SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________.
COMMISSION FILE NUMBER 0-24900
ITI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1340453
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2266 NORTH SECOND STREET 55109
NORTH ST. PAUL, MINNESOTA (Zip Code)
(Address of principal executive offices)
(612) 777-2690
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of Common Stock held by non-affiliates of the
Registrant, based on the closing sale price of $16.625 per share as reported
on The Nasdaq National Market on February 17, 1997: $107,938,644.
Number of shares of Common Stock outstanding as of February 17, 1997: 8,414,062.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement are
incorporated by reference into Part III.
ITI TECHNOLOGIES, INC.
Annual Report on Form 10-K
for the year ended December 31, 1996
INDEX
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PAGE
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Documents Incorporated by Reference 3
Cross Reference Sheet 4
PART I
Item 1. Business 5
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and 16
Results of Operations
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting and 19
Financial Disclosure
PART III
Item 10 through Item 12. See "Documents Incorporated by Reference" (Page 3) 19
Item 13. Certain Relationships and Related Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 19
Index to Consolidated Financial Statements F-1
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference to the parts indicated of
this Annual Report on Form 10-K:
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PARTS OF ANNUAL REPORT ON FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
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PART III
Item 10. Directors and Executive Officers of the Reference is made to the Registrant's definitive
Registrant. proxy statement, which will be filed with the
Securities and Exchange Commission ("Commission")
within 120 days after December 31, 1996 ("Proxy
Statement").
Item 11. Executive Compensation. Reference is made to the Registrant's Proxy
Statement.
Item 12. Security Ownership of Certain Reference is made to the Registrant's Proxy
Beneficial Owners and Management. Statement.
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CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART III
OF FORM 10-K AND
PROXY STATEMENT
PURSUANT TO PARAGRAPH G-4 OF GENERAL INSTRUCTIONS TO FORM 10-K
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ITEM NUMBER AND CAPTION SUBJECT HEADINGS IN PROXY STATEMENT
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Item 10. Directors and Executive Officers of the Registrant. Election of Directors
Item 11. Executive Compensation. Election of Directors
Item 12. Security Ownership of Certain Beneficial Owners and Principal Stockholders
Management.
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PART I
ITEM 1. BUSINESS
GENERAL
ITI Technologies, Inc. and its wholly-owned subsidiaries (the "Company" or
"ITI") design, manufacture and market supervised wireless security systems and
access control systems. The Company also has an ongoing product development
program that focuses its efforts on developing new and improved security systems
at lower costs and on utilizing its technology base to develop products for
related markets. The Company's products are sold by a direct sales force to
independent dealers located throughout the United States and Canada and on a
private label basis to large security system installation companies.
The Company's wholly-owned subsidiary, Interactive Technologies, Inc. (the
"Predecessor"), was incorporated in January 1980 under the laws of the State of
Minnesota. In January 1985, the Predecessor incorporated a foreign international
sales corporation, ITI International, Inc., as a wholly-owned subsidiary under
the laws of The United States Virgin Islands. ITI Technologies, Inc. was
incorporated in February 1992 under the laws of the State of Delaware for the
purpose of acquiring the Predecessor. On May 11, 1992, the Company acquired the
Predecessor from a United States holding company controlled by ADIA S.A. of
Switzerland and certain members of the Predecessor's management (the
"Acquisition"). In November 1994, the Company completed a public offering of
1,900,000 newly issued shares of common stock at $16.00 per share (the
"Offering"). Prior to the Offering, there was no public market for the Company's
common stock. In May 1995, in a subsequent offering, selling shareholders sold
3,225,000 shares and the Company sold 225,000 shares at $24.00 per share. The
Company used the net proceeds from these offerings to retire debt that had been
incurred at the time of the Acquisition. In April 1996, the Predecessor
incorporated ITI Finance Corporation as a wholly-owned subsidiary under the laws
of the State of Minnesota for the purpose of providing financing to the
Company's independent dealer base. In August 1996, the Predecessor incorporated
Interactive Care, Inc. as a wholly-owned subsidiary under the laws of the State
of Minnesota to market and distribute the Company's personal emergency response
products. Unless the context requires otherwise, the terms "Company" and "ITI"
each shall refer to ITI Technologies, Inc. and its wholly-owned subsidiaries,
the Predecessor, ITI International, Inc., Interactive Care, Inc. and ITI Finance
Corporation.
As reported by the Company in a November 15, 1996, press release and in a
Current Report on Form 8-K filed with the Securities and Exchange Commission on
November 19, 1996, ITI received a letter on November 14, 1996, from ADT Security
Systems, Inc. ("ADT") stating that ITI is currently not included in ADT's
"future strategic product planning" and that ITI should "anticipate a reduction
in purchase orders from ADT during the first quarter of 1997 . . . ." ADT has
been ITI's largest single customer and accounted for over 41% of ITI's revenue
in 1996. Although ADT initially indicated that ITI should anticipate a
significant decrease in product orders in the first quarter of 1997, ADT
subsequently indicated that a transition to an alternative product source could
not be completed until September 1997. In January 1997, ITI received purchase
orders from ADT for approximately $20.3 million of wireless security products to
be delivered during 1997.
On November 22, 1996, the Company's Board of Directors authorized the repurchase
of up to 900,000 shares of ITI common stock on the open market, depending upon
market conditions and other factors. Pursuant to this authority, ITI repurchased
621,500 shares of its common stock with a value of $7.7 million on the open
market during December 1996. The Board of Directors also adopted certain
protections from hostile takeover actions against ITI by declaring a dividend of
common stock purchase rights to stockholders of record on December 9, 1996. Such
rights were issued pursuant to a Stockholder Rights Plan (the "Rights Plan") of
a type commonly referred to as a "poison pill." The Rights Plan is designed to
insure that all ITI stockholders will receive fair treatment in the event of any
hostile, unsolicited offer to acquire or take control of ITI. While the Rights
Plan is not intended to prevent any takeover of ITI, it should, however, deter
any attempt to acquire ITI in a manner or on terms not approved by the Board.
INDUSTRY OVERVIEW
There are two primary types of security systems: (i) hardwire systems,
consisting of a control panel and sensors that communicate through wires, and
(ii) wireless systems, which utilize sensors that communicate with a central
control panel using radio signals. Although wireless systems have existed for
over 25 years, it has only been since ITI's introduction in 1983 of the first
supervised wireless security system that any significant market has developed
for such systems. The Company believes that several factors contribute to a
favorable outlook for growth in the wireless security system market, including
increasing use of wireless security systems, increasing violent crime rates,
increased concern about crime, low penetration of security systems in United
States households, improved technology and lower cost systems, and the
availability of insurance discounts to homeowners who purchase security systems.
ITI SUPERVISED WIRELESS SECURITY SYSTEMS
A typical ITI wireless security system consists of four basic components: (i) a
central control panel which coordinates and controls all security and home
automation system functions and automatically reports emergency conditions and
service information to a remote central monitoring facility; (ii) touchpads
which enable the user to arm, disarm and give other commands to the system,
including panic buttons to alert the central monitoring facility to police, fire
and medical emergencies; (iii) a wide variety of sensors that detect intrusion,
fire and other environmental conditions and report them to the system's central
control panel; and (iv) sirens designed to frighten away an intruder and which
alert the user to the particular alarm condition by audible signal or digitized
voice while the control panel is reporting the condition to the central
monitoring station. All of these devices are located in the protected home or
business.
ITI's systems are very flexible and can be programmed by the end-user to offer
varying degrees of security, depending on the end-user's protection desires. The
systems have the ability in all security levels to detect fire and other
environmental conditions and to respond to manual activation for police, fire
and medical emergencies.
ITI offers a number of security systems to meet a variety of price points and
customer performance requirements, including:
ULTRAGARD SYSTEM. ITI's UltraGard system was introduced in the second half
of 1996 to address a gap in ITI's high-end product offerings. The UltraGard
system features a 76-zone panel which operates on 12 volts (as opposed to
the other products in ITI's line, which operate on 6 volts). This high
performance system is well suited for commercial applications as well as the
largest residential applications.
CARETAKER PLUS SYSTEM. ITI's first generation CareTaker wireless system,
introduced in 1988, was the first security system on the market to
incorporate digitized voice technology and to provide the end-user with the
ability to control the system by using an on- or off-site touch-tone
telephone. The features of the CareTaker Plus system include system remote
service and diagnostic capabilities, ITI's patented Learn Mode technology,
and the ability to accommodate both wireless and hardwire sensors. The
CareTaker Plus system also can be used to monitor and control environmental
conditions, such as adjusting the thermostat to control heating or air
conditioning or turning lights on and off. This system has the capability to
individually recognize up to 40 sensors and can be used with ITI's entire
line of sirens, sensors, touchpads and other accessories. The CareTaker Plus
system is suitable for use in both residential and commercial environments.
COMMANDER 2000 SYSTEM. ITI's Commander 2000 system was introduced in the
first half of 1994 to succeed the RF Commander system, which was first
introduced in 1990. The Commander 2000 system is an entry level wireless
security system designed for use in smaller businesses, homes and apartments
and has many of the advanced features found in more expensive systems. The
Commander 2000 system has the capability to individually recognize up to 16
wireless sensors and can be used with substantially all of ITI's
accessories.
SIMON. ITI will introduce in 1997 a new entry-level wireless security system
to be marketed under the Simon trademark, which is aimed at those in the
industry looking for a low-cost wireless solution for mass marketing
programs or where security equipment is either given away or installed at a
loss in an effort to obtain a long-term monitoring contract. The Simon
system has the capability to individually recognize up to 17 wireless
sensors. Simon can be used with substantially all of ITI's existing sensors
and can be used with ITI's new line of lower cost sensors based upon Surface
Acoustic Wave, or SAW, radio technology, which will also be introduced in
1997.
CUSTOMIZED AND PRIVATE LABEL SYSTEMS. ITI has established relationships with
large security companies to develop and manufacture customized, private
label security systems. In developing these systems, the Company may modify
its existing systems by adding customized control panel software and
component packaging as requested by the customer.
SYSTEM FEATURES AND COMPONENTS
ITI's security systems incorporate several innovative and advanced features and
components which increase product performance, reliability and marketability:
SUPERIOR SUPERVISED RADIO TECHNOLOGY. The Company believes its wireless
security systems incorporate the most advanced radio technology currently
available in supervised wireless systems. Each wireless sensor in an ITI
system reports to the central control panel as a unique zone, enabling the
central monitoring station personnel to identify and communicate to police
or firefighters the exact location and nature of an emergency. If the
control panel does not receive scheduled signals from a sensor, it reports
the identity of the particular sensor to the central monitoring station and
the end-user. This feature also allows service personnel to quickly find a
malfunctioning sensor. Through the use of crystal-controlled radio
transmitters and receivers, coupled with its patented Learn Mode and
signaling protocol technologies, ITI has virtually eliminated the effects of
interference and greatly increased the range of its systems within the
limitations imposed by the FCC. This supervised radio technology enhances
the reliability and performance of ITI's wireless systems and allows them to
be used in larger premises, including many commercial facilities, where
their use once was not feasible.
LEARN MODE TECHNOLOGY. ITI's patented Learn Mode technology enables control
panels to automatically "learn" the identity and type of each
factory-programmed sensor in its system when the system is installed. The
Learn Mode technology is attractive to ITI's customers because each sensor
is manufactured with a unique programmed identity. This learn mode process
reduces the time and cost of installing sensors and programming the systems
and allows the installation of large numbers of security systems in densely
populated areas without interference with neighboring systems.
TOUCH-TONE TELEPHONE INTERFACE. ITI was the first to introduce the use of
on- or off-site touch-tone telephones as touchpads to control security
systems. When used with ITI's CareTaker Plus or UltraGard systems,
touch-tone telephones have all the system control capabilities of the
touchpads manufactured by ITI. These systems contribute to end-user
convenience by enabling the end-user to control the system from on- or
off-premises by using touch-tone telephones.
DIGITIZED VOICE TECHNOLOGY. ITI enhanced the "user-friendliness" and
convenience of its systems by incorporating digitized voice technology. The
UltraGard, CareTaker Plus, Commander 2000 and Simon security systems can
"talk" to the end-user on-site with digitized voice, and the CareTaker Plus
and UltraGard systems also "talk" over on- or off-site touch-tone
telephones. Incorporating digitized voice technology allows the end-user to
confirm commands, such as the level of protection or a disarming signal, or
to receive a status report of protection levels and environmental
conditions, such as the temperature inside the end-user's house. In response
to various foreign sales opportunities, ITI has incorporated digitized voice
response capabilities in several foreign languages into its systems.
BREADTH OF SENSOR LINE. ITI believes it offers the widest variety of
wireless sensors currently available in the security system market. ITI's
sensors, which can be used with all of ITI's security systems, include
motion detectors; different types of intrusion sensors activated by sound,
shock, or shattering glass; photoelectric smoke sensors; "rate-of-rise" fire
sensors with a special thermostat activated by an unusually rapid
temperature increase; pocket-sized emergency transmitters; and environmental
sensors to detect such conditions as furnace failure. ITI's sensors also are
the smallest available in any supervised wireless security system. The
Company believes that its wide variety of sensors and their compact size
offer it a significant competitive advantage. Most of ITI's sensors have
long-life lithium batteries, thus increasing system reliability and
convenience. ITI's current sensor line utilizes crystal-controlled radio
transmitters. ITI will introduce in 1997 a new lower cost sensor line based
on SAW radio technology, which will be used in connection with the Simon
system. ITI will also introduce in 1997 its Quik Bridge family of wireless
receivers, which will allow the ITI wireless sensor line to be used in
connection with hardwire security panels manufactured by other security
companies. See "Other Products -- The Quik Bridge Family" below.
INTERACTIVE CAPABILITIES. ITI's wireless systems and the central monitoring
facility personnel can communicate over telephone lines using ITI's CS-4000
central station receiver. This interactive capability allows a technician to
remotely perform certain kinds of service and programming on ITI's systems
without leaving the central monitoring facility, avoiding delay and
expensive on-site service calls.
HOME MANAGEMENT CAPABILITIES. ITI's energy management module, which is
available with the CareTaker Plus and Ultragard systems, enables an end-user
to adjust a thermostat using either a touchpad or an on- or off-site
touch-tone telephone which can result in reduced energy costs to the
end-user. ITI's CareTaker Plus, Ultragard, Commander 2000 and Simon systems
also can be used to control lights through the use of touchpads. ITI has
developed a power line signaling technology that allows its system control
panels to activate sirens and light modules over the household electrical
system. Sirens and lights thus can be installed and controlled virtually
anywhere in the premises where there is an electrical outlet.
ALARM VERIFICATION. False alarms represent a troublesome issue for the
security industry. In 1993, ITI introduced its Interrogator alarm
verification module to address the false alarm issue. The Interrogator gives
ITI's systems two-way voice capabilities through sensitive microphones and
talk-back speakers that are placed strategically throughout a home or
business. After an alarm has occurred and been reported to the central
station, the Interrogator will allow the central station operator to either
"listen in" or, if desired, "talk back" to the subject home or business.
This built-in communicator helps enable the central station operator to
verify alarms before dispatching the police or fire department. The
Interrogator can digitally record and play back 16 seconds of an alarm event
with the simple addition of the optional recording module. This enables the
central station operator to listen to a recording of the actual emergency
event as it happened. The Interrogator and the optional recording module
work with all of ITI's security systems and also can be sold separately for
use with other manufacturers' security systems.
OTHER PRODUCTS
In addition to developing new features for existing products, ITI's
innovative product development programs have produced products for related
markets using its existing technologies:
THE QUIK BRIDGE FAMILY. The Quik Bridge family is a group of wireless
receivers equipped with interfaces that broaden the market opportunities for
ITI Learn Mode sensors. ITI has introduced several Quik Bridge family
members. The Quik Bridge Repeater extends the range of ITI sensors attached
to ITI wireless receivers. The Quik Bridge Monobus Receiver supports adding
ITI wireless sensors to Radionics hardwire panels. The Quik Bridge Loop
Receiver supports adding ITI wireless sensors to any hardwire panel that
supports a common loop ground and/or a relay unit connection. Future members
of the Quik Bridge family will support adding ITI sensors to Access Control
systems, and link home and office security environments.
METER MINDER. The Meter Minder, introduced in September 1992, consists of a
CareTaker Plus control panel with modified software which performs several
functions for electric and gas utilities, including automatic meter reading,
historical usage reporting, outage reporting, and remote power disconnect.
ITI was selected to develop this product by the National Rural Electric
Cooperative Association ("NRECA"), an industry trade association that
includes approximately 950 electrical cooperatives providing service to 13
million households throughout the United States. The Meter Minder provides
electric and gas utilities with a cost-effective means to collect a range of
user data impossible to attain using conventional data collection
techniques. Its software can be easily upgraded, allowing a radio receiver,
touchpads, sensors, and sirens to be added at the utility customer's option
to allow the Meter Minder to function as an automatic meter reader and a
CareTaker Plus security system. The Meter Minder/CareTaker Plus system can
then be monitored by the installing utility, providing the utility with
ongoing monthly monitoring revenues. The Meter Minder originally was
developed with a hardwire link between the utility meter and the Meter
Minder control panel. ITI has recently developed a wireless link, which is
being tested at several beta test sites.
CS 4000 COMPUTERIZED CENTRAL STATION RECEIVER. ITI's CS 4000 Computerized
Central Station Receivers can be used by the central monitoring service
providers to receive and monitor information from homes and businesses
protected with ITI's and certain other manufacturers' security systems.
Monitoring station personnel transmit emergency messages to police, fire,
medical or other authorities. With the use of ITI's Interrogator alarm
verification module, central monitoring station personnel also can hear what
is occurring on the protected premises to confirm an alarm and gather more
information regarding the condition.
ACCESS CONTROL SYSTEMS. ITI designs and manufactures access control systems
for use in commercial facilities. While currently not a significant portion
of the Company's sales volume, these systems complement ITI's security
system product lines and can be sold through ITI's existing independent
dealer network. Typically, an access control system requires a user to
insert a card or other entry device into a reader, which then unlocks a door
if the user is authorized to be in the area at that time.
LIFEGARD. Recognizing the growing elderly population, ITI introduced in 1996
its LifeGard personal emergency response system. Like a security system,
LifeGard maintains a communication link with a monitoring company, in order
to provide the fastest possible response during an emergency. Two-way voice
with the monitoring company is initiated either when the owner presses one
of at least two panic buttons, or when the system doesn't detect activity in
the home after a certain elapsed time. The LifeGard system includes a
control panel mounted on a base with a built-in Interrogator and includes a
water-resistant panic pendant.
PRODUCT DEVELOPMENT
In the years ended December 31, 1996, 1995, and 1994, the Company had gross
research and development expenditures of $6.3 million, $5.2 million and $4.3
million, respectively. The Company was reimbursed by customers in 1994 for
$211,000 for research and development expenditures. There were no customer
reimbursements received in 1995 or 1996. ITI's current product development
efforts are primarily devoted to continuing the enhancement and expansion of its
product lines and technologies.
SALES AND MARKETING
ITI sells to its independent dealer network, large security companies and other
private label customers, electric and gas utility companies and customers in
international markets. See the applicable discussion under "Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
the Consolidated Financial Statements and Notes thereto.
SALES TO INDEPENDENT DEALER NETWORK. As of December 31, 1996, ITI had 32
sales people servicing and expanding its network of over 1,500 independent
dealers. This group is supported by ITI's 49-person customer service
organization. The Company uses its sales force and customer service
personnel to implement sales strategies, monitor the performance and quality
of its dealers, implement development programs, and provide "hotline"
technical backup. Through its independent dealer network, ITI's products are
sold extensively throughout the United States and Canada. ITI's dealer sales
and support programs include sales aids (such as sales literature and demo
kits), marketing literature, and instructional videos for both dealers and
end-users. In addition, ITI provides its dealers with a wide variety of
training programs and materials, including technical, sales, marketing and
business management programs and a number of marketing newsletters. ITI
recognizes its top dealers with an incentive program which includes an
annual trip to the Company's national dealer sales meeting, which also
reinforces the ties between ITI and its key dealers. The Company believes
its dealer program gives it a competitive advantage and engenders dealer
loyalty. The Company's Security Pro program enhances its independent dealer
network. Dealers participating in this program are provided special
marketing and sales literature and, from time-to-time, special product
offerings.
SALES TO LARGE SECURITY COMPANIES AND OTHER PRIVATE LABEL ARRANGEMENTS. ITI
designs and manufactures customized and private label systems for companies
which sell the systems on a national and regional basis. These customers
offer the potential for substantial sales volume, provide extensive
geographic coverage, and, in many cases, offer the ability to sell ITI's
products under nationally recognized brand names. Members of ITI's senior
management team are involved in initiating and maintaining the Company's
relationships with its private label customers.
SALES TO ELECTRIC AND GAS UTILITIES. Electric and gas utilities provide ITI
with an additional distribution channel and the opportunity to develop
related applications of its technologies. These utilities are increasingly
seeking to enter unregulated industries, including the security systems
industry, to increase their profits. This industry offers electric and gas
utilities a logical complement to their businesses, as many already have the
infrastructure in place to sell, install and repair security and home
automation systems and provide monthly monitoring services. Several utility
organizations have worked with ITI to develop products to sell to their
customers, including NRECA. Over 60 electric and other utilities are now
purchasing ITI's products. ITI has two sales representatives who sell to
utilities with support from ITI's field sales force.
INTERNATIONAL SALES. Export sales, primarily to Canada, accounted for 8.7%,
9.8% and 12.4% of net sales for 1996, 1995 and 1994, respectively (see the
Consolidated Financial Statements and Notes thereto). The Company believes
that international markets offer it an important opportunity for sales
growth. ITI currently sells its products in over 30 foreign countries
through distributors and dealers. In response to various foreign sales
opportunities, ITI has incorporated digitized voice response capabilities in
several foreign languages and intends to expand its product development and
marketing efforts to increase its international sales. The Company currently
is designing its next generation of security systems to satisfy the power,
telephone, radio and other regulatory standards necessary to sell the
systems in the European Community.
COMPETITION
The security systems industry is highly competitive, with a large number of
manufacturers providing a wide range of products, from simple sensor components
to advanced and complete systems. Competition is based primarily on product
reliability, the incorporation of advanced technological features, ease of
installation, sales support, and price. ITI's competitors in the supervised
wireless security system industry include Ademco Security Group (a division of
Pittway Corporation), Linear Corp. (a subsidiary of Nortek, Inc.) and several
smaller manufacturers. ITI also competes with numerous manufacturers of hardwire
security systems, including Ademco Security Group, Napco Security Systems, Inc.,
Detection Systems, Inc., Digital Security Controls Ltd., C&K Components, Silent
Knight Security Systems (an affiliate of Cargill Corporation), Aritech Corp. (a
subsidiary of Sentrol, Inc.) and Radionics, Inc. (a subsidiary of Detection
Systems, Inc.). Furthermore, the Company may encounter additional competition
from future industry entrants. Some of these manufacturers have, and new
competitors may have, substantially greater financial and other resources than
ITI. While the Company believes that ITI's product development program,
innovative and attractive product features, technology and engineering
expertise, and established independent dealer network and customer relationships
give it a competitive advantage over many other security system manufacturers,
there can be no assurance that ITI will continue to develop and market products
that will be accepted in the marketplace.
MANUFACTURING
The Company's production processes include printed circuit board assembly,
testing and calibration, and final assembly and testing. ITI's manufacturing
engineering group designs its manufacturing test equipment, procedures and
programs. A Mexican facility assembles less complex, high-volume circuit boards,
such as transmitter boards, and ships them to North St. Paul, Minnesota for
calibration, final assembly and testing. ITI has invested in various automated
printed circuit board assembly and test equipment at both its North St. Paul,
Minnesota and Mexican facilities to achieve manufacturing cost efficiencies and
vertically integrate its production processes. From time to time, ITI uses
certain contract manufacturers to perform some of its printed circuit board
assembly and may increase its use of such companies to meet any increased
demand. Certain of the chips, microprocessors and other products used in ITI's
systems are obtained from single sources. If ITI could not obtain these
components from these sources, there may be a 16-to 30-week lead time to obtain
them from a different supplier. To help prevent delays in the shipment of its
products, ITI maintains what it believes to be a sufficient amount of certain
components in inventory or has made safety stock program arrangements with the
suppliers.
INTELLECTUAL PROPERTY
The Company's success is dependent in part on its proprietary information,
technology and know-how. The Company relies on a combination of trade secret and
copyright protection and confidentiality agreements to establish and protect its
proprietary rights. In addition, the Company holds ten patents covering various
technologies, including its Learn Mode technology, and has several patent
applications pending. The Company believes its Learn Mode technology in
particular affords it significant competitive advantages because it has allowed
ITI to substantially improve the performance and reliability of its products.
The Company plans to aggressively protect its patents and other intellectual
property and to pursue patents to protect its technology. However, there can be
no assurance that the Company will be able to protect its proprietary
information, technology and know-how, deter misappropriation of its proprietary
rights, or prevent third party development of substantially similar technology
and products. In addition, there can be no assurance that any patent
applications filed by ITI will result in issued patents or that any patents
issued are or will be sufficiently broad to protect the Company's technologies
or provide the Company with any material competitive advantages. There also can
be no assurance that the patents ITI has obtained in the past or may obtain in
the future will not be contested, invalidated or circumvented. See applicable
discussions under "Item 3. Legal Proceedings" and the Consolidated Financial
Statements and Notes thereto for discussions of current litigation proceedings
involving intellectual property issues.
The Company has occasionally received, and may receive in the future,
communications from third parties asserting intellectual property rights
relating to the Company's products and technologies. Upon receiving such claims,
the Company evaluates their merits and risks and on occasion has negotiated
licenses where third-party technology was necessary or useful for the
development or manufacture of the Company's products. There can be no assurance
that third parties will not assert claims against the Company with respect to
existing or future products or that any licenses will be available on reasonable
terms with respect to any third-party technology. The Company could incur
substantial costs in redesigning its products or in defending any legal action
taken against it.
GOVERNMENT REGULATION
Substantially all of the components in ITI's security systems require approval
by the Federal Communications Commission ("FCC") before the systems may be
marketed in the United States. Although the Company has obtained FCC approval of
its products in the past, ITI cannot predict whether it will obtain FCC
approvals for components of future products or whether FCC regulations might
change with respect to the Company's current or future products. In addition,
sales of ITI's products in countries outside of the United States usually are
subject to similar types of approvals by regulatory authorities in those
countries. The Company also is subject to various federal, state and foreign
laws and regulations pertaining to the use of potentially dangerous material, to
the discharge of material in the environment, and otherwise relating to the
protection of the environment. The Company believes it has complied in all
material respects with all such laws and regulations.
EMPLOYEES
On December 31, 1996, ITI had 477 full-time employees, consisting of 265 in
manufacturing, 88 in engineering and product development, 49 in customer
service, 34 in sales, 30 in management and administration, and 11 in marketing.
These employees do not include the contract workers in the Mexican facility.
None of ITI's employees are members of a collective bargaining unit, and ITI's
management believes employee relations are good.
ITEM 2. PROPERTIES
ITI's principal manufacturing facilities are located in North St. Paul,
Minnesota, in two adjacent leased buildings which together provide approximately
110,500 square feet of manufacturing and office space. The leases on the North
St. Paul facility expire on September 1, 1999. The Company believes that its
existing facilities will be adequate for its anticipated needs; however, if any
additional space is needed, the Company also believes it would be available at
competitive rates in the same buildings or in the immediate area of its North
St. Paul facility. In addition, the Company is leasing additional distribution
space at a location near its existing complex in North St. Paul, Minnesota, to
facilitate shipments to major customers and to comply with the Company's
disaster recovery plan. ITI also leases small warehouse and shipping point
facilities in Anaheim, California; Richmond, Virginia; and Toronto, Ontario,
Canada. In addition to these leased facilities, ITI utilizes a contract assembly
plant in Navajoa, Mexico, consisting of approximately 22,000 square feet devoted
exclusively to ITI's manufacturing needs.
ITEM 3. LEGAL PROCEEDINGS
On August 17, 1995, the Company commenced an action for patent infringement
against Pittway Corporation and its subsidiary, Ademco Distributions, Inc., in
the United States District Court for the District of Minnesota, for infringing
on its patented technology. It is the Company's intent to vigorously protect its
patented technology from infringement. Costs associated with these actions are
being capitalized as a patent asset associated with the related technology.
In addition, the Company experiences routine litigation in the normal course of
its business. The Company does not believe that any of this routine litigation
will have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
Company's fourth quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and is
quoted on The Nasdaq National Market under the symbol "ITII." As of March 13,
1997, there were approximately 83 record holders of the Company's Common Stock.
The following table sets forth, on a quarterly basis, the high and low closing
sale prices for the Company's Common Stock since January 1, 1995 through
December 31, 1996:
HIGH LOW
1995
Quarter:
First $26-7/8 $20-1/4
Second 25-1/4 22-1/2
Third 29 22-3/4
Fourth 29-3/4 23-1/2
1996
Quarter:
First $29-3/4 $23-1/2
Second 34 26-3/4
Third 36-1/8 30-3/4
Fourth 35-5/8 11-3/8
The Company has never paid dividends on its Common Stock. The Company presently
intends to retain all future earnings, if any, for the operation and expansion
of its business and does not expect to pay any cash dividends on its Common
Stock in the foreseeable future. See applicable discussion under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Acquisition was accounted for using the purchase method of accounting, which
established a new basis of accounting. As a result, financial data for the
period prior to the Acquisition is not comparable to financial data for
subsequent periods. The quarterly financial data has not been audited or
reviewed by the Company's independent accountants. The financial information set
forth below should be read in conjunction with "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
THE
PREDECESSOR THE COMPANY COMBINED
18 WEEKS ENDED 34 WEEKS ENDED YEAR ENDED
MAY 11, DECEMBER 31, DECEMBER 31,
1992 1992 1992 (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales $18,375 $ 32,892 $ 51,267
Cost of goods sold 10,825 18,288 29,113
Inventory purchase accounting
adjustment (2) 3,063 3,063
Gross profit 7,550 11,541 19,091
Operating expenses:
Marketing, general and
administrative 4,298 6,230 10,528
Research and development, gross 1,304 2,260 3,564
Research and development
reimbursements (63) (763) (826)
Litigation costs 1,000 1,000
Compensation related to the
Acquisition 2,416(3) 855(4) 3,271
Technology under development 18,922(5) 18,922
Amortization of intangible assets 1,357 1,787 3,144
Operating income (loss) (2,762) (17,750) (20,512)
Interest income (expense), net 257 (3,114) (2,857)
Other income (expense), net (78) 26 (52)
Income (loss) before income tax
expense (benefit) and
extraordinary item (2,583) (20,838) (23,421)
Income tax expense (benefit) 20 (7,013) (6,993)
Income (loss) before
extraordinary item (2,603) (13,825) (16,428)
Extraordinary item (6)
Net income (loss) $(2,603) $ (13,825) $(16,428)
Per share amounts -- primary and
fully diluted (7):
Income (loss) before
extraordinary item $ (2.54)
Extraordinary item (6)
Net income (loss) $ (2.54)
Weighted average shares outstanding 5,451
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
THE COMPANY
YEAR ENDED
DECEMBER 31,
1993 1994 1995 1996
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales $50,174 $59,127 $79,012 $93,331
Cost of goods sold 28,938 32,371 42,126 48,217
Inventory purchase accounting
adjustment (2)
Gross profit 21,236 26,756 36,886 45,114
Operating expenses:
Marketing, general and
administrative 10,403 12,096 12,982 15,005
Research and development, gross 3,599 4,336 5,178 6,270
Research and development
reimbursements (311) (211)
Litigation costs 775
Compensation related to the
Acquisition
Technology under development
Amortization of intangible assets 2,614 912 912 912
Operating income (loss) 4,156 9,623 17,814 22,927
Interest income (expense), net (4,735) (4,325) 38 815
Other income (expense), net (152) 13 (13) 5
Income (loss) before income tax
expense (benefit) and
extraordinary item (731) 5,311 17,839 23,747
Income tax expense (benefit) (9) 1,896 6,488 8,655
Income (loss) before
extraordinary item (722) 3,415 11,351 15,092
Extraordinary item (6) 820
Net income (loss) $ (722) $ 2,595 $11,351 $15,092
Per share amounts -- primary and
fully diluted (7):
Income (loss) before
extraordinary item $ (.13) $ .55 $ 1.23 $ 1.60
Extraordinary item (6) (.12)
Net income (loss) $ (.13) $ .43 $ 1.23 $ 1.60
Weighted average shares outstanding 5,471 6,628 9,228 9,439
UNAUDITED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995
FIRST SECOND THIRD FOURTH
Net sales $17,922 $19,054 $20,698 $21,338
Gross profit 8,194 8,880 9,790 10,022
Net income 2,132 2,595 3,155 3,469
Per share amounts -- primary
and fully diluted:
Net income (8) $ .24 $ .29 $ .34 $ .37
(WIDE TABLE CONTINUED FROM ABOVE)
UNAUDITED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FIRST SECOND THIRD FOURTH
1996
Net sales $22,109 $23,319 $24,441 $23,462
Gross profit 10,668 11,003 11,916 11,527
Net income 3,539 3,669 3,934 3,950
Per share amounts -- primary
and fully diluted:
Net income (8) $ .38 $ .39 $ .41 $ .43
<TABLE>
<CAPTION>
THE COMPANY
DECEMBER 31,
1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital $12,567 $13,255 $19,145 $34,866 $42,047
Total assets 61,509 59,314 64,494 80,077 89,794
Current liabilities 7,840 7,316 7,300 6,225 6,056
Total debt 41,595 39,544 4,500
Total liabilities 47,297 45,824 14,686 9,986 10,468
Common stock and warrants
subject to put option 6,303 6,303
Stockholders' equity 7,909 7,187 49,808 70,091 79,326
</TABLE>
(1) The results of operations of the Predecessor for the 18 weeks ended May 11,
1992 and the results of operations of the Company for the 34 weeks ended
December 31, 1992 have been combined to present the results of operations
for the year ended December 31, 1992.
(2) Represents a purchase accounting adjustment to cost of goods sold for the 34
weeks ended December 31, 1992, which resulted from the sale of inventory
which had been written-up at the time of the Acquisition.
(3) Includes (i) an approximately $2.1 million non-recurring compensation
expense of the Predecessor for the excess per share amount received by
certain management stockholders over the per share amount received by the
Predecessor's controlling stockholder at the Acquisition date and (ii)
$300,000 of bonuses paid pursuant to agreements with certain members of the
Predecessor's management to remain employed through the completion of the
Acquisition.
(4) Represents $855,000 of non-recurring, non-cash expense deemed to be
compensation related to stock discounts received by certain members of
management in connection with their purchase of 708,002 shares of Common
Stock at the time of the Acquisition.
(5) Represents $18.9 million relating to value assigned to technology under
development at the time of the Acquisition which was charged as a
non-recurring item subsequent to the completion of the Acquisition.
(6) In the fourth quarter of 1994, the Company incurred an extraordinary charge
of $820,000, or $0.12 per share, related to the write-off of unamortized
discount and deferred financing charges, net of related income tax benefits
of $462,000, in connection with the conversion of all outstanding warrants
and retirement of debt subsequent to its initial public offering.
(7) Due to the Acquisition, net income (loss) per share data of the Predecessor
has been omitted as such amounts are not comparable to those of the Company.
(8) The summation of quarterly per share amounts does not equal the calculation
for the full year because each quarterly calculation is performed
discretely.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In November 1994, the Company completed the Offering of 1,900,000 newly issued
shares of common stock at $16.00 per share. Concurrent with the Offering, all
outstanding warrants (the "Warrants") issued during the May 11, 1992,
Acquisition were exercised. The net proceeds of the Offering and exercise of the
Warrants were used to repay in full $26.0 million of outstanding 13.5%
Subordinated Notes and $7.5 million of a senior term loan from a bank ("Senior
Term Loan"), plus accrued interest. Subsequent to the Offering, the Company
replaced its existing bank credit facility with a new $15.0 million revolving
credit facility and repaid the remaining $4.5 million outstanding balance of the
Senior Term Loan with a like amount of borrowing under the new revolving
facility. As a result of this recapitalization, the Company incurred an
extraordinary charge to operations in the fourth quarter of 1994 of $820,000,
net of $462,000 of income tax benefits, to write off unamortized discount and
deferred financing charges related to the Warrants and retired debt.
In May 1995, the Company completed a secondary public offering. In connection
with this offering, the Company issued an additional 225,000 shares for net
proceeds of $5.0 million.
In November 1996, the Company's Board of Directors authorized the purchase of up
to 900,000 shares of the Company's common stock on the open market, depending on
market conditions and other factors. Pursuant to this authority, the Company
repurchased 621,500 shares of its common stock at a total cost of $7.7 million
through December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items included in the Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 54.7 53.3 51.7
Gross profit 45.3 46.7 48.3
Operating expenses:
Marketing, general and administrative 20.5 16.4 16.0
Research and development, gross 7.3 6.6 6.7
Research and development reimbursements (0.3)
Amortization of intangible assets 1.5 1.1 1.0
Operating income 16.3% 22.6% 24.6%
</TABLE>
Net sales to the ten largest security system customers and to all other
customers were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Ten largest customers $26,040 44% $45,079 57% $56,030 60%
All other customers 33,087 56 33,933 43 37,301 40
$59,127 100% $79,012 100% $93,331 100%
</TABLE>
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by $14.3 million, or 18.1%, from $79.0 million
for 1995 to $93.3 million for 1996. The increase in net sales is primarily
attributable to volume increases, as prices remained relatively stable over
these periods. Sales to the Company's ten largest customers increased by $11.0
million, or 24%, over sales to the Company's ten largest customers in 1995.
Sales to all other customers increased by $3.4 million, or 10% over 1995.
In November 1996, ADT informed the Company that it was no longer included in
ADT's "future strategic product planning" and that ITI should "anticipate a
reduction in purchase orders from ADT during the first quarter of 1997 . . . ."
ADT has been ITI's largest single customer and accounted for over 41% of ITI's
revenue in 1996. Although ADT initially indicated that ITI should anticipate a
significant decrease in product orders in the first quarter of 1997, ADT
subsequently indicated that a transition to an alternative product source could
not be completed until September 1997. In January 1997, ITI received purchase
orders from ADT for approximately $20.3 million of wireless security products to
be delivered during 1997. Thereafter, ITI anticipates that it will continue to
provide product to dealers participating in the ADT dealer program as well as
product for repair and replacement purposes.
GROSS PROFIT. Gross profit increased from $36.9 million for 1995 to $45.1
million for 1996 and increased as a percentage of net sales from 46.7% to 48.3%.
This increase was primarily due to volume- related efficiencies in the Company's
manufacturing operations including favorable pricing for the Company's raw
material requirements, which have more than offset continued margin pressures
from the increase in sales to large customers.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $13.0 million for 1995 to $15.0 million
for 1996 but decreased as a percentage of net sales from 16.4% to 16.0%. The
dollar increase was primarily due to an increase in the sales, marketing and
customer service areas for employment costs along with other variable expenses
related to the Company's increased sales volume.
RESEARCH AND DEVELOPMENT EXPENSE. Gross research and development expense
increased from $5.2 million for 1995 to $6.3 million for 1996 as the Company
continued its emphasis on research and development.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition related
intangible assets was $912,000 for both 1995 and 1996.
NET INTEREST INCOME. Net interest income increased from $38,000 for 1995 to
$815,000 for 1996. The Company is investing cash reserves in high quality,
short-term investments.
INCOME TAX EXPENSE. Income tax expense increased from $6.5 million for 1995 to
$8.7 million for 1996. The Company's effective income tax rates for these
periods vary from the statutory rate primarily due to the non-deductibility for
income tax purposes of the amortization of excess of cost over net assets
acquired and state income taxes which were partially offset by the utilization
of research and development tax credits.
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased by $19.9 million, or 33.7%, from $59.1 million
for 1994 to $79.0 million for 1995. The increase in net sales is primarily
attributable to volume increases, as prices remained relatively stable over
these periods. The increased volume is primarily due to an increase in sales to
the Company's ten largest customers as those customers' security businesses
continue to grow.
GROSS PROFIT. Gross profit increased from $26.8 million for 1994 to $36.9
million for 1995 and increased as a percentage of net sales from 45.3% to 46.7%.
This increase was primarily due to volume- related efficiencies in the Company's
manufacturing operations which have more than offset margin pressures due to the
increase in sales to large customers, as the Company's top ten customers
accounted for 57% of sales in 1995 as compared to 44% in 1994.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $12.1 million for 1994 to $13.0 million
for 1995 but decreased as a percentage of net sales from 20.5% to 16.4%. The
dollar increase was primarily due to a $300,000 increase in employment costs,
increased costs due to being a public company and other variable expenses
related to the Company's increased sales volume.
RESEARCH AND DEVELOPMENT EXPENSE. Gross research and development expense
increased from $4.3 million for 1994 to $5.2 million for 1995 as the Company
continued its emphasis on research and development. The Company from time to
time receives reimbursements from customers for research and development
expenditures incurred at the customer's request. Research and development
reimbursements were $211,000 in 1994. There were no reimbursements in 1995.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition related
intangible assets was $912,000 for both 1994 and 1995.
NET INTEREST INCOME (EXPENSE). Net interest expense decreased from $4.3 million
for 1994 to $38,000 of interest income for 1995. The reduction of interest
expense was due to the repayment of the Senior Term Loan and Subordinated Notes
from the net proceeds of the Company's stock offerings and exercise of the
Warrants.
INCOME TAX EXPENSE. Income tax expense increased from $1.9 million for 1994 to
$6.5 million for 1995. The Company's effective income tax rates for these
periods vary from the statutory rate primarily due to the non-deductibility for
income tax purposes of the amortization of excess of cost over net assets
acquired.
LIQUIDITY AND CAPITAL RESOURCES
Since the Offerings, the Company has funded its operations primarily with cash
from operations and, to a lesser extent, from the Company's revolving credit
facility. The Company generated net cash from operating activities of $14.3
million for 1996 and $8.0 million for 1995. Net cash provided by operating
activities for 1996 resulted primarily from $15.1 million of net income, $2.3
million of depreciation and amortization charges and $1.0 million of deferred
income taxes, which more than offset the Company's $4.1 million use of cash for
changes in operating assets and liabilities. Net cash from operating activities
for 1995 resulted from $11.4 million of net income, $1.7 million of depreciation
and amortization charges, and $1.0 million of deferred income taxes, partially
offset by $6.1 million of net cash used by changes in operating assets and
liabilities. Changes in operating assets and liabilities in both years were
primarily due to increases in accounts receivable and inventories to support the
Company's revenue growth.
Net cash used in investing activities, consisting primarily of the purchase of
property and equipment, was $5.0 million and $2.7 million for 1996 and 1995,
respectively. Although no significant commitments exist, the Company expects
that purchases of property and equipment in 1997 will be approximately $3.0
million.
Net cash used in financing activities was $5.9 million in 1996. In 1996, the
Company's Board of Directors authorized the purchase of up to 900,000 shares of
the Company's common stock. In December 1996, the Company used $7.7 million of
cash to purchase 621,500 shares of its common stock on the open market, which
was partially offset by $1.8 million in cash provided by the issuance of common
stock through the exercise of common stock options. Net cash provided by
financing activities of $4.4 million in 1995 was primarily provided by the
Company's 1995 stock offering which was partially offset by debt retirement.
A substantial amount of the Company's working capital is invested in accounts
receivable and inventories. The Company periodically reviews accounts receivable
for noncollectibility and inventories for obsolescence and establishes
allowances it believes are appropriate. In addition, the Company periodically
assesses the recoverability of intangible assets based on undiscounted cash
flows.
During 1996, considering its cash position, the Company voluntarily decided to
terminate its unsecured $15.0 million bank revolving credit facility, which
required a commitment fee of 0.25% per annum on the unused portion of the
revolving credit commitment. No amounts were outstanding under this facility at
December 31, 1995, or at any time during 1996.
The Company believes that cash flow from operations and funds currently
available will be adequate to fund its working capital and capital expenditure
requirements for the foreseeable future.
EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS
The Company believes that inflation and foreign currency fluctuations have
not had a material effect on its operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements and Notes thereto commencing at Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the accountants for the
Company which require reporting under Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to the
sections entitled "Proposal 1 -- Election of Directors -- General, --
Information Regarding Nominees for Election as Directors, -- Board Actions and
Committees, and -- Information Regarding Certain Executive Officers" contained
in the Company's proxy statement to be filed with the Securities and Exchange
Commission (the "Commission") within 120 days of December 31, 1996 ("Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
section entitled "Proposal 1 -- Election of Directors -- Executive Compensation,
- -- Compensation Committee Interlocks and Insider Participation in Compensation
Decisions, -- Compensation of Directors, -- Compliance with Section 16(a) of the
Securities Exchange Act of 1934, -- Report of the Compensation Committee" and
"Performance Graph" contained in the Proxy Statement to be filed with the
Commission within 120 days of December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to the
section entitled "Principal Stockholders" contained in the Proxy Statement to be
filed with the Commission within 120 days of December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions have occurred that require reporting under this Item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements filed as part of this Annual Report on Form 10-K
are described in the Index to Financial Statements appearing on page F-1.
(b) The following Current Reports on Form 8-K were filed by the Company during
the fourth quarter ended December 31, 1996.
(i) A Current Report on Form 8-K was filed by the Company on November
19, 1996, to report the information contained in the Company's press
release of November 15, 1996, regarding the letter it had received from
ADT stating that ITI is currently not included in ADT's "future strategic
product planning" and that ITI should "anticipate a reduction in purchase
orders from ADT during the first quarter of 1997 . . . ."
(ii) A Current Report on Form 8-K was filed by the Company on December 3,
1996, to report the adoption of a Stockholder Rights Plan under which the
Company's Board of Directors declared a dividend distribution of one Common
Stock Purchase Right on each outstanding share of ITI's Common Stock as of
December 9, 1996.
(c) The following exhibits are hereby filed as part of this Annual Report on
Form 10-K:
10.1 Strategic Supplier Agreement No. FD1106 between Interactive
Technologies, Inc. and Honeywell Inc. dated November 20, 1996.
10.2 Letter Agreement dated December 23, 1996, between ADT Security
Systems, Inc. and Interactive Technologies, Inc.
10.3 Long-Term Stock Incentive Plan (1992) (Amended and Restated as of
May 8, 1996).
10.4 Lease Agreement dated April 28, 1995, between G.D. Packaging
Machinery, Inc. and Interactive Technologies, Inc.
11.1 Statement regarding computation of per share earnings.
23.1 Consent of Coopers & Lybrand L.L.P.
The following exhibits are hereby incorporated into this Annual Report on Form
10-K by reference to exhibits filed with the Company's Registration Statement on
Form S-1, as amended, which became effective on November 22, 1994 ("Registration
Statement"); the exhibit number assigned to each exhibit as filed with the
Registration Statement is set forth in parentheses after the description of the
exhibit:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1 Stock Purchase and Sale Agreement by and among Professional Services Industries Holding,
Inc., Interactive Technologies Holding Corporation ("ITHC"), and the Company dated March
25, 1992. (Exhibit 2.1)
2.2 Amendment No. 1 to Stock Purchase and Sale Agreement dated as of April 1, 1992. (Exhibit
2.2)
2.3 Amendment No. 2 to Stock Purchase and Sale Agreement dated as of May 11, 1992. (Exhibit
2.3)
2.4 Warranty and Indemnification Agreement by and between the Company and Professional Services
Industries Holding, Inc. (Exhibit 2.4)
2.5 Guaranty of ADIA S.A. in favor of the Company dated March 31, 1992. (Exhibit 2.5)
2.6 Stockholders Agreement dated as of May 11, 1992, by and among the Company and the investors
named therein. (Exhibit 2.6)
2.7 Stock Subscription Agreement dated as of May 11, 1992, by and among the Company and the
purchasers listed on the signature pages thereof. (Exhibit 2.7)
2.8 Stock Purchase Agreement dated as of March 25, 1992, by and among ITHC and the individuals
listed on Exhibit A attached thereto. (Exhibit 2.8)
2.9 Shareholders' Agreement dated as of March 1, 1989, by and among ITHC and the shareholders
listed on Schedule A attached thereto. (Exhibit 2.9)
3.1 Certificate of Incorporation of the Company, as amended, in effect on the date hereof. (Exhibit
3.1)
3.2 Bylaws of the Company in effect as of the date hereof. (Exhibit 3.2)
4.1 Form of Common Stock Certificate. (Exhibit 4.1)
10.5 Form of Stock Appreciation Right Agreement. (Exhibit 10.2)
10.6 Form of Employee Stock Option Agreement, Series A. (Exhibit 10.3)
10.7 Form of Employee Stock Option Agreement, Series B. (Exhibit 10.4)
10.8 Form of Employee Stock Option Agreement, Series C. (Exhibit 10.5)
10.9 Form of Employee Stock Option Agreement, Series D. (Exhibit 10.6)
10.10 Adoption Agreement for Qualified Profit Sharing and 401(K) Plan. (Exhibit 10.7)
10.11 Securities Purchase Agreement dated as of May 11, 1992, by and among the Company and TCW
Special Placements Fund III, Sun Life Insurance Company, The Lincoln National Convertible
Securities Fund, Inc., TCW Capital, and The Lincoln National Income Fund, Inc. (the
"Warrantholders"). (Exhibit 10.16)
10.12 First Amendment to Securities Purchase Agreement dated as of June 15, 1993, among the Company
and Warrantholders. (Exhibit 10.17)
10.13 Second Amendment to Securities Purchase Agreement dated as of December 23, 1993, among the
Company and Warrantholders. (Exhibit 10.18)
10.14 Letter Agreement dated March 15, 1993, by and between Thomas L. Auth and the Company. (Exhibit
10.33)
10.15 Letter Agreement dated March 15, 1993, by and between Thomas R. Brayton and the Company.
(Exhibit 10.34)
10.16 Letter Agreement dated March 15, 1993, by and between Charles E. Briskey and the Company.
(Exhibit 10.35)
10.17 Letter Agreement dated May 11, 1992, by and between Robert E. Brunius and the Company. (Exhibit
10.36)
10.18 Letter Agreement dated March 15, 1993, by and between Stephen J. Wanek and the Company.
(Exhibit 10.37)
10.19 Lease Agreement dated September 1, 1993, between Berwald Investment Co. and Interactive
Technologies, Inc. (Exhibit 10.38)
10.20 Lease Agreement dated April 18, 1990, by and between Knoll Business Center LaPalma,
a California general partnership, as lessor, and Interactive Technologies, Inc.,
as lessee, and First Amendment to Lease dated as of May 31, 1993, between Knoll
Business Center La Palma, a California general partnership, as lessor, and
Interactive Technologies, Inc., as lessee. (Exhibit 10.40)
10.21 Memorandum of Agreement dated August 16, 1989, between Interactive Technologies, Inc. and
Mo-Mex Corporation. (Exhibit 10.43)
10.22 ADT OEM Agreement dated as of March 23, 1993, between Interactive Technologies, Inc. and
ADT Security Systems Manufacturing, Inc. (confidential treatment of certain portions of
this document was requested and granted). (Exhibit 10.44)
10.23 Distributor Agreement dated as of July 22, 1994, between Interactive Technologies, Inc.
and Sprint Products Group, Inc. (confidential treatment of certain portions of this document
was requested and granted). (Exhibit 10.45)
10.24 Strategic Alliance Agreement dated as of April 22, 1994, between the Company and VeriFone,
Inc. (confidential treatment of certain portions of this document was requested and granted).
(Exhibit 10.46)
10.25 Master Purchase Agreement dated as of April 22, 1994, between the Company and VeriFone Inc.
(confidential treatment of certain portions of this document was requested and granted).
(Exhibit 10.47)
10.26 Settlement Agreement and Release between Atrix International, Inc. and Interactive
Technologies, Inc. and License Agreement between Atrix International, Inc. and Interactive
Technologies, Inc. (Exhibit 10.48).
</TABLE>
The following exhibit is hereby incorporated into this Annual Report on Form
10-K by reference to Exhibit 4.1 to the Registration Statement on Form 8-A filed
by the Company with the Securities and Exchange Commission on December 6, 1996:
EXHIBIT NO. DESCRIPTION
4.2 Rights Agreement dated November 27, 1997 by and between ITI
Technologies, Inc. and Norwest Bank Minnesota, N.A.
(d) The following report and consolidated financial statement schedule are
filed as part of this Annual Report on Form 10-K: Report of Independent
Accountants on Financial Statement Schedule and Schedule II -- Valuation and
Qualifying Accounts.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Consolidated Statements of Operations F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of ITI Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of ITI
Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ITI Technologies,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three the years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 18, 1997
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Net sales $59,127 $79,012 $93,331
Cost of goods sold 32,371 42,126 48,217
Gross profit 26,756 36,886 45,114
Operating expenses:
Marketing, general and administrative 12,096 12,982 15,005
Research and development 4,125 5,178 6,270
Amortization of intangible assets 912 912 912
Operating income 9,623 17,814 22,927
Other income (expense):
Interest, net (4,325) 38 815
Other, net 13 (13) 5
Income before income tax expense and extraordinary item 5,311 17,839 23,747
Income tax expense 1,896 6,488 8,655
Income before extraordinary item 3,415 11,351 15,092
Extraordinary item -- write-off of subordinated debt
discount and deferred financing costs, net of income
tax benefit of $462 820
Net income $ 2,595 $11,351 $15,092
Per share amounts -- primary and fully diluted:
Income before extraordinary item $ .55 $ 1.23 $ 1.60
Extraordinary item (.12)
Net income $ .43 $ 1.23 $ 1.60
Weighted average shares outstanding 6,628 9,228 9,439
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ITI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,937 $13,352
Accounts receivable 13,344 14,593
Inventories 14,477 16,627
Deferred income taxes 1,839 1,384
Other current assets 1,494 2,147
Total current assets 41,091 48,103
Property and equipment 5,095 7,647
Excess of cost over net assets acquired 24,058 23,398
Other intangible assets 9,833 10,646
Total assets $80,077 $89,794
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,099 $ 2,981
Accrued wages 1,026 1,586
Other accrued expenses 1,100 1,489
Total current liabilities 6,225 6,056
Income taxes 3,761 4,412
Total liabilities 9,986 10,468
Commitments
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value; authorized 15,000 shares;
issued and outstanding 8,915 shares in 1995; issued
9,036, outstanding 8,414 shares in 1996) 89 90
Additional paid-in capital 70,603 72,411
Retained earnings (accumulated deficit) (601) 14,491
Treasury stock, at cost (622 shares in 1996) (7,666)
Total stockholders' equity 70,091 79,326
Total liabilities and stockholders' equity $80,077 $89,794
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,595 $11,351 $15,092
Adjustments to reconcile net income
to net cash provided by operating activities:
Extraordinary item, net 820
Amortization of intangible assets 1,177 989 1,105
Depreciation and amortization 800 793 1,170
Provision for bad debt expense 383 571 385
Deferred income taxes 1,208 955 988
Changes in operating assets and liabilities:
Accounts receivable (2,895) (3,589) (1,634)
Inventories (2,025) (1,831) (2,150)
Other assets (464) (627) (653)
Accounts payable 1,204 (430) (1,118)
Accrued expenses 1,242 (645) 949
Other liabilities 460 118
Net cash provided by operating activities 4,045 7,997 14,252
INVESTING ACTIVITIES:
Additions to property and equipment (1,537) (2,360) (3,722)
Additions to other intangible assets (272) (359) (1,258)
Net cash used in investing activities (1,809) (2,719) (4,980)
FINANCING ACTIVITIES:
Proceeds from revolving credit agreement 4,500
Payments of revolving credit agreement (550) (4,500)
Proceeds from exercise of common stock warrants 5,980
Proceeds from issuance of common stock 27,843 8,932 1,809
Principal payments of long-term debt (39,750)
Payments for redemption of common stock (100)
Payments for treasury stock (7,666)
Net cash provided by (used in) financing activities (2,077) 4,432 (5,857)
NET INCREASE IN CASH AND CASH EQUIVALENTS 159 9,710 3,415
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 68 227 9,937
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 227 $ 9,937 $13,352
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON STOCK PAID-IN (ACCUMULATED TREASURY STOCK STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,607 $46 $21,688 $(14,547) $ 7,187
Public stock offering 1,900 19 27,824 27,843
Warrants exercised 1,196 12 5,968 5,980
Expiration of put options on
common stock 681 7 6,196 6,203
Net income 2,595 2,595
Balance at December 31, 1994 8,384 84 61,676 (11,952) 49,808
Public stock offering 225 2 5,032 5,034
Options exercised, including tax
benefits of $1,835 306 3 3,895 3,898
Net income 11,351 11,351
Balance at December 31, 1995 8,915 89 70,603 (601) 70,091
Options exercised, including tax
benefits of $1,251 121 1 1,808 1,809
Purchase of treasury stock (622) $(7,666) (7,666)
Net income 15,092 15,092
Balance at December 31, 1996 9,036 $90 $72,411 $ 14,491 (622) $(7,666) $79,326
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ITI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
ITI Technologies, Inc. and its wholly-owned subsidiaries (the "Company") design,
manufacture and market supervised wireless security systems and access control
systems. The Company also has an ongoing research and development program which
focuses its efforts on developing new and improved security systems at lower
costs and on utilizing its technology base to develop products for related
markets. The Company's products are sold by a direct sales force to independent
dealers located throughout the United States and Canada and on a private label
basis to large security system installation companies.
PUBLIC OFFERINGS OF COMMON STOCK AND RECAPITALIZATION
In November 1994, the Company completed a public offering of 1,900,000 newly
issued shares of common stock at $16.00 per share (the "Offering"). Prior to the
Offering, there was no public market for the Company's common stock. Concurrent
with the Offering, all outstanding warrants issued by the Company during the
1992 leveraged buy-out transaction (the "Acquisition") were exercised. The net
proceeds of the Offering and exercise of the warrants, after deducting
applicable issuance costs and expenses, were $27,843,000 and $5,980,000,
respectively. The proceeds were used to repay in full $26,000,000 of outstanding
13.5% Subordinated Notes and $7,750,000 of the senior term loan, plus accrued
interest. Subsequent to the Offering, the Company replaced its existing bank
credit facility with a new $15,000,000 bank credit facility and exchanged the
remaining $4,500,000 outstanding senior term loan with a like amount of
borrowing under the new bank credit facility.
In connection with the Offering, Warrant exercise and retirement of debt, the
Company incurred an extraordinary charge of $820,000, net of related income tax
benefits of $462,000, or $0.12 per share, related to the write-off of
unamortized discount and deferred financing charges. If the Offering and related
recapitalization had occurred as of the beginning of 1993, pro forma net income
per share would have been $0.63 for the year ended December 31, 1994. This pro
forma per share amount is unaudited and is not necessarily indicative of the
result that would have been obtained had these events actually occurred at the
assumed date.
In May 1995, the Company completed a secondary public offering. In connection
with this offering, the Company issued 225,000 additional shares for net
proceeds of $5,034,000.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents include short-term investments with original maturities of
three months or less. The Company's cash and cash equivalents are concentrated
primarily in one financial institution.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment is computed using the straight-line method over the
estimated useful lives of the assets, ranging from three to seven years. The
costs and related accumulated depreciation and amortization on asset disposals
are removed from the accounts and any gain or loss is included in operations.
INTANGIBLE ASSETS
The excess of acquisition cost over amounts assigned to the net identifiable
assets acquired in the Acquisition is being amortized on a straight-line basis
over forty years. Total accumulated amortization at December 31, 1996, 1995 and
1994 was $3,054,000, $2,394,000 and $1,734,000, respectively.
The Company evaluates the carrying value of excess of acquisition cost over net
assets acquired and other intangible assets based upon current and anticipated
undiscounted cash flows.
Other identifiable intangible assets include value assigned to existing
technology and trademarks at the date of the Acquisition, deferred financing
costs, patents and other intangibles. Value assigned to trademarks is amortized
on a straight-line basis over an estimated useful of forty years. Deferred
financing costs associated with the Acquisition and the subsequent term loan
modification, the balance of which was written off in 1994, were amortized to
interest expense over the terms of the related debt using the straight-line
method, which approximated the effective interest rate method. Patents and other
intangibles are carried at cost less accumulated amortization calculated on a
straight-line basis over their estimated useful lives, which range from three to
twenty years.
INCOME TAXES
Deferred income taxes result from temporary differences between financial
reporting and income tax reporting based on enacted rates in effect for the
periods in which these differences are expected to reverse. Income tax expense
is the tax payable for the period plus the change during the period in deferred
tax assets and liabilities.
REVENUE RECOGNITION
Sales are recognized at the date of product shipment. Warranty costs are
provided for at the time of the related sales.
RESEARCH AND DEVELOPMENT
Research and development costs are net of related reimbursements from customers.
Reimbursements received by the Company totaled $211,000 for the year ended
December 31, 1994. No reimbursements were received in 1996 or 1995.
INCOME (LOSS) PER SHARE
Per share amounts are computed by dividing by the weighted average shares
outstanding during the period including common stock equivalents (using the
modified treasury stock method) when the effect is not anti-dilutive. Further,
as required by Securities and Exchange Commission regulations, common and common
stock equivalent shares issued by the Company during the twelve-month period
immediately preceding the filing of an initial public offering have been
included in the calculation of shares used in these computations as if they were
outstanding for all periods presented.
3. OTHER FINANCIAL STATEMENT DATA (IN THOUSANDS)
DECEMBER 31,
1995 1996
Accounts receivable:
Accounts receivable $14,144 $15,493
Allowance for doubtful accounts (800) (900)
Total $13,344 $14,593
Inventories:
Raw materials $ 7,072 $ 7,358
Allowance for obsolescence (1,300) (1,400)
5,772 5,958
Work-in-process 4,065 3,519
Finished goods 4,640 7,150
Total $14,477 $16,627
Property and equipment:
Machinery and equipment $ 5,685 $ 8,178
Furniture and fixtures 2,012 2,949
Leasehold improvements 433 668
8,130 11,795
Accumulated depreciation and
amortization (3,035) (4,148)
Total $ 5,095 $ 7,647
Other intangible assets:
Trademarks and tradenames $10,079 $10,079
Technology and patents 367 1,591
All other 669 590
11,115 12,260
Accumulated amortization (1,282) (1,614)
Total $ 9,833 $10,646
Other accrued expenses:
Warranty $ 400 $ 400
Professional fees 495 416
All other 205 673
Total $ 1,100 $ 1,489
Income taxes:
Deferred $ 3,301 $ 3,834
Other 460 578
Total $ 3,761 $ 4,412
Interest expense was $17,000, $216,000 and $4,365,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
SIGNIFICANT CUSTOMERS AND EXPORT SALES
During the years ended December 31, 1996, 1995 and 1994, one customer accounted
for 41%, 39% and 22%, respectively, of consolidated net sales. At December 31,
1996 and 1995, this customer accounted for 27% and 39%, respectively, of
consolidated accounts receivable.
Export sales, primarily to Canada, accounted for 8.7%, 9.8% and 12.4% of
consolidated net sales for the years ended December 31, 1996, 1995 and 1994,
respectively.
4. INCOME TAXES
Income tax expense, which excludes the tax benefit related to the extraordinary
charge in 1994, consisted of the following (in thousands):
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
Current:
Federal $ 589 $5,190 $7,069
State 99 343 598
Deferred 1,208 955 988
$1,896 $6,488 $8,655
The Company paid taxes of $6,751,000, $3,642,000 and $132,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The differences between the income tax expense and income taxes computed
using the statutory federal income tax rate were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
Amount using the statutory Federal tax rate $1,806 $6,229 $8,311
Amortization of excess of cost over net
assets acquired 224 231 231
Utilization of research and development
tax credits (220) (123) (208)
Other, net 86 151 321
$1,896 $6,488 $8,655
</TABLE>
A summary of the components of deferred tax assets (liabilities) follows (in
thousands):
DECEMBER 31, DECEMBER 31,
1995 1996
Accrued expenses and valuation reserves not
yet deducted for tax purposes $ 1,073 $ 1,228
Purchased NOL carryforwards 766 156
Net current deferred tax asset $ 1,839 $ 1,384
Depreciation $ (58) $ (225)
Patent defense costs (456)
Other intangible assets (3,243) (3,153)
Net long-term deferred tax liability $(3,301) $(3,834)
5. REVOLVING CREDIT AGREEMENT
On December 12, 1994, subsequent to the Offering and recapitalization, the
Company replaced its existing bank credit agreement with a new, unsecured
$15,000,000 bank revolving credit facility and repaid the remaining $4,500,000
outstanding senior term loan with a like amount of borrowing under the new
credit facility. The facility provided for interest calculated, at the Company's
option, at LIBOR plus 1.0% or a commercial bank's base rate and required a
commitment fee of 0.25% per annum on the unused portion of the revolving credit
commitment. At December 31, 1995, there were no borrowings outstanding under
this facility. During 1996, in consideration of its cash position, the company
voluntarily decided to terminate this facility. No amounts were outstanding at
any time during 1996. The Company paid $27,000, $201,000 and $4,192,000 of
interest for the years ended December 31, 1996, 1995 and 1994, respectively.
6. COMMITMENTS
The Company leases certain property and equipment under various noncancellable
operating leases. Total rent expense of the Company was $521,000, $452,000 and
$354,000 for the years ended December 31, 1996, 1995 and 1994.
At December 31, 1996, future minimum rentals required under noncancelable
operating leases are as follows (in thousands):
1997 .................. $ 560
1998 .................. 535
1999 .................. 338
$1,433
7. LITIGATION
On August 17, 1995, the Company commenced an action for patent infringement
against Pittway Corporation and its subsidiary, Ademco Distributions, Inc., in
the United States District Court for the District of Minnesota. The Company
intends to vigorously protect its patented technology from infringement. Costs
associated with this action are being capitalized as a patent asset associated
with the related technology. As of December 31, 1996, the Company has
capitalized $1,250,000 of cost related to this lawsuit.
8. PROFIT SHARING PLAN
The Company has an Incentive Profit Sharing Plan (the "Plan") which qualifies
under Section 401(k) of the Internal Revenue Code. Employees who are at least 19
years of age and have completed one year of service are eligible to participate
in the Plan. The Company makes contributions equal to 1.5% of the participant's
eligible compensation, subject to any statutory limits.
The Company's contribution to the Plan was $148,000, $141,000 and $125,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
9. STOCKHOLDERS' EQUITY
TREASURY SHARES
In 1996, the Board of Directors authorized, subject to market conditions and
other factors, the purchase of up to 900,000 shares of the Company's common
stock. In December 1996, the Company purchased 621,500 shares under this
authorization.
STOCK INCENTIVE PLAN
In May 1995, the stockholders approved an amendment to the Long-term Stock
Incentive Plan (1992) (the "Stock Plan") to provide for grants of up to
1,500,000 stock options, restricted stock, restricted stock units and stock
appreciation rights ("SARs") to officers, directors and other key employees.
Stock option activity was as follows:
NUMBER OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE FAIR VALUE
Outstanding at December 31, 1993 655,700 $ 5.86
Granted during 1994 244,409 5.78
Canceled during 1994 (30,000) 6.25
Outstanding at December 31, 1994 870,109 5.83
Granted during 1995 461,500 23.63 $ 9.06
Exercised during 1995 (305,700) 6.75
Canceled during 1995 (9,400) 16.97
Outstanding at December 31, 1995 1,016,509 13.53
Granted during 1996 311,000 27.91 10.26
Exercised during 1996 (120,900) 5.31
Canceled during 1996 (15,450) 22.39
Outstanding at December 31, 1996 1,191,159 18.00
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED-AVG.
REMAINING WEIGHTED-
RANGE OF NUMBER CONTRACTUAL WEIGHTED-AVG. NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$5.00 to $7.50 438,809 6.3 years $ 5.40 402,749 $ 5.43
$22.56 to
$33.50 752,350 8.5 years 25.36 563,470 24.64
$5.00 to $33.50 1,191,159 7.7 years $18.00 966,219 $16.64
</TABLE>
Options become exercisable over periods up to seven years from the date of grant
and expire at various periods up to November 2006. All options were granted with
an exercise price equal to or exceeding the fair value of the Company's Common
Stock (the "Common Stock") at the date of grant, as determined by the Board of
Directors for options granted prior to the Offering. Upon termination of
employment, options not exercisable expire. Certain options outstanding became
fully exercisable upon the completion of the Offering.
In February 1997, the Company offered an exchange agreement to all current
employees previously awarded certain Series C Stock Options during the period
beginning April 18, 1995, and ending December 31, 1996. The agreement offers
such employees the ability to exchange their unexercised Series C Stock Options
issued to them during the indicated period for new options in the identical
number but with a five-year vesting period commencing January 28, 1997 and a new
exercise price of $16.50, the market price of the stock on that date.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has chosen not to adopt the expense recognition provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" ("SFAS No. 123"). Alternatively, the Company will
continue using the intrinsic value methodology to account for stock-based
compensation specified in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and its related amendments and
interpretations.
Accordingly, no compensation expense has been recognized in the Company's
financial statements for stock compensation awards. Had compensation expense for
the Company's stock-based compensation plan been determined consistent with the
fair-value-based method of SFAS No. 123, the Company's net income and net income
per common and common equivalent share would have been reduced to the pro forma
amounts indicated below.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with weighted average assumptions of no
dividend yield; expected volatility of 25.1% and 27.6%; expected option lives of
5.3 and 5.2 years; and risk-free interest rates of 6.38% and 6.68% for 1996 and
1995, respectively.
1995 1996
Net income (in thousands) As reported $11,351 $15,092
Pro forma 9,828 13,936
Net income per common and As reported $ 1.23 $ 1.60
common equivalent share Pro forma 1.08 1.49
The pro forma information above only includes stock options granted in 1995 and
1996. Pro forma compensation expense under the fair-value-based method may
increase over the next few years as additional stock option grants are
considered.
WARRANTS
The Company had issued detachable warrants to purchase 1,196,000 shares of
Common Stock, exercisable at $5.00 per share, in connection with the
subordinated debt financing of the Acquisition. Concurrent with the Offering,
all outstanding warrants were exercised.
STOCKHOLDER RIGHTS PLAN
In November 1996, the Company's Board of Directors declared a dividend
distribution of one common share purchase right (a "Right") for each outstanding
share of Common Stock payable to stockholders of record at the close of business
on December 9, 1996. Each Right entitles the holder to purchase from the Company
one-half of a share of Common Stock, or a combination of securities and assets
of equivalent value, subject to adjustment, at a purchase price of $25.00. The
Rights will only become exercisable on the tenth business day following (i) the
public announcement that a person or group has acquired 20% or more of the
Company's Common Stock; or (ii) the public announcement by a person or group of
a tender or exchange offer that would result in ownership of 20% or more of the
Company's Common Stock, unless such offer has been determined by the Company's
Board, prior to the purchase of shares under such tender or exchange offer, to
be fair to the Company's stockholders and in the best interests of the Company
and its stockholders; or (iii) a determination by the Company's Board that a
person is an Adverse Person and that such Person, alone or together with its
affiliates, has become the beneficial owner of at least 15% of the Company's
Common Stock. Prior to becoming exercisable, the Rights are redeemable at the
discretion of the Company's Board and expire at the close of business on
November 26, 2006.
ITI TECHNOLOGIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE BALANCE
AT BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts 1994 $ 750,000 $382,797 $332,797 $ 800,000
1995 800,000 570,758 570,758 800,000
1996 800,000 384,593 284,593 900,000
Allowance for Inventory Obsolescence 1994 $1,300,000 $241,957 $241,957 $1,300,000
1995 1,300,000 72,244 72,244 1,300,000
1996 1,300,000 202,624 102,624 1,400,000
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ITI Technologies, Inc.
March 20, 1997 By: /S/ THOMAS L. AUTH
Thomas L. Auth
Its PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the registrant on the
dates and in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE DATES
<S> <C> <C>
/s/ THOMAS L. AUTH President, Chief Executive March 20, 1997
Thomas L. Auth Officer, and Director
/s/ W. WALLACE MCDOWELL, JR. Chairman of the Board March 20, 1997
W. Wallace McDowell, Jr. of Directors and Director
/s/ WILLIAM C. UGHETTA, JR. Director March 20, 1997
William C. Ughetta, Jr.
/s/ PERRY J. LEWIS Director March 20, 1997
Perry J. Lewis
/s/ SANGWOO AHN Director March 20, 1997
Sangwoo Ahn
/s/ WALTER BARRY Director March 20, 1997
Walter Barry
/s/ JACK A. REICHERT Vice President of Finance March 20, 1997
Jack A. Reichert (Chief Accounting Officer)
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
ITI Technologies, Inc.:
Our report on the consolidated financial statements of ITI Technologies, Inc. is
included on page F-2 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in Item 14(d) on page 22 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 18, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
<S> <C> <C>
10.1 Strategic Supplier Agreement No. FD1106 between Interactive Technologies, Inc. and
Honeywell Inc. dated November 20, 1996.
10.2 Letter Agreement dated December 23, 1996, between ADT Security Systems, Inc. and
Interactive Technologies, Inc.
10.3 Long-Term Stock Incentive Plan (1992) (Amended and Restated as of May 8, 1996).
10.4 Lease Agreement dated April 28, 1995, between G.D. Packaging Machinery, Inc. and
Interactive Technologies, Inc.
11.1 Statement re compilation of per share earnings.
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
STRATEGIC SUPPLIER AGREEMENT
BETWEEN
HONEYWELL INC.
AND
INTERACTIVE TECHNOLOGIES INC.
TABLE OF CONTENTS
Page
----
1. Term of Agreement; Rights of Termination .............................. 1
2. Agreement Review / Modification ....................................... 2
3. Strategic Agreement Administrators .................................... 2
4. Product Purchases ..................................................... 2
5. Exclusivity ........................................................... 3
6. DIY/PC Product ........................................................ 3
7. Unique Parts .......................................................... 4
8. Raw Material .......................................................... 4
9. Purchase Orders ....................................................... 4
10. Product Pricing ....................................................... 4
11. F.O.B., Title, Risk of Loss ........................................... 5
12. Invoicing ............................................................. 5
13. Proprietary/Confidential Information .................................. 5
14. Benchmarking .......................................................... 5
15. Product Lead-Time/Product Delivery .................................... 5
16. Product Quality ....................................................... 6
17. Continuous Improvement Effort ......................................... 6
18. Product Support ....................................................... 6
19. Waiver ................................................................ 7
20. Notices ............................................................... 7
21. Governing Law and Jurisdiction ........................................ 7
22. Indemnification ....................................................... 7
23. Patent and Copyright .................................................. 8
24. Warranties ............................................................ 8
25. Compliance with Laws .................................................. 9
26. Safety and Health ..................................................... 9
27. Force Majeure ......................................................... 9
28. Independent Contractor ................................................ 9
29. Assignment ............................................................ 9
30. Headings .............................................................. 10
31. Publicity ............................................................. 10
32. Entire Agreement ...................................................... 10
ATTACHMENTS
Attachment 1 Schedule
Attachment 2 Product Requirement Specification
Attachment 3A Purchase Order
Attachment 3B Purchase Order Terms and Conditions
Attachment 4 Price
Attachment 5 Non-Disclosure Agreement
Attachment 6 Benchmarking Activities (Deleted)
Attachment 7 Lead-Time
Attachment 8A Honeywell H&BC Quality Audit Requirements
Attachment 8B Honeywell Corrective Action Request
Attachment 8C Honeywell's Certification Criteria
Attachment 9 Warranty
STRATEGIC SUPPLIER AGREEMENT
NO. FP 1106
BETWEEN
HONEYWELL INC. AND INTERACTIVE TECHNOLOGIES, INC.
This Agreement by and between Honeywell Inc., a Delaware corporation, acting
through and on behalf of its Home and Building Control business ("Honeywell"),
located at 1985 Douglas Drive North, Golden Valley, Minnesota 55422-3992 (the
"Premises"), and Interactive Technologies, Inc. (ITI), a Minnesota corporation,
located at 2266 Second Street North, North Saint Paul, Minnesota 55109, with ITI
and/or Honeywell sometimes referred to as "Party" or "Parties". The effective
date of this Agreement shall be the last date of execution shown on page 10 of
this Agreement.
WITNESSETH
WHEREAS, Honeywell is in the business of designing, developing, manufacturing
and marketing a variety of control products; and
WHEREAS, ITI is in the business of designing, developing, manufacturing and
marketing wireless security systems; and
WHEREAS, ITI has developed a do-it-yourself wireless security system (the "DIY
Product"); and
WHEREAS, Honeywell and ITI have jointly developed an interface between ITI's DIY
Product and Honeywell PC software in accordance with specifications supplied by
Honeywell resulting in a do-it-yourself wireless security system designed to
interface with a PC (the "PC Product") (the DIY Product and the PC Product are
sometimes referred to herein, as the Product or Products"); and
WHEREAS, Honeywell and ITI desire to formalize a strategic agreement under which
Honeywell shall purchase from ITI, and ITI shall sell to Honeywell, the Products
in accordance with the terms of this Agreement (the "Purpose").
NOW, THEREFORE, in consideration of the mutual covenants and promises set forth
hereinafter, the Parties agree as follows:
1. TERM OF AGREEMENT; RIGHTS OF TERMINATION
A. The term of this Agreement shall commence on the Effective Date and
shall continue through 31 December 1998 ("Initial Term"). By mutual
written agreement no less than ninety (90) days prior to the
expiration of the Initial Term or any subsequent extension or
renewal thereof, the Parties shall have the option to extend the
term of this Agreement for an additional two (2) year term
("Extension Term").
B. This Agreement shall immediately terminate upon written notice by
either Party, without the necessity of prior notice, in the event of
(i) voluntary or involuntary bankruptcy or insolvency of the other
Party, (ii) Other Party making an assignment for the benefit of
creditors, or (iii) a petition having been filed against the other
Party under a bankruptcy law, or any other law for relief of
debtors, or other law similar in purpose or effect, the effect of
which is to cause the other Party to have its business discontinued.
C. If either ITI or Honeywell should breach any material obligation
herein, The party not causing the breach may, at its option, give
written notice to the other party specifying the manner in which the
party has breached the Agreement. In the event that such breach is
not cured within thirty (30) days of receipt of such notice, the
party not causing the breach may terminate this Agreement effective
upon such thirtieth (30th) day.
D. Either party may terminate this Agreement on ninety (90) days
written notice without having to possess, state or demonstrate
cause.
2. AGREEMENT REVIEW/MODIFICATION
The Parties shall review this Agreement at the time of renewal, at which
time certain provisions of the Agreement may be renegotiated. If such
renegotiations result in mutually agreed upon changes, such changes may be
incorporated into the Agreement in one or more written amendments, and
shall be effective when signed by a duly authorized representative of each
Party.
3. STRATEGIC AGREEMENT ADMINISTRATORS
Changes to the Agreement shall be coordinated by the then current strategic
agreement administrator(s), who shall be named by each Party. If either
Party desires to change the strategic administrator, it shall notify the
other Party in writing.
4. PRODUCT PURCHASES
Subject to the remaining terms and conditions of this Agreement, Honeywell
will purchase from ITI, and ITI will sell to Honeywell, Product. Honeywell
shall order Products from ITI and attempt to schedule deliveries such that
there is a minimum number of shipments per calendar month. The goal will be
to try and achieve only one (1) shipment per calendar month. The parties
currently anticipate that Honeywell will purchase Products from ITI
pursuant to this Agreement with the schedule/volume commitments set forth
in Attachment 1 hereto. ITI acknowledges, however, that Honeywell may order
additional Product to meet additional customer requirements with volumes
that may be two (2) to three (3) times the original forecast. Honeywell and
ITI agree to cooperate with respect to scheduling and lead times in an
effort to meet such additional customer requirements in a timely manner
should they materialize. To facilitate this process, Honeywell (i) shall
provide to ITI each month a twelve (12) month rolling forecast of
anticipated future requirements for Product, which forecast shall be
non-binding except as stated in part (ii) of this sentence; and (ii) agrees
that Honeywell shall be bound to purchase the quantities of Product set
forth in such twelve (12) month rolling forecast on a three (3) month
rolling basis - i.e., Honeywell shall be contractually bound to purchase
the quantities set forth for the first three (3) months in the initial
twelve (12) month forecast and thereafter Honeywell shall become bound to
purchase the quantities set forth for the third (3rd) month set forth in
each subsequent monthly twelve (12) month rolling forecast.
Should Honeywell terminate the Agreement without cause, Honeywell shall (i)
be obligated to purchase from ITI the quantity of Product that had become
binding in accordance with the first paragraph of this Section 4 at the
date of termination; and (ii) reimburse ITI for the value of all previously
agreed to safety stock.
5. EXCLUSIVITY
Unless Honeywell fails to purchase Products from ITI in quantities equal
to, or exceeding, the volume commitments set forth in Attachment 1 hereto,
ITI shall not (i) sell the Products or any competing wireless DIY security
products to any other party for resale in North America in the
in-store/over-the-counter sale and delivery market (the "Subject Retail
Market") through December 31, 1998; or (ii) sell the Products to others for
resale outside of the Subject Retail Market unless such Products have been
modified by (x) the addition of a dialer (or other communication device) to
allow such products to be monitored; and (y) changing the plastic for the
console and the hand-held keypad such that it will have a different
appearance; and (z) removing the Honeywell trademark; and (iii) ITI will
not sell for resale to others in any market the PC interface module for the
Product or any derivative of the Product without Honeywell's prior written
consent. Likewise, Honeywell shall not sell for resale in the Subject
Retail Market any competitive wireless DIY security products (specifically
Consoles, hand-held keypads, key fobs and similar devices, and sensors with
integrated transmitters) other than the Products or other products
manufactured by ITI through December 31, 1998. Notwithstanding anything
contained herein to the contrary, ITI reserves the right to sell (i)
products other than the Products for resale to others in all markets
including the Subject Retail Market; and (ii) ITI reserves the right to
sell competing DIY Security Products, other than the subject Products, into
the Subject Retail Market, subject to Honeywell's right of first refusal to
resell such products. Should ITI desire to market competing DIY Security
Products into the Subject Retail Market, ITI shall provide Honeywell with a
written proposal setting forth product specifications and terms and
conditions for sale. Honeywell will then have sixty (60) days after receipt
of such proposal to notify ITI in writing whether or not Honeywell will
exercise its right of first refusal with respect to the competing DIY
Security Product described in ITI's proposal. In no event, however, shall
Honeywell's volume commitment exceed the original amounts set forth in
Attachment 1. If Honeywell does not give notice of acceptance or rejection
of such proposal within the sixty (60) day period described above, then the
proposal shall be deemed rejected. In the event Honeywell rejects ITI's
proposal, ITI shall have the right to sell the competing DIY Security
Product described in its proposal in all markets, including the Subject
Retail Market. In addition, as long as Honeywell meets its volume
commitments in Attachment 1, ITI will not directly enter the Subject Retail
Market.
Honeywell shall be provided with ninety (90 ) days time to cure from any
deviance in schedule/volume commitments set forth in Attachment 1 hereto
prior Honeywell losing the exclusivity provided in this Section 5 of the
Agreement. Nothing contained in this Section 5 is intended, nor shall it be
construed, to eliminate or modify Honeywell's obligation to purchase from
ITI the quantity of Product for which Honeywell is bound to purchase from
ITI in accordance with the first paragraph of Section 4 of this Agreement.
6. DIY/PC PRODUCT
The Products to be delivered under this Agreement shall conform to the
Product Requirements Specification ("PRS"), set forth in Attachment 2
Section 3 hereto. The PRS may be modified from time to time upon mutual
agreement between the parties. In addition, Honeywell and ITI agree to work
together to combine ITI's wireless transmitters into existing third party
hardware as required to meet the needs of the wireless DIY security market.
That is, ITI will reasonably cooperate with Honeywell in connection with
either wiring ITI transmitters to third party hardware or integrating ITI
transmitters to third party hardware, at ITI's option; provided, however,
that ITI is first given the right to provide Honeywell with hardware of
equivalent functionality and market suitability to the proposed third party
hardware and the wireless transmitters are purchased from ITI. All consoles
and hand-held keypads, including wire-less keys, for Products purchased by
Honeywell under this Agreement shall be private labeled by ITI in
accordance with Honeywell's labeling specifications provided in Section 3
of Attachment 2 (the PRS).
7. UNIQUE PARTS
This section deleted.
8. RAW MATERIAL
Honeywell and ITI agree to share equally cost increases, on an individual
item basis, caused by uncontrollable raw material costs, that cannot be
passed on to the customer, as long as the cost increases are sufficiently
documented and no alternative for cost avoidance can be found.
9. PURCHASE ORDERS
Honeywell shall order Product by means of individual Honeywell purchase
orders ("Purchase Orders"), substantially in the form attached as
Attachment 3A hereto, issued from time to time by Honeywell. In the event
of conflict between this Agreement and the Purchase Orders and/or Purchase
Order Terms and Conditions set forth in Attachment 3B, the terms and
conditions of this Agreement shall govern.
Without limiting the generality of the foregoing, Honeywell and ITI
expressly reject any additional and conflicting terms contained in any
future revisions of the Purchase Orders and/or Purchase Order Terms and
Conditions set forth in Attachment 3.B. and expressly reject the following
portions of the Purchase Order Terms and Conditions set forth in Attachment
3.B.: (i) Paragraph 7 regarding warranties; (ii) Paragraph 10 dealing with
subcontractors; and (iii) Paragraph 19 dealing with changes.
10. PRODUCT PRICING
The price for Product shall be the price set forth in Attachment 4 hereto.
Such prices do not include all applicable taxes and other government
charges, including, but not limited to all federal, state and municipal
sales, use or excise taxes, and any customs duties.
Honeywell agrees to split the cost increase of the one-time-programmable
("OTP") microprocessors ($7.00 each) required for the production control
panels and voice dialers, due to the delay in software sign-off. Upon
software sign-off, the standard microprocessors shall be ordered and
installed when available, and the OTPs shall no longer be used.
Honeywell and ITI agree to review the Products in an effort to evaluate
cost reduction opportunities from improved manufacturing processes, value
engineering improvements, and pooling common raw material and component
requirements/suppliers. Any significant cost reductions generated as a
result of the parties' activities in this regard will be evaluated at the
time Honeywell and ITI agree to prices for any Extension Term.
Notwithstanding anything contained herein to the contrary, (i) prices will
not be reduced for any cost reductions resulting from any cost reduction
efforts already in process at ITI; and (ii) any reductions in the prices
listed in Attachment 4 hereto shall be subject to the written mutual
agreement of both Honeywell and ITI.
11. F.O.B., TITLE, RISK OF LOSS
The F.O.B. point shall be ITI's dock (F.O.B. Origin).
12. INVOICING
After each shipment of Product, ITI shall send a separate invoice,
including item numbers, in duplicate, accompanied (if applicable) by a bill
of lading or express receipt. Payment of invoice by Honeywell shall not
constitute acceptance of Product and shall be subject to appropriate
adjustment for ITI's failure to meet the Product requirements set forth on
the face of the Purchase Order. Payment terms shall be Net (30) days.
13. PROPRIETARY/CONFIDENTIAL INFORMATION
Attached hereto and made part hereof is the Non-disclosure Agreement
between Honeywell and ITI (Attachment 5).
14. BENCHMARKING
This section deleted.
15. PRODUCT LEAD-TIME/PRODUCT DELIVERY
A. The time period between Honeywell notification to ITI of Product
requirements and the date Product is available for shipment
("Lead-Time") is further described in Attachment 7 hereto. ITI shall
not increase Lead-Time for any Product purchased by Honeywell pursuant
to this Agreement without Honeywell's written consent.
B. All Purchase Orders shall contain a required delivery date for Product
at Honeywell's dock. Product shipments will be accepted up to five (5)
days prior to the required delivery date. If the delivery date is not
stated, ITI shall offer its best delivery date, which shall be subject
to written acceptance by Honeywell.
C. Honeywell may modify or cancel a Purchase Order for Product pursuant
to this Agreement if ITI cannot meet Product Lead-Time requirements as
further described in Attachment 7 hereto. The Parties may mutually
change projected delivery dates of Product, provided however, that
ITI, in no event, shall charge Honeywell any amounts as a result of
reasonable modification of Product delivery schedules.
Nothing contained in this Section 15 shall change Honeywell's
obligation to purchase the quantities of Product that had become
binding in accordance with the first paragraph of Section 4 of this
Agreement.
16. PRODUCT QUALITY
A. The Parties shall establish a joint team ("Product Quality Team") to
develop a quality improvement plan that meets the Honeywell H&BC
quality audit requirements as further described in Attachment 8A
hereto. The Product Quality Team's goal is to establish ITI as a
certified supplier within twelve (12) months of the Effective Date.
ITI shall provide Honeywell with plans for continuous quality
improvement on an annual basis.
B. On a quarterly basis, Honeywell shall provide ITI with a high volume
parts report which will show the in warranty return ("IWR") defects in
parts per million ("PPM"). ITI shall investigate the cause of such
production defects and shall report to Honeywell within thirty (30)
days pursuant to procedures set forth in Attachment 8B hereto.
C. Honeywell shall periodically audit ITI's manufacturing processes and
quality systems to ensure conformance to Honeywell's certification
criteria as further described in Attachment 8C hereto.
D. ITI shall submit to Honeywell within thirty (30) days after receipt of
Nonconforming Product an action plan which outlines corrective
measures ITI shall implement to eliminate Nonconforming Product.
17. CONTINUOUS IMPROVEMENT EFFORT
A. The Parties shall jointly establish a team ("Systems Team") to develop
and implement a systems integration plan, designed to integrate
electronic data interchange, bar coding, electronic scheduling,
invoicing, funds transfer and computer aided design between the
Parties. The Systems Team shall document and publish a quarterly
action plan, which delineates responsibilities between the Parties and
sets forth time lines for systems integration for the subsequent
twelve (12) month period. The actions listed in this Section 17 shall
take place after both parties have deemed the program to be
successful.
18. PRODUCT SUPPORT
ITI agrees to train select Honeywell personnel on the DIY/PC product to the
extent that they can provide direct customer support to retail customers.
Honeywell anticipates that three (3) two to three day training sessions
will be required during the first year. Training shall be held at
Honeywell's facility TBD in Minneapolis, MN. Training sessions shall be
limited to no more than twelve people per session. In addition, ITI will
provide the following for a period of one year: (i) one person on-site at
Honeywell's Customer Assistance Center in Minneapolis, MN during normal
business hours CST; (ii) ITI will provide customer support to trained
Honeywell customer support personnel on a 24 hour basis either on-site as
in (i) or through ITI's Customer Assistance Center.
19. WAIVER
Any failure of either Party to enforce this Agreement as to any breach
hereof by the other Party shall not be deemed to be a waiver of the rights
of such Party as to such breach or any separate or subsequent breach.
20. NOTICES
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given
(i) on the date of service if served personally on the party to whom notice
is to be given, (ii) on the day of transmission if sent via facsimile
transmission to the facsimile number given below, and telephonic
confirmation of receipt is obtained promptly after completion of
transmission, (iii) on the day after delivery to Federal Express or similar
overnight courier or the Express Mail service maintained by the United
States Postal Service, or (iv) on the fifth (5th) day after mailing, if
mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid and properly addressed, to the
Party as follows:
If to Honeywell: Honeywell Consumer Products
250 Turnpike Road
Southborough, MA 01772
Attn: David Peirano
Facsimile: (508)-229-7800
Copy to: Honeywell Consumer Products
250 Turnpike Road
Southborough, MA 01772
Attn: Office of General Counsel
Facsimile: (508) 480-9947
If to ITI Interactive Technologies Inc.
2266 Second Street North
North St. Paul, MN 55109
Attn: Chuck Briskey
Facsimile: (612) 779-4802
Copy to: Interactive Technologies Inc.
2266 Second Street North
North St. Paul, MN 55109
Attn: Charles Durant
Facsimile: (612) 779-4802
21. GOVERNING LAW AND JURISDICTION
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Minnesota, without regard to conflict of laws
provisions, and the parties hereby submit to the sole and personal
jurisdiction of the federal district courts of the State of Minnesota.
22. INDEMNIFICATION
A. Honeywell shall hold harmless and indemnify ITI from and against any
and all injuries, damages, fines, costs, and expenses (including but
not limited to, reasonable attorneys' fees) caused by or resulting
from (i) the negligence of Honeywell, its representatives, officers,
directors, agents and employees, in the performance of its duties
pursuant to this Agreement; or (ii) caused by, or resulting from, any
breach by Honeywell of any of the terms and conditions hereto; or
(iii) caused by, or resulting from, any packaging, product literature,
advertisements, sales aids or other promotional materials produced by
Honeywell.
B. ITI shall hold harmless and indemnify Honeywell from and against any
and all injuries, damages, fines, costs, and expenses (including, but
not limited to, reasonable attorneys' fees) caused by, or resulting
from, any defects in design or manufacture of the Products, the
negligence of ITI, its representatives, officers, directors, agents
and employees, in the performance of its duties pursuant to this
Agreement; or (ii) caused by, or resulting from, any breach by ITI of
any of the terms and conditions hereto; or (iii) caused by, or
resulting from, any packaging, product literature, or other materials
produced by ITI.
C. Nothing in this Agreement is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than
Honeywell, ITI and their respective successors and permitted assigns.
Nothing in this Agreement is intended to relieve or discharge the
obligations or liabilities of any third persons to Honeywell or ITI.
23. PATENT AND COPYRIGHT
ITI shall defend, at its own expense, any suit or claim that may be
instituted against Honeywell or any customer of Honeywell for alleged
infringement of patents, copyrights or mask work rights relating to the
maintenance, sale, or use of Product pursuant to this Agreement, except for
any such infringement resulting from ITI's compliance with detailed designs
provided by Honeywell. ITI shall indemnify Honeywell and its customers for
all costs and damages arising out of such alleged infringement.
Honeywell acknowledges and agrees that ITI represents that it is the sole
owner of any patents, copyrights, trademarks, trade secrets or other
intellectual property rights relating to the Products and that Honeywell
will make no claim of ownership to such intellectual property, except for
Honeywell's trademarks, trade names and service marks, intellectual
property relating to Honeywell's PC software, and the jointly developed
interface between ITI's DIY Product and Honeywell's PC software.
24. WARRANTIES
ITI's extends to Honeywell the warranty set forth in Attachment 9 hereto.
In addition to any other rights Honeywell may have, if the Product (Product
kits only) is found not to be as warranted within a period of one (1) year
after acceptance by Honeywell, Honeywell may return such Product to ITI, at
ITI's expense, for repair, replacement, or credit, as Honeywell may direct,
however, no credit will be issued on in-warranty product (and any repairs
or replacements will be at Honeywell's expense) until such time as warranty
claims by Honeywell exceed the 2.5% warranty reserve built in to the
pricing structure. Prior to exceeding the 2.5% warranty reserve, ITI will
charge $TBD to "make new" any returned control panels. Subsequent to
exceeding the 2.5% warranty reserve, ITI will replace or repair, at its
option, in-warranty control panels at no additional cost to Honeywell. ITI
will charge Honeywell $TBD, however, should Honeywell direct that such
product be "made new". The definition of ("make new") shall mean that the
Product shall be functionally and cosmetically equivalent to a new Product
furnished by ITI. Any product corrected or furnished in replacement shall,
from the date of delivery of such corrected or replacement Product, be
subject to the provisions of this Section 24 for the same period and to the
same extend as the Product initially furnished pursuant to this Agreement.
In addition, Honeywell shall be responsible for the repackaging of all
returned Product. In no event shall any in-warranty peripherals be returned
to ITI, except for evaluation. The process(s) for handling all returns
shall be developed jointly and mutually agreed to between the parties.
25. COMPLIANCE WITH LAWS
ITI agrees that in the performance of the services provided hereunder, it
will comply with all applicable laws, rules, and regulations of
governmental authority in connection therewith.
26. SAFETY AND HEALTH
ITI shall comply with all safety and environmental practices required by
law, those customarily followed for the type of services to be provided by
ITI hereunder.
27. FORCE MAJEURE
No liability shall result to either party from any delay in performance or
non-performance hereunder (except nonpayment) caused by circumstances
beyond the reasonable control of the party who has delayed performance or
not performed, including, but not limited to, fire, explosion, acts of God,
riots, strikes, labor disputes, or compliance with any law, order, or
regulation of any governmental authority. The non-performing party shall be
diligent in attempting to remove any such cause and shall promptly notify
the other party of its onset, extent and probable duration.
If the non-performing party who has delayed performance or not performed on
account of circumstances beyond its reasonable control is unable to remove
such causes within thirty (30) days, the other party shall have the right
to terminate this Agreement.
28. INDEPENDENT CONTRACTOR
ITI is and shall at all times be an independent contractor hereunder and
not an agent of Honeywell. Neither anything contained in this Agreement nor
any actions taken by, or arrangements entered into between, the Parties of
this Agreement in accordance with the provisions hereof shall be construed
as, or deemed to create, a partnership, joint venture or similar legal
relationship. ITI shall have no authority to contractually or otherwise
commit Honeywell to any obligations whatsoever to third parties.
29. ASSIGNMENT
The rights and obligations covered herein are personal to each party
hereto, and for this reason this Agreement shall not be assignable by
either party in whole or in part; however ITI has the right to subcontract
work in the performance of its obligations hereunder.
30. HEADINGS
All headings of the clauses of this Agreement are inserted for convenience
only and shall not affect any construction or interpretations of this
Agreement.
31. PUBLICITY
Neither party shall make a press release or other public announcement
concerning this Agreement or any part thereof, nor the fact that it exists
without the prior written consent of the other party which consent shall
not be unreasonably withheld.
32. ENTIRE AGREEMENT
This Agreement and the Attachments referenced herein constitute the
complete agreement of the Parties relating to the matters specified in this
Agreement and supersede all prior representations or agreements, whether
oral or written, with respect to such matters. No oral modification or
waiver of any provision of this Agreement shall be binding on either Party.
This Agreement is for the benefit of, and shall be binding upon and inure
to, the Parties and their respective successors and assigns.
HONEYWELL INC. INTERACTIVE TECHNOLOGIES, INC.
By /s/ Rod Jane By /s/ Charles E. Briskey
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Name Rod Jane Name Charles E. Briskey
------------------------------- --------------------------------
Title Executive Vice President Title Senior Vice President
------------------------------- --------------------------------
Date 11/18/96 Date 11/20/96
------------------------------- --------------------------------
December 23, 1996
Mr. Glenn Jones VIA FEDERAL EXPRESS
Director of Purchasing
ADT Security Systems, Inc.
300 Interpace Parkway
Parsippany, NJ 07054-1177
Dear Glenn:
We are in receipt of ADT purchase orders identified on Exhibit A to this letter
(the "PURCHASE ORDERS"). Consistent with our previous agreement and your
correspondence, the Purchase Orders were to cover products contained in ADT's
most recent demand forecast, subject to ADT's phase-out period beginning in June
and ending in August of 1997. During the phase-out period, ADT was to take 75%
of the forecasted demand for June, 40% of the forecasted demand for July and 20%
of the forecasted demand for August.
ADT's most recent demand forecast, as adjusted for the phase-out period, is
reflected in Exhibit B attached hereto (the "DEMAND FORECAST"). The quantities
contained in the Purchase Orders fell short of the Demand Forecast, as reflected
in the schedule attached hereto as Exhibit C (the "SHORTFALL"). You have
subsequently reaffirmed that the quantities set forth in the Demand Forecast
will be the basis for non-cancelable purchase orders from ADT. Accordingly, you
have undertaken to remedy this matter and ITI has relied upon my discussions
with you in placing orders with its suppliers to cover production of the product
covered by the Demand Forecast.
The purpose of this letter is to document the agreement between ITI and ADT
regarding the Purchase Orders and related matters, which is as follows:
1. ADT agrees to issue ITI a supplemental purchase order covering the
Shortfall as shown in Exhibit C (the "SUPPLEMENTAL PURCHASE ORDER").
2. Notwithstanding anything contained in the Purchase Orders or the
Supplemental Purchase Order to the contrary, the Purchase Orders and
the Supplemental Purchase Order constitute firm orders and are
non-cancelable. Therefore, the Purchase Orders and the Supplemental
Purchase Order represent a binding obligation of ADT to purchase the
quantities of products identified therein at the prices and on the
payment terms set forth therein. ADT acknowledges and agrees that ITI
has relied on ADT's agreement to place firm orders and, based on such
reliance, ITI has placed firm orders with its suppliers and has
otherwise committed resources to the production of the product covered
by the Purchase Orders and the Supplemental Purchase Order.
3. Notwithstanding anything contained in the Purchase Orders or the
Supplemental Purchase Order to the contrary, ADT shall not make any
changes to the Purchase Orders or the Supplemental Purchase Order
without ITI's prior written consent, which consent will be in ITI's
sole and absolute discretion.
4. Shipments under the Purchase Orders and the Supplemental Purchase
Order will be made by ITI pursuant to weekly releases from ADT's
Memphis warehouse; provided, however, that ADT agrees to (i) take
delivery of all products set forth in the Purchase Orders for delivery
from now through May of 1997 no later than May 31, 1997; (ii) take
delivery of the quantities of product set forth in the Demand Forecast
for June through August of 1997 as shown currently scheduled; and (iii)
take delivery of the quantities of product set forth in the
Supplemental Purchase Order no later than August 31, 1997. ADT agrees
that should ADT fail to make releases against the Purchase Orders or
the Supplemental Purchase Order in accordance with the previous
sentence, then ITI shall have the right to ship product to ADT without
a release pursuant to the schedule contained in the previous sentence.
If this letter accurately reflects your understanding, please sign the enclosed
copy of this letter on behalf of ADT and return it to me as soon as possible.
Glenn, as you are aware, we are more than happy to meet your product needs
during this transition period and greatly appreciate the business that ADT has
brought our way over the past several years. Nevertheless, you can understand
that we need the assurances set forth in this letter under present
circumstances.
Sincerely,
INTERACTIVE TECHNOLOGIES, INC.
By -
Thomas L. Auth
President and Chief Executive Officer
THE ABOVE TERMS AND CONDITIONS ARE AGREED TO AND ACCEPTED, ON BEHALF OF ADT
SECURITY SYSTEMS, INC., AS OF THE DATE SET FORTH BELOW.
ADT SECURITY SYSTEMS, INC.
By:
Glenn Jones, Director of Purchasing
Date:
ITI TECHNOLOGIES, INC.
LONG-TERM STOCK INCENTIVE PLAN (1992)
(AMENDED AND RESTATED AS OF MAY 8, 1996)
Section 1. PURPOSE
The purposes of the ITI Technologies, Inc. Long-Term Stock Incentive
Plan (1992) (the "PLAN") are to promote the interests of ITI Technologies, Inc.
and its shareholders by attracting and retaining executive personnel and other
key employees of outstanding ability; and enabling such employees to participate
in the long-term growth and financial success of ITI Technologies, Inc.
Section 2. DEFINITIONS
"AWARD" shall mean a grant or award under SECTION 6, 7 or 8 of the
Plan, as evidenced in a written document delivered to a Participant as provided
in SECTION 9(b).
"BOARD OF DIRECTORS" shall mean the Board of Directors of the
Corporation.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMITTEE" shall mean the Compensation Committee of the Board of
Directors and any sub-committee of the Compensation Committee designated by the
Board of Directors and/or the Compensation Committee.
"COMMON STOCK" or "STOCK" shall mean the Common Stock, $.01 par value,
of the Corporation.
"CORPORATION" shall mean ITI Technologies, Inc.
"DESIGNATED BENEFICIARY" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive amounts due the
Participant in the event of the Participant's death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean the
Participant's estate.
"EMPLOYEE" shall mean any key employee of the Employer.
"EMPLOYER" shall mean the Corporation and any Subsidiary.
"FISCAL YEAR" shall mean the fiscal year of the Corporation.
"OPTION" shall mean a stock option granted under SECTION 6 which is not
intended to be an incentive stock option within the meaning of Section 422 of
the Code.
"PARTICIPANT" shall mean an Employee who is selected by the Committee
to receive an Award under the Plan.
"RESTRICTION PERIOD" shall mean the period of years selected by the
Committee during which a grant of Restricted Stock or Restricted Stock Units may
be forfeited to the Corporation.
"RESTRICTED STOCK" shall mean shares of Common Stock contingently
granted to a Participant under SECTION 7 of the Plan.
"RESTRICTED STOCK UNIT" shall mean a unit contingently awarded under
SECTION 7 of the Plan.
"STOCK APPRECIATION RIGHT" shall mean a right granted under SECTION 8.
"SUBSIDIARY" shall mean any business entity in which the Corporation
possesses directly or indirectly fifty percent (50%) or more of the total
combined voting power.
Section 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have sole and complete authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the operation of the Plan as it shall
from time to time deem advisable, and to interpret the terms and provisions of
the Plan. The Committee may delegate to one or more executive officers of the
Corporation the power to make Awards to Participants who are not executive
officers or directors of the Corporation provided the Committee shall fix the
maximum amount of such Awards for the group and a maximum for any one
Participant. The Committee's decisions shall be binding upon all persons,
including the Corporation, stockholders, an Employer, Employees, Participants
and Designated Beneficiaries.
Section 4. ELIGIBILITY
All Employees who, in the opinion of the Committee, have the capacity
for contributing in a substantial measure to the successful performance of the
Corporation are eligible to be Participants in the Plan.
Section 5. MAXIMUM AMOUNT AVAILABLE FOR AWARDS
(a) The maximum number of shares of Stock in respect of which Awards
may be made under the Plan shall be a total of 2,000,000 shares of Common Stock.
Shares of Common Stock may be made available from the authorized but unissued
shares of the Corporation or from shares reacquired by the Corporation. In the
event that (i) an Option expires or is terminated unexercised as to any shares
of Common Stock covered thereby; or (ii) any Award in respect of shares is
canceled or forfeited for any reason under the Plan without the delivery of
shares of Common Stock, such shares shall thereafter be again available for
award pursuant to the Plan.
(b) In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below fair
market value, or other similar corporate event affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under this Plan, then the Committee
shall, in its sole discretion, and in such manner as the Committee may deem
equitable, adjust any or all of (i) the number and kind of shares which
thereafter may be awarded or optioned and sold under the Plan; (ii) the number
and kind of shares subject to outstanding Options and other Awards; and (iii)
the grant, exercise or conversion price with respect to any of the foregoing
and/or, if deemed appropriate, make provision for a cash payment to a
Participant or a person who has an outstanding Option or other Award; provided,
however, that the number of shares subject to any Option or other Award shall
always be a whole number.
Section 6. STOCK OPTIONS
(a) GRANT. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to whom Options
shall be granted, the number of shares to be covered by each Option, the option
price therefor and the conditions and limitations applicable to the exercise of
the Option.
(b) OPTION PRICE. The Committee shall establish the option price at the
time each Option is granted.
(c) EXERCISE.
(1) Each Option shall be exercisable at such times and subject to
such terms and conditions as the Committee may, in its sole discretion, specify
in the applicable Award or thereafter, provided, however, that in no event may
any Option granted hereunder be exercisable after the expiration of ten years
from the date of such grant. The Committee may impose such conditions with
respect to the exercise of Options, including, without limitation, any relating
to the application of federal or state securities laws, as it may deem necessary
or advisable.
(2) No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price therefor is received by the
Corporation. Such payment may be made in cash, or its equivalent, or, if and to
the extent permitted by the Committee, by exchanging shares of Common Stock
owned by the optionee (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the fair market value of any such
Common Stock so tendered to the Corporation, valued as of the date of such
tender, is at least equal to such option price.
Section 7. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
(a) Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom shares of
Restricted Stock and Restricted Stock Units shall be granted, the number of
shares of Restricted Stock and the number of Restricted Stock Units to be
granted to each Participant, the duration of the Restriction Period during
which, and the conditions under which, the Restricted Stock and Restricted Stock
Units may be forfeited to the Corporation, and the other terms and conditions of
such Awards. The Restriction Period shall consist of at least one (1) year
(which may be shortened or waived by the Committee at any time in its
discretion) with respect to one (1) or more Participants or Awards outstanding.
(b) Restricted Stock Units and shares of Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise encumbered, except as herein
provided, during the Restriction Period. Certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and deposited by such Participant, together with a stock power endorsed in
blank, with the Corporation. At the expiration of the Restriction Period, the
Corporation shall deliver such certificates to the Participant or the
Participant's legal representative. Payment for Restricted Stock Units shall be
made by the Corporation in cash or shares of Common Stock, as determined at the
sole discretion of the Committee.
Section 8. STOCK APPRECIATION RIGHTS
The Committee may, with sole and complete authority, grant Stock
Appreciation Rights in tandem with an Option, in addition to an Option, or
freestanding and unrelated to an Option. Stock Appreciation Rights granted in
tandem with or in addition to an Option may be granted either at the same time
as the Option or at a later time. Stock Appreciation Rights shall not be
exercisable earlier than six (6) months after grant, shall not be exercisable
after the expiration of ten (10) years from the date of grant and shall have an
exercise price of not less than one hundred percent (100%) of the fair market
value of the Common Stock on the close of business on the date of grant ("FAIR
MARKET VALUE"). A Stock Appreciation Right shall entitle the Participant to
receive from the Corporation an amount of cash equal to the excess, if any, of
the Fair Market Value of a share of Common Stock on the exercise of the Stock
Appreciation Right (or such other date specified by the Committee at the time of
grant) over the exercise price thereof.
Section 9. GENERAL PROVISIONS
(a) WITHHOLDING. The Employer shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of payments of Awards in the form of Common Stock, at the Committee's
discretion the Participant may be required to pay to the Employer the amount of
any taxes required to be withheld with respect to the amount of any taxes
required to be withheld with respect to such Common Stock, or, in lieu thereof,
the Employer shall have the right to retain (or the Participant may be offered
the opportunity to elect to tender) the number of shares of Common Stock whose
fair market value equals the amount required to be withheld.
(b) AWARDS. Each Award hereunder shall be evidenced in writing,
delivered to the Participant and shall specify the terms and conditions thereof
and any rules applicable thereto, including, but not limited to, the effect on
such Award of the death, retirement or other termination of employment of the
Participant and the effect thereon, if any, of a change in control of the
Corporation.
(c) NONTRANSFERABILITY. No Award shall be assignable or transferable
except by will or the laws of descent and distribution, and no right or interest
of any Participant shall be subject to any lien, obligation or liability of the
Participant.
(d) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to be retained in the employ of the Employer. Further,
the Employer expressly reserves the right at any time to dismiss a Participant
free from any liability, or any claim under the Plan, except as provided herein
or in any agreement entered into with respect to any Award.
(e) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she has become the holder thereof. Notwithstanding
the foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall not
be entitled to the rights of a stockholder in respect of such Restricted Stock.
(f) CONSTRUCTION OF THE PLAN. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined solely in
accordance with the laws of New York, regardless of the law that might be
applied under applicable principles of conflicts of laws.
(g) EFFECTIVE DATE. Subject to the approval of the stockholders of the
Corporation, the Plan shall be effective on May 11, 1992. No Options or Awards
may be granted under the Plan after May 10, 2002.
(h) AMENDMENT OF AWARD; AMENDMENT OF THE PLAN.
(1) The Committee may amend, modify or terminate any outstanding
Award with the Participant's consent at any time prior to payment or exercise in
any manner not inconsistent with the terms of the Plan, including without
limitation (i) to change the date or dates as of which (A) an Option becomes
exercisable; (B) Restricted Stock becomes nonforfeitable; or (ii) to cancel and
reissue an Award under such different terms and conditions as it determines
appropriate.
(2) The Board of Directors may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if such approval is necessary to comply with
any tax or regulatory requirement. Notwithstanding anything to the contrary
contained herein, the Committee may amend the Plan in such manner as may be
necessary so as to have the Plan conform with local rules and regulations.
(i) NOTICE OF EXERCISE. Prior to the receipt of any shares of Common
Stock in connection with any Award hereunder, the Participant will execute and
deliver to the Corporation a Notice of Exercise of Stock Option in the form, and
containing such terms and conditions, as shall be determined by the Committee.
LEASE AGREEMENT
This lease agreement, dated as of the 28th day of April, 1995, by and
between G. D. Package Machinery, Inc., hereinafter referred to as "Landlord",
and ITI Technologies, Inc., hereinafter referred to as "Tenant".
Witnesseth, that for and in consideration of the rent hereafter
reserved, and the covenants contained herein, the parties hereby agree as
follows:
1. LEASE PREMISES.
Landlord hereby leases to Tenant the premises situated in the County of
Chesterfield, Virginia, known and described as follows: a portion of that
development known as Southport Corporate Center and located at 481
Southlake Boulevard. Said Premises contains approximately 2,725 square feet
of office/warehouse space. Said premises are outlined in red on Exhibit "A"
site plan, which is attached hereto and made a part hereof, hereinafter
referred to as the "Premises".
2. TERM AND POSSESSION.
2.1 TERM. The term of this Lease shall be for thirty six (36) months
commencing on June 1, 1995 and ending on May 30, 1998 unless sooner
terminated pursuant to any provision hereof.
2.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Landlord cannot deliver possession of the Premises to Tenant on said
date, Landlord shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease or the obligations of Tenant
hereunder or extend the term hereof, but in such case, Tenant shall not be
obligated to pay rent until possession of the Premises is tendered to
Tenant, provided, however, that if Landlord shall not have delivered
possession of the Premises within sixty (60) days from said commencement
date, Tenant may, at Tenant's option, by notice in writing to Landlord
within ten (10) days thereafter, cancel this Lease in which event the
parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Tenant is not received by
landlord within said ten (10) day period, Tenant's right to cancel this
Lease hereunder shall terminate and be of no further force or effect.
2.3 EARLY POSSESSION. If Tenant occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date, and Tenant
shall pay rent for such period at the rate of the "basic monthly rental"
set forth below.
3. RENT.
3.1 RENT. Tenant shall pay to Landlord as rent for the Premises as follows:
PERIOD MONTHLY
------ -------
June 1, 1995 - May 30, 1996 $1,325.00
June 1, 1996 - May 30, 1997 $1,365.00
June 1, 1997 - May 30, 1998 $1,406.00
Rent shall be payable without deduction or demand, in equal monthly
installments as herein stated and hereinafter referred to as the "basic
monthly rental", in advance on the first day of each calendar month during
the term hereof, the first installment payable upon execution of this Lease
and the remaining installments payable on the first day of each month
during the said term to and at the office of G. D. Package Machinery, Inc.,
501 Southlake Blvd., Richmond, VA 23236, or at such other place as Landlord
may from time to time designate to Tenant in writing. Rent checks shall be
made payable to G. D. Package Machinery, Inc. Should the term of this Lease
commence on a day other than the first day of a calendar month, the parties
agree that rental for the first month of the term shall be pro-rated and
rent for the remaining months shall be due and payable on the first of the
month as provided above.
3.2 LATE CHARGE. Tenant hereby recognizes and acknowledges that if rental
or other payments are not received when due, Landlord will suffer damages
and additional expense thereby and Tenant therefore agrees, in addition to
such other remedies as are available to Landlord, to pay as additional rent
(if not waived by Landlord) a late charge equal to five percent (5%) of any
sum due hereunder which is not paid within seven (7) days or its due date.
Furthermore, Landlord or Agent shall have the right to require that rental
payments be made by certified or cashier's check.
4. SECURITY DEPOSIT.
Tenant shall deposit with Landlord, upon execution hereof, One Thousand
Three Hundred Twenty Five and No/100 Dollars ($1,325.00) as security for
the faithful performance of Tenant's obligations hereunder. The conditions
under which Landlord will hold (and be obligated subsequently to return)
the security deposit are as follows:
a. Full term of Lease has expired.
b. Tenant has given Landlord at least sixty (60) days' written notice
that it will vacate the Premises.
c. Tenant does vacate the Premises at the termination of Lease and
returns keys thereto.
d. Premises, inside and out, are left in "broom clean" condition and
undamaged (except ordinary wear and tear).
e. That there are no unpaid late charges, delinquent rent, court costs
or attorneys fees or other monies owed by Tenant to Landlord.
If Tenant has complied with each of the above requirements, Landlord agrees
that said security deposit will be returned. No interest shall be paid on
the security deposit and Tenant shall not offset any payment due hereunder
by the security deposit or any part thereof. If Tenant violates any of the
above requirements, Landlord may apply a part of, or all of the security
deposit to cover the cost of expense incurred or deficiency existing in any
monies due to the Landlord for failure to comply with the provisions of
this Lease and the matters as set forth in paragraph 4(a) through (e) and
the Landlord shall have the right to proceed with any other legal or
equitable remedies available to it.
5. USE
The Premises shall be used and occupied only for general office/warehouse
purposes as allowed in the Chesterfield County M-1 Zoning classification
and for no other purpose.
6. UTILITIES.
Tenant agrees to pay when due all utility charges incurred in connection
with its use and occupancy of the Premises, including, but not limited to,
electricity, fuel, gas and telephone (including equipment and installation
charges) and to immediately transfer all utility accounts into its own name
at the commencement of the term of this Lease (or whenever Tenant occupies
the Premises, if such occupancy is prior to the commencement of this
Lease).
7. CONDITION OF PREMISES.
7.1 PREMISES NOT NEW. Landlord shall paint and carpet the office area and
install a doorless passageway between the office area and the warehouse
area, otherwise, the Landlord shall deliver the Premises to Tenant "as is"
on the commencement of the term and Landlord agrees that the heating,
plumbing, and electrical systems, as well as the air conditioning, will be
in good working order and condition at the commencement of the term, or
that Landlord will promptly, and at Landlord's expense, place same in good
working order and condition if, but only if, within thirty (30) days after
the commencement of the initial season during which the heating and air
conditioning systems would normally be used, Tenant shall promptly give
Landlord written notification of any defect in any such system which shall
not have been caused by the fault or neglect of the Tenant. Upon tender by
Landlord to Tenant of the above-mentioned equipment in good working order,
Tenant shall thereafter be solely responsible for all maintenance, repairs
and/or replacements required therefor during the term of this Lease as
provided in Paragraph 8.2 below.
7.2 ACCEPTANCE OF PREMISES. Except as otherwise provided in this Lease,
Tenant hereby accepts the Premises in their condition existing as of the
Lease commencement date or the date that Tenant takes possession of the
Premises, whichever is earlier, subject to all applicable zoning,
municipal, county and state laws, ordinance and regulations governing and
regulating the use of the Premises, and any easements, covenants,
restrictions or other matters of record, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto. Tenant acknowledges that neither Landlord nor Landlord's agent has
made any representation or warranty as to the present or future suitability
of the Premises for the conduct of Tenant's business.
8. MAINTENANCE AND REPAIRS.
8.1 STRUCTURAL MAINTENANCE. Landlord shall be solely responsible for and
shall maintain in good condition and repair the roof, foundation, exterior
walls, as well as the underground pipes and conduits,: and Landlord shall
make all repairs becoming necessary by reason of any structural defect in
the Premises; provided, however, that Landlord shall not be required to
make any repairs necessitated by reason of any act or omission by Tenant,
its employees, agents, licensees, invitees or anyone entering the Premises
by force, but if Landlord does make any such repairs, Tenant agrees to
promptly, upon demand, reimburse Landlord for the full costs thereof. That
no liability shall be imposed on the Landlord because of any injury or
damage to personal property, or because of any interference with the
services and facilities listed above, caused by accidents or repairs,
riots, strikes, or any other reason beyond the control of the Landlord, and
that the Landlord shall be under no duty to restore any of such services
and facilities or to make any of the repairs for which the Landlord is
obligated, except after receipt of written notice from the Tenant of a need
therefore, and there shall be a reasonable period of time within which the
Landlord may make such repairs.
8.2 OTHER MAINTENANCE AND REPAIRS. Except as otherwise expressly provided
in Paragraph 8.1, Tenant shall, at its own expense, during the full term of
this Lease, keep the Premises in good order and condition, and make all
repairs and do all acts of maintenance becoming necessary in, upon or about
the Premises, including specifically but not being limited to the doors sad
door jambs, both inside and outside, loading docks, windows and window
casings and sills, both inside and outside, and plate or other glass
windows and doors, and to make, at Tenant's expense, all repairs and to do
all acts or maintenance becoming necessary during the term of the Lease and
to replace all worn out and broken parts of the heating, plumbing and
electrical systems and equipment as well as the air conditioning and to
enter into a service contract on behalf of Tenant only, for the regular
maintenance of the heating system and air conditioning. All plate glass and
other glass which may be damaged or broken shall be replaced by Tenant, at
Tenant's expense with glass of the same kind and quality as that which may
be damaged within 24 hours of such damage.
9. ALTERATIONS.
9.1 INSTALLATION. Tenant shall not make any alterations, additions,
modifications or improvements to the Premises without the prior written
consent of the Landlord, which consent will not be unreasonably withheld,
and with the consent of any mortgagee or underlying lessor to the extent
required. If Tenant desires to make any such alterations, etc., plans for
same shall first be submitted to and approved by Landlord and same shall be
done by Tenant, at its own expense, and Tenant agrees that all such work
shall be done in a good and workmanlike manner and in accordance with
applicable laws and regulations, that the structural integrity of the
building shall not be impaired, that no liens shall attach to the Premises
by reason thereof, and that Tenant will secure all necessary permits
pertaining to the aforementioned alterations.
9.2 OWNERSHIP AND REMOVAL. The alterations, additions, modifications and
improvements referred to in Paragraph 9.1, and consented to in writing by
Landlord, shall become part of the real property as soon as they are
affixed thereto; however, Landlord may, at Landlord's option, require that
Tenant remove all or any part of said alterations prior to the expiration
of the Lease Term. If Landlord so requires, Tenant agrees at its own
expense, to remove same and to restore the Premises to their original
condition, reasonable wear and tear excepted.
10. HAZARDOUS STORAGE.
Tenant agrees that it will not store gasoline or other explosive, flammable
or toxic material in the Premises or do anything which may cause Landlord's
insurance company to void the policy covering the Premises or to increase
the premium thereon, and that Tenant will immediately conform to all rules
and regulations from time to time established by the Landlord's insurance
company or insurance rating bureau.
11. INSURANCE.
11.1 FIRE INSURANCE. Tenant agrees, in addition to the provisions of
Paragraph 10, that it will not do anything that will cause Landlord's
insurance against loss by fire or other hazards, as well as public
liability insurance, to be canceled or that will prevent Landlord from
procuring same in acceptable companies and at standard rates. Tenant will
further do everything reasonably possible and consistent with the conduct
of Tenant's business, to enable Landlord to obtain the lowest possible
rates for insurance on the Premises. If the cost to Landlord of obtaining
insurance on the Premises (or the building in which the Premises are
located) is increased above the first year due to the Tenant's occupancy
thereof or any increase in rate or value of the Premises, Tenant agrees to
pay, promptly upon demand, as additional rental, any such increase.
11.2 LIABILITY INSURANCE AND INDEMNIFICATION OF LANDLORD. Landlord and
Agent shall not be liable to Tenant for and Tenant does hereby release
Landlord and Agent and their respective agents and employees from liability
for any injury, loss or damages to the Tenant or to any other person or
property occurring upon the Premises or the approaches thereto or the
parking facilities in or adjacent thereto from any cause. Tenant agrees to
indemnify and save the Landlord harmless against and from any and all
liability, damages, expenses, including reasonable attorneys' fees, claims
and demands of every kind, that may be brought against it, for or on
account of any damages, loss or injury to persons or property in or about
the Premises during the term of this Lease, or during any occupancy by
Tenant prior to the commencement of this Lease. Tenant further agrees to
carry, at its own expense, at all times, during the term hereof, public
liability insurance, in a form and with a company satisfactory to
Landlord's bodily injury and property damage combined single limit policy
of at least $1,000,000 or in such greater amounts as Landlord may from time
to time reasonably require. Tenant shall also carry, at its own expense,
plate glass insurance, where appropriate. All such policies shall name the
Tenant, the Landlord and Agent, as parties insured and shall contain a
provision that the same may not be canceled without giving the Landlord and
the Agent at least thirty (30) days' prior written notice. In addition,
such policies or certificates evidencing that such policies are in effect,
shall be delivered to Landlord and Agent at the commencement of the term
hereof and renewals shall be delivered at least ten (10) days prior to the
expiration or cancellation of any such policy.
12. PERMITS - COMPLIANCE WITH LAWS.
12.1 COMPLIANCE WITH LAWS. Tenant shall thereafter promptly comply with all
statutes, laws, ordinances, orders, rules, regulations and requirements of
the Federal, State and local governments and of the Board of Fire
Underwriters applicable to Tenant's use of the Premises, for the
correction, prevention and abatement of nuisances or violations in, upon or
connected with the Premises during the term of this Lease. Tenant shall not
use nor permit the use of the Premises in any manner that will tend to
create waste or a nuisance or, if there shall be more than one tenant in
the building containing the Premises, shall tend to disturb such other
tenants.
13. ASSIGNMENT AND SUBLETTING.
Tenant agrees that it will not transfer, assign or sublet the Premises, in
whole or in part, without Landlord's prior written consent. Landlord agrees
that it will not arbitrarily withhold its consent, but if such consent is
given, Tenant shall not be relieved from any liability under this Lease.
Tenant further agrees that if it wishes to assign this Lease or sublet more
than 25% of the Premises, it will first notify Landlord in writing, and
Landlord may, by written notice to Tenant within thirty (30) days after
receipt of Tenant's notice, cancel this Lease, in which event Landlord
shall release Tenant as to liability arising under this Lease after the
date of cancellation. Consent by Landlord to any assignment or subletting
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. This prohibition against assigning or
subletting shall be construed to include a prohibition against any
assignment or subletting by operation of law.
14. SUBORDINATION.
Unless otherwise provided in the applicable instrument, Tenant accepts this
Lease, and the tenancy created hereunder, subject and subordinate to any
underlying leases, mortgages, deeds of trust, leasehold mortgages or other
security interests now or hereafter a lien upon or affecting the Premises
or any part thereof. Tenant shall, at any time hereafter, on request
execute any instruments that may be required by any mortgage, mortgagee,
deed of trust, trustee, or underlying owner or Landlord hereunder to
subordinate Tenant's interest hereunder to the lien of any such mortgages,
deed or deeds of trust or underlying lease, and the failure of Tenant to
execute any such instruments, leases or documents shall constitute a
default hereunder.
15. ATTORNMENT AND NON-DISTURBANCE.
Tenant agrees that upon any termination of Landlord's interest in the
Premises, Tenant will, upon request, attorn to the person or organization
then holding title to the reversion of the Premises (the "Successor") and
to all subsequent Successors, and shall pay to the Successor all rents and
other monies required to be paid by the Tenant hereunder and perform all of
the other terms, covenants, conditions and obligations contained in this
Lease, provided, however, that Tenant shall not be so obligated to attorn
unless, if Tenant shall so request in writing, such Successor will execute
and deliver to Tenant an instrument wherein such Successor agrees that so
long as Tenant performs all of the terms, covenants and conditions of this
Lease, Tenant's possession of the Premises under the provisions of this
Lease shall not be disturbed by any such Successor.
16. TAX ESCALATION.
Tenant agrees to pay its proportionate share (which is hereby agreed to be
5%) if any increase in real estate taxes in excess of taxes paid or which
the Landlord is obligated to pay for the calendar year 1995, upon the
Premises or the tax parcel of which the Premises are a part, whether such
increase shall be caused by an increase in the assessed value of the land
and the improvements, or by increase in the tax rate, or otherwise. Such
additional tax shall be payable as additional rental hereunder in one lump
sum within fifteen (15) days after Landlord's demand therefor. Such
payments shall be pro-rated in the event Tenant occupies the Premises for
less than the applicable full tax year. A tax bill issued by the
appropriate government authorities shall be accepted as conclusive evidence
of the amount of said real estate taxes.
17. PROPERTY LOSS OR DAMAGE.
17.1 Tenant hereby expressly agrees that Landlord and Agent shall not be
responsible in any manner for and does hereby release Landlord and Agent
and their respective agents and employees from any and all liability for
any damage or injury directly or indirectly caused by (i) dampness or
water, whether due to a break or leak in any part of the roof, heating,
plumbing, sprinkler or other system within the Premises, or in the building
in which the Premises are located, no matter how caused; (ii) theft; (iii)
fire or other casualty; (iv) any other cause whatsoever.
17.2 Subject to the provisions of paragraph 17.1, Landlord shall not be
liable for damage or injury to person or property of Tenant or of any other
person or business unless notice in writing of any defect (a) which
Landlord has under the terms of this Lease the duty to correct and (b)
which has caused such damage or injury, shall have been given in sufficient
time before the occurrence of such damage or injury reasonably to have
enabled Landlord to correct such defect, and even then only if such damage
or injury is due to Landlord's negligence.
18. TENANT'S FAILURE TO PERFORM.
In the event that Tenant fails, after fifteen (15) days' written notice
from Landlord, to keep the Premises in good state of condition and repair,
or to commence and continuously make required repairs, or to do any act or
make any payment or perform any term or covenant on Tenant's part required
under this Lease or otherwise fails to comply herewith, Landlord may (at
its option, but without being required to do so) immediately, or at any
time thereafter and without notice perform the same for the account of
Tenant (including entering the Premises at all reasonable hours to make
repairs and do any act or make any payment which Tenant has failed to do),
and if Landlord makes any expenditures, or incurs any obligations for the
payment of money in connection therewith, including, but not limited to,
attorneys' fees in instituting prosecuting or defending any action or
proceeding, such sums paid or obligations incurred, with interest at the
rate of twelve percent (12%) per annum and costs, shall be deemed to be
additional rent hereunder and shall be paid by Tenant to Landlord within
five (5) days of rendition of any bill or statement to Tenant therefor. All
rights given to Landlord in this section shall be in addition to any other
right or remedy of Landlord herein contained.
19. LANDLORD'S RIGHT TO ENTER AND SHOW PREMISES.
19.1 LANDLORD'S RIGHT TO INSPECT AND REPAIR. Tenant agrees to permit
Landlord or Agent to enter the Premises at any reasonable time for the
purpose of determining the condition of the Premises and making repairs
thereto, as provided above in Paragraph 17.
19.2 LANDLORD'S RIGHT TO SHOW PREMISES. Tenant agrees that Landlord may
show prospects through the premises during normal business hours and,
within the last six months of the lease term, display a "For Lease" or "For
Sale" sign on the Premises.
20. SURRENDER AT END OF TERM.
Except as otherwise provided in Paragraph 9.2, Tenant shall vacate the
Premises at the expiration or other termination of this Lease and shall
remove all goods and effects not belonging to Landlord and shall surrender
possession of the Premises and all fixtures and systems thereof in good
repair, reasonable wear and tear excepted. If Tenant shall fail to perform
any of the foregoing obligations, Landlord is hereby expressly authorized
to do so on Tenant's behalf and Landlord may sell such articles on the
Premises as Landlord in its sole discretion deems saleable, and may dispose
of others in any manner which it chooses. The proceeds of any such sale
shall be applied toward the expenses thus incurred and any sums due under
this Lease, and Tenant will receive net proceeds, if any, and agrees to pay
any remaining balance promptly.
21. HOLDING OVER.
If Tenant shall not immediately surrender possession of the Premises at the
termination of this Lease, Tenant shall become a month-to-month tenant upon
the provisions of this Lease except the rate of the basic monthly rental
shall be one and one half times the basic monthly rental applicable just
prior to termination of this Lease, said rental to be payable in advance;
but unless Landlord elects to accept such rental from Tenant, the Landlord
shall continue to be entitled to re-take possession of the Premises without
any prior notice to Tenant. If the Tenant shall fail to surrender
possession of the Premises immediately upon the expiration of the term
hereof, the Tenant hereby agrees that all of the obligations of the Tenant
and all rights of the Landlord applicable during the term of this Lease
shall be equally applicable during such period of subsequent occupancy,
whether or not a month-to-month tenancy shall have been created as
aforesaid. Tenant further agrees that it shall be liable for any damages
suffered by Landlord by reason of Tenant's failure to immediately surrender
the Premises.
22. DESTRUCTION - FIRE OR OTHER CASUALTY.
In case of partial damage to the Premises by fire or other casualty,
insured against by Landlord, Tenant shall give immediate notice thereof to
Landlord, and Landlord, to the extent that insurance proceeds respecting
such damage are subject to and, in fact, are under the control and use of
Landlord, shall thereupon cause such damage to all property owned by
Landlord to be repaired with reasonable speed at the expense of Landlord,
due allowance being made for reasonable delay which may arise by reason of
adjustment of loss under insurance policies on the part of Landlord and/or
Tenant, and for reasonable delay on account of "labor troubles" or any
other cause beyond Landlord's control, and to the extent that the Premises
are rendered untenantable, the rent shall proportionately abate, provided
the damage above mentioned occurred without the fault or neglect of Tenant,
those employing or retaining the services of Tenant, Tenant's servants,
employees, agents, contractors, licensees, invitees or visitors. But if
such partial damage is due to the fault or neglect of Tenant or any of
other said persons, the damage may be repaired by Landlord at Tenant's
expense and there shall be no apportionment or abatement of rent. In the
event the damage shall be so extensive to the Premises as to render it
uneconomical, in Landlord's opinion, to restore for the use of Tenant, as
specified in Paragraph 5 hereof, or Landlord shall decide not to repair or
rebuild the Premises, this Lease, at the option of Landlord, shall be
terminated upon written notice to Tenant and the rent shall, in such event,
be paid to or adjusted as of the date of such damage, and the terms of this
Lease shall expire by lapse of time upon the third day after such notice is
mailed, and Tenant shall thereupon vacate the Premises and surrender the
same to Landlord, but no such termination shall release Tenant from any
liability to Landlord arising from such damage or from any breach of the
obligations imposed on Tenant hereunder.
23. EMINENT DOMAIN.
If the entire Premises shall be substantially taken (either temporarily or
permanently) for public purposes, or in the event Landlord shall convey or
lease the Premises to any public authority under threat or condemnation or
taking, the rent shall be adjusted to the date of such taking or leasing or
conveyance, and this Lease shall thereupon terminate. If only a portion of
the Premises shall be so taken, leased or condemned, and a result of such
partial taking, Tenant is reasonably able to use the remainder of the
Premises for the purposes intended hereunder, then this Lease shall not
terminate, but, effective as of the date of such taking, leasing or
condemnation, the rent hereunder shall be abated in any amount thereof
proportionate to the area of the Premises so taken, leased or condemned.
If, following such partial taking, Tenant shall not be reasonably able to
use the remainder of the premises for the purposes intended hereunder, then
this Lease shall terminate as if the entire Premises had been taken, leased
or condemned. In the event of a taking, lease or condemnation as described
in this Paragraph, whether or not there is a termination hereunder, Tenant
shall have no claim against Landlord other than an adjustment of rent, to
the date of taking lease or condemnation, and Tenant shall not be entitled
to any portion of any amount that may be awarded as damages or paid as a
result or in settlement of such proceedings or threat.
24. DEFAULTS - REMEDIES.
The occurrence of any one or more of the following events shall constitute
a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
(b) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed
by Tenant other than described in Paragraph (b) hereinabove, where
such failure shall continue for a period of five (5) days after
written notice thereof from Landlord to Tenant; provided, however,
that if the nature of the Tenant's default is such that more than
five (5) days are reasonably required for its cure, then Tenant
shall not be deemed to be in default if Tenant commences such cure
within said five (5)day period and thereafter, diligently prosecutes
such cure to completion.
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors, filing by or against
Tenant under any law relating to bankruptcy (unless in the case of a
petition filed against Tenant, the same is dismissed within sixty
(60) days), the appointment of a Trustee or receiver to take
possession of substantially all of the Tenant's assets located in
the Premises or the Tenant's interest in this Lease where possession
is not restored to Tenant within thirty (30) days or the attachment,
execution of other judicial seizure of substantially all of Tenant's
assets located at the premises or Tenant's interest in this Lease,
where such seizure is not discharged within thirty (30) days.
In the event of such material default or breach by Tenant, Landlord may at
any time hereunder, with or without notice or demand, without limiting
Landlord in the exercise of any other right or remedy which Landlord may
have hereunder or pursuant to applicable law by reason of such default or
breach, proceed in the following manner:
Notwithstanding that Landlord prior to such breach or default shall have
received rent or any payment, however designated, for the use of the
Premises from or on behalf of Tenant or from any other person and
regardless of and notwithstanding the fact that Landlord has or may have
some other remedy under this Lease or by virtue hereof or by law or in
equity, Landlord may immediately or at any time after any of such breach or
default give to Tenant a notice of termination of this Lease, and, upon the
giving of such notice, this Lease and the term and estate hereby granted
shall expire and terminate upon the day so specified in such notice as
fully and completely and with the same force and effect as if the day so
specified were the date hereinbefore fixed for the normal expiration of the
term of this Lease and all rights of Tenant under this Lease shall expire
and terminate, but Tenant shall remain liable for damages as hereinafter
provided.
Upon any such termination of this Lease, Tenant shall peaceably quit and
surrender the Premises to Landlord, and Landlord may, without further
notice, enter upon, re-enter, possess and repossess itself thereof, by
force, summary proceeding, ejectment, unlawful detainer, or otherwise, and
may dispossess and remove Tenant and all other persons and property from
the Premises, and may have, hold and enjoy the Premises and the right to
receive all rental and other income of and from the same. No re-entry by
Landlord shall be deemed an acceptance of a surrender of this Lease.
It is covenanted and agreed by Tenant that in the event of the termination
of this Lease or of re-entry by Landlord, under any provisions of this
Section or pursuant to law by reason of default hereunder on the part of
Tenant, Tenant will pay to Landlord, as damages, at the election of
Landlord, either:
(a) a sum which at the time of such termination of this Lease represents
the excess, if any, of:
(i) the aggregate basic rental, additional rental and any other
sums which would have been payable by Tenant for the period
commencing with such termination of this Lease and ending with
the date hereinabove set for the normal expiration of the full
term hereby granted had this Lease not so terminated or had
Landlord not so re-entered the Premises,
or
(ii) the aggregate rental value of the Premises (as determined by a
M.A.I. appraiser selected by Landlord) for the same period;
or
(b) sums equal to the basic rental, additional rental and any other sums
which would have been payable by Tenant had this Lease not so
terminated, payable upon the days specified herein following such
termination or such re-entry and until the date hereinabove set for
the normal expiration of the full term hereby granted, provided,
however, that if Landlord shall re-let the Premises during said
period (it being understood that Landlord has no obligation to do
so), Landlord shall credit Tenant with the net rents, if any,
received by Landlord from such re-letting, the expenses incurred or
paid by Landlord in terminating this Lease or of re-entering the
Premises and of securing possession thereof, as well as the expenses
of re-letting, including altering and preparing the Premises for new
tenants, brokers' commissions and all other expenses chargeable
against the Premises and the rental therefrom; but in no event shall
Tenant be entitled to receive any excess of such net rents over the
sums otherwise payable by Tenant to Landlord hereunder.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the term of this Lease
would have expired if it had not been terminated under the
provisions of this paragraph, or under any provisions of law, or had
Landlord not re-entered the Premises. Landlord shall also be
entitled to collect from Tenant any attorney's fees arising out of
Tenant's default hereunder. Landlord shall also be entitled to such
other remedies as may be available at law or in equity in the event
of default by Tenant hereunder.
Tenant, for Tenant, and on behalf of any and all persons claiming by,
through or under Tenant, including creditors of all kind, does hereby waive
and surrender all right and privilege which they or any of them might have
under or by reason of any present or future law to redeem the Premises or
to have a continuance of this Lease for the term hereby demised after being
dispossessed or ejected therefrom by process of law or under the terms of
this Lease or after the termination of this Lease as herein provided.
25. SEVERAL LIABILITY.
If the Tenant shall be one or more individuals, corporations or other
entities, whether or not operating as a partnership or joint venture, then
each such individual, corporation, entity, joint venture or partner shall
be deemed to be both jointly and severally liable for the payment of the
entire rent and other payments specified herein and all other duties and
obligations of Tenant hereunder.
26. ESTOPPEL CERTIFICATES.
Tenant agrees at any time and from time to time upon five (5) days' prior
notice by Landlord to execute, acknowledge and deliver to Landlord a
statement in writing certifying that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications) and the
dates to which the rent and other charges have been paid in advance, if
any, and stating whether or not, to the best knowledge of the signer of
such certificate, Landlord is in default in performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each
such default of which the signer may have knowledge, and such other matters
as Landlord may request, it being intended that any such statement
hereunder may be relied upon by any third part not a party to this Lease.
27. NOTICES.
Any notices required to be served in accordance with the terms of this
Lease shall be in writing and served by registered or certified mail, or
delivered in person and duly acknowledged, as follows:
To Tenant: Jack Reichert
ITI Technologies, Inc.
2266 North Second Street
North St. Paul, MN 55109
To Landlord: G. D. Package Machinery, Inc.
501 Southlake Boulevard
Richmond, VA 23236
Either party may at any time designate by written notice to the other a
change in the above addresses or addressees. All notices, demands and
requests which shall be served by registered or certified mail in the
manner aforesaid shall be deemed sufficiently served or given for all
purposes hereunder at the time such notice, demand or request shall be
mailed by United States registered or certified mail as aforesaid in any
Post Office or Branch Post Office regularly maintained by the United States
Government.
28. SEPARABILITY.
If any term or provision of this Lease or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable,
the remainder of this Lease or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted
by law.
29. CAPTIONS.
All headings in this Lease are intended for convenience of reference only
and are not to be deemed or taken as a summary of the provisions to which
they pertain or as a construction thereof.
30. SUCCESSORS AND ASSIGNS.
Except as otherwise provided, the covenants, conditions and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant, and their respective heirs, distributees, executors,
administrators, successors and assigns.
31. GOVERNING LAW.
This Lease was made in the state of Virginia and shall be governed by and
construed in all respects in accordance with the laws of the State of
Virginia.
32. INCORPORATION OF PRIOR AGREEMENTS.
This Lease contains all agreements of the parties with respect to any
matters contained herein. No prior agreement or understanding pertaining to
any such matter shall be affected. This Lease may be modified only in
writing and signed by the parties in interest at the time of the
modification.
33. CUMULATIVE REMEDY.
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in
equity.
34. AGENCY.
The Landlord, in appointing MORTON G. THALHIMER, INC., as its Agent herein
does so for and in consideration of its services in securing the Tenant
herein and the negotiation of the Lease, and agrees to pay said Agent a
commission as set forth below:
Four percent (4%) of the annual base rent of the initial term of the Lease
shall be payable to MORTON G. THALHIMER, INC., upon commencement of the
Lease. There shall be NO commissions paid on any extensions or renewals of
the Lease.
35. ATTORNEY'S FEES.
If Landlord or Tenant shall bring action against the other to enforce the
terms hereof or declare rights hereunder, and prevails in any such action,
the other party shall pay the attorney's fees incurred by the prevailing
party.
36. AUCTIONS.
Tenant shall not conduct, nor permit to be conducted, either voluntarily or
involuntarily, any auction upon the Premises without first having obtained
Landlord's prior written consent. Notwithstanding anything to the contrary
in this lease, Landlord shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
37. RECORDING.
Either Landlord or Tenant shall, upon request of the other, execute,
acknowledge and deliver to the other a "short form" memorandum of this
lease suitable for recording purposes.
38. EASEMENTS.
Landlord reserves to itself the right, from time to time to grant such
easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of Subdivision Maps and
restrictions, so long as such easements, rights, dedications, Maps and
restrictions do not unreasonably interfere with the permitted use of the
Premises by Tenant. Tenant shall sign any of the aforementioned documents
upon request of Landlord and failure to do so shall constitute a material
breach of this Lease.
39. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the Rules and Regulations
set forth in Exhibit "B", which is attached hereto and made a part hereof.
Landlord may, from time to time, delete or modify existing Rules and
Regulations or adopt new Rules and Regulations for use, safety, cleanliness
and care of the Premises, the Southport Corporate Center, and the comfort,
quiet and convenience of occupants of Southport Corporate Center.
Modifications or additions to the Rules and Regulations will be effective
upon notice to the Tenant from Landlord. Landlord shall not be responsible
to Tenant for non-performance of any such Rules and Regulations by any
other tenant of Southport Corporate Center. In the event of any conflict
between the provisions of the Lease and the Rules and Regulations, the
provisions of the Lease shall govern.
40. AUTHORITY.
If Tenant is a corporation, trust, or general or limited partnership, each
individual executing this Lease on behalf of such entity represents and
warrants that he or she is duly authorized to execute and deliver this
Lease on behalf of said entity. If Tenant is a corporation, trust or
partnership, Tenant shall, within thirty (30) days after execution of this
Lease, deliver to Landlord evidence of such authority satisfactory to
Landlord.
41. MISCELLANEOUS.
(a) As used in this Lease, and where the context requires: (1) the
masculine shall be deemed to include the feminine and neuter and
vice-versa; and (2) the singular shall be deemed to include the
plural and vice-versa.
(b) Landlord and Tenant do hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any
way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, and/or any claim
of injury or damage, and any emergency statutory or any other
statutory remedy.
(c) Tenant covenants and agrees that it shall not inscribe, affix, or
otherwise display signs, advertisements or notices in, on, upon or
behind any windows or on any door, partition or other part of the
interior or exterior of the building without the prior written
consent of the Landlord. If such consent be given by Landlord, any
such sign, advertisement or notice shall be inscribed, painted or
affixed by Landlord, or a company approved by Landlord, but the cost
of same shall be charged to and be paid by Tenant, and Tenant agrees
to pay the same promptly, on demand.
(d) Tenant covenants and agrees that it shall not attach or place
awnings, antennas or other projections to the outside walls or any
exterior portion of the building. No curtains, blinds, shades or
otherwise shall be attached to or hung in, or used in connection
with any window or door of the Premises, without the prior written
consent of Landlord.
(e) Tenant further covenants and agrees that it shall not pile or place
or permit to be placed any goods on the sidewalks or parking lots in
the front, rear or sides of the building, or to block said
sidewalks, parking lots and loading areas and not to do anything
that directly or indirectly will take away any of the rights or
ingress or egress or of light from any other tenant of the Landlord.
(f) Tenant waives statutory notice to quit prior to commencement of an
action for summary possession for nonpayment of rent.
(g) Except as otherwise expressly provided, Landlord or Agent shall not
be deemed to have waived any of the provisions hereof unless the
waiver be in writing and signed by the party against whom waiver is
sought to be enforced.
42. AGENCY DISCLOSURE.
Tenant and Landlord hereby confirm the following: MORTON G. THALHIMER, INC.
has acted in this transaction as agent for the Landlord. Oral or written
disclosure of such representation was provided to both Tenant and Landlord
prior to the signing of this lease.
Landlord and Tenant have carefully read and reviewed this Lease and each
term and provision contained herein and, by execution of this Lease, show their
informed and voluntary consent thereto. The parties hereby agree that, at the
time this Lease is executed, the terms of this Lease are commercially reasonable
and effectuate the intent and purpose of Landlord and Tenant with respect to the
Premises. The Parties shall rely solely upon the advice of their own legal
counsel as to the legal and tax consequences of this Lease.
In witness whereof, Landlord and Tenant have respectively signed and sealed
this Lease of the day and year first above written.
WITNESS LANDLORD: G.D. PACKAGE MACHINERY, INC.
A VIRGINIA CORPORATION
/s/ (illegible signature) /s/ (illegible signature)
- ---------------------------------- -------------------------------------
Name
WITNESS TENANT: ITI TECHNOLOGIES, INC.
A DELAWARE CORPORATION
/s/ (illegible signature) /s/ (illegible signature)
- ---------------------------------- -------------------------------------
Name Vice President, Customer Service
EXHIBIT "B"
RULES AND REGULATIONS SOUTHPORT CORPORATE CENTER
1. Signs, etcetera. No sign, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of Landlord. Suite entry door signs will be
supplied by Landlord.
2. Awnings. No awning shall be permitted on any part of the Premises.
3. No Unsightly Materials. No tenant shall place anything (including
but not limited to blinds, shades screens, or hanging plants) against or near
glass partitions or doors or windows which may appear unsightly from outside
such tenant's premises.
4. Rights of Third Parties. No tenant shall obstruct or interfere with
the rights of others to use any Building sidewalks, halls, exits, entrances,
elevators, stairways, loading docks or parking areas. The common areas of the
Building are not for the general public, and Landlord retains the right to
control and prevent access thereto by all persons whose presence in the judgment
of Landlord would be prejudicial to the safety, character, reputation and
interests of the Building and its tenants including any person who appears to
Landlord to be intoxicated or under the influence of liquor or drugs; provided
that nothing herein contained shall be construed to prevent such access to
persons with whom any tenant is dealing in the ordinary course of business,
unless such persons are engaged in illegal activities or unless such persons
violate the terms of the lease agreement between Landlord and such tenant or
these Rules and Regulations.
5. Roof. No tenant and no employee or invitee of any tenant shall go
upon the roof of the Building unless pursuant to an approved maintenance
agreement and after notice to Landlord.
6. Janitorial Services. Each tenant shall provide its own cleaning and
janitorial services. Each tenant shall keep the loading docks, stoops and stairs
adjacent to its premises free of dirt, grime, snow and ice.
7. Keys and Locks. Landlord will furnish each tenant, free of charge,
with two keys to each door lock in the premises demised to such tenant. Landlord
may make reasonable charge for any additional keys. No tenant shall alter any
lock or install a new additional lock or bolt on any door of its premises. Upon
the termination of its tenancy, each tenant shall deliver to Landlord all keys
for all doors.
8. Truck Parking. No trucks shall be parked at any time at any location
other than at each tenant's loading dock positions.
9. Load Limits: Vibrations. No tenant shall place a load upon any floor
of the Building which exceeds the load per square foot which such floor was
designed to carry. Landlord shall have the right to prescribe the weight, size
and position of all safes and other heavy objects. Business machines and
mechanical equipment which cause noise or vibration that may be transmitted to
the structure of the Building or to any space therein to such a degree as to be
objectionable to Landlord or to any tenant in the Building shall be placed and
maintained by any such tenant, at such tenant's expense, on vibration
eliminators or other devices sufficient to eliminate noise or vibration.
10. Use Restrictions. No tenant shall (i) use or keep in its premises
or the Building any kerosene, gasoline or flammable or combustible fluid or
material other than limited quantities necessary for the operation or
maintenance of office equipment or forklifts or (ii) use any combustible fluids
for heating, warming, or lighting. No tenant shall use or permit to be used in
the Building any foul or noxious gas or substance, or permit or allow the
Building to be occupied or used in a manner offensive or objectionable to
Landlord or other tenants of the Building by reason of noise, odors or
vibrations, or bring into or keep in or about the Building any birds, animals
(except for seeing eye dogs), bicycles or other vehicles not required for the
conduct of such tenant's business.
11. Heating. No tenant shall use any method of heating (including but
not limited to the use of kerosene heaters) or air-conditioning other than that
supplied by Landlord.
12. Building Systems. Each tenant shall cooperate with Landlord to
assure the effective operation of the Building's heating and air-conditioning
systems and shall comply with any governmental energy-saving rules, laws or
regulations.
13. Building Names & Address. Landlord reserves the right, exercisable
on thirty (30) days notice and without liability to any tenant, to change the
name and street address of the Building.
14. Closing Premises. Each tenant shall close and lock the doors of its
premises and entirely shut off all water faucets or other water apparatus and
electricity, gas and air outlets before its employees leave the premises. Each
tenant shall be responsible for any damage or injuries sustained as a result of
noncompliance with this rule.
15. Vending Machines. No tenant shall install, maintain or operate any
vending machine within the Building without the written consent of Landlord,
provided such consent shall not be required for the installation, maintenance
and use within a tenant's premises of not more than two (2) soft drink vending
machines.
16. Retail Sales: Canvassing. No tenant shall sell or permit the sale
at retail of newspapers, magazines, periodicals, theater tickets or any other
goods or merchandise to the general public in or on the Building. No tenant
shall make any room-to-room solicitation of business from other tenants in the
Building and each tenant acknowledges that canvassing and peddling of any kind
in the Building are prohibited.
17. Antennas. No tenant shall install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of the Building. No
tenant shall interfere with radio or television broadcasting or reception from
or in the Building.
18. Walls and Floors. Other than for the hanging of artwork, no tenant
shall mark, drive nails, screw or drill into the partitions, woodwork or plaster
or in any material way deface the Building or any part thereof. Landlord
reserves the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to the Building or any part thereof. No
tenant shall cut or bore holes for wires or affix any floor covering to the
floor of the Building or any part thereof in any manner except as approved by
Landlord. Each tenant shall repair any damage resulting from noncompliance with
this rule.
19. Trash. Each tenant in the Building shall store all its trash and
garbage within its premises. No tenant shall store any materials outside its
premises, including but not limited to pallets, crates, machinery, or equipment.
Landlord reserves the right to remove such materials at tenant's expense.
20. Prohibited Uses. No tenant shall use the Building for the sale of
merchandise to the general public, or for lodging.
21. Material Handling Equipment. No tenant shall use in any space or in
the public halls of the Building any hand trucks except those equipped with
rubber tires and side guards or such other material-handling equipment as
Landlord may approve.
22. Use of Name. Without the prior written consent of Landlord, no
tenant shall use the name of the Building in connection with or in promoting or
advertising the business of such tenant except as such tenant's address.
23. Emergency Procedures. Each tenant shall comply with all safety,
fire protection and evacuation procedures and regulations established by
Landlord or any governmental agency having jurisdiction.
24. Protection Against Theft. Each tenant assumes any and all
responsibility for protecting its premises from theft, robbery and pilferage,
which includes keeping doors locked and other means of entry to such premises
closed.
25. Landlord's Services. The requirements of tenants will be attended
to only upon appropriate application to the offices of the Building by an
authorized individual. Employees of Landlord shall not perform any work or do
anything outside their regular duties unless under special instructions from
Landlord, and no employee of Landlord will admit any person (tenant or
otherwise) to any office without specific instructions from Landlord.
26. Parking. No tenant (and no employees thereof) shall park its
vehicles in any parking areas designated by Landlord as areas for parking by
visitors to the Building. No tenant shall leave vehicles in the Building parking
areas overnight or park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor-driven or mopeds, bicycles or four-wheeled
trucks.
27. Temperature. Each tenant shall keep the temperature in its premises
above 35 degrees Fahrenheit at all times.
28. Third Party Services. Each tenant shall be responsible for entering
into maintenance/service agreements for the HVAC equipment in its premises, and
shall provide Landlord with copies of all maintenance and service agreements
entered into by such tenant and with certificates of insurance from each
provider of maintenance services evidencing the existence of insurance with
carriers, in amounts and on terms and conditions satisfactory to Landlord.
29. Enforcement of Rules and Regulations. Each tenant shall be
responsible for the observance of all of the foregoing rules by such tenant's
employees, agents, clients, customers, invitees and guests.
30. Changes in Rules and Regulations. These Rules and Regulations may
be modified or amended by Landlord from time to time in Landlord's sole
discretion.
EXHIBIT 11.1
EXHIBIT 11 -- STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PER SHARE DATA:
Net income before extraordinary item $3,415 $11,351 $15,092
Assumed interest reduction from warrants 249
3,664 11,351 15,092
Extraordinary item 820
Net income $2,844 $11,351 $15,092
Net income per common and common equivalent share, primary:
Income before extraordinary item $ 0.55 $ 1.23 $ 1.60
Extraordinary item (0.12)
Net income $ 0.43 $ 1.23 $ 1.60
Net income per common and common equivalent share, fully diluted:
Income before extraordinary item $ 0.55 $ 1.23 $ 1.60
Extraordinary item (0.12)
Net income $ 0.43 $ 1.23 $ 1.60
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES:
Primary:
Weighted average number of common shares
outstanding 5,624 8,671 8,930
Common equivalent shares:
Warrants 668
Options 196 557 509
Cheap stock per SAB Topic 4-D(1) 140
6,628 9,228 9,439
Fully diluted:
Weighted average number of common shares
outstanding 5,624 8,671 8,930
Common equivalent shares:
Warrants 681
Options 218 583 528
Cheap stock per SAB Topic 4-D(1) 140
6,663 9,254 9,458
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 of ITI Technologies, Inc. (Registrations No. 33-89826, No.
333-08943 and No. 333-08945) of our reports dated February 18, 1997, on our
audits of the consolidated financial statements and financial statement
schedule of ITI Technologies, Inc. as of December 31, 1995 and 1996, and for
the years ended December 31, 1994, 1995 and 1996, which reports are included
in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,352
<SECURITIES> 0
<RECEIVABLES> 14,593
<ALLOWANCES> 900
<INVENTORY> 16,627
<CURRENT-ASSETS> 48,103
<PP&E> 7,647
<DEPRECIATION> 4,148
<TOTAL-ASSETS> 89,794
<CURRENT-LIABILITIES> 6,056
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 79,236
<TOTAL-LIABILITY-AND-EQUITY> 89,794
<SALES> 93,331
<TOTAL-REVENUES> 93,331
<CGS> 48,217
<TOTAL-COSTS> 48,217
<OTHER-EXPENSES> 22,187
<LOSS-PROVISION> 385
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 23,747
<INCOME-TAX> 8,655
<INCOME-CONTINUING> 15,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,092
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.60
</TABLE>
