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 December 31, 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 0-22978
STIMSONITE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3718658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6565 West Howard Street
Niles, Illinois 60714
(Address of principal executive offices) (Zip Code)
(847) 647-7717
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock, $.01 par value
held by nonaffiliates of the registrant as of March 1, 1999 was $37,323,785.
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of March 1, 1999 was 8,343,877.
Documents Incorporated by Reference:
Proxy Statement (to be filed) accompanying the notice of the annual meeting of
Stimsonite Corporation's stockholders to be held on May 19, 1999 (Part III).
<PAGE>
STIMSONITE CORPORATION
Form 10-K Annual Report--1998
Table of Contents
PART I Page
Item 1. Business......................................... 1
Item 2. Properties....................................... 9
Item 3. Legal Proceedings................................ 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 4A. Executive Officers of the Registrant............. 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................. 12
Item 6. Selected Financial Data.......................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 13
Item 7A Quantitative and Qualitative Disclosures About
Market Risk............................. 21
Item 8. Financial Statements and Supplementary Data...... 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 41
PART III
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation............................ 42
Item 12. Security Ownership of Certain Beneficial Owners and
Management....................... .. 42
Item 13. Certain Relationships and Related Transactions... 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................ 43
Signatures........................................................ 47
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PART I
ITEM 1--BUSINESS
The Company
Stimsonite Corporation ("Stimsonite" or the "Company") is one of the
nation's leading manufacturers and marketers of reflective highway safety
products. The Company makes a range of high performance products, which are
designed to offer enhanced visual guidance to vehicle operators and pedestrians
in a variety of driving conditions. The Company operates in one business
segment. The Company's products, which are all designed and manufactured to
promote highway safety, are sold primarily by a single sales force to similar
customers in the highway construction business. These products include highway
delineation products (such as raised reflective pavement markers, thermoplastic
pavement marking materials and related application equipment, construction work
zone markers and roadside and other delineators) and optical film products (such
as high performance reflective sheeting used in the construction of highway
signs and Protected Legend(TM) pre-printed sign faces, reflective truck markings
and precision embossed film, which is used in internally illuminated airport
runway signs and a variety of other products that require optical grade film).
Stimsonite was organized in July 1990 as a Delaware corporation and
acquired substantially all of the assets of the Stimsonite Division of Amerace
Corporation ("Amerace") in August 1990. In May 1995, the Company acquired
substantially all of the assets of Pave-Mark Corporation ("Pave-Mark"), a
manufacturer and marketer of thermoplastic pavement marking materials and
related application equipment used primarily for highway marking.
Products
The Company is one of the nation's leading manufacturers and suppliers
of reflective highway delineation products, all of which are sold in the
Company's single business segment. Reflective highway delineation devices are
installed on or near roadways to offer visual guidance in a variety of driving
conditions, such as night, fog and other inclement conditions. These devices can
be mounted horizontally on road surfaces, ramps and bridges to demarcate traffic
lanes and roadway surfaces, vertically on obstructions (such as construction
work zone barriers, bridge abutments and guard rails), within or near the
roadway to alert drivers that such obstructions exist, or mounted on posts to
outline the edge of the roadway and guide motorists through critical locations
and turns. Within this product line, the Company offers different families of
products to its customers designed specifically for use in a variety of traffic,
road and weather conditions.
The Company's highway delineation products are marketed, to highway
contractors and state and local highway departments and traffic engineers to
address a number of delineation problems presented by different traffic and road
conditions. The Company's sales of highway delineation products totaled $72.8
million, $72.2 million and $75.5 million in 1998, 1997 and 1996, respectively.
Several of the Company's highway delineation products and its
manufacturing processes are patent protected which, together with its extensive
industry experience, the Company believes provide a competitive advantage to the
Company. The Company was the first to introduce successfully in the U.S.
cube-corner delineation devices, sign legends for interstate highway signs and
raised reflective pavement markers. The Company has also continuously
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introduced new and upgraded markers, including the first commercially successful
snowplowable marker and the first glass-faced marker. Over the past several
years, the Company has introduced new improvements and designs to increase
product durability, extend the product's effective life on the highway and
enhance reflectivity. These innovations have enabled the Company to maintain its
position as a recognized market leader in highway delineation products. See
"Patents and Proprietary Rights".
The Company's products, including its delineation devices, require
replacement over time. While highway marker life is dependent upon the type and
intensity of highway traffic activity, markers used in temperate climates
require replacement on average every three to four years. Snowplowable markers,
which are set in a protective metal casting designed to last the life of the
road (generally seven years), generally require that the reflective element be
replaced every two to three years. Thermoplastic markings generally need to be
replaced every three to five years, and other delineators can last as long as
ten years.
Raised Reflective Pavement Markers. The Company's raised reflective
pavement markers are available in several variations and designs for use in a
variety of climatic conditions, forming a complete system for delineating lane
lines, center and edge lines, turns, curb dividers and other roadway features.
These products incorporate a variety of innovative designs that offer
significant performance and cost benefits over other raised reflective pavement
markers. These features sustain the higher reflectivity of the Company's
products resulting in lower maintenance costs and improved cost/benefit ratios
for customers. Markers are available in glass-faced, abrasion resistant models
featuring longer life and superior reflectivity. These models incorporate an
abrasion-resistant glass face on the reflex lens which minimizes damage to the
lens caused by the presence of grit, sand and road particles that scar, cloud
and ultimately dim the signal of conventional markers. The Company is the
leading manufacturer of glass-faced raised reflective pavement markers.
Historically, snowplow blades were a major cause of damage to raised
reflective pavement markers, which inhibited their use in certain areas. This
led to the Company's development of a "snowplowable" marker. The Company's
snowplowable marker consists of a replaceable reflector assembly protected by a
specially hardened metal casting. The casting is firmly embedded in the pavement
by an adhesive. The casting is designed with ramps which effectively permit a
traveling snowplow blade to ride up and over the reflector which is protected by
the casting, without damage to the reflector unit, casting or snowplow blade.
Snowplowable models offer Stimsonite's high brightness, cube-corner reflectors
and abrasion-resistant glass faces, and come in various versions adaptable to
areas where frequent high speed plowing or unusual traffic conditions are
encountered.
Thermoplastic Material for Highway Striping. The Company manufactures
and markets a line of thermoplastic material and related application equipment
primarily for highway striping. These products offer long-life and, unlike most
highway striping, do not result in the emission of volatile organic compounds
(VOCs) upon application. These characteristics are in high demand by the
Company's customers. Environmentally safe upon application and durable,
thermoplastic material meets most federal, state and local specifications for
pavement markings. The material is easy to apply and, over its life-cycle, is
one of the most cost-effective marking systems.
The Company makes two types of thermoplastic material, alkyd and
hydrocarbon. Alkyd thermoplastic, a maleic-modified glycerol ester resin, is
composed of a homogeneous blend of high quality, agriculturally-based resins,
pigment, filler and glass reflectorizing spheres
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which are resistant to the effects of oil and grease. Hydrocarbon thermoplastic
is primarily composed of petroleum-based resins, pigments, fillers and glass
spheres.
The Company also makes and sells a line of heat-fused preformed
thermoplastic pavement markings known as HotTape(R). This product is designed to
be applied with the use of a propane torch. HotTape(R) can be applied quickly
without use of extensive crews and equipment, resulting in a quicker return to a
normal traffic flow.
In conjunction with these products, the Company produces and markets a
broad line of thermoplastic application equipment. This equipment is designed to
deliver a combination of outstanding performance and ease of installation.
Construction Work Zone Delineation Products. The Company manufactures
and markets a Construction Work Zone or "CWZ" system as a coordinated grouping
of a number of work zone products, including raised reflective pavement markers,
delineators and sheeting for use in lane marking and identification of other
work zone hazards. The CWZ system's raised reflective pavement markers provide
positive day and night guidance through construction zones, and incorporate
design features which enable this product to perform better and, in particular,
to adhere better to pavement surfaces than competitive products. The CWZ system
also offers regular and fluorescent orange construction zone sheeting,
pre-striped barricade reflective sheeting panels, a barricade light lens and
flexible roll up reflective sign material.
Roadside and Other Delineation Products. The Company manufactures
several other types of permanent reflective devices used for highway delineation
purposes. These products include post, guardrail and barrier delineators.
Post-mounted delineators are reflective devices mounted at the side of the
roadway, in series, to indicate roadway alignment. They are primarily guidance
devices providing night visibility of roadway alignment and are particularly
useful during inclement weather conditions.
Optical Film
The Company's worldwide sales of optical film products totaled $14.6
million, $9.2 million and $7.2 million in 1998, 1997 and 1996, respectively.
Highway Signing Material. The Company manufactures and sells a line of
high performance reflective sheeting for a variety of highway and specialty
uses, principally for use in highway traffic signs and construction work zone
products. The Company's high performance sheeting is a thin, acrylic material
which incorporates microscopic cube-corner prisms to achieve its
retro-reflective properties. This patented product provides improved day and
night visibility at greater distances than competitive sheeting products that
employ glass bead technology. Stimsonite also employs a patented production
process for manufacturing its high performance reflective sheeting, which
involves the continuous formation of precision optical patterns in thin film.
The Company manufactures its reflective sheeting products using complex
patented processes and production equipment. In this process, a microscopic
cube-corner pattern is formed in thin film. This material is further processed
to create different sheeting constructions and impart different reflective or
diffusing properties necessary for the performance of the Company's different
sheeting products. Stimsonite's high performance reflective sheeting meets
federal government and industry specifications for retro-reflective sheeting.
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Protected Legend Pre-Printed Sign Faces. The Company designs,
manufactures and sells ready-to-use Protected Legend(R) reflective sign faces
(e.g. stop signs) on rolls which can contain from a dozen to several hundred
sign faces per roll. The sign faces are sold with a pressure-sensitive adhesive
backing protected with an easily removable liner. The ready-to-use sign faces
thus offer not only the viewing efficiency and vivid colors of the Company's
high performance reflective sheeting, but also the convenience of a
ready-to-use, peel-and-stick product for easy application.
Non-Highway Applications. The Company also manufactures precision
embossed film that has non-highway applications in areas where optical
properties are important to product performance. For example, Stimsonite's
translucent reflective sheeting is used to diffuse background lighting and also
offers reflective performance in the event of light source or power failure.
Applications include internally illuminated airport taxiway and runway signs,
and internally illuminated highway signs. The Company's diffusing film is used
to diffuse and disperse transmitted light for maximum efficiency and brightness.
Diffusing film is used to enhance the visibility of low voltage signs, including
exit signs and signs using long-life, low power elements such as light-emitting
diodes. Stimsonite is also marketing specialized film products for use as
reflective conspicuity markings for large truck trailers. Federal regulations
require conspicuity markings on large truck trailers manufactured after December
1, 1993. Additionally, the Company manufactures and markets flexible vinyl
sheeting, which is used in safety vests and similar clothing products where the
reflective material makes the wearer more visible.
Product Development and New Products
Working with its customers, the Company focuses most of its product
development efforts on highway traffic and safety problems that present niche
product opportunities. The Company's product engineers and manufacturing
personnel also actively work to develop new and innovative production methods to
increase efficiencies, lower production costs and improve product quality.
The Company continues to investigate new product applications for its
highway delineation products, reflective sheeting and precision embossed film
material. The Company's expenditures on product research and development were
$2.7 million, $2.1 million and $2.8 million in 1998, 1997 and 1996,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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Patents and Proprietary Rights
The Company has 24 issued U.S. patents, which cover many of the
Company's current products and existing processes, and has eight U.S. patent
applications currently pending (with certain corresponding foreign patents and
patent applications pending). Stimsonite's patents cover various design aspects
of its products as well as the processes used in their manufacture. The Company
believes that its patents and proprietary production methods, coupled with its
extensive industry experience, provide a key competitive advantage.
The Company has one U.S. patent, expiring in July 1999, covering the
use of glass as an abrasion resistant coating, and its application to the raised
reflective pavement marker face. The Company has obtained several patents
covering various aspects of its snowplowable markers. Of these, four patents,
which cover certain design, placement and methods, expired between April 1996
and April 1997. As a result, certain entities have introduced snowplowable
markers to compete with the Company's snowplowable markers. Additionally, the
Company granted a non-exclusive license to one entity enabling the licensee to
use certain technology in its snowplowable marker product. While the Company has
applied for and expects to receive additional patents relating to new or
improved product designs, there can be no assurance that these patents will
issue, or if issued, that these patents will be effective in protecting the
Company from competitors.
The Company has obtained 11 U.S. patents (with certain corresponding
foreign patents) and has several patent applications pending covering
Stimsonite's reflective sheeting processes, manufacturing equipment and
products. These patents expire between 2001 and 2012. The Company also has
patent applications pending on other reflective sheeting and precision embossed
film products.
The Company is continuing to develop new, potentially patentable
products, product enhancements, product designs and manufacturing improvements.
The Company's ability to compete effectively with other companies will depend,
in part, on its ability to maintain the proprietary nature of its technology.
Although the Company is the owner of numerous patents in the United States and
foreign countries, there can be no assurance as to the degree of protection
offered by these patents, or the likelihood that pending patent applications
will be issued. Furthermore, there can be no assurance that others will not
independently develop the same or similar technology, develop around the
patented aspects of any of the Company's products or proposed products, or
otherwise obtain access to the Company's proprietary technology. As basic
patents in the highway delineation product line have expired, various
competitors or prospective competitors have sought to introduce competitive
products. The Company believes that its proprietary manufacturing know-how will
enable it to maintain significant market shares for these products and allow it
to continue to offer cost-effective products.
The Company has registered Stimsonite(R) as a trademark in the U.S. and
in approximately 25 other countries. The Company believes that the highway
safety industry associates the trade name Stimsonite with the industry leader in
reflective highway safety products.
Foreign Operations
The Company has U.K., Hong Kong, Australian and Brazilian subsidiaries
(Stimsonite Europa Limited, Stimsonite Hong Kong Limited, Stimsonite Australia
Pty Limited and
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Stimsonite do Brasil, respectively) which act principally as the Company's sales
and marketing arms in these and other countries.
In Brazil, the Company has entered into a joint venture agreement with
one of its distributors. The Company owns 70% of the Brazilian joint venture.
There are significant challenges to conducting business in foreign
countries, including, among other factors, regulatory compliance and approvals,
local acceptance of the Company's products, adaptation and design of products to
meet local requirements and criteria, and fluctuations in foreign exchange
rates. For sales and selected financial information by geographical area, see
Note 15 of Notes to Consolidated Financial Statements.
Sales and Marketing
The Company sells its products through an extensive sales and
distribution network that markets the Company's full product line.
The Company's marketing strategy is developed by the Company's
management and is implemented in the U.S. by Stimsonite's national sales
managers and regional and district sales managers. The regional managers work
closely with customers and coordinate a distribution network that includes
manufacturers' representatives and approximately 50 distributors. The Company
believes that this network and the Company's relationships with key distributors
are competitive strengths in Stimsonite's business.
The Company markets its products to highway contractors and government
agencies for projects in all 50 states. Stimsonite sells its products
principally to highway contractors, sign fabricators, state departments of
transportation, and county and city road and highway departments. Such sales may
be to any of the established channels of distribution or by direct sales
depending on the size of the purchase, competitive pressures in a particular
market and other factors. Road and highway pavement marking and signing
requirements are established by each government entity. The Company's sales
force works closely with traffic engineers to demonstrate the quality and
effectiveness of Stimsonite's products and the control and safety advantages of
increased markers, markings and signing use.
Traffic engineers responsible for maintaining roads and highways are
faced with an array of issues relating to traffic safety and congestion. The
increasing number of visually impaired drivers and the continued pressure on
highway capacity continually force traffic engineers to reassess their
requirements and priorities. These engineers search for products that improve
highway capacity while maintaining appropriate safety levels and minimizing
initial installation and ongoing maintenance costs. The Company's sales and
marketing strategy is directed towards understanding these market dynamics,
working with, and responding to the needs of, its customers and demonstrating
the relative advantages of Stimsonite products.
The Company's international sales and marketing is implemented by a
combination of local sales office staffs, commissioned regional managers and
sales agents. Stimsonite also has approximately 40 agents situated throughout
the international markets that employ collectively over 150 sales persons.
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Seasonality
The Company's sales are seasonal, with peak sales activity normally
occurring in the second and third fiscal quarters. For a discussion of quarterly
results of operations, backlog and the effects of seasonality on inventory
levels, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition
The Company believes its principal competitive advantages are its
long-standing reputation for quality and reliability, its proprietary and
patent-protected technology, its understanding of its markets and customer
needs, and its well-established sales and distribution networks. See "Patents
and Proprietary Rights" above.
The Company believes that it has a substantial U.S. market share in its
highway delineation product line due to its patented and proprietary technology
and its experience in its markets. The Company competes in the U.S. market for
raised reflective pavement markers with two principal competitors, Ray-O-Lite, a
division of Pac-Tec Inc., and Hallen Products, Ltd. ("Hallen"). While Ray-O-Lite
competes through a network of distributors, the Company emphasizes direct sales.
In January 1999, the Company granted Hallen a non-exclusive license to use
certain of the Company's patented technology in Hallen's snowplowable markers.
The Company has three significant competitors in the U.S. market for
thermoplastic material, Cataphote Inc., a subsidiary of Sovitec Cataphote Inc.,
Ennis Paint and Swarco America, Inc. a subsidiary of Swarco Holding AG. In
situations where sealed bids are required by government agencies, the Company
competes on price. In other situations, the Company primarily emphasizes product
quality, performance and service in addition to price. The Company competes with
a number of other regional companies in the international highway delineation
market for raised reflective pavement markers.
The Company believes it holds a substantial market share outside the
USA for raised reflective pavement markers. The Company does have substantial
competition from local manufacturers of markings products, due to the
significant freight costs associated with shipping thermoplastic material
internationally.
Stimsonite has one significant competitor in the market for highway
signing, Minnesota Mining and Manufacturing Company ("3M"), which the Company
believes holds dominant U.S. and international market share positions. The
Company competes in this area on the basis of product quality and performance,
and price. In the precision embossed film material market, the Company competes
with 3M and Reflexite Corporation.
Raw Materials
The principal raw materials used by the Company to manufacture its
products are acrylic, resins, glass beads, sand, calcium carbonate, titanium
dioxide and cast iron. The Company obtains the raw materials it uses to
manufacture its products from commercial sources. Although the Company's
practice is to seek cost savings and enhance quality by purchasing from a
limited number of suppliers, substantially all of the raw materials needed to
manufacture the Company's products are readily available from alternate sources
of supply.
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Environmental Matters
The Company is subject to environmental laws and regulations governing
emissions to the air, discharges to waterways, and generation, handling,
storage, transportation, treatment and disposal of waste materials. The Company
is also subject to other federal and state laws and regulations regarding health
and safety matters. The Company believes that it has complied with these laws in
all material respects.
Customers
Stimsonite sells its products in the U.S. principally to highway
contractors, sign fabricators, distributors, state departments of
transportation, and county and city road and highway departments. A significant
portion of the Company's U.S. sales is effected through fixed price contracts
awarded by competitive bids submitted to state and local agencies. The terms and
conditions of such sales and the contract procurement process are subject to
extensive regulation by various federal, state and local authorities in the U.S.
and by governmental authorities of other countries. Substantially all of these
contracts involve product shipment within one year of receipt of the order and
are not subject to re-negotiation of profits. The Company sells its products
outside of the U.S. primarily to independent sales agents and distributors who
resell to local governmental authorities and their contractors. Highway
delineation and sign products may not be used on most highways unless they meet
state and local specifications, which frequently incorporate relevant industry
and federal standards and testing guidelines.
Employees
As of March 1, 1999, the Company had approximately 335 full-time
employees, of which approximately 180 were hourly employees and 155 were
salaried employees. None of the Company's employees is represented by a labor
union or is the subject of a collective bargaining agreement.
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ITEM 2--PROPERTIES
The Company maintains its corporate headquarters and manufacturing,
administrative, sales and product development facilities in Niles, Illinois. The
Company also manufactures products in facilities located in Atlanta, Georgia;
Mount Prospect, Illinois; Adelanto, California and Kilsyth, Australia. The
Company's nine principal facilities, at December 31, 1998, all of which were
leased, were as follows:
<TABLE>
<CAPTION>
Approximate
Square
Location Footage Function Lease Expiration
<S> <C> <C> <C>
Niles, Illinois 74,300 Administration, manufacturing, engineering January 2007, renewable
and warehousing through 2017
Niles, Illinois 78,000 Administration, sales, product development April 2008, option to
and warehousing terminate April 2004
Atlanta, Georgia 100,000 Administration, manufacturing, sales, August 2008
product development, engineering
and warehousing
Atlanta, Georgia 43,300 Manufacturing and warehousing October 2001, renewable
through 2007
Atlanta, Georgia 35,500 Manufacturing and warehousing March 2003, renewable through
2008
Mount Prospect, Illinois 49,900 Manufacturing, product development, December 2001 renewable
engineering and warehousing through 2006
Adelanto, California 24,000 Manufacturing and warehousing January 2009, renewable
through 2014
Bristol, England 3,200 Sales and warehousing Month to month
Kilsyth, Australia 16,000 Manufacturing, sales and warehousing May 1999, renewable through
2005
</TABLE>
The Company also leases public warehouse space in other U.S. locations.
The Company's manufacturing facilities are equipped with specialized
equipment and utilize extensive automation to manufacture its products.
The Company believes that it has adequate capacity to handle currently
anticipated product demand. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
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ITEM 3--LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation that it
considers to be in the normal course of its business. No such litigation has
resulted in any material adverse loss to date and the Company is not engaged in
any legal proceedings, as of the date hereof, which the Company expects,
individually or in the aggregate, to have a material adverse effect on the
Company's financial condition or results of operations. The Company maintains
product liability insurance in amounts which it believes to be adequate for its
business.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of holders of the Company's common
stock during the fiscal quarter ended December 31, 1998.
ITEM 4A--EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and current position(s) of each executive officer of the
Company are as follows:
Present Principal Position
Name Age and Offices with the Company
Robert E. Stutz............ 46 President and Chief Executive Officer
Michael A. Cherwin......... 42 Vice President - Human Resources
Llewellyn C. Coffin........ 43 Vice President - Operations
Clifford S. Deremo........ 42 Vice President - Sales and Marketing
Daniel L. Lang............ 43 Vice President - International
Robert M. Pricone......... 54 Vice President - Technology
Thomas C. Ratchford........ 50 Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
Robert E. Stutz became the President and Chief Executive Officer and a
director of the Company in March 1997. From 1991 to March 1997, Mr. Stutz was
Vice President and General Manager, Automotive Controls Division, of Cherry
Electrical Products, a Division of Cherry Corporation, a designer, manufacturer
and marketer of customer electrical, electronic and semi-conductor components in
automotive, computer and consumer and commercial markets.
Michael A. Cherwin has served as Vice President - Human Resources since
1992. From 1990 to 1992, Mr. Cherwin served as Director of Human Resources of
the Company.
Llewellyn C. Coffin became Vice President - Operations on January 5,
1998. From 1996 until December 1997, Mr. Coffin was Vice President - Operations
for TEC Incorporated, a manufacturer of construction adhesives. From 1993 to
1996, Mr. Coffin was a facility manager for TEC Incorporated.
Clifford S. Deremo has served as Vice President - Sales and Marketing
since February 1995. Prior to February 1995, Mr. Deremo served in various
positions with FMC Corporation, a diversified manufacturer of chemicals,
machinery and defense equipment. From 1992 to February 1995, Mr. Deremo was the
worldwide business manager for FMC's converting equipment division.
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Daniel L. Lang has served as Vice President - International since January
1999. From 1996 to December 1998, Mr. Lang was President of American Decal and
Manufacturing Company ("American Decal"), a printing company. From March 1994 to
December 1996, Mr. Lang was Executive Vice President of American Decal. From
1989 to February 1994, Mr. Lang was President and Chief Operating Officer of
S.A.B.I., an aluminum processing and sign manufacturing business.
Robert M. Pricone has served as Vice President - Technology since April
1993. From 1990 to April 1993, Mr. Pricone served as Vice President of Research
and Development of the Company.
Thomas C. Ratchford has served as Vice President - Finance, Chief
Financial Officer, Treasurer and Secretary since October 1993. From 1992 to
1993, Mr. Ratchford was Executive Vice President - Finance and Administration
for American Communications Services, Inc., a development stage company in the
telecommunications service industry.
Executive officers are elected annually and, subject to the terms of any
applicable employment agreements, serve at the pleasure of the Company's Board
of Directors.
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PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Stimsonite's common stock is quoted on The Nasdaq Stock Market's National
Market System under the symbol "STIM". As of March 1, 1999, there were
approximately 92 stockholders of record, including brokerage firms and other
nominees. The following table sets forth, for the fiscal quarters indicated, the
high and low bid prices for the common stock as quoted by the National Market
System.
1998 1997
High Low High Low
First Quarter $ 6.56 $ 4.88 $ 6.63 $ 5.75
Second Quarter 8.00 6.25 6.50 5.44
Third Quarter 8.13 4.56 7.44 5.75
Fourth Quarter 8.13 4.88 6.75 4.50
Stimsonite has never declared or paid any cash dividends on its capital
stock. Stimsonite currently intends to retain its future earnings, if any, to
finance operations, expand its business and repay outstanding debt and does not
anticipate paying cash dividends on its common stock for the foreseeable future.
The Company's credit agreement limits the Company's ability to pay dividends.
See Note 6 of Notes to Consolidated Financial Statements.
ITEM 6--SELECTED FINANCIAL DATA.
Selected Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
<S> <C> <C> <C> <C> <C>
Income Statement Data 1998 1997 1996 1995 (c) 1994
- ----------------------------------------------------------------------------------------------------------------
Net Sales $87,362 $81,363 $82,712 $68,119 $55,941
Gross Profit 31,310 27,405 26,877 26,494 28,565
Operating Income 10,353 8,405 1,971 (a) 7,441 12,168
Net Income (Loss) 4,903 3,629 (848) (b) 2,610 6,136
Net Income (Loss) per Share
Basic $0.59 $0.42 ($0.10) $0.29 $0.69
Diluted $0.58 $0.42 ($0.10) $0.29 $0.67
Weighted Average Shares Outstanding
Basic 8,364 8,576 8,823 8,912 8,892
Diluted 8,509 8,687 8,823 9,121 9,108
- ----------------------------------------------------------------------------------------------------------------
Balance Sheet Data
- ----------------------------------------------------------------------------------------------------------------
Total Assets $60,311 $55,201 $71,870 $67,596 $50,936
Long-Term Debt 17,575 15,575 28,300 24,703 15,523
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes a $4.0 million restructuring charge
(b) Includes a $0.3 million extraordinary charge
(c) Includes the operations of Pave-Mark Corporation after May 31, 1995,
the date of its acquisition by the Company
12
<PAGE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the consolidated
financial condition and results of operations of the Company for the years
ended December 31, 1998, 1997 and 1996. The following should be read in
conjunction with the consolidated financial statements and related notes
appearing elsewhere herein.
Overview
The Company manufactures and markets reflective highway safety products
used in a variety of applications where motorist and pedestrian guidance are
important.
The Company operates in one business segment. The Company's marketing
strategy emphasizes a single sales force for all of its products. Substantially
all of the Company's customers are active in the highway construction business.
The Company's sales are seasonal. The domestic highway maintenance and
construction season tends to reach its peak in the second and third quarters of
the year, and domestic sales of the Company's products are generally highest in
these quarters. While international sales are also seasonal, international
maintenance and construction seasons vary from the domestic season and tend to
offset somewhat the seasonality of domestic sales. International sales
constituted 15.6%, 15.6% and 12.5% of net sales in 1998, 1997 and 1996,
respectively. See Note 15 of Notes to Consolidated Financial Statements. Because
the Company operates with little backlog, sales in any given quarter generally
result from orders booked and shipped in that quarter. Accordingly, net sales
and operating income are particularly sensitive to the timing of domestic market
demand and tend to be highest in the second and third quarters, whereas net
sales and operating income tend to be reduced during the first and fourth
quarters, resulting in either operating losses or reduced earnings for those
periods. In addition, the Company's performance in any given quarter is further
affected by weather anomalies.
The Company's sales are dependent on the ability and willingness of the
federal and state governments to fund highway construction projects. Such sales
may be affected by real or perceived uncertainty concerning the level of
government funding for highway construction projects.
Table 1 below sets forth unaudited data for each of the fiscal quarters
of 1998 and 1997. This information has been prepared on the same basis as the
annual consolidated financial statements and, in management's opinion, contains
all normal recurring adjustments necessary to state fairly the information set
forth therein. The operating results for any quarter are not necessarily
indicative of results for any future period.
13
<PAGE>
<TABLE>
<CAPTION>
Table 1
Quarterly Results
(dollars in thousands, except per share data)
1998 1997
------------------------------------- -------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- ------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $13,857 $25,433 $28,043 $20,030 $14,602 $23,594 $25,514 $17,653
Cost of Goods sold 10,244 15,460 17,629 12,719 10,338 15,029 15,704 12,887
Gross Profit 3,613 9,973 10,414 7,311 4,264 8,565 9,810 4,766
- ---------------------------------------------------------------------- --------------------------------------
Operating Expenses
- ---------------------------------------------------------------------- --------------------------------------
Selling and Administrative 3,474 3,710 3,861 4,615 3,524 3,434 3,439 3,787
Research and Development 817 692 518 710 645 369 390 682
Amortization of Intangible Assets 683 668 656 555 711 708 654 657
Total Operating Expenses 4,974 5,070 5,035 5,880 4,880 4,511 4,483 5,126
Operating Income (Loss) (1,361) 4,903 5,379 1,431 (616) 4,054 5,327 (360)
Interest Expense 430 459 470 382 578 665 620 439
Minority Interest --- --- --- 41 --- --- --- ---
Income (Loss) Before Provision for
Income Taxes and Extraordinary Item (1,791) 4,444 4,909 1,008 (1,194) 3,389 4,707 (799)
Provision (Benefit) for Income
Taxes (742) 1,878 2,041 490 (418) 1,411 1,966 (485)
Net Income (Loss) (1,049) 2,566 2,868 518 (776) 1,978 2,741 (314)
- ---------------------------------------------------------------------- --------------------------------------
Net Income (Loss) Per Common Share
Basic ($0.12) $0.31 $0.34 $0.06 ($0.09) $0.23 $0.32 ($0.04)
Diluted ($0.12) $0.30 $0.34 $0.06 ($0.09) $0.23 $0.32 ($0.04)
- ---------------------------------------------------------------------- --------------------------------------
</TABLE>
FORWARD LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
This document contains "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, including (without
limitation) statements as to expectations, beliefs and future financial
performance and assumptions underlying the foregoing related to product demand
(including TEA-21's anticipated impact on sales and expectations regarding 1999
road repair activity), ability to meet short- and long-term debt requirements,
expected cash flow from operations, projected capital spending levels, and the
effect of the Company's initiatives in Brazil and other Latin American countries
and China. The actual results or outcomes could differ materially from those
discussed in the particular forward looking statements based on a number of
factors, including: (i) changes in competitive and economic conditions; (ii)
government funding (or perceptions regarding such funding) of highway
construction projects; (iii) the Company's ability to develop and protect its
proprietary technology and to react to increased competition resulting from
expiring patents; and (iv) currency fluctuations.
RESULTS OF OPERATIONS
Table 2 below sets forth, for the periods indicated, the percentage of
net sales of certain items in the Company's condensed consolidated statement of
operations and the percentage change in each item from the prior comparable
period.
14
<PAGE>
<TABLE>
<CAPTION>
Table 2
Percent of Net Percent Percent of Net Percent
Sales Sales
Year Ended Change From Year Ended Change From
-------------------- --------------------
1998 1997 Prior Period 1997 1996 Prior
Period
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 7.4% 100.0% 100.0% (1.6)%
Cost of Goods Sold 64.2 66.3 3.9 66.3 67.5 (3.4)
Gross Profit 35.8 33.7 14.2 33.7 32.5 2.0
Selling and Administrative 17.9 17.4 10.4 17.4 18.5 (7.1)
Research and Development 3.1 2.6 31.2 2.6 3.4 (25.5)
Amortization of Intangibles 2.9 3.4 (6.2) 3.4 3.4 (4.1)
Restructuring Charge --- --- --- --- 4.8 ---
Operating Income 11.9 10.3 23.2 10.3 2.4 326.4
Interest Expense 2.0 2.8 (24.4) 2.8 3.2 (14.1)
Minority Interest 0.1 --- --- --- --- ---
Income before Provision for
Income Taxes and Extraordinary Item 9.8 7.5 40.4 7.5 (0.8) ---
Extraordinary Item Net of Tax Benefit --- --- --- --- 0.4 ---
Net Income (Loss) 5.6% 4.5% 35.1% 4.5% (1.0)% ---
</TABLE>
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES. Net sales for 1998 were $87.4 million, which were $6.0
million, or 7.4%, higher than in 1997. Net domestic sales of highway delineation
products increased $0.8 million, or 1.3%, compared with 1997 as a result of
stronger unit shipments, partially offset by lower pricing of certain products.
Passage of the Transportation Equity Act for the 21st Century ("TEA-21") had a
positive impact on 1998 results, particularily in the fourth quarter. TEA-21 is
likely to result in favorable federal spending patterns for highway construction
projects over the next several years. Domestic sales of optical film increased
55.0%, or $4.3 million, compared to 1997 due to the receipt of several large
supply contracts from governmental buyers. Net international sales increased
$1.0 million, or 7.5%, during the year, with the most favorable sales trend into
China.
COST OF GOODS SOLD. Cost of goods sold in 1998 totaled $56.1 million,
compared to $54.0 million in 1997. The $2.1 million, or 3.9%, increase in cost
of goods sold during 1998 is attributable to a higher sales volume, offset by
manufacturing cost reductions.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses
in 1998 were $15.7 million, which is $1.5 million, or 10.4%, higher than the
$14.2 million incurred in 1997. Increases in expenses were largely the result of
additional sales personnel for the optical film product line and higher
incentive compensation costs associated with improved net income.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses
were $2.7 million in 1998, compared to $2.1 million in 1997. The $0.6 mllion, or
31.2%, increase in expenses during 1998 is the result of higher spending on new
product development. Research and development expense ws 3.1% of sales during
1998 compared to
15
<PAGE>
2.6% in 1997. Management believes current levels of
research and development expenditures are adequate for the Company's business.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
totaled $2.6 million in 1998 and $2.7 million in 1997. These intangible assets
relate primarily to the acquisition of principally all of the Company's assets
in 1990 and the acquisition of Pave-Mark in 1995. Intangible assets are being
amortized over varying useful lives, the longest of which is 40 years.
Accordingly, the Company has incurred and will continue to incur significant
non-cash expenses relating to the amortization of these assets. See Notes 2 and
5 of Notes to Consolidated Financial Statements.
OPERATING INCOME. Operating income was $10.4 million in 1998 compared
to $8.4 million in 1997, an increase of $2.0 million. Operating income as a
percentage of sales was 11.9% in 1998, compared to 10.3% in 1997. The increase
in operating income resulted principally from the higher sales level and
improved gross margin.
INTEREST EXPENSE. Interest expense in 1998 was $1.7 million
compared to $2.3 million in 1997. The decrease was largely attributable to a
lower average debt level.
INCOME TAXES. The Company recorded income tax expense of $3.7 million
in 1998 compared to an expense of $2.5 million in 1997. The effective tax rate
in 1998 was 42.8% compared to an effective tax rate of 40.5% in 1997. The tax
rate in both years reflected an inability to realize tax benefits on certain
foreign net operating losses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales for 1997 were $81.4 million, which were $1.3
million, or 1.6%, lower than in 1996. Net domestic sales of highway delineation
products decreased $5.3 million or 8.0% compared with 1996 as a result of
competitive pressure, price reductions and inclement weather in certain markets,
particularly markets for non-snowplowable markers and thermoplastic products.
Uncertainty regarding federal funding of highway construction projects also
contributed to the reduction in sales in 1997. Domestic sales of optical film
increased 25.8% or $1.6 million compared to 1996 due to a favorable reception
for the Company's improved sheeting product which was introduced during the
fourth quarter of 1996. Net international sales increased $2.3 million or 22.8%
during the year, with particularly favorable sales trends into Brazil and other
Latin American markets.
COST OF GOODS SOLD. Cost of goods sold in 1997 totaled $54.0 million,
compared to $55.8 million in 1996. The $1.8 million decline in cost of goods
sold during 1997 is attributable to a lower sales volume and an improvement in
gross margin due to overhead cost reductions initiated during the fourth quarter
of 1996.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses
in 1997 were $14.2 million, which is $1.1 million, or 7.1%, lower than the $15.3
million incurred in 1996. Decreases in expenses were largely the result of cost
reduction measures implemented during the fourth quarter of 1996.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses in
1997 were $2.1 million, compared to $2.8 million in 1996. The $0.7 million or
25.0% reduction in expenses during 1997 is the result of cost reduction measures
implemented
16
<PAGE>
during the fourth quarter of 1996 and the inclusion, as an offset to expense, of
a relatively higher level of revenue from the sale of insert tools used
principally by the automotive industry. Excluding the offset, research and
development expense was 3.2% of sales during 1997 compared to 4.0% in 1996.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
totaled $2.7 million in 1997 and $2.8 million in 1996. These intangible assets
relate primarily to the acquisition of principally all of the Company's assets
in 1990 and the acquisition of Pave-Mark in 1995.
RESTRUCTURING CHARGE. The Company incurred a $4.0 million restructuring
charge in the fourth quarter of 1996. Substantially all of the charge related to
anticipated losses in conjunction with the then proposed sale of land and a
building under construction in Waukegan, IL. The land and building were sold in
August 1997 at a price which approximated their book value, net of the
restructuring reserve. The restructuring charge also included certain other
costs associated with a series of actions to reduce expenses. Among these
actions were a 10% reduction in the salaried workforce and the consolidation
into the Niles, IL facility of several administrative functions that were
previously performed at one of the Company's Atlanta, GA locations.
OPERATING INCOME. Operating income was $8.4 million in 1997 compared to
$2.0 million in 1996, an increase of $6.4 million. Operating income as a
percentage of sales was 10.3% in 1997, compared to 2.4% in 1996. The increase in
operating income resulted from the absence of a $4.0 million restructuring
charge in 1997, $1.9 million in lower non-factory overhead expenses and an
additional $0.5 million in gross profit.
INTEREST EXPENSE. Interest expense in 1997 was $2.3 million compared to
$2.7 million in 1996. The decrease was the result of lower debt levels and more
favorable terms under the Company's current credit agreement, which replaced a
less advantageous agreement in July 1996 (see discussion under "Liquidity and
Capital Resources").
INCOME TAXES. The Company recorded income tax expense of $2.5 million
in 1997 compared to a benefit of $0.2 million in 1996. The effective tax rate in
1997 was 40.5% compared to an effective tax benefit rate of 27.2% in 1996. The
tax rate in both years reflected an inability to realize tax benefits on certain
foreign net operating losses. Due to the larger relative size of the domestic
income in 1997, the percentage impact of such foreign net operating losses was
substantially less in 1997 than in 1996.
EXTRAORDINARY ITEM. As a result of the Company's refinancing its
long-term debt in 1996, the Company recorded a $0.3 million after-tax
extraordinary charge attributable to the accelerated write-off of deferred
financing fees related to the Company's prior credit facility. There were no
extraordinary items recorded in 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, the Company has relied on
internally generated funds, revolving credit borrowings and leases to finance
working capital requirements and capital expenditures. During 1998, the Company
increased borrowings under its long-term credit facility by $2.0 million. The
principal inflows and outflows of cash during the year were as follows:
17
<PAGE>
Cash Flow Summary
Year Ended December 31, 1998
(in millions)
Cash inflows
Net income $4.9
Depreciation and amortization 5.9
Net increase in debt 2.0
Total inflows 12.8
Cash outflows
Capital expenditures (net) ( 5.9)
Increase in accounts receivable ( 4.4)
Repurchase of outstanding Company stock ( 0.7)
Net increase in inventory ( 0.5)
Total outflows (11.5)
Net change in cash balance $ 1.3
The Company's sales are seasonal, with domestic revenues tending to be
highest in the second and third quarter of the year consistent with the domestic
highway maintenance and construction season. The Company builds working capital,
principally accounts receivable and inventory, during the second and third
quarters to support sales. Positive cash flow from operations is generally
realized in the third quarter as cash collections are higher than production
levels and in the fourth quarter of the year as production and related
expenditures seasonally decline and accounts receivable are collected.
Conversely, the Company generally experiences negative cash flow in the first
quarter, when sales are lower, and in the second quarter, when the Company is
building working capital but has not yet collected revenues from second quarter
sales. The Company has historically borrowed funds available under its revolving
credit facilities to fund working capital during the first and second quarters.
The Company realized $6.3 million in cash flow from operating
activities in 1998 compared to $11.7 million in 1997. The $5.4 million decrease
in cash flow from operating activities resulted largely from relative changes in
working capital.
In July 1996, the Company refinanced its long-term debt under an
unsecured credit agreement. The terms of the current credit agreement provide a
credit facility totaling $45.0 million, of which $20.0 million is a revolving
loan due on June 30, 2000, bearing interest (at the Company's option) at (i)
prime or (ii) LIBOR plus a margin of 0.75% to 1.5% depending on the Company's
debt to cash flow ratio for the preceding four quarters. Amounts available under
the revolving loan are subject to certain borrowing base limitations. The
balance of the credit facility is a $25.0 million term loan due in quarterly
installments of $0.6 million with a final payment of $3.0 million due on June
30, 2003 and bearing interest (at the Company's option) at (i) prime plus 0.25%
(8.00% at December 31, 1998) or (ii) LIBOR plus 1.8% (7.1125% at December 31,
1998). The Company expects, based on its current level of performance, and on
indications that it has received from credit providers to date, that it will be
able to arrange new credit facilities with terms and amounts sufficient to fund
the Company's liquidity needs through 2001 upon the maturation of the revolving
loan. The credit agreement establishes certain financial covenants, including
covenants relating to the Company's funded debt to EBITDA ratio, cash flow
coverage ratio and leverage ratio. The Company's performance with respect to
18
<PAGE>
these covenants will affect, among other things, the amounts available for
borrowing under the revolving portion of the facility.
At December 31, 1998, the Company's outstanding borrowings under its
credit agreement consisted of $13.6 million of term loans and $6.5 million of
revolving loans. During each of 1999 and 2000, $2.5 million of term loans will
mature. At December 31, 1998, the additional amount available under the
revolving portion of the Company's credit agreement after consideration of all
borrowing base limitations and outstanding loans was $10.8 million.
The Company has entered into interest rate protection agreements which,
as of December 31, 1998, effectively provide ceiling rates of interest on $6.9
million of debt and converts $10.0 million of floating interest rate term debt
to a fixed rate of 7.5%.
The Company expects capital expenditures for additions and replacements
to approximate $4.5 million in 1999 with funding to be provided principally from
internally generated funds and revolving credit facilities. In 1998, the
Company's net capital expenditures were $5.9 million, which was higher than
usual, due in large part to (i) the required rebuilding of one of the Company's
properties which was extensively damaged by fire and (ii) leasehold improvements
at the Company's new corporate headquarters facility. The Company does not
foresee any significant additional capital expenditures associated with its Year
2000 compliance program. As of December 31, 1998, the Company had commitments to
disburse $1.2 million in capital expenditures.
The Company intends to expand its manufacturing capacity in 1999
through the purchase of new production equipment. The Company believes its
production capacity will be adequate after the expansion.
In October 1995, the Board of Directors authorized the purchase of up
to 500,000 shares of the Company's common stock. In July 1997, the Board of
Directors authorized an additional 500,000 shares of common stock to be
repurchased, raising the total allowable purchases to 1,000,000. Through
December 31, 1998, the Company had purchased 635,500 shares of its common stock
at an average price of $6.33 per share.
The Company expects that cash flow from operations and borrowings under
the credit facility will be sufficient to fund working capital needs, capital
expenditures and mandatory principal payments under the credit facility through
2000. From time to time, the Company considers possible acquisitions of
businesses complementary to the Company's business. It is likely that any
significant acquisition would be funded with additional long-term debt.
ENGAGEMENT OF FINANCIAL ADVISOR
In February 1999, the Board of Directors engaged Merrill Lynch & Co. as
a financial advisor to assist the Board in analyzing strategic alternatives to
improve shareholder value. The Board has been concerned that the Company's
improved results had not been reflected in its stock price.
INFLATION
Inflation has not had a significant effect on the Company's business
during the periods discussed.
19
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Reference is made to Note 2 of the Notes to Consolidated Financial
Statements.
YEAR 2000 ISSUES
Some computers, software and other equipment include programming code
in which calendar year data are abbreviated to two digits. As a result, some of
these systems could fail to operate, or fail to produce correct results, if
dates are not correctly interpreted. These problems are commonly referred to as
the "Year 2000 Problem."
Since 1997, the Company has been working to identify and address Year
2000 issues. The evaluation phase of the Company's Year 2000 readiness project
is intended to determine the readiness of internal systems and equipment as well
as third parties. The remediation phase includes (i) reprogramming of software,
(ii) replacing computer software, hardware and operating equipment, (iii)
testing specific modifications and (iv) identifying solutions to possible third
party noncompliance. The testing phase includes integrated testing of all
systems that were modified. As of December 31, 1998, the Company estimates that
the internal evaluation phase is substantially complete, but the assessment of
third parties described above has not yet begun. The Company has not yet
completed the remediation or testing phases, but each phase of the Company's
Year 2000 readiness project is expected to be completed by the end of the fourth
quarter of 1999.
The related costs of compliance have not yet been determined. However,
preliminary estimates, which include costs attributable to the accelerated
purchase of replacement hardware and software, approximate $0.5 million, of
which $0.4 million has been incurred through the end of 1998, to address Year
2000 issues. While the estimated cost of these efforts are not expected to be
material to the Company's financial condition or any year's results of
operations, there can be no assurance as to this effect.
The costs of the Company's plans to assess and remediate Year 2000
issues in a timely manner are based on management estimates. The inability of
the Company or its material suppliers and customers to effectuate solutions to
their respective Year 2000 issues on a timely and cost effective basis may have
a material adverse effect on the Company's business, financial condition or
results of operations.
The Company believes that in the most likely worst case scenario,
internal remediation and testing of information technology and non-information
technology systems will be completed as indicated above and will have minimal
unfavorable impact on the Company's financial condition and results of
operations. If any or all of these efforts are delayed, however, there could be
disruption of the financial and operating systems at one or more of the
Company's business units. Additionally, as discussed above, the Company has not
begun its assessment of third parties' readiness. The Company currently expects
that certain external parties providing materials and services to the Company
will be reluctant to disclose fully certain information about their readiness.
Accordingly, the Company cannot be assured that there will be no disruption of
operations because of vendors and service providers who are not fully Year 2000
compliant.
The Company has not yet completed its contingency planning with respect
to Year 2000 issues. The Company intends to complete its contingency planning by
the end of the third quarter of 1999 as part of the remediation and testing
phases described above.
20
<PAGE>
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange
and interest rates and, to a lesser extent, commodities. To reduce such risks,
the Company selectively uses financial instruments. All hedging transactions are
authorized and executed pursuant to clearly defined policies and procedures.
Currency Risk - The Company transacts business in multiple foreign
currencies. These transactions expose the Company to fluctuations in exchange
rates, which could impact the financial results of the Company.
The Company has identified two categories of currency risk:
o Transaction exposures relating to the denomination of cash
flows in a currency other than the functional currency of
the operating unit.
o Translation exposures relating to the conversion of a
given operating unit's financial statements into US
Dollars at different exchange rates at various points in
time.
The Company identifies naturally occurring offsetting positions and
periodically purchases hedging instruments to protect anticipated exposures. The
Company's financial position is not materially sensitive to fluctuations in
exchange rates as any gains or losses on foreign currency exposures are
generally offset by gains and losses on underlying payables, receivables and
investments in foreign subsidiaries.
Interest Rate Risk - The Company occasionally enters into interest rate
swaps to stabilize financing costs by minimizing the effect of potential
interest rate increases on floating-rate debt in a rising interest rate
environment. Under these agreements, the Company contracts with a counter-party
to exchange the difference between a fixed rate and a floating rate applied to
the notional amount of the swap.The Company's existing contracts expire in 2001.
The differential to be paid or received on interest rate swap agreements is
recognized in net income as an adjustment to interest expense.
See Note 6, "Long Term Debt", in Notes to Consolidated Financial
Statements for additional information regarding derivative financial
instruments.
Commodity Prices - The Company is exposed to fluctuations in market
price for plastic, resins and iron. The Company has not entered into any
arrangements to minimize the effects of price fluctuations for these
commodities.
21
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
The following consolidated financial statements of Stimsonite
Corporation and Subsidiaries are included in Part II, Item 8:
Report of Independent Accountants 23
Consolidated Balance Sheets as of December 31, 1998 and 1997. 24
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996. 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996. 26
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996. 27
Notes to Consolidated Financial Statements. 28
The following consolidated financial statement schedule of Stimsonite
Corporation and subsidiaries is included in Part IV, Item 14:
Schedule II - Valuation and Qualifying accounts 48
All other schedules are not submitted because the required criteria have
not been met, or because the required information is included in the
consolidated financial statements or notes thereto.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Stimsonite Corporation
In our opinion, the consolidated financial statements and the financial
statement schedule listed in the index appearing under item 8 of this Form 10-K
present fairly, in all material respects, the financial position of Stimsonite
Corporation and its subsidiaries at December 31, 1998, and 1997, and the results
of their operations and of their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
Management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by Management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 11, 1999
23
<PAGE>
<TABLE>
<CAPTION>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
ASSETS December 31,
<S> <C> <C>
Current assets: 1998 1997
Cash and cash equivalents $ 1,645 $ 337
Trade accounts receivable, less
Allowance for doubtful accounts
of $737 (1998) and $460 (1997) 18,686 14,864
Inventories 11,921 11,418
Income taxes receivable 761 -
Prepaid expenses and other 1,246 1,272
Deferred tax assets 1,261 1,630
Total current assets 35,520 29,521
Property, plant and equipment, net 14,604 11,829
Intangible assets, net 8,814 11,259
Deferred financing costs, net of
Accumulated amortization
of $121 (1998) and $61 (1997) 191 251
Deferred tax assets 1,665 2,239
Other 278 102
Total assets $61,072 $55,201
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: 1998 1997
Accounts payable $8,552 $7,834
Current maturities of long-term debt 2,500 2,500
Accrued employee benefits 510 926
Accrued warranty costs 902 631
Accrued income taxes - 661
Total current liabilities 12,464 12,552
Accrued postretirement benefits 556 594
Long-term debt 17,575 15,575
Total liabilities 30,595 28,721
Commitments and Contingencies
Stockholders' equity:
Common Stock, $.01 par value--
15,000,000 shares authorized,
8,343,877 shares (1998) and
8,467,577 shares (1997)
issued and outstanding 90 90
Treasury stock, at cost (4,045) (3,387)
Additional paid-in capital 23,857 23,849
Retained earnings 10,846 5,943
Foreign currency translation adjustment (271) (15)
Total stockholders' equity 30,477 26,480
Total liabilities and stockholders' equity $61,072 $55,201
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(dollars in thousands, except share amounts)
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 87,362 $ 81,363 $ 82,712
Cost of goods sold 56,052 53,958 55,835
Gross profit 31,310 27,405 26,877
Operating expenses:
Selling and administrative 15,659 14,184 15,260
Research and development 2,737 2,086 2,800
Amortization of intangible assets 2,561 2,730 2,846
Restructuring charge -- -- 4,000
Total operating expenses 20,957 19,000 24,906
Operating income 10,353 8,405 1,971
Other expense:
Interest expenses 1,741 2,302 2,680
Minority interest 41 -- --
Income (loss) before provision (benefit) for income
taxes and extraordinary item 8,571 6,103 (709)
Provision (benefit) for income taxes 3,668 2,474 (193)
Income (loss) before extraordinary item 4,903 3,629 (516)
Extraordinary item, net of tax benefit -- -- 332
Net income (loss) $4,903 $3,629 $(848)
Other comprehensive income (loss) - net of tax:
Foreign exchange translation (146) (157) 213
Other comprehensive income (loss) - net of tax $4,757 $3,472 $(635)
Earnings (loss) per common and common equivalent share: Income (loss) before
extraordinary item:
Basic $0.59 $0.42 $(0.06)
Diluted $0.58 $0.42 $(0.06)
Extraordinary item, net of tax benefit:
Basic -- -- (0.04)
Diluted -- -- (0.04)
Net income (loss):
Basic $0.59 $0.42 $(0.10)
Diluted $0.58 $0.42 $(0.10)
Weighted average number of common and common equivalent shares outstanding:
Basic 8,364,340 8,576,451 8,822,880
Diluted 8,508,636 8,686,822 8,822,880
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
<TABLE>
<CAPTION>
STIMSONITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) Year Ended December 31,
<S> <C> <C> <C>
Cash flows from operating activities: 1998 1997 1996
Net income (loss) $4,903 $3,629 $ (848)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 3,141 3,170 3,166
Amortization of intangibles, deferred financing
costs and discount on long-term debt 2,752 2,791 3,124
Provision for uncollectible accounts 608 143 311
Deferred income taxes 943 1,791 (1,993)
Extraordinary item
-- -- 332
Restructuring charge
-- -- 4,000
Changes in assets and liabilities:
Trade accounts receivables (4,430) 2,123 703
Inventories (503) 520 2,910
Prepaid expense and other (1,158) 2,333 (2,236)
Accounts payable 885 (5,101) 4,945
Accrued employee benefits (416) (86) 16
Accrued warranty 271 (278) 399
Accrued income taxes (661) 661 (1,527)
Net cash provided by operating activities 6,335 11,696 13,302
Cash flows from investing activities:
Purchase of property, plant and equipment (6,670) (2,544) (9,394)
Proceeds from disposal of property, plant and equipment 751 5,750 --
Net cash provided by (used in) investing activities (5,919) 3,206 (9,394)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 8 31 303
Payments to reacquire common stock (658) (1,586) (1,307)
Principal payments under capital lease obligation (202) (248) (34)
Proceeds from long term-debt 9,300 5,025 37,300
Payments on long term-debt (7,300) (17,750) (40,154)
Financing fees paid in connection with debt refinancing -- -- (332)
Net cash provided by (used in) financing activities 1,148 (14,528) (4,224)
Effect of exchange rate changes on cash (256) (264) 292
Net increase (decrease) in cash and cash equivalents 1,308 110 (24)
Cash and cash equivalents, beginning of year 337 227 251
Cash and cash equivalents, end of year $1,645 $ 337 $ 227
Supplemental disclosures:
Cash paid during the year for interest $1,768 $2,243 $2,810
Cash paid during the year for income taxes $5,090 $ 941 $2,880
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY For the years ended December 31, 1998, 1997 and 1996. (in thousands
except share data)
<TABLE>
<CAPTION>
Retained Foreign
Common stock Treasury stock Additional Earnings Currency Total
---------------- ----------------
Paid-In (Accumulated Translation Stockholders'
Shares Amount Shares Amount Capital Deficit) Adjustment Equity
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 8,861,400 $89 60,0000 ($494) $23,516 $3,162 ($43) $26,230
------------------------------------------------------------------------------------
Issuance of common stock 33,250 1 -- -- 302 -- -- 303
Repurchase of common stock (188,500) -- 188,500 (1,307) -- -- -- (1,307)
Aggregate adjustment from translation
of foreign currency statements -- -- -- -- -- -- 292 292
Net loss -- -- -- -- -- (848) -- (848)
------------------------------------------------------------------------------------
Balance, December 31, 1996 8,706,150 90 248,500 (1,801) 23,818 2,314 249 24,670
------------------------------------------------------------------------------------
Issuance of common stock 21,327 -- -- -- 31 -- -- 31
Repurchase of common stock (259,900) -- 259,900 (1,586) -- -- -- (1,586)
Aggregate adjustment from translation
of foreign currency statements -- -- -- -- -- -- (264) (264)
Net income -- -- -- -- -- 3,629 -- 3,629
------------------------------------------------------------------------------------
Balance, December 31, 1997 8,467,577 90 508,400 (3,387) 23,849 5,943 (15) 26,480
------------------------------------------------------------------------------------
Issuance of common stock 3,400 -- -- -- 8 -- -- 8
Repurchase of common stock (127,100) -- 127,100 (658) -- -- -- (658)
Aggregate adjustment from translation
of foreign currency statements -- -- -- -- -- -- (256) (256)
Net income -- -- -- -- -- 4,903 -- 4,903
====================================================================================
Balance, December 31, 1998 8,343,877 $90 635,500 ($4,045) $23,857 $10,846 ($271) $30,477
====================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
STIMSONITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. Nature of Business:
Stimsonite Corporation ("Stimsonite" or the "Company") is one of the
nation's leading manufacturers and marketers of reflective highway safety
products. The Company makes a range of high performance products, which are
designed to offer enhanced visual guidance to vehicle operators and pedestrians
in a variety of driving conditions. The Company operates in one business
segment. The Company's products, which are all designed and manufactured to
promote highway safety, are sold primarily by a single sales force to similar
customers in the highway construction business. These products include highway
delineation products (such as raised reflective pavement markers, thermoplastic
pavement marking materials and related application equipment, construction work
zone markers and roadside and other delineators) and optical film products (such
as high performance reflective sheeting used in the construction of highway
signs and Protected Legend(TM) pre-printed sign faces, reflective truck markings
and precision embossed film, which is used in internally illuminated airport
runway signs and a variety of other products that require optical grade film).
2. Summary of Significant Accounting Policies:
A summary of the significant accounting policies used in the preparation of the
accompanying consolidated financial statements follows:
Principles of Consolidation The consolidated financial statements include the
financial statements of Stimsonite Corporation, its subsidiaries and majority
owned joint ventures. Significant intercompany transactions have been eliminated
in consolidation, and minority interests are reflected in the financial
statements.
Foreign Currency Translation All assets and liabilities are translated at
current and historical rates of exchange and operating transactions are
translated at weighted average rates during the year. The translation gains and
losses are accumulated as a component of stockholders' equity.
Cash and Cash Equivalents Cash and cash equivalents include all highly liquid
debt instruments with an initial maturity date of three months or less.
Inventories Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) basis.
Property, Plant and Equipment Property, plant and equipment are stated at cost.
Depreciation is computed by use of the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are charged
to operations as incurred; major improvements are capitalized. Upon retirement
or sale, the cost of assets and related accumulated depreciation are removed
from the accounts and any resulting gains or losses upon disposition are
reflected in operations. The following is a summary of the estimated useful
lives utilized by the Company:
Equipment......................... 7 years
Furniture and fixtures............ 7 years
Automobiles....................... 5 years
Molds, dies and tools............. 3 years
Leasehold improvements............ Lesser of lease life or useful life
28
<PAGE>
Intangible Assets Intangible assets have been recorded at cost and are being
amortized on the straight-line basis over their respective amortization periods
(see Note 5). The Company periodically evaluates the carrying value of its
long-lived assets to determine whether an adjustment to the depreciation or
amortization period is warranted. Such evaluation is based on the projected
future cash flows (undiscounted and without interest charges) expected to result
from the utilization of the long-lived asset.
Income Taxes Deferred income taxes are recorded to reflect the tax consequences
on future years of differences between the basis of assets and liabilities for
income tax and for financial reporting purposes. In addition, the amount of any
future tax benefits are reduced by a valuation allowance to the extent such
benefits are not expected to be fully realized.
Deferred Financing Costs Commitment fees and other costs incurred in connection
with the issuance of long-term debt are amortized as interest expense over the
life of the related debt.
Warranty Costs Estimated costs related to warranty are charged to operations at
the time of sale.
Financial Instruments The fair value of cash and cash equivalents is assumed to
approximate the carrying value of these assets due to the short duration of
these instruments. The fair value of the Company's debt, current and long-term,
is estimated to approximate the carrying value of these liabilities based upon
borrowing rates currently available to the Company for borrowings with similar
terms.
Revenue Recognition The Company recognizes revenue upon shipment of the product.
Earnings Per Share The computation of basic earnings per share is based on the
weighted average number of common and common equivalent shares outstanding
during each period. To arrive at diluted earnings per share, all other stock
options have been calculated using the treasury stock method. Earnings per share
computations for prior years have been restated to reflect the new standard.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates made by the Company include warranty accruals
which are estimated based upon product performance experience, and it is
reasonably possible that this estimate could change in the near term.
Comprehensive Income Comprehensive income is reported in the Company's financial
statements as a component of the "Consolidated Statements of Operations and
Comprehensive Income". Foreign exchange translation gain/loss, net of tax, is
included in comprehensive income.
Business Segment The Company has determined that it operates in one business
segment. Accordingly, all required financial data is reported under one segment.
Post-retirement Benefits The Company evaluates its accumulated post-retirement
benefit obligation on an annual basis. Changes in the obligation are recorded as
components of net income.
Accounting Standards The Company will implement the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" (SFAS No. 133), which will be effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and for hedging activities. Management is still assessing the
effects adoption of SFAS No. 133 will have on its financial position, results of
operations or cash flow, but does not expect the impact to be material.
29
<PAGE>
3. Inventories:
Inventories are comprised of the following:
December 31,
1998 1997
Raw materials.......................... $ 4,714 $ 5,323
Work-in-process........................ 1,465 1,455
Finished goods......................... 5,742 4,640
$11,921 $11,418
4. Property, Plant and Equipment:
Property, plant and equipment are comprised of the following:
December 31,
1998 1997
Equipment.............................. $19,483 $17,380
Molds, dies and tools.................. 4,732 3,966
Leasehold improvements................. 3,075 2,992
Furniture and fixtures................. 589 966
Automobiles............................ 382 398
Construction in progress............... 3,619 2,269
31,879 27,971
Less accumulated depreciation ......... (17,665) (16,706)
14,214 11,265
Capital leases......................... 1,170 933
Less accumulated amortization......... (780) (369)
$14,604 $11,829
30
<PAGE>
<TABLE>
<CAPTION>
5. Intangible Assets:
Intangible assets consist of the following:
Amortization December 31,
Period 1998 1997
<S> <C> <C> <C>
Patents................................................. 6-17 years $15,812 $15,633
Covenants not to compete................................ 3-10 years 6,994 6,994
Sales representative and distribution organization
acquired................................................ 7 years 2,298 2,298
Government product approvals acquired.................. 15 years 2,148 2,148
Goodwill associated with Simsco acquisition........... 20 years 1,347 1,347
Goodwill associated with Pave-Mark acquisition........ 40 years 1,158 1,158
Trademarks and other.................................... 15 years 1,999 1,999
31,756 31,577
Less accumulated amortization........................... (22,942) (20,318)
$8,814 $11,259
</TABLE>
<TABLE>
<CAPTION>
6. Long Term Debt:
Long term debt at December 31, 1998 and 1997, consisted of the following:
1998 1997
<S> <C> <C>
Term loan.......................................................... $13,575 $16,075
Revolving loan.................................................... 6,500 2,000
Total loans......................................................... 20,075 18,075
Less current maturities.......................................... (2,500) (2,500)
Total long-term debt............................................. $ 17,575 $ 15,575
</TABLE>
The Company's current credit agreement, which was entered into in July 1996,
provides for a total credit facility of $45.0 million of which $25.0 million is
a term loan, and $20.0 million is a revolving loan. Interest is payable, at the
Company's option, in one, two, three or six month periods. Borrowings under the
credit agreement may be repaid in whole or in part without penalty.
The term loan is repaid in quarterly principal installments of $0.6 million with
a final repayment of $3.0 million on June 30, 2003. The outstanding borrowings
under the term loan bear interest (at the Company's option) at either prime plus
0.25% (8.00% at December 31, 1998) or LIBOR plus 1.8% (7.1125% at December 31,
1998). At December 31, 1998 all outstanding borrowings under the term loan were
under LIBOR contracts.
The principal balance outstanding for the revolving loan is due June 30, 2000.
Under the revolving loan, subject to compliance with certain borrowing base
requirements, the Company may borrow up to $20.0 million. At December 31, 1998,
$6.5 million was outstanding and $10.8 million was available for further
borrowing after considering borrowing base requirements. Unused amounts under
the revolving loan are subject to an annual commitment fee of 0.375%.
The outstanding borrowings under the revolving loan bear interest (at the
Company's option) at prime (7.75% at December 31, 1998) or LIBOR plus a margin
ranging from 0.75% to 1.5% based on the ratio of debt to cash flow determined by
the immediately preceding rolling four quarter performance. At December 31,
1998, the margin in effect was 1.00% and the all inclusive LIBOR interest rate
on the revolving loan was 6.8125%. At December 31, 1998, $6.5 million of
revolving loans were borrowed under LIBOR contracts and none was borrowed at
prime.
31
<PAGE>
The Company has entered into certain arrangements to protect itself from a
possible increase in interest rates. At December 31, 1998, the arrangements had
the effect of (i) limiting the LIBOR rate (before consideration of any margin)
to 8.625% on $6.9 million of debt, declining to zero by June 30, 1999; and (ii)
fixing a LIBOR rate (before consideration of any margin) at 5.7% on $10.0
million of debt through November 1999, and $5.0 million from December 1999
through January 2001.
The credit facility establishes certain financial covenants, including covenants
relating to the Company's funded debt to EBITDA ratio, cash flow coverage ratio
and leverage ratio. In addition the credit agreement imposes limitations on the
Company with respect to, among other things, (i) capital expenditures; (ii)
mergers, acquisitions and purchases and sales of assets; (iii) additional
indebtedness and liens; (iv) transactions with affiliates; and (v) the payment
of cash dividends and the repurchase of common stock. The Company's performance
with respect to these covenants will affect, among other things, the level of
additional borrowings available under the credit facility.
Future minimum principal payments of long term debt are as follows:
Year Total
1999 $ 2,500
2000 9,000
2001 2,500
2002 2,500
2003 3,575
$20,075
7. Common Stock:
In October 1995, the Board of Directors authorized the purchase of up to 500,000
shares of the Company's common stock. In July 1997, the Board of Directors
authorized an additional 500,000 shares of common stock to be repurchased,
raising the total allowable purchases to 1,000,000. As of December 31, 1998, the
Company has repurchased a total of 635,500 shares at an average price of $6.33.
8. Stock Options:
The Company has stock option plans providing for the grant of options to
purchase common shares to outside directors, executives and certain key
employees. During 1998, the Company authorized an additional 248,500 shares for
grant. As of December 31, 1998, a total of 1,468,373 common shares have been
authorized for grant under these plans.
Stock options granted under the plans are exercisable at fair market value of
the stock at the date of grant, are for ten year terms and become exercisable
from one to five years from the date of grant. The following is a summary of the
activity in the Company's stock option plans for the years ended December 31,
1998, 1997 and 1996.
32
<PAGE>
<TABLE>
<CAPTION>
------------------------- ----------------------- ------------------------
1998 1997 1996
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
---------- ------------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 416,035 $5.31 353,474 $5.00 305,724 $3.54
Granted 248,500 $6.40 110,500 $6.00 172,347 $9.00
Exercised (3,400) $2.18 (21,327) $1.48 (33,250) $1.70
Canceled (38,000) $7.00 (26,612) $6.23 (91,347) $8.85
========== ============= ========== ============ ============ =============
Outstanding at end of period 623,135 $5.66 416,035 $5.31 353,474 $5.00
========== ============= ========== ============ ============ =============
Exercisable at end of period 226,571 162,214 161,286
Available for grant at end of period 596,738 803,838 477,226
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about options outstanding at December
31, 1998:
-------------------------------------- --------------------------------------
Options Outstanding Options Exercisable
Weighted
Average Weighted
Number Remaining Average Number Weighted
Outstanding Contractual Exercise Exercisable at Average
Range of exercise prices at 12/31/98 Life Price 12/31/98 Exercise Price
- ---------------------------------------- --------------- -------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.43 - $12.13 623,135 7.2 years $5.66 226,571 $3.77
</TABLE>
The Company applies the provisions of Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB No. 25) in accounting for its
stock based employee compensation arrangements. During 1996, the Company was
required to adopt Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), which encourages
entities to adopt a fair value based method of accounting for stock-based
compensation plans in place of the provisions of APB No. 25 for all arrangements
under which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based on the
price of its stock.
The Company recognizes compensation cost for stock-based compensation awards
equal to the difference between the quoted market price of the stock at the date
of grant or award and the price to be paid by the employee upon exercise in
accordance with the provisions of APB No. 25. Based upon the terms of currently
outstanding options, the stock price on the date of grant and price paid upon
exercise are the same, thus no compensation charge is required to be recognized.
As allowed by SFAS No. 123, the Company will continue to apply the provisions of
APB No. 25 in accounting for its stock-based employee compensation arrangements
and has disclosed pro forma net income and earnings per share information in its
footnotes as if the fair value method suggested in SFAS No. 123 had been
applied.
33
<PAGE>
If compensation cost based on the fair value method of the options issued had
been used, the Company's net income and earnings per common share (EPS) would
have been as follows:
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) As reported $4,903 $3,629 $(848)
Pro Forma $4,726 $3,537 $(900)
Basic EPS As Reported $0.59 $0.42 $(0.10)
Pro Forma $0.57 $0.41 $(0.10)
Diluted EPS As Reported $0.58 $0.42 $(0.10)
Pro Forma $0.56 $0.41 $(0.10)
</TABLE>
The fair value of each option was estimated as of the date of grant using the
Black-Scholes option pricing model based on the following assumptions for 1998,
1997 and 1996, respectively: volatility of 33.1%, 30.9% and 33.0%; expected
lives of 5, 6 and 7 years; risk-free interest rate of 5.7%, 6.1% and 5.4%; and
no payment of dividends expected during the life of the options. The weighted
average fair value of options granted were $2.64, $2.24 and $4.19 for 1998, 1997
and 1996 respectively.
9. Income Taxes:
The components of income (loss) before provision (benefit) for income taxes and
extraordinary item are as follows:
Year Ended December 31,
1998 1997 1996
Domestic $8,823 $6,802 $(175)
Foreign (252) (699) (534)
$8,571 $6,103 $(709)
The provision (benefit) for income taxes on income (loss) before provision
(benefit)for income taxes and extraordinary item for the years ended December
31, 1998, 1997 and 1996 is comprised of the following:
<TABLE>
Year Ended December 31,
<S> <C> <C> <C>
Current income tax expense: 1998 1997 1996
Federal $2,328 $ 560 $1,485
State 827 123 315
Total current 3,155 683 1,800
Deferred income tax (benefit) expense:
Federal 421 1,470 (1,638)
State 92 321 (355)
Total deferred 513 1,791 (1,993)
Total (benefit) provision $3,668 $2,474 $ (193)
</TABLE>
34
<PAGE>
The provision (benefit) for income taxes differs from a provision (benefit)
computed at the U.S. statutory rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% (34.0%)
State income taxes (net of Federal benefit) 7.1% 4.8% (5.6%)
Inability to utilize foreign operating losses 1.0% 4.0% 25.6%
Foreign sales corporation -- -- (14.1%)
Provision for non-deductible expenses 1.5% 1.2% 19.2%
Other (0.8%) (3.5%) (18.3%)
Total 42.8% 40.5% (27.2%)
</TABLE>
<TABLE>
<CAPTION>
The consolidated balance sheet includes the following:
December 31, 1998
Current Non-current Total
<S> <C> <C> <C>
Deferred income tax assets $1,261 $2,678 $3,939
Valuation allowance -- (1,013) (1,013)
Total $1,261 $1,665 $2,926
December 31, 1997
Current Non-current Total
Deferred income tax assets $1,630 $3,069 $4,699
Valuation allowance -- (830) (830)
Total $1,630 $2,239 $3,869
</TABLE>
<TABLE>
<CAPTION>
The components of the deferred tax asset balance (tax effected) are as follows:
December 31, 1998 December 31, 1997
Temporary Tax Temporary Tax
Difference Effect Difference Effect
<S> <C> <C> <C> <C>
Property, plant and equipment $860 $335 $2,009 $784
Intangible assets 387 149 400 156
Allowance for doubtful accounts 686 267 338 132
Inventory obsolescence
reserve and capitalization 1,354 528 2,436 950
Accrued vacation 692 270 493 192
Accrued post-retirement benefits 556 217 594 232
Accrued warranty 591 231 632 246
Stock option compensation 909 355 909 355
Other (221) (62) 317 123
Inter-company profits 364 142 364 142
Foreign NOLs 4,567 1,507 4,202 1,387
Subtotals 10,745 3,939 12,694 4,699
Less valuation allowance (3,069) (1,013) (2,514) (830)
Total $7,676 $2,926 $10,180 $3,869
</TABLE>
As of December 31, 1998 and 1997, the Company had foreign net operating loss
carry forwards of approximately $4,567 and $4,209, respectively. The carry
forwards were generated principally in Europe and Australia and have no
expiration date. As of December 31, 1998 and 1997, the valuation allowance
relates to the European deferred tax assets.
35
<PAGE>
<TABLE>
<CAPTION>
10. Earnings Per Share:
The computation of basic and diluted EPS, as prescribed by SFAS 128, is
presented below:
Weighted Average
Shares
Net Income (Denominator) Per Share
(Numerator) Amounts
------------------ ------------------ -----------------
Year ended December 31, 1998
Basic EPS
<S> <C> <C> <C>
Income available to common stockholders $4,903,000 8,364,340 $0.59
Effect of dilutive options -- 144,296 $(0.01)
Diluted EPS
Income available to common stockholders plus assumed
conversions $4,903,000 8,508,636 $0.58
- -------------------------------------------------------------- ------------------ ------------------ -----------------
Year ended December 31, 1997
Basic EPS
Income available to common stockholders $3,629,000 8,576,451 $0.42
Effect of dilutive options -- 110,371 --
Diluted EPS
Income available to common stockholders plus assumed
conversions $3,629,000 8,686,822 $0.42
- -------------------------------------------------------------- ------------------ ------------------ -----------------
Year ended December 31, 1996
Basic EPS
Income (loss) available to common stockholders $(848,000) 8,822,880 $(0.10)
Effect of dilutive options -- -- --
Diluted EPS
Income (loss) available to common stockholders plus assumed
conversions $(848,000) 8,822,880 $(0.10)
- -------------------------------------------------------------- ------------------ ------------------ -----------------
</TABLE>
11. Employee Benefit Plans:
The Company has a 401(k) savings plan covering substantially all of its salaried
employees. The Company matches 25% of certain employees' pretax contributions
under this plan. Contributions eligible for Company matching are limited to 6%
of eligible earnings. Company matching contributions vest immediately. The
Company also has a 401(k) capital accumulation plan covering most salaried and
hourly employees, under which the Company contributes 5% of eligible employee
earnings. The Company's contributions under the capital accumulation plan vest
over a 5 year period. Total Company contributions under these plans for the
years ended December 31, 1998, 1997 and 1996 were approximately $552, $550 and
$456, respectively.
The Company has an agreement with a former executive officer that provides for
deferred compensation. The agreement provides for deferred payments based on
years of service. For the years ended December 31, 1998, 1997 and 1996, expenses
recorded under this plan were $101, $0 and $70, respectively.
36
<PAGE>
12. Post-Retirement Benefits Other Than Pensions:
The Company provides post-retirement health care and life insurance benefits to
certain retired employees and their dependents.
The following provides a reconciliation of these post-retirement benefits:
<TABLE>
<CAPTION>
Fiscal year ended December 31:
1998 1997
-------------- --------------
Change in benefit obligation
<S> <C> <C>
Benefit obligation at January 1 $285 $274
Service cost 0 0
Interest cost 18 19
Plan participants' contributions 0 0
Actuarial (gain)/loss 26 29
Acquisitions 0 0
Actual benefits paid (40) (38)
- -------------------------------------------------------------- -------------- --------------
Benefit obligation at December 31 $290 $285
Change in plan assets
Fair value of plan assets at January 1 $0 $0
Actual return on plan assets 0 0
Acquisitions 0 0
Company contribution 40 38
Plan participant contribution 0 0
Acquisitions 0 0
Benefits paid (40) (38)
- -------------------------------------------------------------- -------------- --------------
Fair value of plan assets at December 31 $0 $0
Reconciliation of funded status
Accumulated post-retirement benefit obligation $(290) $(285)
Market value of plan assets 0 0
- -------------------------------------------------------------- -------------- --------------
Funded status $(290) $(285)
Unrecognized prior service cost 0 0
Unrecognized net (gain)/loss (266) (309)
- -------------------------------------------------------------- -------------- --------------
Prepaid (accrued) benefit cost $(556) $(594)
</TABLE>
Net benefit costs in 1998, 1997 and 1996 include the following components:
Fiscal years ended December 31:
1998 1997 1996
---------------- ---------------- ---------------
Service cost $0 $0 $0
Interest expense 18 19 39
Expected return on plan assets 0 0 0
Amortization of prior service cost 0 0 0
Amortization of net (gain)/loss (16) (19) 0
- ----------------------------------------------- ---------------- ---------------
Net periodic benefit cost $2 $0 $39
37
<PAGE>
1998 1997
-------------- --------------
Assumptions as of December 31
Discount rate 6.50% 7.00%
Initial weighted average health care cost trend rate 7.00% 7.50%
Ultimate health care cost trend rate 5.00% 5.00%
Years to ultimate trend 6 7
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one percentage-point change in the assumed
health care cost trend rates would have the following effects:
1% point 1% point
increase decrease
Effect on total of service and interest cost components 0.32% (0.32%)
Effect on post-retirement benefit obligation 0.35% (0.35%)
13. Commitments:
The Company leases its office, warehouse and manufacturing facilities under
non-cancelable operating leases which expire through 2008. The leases for these
facilities contain renewal options, escalation clauses and requirements that the
Company pay real estate taxes, insurance, utilities and maintenance.
Rent expense for the years ended December 31, 1998, 1997 and 1996 were
approximately $2,008, $1,810 and $1,926, respectively. Annual minimum future
payments under all lease commitments are as follows:
Year Ending
December 31,
1999..................................... $2,005
2000..................................... 1,922
2001..................................... 1,841
2002..................................... 1,410
2003..................................... 1,304
Thereafter............................... 3,368
Annual minimum future capital lease payments are as follows:
Year Ending
December 31,
1999............................................$323
2000............................................. 70
2001............................................. 42
2002............................................. 40
2003............................................. 0
Thereafter....................................... 0
38
<PAGE>
14. Credit Risk:
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of trade receivables. The majority of the
Company's sales are made to independent contractors and state governments and
are related to highway construction and maintenance. The Company requires
prepayment or letters of credit for a substantial portion of foreign sales, and
payment bonds on most domestic contractor sales. The Company generally sells on
an unsecured basis to other customers including governmental agencies and
distributors.
15. Operating Segments and Geographic data:
The Company is engaged in one line of business - the manufacture and sale of
highway safety products - which represents more than 90% of consolidated sales.
The Company's marketing strategy emphasizes a single sales force for all of its
products. Substantially all of the Company's customers are active in the highway
construction industry. Accordingly, financial results are reported as a single
industry segment. No single customer purchased more than 3% of sales in 1998,
1997 or 1996. Sales and selected financial information by geographic area for
the years ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 United States International Consolidated
<S> <C> <C> <C>
Revenues from external parties........................... $81,102 $6,260 $87,362
Operating income (loss).................................. 10,653 (300) 10,353
Net income (loss)........................................ 5,246 (343) 4,903
Total assets............................................. 56,276 4,796 61,072
Long lived assets........................................ 22,146 1,272 23,418
1997 United States International Consolidated
Revenues from external parties........................... $74,458 $6,905 $81,363
Operating income (loss).................................. 9,113 (708) 8,405
Net income (loss)........................................ 4,328 (699) 3,629
Total assets............................................. 49,012 6,189 55,201
Long lived assets........................................ 21,449 1,639 23,088
1996 United States International Consolidated
Revenues from external parties........................... $76,220 $6,492 $82,712
Operating income (loss).................................. 2,499 (528) 1,971
Net income (loss)........................................ (252) (596) (848)
Total assets............................................. 66,131 5,739 71,870
Long lived assets........................................ 31,200 2,080 33,280
</TABLE>
Revenues from external parties, as noted above, are recognized based on point of
origin.
International assets are principally trade receivables, inventory and goodwill
associated with the acquisition of Simsco. United States revenue includes export
sales to non-affiliates for the years ended December 31, 1998, 1997 and 1996 of
$7,399, $5,806 and $3,859, respectively.
16. Extraordinary Item:
In 1996, the Company recorded a pre-tax extraordinary loss of $554 resulting
from the write-off of the remaining deferred financing fees relating to the
repayment of the Company's prior indebtedness. A tax benefit of $222 was
allocated to the extraordinary loss.
17. Restructuring Charge:
The Company incurred a $4.0 million restructuring charge in the fourth quarter
of 1996. Substantially all of the charges related to anticipated losses from the
sale of land and a building under construction in
39
<PAGE>
Waukegan, IL. In April 1996, the Company purchased 20 acres of undeveloped land
in Waukegan, IL for the purpose of constructing a new manufacturing and office
complex. The Company intended to relocate its principal manufacturing and office
functions from Niles, IL to the Waukegan site during 1997. The Company initiated
the construction of a 137,000 square foot building on the land in May 1996. In
December 1996, when the facility was partially completed, the Company decided to
remain in its Niles, IL facilities and not relocate any operations to Waukegan.
The Company subsequently sold the property in August of 1997. Net proceeds of
$5.8 million from the sale were used to pay down the Company's long-term debt.
There were no material charges to net income in fiscal year 1997 as a result of
the sale.
The restructuring charge also included certain other costs associated with a
series of actions to reduce expenses. Among these actions were a 10% reduction
in the salaried workforce and consolidation into the Niles, IL facility of
several administrative functions that were previously performed in other
domestic locations.
40
<PAGE>
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
41
<PAGE>
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of the Company will be set forth under
the caption "Election of Directors" in Stimsonite's proxy statement related to
the Company's 1999 annual meeting of stockholders (the "Proxy Statement") and is
incorporated herein by reference. Information regarding executive officers of
the Company is included as Item 4A of Part I as permitted by Instruction 3 to
Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation
S-K will be set forth under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement and is incorporated herein by
reference.
ITEM 11--EXECUTIVE COMPENSATION.
Information required by this item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and, except for the information
under the captions "Executive Compensation--Compensation Committee Report on
Executive Compensation" and "Executive Compensation--Performance Graph," is
incorporated herein by reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item will be set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated herein by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding any disclosable relationships and related
transactions of directors and executive officers will be set forth under the
caption "Compensation Committee Interlocks and Insider Participation" in the
Proxy Statement and is incorporated herein by reference.
42
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Refer to Item 8 of this report for financial statements.
2. Refer to Item 8 of this report for financial statement schedule.
3. Exhibits:
Exhibit
Number Description of Document
3.1 Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1993 (Commission File No. 0-22978)(the "1993 10-K").
3.2 By-laws of the Company, as amended to date, incorporated
by reference to Exhibit 3.2 to the 1993 10-K.
4.1 Specimen certificate for the Company's common stock, $.01
par value, incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1, as
amended (Commission File No. 33-70633) (the "Registration
Statement").
4.2 Registration Rights Agreement, dated as of October
19, 1993, among the Company, Quad-C Partners, L.P.,
Quad-C Partners C.V. and Commonwealth Investors,
L.P., incorporated by reference to Exhibit 4.7 to the
Registration Statement.
4.3 Loan Agreement, dated July 23, 1996, among the
Company as borrower, and LaSalle National Bank as
co-lender and Harris Trust and Savings Bank as
co-lender (the "Loan Agreement"), incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the Quarter Ended June 30,
1996.
4.4 First Amendment dated March 27, 1997 to the Loan
Agreement, incorporated by reference to Exhibit 10.5
to the Company's Quarterly Report on Form 10-Q for
the Quarter Ended June 29, 1997 (Commission File No.
0-22978) (the "June 1997 10-Q").
4.5 Second Amendment dated July 1, 1997 to the Loan Agreement,
incorporated by reference to Exhibit 10.6 to the June 1997
10-Q.
4.6 Third Amendment dated December 31,1998 to the Loan
Agreement.
*10.1 Form of Employment Agreement, dated August 20, 1990,
between the Company and Robert Pricone and Michael A.
Cherwin for minimum salaries of $78,800
43
<PAGE>
and $51,000, respectively, incorporated by reference
to Exhibit 10.2 to the Registration Statement.
*10.2 Employment Agreement, dated as of September 7, 1993,
between the Company and Thomas C. Ratchford,
incorporated by reference to Exhibit 10.3 to the
Registration Statement.
*10.3 Stimsonite Corporation Executive Stock Option Plan,
incorporated by reference to Exhibit 10.5 to the
Registration Statement.
*10.4 Stimsonite Corporation 1993 Incentive Equity Plan,
incorporated by reference to Exhibit 10.6 to the
Registration Statement.
*10.5 Amended and Restated Stock Option Plan for
Non-Employee Directors, incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
(Commission File No. 0-22978) (the "1996 10-K").
*10.6 Non-qualified Stock Option Agreement, dated October
1, 1993, between the Company and Thomas C. Ratchford,
incorporated by reference to Exhibit 10.7 to the
Registration Statement.
*10.8 Non-qualified Stock Option Agreement, dated as of
February 20, 1995, between the Company and Clifford
S. Deremo, incorporated by reference to Exhibit 10.10
to the 1994 10-K.
*10.9 Amerace Corporation Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit 10.8 to the
Registration Statement.
*10.10 Form of Non-qualified Stock Option Agreement, dated
February 13, 1996, between the Company and each of
Michael A. Cherwin for 4,000 shares, Clifford S.
Deremo for 7,000 shares, Robert M. Pricone for 7,000
shares, Thomas C. Ratchford for 5,500 shares and Jay
R. Taylor for 13,000 shares. Incorporated by
reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995 (Commission File No. 0-22978)(the
"1995 10-K").
10.11 Lease, dated December 12, 1986, between the
Company (as assignee of Amerace Corporation) and
American National Bank and Trust Company of Chicago,
as trustee, incorporated by reference to Exhibit 10.11
to the Registration Statement.
10.12 Lease, dated December 12, 1986, between the Company
(as assignee of Amerace Corporation) and American
National Bank and Trust Company of Chicago, as trustee,
incorporated by reference to Exhibit 10.12 to the
Registration Statement.
10.13 Lease, dated June 24, 1991, between the Company and OTR,
an Ohio general partnership as nominee for The State
Teachers Retirement System of Ohio, incorporated by
reference to Exhibit 10.13 to the Registration Statement.
44
<PAGE>
10.16 Commercial Lease Agreement, dated December 14, 1995,
between Selig Enterprises, Inc. and the Company
(related to Plymouth Road), incorporated by reference to
Exhibit 10.18 to the 1995 10-K.
*10.18 Consulting Agreement dated November 14, 1996 between
the Company and Jay R. Taylor, incorporated by
reference to Exhibit 10.19 to the 1996 10-K.
10.19 Commercial Lease Agreement dated December 13, 1996
between the Company and American National Bank and Trust
Company of Chicago, as trustee, incorporated by
reference to Exhibit 10.20 to the 1996 10-K.
*10.20 Employment agreement dated as of March 22, 1997
between the Company and Robert E. Stutz, incorporated
by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended
March 30, 1997 (Commission File No. 0-22978) (the
"March 1997 10-Q").
*10.21 Non qualified stock option agreement dated as of
March 22, 1997 between Robert E. Stutz and the
Company, incorporated by reference to Exhibit 10.2 to
the March 1997 10-Q.
10.23 Purchase Agreement dated July 18, 1997 between
Stimsonite Corporation (seller) and Kenneth Spungen
(purchaser) for the sale of the Company's facility
in Waukegan, Illinois, incorporated by reference to
Exhibit 10.4 to the June 1997 10-Q.
10.24 Lease dated as of August 20, 1997 between the Company
(as tenant) and First Bank National Association, as
trustee (as landlord), incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the Quarter Ended September 28, 1997
(Commission File No. 0-22798).
*10.25 Non-qualified Stock Option Agreement, dated as of
February 12, 1998, between the Company and each of
Michael A. Cherwin for 10,000 shares, Llewellyn C.
Coffin for 10,000 shares, Clifford S. Deremo for
10,000 shares, Robert M. Pricone for 10,000 shares,
and Thomas C. Ratchford for 10,000 shares.
*10.26 Non-qualified Stock Option Agreement, dated as of
December 17, 1998, between the Company and each of
Michael A. Cherwin for 10,000 shares, Llewellyn C.
Coffin for 10,000 shares, Clifford S. Deremo for
10,000 shares, Robert M. Pricone for 10,000 shares,
Thomas C. Ratchford for 10,000 shares, and Robert E.
Stutz for 25,000 shares.
10.27 Lease dated as of February 19, 1998 between the
Company (as tenant) and Marietta Blvd. Warehouse (as
landlord), incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for
the Quarter Ended April 5, 1998 (Commission File No.
0-22798).
10.28 Lease dated as of August 7, 1998 between the Company
(as tenant)and Martin A.Smith and Judy Smith (as landlord).
*10.29 Stimsonite Corporation Executive Officers 1999 Incentive
Compensation Plan.
21.1 List of subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP
45
<PAGE>
24.1 Powers of Attorney.
- ------------
* Management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended
December 31, 1998.
46
<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.
Dated March 26, 1999 STIMSONITE CORPORATION
/s/ Robert E. Stutz
Robert E. Stutz
President and Chief Executive Officer and Director
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 indicated on March 26, 1999:
/s/ Robert E. Stutz /s/ Thomas C. Ratchford
Robert E. Stutz Thomas C. Ratchford
President and Chief Executive Vice President-Finance, Treasurer,
Officer and Director Secretary and Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
*_______________________ *_______________________
Terrence D. Daniels Anthony R. Ignaczak
Director Director
*_______________________ *_______________________
Lawrence S. Eagleburger Richard J.M. Poulson
Director Director
_______________________ *_______________________
Donald H. Haider Samuel K. Skinner
Chairman of the Board and Director Director
*_______________________ *_______________________
Edward T. Harvey, Jr. Jay R. Taylor
Director Director
* The undersigned by signing his name hereunto has hereby signed this
report on behalf of the above-named officers and directors, on March 26, 1999,
pursuant to a power of attorney executed on behalf of each such director and
officer and filed with the Securities and Exchange Commission as Exhibit 24.1 to
this report.
By: /s/ Thomas C. Ratchford
Thomas C. Ratchford
47
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
STIMSONITE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1997 and 1998
(Dollars in thousands)
Balance at Charged to Charged Deductions Balance
Beginning Costs and to Other from at End
Description of Year Expenses Accounts Reserves of Year
Allowance for doubtful accounts
Year ended December 31,
<S> <C> <C> <C> <C> <C>
1996 $895 $311 $0 (a) $1,206
1997 1,206 143 889 (a) 460
1998 460 608 331 (a) 737
Accrued warranty costs
Year ended December 31,
1996 510 939 540 (b) 909
1997 909 1,019 1,297 (b) 631
1998 631 1,386 1,115 (b) 902
</TABLE>
- -------------
(a) Uncollectible items written off.
(b) Change in accounting estimate.
48
<PAGE>
INDEX OF EXHIBITS
Page
Exhibit 4.6 - Third Amendment dated Decemer 31, 1998
to the Loan Agreement. 50
Exhibit 10.25 - Non qualified stock option agreement form 53
Exhibit 10.28 - Lease dated as of August 7, 1998 between
the Company (as tenant and Martin A. Smith
and Judy Smith (as landlord). 60
Exhibit 10.29 - Stimsonite Corporation Executive
Officers 1999 Incentive Compensation Plan. 68
Exhibit 21.1 - List of subsidiaries of the Company. 71
Exhibit 23.1 - Consent of PricewaterhouseCoopers LLP 72
Exhibit 24.1 - Powers of Attorney. 73
49
<PAGE>
Exhibit 4.6
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Third Amendment") is
entered into as of the 23rd day of February 1999, by and between LaSalle
National Bank, a national banking association ("LaSalle"), Harris Trust and
Savings Bank, an Illinois banking corporation ("Harris") (LaSalle and Harris are
referred to herein collectively as the "Banks"), and Stimsonite Corporation, a
Delaware corporation ("Borrower"). LaSalle National Bank, a national banking
association, as agent for the Banks for certain limited purposes ("Agent"),
shall also be deemed a party hereto for the purpose of acting as agent.
W I T N E S S E T H:
WHEREAS, Banks, Agent and Borrower entered into that certain Loan
Agreement dated as of July 23, 1996 as amended by that certain Amendment to Loan
Agreement dated as of March 24, 1997 and that certain Second Amendment to Loan
Agreement dated as of July 1, 1997 (collectively, the "Agreement"), and now
desire to further amend such Agreement.
NOW, THEREFORE, for and in consideration of the premises and mutual
agreements herein contained and for the purposes of setting forth the terms and
conditions of this Third Amendment, the parties, intending to be bound, hereby
agree as follows:
1. Incorporation of the Agreement. All capitalized terms which are not defined
hereunder shall have the same meanings as set forth in the Agreement, and the
Agreement, to the extent not inconsistent with this Third Amendment, is
incorporated herein by this reference as though the same was set forth in its
entirety. To the extent any terms and provisions of the Agreement are
inconsistent with the amendments set forth in paragraph 2 below, such terms and
provisions shall be deemed superseded hereby. Except as specifically set forth
herein, the Agreement shall remain in full force and effect and its provisions
shall be binding on the parties hereto.
2. Amendment of the Agreement. The Agreement is hereby amended as follows:
1. Paragraph 9.2(g)(iii) is hereby amended and restated in its entirety as
follows:
(iii) Not permit the Leverage Ratio to exceed .45:1 for the
fiscal quarter ending December 31, 1998 and each fiscal quarter
thereafter.
50
<PAGE>
2. A new Paragraph 9.2(k) is appended to the Agreement and shall read as
follows:
(k) Borrower has reviewed the areas within
its business and operations which, to the knowledge of
Borrower, could be adversely affected by, and has developed or
is developing a program to address on a timely basis, the
"Year 2000 Problem" (that is, the risk that computer
applications used by Borrower may be unable to recognize and
perform properly date-sensitive functions involving certain
dates prior to and any date on or after December 31, 1999),
and has made or will make related appropriate inquiry of
material suppliers and vendors. Based on such review and
program, Borrower believes that the "Year 2000 Problem" will
not have a material adverse effect on Borrower. From time to
time, at the request of Bank, Borrower shall provide to Bank
such updated information or documentation as is reasonably
requested regarding the status of its efforts to address the
Year 2000 problem.
3. Limited Waiver of Compliance. Notwithstanding any contrary provision
contained herein or in the Agreement, Banks and Agent waive Borrower's
compliance with the Leverage Ratio of .40:1 set forth in Paragraph 9.2(g)(iii)
of the Agreement for the fiscal quarter ending December 31, 1998, until such
Leverage Ratio was amended pursuant to this Third Amendment. Nothing in this
Third Amendment shall be construed to mean that any such waiver of Leverage
Ratio limits will extend to any other measuring period, Leverage Ratio or
covenant.
4. Closing Documents. The following documents and other items shall be delivered
concurrently with this Third Amendment:
1.Four executed copies of this Third Amendment.
5. Representations and Warranties; No Event of Default. The representations and
warranties set forth in Paragraph 9 are deemed remade as of the date hereof and,
upon full execution of this Third Amendment in accordance with Section 6 below,
and except as set forth in Section 3 above, Borrower represents that such
representations and warranties are true and correct as of the date hereof (other
than representations and warranties made as of a specific date). Upon full
execution of this Third Amendment in accordance with Section 6 below, and except
as set forth in Section 3 above, no Event of Default exists nor does there exist
any event or condition which with notice, lapse of time and/or the consummation
of the transactions contemplated hereby would constitute an Event of Default.
6. Effectuation. The amendments to the Agreement contemplated by this Third
Amendment shall be deemed effective as of the date first written above upon the
full execution of this Third Amendment and without any further action required
by the parties hereto. There are
51
<PAGE>
no conditions precedent or subsequent to the effectiveness of this Third
Amendment except as set forth in Section 4 above.
7. Counterparts. This Third Amendment may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Third
Amendment as of the date first above written.
LASALLE NATIONAL BANK STIMSONITE CORPORATION
By: Jeffrey A. Raider By: Thomas C. Ratchford
Its First Vice President Its Vice President -- Finance
HARRIS TRUST AND SAVINGS BANK
By: Adam Balbach
Its Vice President
52
<PAGE>
Exhibit 10.25
STIMSONITE CORPORATION
Non qualified Stock Option Agreement
NON QUALIFIED STOCK OPTION AGREEMENT, dated as of
December 17, 1998 (this "Agreement"), between John Doe ("Optionee") and
Stimsonite Corporation, a Delaware Corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Optionee is an officer or employee of the Company or
a Subsidiary; and
WHEREAS, the execution of a non qualified stock option
agreement in the form hereof has been duly authorized by a resolution of the
Compensation Committee (the "Committee") of the Board of Directors ("the Board")
of the Company duly adopted on December 17, 1998 (the "Date of Grant") and
incorporated herein by reference; and
WHEREAS, the option granted hereunder is intended as a non
qualified stock option and shall not be treated as an "incentive stock option"
within the meaning of that term under Section 422 of the Internal Revenue Code
of 1986 (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, the parties hereto hereby agree as follows:
1. Option.
Pursuant to the Company's 1993 Incentive Equity Plan (the
"Plan"), the Company hereby grants to Optionee an option (the "Option") to
purchase, subject to Section 1(b), up to [number] shares (the "Option Shares")
of the Company's Common Stock, par value $.01 per share ("Common Shares"), at
the price of [price in effect on the close of business on the Date of Grant] per
share (the "Option Price"), which is the fair market value of the Common Shares
(as determined by the Committee) as of the Date of Grant, and agrees to cause
certificates for any Common Shares purchased hereunder to be delivered to
Optionee upon full payment of the Option Price in full, subject to the
applicable terms and conditions of the Plan and the terms and conditions
hereinafter set forth.
2. Vesting of Option Shares
(a) Unless and until terminated as hereinafter provided, the
Option shall become exercisable to the extent of one-third of the Option Shares
(rounded to the nearest whole share) on December 17 in each of 1999, 2000 and
2001 as long as Optionee remains in the continuous employ of the Company or a
Subsidiary. For the purposes of this agreement, the continuous employment of
Optionee with the Company or a Subsidiary shall not be deemed to have been
interrupted, and Optionee shall not be deemed to have ceased to be an employee
of the Company or a Subsidiary, by
53
<PAGE>
reason of (i) the transfer of Optionee's employment among the Company and its
Subsidiaries or (ii) an approved leave of absence of not more than 90 days,
unless Optionee has a statutory or contractual right to re-employment with the
Company or a Subsidiary following an approved leave of absence of more than 90
days. To the extent that the Option shall have become exercisable, it may be
exercised in whole or in part from time to time.
(b) Notwithstanding the provisions of paragraph 2 (a) above,
the Option shall become immediately exercisable to the extent of 100% of the
Option Shares upon the occurrence of a Change in Control. If any event or series
of events constituting a Change in Control shall be abandoned, the effect
thereof shall be null and of no further force and effect and the provisions of
Section 2 (a) shall be reinstated but without prejudice to any exercise of the
Option that may have occurred prior to such nullification.
(c) Notwithstanding the provisions of paragraph 2 (a) above,
the Option shall become immediately exercisable to the extent of 100% of the
Option Shares upon the death or Disability of Optionee.
3. Exercises.
(a) This Option, to the extent exercisable as provided in
Section 2, may be exercised by Optionee by delivery to the Company of (i) an
Exercise Notice in the form attached to this Agreement as Annex A, appropriately
completed and duly executed and dated by Optionee, (ii) payment in full of the
Option Price for the number of Option Shares which Optionee is purchasing
hereunder, and (iii) payment in full to the Company of any amounts required to
be paid pursuant to Section 3(c).
(b) The Option Price shall be payable (a) in cash or check
acceptable to the Company, (b) by transfer to the Company of Common Shares that
have been owned by Optionee for more than six months prior to the date of
exercise, or (c) by a combination of any of the foregoing methods of payment.
The requirement of payment in cash shall be deemed satisfied if Optionee shall
have made arrangements satisfactory to the Company with a broker who is a member
of the National Association of Securities Dealers, Inc. to sell on the date of
exercise a sufficient number of the Common Shares being purchased so that the
net proceeds of the sale transaction will at least equal the aggregate Option
Price, plus interest at the applicable federal rate for the period from the date
of exercise to the date of payment, and pursuant to which the broker undertakes
to deliver the aggregate Option Price, plus such interest, to the Company not
later than the date on which the sale transaction will settle in the ordinary
course of business.
(c) If the Company shall be required to withhold any federal,
state, local or foreign tax in connection with an exercise of the Option, it
shall be a condition to the exercise that Optionee pay the tax or make
provisions that are satisfactory to the Company for the payment thereof.
4. Termination of Option.
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The Option shall terminate on the earliest of the following
dates:
(a) the date on which Optionee ceases to be an employee of the
Company or a Subsidiary by reason of voluntary termination, involuntary
termination for Cause or any reason not described in paragraphs 4 (b)
and 4 (c) below;
(b) 90 days after Optionee ceases to be an employee of the
Company or any Subsidiary by reason of Optionee's (i) retirement from
employment with the Company or any Subsidiary after reaching the age of
65 years; (ii) death; or (iii) Disability.
(c) 30 days after Optionee's employment is terminated under
circumstances determined by the Committee to be for the convenience of
the Company but without Cause.
(d) ten years from the Date of Grant, i.e., December 17, 2008.
In the event that Optionee commits an act that the Board determines to have been
intentionally committed and materially inimical to the interests of the Company,
the Option shall terminate as of the time of the commission of that act,
notwithstanding any other provision of this Agreement. In the event that
Optionee's employment is terminated by the Company for Cause, the Option shall
terminate as of the time Optionee's employment is terminated, notwithstanding
any other provision of this Agreement.
5. No Transfer of Option.
The Option may not be transferred except by will or the laws
of descent and distribution and may not be exercised during the lifetime of
Optionee except by Optionee or Optionee's guardian or legal representative
acting on behalf of Optionee in a fiduciary capacity under state law and court
supervision.
6. Limitations on Exercise of Option.
Notwithstanding any other provision of this agreement, the
Option shall not be exercisable if the exercise would involve a violation of any
applicable federal or state securities law, and the Company shall make
reasonable efforts to comply with all such laws.
7. Adjustments.
(a) The Committee may make or provide for such adjustments in
the number and kind of Option Shares and in the Option Price, as the Committee
may in good faith determine to be equitably required in order to prevent
dilution or expansion of the rights of Optionee that otherwise would result from
(a) any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company, or (b) any merger,
consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of
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warrants or other rights to purchase securities or any other corporate
transaction or event having an effect similar to the foregoing.
(b) In the event of any such transaction or event, the
Committee may provide in substitution for the Option such alternative
consideration as it may in good faith determine to be equitable under the
circumstances and may require in connection therewith the surrender of the
Option.
8. No Right to Employment.
No provision of this agreement shall limit in any way
whatsoever any right that the Company or a Subsidiary may otherwise have to
terminate the employment of Optionee at any time.
9. Rights as a Stockholder.
The holder of this Option shall not be, nor have any of the
rights or privileges of, a holder of Common Shares in respect of any Option
Shares unless and until certificates representing such shares have been issued
by the Company to such holder.
10. Required Holding Period.
Anything herein to the contrary notwithstanding, the Committee
reserves the right to limit the rights of Optionee to exercise the Option to the
extent necessary for the Option, its exercise or the sale of Option Shares
acquired thereunder (i) to be exempt from Section 16 (b) of the Exchange Act of
1934, as amended; or (ii) to satisfy all applicable federal and state securities
laws.
11. Definitions.
For the purposes of this Agreement, the following terms have
the following meanings:
(a) "Cause" means (i) the commission by Optionee of an act of
fraud or embezzlement against the Company or an act which the Optionee knew to
be in gross violation of Optionee's duties to the Company (including the
unauthorized disclosure of confidential information), (ii) Optionee's continual
failure to render services to the Company, which failure (A) amounts to gross
neglect of Optionee's duties to the Company and (B) is not remedied within 10
days after notice thereof by the Company, or (iii) Optionee's conviction of a
felony.
(b) "Change in Control" means the occurrence of any of the
following events:
(i) The execution by the Company of an agreement for
the merger, consolidation or reorganization into or with another
corporation or other legal person; provided, however, that no such
merger, consolidation
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or reorganization not less than a majority of the combined voting power of the
then-outstanding securities of such corporation or person immediately after such
transaction are held in the aggregate by the holders of securities entitled to
vote generally in the election of directors of the Company ("Voting Stock")
immediately prior to such transaction;
(ii) The execution by the Company of an agreement for
the sale or other transfer of all or substantially all of its assets to
another corporation or other legal person; provided, however, that no
such sale or other transfer shall constitute a Change in Control if as
a result of such sale or transfer not less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held
in the aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Securities exchange Act of 1934, as amended
(the "Exchange Act") disclosing that any person (as the term "person"
is used in Section 13 (d) (3) or Section 14 (d) (2) of the Exchange
Act) (other than Terrence D. Daniels, Quad-C, Inc., Quad-C Partners,
L.P., Quad-C Offshore Investors L.P. or Commonwealth Investors, L.P.)
has or intends to become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing a
majority or more of the combined voting power of the then-outstanding
Voting Stock, including, without limitation, pursuant to a tender offer
or exchange offer;
(iv) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
directors of the Company cease for any reason to constitute at least a
majority thereof; provided, however, that for purposes of this
subsection (iv) each director who is first elected, or first nominated
for election by the Company's stockholders, by a vote of at least
two-thirds of the directors of the Company (or a committee thereof)
then still in office who were directors of the Company at the beginning
of any such period shall be deemed to have been a director of the
Company at the beginning of such period; or
(v) except pursuant to a transaction described in the
proviso to subsection (i) of this definition, the Company adopts a plan
for the liquidation or dissolution of the Company.
(c) "Disability" means, as of any date, the permanent
disability of Optionee in accordance with the then applicable
provisions of the disability benefit program of the Company generally
available to key employees of the Company or any Subsidiary.
(d) "Subsidiary" means any corporation in which the Company
directly or indirectly owns or controls more than 50 percent of the
total combined voting power of all classes of stock issued by the
corporation.
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12. Severability.
In the event that one or more of the provisions of this
agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provisions so invalidated shall be deemed to be separable from
the other provisions hereof, and the remaining provisions hereof shall continue
to be valid and fully enforceable.
13. Governing Law.
This agreement is made under, and shall be construed in
accordance with, the laws of the State of Delaware.
This Agreement is executed by the Company as of the 17th day of December 1998.
STIMSONITE CORPORATION
By
Robert E. Stutz
President and Chief
Executive Officer
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Non qualified Stock Option Agreement and accepts the Option
subject to the applicable terms and conditions of the Plan and the terms and
conditions hereinabove set forth.
Optionee
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ANNEX A
to
Non qualified Stock Option Agreement
Form of Exercise Notice
Pursuant to the Non qualified Stock Option Agreement dated as of
December 17, 1998 between the undersigned and Stimsonite Corporation (the
"Company"), the undersigned hereby elects to exercise his/her Option as follows:
(a) Number of shares purchased:
(b) Total purchases price ((a) x [Option Price]): $
Please issue a single certificate for the shares being purchased in the
name of the undersigned. The registered address on such certificate should be:
The undersigned's social security number is:
Date:
Optionee
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Exhibit 10.28
Atlanta Commercial Board of REALTORS, Inc.
Standard Commercial Lease Agreement
Copyright 8 September 1997
THIS LEASE is made by and among Martin A. Smith & Judy Smith_ (hereinafter
called "Landlord"), and Stimsonite Corporation (hereinafter called "Tenant"),
and _____No Broker__ (hereinafter called "Broker").
WITNESSETH:
PREMISES
1. Landlord, for and in consideration of the rents, covenants,
agreements, and stipulations hereinafter mentioned, provided for and contained
herein to be paid, kept and performed by Tenant, leases and rents unto Tenant,
and Tenant hereby leases and takes upon the terms and conditions which
hereinafter appear, the following described property (hereinafter called the
"Premises"), to wit:
Approximately 43,280 square feet office/warehouse space.
and being known as____1396 Chattahoochee Avenue, Atlanta, GA. 30318______. No
easement for light or air is included in the Premises.
TERM
2. The Tenant shall have and hold the Premises for a term of _____3
years___________________________ beginning on the ___1st___ day of
___November_________, 1998_____, and ending on the __31_______ day of
___October_________, 2001 , at midnight, unless sooner terminated as hereinafter
provided.
RENTAL
3. Tenant agrees to pay to ( x )Landlord or ( )Broker at the address of
( x )Landlord or ( )Broker as stated in this Lease, without demand, deduction or
setoff, an annual rental of $____129,840.00_________________________ payable in
equal monthly installments of $___10,820.00____________ in advance on the first
day of each calendar month during the term hereof. Upon execution of this Lease,
Tenant shall pay the first full month's rent due hereunder. Rental for any
period during the term hereof which is for less than one month shall be a
prorated portion of the monthly rental due.
LATE CHARGES
4. If Landlord fails to receive all or any portion of a rent payment
within fifteen (15) days after it becomes due, provided Tenant receives a rent
due notice at least 3 days prior to Tenant's failure to pay rent on time, Tenant
shall pay Landlord, as additional rental, a late charge equal to ten percent
(10%) of the overdue amount. The parties agree that such late charge represents
a fair and reasonable estimate of the costs Landlord will incur by reason of
such late payment.
SECURITY DEPOSIT
5. Tenant shall deposit with Landlord upon execution of this Lease
$____SEE 41.7___________ as a security deposit which shall be held by Landlord,
without liability to Tenant for any interest thereon, as security for the full
and faithful performance by Tenant of each and every term, covenant and
condition of this Lease of Tenant. If any of the rents or other charges or sums
payable by Tenant to Landlord shall be overdue and unpaid or should Landlord
make payments on behalf of Tenant, or should Tenant fail to perform any of the
terms of this Lease, then Landlord may, at its option, appropriate and apply the
security deposit, or so much thereof as may be necessary to compensate Landlord
toward the payment of the rents, charges or other sums due from Tenant, or
towards any loss, damage or expense sustained by Landlord resulting from such
default on the part of Tenant; and in such event Tenant shall upon demand
restore the security deposit to the original sum deposited. In the event Tenant
furnishes Landlord with proof that all utility bills have been paid through the
date of Lease termination, and performs all of Tenant's other obligations under
this Lease, the security deposit shall be returned in full to Tenant within
thirty (30) days after the date of the expiration or sooner termination of the
term of this Lease and the surrender of the Premises by Tenant in compliance
with the provisions of this Lease.
Section 7. Intentionally omitted.
UTILITY BILLS
6. Tenant shall pay all utility bills, including, but not limited to
water, sewer, gas, electricity, fuel, light and heat bills for the Premises, and
Tenant shall pay all charges for garbage collection or other sanitary services.
USE OF PREMISES
8. The Premises shall be used for _manufacturing, warehouse &
office_________ purposes only and no other. The Premises shall not be used for
any illegal purposes, nor in any manner to create any nuisance or trespass, nor
in any manner to vitiate the insurance or increase the rate of insurance on the
Premises.
ABANDONMENT OF THE PREMISES
Atlanta Commercial Board of REALTORS, Inc.
Standard Commercial Lease Agreement
Copyright 8 September 1997
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<PAGE>
9. Tenant agrees not to abandon or vacate the Premises during the term
of this Lease and agrees to use the Premises for the purposes herein leased
until the expiration hereof.
TAX AND INSURANCE ESCALATION
10. Tenant shall pay upon demand by Landlord as additional rental
during the term of this Lease, and any extension or renewal thereof, the amount
by which all taxes (including but not limited to, ad valorem taxes, special
assessments and any other governmental charges) on the Premises for each tax
year exceed all taxes on the Premises for the tax year 1998_____. In the event
the Premises are less than the entire property assessed for such taxes for any
such tax year, then the tax for any such year applicable to the Premises shall
be determined by proration on the basis that the rentable floor area of the
Premises bears to the rentable floor area of the entire property assessed. If
the final year of the Lease term fails to coincide with the tax year, then any
excess for the tax year during which the term ends shall be reduced by the pro
rata part of such tax year beyond the Lease term. If such taxes for the year in
which the Lease terminates are not ascertainable before payment of the last
month's rental, then the amount of such taxes assessed against the Property for
the previous tax year shall be used as a basis for determining the pro rata
share, if any, to be paid by Tenant for that portion of the last Lease year.
Tenant shall further pay, upon demand, its pro rata share of the excess cost of
fire and extended coverage insurance including any and all public liability
insurance on the building over the cost for the first year of the Lease term for
each subsequent year during the term of this Lease. Tenant's pro rata portion of
increased taxes or share of excess cost of fire and extended coverage and
liability insurance, as provided herein, shall be payable within fifteen (15)
days after receipt of notice from Landlord as to the amount due.
INDEMNITY; INSURANCE
11. Tenant agrees to and hereby does indemnify and save Landlord
harmless against all claims for damages to persons or property by reason of
Tenant's use or occupancy of the Premises, and all expenses incurred by Landlord
because thereof, including attorney's fees and court costs. Supplementing the
foregoing and in addition thereto, Tenant shall during the term of this Lease
and any extension or renewal thereof, and at Tenant's expense, maintain in full
force and effect comprehensive general liability insurance with limits of
$500,000.00 per person and $1,000,000.00 per incident, and property damage
limits of $100,000.00, which insurance shall contain a special endorsement
recognizing and insuring any liability accruing to Tenant under the first
sentence of this paragraph 11, and naming Landlord as additional insured. Tenant
shall provide evidence of such insurance to Landlord prior to the commencement
of the term of this Lease. Landlord and Tenant each hereby release and relieve
the other, and waive its right of recovery, for loss or damage arising out of or
incident to the perils insured against which perils occur in, on or about the
Premises, whether due to the negligence of Landlord or Tenant or their Brokers,
employees, contractors and/or invitees, to the extent that such loss or damage
is within the policy limits of said comprehensive general liability insurance.
Landlord and Tenant shall, upon obtaining the policies of insurance required,
give notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease.
REPAIRS BY LANDLORD
12. Landlord agrees to keep in good repair the roof, foundations and
exterior walls of the Premises (exclusive of all glass and exclusive of all
exterior doors) and underground utility and sewer pipes outside the exterior
walls of the building, except repairs rendered necessary by the negligence or
intentional wrongful acts of Tenant, its brokers, employees or invitees. If the
Premises are part of a larger building or group of buildings, then to the extent
that the grounds are common areas, Landlord shall maintain the grounds
surrounding the building, including paving, the mowing of grass, care of shrubs
and general landscaping. Tenant shall promptly report in writing to Landlord any
defective condition known to it which Landlord is required to repair and failure
so to report such conditions shall make Tenant responsible to Landlord for any
liability incurred by Landlord by reason of such conditions.
REPAIRS BY TENANT
13. Tenant accepts the Premises in their present condition and as
suited for the uses intended by Tenant. Tenant shall, throughout the initial
term of this Lease, and any extension or renewal thereof, at its expense,
maintain in good order and repair the Premises, including the building, heating
and air conditioning equipment (including but not limited to replacement of
parts, compressors, air handling units and heating units) and other improvements
located thereon, except those repairs expressly required to be made by Landlord
hereunder. Unless the grounds are common areas of a building(s) larger than the
Premises, Tenant further agrees to care for the grounds around the building,
including paving, the mowing of grass, care of shrubs and general landscaping.
Tenant agrees to return the Premises to Landlord at the expiration, or prior to
termination of this Lease, in as good condition and repair as when first
received, natural wear and tear, damage by storm, fire, lightning, earthquake or
other casualty alone excepted. Thermoplastic applied to pavement is Tenant's
removal responsibility.
ALTERATIONS
14. Tenant shall not make any alterations, additions, or improvements
to the Premises without Landlord's prior written consent. Tenant shall promptly
remove any alterations, additions, or improvements constructed in violation of
this Paragraph 14 upon Landlord's written request. All approved alterations,
additions, and improvements will be accomplished in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord, free of any liens or encumbrances.
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Landlord may require Tenant to remove any alterations, additions or improvements
(whether or not made with Landlord's consent) at the termination of this Lease
and to restore the Premises to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the termination of this Lease, except that Tenant may remove any of
Tenant's machinery or equipment which can be removed without material damage to
the Premises. Tenant shall repair, at Tenant's expense, any damage to the
Premises caused by the removal of any such machinery or equipment.
REMOVAL OF FIXTURES
15. Tenant may (if not in default hereunder) prior to the expiration of
this Lease, or any extension or renewal thereof, remove all fixtures and
equipment which it has placed in the Premises, provided Tenant repairs all
damage to the Premises caused by such removal.
DESTRUCTION OF OR DAMAGE TO PREMISES
16. If the Premises are totally destroyed by storm, fire, lightning,
earthquake or other casualty, this Lease shall terminate as of the date of such
destruction and rental shall be accounted for as between Landlord and Tenant as
of that date. If the Premises are damaged but not wholly destroyed by any such
casualties, rental shall abate in such proportion as use of the Premises has
been destroyed and Landlord shall restore the Premises to substantially the same
condition as before damage as speedily as is practicable, whereupon full rental
shall recommence.
GOVERNMENTAL ORDERS
17. Tenant agrees, at its own expense, to comply promptly with all
requirements of any legally constituted public authority made necessary by
reason of Tenant's occupancy of the Premises. Landlord agrees to comply promptly
with any such requirements if not made necessary by reason of Tenant's
occupancy. It is mutually agreed, however, between Landlord and Tenant, that if
in order to comply with such requirements, the cost to Landlord or Tenant, as
the case may be, shall exceed a sum equal to one year's rent, then Landlord or
Tenant who is obligated to comply with such requirements may terminate this
Lease by giving written notice of termination to the other party by certified
mail, which termination shall become effective sixty (60) days after receipt of
such notice and which notice shall eliminate the necessity of compliance with
such requirements by giving such notice unless the party giving such notice of
termination shall, before termination becomes effective, pay to the party giving
notice all cost of compliance in excess of one year's rent, or secure payment of
said sum in manner satisfactory to the party giving notice.
CONDEMNATION
18. If the whole of the Premises, or such portion thereof as will make
the Premises unusable for the purposes herein leased, are condemned by any
legally constituted authority for any public use or purposes, then in either of
said events the term hereby granted shall cease from the date when possession
thereof is taken by public authorities, and rental shall be accounted for as
between Landlord and Tenant as of said date. Such termination, however, shall be
without prejudice to the rights of either Landlord or Tenant to recover
compensation and damage caused by condemnation from the condemner. It is further
understood and agreed that neither the Tenant nor Landlord shall have any rights
in any award made to the other by any condemnation authority notwithstanding the
termination of the Lease as herein provided. Broker may become a party to the
condemnation proceeding for the purpose of enforcing his rights under this
paragraph.
ASSIGNMENT AND SUBLETTING
19. Tenant shall not, without the prior written consent of Landlord,
which shall not be unreasonably withheld, assign this Lease or any interest
hereunder, or sublet the Premises or any part thereof, or permit the use of the
Premises by any party other than the Tenant. Consent to any assignment or
sublease shall not impair this provision and all later assignments or subleases
shall be made likewise only on the prior written consent of Landlord. The
assignee of Tenant, at the option of Landlord, shall become liable to Landlord
for all obligations of Tenant hereunder, but no sublease or assignment by Tenant
shall relieve Tenant of any liability hereunder.
EVENTS OF DEFAULT
20. The happening of any one or more of the following events
(hereinafter any one of which may be referred to as an "Event of Default")
during the term of this Lease, or any renewal or extension thereof, shall
constitute a breach of this Lease on the part of the Tenant: (A) Tenant fails to
pay the rental as provided for herein; (B) Tenant abandons or vacates the
Premises without installing Tenant connected fire-alarm equipment in premises;
(C) Tenant fails to comply with or abide by and perform any other obligation
imposed upon Tenant under this Lease; (D) Tenant is adjudicated bankrupt; (E) a
permanent receiver is appointed for Tenant's property and such receiver is not
removed within sixty (60) days after written notice from Landlord to Tenant to
obtain such removal; (F) Tenant, either voluntarily or involuntarily, takes
advantage of any debt or relief proceedings under the present or future law,
whereby the rent or any part thereof is, or is proposed to be reduced or payment
thereof deferred; (G) Tenant makes an assignment for benefit of creditors; or
(H) Tenant's effects are levied upon or attached under process against Tenant,
which is not satisfied or dissolved within thirty (30) days after written notice
from Landlord to Tenant to obtain satisfaction thereof.
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REMEDIES UPON DEFAULT
21. Upon the occurrence of an Event of Default, Landlord, in addition
to any and all other rights or remedies it may have at law or in equity, shall
have the option of pursuing any one or more of the following remedies:
(A) Landlord may terminate this Lease by giving notice of termination,
in which event this Lease shall expire and terminate on the date specified in
such notice of termination, with the same force and effect as though the date so
specified were the date herein originally fixed as the termination date of the
term of this Lease, and all rights of Tenant under this Lease and in and to the
Premises shall expire and terminate, and Tenant shall remain liable for all
obligations under this Lease arising up to the date of such termination and
Tenant shall surrender the Premises to Landlord on the date specified in such
notice;
(B) Landlord may terminate this Lease as provided in paragraph 21(A)
hereof and recover from Tenant all damages Landlord may incur by reason of
Tenant's default, including, without limitation, a sum which, at the date of
such termination, represents the then value of the excess, if any, of (i) the
monthly rental and additional rent for the period commencing with the day
following the date of such termination and ending with the date hereinbefore set
for the expiration of the full term hereby granted, over (ii) the aggregate
reasonable rental value of the Premises (less reasonable brokerage commissions,
attorneys' fees and other costs relating to the reletting of the Premises) for
the same period, all of which excess sum shall be deemed immediately due and
payable;
(C) Landlord may, without terminating this Lease, declare immediately
due and payable all monthly rental and additional rent due and coming due under
this Lease for the entire remaining term hereof, together with all other amounts
previously due, at once; provided, however, that such payment shall not be
deemed a penalty or liquidated damages but shall merely constitute payment in
advance of rent for the remainder of said term; upon making such payment, Tenant
shall be entitled to receive from Landlord all rents received by Landlord from
other assignees, tenants and subtenants on account of the Premises during the
term of this Lease, provided that the monies to which Tenant shall so become
entitled shall in no event exceed the entire amount actually paid by Tenant to
Landlord pursuant to this clause (C) less all costs, expenses and attorneys'
fees of Landlord incurred in connection with the reletting of the Premises; or
(D) Landlord may, from time to time without terminating this Lease, and
without releasing Tenant in whole or in part from Tenant's obligation to pay
monthly rental and additional rent and perform all of the covenants, conditions
and agreements to be performed by Tenant as provided in this Lease, make such
alterations and repairs as may be necessary in order to relet the Premises, and,
after making such alterations and repairs, Landlord may, but shall not be
obligated to, relet the Premises or any part thereof for such term or terms
(which may be for a term extending beyond the term of this Lease) at such rental
or rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable or acceptable; upon each reletting, all rentals
received by Landlord from such reletting shall be applied first, to the payment
of any indebtedness other than rent due hereunder from Tenant to Landlord,
second, to the payment of any costs and expenses of such reletting, including
brokerage fees and attorneys' fees, and of costs of such alterations and
repairs, third, to the payment of the monthly rental and additional rent due and
unpaid hereunder, and the residue, if any, shall be held by Landlord and applied
against payments of future monthly rental and additional rent as the same may
become due and payable hereunder; in no event shall Tenant be entitled to any
excess rental received by Landlord over and above charges that Tenant is
obligated to pay hereunder, including monthly rental and additional rent; if
such rentals received from such reletting during any month are less than those
to be paid during the month by Tenant hereunder, including monthly rental and
additional rent, Tenant shall pay any such deficiency to Landlord, which
deficiency shall be calculated and paid monthly; Tenant shall also pay Landlord
as soon as ascertained and upon demand all costs and expenses incurred by
landlord in connection with such reletting and in making any alterations and
repairs which are not covered by the rentals received from such reletting;
notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease for such previous breach.
Tenant acknowledges that the Premises are to be used for commercial purposes,
and Tenant expressly waives the protections and rights set forth in Official
Code of Georgia Annotated Section 44-7-52.
EXTERIOR SIGNS
22. Tenant shall place no signs upon the outside walls or roof of the
Premises except with the written consent of the Landlord. Any and all signs
placed on the Premises by Tenant shall be maintained in compliance with
governmental rules and regulations governing such signs, and Tenant shall be
responsible to Landlord for any damage caused by installation, use or
maintenance of said signs, and all damage incident to such removal.
LANDLORD'S ENTRY OF PREMISES
23. Landlord may card the Premises "For Rent" or "For Sale" one hundred
eighty (180) days before the termination of this Lease. Landlord may enter the
Premises at reasonable hours to exhibit the Premises to prospective purchasers
or tenants, to inspect the Premises to see that Tenant is complying with all of
its obligations hereunder, and to make repairs required of Landlord under the
terms hereof or to make repairs to Landlord's adjoining property, if any.
EFFECT OF TERMINATION OF LEASE
24. No termination of this Lease prior to the normal ending thereof, by
lapse of time or otherwise, shall affect Landlord's right
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to collect rent for the period prior to termination thereof.
SUBORDINATION
25. At the option of Landlord, Tenant agrees that this Lease shall
remain subject and subordinate to all present and future mortgages, deeds to
secure debt or other security instruments (the "Security Deeds") affecting the
Building or the Premises, and Tenant shall promptly execute and deliver to
Landlord such certificate or certificates in writing as Landlord may request,
showing the subordination of the Lease to such Security Deeds, and in default of
Tenant so doing, Landlord shall be and is hereby authorized and empowered to
execute such certificate in the name of and as the act and deed of Tenant, this
authority being hereby declared to be coupled with an interest and to be
irrevocable. Tenant shall upon request from Landlord at any time and from time
to time execute, acknowledge and deliver to Landlord a written statement
certifying as follows: (A) that this Lease is unmodified and in full force and
effect (or if there has been modification thereof, that the same is in full
force and effect as modified and stating the nature thereof); (B) that to the
best of its knowledge there are no uncured defaults on the part of Landlord (or
if any such default exists, the specific nature and extent thereof); (C) the
date to which any rent and other charges have been paid in advance, if any; and
(D) such other matters as Landlord may reasonably request. Tenant irrevocably
appoints Landlord as its attorney-in-fact, coupled with an interest, to execute
and deliver, for and in the name of Tenant, any document or instrument provided
for in this paragraph.
QUIET ENJOYMENT
26. So long as Tenant observes and performs the covenants and
agreements contained herein, it shall at all times during the Lease term
peacefully and quietly have and enjoy possession of the Premises, but always
subject to the terms hereof.
NO ESTATE IN LAND
27. This Lease shall create the relationship of Landlord and Tenant
between the parties hereto. No estate shall pass out of Landlord. Tenant has
only a usufruct not subject to levy and sale, and not assignable by Tenant
except by Landlord's consent.
HOLDING OVER
28. If Tenant remains in possession of the Premises after expiration of
the term hereof, with Landlord's acquiescence and without any express agreement
of the parties, Tenant shall be a tenant at will at the rental rate which is in
effect at end of this Lease and there shall be no renewal of this Lease by
operation of law. If Tenant remains in possession of the Premises after
expiration of the term hereof without Landlord's acquiescence, Tenant shall be a
tenant at sufferance and commencing on the date following the date of such
expiration, the monthly rental payable under Paragraph 3 above shall for each
month, or fraction thereof during which Tenant so remains in possession of the
Premises, be 150% the monthly rental otherwise payable under Paragraph 3 above.
ATTORNEY'S FEES
29. In the event that any action or proceeding is brought to enforce
any term, covenant or condition of this Lease on the part of Landlord or Tenant,
the prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees to be fixed by the court in such action or proceeding, in an
amount at least equal to fifteen percent of any damages due from the
non-prevailing party. Furthermore, Landlord and Tenant agree to pay the
attorney's fees and expenses of (A) the other party to this Lease (either
Landlord or Tenant) if it is made a party to litigation because of its being a
party to this Lease and when it has not engaged in any wrongful conduct itself,
and (B) Broker if Broker is made a party to litigation because of its being a
party to this Lease and when Broker has not engaged in any wrongful conduct
itself.
RIGHTS CUMULATIVE
30. All rights, powers and privileges conferred hereunder upon parties
hereto shall be cumulative and not restrictive of those given by law.
WAIVER OF RIGHTS
31. No failure of Landlord to exercise any power given Landlord
hereunder or to insist upon strict compliances by Tenant of its obligations
hereunder and no custom or practice of the parties at variance with the terms
hereof shall constitute a waiver of Landlord's right to demand exact compliance
with the terms hereof.
Sections 32 through 35. Intentionally omitted.
ENVIRONMENTAL LAWS
36. Landlord represents to the best of its knowledge and belief, (A)
the Premises are in compliance with all applicable environmental laws, and (B)
there are not excessive levels (as defined by the Environmental Protection
Agency) of radon, toxic waste or
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hazardous substances on the Premises. Tenant represents and warrants that Tenant
shall comply with all applicable environmental laws and that Tenant shall not
permit any of his employees, brokers, contractors or subcontractors, or any
person present on the Premises to generate, manufacture, store, dispose or
release on, about, or under the Premises any toxic waste or hazardous substances
which would result in the Premises not complying with any applicable
environmental laws.
TIME OF ESSENCE
37. Time is of the essence of this Lease.
DEFINITIONS
38. "Landlord" as used in this Lease shall include the undersigned, its
heirs, representatives, assigns and successors in title to the Premises,
"Tenant" shall include the undersigned and its heirs, representatives, assigns
and successors, and if this Lease shall be validly assigned or sublet, shall
include also Tenant's assignees or subtenants as to the Premises covered by such
assignment or sublease. "Landlord", "Tenant" and "Broker" include male and
female, singular and plural, corporation, partnership or individual, as may fit
the particular parties.
NOTICES
39. All notices required or permitted under this Lease shall be in
writing and shall be personally delivered or sent by U.S. Certified Mail, return
receipt requested, postage prepaid. Notices to Tenant shall be delivered or sent
to the address shown below, except that upon Tenant's taking possession of the
Premises, then the Premises shall be Tenant's address for notice purposes.
Notices to Landlord and Broker shall be delivered or sent to the addresses
hereinafter stated, to wit:
Landlord: 5300 Long Island Drive N.W.
Atlanta, GA. 30327
Tenant: 7542 N. Natchez Avenue
Niles, IL. 60714-3804
Broker:
Monthly written rent due notice need not be sent by U.S. certified mail and rent
due notice is effective within five (5) days of mailing by Landlord.
All notices shall be effective upon delivery. Any party may change his notice
address upon written notice to the other parties.
ENTIRE AGREEMENT
40. This Lease contains the entire agreement of the parties hereto, and
no representations, inducements, promises or agreements, oral or otherwise,
between the parties, not embodied herein, shall be of any force or effect. No
subsequent alteration, amendment, change or addition to this Lease, except as to
changes or additions to the Rules and Regulations described in paragraph 7,
shall be binding upon Landlord or Tenant unless reduced to writing and signed by
Landlord and Tenant.
SPECIAL STIPULATIONS
41. Any special stipulations are set forth in the attached Exhibit
___A____. Insofar as said Special Stipulations conflict with any of the
foregoing provisions, said Special Stipulations shall control.
EXHIBIT A
SPECIAL STIPULATIONS TO 1396 CHATTAHOOCHEE AVENUE LEASE
41.1. The following improvements shall be made by the Landlord to the leased
premises:
Group 1 Improvements:
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1. Replace the existing central HVAC unit located behind the ladies bathroom.
Eliminate the other existing HVAC unit. Install all necessary HVAC supply
and return duct lines and register to serve all new and existing office
areas. Eliminate the small office unit that services four of the current
offices.
2. Construct 5 interior offices within the main office area, including proper
lighting, HVAC and providing for Tenant's voice and data lines. (3-
10'x12', 1- 12'x14' and 1- 14'x18'). The size of the offices may vary
slightly in size due to possible existing office space constraints.
3. Install new carpet throughout the main office area along with new wall
finishes for all new and existing offices.
4. Expand the existing lunchroom to accommodate seating for 40 people and 3-
4 vending machines including proper HVAC and electrical service.
5. Renovate the men's and ladies bathrooms to include new sinks, fixtures and
all new partitions along with new wall finishes and floor tile. HVAC for
both bathrooms will be fully operational and warranted for 24 months.
6. Repair or replace all gutters and downspouts and overhang deterioration.
7. Cut two forklift size openings in the office storage area rear wall, and
remove floor treatments to allow the area to be used for additional
warehouse space. Should the Tenant deem it necessary, they are permitted to
neatly demolish the office storage area to provide maximum additional
warehouse space, and shall not be required to replace said structure upon
termination of the lease or any renewals.
Group 2 Improvements:
1. Add a parking area in front of the building that will provide permanent
parking for at least 44 cars along side and front of building.
2. The rear dock access will be improved to accommodate a comfortable swing
for 40 ft. common carrier trucks and provide proper grade level access to
the rear truck shop roll-up door. Tenant shall remove thermoplastic
build-up located at door entrance.
3. Install a new rear truck-dock overhang.
4. Provide storm drainage from the rear of the building to connect either to
the City of Atlanta storm drain system or to another location as the City
may designate.
It shall be the responsibility of the Tenant to make the premises available to
contractors to expeditiously complete their respective improvement
responsibilities. This may require on occasion evening and weekend access to the
leased premises.
MS Landlord
INITIALS
TR Tenant
41.2. Not withstanding Section 3 hereinabove, until such time as the Group 1
improvements are completed the rent shall be payable at the rate of $2.25
per square foot per annum. When the Group 1 improvements are completed,
rent shall be payable at the rate of @2.60 per square foot per annum. When
the Group 2 improvements are completed rent shall be payable at the rate
of $2.65 per square foot per annum. Upon completion of both the Group 1
and Group 2 improvements the full rental, as described in Section 3 [on
page] of the lease, shall be payable at the rate of $3.00 per square foot
per annum.
41.3 If all of the improvements are not completed within one year of the
commencement of this lease, tenant shall have the option of terminating
the lease.
41.4 In the event there is a difference of opinion between landlord and tenant
regarding the completion of the improvements, an independent architect
would be retained as an arbitrator. The cost for such service would be
shared 50/50 between landlord and tenant.
41.5 Tenant currently leases the premises. If the Group 1 improvements are
completed before the expiration of the existing lease the rent
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<PAGE>
on the existing lease shall increase to $2.60 per square foot per annum.If
the Group 2 improvements are completed before the expiration of the
existing lease the rent on the existing lease shall increase to $2.65 per
squarefoot per annum. Upon completion of both the Group 1 and Group 2
improvements, if prior to expiration of the existing lease, the full
rental, as described in Section 3[on page 1] of the lease, shall be
payable at the rate of %3.00 per square foot per annum. The square footage
of the building is 43,282.
41.6 The tenant has the option to renew the lease for two additional three year
periods. Each renewal term rent shall increase by 8% over the prior lease
term rent then in effect at the time of renewal. The tenant shall notify
the landlord in writing of its intent to renew at least six (6) months
prior to the expiration of the original and renewal lease.
41.7 The first sentence in Section 5 (SECURITY DEPOSIT) hereinabove is amended
to read: Tenant shall deposit with Landlord upon execution of this Lease
$10,840.00, less $6,000.00 existing security deposit, as a security
deposit which shall be deposited by Landlord in an interest bearing money
management account with interest accruing for the benefit of Tenant, as
security for the full and faithful performance by Tenant of each and every
term, covenant and condition of this Lease of Tenant.
41.8 Notwithstanding Section 16 hereinabove, partially damaged premises shall
be repaired within on hundred twenty (120) days after the date upon which
Landlord is notified by Tenant of such damage unless Landlord notifies
Tenant within 20 days of such notice that Landlord will not be able to
complete the repairs within 120 days; the Tenant may at its option
terminate this lease by delivering written notice of termination to
Landlord as Tenant's exclusive remedy, whereupon this Lease shall
terminate upon Tenant vacating the premises.
Tenant acknowledges that Tenant has read and understands the terms of this Lease
and has received a copy of it.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals,
in triplicate.
LANDLORD:
___S / Martin A. Smith ___________________________________ (SEAL)
___S / Judy Smith __________________________________________ (SEAL)
Date and time executed by Landlord: 08/04/98 4:00 pm
TENANT:
___S / Thomas C.Ratchford _____________________ (SEAL)
____Vice President_____________________________ (SEAL)
Date and time executed by Tenant: 08/07/98 9:30 am
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<PAGE>
Exhibit 10.29
STIMSONITE CORPORATION
EXECUTIVE OFFICERS
1999 INCENTIVE COMPENSATION PLAN
SUBJECT: Incentive Compensation Plan for the Executive Officers of the
Company for the time period of January 1, 1999 through December
31, 1999.
PURPOSE: To institute a compensation package providing a
monetary incentive to meet and exceed
predetermined financial goals and personal
objectives. Nothing herein is meant to guarantee
or should be construed as guaranteeing employment
for a specific term or the payment of any bonus
(hereunder or otherwise).
INCENTIVE Each Executive Officer will be eligible for an annual incentive
COMPENSATION: bonus("Target Bonus")equal to a set percentage of the Executive
Officer's 1999 year ending base salary ("Base Salary"). The
Target Bonus has two components: (i) Financial Objective
Component; Bonus plus (ii) Personal Objective Component
Bonus. The criteria for earning the Financial Objective
Component Bonus and the Personal Objective Component Bonus are
customized for each Executive Officer and approved by
the Compensation Committee of the Company's Board of
Directors. Refer to Schedule A for details of the Target
Bonus and the components and the calculation thereof for
each Executive Officer.
Financial Objectives - A Financial Objective
Component Bonus is based on the financial
performance of the Company on a consolidated
basis and/or certain product lines. It will
comprise 75% to 100% of the Target Bonus,
depending on the individual. Calculation of the
actual payout requires a comparison of actual
income for the Company on a consolidated basis
and/or for a particular product line against
pre-established Income targets ("Earnings
Targets"). Depending on the level of actual
income, "points" will be earned by the Executive
Officer. The points will be inserted in a
formula, defined in Schedule A, to compute the
bonus payment. If the actual income is equal to
the related Earnings Target, then the Executive
Officer would earn 100 points. If the actual
income is less than or more than the Earnings
Target, then the Executive Officer would earn
less than or more than 100 points, as the case
may be. No points will be earned in 1999 unless
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<PAGE>
the actual level of income is equal to or more
than the actual level of income earned in 1998.
The maximum award is 200 points. The maximum
points are awarded if relevant earnings are at a
defined maximum achievement level.
Personal Performance Objectives - Personal Objectives are
measurable goals approved by the Compensation Committee of
the Company's Board of Directors.Payment for the Personal
Objective Component Bonus will equal 0 to 25% of the Target
Bonus, depending upon the individual. Payment for the Personal
Objective Component Bonus is calculated based on the
percentage of completion of each objective. Up to 100 points
can be earned for full achievement of all personal objectives.
EFFECTIVE This plan will be in effect during the 1999 fiscal year
DATES subject to the Company's right to terminate or amend the plan
upon thirty (30) days' written notice. Participants who
resign from or are terminated from the Company during the
plan year or prior to the payout date will not receive an
award. The payout date will occur when audited year end
statements are available, usually within 60 days of the end of
the fiscal year.
BENEFITS: Life insurance,long-term disability, the savings and investment
plan, and the capital accumulation plan benefits will be based
on the participant's Base Salary only.
RESOLUTION OF In the event of any dispute as to the interpretation or
DISPUTES: application of the provisions of this agreement, the decision of
the Compensation Committee of the Company's Board of Directors
shall be final and binding on all parties.
COMPLETE This agreement amends, supersedes and entirely replaces all
AGREEMENT: previous agreements and understandings, oral or written, with
respect to incentive compensation payments and shall constitute
the exclusive basis upon which such payments shall be made
during the period in which this agreement remains in effect.
69
<PAGE>
<TABLE>
<CAPTION>
Schedule A
TARGET BONUS INFORMATION
Target Composition of Target Bonus
Executive Officer Title Bonus* Financial Personal Objectives
<S> <C> <C> <C>
Robert E. Stutz President 60% 100% 0%
Michael A. Cherwin VP-Human Resources 50% 75% 25%
Lew C. Coffin VP - Operations 50% 75% 25%
Clifford S. Deremo VP-Sales and Marketing 50% 75% 25%
Robert M. Pricone VP - Engineering 50% 75% 25%
Thomas C. Ratchford VP-Finance 50% 75% 25%
Vice President - International (if hired) 50% 75% 25%
</TABLE>
* expressed as a percentage of base salary
Payment Formula
Total Incentive Compensation Payment equals A + B where:
A = Financial Objective Component Bonus, under which payment is calculated as:
(Points achieved/100) x [75%to100%,depending on the individual] x (Target Bonus)
AND
B = Personal Objective Component Bonus, under which payment is calculated as:
(Points achieved/100) x [0% to 25%,depending on the individual] x (Target Bonus)
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<PAGE>
Exhibit 21.1
Subsidiaries
1. Stimsonite Australia Pty Limited, a corporation organized under the laws of
New South Wales, Australia
2. Stimsonite Europa Limited, a corporation organized under the laws of the
United Kingdom
3. Stimsonite Foreign Sales Corporation, a corporation organized under the laws
of Barbados
4. Stimsonite Hong Kong Limited, a corporation organized under the laws of
Hong Kong
5. Stimsonite International Corporation, a Delaware corporation
6. Stimsonite Paint Corporation, a Delaware Corporation
7. Stimsonite do Brasil LTDA, a corporation organized under the laws of Brazil.
71
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Stimsonite Corporation of Form S-8 (File Nos. 33-79506 and 33-79508) of our
report dated February 11, 1999 on our audits of the consolidated financial
statements and financial statement schedule of Stimsonite Corporation and
Subsidiaries as of December 31, 1998 and 1997, and for each of three years in
the period ended December 31, 1998, included in or incorporated by reference in
Stimsonite Corporation's Annual Report on Form 10-K for the year ended December
31, 1998.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
March 26, 1999
72
<PAGE>
Exhibit 24.1
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Terrence D. Daniels
Terrence D. Daniels
73
<PAGE>
Exhibit 24.2
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Lawrence S. Eagleburger
Lawrence S. Eagleburger
74
<PAGE>
Exhibit 24.3
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Donald H. Haider
Donald H. Haider
75
<PAGE>
Exhibit 24.4
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Edward T. Harvey, Jr.
Edward T. Harvey, Jr.
76
<PAGE>
Exhibit 24.5
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Anthony R. Ignaczak
Anthony R. Ignaczak
77
<PAGE>
Exhibit 24.6
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Richard J.M. Poulson
Richard J.M. Poulson
78
<PAGE>
Exhibit 24.7
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Samuel K. Skinner
Samuel K. Skinner
79
<PAGE>
Exhibit 24.8
Power of Attorney
The undersigned, as a director of Stimsonite Corporation (the "Company"), does
hereby constitute and appoint Robert E. Stutz and Thomas C. Ratchford, and each
of them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and any and all amendments thereto, and to
file the same with exhibits and schedules thereto and other documents therewith,
with the Securities and Exchange commission, granting unto said
attorney-in-fact, full power and authority to do and perform each and every act
and thing necessary or desirable to be done in and about the premises, as fully
as to all intents and purposes as he might or could do in person, thereby
ratifying and confirming all that said attorney-in-fact, or his substitute, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of March 1999.
/s/ Jay R. Taylor
Jay R. Taylor
80
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-K.
</LEGEND>
<CIK> 0000876400
<NAME> STIMSONITE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 1,645
<SECURITIES> 0
<RECEIVABLES> 19,423
<ALLOWANCES> 737
<INVENTORY> 11,921
<CURRENT-ASSETS> 35,520
<PP&E> 33,049
<DEPRECIATION> 18,445
<TOTAL-ASSETS> 61,072
<CURRENT-LIABILITIES> 12,464
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 30,387
<TOTAL-LIABILITY-AND-EQUITY> 61,072
<SALES> 87,362
<TOTAL-REVENUES> 87,362
<CGS> 56,052
<TOTAL-COSTS> 56,052
<OTHER-EXPENSES> 20,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,741
<INCOME-PRETAX> 8,571
<INCOME-TAX> 3,668
<INCOME-CONTINUING> 4,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,903
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.58
</TABLE>
