<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
TOTAL CONTROL PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
TOTAL CONTROL PRODUCTS, INC.
2001 NORTH JANICE AVENUE
MELROSE PARK, ILLINOIS 60160
[LOGO]
(708) 345-5500
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 27, 1998
------------------------
To the Shareholders of
TOTAL CONTROL PRODUCTS, INC.
The Annual Meeting of Shareholders of Total Control Products, Inc., an
Illinois corporation, will be held on August 27, 1998, at 10:00 a.m., at the
Marriott--O'Hare, 8535 West Higgins Rd., Chicago, Illinois 60631, for the
following purposes:
1. Considering and acting upon a proposal to amend Article Fifth of the
Company's Amended and Restated Articles of Incorporation to provide that
the number of directors of the Company shall not be less than three nor
more than eleven directors;
2. Electing two persons to the Board of Directors of the Company to serve
until the annual meeting of the Company in 2001 and until their
respective successors have been elected and qualified and, if the charter
amendment described in paragraph 1 is adopted, electing one additional
person to the Board of Directors of the Company to serve until the annual
meeting of the Company in 1999 and until his respective successor has
been elected and qualified;
3. Considering and acting upon a proposal to amend the Company's 1996
Employees' Stock Option Plan in order to increase the number of reserved
shares of Common Stock for option grants under such Plan from 550,000 to
1,100,000;
4. Considering and acting upon a proposal to approve, pursuant to Nasdaq
Rule 4460(i), an amendment to the asset purchase agreement in which the
Company acquired substantially all of the assets of KP One, Inc. (f/k/a
Computer Dynamics, Inc. ("CDI")), a South Carolina corporation, to allow
the Company to issue in excess of 347,961 shares of Common Stock as
contingent consideration thereunder;
5. Ratifying the appointment of Arthur Andersen LLP as auditors of the
Company for fiscal 1999; and
6. Transacting such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on June 29, 1998 are
entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
[/S/ PETER A. NICHOLSON]
Peter A. Nicholson
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER,
TREASURER AND SECRETARY
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT IN THE SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING, OR IN PERSON, AT ANY
TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>
TOTAL CONTROL PRODUCTS, INC.
2001 NORTH JANICE AVENUE
MELROSE PARK, ILLINOIS 60160
(708) 345-5500
1998 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 27, 1998
------------------------
PROXY STATEMENT
---------------------
GENERAL
This Proxy Statement is being furnished to shareholders of Total Control
Products, Inc. (the "Company") in connection with the solicitation by the Board
of Directors of the Company of proxies in the form enclosed herewith for the
Company's annual meeting of shareholders (the "Meeting") to be held on August
27, 1998 at the Marriott--O'Hare, 8535 West Higgins Rd., Chicago, Illinois
60631, at 10:00 a.m. local time, for the purposes set forth in the accompanying
Notice of Meeting. This Proxy Statement and the form of proxy included herewith
are being mailed to shareholders on or about July 15, 1998.
Shareholders of record at the close of business on June 29, 1998 are
entitled to notice of and to vote at the Meeting. On such date there were
outstanding 8,049,780 shares of the Company's common stock, no par value per
share (the "Common Stock"). The presence, in person or by proxy, of the holders
of a majority of the shares of Common Stock outstanding and entitled to vote at
the Meeting is necessary to constitute a quorum. In deciding all questions, each
holder of Common Stock shall be entitled to one vote, in person or by proxy, for
each share held on the record date. Abstentions will have the same effect as
negative votes. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker nonvotes"), those shares will not be considered present and entitled to
vote with respect to that matter. On the proposal to amend the Company's Amended
and Restated Articles of Incorporation, such broker nonvotes will have the same
effect as negative votes.
The information contained in this Proxy Statement relating to the
occupations and security holdings of directors and officers of the Company and
their transactions with the Company is based upon information received from each
individual as of June 1, 1998.
VOTING RIGHTS AND SOLICITATION OF PROXIES
All expenses incurred in the solicitation of proxies will be borne by the
Company. D. F. King & Co., Inc. will assist in the solicitation of proxies for
the Company for a fee of approximately $5,000, plus reimbursement of reasonable
out-of-pocket expenses. Arrangements may also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares of the Common Stock held of record
by such persons, and the Company may reimburse such persons for reasonable
out-of-pocket expenses incurred by them in connection therewith. Solicitation by
officers and employees of the Company may be made of some shareholders in person
or by mail or telephone.
Votes cast by proxy or in person at the Meeting will be tabulated by the
election inspector appointed for the Meeting who will determine whether or not a
quorum is present.
Each properly executed proxy received will be voted as directed. If no
direction is indicated, the proxy will be voted FOR the amendment to the
Company's Amended and Restated Certificate of Incorporation to provide for a
board of directors consisting of not less than three nor more than eleven
directors; FOR the election of the director nominees named below; FOR the
amendment to the Company's 1996 Stock Option Plan to increase the number of
reserved shares of Common Stock for issuance upon the exercise of option grants
under such Plan from 550,000 to 1,100,000 shares; FOR approval of an amendment
to the
<PAGE>
asset purchase agreement in which the Company acquired substantially all of the
assets of KP One, Inc., a South Carolina corporation (formerly known as
"Computer Dynamics, Inc.") to allow the Company to issue in excess of 347,961
shares of Common Stock as contingent consideration thereunder; and FOR the
ratification of the appointment of Arthur Andersen LLP as the independent
auditor of the Company. Any proxy may be revoked at any time prior to the voting
thereof by notifying the Company, there being no formal procedure required.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of June 1, 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 5% or more of the Company's Common
Stock. Other than as set forth below, there are no persons known by the Company
to own beneficially more than 5.0% of the outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AT
JUNE 1, 1998
--------------------------
EXECUTIVE OFFICERS AND DIRECTORS(1) NUMBER(2) PERCENT
- ---------------------------------------------------------------------- ------------- --------
<S> <C> <C>
Nicholas T. Gihl...................................................... 664,366(3) 8.2%
Peter A. Nicholson.................................................... 22,299(4) *
Kevin O'Connor........................................................ 101,260 1.3
Neil R. Taylor........................................................ 577,085(5) 6.7
Frank Wood............................................................ 54,466(6) *
Julius J. Sparacino................................................... 1,716,721(7) 21.3
A.B. Siemer........................................................... 1,146,652(10) 14.2
Kurt Priester......................................................... 1,032,039(8) 12.7
Kevin Roach........................................................... 411 *
James Potach.......................................................... 5,666(9) *
Edward R. Hurd........................................................ 12,000(10) *
Donald J. Kramer...................................................... 12,000(10) *
All executive officers and directors as a group (12 persons).......... 5,344,965(11) 60.3
Other 5% Holders
The Capital Group Companies(13)....................................... 525,000 6.5
Digital Electronics Corporation(12)................................... 398,001 5.0
</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
2
<PAGE>
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 233,010 shares owned by Mr. Priester's wife. Mr. Priester is the
President of the Company's wholly-owned subsidiary, Computer Dynamics, Inc.
Includes a warrant to purchase 100,000 shares of Common Stock of the
Company, exercisable immediately.
(9) Includes 5,666 shares issuable upon the exercise of options, all of which
are currently exercisable.
(10) Includes 12,000 shares issuable upon the exercise of options, all of which
are currently exercisable.
(11) Includes the shares identified in Notes (3) through (10) above.
(12) Includes 18,000 shares owned by Mr. Keizo Wada, the President of Digital
Electronics Corporation. Digital Electronic's address is 8-2-52
Nanko-Higashi, Suminoe-ku, Osaka, 559, Japan.
(13) The address of the Capital Group Companies' is 333 South Hope Street, 52nd
Floor, Los Angeles, CA 90071.
3
<PAGE>
PROPOSAL NO. 1
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
GENERAL
On May 8, 1998, subject to shareholder approval, the Board of Directors
adopted the following amendment to the Amended and Restated Articles of
Incorporation of the Company (the "Amendment"):
"RESOLVED, that the second sentence of Article FIFTH of the Company'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
three nor more than eleven. The board of directors of the
Corporation shall from time to time set the number of members to
serve on the board of directors'."
Currently, Article Fifth of the Amended and Restated Articles of Incorporation
provides for a Board of Directors consisting of six members. A copy of Article
Fifth of the Company's Amended and Restated Articles of Incorporation, as
proposed to be amended, is attached as Exhibit A to this Proxy Statement.
Subject to shareholder approval of the Amendment, on May 8, 1998 the Board
of Directors voted to increase the size of the Board of Directors to seven
directors. The new directorship will be a Class II director, serving for a one
year term until the 1999 annual meeting of shareholders of the Company.
Thereafter, this new Class II directorship will continue for consecutive three
year terms in accordance with the Amended and Restated Articles of Incorporation
and Bylaws of the Company.
The Amendment, if approved by the shareholders, would become effective upon
the filing of Articles of Amendment to the Company's Amended and Restated
Articles of Incorporation with the Secretary of State of Illinois, which is
expected to be made shortly following the adoption of the Amendment by the
shareholders at the Meeting. If the Amendment is approved by the shareholders,
the Bylaws and the Amended and Restated Articles of Incorporation will be
amended to carry out the purposes of the Amendment and to eliminate provisions
in the Bylaws and the Amended and Restated Articles of Incorporation that are
inconsistent with the purposes of the Amendment. Approval of the Amendment by
the shareholders will constitute their approval and adoption of such changes to
the Bylaws and the Amended and Restated Articles of Incorporation.
THE BOARD BELIEVES THAT ADOPTION OF THIS AMENDMENT IS IN THE BEST INTEREST OF
THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT.
4
<PAGE>
PURPOSES AND EFFECTS OF THE AMENDMENT.
The Amendment is designed to provide the Board of Directors with more
flexibility in order to add or eliminate directorships in accordance with the
changing needs of the Company. The Company's Amended and Restated Articles of
Incorporation presently establishes the number of directors of the Company at
six directors. As amended by the Amendment, the number of members of the Board
of Directors shall be fixed by a vote of the Board of Directors, with such
number not to be less than three nor more than eleven. The Board of Directors
believes that the flexibility provided by the Amendment may allow the Company to
attract and retain valuable new members of the Board of Directors who may
provide their expertise and business judgement skills to the Company in the
future.
VOTE REQUIRED.
The affirmative vote of the holders of record of at least two-thirds of the
outstanding shares of the Common Stock entitled to vote at the Meeting is
necessary to approve and adopt the Amendment. Where shareholders have
appropriately specified how their proxies are to be voted, they will be voted
accordingly. Abstentions and broker non-votes will have the same effect as votes
against approval of the Amendment.
PROPOSAL NO. 2
ELECTION OF DIRECTORS
The Company's Amended and Restated Articles of Incorporation and Bylaws
provide that the members of the Board of Directors shall be classified into
three classes, each with, as near as possible, one-third of the members of the
Board of Directors. Subject to shareholder approval of the Amendment, the Board
of Directors has voted to increase the size of the Board of Directors to seven
members, with such new director to be a Class II director.
If Proposal No. 1 is not adopted, the election of directors shall be limited
to the Class I directorships as described below.
Two directors are to be elected by a plurality of the shareholder votes cast
at the Meeting, to serve until the Company's annual meeting of shareholders in
the year 2001 and until their successors are elected and qualified. The Class I
directors, A. B. Siemer and Neil R. Taylor, are the Company's current nominees
for director. In addition, in the event Proposal No. 1 is approved by the
shareholders, Tadashi Shimizu will be a nominee for the additional Class II
directorship to serve until the Company's annual meeting of shareholders in the
year 1999. The remaining Class II directors, Donald J. Kramer and Julius J.
Sparacino, are scheduled to serve as directors until the Company's annual
meeting of shareholders in the year 1999. The Class III directors, Nicholas T.
Gihl and Edward T. Hurd, are scheduled to serve as directors until the annual
meeting of shareholders in the year 2000.
Information about the nominees for director and other directors whose term
of office will continue after the Meeting is set forth in the following
paragraphs.
NOMINEES FOR TERMS EXPIRING AT THE 1998 ANNUAL MEETING
A.B. SIEMER Director since 1993
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.
NEIL R. TAYLOR Director since 1996
Mr. Taylor has served as Senior Vice President of Software Development and a
director of the Company since the consummation of the Company's acquisition of
Taylor in September 1996. 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
5
<PAGE>
inception to September 1991. Mr. Taylor is resigning as an executive officer of
the Company effective July 1, 1998, but will continue as an employee and serve
as a consultant on corporate matters as well as a director.
NOMINEE FOR TERM EXPIRING AT THE 1999 ANNUAL MEETING
TADASHI SHIMIZU
Mr. Tadashi Shimizu co-founded Digital Electronics Corporation in 1972 and has
served as Vice President of the company since June 1996. He is one of the four
people who started the company 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 Electronics Corporation and he also
assumed the position of Official Observer to Board Meetings of the Company since
May 1997.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
JULIUS J. SPARACINO Director since 1982
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.
DONALD J. KRAMER Director since 1997
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.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
NICHOLAS T. GIHL Director since 1982
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. Prior to co-founding the
Company, from October 1979 to November 1982, Mr. Gihl served in several design
engineering and electronic development positions and as a Design Supervisor at
Mark Controls, a manufacturer of energy management systems. Mr. Gihl is married
to the daughter of Mr. Sparacino.
EDWARD T. HURD Director since 1997
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.
6
<PAGE>
BOARD AND COMMITTEE MEETINGS
The 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 each director attended at least 75% of all
meetings of the Board of Directors and applicable Committee meetings.
The functions of the Audit Committee are to recommend annually to the Board
of Directors the appointment of the independent public accountants of the
Company, to discuss and review the scope and the fees of the prospective annual
audit and to review the results thereof with the Company's independent public
accountants, to review and approve non-audit services of the independent public
accountants, to review compliance with existing major accounting and financial
policies of the Company, to review the adequacy of the financial organization of
the Company and to review management's procedures and policies relative to the
adequacy of the Company's internal accounting controls. Messrs. 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 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.
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.
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. During the
fiscal year ended March 31, 1998, the Executive Committee did not meet.
EMPLOYMENT AGREEMENTS
The Company entered into written employment agreements with Mr. Gihl on
December 19, 1996, with Mr. Nicholson effective June 1, 1996, with Mr. Taylor as
of September 19, 1996 , with Mr. Wood effective February 9, 1996, with Mr.
Priester effective October 5, 1997 and with Mr. Roach effective January 1, 1998.
The employment agreement for Mr. Wood provides for an initial term of one year,
while the initial term under Mr. Gihl's employment agreement is approximately 54
weeks, the initial employment term for both Mr. Taylor and Mr. Priester is three
years, the initial term for Mr. Roach is four years and Mr. Nicholson's initial
employment term under his employment agreement is nineteen months. After the
expiration of the initial term, the employment agreements automatically renew
for successive one year periods unless either party delivers written notice of
its desire to terminate the agreement at least 90 days prior to the expiration
of the term. The base salaries for Messrs. Gihl, Nicholson, Taylor, Priester and
Wood under their respective employment agreements is $200,000, $125,000,
$125,000, $125,000, and $125,000, respectively. 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.
Each of the employment agreements contains a noncompetition covenant whereby
the employee agrees that for a period lasting from the date of the agreement to
one year after the termination of his employment with the Company (Mr. Taylor's
extends for two years from the date of termination), he will not engage in any
business that competes with the Company anywhere in the United States (and
Canada in
7
<PAGE>
the case of Mr. Taylor). In addition, each employee has agreed to be bound by
the terms of a confidentiality provision requiring the employee to hold the
Company's confidential information in the strictest confidence for the longest
period permitted by law. Under the terms of these agreements, the employee's
employment with the Company may be terminated prior to the expiration of the
term for "cause," as defined in the agreements. In the event of termination for
cause or if the employee voluntarily terminates his employment, the Company's
obligations under the agreement cease and the employee forfeits all his rights
to receive any compensation or benefits, except for salary and benefits for
services already performed as of the date of termination. In addition, if the
Company terminates an employee's employment under certain circumstances the
Company must pay the employee designated severance amounts. In particular, in
the event the Company terminates Mr. Gihl's employment for any reason other than
death, disability or cause, including the decision not to renew the term of his
employment agreement, Mr. Gihl will be entitled to receive in one lump sum
payment an amount equal to two years compensation, based upon his highest
monthly salary during the twelve months immediately preceding the termination,
plus two times the bonus paid Mr. Gihl for the most recent fiscal year. In
addition, all of Mr. Gihl's unvested stock options shall vest and become
immediately exerciseable and the Company shall continue his medical insurance
benefits for a period of two years. Under the terms of Mr. Taylor's employment
agreement, if Mr. Taylor's employment is terminated by the Company for any
reason other than death, disability or cause, Mr. Taylor shall be entitled to
receive his salary for the longer of the remainder of the employment term, or
twelve months from the date of termination. 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. Nicholson's employment for
any reason other than cause, death, disability or within one year after certain
circumstances defined as a "change of control," but including upon the decision
of the Company not to renew the term of Mr. Nicholson's employment, the Company
shall pay Mr. Nicholson in one lump sum an amount equal to six times the greater
of his monthly salary as of the date of termination or his highest monthly
salary during the prior twelve month period and continue Mr. Nicholson's medical
insurance benefits during such six month period to the extent Mr. Nicholson is
not entitled to receive similar benefits from a subsequent employer. Finally, if
the Company terminates Mr. Priester's or Mr. Roach's employment pursuant to the
terms of his respective 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. In addition to the payment of the amounts set
forth above, if the Company terminates Mr. Nicholson's employment within one
year after a change of control (other than for cause) or Mr. Nicholson
terminates his employment for good reason (as defined in such agreement), the
Company is obligated to pay Mr. Nicholson in one lump sum an additional amount
equal to $25,000. In the case of Messrs. Gihl and Nicholson, the employee may
also become entitled to severance under other designated circumstances involving
his decision to terminate his employment with the Company. Effective June 1,
1998, Mr. Nicholson's employment agreement was amended, subject to Compensation
Committee approval, whereby if Mr. Nicholson terminates his employment for good
reason or the Company terminates Mr. Nicholson's employment within one year
after a change of control, the Company shall pay Mr. Nicholson in one lump sum
an amount equal to the sum of twelve times the greater of his monthly salary as
of the date of termination or his highest monthly salary during the prior twelve
months, plus $50,000. In the event Mr. Nicholson's employment is terminated
without cause, the Company shall pay Mr. Nicholson in one lump sum an amount
equal to the sum of twelve times the greater of his monthly salary as of the
date of termination or his highest monthly salary during the prior twelve
months.
Under the terms of these agreements, the employees are entitled to bonus
amounts based upon the Company meeting certain financial targets. Mr. Gihl's
agreement provides for a minimum bonus of $5,000
8
<PAGE>
per quarter and Mr. Wood's agreement provides for a minimum bonus of $4,000 per
quarter. Mr. Priester is entitled to a bonus of $75,000 if CDI achieves certain
financial targets.
STOCK COMPENSATION PLANS
1996 STOCK OPTION PLAN. In December of 1996 the Company adopted the 1996
Stock Option Plan (the "1996 Plan"), under which the Compensation Committee may
grant options to purchase up to 550,000 shares of Common Stock to management,
employees and advisors of the Company. The 1996 Plan provides for the grant of
incentive stock options ("Incentive Options") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and non-statutory
stock options that do not qualify as incentive stock options under Section 422
of the Code ("Non-Statutory Options"). As of June 1, 1998, there were options to
purchase 502,763 shares of Common Stock outstanding under the 1996 Plan at a
weighted average price per share of $9.71, of which 85,970 were exercisable as
of June 1, 1998.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. In December of 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 the shareholders of the Company, provided that he
or she then continues to serve as a member of the Board of Directors. All such
grants are Non-Statutory Options. The options granted under the Directors' Plan
are exercisable beginning six months from the date of grant. As of June 1, 1998,
36,000 options have been granted under the Directors' Plan at a weighted average
price per share of $8.00, of which all were exercisable as of June 1, 1998.
1996 DISCOUNT STOCK PURCHASE PLAN. The Company established the 1996
Discount Stock Purchase Plan (the "Purchase Plan") in December of 1996 and
reserved 250,000 shares of Common Stock for issuance thereunder. Eligible
employees become participants in the Purchase Plan by delivering to the Company,
prior to the commencement of the purchase period, an agreement authorizing a
payroll deduction of up to 10.0% of such employee's base compensation during the
purchase period. The purchase price per share at which shares are sold in an
offering under the Purchase Plan is the lesser of (i) 85.0% of the fair market
value of a share of Common Stock on the first day of the purchase period, or
(ii) 85.0% of the fair market value of a share of Common Stock on the last day
of that purchase period. Rights granted under the Purchase Plan are intended to
qualify for favorable federal income tax treatment associated with rights
granted under an employee stock purchase plan under the provisions of Section
423 of the Code. As of June 1, 1998, 34,829 shares have been issued by the
Company under the Purchase Plan.
1993 STOCK OPTION PLAN. In 1993, the Company adopted the 1993 Stock Option
Plan, under which 375,000 shares of Common Stock have been reserved for issuance
(the "1993 Stock Plan"). As of June 1, 1998, there were options to purchase
166,086 shares of Common Stock outstanding under the 1993 Stock Plan at a
weighted average price per share of $3.87, of which 130,802 were exercisable as
of June 1, 1998. The Company's Board of Directors has adopted a resolution that
no future grants of options may be made under the 1993 Stock Plan.
COMPENSATION 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 of the board or telephonic board meeting, 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.
9
<PAGE>
In addition, non-employee directors participate in the Directors' Plan. The
following table sets forth, as of March 31, 1998, the options granted under the
Directors' Plan from April 1, 1997 to March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS EXERCISE PRICE
NAME GRANTED PER SHARE DATE OF GRANT
- --------------------------------------------------------------- ------------------- --------------- -------------
<S> <C> <C> <C>
Edward T. Hurd................................................. 12,000 $ 8.00 6/1/97
Donald J. Kramer............................................... 12,000 $ 8.00 6/1/97
A.B. Siemer.................................................... 12,000 $ 8.00 6/1/97
</TABLE>
There had been no exercises of options granted under the Directors' Plan as
of June 1, 1998. For a more complete description of this plan see "Stock
Compensation Plans."
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid by the
Company for the past three fiscal years to the Company's Chief Executive Officer
and the Company's four most highly compensated executive officers other than the
CEO (the "Named Executive Officers").
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ----------------------------------------------------------------- --------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Nicholas T. Gihl................................................. 1998 $ 200,000 $ 75,000 $ 12,000
Chairman, President and Chief 1997 193,867 60,000 12,178
Executive Officer 1996 130,000 -- 8,229
Peter A. Nicholson............................................... 1998 125,000 35,000 6,625
Senior Vice President and Chief 1997 91,667 100,000 831
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.
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL 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 TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN GRANT DATE
NAME OPTIONS GRANTED FISCAL YEAR EXERCISE PRICE EXPIRATION 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>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following stock table provides certain specified information concerning
fiscal year option exercises and unexercised options at March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTION AT OPTIONS AT
MARCH 31, 1998(#) MARCH 31, 1998($)
SHARES(#) ACQUIRED -------------------------------- ------------------------------
NAME ON EXERCISE VALUE($) 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
Frank Wood -- -- 52,800 5,000 448,800 12,500
Kevin O'Connor -- -- 99,594 5,000 963,074 12,500
James Potach -- -- 5,666 15,334 32,845 27,675
</TABLE>
11
<PAGE>
REPORT OF COMPENSATION COMMITTEE
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.
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 stockholders. 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,
12
<PAGE>
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, Taylor and Priester 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
Officers 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 SECTIONS 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
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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 Securities
and Exchange Commission ("SEC") reports of ownership and changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater-than-10% shareholders are required by SEC 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 no 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 a single Form 4 filing.
13
<PAGE>
PROPOSAL NO. 3
AMENDMENT TO THE 1996 STOCK OPTION PLAN
The Board of Directors, subject to shareholder approval, approved an
amendment to the Company's 1996 Plan to increase the number of shares that can
be issued under the 1996 Plan and recommends the shareholders approve such
amendment. Currently, an aggregate of 550,000 shares of Common Stock are
authorized for issuance pursuant to the 1996 Plan. The proposed amendment would
increase the number of shares authorized for issuance by an additional 550,000
shares (or an aggregate of 1,100,000 shares). For a fuller description of the
1996 Plan, see "Stock Compensation Plans."
REASONS FOR THE AMENDMENT
The Board of Directors believes the 1996 Plan has been an effective tool in
attracting and retaining new executive talent, and closely aligns the interests
of new executives with the interests of the Company's shareholders. From its
adoption through June 1, 1998, a total of 502,763 shares have been granted (net
of forfeitures) under the 1996 Plan. The Board of Directors believes that an
increase in the aggregate number of authorized shares is necessary to allow the
continued viability of the 1996 Plan.
TEXT OF THE PROPOSED AMENDMENT
The proposed amendment would amend Section 2 of the 1996 Plan as follows:
"The phrase "1,100,000" is substituted for the phrase "550,000" where it appears
in Section 2 of the 1996 Plan."
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock present or represented and entitled to vote at the
Meeting is required for approval of the amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE COMPANY'S 1996 STOCK OPTION PLAN.
PROPOSAL NO. 4
RATIFICATION, PURSUANT TO NASDAQ RULE 4460(I), OF THE ISSUANCE OF SHARES
OF COMMON STOCK PURSUANT TO THE CDI ASSET PURCHASE AGREEMENT
On October 5, 1997, a wholly owned subsidiary of the Company acquired
substantially all of the assets of KP One, Inc., a South Carolina corporation ,
formerly known as "Computer Dynamics, Inc." ("Old CDI"), and certain other
related entities pursuant to the terms of an Asset Purchase Agreement (the "CDI
Asset Purchase Agreement") with Kurt Priester, Priester Charitable Remainder
Unitrust, Priester Foundation, CDI, Computer Dynamics Services, Inc., a South
Carolina corporation, Computer Dynamics Mfg., Inc., a South Carolina
corporation, Sue Priester d/b/a Lines Unlimited, a sole proprietorship, and the
Company. Subject to certain adjustments, the consideration paid by the Company
in connection with this acquisition consisted of a warrant to purchase 100,000
shares of Common Stock, 932,039 shares of Common Stock, approximately $12.5
million in cash and the contingent consideration described below.
For five years after the closing of this acquisition, the Company is
obligated to pay Old CDI an annual payment of up to $3.0 million for each year
in which earnings of the acquired company during such year exceed 110% of the
base earnings from the previous year (the "Earn Out"). The Company shall pay the
maximum payment in each year if actual earnings during any such year exceed base
earnings for such year by at least 125%. The CDI Asset Purchase Agreement
provides that each such payment, if any, shall be made 50% in cash and 50% in
shares of Common Stock of the Company; provided however, that because of
restrictions on the Company's ability to issue shares of its Common Stock
imposed by the Nasdaq National Market (as described below), the CDI Asset
Purchase Agreement states that not more than
14
<PAGE>
347,961 shares of Common Stock may be issued in connection with the payment of
such consideration (which, when added to the 100,000 shares issuable under the
Warrant and 932,039 shares issued under the CDI Asset Purchase Agreement, equal
approximately 19.9% of the Company's issued and outstanding Common Stock as of
the closing of such acquisition), and once such number of shares of Common Stock
has been issued, all remaining payments shall be made in cash.
In order to permit the Company to issue in excess of 347,961 shares of its
Common Stock as part of the Earn Out, the CDI Asset Purchase Agreement provides
that in connection with the Company's 1998 Annual Meeting, the Company will
solicit a vote from its shareholders to permit an amendment to the CDI Asset
Purchase Agreement to allow the Company to issue in excess of 347,961 shares of
Common Stock in connection with the payment of the Earn Out. Until such time, if
any, as this issuance is approved by the shareholders of the Company, the
Company is not permitted to issue in excess of 347,961 shares of Common Stock in
connection with the payment of the Earn Out.
NASDAQ RULE 4460
Rule 4460 of the Nasdaq Rules, which is applicable to the Company because
the Company's shares of Common Stock are presently included for quotation on the
Nasdaq National Market, sets forth the corporate governance standards for such
securities. Section (i) of Rule 4460 provides:
"(1) Each NNM [Nasdaq National Market] issuer shall require shareholder
approval of a plan or arrangement under subparagraph (A) below or, prior
to the issuance of designated securities under subparagraph (B), (C) or
(D) below:
. . . (C) in connection with the acquisition of stock or assets of
another company if:
. . . (ii) where, due to the present or potential issuance of common
stock, or securities convertible into or exercisable for common stock,
other than a public offering for cash:
a. the common stock has or will have upon issuance voting power equal
to or in excess of 20% of the voting power outstanding before the issuance
of stock or securities convertible into or exercisable for common stock; or
b. the number of shares of common stock to be issued is or will be
equal to or in excess of 20% of the number of shares or common stock
outstanding before the issuance of the stock or securities."
SHAREHOLDER APPROVAL
The Board of Directors, subject to shareholder approval, approved an
amendment to the CDI Asset Purchase Agreement on May 8, 1998 in order to allow
the Company, if necessary, to issue in excess of 347,961 shares of Common Stock
in connection with the Earn Out without regard to the 20% limit of Nasdaq Rule
4460(i)(1)(C) (the "CDI Amendment").
The Board of Directors believes it would be in the best interests of the
Company to allow for the issuance of such additional shares of Common Stock
rather than being required to make Earn Out payments in cash. The Board of
Directors believes that the Company's cash balances and borrowing capacity will
be better utilized for working capital purposes and other potential acquisitions
than for use in satisfying the Earn Out. The actual number of shares of Common
Stock to be issued pursuant to the Earn Out, if any, cannot be determined at
this time.
If Proposal No. 4 is approved, the CDI Asset Purchase Agreement will be
amended to carry out the purposes of this Proposal No. 4. Approval of Proposal
No. 4 by the shareholders will constitute their approval and adoption of such
changes to the CDI Asset Purchase Agreement.
15
<PAGE>
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock present or represented and entitled to vote at the
Meeting is required for approval of Proposal No. 4.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL, PURSUANT TO NASDAQ RULE
4460(I), OF THE AMENDMENT OF THE CDI ASSET PURCHASE AGREEMENT TO ALLOW THE
POTENTIAL ISSUANCE OF IN EXCESS OF 347,961 SHARES OF COMMON STOCK IN CONNECTION
WITH PAYMENT OF THE EARN OUT.
PROPOSAL NO. 5
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP,
independent certified public accountants, to serve as auditors for the Company
for the fiscal year ending March 31, 1999. Arthur Andersen LLP has acted as the
Company's independent auditor since 1992. It is expected that a member of Arthur
Andersen LLP will be present at the Meeting with the opportunity to make a
statement if so desired and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF ITS SELECTION
OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MARCH
31, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAYLOR TRANSACTION
In September 1996, the Company completed a series of transactions resulting
in its holding 61.0% of the Class A Shares of Taylor. In the first step of this
transaction, the Company acquired all of the voting stock of Taylor in exchange
for aggregate consideration of $7.4 million, the right to receive contingent
consideration as described below and 767,112 Taylor Exchangeable Shares. Of the
$7.4 million, $2.2 million was in the form of a promissory note from Taylor to
Neil R. Taylor, the former majority shareholder of Taylor, which was repaid in
full with a portion of the proceeds of the Company's initial public offering,
and the remainder was paid in cash at the closing. The 767,112 Taylor
Exchangeable Shares are convertible into 767,112 shares of Common Stock of the
Company at any time at the election of the holders of such shares.
Mr. Taylor and the former shareholders of Taylor also hold certain
registration rights with respect to their shares of Common Stock issuable upon
conversion of their Taylor Exchangeable Shares.
Under the Taylor Transaction, the former shareholders of Taylor are also
entitled to receive certain contingent consideration pursuant to an earn-out
formula. Under such formula, Taylor paid the former shareholders an aggregate
amount of approximately $1.1 related to the year ended September 30, 1997. For
the period between October 1, 1997 and September 30, 1998, if Net Revenues
exceed $8.0 million, Taylor will pay to the former shareholders an aggregate
amount equal to $1.0 million, and to the extent that Net Revenues during such
period exceed $10.6 million, the Company will pay to the former shareholders an
aggregate amount, not to exceed $3.0 million, equal to 50.0% of such excess. The
Company has guaranteed the payment of all amounts of contingent consideration by
Taylor to the former shareholders of Taylor.
Digital Electronics originally loaned the Company an aggregate of $5.0
million in order to consummate the Taylor Transaction. Immediately thereafter,
$4.0 million of the loan was converted into 3,900 Taylor Class A Shares,
representing 39.0% of the aggregate amount of such shares. The remaining $1.0
million of indebtedness was repaid in full with a portion of the proceeds from
the Company's initial public offering.
16
<PAGE>
Pursuant to an arrangement with Digital Electronics, the Company agreed that
to the extent Taylor is required to make any payment of contingent consideration
to the former shareholders of Taylor, the Company will transfer funds to Taylor
in an amount equal to such contingent consideration. To the extent the Company
funds a portion of a contingent payout, the Company is permitted to cause Taylor
to issue additional Taylor Class A Shares to the Company in order to increase
the Company's ownership interest in the outstanding Taylor Class Shares by the
following percentage: 2.0% multiplied by a fraction, the numerator of which is
the entire contingent consideration payable to the shareholders and the
denominator of which is $4.0 million. If the entire amount of contingent
consideration is paid to the former Taylor shareholders, Digital Electronics'
ownership interest in Taylor will be decreased to 36.5% and the Company's
interest will be increased to 63.5%.
In connection with the payment of contingent consideration for the period
ended September 30, 1997, the Company's ownership interest in Taylor increased
from 61.0 to 61.5% and Digital Electronics ownership percentage decreased from
39.0% to 38.5%
TESS TRANSACTION
On September 25, 1997, the Company's majority-owned subsidiary, Taylor
Industrial Software, Inc. completed the sale of its TESS software product line
operation (which had previously been classified as "asset held for sale") to an
entity principally owned by Mr. Taylor.
Mr. Taylor, the former principal shareholder of Taylor, is a member of the
Company's board of directors. The sale price was approximately $4 million.
In connection with this transaction, the Company loaned Mr. Taylor $2
million (U.S.) pursuant to a promissory note (the "Taylor Note") dated September
25, 1997. The Taylor Note bears interest at 8% per annum and is payable in five
equal annual installments beginning on September 25, 1999 and ending on
September 25, 2003. The Taylor Note is secured by 250,000 Taylor Exchangeable
Shares currently held by Mr. Taylor
CDI TRANSACTION
On October 5, 1997, the Company acquired substantially all of the assets of
Computer Dynamics, Inc. ("CDI"), a South Carolina corporation, and certain other
related entities pursuant to the terms of an Asset Purchase Agreement (the
"Agreement") dated October 5, 1997 (the "CDI Transaction"). The consideration
paid by the Company in connection with the Transaction, which was accounted for
as a purchase, consisted of approximately $12.3 million in cash, 932,039 shares
of common stock of the Company and a warrant (the "Warrant") to purchase 100,000
shares of common stock of the Company. The Warrant is immediately exercisable at
a price of $12.875 per share and shall remain outstanding for a period of ten
years.
Additionally, subject to certain adjustments, for five years after the
closing, the Company shall pay CDI an annual payment ranging from $0 to $3.0
million for each year in which the year over year earnings of the acquired
company exceed 110% to 125% of the base earnings for each period (each and "Earn
Out Period"). Each such payment shall be made 50% in cash and 50% in common
stock of the Company; provided however, that not more than 347,961 shares may be
issued in connection with the payment of such consideration, and once such
number of shares have been issued, all remaining payments shall be made in cash.
Each of the shares of Common Stock shall be valued based on their then fair
market value at the end of each Earn Out Period.
Furthermore, the Company entered into a Registration Rights Agreement with
CDI and its former majority shareholder, Mr. Kurt Priester, pursuant to which
the portion of the shares of common stock of the Company issued to Mr. Priester
and CDI in connection with the Transaction or issued pursuant to the Warrant are
subject to certain piggy-back registration rights.
17
<PAGE>
In addition, in connection with the consummation of the Transaction, the
Company entered into an employment agreement with Kurt Priester whereby Mr.
Priester serves as the President of a wholly-owned subsidiary of the Company.
SENSORPULSE TRANSACTION
On December 31, 1997, a wholly-owned subsidiary of the Company acquired
substantially all of the assets of SensorPulse Corp., a designer and developer
of industrial signal conditioning products and networked input/output (I/O)
devices located in South Easton, Massachusetts, a Massachusetts corporation
("SensorPulse"), pursuant to the terms of an Asset Purchase Agreement among
SensorPulse, Kevin Roach, Charles Harlfinger, and the Company. Subject to
certain adjustments, the consideration paid by the Company consisted of 41,667
shares of Common Stock, approximately $1.25 million in cash and a four year earn
out based upon income growth in the business conducted by SensorPulse prior to
the closing. Mr. Roach is employed as President of SensorPulse Corp., a
wholly-owned subsidiary of the Company.
OTHER RELATED PARTY 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 Kurt Priester,
an officer/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.
At March 31, 1998, Mr. Gihl, an executive officer and significant
shareholder of the Company, was indebted to the Company in the amount of
$203,327 pursuant to two promissory notes bearing interest at a rate per annum
equal to 1.0% above the prime rate, maturing on December 16, 1998. Interest is
being accrued quarterly under these notes, and all amounts outstanding under
these notes are secured by a pledge of Mr. Gihl's shares of Common Stock.
The Company purchases all of the flat panel display screens that are the
principal hardware component incorporated in its graphics-based operator
interfere product line from Digital Electronics, which owns 380,001 shares of
Common Stock, representing 5.0% of the outstanding Common Stock, and owns 38.5%
of the Taylor Class A Shares. Keizo Wada, the President and Chairman of Digital
Electronics, owns 18,000 shares of the Common Stock of the Company. Hardware
purchases by the Company from Digital Electronics totaled $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 Electronics since June of 1996.
Digital Electronics is permitted to have a representative present at all
regularly scheduled quarterly board meetings of the Company. Such representative
does not vote, and receives $2,500 for each board meeting attended plus
reimbursement for all out-of-pocket costs and expenses. The Company has
nominated this representative of Digital Electronics for election to the
Company's Board of Directors for fiscal 1999.
In November 1996, Taylor entered into a two-year consulting agreement with
Digital Electronics whereby Digital Electronics has agreed to provide certain
product development and marketing consulting
18
<PAGE>
services to Taylor in exchange for compensation of $200,000 per year. This
agreement terminates in October 1998.
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 Electronics, 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 Electronics, 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 Electronics until January 31,
2005. Effective April 1, 1997, the Company and Digital Electronics also entered
into an agreement regarding the April 1, 1997, The Company and Digital
Electronics 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 Electronics (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 Electronics' 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 Electronics 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 Electronics' products on behalf of
the Company. ProFace, an industrial automation products distributor located in
the Netherlands, distributes the Company's and Digital Electronics' products in
Europe. This investment is accounted for by the Company under the equity method.
ProFace did not have significant operations during fiscal 1996. For fiscal 1997
and 1998, respectively, the Company's share of net earnings of the joint venture
was $79,425 and $97,489.
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 Exchangeable
Shares and the right to receive certain contingent consideration in connection
with the Taylor Transaction. Prior to the Taylor Transaction, Neil Taylor and
his wife loaned Taylor an aggregate of $230,000. This loan was repaid in full
during fiscal 1998.
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.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended for inclusion in the proxy statement to
be mailed to all shareholders entitled to vote at the next annual meeting of
shareholders of the Company must be received at the Company's principal
executive offices not later than March 31, 1999. In order to curtail controversy
as to the date on which a proposal was received by the Company, it is suggested
that proponents submit their proposals by Certified Mail Return Receipt
Requested.
19
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STOCK 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 or the Index on March 11, 1997.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ NASDAQ LAB APPARATUS &
<S> <C> <C> <C>
Total Stock Analytic, Opt. Measuring &
Control Market Controlling Instruments
Products, Inc. (US Companies) Subgroup Index
3/11/97 $100.000 $100.000 $100.000
3/31/97 $95.455 $92.936 $91.404
4/30/97 $93.939 $95.842 $92.822
5/30/97 $90.909 $106.707 $107.452
6/30/97 $100.000 $109.973 $112.429
7/31/97 $112.121 $121.581 $127.277
8/29/97 $118.182 $121.396 $142.348
9/30/97 $167.424 $128.578 $149.992
10/31/97 $153.030 $121.922 $122.853
11/28/97 $145.455 $122.533 $114.895
12/31/97 $148.485 $120.612 $109.296
1/30/98 $112.121 $124.440 $105.669
2/27/98 $148.485 $136.128 $119.057
3/31/98 $127.273 $141.150 $111.076
</TABLE>
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company knows of no other matters which may be
brought before the Meeting. If any other matters properly come before the
Meeting, or any adjournment thereof, it is the intention of the persons named in
the accompanying form of Proxy to vote the Proxy on such matters in accordance
with their best judgment.
By Order of the Board of Directors,
[/S/ PETER A. NICHOLSON]
Peter A. Nicholson
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER,
TREASURER AND SECRETARY
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EXHIBIT A
PROPOSED AMENDMENT TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
TOTAL CONTROL PRODUCTS, INC.
Assuming that the amendment providing that the number of directors of the
Company shall not be less than three nor more than eleven directors is adopted,
Article Fifth of the Company's Amended and Restated Articles of Incorporation
will be amended to read as follows:
"FIFTH. The members of the governing board shall be called directors
of the Corporation. The number of directors of the Corporation shall not
be less than three nor more than eleven. The board of directors shall
from time to time set the number of members to serve on the board of
directors. The directors shall be divided into three (3) classes
designated as Class I, Class II and Class III, respectively. Each class
shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire board of directors.
Effective upon the closing of an initial public offering of the
Corporation under the Securities Act of 1933, as amended, the
Corporation shall designate the slate of directors to be elected by the
shareholders as Class I, Class II and Class III directors. The initial
term of office of the Class I directors shall expire at the annual
meeting of the shareholders held in the year 1998. The initial term of
office of the Class II directors shall expire at the annual meeting of
shareholders held in the year 1999. The initial term of office of the
Class III directors shall expire at the annual meeting of shareholders
held in the year 2000. At each annual meeting of the shareholders after
the annual meeting held in the year 1997, successors to the class of
directors whose term expires at the annual meeting shall be elected for
a three (3) year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly as possible,
but in no case shall a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the
annual meeting for the year in which his term expires and until his
successor shall be elected and qualified, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
The annual meeting of shareholders shall be held each year on a date and
at a time design-ated by the Board of Directors of the Corporation.
Subject to the rights, if any, of holders of any series of Preferred
Shares then outstanding, any vacancy on the Board of Directors that
results from an increase in the number of directors or by reason of the
vacancy following the annual meeting of the shareholders held in the
year 1997 may be filled by a majority of the Board of Directors then in
office, provided that a quorum is present, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the
directors then in office, even if less than a quorum. Any directors
elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of
that class. Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term
as that of his predecessor."
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TOTAL CONTROL PRODUCTS, INC.
2001 NORTH JANICE AVENUE
MELROSE PARK, ILLINOIS 60160
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Nicholas T. Gihl and Peter A. Nicholson, and
each of them, with full power of substitution, as attorneys and proxies to
represent the undersigned at the 1998 Annual Meeting of Shareholders of Total
Control Products, Inc. (the "Company") to be held at the Marriott-O'Hare, 8535
West Higgins Rd., Chicago, Illinois 60631, at 10:00 a.m. local time, on
Thursday, August 27, 1998, or at any adjournment thereof, with all power which
the undersigned would possess if personally present, and to vote all shares of
stock of the Company which the undersigned may be entitled to vote at said
Meeting as follows:
<TABLE>
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1. AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
Approval of the amendment to Article Fifth of the Company's Amended and Restated Articles of Incorporation to provide the
number of directors of the Company shall not be less than three nor more than eleven directors.
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS
FOR all nominees listed below (unless the name of WITHHOLD AUTHORITY / /
a nominee is crossed out) / /
A.B. Siemer Neil R. Taylor Tadashi Shimizu (effective only if
Proposal 1 is approved)
3. AMENDMENT TO 1996 STOCK OPTION PLAN
Approval of the amendment to the Company's 1996 Stock Option Plan to increase the number of reserved shares of Common
Stock from 550,000 shares to 1,100,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
4. AMENDMENT OF CDI ASSET PURCHASE AGREEMENT
Approval of an amendment to the CDI Asset Purchase Agreement to allow the Company to issue in excess of 347,961 shares of
Common Stock as contingent consideration thereunder.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(continued and to be signed on reverse side)
<PAGE>
<TABLE>
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5. RATIFICATION OF APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS FOR FISCAL 1999
/ / FOR / / AGAINST / / ABSTAIN
6. IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING
(which the Board of Directors does not know of prior to July 13, 1998)
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR AND FOR THE AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION, AND WILL CONFER THE AUTHORITY SET
FORTH IN PARAGRAPH 3.
Receipt is hereby acknowledged of the Notice of the Meeting and Proxy
Statement dated July 13, 1998, as well as a copy of the Company's Annual Report
for the fiscal year ended March 31, 1998.
Dated: , 1998.
_________________________________
_________________________________
(Signature of shareholder)
WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE TITLE.
EACH JOINT OWNER IS REQUESTED TO
SIGN. IF A CORPORATION OR
PARTNERSHIP, PLEASE SIGN BY AN
AUTHORIZED OFFICER OR PARTNER.
PLEASE SIGN IN THE SAME MANNER AS
YOUR CERTIFICATE(S) IS (ARE)
REGISTERED.
PLEASE COMPLETE, DATE, SIGN AND RETURN this proxy in the envelope provided.
