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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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, 1997
[ ] 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
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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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.01
par value
(Title of class)
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Indicate by check mark whether 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 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. [X]
Aggregate market value of Common Stock held by non-affiliates of
Registrant, based on the closing sale price of $25 5/8 per share as reported on
The Nasdaq National Market on February 20, 1998: $173,983,859.
Number of shares of Common Stock outstanding as of February 20, 1998:
8,491,044.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement are incorporated by
reference into Part III.
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<PAGE>
ITI TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
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................................................................. 14
Item 3. Legal Proceedings.......................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders........................ 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................... 16
Item 6. Selected Consolidated Financial Data....................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 19
Item 8. Financial Statements and Supplementary Data................................ 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................... 24
PART III
Item 10 through Item 12. Also see "Documents Incorporated by Reference" (Page 3)....... 24
Item 13. Certain Relationships and Related Transactions............................. 24
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K............ 25
Index to Consolidated Financial Statements............................................. F-1
Report of Independent Accountants on Financial Statement Schedule...................... S-1
Financial Statement Schedule........................................................... S-2
Signatures ........................................................................... S-3
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<PAGE>
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 Reference is made to the Registrant's definitive
the Registrant proxy statement, which will be filed with the
Securities and Exchange Commission (the
"Commission") within 120 days after December 31,
1997 (the "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/Executive
Compensation
Item 11. Executive Compensation Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners Security Ownership of Management
and Management and Certain Beneficial Owners
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
ITI Technologies, Inc. and its wholly owned subsidiaries (collectively,
the "Company") design, manufacture and market electronic security systems and
access control systems.
The Company's wholly owned subsidiary, Interactive Technologies, Inc.
("ITI"), was incorporated in January 1980 under the laws of the State of
Minnesota. In January 1985, ITI 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 ITI. On May 11, 1992, the
Company acquired ITI from a United States holding company controlled by ADIA
S.A. of Switzerland and certain members of ITI's management.
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 of ITI.
In April 1996, ITI 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, ITI 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.
On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX-CADDI Controls, Inc. ("CADDX") for $19.0 million in cash (the
"Acquisition"). In conjunction with the Acquisition, the Company also purchased
from the majority shareholder of CADDX the manufacturing facility leased by
CADDX for $530,000. Immediately following the Acquisition, the corporate name
was changed to CADDX Controls, Inc. CADDX, located in Gladewater, Texas,
designs, manufactures and markets hardwire electronic security systems in the
United States and certain international locations.
On May 22, 1997, the Company completed the cash purchase of the Regency
product line and dealer program from the Silent Knight Division of Willknight,
Inc., located in Minneapolis, Minnesota, for $1.8 million. If sales of Regency
products over the 36-month period ending May 2000 exceed certain levels, a
contingent payment of up to $800,000 will be made. This product line allows the
Company to offer an established product that integrates intrusion protection,
fire protection and access control. The Regency dealer program consists of
approximately 150 Regency dealers throughout North America.
Unless the context requires otherwise, the term "Company" shall refer
to ITI Technologies, Inc. and its wholly owned subsidiaries, ITI, CADDX, ITI
International, Inc., ITI Finance Corporation and Interactive Care, Inc.
<PAGE>
INDUSTRY OVERVIEW
There are multiple segments in the electronic security industry. The
Company currently competes in the burglar alarm segment, the electronic access
control segment and the commercial fire detection segment.
A typical electronic 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 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.
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. Hardwire systems are particularly suited to
new construction or areas of the world in which installation and labor costs are
extremely low. Wireless systems are particularly well-suited for retrofitting
systems into existing homes or businesses and for life safety markets such as
panic and medical alert systems. A third type of security system is a hybrid
system, which has both hardwire and wireless capabilities.
The Company believes that several factors contribute to a favorable
outlook for growth in the electronic security system market, including
increasing use of wireless security systems, increasing growth in international
demand for burglar alarm systems, increasing violent crime rates, increasing
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.
CADDX HARDWIRE SECURITY SYSTEMS
The Company believes that CADDX is well positioned for growth. The
international market for security systems is rapidly growing, with the European
market roughly the same size as the U.S. market and the non-European world
market also roughly the equivalent of the U.S. market. CADDX is one of the
largest U.S. exporters of security system controls. CADDX offers multiple
systems to satisfy the needs of the international, new construction and low-end
hardwire markets.
NX-8. In mid-1997, CADDX introduced its NX-8 security system, which is
designed to be a hybrid security system that will meet various countries'
regulatory requirements throughout the world. The NX-8 is flexible, durable and
user/installer friendly. The development of the NX-8 required several design and
engineering innovations, including the creation of special telecom and power
interfaces that would be acceptable under any country's regulations anywhere in
the world, the development of software to drive these interfaces and a buss
structure to allow high speed transmissions over long lines without loss of
signal, all within the specified physical space and cost structure contemplated.
By adding an ITI wireless receiver to the NX-8 control panel, the NX-8 becomes a
true hybrid system with both hardwire and wireless capabilities.
RANGER 9000E. The CADDX Ranger 9000E is a powerful, simple and flexible
hardwire panel, that can become a hybrid panel with the addition of a radio
receiver. The Ranger 9000E is suitable for residential, commercial, retail and
multi-tenant office building applications. This system provides the ability to
incorporate security, access control and environmental process monitoring for
commercial applications. Other security
<PAGE>
control panels in the CADDX Ranger family include the Ranger 8600, Ranger 8600E,
Ranger 8980 and the Ranger 8980E.
GLASS BREAK DETECTORS. CADDX manufactures a line of glass break
detectors. CADDX has been manufacturing glass break detectors for approximately
20 years. CADDX's patented "3x3" technology, which is a method of glass break
detection that monitors three specific frequency ranges for three different sets
of data and looks for a "match" to the "signature" of breaking glass, is
incorporated in CADDX glass break sensors, making them extremely reliable.
OTHER CADDX PRODUCTS. CADDX also manufactures various other hardwire
sensors for use in connection with hardwire control panels, including passive
infrared sensors (or motion detectors) and seismic detectors.
SALES AND MARKETING OF CADDX PRODUCTS
CADDX products are sold through domestic and international
distributors. Approximately 40 percent of CADDX's sales are outside of North
America.
ITI SUPERVISED WIRELESS SECURITY SYSTEMS
ITI's wireless security 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 wireless security systems to meet a variety of
price points and customer performance requirements, including:
ULTRAGARD SYSTEM. ITI's UltraGard system was introduced in 1996. 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 and 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
1994 to succeed the RF Commander system, which was first introduced in
1990. This 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 has
the capability to individually recognize up to 16 wireless sensors and can
be used with substantially all of ITI's accessories.
<PAGE>
SIMON. ITI's Simon system was introduced in 1997 as an entry-level
wireless security system 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, including ITI's new line of
lower cost sensors based upon Surface Acoustic Wave ("SAW") radio
technology.
CUSTOMIZED AND PRIVATE LABEL SYSTEMS. ITI has established relationships
with large security companies to develop and manufacture customized,
private label wireless 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 OF ITI'S WIRELESS SECURITY SYSTEMS
ITI's wireless 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.
<PAGE>
BREADTH OF SENSOR LINE. ITI believes it offers the widest variety of
wireless sensors currently available in the security system market. ITI's
sensors 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; carbon monoxide sensors;
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. Much
of ITI's sensor line utilizes crystal-controlled radio transmitters. In
1997, ITI introduced a new lower cost sensor line based on SAW radio
technology for use in connection with certain low-end systems.
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 ITI 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 Loop Receiver supports adding
ITI wireless sensors to any hardwire panel that supports a common loop
ground and/or a relay unit connection. ITI also has Quik Bridge receiver
products specifically designated to work with the CADDX NX-8 control panel
in domestic and international markets and certain Radionics and Detection
Systems controls in the U.S. market. A 1997
<PAGE>
addition to the Quik Bridge family allows the use of the ITI keychain
touchpad to control ITI and other manufacturers' access control systems.
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. 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, replacing this hardwire link.
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. The CS 4000 will be replaced
with an enhanced Central Station Receiver, the CS 5000, in mid-1998.
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 does
not detect activity in the home after an elapsed time. The LifeGard system
includes a control panel mounted on a base and includes a built-in
Interrogator and a water-resistant panic pendant.
ACCESS CONTROL
Electronic Access Control ("EAC") systems are designed to monitor
traffic through and grant or deny access to buildings and other restricted areas
depending on the clearance and authority level of the individual attempting to
enter. A basic EAC system consists of four components: (i) a controller that,
either independently or with a remote computer, controls the system database and
issues commands to lock or unlock doors; (ii) a magnetic lock that responds to
the controller commands; (iii) cards, or other identification technology, that
carry user data; and (iv) readers that read the user data on the cards and send
the information to the controller for processing. Assuming the user's identity
resides in the system database and the user has proper authority, the controller
issues the command for the door to unlock. EAC can range from control of a
single door with a few users to hundreds of doors at multiple locations with
thousands of users.
ITI offers a number of EAC systems to meet a variety of price points
and customer performance requirements, including:
ACCESS NT. Based on Microsoft Windows NT software, this system allows
multiple work stations to be functioning simultaneously to monitor the
system, add cards, change access times, make badges, control closed-circuit
television cameras, create reports, etc. The system expands the
functionality of the Access Point Manager ("APM") panels.
<PAGE>
ACCESS 5.0. This system has many of the same functions as Access NT,
but with a smaller system capacity and performing in a non-multitasking
operation at a lower price point. Both Access 5.0 and Access NT are aimed
at the middle to large EAC installations.
EASY ACCESS. This is a Microsoft Windows-based system that provides the
sophistication of more expensive PC-based systems but at a low price point.
Easy Access controls up to 32 doors with a very simple to use
point-and-click graphical interface.
451 APM. This is a stand-alone system that provides much of the
sophistication of a PC-based system without the expense of a host computer.
Each 451 system has its own microprocessor, database and clock. Each 451
system can operate independently or as part of a network of up to 16 APMs,
allowing the control of up to 32 doors without the use of a host computer.
351 APM. The 351 system is aimed at small businesses that may have only
one or two doors to protect, but want to control who gets in and at what
times. The 351 system is designed to work independently to control one or
two doors and has its own microprocessor, database and clock.
SALES AND MARKETING OF ITI PRODUCTS
ITI sells to its independent dealer network, large security companies
and other private label customers, and electric and gas utility companies.
SALES TO INDEPENDENT DEALER NETWORK. ITI has a nation-wide sales force
supporting its network of over 1,500 independent dealers. 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
ITI's national dealer sales meeting, which reinforces the ties between ITI
and its key dealers. ITI believes its dealer program gives it a competitive
advantage and engenders dealer loyalty. ITI's Security Pro and Regency
dealer programs enhance and support its independent dealer network.
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
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. 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.
<PAGE>
INTERNATIONAL SALES
Export sales, primarily to Canada, Europe and Australia, accounted for
13.9%, 8.7% and 9.8% of the Company's net sales for 1997, 1996 and 1995,
respectively (see the Consolidated Financial Statements and Notes thereto). The
Company believes that international markets offer it an important opportunity
for sales growth. The Company currently sells its products in over 57 foreign
countries through distributors and dealers. The CADDX NX-8 system was designed
specifically with the international market in mind. The NX-8 control panel
includes special telecom and power interfaces that are acceptable under any
country's regulations anywhere in the world. Furthermore, in response to various
foreign sales opportunities, ITI has incorporated into its wireless security
systems digitized voice response capabilities in several foreign languages and
intends to expand its product development and marketing efforts to increase its
international sales of wireless security products. ITI currently is designing
its next generation of wireless security systems to satisfy the power,
telephone, radio and other regulatory standards necessary to sell the systems in
the European Community. ITI has also developed a wireless receiver for the CADDX
NX-8 hardwire panel, which in combination creates a global hybrid product
solution. Because the NX-8 has already gained numerous international approvals,
it is helping to accelerate the introduction of ITI wireless sensors in the
international market.
PRODUCT DEVELOPMENT
In the years ended December 31, 1997, 1996, and 1995, the Company had
research and development expenditures of $7.5 million, $6.3 million and $5.2
million, respectively. The Company's current product development efforts are
primarily devoted to continuing the enhancement and expansion of its product
lines and technologies.
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. The Company'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. The Company 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 the Company. While the Company believes that
its 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 the Company 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. The Company
has manufacturing facilities in North St. Paul, Minnesota and Gladewater, Texas.
A Mexican facility assembles less complex, high-volume circuit boards, such as
transmitter boards, and ships them to North St. Paul for calibration, final
assembly and testing. The Company has invested in various automated printed
circuit board assembly and test equipment at its North St. Paul, Gladewater and
Mexican facilities to achieve manufacturing cost efficiencies and vertically
integrate its
<PAGE>
production processes. From time to time, the Company 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 the Company's systems are
obtained from single sources. If the Company 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, the
Company 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 12
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 the Company 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. There can be no assurance, however, 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 the Company 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 the
Company 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 the Company'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, it 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 the Company'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, 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.
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the inability of many computer programs to
correctly identify dates occurring after December 31, 1999, because they use two
digits rather than four digits to identify years. This could cause a computer
system failure or miscalculations, resulting in disruptions of operations
including, among other things, a temporary inability to process transactions or
engage in similar normal business activities.
The Company's assessment of the Year 2000 issue is substantially
complete. The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems or the Company. However, if such
modifications and conversions are performed incorrectly, or if such
modifications and conversions are not made by the Company's major customers and
suppliers, the Year 2000 issue could have a material adverse impact on the
financial condition and results of operations of the Company.
EMPLOYEES
On December 31, 1997, the Company had 641 full-time employees,
consisting of 372 in manufacturing, 95 in engineering and product development,
74 in customer service, 47 in sales, 42 in management and administration and 11
in marketing. These employees do not include the contract workers in the Mexican
facility. None of the Company's employees are members of a collective bargaining
unit, and the Company's management believes employee relations are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters and its largest manufacturing
facility are located in North St. Paul, Minnesota, in two adjacent leased
buildings that together provide approximately 148,000 square feet of
manufacturing, warehouse and office space. The leases on the North St. Paul
facilities expire on September 1, 1999. The Company also owns an approximately
33,000 square foot manufacturing and warehouse facility in Gladewater, Texas. In
addition, the Company also utilizes a contract assembly plant in Navajoa,
Mexico, consisting of approximately 22,000 square feet devoted exclusively to
the Company's manufacturing needs.
The Company also leases small warehouse and shipping point facilities
in Anaheim, California, Richmond, Virginia and Toronto, Ontario, Canada. In
early 1998, the Company closed a distribution warehouse located in Maplewood,
Minnesota, and moved the subject distribution operation to its existing complex
in North St. Paul, Minnesota.
The Company considers its key properties identified above as suitable
to its business and, in general, adequate for its current and near-term 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. ("Pittway"), in the United States District Court for the
District of Minnesota, for infringing on its patented technology. On March 9,
1998, following a two-month trial, a jury verdict was rendered finding that
Pittway infringed patented technology owned by the Company and awarded the
Company the amount of $35,954,344 in damages. Specifically, the jury found that
the Ademco VISTA Plus/5800 family of wireless security systems infringes the
Company's Learn Mode patent, United States Patent No. 4,855,713. The jury also
rejected the defenses of invalidity and unenforceability raised by Pittway. The
Learn Mode patent is at the heart of the Company's wireless security technology.
In addition to the jury damages award, the Company will ask the Court to enter
an injunction, based upon the
<PAGE>
jury's findings, prohibiting Pittway from infringing the Company's patent in the
future. Pittway has announced that it intends to appeal. The Company's
management will vigorously defend any such appeal.
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, 1997, or in the first quarter of
1998.
<PAGE>
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 February
20, 1998, there were approximately 72 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 for the two years ended
December 31, 1997:
HIGH LOW
---- ---
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
1997
----
Quarter:
First $18 $13-1/4
Second 22-7/8 14-1/8
Third 29 22-13/16
Fourth 28-1/8 21-3/4
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."
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales ................................... $ 100,999 $ 93,331 $ 79,012 $ 59,127 $ 50,174
Cost of goods sold .......................... 53,628 48,217 42,126 32,371 28,938
Inventory purchase accounting adjustment(1) 725
--------- --------- --------- --------- ---------
Gross profit ................................ 46,646 45,114 36,886 26,756 21,236
Operating expenses:
Marketing, general and administrative ..... 18,421 15,005 12,982 12,096 11,178
Research and development, net ............. 7,491 6,270 5,178 4,125 3,288
Purchased research and development costs(2) 5,200
Amortization of intangible assets ......... 1,233 912 912 912 2,614
--------- --------- --------- --------- ---------
Operating income ............................ 14,301 22,927 17,814 9,623 4,156
Interest income (expense), net .............. 627 815 38 (4,325) (4,735)
Other income (expense), net ................. (122) 5 (13) 13 (152)
--------- --------- --------- --------- ---------
Income (loss) before income tax expense
(benefit) and extraordinary item .......... 14,806 23,747 17,839 5,311 (731)
Income tax expense (benefit)(2) ............. 7,202 8,655 6,488 1,896 (9)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item ..... 7,604 15,092 11,351 3,415 (722)
Extraordinary item(3) ....................... 820
--------- --------- --------- --------- ---------
Net income (loss) ........................... $ 7,604 $ 15,092 $ 11,351 $ 2,595 $ (722)
========= ========= ========= ========= =========
Per share amounts, basic:
Income (loss) before extraordinary item ... $ .91 $ 1.69 $ 1.31 $ .61 $ (.13)
Extraordinary item(3) ..................... (.15)
--------- --------- --------- --------- ---------
Net income (loss) ......................... $ .91 $ 1.69 $ 1.31 $ .46 $ (.13)
========= ========= ========= ========= =========
Weighted average shares outstanding ....... 8,394 8,930 8,671 5,624 5,471
========= ========= ========= ========= =========
Per share amounts, diluted:
Income (loss) before extraordinary item ... $ .87 $ 1.63 $ 1.26 $ .52 $ (.13)
Extraordinary item(3) ..................... (.12)
--------- --------- --------- --------- ---------
Net income (loss) ......................... $ .87 $ 1.63 $ 1.26 $ .40 $ (.13)
========= ========= ========= ========= =========
Weighted average shares outstanding ....... 8,705 9,246 9,022 6,515 5,471
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED AND NOT REVIEWED)
---------------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............. $ 23,740 $ 25,403 $ 26,468 $ 25,388 $ 22,109 $ 23,319 $ 24,441 $ 23,462
Gross profit (1) ...... 11,524 11,167 11,952 12,003 10,668 11,003 11,916 11,527
Net income (loss) (2).. 3,744 (2,421) 3,189 3,092 3,539 3,669 3,934 3,950
Per share amounts:
Basic(4) ............ .45 (.29) .38 .37 .40 .41 .44 .44
Diluted(4) .......... .44 (.29) .36 .35 .38 .40 .42 .43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................... $ 36,336 $42,047 $34,866 $19,145 $13,255
Total assets.......................... 103,959 89,794 80,077 64,494 59,314
Current liabilities................... 8,995 6,056 6,225 7,300 7,316
Total debt............................ 4,500 39,544
Total liabilities..................... 16,258 10,468 9,986 14,686 45,824
Common stock and warrants
subject to put option.............. 6,303
Stockholders' equity.................. 87,701 79,326 70,091 49,808 7,187
</TABLE>
- -------------------------
(1) Amount reflects a non-recurring purchase accounting adjustment to cost of
goods sold of $725,000 in the second quarter of the year ended December 31,
1997, which resulted from the sale of inventory which had been written-up to
reflect estimated selling price less the sum of estimated costs of completion
and selling at the time of the Acquisition.
(2) Amount reflects a non-recurring purchase accounting adjustment in the second
quarter of the year ended December 31, 1997, which resulted from the write-off
of $5.2 million for the value assigned to technology in process at the time of
the Acquisition. This charge is not deductible for income tax purposes and, as
such, no related tax benefit has been recorded as a part of the Company's income
tax expense.
(3) In the fourth quarter of 1994, the Company incurred an extraordinary charge
of $820,000, or $.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 November 24, 1994, initial public offering.
(4) The summation of quarterly per share amounts may not equal the calculation
for the full year, as each quarterly calculation is performed discretely.
(The remainder of this page was intentionally left blank)
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in this discussion, the words "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business, not only in this report, but also in the Company's
periodic reports on Forms 10-Q and 8-K filed with the Commission.
GENERAL
In November 1994, the Company completed its initial public offering of
1,900,000 newly issued shares of common stock at $16.00 per share for net
proceeds of $27,843,000. In May 1995, the Company completed a subsequent public
offering issuing an additional 225,000 shares at $24.00 per share 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. Through December 31,
1997, the Company has repurchased 711,500 shares of its common stock at a total
cost of $9.1 million.
On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX for $19.0 million in cash. In conjunction with the Acquisition, the
Company also purchased from the majority shareholder of CADDX the manufacturing
facility leased by CADDX for $530,000. Immediately following the Acquisition,
the corporate name was changed to CADDX Controls, Inc. CADDX, located in
Gladewater, Texas, designs, manufactures and markets hardwire electronic
security systems in the United States and certain international locations.
The Acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of CADDX have been
included in the Company's financial statements from the effective date, April
30, 1997. The Acquisition cost has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the Acquisition
date, including $4.0 million to net current assets, $1.2 million to property and
equipment, $1.25 million to customer lists, principally related to CADDX
customers outside the United States, $2.1 million to net long-term deferred tax
liabilities, $3.75 million to trade names and $5.2 million to technology under
development, leaving a $5.7 million excess of cash paid (including transaction
costs) over net assets acquired. The values assigned to the various identifiable
intangible assets were determined based on anticipated discounted after-tax cash
flows for the period estimated to encompass the remaining life of the technology
existing at the Acquisition date and the expected life cycle of the next
generation of technology under development at the Acquisition date. Depreciation
periods for property and equipment and amortization periods for trade names,
customer lists and the excess of cash paid over net assets acquired are
consistent with the Company's existing policies.
At the time of the Acquisition, CADDX had under development technology
related to the NX-8 security system and it was not clear whether any of this
technology would be commercially acceptable or whether it would function
correctly. The development of the NX-8 required several design and engineering
innovations, including the creation of special telecom and power interfaces that
would be acceptable under any country's regulations anywhere in the world, the
development of software to drive these interfaces and a buss structure to allow
high speed transmissions over long lines without loss of signal, all within the
specified physical space and cost structure contemplated. It was not certain
that these design innovations could be accomplished, and failure to achieve any
one of these innovations would have caused the NX-8 project to fail. As a
result, in May 1997, the Company made a $5.2 million non-recurring charge to
operations for the value assigned to NX-8 technology in process at the time of
the Acquisition. Also, subsequent to the Acquisition, the Company included in
cost of goods sold in the second quarter of 1997, a $725,000 non-recurring
purchase
<PAGE>
accounting adjustment which resulted from the sale of inventory which had been
written-up to reflect estimated selling price less the sum of estimated costs of
completion and sale at the time of the Acquisition.
On May 22, 1997, the Company completed the cash purchase of the Regency
product line and dealer program from the Silent Knight Division of Willknight,
Inc., located in Minneapolis, Minnesota, for $1.8 million. In the event sales of
Regency products over the 36-month period ending May 2000 exceed certain levels,
a contingent payment of up to $800,000 will be made. This product line allows
the Company to offer an established product that integrates intrusion
protection, fire protection and access control. At the time of the acquisition,
the Regency dealer program consisted of approximately 150 Regency dealers
throughout North America. The purchase price was allocated to the estimated fair
value of the assets acquired, primarily to customer lists, which will be
amortized over its expected useful life of 10 years.
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 for the year ended December 31:
1997 1996 1995
---- ---- ----
Net sales...................................... 100.0% 100.0% 100.0%
Cost of goods sold............................. 53.1 51.7 53.3
Inventory purchase accounting adjustment....... .7 -- --
----- ----- -----
Gross profit................................... 46.2 48.3 46.7
Operating expenses:
Marketing, general and administrative........ 18.2 16.0 16.4
Research and development..................... 7.4 6.7 6.6
Purchased research and development costs..... 5.2 -- --
Amortization of intangible assets............ 1.2 1.0 1.1
----- ----- -----
Operating income............................... 14.2% 24.6% 22.6%
===== ===== =====
Net sales to the ten largest security system customers and to all other
customers were as follows for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Ten largest customers...... $ 45,695 45% $56,030 60% $45,079 57%
All other customers........ 55,304 55 37,301 40 33,933 43
-------- ---- ------- ---- ------- ----
$100,999 100% $93,331 100% $79,012 100%
======== ==== ======= ==== ======= ====
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by $7.7 million, or 8.2%, from $93.3
million for 1996 to $101.0 million for 1997. The increase in net sales is
primarily attributable to business acquisitions and volume increases, as prices
remained relatively stable over these periods.
Net sales for 1997 include approximately eight months of revenue for
the CADDX acquisition and the Regency product line. Excluding the effect of the
acquisitions and sales to the Company's largest customer's branch operations,
sales to all other customers increased over 16% from 1996. Sales to the
Company's largest customer's branch operations declined from approximately 40%
of total sales in 1996 to 21% of total sales in 1997, and are expected to
continue to decline in 1998 in both dollar amount and percentage.
<PAGE>
GROSS PROFIT. Gross profit increased from $45.1 million for 1996 to
$46.6 million for 1997 but decreased as a percentage of net sales from 48.3% in
1996 to 46.2% in 1997. This decrease was primarily due to the fact that the
CADDX business has lower gross margins than the Company's traditional wireless
business as the CADDX product line is sold through distribution rather than
direct to dealers, and hardwire products have lower margins as compared to
wireless products. In addition, margins were negatively impacted by the purchase
accounting adjustment of $725,000, or .7% of sales, which resulted from the sale
of inventory that had been written-up at the time of the Acquisition. Also, with
the reduction of business from the branch operations of the Company's largest
customer, the Company experienced excess capacity in its wireless manufacturing
facility in the second half of the year.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses increased from $15.0 million for 1996 to $18.4 million
for 1997 and increased as a percentage of net sales from 16.0% to 18.2%. The
increase was primarily due to the addition of CADDX, increased employment costs
in the sales and marketing areas, marketing costs associated with new product
introductions and a $300,000 charge for costs associated with a change in
distribution arrangements in Australia.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased from $6.3 million for 1996 to $7.5 million for 1997 as the Company
continued its emphasis on research and development. New products introduced in
1997 included the Quik Bridge product line, the Simon security system, the CADDX
NX-8 security system and related sensors. The Company anticipates that it will
continue this high level of development activity in 1998.
PURCHASED RESEARCH AND DEVELOPMENT COSTS. During the second quarter of
1997, in conjunction with the Acquisition, the Company recorded a $5.2 million
non-recurring charge to operations for value assigned at the Acquisition date to
purchased technology under development.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of acquisition-related
intangible assets increased from $912,000 for 1996 to $1,233,000 for 1997. This
increase is attributable to the Company's second quarter 1997 acquisitions.
NET INTEREST INCOME (EXPENSE). Net interest income decreased from
$815,000 for 1996 to $627,000 for 1997 as cash and cash equivalents were used in
late 1996 and early 1997 to purchase the Company's common stock through its
stock repurchase program and for the second quarter 1997 acquisitions.
INCOME TAX EXPENSE. Income tax expense decreased from $8.7 million for
1996 to $7.2 million for 1997. 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 both the purchased research and
development cost and amortization of excess of cost over net assets acquired.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
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 the Company
should "anticipate a reduction in purchase orders from ADT during the first
quarter of 1997. . . ." ADT has been the Company's largest single customer and
accounted for over 41% of its revenue in 1996. Although ADT initially indicated
that the Company 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, the Company received purchase orders from ADT for approximately
$20.3 million of wireless security products which were delivered in 1997. The
Company continues to provide product to dealers participating in the ADT dealer
program as well as product for repair and replacement purposes.
<PAGE>
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 in 1996.
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. 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.
LIQUIDITY AND CAPITAL RESOURCES
On April 30, 1997, the Company entered into an unsecured $15.0 million
bank revolving credit facility. The facility provides for interest calculated,
at the Company's option, at LIBOR plus 1.0% or the commercial bank's base rate
less 1.25%. In addition, the facility requires a commitment fee of 0.1% per
annum on the unused portion of the facility. The agreement allows for payment of
annual dividends equal to 25% of the Company's net income for the immediately
preceding fiscal year and requires the maintenance of specified financial ratios
and minimum net worth. No amounts were outstanding under this facility at
December 31, 1997.
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 $18.0
million for 1997 and $14.3 million for 1996. Net cash provided by operating
activities for 1997 resulted primarily from $13.3 million of net income
excluding non-cash acquisition-related adjustments, and $3.1 million of
depreciation and amortization charges. The changes in operating assets and
liabilities netted to a $122,000 source of cash, which included a $2.7 million
increase in inventory. The increase in inventory in 1997 was primarily due to
the CADDX acquisition, and additional inventory associated with new products
that were introduced in 1997 and scheduled to be introduced in the first half of
1998. Net cash from operating activities for 1996 resulted 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 $4.5
million use of cash for changes in operating assets and liabilities. Changes in
operating assets and liabilities in 1996 were primarily due to increases in
accounts receivable and inventories to support the Company's revenue growth.
During 1997, the Company invested $20.5 million in acquisitions of
businesses, net of cash acquired. Additionally, the Company made purchases of
property and equipment totaling $2.8 million and other intangible assets,
including ongoing patent defense cost, of $2.0 million. Although no significant
commitments exist, the Company expects that purchases of property and equipment
in 1998 will be approximately $3.5 million.
<PAGE>
Net cash provided by financing activities was $771,000 in 1997. This
was the net result of proceeds from the exercise of stock options of $2.2
million, less $1.4 million of cash used to purchase 90,000 additional shares of
the Company's common stock on the open market. Net cash used in financing
activities was $5.9 million in 1996 as common stock purchases exceeded option
activity.
A substantial amount of the Company's working capital is invested in
accounts receivable and inventories. The Company periodically reviews accounts
receivable for non-collectibility 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.
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.
LITIGATION
On August 17, 1995, the Company commenced an action for patent
infringement against Pittway in the United States District Court for the
District of Minnesota. On March 9, 1998, the jury found that the Ademco VISTA
Plus/5800 family of wireless security systems infringes ITI's Learn Mode patent
and awarded ITI the amount of $35,954,344 in damages for lost profits and
royalties. In addition, the Company will ask the Court to enter an injunction,
based on the jury's findings, prohibiting Pittway from infringing ITI's patent
in the future. Pittway has announced that it intends to appeal. The Company
intends to vigorously protect its patented technology from infringement and will
defend any such appeal. Costs associated with this action are being capitalized
as a patent asset associated with the related technology. As of December 31,
1997, the Company has capitalized $3,150,000 of costs related to this lawsuit,
and the Company expects that it will incur an additional $1,350,000 through the
first quarter of 1998. If Pittway appeals, costs to defend that appeal will also
be capitalized.
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.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the inability of many computer programs to
correctly identify dates occurring after December 31, 1999, because they use two
digits rather than four digits to identify years. This could cause a computer
system failure or miscalculations, resulting in disruptions of operations
including, among other things, a temporary inability to process transactions or
engage in similar normal business activities.
The Company's assessment of the Year 2000 issue is substantially
complete. The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems or the Company. However, if such
modifications and conversions are performed incorrectly, or if such
modifications and conversions are not made by the Company's major customers and
suppliers, the Year 2000 issue could have a material adverse impact on the
financial conditions and results of operations of the Company.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, a new standard for reporting
information about operating or business segments in financial statements. The
new standard will be effective for the Company's annual
<PAGE>
financial statements in 1998. The Company does not expect the business segment
information reported under the new standard to be substantially different than
the information currently reported.
The Company capitalizes certain costs of computer software developed or
obtained for internal use. The amounts capitalized are not significant and the
Company's policy for the capitalization of these costs is consistent with the
guidelines included in the American Institute of Certified Public Accountants
recent Statement of Position for accounting for costs of computer software
developed or obtained for internal use.
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 "Executive Compensation -- Information Regarding Certain
Executive Officers" contained in the Proxy Statement to be filed with the
Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the section entitled "Executive Compensation -- Compensation Committee
Interlocks and Insider Participation in Compensation Decisions" -- "Election of
Directors -- Compensation of Directors," -- "Compliance with Section 16(a) of
the Securities Exchange Act of 1934," "Execution Compensation -- Report of the
Compensation Committee," and "Performance Graph" contained in the Proxy
Statement.
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 "Security Ownership of Management and Certain Beneficial
Owners" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions have occurred that require reporting under Item 13.
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.
<PAGE>
(b) No Current Reports on Form 8-K were filed by the Company during the
fourth quarter ended December 31, 1997, or from December 31, 1997 to the date of
this Annual Report on Form 10-K.
(c) The following exhibits are hereby filed as part of this Annual
Report on Form 10-K:
3.1 Certificate of Amendment of Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on May
22, 1997.
10.1 Real Estate Sales Contract dated April 30, 1997, between
Kenneth T. Lewis and CADDX-CADDI Controls, Inc.
10.2 Employment Agreement dated April 30, 1997, between CADDX
Controls, Inc. and Joe Hurst.
10.3 Noncompetition Agreement dated April 30, 1997, between ITI
Technologies, Inc. and Joe Hurst.
10.4 Revolving Credit Agreement dated April 30, 1997, between ITI
Technologies, Inc. and Norwest Bank Minnesota, National
Association.
10.5 Long-Term Stock Incentive Plan (1992) (Amended and Restated
as of May 22, 1997).
10.6 Compatibility Agreement dated June 3, 1997, between Prince
Corporation and Interactive Technologies, Inc.
10.7 Trademark License Agreement dated June 3, 1997, between
Prince Corporation and Interactive Technologies, Inc.
10.8 Development and Supply Agreement between Interactive
Technologies, Inc. and Westsec, Inc. d/b/a Westar Security
Services dated June 20, 1997.
10.9 Form of Exchange Agreement used in connection with the
exchange of options issued to Nonemployee Directors under the
Company's Nonemployee Director Stock Option Plan.
10.10 Form of Exchange Agreement used in connection with the
exchange of Series C Stock Options.
10.11 Form of Consent to Award Modification used in connection
with the repricing of Series D and E Stock Options.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule (for electronic filing purposes
only).
27.2 Financial Data Schedule - Restatement of selected 1996 data
due to SFAS No. 128, "Earnings per Share" (for electronic filing
purposes only).
27.3 Financial Data Schedule - Restatement of selected 1997 data
due to SFAS No. 128, "Earnings per share" (for electronic filing
purposes only).
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
(the "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:
Exhibit No. Description
----------- -----------
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)
<PAGE>
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)
3.2 Certificate of Incorporation of the Company, as
amended, in effect on the date hereof. (Exhibit
3.1)
3.3 Bylaws of the Company in effect as of the date
hereof. (Exhibit 3.2)
4.1 Form of Common Stock Certificate. (Exhibit 4.1)
10.14 Adoption Agreement for Qualified Profit Sharing
and 401(K) Plan. (Exhibit 10.7)
10.15 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)
10.16 First Amendment to Securities Purchase Agreement
dated as of June 15, 1993, among the Company and
Warrantholders. (Exhibit 10.17)
10.17 Second Amendment to Securities Purchase
Agreement dated as of December 23, 1993, among
the Company and Warrantholders. (Exhibit 10.18)
10.18 Letter Agreement dated March 15, 1993, by and
between Thomas L. Auth and the Company. (Exhibit
10.33)
10.19 Letter Agreement dated March 15, 1993, by and
between Charles E. Briskey and the Company.
(Exhibit 10.35)
<PAGE>
10.20 Letter Agreement dated May 11, 1992, by and
between Robert E. Brunius and the Company.
(Exhibit 10.36)
10.21 Lease Agreement dated April 18, 1990, by and
between Knoll Business Center La Palma, 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)
10.22 Memorandum of Agreement dated August 16, 1989,
between Interactive Technologies, Inc. and
Mo-Mex Corporation. (Exhibit 10.43)
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 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).
The following exhibits are hereby incorporated into this Annual Report
on Form 10-K by reference to exhibits filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K"); the
exhibit number assigned to each exhibit as filed with the 1996 Form 10-K is set
forth in parentheses after the description of the exhibit:
Exhibit No. Description
----------- -----------
10.25 Strategic Supplier Agreement No. FD1106 between
Interactive Technologies, Inc. and Honeywell
Inc. dated November 20, 1996. (Exhibit 10.1)
10.26 Letter Agreement dated December 23, 1996,
between ADT Security Systems, Inc. and
Interactive Technologies, Inc. (Exhibit 10.2)
10.27 Lease Agreement dated April 28, 1995, between
G.D. Packaging Machinery, Inc. and Interactive
Technologies, Inc. (Exhibit 10.4)
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 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.
<PAGE>
The following exhibit is hereby incorporated into this Annual Report on
Form 10-K by reference to Exhibit 2 to the Current Report on Form 8-K filed by
the Company with the Commission on April 30, 1997:
Exhibit No. Description
----------- -----------
10.28 Stock Purchase and Sale Agreement dated April 4,
1997, by and among ITI, CADDX and the
Shareholders.
(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.
<PAGE>
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
F-1
<PAGE>
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, 1997 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, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 9, 1998
F-2
<PAGE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales ....................................... $ 100,999 $ 93,331 $ 79,012
Cost of goods sold .............................. 53,628 48,217 42,126
Inventory purchase accounting adjustment ........ 725
--------- --------- ---------
Gross profit .................................... 46,646 45,114 36,886
Operating expenses:
Marketing, general and administrative ....... 18,421 15,005 12,982
Research and development .................... 7,491 6,270 5,178
Purchased research and development costs .... 5,200
Amortization of intangible assets ........... 1,233 912 912
--------- --------- ---------
Operating income ................................ 14,301 22,927 17,814
Other income (expense):
Interest, net ............................... 627 815 38
Other, net .................................. (122) 5 (13)
--------- --------- ---------
Income before income tax expense ................ 14,806 23,747 17,839
Income tax expense .............................. 7,202 8,655 6,488
--------- --------- ---------
Net income ...................................... $ 7,604 $ 15,092 $ 11,351
========= ========= =========
Per share amounts:
Basic ....................................... $ .91 $ 1.69 $ 1.31
Weighted average shares outstanding - basic . 8,394 8,930 8,671
Diluted ..................................... $ .87 $ 1.63 $ 1.26
Weighted average shares outstanding - diluted 8,705 9,246 9,022
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................. $ 5,838 $ 13,352
Accounts receivable ........................................................ 14,510 14,593
Inventories ................................................................ 21,962 16,627
Deferred income taxes ...................................................... 1,300 1,384
Other current assets ....................................................... 1,721 2,147
--------- ---------
Total current assets ................................................... 45,331 48,103
Property and equipment ......................................................... 9,825 7,647
Excess of cost over net assets acquired ........................................ 28,380 23,398
Other intangible assets ........................................................ 18,834 10,646
Notes receivable, net of current portion ....................................... 1,589
--------- ---------
Total assets ........................................................... $ 103,959 $ 89,794
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 5,108 $ 2,981
Accrued wages .............................................................. 1,880 1,586
Other accrued expenses ..................................................... 2,007 1,489
--------- ---------
Total current liabilities .............................................. 8,995 6,056
Income taxes ................................................................... 7,263 4,412
--------- ---------
Total liabilities ...................................................... 16,258 10,468
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock ($.01 par value; 30,000 shares authorized; 9,190 shares issued,
8,478 shares outstanding in 1997; 9,036 shares issued, 8,414 shares
outstanding in 1996) .................................................... 92 90
Additional paid-in capital ................................................. 74,575 72,411
Retained earnings .......................................................... 22,095 14,491
Treasury stock, at cost (712 shares in 1997, 622 shares in 1996) ........... (9,061) (7,666)
--------- ---------
Total stockholders' equity ............................................. 87,701 79,326
--------- ---------
Total liabilities and stockholders' equity ............................. $ 103,959 $ 89,794
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
ITI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .......................................... $ 7,604 $ 15,092 $ 11,351
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of intangible assets ................ 1,329 1,105 989
Depreciation and amortization .................... 1,802 1,170 793
Provision for doubtful accounts .................. 657 385 571
Inventory purchase accounting adjustment ......... 725
Purchased research and development costs ......... 5,200
Deferred income taxes ............................ 250 988 955
Changes in operating assets and liabilities:
Accounts receivable ......................... 1,603 (1,634) (3,589)
Inventories ................................. (2,729) (2,150) (1,831)
Other current assets ........................ (141) (653) (627)
Accounts payable ............................ 1,370 (1,118) (430)
Accrued expenses ............................ 235 949 (645)
Other liabilities ........................... 100 118 460
-------- -------- --------
Net cash provided by operating activities ........... 18,005 14,252 7,997
-------- -------- --------
INVESTING ACTIVITIES:
Additions to property and equipment ............... (2,790) (3,722) (2,360)
Additions to other intangible assets .............. (2,004) (1,258) (359)
Issuance of notes receivable ...................... (974)
Acquisitions of businesses, net of cash acquired .. (20,522)
-------- -------- --------
Net cash used in investing activities ............. (26,290) (4,980) (2,719)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from revolving credit agreement .......... 6,310
Payments of revolving credit agreement ............ (6,310) (4,500)
Proceeds from issuance of common stock ............ 2,166 1,809 8,932
Payments for treasury stock ....................... (1,395) (7,666)
-------- -------- --------
Net cash provided by (used in) financing activities 771 (5,857) 4,432
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................. (7,514) 3,415 9,710
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR ........................................... 13,352 9,937 227
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............ $ 5,838 $ 13,352 $ 9,937
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
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, 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
Options exercised, including tax
benefits of $957................ 154 2 2,164 2,166
Purchase of treasury stock........ (90) (1,395) (1,395)
Net income........................ 7,604 7,604
----- --- ------- ------- ---- ------- --------
Balance at December 31, 1997...... 9,190 $92 $74,575 $22,095 (712) $(9,061) $ 87,701
===== === ======= ======= ==== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE>
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 electronic security products and
access control systems for the residential and commercial marketplace. 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 through various channels, including a direct sales
force to independent dealers and through regional, national and international
distributors. In addition, the Company manufactures products on a private label
basis for large security system installation companies. These customers are
located primarily throughout North America, Europe and Australia.
PUBLIC OFFERINGS OF COMMON STOCK
In November 1994, the Company completed an initial public offering of
1,900,000 newly issued shares of common stock at $16.00 per share for net
proceeds of $27,843,000. In May 1995, the Company completed a secondary public
offering issuing 225,000 additional shares at $24.00 per share 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 excesses of acquisition cost over amounts assigned to the net
identifiable assets acquired in the Company's various acquisitions are being
amortized on a straight-line basis over forty years. Total accumulated
amortization at December 31, 1997, 1996 and 1995 was $3,810,000, $3,054,000 and
$2,394,000, 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.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other identifiable intangible assets include value assigned to existing
technology, trademarks, trade names and customer lists acquired, deferred
financing costs, patents, including litigation cost associated with defending a
patent, and other intangibles. Value assigned to trademarks purchased are
amortized on a straight-line basis over an estimated useful of forty years.
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 eighteen months to twenty years. Customer lists are amortized over
their estimated useful lives, which range from ten to fifteen 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.
EARNINGS PER SHARE
Effective with year-end 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" ("EPS"),
and has retroactively presented basic and diluted earnings per share in
accordance with this standard. A dilutive effect on earnings results from the
assumed exercise of stock options outstanding under the Company's Stock
Incentive Plan.
The Company calculated basic and dilutive earnings per share as follows
for the year ended December 31 (in thousands, except per share data):
1997 1996 1995
---- ---- ----
Net income $7,604 $15,092 $11,351
Weighted average shares outstanding:
Basic (actual shares outstanding) 8,394 8,930 8,671
Effect of dilutive options 311 316 351
----- ----- -----
Diluted 8,705 9,246 9,022
===== ===== =====
Per share amounts:
Basic $ .91 $1.69 $1.31
Diluted $ .87 $1.63 $1.26
Various options to purchase shares of the Company's common stock (the
"Common Stock") were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the Common
Stock. These options expire on various dates through 2007. The weighted average
number of options excluded in the computation of diluted EPS and their
associated exercise prices were as follows for the year ended December 31 (in
thousands, except per share data):
1997 1996 1995
---- ---- ----
Weighted average options excluded 383 189 15
Exercise price range:
Low $16.50 $22.50 $25.88
High $33.50 $33.50 $25.88
F-8
<PAGE>
3. ACQUISITIONS
On April 30, 1997, the Company purchased all of the outstanding stock
of CADDX-CADDI Controls, Inc. ("CADDX") for $19.0 million in cash (the
"Acquisition"). In conjunction with the Acquisition, the Company also purchased
from the majority shareholder of CADDX the manufacturing facility leased by
CADDX for $530,000. Immediately following the Acquisition, the corporate name
was changed to CADDX Controls, Inc. CADDX, located in Gladewater, Texas,
designs, manufactures and markets hardwire electronic security systems in the
United States and certain international locations.
The Acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of CADDX have been
included in these financial statements from the effective date, April 30, 1997.
The Acquisition cost has been allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the Acquisition date, including
$4.0 million to net current assets, $1.2 million to property and equipment,
$1.25 million to customer lists (principally related to CADDX customers outside
the United States), $2.1 million to net long-term deferred tax liabilities,
$3.75 million to trade names and $5.2 million to technology under development,
leaving a $5.7 million excess of cash paid (including transaction costs) over
net assets acquired. The values assigned to the various identifiable intangible
assets were determined based on anticipated discounted after-tax cash flows for
the period estimated to encompass the remaining life of the technology existing
at the Acquisition date and the expected life cycle of the next generation of
technology under development at the Acquisition date. Depreciation periods for
property and equipment and amortization periods for trade names, customer lists
and the excess of cash paid over net assets acquired are consistent with ITI's
existing policies.
At the time of the Acquisition, CADDX had under development technology
related to the NX-8 security system and it was not clear whether any of this
technology would be commercially acceptable or whether it would function
correctly. The development of the NX-8 required several design and engineering
innovations, including the creation of special telecom and power interfaces that
would be acceptable under any country's regulations anywhere in the world, the
development of software to drive these interfaces and a buss structure to allow
high speed transmissions over long lines without loss of signal, all within the
specified physical space and cost structure contemplated. It was not certain
that these design innovations could be accomplished, and failure to achieve any
one of these innovations would have caused the NX-8 project to fail. As a
result, in May 1997, the Company made a $5.2 million non-recurring charge to
operations for the value assigned to NX-8 technology in process at the time of
the Acquisition. Also, subsequent to the Acquisition, the Company included in
cost of goods sold, in the second quarter of 1997, a $725,000 non-recurring
purchase accounting adjustment which resulted from the sale of inventory which
had been written-up to reflect estimated selling price less the sum of estimated
costs of completion and sale at the time of the Acquisition.
F-9
<PAGE>
3. ACQUISITIONS (CONTINUED)
The following are unaudited pro forma consolidated results of
operations for the years ended December 31, 1997 and 1996, as if the Acquisition
had occurred as of the beginning of each period. The unaudited pro forma
consolidated results of operations have been adjusted to eliminate the effect of
the $5.2 million non-recurring charge to operations for the value assigned to
the in-process NX-8 technology and the $725,000 non-recurring purchase
accounting adjustment which resulted from the sale of the purchased inventory.
The pro forma information also includes adjustments for additional depreciation
and amortization, the reduction of compensation expense for a non-active
majority shareholder, the reduction of interest income and additional interest
expense due to the reduction of cash used for the Acquisition and the impact on
the tax provision due to these adjustments. The unaudited pro forma consolidated
results of operations do not purport to represent what the Company's results of
operations would actually have been if the Acquisition had, in fact, occurred on
that date (in thousands, except per share data).
Pro Forma
Year Ended
December 31,
-----------------------------
1997 1996
---- ----
(Unaudited)
Net sales, in thousands $106,939 $111,548
Net income, in thousands 13,717 16,504
Basic earnings per share 1.63 1.85
Diluted earnings per share 1.58 1.78
On May 22, 1997, the Company completed the cash purchase of the Regency
product line and dealer program from the Silent Knight Division of Willknight,
Inc., located in Minneapolis, Minnesota, for $1.8 million. In the event sales of
Regency products over the 36-month period ending May 2000 exceed certain levels,
a contingent payment of up to $800,000 will be made. This product line allows
the Company to offer an established product that integrates intrusion
protection, fire protection and access control. At the time of acquisition, the
Regency dealer program consisted of approximately 150 Regency dealers throughout
North America. The purchase price was allocated to the estimated fair value of
the assets acquired, primarily to customer lists, which will be amortized over
its expected useful life of 10 years.
F-10
<PAGE>
4. OTHER FINANCIAL STATEMENT DATA
The following financial statement data is as of December 31 (in
thousands). The 1997 data includes the results of the CADDX acquisition.
1997 1996
---- ----
Accounts receivable:
Accounts receivable ..................... $ 15,555 $ 15,493
Allowance for doubtful accounts ......... (1,045) (900)
-------- --------
Total ................................. $ 14,510 $ 14,593
======== ========
Inventories:
Raw materials ........................... $ 9,956 $ 7,358
Allowance for obsolescence .............. (1,660) (1,400)
-------- --------
8,296 5,958
Work-in-process ......................... 4,877 3,519
Finished goods .......................... 8,789 7,150
-------- --------
Total ................................. $ 21,962 $ 16,627
======== ========
Property and equipment:
Machinery and equipment ................. $ 10,080 $ 8,178
Furniture and fixtures .................. 3,881 2,949
Building and improvements ............... 1,751 668
-------- --------
15,712 11,795
Accumulated depreciation and amortization (5,887) (4,148)
-------- --------
Total ................................. $ 9,825 $ 7,647
======== ========
Other intangible assets:
Trademarks and trade names .............. $ 13,829 $ 10,079
Technology and patents .................. 3,569 1,591
Customer lists .......................... 3,007
Other ................................... 616 590
-------- --------
21,021 12,260
Accumulated amortization ................ (2,187) (1,614)
-------- --------
Total ................................. $ 18,834 $ 10,646
======== ========
Other accrued expenses:
Warranty ................................ $ 650 $ 400
Professional fees ....................... 493 416
Other ................................... 864 673
-------- --------
Total ................................. $ 2,007 $ 1,489
======== ========
Income taxes:
Deferred ................................ $ 6,485 $ 3,834
Other ................................... 778 578
-------- --------
Total ................................. $ 7,263 $ 4,412
======== ========
SIGNIFICANT CUSTOMER AND EXPORT SALES
During the years ended December 31, 1997, 1996 and 1995, one customer
accounted for 25%, 41% and 39%, respectively, of consolidated net sales. This
customer accounted for 11% and 27% of consolidated accounts receivable at
December 31, 1997 and December 31, 1996, respectively.
Export sales, primarily to Canada, Europe and Australia, accounted for
13.9%, 8.7% and 9.8% of consolidated net sales for the years ended December 31,
1997, 1996 and 1995, respectively.
F-11
<PAGE>
5. INCOME TAXES
Income tax expense consisted of the following for the year ended
December 31 (in thousands):
1997 1996 1995
---- ---- ----
Current:
Federal.................. $6,443 $7,069 $5,190
State.................... 509 598 343
Deferred................... 250 988 955
------ ------ ------
$7,202 $8,655 $6,488
====== ====== ======
The Company paid taxes of $5,163,000, $6,751,000 and $3,642,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The differences between the income tax expense and income taxes
computed using the statutory federal income tax rate were as follows for the
year ended December 31 (in thousands):
1997 1996 1995
---- ---- ----
Amount using the statutory federal tax rate.... $5,182 $8,311 $6,229
Purchased research and development
costs........................................ 1,820
Amortization of excess of cost over net
assets acquired.............................. 265 231 231
State income taxes, net of federal benefit..... 331 389 224
Research and development
tax credits.................................. (345) (208) (123)
Foreign sales corporation benefit.............. (208) (147) (107)
Other, net..................................... 157 79 34
------ ------ ------
$7,202 $8,655 $6,488
====== ====== ======
A summary of the components of deferred tax assets (liabilities) is as
follows for the year ended December 31(in thousands):
1997 1996
---- ----
Accrued expenses and valuation reserves not
yet deducted for tax purposes................ $1,300 $1,228
Purchased NOL carryforwards.................... 156
------ ------
Net current deferred tax asset................. $1,300 $1,384
====== ======
Depreciation................................... $ (553) $ (225)
Patent defense costs........................... (1,133) (456)
Other intangible assets........................ (4,799) (3,153)
------- -------
Net long-term deferred tax liability........... ($6,485) ($3,834)
======= =======
F-12
<PAGE>
6. CREDIT FACILITY
On April 30, 1997, the Company entered into an unsecured $15.0 million
bank revolving credit facility. The facility provides for interest calculated,
at the Company's option, at LIBOR plus 1.0% or the commercial bank's base rate
less 1.25%. In addition, the facility requires a commitment fee of 0.1% per
annum on the unused portion of the facility. The agreement allows for payment of
annual dividends equal to 25% of the Company's net income for the immediately
preceding fiscal year and requires the maintenance of specified ratios and
minimum net worth. No borrowings were outstanding under the credit facility as
of December 31, 1997.
On December 12, 1994, the Company entered into a bank credit agreement
for an unsecured $15,000,000 bank revolving credit facility which provided for
interest calculated, at the Company's option, at LIBOR plus 1.0% or a commercial
bank's base rate. In addition, the facility required a commitment fee of .25%
per annum on the unused portion of the revolving credit commitment. 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 $24,000, $27,000 and $201,000 of interest for the
years ended December 31, 1997, 1996 and 1995, respectively.
7. COMMITMENTS
The Company leases certain property and equipment under various
non-cancelable operating leases. Total rent expense of the Company was $538,000,
$521,000 and $452,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
At December 31, 1997, future minimum rentals required under
non-cancelable operating leases are as follows (in thousands):
1998......................................... $ 616
1999......................................... 408
2000......................................... 32
-------
$ 1,056
=======
8. 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. On March 9, 1998, the jury found that the Ademco VISTA Plus/5800
family of wireless security systems infringes the Company's Learn Mode patent
and awarded the Company damages of approximately $36.0 million for lost profits
and royalties. In addition, the Company will ask the Court to enter an
injunction, based on the jury's findings, prohibiting Pittway Corporation from
infringing the Company's patent in the future. Pittway Corporation has announced
that it intends to appeal. 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, 1997, the Company has capitalized $3,150,000 of cost related to
this lawsuit.
9. PROFIT SHARING PLANS
The Company contributes to several defined contribution plans (the
"Plans") which qualify under Section 401(k) of the Internal Revenue Code.
Employees who meet minimum age and service requirements are eligible to
participate in the Plans.
The Company's contributions to the Plans were $171,000, $148,000 and
$141,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
F-13
<PAGE>
10. STOCKHOLDERS' EQUITY
NUMBER OF AUTHORIZED SHARES OUTSTANDING
At the Company's Annual Meeting of Stockholders on May 22, 1997, the
Company received approval to increase the number of shares of Common Stock which
the Company is authorized to issue from 15,000,000 shares to 30,000,000 shares.
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. The Company purchased 90,000 and 621,500 shares under
this authorization in 1997 and 1996, respectively.
STOCK INCENTIVE PLAN
The Company's Long-Term Stock Incentive Plan (1992) (the "Stock Plan")
provides for grants of up to 2,000,000 stock options, shares of restricted
stock, restricted stock units and stock appreciation rights to officers,
directors and other key employees. Stock option activity was as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS SHARES EXERCISE PRICE FAIR VALUE
- ------- ---------------- ---------------------- ----------------------
<S> <C> <C> <C>
Outstanding at December 31, 1994......... 870,109 $ 5.83
Granted.................................. 461,500 23.63 $ 9.06
Exercised................................ (305,700) 6.75
Canceled................................. (9,400) 16.97
---------
Outstanding at December 31, 1995......... 1,016,509 13.53
Granted.................................. 311,000 27.91 10.26
Exercised................................ (120,900) 5.31
Canceled................................. (15,450) 22.39
---------
Outstanding at December 31, 1996......... 1,191,159 18.00
Granted.................................. 366,000 14.26 5.94
Granted under exchange and
repricing agreements................... 741,900 16.47 6.69
Canceled................................. (766,250) 25.15
Exercised................................ (153,782) 8.11
---------
Outstanding at December 31, 1997......... 1,379,027 13.32
=========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ---------------- -------------- ----------- --------------
RANGE OF
EXERCISE PRICES
- ---------------
<S> <C> <C> <C> <C> <C>
$5.00 to $7.50.......... 319,227 5.2 years $ 5.31 304,367 $ 5.32
$14.125 to $30.75....... 1,059,800 9.0 years 15.73 725,920 15.87
--------- ---------
$5.00 to $30.75......... 1,379,027 8.1 years 13.32 1,030,287 12.76
========= =========
</TABLE>
Options vest over periods up to seven years from the date of grant and
expire at various periods up to April 2007. All options were granted with an
exercise price equal to or exceeding the fair value of the Company's Common
Stock at the date of grant. Upon termination of employment, options not
exercisable expire.
F-14
<PAGE>
10. STOCKHOLDERS' EQUITY (CONTINUED)
On January 28, 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
offered 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 Common Stock on that
date.
On May 5, 1997, the Company repriced certain D and E Stock Options that
had an exercise price of $22.56 or higher to provide for a new exercise price of
$16.50, the market price of the Common Stock on that date. All other terms and
conditions contained in such options remained unchanged.
On May 22, 1997, the Company cancelled all stock options awarded to
date to the Company's Board of Directors having an exercise price of $25.88 and
replaced such options with options issued under the Company's Stock Plan having
an exercise price of $16.00, the market price of the Common Stock on that date.
All other terms and conditions contained in such options remained unchanged.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has chosen not to adopt the expense recognition provisions
of SFAS No. 123, "Accounting for Stock Based Compensation." 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 Stock Plan been determined consistent with the fair-value-based
method of SFAS No. 123, the Company's net income and net income per 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 30.7%, 25.1% and 27.6%; expected option
lives of 5.3, 5.3 and 5.2 years; and risk-free interest rates of 6.81%, 6.38%
and 6.68% for 1997, 1996 and 1995, respectively.
1997 1996 1995
---- ---- ----
Net income (in thousands) As Reported $7,604 $15,092 $11,351
Pro forma 6,929 13,936 9,828
Basic earnings per share As Reported $ .91 $ 1.69 $ 1.31
Pro forma .83 1.56 1.13
Diluted earnings per share As Reported $ .87 $ 1.63 $ 1.26
Pro forma .80 1.52 1.11
The pro forma information above only includes stock options granted
subsequent to December 31, 1994. Pro forma compensation expense under the
fair-value-based method may increase over the next few years as additional stock
option grants are considered.
F-15
<PAGE>
10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
(The remainder of this page was intentionally left blank)
F-16
<PAGE>
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 Annual Report on Form 10-K.
In connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed on page S-2 of this Annual
Report on 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.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 9, 1998
<PAGE>
ITI TECHNOLOGIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
BALANCE BALANCE
AT BEGINNING CHARGED TO AT END
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
- -------------------------------------------------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts 1995 $800,000 $570,758 $570,758 $800,000
1996 800,000 384,593 284,593 900,000
1997 900,000 657,000 512,000 1,045,000
Allowance for Inventory Obsolescence 1995 $1,300,000 $72,244 $72,244 $1,300,000
1996 1,300,000 202,624 102,624 1,400,000
1997 1,400,000 388,000 128,000 1,660,000
</TABLE>
<PAGE>
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.
By: /s/ Thomas L. Auth
--------------------------------------------
Thomas L. Auth
ITS: CHAIRMAN, 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 DATE
---- ----- ----
<S> <C> <C>
Chairman, President, Chief Executive
/s/ Thomas L. Auth Officer and Director March 23, 1998
- -------------------------------------
/s/ W. Wallace McDowell, Jr. Director March 23, 1998
- -------------------------------------
/s/ William C. Ughetta, Jr. Director March 23, 1998
- -------------------------------------
/s/ Perry J. Lewis Director March 23, 1998
- -------------------------------------
/s/ Sangwoo Ahn Director March 23, 1998
- -------------------------------------
/s/ Walter R. Barry, Jr. Director March 23, 1998
- -------------------------------------
Vice President, Finance (Chief
/s/ Jack A. Reichert Accounting Officer) March 23, 1998
- -------------------------------------
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.1 Real Estate Sales Contract dated April 30, 1997, between
Kenneth T. Lewis and CADDX-CADDI Controls, Inc.
10.2 Employment Agreement dated April 30, 1997, between CADDX Controls,
Inc. and Joe Hurst
10.3 Noncompetition Agreement dated April 30, 1997, between ITI
Technologies, Inc. and Joe Hurst
10.4 Revolving Credit Agreement dated April 30, 1997, between ITI
Technologies, Inc. and Norwest Bank Minnesota, National
Association
10.5 Long-Term Stock Incentive Plan (1992) (Amended and Restated as of
May 22, 1997)
10.6 Compatibility Agreement dated June 3, 1997, between Prince
Corporation and Interactive Technologies, Inc.
10.7 Trademark License Agreement dated June 3, 1997, between Prince
Corporation and Interactive Technologies, Inc.
10.8 Development and Supply Agreement between Interactive Technologies,
Inc. and Westsec, Inc. d/b/a Westar Security Services dated June
20, 1997
10.9 Form of Exchange Agreement used in connection with the exchange of
options issued to Nonemployee Directors under the Company's
Nonemployee Director Stock Option Plan
10.10 Form of Exchange Agreement used in connection with the exchange of
Series C Stock Options
10.11 Form of Consent to Award Modification used in connection with the
repricing of Series D and E Stock Options
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule (for electronic filing purposes only)
27.2 Financial Data Schedule - Restatement of selected 1996 data due to
SFAS No. 128, "Earnings per Share" (for electronic filing purposes
only).
27.3 Financial Data Schedule - Restatement of selected 1997 data due to
SFAS No. 128, "Earnings per share" (for electronic filing purposes
only).
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
THE UNDERSIGNED, being the Chairman of the Board, the President and the CEO of
ITI Technologies, Inc., a Delaware corporation (the "CORPORATION"), for the
purpose of amending the Certificate of Incorporation of the Corporation pursuant
to Section 242 of the General Corporation Law of the State of Delaware, does
hereby execute this Certificate and acknowledge and represent:
1. That on January 28, 1997, the Board of Directors of the Corporation adopted
the following resolutions:
RESOLVED, that the Corporation's Certificate of Incorporation be
amended to increase the number of authorized shares to 30,000,000,
subject to the approval of the proposed amendment to the Certificate of
Incorporation by the shareholders of the Corporation at the annual
meeting of shareholders.
2. That, at the annual meeting of shareholders on May 22, 1997, the holders of
the majority of outstanding capital stock of the Corporation voted in favor of
the following resolution:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, effective at such time a Certificate of Amendment is
filed with the Secretary of State of Delaware, so that the Fifth
Article reads as follows:
FIFTH: The total number of shares of stock which the
Corporation shall have authority to issue is 30,000,000, and
the par value of such share is $0.01, amounting in the
aggregate to $300,000;
RESOLVED FURTHER, that the proper officers of the Corporation be, and
each of them hereby is, authorized, with the advice of counsel for the
Corporation, to take any and all action, to execute any and all
documents, agreements and instruments, and to take any and all steps
deemed by them necessary or desirable to carry out the purpose and
attend to the foregoing resolutions.
IN WITNESS WHEREOF, said ITI Technologies, Inc. has caused this Certificate to
be signed by its authorized officer on this 22nd day of May, 1997.
/s/ Thomas L. Auth
-------------------------------
Thomas L. Auth, President
Attest:
/s/ Charles A. Durant
- ----------------------------
Charles A. Durant, Secretary
EXHIBIT 10.1
REAL ESTATE SALES CONTRACT
1. PARTIES: Kenneth T. Lewis (Seller) agrees to sell and convey to Caddx -
Caddi Controls, Inc. (Buyer) and Buyer agrees to buy from Seller the
Property described below.
2. PROPERTY: The real property situated in Gregg County, Texas, described
on the attached exhibit, together with: (a) all buildings,
improvements, fixtures, and all property of every kind and character
and description (personal or real) owned by Seller located on, attached
to, or used in connection with the Property; (b) all rights, privileges
and appurtenances pertaining thereto, including any right, title, and
interest of Seller in and to adjacent streets, alleys, and
rights-of-way; (c) Seller's interest in and to all leases or rents and
security deposits; (d) Seller's interest in and to all licenses and
permits with respect to the Property; (e) Seller's interest in all
third party warranties or guaranties, if transferable, relating to the
Property or to any tangible personal property and fixtures located on,
attached to, or used in connection with the Property; and (f) Seller's
interest in any trade names, if transferable, used in connection with
the Property. The property sold by this contract is called the
"Property". The metes and bounds description determined by the survey
of the Property under paragraph 4(b) shall replace any exhibit
describing the perimeter boundaries of the Property if it differs from
the exhibit.
3. SALES PRICE: The total sales price is Five Hundred Thirty Thousand
($530,000) and No/100 Dollars to be paid in cash at closing.
4. TITLE POLICY AND SURVEY:
(a) TITLE POLICY: Seller shall furnish to Buyer at Seller's
expense an Owner Policy of Title Insurance (the Title Policy)
issued by U.S. Title Company (the Title Company) in the amount
of the Sales price, dated at or after closing, insuring Buyer
against loss under the provisions of the Title Policy, subject
only to those title exceptions permitted by this contract, or
as may be approved by Buyer in writing, and the standard
printed exceptions contained in the promulgated form of Title
Policy; provided however that: (1) the exception as to area
and boundaries shall e deleted except for any shortages in
area at the expense of Buyer; and (2) the exception as to
restrictive covenants shall be endorsed "None of Record",
unless restrictions are approved by Buyer. Within the (10)
days after the Title Company receives a copy of this contract
Seller shall furnish Buyer a commitment for Title Insurance
(the Commitment) including copies of recorded documents
evidencing title exceptions. Seller authorizes the Title
Company to deliver the Commitment and related documents to
Buyer at Buyer's address. Buyer shall have ten (10) days after
receipt of the Commitment and legible copies of documents
evidencing title exceptions required by this contract to
object in writing to matters disclosed in the Commitment other
than the standard printed exceptions as described or limited
in this paragraph.
<PAGE>
(b) SURVEY REQUIRED:
Within twenty-five (25) days after the Effective Date of this
contract, Seller, at Buyer's expense, shall furnish to Buyer a
survey of the Property dated after the Effective Date of this
contract.
Buyer may, within seven (7) days after Buyer's receipt of the
survey object in writing to any matter which constitutes a
defect or encumbrance to title on the survey or if the survey
shows any part of the Property to lie in a 100-year floodplain
area.
The survey required by this paragraph 4(b) shall be made by a
Registered Professional Land Surveyor acceptable to the title company.
The survey shall: (i) identify the Property by metes and bounds or
platted lot description; (ii) show that the survey was made and staked
on the ground with corners permanently marked; (iii) set forth the
dimensions and total area of the property; (iv) show the location of
all improvements, highways, streets, roads, railroads, rivers, creeks,
or other waterways, fences, easements, and rights of way on the
Property with all easements and rights of way referenced to their
recording information; (v) show any discrepancies or conflicts in
boundaries, any visible encroachments and any portion of the Property
lying within the 100-year floodplain as shown on the current Federal
Emergency Management Agency map; and (vi) contain the surveyor's
certificate that the survey is true and correct.
Buyer's failure to object under paragraph 4(a) or 4(b) within the time allowed
shall constitute a waiver of Buyer's right to object except that the
requirements in Schedule C of the Commitment shall not be deemed to have been
waived. If objections are made by Buyer, Seller shall have twenty (20) days from
the date it received the objections to cure the objections, if Seller elects to
cure the same. The Closing Date shall be extended as necessary to cure
objections if Seller elects to cure the same. If objections are not cured by the
extended Closing Date, this contract shall terminate unless Buyer elects to
waive the objections.
5. PROPERTY CONDITION/FEASIBILITY STUDIES:
INSPECTIONS AND FEASIBILITY STUDIES: Within twenty (20) days after the
Effective Date of the contract Buyer, at Buyer's expense, may complete
or cause to be completed inspections of the Property (including all
improvements and fixtures) by inspectors of Buyer's choice. Inspections
may include but are not limited to: (i) physical property inspections
including, but not limited to, structural pest control, mechanical,
structural, electrical, or plumbing inspections; (ii) economic
feasibility studies; (iii) any type of environmental assessment or
engineering study including the performance of tests such as soils
tests, air sampling, or paint sampling; and (iv) compliance inspections
to determine compliance with zoning ordinances, restrictions, building
codes, and statutes (e.g., ADA, OSHA, and others). Seller shall permit
Buyer and Buyer's inspectors access to the Property at reasonable
times. Seller shall pay for turning utilities on for inspections. If
Buyer determines, in Buyer's sole judgment, that the Property is not
suitable for any reason for Buyer's intended use or is not in
satisfactory condition, then Buyer may terminate this contract by
providing written notice of termination and copies of all reports of
inspections, studies, or assessments completed or caused to be
completed by Buyer under this paragraph to Seller within the time
required to complete the inspections, studies, or assessments under
this paragraph. If Buyer does not terminate this contract within the
time required any objections with respect to the inspections, studies
and assessments under this paragraph shall be deemed waived by Buyer.
If this contract does not close through no fault of Seller, Buyer shall
restore the Property to its original condition if altered due to
inspections, studies, or assessments completed by Buyer or Buyer's
inspectors. Within twenty (20) days after the Effective Date of this
contract Seller shall deliver to Buyer:
(1) a current rent roll of all leases affecting the
Property certified by Seller to be true and correct;
<PAGE>
(2) copies of all leases pertaining to the Property,
including any modifications, supplements, or
amendments to the leases;
(3) a current inventory of all tangible personal property
and fixtures owned by Seller and located on, attached
to, or used in connection with the Property;
(4) copies of all notes and deeds of trust assumed or
taken subject to by Buyer;
(5) copies of ail service, maintenance and management
agreements relating to the ownership and operation of
the Property;
(6) copies of all warranties and guaranties relating to
the Property, or any part thereof, or to the tangible
personal property and fixtures owned by Seller and
located on, attached to, or used in connection with
the Property;
(7) copies of all fire, hazard, liability, and other
insurance policies held by Seller on or affecting the
Property;
(8) copies of all leasing or other commission agreements
with respect to the Property that are being assumed
by Buyer;
(9) a copy of the "as-built" plans and specifications of
the Property;
(10) copies of all invoices for utilities and repair
expenses incurred by Seller for operation of the
Property for each month for the preceding two (2)
years prior to the Effective Date of this contract;
and,
(11) copies of all previous environmental assessments,
studies, or analyses affecting the Property in
Seller's possession.
6. BROKER: Each party represents to the other that no real estate broker
has been involved and no commissions will be incurred in connection
with this transaction.
7. CLOSING:
(a) The closing of the sale shall be on or before April 30, 1997,
or within seven (7) days after objections to title or the
survey have been cured, whichever date is later (the Closing
Date). If either party fails to close this sale by the Closing
Date, the non-defaulting party shall be entitled to exercise
the remedies contained in paragraph 12.
(b) At closing Seller shall furnish, at Seller's expense:
(1) tax statements showing no delinquent taxes on the
Property;
(2) a General Warranty Deed conveying good and
indefeasible title to the Property showing no
additional exceptions to those permitted in paragraph
4;
(3) a Bill of Sale with warranties to title conveying
title, free and clear of all liens, to any personal
property defined as part of the Property in paragraph
2 and conveyed by this contract;
(4) an assignment of all leases to or on the Property
duly executed by Seller;
<PAGE>
(5) to the extent assignable, an assignment duly executed
by Seller of any licenses an permits, maintenance,
management or other contracts, and any warranties or
guaranties defined as part of the Property in
paragraph 2 or conveyed by this contract;
(6) a current rent roll of the Property certified by
Seller;
(7) to the extent assignable, an assignment duly executed
by Seller of any one or more of the insurance
policies held by Seller pertaining to the Property;
and
(8) evidence that the person executing this contract is
legally capable and authorized to bind Seller.
8. POSSESSION: Seller shall deliver possession of the Property to Buyer on
Closing in its present or required repaired condition, ordinary wear
and tear excepted. Any possession by Buyer prior to closing or Seller
after closing that is not authorized by a separate written lease
agreement, shall establish a landlord-tenant at sufferance relationship
between the parties.
9. SALES EXPENSES: To be paid in cash at or prior to closing:
(a) Seller's Expenses: Releases of existing liens, including
prepayment penalties and recording fees; release of Seller's
loan liability; tax statements or certificates; preparation of
deed; one-half of escrow fee; and other expenses stipulated to
be paid by Seller under other provisions of this contract.
(b) Buyer's Expenses: one-half of escrow fee; and other expenses
stipulated to be paid by Buyer under other provisions of this
contract.
(c) If any sales expense exceeds the amount stated in this
contract to be paid by either party, either party may
terminate this contract unless either party agrees to pay such
excess.
10. PRORATIONS:
(a) Insurance (at Buyer's option) if a transfer is permitted by
the insurance carrier and current taxes, to the extent not the
obligation of the tenant of the Property, and any rents shall
be prorated through the Closing Date. If the amount of the ad
valorem taxes for the year in which the sale is closed is not
available on the Closing Date, proration of taxes shall be
made on the basis of taxes assessed in the previous year, with
a subsequent cash adjustment of such proration to be made
between Seller and Buyer, if necessary, when actual tax
figures are available.
(b) Seller shall, at closing, tender to Buyer any security
deposits, prepaid expenses, and advanced rental payments paid
by any and all tenants.
11. CASUALTY LOSS AND CONDEMNATION:
(a) If any part of the Property is damaged or destroyed by fire or
other casualty loss, Seller may, if it elects, restore the
Property to its previous condition as soon as reasonably
possible, but in any event by the Closing Date. If Seller is
unable or unwilling to do so, Buyer may: (i) terminate this
contract; (ii) extend the time for performance up to fifteen
(15) days and the Closing Date shall be extended as necessary;
or (iii) accept the Property in Its damaged condition and
accept an assignment of insurance proceeds. Provisions of the
Texas Property Code to the contrary shall not apply.
<PAGE>
(b) If prior to closing condemnation proceedings are commenced
against any portion of the Property, Buyer may: (i) terminate
this contract by written notice to Seller within ten (10) days
after Buyer is advised of the condemnation proceeding; or (ii)
appear and defend in the condemnation proceeding and any award
in condemnation shall, at Buyer's election, become the
property of Seller and the sales price shall be reduced by the
same amount or any award shall become the property of Buyer
and the sales price shall not be reduced.
12. DEFAULT: If Buyer fails to comply with this contract, Buyer shall be in
default. Seller may either: enforce specific performance, seek other
relief as may be provided by law, or both; or terminate this contract,
thereby releasing the parties from this contract. If Seller fails to
comply with this contract for any reason, Seller shall be in default
and Buyer may either enforce specific performance, seek such other
relief as may be provided by law, or both; or terminate this contract,
thereby releasing the parties from this contract.
13. ATTORNEY FEES: If, Buyer, Seller, or Escrow Agent is a prevailing party
in any legal proceeding brought under or with relation to this contract
or this transaction, such party shall be entitled to recover from the
non-prevailing parties all costs of such proceeding and reasonable
attorney fees. The provisions of this paragraph shall survive closing.
14. MATERIAL FACTS:
(a) Seller shall convey the Property on closing: (i) with no
liens, assessments, Uniform Commercial Code or other security
interests against the Property which will not be satisfied out
of the Sales Price, other than liens securing ad valorem taxes
not yet due and payable; and (ii) with no parties in
possession of any portion of the Property as lessees, tenants
at sufferance, or trespassers except tenants under the written
leases delivered to Buyer pursuant to this contract.
(b) To the best of Seller's knowledge and belief, Seller is not
aware of:
(i) any material defects to the Property except:
(ii) any environmental hazards or conditions affecting the
Property which would violate any federal, state or
local statutes, regulations, ordinances or other
requirements and more specifically, but without
limitation, whether: (1) the Property is or has ever
been used for the storage or disposal of hazardous
substances or materials or toxic waste, a dump site
or landfill, or the housing of any underground tanks
or drums; (2) radon, asbestos insulation or
fireproofing, ureaformaldehyde foam insulation,
lead-based pint or other pollutants or contaminants
of any nature now exist or have ever existed on the
Property; (3) wetlands, as defined by federal or
state law or regulation are on the Property; and (4)
threatened or endangered species or their habitat, as
defined by the Texas Parks and Wildlife Department or
the U.S. Fish and Wildlife Service, are on the
property; except as follows:
<PAGE>
(c) Each written lease to be furnished to Buyer under this
contract (the leases) shall be in full force and effect
according to its terms without amendment or modification that
is not disclosed to Buyer in writing. All the leases shall
contain the entire written or oral agreements of any kind for
the leasing, rental, or occupancy of any portion of the
Property. Seller shall disclose in writing to Buyer: (i) any
lease modifications, amendments, or defaults made subsequent
to the date the leases are furnished to Buyer but prior to
closing; (ii) any failure by Seller to comply with all of
Seller's obligations under the leases; (iii) any facts or
circumstances that would constitute a default by Seller under
any lease or entitle any tenant to offsets or damages; (iv)
any lease in which tenant does not actually occupy the
premises leased; (v) if any rent under any lease has been
collected in advance of the current month; (vi) if any
concessions, bonuses, free rents, rebates, or other matters
affect the rental for any tenant; (vii) if any of the lease or
rentals or other sums payable under the leases have been
assigned or otherwise encumbered, except as security for
loan(s) assumed or taken subject to as provided in this
contract; and (viii) if any tenant under any lease is in
default.
15. NOTICES: All notices shall be in writing and effective when
hand-delivered, mailed by certified mail return receipt requested, or
sent by facsimile transmission to:
Seller: Buyer:
Kenneth T. Lewis Caddx-Caddi Controls, Inc.
c/o Mitch Motley 1420 North Main Street
P.O. Box 3999 Gladewater, Texas 75647
Longview, Texas 75606 Phone___________________________
Phone (903) 236-9800 Fax_____________________________
Fax (903) 236-8787
Copy to:
Bob Anderson
Smead, Anderson, Wilcox & Dunn
P.O. Box 3343
Longview, Texas 75606
Phone (903) 757-2868
Fax (903) 757-4612
16. AGREEMENT OF THE PARTIES: This contract shall be binding on the
parties, their heirs, executors, representatives, successors, and
assigns. This contract shall be construed under and in accordance with
laws of the State of Texas. This contract contains the entire agreement
of the parties and cannot be changed except by written agreement. If
this contract is executed in a number of identical counterparts, each
counterpart is deemed an original and all counterparts shall,
collectively, constitute one agreement. Buyer may not assign this
contract.
<PAGE>
17. TIME: Time is of the essence in this contract. Strict compliance with
the times for performance stated in this contract is required.
18. EFFECTIVE DATE: The Effective Date of this contract for the purpose of
performance of all obligations shall be the date this contract is
receipted by the Escrow Agent after all parties have executed this
contract.
19. PROPERTY CONVEYED "AS IS.": IT IS UNDERSTOOD AND AGREED THAT SELLER IS
NOT MAKING AND SPECIFICALLY DISCLAIMS ANY WARRANTIES OR REPRESENTATIONS
OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PROPERTY (EXCEPT FOR THE EXPRESS WARRANTIES OF SELLER, IF ANY, PROVIDED
IN THAT CERTAIN STOCK PURCHASE AND SALE AGREEMENT BETWEEN ITI
TECHNOLOGIES, INC. AS "BUYER", KENNETH T. LEWIS, JOE HURST, JAMES E.
STEVENS, AND KENNETH RYAN LEWIS AS "SELLERS", AND CADDX-CADDI, INC. AND
THOSE WARRANTIES AND REPRESENTATIONS SET FORTH IN THIS AGREEMENT),
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS AS TO
MATTERS OF TITLE (OTHER THAN SELLER'S WARRANTY OF TITLE SET FORTH IN
THE GENERAL WARRANTY DEED TO BE DELIVERED AT CLOSING), ZONING, TAX
CONSEQUENCES, PHYSICAL OR ENVIRONMENTAL CONDITIONS, AVAILABILITY OF
ACCESS (SPECIFICALLY MAKING NO WARRANTY OF COMPLIANCE WITH THE
REQUIREMENTS OF THE AMERICAN WITH DISABILITIES ACT OF 1990), INGRESS OR
EGRESS, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL
APPROVALS, GOVERNMENTAL REGULATIONS OR ANY OTHER MATTER OR THING
RELATING TO OR AFFECTING THE PROPERTY INCLUDING, WITHOUT LIMITATION:
(i) THE VALUE, CONDITION, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE
OF THE PROPERTY, (ii) THE MANNER OR QUALITY OF THE CONSTRUCTION OR
MATERIALS INCORPORATED INTO ANY OF THE PROPERTY AND (iii) THE MANNER,
QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE PROPERTY. BUYER
REPRESENTS THAT IT IS A KNOWLEDGEABLE PURCHASER OF REAL ESTATE AND THAT
IT IS RELYING SOLELY ON ITS OWN EXPERTISE AND THAT OF BUYER'S
CONSULTANTS, AND THAT BUYER WILL CONDUCT SUCH INSPECTIONS AND
INVESTIGATIONS OF THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, THE
PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AND SHALL RELY UPON SAME
AND, UPON CLOSING, SHALL ASSUME THE RISK THAT ADVERSE MATTERS,
INCLUDING, BUT NOT LIMITED TO, ADVERSE PHYSICAL AND ENVIRONMENTAL
CONDITIONS, MAY NOT HAVE BEEN REVEALED BY BUYER'S INSPECTIONS AND
INVESTIGATIONS. BUYER ACKNOWLEDGES AND AGREES THAT UPON CLOSING, SELLER
SHALL SELL AND CONVEY TO BUYER AND BUYER SHALL ACCEPT THE PROPERTY "AS
IS, WHERE IS," WITH ALL FAULTS, AND BUYER FURTHER ACKNOWLEDGES AND
AGREES THAT THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE PROPERTY BY SELLER, ANY
AGENT OF SELLER OR ANY THIRD PARTY, EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH IN THE ABOVE-REFERENCED STOCK PURCHASE AND SALE AGREEMENT. THE
TERMS AND CONDITIONS OF THIS PARAGRAPH SHALL EXPRESSLY SURVIVE THE
CLOSING AND NOT MERGE THEREIN AND SHALL BE INCORPORATED INTO THE
SPECIAL WARRANTY DEED. SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY
ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION
PERTAINING TO THE PROPERTY FURNISHED BY ANY REAL ESTATE BROKER, AGENT,
EMPLOYEE, SERVANT OR OTHER PERSON, UNLESS THE SAME ARE SPECIFICALLY SET
FORTH OR REFERRED TO HEREIN.
<PAGE>
BUYER: SELLER:
CADDX - CADDI CONTROLS, INC.
By: /s/ Joe Hurst /s/ Kenneth T. Lewis
-------------------- -----------------------
Printed Name: JOE HURST Kenneth T. Lewis
Title: President
---------------
Dated: April 30, 1997 Dated: April 30, 1997
---------------- ---------------
EMPLOYMENT AGREEMENT
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made as of the 30th day of
April, 1997, by and between CADDX-CADDI CONTROLS, INC., a Texas corporation (the
"EMPLOYER"), and JOE HURST, an individual resident in Texas (the "EXECUTIVE").
RECITALS
Concurrently with the execution and delivery of this Agreement, ITI
TECHNOLOGIES, INC., a Delaware corporation (the "BUYER"), is purchasing from the
Executive, Kenneth T. Lewis, James E. Stevens and Kenneth Ryan Lewis (each a
"SELLER," collectively, the "SELLERS"), all of the issued shares of stock of the
Employer, pursuant to that certain Stock Purchase and Sale Agreement dated April
4, 1997, between the Sellers and the Buyer (the "STOCK PURCHASE Agreement"). The
Buyer and the Employer desire the Executive's continued employment with the
Employer, and the Executive wishes to accept such continued employment, upon the
terms and conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this SECTION 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in SECTION 3(a)(ii).
"BOARD OF DIRECTORS"--the board of directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the Employer,
product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples,
inventions and ideas, past, current, and planned research and
development, current and planned manufacturing or distribution methods
and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer
software and programs (including object code and source code), computer
software and database technologies, systems, structures, and
architectures (and related formulae, compositions, processes,
improvements, devices, know-how, inventions, discoveries, concepts,
ideas, designs, methods and information),
<PAGE>
and any other information, however documented, that is a trade secret
within the meaning of Texas common law;
(b) information concerning the business and affairs of the Employer
(which includes historical financial statements, financial projections
and budgets, historical and projected sales, capital spending budgets
and plans, the names and backgrounds of key personnel, personnel
training, techniques and materials, however documented); and
(c) notes, analyses, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing.
"DISABILITY"--as defined in SECTION 6(b).
"EFFECTIVE DATE"--the date stated in the first paragraph of this Agreement.
"EMPLOYEE INVENTION"--any idea, invention, technique, modification, process, or
improvement (whether patentable or not), any industrial design (whether
registrable or not), and any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), created, conceived, or developed by the Executive, either
solely or in conjunction with others, during the Employment Period, or a period
that includes a portion of the Employment Period, that relates in any way to, or
is useful in any manner in, the business then being conducted or proposed to be
conducted by the Employer, and any such item created by the Executive, either
solely or in conjunction with others, following termination of the Executive's
employment with the Employer, that is based materially upon or uses Confidential
Information to any material degree.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the Effective Date or
as changed from time to time.
"FOR CAUSE"--as defined in SECTION 6(c).
"FOR GOOD REASON"--as defined in SECTION 6(d).
"INCENTIVE COMPENSATION"--as defined in Section 3(b).
"NONCOMPETITION AGREEMENT"--as defined in Section 6(c).
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
"PROPRIETARY ITEMS"--as defined in SECTION 7(b)(i)(4).
<PAGE>
"SALARY"--as defined in SECTION 3(a)(i).
2. EMPLOYMENT TERMS AND DUTIES
(a) Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
(b) Term. Subject to the provisions of SECTION 6, the term of the
Executive's employment under this Agreement will be one (1) year,
beginning on the Effective Date and ending on the first anniversary of
the Effective Date.
(c) Duties. The Executive will have such duties as are assigned or
delegated to the Executive by the Board of Directors or the Chief
Executive Officer, and will initially serve as President and CEO of the
Employer. The Executive will devote his entire business time,
attention, skill, and energy exclusively to the business of the
Employer; will use his best efforts to promote the success of the
Employer's business; and will cooperate fully with the Board of
Directors in the advancement of the best interests of the Employer.
Nothing in this SECTION 2(c), however, will prevent the Executive from
engaging in additional activities in connection with personal
investments and community affairs that are not inconsistent with the
Executive's duties under this Agreement. If the Executive is elected as
a director of the Employer or as a director or officer of any of its
affiliates, the Executive will fulfill his duties as such director or
officer without additional compensation.
3. COMPENSATION
(a) Basic Compensation.
(i) Salary. The Executive will be paid an annual salary of One
Hundred Seventy-Five Thousand and no/100 Dollars ($175,000),
subject to adjustment as provided below (the "SALARY"), which
will be payable in equal periodic installments according to
the Employer's customary payroll practices, but no less
frequently than monthly. Subsequent to the term of employment
set forth in SECTION 2(b), the Salary will be reviewed by the
Board of Directors not less frequently than annually, and may
be adjusted upward or downward in the sole discretion of the
Board of Directors, but in no event will the Salary be less
than One Hundred Seventy-Five Thousand and no/100 Dollars
($175,000) per year.
(ii) Benefits. During the Employment Period and so long as the
Executive is employed by the Employer, the Executive will be
permitted to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical, and
other employee benefit plans of the Employer that may be in
effect from time to time, to the extent the Executive is
eligible under the terms of those plans (collectively, the
"BENEFITS").
<PAGE>
(b) Incentive Compensation. As additional compensation for the
services to be rendered by the Executive pursuant to this
Agreement (the "INCENTIVE COMPENSATION"), the Executive shall
be eligible for discretionary bonus compensation in such
amounts as determined from time to time by the Board of
Directors.
4. FACILITIES AND EXPENSES
The Employer will furnish the Executive office space, equipment, supplies, and
such other facilities and personnel as the Employer deems necessary or
appropriate for the performance of the Executive's duties under this Agreement.
The Employer will pay on behalf of the Executive (or reimburse the Executive
for) reasonable expenses incurred by the Executive at the request of, or on
behalf of, the Employer in the performance of the Executive's duties pursuant to
this Agreement, and in accordance with the Employer's employment policies,
including reasonable expenses incurred by the Executive in attending
conventions, seminars, and other business meetings, in appropriate business
entertainment activities, and for promotional expenses. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation in accordance with the vacation
policies of the Employer in effect for its executive officers from time to time.
Vacation must be taken by the Executive at such time or times as approved by the
Chairman of the Board or the Chief Executive Officer. The Executive will also be
entitled to the paid holidays and other paid leave set forth in the Employer's
policies. Vacation days and holidays during any Fiscal Year that are not used by
the Executive during such Fiscal Year may not be used in any subsequent Fiscal
Year.
6. TERMINATION
(a) Events of Termination. The Employment Period, the Executive's Basic
Compensation and Incentive Compensation, and any and all other rights
of the Executive under this Agreement or otherwise as an employee of
the Employer, will terminate (except as otherwise provided in this
SECTION 6):
(i) upon the death of the Executive;
(ii) upon the disability of the Executive (as defined in
SECTION 6(b)) immediately upon notice from either party to the
other;
(iii) for cause (as defined in SECTION 6(c)) immediately upon
notice from the Employer to the Executive, or at such later
time as such notice may specify; or
(iv) for good reason (as defined in SECTION 6(d)) upon not
less than thirty (30) days' prior notice from the Executive to
the Employer.
<PAGE>
(b) Definition of Disability. For purposes of SECTION 6(a), the
Executive will be deemed to have a "DISABILITY" if, for physical or
mental reasons, the Executive is unable to perform the essential
functions of the Executive's duties under this Agreement for one
hundred twenty (120) consecutive days, or one hundred eighty (180) days
during any twelve (12) month period, as determined in accordance with
this SECTION 6(b). The disability of the Executive will be determined
by a medical doctor selected by written agreement of the Employer and
the Executive upon the request of either party by notice to the other.
If the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two
medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the
medical doctor selected under this SECTION 6(b) will be binding on both
parties. The Executive must submit to a reasonable number of
examinations by the medical doctor making the determination of
disability under this SECTION 6(b), and the Executive hereby authorizes
the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally
competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this SECTION
6(b), for the purposes of submitting the Executive to the examinations,
and providing the authorization of disclosure, required under this
SECTION 6(b).
(c) Definition of "For Cause." For purposes of SECTION 6(A), the phrase
"FOR CAUSE" means: (i) the Executive's material breach of this
Agreement or the Noncompetition Agreement entered into on the date
hereof between the Buyer and the Executive (the "NONCOMPETITION
AGREEMENT"); (ii) the Executive's failure to adhere to any written
Employer policy if the Executive has been given a reasonable
opportunity to comply with such policy or cure his failure to comply
(which reasonable opportunity must be granted during the ten- (10) day
period preceding termination of this Agreement); (iii) the
appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing
any personal profit in connection with any transaction entered into on
behalf of the Employer; (iv) the misappropriation (or attempted
misappropriation) of any of the Employer's funds or property; or (v)
the conviction of, or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other
crime with respect to which imprisonment is a possible punishment.
(d) Definition of "For Good Reason." For purposes of SECTION 6(a), the
phrase "FOR GOOD REASON" means any of the following: (i) the Employer's
material breach of this Agreement; (ii) the assignment of the Executive
without his consent to a position, responsibilities, or duties of a
materially lesser status or degree of responsibility than his position,
responsibilities, or duties at the Effective Date; or (iii) the
relocation of the Employer's principal executive offices outside the
Longview/Tyler area; or (iv) the requirement by the Employer that the
Executive be based anywhere other than the Employer's principal
executive offices, in either case without the Executive's consent.
(e) Termination Pay. Effective upon the termination of this Agreement,
the Employer will be obligated to pay the Executive (or, in the event
of his death, his designated
<PAGE>
beneficiary as defined below) only such compensation as is provided in
this SECTION 6(e), and in lieu of all other amounts and in settlement
and complete release of all claims the Executive may have against the
Employer under this Agreement. For purposes of this SECTION 6(e), the
Executive's designated beneficiary will be such individual beneficiary
or trust, located at such address, as the Executive may designate by
notice to the Employer from time to time or, if the Executive fails to
give notice to the Employer of such a beneficiary, the Executive's
estate. Notwithstanding the preceding sentence, the Employer will have
no duty, in any circumstances, to attempt to open an estate on behalf
of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such
beneficiary, to determine the existence of any trust, to determine
whether any person or entity purporting to act as the Executive's
personal representative (or the trustee of a trust established by the
Executive) is duly authorized to act in that capacity, or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
(i) Termination by the Executive for Good Reason. If the
Executive terminates this Agreement for good reason, the
Employer will pay the Executive: (x) the Executive's Salary
for the remainder of the term of employment set forth in
SECTION 2(b) or for six (6) consecutive calendar months
following such termination, whichever period is longer; and
(y) that portion of the Executive's Incentive Compensation, if
any, for the Fiscal Year during which the termination is
effective, prorated through the date of termination.
Notwithstanding the preceding sentence, if the Executive
obtains other employment prior to expiration of the period for
which the Employer is obligated to pay the Executive's Salary
pursuant to the preceding sentence, he must promptly give
notice thereof to the Employer, and the Salary payments under
this Agreement for any period after the Executive obtains
other employment will be reduced by the amount of the cash
compensation received and to be received by the Executive from
the Executive's other employment for services performed during
such period.
(ii) Termination by the Employer for Cause. If the Employer
terminates this Agreement for cause, the Executive will be
entitled to receive his Salary only through the date such
termination is effective, but will not be entitled to any
Incentive Compensation for the Fiscal Year during which such
termination occurs or any subsequent Fiscal Year.
(iii) Termination Upon Disability. If this Agreement is
terminated by either party as a result of the Executive's
disability, as determined under SECTION 6(b), the Employer
will pay the Executive his Salary through the remainder of the
calendar month during which such termination is effective, and
that part of the Executive's Incentive Compensation, if any,
for the Fiscal Year during which such termination is
effective, prorated through the date of termination.
(iv) Termination Upon Death. If this Agreement is terminated
because of the Executive's death, the Executive will be
entitled to receive his Salary through the end of the calendar
month in which his death occurs, and that part of the
<PAGE>
Executive's Incentive Compensation, if any, for the Fiscal
Year during which his death occurs, prorated through the end
of the calendar month during which his death occurs.
(v) Termination After Expiration of Term of Employment. If
Executive's employment is terminated by the Employer following
the term of employment set forth in SECTION 2(b), other than
"for cause," the Employer will pay the Executive's Salary for
the remainder, if any, of the calendar month in which such
termination is effective and for six (6) consecutive calendar
months thereafter.
(vi) Benefits. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive
will be entitled to accrued Benefits pursuant to such plans
only as provided in such plans. The Executive will not
receive, as part of his termination pay pursuant to this
SECTION 6, any payment or other compensation for any vacation,
holiday, sick leave, or other leave unused on the effective
date the notice of termination is given under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
(a) Acknowledgments by the Executive. The Executive acknowledges that:
(i) during his employment with the Employer and as a part of his
employment, the Executive will be afforded access to Confidential
Information; (ii) public disclosure of such Confidential Information
could have an adverse effect on the Employer and its business; (iii)
because the Executive possesses substantial technical expertise and
skill with respect to the Employer's business, the Employer desires to
obtain exclusive ownership of each Employee Invention, and the Employer
will be at a substantial competitive disadvantage if it fails to
acquire exclusive ownership of each Employee Invention; (iv) the Buyer
has required that the Executive make the covenants in this SECTION 7 as
a condition to its purchase of the Employer's stock; and (v) the
provisions of this SECTION 7 are reasonable and necessary to prevent
the improper use or disclosure of Confidential Information and to
provide the Employer with exclusive ownership of all Employee
Inventions.
(b) Agreements of the Executive. In consideration of the compensation
and benefits to be paid or provided to the Executive by the Employer
under this Agreement, the Executive covenants as follows:
(i) Confidentiality.
1) During and following the Employment Period, the Executive
will hold in confidence the Confidential Information and will
not disclose it to any person except with the specific prior
written consent of the Employer or except as otherwise
expressly permitted by the terms of this Agreement or as
required by any court of competent jurisdiction or any
governmental or regulatory body.
<PAGE>
2) Any trade secrets of the Employer will be entitled to all
of the protections and benefits under Texas common law and any
other applicable law. If any information that the Employer
deems to be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this
Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret.
3) None of the foregoing obligations and restrictions applies
to any part of the Confidential Information that the Executive
demonstrates was or became generally available to the public
other than as a result of a disclosure by the Executive.
4) The Executive will not remove from the Employer's premises
(except to the extent such removal is for purposes of the
performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by
the Employer) any document, record, notebook, plan, model,
component, device, or computer software or code, whether
embodied in a disk or in any other form (collectively, the
"PROPRIETARY ITEMS"). The Executive recognizes that, as
between the Employer and the Executive, all of the Proprietary
Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this
Agreement by either party, or upon the request of the Employer
during the Employment Period, the Executive will return to the
Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the
Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
(ii) Employee Inventions.
1) Each Employee Invention will belong exclusively to the
Employer. The Executive acknowledges that all of the
Executive's Employee Inventions are works made for hire and
the property of the Employer, including any copyrights,
patents, semiconductor mask protection, or other intellectual
property rights pertaining thereto. If it is determined that
any such Employee Inventions are not works made for hire, the
Executive hereby assigns to the Employer all of the
Executive's right, title, and interest, including all rights
of copyright, patent, semiconductor mask protection, and other
intellectual property rights, to or in such Employee
Inventions. The Executive covenants that he will promptly:
a. disclose to the Employer in writing any Employee
Invention;
<PAGE>
b. assign to the Employer or to a party designated by
the Employer, at the Employer's request and without
additional compensation, all of the Executive's right
to the Employee Invention for the United States and
all foreign jurisdictions;
c. execute and deliver to the Employer such
applications, assignments, and other documents as the
Employer may request in order to apply for and obtain
patents or other registrations with respect to any
Employee Invention in the United States and any
foreign jurisdictions;
d. sign all other papers necessary to carry out the
above obligations; and
e. give testimony and render any other assistance,
but without expense to the Executive, in support of
the Employer' s rights to any Employee Invention,
other than in connection with a dispute between the
Executive and the Employer.
(c) Disputes or Controversies. The Executive recognizes that should a dispute or
controversy arising from or relating to this Agreement be submitted for
adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Executive, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
8. NONCOMPETITION AND NON-INTERFERENCE
(a) Acknowledgments by the Executive. The Executive acknowledges that:
(i) the services to be performed by him under this Agreement are of a
special, unique, unusual, extraordinary, and intellectual character;
(ii) the Employer's business is international in scope and its products
are marketed throughout the world; (iii) the Employer competes with
other businesses that are or could be located in any part of the world;
(iv) the Buyer has required that the Executive make the covenants set
forth in this SECTION 8 as a condition to the Buyer's purchase of the
Executive's stock in the Employer; and (v) the provisions of this
SECTION 8 are reasonable and necessary to protect the Employer's
business.
(b) Covenants of the Executive. In consideration of the acknowledgments
by the Executive, and in consideration of the compensation and benefits
to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
<PAGE>
(i) during the Employment Period, except in the course of his
employment hereunder, engage or invest in, own, manage,
operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed
by, associated with, or in any manner connected with, lend the
Executive's name or any similar name to, lend Executive's
credit to or render services or advice to, any business whose
products or activities compete with the products or activities
of the Employer; provided, however, that the Executive may
purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934;
(ii) whether for the Executive's own account or for the
account of any other person, at any time during the Employment
Period, solicit business of the same or similar type being
carried on by the Employer, from any person known by the
Executive to be a customer of the Employer, whether or not the
Executive had personal contact with such person during and by
reason of the Executive's employment with the Employer;
(iii) whether for the Executive's own account or the account
of any other person (i) at any time during the Employment
Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was
an employee of the Employer at any time during the Employment
Period or in any manner induce or attempt to induce any
employee of the Employer to terminate his employment with the
Employer; or (ii) at any time during the Employment Period,
interfere with the Employer's relationship with any person,
including any person who at any time during the Employment
Period was an employee, contractor, supplier, or customer of
the Employer; or
(iv) at any time during or after the Employment Period,
disparage the Employer or any of its shareholders, directors,
officers, employees, or agents.
If any covenant in this SECTION 8(b) is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered
to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a court
of competent jurisdiction may determine to be reasonable, not
arbitrary, and not against public policy, will be effective, binding,
and enforceable against the Executive.
The period of time applicable to any covenant in this SECTION 8(b) will
be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this SECTION 8(b) is in
effect, give notice to the Employer, within ten (10) days after
accepting any other employment, of the identity of the Executive's
employer. The Buyer or the Employer may notify such employer that
<PAGE>
the Executive is bound by this Agreement and, at the Employer's
election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
9. GENERAL PROVISIONS
(a) Injunctive Relief and Additional Remedy. The Executive acknowledges
that the injury that would be suffered by the Employer as a result of a
breach of the provisions of this Agreement (including any provision of
SECTIONS 7 and 8) would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to
any other rights it may have, to obtain injunctive relief to restrain
any breach or threatened breach or otherwise to specifically enforce
any provision of this Agreement. Without limiting the Employer's rights
under this SECTION 9 or any other remedies of the Employer, if the
Executive materially breaches any of the material provisions of
SECTIONS 7 or 8, the Employer will have the right to cease making any
payments otherwise due to the Executive solely under this Agreement.
(b) Covenants of SECTIONS 7 and 8 are Essential and Independent
Covenants. The covenants by the Executive in SECTIONS 7 and 8 are
essential elements of this Agreement, and without the Executive's
agreement to comply with such covenants, the Buyer would not have
purchased the Executive's stock under the Stock Purchase Agreement and
the Employer would not have entered into this Agreement or employed or
continued the employment of the Executive. The Employer and the
Executive have independently consulted their respective counsel and
have been advised in all respects concerning the reasonableness and
propriety of such covenants, with specific regard to the nature of the
business conducted by the Employer. If the Executive's employment
hereunder expires or is terminated, this Agreement will continue in
full force and effect as is necessary or appropriate to enforce the
covenants and agreements of the Executive in SECTIONS 7 and 8.
(c) Offset. The Employer will be entitled to offset against any and all
amounts owing to the Executive under this Agreement the amount of any
and all claims that the Buyer has against the Executive under the Stock
Purchase Agreement or the Noncompetition Agreement to the extent such
claims have been proven by Buyer in a court of competent jurisdiction.
(d) Representations and Warranties by the Executive. The Executive
represents and warrants to the Employer that the execution and delivery
by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or
without the giving of notice or the passage of time, or both: (i)
violate any judgment, writ, injunction, or order of any court,
arbitrator, or governmental agency applicable to the Executive; or (ii)
conflict with, result in the breach of any provisions of or the
termination of, or constitute a default under, any agreement to which
the Executive is a party or by which the Executive is or may be bound.
<PAGE>
(e) Obligations Contingent on Performance. The obligations of the
Employer hereunder, including its obligation to pay the compensation
provided for herein, are contingent upon the Executive's performance of
the Executive's obligations hereunder.
(f) Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay
by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (i) no
claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (ii) no waiver that
may be given by a party will be applicable except in the specific
instance for which it is given; and (iii) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or
of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
(g) Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge
or consolidate or to which all or substantially all of its assets may
be transferred. The duties and covenants of the Executive under this
Agreement, being personal, may not be delegated.
(h) Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been
duly given when: (i) delivered by hand (with written confirmation of
receipt); (ii) sent by facsimile (with written confirmation of
receipt), provided that a copy is mailed by registered mail, return
receipt requested; or (iii) when received by the addressee, if sent by
a nationally recognized overnight delivery service (receipt requested),
in each case to the appropriate addresses and facsimile numbers set
forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
IF TO EMPLOYER:
CADDX-CADDI Controls, Inc.
1420 North Main Street
Gladewater, Texas 75647
Attention: President
Facsimile No.: (903) 845-6811
<PAGE>
With a copy to:
ITI Technologies, Inc.
2266 North Second Street
North St. Paul, Minnesota 55109
Attention: General Counsel
Facsimile No.: (612) 779-4802
IF TO THE EXECUTIVE:
CADDX-CADDI Controls, Inc.
1420 North Main Street
Gladewater, Texas 75647
Attention: Joe Hurst
Facsimile No.: (903) 845-6811
With a copy to:
Brown McCarroll & Oaks Hartline
P.O. Box 3999
Longview, Texas
Attention: Mitch Motley, Esq.
Facsimile No.: (309) 236-8787
(i) Entire Agreement; Amendments. This Agreement, the Noncompetition
Agreement, the Stock Purchase Agreement, and the documents executed in
connection with the Stock Purchase Agreement, contain the entire
agreement between the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written,
between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
(j) Governing Law. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
(k) Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement may
be brought against either of the parties in the courts of the State of
Texas, County of Gregg, or, if it has or can acquire jurisdiction, in
the United States District Court for the Eastern District of Texas, and
each of the parties consents to the jurisdiction of such courts (and of
the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or
proceeding referred to in the preceding sentence may be served on
either party anywhere in the world.
(l) Section Headings, Construction. The headings of sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All
<PAGE>
references to "Section" or "Sections" refer to the corresponding
section or sections of this Agreement unless otherwise specified. All
words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or
terms.
(m) Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part
or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
(n) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
EMPLOYER: EXECUTIVE:
CADDX-CADDI CONTROLS, INC.
/s/ Joe Hurst
-------------------------
Joe Hurst, Individually
By: /s/ James E. Stevens
--------------------------------
James E. Stevens, Vice President
Engineering and Secretary
EXHIBIT 10.3
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "AGREEMENT") is made as of the 30th day of
April, 1997, by and between ITI TECHNOLOGIES, INC., a Delaware corporation
("BUYER"), and JOE HURST, an individual resident in the State of Texas
("SELLER").
RECITALS
Concurrently with the execution and delivery of this Agreement, Buyer is
purchasing from Seller, Kenneth T. Lewis, James E. Stevens and Kenneth Ryan
Lewis (collectively, the "SELLERS"), all of the outstanding shares (the
"SHARES") of common stock, par value $1.00 per share, of CADDX-CADDI CONTROLS,
INC., a Texas corporation ("CADDX"), pursuant to the terms and conditions of
that certain Stock Purchase and Sale Agreement dated April 4, 1997, (the "STOCK
PURCHASE AGREEMENT"). ARTICLE III, SECTION 3(k) of the Stock Purchase Agreement
requires that noncompetition agreements be executed and delivered by each of the
Sellers as a condition to the purchase of the Shares by Buyer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY SELLER
Seller acknowledges that: (i) Seller has occupied a position of trust and
confidence with CADDX prior to the date hereof and has become familiar with the
following, any and all of which constitute confidential information of CADDX,
(collectively the "CONFIDENTIAL INFORMATION"): (a) any and all trade secrets
concerning the business and affairs of CADDX, product specifications, data,
know-how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current and planned
research and development, current and planned manufacturing and distribution
methods and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer software and
programs (including object code and source code), computer software and database
technologies, systems, structures and architectures (and related processes,
formulae, compositions, improvements, devices, know-how, inventions,
discoveries, concepts, ideas, designs, methods and information, of CADDX and any
other information, however documented, of CADDX that is a trade secret within
the meaning of Texas common law and any other applicable law), (b) any and all
information concerning the business and affairs of CADDX (which includes
historical financial statements, financial projections and budgets, historical
and projected sales, capital spending budgets and plans, the names and
backgrounds of key personnel, personnel training, techniques and materials,
however documented), and (c) any and all notes, analysis, compilations, studies,
summaries, and other material prepared by or for
<PAGE>
CADDX containing or based, in whole or in part, on any information included in
the foregoing; (ii) the business of CADDX is international in scope; (iii) its
products and services are marketed throughout the world; (iv) CADDX competes
with other businesses that are or could be located in any part of the world; (v)
Buyer has required that Seller make the covenants set forth in SECTIONS 3 and 4
of this Agreement as a condition to Buyer's purchase of the Shares owned by
Seller; (vi) the provisions of SECTIONS 3 and 4 of this Agreement are reasonable
and necessary to protect and preserve the business of CADDX; and (vii) CADDX
would be irreparably damaged if Seller were to breach the covenants set forth in
SECTIONS 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Seller acknowledges and agrees that all Confidential Information known or
obtained by Seller, whether before or after the date hereof, is the property of
CADDX. Therefore, Seller agrees that Seller will not, at any time, disclose to
any unauthorized person or entity or use for his own account or for the benefit
of any third party any Confidential Information, whether Seller has such
information in Seller's memory or embodied in writing or other physical form,
without Buyer's written consent, unless and to the extent that the Confidential
Information is or becomes generally known to and available for use by the public
other than as a result of Seller's fault or the fault of any other person or
entity bound by a duty of confidentiality to Buyer or CADDX. Seller agrees to
deliver to Buyer at the time of execution of this Agreement, and at any other
time Buyer may request, all documents, memoranda, notes, plans, records,
reports, and other documentation, models, components, devices, or computer
software, whether embodied in a disk or in other form (and all copies of all of
the foregoing), relating to the business, operations, or affairs of CADDX and
any other Confidential Information that Seller may then possess or have under
Seller's control.
4. NONCOMPETITION
As an inducement for Buyer to enter into the Stock Purchase Agreement and as
additional consideration for the consideration to be paid to Seller under the
Stock Purchase Agreement, Seller agrees that:
(a) For a period of five (5) years after the Closing:
i) Seller will not, directly or indirectly, engage or invest in, own,
manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend Seller's name or
any similar name to, lend Seller's credit to, or render services or
advice to, any business whose products or activities compete in whole
or in part with the products or activities of CADDX; provided, however,
that Seller may purchase or otherwise acquire up to (but not more than)
one percent (1%) of any class of securities of any enterprise (but
without otherwise participating in the activities of such enterprise)
if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities
Exchange Act of 1934. Seller agrees that this covenant is reasonable
with respect to its duration, geographical area, and scope.
<PAGE>
ii) Seller will not, directly or indirectly, either for himself or any
other person or entity: (i) induce or attempt to induce any employee of
CADDX to leave the employ of CADDX; (ii) in any way interfere with the
relationship between CADDX and any employee of CADDX; (iii) employ, or
otherwise engage as an employee, independent contractor, or otherwise,
any employee of CADDX; or (iv) induce or attempt to induce any
customer, supplier, licensee, or business relation of CADDX to cease
doing business with CADDX, or in any way interfere with the
relationship between any customer, supplier, licensee, or business
relation of CADDX.
iii) Seller will not, directly or indirectly, either for himself or any
other person or entity, solicit the business of any person or entity
known to Seller to be a customer of CADDX, whether or not Seller had
personal contact with such person or entity, with respect to products
or activities which compete in whole or in part with the products or
activities of CADDX.
In the event of a breach by Seller of any covenant set forth in SUBSECTION 4(a)
of this Agreement, the term of such covenant will be extended by the period of
the duration of such breach.
(b) Seller will not, at any time during or after the five- (5) year period,
disparage Buyer or CADDX, or any of their shareholders, directors, officers,
employees, or agents.
(c) Seller will, for a period of five (5) years after the Closing, within ten
(10) days after accepting any employment, advise Buyer of the identity of any
employer of Seller. Buyer or CADDX may serve notice upon each such employer that
Seller is bound by this Agreement and furnish each such employer with a copy of
this Agreement or relevant portions thereof.
(d) Notwithstanding anything contained herein to the contrary, the covenants set
forth in this SECTION 4 shall terminate, and be of no further force or effect,
twelve (12) months following termination by CADDX of Seller's employment with
CADDX unless such termination of employment by CADDX is "for cause" within the
meaning of the Employment Agreement between CADDX and Seller of even date
herewith.
5. REMEDIES
If Seller breaches the covenants set forth in SECTIONS 3 or 4 of this Agreement,
Buyer and CADDX will be entitled to the following remedies:
(a) Damages from Seller.
(b) In addition to its right to damages and any other rights it may
have, to obtain injunctive or other equitable relief to restrain any
breach or threatened breach or otherwise to specifically enforce the
provisions of SECTIONS 3 and 4 of this Agreement, it
<PAGE>
being agreed that money damages alone would be inadequate to compensate
Buyer and CADDX and would be an inadequate remedy for such breach.
(c) The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
6. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon Buyer, CADDX and Seller and will inure to
the benefit of Buyer and CADDX and their affiliates, successors and assigns and
Seller and Seller's assigns, heirs and legal representatives.
7. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law: (i) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (ii) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (iii) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
8. GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas without regard
to conflicts of laws principles.
9. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Texas, County of Gregg, or, if it has or can
acquire jurisdiction, in the United States District Court for the Eastern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
10. SEVERABILITY
Whenever possible each provision and term of this Agreement will be interpreted
in a manner to be effective and valid but if any provision or term of this
Agreement is held to be prohibited by
<PAGE>
or invalid, then such provision or term will be ineffective only to the extent
of such prohibition or invalidity, without invalidating or affecting in any
manner whatsoever the remainder of such provision or term or the remaining
provisions or terms of this Agreement. If any of the covenants set forth in
SECTION 4 of this Agreement are held to be unreasonable, arbitrary, or against
public policy, such covenants will be considered divisible with respect to
scope, time, and geographic area, and in such lesser scope, time and geographic
area, will be effective, binding and enforceable against Seller.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
12. SECTION HEADINGS, CONSTRUCTION
The headings of sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding section or sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when: (i)
delivered by hand (with written confirmation of receipt); (ii) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested; or (iii) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
SELLER:
Joe Hurst
c/o T. John Ward
Brown McCarroll & Oaks Hartline
P.O. Box 3999
Longview, Texas 75606-3999
Facsimile No.: (903) 236-8787
<PAGE>
BUYER:
ITI Technologies, Inc.
2266 North Second Street
North St. Paul, Minnesota 55109
Attention: General Counsel
Facsimile No.: (612) 779-4802
With a copy to:
CADDX-CADDI Controls, Inc.
1420 North Main Street
Gladewater, Texas 75647
Attention: President
Facsimile No.: (903) 845-6811
14. ENTIRE AGREEMENT
This Agreement, the Employment Agreement and the Stock Purchase Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior written and oral agreements and
understandings between Buyer and Seller with respect to the subject matter of
this Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
BUYER: SELLER:
ITI TECHNOLOGIES, INC. /s/ Joe Hurst
--------------------------------
Joe Hurst, Individually
By: /s/ Thomas L. Auth
---------------------------------
Thomas L. Auth, President and CEO
EXHIBIT 10.4
REVOLVING CREDIT AGREEMENT
Dated as of April 30, 1997
This Revolving Credit Agreement is entered into by and between
ITI TECHNOLOGIES, INC., a Delaware corporation (the "Borrower"), and NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the
"Bank").
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in the preamble hereto have the meanings
therein assigned to them;
(b) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(d) all accounting terms, unless otherwise specified, shall be
deemed to refer to Persons and their Subsidiaries on a consolidated
basis in accordance with GAAP.
"Advance" means a loan of funds by the Bank to the Borrower
pursuant to Article II hereof, including both Floating Rate Advances and
Eurodollar Advances.
"Agreement" means this Revolving Credit Agreement and all
exhibits, amendments and supplements hereto.
"Bank" shall have the meaning specified in the preamble.
"Base Rate" means the rate of interest publicly announced from
time to time by the Bank as its "base rate" or "prime rate", or, if the Bank
ceases to announce a rate so designated, any similar successor rate designated
by the Bank.
"Borrower" shall have the meaning specified in the preamble.
<PAGE>
"Borrowing" means a borrowing by the Borrower pursuant to
Article II hereof, consisting of Advances made to the Borrower by the Bank on
the date requested by the Borrower.
"Business Day" means any day other than a Saturday or Sunday
on which national banks are open for business in Minneapolis, Minnesota, and, in
addition, if such day relates to a Eurodollar Advance or fixing of a Eurodollar
Rate, a day on which dealings in U.S. dollar deposits are carried on in the
London interbank eurodollar market.
"CADDX" means CADDX Controls, Inc., a Texas corporation and
wholly-owned subsidiary of the Borrower.
"Capital Adequacy Rule" has the meaning specified in Section
2.18(b)(ii).
"Capital Adequacy Rule Change" has the meaning specified in
Section 2.18(b)(iii).
"Capital Expenditures" of any Person means, with respect to
the applicable Covenant Computation Period, the sum of:
(a) the aggregate amount of all expenditures of such Person
for fixed or capital assets made during such period which, in
accordance with GAAP would be classified as capital expenditures; and
(b) the aggregate amount of all Capitalized Lease Liabilities
of such Person incurred during such Covenant Computation Period.
"Capitalized Lease Interest Expense" of any Person means, with
respect to the applicable Covenant Computation Period, the total expenditures by
such Person to pay the interest portion of any Capitalized Lease Obligations
during such Covenant Computation Period.
"Capitalized Lease Liabilities" of any Person means, with
respect to the applicable Covenant Computation Period, all monetary obligations
of such Person under any leasing or similar arrangement which, in accordance
with GAAP, would be classified as capitalized leases, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Capitalized Lease Obligations" of any Person means, with
respect to the applicable Covenant Computation Period, the total expenditures by
such Person to pay Capitalized Lease Liabilities during such Covenant
Computation Period, as determined on a basis in accordance with generally
accepted accounting principles.
<PAGE>
"Capitalized Lease Principal" of any Person means, with
respect to the applicable Covenant Computation Period, the total expenditures by
such Person to pay the principal portion of any Capitalized Lease Obligations
during such Covenant Computation Period.
"Cash Flow Available for Funded Debt" of any Person means,
with respect to the applicable Covenant Computation Period, such Person's Net
Income plus Non-Cash Charges.
"Cash Flow Available for Debt Service" of any Person means,
with respect to the applicable Covenant Computation Period, such Person's Net
Income, plus Interest Expense and Non-Cash Charges, less Capital Expenditures.
"Cash Flow Available for Interest" of any Person means, with
respect to the applicable Covenant Computation Period, such Person's Pre-Tax
Earnings plus Interest Expense.
"Commitment" means the obligation of the Bank to make Advances
and issue Letters of Credit to the Borrower under Article II hereof in an amount
not to exceed the Commitment Amount.
"Commitment Amount" means Fifteen Million Dollars
($15,000,000), being the maximum amount of Advances and the Letter of Credit
Amount, in the aggregate, at any time to be outstanding pursuant to Article II
hereof, subject to reduction in accordance with Section 2.15.
"Commitment Termination Date" means the earlier of (i) April
30, 2000 or (ii) the date on which the Commitment Amount is terminated in full
or reduced to zero pursuant to Section 2.15 or Section 7.2.
"Confidential Information" has the meaning specified in
Section 8.5.
"Covenant Computation Date" means the last day of each
calendar quarter, commencing June 30, 1997.
"Covenant Computation Period" means the four (4) consecutive
calendar quarters ending with the calendar quarter in which a Covenant
Computation Date occurs.
"Customer Finance Program" means any financing transactions
administered through ITI Finance Corporation, and related to either the sales of
equipment by ITI to customers or the financing of acquisition costs of dealers
of ITI equipment.
<PAGE>
"Debt" of any Person means, without duplication (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all Capitalized Lease Liabilities of such Person, (v) all debt of
others secured by a lien on any asset of such Person, whether or not such debt
is assumed by such Person, (vi) all debt of others guaranteed by such other
Person, (vii) all obligations of such Person to pay a specified purchase price
for goods or services, whether or not delivered or accepted (i.e., take-or-pay
and similar obligations), (viii) all obligations of such Person under any
interest rate swap program or any similar agreement, arrangement or undertaking
relating to fluctuations in interest rates and (ix) all obligations of such
person to advance funds to, or purchase assets, property or services from, any
other Person in order to maintain the financial condition of such Person.
"Debt Service Coverage Ratio" of any Person means, with
respect to the applicable Covenant Computation Period, the ratio of (i) such
Person's Cash Flow Available for Debt Service to (ii) such Person's Debt Service
Requirements.
"Debt Service Requirements" of any Person means, with respect
to the applicable Covenant Computation Period, the aggregate, without
duplication, of (i) Interest Expense of such Person (ii) all scheduled
installments of principal on Funded Debt of such Person (excluding any principal
payments made (or to be made) under the Note) which are due on demand or during
such Covenant Computation Period, and (iii) all Capitalized Lease Principal of
such Person which is due on demand or during the Covenant Computation Period.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning specified in Section
2.8(c).
"Environmental Laws" has the meaning specified in Section
4.12.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eurodollar Advance" means any Advance which bears interest at
a rate determined by reference to the Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to an Interest
Period, the rate per annum equal to the rate (rounded up to the nearest
one-sixteenth of one percent (1/16%)) determined by the Bank to be a rate at
which U.S. dollar deposits are offered to major banks in the London interbank
eurodollar market for funds to be made available on the first day of
<PAGE>
such Interest Period and maturing at the end of such Interest Period, as
determined by the Bank between the opening of business and 12:00 Noon,
Minneapolis, Minnesota time, on the second Business Day prior to the beginning
of such Interest Period.
"Eurodollar Rate" means, with respect to an Interest Period,
the rate obtained by adding (i) one percent (1.00%) to (ii) the rate obtained by
dividing (A) the applicable Eurodollar Base Rate by (B) a percentage equal to
one (1.00) minus the applicable percentage (expressed as a decimal) prescribed
by the Board of Governors of the Federal Reserve System (or any successor
thereto) for determining reserve requirements applicable to eurodollar fundings
(currently referred to as "Eurocurrency Liabilities" in Regulation D) or any
other reserve requirements applicable to a member bank of the Federal Reserve
System with respect to such eurodollar liabilities.
"Event of Default" has the meaning specified in Section 7.1.
"Floating Rate" means an annual rate at all times equal to the
Base Rate less one and one quarter percent (1.25%), which Floating Rate shall
change when and as the Base Rate changes.
"Floating Rate Advance" means any Advance which bears interest
at a rate determined by reference to the Floating Rate.
"Funded Debt" of any Person means all interest-bearing Debt of
such Person, and shall include all interest-bearing Debt created, assumed or
guaranteed by such Person either directly or indirectly, including obligations
secured by liens upon property of such Person and upon which such entity
customarily pays the interest, and all Capitalized Lease Liabilities.
"Funded Debt Coverage Ratio" of any Person means, with respect
to the applicable Covenant Computation Period, the ratio of (i) such Person's
Cash Flow Available for Funded Debt to (ii) such Person's Funded Debt.
"GAAP" means generally accepted accounting principles.
"Guarantors" means ITI and CADDX.
"Hazardous Substance" means any asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical waste,
radioactive material, explosives, known carcinogens, petroleum products and
by-products and other dangerous, toxic or hazardous pollutants, contaminants,
chemicals, materials or substances listed or identified in, or regulated by, any
Environmental Laws.
"Indemnitees" shall have the meaning specified in Section
2.7(e).
<PAGE>
"Interest Coverage Ratio" of any Person means, with respect to
the applicable Covenant Computation Period, the ratio of (i) such Person's Cash
Flow Available for Interest to the (ii) Interest Expense of such Person.
"Interest Expense" of any Person means, with respect to the
applicable Covenant Computation Period, the total gross interest expense on all
Debt of such Person during such period, and shall in any event include, without
limitation and without duplication, (i) interest expenses (whether or not paid)
on all Debt, (ii) the amortization of Debt discounts, (iii) the amortization of
all fees payable in connection with the incurrence of Debt to the extent
included in interest expense, and (iv) Capitalized Lease Interest Expense.
"Interest Period" means, relative to any Eurodollar Advance,
the period beginning on (and including) the date on which such Eurodollar
Advance is made or continued as, or converted into, a Eurodollar Advance
pursuant to Sections 2.3, 2.4 or 2.5 and shall end on (but exclude) the day
which numerically corresponds to such date one (1), two (2), three (3) or six
(6) months thereafter (or, if such month has no numerically corresponding day,
on the last Business Day of such month), as the Borrower may select in its
relevant notice pursuant to Sections 2.3, 2.4, or 2.5; provided, however, that:
(a) the Borrower shall not be permitted to select Interest
Periods to be in effect at any one time which have expiration dates
occurring on more than four (4) different dates;
(b) if an Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall end on the next
following Business Day (unless such next following Business Day is the
first Business Day of a calendar month, in which case such Interest
Period shall end on the next preceding Business Day); and
(c) no Interest Period may end later than the Commitment
Termination Date.
"ITI" means Interactive Technologies, Inc., a Minnesota
corporation and wholly-owned subsidiary of the Borrower.
"Letter of Credit" has the meaning specified in Section 2.7.
"Letter of Credit Amount" means the sum of (i) the aggregate
face amount of all issued and outstanding Letters of Credit and (ii) amounts
drawn under Letters of Credit for which the Bank has not been reimbursed with
proceeds of an Advance or otherwise.
"Loan Documents" means this Agreement, the Note and each and
every application or other agreement pursuant to which a Letter of Credit is
issued.
<PAGE>
"Net Income" of a Person means, with respect to the applicable
Covenant Computation Period, such Person's after-tax net income as determined in
accordance with GAAP, before any extraordinary or non-recurring items.
"Non-Cash Charges" of a Person means, with respect to the
applicable Covenant Computation Period, such Person's depreciation,
amortization, deferred taxes and other non-cash charges which have the effect of
reducing Pre-Tax Earnings or Net Income, as the case may be, all as determined
in accordance with GAAP.
"Note" means the promissory note of the Borrower payable to
the Bank in the amount of the Commitment Amount, in substantially the form of
Exhibit A hereto (as such promissory note may be amended, extended or otherwise
modified from time to time), evidencing the aggregate indebtedness of the
Borrower to the Bank resulting from outstanding Advances, and also means all
other promissory notes accepted from time to time in substitution therefor or in
renewal thereof.
"Obligations" means each and every debt, liability and
obligation of every type and description arising under or in connection with any
of the Loan Documents which the Borrower may now or at any time hereafter owe to
the Bank whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it is direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or unliquidated, or
sole, joint, several or joint and several, and including specifically, but not
limited to, the Letter of Credit Amount and all indebtedness, liabilities and
obligations of the Borrower arising under or evidenced by the Note.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for employees of the Borrower and covered by Title IV of ERISA.
"Pre-Tax Earnings" of any Person means, with respect to the
applicable Covenant Computation Period, such Person's Net Income, plus any
income taxes and extraordinary or non-cash loss or expense paid or incurred by
such Person, less any extraordinary, non-operating and non-cash income claimed
or earned by such Person, all as determined in accordance with GAAP.
"Reportable Event" has the meaning assigned to that term in
Title IV of ERISA.
"Return" has the meaning specified in Section 2.18(b)(i).
<PAGE>
"Stockholders' Equity" of a Person means the aggregate capital
and retained earnings of such Person, as determined in accordance with GAAP.
"Subsidiary" means any corporation of which more than fifty
percent (50%) of the outstanding shares of capital stock having general voting
power under ordinary circumstances to elect a majority of the board of directors
of such corporation, (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Borrower, by the Borrower and one or more Subsidiaries, or by one or more other
Subsidiaries.
"Taxes" has the meaning specified in Section 2.17.
"Type of Advance" has the meaning specified in Section 2.2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 8.6 hereof as the state whose laws
shall govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
ARTICLE II
REVOLVING CREDIT FACILITY
Section 2.1 Commitment to Make Advances. The Bank agrees, on
the terms and subject to the conditions herein set forth, to make Advances to
the Borrower from time to time during the period from the date hereof to and
including the Commitment Termination Date, or the earlier date of termination in
whole of the Commitment pursuant to Sections 2.15 or 7.2, in an aggregate amount
at any time outstanding not to exceed the Commitment Amount less the Letter of
Credit Amount. Within the above limits, the Borrower may borrow, prepay in
accordance with the terms hereof and reborrow in accordance with this Article
II.
Section 2.2 Various Types of Advances. Each Borrowing
hereunder shall be funded by the Bank as either Floating Rate Advances or
Eurodollar Advances (each being herein called a "Type of Advance"), as the
Borrower shall specify in the related notice of proposed Borrowing or notice of
conversion pursuant to Section 2.3 or 2.4. Floating Rate Advances and Eurodollar
Advances may be outstanding at the same time. It is understood, however, that
(i) in the case of Advances which are Floating Rate Advances, the principal
amount of each such Advance shall be in an amount equal to or greater than
$50,000 and (ii) in the case of Advances which are Eurodollar Advances, the
principal amount of each such Advance shall be in an amount equal to $100,000 or
a higher integral multiple of $100,000.
<PAGE>
Section 2.3 Procedures for Borrowing. The Borrower shall give
notice to the Bank of each proposed Borrowing not later than 12:00 Noon,
Minneapolis, Minnesota time, on a Business Day which, in the case of a Borrowing
that is to bear interest initially at a Floating Rate, is the proposed date of
such Borrowing or, in the case of a Borrowing that is to bear interest initially
at a Eurodollar Rate, is at least two (2) Business Days prior to the proposed
date of such Borrowing. Each such notice shall be effective upon receipt by the
Bank, shall be in writing or by telephone or telecopy transmission, to be
confirmed in writing by the Borrower if so requested by the Bank (in the form of
Exhibit B), and shall specify whether the Borrowing is to bear interest
initially at a Floating Rate or a Eurodollar Rate, and in the case of a
Borrowing that is to bear interest initially at a Eurodollar Rate, shall specify
the Interest Period to be applicable thereto. Subject to satisfaction of the
conditions precedent set forth in Article III with respect to such Borrowing,
the Bank shall fund the requested Advance to the Borrower prior to the close of
business on the requested Borrowing date.
Section 2.4 Converting Floating Rate Advances to Eurodollar
Advances; Procedures. So long as no Default or Event of Default shall exist, the
Borrower may convert all or any part of any outstanding Floating Rate Advances
into a Eurodollar Advance by giving notice to the Bank of such conversion not
later than 12:00 Noon, Minneapolis, Minnesota time, on a Business Day which is
at least two (2) Business Days prior to the date of the requested conversion.
Each such notice shall be effective upon receipt by the Bank, shall be in
writing or by telephone or telecopy transmission, to be confirmed in writing by
the Borrower if so requested by the Bank (in the form of Exhibit C), shall
specify the date and amount of such conversion, the total amount of Advances to
be so converted and the Interest Period therefor. Each conversion of Advances
shall be on a Business Day, and the aggregate amount of each such conversion of
Floating Rate Advances to a Eurodollar Advance shall be in an amount equal to
$100,000 or a higher integral multiple of $100,000.
Section 2.5 Procedures at End of an Interest Period. Unless
the Borrower requests a new Eurodollar Advance in accordance with the procedures
set forth below, or prepays the principal of an outstanding Eurodollar Advance
at maturity thereof, the Bank shall automatically and without request by the
Borrower, convert each Eurodollar Advance to a Floating Rate Advance on the last
day of the relevant Interest Period. So long as no Default or Event of Default
shall exist, the Borrower may cause all or any part of any outstanding
Eurodollar Advances to continue to bear interest at a Eurodollar Rate after the
end of the then applicable Interest Period by notifying the Bank not later than
12:00 Noon, Minneapolis, Minnesota time, on a Business Day which is at least two
(2) Business Days prior to the first day of the new Interest Period. Each such
notice shall be in writing or by telephone or telecopy transmission, to be
confirmed in writing by the Borrower if so requested by the Bank (in the form of
Exhibit D), shall be effective when received by the Bank, and shall specify the
first day of the applicable Interest Period, the amount of the expiring
Eurodollar Advances to be continued and the Interest Period therefor. Each new
Interest Period shall
<PAGE>
begin on a Business Day and the aggregate amount of the Advances bearing the new
Eurodollar Rate shall be in an amount equal to $100,000 or a higher multiple of
$100,000.
Section 2.6 Setting and Notice of Rates. The applicable
Eurodollar Rate for each Interest Period shall be determined by the Bank and
notice thereof (which may be by telephone) shall be given by the Bank to the
Borrower. Each such determination of the applicable Eurodollar Rate shall be
conclusive and binding upon the parties hereto, in the absence of demonstrable
error. The Bank, upon written request of the Borrower, shall deliver to the
Borrower a statement showing the computations used by the Bank in determining
the applicable Eurodollar Rate hereunder.
Section 2.7 Commitment to Issue Letters of Credit. The Bank
agrees, from the date hereof to and including the Commitment Termination Date,
to issue one or more letters of credit for the account of the Borrower, on the
terms and subject to the conditions set forth below:
(a) Each new letter of credit issued pursuant to this Section
2.7 and each letter of credit issued by the Bank for the account of the
Borrower and outstanding as of the date of this Agreement shall be
referred to herein as a "Letter of Credit". Notwithstanding anything in
the foregoing to the contrary, the Letter of Credit Amount outstanding
at any one time shall not exceed the lesser of (i) $1,000,000 or (ii)
the Commitment Amount less the aggregate outstanding principal balance
of all outstanding Advances. The expiration date of any Letter of
Credit shall not be later than the Commitment Termination Date. Each
Letter of Credit will be issued upon no less than five (5) Business
Days' prior written application from the Borrower to the Bank. The
application requesting issuance of a Letter of Credit shall be on the
Bank's standard form or such other form as may be agreed to by the Bank
and the Borrower. In the event that any of the terms of such
application are inconsistent with the terms and provisions of this
Agreement, the terms and provisions of this Agreement shall govern. The
Bank shall not be obligated to issue a Letter of Credit unless on the
date of issuance all of the conditions precedent specified in Section
3.2 shall have been satisfied as fully as if the issuance of such
Letter of Credit were an Advance.
(b) The Borrower agrees to pay to the Bank a commission with
respect to each Letter of Credit issued as a standby Letter of Credit
at a rate of one percent (1.00%) per annum of the face amount of such
standby Letter of Credit, payable annually in advance. The Borrower
agrees to pay to the Bank a commission with respect to each Letter of
Credit issued as a documentary Letter of Credit at such annual rate as
may be agreed upon by the Borrower and the Bank at the time of issuance
of any such documentary Letter of Credit
(c) Whenever a draft submitted under a Letter of Credit is
paid by the Bank, the Borrower shall be deemed to have requested a
Floating Rate Advance pursuant to
<PAGE>
Section 2.3. If all applicable conditions to the making of an Advance
have been satisfied, the Bank will make such Advance to the Borrower
for purposes of reimbursing the Bank for the amount of such draft so
paid by the Bank. If for any reason or under any circumstance the Bank
does not make an Advance as contemplated above and the Borrower does
not otherwise reimburse the Bank for the amount of such draft so paid
by the Bank, the Borrower shall nonetheless be obligated to reimburse
the amount of the draft, upon demand of the Bank, with interest upon
such amount at the Default Rate from and after the date such draft is
paid by the Bank until the amount thereof is repaid in full.
(d) The obligation of the Borrower to reimburse the Bank for
the amount of any payment made by the Bank under any Letter of Credit
shall be absolute, unconditional, and irrevocable, and the Borrower
shall make all such payments without offset or counterclaim of any
kind.
(e) The Borrower shall indemnify, protect, defend and hold
harmless the Bank and its respective directors, officers, employees,
attorneys and agents (collectively the "Indemnitees") from and against
all losses, liabilities, claims, damages, judgments, costs and
expenses, including but not limited to all reasonable attorneys' fees
and legal expenses, incurred by the Indemnitees or imposed upon the
Indemnitees at any time by reason of the issuance, demand for honor or
honor of any Letter of Credit or the enforcement, protection or
collection of the Bank's claims against the Borrower under this Section
2.7 or by reason of any act or omission of any Indemnitee in connection
with any of the foregoing; provided, however, that such indemnification
shall not extend to losses, liabilities, claims, damages, judgments,
costs and expenses arising solely from any act or omission of an
Indemnitee which constitutes gross negligence or willful misconduct.
Section 2.8 Interest on Advances. The Borrower hereby agrees
to pay interest on the unpaid principal amount of each Advance for the period
commencing on the date such Advance is made by the Bank until such Advance is
paid in full, in accordance with the following:
(a) Floating Rate Advances. Subject to subsection (c) below,
while an Advance is a Floating Rate Advance, the outstanding principal
balance thereof shall bear interest at an annual rate at all times
equal to the Floating Rate.
(b) Eurodollar Rate Advances. Subject to subsection (c)
below, while an Advance is a Eurodollar Advance, the outstanding
principal balance thereof shall bear interest for the applicable
Interest Period at an annual rate equal to the Eurodollar Rate
established with respect such Eurodollar Advance in accordance with
Section 2.3, 2.4 or 2.5 hereof.
<PAGE>
(c) Default Rate. From and after the occurrence of an Event
of Default and continuing thereafter until such Event of Default shall
be remedied to the written satisfaction of the Bank, the outstanding
principal balance of each Advance shall bear interest, until paid in
full, at a rate equal to the sum of (i) the interest rate otherwise in
effect with respect such Advance and (ii) two percent (2%) (the
"Default Rate").
Section 2.9 Obligation to Repay Advances; Representations. The
Borrower shall be obligated to repay all Advances under this Article II
notwithstanding the failure of the Bank to receive any written request therefor
or written confirmation thereof and notwithstanding the fact that the person
requesting the same was not in fact authorized to do so. Any request for a
Borrowing under this Article II, whether written, telephonic, telecopy or
otherwise, shall be deemed to be a representation by the Borrower that (i) the
amount of the Borrowing, when added to all outstanding Advances, would not
exceed the Commitment Amount less the Letter of Credit Amount and (ii) the
statements set forth in Section 3.2 hereof are correct as of the time of the
request.
Section 2.10 Revolving Note. All Advances made by the Bank
shall be evidenced by and repayable with interest in accordance with the Note.
The aggregate unpaid principal amount of the Note shall be payable as provided
therein and herein on the earlier of the Commitment Termination Date or demand
by the Bank pursuant to Section 7.2 hereof.
Section 2.11 Interest Due Dates. Accrued interest on each
Eurodollar Advance shall be payable on the last day of the Interest Period
relating to such Eurodollar Advance; provided, however, that if any Interest
Period is longer than three (3) months, interest shall be payable monthly in
arrears on the last day of each monthly period occurring after commencement of
such Interest Period and on the last day of the Interest Period. Accrued
interest on each Floating Rate Advance shall be payable in arrears on the last
day of each month and at maturity or conversion of such Floating Rate Loan to a
Eurodollar Advance.
Section 2.12 Computation of Interest and Fees. Interest
accruing on the Note and on the unreimbursed portion of any Letter of Credit
Amount and all fees payable hereunder (including all Letter of Credit fees
described in Section 2.7 and all commitment fees described in Section 2.13)
shall be computed on the basis of actual number of days elapsed in a year of
three hundred sixty (360) days.
<PAGE>
Section 2.13 Commitment Fees. The Borrower agrees to pay to
the Bank a commitment fee computed at the rate of one tenth of one percent
(0.10%) per annum on the daily average amount by which the Commitment Amount
exceeds the aggregate principal amount of the sum of (i) all outstanding
Advances and (ii) the Letter of Credit Amount, from the date hereof to and
including the Commitment Termination Date, payable quarterly in arrears on the
last day of each March, June, September and December, commencing June 30, 1997.
Any such commitment fee remaining unpaid upon termination of the Commitment or
demand for payment of the Note shall be due and payable on the date of such
termination or demand.
Section 2.14 Use of Proceeds. The proceeds of the initial
Borrowing hereunder shall be used by the Borrower for its general corporate
purposes.
Section 2.15 Voluntary Reduction or Termination of the
Commitment; Prepayments.
(a) Reduction or Termination of Commitment. The Borrower,
from time to time upon not less than three (3) Business Days' prior
written notice, may permanently reduce the Commitment Amount; provided,
however, that no such reduction shall reduce the Commitment Amount to
an amount less than the outstanding principal balance of all
Obligations then outstanding. Any such voluntary reduction shall be in
an amount equal to $500,000 or a higher integral multiple of $100,000.
The Borrower at any time prior to the Commitment Termination Date may
terminate the Commitment by (i) providing to the Bank not less than
three (3) Business Days prior written notice of its intention to so
terminate the Commitment and (ii) making payment in full of the Note
and all other Obligations and terminating, or making a cash deposit
with respect to, all outstanding Letters of Credit.
(b) Voluntary Prepayments. The Borrower from time to time may
prepay Advances in whole or in part without premium or penalty,
provided that (i) each prepayment of Advances shall be made to the Bank
not later than 12:00 Noon, Minneapolis, Minnesota time, on a Business
Day, and funds received after that hour shall be deemed to have been
received by the Bank on the next following Business Day, (ii) any
partial prepayment of Advances which, at the time of such prepayment,
bear interest at a Eurodollar Rate shall be accompanied by accrued
interest on such partial prepayment through the date of prepayment and
additional compensation calculated in accordance with Section 2.19,
(iii) each partial prepayment of Advances which, at the time of such
prepayment, bear interest at a Eurodollar Rate, shall be in an amount
equal to $100,000 or a higher integral multiple of $100,000 and (iv)
each partial prepayment of Advances which, at the time of such
prepayment, bear interest at a Floating Rate, shall be in an amount
equal to or greater than $50,000.
Section 2.16 Payments
<PAGE>
(a) Making of Payments. All payments of principal of and
interest on the Note and all payments of fees and other Obligations due
hereunder shall be made to the Bank at its office in Minneapolis,
Minnesota, not later than 12:00 Noon, Minneapolis, Minnesota, time, on
the date due, in immediately available funds, and funds received after
that hour shall be deemed to have been received by the Bank on the next
following Business Day. The Borrower hereby authorizes the Bank to
charge the Borrower's demand deposit account maintained with the Bank
for the amount of any such payment on the due date therefor, but the
Bank's failure to so charge such account shall in no way affect the
obligation of the Borrower to make any such payment.
(b) Setoff. The Borrower agrees that the Bank shall have all
rights of setoff and bankers' lien provided by applicable law, and in
addition thereto, the Borrower agrees that at any time (i) any amount
owing by the Borrower under this Agreement is due to the Bank and (ii)
any Event of Default exists, the Bank may apply to the payment of any
amount owing by the Borrower under this Agreement any and all balances,
credits, and deposits, accounts or moneys of the Borrower then or
thereafter in the possession of the Bank.
(c) Due Date Extension. If any payment of principal of or
interest on any Advance or any fees payable hereunder falls due on a
day which is not a Business Day, then such due date shall be extended
to the next following Business Day, and (in the case of principal)
additional interest shall accrue and be payable for the period of such
extension.
(d) Application of Certain Payments. Except as otherwise
provided herein, so long as no Default or Event of Default has occurred
and is continuing hereunder, each payment of principal shall be applied
to such Type of Advances as the Borrower shall direct by notice to be
received by the Bank on or before the date of such payment, or in the
absence of such notice, as the Bank shall determine in its discretion.
Section 2.17 Taxes. All payments made by the Borrower to the
Bank under or in connection with this Agreement or the Note shall be made
without any setoff or other counterclaim, and free and clear of and without
deduction for or on account of any present or future taxes now or hereafter
imposed by any governmental or other authority, except to the extent that any
such deduction or withholding is compelled by law. As used herein, the term
"Taxes" shall include all income, excise and other taxes of whatever nature
(other than taxes generally assessed on the overall net income of the Bank by
the government or other authority of the country, state or political subdivision
in which the Bank is incorporated or in which the office through which the Bank
is acting is located) as well as all levies, imposts, duties, charges, or fees
of whatever nature. If the Borrower, or any Guarantor, is compelled
<PAGE>
by law to make any deductions or withholdings on account of any Taxes (including
any foreign withholding) it will:
(a) pay to the relevant authorities the full amount required
to be so withheld or deducted;
(b) pay such additional amounts (including, without
limitation, any penalties, interest or expenses) as may be necessary in
order that the net amount received by the Bank after such deductions or
withholdings (including any required deduction or withholding on such
additional amounts) shall equal the amount the Bank would have received
had no such deductions or withholdings been made; and
(c) promptly forward to the Bank an official receipt or other
documentation satisfactory to the Bank evidencing such payment to such
authorities.
The amount that the Borrower shall be required to pay to the Bank pursuant to
the foregoing clause (b) shall be reduced, to the extent permitted by applicable
law, by the amount of any offsetting tax benefit which the Bank receives as the
result of Borrower's payment to the relevant authorities as reasonably
determined by the Bank; provided, however, that if the Bank shall subsequently
determine that it has lost the benefit of all or a portion of such tax benefit,
the Borrower shall promptly remit to the Bank the amount certified by the Bank
to be the amount necessary to restore the Bank to the position it would have
been in if no payment had been made pursuant to this sentence. If any Taxes
otherwise payable by the Borrower pursuant to the foregoing paragraph are
directly asserted against the Bank, the Bank may pay such taxes and the Borrower
promptly shall reimburse the Bank to the full extent otherwise required by such
paragraph. The obligations of the Borrower under this Section 2.17 shall survive
any termination of this Agreement.
Section 2.18 Increased Costs; Capital Adequacy; Funding
Exceptions
(a) Increased Costs on Eurodollar Advances. If Regulation D
of the Board of Governors of the Federal Reserve System or after the
date of this Agreement, the adoption of any applicable law, rule or
regulation, or any change in any existing law, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank with any request or
directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall:
(i) subject the Bank to or cause the withdrawal or
termination of any exemption previously granted any Bank with
respect to, any tax, duty or other charge with respect to its
Eurodollar Advances or its obligation to make Eurodollar
Advances, or shall change the basis of taxation of payments to
the
<PAGE>
Bank of the principal of or interest under this Agreement in
respect of its Eurodollar Advances or its obligation to make
Eurodollar Advances (except for changes in the rate of tax on
the overall net income of such Bank imposed by the
jurisdictions in which the Bank's principal executive office
is located); or
(ii) impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the
Board of Governors of the Federal Reserve System, but
excluding any reserve included in the determination of
interest rates pursuant to Section 2.8), special deposit or
similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Bank; or
(iii) impose on the Bank any other condition
affecting its making, maintaining or funding of its Eurodollar
Advances or its obligation to make Eurodollar Advances;
and the result of any of the foregoing is to increase the cost to the
Bank of making or maintaining any Eurodollar Advance, or to reduce the
amount of any sum received or receivable by the Bank under this
Agreement or under the Note with respect to a Eurodollar Advance, then
the Bank will notify the Borrower within ninety (90) days after
discovering such increased cost and within fifteen (15) days after
demand by the Bank (which demand shall be accompanied by a statement
setting forth the basis of such demand), the Borrower shall pay to the
Bank such additional amount or amounts as will compensate the Bank for
such increased cost or such reduction. The Bank will promptly notify
the Borrower of any event of which it has knowledge, occurring after
the date hereof, which will entitle the Bank to compensation pursuant
to this Section 2.18. If the Borrower receives notice from the Bank of
any event which will entitle the Bank to compensation pursuant to this
Section 2.18, the Borrower may prepay any then outstanding Eurodollar
Advances or notify the Bank that any pending request for a Eurodollar
Advance shall be deemed to be a request for a Floating Rate Advance, in
each case subject to the provisions of Section 2.19.
(b) Capital Adequacy. If the Bank determines at any time that
the Bank's Return has been reduced as a result of any Capital Adequacy
Rule Change, the Bank may require the Borrower to pay to the Bank the
amount necessary to restore the Bank's Return to what it would have
been had there been no Capital Adequacy Rule Change. For purposes of
this Section 2.18(b), the following definitions shall apply:
(i) "Return", for any calendar quarter or shorter
period, means the percentage determined by dividing (A) the
sum of interest and ongoing fees earned by the Bank under this
Agreement during such period by (B) the average capital the
Bank is required to maintain during such period as a result
<PAGE>
of its being a party to this Agreement, as determined by the
Bank based upon its total capital requirements and a
reasonable attribution formula that takes account of the
Capital Adequacy Rules then in effect. Return may be
calculated for the Bank for each calendar quarter and for the
shorter period between the end of a calendar quarter and the
date of termination in whole of this Agreement.
(ii) "Capital Adequacy Rule" means any law, rule,
regulation or guideline regarding capital adequacy that
applies to the Bank, or the interpretation thereof by any
governmental or regulatory authority. Capital Adequacy Rules
include rules requiring financial institutions to maintain
total capital in amounts based upon percentages of outstanding
loans, binding loan commitments and letters of credit.
(iii) "Capital Adequacy Rule Change" means any change
in any Capital Adequacy Rule occurring after the date of this
Agreement, but does not include any changes in applicable
requirements that at the date hereof are scheduled to take
place under the existing Capital Adequacy Rules or any
increases in the capital that the Bank is required to maintain
to the extent that the increases are required due to a
regulatory authority's assessment of the Bank's financial
condition.
The initial notice sent by the Bank shall be sent as promptly as
practicable after the Bank learns that its Return has been reduced,
shall include a demand for payment of the amount necessary to restore
the Bank's Return for the quarter in which the notice is sent, and
shall state in reasonable detail the cause for the reduction in the
Bank's Return and the Bank's calculation of the amount of such
reduction. Thereafter, the Bank may send a new notice during each
calendar quarter setting forth the calculation of the reduced Return
for that quarter and including a demand for payment of the amount
necessary to restore the Bank's Return for that quarter. The Bank's
calculation in any such notice shall be conclusive and binding absent
demonstrable error.
(c) Basis for Determining Interest Rate Inadequate or Unfair.
If with respect to any Interest Period:
(i) the Bank determines that deposits in U.S. dollars
(in the applicable amounts), as the case may be, are not being
offered in the London interbank eurodollar market for such
Interest Period; or
(ii) the Bank otherwise determines (which
determination shall be binding and conclusive on all parties)
that by reason of circumstances affecting the
<PAGE>
London interbank eurodollar market adequate and reasonable
means do not exist for ascertaining the applicable Eurodollar
Rate; or
(iii) the Bank advises the Borrower that the
Eurodollar Rate as determined by the Bank will not adequately
and fairly reflect the cost to the Bank of maintaining or
funding a Eurodollar Advance for such Interest Period, or that
the making or funding of Eurodollar Advances has become
impracticable as a result of an event occurring after the date
of this Agreement which in the opinion of the Bank materially
affects such Eurodollar Advances;
then the Bank shall promptly notify the Borrower and the Borrower shall
enter into good faith negotiations with the Bank in order to determine
an alternate method to determine the Eurodollar Rate for the Bank, and
during the pendency of such negotiations with the Bank, the Bank shall
be under no obligation to make Eurodollar Advances.
(d) Illegality. In the event that any change in (including
the adoption of any new) applicable laws or regulations, or any change
in the interpretation of applicable laws or regulations by any
governmental authority, central bank, comparable agency or any other
regulatory body charged with the interpretation, implementation or
administration thereof, or compliance by the Bank with any request or
directive (whether or not having the force of law) of any such
authority, central bank, comparable agency or other regulatory body,
should make it (or, in the good faith judgment of the Bank, shall raise
a substantial question as to whether it is) unlawful for the Bank to
make, maintain or fund Eurodollar Advances, then (i) the Bank shall
promptly notify the Borrower, (ii) the obligation of the Bank to make,
maintain or convert into Eurodollar Advances shall, upon the
effectiveness of such event, be suspended for the duration of such
unlawfulness, and (iii) for the duration of such unlawfulness, any
notice by the Borrower pursuant to Sections 2.3, 2.4 or 2.5 requesting
the Bank to make or convert into Eurodollar Advances shall be construed
as a request to make or to continue making Floating Rate Advances.
Section 2.19 Funding Losses. The Borrower hereby agrees that
upon demand by the Bank (which demand shall be accompanied by a statement
setting forth the basis for the calculations of the amount being claimed) the
Borrower will indemnify the Bank against any loss or expense which the Bank may
have sustained or incurred (including, without limitation, any net loss or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by the Bank to fund or maintain Eurodollar Advances) or
which may be deemed to have sustained or incurred, as reasonably determined by
the Bank, (i) as a consequence of any failure by the Borrower to make any
payment when due of any amount due hereunder in connection with any Eurodollar
Advances, (ii) due to any failure of the Borrower to borrow or convert any
Eurodollar Advances on a date specified therefor in a notice thereof or (iii)
due to any payment or prepayment of any Eurodollar Advance on a date
<PAGE>
other than the last day of the applicable Interest Period for such Eurodollar
Advance. For this purpose, all notices of Borrowing pursuant to this Agreement
shall be deemed to be irrevocable.
Section 2.20 Right of Bank to Fund through Other Offices. The
Bank, if it so elects, may fulfill its Commitment as to any Eurodollar Advance
by causing a foreign branch or affiliate of such Bank to make such Eurodollar
Advance; provided, that in such event the obligation to the Borrower to repay
such Eurodollar Advance shall nevertheless be to the Bank and shall be deemed
held by the Bank, to the extent of such Eurodollar Advance, for the account of
such branch or affiliate.
Section 2.21 Discretion of Bank as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, the Bank shall
be entitled to fund and maintain its funding of all or any part of its
Eurodollar Advances in any manner it deems fit, it being understood, however,
that for the purposes of this Agreement (specifically including, without
limitation, Section 2.19 hereof) all determinations hereunder shall be made as
if the Bank had actually funded and maintained each Eurodollar Advance during
each Interest Period for such Eurodollar Advance through the purchase of
deposits having a maturity corresponding to such Interest Period and bearing an
interest rate equal to the appropriate Eurodollar Rate for such Loan Period.
Section 2.22 Conclusiveness of Statements; Survival of
Provisions. Determinations and statements of the Bank pursuant to Section 2.17,
2.18, or 2.19 shall be conclusive absent demonstrable error. The Bank may use
reasonable averaging and attribution methods in determining compensation
pursuant to such Sections and the provisions of such Sections shall survive
termination of this Agreement.
ARTICLE III
CONDITIONS OF LENDING
Section 3.1 Conditions Precedent to the Initial Advances. The
obligation of the Bank to fund the initial Borrowing request of the Borrower or
issue any Letter of Credit is subject to the condition precedent that the Bank
shall have received the following, each in form and substance satisfactory to
the Bank:
(a) The Note, properly executed on behalf of the Borrower.
(b) A certified copy of the resolutions of the Board of
Directors and shareholders, if necessary, of the Borrower evidencing
approval of all Loan Documents and the other matters contemplated
hereby.
<PAGE>
(c) Copies of the Articles of Incorporation and Bylaws of the
Borrower, certified by the Secretary or Assistant Secretary of the
Borrower as being true and correct copies thereof.
(d) A certificate of good standing of the Borrower, dated not
more than sixty (60) days prior to the date hereof and evidence
satisfactory to the Bank that the Borrower is qualified to conduct its
business in each state where it presently conducts such business.
(e) A signed copy of a certificate of the Secretary or an
Assistant Secretary of the Borrower which shall certify the names of
the officers of the Borrower authorized to sign the Loan Documents and
the other documents or certificates to be delivered pursuant to this
Agreement by the Borrower or any of its officers, including requests
for Advances, together with the true signatures of such officers. The
Bank may conclusively rely on such certificate until it shall receive a
further certificate of the Secretary or Assistant Secretary of the
Borrower canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate.
(f) A guaranty, properly executed by ITI, pursuant to which
ITI unconditionally guarantees the full and prompt payment of all
Obligations.
(g) A certified copy of the resolutions of the Board of
Directors and shareholders, if necessary, of ITI evidencing approval of
the guaranty and the other matters contemplated hereby.
(h) Copies of the Articles of Incorporation and Bylaws of ITI,
certified by the Secretary or Assistant Secretary of ITI as being true
and correct copies thereof.
(i) A certificate of good standing of ITI, dated not more than
sixty (60) days prior to the date hereof and evidence satisfactory to
the Bank that ITI is qualified to conduct its business in each state
where it presently conducts such business.
(j) A signed copy of an opinion of counsel for the Borrower
and ITI, addressed to the Bank, in form and content acceptable to the
Bank.
Section 3.2 Conditions Precedent to All Advances. The
obligation of the Bank to make each Advance or issue a Letter of Credit shall be
subject to the further conditions precedent that on such date:
(a) the representations and warranties contained in Article IV
hereof are correct on and as of the date of such Advance as though made
on and as of such date,
<PAGE>
except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance, which constitutes a Default or an Event of Default.
Section 3.3 Conditions Subsequent to Initial Advance. By May
20, 1997, the Bank shall have each of the following in form and content
acceptable to the Bank:
(a) A guaranty, properly executed by CADDX, pursuant to which
CADDX unconditionally guarantees the full and prompt payment of all
Obligations.
(b) A certified copy of the resolutions of the Board of
Directors and shareholders, if necessary, of CADDX evidencing approval
of the guaranty and the other matters contemplated hereby.
(c) Copies of the Articles of Incorporation and Bylaws of
CADDX, certified by the Secretary or Assistant Secretary of CADDX as
being true and correct copies thereof.
(d) A certificate of good standing of CADDX, dated not more
than sixty (60) days prior to the date hereof and evidence satisfactory
to the Bank that CADDX is qualified to conduct its business in each
state where it presently conducts such business.
(e) A signed copy of an opinion of counsel for CADDX,
addressed to the Bank, in form and content acceptable to the Bank.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank as follows:
Section 4.1 Corporate Existence and Power; Name; Chief
Executive Office. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Minnesota, and is
duly licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary and where
failure to obtain such licensing or qualification would have a material adverse
effect on the Borrower. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. Within the last twelve (12) months, the Borrower has done business
solely under the names set forth in Schedule 4.0 hereto. The chief executive
office and principal place of business of the Borrower is located at the address
set forth in Schedule 4.0 hereto, and all of the Borrower's records relating to
its businesses are kept at that location.
Section 4.2 Authorization for Borrowings and Letters of
Credit; No Conflict as to Law or Agreements. The execution, delivery and
performance by the Borrower of the Loan Documents, and the Letters of Credit and
Borrowings from time to time obtained hereunder, have been duly authorized by
all necessary corporate action and do not and will not (i) require any consent
or approval which has not been obtained prior to the date hereof, (ii) require
any authorization, consent or approval by, or registration, declaration or
filing with, or notice to, any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or any third party,
except such authorization, consent, approval, registration, declaration, filing
or notice as has been obtained, accomplished or given prior to the date hereof,
(iii) violate any provision of any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in effect having
applicability to the Borrower or of the Articles of Incorporation or Bylaws of
the Borrower, (iv) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other material agreement, lease or
instrument to which the Borrower is a party or by which it or its properties may
be bound or affected, or (v) result in, or require, the creation or imposition
of any mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance of any nature upon or with respect to any of the properties now
owned or hereafter acquired by the Borrower.
Section 4.3 Legal Agreements. The Loan Documents constitute
the legal, valid and binding obligations and agreements of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
<PAGE>
Section 4.4 Subsidiaries. Except as set forth in Schedule 4.0,
the Borrower has no Subsidiaries.
Section 4.5 Financial Condition; No Adverse. The Borrower has
heretofore furnished to the Bank audited financial statements for its fiscal
year ended December 31, 1996, and unaudited financial statements for the months
ended February 28, 1997, and those statements fairly present the financial
condition of the Borrower on the dates thereof and the results of its operations
and cash flows for the periods then ended and were prepared in accordance with
GAAP. Since the date of the most recent financial statements, there has been no
material adverse change in the business, properties or condition (financial or
otherwise) of the Borrower.
Section 4.6 Litigation. There are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or the properties of the Borrower before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower, could have
a material adverse effect on the financial condition, properties or operations
of the Borrower, except as set forth and described in Schedule 4.6.
Section 4.7 Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 4.8 Taxes. The Borrower has paid or caused to be paid
to the proper authorities when due all federal, state and local taxes required
to be withheld by it. The Borrower has filed all federal, state and local tax
returns which to the knowledge of the officers of the Borrower, are required to
be filed, and the Borrower has paid or caused to be paid to the respective
taxing authorities all taxes as shown on said returns or on any assessment
received by it to the extent such taxes have become due.
Section 4.9 Titles and Liens. The Borrower has good and
absolute title to all properties and assets reflected in the latest balance
sheet referred to in Section 4.5, free and clear of all mortgages, security
interests, liens and encumbrances, except for (i) mortgages, security interests
and liens permitted by Section 6.1, and (ii) covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower as presently conducted. In
addition, no financing statement naming the Borrower as debtor is on file in any
office except to perfect only security interests permitted by Section 6.1.
Section 4.10 Plans. Except as disclosed to the Bank in writing
prior to the date hereof, the Borrower does not maintain and has not in the past
maintained any Plan. The
<PAGE>
Borrower has not received any notice or has any knowledge to the effect that it
is not in full compliance with any of the requirements of ERISA. No Reportable
Event or other fact or circumstance which may have an adverse effect on the
Plan's tax qualified status exists in connection with any Plan. The Borrower,
does not have:
(a) any accumulated funding deficiency within the meaning of
ERISA; or
(b) any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 4.11 Default. The Borrower is in material compliance
with all provisions of all agreements, instruments, decrees and orders to which
it is a party or by which it or its property is bound or affected, the breach or
default of which could have a material adverse effect on the financial
condition, properties or operations of the Borrower.
Section 4.12 Environmental Protection. The Borrower has
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws and regulations relating to emissions, discharges,
releases of pollutants, contaminants, hazardous or toxic materials, or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. Except as disclosed in Schedule
4.12, the Borrower and all activities of the Borrower at its facilities comply
with all Environmental Laws and with all terms and conditions of any required
permits, licenses and authorizations applicable to the Borrower with respect
thereto. Except as disclosed in Schedule 4.12, the Borrower is also in
compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
Environmental Laws or contained in any plan, order, decree, judgment or notice
of which the Borrower is aware. Except as disclosed in Schedule 4.12, the
Borrower is not aware of, nor has the Borrower received notice of, any events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance with, or which may give
rise to any liability under, any Environmental Laws.
Section 4.13 Submissions to Bank. All financial and other
information provided to the Bank by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
<PAGE>
ARTICLE V
AFFIRMATIVE COVENANTS OF THE BORROWER
So long as the Note shall remain unpaid or the Commitment
shall be outstanding, the Borrower will comply with the following requirements,
unless the Bank shall otherwise consent in writing:
Section 5.1 Reporting Requirements. The Borrower will deliver,
or cause to be delivered, to the Bank each of the following, which shall be in
form and detail acceptable to the Bank:
(a) as soon as available, and in any event within one hundred
and twenty (120) days after the end of each fiscal year of the
Borrower, audited financial statements of the Borrower with the
unqualified opinion of independent certified public accountants
selected by the Borrower and acceptable to the Bank, which annual
financial statements shall include the balance sheets of the Borrower
as at the end of such fiscal year and the related statements of income,
retained earnings and cash flows of the Borrower for the fiscal year
then ended, prepared, if the Bank so requests, on a consolidating and
consolidated basis to include any Subsidiaries, all in reasonable
detail and prepared in accordance with GAAP applied on a basis
consistent with the accounting practices applied in the financial
statements referred to in Section 4.5, together with a certificate of
the chief financial officer of the Borrower, substantially in the form
of Exhibit E, stating that such financial statements have been prepared
in accordance with GAAP applied on a basis consistent with the
accounting practices reflected in the annual financial statements
referred to in Section 4.5 and whether or not such officers have
knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within thirty (30)
days after the end of each calendar quarter, an unaudited/internal
balance sheet and statements of income, cash flow, and retained
earnings of the Borrower as at the end of and for such quarter and for
the year to date period then ended, prepared, if the Bank so requests,
on a consolidating and consolidated basis to include any Subsidiaries,
in reasonable detail and stating in comparative form the figures for
the corresponding date and periods in the previous year, all prepared
in accordance with GAAP applied on a basis consistent with the
accounting practices reflected in the financial statements referred to
in Section 4.5 hereof, subject to year-end audit adjustments; and
accompanied by a certificate of the chief financial officer of the
Borrower, substantially in the form of Exhibit E, stating (i) that such
financial statements have been prepared in accordance with GAAP applied
on a basis consistent with the accounting practices reflected in the
financial statements referred to in Section 4.5, subject to year-end
audit adjustments, (ii) whether or not such officer has knowledge of
the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in
<PAGE>
reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations
as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 5.8, 5.9, 5.10, and 5.11;
(c) not later than ninety (90) days after the beginning of
each fiscal year of the Borrower, the projected balance sheets, income
statements, and cash flow statements for each quarter of such year,
each in reasonable detail, representing the good faith projections of
the Borrower and certified by the Borrower's chief financial officer as
being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes,
together with such supporting schedules and information as the Bank in
its discretion may require;
(d) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower, or any of its
Subsidiaries, of the type described in Section 4.6 or which seek a
monetary recovery against the Borrower, or any of its Subsidiaries, in
excess of $500,000;
(e) as promptly as practicable (but in any event not later
than five (5) business days) after an officer of the Borrower obtains
knowledge of the occurrence of a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a
responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(f) as soon as possible and in any event within thirty (30)
days after the Borrower, or any of its Subsidiaries, knows or has
reason to know that any Reportable Event with respect to any Plan has
occurred, the statement of the chief financial officer of the Borrower,
setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event to the Pension Benefit
Guaranty Corporation;
(g) as soon as possible, and in any event within ten (10) days
after the Borrower fails to make any quarterly contribution required
with respect to any Plan under Section 4.12(m) of the Internal Revenue
Code of 1986, as amended, the statement of the chief financial officer
of the Borrower setting forth details as to such failure and the action
which the Borrower proposes to take with respect thereto, together with
a copy of any notice of such failure required to be provided to the
Pension Benefit Guaranty Corporation;
(h) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
<PAGE>
(i) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Borrower shall
file with the Securities and Exchange Commission or any national
securities exchange; and
(j) promptly upon knowledge thereof, notice of the violation
by the Borrower of any law, rule or regulation, the non-compliance with
which could materially and adversely affect its business or its
financial condition.
Section 5.2 Books and Records; Inspection and Examination. The
Borrower and its Subsidiaries will keep accurate books of record and account for
itself pertaining to its business and financial condition and such other matters
as the Bank may from time to time request in which true and complete entries
will be made in accordance with GAAP consistently applied and, upon request of
and reasonable notice by the Bank, will permit any officer, employee, attorney
or accountant for the Bank at the Bank's expense, to audit, review, make
extracts from or copy any and all corporate and financial books and records of
the Borrower at all reasonable times during ordinary business hours, to send and
discuss with account debtors and other obligors requests for verification of
amounts owed to the Borrower, and to discuss the affairs of the Borrower with
any of its directors, officers, employees or agents. The Borrower and its
Subsidiaries will permit the Bank or its employees, accountants, attorneys or
agents, at the Bank's expense, to examine and inspect any property of the
Borrower and its Subsidiaries at any time during ordinary business hours.
Section 5.3 Compliance with Laws; Environmental Indemnity. The
Borrower and its Subsidiaries will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition, (ii) comply with
all applicable Environmental Laws and obtain any permits, licenses or similar
approvals required by any such Environmental Laws, and (iii) use and keep its
assets, and will require that others use and keep its assets, only for lawful
purposes, without violation of any federal, state or local law, statute or
ordinance. The Borrower and its Subsidiaries will indemnify, defend and hold the
Bank harmless from and against any claims, loss or damage to which the Bank may
be subjected as a result of any past, present or future existence, use,
handling, storage, transportation or disposal of any Hazardous Substance by the
Borrower and its Subsidiaries, or on property owned, leased or controlled by the
Borrower, or its Subsidiaries. This indemnification agreement shall survive the
termination of this Agreement and payment of all Obligations.
Section 5.4 Payment of Taxes and Other Claims. The Borrower
and its Subsidiaries will pay or discharge, when due, (i) all taxes, assessments
and governmental charges levied or imposed upon it or upon its income or
profits, upon any properties belonging to it prior to the date on which
penalties attach thereto, (ii) all federal, state and local taxes required to be
withheld by it, and (iii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon any properties of
the Borrower, or its Subsidiaries; provided, however, that the Borrower, or its
Subsidiaries, shall
<PAGE>
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
Section 5.5 Maintenance of Properties. The Borrower and its
Subsidiaries will keep and maintain all of its properties necessary or useful in
its business in good condition, repair and working order (normal wear and tear
excepted); provided, however, that nothing in this Section 5.5 shall prevent the
Borrower, or its Subsidiaries, from discontinuing the operation and maintenance
of any of its properties if such discontinuance is, in the reasonable judgment
of the Borrower, or its Subsidiaries, desirable in the conduct of its business
and not disadvantageous in any material respect to the Bank.
Section 5.6 Insurance. The Borrower and its Subsidiaries will
obtain and at all times maintain insurance with insurers believed by the
Borrower, and its Subsidiaries, to be responsible and reputable in such amounts
and against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower, and its Subsidiaries, operate.
Section 5.7 Preservation of Corporate Existence. The Borrower
and its Subsidiaries will preserve and maintain its corporate existence and all
of its rights, privileges and franchises necessary or desirable in the normal
conduct of its business and shall conduct its business in an orderly, efficient
and regular manner.
Section 5.8 Interest Coverage Ratio. The Borrower will
maintain, as of each Covenant Computation Date, its Interest Coverage Ratio at
not less than 3.50 to 1.00.
Section 5.9 Debt Service Coverage Ratio. The Borrower will
maintain, as of each Covenant Computation Date, its Debt Service Coverage Ratio
at not less than 1.50 to 1.00.
Section 5.10 Funded Debt Coverage Ratio. The Borrower will
maintain, as of each Covenant Computation Date, its Funded Debt Coverage Ratio
at not less than 0.35 to 1.00.
Section 5.11 Minimum Stockholders' Equity. The Borrower will
maintain, as of each Covenant Computation Date, its Stockholders' Equity at not
less than an amount equal to the sum of $70,000,000 plus seventy-five percent
(75%) of Net Income (with any negative Net Income counting as zero (0) for
purposes of the foregoing) that has been earned by the Borrower from January 1,
1997, to the applicable Covenant Computation Date.
<PAGE>
ARTICLE VI
NEGATIVE COVENANTS
So long as the Note, or any Letter of Credit shall remain
unpaid or outstanding or the Commitment shall be outstanding, the Borrower will
comply with the following requirements, unless the Bank shall otherwise consent
in writing:
Section 6.1 Liens. The Borrower will not, nor will any of the
Borrower's Subsidiaries, create, incur or suffer to exist any mortgage, deed of
trust, pledge, lien, security interest, assignment or transfer upon or of any of
its assets, now owned or hereafter acquired, to secure any indebtedness;
excluding, however, from the operation of the foregoing:
(a) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 6.0;
(b) liens for taxes or assessments or other governmental
charges to the extent not required to be paid by Section 5.4;
(c) materialmen's, merchants', carriers', worker's,
repairer's, or other like liens arising in the ordinary course of
business to the extent not required to be paid by Section 5.4;
(d) pledges or deposits to secure obligations under worker's
compensation laws, unemployment insurance and social security laws, or
to secure the performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases or to secure statutory
obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business;
(e) zoning restrictions, easements, licenses, restrictions on
the use of real property or minor irregularities in title thereto,
which do not materially impair the use of such property in the
operation of the business of the Borrower, or its Subsidiaries, or the
value of such property for the purpose of such business; and
(f) purchase money mortgages, liens or security interests
(including conditional sale agreements or other title retention
agreements and leases in the nature of title retention agreements) upon
or in property acquired after the date hereof by the Borrower, or
mortgages, liens or security interests existing in such property at the
time of the acquisition thereof, provided that:
(i) no such mortgage, lien or security
interest extends or shall extend to or cover any property of
the Borrower, or its Subsidiaries, other than the property
then being acquired; and
<PAGE>
(ii) the aggregate principal amount of the
indebtedness secured by any such mortgage, lien or security
interest shall not exceed the cost of such property so
acquired by the Borrower, or its Subsidiaries, in connection
therewith or the fair market value of such property, whichever
is less.
Section 6.2 Indebtedness. The Borrower will not, nor will it
allow its Subsidiaries to, incur, create, assume or permit to exist any
indebtedness or liability on account of deposits or advances or any indebtedness
for borrowed money, or any other indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations, except:
(a) Obligations arising hereunder;
(b) indebtedness of the Borrower, or its Subsidiaries, in
existence on the date hereof and listed in Schedule 6.0;
(c) indebtedness of the Borrower to or from any Subsidiary;
and
(d) Capitalized Lease Liabilities, indebtedness of the
Borrower, or its Subsidiaries, secured by security interests permitted
by Section 6.1(f) and other indebtedness of the Borrower, or its
Subsidiaries, in connection with and specifically related to the
purchase of property by the Borrower, or its Subsidiaries, after the
date hereof, in the aggregate not to exceed $2,000,000 at any time
outstanding.
Section 6.3 Guaranties. The Borrower will not, nor will it
allow its Subsidiaries to, assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except:
(a) the endorsement of negotiable instruments by the Borrower,
or its Subsidiaries, for deposit or collection or similar transactions
in the ordinary course of business;
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 6.0; and
(c) guaranties of the Guarantors to the Bank, issued in
connection with this credit facility.
Section 6.4 Investments. The Borrower will not, nor will it
allow its Subsidiaries to, purchase or hold beneficially any stock or other
securities or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or
<PAGE>
acquire any interest whatsoever in, any other Person, including specifically but
without limitation any partnership or joint venture, except:
(a) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued
by a U.S. corporation rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Moody's Investors Service, investments
in money market mutual funds whose underlying assets are investments
which would otherwise be permitted investments under this Section
6.4(a), or repurchase agreements, certificates of deposit or bankers'
acceptances having a maturity of one (1) year or less issued by members
of the Federal Reserve System having deposits in excess of $100,000,000
(which certificates of deposit or bankers' acceptances are fully
insured by the Federal Deposit Insurance Corporation);
(b) advances in the form of progress payments, prepaid rent or
security deposits;
(c) investments made after the date hereof in an aggregate
principal amount not to exceed $5,000,000 to purchase all outstanding
stock of or otherwise make any investment or acquire a controlling
interest in a Person, or to acquire substantially all of the assets of
a Person, or, to purchase a minority ownership in a Person if such
Person is in a business not materially different than, or related to,
the business of the Borrower and the Borrower anticipates that such
purchase will benefit the Borrower's line of business; provided that
any such contemplated investment or acquisition does not constitute a
hostile or unfriendly takeover action or investment by the Borrower
toward or against a Person with which the Bank has a depository, trust,
lending or other financial relationship; and
(d) advances or loans made to customers of the Borrower under
the Borrower's Customer Finance Program;
(e) investments in, or advances or loans to or from, any
Subsidiary; and
(f) other investments in an aggregate amount not to exceed
$500,000 at any time outstanding.
Section 6.5 Restricted Payments. The Borrower will not declare
or pay any dividends on any shares of any class of stock of the Borrower, or
directly or indirectly apply any assets of the Borrower to the redemption,
retirement, purchase or other acquisition of any shares of any class of stock of
the Borrower, during any fiscal year of the Borrower in an amount in excess of
twenty-five percent (25%) of the Borrower's Net Income for the immediately
preceding fiscal year.
<PAGE>
Section 6.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of the stock of any Subsidiary, all or a substantial part of its assets
(whether in one transaction or in a series of transactions) to any other Person
other than the sale of its inventory in the ordinary course of business and will
not liquidate, dissolve or suspend its business operations; provided, however,
that the Borrower, or any of its Subsidiaries, may make such sales, transfers,
assignments, leases or other dispositions of assets in an aggregate amount not
to exceed $5,000,000 in any year.
Section 6.7 Consolidation and Merger; Asset Acquisitions. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person, unless the Borrower survives as the sole remaining entity.
Section 6.8 Restrictions on Nature of Business. The Borrower
and its Subsidiaries will not engage in any line of business materially
different from or unrelated to the business presently engaged in by the
Borrower, and its Subsidiaries, and will not purchase, lease or otherwise
acquire assets not related to its business, other than the acquisition of assets
permitted under Section 6.4 hereof.
Section 6.9 Accounting. The Borrower and its Subsidiaries will
not adopt any material change in accounting principles other than as required
by, or acceptable under, GAAP. The Borrower will not, nor will it allow its
Subsidiaries to, adopt, permit or consent to any change in its fiscal year.
Section 6.10. Hazardous Substances. The Borrower and its
Subsidiaries will not cause or permit any Hazardous Substances to be disposed
of, in any manner which might result in any material liability to the Borrower
or its Subsidiaries, on, under or at any real property which is operated by the
Borrower or its Subsidiaries or in which the Borrower or its Subsidiaries has
any interest.
ARTICLE VII
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
Section 7.1 Events of Default. "Event of Default", wherever
used herein, means any one of the following events:
<PAGE>
(a) default in the payment of any interest on or principal of
the Note when it becomes due and payable and the continuation of such
default for more than three (3) Business days; or
(b) default in the payment of any fees, costs or expenses
required to be paid by the Borrower under this Agreement or any other
Loan Document and the continuation of such default for more than three
(3) Business days; or
(c) default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in Sections 5.8, 5.9,
5.10, and 5.11; or
(d) default in the performance, or breach, of any covenant or
agreement of the Borrower in this Agreement (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with), and the continuance of such
default or breach for a period of thirty (30) days after there has been
given a written notice specifying such default or breach and requiring
it to be remedied; or
(e) the Borrower, or either of the Guarantors, shall be or
become insolvent, or admit in writing its inability to pay its debts as
they mature, or make an assignment for the benefit of creditors; or the
Borrower, or either of the Guarantors, shall apply for or consent to
the appointment of any receiver, trustee, or similar officer for it or
for all or any substantial part of its property; or such receiver,
trustee or similar officer shall be appointed without the application
or consent of the Borrower, or either of the Guarantors, and such
appointment shall continue undischarged for a period of thirty (30)
days; or the Borrower, or either of the Guarantors, shall institute (by
petition, application, answer, consent or otherwise) any insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower, or either of the
Guarantors, or any judgment, writ, warrant of attachment or execution
or similar process shall be issued or levied against a substantial part
of the property of the Borrower, or either of the Guarantors, and such
judgment, writ, or similar process shall not be released, vacated or
fully bonded within thirty (30) days after its issue or levy; or
(f) a petition naming the Borrower, or either of the
Guarantors, as debtor shall be filed under the United States Bankruptcy
Code; or
(g) any representation or warranty made by the Borrower in
this Agreement or by the Borrower (or any of its officers) in any
request for a Borrowing, or in any other certificate, instrument, or
statement contemplated by or made or delivered
<PAGE>
pursuant to or in connection with this Agreement, shall prove to have
been incorrect in any material respect when made; or
(h) the rendering against the Borrower, or either of the
Guarantors, of a final judgment, decree or order for the payment of
money in excess of $500,000 (unless the payment of such judgment is
fully insured) and the continuance of such judgment, decree or order
unsatisfied and in effect for any period of thirty (30) consecutive
days without a stay of execution; or
(i) a default shall occur under any bond, debenture, note or
other obligation of the Borrower, or either of the Guarantors,
evidencing indebtedness in the amount of $500,000 or more, or under any
indenture or other instrument under which any such evidence of
indebtedness or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, and the
expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness, indenture or other instrument; or
(j) any Reportable Event, which the Bank determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
thirty (30) days after written notice to such effect shall have been
given to the Borrower by the Bank; or any Plan shall have been
terminated, or a trustee shall have been appointed by an appropriate
United States District Court to administer any Plan, or the Pension
Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Plan or to appoint a trustee to administer any Plan; or
(k) the Borrower, or either of the Guarantors, shall
liquidate, dissolve, terminate or suspend its business operations or
otherwise fail to operate its business in the ordinary course, or shall
sell all or substantially all of its assets, without the prior written
consent of the Bank; or
(l) the Borrower, or either of the Guarantors, shall fail to
pay, withhold, collect or remit any tax or tax deficiency when assessed
or due (other than any tax deficiency which is being contested in good
faith and by proper proceedings and for which it shall have set aside
on its books adequate reserves therefor) or notice of any state or
federal tax liens shall be filed or issued.
Section 7.2 Rights and Remedies. Upon the occurrence of an
Event of Default or at any time thereafter until such Event of Default is cured
or waived to the written satisfaction of the Bank, the Bank may exercise any or
all of the following rights and remedies:
<PAGE>
(a) by notice to the Borrower, declare the Commitment to be
terminated, whereupon the same shall forthwith terminate;
(b) by notice to the Borrower, declare the entire unpaid
principal amount of the Note, all interest accrued and unpaid thereon,
and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon the Note, all such accrued interest and all such
amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Borrower;
(c) by notice to the Borrower, demand payment by the Borrower
of funds with respect to each outstanding Letter of Credit in an amount
sufficient to fund a cash escrow for each such Letter of Credit, which
cash escrow will be held by the Bank, without interest, in a special
cash collateral account and applied to reimbursement of each draft
under a Letter of Credit;
(d) without notice to the Borrower and without further action,
apply any and all money owing by the Bank to the Borrower to the
payment of the Note, including interest accrued thereon, and of all
other sums then owing by the Borrower hereunder;
(e) exercise and enforce the rights and remedies available to
the Bank under any Loan Document or any guaranty given to the Bank by
either of the Guarantors; and
(f) exercise any other rights and remedies available to the
Bank by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.1(f) hereof, the entire unpaid principal amount of the
Note, all interest accrued and unpaid thereon, and all other amounts payable
under this Agreement shall be immediately due and payable without presentment,
demand, protest or notice of any kind.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 No Waiver; Cumulative Remedies. No failure or
delay on the part of the Bank in exercising any right, power or remedy under the
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.
<PAGE>
Section 8.2 Amendments, Requested Waivers, Etc. No amendment,
modification, termination or waiver of any provision of any Loan Document or
consent to any departure by the Borrower therefrom shall be effective unless the
same shall be in writing and signed by the Bank. Any waiver or consent given
hereunder shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances.
Section 8.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
mailed or delivered to the applicable parties at their respective addresses set
forth on the execution pages hereto, or, as to each party, at such other address
as shall be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section 8.3. All such notices,
requests, demands and other communications, when delivered, shall be effective
upon actual delivery, when mailed, shall be effective when sent by nationally
recognized overnight mail courier or delivery service, addressed as aforesaid,
except that notices or requests to the Bank pursuant to any of the provisions of
Article II shall not be effective until received by the Bank.
Section 8.4 Costs and Expenses. The Borrower will reimburse
the Bank for any and all out of pocket costs and reasonable expenses (including
without limitation attorneys' fees) paid or incurred by the Bank in connection
with (i) the preparation of the Loan Documents and any other document or
agreement related hereto or thereto, and the transactions contemplated hereby,
which amount shall not exceed $6,000, (ii) the negotiation of any amendments,
modifications or extensions to or of any of the foregoing documents, instruments
or agreements and the preparation of any and all documents necessary or
desirable to effect such amendments, modifications or extensions and (iii) the
enforcement by the Bank of any of the rights or remedies of the Bank under any
of the foregoing documents, instruments or agreements or under applicable law,
whether or not suit is filed with respect thereto.
Section 8.5 Confidentiality. The Bank acknowledges that, in
connection with entering into the Agreement and in the course of performance of
each party's obligations under the Agreement, the Bank will obtain confidential
non-public information of the Borrower ("Confidential Information"). The Bank
shall treat all such Confidential Information as strictly confidential, and
shall use the same care to prevent the disclosure of such information as the
Bank uses with respect to its own confidential and proprietary information
(which shall be no less than the care a reasonable person would use under
similar circumstances).
Section 8.6 Execution in Counterparts. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed
<PAGE>
and delivered shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same instrument.
Section 8.7 Governing Law; Jurisdiction; Waiver of Jury Trial.
(a) Governing Law. The Loan Documents shall be governed by,
and construed in accordance with, the laws of the State of Minnesota.
(b) Jurisdiction. The Borrower hereby irrevocably submits to
the jurisdiction of any Minnesota State or Federal court sitting in
Minneapolis or St. Paul, Minnesota, in any action or proceeding arising
out of or relating to this Agreement or any of the other Loan
Documents, and the Borrower hereby irrevocably agrees that all claims
in respect of such action or proceeding may be heard and determined in
such Minnesota State court or in such Federal court. The Borrower
hereby irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such
action or proceeding. The Borrower irrevocably consents to the service
of copies of the summons and complaint and any other process which may
be served in any such action or proceeding by the mailing of copies of
such process to the Borrower at its addresses specified in Section 8.3
above. The Borrower agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided
by law. Nothing in this Section 8.7(b) shall affect the right of the
Bank to serve legal process in any other manner permitted by law or
affect the right of the Bank to bring any action or proceeding against
the Borrower or their property in the courts of other jurisdictions.
(C) WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR ANY
INSTRUMENT OR DOCUMENT DELIVERED THEREUNDER.
Section 8.8 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 8.9 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Address: ITI TECHNOLOGIES, INC.
2266 North Second Street
North St. Paul, MN 55109
Attn: Jack A. Reichert
Vice President Finance and Administration By /s/ Jack A. Reichert
Telecopy No.: (612) 779-4802 Its Vice President-Finance
and Administration
Address: NORWEST BANK MINNESOTA,
Norwest Center NATIONAL ASSOCIATION
Sixth and Marquette
Minneapolis, Minnesota 55479-0089
Attn: Vice President,
Structured Finance Division By /s/ John A. Lukaska
Telecopy No.: (612) 667-7266 Its Vice President
EXHIBIT 10.5
ITI TECHNOLOGIES, INC.
LONG-TERM STOCK INCENTIVE PLAN (1992)
(AMENDED AND RESTATED AS OF MAY 22, 1997)
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 nonemployee directors,
executive personnel and other key employees of outstanding ability; and enabling
such directors and 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.
"NONEMPLOYEE DIRECTOR" shall mean a director of the Corporation who is
not also an employee of the Corporation.
<PAGE>
"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 and/or a Nonemployee Director 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, Nonemployee
Directors, Participants and Designated Beneficiaries.
Section 4. ELIGIBILITY
All Employees and Nonemployee Directors 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
<PAGE>
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 and/or Nonemployee
Directors 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.
<PAGE>
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 and/or Nonemployee
Directors 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
<PAGE>
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
<PAGE>
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.
EXHIBIT 10.6
COMPATIBILITY AGREEMENT
THIS AGREEMENT made by and between PRINCE CORPORATION, a Michigan
Corporation (hereinafter "PRINCE") and INTERACTIVE TECHNOLOGIES, INC., a
Minnesota Corporation (hereinafter "ITI"),
WHEREAS, Prince develops, manufacturers and sells patented trainable
transmitters for operating garage doors, gates, home security and home
appliances to automotive O.E.M. manufacturers and others for installation in
vehicles; and
WHEREAS, ITI develops, manufacturers and sells wireless security
systems and components therefore, including, but not limited to, wireless
transmitters and receivers; and
WHEREAS, Prince and ITI wish to maintain the compatibility of their
respective products so that a vehicle in which a Prince trainable transmitter is
installed will operate ITI manufactured products;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
I. PARTIES: PRINCE AND ITI
II. TERM:
The term of the Agreement will start on the last date set forth on the
signature page hereof and will continue in full force and effect until five (5)
years after ITI produces and sells the first ITI manufactured HOMELINK(R)
Security Interface. This Agreement will automatically renew for additional
periods of one (1) year; except that either party may prevent the automatic
renewal of this Agreement by giving the other party at least six (6) months
prior written notice before the expiration of the then current term.
III. PRODUCT COMPATIBILITY:
A. The parties agree to use their good faith best efforts to ensure
compatibility between the Prince trainable transmitter (the "PRINCE
TRANSMITTER") and the products manufactured by ITI identified on EXHIBIT A
attached hereto, as the same may be amended from time to time by mutual
agreement (the "ITI PRODUCTS"), and, to that end, the parties agree to cooperate
with each other and to exchange such information as necessary to ensure such
compatibility subject to the Mutual Nondisclosure Agreement
<PAGE>
between the parties dated June 3, 1997 (the "EXISTING NONDISCLOSURE AGREEMENT").
The compatibility between the Prince Transmitter and the ITI Products
contemplated by this Agreement will allow the Prince Transmitter, which is sold
as a convenience feature to automotive O.E.M.s, to interface with the ITI
Products.
B. The parties will continue to work with each other to ensure that
future generations of the Prince Transmitter and future generations of the ITI
Products will remain compatible throughout the term of this Agreement.
C. ITI will give Prince a minimum six (6) months advance notice of any
contemplated changes to the ITI Products that may affect the compatibility
between the Prince Transmitter and such ITI Products.
D. Prince will give ITI a minimum six (6) months advance notice of any
planned changes to the Prince Transmitter that may affect the compatibility
between the Prince Transmitter and ITI Products or the planned introduction of
alternative technology by Prince for operating garage doors, gates, home
security and home appliances from automobiles.
E. The parties agree to enter into a Trademark License Agreement
setting forth the terms and conditions under which Prince will license use of
the HOMELINK(R) Trademark to ITI.
F. Prince will notify ITI of all makes of automobiles utilizing the
Prince Transmitter pursuant to the terms of the existing confidentiality
agreements between Prince and the applicable O.E.M. automotive manufacturers,
which will allow ITI to utilize such information as part of its marketing
campaign.
IV. GENERAL TERMS:
A. Each party will fund any and all development efforts required of it
under this Agreement.
B. Subject to the Existing Nondisclosure Agreement, nothing in this
Agreement will be deemed to preclude Prince from working to achieve
compatibility with other security manufacturers or to preclude ITI from working
to achieve compatibility with other automotive electronics manufacturers.
C. The parties agree that all information exchanged pursuant to this
Agreement will be maintained confidential in accordance with the Existing
Nondisclosure Agreement.
D. Nothing in this Agreement shall be deemed by implication or
otherwise to convey to either party any rights under any patents, patent
applications or inventions
<PAGE>
owned by the other party, nor shall this Agreement be deemed a commitment of any
kind by either party to enter into any further Agreement with the other party.
E. The relationship between Prince and ITI shall be that of independent
contractors, and nothing contained herein shall be construed or implied to
create between Prince and ITI the relationship of principal and agent, partners,
joint venturers or employer and employee.
F. No waiver, modification or amendment of any term, condition or
provision of this Agreement shall be valid, binding or of any effect unless made
in writing, signed by both Prince and ITI, and specifying with particularity the
nature and extent of such waiver, modification or amendment.
G. This Agreement, including any exhibits attached hereto or documents
expressly referred to herein, together with the Existing Nondisclosure Agreement
and the Trademark License Agreement, constitutes the entire agreement between
Prince and ITI and supersedes and cancels all other agreements, whether oral or
in writing, between Prince and ITI with respect to the matters referred to
herein.
Interactive Technologies, Inc. Prince Corporation
By: /s/ Robert E. Brunius By: /s/ James E. Trainor
Robert E. Brunius James E. Trainor
Senior Vice President - Engineering HomeLink Business Manager
Date: June 3, 1997 Date: June 3, 1997
EXHIBIT 10.7
TRADEMARK LICENSE AGREEMENT
This Agreement by and between PRINCE CORPORATION (hereinafter
"PRINCE"), a corporation of the State of Michigan, having its principle place of
business at One Prince Center, Holland, Michigan 49423; and INTERACTIVE
TECHNOLOGIES, INC. (hereinafter "ITI"), a Minnesota corporation, having its
principle place of business at 2266 N. Second Street, North St. Paul, Minnesota
55109.
WHEREAS, Prince is the owner of the trademark HOMELINK(R) and the
associated goodwill, which trademark is used on electrical circuits and
components including a control system using a remote transmitter; and
WHEREAS, the Prince HOMELINK(R) trademark and the goodwill associated
therewith is protected by U.S. Trademark Registration No. 1,894,865; and
WHEREAS, ITI desires a license from Prince to use the HOMELINK(R) mark
to advertise and sell products; and
WHEREAS, Prince agrees to license the use of the HOMELINK(R) trademark
to ITI for such purposes under the following limited terms and conditions.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
1. Prince hereby grants to ITI a limited exclusive license to use the
trademark HOMELINK(R) and the goodwill associated therewith only on, and in
connection with the resale of, the products which ITI developed independently or
with the assistance of Prince identified on EXHIBIT A attached hereto, as the
same may be amended from time to time by mutual agreement between the parties
(hereinafter "EXCLUSIVE LICENSED PRODUCTS"). ITI understands that Prince has
granted non-exclusive licenses to third parties under the HOMELINK(R) trademark.
<PAGE>
2. Prince hereby grants to ITI a non-exclusive license to use the
trademark HOMELINK(R) and the goodwill associated therewith on, and in
connection with the resale of, the products identified on EXHIBIT B attached
hereto (hereinafter "LICENSED PRODUCTS") as the same may be amended from time to
time by mutual agreement between the parties.
3. Prince hereby grants to ITI the non-exclusive right to sub-license
the trademark HOMELINK(R) to authorized dealers of the ITI HOMELINK(R) Security
Interface; provided, however, that such sub-licenses are in writing and are
limited by terms and conditions that are consistent in all respects with the
licenses granted to ITI by Prince pursuant to this Agreement.
4. ITI shall provide Prince samples of Licensed Products and Exclusive
Licensed Products it manufactures or purchases for resale to permit Prince to
continue to monitor the quality control of Licensed Products sold under the
HOMELINK(R) trademark. The use will be approved if the products meet ITI and
Prince's current quality control standards.
5. In connection with any promotional material for Licensed Products to
be sold by ITI under the HOMELINK(R) trademark, all promotional materials which
may be developed by ITI shall properly use the HOMELINK(R) trademark.
ITI-developed promotional material shall be supplied to Prince for approval
prior to use by ITI.
6. The term of the Agreement will start on the last date set forth on
the signature page hereof and will continue in full force and effect until five
(5) years after ITI produces and sells the first ITI manufactured HOMELINK(R)
Security Interface. This Agreement will automatically renew for additional
periods of one (1) year; except that either party may prevent the automatic
renewal of this Agreement by giving the other party at least six (6) months
prior written notice before the expiration of the then current term. Upon one
(1) year after termination of this Agreement, ITI agrees to discontinue the use
of Prince's HOMELINK(R) trademark or any other mark which may result in a
likelihood of confusion with the HOMELINK(R) mark.
7. During the course of this Agreement and thereafter, ITI agrees not
to use any mark or trade designation which is confusingly similar to the
HOMELINK(R) trademark or which would dilute and/or denigrate the HOMELINK(R)
trademark and its associated goodwill.
<PAGE>
8. Prince agrees that notwithstanding any of the terms of this
agreement or termination thereof, ITI may sell and distribute goods identified
as HOMELINK(R) compatible so long as the ITI trade name is prominently displayed
on those goods, and the HOMELINK(R) trademark is identified as a trademark owned
by the Prince Corporation.
9. This Agreement constitutes the entire understanding between the
parties regarding the HOMELINK(R) trademark except to the extent any such term
may contradict the Compatibility Agreement executed June 3, 1997 between these
parties in which instance the June 3, 1997 Compatibility Agreement is
controlling.
10. The rights under this Agreement are not assignable without the
express written permission of the other party.
11. This Agreement shall be interpreted according to the laws of the
State of Michigan.
INTERACTIVE TECHNOLOGIES, INC. PRINCE CORPORATION
By: /s/ Robert E. Brunius By: /s/ James E. Trainor
Robert E. Brunius James E. Trainor
Senior Vice President - Engineering HomeLink Business Manager
EXHIBIT 10.8
DEVELOPMENT AND SUPPLY AGREEMENT
THIS DEVELOPMENT AND SUPPLY AGREEMENT is between WESTSEC, INC. d/b/a WESTAR
SECURITY SERVICES ("WESTAR") and INTERACTIVE TECHNOLOGIES, INC., a Minnesota
corporation ("ITI").
WESTAR AND ITI AGREE AS FOLLOWS:
1. PURCHASE AND SALE. This Agreement governs the development by ITI, the
purchases from ITI by Westar, and the sale by ITI to Westar, of various security
products manufactured and/or distributed by ITI.
2. TERM. The term of this Agreement shall start on the date set forth on the
signature page hereof and shall continue in full force and effect until March 1,
2000, unless otherwise terminated in accordance with PARAGRAPH 19 below. On or
before September 1, 1999, the parties shall meet to discuss whether or not to
extend the term of this Agreement under mutually acceptable terms and
conditions.
3. PRODUCT DEVELOPMENT.
A) ITI will use its best efforts to develop, at its own cost and
expense, a custom version of ITI's hybrid security system (which is
tentatively referred to as the CONCORD system) that incorporates the
features set forth on EXHIBIT A attached hereto (the "WESTAR SYSTEM").
ITI anticipates that the Westar System will be available in production
quantities on or about March 1, 1998. Westar acknowledges and agrees
that ITI shall retain all rights to the Concord System and any and all
custom features of the Westar System, including the unrestricted right
to sell the Concord System and variations thereof (provided that such
systems are not private labeled for Westar) in any geographic area
directly to any distributor, dealer, individual or entity.
B) Additionally, ITI will use its best efforts to incorporate into the
Westar System, as soon as reasonably possible, the additional features
that are set forth in the Westar RFQ dated Tuesday, April 22, 1997, and
entitled "WIRELESS PRO PANEL." The parties agree that such additional
features consist of (i) a pet immunity PIR; (ii) two-way wireless
keypad; and (iii) two-way sounder (the "ADDITIONAL FEATURES"). Once the
Additional Features are developed, the parties shall enter into good
faith negotiations to agree upon acceptable pricing adjustments for the
Westar System, after taking into account the cost of developing the
Additional Features, the production costs of such Additional Features
and market forces. ITI will also cooperate with Westar in an effort to
continue to develop the Westar System, beyond the Additional Features,
as needed to meet market demands.
4. PRODUCT. Westar may purchase from ITI (i) all product contained in ITI's
National Account Price List, as the same is published from time to time; (ii)
the ITI HOMELINK(R) Security Interface (subject to the additional terms set
forth in PARAGRAPH 8 below); and (iii) upon availability, the Westar System.
<PAGE>
5. SOURCING. During the period beginning on the date the Westar System becomes
available in production quantities and ending two (2) years thereafter, Westar
shall purchase from ITI all of its requirements for wireless security equipment.
Notwithstanding anything contained in this Agreement to the contrary, ITI
acknowledges and agrees that Westar may purchase wireless security equipment
from other vendors under the following circumstances: (i) to service or upgrade
equipment already installed in the field by Westar or a third party; (ii) to
meet a specific customer installation or product requirement that cannot be met
by product offered by ITI; or (iii) if ITI is unable to meet Westar's demand for
product or provide product meeting Westar's product specifications and
competitive pricing guidelines.
6. PRIVATE LABELING. All control panels sold by ITI to Westar under this
Agreement shall be private labeled with such trademarks or other designations
that are owned by Westar, all in accordance with directions received by ITI from
Westar. Westar shall provide ITI with a six- (6) month rolling forecast for
ITI's use in forecasting private label needs, which forecast shall be
non-binding except as otherwise set forth in PARAGRAPH 10 below.
7. PRICING. All prices are in U.S. dollars and F.O.B. Destination. So long as
Westar has not breached any material obligation under this Agreement (subject to
the notice and opportunity to cure provisions set forth in PARAGRAPH 19 below),
Westar shall be entitled to purchase product from ITI at the prices set forth on
EXHIBIT B attached hereto. The prices and terms for purchases afforded to Westar
by ITI shall be no less favorable than the prices and/or terms afforded to any
other customer of ITI, after taking into account the quantity purchased. The
parties agree that the provisions of the preceding sentence are not intended,
nor shall they be construed, to be applied on a component-by-component basis,
rather, these provisions are to be applied after taking into account the
aggregate purchases (i.e., product mix) by Westar. Should ITI offer more
favorable prices and/or terms to any third party after taking into account all
such factors, then the prices under this Agreement will be reduced to the lower
price for comparable quantities of product purchased by Westar from the
effective date of such more favorable prices to such third party.
8. ITI HOMELINK(R) SECURITY INTERFACE.
A) Subject to the terms and upon the conditions contained in this
Agreement, ITI hereby grants to Westar the non-transferable right to
distribute the ITI HOMELINK(R) Security Interface on a non-exclusive
basis throughout North America, and Westar hereby accepts such
appointment. Westar shall use its good faith, commercially reasonable
efforts to follow up on all leads from ITI and/or Prince Corporation
relating to the ITI HOMELINK(R) Security Interface and to promote,
market and sell the ITI HOMELINK(R) Security Interface and related ITI
products within North America. Westar acknowledges that Westar is not
the exclusive distributor in North America of the ITI HOMELINK(R)
Security Interface and that ITI reserves to itself the unrestricted
right to sell the ITI HOMELINK(R) Security Interface throughout the
world, directly or indirectly, to any distributor, dealer, individual
or entity. Westar agrees that, during the term of this Agreement, all
new security systems installed by Westar resulting from a lead from ITI
and/or Prince Corporation associated with the HOMELINK(R) Program shall
be systems purchased from ITI.
B) ITI shall actively market and promote the HOMELINK(R) system and the
ITI HOMELINK(R) Security Interface and related offerings. Although
Westar is not the exclusive distributor of the ITI HOMELINK(R) Security
Interface, ITI agrees that Westar will be the primary responder
<PAGE>
to leads received by ITI through Prince Corporation that are associated
with the HOMELINK(R) Program and originate from Westar's trade area
(i.e., the geographic area currently covered by Westar's company-owned
branches and, provided that adequate quality control procedures and
resources are devoted in such geographic areas, the geographic areas
currently covered by authorized Westar Dealers that participate in
Westar's authorized dealer program). As primary responder to leads
received by ITI through Prince Corporation that originate from Westar's
trade area, Westar will receive all leads originating from Westar's
trade area, other than leads from end-users who have an existing
security provider that is also an authorized ITI HOMELINK(R) Security
Interface Dealer or leads from end-users who, on an unsolicited basis,
express a preference for a security provider (other than Westar) that
is also an authorized ITI HOMELINK(R) Security Interface Dealer.
Notwithstanding anything contained herein to the contrary, the parties
acknowledge and agree that the second and third sentences of this
SUBPARAGRAPH 8.B. do not apply to geographic areas (i) not covered by
Westar's company-owned branches or Westar's authorized dealer as of the
date of this Agreement; or (ii) that are subsequently abandoned by
Westar. ITI and Westar shall fully cooperate with each other in
developing a procedure for handling such leads. The parties acknowledge
and agree that ITI's obligations under the second and third sentences
of this SUBPARAGRAPH 8.B. have been made by ITI in reliance on Westar's
obligations under PARAGRAPH 5 above.
C. Westar shall have the non-transferable, non-exclusive right to use
the HOMELINK(R) trademark during the term of this Agreement solely in
connection with the authorized resale of the ITI HOMELINK(R) Security
Interface and related ITI security control panels, subject to such
other limitations placed on use of the HOMELINK(R) trademark by Prince
Corporation.
D. The remaining terms and conditions of this Agreement (except for the
terms and conditions set forth in PARAGRAPH 3 above) shall govern all
purchases of the ITI HOMELINK(R) Security Interface by Westar from ITI.
E. The parties agree to meet on or about December 15, 1997, and every
six (6) months thereafter during the term of this Agreement, to discuss
the status of the HOMELINK(R) Program and the parties' respective
obligations under this PARAGRAPH 8.
9. RESALE OF PRODUCT. Westar shall purchase product from ITI under this
Agreement only for resale to ultimate end-users and/or authorized Westar Dealers
operating under the Westar name ("AUTHORIZED DEALERS"). Westar shall not resell
product to anyone other than a bona fide end-user and/or Authorized Dealers, and
represents to ITI that Westar does not intend to purchase product from ITI with
an intention to distribute such product to others for resale (other than
Authorized Dealers). Subject to the provisions of SUBPARAGRAPH 8.B. above,
Westar acknowledges that Westar is not the exclusive dealer of ITI for any
product or geographic area and that ITI reserves to itself the unrestricted
right to sell product in any geographic area, including Westar's trade area,
directly to any distributor, dealer, individual or entity.
10. DEMAND FORECAST. Westar shall provide ITI each month with a six- (6) month
rolling forecast of anticipated product needs (the "MONTHLY DEMAND
FORECAST(S)"), which Demand Forecasts shall be non-binding except as stated
below in this PARAGRAPH 10. Westar agrees that it shall be bound to purchase (i)
the quantities of product set forth in the first three (3) months of the first
Monthly Demand Forecast delivered under this Agreement; (ii) the quantities of
product set
<PAGE>
forth in the third (3rd) month of each subsequent Monthly Demand Forecast
delivered pursuant to this Agreement; and (iii) any unique raw materials,
components or unfinished goods required to support the second three (3) months
of the most current Monthly Demand Forecast. Notwithstanding anything contained
herein to the contrary, Westar's obligations under the second sentence of this
PARAGRAPH 10 shall survive expiration or termination of this Agreement (other
than termination based upon a material breach of this contract by ITI).
11. LICENSES AND PERMITS. Westar hereby represents to ITI that Westar has and
shall maintain during the term of this Agreement all governmental licenses or
permits necessary in connection with Westar's business operations. ITI hereby
represents to Westar that ITI has and shall maintain during the term of this
Agreement all governmental licenses or permits necessary in connection with
ITI's business operations.
12. PURCHASE ORDERS. All orders for product shall be considered accepted only if
accepted by ITI in writing or by shipment. All orders will be subject to the
terms and conditions of this Agreement.
13. PAYMENT TERMS. All amounts payable under this Agreement shall be in U.S.
dollars. Subject to written credit approval, which shall be in ITI's sole and
absolute discretion, payment terms will be NET 45 days. Invoices will be
considered past due if not paid in full forty-five (45) days from the date of
receipt by Westar. If, at any time, Westar's account balance with ITI extends
beyond the date for payment specified above, ITI may, in its sole discretion,
either (i) ship product to Westar on a C.O.D., C.I.A. or other advanced payment
basis until the account is paid in full; or (ii) refuse to ship any product to
Westar until the account is paid in full.
14. TAXES, DUTIES AND TARIFFS. All prices are exclusive of any present or future
federal, state, local or other governmental taxes, duties or tariffs applicable
to the sale, transportation or use of product under this Agreement, all of which
taxes, duties or tariffs shall be paid by Westar.
15. SHIPMENT, TITLE AND RISK OF LOSS. All prices for product sold by ITI to
Westar are F.O.B. Destination. ITI agrees to obtain insurance or otherwise cover
the risk of loss in transit to Westar. Title to product and risk of loss shall
transfer to Westar upon delivery of product to the various Westar destinations,
at which point ITI shall be deemed to have completed good delivery to Westar,
subject to ITI being able to document such delivery through properly completed
shipping documents. Westar shall reimburse ITI for all transportation fees,
costs and charges, including, without limitation, insurance, handling and
loading charges.
16. WARRANTY. ITI extends to Westar its standard warranty, as the same may
change from time to time. A copy of ITI's current standard warranty is attached
hereto as EXHIBIT C. EXCEPT AS EXPRESSLY PROVIDED IN ITI's STANDARD WARRANTY,
ITI MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO ANY
PRODUCT OR PORTION THEREOF, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ITI SHALL
UNDER NO CIRCUMSTANCES BE LIABLE TO WESTAR OR ANY THIRD PARTY FOR SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES OF ANY NATURE WHATSOEVER, EVEN IF
ITI SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
17. RETURNS. Returns of product to ITI shall be made only in accordance with
ITI's standard Repair/Return Policy, as the same may change from time to time. A
copy of ITI's current Repair/Return Policy is attached hereto as EXHIBIT D.
Notwithstanding anything to the contrary, all freight, duty, and brokerage fees
for product returns by Westar and reshipment by ITI to any geographic location
other than the United States or Canada are the sole responsibility of Westar.
18. CONFIDENTIALITY; PUBLICITY. Westar agrees not to disclose the terms and
conditions of this Agreement, including, but not limited to, the prices set
forth on EXHIBIT B, to any third party except, and only to the extent, as
required by law. Neither party will publicly announce or disclose the terms and
conditions of this Agreement, or advertise or release any publicity regarding
this Agreement or the existence of this Agreement, without the prior written
consent of the other party.
19. TERMINATION. Notwithstanding anything contained in this Agreement to the
contrary, either party shall have the right to terminate this Agreement, in the
event the other party breaches any of the covenants, agreements, representations
or warranties set forth herein or fails to perform any obligation of it
hereunder, by giving the other party written notice indicating its intent to
terminate this Agreement together with a description of the alleged grounds for
termination. This Agreement will be deemed terminated in the event the breaching
party has not substantially cured the breach identified in such written notice
within ten (10) working days following receipt of such notice. Notwithstanding
the termination or expiration of this Agreement, each of the parties hereto
shall be required to carry out any provision hereof that contemplates
performance subsequent to such termination or expiration and such termination or
expiration shall not affect any liability or other obligation that shall have
accrued prior to termination or expiration.
20. MISCELLANEOUS.
A) The relationship between Westar and ITI shall be that of independent
contractors, and nothing contained herein shall be construed or applied
to create between Westar and ITI the relationship of principal and
agent, partners, joint ventures or employer and employee.
B) No waiver, modification or amendment of any term, condition or
provision of this Agreement shall be valid, binding or of any effect
unless made in writing, signed by both Westar and ITI, and specifying
with particularity the nature and extent of such waiver, modification
or amendment.
C) All correspondence or other notices shall be in writing and
considered delivered if sent by first class mail, postage prepaid, at
the address listed below:
Interactive Technologies, Inc. Westar Security Services
2266 North Second Street 4221 W. John Carpenter Freeway
North St. Paul, Minnesota 55109 Irving, Texas 75063-2924
Attention: General Counsel
D) This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota.
E) Except for actions by ITI to collect amounts owed to ITI by Westar
pursuant to the terms and conditions of this Agreement and any purchase
orders hereunder, any dispute,
<PAGE>
controversy or claim arising out of or in connection with this
Agreement shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association, which arbitration
shall take place at a location mutually agreeable to both parties.
21. EXCLUSIVE TERMS. This Agreement, including any exhibits attached hereto or
documents expressly referred to herein, contains the entire agreement between
Westar and ITI and supersedes and cancels any and all other agreements, whether
oral or in writing, between Westar and ITI with respect to the matters referred
to herein. Any term or condition in any purchase order, confirmation or other
document furnished by Westar that is in any way inconsistent with or in addition
to the terms and conditions of the Agreement is hereby expressly rejected by
both Westar and ITI.
Entered into on June 20, 1997.
WESTAR: ITI:
WESTSEC, INC. d/b/a WESTAR SECURITY INTERACTIVE TECHNOLOGIES, INC.
SERVICES
By: /s/ Hal L. Jensen By: /s/ Thomas L. Auth
Hal L. Jensen, VP Operations Thomas L. Auth, President and CEO
EXHIBIT 10.9
EXCHANGE AGREEMENT
THIS AGREEMENT is made and entered into as of the 22nd day of May, 1997, by and
between ITI Technologies, Inc., a Delaware corporation (the "CORPORATION"), and
_____________________ (the "OPTIONEE").
BACKGROUND
FIRST. The Corporation previously awarded certain Non-Statutory Stock Options to
the Optionee pursuant to the ITI Technologies, Inc. Nonemployee Director Stock
Option Plan (the "DIRECTOR PLAN"), and subject to the terms and conditions
contained in that certain Nonemployee Director Stock Option Agreement dated
March 12, 1996 (the "OLD OPTION AGREEMENT") (such options are referred to in
this Agreement as the "OLD OPTIONS").
SECOND. The Board of Directors of the Corporation has determined that it is in
the best interest of the Corporation to offer each nonemployee director of the
Corporation who holds unexercised Old Options as of May 22, 1997, an exchange of
all such Old Options for new options in the identical number, but with a new
exercise price equal to the fair market value of the common stock of the
Corporation as of the close of business on May 22, 1997.
THIRD. The Optionee desires to exchange his Old Options for such new stock
options.
NOW, THEREFORE, THE CORPORATION AND THE OPTIONEE AGREE AS FOLLOWS:
1. The Optionee hereby agrees to surrender for cancellation the Old Option
Agreement by and between the Optionee and the Corporation and any and all rights
thereunder in exchange for options to purchase common stock of the Corporation
in accordance with the terms and conditions contained in the Nonemployee
Director Stock Option Agreement dated May 22, 1997, attached hereto (the "NEW
OPTION AGREEMENT").
2. The Optionee acknowledges and represents that the Optionee has (i) read the
New Option Agreement and understands its terms; (ii) received adequate
opportunity to read and consider this Agreement; and (iii) determined to execute
this Agreement of his own free will.
3. The laws of the State of New York shall govern the interpretation, validity
and performance of the terms of this Agreement regardless of the law that might
be applied under applicable principles of conflicts of laws.
IN WITNESS WHEREOF, the Corporation, by its duly authorized officer, and the
Optionee have executed this Agreement in duplicate as of the day and year first
written above.
OPTIONEE ITI TECHNOLOGIES, INC.
By:
___________________________ Charles A. Durant, Secretary
EXHIBIT 10.10
EXCHANGE AGREEMENT
THIS AGREEMENT is made and entered into as of the 29th day of January, 1997, by
and between ITI Technologies, Inc., a Delaware corporation (the "CORPORATION"),
and Name (the "EMPLOYEE").
BACKGROUND
FIRST. The Corporation previously awarded certain Series C Stock Options to the
Employee during the period beginning April 19, 1994, and ending December 31,
1996, pursuant to the ITI Technologies, Inc. Long-Term Stock Incentive Plan
(1992) (the "STOCK INCENTIVE PLAN"), and subject to the terms and conditions
contained in one or more Employee Stock Option Agreements (the "SUBJECT OPTION
AGREEMENTS") (such options are referred to in this Agreement as the "OLD
OPTIONS").
SECOND. The Board of Directors of the Corporation has determined that it is in
the best interest of the Corporation to offer each employee of the Corporation
or its subsidiaries as of January 28, 1997, who holds unexercised Series C Stock
Options that were issued during the period beginning April 19, 1994, and ending
December 31, 1996, an exchange of all such options for new options in the
identical number, but with a new exercise price equal to Sixteen and 50/100
Dollars ($16.50), and with five (5) year vesting starting over as of January 28,
1997.
THIRD. The Employee desires to exchange his or her Old Options for such new
stock options.
NOW, THEREFORE, THE CORPORATION AND THE EMPLOYEE AGREE AS FOLLOWS:
1. The Employee hereby agrees to surrender for cancellation the Subject Option
Agreements by and between the Employee and the Corporation and any and all
rights thereunder in exchange for options to purchase common stock of the
Corporation in accordance with the terms and conditions contained in the
Employee Stock Option Agreement dated January 28, 1997, attached hereto (the
"NEW OPTION AGREEMENT").
2. The Employee acknowledges and agrees that the New Option Agreement differs
from the Subject Option Agreements by, among other things, (i) STARTING FIVE (5)
YEAR VESTING OVER AS OF JANUARY 28, 1997; and (ii) PROVIDING THAT ANY VESTED
OPTIONS (AS THAT TERM IS DEFIED IN THE NEW OPTION AGREEMENT) MUST BE EXERCISED
WITHIN NINETY (90) DAYS OF TERMINATION OF EMPLOYMENT FOR ANY REASON.
3. The Employee acknowledges and represents that the Employee has (i) read the
New Option Agreement and understands its terms; (ii) received adequate
opportunity to read and consider this Agreement; and (iii) determined to execute
this Agreement of his or her own free will.
4. The laws of the State of New York shall govern the interpretation, validity
and performance of the terms of this Agreement regardless of the law that might
be applied under applicable principles of conflicts of laws.
IN WITNESS WHEREOF, the Corporation, by its duly authorized officer, and the
Employee have executed this Agreement in duplicate as of the day and year first
written above.
EMPLOYEE ITI TECHNOLOGIES, INC.
_________________________________ By:
Name Charles A. Durant, Secretary
EXHIBIT 10.11
------------------------------------------------
ITI TECHNOLOGIES, INC.
LONG-TERM STOCK INCENTIVE PLAN (1992)
(AMENDED AND RESTATED AS OF MAY 8, 1996)
------------------------------------------------
CONSENT TO AWARD MODIFICATION
The undersigned, Thomas L. Auth (the "EXECUTIVE"), has executed this Consent to
Award Modification as of the 14th day of April, 1997.
BACKGROUND
FIRST. Pursuant to the ITI Technologies, Inc. Long-Term Stock Incentive Plan
(1992) (Amended and Restated as of May 8, 1996) (the "STOCK INCENTIVE PLAN"),
ITI Technologies, Inc., a Delaware corporation (the "CORPORATION") previously
awarded the Executive one hundred thousand (100,000) Series D Stock Options with
an exercise price of Twenty-Three and 75/100 Dollars ($23.75) pursuant to an
Employee Stock Option Agreement dated April 18, 1995; one hundred thousand
(100,000) Series D Stock Options with an exercise price of Twenty-Six and 75/100
Dollars ($26.75) pursuant to an Employee Stock Option Agreement dated May 8,
1996; and sixty thousand (60,000) Series E Stock Options with an exercise price
of Twenty-Two and 56/100 Dollars ($22.56) pursuant to an Employee Stock Option
Agreement dated April 18, 1995 (such Employee Stock Option Agreements are
referred to herein as the "SUBJECT OPTION AGREEMENTS," and such options are
referred to herein as the "OLD OPTIONS").
SECOND. As evidenced by the Consent in Lieu of Meeting of the Sub-Committee of
the Compensation Committee of the Board of Directors executed May 5, 1997, the
Sub-Committee of the Compensation Committee of the Board of Directors of the
Corporation has determined that it is in the best interest of the Corporation to
reprice the Old Options and to amend the Subject Option Agreements to provide
for an exercise price of Sixteen and 50/100 Dollars ($16.50) with respect to
each of the Old Options, with all other terms and conditions contained in the
Subject Option Agreements remaining unchanged.
NOW, THEREFORE, the Executive hereby acknowledges that the Sub-Committee of the
Compensation Committee of the Board of Directors of the Corporation has amended
the Subject Option Agreements and related Old Options pursuant to Section
9(h)(1) of the Stock Incentive Plan and the Executive consents to the repricing
of the Old Options to Sixteen and 50/100 Dollars ($16.50). The Executive further
acknowledges and agrees that such repriced options are subject to all remaining
terms and conditions of the Subject Option Agreements and the Stock Incentive
Plan.
---------------------------
Thomas L. Auth
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. (Registration Nos. 33-89826, 333-08943,
333-08945 and 333-23751) of our reports dated March 9, 1998, on our audits of
the consolidated financial statements and financial statement schedule of ITI
Technologies, Inc. and Subsidiaries as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, which reports are
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 23, 1998
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