August 26, 1996
Xx. Xxxxxxxx Xxxx
President,
Total Control Products, Inc.
0000 X. Xxxxxx Xxxxxx
Xxxxxxx Xxxx, XX 00000 XXX
Dear Nic;
The purpose of this letter is to set forth certain understandings and
agreements between Total Control Products, Inc. ("TCP") and Digital
Electronics Corporation ("DIGITAL") on the subject of joint investment of the
surviving company ("New Xxxxxx").
1.1 DIGITAL will invest US$ 4 million for the equity of TCP's Canadian
Subsidiary ("Canco"). TCP will provide Canco with 12% of TCP stock as an
equity.
1.2 Canco will be merged with Xxxxxx Industrial Software, Inc. ("Xxxxxx")
and form New Xxxxxx.
1.3 DIGITAL will have initially 39% equity of New Xxxxxx without further
investment, subject to the adjustment based on the amount of earnout
paid to the former shareholders of Xxxxxx discussed in section 1.4 below.
1.4 TCP will infuse a portion of the earnout payment as an equity infusion
to New Xxxxxx in addition to the contribution outlined in section 2.1
below. If all US$ 8 million of the earnout is paid, the US$ 4 million
equity infusion made by DIGITAL in section 1.3 above will be reduced to
35%. The range of 4% will vary on a straight-line basis, using the
following formula:
The earnout amount earned each fiscal year divided by US$ 4 million
(maximum earnout per year) multiplied by 2.0%. This figure is subtracted
from DIGITAL's equity percentage (i.e., 39% for 3/31/1997). The
difference is then divided into US$ 4 million. This amount is compared
to US$ 10,256,411 (which is US$ 4 million divided by 39%). The difference
represents the additional equity contribution to be made by TCP.
1.5 TCP will compensate the interest (5% p.a.) of loan arranged by DIGITAL
to gather the above US$ 4 million to DIGITAL at quartery basis for
two(2) year period from the remittance date.
In case that unexpected change of exchange rate between Yen and US
dollar happens, both parties shall discuss sincerely how to treat it.
2.1 TCP will contribute to Canco the rights to issue a special security that
is convertible to 12% of the outstanding stock of TCP as of the purchase
date of Xxxxxx. This special class of stock will have a put right of
US$ 6 million, if TCP does not complete an initial public offering of
its stock. This put right will be an obligation of TCP, not Canco. This
contribution to Canco will be the infusion of capital into Canco that
will be in the form of equity, other than portions of any earnout
payments as outlined in section 1.4 above.
3.1 Apart from the above investment, DIGITAL will arrange US$ 1 million loan
for TCP with the same interest as referred in section 1.5 above.
3.2 TCP will pay back the loan arranged by DIGITAL until August 31, 1997 or
60 days after a completion of initial public offering of TCP's stock
which ever comes earlier. The interest theiron shall be paid by TCP to
DIGITAL at quarterly basis.
4.1 TCP and DIGITAL will mutually have rights to the products which are
developed and currently owned by Xxxxxx after formation of New Xxxxxx
("Products").
4.2 When TCP or DIGITAL wants to ask New Xxxxxx to work for it
independently, both parties shall discuss to insure each party to have
same opportunity to such working in accordance with the contribution to
New Xxxxxx.
4.3 DIGITAL shall have exclusive rights, including the right to modify, to
sell the Products in Asian and Oceanic market including Japan.
DIGITAL shall pay a royalty of 33% of actual sales price until the end of
August, 1998, then 25% from September, 1998 to New Xxxxxx when actual
sales of Products is made.
4.4 Similarly TCP shall have the rights to North and South America market
and shall pay same amount of percentage of royalty to New Xxxxxx.
4.5 As for European market TCP shall do business with the cooperation of
DIGITAL when such a case arises. TCP and DIGITAL shall have the rights
to share the benefit of the Products' sales and shall pay the
proportional amount of royalty to New Xxxxxx in accordance with its
equity share.
5. TCP will make a draft for this agreement and will also arrange a
separate agreement between DIGITAL and New Xxxxxx as an Operational
agreement.
6. If there is any demand for a revision, or any subject which is not
described in the Letter, both parties shall sincerely discuss the matter.
Very truly yours,
Digital Electronics Corporation
By: /s/ Xxxxx Xxxx
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Xxxxx Xxxx, President
Xxxxxx and accepted to the ______ day
of August, 1996 by:
Total Control Products, Inc.:
By: /s/ Xxxxxxxx Xxxx
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Xxxxxxxx Xxxx, President
