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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1998
or
/ / 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 1--1416
BINKS SAMES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
36-0808480
(I.R.S. Employer Identification No.)
9201 WEST BELMONT AVENUE
FRANKLIN PARK, ILLINOIS
(Address of principal executive offices)
60131
(Zip Code)
(847) 671-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
CAPITAL STOCK, $1.00 AMERICAN STOCK EXCHANGE
PAR VALUE PER SHARE CHICAGO STOCK EXCHANGE
CAPITAL STOCK AMERICAN STOCK EXCHANGE
PURCHASE RIGHTS CHICAGO STOCK EXCHANGE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the 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 /
---------
The aggregate market value of the voting stock of the Registrant
held by non-affiliates was approximately $53,074,912 as of February 25, 1999
(based on the closing sale price as reported by the American Stock Exchange
as of such date).
As of February 25, 1999, the Registrant had outstanding 2,964,835
shares of Capital Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the definitive Proxy Incorporated into Part III
Statement for the Registrant's Annual
Meeting of Stockholders to be held on
April 27, 1999.
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PART I
ITEM 1. BUSINESS
GENERAL
Binks Sames Corporation, a Delaware corporation incorporated on January
2, 1929 as a successor to a business founded in 1890, and its subsidiaries
(hereinafter referred to collectively as the "Company" or "Sames") are engaged
in the manufacture and sale of electrostatic spray finishing and coating
equipment. The Company sells its products primarily to the automotive industry
and general industrial finishing and automotive refinishing markets.
The Company serves three primary geographic markets, North and South
America, Europe and the Pacific Rim, and presently generates over 72% of its
sales outside the United States.
The Company divides its electrostatic products into two general groups:
general industrial products and automotive paint systems. General industrial
products consist of spray guns and accessories. Automotive products include
automatic electrostatic paint application machines as well as paint circulation
equipment serving the global automotive market.
The standard products, or non-electrostatic, business (the "Binks
Business"), which included assets of the Company and its subsidiaries, were sold
to Illinois Tool Works Inc. ("ITW") on September 30, 1998. As a result of the
sale and transfer of assets, the remaining business of the Company focuses
solely on electrostatic products for automotive and general industry
applications.
PRODUCTS
Sames provides a complete line of liquid electrostatic and powder
application technology for the general industry and automotive markets on a
global basis. In addition, complementary equipment to the application equipment
technology allows for providing complete paint and powder coating systems. The
complementary equipment includes delivery and circulation systems, overhead and
side machines, reciprocators, powder spray booths and recovery systems and
control packages.
Electrostatic technology is the process of generating an electrical
charge that causes paint or powder particles to be attracted to a grounded
surface. Due to the electrical attraction of a charged particle to a grounded
product, the transfer efficiency of the coating material can be greatly
improved. The electrical charge can be generated by a power source, known as
corona charging, or through frictional contact known as tribocharging. The
tribocharging process is limited to powder coating materials. With over 50
years of experience and expertise in electrostatic technology, Sames is
recognized as a world leader in the development of liquid and powder
application equipment.
Sames liquid electrostatic application equipment ranges from manual
application spray guns to robot mounted spray guns and rotary atomizers to
sophisticated rotary atomizers developed specifically for the automotive
industry.
For example, the Sames Accubell was developed to improve transfer
efficiency and reduce the amount of paint and solvent wasted during the color
change process. The Accubell has a paint reservoir built into in the applicator
that will fill with the precise amount of paint required based on color and car
body style. This design minimizes the amount of paint and solvent that is purged
during the color change process. The Accubell has saved automobile manufacturers
millions of dollars worth of coating material.
Sames was also the first to develop electrostatic application
technology for powder coatings. The technology has evolved within Sames to a
complete range of applicators, including electrostatic and tribocharging
technology. The application of the powder coatings can be accomplished through a
manual or automatic spray gun, powder bell or disk.
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The newly developed Tribodisk automatic spray applicator has been designed
for high output and efficiency without sacrificing ease of color change. In
overcoming the challenge of reducing the color change time for powder coating
systems, Sames has also developed a quick color change powder booth. The
unique design and plastic sandwich wall construction allows for a complete
automatic color change in under 10 minutes.
Sames also has refined the overhead and side machines to allow for
precise tracking of a car body and positioning of the liquid powder applicator.
In addition, buffing machines developed by Sames remove surface dust from the
surface of the car body to ensure a clean surface prior to painting.
As Sames looks to the future, product development will continue to
focus on the demands and needs of the marketplace. This includes matching the
products developed by Sames with the new developments of industry partners. As
the marketplace looks to new coating materials, substrates, and finishing
processes, Sames will continue to be a technology leader.
RESEARCH AND DEVELOPMENT
The Company is continually engaged in experimental work on various
coating systems. The Company spent approximately $3.8 million, $3.8 million and
$3.0 million during fiscal year 1998, 1997, and 1996, respectively, on
research activities relating to development of products or services, none of
which was customer sponsored.
DISTRIBUTION AND MARKETING
The Company believes that it is a leading, worldwide supplier of
automotive and general industry products through a combination of direct
sales and agents and distributors. Its automotive products are sold directly
to car manufacturers and first tier suppliers, as well as to integrators
which provide "turnkey" paint shop projects to the manufacturer. Its
automotive products designed for robotic application are often sold directly
to the robot manufacturer. Sames North America, Inc. is the Company's selling
and servicing presence in North America; similar functions are performed by
Sames Scandinavia AB, Sames Japan and Sames, S.A., in Grenoble, France. In
addition, the Company also maintains a direct selling presence in England,
Germany and China.
The Company sells its general industry products both directly and
through agents and distributors in over 40 countries throughout the world. The
Company currently is in negotiations to expand its distribution network in the
Americas, as well as in Japan.
COMPETITION
The Company believes that it is one of the largest suppliers of
electrostatic automotive paint applications systems and products (both liquid
and powder) and a significant presence in the general industry market for these
products as well. There are many other manufacturers of electrostatic
applications equipment that also engage in other lines of business, principally
Graco Incorporated, Illinois Tool Works Inc., Nordson Corporation, Kremlin and
Durr Behr.
EMPLOYEES
As of November 30, 1998, approximately 413 persons were employed by the
Company in the United States, Sweden, France and Japan.
CONCENTRATION
The amount of business conducted with particular customers varies
significantly from year to year. Sales to the automotive industry as a whole
(which includes several different manufacturers as well as different divisions
or
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facilities within some manufacturers) generally have accounted for between
70% and 80% of the Company's consolidated net sales in past years. No single
customer accounts for more than 10% of the Company's net sales.
BACKLOG OF ORDERS
The dollar amount of the Company's backlog of orders as of November 30,
1998 was approximately $18.8 million as compared to approximately $36.7 million
as of November 30, 1997. All of the orders in backlog as of November 30, 1998
are expected to be filled within the year ended November 30, 1999. The dollar
amount of backlog at any given time is subject to significant variations
depending upon the number of orders received and the degree of completion of
pending industrial equipment products which, by their nature, are completed over
a period of time pursuant to sizable contracts. The difference in backlog
between November 30, 1998 and November 30, 1997 is attributable to these
factors. The business of the Company is not materially affected by seasonal
factors, and the Company's backlog is not generally a result of such factors.
MATERIALS
The Company assembles essentially all of its products which are
manufactured by suppliers primarily located in Europe and North America. The
majority of the Company's products are component finished parts. The materials
and components purchased by the Company are readily available from a number of
suppliers in both areas.
Under a Supply Agreement with ITW, the Company has the right to
purchase, for a two-year period, at preferential prices, certain standard
products formerly manufactured by the Binks Business, which was sold to ITW.
INTELLECTUAL PROPERTY
The Company owns a number of patents in the United States and other
countries pertaining to electrostatic spray equipment, as well as presently
pending applications for patents in the United States and other countries. The
Company does not consider its business to be materially dependent on any single
patent or group of patents, or any pending applications for patents. The Company
has registered its "Sames" trademark in the United States. The "Sames" trademark
is registered in numerous other countries as are ten other Sames product
trademarks. The Company also has a worldwide, non-exclusive license to use
certain patents owned by Behr Systems, Inc.
ENVIRONMENTAL
Federal, state, local and international provisions which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, have not materially
affected the Company's capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in a leased facility
comprising 5,000 square feet in Franklin Park, Illinois. The Company also
leases its primary North American operational center, located in Livonia,
Michigan. This 40,000 square foot facility is a combined office and
distribution center.
The Company's non-U.S. subsidiaries own and occupy manufacturing and
office facilities aggregating approximately 98,000 square feet and lease
property for such purposes aggregating approximately 15,000 square feet.
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The Company considers its manufacturing and physical properties to
be in good condition.
ITEM 3. LEGAL PROCEEDINGS
In October 1997, Robert Hashima, the former branch manager of Binks
Japan Limited, filed a lawsuit against the Company, claiming that he is entitled
to receive 145 million yen (approximately US$1.2 million) plus interest under
his retirement policy. The Company is responding vigorously to Mr. Hashima's
claim and in June 1998, the Company filed a counterclaim for damages in the
amount of 172 million yen (approximately US$1.4 million) for various wrongdoings
on the part of Mr. Hashima. The case is pending in Tokyo, Japan.
Chester Baranowski brought suit against the Company seeking US $2.55
million claiming wrongful dismissal, breach of contract and breach of certain
salary and benefits. The Company has denied all substantive allegations and
filed a counterclaim against Baranowski for breach of fiduciary duty and
conspiracy to defraud the Company. The case is pending in Toronto, Canada.
In June 1998, the Company settled an action for $903 thousand in
damages brought by Continental Partners Group, Inc. ("Continental Partners")
for breach of a 1990 contract. Under the terms of the settlement, the Company
paid Continental Partners $825 thousand.
In July 1998, the Company settled patent infringement actions brought
in the United States and Germany by Behr Systems, Inc., and its parent, Durr
Systems GmbH, respectively. At issue was the possible infringement of certain of
Behr's patents in the Company's manufacture of bell cups used in automotive
paint application installations. In the settlement, the Company agreed to a
paid-up royalty of $9.0 million for a non-exclusive, worldwide, lifetime license
to use the patents in question. The royalty has been paid in full.
In February 1999, the Company entered into a settlement agreement and
mutual release with CWA Investment Company, L.L.C. ("CWA"), regarding claims
brought by CWA for the termination by the Company of a Vernon Hills, Illinois
build-to-suit lease for the Company's planned future headquarters. Under the
terms of the agreement, the Company paid CWA $2.4 million for out-of-pocket
costs incurred in connection with the termination of the lease and the
cancellation of construction. In connection with this matter, the Company has
filed a third-party claim against The John Buck Company (the "Broker"), which
served as the real estate broker for the lease transaction. In its claim, the
Company has asserted that the Broker is liable for any and all amounts owed to
CWA by the Company. The Broker has filed a counterclaim against the Company
alleging breach of fiduciary duty and seeking $1.6 million in damages. The
settlement agreement with CWA has no effect on the Company's claim against the
Broker, and the Company is vigorously pursuing its case. All plans to build a
new headquarters have been terminated by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the period covered by this report.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers(1) of the Company are listed below.
ARNOLD H. DRATT, age 54, has been the President, CEO and a director of
the Company since October 1998. Mr. Dratt has served as the president of the
Dratt-Campbell Company, a management consulting firm, since he co-founded it in
1991. In such capacity, Mr. Dratt was a consultant to the Company from January
1998 until September 1998.
TODD A. VAUGHAN, age 40, has been an officer of the Company since
April, 1997. Mr. Vaughan has been employed by the Company since 1992 and is
presently Vice President of the Company and General Manager of Sames North
America, Inc. (formerly Sames Electrostatic, Inc.).
G. BRUCE BRYAN, JR., age 43, has been Vice President - Engineered
Systems since 1996. Mr. Bryan joined the Company in 1993 as Manager of the North
American Powder Systems Group for the General Industrial Market.
RONALD A. KOLTZ, age 49, has been Vice President - Controller Corporate
Accounting since January 1999. Mr. Koltz was employed by the Company from
October 1992 until September 1998. He served as Controller of the Company from
September 1994 until September 1998. He briefly held the same position at ITW
Binks, which purchased certain assets from the Company, from October 1998 until
January 1, 1999, when he rejoined the Company.
KEVIN C. HIGGINS, age 43, has been Vice President - Controller
International Operations and Assistant Treasurer since January 1999. Mr.
Higgins joined the Company in August 1996 as Manager - Financial Reporting.
Prior to joining the Company, Mr. Higgins was with Reuters America, a
London-based multinational financial and informational organization.
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Notes:
1. All officers' terms expire in 1999.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S CAPITAL STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's capital stock is traded on the American and Chicago Stock
Exchanges. The high and low prices for each quarterly period within the two most
recent fiscal years, as reported by such exchanges, and the dividends declared
during such periods with respect to the capital stock of the Company are as
follows:
<TABLE>
<CAPTION>
CASH DIVIDEND DECLARED
QUARTER ENDING HIGH LOW PER SHARE
-------------- ---- --- ----------------------
<S> <C> <C> <C>
February 28, 1997 40 1/2 27 5/8 ---
May 31, 1997 43 5/8 38 .10
August 31, 1997 48 1/8 42 1/8 .10
November 30, 1997 44 1/4 41 1/4 .10
February 28, 1998 48 3/4 27 7/8 ---
May 31, 1998 50 41 1/4 ---
August 31, 1998 44 24 3/8 ---
November 30, 1998 25 5/8 11 1/4 ---
</TABLE>
On February 25, 1999, the last reported sale price of the Company's
capital stock was $18.125 per share. As of February 25, 1999, there were
approximately 836 registered holders of the Company's capital stock, which
is the only class of equity securities of the Company outstanding. Harris
Trust and Savings Bank, Chicago, Illinois, is the transfer agent and
registrar of the Company's capital stock.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE YEARS ENDED NOVEMBER 30, 1998 -- CONTINUING OPERATIONS
(Not covered by Independent Auditors' Report. In thousands, except per share
amounts.)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales................................................ $122,370 97,297 140,530 110,275 89,513
Cost of goods sold....................................... 83,719 61,029 95,641 72,960 59,894
Selling, general and administrative expenses............. 29,578 28,916 29,968 27,695 22,282
Research and development costs........................... 3,760 3,793 2,978 2,558 3,025
Litigation settlement costs (a).......................... 10,675 -- -- -- --
-------- ------- ------- ------- -------
Operating income (loss).................................. (5,362) 3,559 11,943 7,062 4,312
Interest expense......................................... 759 783 1,090 899 442
Other (income) expense................................... (299) (1,147) (9) (179) --
-------- ------- ------- ------- -------
Income (loss) before income taxes........................ (5,822) 3,923 10,862 6,342 3,870
Income tax expense (benefit)............................. (2,564) 1,744 4,563 2,644 1,495
-------- ------- ------- ------- -------
Income (loss) - continuing operations.................... $ (3,258) 2,179 6,299 3,698 2,375
-------- ------- ------- ------- -------
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Income (loss) per diluted share - continuing
operations............................................... $ (1.10) .70 2.04 1.20 .77
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Cash dividends per share................................. $ -- .30 .40 .50 .30
-------- ------- ------- ------- -------
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Average number of shares - diluted 2,965 3,102 3,092 3,089 3,089
-------- ------- ------- ------- -------
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Total assets $ 82,553 154,538 183,806 194,012 162,297
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</TABLE>
(a) During fiscal 1998, the Company recorded costs and expenses
related to the settlement of patent infringement litigation,
which amounted to $10.7 million ($6.2 million, net of tax
benefits).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Beginning in June 1996, the Company's Board of Directors adopted
various measures as part of a comprehensive reorganization and restructuring of
the Company.
In February 1998, the Board of Directors of the Company announced that
it would pursue a sale of the Company in order to maximize shareholder value.
The Board of Directors determined that in addition to pursuing the sale of the
Company as a whole, the Board would consider other possible strategic
alternatives, including the sale of only component parts of the
Company.
On August 31, 1998, the Company announced it had signed a definitive
agreement with ITW to sell certain of the Company's domestic divisions, foreign
subsidiaries, and standard product lines. On September 30, 1998, the Company
completed the sale transaction. The sale price was approximately $80 million in
cash.
DISCONTINUED OPERATIONS
Under the terms of the sale, ITW purchased all assets related to the
manufacture and distribution of the Binks Business in the U.S., including a
leased manufacturing facility in Longmont, Colorado; the Poly-Craft Systems
division in Cottage Grove, Oregon; the research and development facility in
Boulder, Colorado and certain domestic branches and warehouses. All employees
of the acquired businesses became employees of ITW upon closing the
transaction. International operations included in the sale were businesses in
the U.K., Belgium, Germany, Australia and a portion of the Canadian
operation. As part of the agreement, ITW assumed certain liabilities of the
acquired portion of the business. During 1998, the Company reached agreement
on the sale of two other businesses that had been part of its Binks Business.
The above operations have been classified as discontinued operations in the
Company's consolidated financial statements.
The sale price related to the ITW agreement is subject to post-closing
adjustments. The Company and ITW have not reached agreement on the amount of
such adjustment. The estimated impact of the post-closing adjustment has
been reflected in the Company's financial statements. While the Company does
not believe that the ultimate resolution of the post-closing adjustment will
have a significant impact on the Company's future net income, the adjustment
could have an adverse effect on future net income and the Company is unable
to predict with certainty the outcome at this time.
CONTINUING OPERATIONS
Not included in the sale to ITW, and representing the continuing
operations of the Company, are: the Company's largest subsidiary, Sames, S.A.
("Sames France") based in Grenoble, France; Sames North America, Inc. ("Sames
North America") (formerly Sames Electrostatic Inc.), headquartered in Livonia,
Michigan; the North American powder systems group; and subsidiaries in Japan and
Sweden. Sames is noted for its global leadership position in electrostatic
finishing equipment for the automotive finishing market and for the general
industrial finishing market.
On October 1, 1998, Arnold H. Dratt, 54, became President and Chief
Executive Officer and a director of the Company, as well as President and a
director of its largest subsidiary, Sames France. Mr. Dratt has been president
for seven years of the Dratt-Campbell Company, a Chicago-area management
consulting firm, and in that capacity served as an advisor to the Company's
Board of Directors from January 1998 until September 1998.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS -- FISCAL 1998 COMPARED TO FISCAL 1997
The Company had net sales of $122.4 million in fiscal 1998, an increase
of $25.1 million, or 26%, from net sales of $97.3 million reported for fiscal
1997. Sales growth would have been $28.1 million, or 29%, if prevailing fiscal
1997 currency exchange rates had remained in effect during fiscal 1998.
Contributing to the growth in sales was a significant increase in the sale of
large automotive installations during the year by Sames France and Sames North
America.
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Gross profit increased to $38.7 million, up $2.4 million or 7%,
compared to $36.3 million reported in fiscal 1997. This includes an unfavorable
impact on gross profit of nearly $1 million related to changes in currency
translation rates. The overall increase in gross profit was primarily
attributable to sales growth. In fiscal 1998, the gross profit margin was 32%
compared to 37% attained in fiscal 1997. The decline in gross profit margin was
reflective of the increased contribution of higher volume, lower margin
automotive installation contract sales to the product sales mix in fiscal 1998
as compared to fiscal 1997.
For fiscal 1998, selling, general, and administrative expenses were
$29.6 million, an increase of $.7 million or 2%, versus $28.9 million for fiscal
1997. The relatively small increase in selling, general and administrative
expenses is indicative of management's efforts to improve operating margins of
the Company.
Research and development costs, primarily associated with Sames France,
were $3.8 million in both fiscal 1998 and fiscal 1997.
Operating income, exclusive of the pre-tax cost of the litigation
settlement described below, was $5.4 million, or 4.3% of sales, in fiscal
1998. This compares favorably with $3.6 million, or 3.7% of sales, attained
in fiscal 1997.
Litigation settlement costs of $10.7 million ($6.2 million, net of tax
benefits) were incurred in fiscal 1998 to resolve patent infringement
litigation.
Interest expense was $.8 million in both fiscal 1998 and fiscal 1997.
This reflects similar average levels of borrowing and interest rates during the
fiscal years.
Other income includes interest income, foreign currency exchange gains
and losses, gains on sales of fixed assets, and miscellaneous income. Other
income was $.3 million in fiscal 1998 compared to $1.1 million in fiscal 1997. A
majority of the decline in other income was related to differences in foreign
currency exchange gains and miscellaneous income recorded by Sames France.
Income tax benefit was $2.6 million on a pretax loss of $5.8 million in
fiscal 1998, compared to income tax expense of $1.7 million on pretax income of
$3.9 million in fiscal 1997.
As a result of the factors above, the Company's fiscal 1998 loss from
continuing operations was $3.3 million ($1.10 per diluted share), compared to
income from continuing operations of $2.2 million ($.70 per diluted share) in
fiscal 1997.
CONTINUING OPERATIONS -- FISCAL 1997 COMPARED TO FISCAL 1996
Net sales decreased $43.2 million, or 31%, to $97.3 million in fiscal
1997. The sales decline would have been $33.7 million, or 24%, if prevailing
fiscal 1996 currency exchange rates had remained in effect during fiscal 1997.
The primary reason for the lower sales volume was lower worldwide demand for
large automotive installations. The decline had been anticipated because fiscal
1996 was a record year for such installations.
Gross profit decreased $8.6 million, or 19%, to $36.3 million in
fiscal 1997. The decline includes an unfavorable impact on gross profit of
nearly $3.5 million related to currency translation. The primary reason for
lower gross profit was lower sales. In fiscal 1997, the gross profit margin
was 37% compared to 32% in fiscal 1996. The improvement in gross profit
margin was reflective of the reduced contribution of higher volume, lower
margin automotive installation contract sales to the product sales mix in
fiscal 1997 as compared to fiscal 1996.
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For fiscal 1997, selling, general, and administrative expenses were
$28.9 million, a decline of $1.1 million, or 4%, versus $30 million for fiscal
1996. The decrease in selling, general and administrative expenses was a result
of currency translation effects combined with concerted efforts to control
staffing and operational expenditure levels.
Research and development costs, primarily associated with Sames France,
were $3.8 million in fiscal 1997 compared to $3 million in fiscal 1996.
As a result of the above, operating income was $3.6 million, or 3.7% of
sales in fiscal 1997, compared to $11.9 million, or 8.5% of sales in fiscal
1996.
Interest expense was $.8 million in fiscal 1997 compared to $1.1
million in fiscal 1996, reflecting lower average levels of borrowing.
Other income in fiscal 1997 was $1.1 million greater than in fiscal
1996. This was due primarily to foreign currency exchange gains and other
miscellaneous income recorded by Sames France.
Income tax expense was $1.7 million on pretax income of $3.9 million in
fiscal 1997, compared to income tax expense of $4.6 million on income of $10.9
million in fiscal 1996.
As a result of the factors above, the Company's income from continuing
operations was $2.2 million ($.70 per diluted share) in fiscal 1997, compared to
$6.3 million ($2.04 per diluted share) in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations are the primary source of the Company's
liquidity. Short-term funds are also provided for current operations through
lines of credit and overdraft facilities. In October 1998, the Company entered
into a $10 million, prime rate, multi-year revolving line of credit agreement
with the CIT Group, in order to support the Company's operations and growth in
the North American automotive and general industry markets. Together with other
credit facilities, the Company has aggregate lines of credit and overdraft
facilities of $22 million. At November 30, 1998, borrowings under the facilities
were $6 million, and outstanding letters of credit were $2.2 million; unused
lines of credit and overdraft facilities were $13.8 million.
In fiscal 1998, the Company experienced a cash outflow from its
continuing operations of $2.5 million. However, such cash outflow includes the
after tax costs of $6.2 million related to the patent infringement litigation
that was settled during the year.
Cash flows from investing activities in fiscal 1998 resulted almost
exclusively from the $80 million of proceeds related to the ITW transaction.
Cash flows related to financing activities in fiscal 1998 include the
payment of $66.5 million of debt using the proceeds from the ITW transaction.
Such debt had included $59.0 million outstanding at November 30, 1997 and an
additional $6.5 million of debt that had been borrowed in fiscal 1998, during
the period prior to the completion of the ITW transaction.
In January 1998, the Company notified the developer and landlord of a
site in Vernon Hills, Illinois, which had been expected to serve as the
Company's headquarters, that the Company wanted to terminate the project. The
Company had previously entered into a 20-year lease agreement for the Vernon
Hills site. In February 1999, the Company entered into a settlement agreement
with the developer relating to litigation associated with the lease
cancellation. The settlement agreement was for $2.4 million which was paid by
the Company in February 1999. The settlement cost is classified as a component
of discontinued operations in the Company's fiscal 1998 financial statements.
11
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IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which requires the prominent display of comprehensive
income and its components in the financial statements. The Company is required
to comply with SFAS No. 130 in fiscal 1999 and believes that its adoption will
not have a material effect on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for reporting information about operating segments in annual financial
statements. The Company is required to comply with SFAS No. 131 in fiscal 1999
and believes that its adoption will not have a material effect on the
consolidated financial statements.
CONVERSION TO THE EURO
On January 1, 1999, eleven European Union member states adopted the
euro as their common national currency. From that date until January 1, 2002
(the transition period), either the euro or a participating country's present
currency will be accepted as legal tender. Beginning on January 1, 2002,
euro-denominated bills and coins will be issued, and by July 1, 2002, only
euro currency will be used.
The Company will evaluate the strategic, financial, legal, and systems
issues related to the various phases of transition. While the Company does not
believe the ultimate costs of conversion will be material to its results of
operations, cash flow, or financial position, efforts will be made to address
customer and business needs on a timely basis and anticipate and prevent any
complications during the transition period.
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" refers generally to the problems that some
software may have in determining the correct century for the year. For example,
software with date-sensitive functions that are not Year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results.
The Company has developed a phased Year 2000 readiness plan for the
current versions of its products. The plan includes development of corporate
awareness, assessment, implementation, validation testing, and contingency
planning. The Company responds to customer concerns about prior versions of its
products on a case-by-case basis.
The Company has largely completed all phases of the plan with respect
to the current versions of all its products. All products (software and hardware
including micro-processors and micro-controllers) manufactured by Sames have
been verified and modified if necessary. All products sold today comply with
Year 2000 requirements. The Company is currently addressing and assuring its
customers regarding their concerns.
The Company's internal systems include both information technology
("IT") and non-IT systems. The Company has completed an assessment of its IT
systems and non-IT systems. Outside consultants were contracted to provide
assistance and assurances. The Company's suppliers have been contacted
requesting Year 2000 information and have responded they are currently compliant
or will be compliant soon.
The Company has funded the Year 2000 readiness plan from operating cash
flows. Costs incurred in connection with Year 2000 compliance projects have not
been material. Costs incurred through November 30, 1998 were $.2 million;
additional costs are estimated to be approximately $.1 million.
12
<PAGE>
The Company has made an effort to minimize the potential risk
associated with Year 2000 issues. The Company expects the worst scenario to be
the temporary shutdown of a computer system that could result in a slowdown of
shipments of products. An estimate of potential loss has not been made.
The Company is currently developing a comprehensive contingency plan to
address Year 2000 compliance situations that may arise. Finally, the Company is
also subject to external forces that might generally affect industry and
commerce, such as utility or transportation company Year 2000 compliance
failures and related service interruptions.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company intends
such forward-looking statements to be covered by the safe harbor provisions
for forward-looking statements contained in the Private Securities Reform Act
of 1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material
adverse affect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, general economic conditions;
competitive factors; fluctuations in currency exchange rates; alliances with
strategic partners; product competition; economic and political conditions in
international markets; the Company's ability to maintain favorable supplier
relationships and arrangements; developing and emerging foreign and domestic
markets; the effectiveness of the Company's compliance review and
implementation plan to identify and resolve Year 2000 issues; and accounting
principles, policies, and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company
and its business, including additional factors that could materially affect
the Company's financial results, is included in the Company's filings with
the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FINANCIAL STATEMENTS
A substantial portion of the Company's non-U.S. transactions are
denominated in French francs. Although Sames France is not typically subject to
significant foreign exchange transaction gains or losses, its financial
statements are translated into U.S. dollars as part of the Company's
consolidated financial reporting. Fluctuations in the French franc/U.S. dollar
exchange rate therefore will affect the Company's consolidated balance sheets
and statements of operations. At November 30, 1998, the French franc had
appreciated relative to the U.S. dollar by approximately 3.4% compared to the
prior year end; however, the average French franc/U.S. dollar exchange rate was
2.6% lower in fiscal 1998 than in fiscal 1997. The Company also has operations
in Japan and Sweden, where transactions are denominated in Japanese yen and
Swedish krona.
In fiscal 1998, the net change in the cumulative foreign currency
translation adjustment account, which is a component of stockholders' equity,
was an unrealized gain of $.3 million. Unrealized foreign currency translation
losses of $3.0 million and $2.6 million were recorded in fiscal 1997 and fiscal
1996, respectively.
Foreign currency exchange transactions have not typically resulted in
significant gains or losses, although Sames France recorded a gain of $.6
million in fiscal 1997. The Company generally does not use derivative financial
instruments to manage currency exchange rate risks and no such instruments were
outstanding as of November 30, 1998.
13
<PAGE>
QUARTERLY FLUCTUATIONS
The Company has experienced significant quarterly fluctuations in
operating results and anticipates that those fluctuations will continue. The
fluctuations have been caused primarily by periodic changes in the components of
the Company's sales mix. In particular, the Company's sales of large automotive
installations can fluctuate substantially and they generally result in
relatively lower gross profit margins. Sales of standard products and spare
parts typically generate relatively higher gross profit margins. The Company
therefore believes that quarter-to-quarter comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Information on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Directors. The information required in response to this item
regarding directors of the Company will be contained in the Company's definitive
Proxy Statement (the "Proxy Statement") for its Annual Meeting of Stockholders
to be held on April 27, 1999 under the caption "Election of Directors" and is
incorporated herein by reference.
(b) Executive Officers of the Company. The information required in
response to this item regarding executive officers of the Company is contained
in Part I of this report and is incorporated herein by reference.
(c) Section 16(a) Compliance. The information concerning compliance
with Section 16(a) of the Exchange Act required under this item is incorporated
herein by reference to the Proxy Statement under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in
the Proxy Statement under the captions "Executive Compensation" and "Information
Regarding Directors and Executive Officers" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item will be contained in
the Proxy Statement under the captions "Election of Directors" and "Voting
Securities" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item will be contained in
the Proxy Statement under the caption "Election of Directors" and is
incorporated herein by reference.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1,2 Financial Statements and Schedules
See Index to Financial Information on page F-1.
3 Exhibits
See Exhibit Index beginning on page i.
(b) Reports on Form 8-K
None.
16
<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.
February 26, 1999 Binks Sames Corporation
By: /s/ Arnold H. Dratt
-----------------------------------
Arnold H. Dratt
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - --------- ----- ----
<S> <C> <C>
/s/ Arnold H. Dratt President, Chief Executive February 26, 1999
- - ----------------------------------------------- Officer and Director
Arnold H. Dratt
(Principal Executive Officer)
/s/ Kevin C. Higgins Vice President - Controller February 26, 1999
- - ----------------------------------------------- International Operations and
Kevin C. Higgins Assistant Treasurer
(Principal Financial and Accounting Officer)
/s/ Doran J. Unschuld Director February 26, 1999
- - -----------------------------------------------
Doran J. Unschuld
/s/ Clifford J. Vaughan Director February 26, 1999
- - -----------------------------------------------
Clifford J. Vaughan
/s/ Dr. Wayne F. Edwards Chairman of the Board February 26, 1999
- - -----------------------------------------------
Dr. Wayne F. Edwards
</TABLE>
17
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report............................................... F-2
Financial Statements:
Consolidated Balance Sheets, November 30, 1998 and 1997........... F-3
Consolidated Statements of Operations, years ended
November 30, 1998, 1997, and 1996........................ F-5
Consolidated Statements of Stockholders' Equity, years
ended November 30, 1998, 1997, and 1996.................. F-6
Consolidated Statements of Cash Flows, years ended
November 30, 1998, 1997, and 1996........................ F-7
Notes to Consolidated Financial Statements................. F-8 - F-20
</TABLE>
Financial Statement Schedules:
All schedules are omitted as the required information is not applicable, or the
information is presented in the accompanying consolidated financial statements
or related notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholders
Binks Sames Corporation:
We have audited the accompanying consolidated balance sheets of Binks Sames
Corporation (the Company) and consolidated subsidiaries as of November 30, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
November 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Binks Sames
Corporation and consolidated subsidiaries as of November 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended November 30, 1998 in conformity with generally
accepted accounting principles.
KPMG LLP
February 22, 1999
F-2
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
November 30, 1998 and 1997
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS 1998 1997
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................... $5,204 5,610
Receivables, net.............................. 44,795 49,504
Inventories................................... 16,465 24,283
Income taxes receivable....................... 2,502 3,178
Deferred income taxes......................... 2,050 1,505
Other current assets.......................... 675 206
Net assets of discontinued operations......... 1,569 60,533
------- --------
Total current assets........................ 73,260 144,819
------- --------
Other noncurrent assets:
Intangible assets............................. 2,442 2,527
Deferred income taxes......................... 213 189
Other assets.................................. 1,892 1,961
------- --------
Total other noncurrent assets............... 4,547 4,677
------- --------
Property, plant, and equipment, at cost:
Land.......................................... 682 669
Buildings..................................... 4,263 4,126
Machinery and equipment....................... 7,752 7,353
------- --------
12,697 12,148
Less accumulated depreciation................. 7,971 7,106
------- --------
Net property, plant and equipment........... 4,726 5,042
------- --------
$82,533 $154,538
------- --------
------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
November 30, 1998 and 1997
(in thousands, except share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
--------------- --------------
<S> <C> <C>
Current liabilities:
Bank overdrafts and notes payable.......................... $6,014 --
Current maturities of long-term debt....................... 196 222
Accounts payable........................................... 30,316 37,899
Accrued expenses:
Salaries and wages....................................... 6,617 6,098
Taxes, other than income taxes........................... 466 486
Other.................................................... 9,002 7,646
Debt subsequently repaid with proceeds from sale of business -- 59,000
------- --------
Total current liabilities.............................. 52,611 111,351
Deferred compensation........................................ 7,366 7,244
Deferred income taxes........................................ 85 91
Long-term debt, less current maturities...................... 1,238 1,307
------- --------
Total liabilities...................................... 61,300 119,993
------- --------
Stockholders' equity:
Capital stock, $1 par value. Authorized 12,000,000 shares;
issued and outstanding 2,964,837 shares in 1998 and
2,963,837 shares in 1997................................. 2,965 2,964
Additional paid-in-capital................................. 19,652 19,629
Retained earnings (deficit)................................ (300) (13,333)
Foreign currency translation adjustments................... (1,084) (1,381)
------- --------
Total stockholders' equity............................... 21,233 34,545
------- --------
$82,533 $154,538
------- --------
------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
Years ended November 30, 1998, 1997, and 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net sales.......................................................... $122,370 97,297 140,530
Cost of goods sold................................................. 83,719 61,029 95,641
-------- ------- -------
Gross profit..................................................... 38,651 36,268 44,889
Selling, general, and administrative expenses...................... 29,578 28,916 29,968
Research and development costs..................................... 3,760 3,793 2,978
Litigation settlement costs........................................ 10,675 -- --
-------- ------- -------
Operating income (loss).......................................... (5,362) 3,559 11,943
-------- ------- -------
Other expense (income):
Interest expense................................................. 759 783 1,090
Other income, net................................................ (299) (1,147) (9)
-------- ------- -------
460 (364) 1,081
-------- ------- -------
Income (loss) from continuing operations before income taxes..... (5,822) 3,923 10,862
Income tax expense (benefit)....................................... (2,564) 1,744 4,563
-------- ------- -------
Income (loss) from continuing operations, net of tax............. (3,258) 2,179 6,299
Discontinued operations:
Gain on sale of business......................................... 7,730 -- --
Loss from operations, net of tax................................. (18,105) (42,259) (17,407)
-------- ------- -------
Net loss......................................................... $(13,633) (40,080) (11,108)
-------- ------- -------
-------- ------- -------
Income (loss) per share - basic:
Continuing operations............................................ $ (1.10) .71 2.04
Discontinued operations - gain on sale of business............... 2.61 -- --
Discontinued operations - loss from operations................... (6.11) (13.78) (5.64)
-------- ------- -------
Net loss......................................................... $ (4.60) (13.07) (3.60)
-------- ------- -------
-------- ------- -------
Income (loss) per share - diluted:
Continuing operations............................................ $ (1.10) .70 2.04
Discontinued operations - gain on sale of business............... 2.61 -- --
Discontinued operations - loss from operations................... (6.11) (13.62) (5.63)
-------- ------- -------
Net loss......................................................... $ (4.60) (12.92) (3.59)
-------- ------- -------
-------- ------- -------
Average number of shares:
Common shares outstanding........................................ 2,965 3,066 3,089
Equivalent shares on outstanding stock options................... -- 36 3
-------- ------- -------
Shares applicable to diluted earnings............................ 2,965 3,102 3,092
-------- ------- -------
-------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended November 30, 1998, 1997, and 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL RETAINED CURRENCY
CAPITAL PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENTS TOTAL
---------- ------------ -------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1995........ $3,089 24,504 66,671 4,163 98,427
Net loss............................ -- -- (11,108) -- (11,108)
Foreign currency translation
adjustments...................... -- -- -- (2,556) (2,556)
Cash dividends ($.40 per share)..... -- -- (1,236) -- (1,236)
------ ------- -------- -------- --------
Balance at November 30, 1996........ 3,089 24,504 54,327 1,607 83,527
Net loss............................ -- -- (40,080) -- (40,080)
Foreign currency translation
adjustments...................... -- -- -- (2,988) (2,988)
Repurchase and retirement of 125,000
shares of capital stock.......... (125) (4,875) -- -- (5,000)
Cash dividends ($.30 per share)..... -- -- (914) -- (914)
------ ------- -------- -------- --------
Balance at November 30, 1997........ 2,964 19,629 13,333 (1,381) 34,545
Net loss............................ -- -- (13,633) -- (13,633)
Foreign currency translation
adjustments...................... -- -- -- 297 297
Stock options exercised............. 1 23 -- -- 24
------ ------- -------- -------- -------
Balance at November 30, 1998........ $2,965 19,652 (300) (1,084) 21,233
------ ------- -------- -------- -------
------ ------- -------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended November 30, 1998, 1997, and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Continuing operations:
Income (loss) from continuing operations.............. $(3,258) 2,179 6,299
Adjustments to reconcile income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization....................... 853 1,719 1,503
Deferred compensation, net of payments.............. 122 (272) 533
Deferred income taxes............................... (575) 433 (656)
Other, net.......................................... (5) 14 69
Cash provided by (used in) changes in:
Receivables....................................... 4,724 (903) (2,486)
Inventories....................................... 7,869 2,385 (5,732)
Other current assets.............................. 471 2,406 (6,530)
Accounts payable.................................. (15,049) 15,152 (3,723)
Accrued expenses.................................. 1,891 338 5,671
Income taxes...................................... 478 (2,280) 1,333
------- ------- ------
Net cash provided (used) by continuing
operations.................................... (2,479) 21,171 (3,719)
------- ------- ------
Cash flows from investing activities:
Purchases of property, plant, and equipment........... (482) (1,169) (1,746)
Proceeds from sale of property, plant, and equipment -- 40 --
Other investments and assets 35 1,366 (249)
Proceeds from sale of business 79,873 -- --
------- ------- ------
Net cash provided (used) by investing
activities.................................... 79,426 237 (1,995)
------- ------- ------
Cash flows from financing activities:
Cash dividends paid................................... -- (914) (1,236)
Proceeds from borrowings.............................. 7,469 17,000 2,000
Net increase (decrease) in short-term borrowings...... 6,141 (4,990) (380)
Purchase and retirement of capital stock.............. -- (5,000) --
Stock options exercised............................... 23 -- --
Debt repaid with proceeds from sale of business....... (66,469) -- --
Principal payments on debt............................ (4,958) (13,863) (508)
------- ------- ------
Net cash used in financing activities........... (57,794) (7,767) (124)
------- ------- ------
Net cash provided (used) by discontinued operations..... (19,148) (16,543) 9,431
------- ------- ------
Effect of exchange rate changes on cash................. (411) (564) (252)
------- ------- ------
Net increase (decrease) in cash and cash
equivalents................................... (406) (3,466) 3,341
Cash and cash equivalents at beginning of year.......... 5,610 9,076 5,735
------- ------- ------
Cash and cash equivalents at end of year $ 5,204 5,610 9,076
------- ------- ------
------- ------- ------
Supplemental cash flows disclosures-cash paid for:
Interest.............................................. $ 382 432 660
Income taxes (refunds)................................ (437) 3,730 2,713
------- ------- ------
------- ------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1998, 1997, and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND REPORT PREPARATION
The consolidated financial statements include the accounts of the
Company and consolidated subsidiaries in the U.S., France, Sweden,
and Japan. All material intercompany balances and transactions havw
been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions which affect reported results of operations,
financial position, and various disclosures. Actual results could
differ from those estimates.
CURRENCY TRANSLATION
The results of operations for non-U.S. subsidiaries are translated from
local currencies into U.S. dollars using average exchange rates during
each period; assets and liabilities are translated using exchange rates
at the end of each period. Adjustments resulting from the translation
process are reported in a separate component of stockholders' equity,
and are not included in the determination of the results of operations.
FORWARD EXCHANGE CONTRACTS
The Company periodically enters into forward exchange contracts as
hedges against accounts receivable and accounts payable denominated in
currencies other than the currency used in preparing the financial
statements. Market value gains and losses on the foreign exchange
contracts are recognized and offset the foreign exchange gains or
losses on the related accounts receivable and accounts payable. There
were no forward exchange contracts outstanding at November 30, 1998.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and amounts due from
banks with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
PROPERTY, PLANT, AND EQUIPMENT
Depreciation of property, plant, and equipment is computed by the
straight-line method. Estimated lives range from 25 to 40 years for
buildings and from 4 to 12 years for machinery and equipment.
INTANGIBLE ASSETS
Intangible assets are comprised of goodwill and patents. Goodwill
represents excess costs of acquired companies over the fair values of
their net tangible assets. All intangibles are amortized by the
straight line method, with goodwill amortized over 40 years, and
patents over their respective useful lives.
F-8
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1998, 1997, and 1996
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the carrying
amounts of long-lived assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a
writedown is required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value approximates the carrying value for all financial
instruments, with the exception of long-term debt, for which the fair
value is less than the carrying value by an amount which is immaterial
to the consolidated financial statements.
REVENUE RECOGNITION
Profits on long-term equipment production and installation contracts
are recorded on the basis of the estimated percentage of completion of
individual contracts determined under the cost-to-cost method.
Estimated losses on long-term contracts are recognized in the period in
which a loss becomes apparent.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are charged to expense when incurred.
Research and development costs were $3.8 million, $3.8 million, and
$3.0 million in fiscal 1998, 1997, and 1996, respectively.
ADVERTISING EXPENSES
Advertising costs are charged to expense when incurred. Advertising
costs were $.5 million, $.6 million, and $.6 million in fiscal 1998,
1997, and 1996, respectively.
INCOME TAXES
The asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized
for operating loss and tax credit carryforwards and for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the results of operations in the
period that includes the enactment date. A valuation allowance is
recorded to reduce the carrying amounts of deferred tax assets unless
it is more likely than not that such assets will be realized.
STOCK-BASED COMPENSATION
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." The Company has elected to continue to apply
the principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," as discussed in note 13 to
the consolidated financial statements.
F-9
<PAGE>
BINKS SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1998, 1997, and 1996
NET INCOME (LOSS) PER SHARE
Basic earnings per share are based upon the weighted-average number of
common shares outstanding. Diluted earnings per share assumes the
exercise of all options which are dilutive, whether exercisable or not.
RECLASSIFICATIONS
Certain amounts in the fiscal 1997 and fiscal 1996 financial
statements, as previously reported, have been reclassified to conform
to the fiscal 1998 presentation. Research and development expenses have
been reclassified from cost of goods sold to operating expense for all
periods presented.
(2) DISCONTINUED OPERATIONS
On August 31, 1998, the Company announced it had signed a definitive
agreement with Illinois Tool Works (ITW) to sell certain of the
Company's domestic divisions, foreign subsidiaries, and standard
products lines. On September 30, 1998, the Company completed the sale
transaction.
Under the terms of the sale, ITW purchased all assets related to the
manufacture and distribution of Binks standard products in the U.S.,
including a leased manufacturing facility in Longmont, Colorado; the
Poly-Craft Systems division in Cottage Grove, Oregon; the research and
development facility in Boulder, Colorado; and certain domestic
branches and warehouses. All employees of the acquired businesses
became employees of ITW upon closing the transaction. International
operations included in the sale were businesses in the U.K., Belgium,
Germany, Australia and a portion of the Canadian operation. As part of
the agreement, ITW assumed certain liabilities of the acquired
portion of the businesses. During 1998, the Company reached agreement
on the sale of two other businesses that had been part of its Binks
operations. The above operations have been classified as discontinued
operations in the Company's consolidated financial statements.
The sale price related to the ITW agreement is subject to post-closing
adjustments. The Company and ITW have not reached agreement on the
amount of such adjustment. For purposes of determining the gain on the
sale and the results of discontinued operations, the Company has
estimated the amount of such adjustment. The estimated impact of the
post-closing adjustment has been reflected in the Company's financial
statements. While the Company does not believe that the ultimate
resolution of the post-closing adjustment will have a significant
impact on the Company's future net income, the adjustment could have
an adverse effect on future net income and the Company is unable to
predict with certainty the outcome at this time.
The Company recorded a net gain on the sale of $7.7 million. No income
tax provision was recorded because the taxable gain was offset by
operating losses of the discontinued operations.
In January 1998, the Company notified the developer and landlord of a
site in Vernon Hills, Illinois, which had been expected to serve as the
Company's headquarters, that the Company wanted to terminate the
project. The Company had previously entered into a 20-year lease
agreement for the Vernon Hills site. In February 1999, the Company
entered into a settlement agreement with the developer relating to
litigation associated with the lease cancellation. The settlement
agreement was for $2.4 million, which was paid by the Company on
February 22, 1999. The settlement cost is classified as a component of
discontinued operations in the Company's fiscal 1998 consolidated
financial statements.
Not included in the sale to ITW, and representing the continuing
operations of the Company, are: the Company's largest subsidiary,
Sames, S.A. (Sames, France) based in Grenoble, France; Sames North
America, Inc. (Sames North America), headquartered in Livonia,
Michigan; the North American powder systems group; and subsidiaries
in Japan and Sweden.
F-10
<PAGE>
(3) RECEIVABLES
Net receivables are comprised of the following at November 30 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Trade ............................................... $44,270 44,448
Costs and estimated earnings in excess of billings on
uncompleted contracts ....................... 957 3,915
Other ............................................... 1,235 2,364
------- ------
46,462 50,727
Less allowance for doubtful receivables ............. 1,667 1,223
------- ------
$44,795 49,504
------- ------
------- ------
</TABLE>
(4) INVENTORIES
Inventories at November 30 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Finished goods and service parts ...................... $11,288 10,283
Work in process ....................................... 4,445 13,372
Raw material .......................................... 732 628
------- ------
$16,465 24,283
------- ------
------- ------
</TABLE>
(5) NON-U.S. SUBSIDIARIES
Financial information relating to non-U.S. subsidiaries is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Total assets .......................... $ 59,233 70,558 70,450
Total liabilities ..................... 45,652 50,574 48,621
-------- ------- -------
Net assets ............................ $ 13,591 19,984 21,829
-------- ------- -------
-------- ------- -------
Net sales ............................. $ 88,653 72,058 100,528
-------- ------- -------
-------- ------- -------
Earnings (loss) before income taxes (a) $ (6,358) 4,090 7,481
-------- ------- -------
-------- ------- -------
Net earnings (loss) (a) ............... $ (3,924) 2,661 4,510
-------- ------- -------
-------- ------- -------
</TABLE>
- - --------------
(a) Includes litigation settlement costs of $10.7 million ($6.2 million, net of
tax benefits) in fiscal 1998.
F-11
<PAGE>
(6) CREDIT FACILITIES AND DEBT
LINES OF CREDIT AND OVERDRAFT FACILITIES
In October 1998, the Company entered into a $10 million, prime rate,
asset-based, three year revolving line of credit agreement with CIT
Group to support the Company's operations and continued growth in the North
American automotive and general industrial finishing markets. Borrowings
under the line of credit are collateralized by substantially all of the
assets of Sames North America, as well as a pledge of its stock. The
line of credit agreement contains, among other restrictive covenants, a
covenant requiring the maintenance of a minimum level of net worth of
Sames North America, which level was exceeded as of November 30, 1998.
Together with other credit facilities, the Company has aggregate lines of
credit and overdraft facilities of $19.6 million at November 30, 1998,
against which the Company has overdrafts and notes payable to banks of
$6.0 million, and letters of credit outstanding of $2.2 million. The
remaining unused lines of credit and overdraft facilities are available to
support the Company's U.S. operations ($4.1 million) and non-U.S.
operations ($7.3 million).
DEBT SUBSEQUENTLY REPAID WITH PROCEEDS FROM SALE OF BUSINESS
Debt subsequently repaid with the proceeds from the sale of the Binks
business to ITW is summarized as follows at November 30, 1997 (in
millions):
<TABLE>
<S> <C>
Bankers' acceptances under lines of credit expiring in 1998
(6.31% to 6.44% in 1997)....................................... $13,500
Borrowings under a line of credit expiring in 2002
(6.75% to 6.875% in 1997)...................................... 30,500
Senior notes maturing through 2008 (7.14%)..................... 15,000
Debt subsequently repaid with proceeds from sale of business... $59,000
-------
-------
</TABLE>
LONG-TERM DEBT
Consolidated long-term debt consists of the following at November 30 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Loans maturing at various dates through 2001; weighted average
interest rate of 2.8% in 1998 and 3.3% in 1997.................... $1,434 $1,529
Less current maturities.............................................. 196 222
------ ------
Long-term debt, less current maturities.............................. $1,238 $1,307
------ ------
------ ------
</TABLE>
The aggregate maturities of long-term debt due in fiscal years 2000 and 2001 are
$144 thousand and $1.1 million, respectively. No long-term debt is scheduled to
mature in 2002 or 2003.
(7) INCOME TAXES
The Company files a consolidated Federal income tax return which includes
all U.S. subsidiaries.
No provision is made for U.S. Federal income taxes which would be payable
if undistributed earnings of non-U.S. subsidiaries were paid as dividends
to the Company. If such earnings, which aggregate $10.5 million at November
30, 1998, were to be distributed, the resulting U.S. Federal income taxes
would be largely offset by net operating loss carryforwards.
F-12
<PAGE>
Foreign tax credit carryforwards at November 30, 1998 totaled $2.4 million.
The foreign tax credit carryforwards expire as follows: $1.2 million in
fiscal 1999 and $1.2 million in fiscal 2000.
The Internal Revenue Service has completed its examination of the Company's
Federal income tax returns through November 30, 1989.
Income tax expense (benefit) is comprised as follows (in thousands):
<TABLE>
<CAPTION>
U.S. STATE AND
FEDERAL NON-U.S. LOCAL TOTAL
------- -------- --------- -----
<S> <C> <C> <C> <C>
Fiscal 1998:
Current ......... $ (351) (1,891) 253 (1,989)
Deferred ........ -- (575) -- (575)
------- ------ --- ------
$ (351) (2,466) 253 (2,564)
------- ------ --- ------
------- ------ --- ------
Fiscal 1997:
Current ......... -- 1,205 106 1,311
Deferred ........ 209 224 -- 433
------- ------ --- ------
$ 209 1,429 106 1,744
------- ------ --- ------
------- ------ --- ------
Fiscal 1996:
Current ......... $ 1,469 3,544 206 5,219
Deferred ........ (83) (573) -- (656)
------- ------ --- ------
$ 1,386 2,971 206 4,563
------- ------ --- ------
------- ------ --- ------
</TABLE>
F-13
<PAGE>
Actual income tax expense (benefit) differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to pretax income (loss) as a
result of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) .................. $(1,979) 1,334 3,693
Difference between U.S. and non-U.S. tax rates ............. (302) 354 249
Nondeductible expenses ..................................... 75 82 (3)
State and local income taxes, net of Federal income
tax benefit............................................... 168 70 136
Research tax credit ........................................ -- -- (84)
Change in the valuation allowance for deferred tax
assets.................................................... -- (929) --
Refund of prior years' Federal income taxes ................ (351) -- --
Foreign tax credits less than U.S. taxes on dividends
from foreign subsidiaries................................. -- 833 1,150
Other ...................................................... (175) -- (578)
------- ------- -------
Income tax expense (benefit) ............................... $(2,564) 1,744 4,563
------- ------- -------
------- ------- -------
</TABLE>
The tax effects of net operating loss carryforwards, foreign tax credit
carryforwards, and temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at November 30, 1998 and
1997 are presented below (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Deferred tax assets attributable to:
Deferred compensation ................................ $ 2,659 2,487
Inventories .......................................... 606 653
Allowance for doubtful receivables ................... 40 288
Foreign tax credit carryforwards ..................... 2,390 2,597
Accrued expenses ..................................... 2,544 2,844
Net operating loss carryforwards ..................... 9,753 10,579
Other ................................................ 590 468
------- ------
Total gross deferred tax assets .................... 18,582 19,916
Less valuation allowance ............................. 16,235 18,009
------- ------
Total deferred tax assets .......................... 2,347 1,907
------- ------
Deferred tax liabilities attributable to:
Plant and equipment, principally due to differences in 126 129
depreciation
Other ................................................ 43 175
------- ------
Total gross deferred liabilities ................... 169 304
------- ------
Net deferred tax assets ............................ $ 2,178 1,603
------- ------
------- ------
</TABLE>
At November 30, 1998, the Company has net operating loss carryforwards of $26
million, which expire primarily in 2011 through 2013.
F-14
<PAGE>
(8) EMPLOYEE BENEFITS
Through November 30, 1998, the Company maintained a defined contribution profit
sharing plan. The Company contributed to the plan the lesser of 15% of the
participants' compensation, 18% of the Company's adjusted net income as defined
in the plan, or six times the total of the participants' contributions made for
the year. Effective as of December 1, 1997, the Company was no longer required
to make contributions to the profit sharing plan, but will make contributions to
match certain employee contributions to the Company's 401(k) plan. Additionally,
the Company maintains deferred compensation plans for certain present and former
officers and key employees. The deferred compensation plan benefits are
determined by a formula which considers the employee's average salary and years
of service with the Company. The total expense relating to these plans was $1.2
million in 1998, $1.2 million in fiscal 1997, and $1.6 million in fiscal 1996.
(9) QUARTERLY FINANCIAL DATA (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
FISCAL 1998 FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
- - ----------- ----------- ------ --------- -----------
<S> <C> <C> <C> <C>
Net sales .............................. $ 31,954 28,410 25,155 36,851
---------- ------ ------ ------
---------- ------ ------ ------
Gross profits .......................... $ 7,723 9,505 8,912 12,511
---------- ------ ------ ------
---------- ------ ------ ------
Income (loss) from continuing operations $ 79 (4,776) 237 1,202
Loss from discontinued operations ...... (3,738) (4,153) (1,469) (1,015)
---------- ------ ------ ------
Net income (loss) ...................... $ (3,659) (8,929) (1,232) 187
---------- ------ ------ ------
---------- ------ ------ ------
Weighted average shares:
Basic ................................ 2,964 2,964 2,965 2,965
Effect of stock options .............. 40 -- 37 13
---------- ------ ------ ------
Diluted .............................. 3,004 2,964 3,002 2,978
---------- ------ ------ ------
---------- ------ ------ ------
Basic income (loss) per share:
Continuing operations ................ $ 0.03 (1.61) 0.08 0.40
Discontinued operations .............. (1.26) (1.40) (0.50) (0.34)
Net income (loss) .................... $ (1.23) (3.01) (0.42) (0.06)
Diluted income (loss) per share:
Continuing operations ................ $ 0.03 (1.61) 0.08 0.40
Discontinued operations .............. (1.24) (1.40) (0.49) (0.34)
Net income (loss) .................... $ (1.21) (3.01) (0.41) (0.06)
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
FISCAL 1997 FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
- - ----------- ----------- ------ --------- -----------
<S> <C> <C> <C> <C>
Net sales .............................. $ 26,724 22,928 27,822 19,823
---------- ------ ------ ------
---------- ------ ------ ------
Gross profits .......................... $ 9,810 7,886 8,760 9,812
---------- ------ ------ ------
---------- ------ ------ ------
Income (loss) from continuing operations $ 1,097 (445) 72 1,455
Loss from discontinued operations ...... (956) (1,436) (1,395) (38,472)
---------- ------ ------ ------
Net income (loss) ...................... $ 141 (1,881) (1,323) (37,017)
---------- ------ ------ ------
---------- ------ ------ ------
Weighted average shares:
Basic ................................ 3,089 3,089 3,089 2,964
Effect of stock options .............. 32 -- 38 49
---------- ------ ------ ------
Diluted .............................. 3,121 3,089 3,127 3,013
---------- ------ ------ ------
---------- ------ ------ ------
Basic income (loss) per share:
Continuing operations ................ $ 0.36 (0.14) 0.02 0.49
Discontinued operations .............. (0.31) (0.46) (0.45) (12.98)
Net income (loss) .................... $ 0.05 (0.60) (0.43) (12.49)
Diluted income (loss) per share:
Continuing operations ................ $ 0.35 (0.14) 0.02 0.48
Discontinued operations .............. (0.31) (0.46) (0.45) (12.77)
Net income (loss) .................... $ 0.04 (0.60) (0.43) (12.29)
</TABLE>
F-16
<PAGE>
(10) OPERATING LEASES
The Company occupies certain offices and uses certain equipment under
operating lease arrangements. Rent expense under such arrangements was $1.7
million, $1.5 million, and $1.4 million in fiscal years 1998, 1997, and
1996, respectively.
The future minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year
as of November 30, 1998 are $679 thousand, $392 thousand, $210 thousand,
$78 thousand, and $24 thousand in 1999 through 2003, respectively.
It is expected that in the normal course of business most leases that
expire will be renewed or replaced by leases on the same or similar
properties; thus, it is anticipated that future annual rent expense will
not be materially less than the amount shown for 1998.
(11) CONTINGENCIES
The Company has certain contingent liabilities resulting from litigation
and claims incident to the ordinary course of business. Management believes
that the probable resolution of such contingencies will not materially
affect the financial position or results of operations of the Company.
(12) REPURCHASE AND RETIREMENT OF CAPITAL STOCK
In September 1997, the Company repurchased 125,000 shares of its capital
stock from the profit sharing plan, at the price of $40.00 per share, or
$5.0 million, and retired the shares.
(13) STOCK OPTION PLAN
During fiscal 1996, the Company established a stock option plan. The plan
provides for the granting of stock options to key employees and directors
to purchase a maximum of 300,000 shares of the Company's capital stock. All
options are granted at the fair market value at the date of grant and
generally vest at the rate of 25% per year. Outstanding options become
fully vested upon a change in control as defined in the plan agreement. The
maximum option term is 10 years.
During fiscal 1998, certain officers and directors of the Company were
granted options to purchase 125,000 shares at exercise prices ranging from
$12.13 to $17.25 per share. These options became fully vested as of the
dates on which they were granted. These options were granted under the
authority of the Board of Directors of the Company apart from the Company's
1996 stock option plan.
F-17
<PAGE>
Changes in options outstanding are summarized as follows:
<TABLE>
<CAPTION>
RANGE OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICES EXERCISE PRICES
------- --------------- ---------------
<S> <C> <C> <C>
Granted - fiscal 1996........... 93,500 $ 23.375 $23.375
Balance, November 30, 1996...... 93,500 23.375 23.375
Granted - fiscal 1997........... 32,500 40.375-43.000 42.52
Forfeited - fiscal 1997......... (4,000) 23.375 23.375
-------
Balance, November 30, 1997...... 122,050 23.375-43.00 28.47
Granted - fiscal 1998........... 155,100 12.125-45.25 17.70
Exercised - fiscal 1998......... (1,000) 23.375 23.375
Forfeited - fiscal 1998......... (46,050) 23.375-45.25 32.63
-------
Balance, November 30, 1998...... 230,100 12.125-44.625 20.40
------- ------------- -------
------- ------------- -------
</TABLE>
Of the options outstanding at November 30, 1998, options on 204,500 shares were
exercisable at a weighted average price of $19.54 per share. At November 30,
1997, options on 57,625 shares were exercisable at a weighted average price of
$23.38 per share. None of the options outstanding at November 30, 1996 were
exercisable. At November 30, 1998, there were 194,900 shares available for
future grants under the 1996 Plan. The following table summarizes information
regarding stock options outstanding and exercisable at November 30, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- - ------------------------------------------------------------------- ----------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Options live exercise Options exercise
exercise prices outstanding (in years) price exercisable price
- - ----------------- ---------------- ------------------ ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
$12.13-23.38 211,000 9.2 $18.38 190,500 $17.84
$40.38-44.63 19,100 8.8 42.69 14,000 42.58
- - ------------ ------- --- ------ ------- ------
Total options 230,100 9.2 20.40 204,500 19.54
- - ------------ ------- --- ------ ------- ------
- - ------------ ------- --- ------ ------- ------
</TABLE>
Using the Black-Scholes model and the following assumptions, the estimated
weighted average fair value of options granted in fiscal 1998, 1997, and 1996
were $8.85, $13.15, and $6.84, respectively.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk free interest rate............... 5.7% 6.2
Expected dividend yield............... -- 0.9
Expected volatility................... 57.4 25.2
Estimated lives of options (in years) 5.0 5.0
---- ----
---- ----
</TABLE>
F-18
<PAGE>
The Company has adopted the disclosure provisions of SFAS No. 123.
Accordingly, no compensation expense has been recognized for the stock
option activity. Had compensation expense for the Company's stock option
activity been calculated under the provisions of SFAS No. 123, the
Company's loss from continuing operations and net loss for fiscal 1998
would have increased by $1.2 million ($0.40 per share). The Company's net
loss for fiscal 1997 would have increased by $394 thousand ($0.13 per
share). During the phase-in period of SFAS No. 123, the estimation of
compensation costs reflects only a partial vesting of options. In future
years, the estimated pro forma compensation costs may be higher depending
upon, among other factors, the number of options granted.
(14) STOCKHOLDER RIGHTS PLAN
On February 2, 1990, the Company declared a dividend distribution of one
Right for each outstanding share of Capital Stock of the Company to the
stockholders of record on February 13, 1990. Certain terms of the Rights
were amended on January 21, 1991. Each Right, when exercisable, entitles
the registered holder to purchase from the Company one share of Capital
Stock, at a price of $100 per share, subject to adjustment. The Rights
become exercisable ten days after the earliest to occur of (i) the public
announcement that a person or group of associated or affiliated persons
acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding Capital Stock of the Company (the Stock Acquisition
Date); (ii) the commencement of, or an announcement of an intention to
make, a tender offer or exchange offer if, upon consummation thereof, any
person or group of associated or affiliated persons would be the beneficial
owner of 15% or more of the outstanding Capital Stock of the Company; or
(iii) the Board of Directors declares any person owning 10% or more of the
outstanding Capital Stock of the Company to be an "Adverse Person" pursuant
to the criteria set forth in the Rights Agreement.
If a person or group of associated or affiliated persons becomes the
beneficial owner of 15% or more of the outstanding Capital Stock of the
Company, the Company is the surviving corporation in a merger and the
Capital Stock remains outstanding, an acquiring person engages in certain
self-dealing transactions, or the Board of Directors declares any person to
be an "Adverse Person" subject to certain adjustments and other conditions,
each Right not owned or transferred by the acquiring person or Adverse
Person will entitle the holder to purchase one share of Capital Stock of
the Company at a purchase price of 20% of its then-market value. In
addition, if the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or
earning power is sold, subject to certain adjustments and other conditions,
each Right will entitle the holder to purchase capital stock of the
acquiring company having a market value of $200 for a purchase price of
$100. In August 1998, in connection with the sale of the Binks Business
to ITW, the Company amended the Rights Agreement to exclude ITW from the
definitions of "Acquiring Person" and "Adverse Person," and to exclude
the sale from the definition of "Triggering Event."
The Rights are redeemable by the Company at any time prior to 20 days after
the Stock Acquisition Date, at $0.01 per Right, at the Company's option.
After the Stock Acquisition Date, the Rights may not be exercised until the
Company's right of redemption has expired. The Rights expire on February 2,
2000. Until a Right is exercised, the holder of a Right, as such, will have
no rights as a stockholder of the Company, including, without limitation,
the right to vote or receive dividends.
(15) FORWARD EXCHANGE CONTRACTS
The Company operates internationally, with manufacturing and distribution
facilities in France and distribution and assembly facilities in the United
States, Japan, and Sweden. The
F-19
<PAGE>
Company generally does not use derivative financial instruments to manage
currency exchange rate risks and no such instruments were outstanding as
of November 30, 1998.
(16) LITIGATION SETTLEMENT COSTS
During fiscal 1998, the Company recorded costs and expenses related to the
settlement of patent infringement litigation. Total costs were $10.7
million ($6.2 million, net of income tax benefits).
(17) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry, the manufacture and distribution of
electrostatic spray finishing and coating application equipment. The
Company's products are sold to customers in North America, South America,
Europe, Asia, Africa, and Australia. U.S. exports to third-party customers
are less than 10% of U.S. sales. No single customer accounts for more than
10% of the Company's net sales.
The table below presents the Company's consolidated continuing operations by
geographic area: Americas; Europe (France and Sweden); and the
Pacific Rim (Japan). Sales are presented by originating area. Interarea
transfers comprise transactions among the Company and its subsidiaries in
different geographic areas; these transfers are eliminated in consolidation.
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Sales to unaffiliated customers (includes exports):
Americas ......................................... $ 33,718 25,238 40,001
Europe ........................................... 81,810 66,114 93,486
Pacific Rim ...................................... 6,843 5,944 7,043
Interarea transfers from:
Americas ......................................... 118 43 164
Europe ........................................... 16,099 8,075 19,927
Eliminations ..................................... (16,218) (8,117) (20,091)
--------- ------ -------
Total .......................................... $ 122,370 97,297 140,530
--------- ------ -------
--------- ------ -------
Operating income (loss):
Americas ......................................... $ (10) (72) 3,552
Europe(a) ........................................ (4,261) 3,389 7,913
Pacific Rim ...................................... (1,091) 242 478
--------- ------ -------
Total .......................................... $ (5,362) 3,559 11,943
--------- ------ -------
--------- ------ -------
Identifiable assets of continuing operations at
November 30:
Americas ......................................... $ 30,833 26,918 48,840
Europe ........................................... 45,490 62,586 59,437
Pacific Rim ...................................... 4,641 4,501 6,908
--------- ------ -------
Total .......................................... $ 80,964 94,005 115,185
--------- ------ -------
--------- ------ -------
</TABLE>
(a) During fiscal 1998, the Company recorded costs and expenses related to the
settlement of patent infringement litigation, which amounted to $10.7
million ($6.2 million, net of tax benefits).
F-20
<PAGE>
EXHIBIT INDEX
BINKS SAMES CORPORATION
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation.(1)
3.2 Amendment to Restated Certificate of Incorporation.(2)
3.3 Amended and Restated By-laws, as of October 28, 1998.(3)
4.3 Amended and Restated Rights Agreement, dated as of February 2,
1990 and amended and restated as of January 21, 1991, between the
Company and Harris Trust and Savings Bank, as successor rights
agent.(4)
10.1(a)* Form of Executive Retirement Income Contracts between the Company
and certain key employees.(5)
10.1(b)* Form of Amendment to Executive Retirement Income Contract for
Doran J. Unschuld.(1)
10.2* Forms of Employment Security Agreements between the Company and
certain key employees.(1)
10.3* Form of Insurance Maintenance Agreement between the Company and
each of its directors and officers.(1)
10.4* Binks Sames Corporation Amended and Restated 1996 Stock Option
Plan.(6)
10.5 Form of Bonus Agreements between the Company and certain
executive officers and key employees.(7)
10.6 Settlement Agreement and Mutual Releases dated as of June 11,
1998, by and among the Company, Continental Partners Group and
Schiff, Hardin & Waite.(8)
10.7 Patent License and Settlement Agreement dated as of July 10, 1998
by and among the Company, Sames, S.A., Sames Electrostatic, Inc.,
Behr Systems, Inc. and Durr Systems, GMbH.(8)
10.8* Consulting Agreement dated as of October 1, 1998 by and between
the Company and The Dratt-Campbell Company.(9)
10.9 Second Amendment to Rights Agreement dated as of August 27, 1998,
by and between the Company and Harris Trust and Savings Bank.(10)
10.10 Agreement of Purchase and Sale of Assets and Stock dated as of
August 31 1998, by and between the Company and Illinois Tool
Works Inc.(10)
10.11 Amendment to Agreement of Purchase and Sale of Assets and Stock
dated as of September 30, 1998, by and between the Company and
Illinois Tool Works Inc.(11)
10.12 Settlement Agreement and Mutual Release dated as of February 12,
1999 by and between the Company and CWA Investment Company,
L.L.C.(3)
10.13 Financing Agreement dated as of October 21, 1998 by and between
the CIT Group/Business Credit, Inc. and Sames Electrostatic,
Inc.(3)
i
<PAGE>
10.14 Guaranty Agreement dated as of October 21, 1998 by and between
the CIT Group/Business Credit, Inc. and Sames Electrostatic,
Inc.(3)
10.15 Stock Pledge Agreement dated as of February 19, 1999 by and
between the CIT Group/Business Credit, Inc. and the Company.(3)
10.16 Letter Agreement dated as of February 19, 1999 by and between the
CIT Group/Business Credit, Inc. and the Company.(3)
21.1 List of subsidiaries.(3)
23.1 Consent of KPMG LLP.(3)
27.1 Financial Data Schedule.(3)
</TABLE>
* Management contract or compensatory plan, contract or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
1 Filed under corresponding exhibit number to the Company's Form 10-K for its
fiscal year ended November 30, 1993 and incorporated herein by reference.
2 Filed as Exhibit 4.1 to the Company's registration statement on Form S-8
(File no. 333-30191) and incorporated herein by reference.
3 Filed herewith.
4 Filed under corresponding exhibit number to the Company's Form 10-K for its
fiscal year ended November 30, 1993 and incorporated herein by reference.
5 Filed under corresponding exhibit number to the Company's Form 10-K for its
fiscal year ended November 30, 1995 and incorporated herein by reference.
6 Filed as an exhibit to the Company's registration statement on Form S-8
(File no. 333-30191) and incorporated herein by reference.
7. Filed as an exhibit to the Company's Form 10-Q for the period ended
February 28, 1998 and incorporated herein by reference.
8. Filed as exhibits to the Company's Form 10-Q for the period ended May 31,
1998 and incorporated herein by reference.
9. Filed as exhibits to the Company's Form 10-Q for the period ended August
31, 1998 and incorporated herein by reference.
10. Filed as exhibits to the Company's Current Report on Form 8-K dated
September 2, 1998 and incorporated herein by reference.
11. Filed as an exhibit to the Company's Current Report on Form 8-K dated
September 30, 1998 and incorporated herein by reference.
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EXHIBIT 3.3
BY-LAWS
OF
BINKS SAMES CORPORATION
(As Amended and Restated through October 28, 1998)
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located in the City of Wilmington, County of New Castle and State of
Delaware, and the name of the agent therein and in charge thereof, and upon whom
legal process against the Corporation may be served (until otherwise determined
by the Board of Directors) is the Corporation Trust Company of America.
Section 2. OTHER OFFICE. Another office of the Corporation, where
meetings of the stockholders and directors may be held, shall be, and is hereby,
established at the Village of Franklin Park, County of Cook and State of
Illinois.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held at the hour of 10:00 a.m., on the last Tuesday of
April of each year, for the purpose of electing directors and for the
transaction of only such other business as is properly brought before the
meeting in accordance with the By-Laws. The place of the Annual Meeting shall
be established by a resolution of the Board. If for any reason said Annual
Meeting shall not be held at the time herein provided, the same may be held at
any time thereafter, upon notice as hereinafter provided, or the business
thereof may be transacted at any special meeting called for that purpose.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, no
earlier than February 1 and no later than February 25 immediately preceding the
annual meeting of stockholders. A stockholder's notice to the Secretary
<PAGE>
shall set forth as to each matter the stockholder proposes to bring before
the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 1, PROVIDED, HOWEVER, that nothing in this Section 1 shall
be deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 1, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called by the President or by order of the Board of Directors whenever they
deem it necessary. Such special meetings shall be held at the principal office
of the Corporation in Franklin Park, Illinois, or such place as may be
designated in the call, and the business of such special meeting shall be
confined to the objects stated in the notice thereof.
Section 3. NOTICE OF MEETINGS. Notice of the time and place of the
annual, and of any special, meeting of the stockholders shall be given by the
Secretary to each of the stockholders entitled to vote at such meeting by
posting same in a postage prepaid letter, addressed to each such stockholder at
the address left with the Secretary of the Corporation, or at his last known
address, or by delivering the same personally, at least ten days prior to such
meeting. The notice of a special meeting shall also set forth the objects of
the meeting. All or any of the stockholders may waive notice of the annual or
any special meeting, and the presence of a stockholder at any meeting, in person
or by proxy, shall be deemed a waiver of notice thereof by him. Meetings of the
stockholders may be held at any time and place and for any purpose, without
notice, when all of the stockholders entitled to vote at such meeting are
present in person or by proxy, or when all of such stockholders waive notice and
consent to the holding of such meeting.
It shall be the duty of the officer who shall have charge of the stock
ledger of the Corporation to prepare and make, at least ten days before every
stockholders' meeting for the election of directors, a complete list of
stockholders entitled to vote thereat, arranged in alphabetical order. Such
list shall be open at the place where said election is to be held for said ten
days, to the examination of any stockholder, and shall be produced and kept at
the time and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 4. VOTING AT STOCKHOLDERS' MEETINGS. At all meetings of the
stockholders, each holder of stock entitled to be voted at such meeting shall be
entitled to one vote for each such share
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of capital stock standing registered in his name at the time of the closing
of the transfer books for said meeting, or if such transfer books shall not
have been closed for such meeting, then for each such share of stock standing
registered in his name at such date, if any, as the Board of Directors shall
have fixed in advance as hereinafter provided, as a record for the
determination of the stockholders entitled to notice of and to vote at such
meeting, or in case the transfer books shall not have been closed for such
meeting and no such record date shall have been fixed in advance by the Board
of Directors, then for each such share of stock standing registered in his
name at the time of the meeting; provided, however, that except where the
transfer books of the Corporation shall have been closed, or a date shall
have been fixed as a record date for the determination of the stockholders
entitled to vote, as hereinafter provided, no share of stock shall be voted
on at any election of directors which shall have been transferred on the
books of the Corporation within twenty days next preceding such election of
directors. Such vote may be given personally or by proxy authorized in
writing. Only the persons in whose names shares of stock shall stand on the
books of the Corporation at the time aforesaid shall be entitled to vote in
person or by proxy upon the shares of stock standing in their names. No
proxy shall be voted on or after three years from its date, unless such proxy
provides for a longer period.
Section 5. QUORUM. The holders for the time being of a majority of the
total number of shares of stock issued and outstanding, and for the time being
entitled to be voted at any meeting, represented in person or by proxy, shall
constitute a quorum for the transaction of business, unless the representation
of a larger number shall be required by law. In the absence of a quorum, the
stockholders attending or represented at the time and place at which a meeting
shall have been called may adjourn the meeting from time to time until a quorum
shall be present. At any such adjourned meeting at which a quorum shall be
present any business may be transacted which might have been transacted by a
quorum of the stockholders at the meeting as originally convened.
Section 6. PRESIDING OFFICER AND SECRETARY. The Chairman of the Board
shall call meetings of the stockholders to order and act as Chairman of such
meetings. The Board of Directors may appoint any stockholder to act as Chairman
at any meeting in the absence of the Chairman or the President, and in default
of any appointment by the Board of Directors of a Chairman, the stockholders may
elect a Chairman to preside at the meeting. The Secretary, or an Assistant
Secretary, of the Corporation shall act as Secretary at all meetings of the
stockholders, but in their absence the stockholders or presiding officers may
appoint a person to act as Secretary of the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. ELECTION, QUALIFICATION AND FILLING OF VACANCIES. The
property and business of the Corporation shall be managed and controlled by a
Board of Directors. A director of the Corporation need not be a stockholder
thereof. The Board of Directors shall consist of five (5) directors. Such
number may be increased or decreased to such number as shall hereafter be fixed
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<PAGE>
from time to time by amendment of these By-Laws, provided the number of
directors shall never be less than three.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations for the election of
directors may be made by the Board of Directors or by a committee appointed by
the Board of Directors, or by any stockholder entitled to vote in the election
of directors generally provided that such stockholder has given actual written
notice of such stockholder's intent to make such nomination or nominations to
the Secretary of the Corporation not later than (a) with respect to an election
to be held at an annual meeting of stockholders, no earlier than February 1 and
no later than February 25 immediately preceding the annual meeting of
stockholders and (b) with respect to an election to be held at a special meeting
of stockholders for the election of directors, the close of business on the
fifteenth day following (i) the date on which notice of such meeting is first
given to stockholders or (ii) the date on which public disclosure of such
meeting is made, whichever is earlier.
Each such notice shall set forth: (a) the name and record address of the
stockholder who intends to make the nomination and the name, age, business
address and resident address of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice and stating the number of shares held by such stockholder; (c) a
description of all arrangements or understandings involving any stockholder,
each such nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
stockholder or relating to the Corporation or its securities or to such
nominee's service as a director if elected; (d) such other information regarding
such nominee proposed by such stockholder as would be required to be disclosed
in solicitations for proxies for election of directors pursuant to Rule 14a
under the Securities Exchange Act of 1934, as amended; and (e) the consent of
each nominee to serve as a director of the Corporation if so elected.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Any director elected to fill a vacancy as hereinabove set forth shall hold
office until the next election of the class for which such director shall have
been chosen, and until his successor shall have been elected and qualified.
When one or more directors shall resign from the Board effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies; the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as hereinbefore
provided with respect to the filling of other vacancies.
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Section 2. PLACE OF MEETING. Any meeting of the Board of Directors may
be held at the principal office of the Corporation in Wilmington, Delaware, or
at the office of the Corporation in the Village of Franklin Park, Illinois, or
at any other place within or without the State of Delaware which may be from
time to time established by the By-Laws of the Corporation or by resolution of
the Board, or which may be agreed to in writing by all the directors of the
Corporation.
Section 3. REGULAR AND SPECIAL MEETINGS. The regular annual meeting of
the Board of Directors shall be held without notice at the same place and
immediately following the close of the annual stockholders' meeting in each year
for the election of officers and the transaction of such other business as may
come before the Board. Other regular meetings of the Board may be held at such
times and places, either within or without the State of Delaware, and upon such
notice, or without notice, as the Board of Directors may by resolution from time
to time determine. Special meetings of the Board shall be held whenever called
by the President or any two directors, in writing. Notice of each special
meeting of the Board shall be delivered personally to each director, mailed to
him or transmitted by telephone, telegraph or facsimile transmission to his
residence or usual place of business, at least three days before the meeting or
such shorter period before the meeting as the person or persons calling such
meeting deem appropriate in the circumstances. Meetings of the Board may be
held at any time and place either within or without the State of Delaware, and
for any purpose, without notice, when all of the directors are present, or shall
waive notice of and consent to the holding of such meeting. All or any of the
directors may waive notice of any meeting, and the presence of a director at any
meeting of the Board shall be deemed a waiver of notice thereof by him.
Section 4. QUORUM AND ADJOURNMENT. A majority of the directors in
office at a meeting regularly called shall constitute a quorum. In the absence
of a quorum, the directors present at the time and place at which a meeting
shall have been duly called, may adjourn the meeting from time to time and place
to place until a quorum shall be present.
Section 5. SUBMISSION OF ACTS TO APPROVAL OF STOCKHOLDERS. The Board
of Directors, in its discretion, may submit any contract or act for approval or
ratification at any annual meeting of the stockholders, or at any special
meeting of the stockholders called for that purpose, and any contract or act
that shall be approved or ratified by the vote of the holders of a majority of
the capital stock of the Corporation, which is represented in person or by proxy
at such meeting, provided that a lawful quorum of stockholders be there
represented in person or by proxy, shall, unless the approval or ratification of
the holders of a larger proportion of the capital stock is required by law, or
by the Certificate of Incorporation of the Corporation, be as valid and as
binding upon the Corporation and upon all the stockholders as if it had been
approved or ratified by every stockholder of the Corporation.
Section 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Corporation shall, to the fullest extent to which it is
empowered to do by the General Corporation Law of Delaware or any other
applicable laws, as may from time to time be in effect, indemnify any person who
was or is, or is threatened to be made, a party to any
5
<PAGE>
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation,) by reason of the fact that he is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against all expenses (including
attorneys' fees,) judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful. The Corporation may make advances
against any such expenses upon terms determined by the Board of Directors.
(b) The Corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Section 6, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this Section
6 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a) and (b)
of this Section 6. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of
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<PAGE>
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors in
the specific case upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this section.
(f) Persons who are not covered by the foregoing provisions of this
Section 6 and who are or were employees or agents of the Corporation, or are or
were serving at the request of the Corporation as employees or agents of another
corporation, partnership, joint venture, trust or other enterprise, may be
indemnified to the extent authorized at any time or from time to time by the
Board of Directors.
(g) The indemnification provided by this Section 6 shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 7. AUDIT COMMITTEE. The directors shall appoint from their
number an Audit Committee which shall consist of two (2) Unaffiliated Directors,
who shall hold office until their successors are elected, or until they resign.
The Audit Committee shall perform the functions designated by the Corporation's
Board of Directors. The Audit Committee may make its own rules of procedure and
shall meet as and where provided by rules or as designated by its Chairman. The
members of the Audit Committee shall select a member as Chairman.
Section 8. COMPENSATION COMMITTEE. The directors shall appoint a
Compensation Committee which shall consist of two (2) Unaffiliated Directors who
shall hold office until their successors are elected, or until they resign. The
Compensation Committee shall perform the functions designated by the
Corporation's Board of Directors. The Compensation Committee may make its own
rules of procedure and shall meet as and where provided by rules or as
designated by its Chairman. The members of the Compensation Committee shall
select a member as Chairman.
Section 9. UNAFFILIATED DIRECTORS. An Unaffiliated Director is a
director that is not a present or former employee of the Corporation or any of
its affiliates and does not have any direct or indirect material economic
relationships with the Corporation or any of its affiliates other than as a
result of customary director's compensation or stock ownership.
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ARTICLE IV
OFFICERS
Section 1. DESIGNATION, TERM AND VACANCIES. The officers of the
Corporation shall be a Chairman of the Board, a President and Chief Executive
Officer (herein referred to as "President"), one or more Vice Presidents, a
Secretary and a Treasurer, all of whom shall be elected by the Board of
Directors. The Board of Directors may appoint one or more Assistant Treasurers
and one or more Assistant Secretaries and such other officers as may be deemed
necessary, who shall have such authority and shall perform such duties as may
from time to time be prescribed by the Board. Vacancies occurring among the
officers of the Corporation shall be filled by the Board of Directors. Officers
selected by the Board shall hold office until the next annual meeting of the
directors and until their successors are elected and qualified, provided that
any officer may be removed at any time by the affirmative vote of a majority of
the whole Board. All other officers, agents, and employees shall hold office
during the pleasure of the Board or the officers appointing them. Any number of
offices may be held by the same person.
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
chosen from among the Directors. He shall preside at all meetings of the Board
of Directors and all meetings of the stockholders. He shall make
recommendations to the Board regarding corporation policies and furnish advice
and counsel to the Corporation. He shall perform such other duties as may be
assigned to him by the Board of Directors.
Section 3. PRESIDENT. The President shall be chosen from among the
directors. Subject to the Board of Directors, he shall have general charge of
the entire business of the Corporation. He may sign and seal certificates of
stock and bonds, contracts or other obligations authorized by the Board, and
may, without previous authority of the Board, make such contracts as the
ordinary conduct of the Corporation's business requires. He shall have the
general superintendence and direction of all of the other officers of the
Corporation, and shall have the usual powers and duties vested in the President
of a corporation. He shall have the power to select and appoint all necessary
officers and servants of the Corporation, except those selected by the Board of
Directors, and to remove all such officers and servants, except those selected
by the Board of Directors, and make new appointments to fill the vacancies. He
may delegate any of his powers to a Vice President of the Corporation. He shall
at all times be subject to the Board of Directors.
Section 4. VICE PRESIDENT. Each Vice President shall have the same
powers and duties as the President, in the event of the latter's absence or
disability, and also such of said President's powers and duties as the President
may from time to time delegate to him. He shall have such other powers and
perform such other duties as may be assigned to him by the Board of Directors.
Section 5. TREASURER. The Treasurer shall have the custody of such
funds and securities of the Corporation as may come to his hands or be committed
to his care by the Board of Directors. When necessary or proper he shall
endorse on behalf of the Corporation for collection checks, notes or other
obligations, and shall deposit the same to the credit of the Corporation in
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such bank or banks or depositaries as the Board of Directors, or President,
may designate. He may sign receipts or vouchers for payments made to the
Corporation, and the Board of Directors may require that such receipts or
vouchers shall also be signed by some other officer to be designated by them.
Whenever required by the Board of Directors he shall render a statement of
his accounts and such other statements respecting the affairs of the
corporation as may be requested. He shall keep proper and accurate books of
account. He shall perform all acts incident to the office of Treasurer,
subject to the control of the Board. He shall, with the President, sign all
certificates of stock of the Corporation and may affix the seal of the
Corporation thereto. In the discretion of the Board of Directors, he may be
required to give a bond in such amount and containing such conditions as the
Board of Directors may approve, and such bond may be the undertaking of a
surety company, and the premium therefor may be paid by the Corporation.
Section 6. SECRETARY. The Secretary shall be sworn to the faithful
discharge of his duty. He shall record the votes and proceedings of the
stockholders and the Board of Directors in a book or books kept for that
purpose, and shall attend all meetings of the directors and stockholders. He
shall keep in safe custody the seal of the Corporation, and when required by the
Board of Directors, or when any instrument shall have first been signed by the
President or a Vice President duly authorized to sign the same, or when
necessary to attest any proceedings of the stockholders or directors, shall
affix it to any instrument requiring the same, and shall attest the same with
his signature. He shall attend to the giving and serving of notices of
meetings. He shall have charge of such books and papers as properly belong to
his office or as may be committed to his care by the Board of Directors. He
shall perform such other duties as appertain to his office or as may be required
by the Board of Directors. In the absence of the Secretary and Assistant
Secretary from any meeting of the Board, the proceedings of such meeting shall
be recorded by such other person as may be appointed at the meeting for that
purpose.
Section 7. ASSISTANT SECRETARY. Each Assistant Secretary shall be
vested with the same powers and duties as the Secretary, and any act may be done
or duty performed by an Assistant Secretary with like effect as though done or
performed by the Secretary. Each Assistant Secretary shall have such powers and
perform such other duties as may be assigned to him by the Board of Directors.
Section 8. ASSISTANT TREASURER. Each Assistant Treasurer shall be
vested with the same powers and duties as the Treasurer, and any act may be done
or duty performed by the Assistant Treasurer with like effect as though done or
performed by the Treasurer. Each Assistant Treasurer shall have such other
powers and perform such other duties as may be assigned to him by the Board of
Directors.
Section 9. EXECUTION OF CHECKS, ETC. Checks, drafts, acceptances,
bills of exchange and promissory notes of the Corporation shall be signed in
such manner as may be from time to time ordered by a resolution of the Board of
Directors.
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ARTICLE V
SHARES OF STOCK
Section 1. CERTIFICATES OF STOCK. All certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation of the Corporation, as the same may from time
to time be amended, as shall be approved by the Board of Directors, and shall be
signed by the President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation, and shall not be valid
unless so signed. All certificates shall be consecutively numbered, and the
name of the person owning the shares represented thereby, with the number of
such shares and the date of issue, shall be entered on the Corporation's books.
All certificates surrendered shall be cancelled, and no new certificate issued
until the former certificate for the same number of shares shall have been
surrendered and cancelled, except in cases provided for in Section 4 of this
Article.
Section 2. TRANSFER OF SHARES. Transfers of stock shall be made upon
the books of the Corporation by the holder in person or by attorney, upon the
surrender and cancellation of the certificate or certificates for such shares.
But the Board of Directors may appoint some suitable bank or trust company in
the City of Chicago, Illinois, or elsewhere, as transfer agent or registrar of
transfers for facilitating transfers by stockholders under such regulations as
the Board of Directors may from time to time prescribe. Upon such appointment
being made, all stock certificates thereafter issued shall be countersigned by
such transfer agent or registrar of transfers, or both, as the case may be, and
shall not be valid unless so countersigned.
The Board of Directors shall have power to close the stock transfer books
of the Corporation for a period not exceeding forty days preceding the date of
any meeting of stockholders or the date for the payment of any dividend or the
date for the allotment of rights or the date when any change or conversion of
exchange of capital stock shall go into effect; provided, however, that in lieu
of closing the stock transfer books as aforesaid, said Board of Directors may
fix in advance a date, not exceeding sixty days preceding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
of the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the stockholders entitled to notice of and to vote at any such
meeting, or entitled to receive payment of any such dividend, or to any such
allotment or rights, or to exercise the rights in respect of any such change,
conversion or exchange of capital stock, and in such case only such stockholders
as shall be stockholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
Section 3. ADDRESS OF STOCKHOLDERS. Every stockholder shall furnish
the Secretary with an address to which notices of meetings and all other notices
may be served upon or mailed to him, and in default thereof notices may be
addressed to him at his last known address or at the office of the Corporation
in Franklin Park, Illinois.
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Section 4. LOST AND DESTROYED CERTIFICATES. The Board of Directors may
direct that a new certificate or certificates may be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, and the Board of Directors, when authorizing the
issuance of such new certificate or certificates, may in their discretion, and
as a condition precedent thereto, require the owner of such lost or destroyed
certificate or certificates, or his legal representatives to give to the
Corporation a bond in such sum as they may direct, as indemnify against any
claim that may be made against the Corporation.
Section 5. REGULATIONS. The Board of Directors shall have power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Corporation.
ARTICLE VI
DIVIDENDS AND WORKING CAPITAL
The Board of Directors may declare dividends from the surplus or net
earnings of the Corporation. Such dividends may be declared by the Board at any
meeting, either regular or special, at which a quorum is present.
ARTICLE VII
SEAL
The common corporate seal is, and until otherwise ordered and directed by
the Board of Directors shall be, an impression upon wax or paper bearing the
name of the Corporation and the words "CORPORATE SEAL. DELAWARE." One or more
duplicate dies for impressing such seal may be kept and used.
ARTICLE VIII
AMENDMENT TO BY-LAWS
These By-Laws may be altered, amended or repealed by a vote of a majority
of the directors at any regular or special meeting of the Board, provided notice
of such proposed alteration, amendment or repeal shall have been included in the
notice of such meeting or shall have been waived by all the Directors. These
By-Laws may also be altered, amended or repealed in accordance with the
provisions of the Certificate of Incorporation of the Corporation at any annual
meeting of the stockholders, or at any special meeting of the stockholders,
provided notice of the proposed alteration, amendment or repeal shall have been
included in the notice of such special meeting or shall have been waived by all
the stockholders.
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SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this "AGREEMENT") is made
and entered into as of the 12th day of February, 1999 (the "EFFECTIVE DATE")
by and between BINKS SAMES CORPORATION, a Delaware corporation ("BINKS") and
CWA INVESTMENT COMPANY, L.L.C., an Illinois limited liability company
("CWA"). Binks and CWA are sometimes collectively referred to as the
"PARTIES," and individually as a "PARTY."
RECITALS:
A. CWA has brought certain claims against Binks and Binks has brought
certain counterclaims against CWA pertaining to a lease for a build-to-suit
office building to have been located in Vernon Hills, Illinois (the
"PROJECT"), which claims and counterclaims are the subject of certain
litigation entitled "CWA INVESTMENT COMPANY, L.L.C. V. BINKS SAMES
CORPORATION, NO. 98L 03378" in the Circuit Court of Cook County, Illinois,
County Department, Law Division (the "LANDLORD LITIGATION").
B. Incident to the Landlord Litigation, Binks has filed a third-party
complaint against The John Buck Company, an Illinois corporation (the "REAL
ESTATE BROKER") alleging, among other things, that the Real Estate Broker is
liable to Binks for any and all amounts owed by Binks to CWA (the "BROKER
LITIGATION").
C. Attached as EXHIBIT A to this Agreement and by this reference made
a part hereof, is a list of the third-party expenses incurred by CWA in
connection with the cancellation of the Project (collectively, the
"OUT-OF-POCKET COSTS"). In the Landlord Litigation, CWA has asserted that
Binks is liable to CWA for both the Out-of-Pocket Costs and lost profits, and
Binks has denied liability to CWA therefore and made counterclaims.
D. The Parties recognize that continued pursuit of the Landlord
Litigation will be costly and time-consuming, and therefore desire to adjust
and compromise all of the issues arising from and as a result of the Landlord
Litigation, without prejudice to any claims of Binks against the Real Estate
Broker or any former officers or directors of Binks, by Binks' payment to CWA
of its Out-of-Pocket Costs and CWA's withdrawal of demand for lost profits
and other damages.
<PAGE>
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals, which are
incorporated herein by this reference, and for the other good and valuable
consideration herein below set forth, the receipt and sufficiency of which
are hereby expressly mutually acknowledged by the Parties, the Parties do
hereby agree as follows:
1. INCORPORATION OF RECITALS. The Recitals contained in this
Agreement are hereby incorporated into the body of this Agreement as
substantive agreements of the Parties.
2. SETTLEMENT PAYMENT. Binks agrees to pay to CWA its Out-of-Pocket
Costs in the aggregate sum of TWO MILLION FOUR HUNDRED AND NO/100THS
($2,400,000.00) DOLLARS, by certified check, cashier's check or wire transfer
on or before February 22, 1999.
3. DISMISSAL. Within four (4) business days following the date that
Binks has made the payment to CWA set forth in Section 2 hereof, the Parties
shall cause to be dismissed with prejudice their respective claims in the
Landlord Litigation, but not, in the case of Binks, the Broker Litigation.
4. CWA RELEASE OF BINKS. Subject to the provisions of Section 2
hereof, CWA, for and on behalf of itself and its past and present members,
directors, officers, employees, agents, representatives, subsidiaries and
affiliates, does hereby release and forever discharge Binks, its subsidiaries
and affiliates, and its and their past and present shareholders, directors,
officers, employees, agents, representatives and attorneys, of and from any
and all claims, demands, liabilities, responsibilities, causes of action,
legal or equitable, in contract, tort or otherwise, whether known or unknown,
accrued or unaccrued, fixed or contingent, arising out of, related to,
resulting from or otherwise concerning, in whole or in part: (i) any and all
claims or potential claims that were or could have been asserted by CWA in
the Landlord Litigation, including without limitation, the filing,
prosecution or defense of the Landlord Litigation; or (ii) any transactions,
acts, occurrences or omissions, whether related to the Project or otherwise,
occurring or failing to have occurred on or before the Effective Date.
5. BINKS RELEASE OF CWA. Subject to the provisions of Section 6
hereof, Binks, for and on behalf of itself and its past and present
shareholders,
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<PAGE>
directors, officers, employees, agents and representatives, does hereby
release and forever discharge CWA, Van Vlissingen and Co., and its and their
past and present members, directors, officers, employees, agents,
representatives, subsidiaries and affiliates, and attorneys, of and from any
and all claims, demands, liabilities, responsibilities, causes of action,
legal or equitable, in contract, tort or otherwise, whether known or unknown,
accrued or unaccrued, fixed or contingent, arising out of, related to,
resulting from or otherwise concerning, in whole or in part: (i) any and all
claims or potential claims that were or could have been asserted by Binks in
the Landlord Litigation, including without limitation, the filing,
prosecution or defense of the Landlord Litigation; or (ii) any transactions,
acts, occurrences or omissions, whether related to the Project or otherwise,
occurring or failing to have occurred on or before the Effective Date.
6. RESERVATION OF BINKS CLAIMS AGAINST REAL ESTATE BROKER, FORMER
OFFICERS AND DIRECTORS OF BINKS AND OTHERS. The Parties expressly
acknowledge and agree that the release made by Binks of CWA set forth in
Section 5 of this Agreement shall not, in any way whatsoever, constitute or
be construed as a release by Binks, either in whole or in part, of:
(a) the Real Estate Broker, its officers, employees and agents,
generally, or a release by Binks of any claims against the Real Estate
Broker made in connection the Broker Litigation, specifically, it being
the express intention of the Parties that no such release of the Real
Estate Broker, its officers, employees and agents of any kind whatsoever
is being given by Binks under this Agreement; or
(b) any former officer or director of Binks, it being the express
intention of the Parties that no such release of any former officer or
director of Binks of any kind whatsoever is being given by Binks under
this Agreement; or
(c) any other person or party whatsoever (other than CWA and its
past and present members, directors, officers, employees, agents,
representatives, subsidiaries and affiliates, and attorneys), it being
the express intention of the Parties that no such release of any such
other person or party of any kind whatsoever is being given by Binks
under this Agreement.
7. CWA INTERVIEWS. CWA covenants to Binks that CWA shall (at its sole
cost and expense) cause its chief executive officer, Charles Lamphere
("LAMPHERE") and its real estate attorney, Ms. Donna Head ("HEAD"), to appear
at
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<PAGE>
the offices of Binks' litigation counsel, McBride Baker & Coles, of Chicago,
Illinois ("BINKS COUNSEL") to be separately interviewed by Binks Counsel
about each such person's personal knowledge of facts deemed by Binks Counsel
to be relevant to the Broker Litigation (the "INTERVIEWS"), each of which
shall be (x) for a duration not to exceed one (1) business day, and
(y) conducted on a date mutually agreeable to the Parties, but in no event
more than ten (10) business days following the date that Binks has made the
payment to CWA set forth in Section 2 hereof. If requested by Binks Counsel
to do so, Lamphere and/or Head, as the case may be, shall individually
execute a separate written statement (or if Binks Counsel shall so elect, an
affidavit) to be prepared by Binks Counsel in accordance with the provisions
of the penultimate sentence of this Section 7 (a "STATEMENT"), each such
Statement to truthfully set forth in summary form the facts disclosed by the
Interview deemed relevant by Binks Counsel and known to Lamphere and/or Head,
as the case may be. Any Statement shall be prepared in accordance with the
following procedures: (i) the Statement shall be prepared by Binks Counsel
and submitted to Lamphere and/or Head, as the case may be, by the close of
business on the fifth business day following the date of the completion of
his or her Interview, which shall be in draft form; and (ii) Lamphere and/or
Head, as the case may be, shall thereupon promptly review such draft of his
or her Statement (for not more than five (5) business days following receipt
of the draft), make such corrections, deletions and/or additions thereto as
he or she may deem necessary to make such Statement truthfully reflect his or
her knowledge of the facts, and thereupon promptly execute and return to
Binks Counsel the said Statement (provided that if Binks Counsel has
requested an affidavit, such Statement shall be duly signed and sworn to by
Lamphere or Head, as the case may be).
8. NO ADMISSION OF LIABILITY. Nothing contained in this Agreement (or
in any other document or instrument relating to the allegations made by the
Parties against each other in the Landlord Litigation) shall constitute an
admission by either Party (a) of any liability whatsoever to the other Party,
or (b) that either Party has committed any act or failed to take any act,
alleged by the other Party in the Landlord Litigation.
9. EXPENSES. Each Party shall bear its own expenses in connection
with the Landlord Litigation, this Agreement and the transactions
contemplated thereby.
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained in this Agreement shall
survive the execution and delivery of this Agreement and shall remain in full
force and effect until a claim based thereon is barred by applicable statutes
of limitation.
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<PAGE>
11. WAIVER. Failure of CWA or Binks, as the case may be, to not insist
upon strict compliance with any of the terms, covenants or conditions of this
Agreement shall not be deemed a waiver of such term, covenant or condition,
nor shall the relinquishment of any right or power hereunder or at any one or
more times be deemed a waiver or relinquishment of such right or power at any
other time or times.
12. SEVERABILITY. If applicable law prohibits or invalidates any
provision of this Agreement, such provision shall be rendered ineffective and
severable for the remainder of this Agreement without affecting or impairing
the enforceability or validity of the remainder of this Agreement.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire contract
between the Parties relating to the subject matter hereof and is the final
and complete expression of their intent. No prior or contemporaneous
negotiations, promises, agreements, covenants or representations of any kind
or nature, oral or written, have been made by the Parties, or any of them, in
negotiations leading to this Agreement or relating to the subject matter
hereof, which are not expressly set forth in this Agreement, or which have
not become merged and finally integrated into this Agreement; it being the
intention of the Parties hereto that in the event of any subsequent
litigation, controversy, or dispute concerning the terms and provisions of
this Agreement, no Party shall be permitted to offer to introduce oral or
extrinsic evidence concerning the terms and conditions hereof that are not
included or referred to herein and not reflected in writing in this Agreement.
14. AMENDMENT. This Agreement may be changed, modified or amended only
by a written instrument duly executed by the Parties.
15. NON-ASSIGNMENT. Binks and CWA, for themselves, their respective
members, shareholders, directors, officers, employees, agents,
representatives, subsidiaries and affiliates, do hereby represent and warrant
to each other that it has not assigned, transferred or otherwise disposed of
any right, claim, cause of action or demand that, but for such assignment,
transfer or other disposition, would be subject to one of the above set forth
releases.
16. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors-in-interest or
assigns.
17. NOTICES. Any notice or other communication required to be given
hereunder by one Party to the other shall be in writing addressed to that
Party at the address set forth below (or to such other address set forth in
writing
5
<PAGE>
delivered to such other Party), and may be personally served, sent by
overnight courier service or U.S. mail, provided that such notice shall be
deemed to have been given: (a) if delivered in person, when delivered; (b) if
delivered by overnight courier, one (1) business day after delivery to the
courier properly addressed; and (c) if delivered by U.S. mail, four
(4) business days after deposit with postage prepaid and properly addressed.
If to Binks:
Binks Sames Corporation
9201 West Belmont Avenue
Franklin Park, Illinois 60131
Attention: Arnold Dratt, President
With a copy to:
Robert I. Schwimmer, Esq.
McBride Baker & Coles
500 West Madison, 40th Floor
Chicago, Illinois 60661
If to CWA:
CWA Investment Company, L.L.C.
1 Overlook Point, Suite 100
Lincolnshire, Illinois 60069
Attention: Charles R. Lamphere
With a copy to:
Louis D. Bernstein, Esq.
Gould & Ratner
222 North LaSalle, 8th Floor
Chicago, Illinois 60601
18. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Illinois as
to interpretation, enforcement, validity, construction, effect, choice of law
and in all other respects.
6
<PAGE>
19. THIRD PARTY BENEFICIARIES. Except as expressly provided in
Sections 4 and 5 hereof, neither this Agreement nor any provision of this
Agreement is intended to confer upon anyone other than the Parties and their
successors-in-interest any rights or remedies hereunder.
20. MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party represents and
warrants to the other that: (a) it has the capacity and authority to enter
into and perform this Agreement; and (b) the execution, delivery and
performance of this Agreement by such Party have been duly authorized by all
necessary corporate, partnership, limited liability company or other action
of such Party and do not and will not conflict with, result in a breach or
violation of or constitute a default under any of the governing documents or
instruments of such Party or any material agreement, instrument, judgment or
decree to which such Party is a party or by which it is bound.
21. LEGAL REPRESENTATION AND DRAFTING PRESUMPTIONS. The Parties,
through their attorneys, have each actively participated in and contributed
to the preparation of this Agreement. The Parties hereby agree that there
shall not presumption favoring or burdening any Party based upon the drafting
of this Agreement.
22. FURTHER INSTRUMENTS. The Parties agree to execute such further
instruments as necessary to effectuate the intents and purposes of this
Agreement.
23. HEADINGS. The section headings contained in this Agreement are for
convenience only, and shall not affect the construction or interpretation of
any of the provisions of this Agreement.
24. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same Agreement.
BINKS SAMES CORPORATION, CWA INVESTMENT COMPANY,
a Delaware corporation L.L.C., an Illinois limited liability
company
By: Lamphere Rental Sub-Partnership,
an Illinois general partnership, a
By: /s/ Arnold Dratt Managing Member
-----------------------------
Arnold Dratt, President & CEO
By: /s/ Charles R. Lamphere
-----------------------------
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Charles R. Lamphere, a
General Partner
1014036
8
<PAGE>
FINANCING AGREEMENT
THE CIT GROUP/BUSINESS CREDIT, INC.
(AS LENDER)
AND
SAMES ELECTROSTATIC, INC.
(AS BORROWER)
DATED: OCTOBER 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
-----
<S> <C>
SECTION 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3. Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. [INTENTIONALLY DELETED]
SECTION 5. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6. Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 7. Representations, Warranties and Covenants . . . . . . . . . . . 19
SECTION 8. Interest, Fees and Expenses . . . . . . . . . . . . . . . . . . 26
SECTION 9. Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10. Events of Default and Remedies. . . . . . . . . . . . . . . . . 29
SECTION 11. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
SCHEDULES
Schedule 1 - Existing Liens
Schedule 2 - Collateral Locations, Chief Executive Office and Tradenames
Schedule 3 - Existing Litigation
ii
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, (hereinafter
"CITBC") with offices located at 10 South LaSalle Street, Chicago, Illinois
60603, is pleased to confirm the terms and conditions under which CITBC shall
make revolving loans and other financial accommodations to SAMES ELECTROSTATIC,
INC. (hereinafter the "Company"), a Connecticut corporation with a chief
executive office of business at 11998 Merriman Road, Livonia, Michigan 48150.
SECTION 1. DEFINITIONS
1.1 For purposes of this Financing Agreement, the following terms shall be
defined in the following manner:
ACCOUNTS shall mean all of the Company's now existing and future: (a)
accounts (as defined in the U.C.C.) and any and all other receivables (whether
or not specifically listed on schedules furnished to CITBC) including, without
limitation, all accounts created by or arising from all of the Company's sales
of goods or rendition of services to its customers, and all accounts arising
from sales or rendition of services made under any of the Company's trade names
or styles, or through any of the Company's divisions; (b) any and all
instruments (as defined in the U.C.C.), documents (as defined in the U.C.C.),
contract rights (as defined in the U.C.C.) and chattel paper (as defined in the
U.C.C.); (c) unpaid seller's rights (including rescission, replevin, reclamation
and stoppage in transit) relating to the foregoing or arising therefrom; (d)
rights to any goods represented by any of the foregoing, including rights to
returned or repossessed goods; (e) reserves and credit balances arising
hereunder; (f) guarantees or collateral for any of the foregoing; (g) insurance
policies or rights relating to any of the foregoing; and (h) cash and non-cash
proceeds of any and all the foregoing.
ACCOUNTS RECEIVABLE ADVANCE PERCENTAGE shall mean either (a) fifty percent
(50%) in the case of any Trade Account Receivable in an amount in excess of
$1,000,000 and unpaid (in whole or in part) more than ninety (90) days from the
date of invoice, (b) seventy-five percent (75%) in the case of any Trade Account
Receivable in an amount in excess of $1,000,000 and unpaid (in whole or in part)
more than sixty (60) days from the date of invoice and (c) eighty-five percent
(85%) in the case of any other Trade Account Receivable.
ANNIVERSARY DATE shall mean the date occurring three (3) years from the
date hereof and the same date in every year thereafter.
AVAILABILITY shall mean at any time the excess of (a) the lesser of i) the
Line of Credit or ii) the Borrowing Base over (b) the sum of i) the outstanding
aggregate amount of all Obligations, ii) the Availability Reserve and iii) after
the occurrence of an Event of Default, all payments of the Company to CITBC
coming due within sixty (60) days from the date of computation.
AVAILABILITY RESERVE shall mean an amount equal to the sum of: (a) three
(3) months rental payments on all of the Company's leased premises for which the
Company has not delivered to CITBC a landlord's waiver (in form and substance
satisfactory to CITBC in the exercise of its reasonable business judgment), as
adjusted from time to time hereafter upon delivery to CITBC of any such
acceptable waiver, the opening or closing of a Collateral location or any change
in rental payment; and (b) such other reserves as CITBC deems necessary in its
reasonable business
<PAGE>
judgment, including, without limitation, reserves imposed as a result of i)
negative forecasts and/or trends in the Company's business, industry,
prospects, profits, operations or financial condition or ii) other issues,
circumstances or facts that could otherwise negatively impact the Company,
its business, prospects, profits, operations, industry, financial condition
or assets.
BORROWING BASE shall mean the sum of (a) the outstanding Eligible Accounts
Receivable of the Company multiplied by the applicable Accounts Receivable
Advance Percentage, plus (b) the lesser of i) the Inventory Loan Cap or ii) the
aggregate value of Eligible Inventory of the Company (as determined at the lower
of cost or market on a first-in, first-out basis) multiplied by the Inventory
Advance Percentage.
BUSINESS DAY shall mean any day on which both CITBC and The Chase Manhattan
Bank are open for business.
CAPITAL EXPENDITURES for any period shall mean the aggregate of all
expenditures of the Company during such period that in conformity with GAAP are
required to be included in or reflected by the property, plant or equipment or
similar fixed asset account reflected in the balance sheet of the Company.
CAPITAL LEASE shall mean any lease of property (whether real, personal or
mixed) which, in conformity with GAAP, is accounted for as a capital lease or a
Capital Expenditure on the balance sheet of the Company.
CHASE MANHATTAN RATE shall mean the rate of interest per annum announced by
The Chase Manhattan Bank from time to time as its prime rate in effect at its
principal office in the City of New York. (The prime rate is not intended to be
the lowest rate of interest charged by Chase Manhattan Bank to its borrowers).
CITBC PROPOSAL LETTER shall mean the Commitment Letter dated October 2,
1998, issued by CITBC to, and accepted by, the Company.
CLOSING DATE shall mean the date (on or after the date hereof) on which
CITBC makes the initial extension of credit to the Company hereunder, whether in
the form of Revolving Loans or Letters of Credit.
COLLATERAL shall mean all present and future Accounts, Equipment,
Inventory, Documents of Title, General Intangibles, Investment Property, Other
Collateral and Real Estate (if any) of the Company.
CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for
Parent, the Company and the consolidated subsidiaries of each of them,
eliminating all inter-company transactions and prepared in accordance with GAAP.
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<PAGE>
CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus an
individual balance sheet for the Company, showing all eliminations of
inter-company transactions and prepared in accordance with GAAP.
CUSTOMARILY PERMITTED LIENS shall mean: (a) liens of local or state
authorities for franchise or other like taxes provided the aggregate amount of
such liens shall not exceed $100,000 in the aggregate at any one time; (b)
statutory liens of landlords and liens of carriers, warehousemen, mechanics,
materialmen and other like liens imposed by law, created in the ordinary course
of business and for amounts not yet due (or which are being contested in good
faith by appropriate proceedings or other appropriate actions which are
sufficient to prevent imminent foreclosure of such liens) and with respect to
which adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (c) deposits made (and the liens thereon) in the ordinary
course of business (including, without limitation, security deposits for leases,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; and (d) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
encroachments, minor defects or irregularities in title, variation and other
restrictions, charges or encumbrances (whether or not recorded) affecting the
Real Estate and which are listed in Schedule B of the title insurance policy
delivered to CITBC herewith.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to
the sum of two percent (2%) and the Chase Manhattan Rate, which CITBC shall be
entitled to charge the Company on all Obligations owed to CITBC by the Company
to the extent provided in Section 10.2 of this Financing Agreement.
DEPOSITORY ACCOUNTS shall mean those accounts owned by CITBC and designated
for the deposit of proceeds of Collateral.
DOCUMENTATION FEES shall mean CITBC's standard fees relating to any and all
modifications, waivers, releases, amendments or additional collateral with
respect to this Financing Agreement, the Collateral and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future documents (as defined
in the U.C.C.) including, without limitation, all warehouse receipts, bills of
lading, shipping documents, chattel paper, instruments and similar documents,
all whether negotiable or not, and all goods and Inventory relating thereto and
all cash and non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean any date other than an Anniversary Date
on which the Company terminates this Financing Agreement or the Line of Credit.
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<PAGE>
EARLY TERMINATION FEE shall mean the fee that CITBC is entitled to charge
the Company in the event the Company terminates the Line of Credit or this
Financing Agreement on a date prior to any Anniversary Date. If the Company
terminates the Line of Credit or this Financing Agreement in connection with a
sale of either x) all or a controlling interest of the capital stock of the
Company or Parent, y) a sale of all or substantially all of the assets of the
Company to a purchaser unaffiliated with the Company or z) a merger of the
Company or Parent into an entity unaffiliated with the Company and Parent, then
the Early Termination Fee shall be $75,000 if such termination occurs during the
first year following the Closing Date and $50,000 if such termination occurs
during the second year following the Closing Date. If the Company terminates
the Line of Credit or this Financing Agreement in connection with a sale of
either x) all or a controlling interest of the capital stock of the Company or
Parent, y) a sale of substantially all of the assets of the Company to a
purchaser unaffiliated with the Company or z) a merger of the Company or Parent
into an entity unaffiliated with the Company and Parent, then during the third
year or any subsequent year following the Closing Date, then the Early
Termination Fee shall be $100,000. If the Company terminates the Line of Credit
or this Financing Agreement for any reason other than those reasons stated
above, then the Early Termination Fee shall be $300,000 if such termination
occurs during the first year following the Closing Date, $200,000 if such
termination occurs during the second year following the Closing Date and
$100,000 if such termination occurs during the third year or any subsequent year
following the Closing Date.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of the Company's
Trade Accounts Receivable that are subject to a valid, first priority and fully
perfected security interest in favor of CITBC and which conform to the
warranties contained herein and at all times continue to be acceptable to CITBC
in the exercise of its reasonable business judgment, less, without duplication,
the sum of (a) any returns, discounts, claims, credits and allowances of any
nature (whether issued, owing, granted or outstanding) and (b) reserves for: i)
sales to the United States of America or to any agency, department or division
thereof; ii) foreign sales other than sales x) secured by stand-by letters of
credit (in form and substance satisfactory to CITBC in its reasonable business
judgment) issued or confirmed by, and payable at, banks having a place of
business in the United States of America and payable in United States currency,
y) to customers residing in Canada, provided that such sales otherwise comply
with all of the other criteria for eligibility hereunder and are payable in
United States currency or z) of up to $250,000 in the aggregate to foreign
subsidiaries of Ford Motor Company, General Motors Corporation or Chrysler
Corporation, collectively; iii) accounts that remain unpaid more than one
hundred twenty (120) days from invoice date; iv) contras; v) sales to Parent,
any subsidiary, or to any company affiliated (at the time of such sale) with the
Company or Parent in any way; vi) bill and hold (deferred shipment) or
consignment sales; vii) sales to any customer which is w) insolvent, x) the
debtor in any bankruptcy, insolvency, arrangement, reorganization, receivership
or similar proceedings under any federal or state law, y) negotiating, or has
called a meeting of its creditors for purposes of negotiating, a compromise of
its debts or z) financially unacceptable to CITBC (in its reasonable business
judgment) or has a credit rating reasonably unacceptable to CITBC; viii) all
sales to any customer if fifty percent (50%) or more of either x) all
outstanding invoices or y) the aggregate dollar amount of all outstanding
invoices, are unpaid more than one hundred twenty (120) days from invoice date;
ix) an amount representing, historically, returns, discounts, claims, credits
and allowances; and x) any other reasons deemed
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necessary by CITBC in its reasonable business judgment, or which are
customary either in the commercial finance industry or in the lending
practices of CITBC.
ELIGIBLE INVENTORY shall mean the gross amount of the Company's Inventory
that is subject to a valid, first priority and fully perfected security interest
in favor of CITBC and which conform to the warranties contained herein and which
at all times continue to be acceptable to CITBC in the exercise of its
reasonable business judgment, LESS any work-in-process, supplies (other than raw
material), goods not present in the United States of America, goods returned or
rejected by the Company's customers (other than goods that are undamaged and
resaleable in the normal course of business), goods to be returned to the
Company's suppliers, and goods in transit to third parties (other than to the
Company's agents or warehouses), and LESS any reserves required by CITBC in its
reasonable discretion for any reason, including, without limitation, reserves
for special order goods, market value declines, goods subject to bill and hold
(deferred shipment) or consignment sales, damaged goods, out-of-season goods and
obsolete goods. Eligible Inventory shall not include Inventory in possession of
a warehouseman, bailee or other third party, unless such warehouseman, bailee or
third party has executed a notice of security interest agreement (in form and
substance satisfactory to CITBC) and CITBC has taken all other action required
to perfect its security interest in such Inventory.
EQUIPMENT shall mean all present and hereafter acquired equipment (as
defined in the U.C.C.) including, without limitation, all machinery, equipment,
furnishings and fixtures which do not constitute Inventory under the U.C.C., and
all additions, substitutions and replacements thereof, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto and all proceeds of whatever sort.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder
from time to time.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of
this Financing Agreement.
EXISTING LITIGATION shall mean the lawsuits, related proceedings and other
pending or threatened matters described on SCHEDULE 3 attached hereto, in which
the Company and/or Parent are defendants.
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time and for the period as to which
such accounting principles are to apply.
GENERAL INTANGIBLES shall mean all present and hereafter acquired general
intangibles (as defined in the U.C.C.) including, without limitation, all right,
title and interest in and to all tradenames, trademarks (together with the
goodwill associated therewith), patents, licenses (but only to the extent that
such licenses are assignable by the terms thereof or under applicable law),
customer lists, distribution agreements, supply agreements and tax refunds,
together with all monies and claims for monies now or hereafter due and payable
in connection with any of the foregoing or otherwise, and all cash and non-cash
proceeds thereof.
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INDEBTEDNESS shall mean, without duplication, all liabilities, contingent
or otherwise, which are either (a) obligations in respect of borrowed money or
for the deferred purchase price of property, services or assets, other than
Inventory, or (b) lease obligations which, in accordance with GAAP, have been,
or which should be capitalized.
INVENTORY shall mean all of the Company's present and hereafter acquired
inventory (as defined in the U.C.C.) including, without limitation, all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same; in all
stages of production - from raw materials through work-in-process to finished
goods - and all proceeds thereof of whatever sort.
INVENTORY ADVANCE PERCENTAGE shall mean forty percent (40%).
INVENTORY LOAN CAP shall mean $4,000,000.
INVESTMENT PROPERTY shall mean all of the Company's present and hereafter
acquired securities, securities entitlements, securities accounts and other
investment property (as such terms are defined in the U.C.C.).
ISSUING BANK shall mean the bank issuing Letters of Credit for the Company.
LETTERS OF CREDIT shall mean all letters of credit issued with the
assistance of CITBC by the Issuing Bank for or on behalf of the Company.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by CITBC to the
Issuing Bank of the Company's reimbursement obligation under the Issuing Bank's
reimbursement agreement, application for letter of credit or other like
document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge the
Company under Section 8.4 of this Financing Agreement for (a) issuing the Letter
of Credit Guaranty or (b) otherwise aiding the Company in obtaining Letters of
Credit.
LETTER OF CREDIT SUB-LINE shall mean $500,000 in the aggregate.
LIBOR shall mean at any time of determination, and subject to availability,
for each interest period the higher of the applicable London Interbank Offered
rate paid in London on dollar deposits from other banks as (a) quoted by Chase
Manhattan Bank, (b) published under "Money Rates" in the New York City edition
of the Wall Street Journal, or if there is no such publication or statement
therein as to Libor, then in any publication used in the New York City financial
community or (c) determined by CITBC based upon information presented on
Telerate Systems at Page 3750 as of 11:00 a.m. (London Time).
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LIBOR LOAN shall mean those Revolving Loans for which the Company has
elected to use Libor for interest rate computations.
LIBOR PERIOD shall mean the Libor for one month, two month or three month
U.S. dollar deposits, as selected by the Company.
LINE OF CREDIT shall mean the commitment of CITBC to make Revolving Loans
pursuant to Section 3 of this Financing Agreement and to assist the Company in
obtaining Letters of Credit pursuant to Section 5 of this Financing Agreement in
the aggregate amount equal to $10,000,000.
LINE OF CREDIT FEE shall (a) mean the fee due CITBC at the end of each
month for the Line of Credit, and (b) be determined by multiplying i) the
difference between x) the Line of Credit and y) the sum of the average daily
balance of Revolving Loans and the average daily face amount of all Letters of
Credit for said month, by ii) three-eighths of one percent (0.375%) per annum
for the number of days in said month.
LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with,
and pursuant to, the provisions of Section 8.8 of this Financing Agreement.
NET WORTH shall mean assets in excess of liabilities, determined in
accordance with GAAP, on a consistent basis with the latest audited statements
of the Company.
OBLIGATIONS shall mean all loans and advances made or to be made by CITBC
to the Company or to others for the Company's account (including, without
limitation, all Revolving Loans and all Letters of Credit); any and all
indebtedness and obligations which may at any time be owed to CITBC by the
Company, howsoever arising, whether now in existence or incurred by the Company
from time to time hereafter; whether secured by pledge, lien upon or security
interest in any of the Company's assets or property or the assets or property of
any other person, firm, entity or corporation; whether such indebtedness is
absolute or contingent, joint or several, matured or unmatured, direct or
indirect and whether the Company is liable to CITBC for such indebtedness as
principal, surety, endorser, guarantor or otherwise. Obligations shall also
include indebtedness owed to CITBC by the Company under this Financing Agreement
or under any other agreement or arrangement now or hereafter entered into
between the Company and CITBC; indebtedness or obligations incurred by, or
imposed on, CITBC as a result of environmental claims arising out of the
Company's operation, premises or waste disposal practices or sites; the
Company's liability to CITBC as maker or endorser on any promissory note or
other instrument for the payment of money; the Company's liability to CITBC
under any instrument of guaranty or indemnity, or arising under any guaranty,
endorsement or undertaking which CITBC may make or issue to others for the
Company's account, including any accommodation extended with respect to
applications for Letters of Credit, CITBC's acceptance of drafts or CITBC's
endorsement of notes or other instruments for the Company's account and benefit.
OPERATING LEASES shall mean all leases of property (whether real, personal
or mixed) other than Capital Leases.
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OTHER COLLATERAL shall mean: (a) all now owned and hereafter acquired
deposit accounts maintained by or on behalf of the Company with any bank or
financial institution; (b) all of the Company's cash and other monies and
property in the possession or control of CITBC; (c) all of the Company's books,
records, ledger cards, disks and related data processing software at any time
evidencing or containing information relating to any of the Collateral described
herein or otherwise necessary or helpful in the collection thereof or
realization thereon; and (d) all cash and non-cash proceeds of the foregoing.
OUT-OF-POCKET EXPENSES shall mean all of CITBC's present and future
expenses incurred relative to this Financing Agreement, whether incurred
heretofore or hereafter, which expenses shall include, without being limited to,
the cost of record searches, all costs and expenses incurred by CITBC in opening
bank accounts, depositing checks, receiving and transferring funds, and any
charges imposed on CITBC due to "insufficient funds" of deposited checks and
CITBC's standard fee relating thereto, any amounts paid by, incurred by or
charged to CITBC by the Issuing Bank under the Letter of Credit Guaranty or the
Company's reimbursement agreement, application for Letter of Credit or other
like document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, local counsel fees, fees and taxes relative to the filing of
financing statements, and all expenses, costs and fees set forth in Section 10.3
of this Financing Agreement.
PARENT shall mean Binks Sames Corporation, a Delaware corporation and the
owner of 100% of the issued and outstanding capital stock of the Company.
PERMITTED ENCUMBRANCES shall mean: (a) liens existing on the date hereof on
specific items of Equipment and listed on SCHEDULE 1 hereto and other liens
expressly permitted, or consented to, by CITBC; (b) Purchase Money Liens; (c)
Customarily Permitted Liens; (d) liens granted to CITBC by the Company; (e)
liens of judgment creditors provided such liens do not exceed, in the aggregate,
at any time, $50,000 (other than liens bonded or insured to the reasonable
satisfaction of CITBC); and (f) liens for taxes not yet due and payable or which
are being diligently contested in good faith by the Company by appropriate
proceedings and which liens are not i) other than with respect to Real Estate,
senior to the liens of CITBC or ii) for taxes due the United States of America.
PERMITTED INDEBTEDNESS shall mean: (a) current indebtedness maturing in
less than one year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, taxes or labor; (b) the indebtedness
secured by the Purchase Money Liens; (c) indebtedness arising under the Letters
of Credit and this Financing Agreement; (d) deferred taxes and other expenses
incurred in the ordinary course of business; (e) obligations incurred by the
Company in connection with the settlement or other disposition of the Existing
Litigation; and (f) other indebtedness existing on the date of execution of this
Financing Agreement and listed in the most recent financial statement delivered
to CITBC or otherwise disclosed to CITBC in writing.
PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired
after the date of this Financing Agreement, provided that (a) each such lien
shall attach only to the Equipment to be acquired, (b) a description of the
Equipment so acquired is furnished to CITBC, and (c) the debt
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incurred in connection with such acquisitions shall not exceed in the
aggregate $200,000 in any fiscal year.
REAL ESTATE shall mean the Company's fee and/or leasehold interests in
real property, if any, which has been, or will be, encumbered, mortgaged,
pledged or assigned to CITBC or its designee.
REVOLVING LOANS shall mean the loans and advances made from time to time
to or for the account of the Company by CITBC pursuant to Section 3 of this
Financing Agreement.
REVOLVING LOAN ACCOUNT shall have the meaning specified in Section 3.6
of this Financing Agreement.
TRADE ACCOUNTS RECEIVABLE shall mean that portion of Accounts which
arises from the sale of Inventory or the rendition of services in the
ordinary course of business.
U.C.C. shall mean the Uniform Commercial Code as in effect from time to
time in the State of Illinois.
SECTION 2. CONDITIONS PRECEDENT
2.1 The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such loans, the following conditions precedent:
(a) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform
Commercial Code searches satisfactory to CITBC for all locations presently
occupied or used by the Company.
(b) CASUALTY INSURANCE - The Company shall have delivered to CITBC
evidence satisfactory to CITBC that casualty insurance policies listing CITBC
as loss payee or mortgagee, as the case may be, are in full force and effect,
all as set forth in paragraph (a) of Section 7.5 of this Financing Agreement.
(c) UCC FILINGS - Any documents (including without limitation,
financing statements) required to be filed any office of any jurisdiction in
order to create, in favor of CITBC, a first and exclusive perfected security
interest in the Collateral with respect to which a security interest may be
perfected by a filing under the U.C.C., shall have been properly filed.
CITBC shall have received acknowledgement copies of all such filings (or, in
lieu thereof, CITBC shall have received other evidence satisfactory to CITBC
that all such filings have been made); and CITBC shall have received evidence
that all necessary filing fees, taxes and other expenses related to such
filings have been paid in full.
(d) GUARANTY OF PARENT - Parent shall have executed and delivered to
CITBC a guaranty agreement in form acceptable to CITBC, guaranteeing all of
the Obligations.
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(e) OPINION - Subject to the filing, priority and remedies provisions
of the Uniform Commercial Code, the provisions of the Bankruptcy Code,
insolvency statutes or other like laws, the equity powers of a court of law
and such other matters as may be agreed upon with CITBC, counsel for the
Company and Parent shall have delivered to CITBC opinion(s) satisfactory to
CITBC opining, INTER ALIA, that: this Financing Agreement, the guaranty
agreement executed by Parent and all other documents executed by the Company
and delivered to CITBC in connection with this Financing Agreement are
x) valid, binding and enforceable according to their respective terms, y) duly
authorized and z) do not violate any terms, provisions, representations or
covenants in the charter, by-laws or other organizational agreement of the
Company or Parent or, to the best knowledge of such counsel, of any loan
agreement, mortgage, deed of trust, note, security or pledge agreement or
indenture to which the Company or Parent is a signatory or by which the
Company, Parent or any of the Company's or Parent's respective assets are
bound.
(f) ADDITIONAL DOCUMENTS - The Company shall have executed and
delivered to CITBC all loan documents necessary to consummate the lending
arrangement contemplated between the Company and CITBC.
(g) BOARD RESOLUTIONS - CITBC shall have received a copy of the
resolutions of the Board of Directors of the Company and Parent (as the case
may be) authorizing the execution, delivery and performance of i) this
Financing Agreement, ii) the guaranty agreement executed by Parent and iii) any
related agreements, in each case certified by the Secretary or Assistant
Secretary of the Company and Parent (as the case may be) as of the date
hereof, together with a certificate of the Secretary or Assistant Secretary
of the Company and Parent (as the case may be) as to the incumbency and
signature of the officers executing such agreements and any certificate or
other documents to be delivered by them pursuant hereto.
(h) CORPORATE ORGANIZATION - CITBC shall have received i) a copy of the
Certificate of Incorporation (or other organizational documents) of each of
the Company and Parent, certified by the applicable authority in such
entity's State of organization, and ii) copies of the by-laws (as amended
through the date hereof), if any, of the Company and Parent, certified by the
Secretary or Assistant Secretary thereof.
(i) OFFICER'S CERTIFICATE - CITBC shall have received an executed
Officer's Certificate of the Company, satisfactory in form and substance to
CITBC, certifying that i) the representations and warranties contained herein
are true and correct in all material respects on and as of the date hereof,
ii) the Company is in compliance with all of the terms and provisions set
forth herein and iii) no Default or Event of Default has occurred.
(j) ABSENCE OF DEFAULT - No Default, Event of Default or material
adverse change in the financial condition, business, prospects, profits,
operations or assets of the Company shall have occurred.
(k) ITW SALE - i) Parent shall have consummated the sale of the assets
of certain of its subsidiaries to Illinois Tool Works Inc., ii) the Company
shall have delivered to CITBC a fully executed copy of the sale and purchase
agreement and related documents with respect to such sale,
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and iii) after CITBC's review of such documents, CITBC shall be satisfied
with the ongoing liabilities of the Company and/or Parent to the purchaser
thereunder. In addition, CITBC shall be satisfied with the terms and
conditions of any ongoing contractual agreements between the Company and
Illinois Tool Works Inc.
(l) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this
Financing Agreement, CITBC shall confirm to its satisfaction that there is no
i) litigation, investigation or proceeding (judicial or administrative)
pending or threatened against the Company or Parent or their respective
assets, by any agency, division or department of any county, city, state or
federal government, ii) injunction, writ or restraining order restraining or
prohibiting the Acquisition and/or the Merger or the consummation of the
financing arrangements contemplated under this Financing Agreement or
iii) suit, action, investigation or proceeding (judicial or administrative)
pending or threatened against the Company or Parent or their respective
assets, other than the Existing Litigation.
(m) DISBURSEMENT AUTHORIZATION - The Company shall have delivered to
CITBC all information necessary for CITBC to issue wire transfer instructions
on behalf of the Company for the initial and subsequent loans and/or advances
to be made under this Financing Agreement including, but not limited to,
disbursement authorizations in form acceptable to CITBC.
(n) EXAMINATION & VERIFICATION; AVAILABILITY - CITBC shall have
completed to the satisfaction of CITBC an update of its examination and
verification of the Accounts, Inventory, books and records of the Company.
(o) COLLECTION ACCOUNTS - CITBC shall have opened a bank account in
its name for the collection of the Company's Accounts and the deposit of the
proceeds of the Collateral, and CITBC, the Company and the depository bank
shall have entered into an agreement in form and substance satisfactory to
CITBC regarding the administration and control of such bank account.
(p) EXISTING REVOLVING CREDIT AGREEMENT - i) all loans of the Company
and Parent under the existing credit agreement with The First National Bank
of Chicago, as agent, shall have been paid or satisfied in full and ii) CITBC
shall confirm that all liens upon or security interests in favor of The First
National Bank of Chicago, as agent, in connection therewith shall have been
terminated and/or released.
(q) PLEDGE OF COMPANY'S CAPITAL STOCK - Parent shall have executed and
delivered to CITBC i) a pledge agreement in form and substance reasonably
satisfactory to CITBC, pursuant to which Parent pledges to CITBC all of the
issued and outstanding capital stock of the Company to secure the
Obligations, and ii) blank stock powers covering all such capital stock. In
addition, Parent shall have delivered to CITBC all original certificates
evidencing such capital stock.
2.2 Upon the execution of this Financing Agreement and the initial
disbursement of loans hereunder, all of the above conditions precedent shall
have been deemed satisfied except as the Company and CITBC shall otherwise
agree herein or in a separate writing.
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SECTION 3. REVOLVING LOANS
3.1 CITBC agrees, subject to the terms and conditions of this Financing
Agreement from time to time, and within the Availability and the Line of
Credit, but subject to CITBC's right to make "overadvances", to make loans
and advances to the Company on a revolving basis (i.e. subject to the
limitations set forth herein, the Company may borrow, repay and re-borrow
Revolving Loans). Such loans and advances shall be in amounts up to the
Borrowing Base. Each request shall constitute, unless otherwise disclosed in
writing to CITBC, a representation and warranty by the Company that after
giving effect to the requested advance, no Default or Event of Default has
occurred, and that such requested Revolving Loan is within the Line of Credit
and Availability. All requests for loans and advances must be received by an
officer of CITBC no later than 1:00 p.m., New York time, of the Business Day
on which such loans and advances are required. Should CITBC for any reason
honor requests for advances in excess of the limitations set forth herein,
such advances shall be considered "overadvances" and shall be made in CITBC's
sole discretion, subject to any additional terms CITBC deems necessary.
3.2 In furtherance of the continuing assignment and security interest
in the Company's Accounts, the Company will, upon the creation of Accounts,
execute and deliver to CITBC in such form and manner as CITBC may reasonably
require, solely for CITBC's convenience in maintaining records of collateral,
such confirmatory schedules of Accounts as CITBC may reasonably request, and
such other appropriate reports designating, identifying and describing the
Accounts as CITBC may reasonably require. In addition, upon CITBC's request
the Company shall provide CITBC with copies of agreements with, or purchase
orders from, the Company's customers, and copies of invoices to customers,
proof of shipment or delivery and such other documentation and information
relating to said Accounts and other collateral as CITBC may reasonably
require. Failure to provide CITBC with any of the foregoing shall in no way
affect, diminish, modify or otherwise limit the security interests granted
herein. The Company hereby authorizes CITBC to regard the Company's printed
name or rubber stamp signature on assignment schedules or invoices as the
equivalent of a manual signature by one of the Company's authorized officers
or agents.
3.3 The Company hereby represents and warrants that: (a) each Trade
Account Receivable is based on an actual and bona fide sale and delivery of
goods or rendition of services to customers, made by the Company in the
ordinary course of its business; (b) the Inventory being sold and the Trade
Accounts Receivable created are the exclusive property of the Company and are
not and shall not be subject to any lien, consignment arrangement,
encumbrance, security interest or financing statement whatsoever, other than
the Permitted Encumbrances; (c) the invoices evidencing such Trade Accounts
Receivable are in the name of the Company; and (d) the customers of the
Company have accepted the goods or services, owe and are obligated to pay the
full amounts stated in the invoices according to their terms, without
dispute, offset, defense, counterclaim or contra, except for disputes and
other matters arising in the ordinary course of business of which the Company
has advised CITBC pursuant to Section 3.5 hereof. The Company confirms to
CITBC that any and all taxes or fees relating to its business, its sales, the
Accounts or goods relating thereto, are its sole responsibility and that same
will be paid by the Company when due and that none of said taxes or fees
represent a lien on or claim against the Accounts. The Company also warrants
and represents that it is a duly and validly existing corporation and is
qualified in all states where the failure to so
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qualify would have an adverse effect on the business of the Company or the
ability of the Company to enforce collection of Accounts due from customers
residing in that state. The Company agrees to maintain such books and
records regarding Accounts as CITBC may reasonably require and agrees that
the books and records of the Company will reflect CITBC's interest in the
Accounts. All of the books and records of the Company will be available to
CITBC at normal business hours, including any records handled or maintained
for the Company by any other company or entity.
3.4 The Company may and will enforce, collect and receive all amounts
owing on the Accounts for CITBC's benefit and on CITBC's behalf, but at the
Company's expense, however, such privilege shall terminate automatically upon
the institution by the Company of any proceeding under any bankruptcy or
insolvency law (or thirty (30) days after the institution against the Company
of any involuntary proceeding under any bankruptcy or insolvency law, if such
involuntary proceeding is not dismissed or discharged prior to such date) or,
at the election of CITBC, upon the occurrence of any other Event of Default
and until such Event of Default is waived. Any checks, cash, notes or other
instruments or property received by the Company with respect to any Accounts
shall be held by the Company in trust for CITBC, separate from the Company's
own property and funds, and immediately deposited into a Depository Account.
All amounts received by CITBC in payment of Accounts will be credited to the
Company's Revolving Loan Account upon CITBC's receipt of "collected funds" at
CITBC's bank account in New York, New York on the Business Day of receipt if
received no later than 1:00 pm or on the next succeeding Business Day if
received after 1:00 pm. No checks, drafts or other instrument received by
CITBC shall constitute final payment to CITBC unless and until such
instruments have actually been collected.
3.5 The Company agrees to notify CITBC promptly of any matters
materially affecting the value, enforceability or collectibility of any
Account and of all material customer disputes, offsets, defenses,
counterclaims, returns, rejections and all reclaimed or repossessed
merchandise or goods. The Company agrees to issue credit memoranda promptly
(with duplicates to CITBC upon request after the occurrence of an Event of
Default) upon accepting returns or granting allowances, and may continue to
do so until CITBC has notified the Company that an Event of Default has
occurred and that all future credits or allowances are to be made only after
CITBC's prior written approval. Upon the occurrence of an Event of Default
and until such time as such Event of Default is waived, and on notice from
CITBC, the Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Company, marked with CITBC's
name and held by the Company for CITBC's account as owner and assignee.
3.6 CITBC shall maintain a separate account on its books in the
Company's name (the "Revolving Loan Account") in which the Company will be
charged with loans and advances made by CITBC to it or for its account, and
with any other Obligations, including any and all costs, expenses and
reasonable attorney's fees which CITBC may incur in connection with the
exercise by or for CITBC of any of the rights or powers herein conferred upon
CITBC, or in the prosecution or defense of any action or proceeding to
enforce or protect any rights of CITBC in connection with this Financing
Agreement or the Collateral assigned hereunder, or any of the Obligations.
The Company will be credited with all amounts received by CITBC from the
Company or from others for the Company's account, including, as above set
forth, all amounts received by CITBC in payment of assigned Accounts and such
amounts will be applied to payment of the Obligations. In no event
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shall prior recourse to any Accounts or other security granted to or by the
Company be a prerequisite to CITBC's right to demand payment of any of the
Obligations. Further, it is understood that CITBC shall have no obligation
whatsoever to perform in any respect any of the Company's contracts or
obligations relating to the Accounts.
3.7 After the end of each month, CITBC shall promptly send the Company
a statement showing the accounting for the charges, loans, advances and other
transactions occurring between CITBC and the Company during that month. The
monthly statements shall be deemed correct and binding upon the Company and
shall constitute an account stated between the Company and CITBC unless CITBC
receives a written statement of the exceptions within thirty (30) days of the
date of the monthly statement.
3.8 In the event that (a) the sum of i) the outstanding balance of
Revolving Loans and ii) outstanding balance of Letters of Credit exceeds
(b) either i) the maximum amount thereof available under Sections 3 and
5 hereof or ii) the Line of Credit (herein the amount of any such excess
shall be referred to as the "Excess"), such Excess immediately shall be due
and payable to CITBC without notice of or demand therefor.
SECTION 4. [INTENTIONALLY DELETED]
SECTION 5. LETTERS OF CREDIT
In order to assist the Company in establishing or opening Letters of
Credit with an Issuing Bank to cover the purchase of imported Inventory,
Equipment or otherwise, the Company has requested CITBC to join in the
applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts or acceptances
thereunder through the issuance of a Letter of Credit Guaranty, thereby
lending CITBC's credit to the Company and CITBC has agreed to do so. These
arrangements shall be handled by CITBC subject to the terms and conditions
set forth below.
5.1 Within the Line of Credit and Availability, CITBC shall assist the
Company in obtaining Letters of Credit in an aggregate amount outstanding at
any time equal to or less than Letter of Credit Sub-Line. CITBC's assistance
for amounts in excess of the limitation set forth herein shall at all times
and in all respects be in CITBC's sole discretion. It is understood that the
terms, conditions and purpose of each Letter of Credit (and any modifications
thereof) shall be subject to the prior approval of CITBC in the exercise of
its reasonable discretion. Any and all outstanding Letters of Credit shall
be treated as a Revolving Loan for Availability purposes. Notwithstanding
anything herein to the contrary, upon the occurrence of a Default and/or
Event of Default, CITBC's assistance in connection with any Letter of Credit
Guaranty shall be in CITBC's sole discretion unless such Default and/or Event
of Default is waived.
5.2 CITBC shall have the right, without notice to the Company, to
charge the Company's Revolving Loan Account with the amount of any and all
indebtedness, liability or obligation of any kind incurred by CITBC under any
Letter of Credit Guaranty at the earlier of (a) payment by CITBC under such
Letter of Credit Guaranty, or (b) the occurrence of an Event of Default. Any
amount
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charged to Company's Revolving Loan Account shall be deemed a Revolving Loan
hereunder and shall incur interest at the rate provided in Section 8.1 of
this Financing Agreement.
5.3 The Company unconditionally indemnifies CITBC and holds CITBC
harmless from any and all loss, claim or liability incurred by CITBC arising
from any transactions or occurrences relating to Letters of Credit
established or opened for the Company's account, the collateral relating
thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claim due to any action taken by any
Issuing Bank, other than for any such loss, claim or liability arising out of
the gross negligence or willful misconduct by CITBC under the Letters of
Credit Guaranty. The Company further agrees to hold CITBC harmless from any
errors or omission, negligence or misconduct by the Issuing Bank. The
Company's unconditional obligation to CITBC hereunder shall not be modified
or diminished for any reason or in any manner whatsoever, other than as a
result of CITBC's gross negligence or willful misconduct. The Company agrees
that any charges incurred by CITBC for the Company's account by the Issuing
Bank shall be conclusive on CITBC and may be charged to the Company's
Revolving Loan Account.
5.4 CITBC shall not be responsible for: (a) the existence, character,
quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; (b) any difference or
variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in the documents; (c) the validity,
sufficiency or genuineness of any documents or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (d) the time, place, manner or
order in which shipment is made; (e) partial or incomplete shipment, or
failure or omission to ship any or all of the goods referred to in the
Letters of Credit or documents; (f) any deviation from instructions; (g) delay,
default, or fraud by the shipper and/or anyone else in connection with the
Collateral or the shipping thereof; or (h) any breach of contract between the
shipper or vendors and the Company. Furthermore, without being limited by
the foregoing, CITBC shall not be responsible for any act or omission with
respect to or in connection with any Collateral.
5.5 The Company agrees that any action taken by CITBC, if taken in good
faith, or any action taken by any Issuing Bank, under or in connection with
the Letters of Credit, the guarantees, the drafts or acceptances, or the
Collateral, shall be binding on the Company and shall not put CITBC in any
resulting liability to the Company. In furtherance thereof but subject to
Section 5.6 below, CITBC shall have the full right and authority to clear and
resolve any questions of non-compliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to
execute any and all steamship or airways guaranties (and applications
therefor), indemnities or delivery orders; to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents; and to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or
acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled
to comply with and honor any and all such documents or instruments executed
by or received solely from CITBC, all without any notice to or any consent
from the Company.
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5.6 Without CITBC's express consent and endorsement in writing, the
Company agrees: (a) not to execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders; to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or
acceptances; and (b) after the occurrence of an Event of Default which is not
waived, not to i) clear and resolve any questions of non-compliance of
documents or ii) give any instructions as to acceptances or rejection of any
documents or goods.
5.7 The Company agrees that any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or
the financing thereof will have been promptly and full complied with; and any
certificates in that regard that CITBC may at any time request will be
promptly furnished. The Company assumes all risk, liability and
responsibility for, and agrees to pay and discharge, all present and future
local, state, federal or foreign taxes, duties, or levies. Any embargo,
restriction, laws, customs or regulations of any country, state, city, or
other political subdivision, where the Collateral is or may be located, or
wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Company's risk, liability and
responsibility.
5.8 Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Company to the Issuing
Bank in any application for Letters of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to
have been granted to CITBC and apply in all respects to CITBC and shall be in
addition to any rights, remedies, duties or obligations contained herein.
SECTION 6. COLLATERAL
6.1 As security for the prompt payment in full of all loans and
advances made and to be made to the Company from time to time by CITBC
pursuant hereto, as well as to secure the payment in full of the other
Obligations, the Company hereby pledges and grants to CITBC a continuing
general lien upon and security interest in all of its:
(a) present and hereafter acquired Inventory;
(b) present and hereafter acquired Equipment;
(c) present and future Accounts;
(d) present and future Documents of Title;
(e) present and future General Intangibles;
(f) present and future Investment Property;
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(g) present and future Other Collateral; and
(h) Real Estate, if any.
6.2 The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is presently in existence and which is owned
by the Company or in which the Company has any interest, whether held by the
Company or others for its account, and, if any Collateral is Equipment,
whether the Company's interest in such Equipment is as owner or lessee or
conditional vendee;
(b) All Equipment whether the same constitutes personal property or
fixtures, including, but without limiting the generality of the foregoing,
all dies, jigs, tools, benches, tables, accretions, component parts thereof
and additions thereto, as well as all accessories, motors, engines and
auxiliary parts used in connection with or attached to the Equipment; and
(c) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or the Company from the
Company's customers, as well as to all supplies, goods, incidentals,
packaging materials, labels and any other items which contribute to the
finished goods or products manufactured or processed by the Company, or to
the sale, promotion or shipment thereof.
6.3 The Company agrees to safeguard, protect and hold all Inventory for
CITBC's account and make no disposition thereof except in the regular course
of the business of the Company as herein provided. Inventory may be sold and
shipped by the Company to its customers in the ordinary course of the
Company's business, on open account and on terms currently being extended by
the Company to its customers, provided that all proceeds of all sales
(including cash, accounts receivable, checks, notes, instruments for the
payment of money and similar proceeds) are forthwith transferred, endorsed,
and turned over and delivered to CITBC by deposit in the Depository Accounts.
CITBC shall have the right to withdraw this permission at any time upon the
occurrence of an Event of Default and until such time as such Event of
Default is waived, in which event no further disposition shall be made of the
Inventory by the Company without CITBC's prior written approval. Cash sales
or sales of Inventory in which a lien upon, or security interest in,
Inventory is retained by the Company shall be made by the Company only with
the approval of CITBC, and the proceeds of such sales or sales of Inventory
for cash shall not be commingled with the Company's other property, but shall
be segregated, held by the Company in trust for CITBC as CITBC's exclusive
property, and shall be delivered immediately by the Company to CITBC in the
identical form received by the Company by deposit to the Depository Accounts.
Upon the sale, exchange, or other disposition of Inventory, as herein
provided, the security interest in the Company's Inventory provided for
herein shall, without break in continuity and without further formality or
act, continue in, and attach to, all proceeds, including any instruments for
the payment of money, accounts receivable, contract rights, documents of
title, shipping documents, chattel paper and all other cash and non-cash
proceeds of such sale, exchange or disposition. As to any such sale,
exchange or other disposition, CITBC shall have all of the rights of an unpaid
seller, including stoppage in transit,
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replevin, rescission and reclamation. The provisions of this Section 6.3
shall not apply to Inventory consisting of sheet metal situated at locations
operated by Illinois Tool Works Inc. or any affiliate thereof.
6.4 The Company agrees at its own cost and expense to keep the
Equipment in as good and substantial repair and condition as the same is now
or at the time the lien and security interest granted herein shall attach
thereto, reasonable wear and tear excepted, making any and all repairs and
replacements when and where necessary. The Company also agrees to safeguard,
protect and hold all Equipment for CITBC's account and make no disposition
thereof unless the Company first obtains the prior written approval of CITBC.
Any sale, exchange or other disposition of any Equipment shall only be made
by the Company with the prior written approval of CITBC, and the proceeds of
any such sales shall not be commingled with the Company's other property, but
shall be segregated, held by the Company in trust for CITBC as CITBC's
exclusive property, and shall be delivered immediately by the Company to
CITBC in the identical form received by the Company by deposit to a
Depository Account. Upon the sale, exchange, or other disposition of the
Equipment, as herein provided, the security interest provided for herein
shall, without break in continuity and without further formality or act,
continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sales, exchange or disposition. As to any such sale, exchange or other
disposition, CITBC shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, rescission and reclamation.
Notwithstanding anything set forth herein to the contrary, the Company may
sell, exchange or otherwise dispose of obsolete Equipment or Equipment no
longer needed in the Company's operations, provided that (a) the then net
book value of the Equipment so disposed of does not exceed $200,000 in the
aggregate in any fiscal year and (b) the proceeds of such sales or
dispositions are delivered to CITBC in accordance with he foregoing
provisions of this Section 6.4, except that the Company may retain and use
such proceeds to purchase forthwith replacement Equipment which the Company
determines in its reasonable business judgment to have a collateral value at
least equal to the Equipment so disposed of or sold, and provided further
that the aforesaid right shall automatically cease upon the occurrence of an
Event of Default which is not waived.
6.5 The rights and security interests granted to CITBC hereunder are to
continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that the account maintained in the Company's
name on the books of CITBC may from time to time be temporarily in a credit
position, until the final payment in full to CITBC of all Obligations and the
termination of this Financing Agreement. Any delay, or omission by CITBC to
exercise any right hereunder, shall not be deemed a waiver thereof, or be
deemed a waiver of any other right, unless such waiver be in writing and
signed by CITBC. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right or remedy on any future occasion.
6.6 To the extent that the Obligations are now or hereafter secured by
any assets or property other than the Collateral or by the guarantee,
endorsement, assets or property of any other person, then CITBC shall have
the right in its sole discretion to determine which rights, security, liens,
security interests or remedies CITBC shall at any time pursue, foreclose
upon, relinquish,
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subordinate, modify or take any other action with respect to, without in any way
modifying or affecting any of them, or any of CITBC's rights hereunder.
6.7 Any reserves or balances to the credit of the Company and any other
property or assets of the Company in the possession of CITBC may be held by
CITBC as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due. The liens and security interests
granted herein and any other lien or security interest CITBC may have in any
other assets of the Company, shall secure payment and performance of all now
existing and future Obligations. CITBC may in its discretion charge any or all
of the Obligations to the Company's Revolving Loan Account when due.
6.8 The Company shall give to CITBC from time to time such mortgage(s),
deed(s) of trust or assignment(s) covering the real estate acquired in fee after
the date hereof as CITBC shall require to obtain a valid first lien thereon.
6.9 The Company shall give to CITBC, and/or shall cause the appropriate
party to give to CITBC, from time to time such pledge or security agreements
with respect to General Intangibles and capital stock of the Company and any and
all subsidiaries of the Company as CITBC shall require to obtain valid first
liens thereon.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 The Company hereby warrants and represents and/or covenants that: (a)
the fair value of the Company's assets exceeds the book value of the Company's
liabilities; (b) the Company is generally able to pay its debts as they become
due and payable; (c) the Company does not have unreasonably small capital to
carry on its business as it is currently conducted absent extraordinary and
unforeseen circumstances; (d) SCHEDULE 2 hereto correctly and completely sets
forth the Company's chief executive office, all of the Collateral locations and
all tradenames of the Company; (e) except for the Permitted Encumbrances, the
security interests granted herein constitute and shall at all times constitute
the first and exclusive liens on the Collateral; (f) except for the Permitted
Encumbrances, the Company is or will be at the time additional Collateral is
acquired by it, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer and create a security interest therein, free and clear
of any and all claims or liens in favor of others; (g) the Company will at its
expense forever warrant and, at CITBC's request, defend the same from any and
all claims and demands of any other person other than the Permitted
Encumbrances; (h) the Company will not grant, create or permit to exist, any
lien upon or security interest in the Collateral, or any proceeds thereof, in
favor of any other person other than the holders of the Permitted Encumbrances;
(i) the Equipment does not comprise a part of the Inventory of the Company and
that the Equipment is and will only be used by the Company in its business and
will not be held for sale or lease, or removed from its premises, or otherwise
disposed of by the Company without the prior written approval of CITBC, except
as otherwise permitted in Section 6.4 of this Financing Agreement; (j) the
execution and delivery of this Financing Agreement by the Company and the
performance of its obligations hereunder do not violate any terms, provisions,
representations or covenants in the charter, by-laws or other organizational
agreement of the Company, or any loan agreement, mortgage, deed of trust, note,
security or pledge agreement or indenture to which the Company is a signatory or
by which
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the Company or any of the Company's assets are bound; and (k) except for the
Existing Litigation, there is no litigation pending or threatened against the
Company.
7.2 The Company agrees to maintain books and records pertaining to the
Collateral in such detail, form and scope as CITBC shall reasonably require.
The Company agrees that CITBC or its agents may enter upon the Company's
premises at any time during normal business hours, and from time to time, for
the purpose of inspecting the Collateral, and any and all records pertaining
thereto. The Company agrees to afford CITBC prior written notice of any change
in the location of any Collateral, other than to locations, that as of the date
hereof, are known to CITBC and at which CITBC has filed financing statements and
otherwise fully perfected its liens thereon. The Company is also to advise
CITBC promptly, in sufficient detail, of any material adverse change relating to
the type, quantity or quality of the Collateral or on the security interests
granted to CITBC therein.
7.3 The Company agrees to execute and deliver to CITBC, from time to time,
solely for CITBC's convenience in maintaining a record of the Collateral, such
written statements, schedules and other information and documentation as CITBC
may reasonably require, designating, identifying or describing the Collateral
pledged to CITBC hereunder. Without limiting the foregoing, the Company shall
provide CITBC with the following items, in such detail as CITBC shall reasonably
require: (a) at least once each week but more frequently upon CITBC's request, a
borrowing base certificate, certified by the chief financial officer of the
Company or another officer of the Company acceptable to CITBC; (b) on or before
the 15th day of each month, an aged trial balance of all Accounts existing as of
the last day of the preceding month; and (c) on or before the 15th day of each
month, a summary of Inventory as of the last day of the preceding month,
certified by the chief financial officer of the Company. The Company's failure,
however, to promptly give CITBC such statements or schedules shall not affect,
diminish, modify or otherwise limit CITBC's security interests in the
Collateral.
7.4 The Company agrees to comply with the requirements of all state and
federal laws in order to grant to CITBC valid and perfected first security
interests in the Collateral, subject only to the Permitted Encumbrances. CITBC
is hereby authorized by the Company to file any financing statements covering
the Collateral whether or not the Company's signature appears thereon. The
Company agrees to do whatever CITBC may reasonably request, from time to time,
by way of: (a) filing notices of liens, financing statements, amendments,
renewals and continuations thereof; (b) cooperating with CITBC's agents and
employees; (c) keeping Collateral records; (d) transferring proceeds of
Collateral to CITBC's possession; and (e) performing such further acts as CITBC
may reasonably require in order to effect the purposes of this Financing
Agreement.
7.5 (a) The Company agrees to maintain insurance on the Inventory and
other Collateral under such policies of insurance, with such insurance
companies, in such reasonable amounts and covering such insurable risks as are
at all times reasonably satisfactory to CITBC (the (the "Required Insurance").
All policies covering the Collateral are, subject to the rights of any holders
of Permitted Encumbrances holding claims senior to CITBC, to be made payable to
CITBC, in case of loss, under a standard non-contributory "mortgagee", "lender"
or "secured party" clause and are to contain such other provisions as CITBC may
require to fully protect CITBC's interest in Collateral and to any payments to
be made under such policies. All original policies or true copies thereof are
to be
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delivered to CITBC, premium prepaid, with the loss payable endorsement in
CITBC's favor, and shall provide for not less than thirty (30) days prior
written notice to CITBC of the exercise of any right of cancellation. Upon
the occurrence of an Event of Default which is not waived, CITBC shall,
subject to the rights of any holders of Permitted Encumbrances holding claims
senior to CITBC, have the sole right, in the name of CITBC or the Company, to
file claims under any insurance policies, to receive, receipt and give
acquittance for any payments that may be payable thereunder, and to execute
any and all endorsements, receipts, releases, assignments, reassignments or
other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
(b) Unless Borrower provides CITBC with evidence of the Required Insurance
in the manner set forth in paragraph (a) above, CITBC may purchase insurance at
the Company's expense to protect CITBC's interests in the Collateral. The
insurance purchased by CITBC may, but need not, protect the Company's interests
in the Collateral, and therefore such insurance may not pay any claim which the
Company makes or any claim which is made against the Company in connection with
the Collateral. The Company may later request that CITBC cancel any insurance
purchased by CITBC, but only after providing CITBC with satisfactory evidence
that the Company has the Required Insurance. If CITBC purchases insurance
covering all or any portion of the Collateral, the Company shall be responsible
for the costs of such insurance, including interest (at the applicable rate set
forth hereunder) and other charges accruing on the purchase price therefor,
until the effective date of the cancellation or the expiration of the insurance,
and CITBC may charge all of such costs, interest and other charges to the
Revolving Loan Account. The costs of the premiums of any insurance purchased by
CITBC may exceed the costs of insurance which the Company may be able to
purchase on its own.
In the event that CITBC purchases insurance, CITBC will notify the Company of
such purchase within thirty (30) days after the date of such purchase. If,
within thirty (30) days of the date of such notice, the Company provides CITBC
with proof that the Company's had the Required Insurance as of the date on which
CITBC purchased insurance AND the Company has continued at all times thereafter
to have the Required Insurance, then CIT agrees to cancel the insurance
purchased by CITBC and credit the Revolving Loan Account by the amount of all
costs, interest and other charges associated with such insurance previously
charged to the Revolving Loan Account.
(c) i) In the event of any loss or damage by fire or other casualty,
insurance proceeds relating to Inventory shall reduce the Revolving Loan and
then the other Obligations;
ii) In the event any part of the Company's Equipment is damaged by fire or
other casualty and the insurance proceeds for such damage or other casualty (the
"Proceeds") is less than or equal to $200,000.00, CITBC shall promptly apply
such Proceeds to reduce the Revolving Loan.
iii) As long as no Event of Default has occurred and remains outstanding,
the Company has sufficient business interruption insurance to replace the lost
profits of any of the Company's facilities, and the Proceeds are in excess of
$200,000.00, the Company may elect (by delivering written notice to CITBC) to
replace, repair or restore the Equipment to substantially the equivalent
condition prior to such fire or other casualty as set forth herein. If the
Company does not, or cannot, elect to use the Proceeds as set forth above, CITBC
may, subject to the rights of any holders of
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Permitted Encumbrances holding claims senior to CITBC, apply the Proceeds to
the payment of the Obligations in such manner and in such order as CITBC may
reasonably elect.
iv) If the Company elects to use the Proceeds for the repair, replacement
or restoration of any Equipment and there then exists no Event of Default, x)
proceeds of insurance in excess of $200,000.00 will be applied to the reduction
of the Revolving Loans of the Company and y) CITBC may set up a reserve against
Availability for an amount equal to the proceeds referred to in clause x)
hereof. The reserve will be reduced dollar-for-dollar upon receipt of
non-cancelable executed purchase orders, delivery receipts or contracts for the
replacement, repair or restoration of Equipment and disbursements in connection
therewith.
v) The Company agrees to pay any reasonable costs, fees or expenses which
CITBC may reasonably incur in connection herewith.
7.6 The Company agrees to pay, when due, all taxes, assessments, claims
and other charges (herein "taxes") lawfully levied or assessed upon the Company
or the Collateral. If such taxes remain unpaid after the date fixed for the
payment thereof (unless such taxes are being diligently contested in good faith
by the Company by appropriate proceedings), or if any lien shall be claimed
thereunder (a) for taxes due the United States of America or (b) which in
CITBC's opinion might create a valid obligation having priority over the rights
granted to CITBC herein, then CITBC may, on the Company's behalf, pay such
taxes, and the amount thereof shall be an Obligation secured hereby and due to
CITBC on demand.
7.7 The Company: (a) agrees to comply with all acts, rules, regulations
and orders of any legislative, administrative or judicial body or official,
which the failure to comply with would have a material and adverse impact on the
Collateral, or any material part thereof, or on the operation of the Company's
business, provided that the Company may contest any acts, rules, regulations,
orders and directions of such bodies or officials in any reasonable manner which
will not, in CITBC's reasonable opinion, materially and adversely effect CITBC's
rights or priority in the Collateral; and (b) agrees to comply with all
environmental statutes, acts, rules, regulations or orders as presently existing
or as adopted or amended in the future, applicable to the ownership and/or use
of its real property and operation of its business, which the failure to comply
with would have a material and adverse impact on the Collateral, or any material
part thereof, or on the operation of the business of the Company. The Company
hereby indemnifies CITBC and agrees to defend and hold CITBC harmless from and
against any and all loss, damage, claim, liability, injury or expense which
CITBC may sustain or incur in connection with any claim or expense asserted
against CITBC as a result of any environmental pollution, hazardous material or
environmental clean-up of the Company's real property; or any claim or expense
which results from the Company's operations (including, but not limited to, the
Company's off-site disposal practices), and the Company further agrees that this
indemnification shall survive termination of this Financing Agreement as well as
the payment of all Obligations or amounts payable hereunder. The Company shall
not be deemed to have breached any provision of this Section 7.7 if i) the
failure to comply with the requirements of this Section 7.7 resulted from good
faith error or innocent omission, ii) the Company promptly commences and
diligently pursues a cure of such failure to comply and iii) such failure to
comply is cured within
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fifteen (15) Business Days following the Company's receipt of notice from
CITBC of such failure to comply.
7.8 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that, unless
CITBC shall have otherwise consented in writing, the Company will furnish to
CITBC: (a) within ninety (90) days after the end of each fiscal year of the
Company, a Consolidated Balance Sheet and a Consolidating Balance Sheet as at
the close of such year, and consolidated and consolidating (with respect to the
Company) statements of profit and loss, cash flow and reconciliation of surplus
of Parent for such year, audited by KPMG Peat Marwick or other independent
public accountants selected by the Company and satisfactory to CITBC; (b) within
thirty (30) days after the end of each month, a Consolidated Balance Sheet and
Consolidating Balance Sheet as at the end of such month, and consolidated and
consolidating (with respect to the Company) statements of profit and loss and
cash flow of Parent for such month and for the period commencing on the first
day of the current fiscal year through the end of such month, certified by an
authorized financial or accounting officer of the Company; (c) prior to the end
of each fiscal year, monthly projections of the Consolidated Balance Sheet,
Consolidating Balance Sheet, the consolidated and consolidating (with respect to
the Company) statements of profits and loss and cash flow of Parent and
Availability for the forthcoming fiscal year (notwithstanding the foregoing,
such projections for Parent's fiscal year ending November 30, 1999 shall not be
due until January 31, 1999); and (d) from time to time, such further information
regarding the business affairs and financial condition of the Company and the
Subsidiaries as CITBC may reasonably request. In connection with the issuance
of each financial statement described in clause (a) above, the Company shall
obtain the corresponding auditor's management letter and shall deliver a copy of
such letter to CITBC within a reasonable amount of time after receipt thereof.
Each financial statement which the Company is required to submit hereunder must
be accompanied by an officer's certificate, signed by the President, Vice
President, Controller, or Treasurer, pursuant to which any one such officer must
certify that: (a) the financial statement(s) fairly and accurately represent(s)
the Company's financial condition at the end of the particular accounting
period, as well as the Company's operating results during such accounting
period, subject to year-end audit adjustments; (b) during the particular
accounting period i) there has been no default or condition which, with the
passage of time or notice, or both, would constitute a Default or Event of
Default under this Financing Agreement, or, if any such officer has knowledge
that any such Default or Event of Default has occurred during such period, the
existence of and a detailed description of same shall be set forth in such
officer's certificate, and ii) the Company has not received any notice of
cancellation with respect to its property insurance policies; and (c) the
exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in this
Financing Agreement.
7.9 The Company shall maintain, at all times during each month of the term
of this Financing Agreement, a Net Worth equal to or greater than the sum of (a)
$8,000,000 PLUS (b) the fifty percent (50%) of the cumulative net income of the
Company (as reported monthly by the Company in the manner required hereunder,
subject to fiscal year-end adjustments made in accordance with GAAP) from
October 1, 1998 through the end of immediately preceding month. For purposes of
this Section 7.9, if the Company incurs a net loss in any month, net income for
such month shall be deemed to be zero.
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7.10 Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that, without
the prior written consent of CITBC, except as otherwise herein provided, the
Company will not:
(a) Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a result of a
purchase money or title retention transaction, or other security interest, or
otherwise) to exist on any of its assets or goods, whether real, personal or
mixed, whether now owned or hereafter acquired, except for the Permitted
Encumbrances;
(b) Incur or create any Indebtedness other than the Permitted
Indebtedness;
(c) Borrow any money on the security of the Collateral from sources other
than CITBC;
(d) Sell, lease, assign, transfer or otherwise dispose of i) Collateral,
except as otherwise specifically permitted by this Financing Agreement, or ii)
either all or substantially all of the Company's assets which do not constitute
Collateral;
(e) Merge, consolidate or otherwise alter or modify its corporate name,
principal place of business, structure, status or existence, or enter into or
engage in any operation or activity materially different from that presently
being conducted by the Company;
(f) Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business;
(g) Declare or pay any dividend of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding, except that the Company may
declare and pay dividends on its capital stock in an amount sufficient to enable
the Parent: i) to pay all normal and customary expenses of Parent's operations
(including, without limitation, salaries, benefits and bonuses to officers and
employees); ii) to pay income or franchise taxes of the Company due as a result
of the filing of a consolidated, combined or unitary tax return in which the
operations of the Company are included, provided that no Default or Event of
Default has occurred or would occur after giving effect to any such dividend;
iii) to pay the costs (including applicable attorneys fees) of settlement or
other disposition of the Existing Litigation, but only if the Company would be
permitted under paragraph (i) of this Section 7.10 to pay such costs itself; and
iv) to pay the obligations of Parent to Illinois Tool Works Inc. which arise
under Sections 2.3 and 9.1 of the Agreement of Purchase and Sale of Assets and
Stock between Parent and Illinois Tool Works Inc.
(h) Make any advance or loan to, or any investment in, any firm, entity,
person or corporation, other than loans to Parent for the purposes (and to the
extent of any dollar amounts) permitted under paragraph (g) of this Section
7.10;
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<PAGE>
(i) Pay the costs of any settlement or other disposition of the Existing
Litigation unless: i) the Company notifies CITBC in writing of the proposed
amount of payment of such costs (including associated attorneys fees and other
expenses) at least five (5) days prior to such payment; ii) the Availability,
after giving effect to the projected amount of such costs (including associated
attorneys fees and other expenses), remains equal to or greater than $1,500,000
at all times during the period thirty (30) days preceding the date of the
payment of such costs; and iii) the Availability, after giving effect to the
actual amount of such costs (including associated attorneys fees and other
expenses), remains equal to or greater than $1,500,000 at all times during the
period thirty (30) days after the date of the payment of such costs.
7.11 Without the prior written consent of CITBC, the Company will not: (a)
enter into any Operating Lease if after giving effect thereto the aggregate
obligations with respect to Operating Leases of the Company payable during any
fiscal year would exceed $500,000; or (b) contract for, purchase, make
expenditures for, lease pursuant to a Capital Lease or otherwise incur
obligations with respect to Capital Expenditures (whether subject to a security
interest or otherwise) during any fiscal year in the aggregate amount in excess
of:
i) $50,000 from the date hereof through November 30, 1998;
ii) $200,000 for the fiscal year ending November 30, 1999;
iii) $200,000 for the fiscal year ending November 30, 2000; and
iv) $200,000 for the fiscal year ending November 30, 2001, and for each
fiscal year thereafter.
To the extent that the maximum amount of Capital Expenditures and Capital Lease
obligations permitted to be incurred by the Company in any period set forth
above exceeds the amount of Capital Expenditures and Capital Lease obligations
actually incurred by the Company during such period, the amount of such excess
may be carried over and used by the Company in any subsequent period, in
addition to the amount permitted to be incurred by the Company during such
subsequent period.
7.12 The Company agrees to advise CITBC in writing of (a) all expenditures
(actual or anticipated) in excess of $150,000.00 for i) environmental clean-up,
ii) environmental compliance or iii) environmental testing and the impact of
said expenses on the Company's working capital, and (b) any notices the Company
receives from any local, state or federal authority advising the Company of any
environmental liability (real or potential) stemming from the Company's
operations, its premises, its waste disposal practices, or waste disposal sites
used by the Company and to provide CITBC with copies of all such notices if so
required.
7.13 Without the prior written consent of CITBC, the Company agrees that
it will not enter into any transaction, including, without limitation, any
purchase, sale, lease, loan or exchange of property with Parent, or any
subsidiary or affiliate of either the Company or Parent at the time of such
transaction, other than i) agreements relating to the payment of the costs of
settlement or other disposition of the Existing Litigation, ii) purchases of
inventory in the ordinary course of business by the Company from Sames France,
iii) any management or consulting agreements with Parent on terms no less
favorable than the Company would obtain with entities unaffiliated with the
Company and iv) any transaction expressly permitted by this Financing Agreement.
25
<PAGE>
7.14 The Company shall take all action reasonably necessary to assure that
its computer-based systems are able to effectively process date-sensitive data
functions. The Company represents and warrants to CITBC that the "Year 2000"
problem (that is, the inability of certain computer applications to recognize
and properly perform date-sensitive functions involving dates subsequent to
December 31, 1999) will not have a material adverse effect on the Company's
business, assets or operations. The Company reasonably anticipates that all
computer applications which are material to the operation of its business will,
on a timely basis, be able to properly perform date-sensitive functions on and
after January 1, 2000. Upon CITBC's request from time to time, the Company
shall provide CITBC with assurances, in form and substance reasonably
satisfactory to CITBC, that the Company's computer systems and applications are,
or will be, Year 2000 compliant on a timely basis.
SECTION 8. INTEREST, FEES AND EXPENSES
8.1 Interest on outstanding balances of the Revolving Loans which are not
Libor Loans shall be payable monthly as of the end of each month and shall
accrue at a rate per annum equal the Chase Manhattan Rate on the average of the
net balances owing by the Company to CITBC in the Company's Revolving Loan
Account at the close of each day during such month. On Libor Loans, interest
shall be payable monthly as of the end of each month and shall accrue at a rate
per annum equal to two and one-half percent (2.50%) plus the applicable Libor on
the average balances of all Libor Loans outstanding during such month. In the
event of any change in the Chase Manhattan Rate, the rate above immediately
shall change so as to remain at the Chase Manhattan Rate. All interest rates
shall be calculated based on a 360-day year. CITBC shall be entitled to charge
the Company's Revolving Loan Account for all interest provided for herein when
due until all Obligations have been paid in full.
8.2 [INTENTIONALLY DELETED]
8.3 The Company may elect to use Libor as to any outstanding Revolving
Loans provided that there then exists no Default or Event of Default and the
Company has so advised CITBC of its election to use Libor and the Libor Period
selected no later than three (3) Business Days preceding the first day of a
Libor Period. The election and Libor shall be effective, provided there then
exists no Default or Event of Default, on the fourth Business Day following said
notice. The Libor elections must be for $1,000,000 or integral multiples of
$100,000 in excess thereof, and there shall be no more than three (3) Libor
Loans outstanding at one time. If no such election is timely made or can be
made, or if the Libor rate can not be determined, then CITBC shall use the Chase
Manhattan Rate to compute interest. In the event the Company requests any Libor
election the Company shall pay to CITBC a $500 processing fee upon the effective
date of each such Libor election hereunder. In addition, the Company shall pay
to CITBC, upon the request of CITBC such amount or amounts as shall compensate
CITBC for any loss, costs or expenses incurred by CITBC (as reasonably
determined by CITBC) as a result of (a) any payment or prepayment on a date
other than the last day of a Libor Period for such Libor Loan, or (b) any
failure of the Company to borrow a Libor Loan on the date for such borrowing
specified in the relevant notice; such compensation to include, without
limitation, an amount equal to any loss or expense suffered by CITBC during the
26
<PAGE>
period from the date of receipt of such payment or prepayment or the date of
such failure to borrow to the last day of such Libor Period if the rate of
interest obtained by CITBC upon the reemployment of an amount of funds equal to
the amount of such payment, prepayment or failure to borrow is less than the
rate of interest applicable to such Libor Loan for such Libor Period. The
determination by CITBC of the amount of any such loss or expense, when set forth
in a written notice to the Company, contaning CITBC's calculations thereof in
reasonable detail, shall be conclusive on the Company, in the absence of
manifest error. Calculation of all amounts payable to CITBC under this
paragraph with regard to Libor Loans shall be made as though CITBC had actually
funded the Libor Loans through the purchase of deposits in the relevant market
and currency, as the case may be, bearing interest at the rate applicable to
such Libor Loans in an amount equal to the amount of the Libor Loans and having
a maturity comparable to the relevant interest period, provided that CITBC may
fund each of the Libor Loans in any manner CITBC sees fit and the foregoing
assumption shall be used only for calculation of amounts payable under this
Section 8.3. In addition, notwithstanding anything to the contrary contained
herein, CITBC shall apply all proceeds of Collateral, including the Accounts,
and all other amounts received by it from or on behalf of the Companies
initially to the loans accruing interest at the Chase Manhattan Rate then to
Libor Loans, provided that upon the occurrence of an Event of Default, or in the
event the aggregate amount of outstanding Libor Loans exceeds Availability or
the applicable maximum levels set forth therefor, CITBC may apply all such
amounts received by it to the payment of the Obligations in such manner and in
such order as CITBC may elect in its reasonable business judgment. In the event
that any such amounts are applied to Revolving Loans which are Libor Loans, such
application shall be treated as a prepayment of such loans and CITBC shall be
entitled to indemnification hereunder.
8.4 In consideration of the Letter of Credit Guaranty of CITBC, the Company
shall pay CITBC the Letter of Credit Guaranty Fee which shall be an amount equal
to one and three-quarters percent (1.75%) per annum on the face amount of each
Letter of Credit, less the amount of any and all amounts previously drawn under
the Letter of Credit, payable (a) monthly in arrears, with respect to each
documentary letter of credit and (b) in full upon issuance, with respect to each
standby letter of credit.
8.5 Any charges, fees, commissions, costs and expenses charged to CITBC
for the Company's account by any Issuing Bank in connection with or arising out
of Letters of Credit issued pursuant to this Financing Agreement or out of
transactions relating thereto will be charged to the Company's Revolving Loan
Account in full when charged to or paid by CITBC and when made by any such
Issuing Bank shall be conclusive on CITBC.
8.6 The Company shall reimburse or pay CITBC upon demand, as the case may
be, for i) all Out-of-Pocket Expenses of CITBC, ii) all Documentation Fees and
iii) fees of CITBC's in-house legal department and facilities in documenting, in
whole or in part, this Agreement and the other loan documents solely on behalf
of CITBC (the Out-of-Pocket Expenses of CITBC incurred prior to the execution of
this Agreement and the fees described in clause iii) of this Section 8.6 shall
not exceed $10,000 in the aggregate).
27
<PAGE>
8.7 Commencing on the first day of the month following the month in which
the Closing Date occurs, and on the first day of each month thereafter, the
Company shall pay to CITBC the Line of Credit Fee.
8.8 To induce CITBC to enter into this Financing Agreement and to extend
to the Company the Revolving Loan and Letters of Credit, the Company shall pay
to CITBC a Loan Facility Fee in the amount of $50,000. The Loan Facility Fee
shall be fully earned by CITBC on the Closing Date but shall be payable in two
(2) installments of $25,000 each, the first of which shall be payable upon
execution of this Financing Agreement by CITBC and the second of which shall be
due and payable on December 31, 1998.
8.9 Prior to the occurrence of an Event of Default, the Company shall
reimburse CITBC for the reasonable transportation, lodging and related travel
expenses of CIT personnel in connection with up to four (4) periodic
examinations per calendar year of the books and records of the Company and the
Collateral. After the occurrence of an Event of Default, the Company shall
reimburse CITBC for all such expenses as well as CITBC's standard charges for,
and the fees of, the CITBC personnel used by CITBC for reviewing the books and
records of the Company and for verifying, testing, protecting, safeguarding,
preserving or disposing of all or any part of the Collateral.
8.10 The Company hereby authorizes CITBC to charge the Company's Revolving
Loan Account with the amount of all payments due hereunder as such payments
become due. The Company confirms that any charges which CITBC may so make to
the Company's Revolving Loan Account as herein provided will be made as an
accommodation to the Company and solely at CITBC's discretion.
SECTION 9. POWERS
9.1 The Company hereby constitutes CITBC or any person or agent CITBC may
designate as its attorney-in-fact, at the Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Obligations have been paid in full:
(a) To receive, take, endorse, sign, assign and deliver, all in the name
of CITBC or the Company, any and all checks, notes, drafts, and other documents
or instruments relating to the Collateral;
(b) To receive, open and dispose of all mail addressed to the Company and
to notify postal authorities to change the address for delivery thereof to such
address as CITBC may designate;
(c) To request from customers indebted on Accounts at any time, in the
name of CITBC or the Company or that of CITBC's designee, information concerning
the amounts owing on the Accounts;
28
<PAGE>
(d) To transmit to customers indebted on Accounts notice of CITBC's
interest therein and to notify customers indebted on Accounts to make payment
directly to CITBC for the Company's account; and
(e) To take or bring, in the name of CITBC or the Company, all steps,
actions, suits or proceedings deemed by CITBC necessary or desirable to
enforce or effect collection of the Accounts.
9.2 Notwithstanding anything set forth herein to the contrary, the
powers set forth in paragraphs (b), (d) and (e) of Section 9.1 may only be
exercised after the occurrence of an Event of Default and until such time as
such Event of Default is waived.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Notwithstanding anything set forth herein to the contrary, CITBC
may terminate this Financing Agreement immediately upon the occurrence of any
of the following (herein "Events of Default"):
(a) cessation of the business of the Company or Parent, or the calling
of a meeting of the creditors of the Company or Parent for purposes of
compromising the debts and obligations of the Company;
(b) the failure of the Company or Parent to generally meet debts as
they mature;
(c) the commencement by or against the Company or Parent of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, provided that in the event of any
involuntary proceeding commenced against the Company or Parent, such
proceeding is not dismissed or discharged within thirty (30) days after
commencement thereof;
(d) breach by the Company of any warranty, representation or covenant
contained herein (other than those referred to in paragraph (e) below) or in
any other written agreement between the Company or CITBC, provided that such
breach by the Company of any of the warranties, representations or covenants
referred in this paragraph (d) shall not be deemed to be an Event of Default
unless and until such breach shall remain unremedied to CITBC's reasonable
satisfaction for a period of ten (10) Business Days from the date of such
breach;
(e) breach by the Company of any warranty, representation or covenant
of 3.4; Sections 6.3 and 6.4 (other than the first sentence of Section 6.4);
and Sections 7.1(h), 7.5, 7.6, 7.9, 7.10, 7.11 and 7.13;
(f) failure of the Company to pay any of the Obligations on due date
thereof;
(g) the Company shall i) engage in any "prohibited transaction" as
defined in ERISA, ii) incur any "accumulated funding deficiency" as defined
in ERISA, iii) incur any Reportable Event
29
<PAGE>
as defined in ERISA, iv) terminate any Plan, as defined in ERISA or v) engage
in any proceeding in which the Pension Benefit Guaranty Corporation shall
seek appointment, or is appointed, as trustee or administrator of any Plan,
as defined in ERISA; and with respect to this paragraph (g) such event or
condition x) remains uncured for a period of thirty (30) days from date of
occurrence and y) could, in the reasonable opinion of CITBC, subject the
Company to any tax, penalty or other liability material to the business,
operations or financial condition of the Company;
(h) Parent shall revoke, rescind or repudiate the guaranty agreement
delivered to CITBC in connection with this Agreement, or shall attempt to
revoke, rescind or repudiate such guaranty agreement or deny that Parent has
any further obligations to CITBC thereunder;
(i) the occurrence of any default or event of default (after giving
effect to any applicable grace or cure periods) under any instrument or
agreement evidencing Indebtedness of the Company having a principal amount in
excess of $250,000;
(j) either: i) Arnold H. Dratt ceases for any reason to be actively
engaged in the management of the Company and Parent, unless x) within thirty
(30) days thereafter the Company and CITBC amend this Financial Agreement to
provide for an amended Net Worth covenant, a new fixed charge coverage ratio
covenant and a new funded debt to EBITDA covenant, all of which covenants
must be satisfactory to CITBC in its reasonable business judgment, y) within
ninety (90) thereafter the Company and Parent appoint an interim replacement
reasonably satisfactory to CITBC and z) within two hundred seventy (270) days
thereafter the Company appoints a permanent replacement reasonably
satisfactory to CITBC; or ii) any of the stock of the Company presently held
(directly or indirectly) by the Parent is sold or transferred; or
(k) Availability at any time is less than $1,500,000.
10.2 Upon the occurrence of a Default and/or an Event of Default, at
the option of CITBC, all loans, advances and extensions of credit provided
for in Sections 3 and 5 of this Financing Agreement thereafter shall be made
in CITBC's sole discretion, and the obligation of CITBC to make Revolving
Loans and/or open Letters of Credit shall cease unless such Default or Event
of Default is waived. In addition, at the option of CITBC, upon the
occurrence of an Event of Default: (a) all Obligations shall become
immediately due and payable; (b) CITBC may charge the Company the Default
Rate of Interest on all then outstanding or thereafter incurred Obligations
in lieu of the interest provided for in Section 8 of this Financing
Agreement, provided that with respect to this clause (b), CITBC has given the
Company written notice of the Event of Default, (provided that no notice is
required if the Event of Default is the Event listed in paragraph (c) of
Section 10.1) and the Company has failed to cure the Event of Default to
CITBC's satisfaction within ten (10) days after CITBC notifies the Company in
the manner required hereunder (or within 10 days of the occurrence of the
Event of Default, in the case of an Event of Default listed in paragraph (c)
of Section 10.1); and (c) CITBC may immediately terminate this Financing
Agreement upon notice to the Company, provided that no notice of termination
is required if the Event of Default is the Event listed in paragraph (c) of
Section 10.1. The exercise of any option is not exclusive of any other
option which may be exercised at any time by CITBC.
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<PAGE>
10.3 Immediately upon the occurrence of any Event of Default, CITBC may
to the extent permitted by law: (a) remove from any premises where same may
be located any and all documents, instruments, files and records, and any
receptacles or cabinets containing same, relating to the Accounts, or CITBC
may use, at the Company's expense, such of the Company's personnel, supplies
or space at the Company's places of business or otherwise, as may be
necessary to properly administer and control the Accounts or the handling of
collections and realizations thereon; (b) bring suit, in the name of the
Company or CITBC, and generally shall have all other rights respecting said
Accounts, including, without limitation, the right to i) accelerate or extend
the time of payment, ii) settle, compromise, release in whole or in part any
amounts owing on any Accounts and iii) issue credits in the name of the
Company or CITBC; (c) sell, assign and deliver the Collateral and any
returned, reclaimed or repossessed merchandise, with or without advertisement,
at public or private sale, for cash, on credit or otherwise, at CITBC's sole
option and discretion, and CITBC may bid or become a purchaser at any such
sale, free from any right of redemption, which right is hereby expressly
waived by the Company; (d) foreclose its security interests in the Collateral
by any available judicial procedure, or to take possession of any or all of
the Inventory, Equipment and/or Other Collateral without judicial process,
and to enter any premises where any Inventory, Equipment and/or Other
Collateral may be located for the purpose of taking possession of or removing
the same, and (e) exercise any other rights and remedies provided in law, in
equity, by contract or otherwise. CITBC shall have the right, without notice
or advertisement, to sell, lease, or otherwise dispose of all or any part of
the Collateral whether in its then condition or after further preparation or
processing, in the name of the Company or CITBC, or in the name of such other
party as CITBC may designate, either at public or private sale or at any
broker's board, in lots or in bulk, for cash or for credit, with or without
warranties or representations, and upon such other terms and conditions as
CITBC in its sole discretion may deem advisable, and CITBC shall have the
right to purchase at any such sale. If any Inventory and Equipment shall
require rebuilding, repairing, maintenance or preparation, CITBC shall have
the right, at its option, to do such of the aforesaid as is necessary, for
the purpose of putting the Inventory and Equipment in such saleable form as
CITBC shall deem appropriate. The Company agrees, at the request of CITBC,
to assemble the Inventory and Equipment and to make it available to CITBC at
premises of the Company or elsewhere and to make available to CITBC the
premises and facilities of the Company for the purpose of CITBC's taking
possession of, removing or putting the Inventory and Equipment in saleable
form. However, if notice of intended disposition of any Collateral is
required by law, it is agreed that ten (10) days notice shall constitute
reasonable notification and full compliance with the law. The net cash
proceeds resulting from CITBC's exercise of any of the foregoing rights,
(after deducting all charges, costs and expenses, including reasonable
attorneys' fees) shall be applied by CITBC to the payment of the Company's
Obligations, whether due or to become due, in such order as CITBC may elect,
and the Company shall remain liable to CITBC for any deficiencies, and CITBC
in turn agrees to remit to the Company or its successors or assigns, any
surplus resulting therefrom. The enumeration of the foregoing rights is not
intended to be exhaustive and the exercise of any right shall not preclude
the exercise of any other rights, all of which shall be cumulative. The
mortgage(s), deed(s) of trust or assignment(s) on the Real Estate shall
govern the rights and remedies of CITBC thereto.
SECTION 11. TERMINATION
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<PAGE>
11.1 Except as otherwise permitted herein, the Company or CITBC may
terminate this Financing Agreement and the Line of Credit only as of the
initial or any subsequent Anniversary Date and then only by giving the other
party at least ten (10) Business Days prior written notice of termination.
Notwithstanding the foregoing, (a) CITBC may terminate the Financing
Agreement immediately upon the occurrence of an Event of Default, provided
that if the Event of Default is an event listed in paragraph (c) of Section 10.1
hereof, CITBC may regard the Financing Agreement as terminated and notice to
that effect is not required, and (b) the Company may terminate this Financing
Agreement and the Line of Credit prior to any applicable Anniversary Date
upon ten (10) Business Days' prior written notice to CITBC, provided that the
Company pays to CITBC immediately on demand, an Early Termination Fee, if
applicable. This Financing Agreement, unless terminated as herein provided,
shall automatically continue from Anniversary Date to Anniversary Date. All
Obligations shall become due and payable as of any termination hereunder or
under Section 10 hereof and, pending a final accounting, CITBC may withhold
any balances in the Company's account (unless supplied with an indemnity
satisfactory to CITBC) to cover all of the Obligations, whether absolute or
contingent. All of CITBC's rights, liens and security interests shall
continue after any termination until all Obligations have been paid and
satisfied in full.
SECTION 12. MISCELLANEOUS
12.1 The Company hereby waives diligence, demand, presentment and
protest and any notices thereof as well as notice of nonpayment. Any waiver
of an Event of Default by CITBC must be in writing and signed by an officer
of CITBC, and no delay or omission of CITBC or the Company to exercise any
right or remedy hereunder, whether before or after the happening of any Event
of Default, shall impair any such right or shall operate as a waiver thereof
or as a waiver of any such Event of Default. No single or partial exercise
by CITBC of any right or remedy precludes any other or further exercise
thereof, or precludes any other right or remedy.
12.2 This Financing Agreement and the documents executed and delivered
in connection therewith constitute the entire agreement between the Company
and CITBC; supersede any prior agreements; can be changed only by a writing
signed by both the Company and CITBC; and shall bind and benefit the Company
and CITBC and their respective successors and assigns.
12.3 In no event shall the Company, upon demand by CITBC for payment of
any indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement
made in connection herewith, CITBC shall never be entitled to receive, charge
or apply, as interest on any indebtedness relating hereto, any amount in
excess of the maximum amount of interest permissible under applicable law.
If CITBC ever receives, collects or applies any such excess, it shall be
deemed a partial repayment of principal and treated as such; and if principal
is paid in full, any remaining excess shall be refunded to the Company. This
Section 12.3 shall control every other provision hereof and of any other
agreement made in connection herewith.
12.4 If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision
shall be fully severable, and the remaining provisions of the applicable
agreement shall remain in full force and effect and shall not be affected by
such
32
<PAGE>
provision's severance. Furthermore, in lieu of any such provision, there
shall be added automatically as a part of the applicable agreement a legal
and enforceable provision as similar in terms to the severed provision as may
be possible.
12.5 THE COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT.
THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED.
12.6 Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed to
have been validly served, given or delivered upon receipt by the intended
recipient when hand delivered or sent by facsimile or one Business Day after
timely delivery to a commercial overnight courier service for delivery the
next Business Day, and addressed to the party to be notified as follows:
(a) if to CITBC, at:
The CIT Group/Business Credit, Inc.
10 South LaSalle Street, 22nd Floor
Chicago, Illinois 60603
Attn: Regional Manager
Telecopier No.: (312) 443-0139
(b) if to the Company at:
Sames Electrostatic, Inc.
11998 Merriman Road
Livonia, Michigan 48150
Attn: President
Telecopier No.: (734) 261-9705
with copies to:
Vedder, Price, Kaufman and Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
Attn: Guy E. Snyder, Esq.
Telecopier No.: (312)609-5005
and
Arnold H. Dratt
Binks Sames Corporation
9201 Belmont Avenue
33
<PAGE>
Franklin Park, Illinois 60131
Telecopier No.: (847) 671-3062
or to such other address as any party may designate for itself by like notice.
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<PAGE>
12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS.
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed, agreed to accepted and delivered in Chicago,
Illinois by their proper and duly authorized officers as of the date set
forth above.
THE CIT GROUP/BUSINESS
CREDIT, INC.
By: /s/ Michael Egan
------------------------------
Its: Vice President
SAMES ELECTROSTATIC, INC.
By: /s/ Jeffrey W. Lemajeur
-------------------------------
Its: Executive Vice President
-------------------------------
35
<PAGE>
SCHEDULE 1 - EXISTING LIENS
<TABLE>
<CAPTION>
FILING SECURED
LOCATION FILING NO. DATE PARTY COLLATERAL
- - -------- ---------- ------ ------- ----------
<S> <C> <C> <C> <C>
SOS, Michigan 951888 3/28/95 Hovinga Business Copier and
accessories
</TABLE>
- - - Rights of Illinois Tool Works Inc., if any, in Inventory consisting of
sheet metal situated at any location operated by Illinois Tool Works Inc. or
any affiliate thereof.
<PAGE>
SCHEDULE 2 - COLLATERAL LOCATIONS, CHIEF EXECUTIVE OFFICE AND TRADENAMES
CHIEF EXECUTIVE OFFICE
11998 Merriman Road
Livonia, Michigan 48150
COLLATERAL LOCATIONS
11998 Merriman Road
Livonia, Michigan 48150
TRADENAMES
<PAGE>
SCHEDULE 3 - EXISTING LITIGATION
<PAGE>
GUARANTY AGREEMENT
October 21, 1998
To: THE CIT GROUP/BUSINESS CREDIT, INC.
Address: 10 South LaSalle Street, 22nd Floor
Chicago, Illinois 60603
Re: SAMES ELECTROSTATIC, INC. (THE "COMPANY")
Ladies and Gentlemen:
Reference is made to that certain Financing Agreement of even date
herewith, as amended from time to time (herein the "Agreement"), between you
and the Company. The undersigned ("Guarantor") hereby unconditionally
guarantees and agrees to be liable for the full and indefeasible payment and
performance when due of all now existing and future indebtedness, obligations
or liabilities of the Company to you, howsoever arising, whether direct or
indirect, absolute or contingent, secured or unsecured, whether arising under
the Agreement as now written or as amended or supplemented hereafter, or by
operation of law or otherwise, including, without limitation, all Obligations
(as that term is defined in the Agreement) owed by the Company to you. In
addition, Guarantor agrees to pay to you on demand (a) the amount of all
expenses (including reasonable attorney's fees) incurred by you in collecting
or attempting to collect any of the Company's obligations to you, whether
from the Company, or from any other obligor under the Agreement, or from
Guarantor, or in realizing upon any collateral, and (b) interest at the
highest lawful rate on all amounts payable to you thereunder, even if such
amount cannot be collected from the Company. (All of the aforementioned
obligations, liabilities, expenses and interest are hereinafter collectively
called the "Obligations").
To the extent you receive payment on account of Obligations, which
payment is thereafter set aside or required to be repaid by you in whole or
in part, then, to the extent of any sum not finally retained by you
(regardless of whether such sum is recovered from you by the Company, its
trustee, or any other party acting for, on behalf of or through the Company
or its representative), Guarantor's obligation to you under this Guaranty, as
amended, modified or supplemented, shall remain in full force and effect (or
be reinstated) until Guarantor has made payment to you therefor, which
payment shall be due upon demand.
This Guaranty is executed as an inducement to you to make loans or
advances to the Company or otherwise to extend credit or financial
accommodations to the Company, or to enter into or continue a financing
arrangement with the Company, and is executed in consideration of your doing
or having done any of the foregoing. Guarantor agrees that any of the
foregoing shall be done
<PAGE>
or extended by you in your sole discretion, and shall be deemed to have been
done or extended by you in consideration of and in reliance upon the
execution of this Guaranty, but that nothing herein shall obligate you to do
any of the foregoing.
Notice of acceptance of this Guaranty, the making of loans or advances,
or the extension of credit under the Agreement, the amendment, execution or
termination of the Agreement or any other agreements in connection therewith,
and presentment, demand, protest, notice of protest, notice of non-payment
and all other notices to which Guarantor may be entitled (whether under this
Guaranty or the Agreement), and your reliance on this Guaranty are hereby
waived. Guarantor also waives notice of changes in terms or extensions of the
time of payment, the taking and releasing of collateral or guarantees
(including the release of any of Guarantor) and the settlement, compromise or
release of any Obligations, and agree that, as to Guarantor, the amount of
the Obligations shall not be diminished by any of the foregoing. Guarantor
also agrees that you need not attempt to collect any Obligations from any
other guarantor of all or part of the Obligations, or any other obligor with
respect thereto, or to realize upon any collateral securing the Obligations,
but may require Guarantor to make immediate payment of Obligations to you
when due or at any time thereafter. You shall not be liable for failure to
collect Obligations or to realize upon any collateral or security therefor,
or any part thereof, or for any delay in so doing, nor shall you be under any
obligation to take any action whatsoever with regard thereto.
This Guaranty is absolute, unconditional and continuing, regardless of
the validity, regularity or enforceability of any of the Obligations or the
fact that a security interest or lien in any collateral or security therefor
may not be enforceable by you or may otherwise be subject to equities or
defenses or prior claims in favor of others or may be invalid or defective in
any way and for any reason, including any action, or failure to act, on your
part. Payment by Guarantor shall be made to you at your office from time to
time on demand as Obligations become due, and one or more successive or
concurrent actions may be brought hereon against Guarantor either in the same
action or in separate actions. In the event any claim or action, or action
on any judgment, based on this Guaranty, is made or brought against
Guarantor, Guarantor agrees not to assert against you any set-off or
counterclaim which the Company may have, and, further, Guarantor agrees not
to deduct, set-off, or seek to counterclaim for or recoup, any amounts which
are or may be owed by you to Guarantor, or for any loss of contribution from
any other guarantor. Furthermore, in any litigation based on this Guaranty
in which you and Guarantor shall be adverse parties, Guarantor hereby waives
the right to interpose any defense based upon any statute of limitations or
any claim of laches, and waives the performance of each and every condition
precedent to which Guarantor might otherwise be entitled by law. Guarantor
hereby consents to the in personam jurisdiction of the courts of the State of
Illinois. In the event that you bring any action or suit in any court of
record in Illinois (whether State or Federal) to enforce any or all
liabilities of Guarantor hereunder, service of process may be made on
Guarantor by mailing a copy of the summons to Guarantor at the address set
forth below.
All sums at any time to the credit of Guarantor and any property of
Guarantor on which you at any time have a lien or security interest, or of
which you at any time have possession, shall secure payment and performance
of all Obligations and any and all other obligations of Guarantor to you
<PAGE>
however arising. Guarantor shall have no right of subrogation,
indemnification or recourse to any Obligations or collateral or guarantees
therefor, or to any assets of the Company.
Upon the occurrence of any of the following events:
(a) any Event of Default under, or the termination of, the Agreement;
(b) the failure of Guarantor to observe or perform any agreements,
warranties or covenants contained herein; or
(c) the dissolution or cessation of Guarantor's business, or the
calling of a meeting of the creditors of Guarantor for the purposes of
compromising the debts of Guarantor, or the failure of Guarantor to meet its
debts as they mature, or the commencement by or against Guarantor of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceeds under any foreign, federal or state law;
then, the liabilities of Guarantor for the entire Obligations shall
immediately mature and be due and payable.
This Guaranty may be terminated only as of any Anniversary Date (as
defined in the Agreement) and then only upon actual receipt by one of your
officers of at least ten (10) Business Days prior written notice of
termination sent by registered or certified mail; provided however, that
Guarantor shall remain bound hereunder, and this Guaranty shall continue in
full force and effect, with respect to any and all Obligations created or
arising prior to the effective date of such termination and with respect to
any and all extensions, renewals or modifications of said pre-existing
Obligations. Termination of this Guaranty by Guarantor shall not relieve
Guarantor from liability for any post-termination collection expenses or
interest. This is a continuing agreement and written notice as above
provided shall be the only means of termination, notwithstanding the fact
that for certain periods of time there may be no Obligations owing to you by
the Company.
Your books and records showing the account between you and the Company
shall be admissible in evidence in any action or proceeding as prima facie
proof of the items therein set forth. Your monthly statements, if any,
rendered to the Company shall be binding upon Guarantor (whether or not
Guarantor received copies thereof) and shall constitute an account stated
between you and the Company unless you shall have received a written
statement of the Company's exceptions within thirty (30) days after the
statement was mailed to the Company.
Guarantor expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
it may now or hereafter have against the Company or any other person directly
or contingently liable for the Obligations guaranteed hereunder, or against
or with respect to the Company's property (including, without limitation,
property collateralizing its Obligations to you) arising from the existence
or performance of this Guaranty.
<PAGE>
This Guaranty embodies the whole agreement of the parties and may not be
modified except in writing, and no course of dealing between you and
Guarantor shall be effective to change or modify this Guaranty. Your failure
to exercise any right hereunder shall not be construed as a waiver of the
right to exercise the same or any other right at any other time and from time
to time thereafter, and such rights shall be considered as cumulative rather
than alternative. No knowledge by you of any breach or other nonobservance
by Guarantor of the terms and provisions of this Guaranty shall constitute a
waiver thereof, nor a waiver of any obligations to be performed by Guarantor
hereunder.
This Guaranty may be assigned by you and shall be for your benefit and
for the benefit of any of your assignees or transferees, and shall cover any
Obligations owed to you at the time of assignment or transfer as well as any
and all future Obligations, loans, advances or extensions of credit made to
the Company by, or otherwise owed by the Company to, such assignee or
transferee.
This instrument is executed and given in addition to, and not in
substitution, reduction, replacement, or satisfaction of, any other
endorsements or guarantees of the Obligations, now existing or hereafter
executed by Guarantor or others in your favor.
When used in this agreement, all pronouns shall, wherever applicable, be
deemed to include the singular and plural as well as the masculine, feminine,
and neuter genders. This agreement shall inure to the benefit of you, your
successors and assigns and any parent, subsidiary or affiliate of yours;
shall be binding upon Guarantor and upon the successors and assigns of
Guarantor; and shall pertain to the Obligations owed by the Company and its
successors and assigns.
This Guaranty may be executed in any number of counterparts, each of
which when so executed shall be deemed an original and such counterparts
shall together constitute but one and the same document.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of Illinois.
<PAGE>
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]
GUARANTOR AND YOU EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ARISING OUT OF THIS GUARANTY.
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty
effective as of the date above set forth.
BINKS SAMES CORPORATION
Adress: 9201 Belmont Avenue By: /s/ Jeffrey W. Lemajeur
Franklin Park, Illinois 60131 --------------------------------
Title: V.P. and
Chief Financial Officer
<PAGE>
STATE OF ILLINOIS )
)
COUNTY OF COOK )
The undersigned, a Notary Public in and for the above State and County,
does hereby certify that on October 16, 1998, before me personally appeared
Jeffrey W. Lemajeur, known to me to be the V.P. and Chief Financial Officer
of the corporation which executed the foregoing instrument of Guaranty, and
who being by me duly sworn, did depose and say that the foregoing instrument
of Guaranty was signed and delivered by said officer on authority of the
board of directors of said corporation, as the free and voluntary act and
deed of said corporation , for the uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Lillian Socki
---------------------------------
Notary Public
Commission Expires: 3/25/02
<PAGE>
STOCK PLEDGE AGREEMENT
February 19, 1999
To: THE CIT GROUP/BUSINESS CREDIT, INC.
Address: 10 South LaSalle Street
Chicago, Illinois 60603
RE: SAMES ELECTROSTATIC, INC. (THE "COMPANY")
Ladies and Gentlemen:
Reference is made to a certain Financing Agreement of even date herewith (the
"Financing Agreement") between you and the Company. Capitalized terms used in
this Stock Pledge Agreement and defined in the Financing Agreement shall have
the same meanings as set forth in the Financing Agreement unless otherwise
specifically defined herein. As security for the full and indefeasible payment
and performance when due of all now existing and future Obligations, as well as
all liabilities and obligations of the undersigned ("Pledgor") to you under the
Guaranty Agreement of even date herewith executed by Pledgor and delivered to
you (collectively, the "Secured Obligations"), Pledgor hereby pledges, assigns,
transfers, delivers and sets over to you all of its right, title and interest in
and to the capital stock of the Company evidenced by the certificates described
on SCHEDULE 1 attached hereto and made a part hereof (the "Securities").
This pledge includes all right, title and interest in and to, and a continuing
lien upon and security interest in, all of said Securities together with any and
all rights, coupons, warrants or rights to subscribe, options, dividends,
liquidating dividends, splits, dividends paid in stock, dividends paid in
Securities, new or reclassified Securities, or any other property which Pledgor
is or may hereafter become entitled to receive on account of such Securities,
any and all substitutions, additions or replacements thereof, and any and all
proceeds thereof (all collectively hereinafter referred to as the "Pledged
Collateral").
This Stock Pledge Agreement is executed as an inducement to you to make loans
and other financial accommodations to the Company under the Financing Agreement,
and is executed in consideration of your doing any of the foregoing. Pledgor
agrees that any of the foregoing shall be deemed to be made by you in
consideration of and in reliance upon the execution of this Stock Pledge
Agreement.
Pledgor shall be in default under this Pledge Agreement upon the occurrence of
any Event of Default under the Financing Agreement or the Guaranty Agreement
(any such Event of Default shall be referred to hereinafter as an "Event of
Default").
<PAGE>
Upon the occurrence of any such Event of Default, then at any time thereafter
upon ten (10) days prior notice to Pledgor, you may, without demand of
performance, advertisement or notice of intention to sell, or of the time or
place of sale, and without notice to redeem, or other notice or demand
whatsoever to or upon Pledgor (all and each of which demands, advertisements
and/or notices are hereby expressly waived), forthwith or at any time or times
thereafter, transfer to and/or register in your name, or the name of your
nominee, any or all of the Pledged Collateral and/or collect, receive,
appropriate and realize upon said Pledged Collateral. In addition, and also
without any of the aforesaid demands, advertisements, and/or notices, upon the
occurrence of any Event of Default as defined herein, you may sell, assign,
transfer and deliver the whole or any part of the Pledged Collateral then held
by you under this Stock Pledge Agreement or subject to this Stock Pledge
Agreement in one or more parcels, at public or private sale or sales, at any
Exchange Broker's Board, at your office or elsewhere, on such terms and
conditions, and at such prices as you may deem advisable, for cash, upon credit,
or for future delivery, with the right on your part to become the purchaser
thereof at any such sale or sales, free and clear of any right to equity of
redemption (which right or equity is hereby expressly waived and released). Any
notice of sale, disposition, or other intended action by you required by
applicable law and sent to Pledgor at least ten (10) days prior to such action
shall constitute reasonable notice to Pledgor.
Net proceeds of any such disposition as aforesaid, after deduction all costs,
including reasonable attorney's fees and expenses of every kind incurred
therein, shall be applied to the payment in whole or in part, in such order as
you may elect, of any of the Secured Obligations, whether then due or not due.
You agree to pay over and return any remaining balance to the Company or
Pledgor, or to any person entitled thereto, upon proper demand being made
therefor, and if there be any deficiency, the Company shall continue to be fully
liable for same.
Further, you are hereby expressly granted the right and irrevocable proxy, in
the event of the happening of any Event of Default (as defined herein), and on
ten (10) days prior notice to Pledgor, to transfer to yourself or to your
nominee any or all of the Pledged Collateral or to register same in your name on
the books of the Company; to receive cash dividends, coupons and income thereon
and to hold the same as additional collateral security hereunder, or to apply it
against the Secured Obligations and to exercise any voting rights with respect
to said Collateral for any purposes as you in your discretion deem advisable,
and to otherwise exercise as to such Pledged Collateral, all rights, powers and
remedies as the owner thereof.
Pledgor hereby represents and warrants that the Pledged Collateral is owned by
Pledgor absolutely, and is free and clear of all liens and encumbrances except
for the pledge in your favor; that there are no restrictions upon the pledge or
transfer of any of the Pledged Collateral; that Pledgor has full right to pledge
and transfer the same in accordance with the terms and conditions of this Stock
Pledge Agreement without the consent of any other person, firm, entity or
corporation and without the need to notify the Company and/or obtain its consent
to the pledge; and that said Pledged Collateral is not subject to any
assessment. Pledgor agrees to defend its title to the Pledged Collateral at its
own cost
2
<PAGE>
and expense, and to pay, satisfy and discharge and any all assessments, liens
or charges now or thereafter placed upon the Pledged Collateral.
In the event that it becomes necessary to comply with any Federal or State law
or regulation or to make or file any registration thereunder in order for you to
exercise any of your rights hereunder, Pledgor expressly agrees to do or will
cause to be done all acts and prepare and execute all documents necessary to
affect such compliance or registration, and to bear all reasonable costs in
connection therewith. Pledgor agrees to indemnify and to hold you harmless from
and against any claim or liability; and to hold you harmless from and against
any claim or liability caused by (i) any untrue statement of material fact, or
omission to state a material fact (as required in any registration or
prospectus) or (ii) a failure to register or comply with any such law or
regulation.
Pledgor recognizes that you may be unable to effect a public sale of any or all
of the Collateral, by reason of certain prohibitions contained in the Securities
Act of 1933 and applicable state securities law or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obligated to agree, among other things, to acquire
such Securities for their own account for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable to you than if
such sale were a public sale and agrees that such circumstances shall not, in
and of themselves, result in a determination that such sale was not made in a
commercially reasonable manner. You shall be under no obligation to delay a
sale of any of the Pledged Collateral for the period of time necessary to permit
the issuer to register such securities for public sale under the Securities Act
of 1933, or under applicable state securities laws, even if the issuer agrees to
do so.
The Company affirms and certifies that the obligations of Pledgor to you under
the Guaranty Agreement were not, and will not be, incurred for the purpose of
providing credit to the Company or Pledgor for purchasing or trading in
registered equity securities or other marketable securities.
Pledgor hereby agrees at your request to execute all necessary stock powers in
blank, to have the signatures on said powers guaranteed, to execute a letter or
other form confirming that the Pledged Collateral is not being pledged to you
for the purpose of providing the Company or Pledgor with any credit for
purchasing or trading in registered equity securities or other marketable
securities, and to execute any further documents or papers whatsoever in order
to carry out the intent and purpose of this Stock Pledge Agreement.
The pledge provided for herein shall be in addition to, and shall not be deemed
to affect, modify or limit any other rights, collateral, agreements or security
which you may now or hereafter hold whether granted or given to you by Pledgor
or by any other person, firm or corporation.
It is understood and agreed that the rights and remedies herein enumerated are
not intended to be exhaustive but are in addition to any other rights or
remedies at law or in equity. You shall have the absolute right in your sole
discretion to determine the order in which your rights and remedies are
3
<PAGE>
to be exercised, and your exercise of any right or remedy shall not preclude
the exercise of any other rights or remedies or be deemed to be a waiver
thereof. No act of forbearance, or agreement to forebear the enforcement of,
or extension of the date of maturity of, any Obligation, shall in any way
constitute a release of, or a waiver or relinquishment of any of your rights
or remedies.
This Stock Pledge Agreement is to be governed by the laws of the State of
Illinois and shall be binding on the heirs, administrators, executors,
successors and assigns of Pledgor, and shall inure to the benefit of you and
your successors and assigns.
Very truly yours,
BINKS SAMES CORPORATION
By: /s/ Jeffrey W. Lemajeur
----------------------------------
Title: VP and Chief Financial Officer
--------------------------------
Accepted this ___ day of October, 1998:
THE CIT GROUP/BUSINESS CREDIT, INC.
By: Michael Egan
-----------------------------
Title: Vice President
---------------------------
4
<PAGE>
SCHEDULE 1 TO STOCK PLEDGE AGREEMENT BETWEEN BINKS SAMES CORPORATION
AND
THE CIT GROUP/BUSINESS CREDIT, INC. AND
<TABLE>
<CAPTION>
Issuer Certificate # # of Shares
- - ------ ------------- ------------
<S> <C> <C>
Sames Electrostatic, Inc. 1 1,000
</TABLE>
5
<PAGE>
February 19, 1999
The CIT Group/Business Credit, Inc.
10 South LaSalle Street
Chicago, Illinois 60603
RE: Financing Agreement dated as of October 21, 1998 (the "Financing
Agreement") between The CIT Group/Business Credit, Inc. ("CITBC") and
Sames Electrostatic, Inc. (the "Company")
Ladies and Gentlemen:
Reference is made to the Financing Agreement. Capitalized terms used in
this letter and not specifically defined herein shall have the meanings given to
such terms in the Financing Agreement.
The undersigned, Binks Sames Corporation ("Binks"), is the parent of the
Company and the owner of the U.S. intellectual property rights, including the
trademarks and tradenames (collectively, the "I/P Rights"), associated with
certain of the Inventory sold by the Company in the Company's ordinary course of
business. In connection with execution of the Financing Agreement, CITBC has
requested that Binks grant to CITBC a non-exclusive, limited license to use the
I/P Rights in connection with CITBC's sale of the Inventory in accordance with
the terms of the Financing Agreement, and Binks has agreed to this request.
Accordingly, Binks hereby grants to CITBC a royalty-free, non-exclusive
license to use the I/P Rights for the sole purpose, after the occurrence of an
Event of Default, to (i) advertise the Inventory for sale and (ii) sell,
transfer and distribute the Inventory in accordance with the terms and
provisions of the Financing Agreement. The provisions of this paragraph shall
inure to the successors and assigns of CITBC, and be binding upon Binks and its
respective successors and assigns, including any purchaser, assignee, licensee
or other transferee of the I/P Rights.
Very truly yours,
BINKS SAMES CORPORATION
By: /s/ Arnold H. Dratt
----------------------------
Title: President and CEO
--------------------------
<PAGE>
EXHIBIT 21.1
BINKS SAMES CORPORATION
SUBSIDIARIES
1. Sames North America, Inc. (formerly Sames Electrostatic, Inc.)
2. Binks Sames Canada Ltd.
3. Binks De Mexico, S.A. De C.V.
4. Binks Sames Corporation (Japan)
5. Sames, S.A.
6. Binks Sames Scandinavia
<PAGE>
EXHIBIT 23.1
CONSENT OF KPMG LLP
Binks Sames Corporation:
We consent to the incorporation by reference in the registration
statement (No. 333-30191) on Form S-8 of Binks Sames Corporation of our
report dated February 22, 1999 relating to the consolidated balance sheets of
Binks Sames Corporation and consolidated subsidiaries as of November 30, 1998
and 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended November 30, 1998, which report appears in the November 30, 1998
Annual Report on Form 10-K of Binks Sames Corporation.
Chicago, Illinois /s/ KPMG LLP
February 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 5,204
<SECURITIES> 0
<RECEIVABLES> 44,795
<ALLOWANCES> 0
<INVENTORY> 16,465
<CURRENT-ASSETS> 73,260
<PP&E> 12,697
<DEPRECIATION> 7,971
<TOTAL-ASSETS> 82,533
<CURRENT-LIABILITIES> 52,611
<BONDS> 1,238
0
0
<COMMON> 2,965
<OTHER-SE> 18,268
<TOTAL-LIABILITY-AND-EQUITY> 82,533
<SALES> 122,370
<TOTAL-REVENUES> 122,370
<CGS> 83,719
<TOTAL-COSTS> 83,719
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 759
<INCOME-PRETAX> (5,822)
<INCOME-TAX> (2,564)
<INCOME-CONTINUING> (3,258)
<DISCONTINUED> (10,375)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,633)
<EPS-PRIMARY> (4.60)
<EPS-DILUTED> (4.60)
</TABLE>
