assumes $100 was invested in the stock of the Index on March 11, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is party to a lease agreement, dated March 26, 1992, as amended
in December, 1996, with J&N Partnership, an Illinois general partnership owned
by Messrs. Sparacino and Gihl and Mr. Sparacino's sons and daughter (Mr.
Gihl's spouse), pursuant to which the Company leases its principal 39,000
square foot office and manufacturing facility located in Melrose Park,
Illinois. Annual rent under the lease is $144,000 plus property taxes,
insurance and utilities, and the lease terminates in April 2002. The Company
has also agreed pursuant to the terms of the lease agreement to pay all
expenses relating to occupancy and maintenance of the leased premises.
The Company is party to a lease agreement, dated October 5, 1997, with
Pelham Capital LLC, a limited liability corporation controlled by the estate
of Kurt Priester, a shareholder of the Company, pursuant to which the Company
leases a 97,000 square foot manufacturing facility for its industrial computer
workstation products located in Greenville, South Carolina. Annual rent under
the lease is approximately $400,000, plus property taxes, insurance and
utilities, and the lease terminates in September 2002. The Company currently
subleases 32,000 square feet of this facility to a third party for
approximately $100,000 annually through February 28, 2001. The Company has the
right to request the sublessee to vacate the space upon 60 days notice.
The Company purchases all of the flat panel display screens that are the
principal hardware component incorporated in its graphics-based operator
interface product line from Digital, which owns 380,001 shares of Common
Stock, representing 4.5% of the outstanding Common Stock, and owns 38% of the
Class A Common
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Shares of Taylor. Keizo Wada, the President and Chairman of Digital, owns
18,000 shares of the Common Stock of the Company. Hardware purchases by the
Company from Digital totaled $8.8 million, $10.2 million and $14.6 million for
fiscal 1996, 1997 and 1998, respectively. Mr. Gihl is a member of the Board of
Directors of Digital since June of 1996. Mr. Tadashi Shimizu, an employee of
Digital, is currently a director of the Company.
On September 12, 1997, the Company entered into an Original Equipment
Manufacturer's Purchase Agreement (the "OEM Agreement"), dated as of April 1,
1997, with Digital, Moritani America, Inc. and Inde Electronics, Inc. The
Agreement modifies the terms of the Original Equipment Manufacturer's Purchase
Agreement among the same parties dated January 1, 1991. Pursuant to the OEM
Agreement, Digital, the Company's principal hardware supplier, agreed to
supply to the Company certain computer hardware products for market and sale
on an exclusive basis in North and South America. The Agreement extends the
arrangement between the Company and Digital until January 31, 2005. Effective
April 1, 1997, the Company and Digital also entered into an agreement
regarding the operation and conduct of Taylor's business.
In March 1997, the Company acquired 10,000 shares of the outstanding common
stock of Digital (1,000 of which the transaction to acquire the shares closed
on April 1, 1998), or 0.17% of the outstanding common stock. Mr. Gihl
individually owns 10,000 shares of Digital common stock, or 0.17% of the
outstanding common shares. The Company has accounted for this investment using
the cost method of accounting and included in the Company's consolidated
balance sheet as of March 31, 1998 is an investment of Digital stock of
approximately $250,000.
In November 1995, the Company purchased a 40% interest in ProFace, a joint
venture among the Company, Digital and Moritani America, Inc. ("Moritani
America"). Moritani America (which, together with its parent, Moritani & Co.,
owns an aggregate of 291,501 shares of the Company's Common Stock) acts as the
import broker of Digital' products on behalf of the Company. ProFace, an
industrial automation products distributor located in the Netherlands,
distributes the Company's and Digital's products in Europe. This investment is
accounted for by the Company under the equity method. ProFace did not have
significant operations during fiscal 1996. For fiscal 1997 and 1998,
respectively, the Company's share of net earnings of the joint venture was
$79,425 and $97,489.
Pursuant to a letter agreement dated November 21, 1998 among GE Fanuc, the
Company and Digital, GE Fanuc and Digital are currently renegotiating the
agreements described above, are negotiating the repurchase of the interest in
Taylor held by Digital for a price of $4 million and negotiating the purchase
of the Company's interest in ProFace by Digital.
Neil Taylor, a director of the Company, together with his wife, received a
$2.2 million note (which was repaid with a portion of the proceeds of the
initial public offering), $3.7 million in cash, 575,334 Taylor Class C
Exchangeable Shares and the right to receive certain contingent consideration
in connection with the acquisition of Taylor by the Company. Prior to the
Taylor transaction, Neil Taylor and his wife loaned Taylor an aggregate of
$230,000. This loan was repaid in full during fiscal 1998. In October, 1997,
the Company loaned Mr. Taylor $2 million in connection with the sale of
Taylor's Tess Software product line to an entity principally owned by Mr.
Taylor. The loan was made pursuant to a promissory note dated September 25,
1997. The note bears interest at a rate of 8% per annum, due annually, and is
payable in five equal annual installments beginning on September 25, 1999 and
ending on September 25, 2003.
The Company's Board of Directors has adopted a policy that any future
transactions between the Company and its officers, directors, affiliates or
controlling shareholders will be on terms which are considered to be no less
favorable to the Company than those obtainable in arm's length transactions
with unaffiliated third parties and must be approved by a majority of the
disinterested directors.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the Commission reports of ownership
and changes in ownership of Common Stock and other equity securities of the
Company. Officer, directors and greater-than-10% shareholders are required by
the Commission regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that not other reports were required, the
Company believes that, during the 1998 fiscal year, all filing requirements
applicable to its officers, directors and greater-than-10% beneficial owners
were complied with, except that Mr. Dennis Marrano, the former Senior Vice
President of Operations, was late with one Form 4 filing.
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