-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, hBmL0LNa1eDYiFUk/pVs+tZqqjuf2K2mhuGIwuYYG9zJLFCwMccmQPIf9DuQh+E+ JJVCWAwHo5gbonZvgVIhXA== 0000908834-95-000002.txt : 19950301 0000908834-95-000002.hdr.sgml : 19950301 ACCESSION NUMBER: 0000908834-95-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19941130 FILED AS OF DATE: 19950224 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LILLY INDUSTRIES INC CENTRAL INDEX KEY: 0000059479 STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851] IRS NUMBER: 350471010 STATE OF INCORPORATION: IN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06953 FILM NUMBER: 95515060 BUSINESS ADDRESS: STREET 1: 733 S WEST ST CITY: INDIANAPOLIS STATE: IN ZIP: 46225 BUSINESS PHONE: 3176876700 MAIL ADDRESS: STREET 1: 733 S WEST STREET CITY: INDIANNAPOLIS STATE: IN ZIP: 46225 FORMER COMPANY: FORMER CONFORMED NAME: LILLY INDUSTRIAL COATINGS INC DATE OF NAME CHANGE: 19911229 10-K405 1 LILLY INDUSTRIES, INC. 10-K FISCAL YEAR END 11-30-94 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the Fiscal Year ended November 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number 0-6953 LILLY INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) INDIANA 35-0471010 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 733 South West Street Indianapolis, Indiana 46225 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 317-687-6700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Stock, without 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. [X] The aggregate market value of the voting stock held by non- affiliates of the Registrant as of February 17, 1995 was $306,750,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of February 17, 1995. 22,035,852 shares of Class A Common Stock, without par value 273,137 shares of Class B Common Stock, without par value DOCUMENTS INCORPORATED BY REFERENCE Part II: Items 5 Excerpts from the Annual Report to through 8 Shareholders for Fiscal Year Ended November 30, 1994 Part III: Items 10 Proxy Statement for Annual Meeting of through 13 Shareholders to be held April 20, 1995 PART I Item 1. Business. Business Description Lilly Industries, Inc. (referred to herein as "Lilly" or the "Company") was incorporated under the laws of the State of Indiana on December 5, 1888. The Company's business is the formulation, manufacture and sale of industrial coatings. The Company's products include liquid and powder coatings used by a variety of manufacturers to coat wood, metal, plastics and glass substrates. No one class of similar products (other than protective and decorative coatings) accounted for 10% or more of consolidated revenues of the Company in any of the last three fiscal years, and the Company has only one reportable industry segment. On May 7, 1993 Lilly acquired assets of ICI Paints' North American wood, coil and general liquid industrial coatings business (the "Acquired Business") in exchange for $37,500,000 in cash and Lilly's packaging coatings business. The acquired assets included inventory, certain laboratory equipment, patents, trademarks and other related intellectual property rights (together with a non-compete covenant from ICI). Lilly did not purchase any plant or equipment (other than the immaterial laboratory equipment referenced above). The acquired business was integrated into the Company's existing facilities. The Company's principal markets and examples (among many) of products coated in those markets are: wood coatings for furniture, flooring, kitchen cabinets, and paneling; coil coatings for residential siding and components, appliances, automotive parts, office furniture, doors, windows, and metal buildings; general metal coatings for a variety of metal products including extrusions, appliances, caskets, office furniture, and truck trailers; and plastics coatings for business machines, computer enclosures, and automotive parts. The Company also formulates, manufactures and sells certain specialty coatings, including gelcoats and mold release agents in the fiberglass reinforced products industry, silver and copper plating chemicals for non-conductive surfaces (such as mirrors), some automotive finishes, and some trade sales coatings for professional contractors and homeowners. The Company manufactures its products from a variety of resins, pigments, solvents and other chemicals, the bulk of which are obtained from petrochemical feed stocks. In addition, the Company uses silver and copper. Under normal conditions, all of these raw materials are available on the open market, although prices and availability are subject to fluctuation from time to time. Most of the Company's products are sold into industrial markets through a technical sales force of approximately 260 people. The Company sold products to approximately 3,500 different industrial customers during 1994.(1) Some products are also sold through retail outlets or through distributors. No material part of the business is dependent on any single customer or a few customers, the loss of which would have a material adverse effect on the Company. The Company has no significant backlog of orders. No material part of the business is subject to renegotiation of profit or termination of contracts or subcontracts at the election of the Government. Historically, first quarter operating results are below operating results for the second, third and fourth quarters due to lower demand for the Company's products during this time period. Although the Company holds several patents and trademarks and considers patent and trademark protection to be important from an overall standpoint, none are currently material (as a percent of total revenues) to the Company's business as a whole. The many patents and licenses in the silver and copper plating lines are material to those lines and new patents are continually being developed to replace older patents as they expire. The Company maintains laboratories at its major facilities. These laboratories have traditionally emphasized the development of product finishes to meet specific requirements of customers and the maintenance of quality throughout the manufacturing process. They have also, along with the Corporate Technology Center, engaged in research directed toward the development of new products and new manufacturing and application techniques. Research and development expenses were $13.0 million (3.9% of net sales), $12.3 million (4.3% of net sales), and $11.0 million (4.7% of net sales) for the years ended November 30, 1994, 1993 and 1992, respectively. Future research and development expenses as a percent of net sales are anticipated to remain at current levels with emphasis on new product development. The industrial coatings industry is very competitive. In the United States and Canada there are more than 750 manufacturers of protective and decorative coatings. No one manufacturer dominates. Competition includes national and small regional firms. While Lilly is among the ten largest manufacturers of industrial coatings in the United States (based on annual sales to industrial customers), some competitors have far greater financial resources than the Company. Price competition is keen. Among the larger manufacturers, competitive advantages depend upon the manufacturer's ability to purchase the -------------- (1) References in this Form 10-K are references to the Company's fiscal years ended November 30, 1992, 1993 and 1994. necessary raw materials in economic quantities, to keep pace with technological developments (particularly to meet environmental demands), to develop industrial coatings meeting the specific (and changing) requirements of a variety of customers, to adhere to strict quality control standards in manufacturing those coatings, and to make deliveries punctually. Most of the Company's customers are located throughout the United States and Canada, with remaining customers concentrated in Europe and Asia. During 1994, the Company's operations outside the United States accounted for approximately 14% of its total net sales. Information concerning the Company's net sales, pre-tax profit and assets in foreign countries and the United States for the three years ended November 30, 1994 is set forth in Note 8 in the Notes to Consolidated Financial Statements in the Company's 1994 Annual Report to Shareholders. Note 8 is incorporated herein by reference. The Company undertakes to comply with applicable laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment and the Company believes it is in substantial compliance with such federal, state and local provisions. Capital expenditures for this purpose were not material in fiscal 1994, and capital expenditures for 1995 are not anticipated to be material. In addition, like most companies in the paint and coatings industry, the Company has been named as a potentially responsible party (a "PRP") by the United States Environmental Protection Agency ("EPA") or similar state agencies with respect to several inactive waste processing and/or disposal sites where clean-up costs have been or may be incurred under the Federal Comprehensive Environmental Response, Compensation and Liability Act and similar state statutes. While the Company is not usually a major contributor of wastes to these sites, each contributor may face agency assertions of joint and several liability. Generally, however, a final allocation of costs is made based on relative contributions of wastes to the site. The Company also, from time to time, conducts or participates in remedial investigations and clean-up activities at currently and formerly occupied facilities. The Company is continually assessing its environmental matters and establishing reserves to handle these matters as they arise. The Company's experience to date leads it to believe that it will have continuing expenditures for compliance with provisions regulating protection of the environment and remediation efforts at waste and manufacturing sites. However, management believes that such expenditures will not have a material adverse effect on the financial condition of the Company as a whole. The Company employs approximately 1,180 people. Executive Officers of the Company The executive officers of the Company, the age of each, the positions and offices held by each during the last five years, and the period during which each has served in such positions and offices are as follows: Name of Executive Officer Age Positions and Offices Held Robert S. Bailey 64 Director since 1971; Senior Vice President, Marketing, since 1989. William C. Dorris 52 Director since 1989; Vice President - Corporate Development and Technology since July, 1994; General Manager of the Company's High Point Division from prior to 1990 to July, 1994; of the Company's Templeton Division from 1991 to July, 1994; and of the Company's Dallas Division from 1993 to July, 1994. Douglas W. Huemme 53 Director since 1990; Chairman, President and Chief Executive Officer of the Company since July, 1991; President and Chief Operating Officer of the Company from June, 1990 to July, 1991; Vice President and Group Executive of the Chemical Group of Whittaker Corporation from prior to 1990 to April, 1990. Roman J. Klusas 48 Director since 1988; Vice President and Chief Financial Officer, and Secretary of the Company since prior to 1990. Kenneth L. Mills 46 Assistant Secretary since prior to 1990; Treasurer from prior to 1990 until October, 1993; Director of Corporate Accounting since October, 1993. Robert S. Bailey retired effective November 30, 1994. Each other executive officer will serve as such until his successor is chosen and qualified. No family relationships exist among the Company's executive officers. Item 2. Properties. The Company has 19 principal manufacturing facilities. The locations and approximate square footage at those facilities are as follows: Location Square Feet Indianapolis, Indiana (2 locations) 296,000 High Point, North Carolina 236,000 North Kansas City, Missouri 106,000 London, Ontario, Canada 103,000 Jamestown, New York 85,000 Kaohsiung Hsien, Taiwan, R.O.C. 64,000 Templeton, Massachusetts 63,000 Montebello, California 58,000 Gardena, California 52,000 Paulsboro, New Jersey 47,000 Dothan, Alabama 42,000 Dallas, Texas 36,000 Tampa, Florida 29,000 Elkhart, Indiana 25,000 Selangor, Malaysia 20,000 Davie, Florida 14,000 Woodbridge, Connecticut 13,000 Wallenfels, West Germany 9,000 All of these principal facilities noted above are owned directly or indirectly by the Company, except for the facilities in Gardena, California, and Selangor, Malaysia, which are leased. The facilities are of varying ages, and are well maintained and adequate for their present uses. Additional productive capacity at these facilities is generally available by increasing the number of shifts worked. The Company also owns the Corporate Technology Center and office facilities in Indianapolis which contain approximately 37,000 square feet. Item 3. Legal Proceedings. The Company is involved in various litigation and other asserted and unasserted claims arising in the ordinary course of business, primarily relating to product warranty and clean-up costs at independently operated waste treatment/disposal sites previously used by the Company or the predecessors of businesses purchased by the Company. While the results of lawsuits or other proceedings against the Company cannot be predicted with certainty, management believes that uninsured and unreserved losses, if any, arising from these proceedings will not have a material adverse effect on the business or consolidated financial position of the Company. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter of 1994 to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for Company's Common Equity and Related Stockholder Matters. The information required by this item is incorporated by reference herein from the information included under caption "Dividend Information and Common Stock Prices" in the Company's 1994 Annual Report to Shareholders and is included in Exhibit 13. There is no established public trading market for the Company's Class B Common Stock. Item 6. Selected Financial Data. The information required by this item is incorporated by reference herein from the information included under the caption "Selected Financial Data" in the Company's 1994 Annual Report to Shareholders and is included in Exhibit 13. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition. The information required by this item is incorporated by reference herein from the information included under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1994 Annual Report to Shareholders and is included in Exhibit 13. Item 8. Financial Statements and Supplementary Data. The consolidated financial statements of the Company are incorporated by reference from the Company's 1994 Annual Report to Shareholders and are included in Exhibit 13. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. No information is required to be disclosed under this item of this report pursuant to Instruction 1 to Item 304. PART III Item 10. Directors and Executive Officers of the Company. The information required by this item with respect to directors of the Company is incorporated herein by reference from the section entitled "Proposal I, Election of Directors" of the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held April 20, 1995. See Part I, for a list of the Company's executive officers, and their ages, positions and offices. Item 11. Executive Compensation. The information required by this item is incorporated herein by reference from the sections entitled "Compensation Committee Interlocks and Insider Participation," "Compensation of Executive Officers," "Stock Option Grants," "Option Exercises and Fiscal Year-End Values," "Pension Plans," "Supplemental Executive Retirement Plan" and "Employment Termination Agreements" of the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held April 20, 1995. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is incorporated herein by reference from the sections entitled "Outstanding Shares and Voting Rights" and "Proposal I, Election of Directors" of the Company's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held April 20, 1995. Item 13. Certain Relationships and Related Transactions. The information required by this item, if any, is incorporated herein by reference from the section entitled "Proposal I, Election of Directors" of the Company's definitive Proxy statement relating to its Annual Meeting of Shareholders to be held April 20, 1995. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)-1 The following items, included in the Company's 1994 Annual Report to Shareholders, are incorporated herein by reference and are included herein in Exhibit 13. Report of Independent Auditors Consolidated Balance Sheets -- November 30, 1994 and 1993 Consolidated Statements of Income and Retained Earnings -- Years ended November 30, 1994, 1993 and 1992 Consolidated Statements of Cash Flows -- Years ended November 30, 1994, 1993 and 1992 Notes to Consolidated Financial Statements -- November 30, 1994 (a)-2 The following financial statement schedule is filed as a part of this report. Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a)-3 Exhibits. Exhibits Incorporated by Reference 2 Agreement of Sale and Purchase Between The Glidden Company and Lilly Industries, Inc. dated March 25, 1993 and amended by Amendment No. 1 dated May 7, 1993. This document is incorporated by reference to Exhibit 2 to the Company's Form 8-K Current Report dated May 7, 1993 and filed with the SEC on May 20, 1993. 4 See Exhibits 10(d), 10(i), 10(j), 10(k) and 10(1). *10(a) Lilly Industries, Inc. Stock Option Plan. This exhibit is incorporated by reference to Exhibit 10(a) to the Company's Form 10-K Annual Report for the fiscal year ended November 30, 1988. *10(b) Lilly Industries, Inc. Unfunded Supplemental Retirement Plan (as in effect November 29, 1990). This exhibit is incorporated by reference to Exhibit 10(b) to the Company's Form 10-K Annual Report for the fiscal year ended November 30, 1990. *10(c) Lilly Industries, Inc. Unfunded Excess Benefit Plan. This exhibit is incorporated by reference to Exhibit 10(c) to the Company's Form 10-K Annual Report for the fiscal year ended November 30, 1989. 10(d) Credit Agreement dated as of November 9, 1992, by and between Lilly Industries, Inc. and INB National Bank completely restating the Second Amended and Restated Revolving Loan Agreement dated May 31, 1991, as amended. This document is incorporated by reference to Exhibit 10(d) to the Company's Annual Report for the fiscal year ended November 30, 1992. *10(e) Lilly Industries, Inc. Second Unfunded Supplemental Retirement Plan effective June 4, 1990. This exhibit is incorporated by reference to Exhibit 10(f) to the Company's Form 10-K Annual Report for the fiscal year ended November 30, 1990. *10(f) Lilly Industries, Inc. Termination Benefits Agreement (form of agreement applicable to 3 officers). This exhibit is incorporated by reference to Exhibit 10(g) to the Company's Form 10-K Annual Report for the fiscal year ended November 30, 1990. *10(g) Lilly Industries, Inc. 1991 Director Stock Option Plan. This exhibit is incorporated by reference to Exhibit 10(i) to the Company's Form 10-K Annual Report for the fiscal year ended November 30, 1991. *10(h) Lilly Industries, Inc. 1992 Stock Option Plan. This exhibit is incorporated by reference to Exhibit 10(j) to the Company's Form 10-K Annual Report for the fiscal year ended November 30, 1991. 10(i) Note Agreement among the Company and Principal Mutual Life Insurance Company and Principal National Life Insurance Company dated as of December 22, 1993. This exhibit is incorporated by reference to Exhibit 10(k) to the Company's 10- K Annual Report for the fiscal year ended November 30, 1993. ___________________ * Management contracts and compensatory reports required to be filed pursuant to Item 14(c) of Form 10-K. Exhibits Filed Herewith: 10(j) Revolving Credit Agreement [1995] between the Company and National City Bank, Indiana dated as of January 27, 1995. 10(k) Revolving Credit Agreement [1995] between the Company and NBD Bank, N.A. dated as of January 27, 1995. 10(l) Amended and Restated Revolving Credit Agreement [1995] between the Company and Society National Bank, Indiana dated as of January 27, 1995. 11 Computation of Earnings Per Share. 13 Excerpts from the Lilly Industries, Inc. 1994 Annual Report. 21 List of Subsidiaries. 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule. (b) No reports on Form 8-K were filed during the fourth quarter of fiscal year 1994. (c) The response to this portion of this item is submitted as a separate section of this report. (d) The response to this portion of this item is submitted as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 23, 1995 LILLY INDUSTRIES, INC. /s/ Douglas W. Huemme Douglas W. Huemme, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date (1) Principal Executive Officer and Director /s/ Douglas W. Huemme Chairman, President February 23, 1995 Douglas W. Huemme and Chief Executive Officer (2) Principal Financial Officer and Director /s/ Roman J. Klusas Vice President, February 23, 1995 Roman J. Klusas Chief Financial Officer and Secretary (3) Director of Corporate Accounting and Principal Accounting Officer /s/ Kenneth L. Mills Director of Cor- February 23, 1995 Kenneth L. Mills porate Accounting and Assistant Secretary (4) A majority of the Board of Directors ______________________ Director February 23, 1995 H. J. (Jack) Baker /s/ William C. Dorris Director February 23, 1995 William C. Dorris /s/ Robert H. McKinney Director February 23, 1995 Robert H. McKinney /s/ John D. Peterson Director February 23, 1995 John D. Peterson /s/ Thomas E. Reilly, Jr. Director February 23, 1995 Thomas E. Reilly, Jr. /s/ Van P. Smith Director February 23, 1995 Van P. Smith /s/ Richard A. Steele Director February 23, 1995 Richard A. Steele
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS LILLY INDUSTRIES, INC. AND SUBSIDIARIES COL. A COL. B COL. C COL. D COL. E Additions Description Balance at (1) (2) Deductions- Balance Beginning Charged to Charged to Describe at End of of Period Costs and Other Accounts Period Expenses - Describe Year ended November 30, 1994: Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts receivable $1,353,042 $790,422 $ - $384,695(A) $1,758,769 ========== ======== ======== ======== ========== Year ended November 30, 1993: Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts receivable $1,193,639 $827,912 $ - $668,509(A) $1,353,042 ========== ======== ======== ======== ========== Year ended November 30, 1992: Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts receivable $ 686,730 $968,952 $ - $462,043(A) $1,193,639 ========== ======== ======== ======== ========== Note A - Uncollectible accounts receivable charged off, net of recoveries
EX-10.(J) 2 EXHIBIT 10(J) - NATIONAL CITY BANK, N.A. REVOLVING CREDIT AGREEMENT [1995] EXHIBIT 10(j) REVOLVING CREDIT AGREEMENT [1995] Between LILLY INDUSTRIES, INC. and NATIONAL CITY BANK, INDIANA Dated as of January 27, 1995 TABLE OF CONTENTS Page PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1. Definitions. . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . 1 1.2 Accounting Terms . . . . . . . . . . . . . . . . . . 9 1.3 Other Definitions; Singular and Plural . . . . . . . 9 SECTION 2. Credit . . . . . . . . . . . . . . . . . . . . . . 9 2.1 Commitment . . . . . . . . . . . . . . . . . . . . . 9 2.2 Interest . . . . . . . . . . . . . . . . . . . . . . 9 2.3 Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . 10 2.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . 10 2.5 Method of Advance. . . . . . . . . . . . . . . . . . 10 2.6 Conversion of Advances . . . . . . . . . . . . . . . 11 2.7 Method of Payment. . . . . . . . . . . . . . . . . . 12 2.8 Prepayment . . . . . . . . . . . . . . . . . . . . . 13 2.9 Computations of Interest . . . . . . . . . . . . . . 13 2.10 Additional Costs . . . . . . . . . . . . . . . . . . 13 2.11 Commitment Fees . . . . . . . . . . . . . . . . . . 14 2.12 Reductions of Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . 14 SECTION 3. Conditions Precedent . . . . . . . . . . . . . . . 14 3.1 Conditions Precedent to the Initial Advance of the Loan. . . . . . . . . . . . 14 3.2 Conditions to Subsequent Advances. . . . . . . . . . 15 SECTION 4. Representations and Warranties . . . . . . . . . . 15 4.1 Corporate Existence. . . . . . . . . . . . . . . . . 15 4.2 Corporate Powers . . . . . . . . . . . . . . . . . . 16 4.3 Power of Officers . . . . . . . . . . . . . . . . . 16 4.4 Government and Other Approvals . . . . . . . . . . . 16 4.5 Compliance with Laws; Environmental Matters. . . . . . . . . . . . . . . 16 4.6 Enforceability of Agreement. . . . . . . . . . . . . 16 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . 17 4.8 Events of Default. . . . . . . . . . . . . . . . . . 17 4.9 Investment Company Act of 1940 . . . . . . . . . . . 17 4.10 Financial Information . . . . . . . . . . . . . . . 17 4.11 ERISA. . . . . . . . . . . . . . . . . . . . . . . . 17 4.12 Full Disclosure . . . . . . . . . . . . . . . . . . 18 - i - Page SECTION 5. Covenants . . . . . . . . . . . . . . . . . . . . 18 5.1 Use of Proceeds . . . . . . . . . . . . . . . . . . 18 5.2 Maintain Existence, Etc.. . . . . . . . . . . . . . 18 5.3 Financial Statements, Etc.. . . . . . . . . . . . . 18 5.4 Adequate Books . . . . . . . . . . . . . . . . . . 19 5.5 Leverage Ratio . . . . . . . . . . . . . . . . . . 19 5.6 Current Ratio . . . . . . . . . . . . . . . . . . 19 5.7 Cash Flow Coverage Ratio. . . . . . . . . . . . . . 19 5.8 Net Worth . . . . . . . . . . . . . . . . . . . . . 19 5.9 Hazardous Materials . . . . . . . . . . . . . . . . 19 5.10 Mergers, Etc. . . . . . . . . . . . . . . . . . . . 20 5.11 Liens . . . . . . . . . . . . . . . . . . . . . . . 20 5.12 Notice of Default . . . . . . . . . . . . . . . . . 20 5.13 Indebtedness. . . . . . . . . . . . . . . . . . . . 20 5.14 Insurance . . . . . . . . . . . . . . . . . . . . . 20 5.15 No Material Adverse Change. . . . . . . . . . . . . 20 5.16 Margin Rules. . . . . . . . . . . . . . . . . . . . 21 SECTION 6. Default and Remedy. . . . . . . . . . . . . . . . 21 6.1 Events of Default . . . . . . . . . . . . . . . . . 21 6.1.1 Nonpayment. . . . . . . . . . . . . . . . 21 6.1.2 Representation or Warranty. . . . . . . . 21 6.1.3 Other Defaults. . . . . . . . . . . . . . 21 6.1.4 Voluntary Bankruptcy. . . . . . . . . . . 21 6.1.5 Involuntary Bankruptcy. . . . . . . . . . 21 6.1.6 Cross Default . . . . . . . . . . . . . . 22 6.1.7 Adverse Judgments . . . . . . . . . . . . 22 6.2 Remedy. . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 7. Miscellaneous . . . . . . . . . . . . . . . . . . 22 7.1 Notices . . . . . . . . . . . . . . . . . . . . . . 22 7.2 Successors and Assigns . . . . . . . . . . . . . . 23 7.3 Participation and Assignments . . . . . . . . . . . 23 7.4 Amendments and Waivers . . . . . . . . . . . . . . 23 7.5 Costs and Expenses . . . . . . . . . . . . . . . . 23 7.6 Entire Agreement . . . . . . . . . . . . . . . . . 24 7.7 Governing Law . . . . . . . . . . . . . . . . . . . 24 7.8 Section Headings. . . . . . . . . . . . . . . . . . 24 7.9 Severability . . . . . . . . . . . . . . . . . . . 24 7.10 Indemnity . . . . . . . . . . . . . . . . . . . . 24 7.11 Jury Trial Waiver . . . . . . . . . . . . . . . . . 25 Schedule 1 Permitted Liens Exhibit A Revolving Credit Note Exhibit B Opinion of Counsel to Borrower - ii - REVOLVING CREDIT AGREEMENT National City Bank, Indiana [1995] THIS AGREEMENT, is made as of the 27th day of January, 1995, between LILLY INDUSTRIES, INC., an Indiana corporation (the "Borrower") and National City Bank, Indiana, a national banking association (the "Bank"); SECTION 1 Definitions 1.1 Defined Terms. As used herein: "Additional Costs" shall have the meaning ascribed in Section 2.10. "Advance" means a disbursement of proceeds of a Loan. "Affiliate" means, with respect to any Person, any other Person (including, but not limited to, each officer and director of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. (A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.) "Agreement" means this Revolving Credit Agreement [1995], as the same may be amended from time to time. "Applicable Margin" means as to a Eurodollar Rate Advance (a) 43.75 basis points if the Cash Flow Coverage ratio is 1.3:1.0 or greater or (b) 56.25 basis points if the Cash Flow Coverage Ratio is less than 1.3:1.0. "Base Rate" means that rate of interest established from time to time by the Bank as the Bank's Prime Rate whether or not such rate is publicly announced, which rate may not be the lowest interest rate charged by the Bank for commercial or other extensions of credit. "Business Day" means a day other than a Saturday, Sunday or other day on which the Bank is open for the conduct of its general banking business and, if the applicable day relates to any Eurodollar Rate Advance, or notice with respect to any Eurodollar Rate Advance, a day on which dealings in Dollar deposits are also carried on in the London interbank market and banks are open for business in London. "Cash Flow Coverage Ratio" means, as of the date of determination, (a) the sum of (i) net income after taxes, plus (ii) income tax expense, plus (iii) interest expense, plus (iv) depreciation, amortization and other non-cash expenses; divided by (b) the sum of (i) income tax expense, plus (ii) interest expense, plus (iii) current maturities of long term debt, plus (iv) cash dividends, plus (v) additional Investments in treasury stock, for the four (4) fiscal quarters immediately preceding such date all as determined by reference to the financial statements furnished to the Bank from time to time pursuant to Section 5.3. "Commitment" means the obligation of the Bank to make Loans during the Commitment Period up to a maximum aggregate principal amount outstanding at any time of $15,000,000. "Commitment Period" means the period from the date hereof through June 30, 1996, unless extended or renewed by a prior written agreement executed by the Borrower and the Bank (it being understood that, if so agreed by the Borrower and the Bank, the Commitment Period shall be considered for extension annually and shall be extended for successive 2-year periods). "Compliance Certificate" means a Compliance Certificate in a form prescribed by the Bank, establishing Borrower's compliance with the terms and conditions of this Agreement. "Consolidated" means: (a) when used herein with reference to financial statements, ratios, assets or liabilities, that any calculations have been made by consolidating the assets, liabilities, income, expenses, and cash flows of a Person and its Consolidated Subsidiaries after eliminating all intercompany items and making such adjustments as required by GAAP; and (b) when used herein with reference to a Subsidiary of a Person, a Subsidiary, the financial statements of which have been or, in accordance with GAAP, are required to be presented together on a Consolidated basis with those of such Person. "Consolidated Net Worth" means the excess of total assets over total liabilities and reserves of a Person and its Consolidated Subsidiaries, computed on a Consolidated basis in accordance with GAAP consistently applied. "Consolidated Tangible Net Worth" means, with respect to any Person, such Person's Consolidated Net Worth, less: (a) Goodwill (including the unallocated excess purchase cost of assets acquired in a transaction accounted for as a purchase over the aggregate fair market value thereof on the date of acquisition), patents, trademarks, trade names, copyrights, franchises, deferred charges, (including unamortized debt discount and expense, deferred research and development expenses and organizational costs), treasury stock and all other items that would be treated as intangible assets under GAAP; and (b) Any write-up of the book value of any asset of such Person or any of its Consolidated Subsidiaries other than a write-up in accordance with GAAP of assets of a Subsidiary of such Person in connection with the acquisition of such Subsidiary by such Person. "Consolidated Total Liabilities" means the excess of (a) total assets of a Person and its Consolidated Subsidiaries, over (b) Consolidated Net Worth, computed on a Consolidated basis in accordance with GAAP consistently applied. "Conversion Date" means any date specified on which Borrower elects to convert an Advance of any type to an Advance of another type. "Current Assets" means, as to any Person, the aggregate book value of all assets which would be classified as current assets of such Person in accordance with GAAP after making adequate reserves in each case where a reserve is proper in accordance with GAAP. "Current Liabilities" means, as to any Person, all Indebtedness of such Person maturing on demand or within one (1) year after the date on which such determination is made and all other items (including estimated accrued taxes) which would be classified as current liabilities in accordance with GAAP. "Default" means an event, which with notice or lapse of time or both, would become an Event of Default. "Deposit Account" means Borrower's demand depository account at the Bank which either exists or will be opened by Borrower. "Dollars" and the sign "$" shall mean the lawful money of the United States of America. "ERISA" means the Employee Retirement Income Security Act of 1974 and all the rules and regulations promulgated pursuant thereto, as amended from time to time. "ERISA Event" means, as to any Person, (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for thirty (30)-day notice to the PBGC under such regulations); or (b) the withdrawal of such Person or any member of its controlled group from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; or (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA; or (d) the institution of proceedings to terminate a Plan by the PBGC; or (e) a transaction that occurs on or after April 7, 1986 and that is reasonably likely to be subject to Section 4060 of ERISA without regard to the termination date, if any, of any former Plan; or (f) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or to result in the imposition of any liability under Title IV of ERISA. "Eurocurrency Liabilities" has the meaning ascribed to such term in Regulation D of the Federal Reserve Board, as in effect from time to time. "Eurodollar Rate" means, for each Interest Period for a Eurodollar Rate Advance, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) determined pursuant to the following formula: Eurodollar Rate = LIBOR ------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means, for each Interest Period in respect of a Eurodollar Rate Advance, the maximum reserve percentage in effect on the date LIBOR for such Interest Period is determined under regulations (whether or not applicable to Bank) issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period; and "LIBOR" means, for each Interest Period in respect of a Eurodollar Rate Advance, the rate of interest determined and quoted by the Bank to be the rate of interest at which Dollar deposits for such Interest Period, and in an amount approximately equal to the principal amount of the Eurodollar Rate Advance to be made or maintained by the Bank during such Interest Period would be offered to major banks in the London interbank market at their request at or about 11:00 A.M. (London time) two (2) Business Days prior to the commencement of such Interest Period. "Eurodollar Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to the Eurodollar Rate. "Event of Default" means any event set forth in Section 6 hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on over night Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such date, as published for such date (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of Chicago, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11:00 a.m. (Indianapolis time) on such day on such transactions received by the Bank from three (3) Federal funds brokers of recognized standing selected by the Bank in its sole discretion. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereof. "Floating Rate" means, for any day, a rate of interest per annum equal to the greater of (a) the Base Rate for such day minus 50 basis points or (b) the Federal Funds Effective Rate for such day plus 100 basis points. "Floating Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to the Floating Rate. "Fiscal Year" means a year commencing December 1 and ending November 30. "Fixed Assets" means land, buildings, property and equipment. "GAAP" means generally accepted accounting principles in the United States of America from time to time as promulgated by the Financial Standards Accounting Board and recognized and interpreted by the American Institute of Certified Public Accountants; provided, however, that in the determination of the Borrower's compliance with Sections 5.5 through 5.8 hereof, the effect of FASB 106 shall be disregarded. "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material defined as such in or for the purpose of the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order, decree or other requirement of any governmental authority regulating, relating to, or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste or material, as now or at any time hereafter in effect. "Indebtedness" means as to any Person (a) all indebtedness or other obligations of a Person for borrowed money or for the deferred purchase price of property or services; (b) all indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services, the payment or collection of which the subject Person has guaranteed (except by reason of endorsement for collection in the ordinary course of business) or in respect of which the subject Person is liable, contingently or otherwise, including, without limitation, liability by way of agreement to purchase, to provide funds for payment, to supply funds to or otherwise to invest in such other Person, or otherwise to assure a creditor against loss; (c) all indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon or in property owned by the subject Person, whether or not the subject Person has assumed or become liable for the payment of such indebtedness or obligations; and (d) capitalized lease obligations of such Person. "Interest Period" means: (a) With respect to each Eurodollar Rate Advance, the period commencing on the Business Day such Advance is disbursed or on the Conversion Date on which an Advance is converted to such Eurodollar Rate Advance and ending either on the date thirty (30), sixty (60), ninety (90), one hundred twenty (120) or one hundred eighty (180) days thereafter, as selected by Borrower pursuant to Section 2.5 hereof; provided, however, that: (i) In the case of the continuation of a Eurodollar Rate Advance, the Interest Period applicable after the continuation of such Advance shall commence on the last day of the preceding Interest Period; and (ii) Any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; and (b) With respect to each Negotiated Rate Advance, the period commencing on the Business Day such Advance is disbursed and ending on the date specified in the Request for such Negotiated Rate Advance. "Interest Period Payment Date" means the first day of each calendar month. "Investment" means (a) any loan, advance, guarantee, extension of credit (other than in the ordinary course of business to trade customers) or contribution of capital to any Person or the purchase of any Persons' notes, stock, bonds or other securities; (b) advances to employees of a Person other than advances for the purpose of defraying travel, relocation or business expenses in the ordinary course of business; and (c) any capital, property, or services contributed or committed to be contributed to a Person in connection with the purchase of debt, equity or other ownership interest. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to provide any of the foregoing), any conditional sale or other title retention agreement or any lease in the nature thereof, or any filing or agreement to file a financing statement as debtor on any property leased under a lease which is not in the nature of a conditional sale or title retention agreement. "Loan Documents" means, collectively, this Agreement, the Note and each other document now or hereafter executed by the Borrower in favor of the Bank governing, evidencing or otherwise related to the Obligations. "Loans" means the revolving loans made by the Bank to the Borrower from time to time pursuant to Section 2.1 hereof in the maximum aggregate principal amount of $15,000,000 in accordance with the Commitment, including any extensions or renewals thereof. "Negotiated Rate" means a fixed rate per annum which is offered to Borrower by the Bank in its sole discretion and which is accepted by Borrower. "Negotiated Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to a Negotiated Rate. "Note" means the Revolving Credit Note in the form attached hereto as Exhibit A in the maximum aggregate principal amount of $15,000,000 (or so much thereof as may be advanced or outstanding from time to time) executed by the Borrower in favor of the Bank. "Obligations" means all obligations, indebtedness and liabilities of Borrower under the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation created under Section 4002(a) of ERISA or any successor thereto. "Permitted Liens" means: (a) Liens (i) for taxes not yet due or (ii) which are being actively contested in good faith by appropriate proceedings (in a manner sufficient to prevent enforcement of the matter under contest) as to which adequate reserves have been set aside in an amount determined in accordance with GAAP; (b) Liens incidental to the conduct of the business of the Borrower and its Consolidated Subsidiaries or the ownership of their respective owned properties and assets which were not incurred in connection with the incurring of Indebtedness, and which do not materially detract from the value of such property or assets or impair the use thereof in the operation of the Borrower's or such Subsidiaries' business; (c) Liens on property or assets of a Subsidiary of the Borrower to secure obligations of such Subsidiary to the Borrower or another Subsidiary of the Borrower; (d) Liens on the properties and assets acquired by the Borrower or of any Subsidiary of the Borrower subsequent to the date hereof, which Liens pre-exist the date of such acquisition; (e) Liens on properties or assets of the Borrower and its Consolidated Subsidiaries, which properties and assets do not exceed Ten Percent (10%) of the total tangible assets of the Borrower and its Consolidated Subsidiaries; and (f) As set forth on Schedule 1 hereto. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a governmental or political subdivision or an agent or instrumentality thereof. "Plan" means any defined benefit plan maintained or contributed to by Borrower or any of its Subsidiaries or by any trade or business (whether or not incorporated) under common control with Borrower or any of its Subsidiaries as defined in Section 4001(b) of ERISA and insured by the PBGC under Title IV of ERISA. "Regulatory Change" shall have the meaning ascribed in Section 2.10. "Reportable Event" shall be as defined in ERISA. "Request" shall have the meaning ascribed in Section 2.5 hereof. "Subsidiary" of a Person means any corporation of which such Person owns or otherwise controls, directly or indirectly, more than 50% of the total voting securities thereof, and shall include any such corporation which becomes a Subsidiary of such Person after the date hereof. "Termination Date" means July 1, 1996. "Wholly-Owned Subsidiary" means a Consolidated Subsidiary of a Person, 100% of the voting securities of which is owned or controlled by such Person. 1.2 Accounting Terms. All accounting terms used herein and not used herein and not expressly defined herein shall (unless otherwise expressly indicated) have the respective meanings given to them in accordance with GAAP. All financial computations made under this Agreement for the purpose of determining compliance with the financial requirements of this Agreement shall be made on a Consolidated basis and shall be made, and all financial information required under this Agreement shall be prepared, in accordance with GAAP consistently applied. In determining the value of assets, Investments in Persons other than Consolidated Subsidiaries shall be determined on the basis of the lesser of cost or the book value of such Person on the date of determination. 1.3 Other Definitions; Singular and Plural. The terms defined in the preamble of this Agreement and used herein shall have the meanings ascribed in the preamble hereof. Use of the terms "herein", "hereof", and "hereunder" shall be deemed references to this Agreement in its entirety and not to the Section or clause in which such term appears. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. SECTION 2 Credit 2.1 Commitments. Subject to the terms and conditions hereof, the Bank agrees to make Loans to the Borrower from time to time during the Commitment Period in a principal amount not in excess of the unborrowed portion of the Commitment on the borrowing date. During the Commitment Period, the Borrower may use the Commitment by borrowing, prepaying the Loans, in whole or in part, and reborrowing, all subject to, and in accordance with, the terms and conditions hereof. The Loans shall be evidenced by the Note. 2.2 Interest. Prior to maturity or the occurrence of an Event of Default, the principal amount of the Loans shall bear interest at the election of the Borrower at any of the following rates (a) a per annum rate equal to the Eurodollar Rate, plus the Applicable Margin; (b) at a per annum rate equal to the Floating Rate; or (c) at a Negotiated Rate. After maturity or the occurrence of an Event of Default, interest shall be calculated in accordance with Section 2.9 2.3 Payments of Principal and Interest. Interest only on the outstanding Advances of the Loans from time to time shall be due and payable on the Interest Period Payment Date throughout the term of the Commitment Period. Unless sooner paid, the Borrower shall make principal payments in an amount sufficient that the outstanding principal balance of the Loans shall not exceed the Commitment. Unless the Loans are sooner paid by the Borrower or extended by the Bank in its sole discretion, the entire principal balance of the Loans, together with all accrued and unpaid interest thereon, and all fees and charges payable in connection therewith, shall be due and payable on July 1, 1996. 2.4 Use of Proceeds. The proceeds of the Loans shall be used to fund the general working capital of the Borrower and its Subsidiaries (including, but not limited to, the construction or purchase of Fixed Assets) and for acquisition purposes. 2.5 Method of Advance. Subject to the provisions of Section 2.1: (a) Advances of the Loans shall be made available to Borrower prior to the Termination Date, provided the Bank receives, at the time and in accordance with the terms of this Section, a request ("Request") specifying the amount of the Advance, the interest rate election of Borrower related thereto and, if appropriate, the Interest Period related thereto. Requests may be made by telephone, and the Bank may rely, without further inquiry, on such telephonic Requests as the act of Borrower through an authorized representative; provided, however, that the Bank may require telephonic or other oral requests to be followed immediately by a written Request. Notwithstanding anything to the contrary contained in the definition of "Interest Period", the Borrower may not select an Interest Period with respect to any Advance which ends after the Termination Date. (b) Each Request shall constitute a representation and warranty by the Borrower that no Default or Event of Default has occurred and is continuing or would result from the making of the requested Advance and that the requested Advance shall not cause the principal balance of the Loans to exceed the Commitment. (c) Each Request, which shall be irrevocable once received, must be received by the Bank not later than 11:00 A.M. (Indianapolis time), (i) on the date such Advance is to be made, if such Advance is to be made as a Negotiated Rate Advance or a Floating Rate Advance, and (ii) three (3) Business Days prior to the date such Advance is to be made, if such Advance is to be an Eurodollar Rate Advance. Prior to 11:00 A.M. (Indianapolis time) on the second (2nd) Business Day prior to the date such Advance is to be made, the Bank will, through designated employees, quote the Eurodollar Rate. The Borrower shall then have until 1:00 P.M. (Indianapolis time) on that same Business Day of the quote by the Bank to execute its option to elect the Eurodollar Rate. (d) All Advances shall be in a minimum amount of $1,000,000 and integral multiples of $100,000 and shall be made by credit to the Deposit Account. (e) All notices (including Requests) made by Borrower to the Bank and received by the Bank after 11:00 A.M. (Indianapolis time) (or such other time as is specified in any Section hereof) on a Business Day shall be deemed received on the next succeeding Business Day. (f) If the Borrower fails to give timely notice of its interest rate election pursuant to this Section 2.5, or if the Borrower and the Bank do not agree on a Negotiated Rate, Borrower shall be deemed to have selected the Floating Rate. (g) All Advances by the Bank and payments by the Borrower shall be recorded by the Bank on its books and records, and the principal amount outstanding from time to time, plus interest payable thereon, shall be determined from the books and records of the Bank. The books and records of the Bank shall be presumed prima facie correct as to such matter. Any statement of a the Bank to the Borrower setting forth the Borrower's account regarding the Advances and payments shall be considered true and correct and binding on the Borrower unless the Bank is notified in writing of any discrepancy or exception within thirty (30) days from the date of mailing such monthly statement. Notwithstanding the foregoing, the failure to make, or an error in making, a notation with respect to any Advance shall not limit or otherwise affect the obligation of the Borrower hereunder. 2.6 Conversion of Advances. Borrower may, upon receipt by the Bank of a Request not later than 11:00 A.M. (Indianapolis time) three (3) Business Days prior to the applicable Conversion Date: (a) Elect to convert on any Business Day any Floating Rate Advance into an Advance of any other type; (b) Elect to convert upon expiration of any Interest Period, any Eurodollar Rate Advance or Negotiated Rate Advance maturing at the end of such Interest Period into an Advance of any other type; or (c) Elect to renew, upon expiration of any Interest Period, any Eurodollar Rate Advance maturing at the end of such Interest Period by selecting the duration of the next Interest Period thereof; provided, however, that if any Eurodollar Rate Advance shall have an outstanding principal balance of less than $1,000,000, the Eurodollar Rate Advance subject to renewal shall automatically convert to a Floating Rate Advance and after such date the right of Borrower to continue any such Advance as a Eurodollar Rate Advance shall terminate. If upon the expiration of any Interest Period applicable to a Eurodollar Rate Advance, Borrower has failed to select a new Interest Period to be applicable to such Advance as the case may be, Borrower shall be deemed to have elected to convert such Advance into a Floating Rate Advance effective as of the expiration of the then current Interest Period. Notwithstanding any other provision of this Agreement: (aa) If Borrower desires to convert any Advance to a Eurodollar Rate Advance or continue or renew any Eurodollar Rate Advance at the expiration of an Interest Period, the provisions of Section 2.5(c) shall apply; and (bb) In the event that the Bank determines (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Eurodollar Interest Period at a time when a Eurodollar Rate is requested or when the outstanding balance of Advances under the Loans is being maintained at the Eurodollar Rate, the Bank shall forthwith give notice of such determination, confirmed in writing, to the Borrower (if such confirmation is requested by the Borrower), whereupon the selection of an Eurodollar Rate shall be prohibited, and if the Borrower and the Bank are unable to agree on a Negotiated Rate, the outstanding principal balance of Advances under the Loans then bearing interest at the Eurodollar Rate shall be converted, on the last day of the then current Eurodollar Interest Period, to the Floating Rate. 2.7 Method of Payment. All payments of principal and interest on the Note shall be made without setoff or counterclaim by the Borrower to the Bank at its main office in Indianapolis, Indiana, by 11:30 A.M. (Indianapolis time) on the date when due. All sums received after such time shall be deemed received on the next Business Day. Any payment due on a day that is not a Business Day shall be made on the next Business Day. The Bank is hereby authorized by the Borrower to debit the Deposit Account for each payment of principal or interest under the Loans as it becomes due. All payments with respect to the Loans shall be payable in funds available for the Bank's immediate use at Indianapolis, Indiana, and no payment will be considered to have been made until received in such funds. All payments received on account of any of the Loans will be applied first to the satisfaction of any interest which is then due and payable, and to principal only after all interest which is due and payable has been satisfied. 2.8 Prepayment. The Borrower may prepay any Floating Rate Advance in whole or in any multiple at any time, and from time to time, without notice, premium or penalty. The Borrower may not prepay any Eurodollar Rate Advance or Negotiated Rate Advance at any time prior to the last day of the Interest Period applicable thereto. 2.9 Computations of Interest. All computations of interest and fees under this Agreement shall be made on the basis of a 360-day year and calculated for the actual number of days elapsed. Any change in the rate of interest on any Floating Rate Advance occasioned by a change in the Base Rate or Federal Funds Effective Rate shall be effective on the same day as the change in Base Rate or the Federal Funds Effective rate, as the case may be. Interest shall accrue on any principal balance outstanding from and including the date of disbursement to, but excluding, the date on which such principal balance is repaid. Notwithstanding anything to the contrary herein contained, all principal hereunder not paid when due, whether by lapse of time or by acceleration, shall bear interest after maturity at a per annum rate equal to Two Percent (2%) above the otherwise applicable rate. 2.10 Additional Costs. Borrower shall pay to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate the Bank for any costs incurred by the Bank which the Bank determines is attributable to its making or maintaining any Eurodollar Rate Advance hereunder or its obligation to make any Advance hereunder, or any reduction in any amount receivable by the Bank under this Agreement or the Note in respect of any such Advance or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs") resulting from any change after the date of this Agreement in federal, state, municipal, or foreign laws or regulations (including Regulation D of the Federal Reserve Board) or the adoption or making after such date of any interpretations, directives, or requirements applying to a class of banks including the Bank of or under any federal, state, municipal, or foreign laws or regulations (whether or not having the force of law) by any court or governmental authority charged with the administration thereof ("Regulatory Change"), which: (a) changes the basis of taxation of any amounts payable to the Bank under this Agreement in respect of any Advance (other than taxes imposed on the overall net income of the Bank); or (b) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of the Bank; or (c) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities). The Bank will notify Borrower of any event occurring after the date of this Agreement which will entitle the Bank to compensation under this Section 2.10 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Determinations by the Bank for the purposes of this Section 2.10 of the effect of any Regulatory Change on its cost of making or maintaining any Loan or on amounts receivable by or in respect of any Loan, and of the additional amounts required to compensate Bank in respect of Additional Costs, shall be conclusive, provided that such determinations are made on a reasonable basis and the Bank provides Borrower with its calculations of Additional Costs. 2.11 Commitment Fee. Borrower shall pay to the Bank a commitment fee equal to three-sixteenths (3/16) of one percent (1%) per annum on the maximum amount of the Commitment, which fee shall be due and payable quarterly in advance, within fifteen (15) days of receipt by the Borrower of an invoice therefor. 2.12 Reductions of Revolving Credit Commitment. The Borrower shall have the right to terminate or reduce the aggregate amount of the Commitment at any time or from time to time, provided that (a) the Borrower shall give notice of each such termination or reduction in the manner provided in Section 7.1; (b) each partial reduction shall be in an aggregate amount at least equal to $1,000,000 and integral multiples of $100,000; (c) the aggregate Commitment shall not be reduced to an amount less than the outstanding principal balance of the Revolving Credit Loans; and (d) the Commitment once terminated or reduced may not be reinstated without the prior written approval of the Bank. SECTION 3 Conditions Precedent 3.1 Conditions Precedent to the Initial Advance of the Loan. In addition to the requirements set forth in Section 3.2, the obligations of the Bank to make the initial Advance is subject to the condition precedent that the following shall have been delivered to the Bank in form and substance satisfactory to the Bank: (a) Organic Documents. A copy of the articles of incorporation and by-laws, including all amendments thereto, of Borrower, certified by the Secretary or an Assistant Secretary as being in full force and effect on the date hereof. (b) Corporate Resolutions. Copies of resolutions passed by the Board of Directors of Borrower, certified by the Secretary or Assistant Secretary of Borrower, as applicable, as being in full force and effect on the date hereof. (c) Loan Documents. The Loan Documents duly executed by Borrower. (d) Certificate of Existence. A Certificate of Existence or Good Standing for Borrower in the jurisdiction of its incorporation certified by the Secretary of State or other appropriate official of such jurisdictions. (e) Opinion of Counsel. The favorable written opinion of counsel to Borrower, dated as of the date hereof, substantially in the form and of the substance attached hereto as Exhibit B. (f) Other Evidence Bank May Require. Such other documents or evidence as the Bank may reasonably request in writing in order to consummate the transactions contemplated hereby or to evidence the taking of all necessary actions in any proceedings in connection herewith and compliance with the conditions set forth in this Agreement. (g) Expenses. Payment of the expenses of the Bank described in Section 7.5 for which Borrower has received proper invoices or requests for payment. 3.2 Conditions to Subsequent Advances. The obligations of the Bank to make any Advance after the date hereof is subject to the following conditions precedent: (a) The representations and warranties contained in Section 4 shall be true and correct and no Default or Event of Default shall have occurred and be continuing; (b) The Bank shall have received a Request; (c) All fees, expenses and other amounts due and payable to or for the benefit of the Bank under the Loan Documents shall have been paid; and (d) The aggregate outstanding principal balance of the Loans, after giving effect to the requested Advance, may not exceed the Commitment. SECTION 4 Representations and Warranties Borrower represents and warrants to the Bank on the date hereof, and shall be deemed to have made such representations and warranties to Bank on the date of each Advance hereunder, that: 4.1 Corporate Existence. Borrower and each of its Consolidated Subsidiaries is a corporation duly organized and existing under the laws of the jurisdiction of its incorporation, and is duly qualified as a foreign corporation and is properly licensed and in good standing in each jurisdiction where the failure to qualify or be licensed would have a material adverse effect on its business, properties or conditions (financial or otherwise). 4.2 Corporate Powers. The execution, delivery and performance of the Loan Documents by Borrower are within Borrower's corporate powers, have been duly authorized by all requisite corporate action, and are not in conflict with the terms of any charter, by-laws or other organization papers of Borrower, or any instrument or agreement to which Borrower is a party or by which Borrower is bound or affected. 4.3 Power of Officers. The officers of Borrower executing the Loan Documents and any certificate, instrument or agreement required to be delivered by Borrower thereunder have been duly elected or appointed and were fully authorized to execute the same at the time such agreement, certificate or instrument was executed. 4.4 Government and Other Approvals. No approval, consent, exemption or other action by, notice to or filing with, any governmental authority which has not been obtained is necessary in connection with the execution, delivery or performance by Borrower of the Loan Documents. 4.5 Compliance with Laws; Environmental Matters. To the best of Borrower's knowledge, there is no law, rule or regulation, nor is there any judgment, decree or order of any court or governmental authority specifically directed to Borrower or any of its Consolidated Subsidiaries and binding on Borrower or any of its Consolidated Subsidiaries which would be contravened by the execution, delivery or performance of the Loan Documents. Borrower and each of its Consolidated Subsidiaries is in material compliance with all material laws and regulations, including all material requirements of applicable federal, state and local environmental, health and safety statutes and regulations and to the best of Borrower's knowledge, neither it nor any of its Consolidated Subsidiaries, is the subject of any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Material which investigation will result in clean-up costs having a materially adverse effect on the Borrower and its Consolidated subsidiaries, taken as a whole, and for which Borrower, or such Consolidated Subsidiary is not indemnified. 4.6 Enforceability of Agreement. The Loan Documents are legal, valid and binding agreements of Borrower and are enforceable against Borrower in accordance with their respective terms, and any other exhibit, instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable in accordance with its terms. 4.7 Litigation. Except as disclosed in its financial statements, there are no suits, proceedings, claims or disputes pending or, to the knowledge of Borrower, threatened against or affecting Borrower, or any of its Consolidated Subsidiaries or any of their respective properties, which individually or in the aggregate will materially adversely affect the business, properties or condition (financial or otherwise) of the Borrower and its Consolidated Subsidiaries, taken as a whole, or impair Borrower's ability to perform the Obligations. 4.8 Events of Default. No Default or Event of Default has occurred and is continuing or would result from the execution or performance of any Loan Document or the incurring of the Obligations by Borrower. Neither Borrower nor any of its Consolidated Subsidiaries is in violation of, or default under, (a) any charter instrument or by-law, or under any loan agreement or (b) any material agreement or instrument to which it is a party or by which it or its properties are bound. 4.9 Investment Company Act of 1940. Borrower is not an investment company within the meaning of the Investment Company Act of 1940. 4.10 Financial Information. (a) The balance sheets of Borrower dated as of November 30, 1993 and August 31, 1994, and the operating statements for the fiscal periods then ended, (complete and accurate copies of which have been delivered by Borrower to Bank) and all other information and data furnished by Borrower to Bank are complete and correct, and such financial statements have been prepared in accordance with GAAP, consistently applied, and fairly present the Consolidated financial condition of Borrower on November 30, 1993 and August 31, 1994 and the Consolidated results of their operations for the periods then ended, except in the case of the unaudited interim financial statements for normal year end adjustments and the absence of footnote disclosures. (b) Since November 30, 1993, there has not been and Borrower does not know of any development or threatened development (other than general economic conditions) of a nature which may cause any material adverse change in the Consolidated financial condition or operations of Borrower and its Consolidated Subsidiaries, taken as a whole, or sufficient to impair Borrower's ability to repay the Loan and otherwise perform the Obligations in accordance with the terms of the Loan Documents. 4.11 ERISA. Except as previously disclosed to the Bank, no fact or circumstance, including but not limited to any Reportable Event, exists in connection with any Plan of Borrower, or any of its Consolidated Subsidiaries which would constitute grounds for the termination of any such plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan and which would result in the termination of a Plan and the incurrence of material liability by the beneficiaries or a trustee under ERISA. For the purposes of this Section 4.11, Borrower, if it is not the Plan administrator, shall be deemed to have knowledge of all facts attributable to the Plan administrator designated pursuant to ERISA. 4.12 Full Disclosure. To the knowledge of the Borrower, no information, exhibit, memorandum, or report furnished by the Borrower to the Bank in connection with the negotiation of the Loans contains any material misstatement of fact or omits to state any fact necessary to make the statements contained therein not materially misleading. SECTION 5 Covenants Borrower covenants that until all Obligations have been paid in full it will (and will cause its Subsidiaries to), unless otherwise agreed by the Bank: 5.1 Use of Proceeds. Use Advances solely for the purposes provided for herein. 5.2 Maintain Existence, Etc. Maintain its existence; maintain in good order its licenses, properties, insurance and books; pay when due taxes, trade accounts and other obligations; comply with law; and generally conduct its affairs in accordance with standard industry practices. 5.3 Financial Statements, Etc. During the term of the Loans, Borrower shall furnish to the Bank: (a) Within sixty (60) days after the end of each fiscal quarter, a balance sheet and operating statement of Borrower prepared on a Consolidated and consolidating basis and in accordance with GAAP consistently applied and accompanied by a Compliance Certificate completed and signed by the chief financial officer of Borrower certifying, among other things, that there exists no Default or Event of Default under the Loan Documents or, if a Default or Event of Default exists, stating the nature and status thereof; (b) Within one hundred twenty (120) days after the end of each of Borrower's Fiscal Years, a balance sheet and operating statement and statement of cash flows certified by an independent certified public accountant satisfactory to Bank (provided that any "Big Six" accounting firm shall be deemed satisfactory to the Bank); such financial statements to be prepared on a Consolidated basis in accordance with GAAP applied on a basis consistent with prior practice unless otherwise specifically noted thereon, accompanied by (i) unaudited consolidating balance sheets and operating statements of Borrower and each of its Consolidated Subsidiaries, (ii) a detailed letter from the chief financial officer of the Borrower which analyzes the results of operations for the period covered by such financial statements, and (iii) a Compliance Certificate completed and signed by the chief financial officer of Borrower certifying, among other things, that there exists no Default or Event of Default under the Loan Documents or, if a Default or Event of Default exists, stating the nature and status thereof; and (c) As soon as possible, but in any event within ten (10) days after the filing with the Securities and Exchange Commission, or any successor thereto, or any state securities regulatory authority, copies of all registration statements and all periodic and special reports required or permitted to be filed under federal or state securities laws and regulations. 5.4 Adequate Books. Permit representatives of the Bank, at any reasonable time and upon reasonable prior notice, to inspect its properties, to examine its inventory, books, and accounts, and to discuss its finances and affairs with its accountants (and by these provisions Borrower authorizes such accountants to discuss with the Bank the finances and affairs of Borrower). 5.5 Leverage Ratio. Maintain a ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth of not more than (a) 3.0 to 1.0 as at the end of each fiscal quarter ending on and after November 30, 1994 through August 31, 1995; and (b) 2.0 to 1.0 as at November 30, 1995 and as at the end of each fiscal quarter ending thereafter. 5.6 Current Ratio. Maintain a ratio of Consolidated Current Assets to Consolidated Current Liabilities of not less than 1.50 to 1.00 as at the end of each fiscal quarter. 5.7 Cash Flow Coverage Ratio. Maintain a Cash Flow Coverage Ratio of not less than (a) 1.15 to 1.00 as at the end of each fiscal quarter ending on and after the date hereof through August 31, 1995; and (b) 1.30 to 1.00 as at the end of each fiscal quarter ending thereafter. 5.8 Net Worth. Maintain Consolidated Tangible Net Worth of not less than the sum of (i) $14,000,000, plus (ii) an amount not less than Twenty-Five Percent (25%) of the cumulative reported net profits of the Borrower for all fiscal quarters ending after November 30, 1993, without reduction for any reported net losses incurred during such periods, as at the end of each fiscal quarter ending on or after the date hereof. 5.9 Hazardous Materials. Indemnify and hold harmless the Bank and its respective officers, employees, agents, consultants and affiliates from and against all losses, costs, damages and expenses (including reasonable attorneys' fees and expenses) any such person may sustain in connection with the use, disposal or release of any Hazardous Material or in connection with the existence of any Hazardous Material on or under any of the properties of Borrower or any of its Subsidiaries. 5.10 Mergers, Etc. Not permit Borrower to enter into any consolidation, merger, or other combination, or sell, lease, assign, transfer or otherwise dispose of any assets, whether now owned or hereafter acquired, in a single transaction or in a series of transactions, or enter into any sale and leaseback transactions, other than: (a) the sale of inventory in the ordinary course of business; (b) the disposition of property no longer used or useful in the conduct of its business; (c) any merger in which Borrower is the legal surviving corporation, provided no Default or Event of Default then exists or is occasioned thereby; (d) any merger, consolidation or transfer of the business or assets of any Subsidiary of the Borrower to Borrower or to any Consolidated Subsidiary; and (e) the sale and leaseback, sale or other disposition of assets in an amount not in excess of $20,000,000 in any Fiscal Year. 5.11 Liens. Not create, assume or suffer to exist any Lien on any of its properties or assets, whether now owned or hereafter acquired, except Permitted Liens. 5.12 Notice of Default. Immediately upon the occurrence of any Default or an Event of Default, furnish to the Bank a certificate of Borrower stating the specific nature of the Default or Event of Default, Borrower's intended actions to cure such Default or Event of Default and the time period in which such cure is to occur. 5.13 Indebtedness. Not create, incur or suffer to exist any Indebtedness for the purpose of refinancing a portion of the Loans, except on such terms and conditions as have been subject to the prior written approval of the Bank. 5.14 Insurance. Maintain in full force and effect adequate insurance in amounts and against liabilities consistent with sound business practices and with reputable insurers and upon terms acceptable to the Bank. 5.15 No Material Adverse Change. Not permit any event to occur or condition to exist which has a materially adverse effect upon business, operations, financial condition, properties or prospects of the Borrower or its Consolidated Subsidiaries, taken as a whole. 5.16 Margin Rules. Not use the Advances in any manner that would violate Regulation G, T, U or X of the Federal Reserve Board. SECTION 6 Default and Remedy 6.1 Events of Default. The occurrence of any of the following events shall be an Event of Default hereunder: 6.1.1 Nonpayment. Borrower fails to pay when due any installment of principal or interest or any other sum due under the Loan Documents and such failure continues for ten (10) Business Days thereafter. 6.1.2 Representation or Warranty. Any written represen-tation or warranty in any of the Loan Documents proves to have been materially false or misleading in any material respect when made. 6.1.3 Other Defaults. Borrower fails to perform or observe any of the other covenants or agreements contained in the Loan Documents, and such failure, if capable of being remedied, continues unremedied for a period of thirty (30) days after written notice thereof from the Bank. 6.1.4 Voluntary Bankruptcy. Borrower or any one or more of its Wholly-Owned Subsidiaries which, in the aggregate, have Twenty-Five Percent (25%) or more of the Consolidated total assets of the Borrower fails to pay or admits in writing its or their inability to pay debts as they come due, or files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other similar law for the relief of, or relating to, debtors, or applies for or consents to a receiver, trustee or custodian for it or a substantial portion of its property, or makes a general assignment for the benefit of creditors. 6.1.5 Involuntary Bankruptcy. An involuntary petition is filed under any bankruptcy or similar statute against Borrower or any one or more of its Wholly-Owned Subsidiaries which, in the aggregate, have Twenty-Five Percent (25%) or more of the Consolidated total assets of the Borrower, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of the properties of Borrower or any such Consolidated Subsidiary unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of such filing or appointment. 6.1.6 Cross Default. Any material breach or default shall have occurred (after giving effect to any applicable cure period or waiver) under any other agreement between Borrower, or any Consolidated Subsidiary and any bank, or under any other material agreement pursuant to which Borrower, or any of its Consolidated Subsidiaries may be obligated in an amount in excess of $1,000,000 as a borrower, guarantor or lessee (including, without limitation, any Indebtedness incurred to refinance any portion of the Loans), if such default consists of the failure by such borrower, guarantor or lessee to pay Indebtedness when due and, following any applicable cure period, permits the holder or any trustee thereof to cause the acceleration of such Indebtedness or the termination of any commitment to lend or permits a lessor to terminate the applicable lease. 6.1.7 Adverse Judgments. Any one or more judgments or orders for payment of money in an aggregate amount exceeding $1,000,000 shall be rendered against the Borrower and/or any of its Consolidated Subsidiaries and either (a) such judgment or order shall remain unsatisfied and the Borrower and/or its Consolidated Subsidiary shall not have taken action necessary to stay enforcement thereof prior to the expiration of the applicable period of limitations for taking such action or (b) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order. 6.2 Remedy. If any Event of Default described in Sections 6.1.4 and 6.1.5 occurs, the Commitment shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Bank. If any other Event of Default occurs, the Bank may terminate the Commitment and declare the Obligations to be due and payable, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which Borrower hereby expressly waives. Upon the occurrence of an Event of Default, the Bank may immediately proceed to exercise all remedies available to it under the Loan Documents or otherwise under applicable law. SECTION 7 Miscellaneous 7.1 Notices. Any communications between the parties hereto or notices or requests provided herein to be given may be given by mailing the same, first class postage prepaid, or by telex or electronic transmission to each party at its address set forth on the signature pages hereto (with a copy to each address indicated for notices), or to such other address as any party may in writing hereafter indicate to the other. Notices shall be effective on the date sent by electronic transmission and telex and three (3) Business Days after the date sent by U.S. mail. 7.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns; provided, however, that Borrower shall not assign this Agreement or any of its rights hereunder without the prior written consent of the Bank. 7.3 Participation and Assignments. The Bank may participate, sell, transfer or assign its rights and obligations under this Agreement to an entity Affiliate of the Bank without the prior written consent of the Borrower and to any other Person with the prior written consent of the Borrower, which consent shall not be unreasonably withheld or delayed; provided, however, that no prior consent of the Borrower shall be required at any time during which a Default or Event of Default shall have occurred and be continuing. Any participant purchasing such a participation shall have all rights of the Bank pursuant to this Agreement, and the Bank may provide such participant with credit information received by such Bank from Borrower or any Subsidiary which is otherwise publicly available. Borrower agrees that any participant permitted or consented to under this Section 7.3 shall at any time during the pendency of an Event of Default have the right to set off any Obligations not paid when due against any accounts or other assets of Borrower held by, on deposit with, or in the possession of, such participant. The Bank will use its best efforts to cause such participant to grant to Borrower the right to set off, appropriate and apply against that portion of the Obligations then owned by such other participant any monies, securities and other property of Borrower now or hereafter held or received by, or in transit to, such participant in the event such participant becomes involved in any voluntary insolvency, bankruptcy or receivership proceedings, or in any involuntary proceedings of such nature or comes under the management or control of any governmental or private deposit insurer. In no event shall the insolvency, bankruptcy or receivership of a participant grant to Borrower the right of set off against the Bank, including any other participant. 7.4 Amendments and Waivers. No delay or omission by the Bank to exercise any right under this Agreement shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Agreement shall be deemed a waiver of any other breach or default. Any waiver, modification, amendment, consent or approval relating to the Loan Documents, must be in writing to be effective and must be signed by or on behalf of the Bank. 7.5 Costs and Expenses. Borrower agrees to pay on demand to the Bank all reasonable costs and expenses incurred by the Bank including, without limitation, reasonable attorneys' and consultants' fees (a) in connection with the enforcement of the Loan Documents or in connection with any proposed refinancing or restructuring of the credit provided in this Agreement, and (b) for all stamp, registration and other duties to which any Loan Document may be subject. Borrower further agrees to pay or to reimburse the Bank upon demand for its reasonable attorneys' fees and other reasonable expenses incurred in connection with preparing, drafting and negotiating any amendments, consents, or waivers hereto requested by Borrower. Borrower shall indemnify the Bank against any and all liabilities and penalties resulting from any delay in payment, or failure to pay, any such duties referenced above upon written notice from the Bank that such amounts have been assessed. 7.6 Entire Agreement. The Loan Documents integrate all the terms and conditions mentioned herein or incidental hereto, and supersede all oral negotiations and prior writings in respect to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and the other Loan Documents, the provisions of this Agreement shall control. 7.7 Governing Law. This Agreement and all other Loan Documents executed in connection herewith shall be governed by and construed in accordance with the laws of the State of Indiana. 7.8 Section Headings. Section headings are for reference only, and shall not affect the interpretation of meanings of any provision of this Agreement. 7.9 Severability. The illegality or unenforceability of any provision of any Loan Document shall not in any way affect or impair the legality or enforceability of the remaining provisions of such Loan Document or any other Loan Document. 7.10 Indemnity. Borrower hereby agrees to indemnify, protect and hold harmless the Bank and its officers, directors, agents, employees, attorneys and shareholders ("Indemnified Persons") from and against all reasonable costs and expenses (including, without limitation, the reasonable cost of counsel), and all actions, claims (whether made or threatened), suits, liabilities, damages and losses incurred by or imposed on any Indemnified Persons in connection with or as a result of the execution, delivery and performance of the Loan Documents and the use of the proceeds thereunder, provided, however, that such indemnity shall not apply to any action by Borrower against a Bank; and provided, further, that the foregoing provision shall not be deemed to limit the provisions of Section 7.5 hereof. Notwithstanding anything to the contrary in this Section 7.10, Borrower shall not be obligated to indemnify any Indemnified Person for any losses, claims, damages, liabilities and expenses incurred by such Indemnified Person which have finally been determined to have resulted from the gross negligence or willful misconduct on the part of such Indemnified Person. Without limiting the generality of the foregoing, such indemnity shall extend to any and all reasonable costs and expenses whatsoever incurred by the Indemnified Persons (including, without limitation, the reasonable cost of counsel, whether staff counsel or otherwise and whether allocated or out-of-pocket) in connection with investigating, preparing for or defending against or providing evidence, producing documents or taking any action with respect to any such action, claim (whether made or threatened and whether or not such Indemnified Person is a party to such action or claim), suit, liability, damage or loss, whether or not resulting in any liability. The Indemnified Person may select its own legal counsel in connection with any matters indemnified against hereunder. This indemnity shall survive the execution, delivery and consummation of the transactions contemplated by this Agreement. Payment by Borrower in respect to an undisputed claim made by an Indemnified Person pursuant to this Section shall be made within thirty (30) days after demand therefor; otherwise, promptly upon resolution of such dispute. 7.11 JURY TRIAL WAIVER. THE BANK AND THE BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR RISING OUT OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS BETWEEN THEM CONTEMPLATED BY THE LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM. NEITHER SHALL THE BANK NOR THE BORROWER SEEK TO CONSOLIDATE, BY COUNTER-CLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THIS SECTION 7.11 SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANK NOR THE BORROWER EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date and year first above written. "BORROWER" LILLY INDUSTRIES, INC. Attest: By: /s/ Roman J. Klusas ---------------------- Roman J. Klusas, Vice President, Chief /s/ Kenneth L. Mills Financial Officer and --------------------------- Secretary Kenneth L. Mills, Director of Corporate Accounting Address: and Assistant Secretary 733 South West Street Indianapolis, IN 46225 Attn: Vice President, Chief Financial Officer and Secretary Telephone: (317) 687-6702 Telecopier: (317) 687-6710 "BANK" NATIONAL CITY BANK, INDIANA By: /s/ Frank B. Meltzer ---------------------- Frank B. Meltzer, Vice President Address: 101 W. Washington St., #200E Indianapolis, IN 46255 Attn: Frank B. Meltzer Telephone: (317) 267-6132 Telecopier: (317) 267-8899 Schedule 1 Immaterial leases of furniture, fixtures and equipment. EXHIBIT A REVOLVING CREDIT NOTE $15,000,000.00 Indianapolis, Indiana January ____, 1995 FOR VALUE RECEIVED, on or before July 1, 1996 (subject to acceleration, extension or prepayment), LILLY INDUSTRIES, INC., an Indiana corporation ("Borrower"), hereby promises to pay to the order of NATIONAL CITY BANK, INDIANA, a national banking association (the "Bank"), or its assigns, at the main office of the Bank at Indianapolis, Indiana, or at such other place as the holder hereof may designate in writing, in lawful money of the United States of America, the principal sum of Fifteen Million Dollars ($15,000,000), or so much thereof as may be advanced and outstanding from time to time, together with (a) interest on the unpaid principal balance existing from time to time at the rates set forth in Section 2.2 of the Agreement (as hereinafter defined) prior to maturity and while and so long as there exists no uncured Event of Default, and (b) interest after maturity, whether by acceleration or otherwise, or during any period while there exists any uncured Event of Default at a per annum rate equal to two percent (2%) above the otherwise applicable rate. Such interest shall be paid on actual daily balances of outstanding principal for the exact number of days such principal remains outstanding and shall be computed on the basis of a three hundred sixty (360) day year. Any change in the rate of interest on any Floating Rate Advance occasioned by a change in the Floating Rate shall be effective on the same day as the change in Floating Rate. Principal and interest under this Note shall be payable as follows: 1. Interest only on the outstanding principal balance shall be due and payable on the first day of each month, commencing on the first day of the month following the initial Advance; 2. From time to time, the Borrower shall pay installments of principal in an amount sufficient that the outstanding principal balance of this Note shall not exceed the Bank's commitment; and 3. Unless extended by the Bank or sooner paid by the Borrower, the entire unpaid balance of principal, and all accrued and unpaid interest thereon, shall be due and payable on July 1, 1996. If any installment of principal or interest under this Note is payable on a day other than a Business Day, the maturity of such installment shall be extended to the next succeeding Business Day, and interest shall be payable during such extension of maturity. Subject to the terms of the Agreement, the Borrower may borrow, pay, reborrow and repay the principal amount of this Note at any time and from time to time. This Note is referred to in, and is entitled to the benefit of, a certain Revolving Credit Agreement [1995] executed between Borrower and National City Bank, Indiana of even date (as the same may be amended from time to time, the "Agreement"). Advances under this Note shall be made in accordance with the Agreement. The Agreement, among other things, contains a definition of the capitalized terms used herein and provisions for acceleration of the maturity hereof upon the happening of certain stated events. If Borrower fails to make the payment of any installment of principal or interest, as herein provided, when due, or fails in the performance of any of the terms, agreements, covenants or conditions contained in the Agreement beyond any applicable grace period set forth therein, then in any of such events, or at any time thereafter, the entire principal balance of this Note, and all accrued and unpaid interest thereon, irrespective of the maturity date specified herein, together with reasonable attorneys' fees and other costs incurred in collecting or enforcing payment or performance hereof and with interest from the date of the Event of Default on the unpaid principal balance hereof at the default rate hereinabove specified, shall, at the election of the holder hereof, and without relief from valuation and appraisement laws, become immediately due and payable. The Borrower and all endorsers, guarantors, sureties, accommodation parties hereof and all other parties liable or to become liable for all or any part of this indebtedness, severally waive demand, presentment for payment, notice of dishonor, protest and notice of protest and expressly agree that this Note and any payment coming due under it may be extended or otherwise modified from time to time without in any way affecting their liability hereunder. This Note shall be construed according to and governed by the laws of the State of Indiana. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly authorized officers as of the date and year first hereinabove written. LILLY INDUSTRIES, INC. an Indiana corporation By: /s/ Roman J. Klusas ------------------------- Roman J. Klusas, Vice President, Chief Financial Officer and Secretary Attest: /s/ Kenneth L. Mills ----------------------- Kenneth L. Mills, Director of Corporate Accounting and Assistant Secretary EXHIBIT B January 27, 1995 National City Bank, Indiana 101 West Washington Street Indianapolis, IN 46255 Re: Revolving Credit Agreement (1995) of even date between National City Bank, Indiana (the "Bank") and Lilly Industries, Inc. (the "Borrower") (the "Agreement") Gentlemen: We have acted as special counsel to the Borrower in connection with the transactions contemplated by the above referenced Agreement. Capitalized terms used herein and not specifically herein defined shall have the meanings ascribed to them in the Agreement. In such capacity, and for the purpose of rendering this opinion, we have examined the following: (a) The Agreement; (b) The Revolving Credit Note; and (c) Copies, certified by the Secretary of the Corporation, of the corporate proceedings pursuant to which the execution of the Agreement, and the Revolving Credit Note (collectively, the "Loan Documents") were ratified, approved and authorized. In arriving at the opinions expressed below, we have examined such other documents and have considered such questions of law, as, in our judgment, have been necessary to enable us to render this opinion. With respect to factual matters material to our opinion, we have, when such facts have not been independently established, relied upon certificates of officers of the Borrower, certificates or other information obtained from governmental authorities and such other information as in our judgment is necessary or appropriate to render the opinions expressed below. In rendering the opinions set forth herein we have assumed, with your consent and without any independent inquiry, the following: (i) The genuineness of signatures of the persons executing all instruments, documents, certificates, and/or agreements evidenced by or related to the transactions contemplated by the Loan Documents; (ii) The authority of the persons executing the Loan Documents and all other instruments, documents, certificates and/or agreements related to the transactions contemplated thereby on behalf of the parties thereto (other than the Borrower); (iii) The due authorization by all necessary corporate action of the execution and delivery of the Loan Documents and all instruments, documents, certificates, and/or agreements related to the transactions contemplated thereby on behalf of the parties thereto (other than the Borrower); (iv) The authenticity of all documents submitted to us as originals; and (v) The conformity to authentic original documents of documents submitted to us as certified, conformed or photostatic copies. Based upon the foregoing and subject to the further qualifications and limitations hereinafter set forth, it is our opinion, limited in all respects to the present internal laws of the State of Indiana and the present federal laws of the United States of America, that, insofar as those laws are applicable: 1. The Borrower is a corporation, duly organized and validly existing under and by virtue of the laws of the State of Indiana. The Borrower has taken all necessary corporate action to authorize the execution and delivery of the Loan Documents. 2. The Borrower possesses the requisite corporate power to enter into the Loan Documents and to perform its obligations thereunder. 3. The execution and delivery of the Loan Documents by the Borrower will not violate, breach, contravene, cause a default or result in the imposition of a lien under any provision of the Articles of Incorporation or Bylaws of the Borrower or, to our knowledge, any existing note, bond, mortgage, debenture, indenture, trust, lease, instrument, judgment, order, decree, or other agreement to which the Borrower is a party or by which it or its assets may be bound. 4. The Loan Documents will, upon due execution and delivery by an authorized officer of the Borrower, constitute legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, except as the same may be limited by (i) the United States Bankruptcy Code, (ii) any applicable insolvency, reorganization, moratorium or similar laws of the State of Indiana or the United States relating to or affecting the enforcement of creditors' rights generally, (iii) general principles of equity, and (iv) judicial discretion. 5. To our knowledge, no authorization, consent, approval, registration, license or any form of exemption of any Indiana state or United States federal governmental authority is required in connection with the execution, delivery and performance by the Borrower of its obligations under the Loan Documents. 6. To our knowledge, (i) no litigation or proceeding of any Indiana state or United States federal governmental authority or any other person is presently pending or threatened against the Borrower, nor (ii) has any claim been asserted against the Borrower, which in the case of (i) or (ii) above seeks to enjoin the transactions contemplated by the Loan Documents. Our opinion is subject to the following qualifications: A. The enforceability of the Loan Documents may be limited if the Bank should fail to act in good faith or in a commercially reasonable manner in seeking to exercise rights or remedies thereunder. B. Whenever our opinion with respect to the existence or absence of facts is qualified by the phase "to our knowledge," it is intended to indicate that during the course of our representation of the Borrower no information has come to our attention which would give us actual knowledge of the existence or absence of such facts. Moreover, we have not undertaken any independent investigation to determine the existence or absence of such facts, and any limited inquiries made by us should not be regarded as such an investigation. Any certificates or representations obtained by us form officers of the Borrower with respect to such opinions have been relied upon without any independent verification. C. Whenever we have stated we assumed any matter, it is intended to indicate that we have assumed such matter without making any factual, legal, or other inquiry or investigation, and without expressing any opinion or stating any conclusion of any kind concerning such matter. D. This opinion is furnished to you pursuant to the Loan Documents and is not to be used, circulated, quoted or otherwise referred to for any other purpose. E. This opinion is dated and speaks as of the date of delivery. We have no obligation to advise you or any third parties of any changes in law or fact that may hereafter occur or come to our attention, even though the legal analysis or legal conclusions contained in this opinion letter may be affected by such change. Very truly yours, EX-10.(K) 3 EXHIBIT 10(K) NBD BANK, N.A. REVOLVING CREDIT AGREEMENT [1995] EXHIBIT 10(k) REVOLVING CREDIT AGREEMENT [1995] Between LILLY INDUSTRIES, INC. and NBD BANK, N.A. Dated as of January 27, 1995 TABLE OF CONTENTS Page PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1. Definitions. . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . 1 1.2 Accounting Terms . . . . . . . . . . . . . . . . . . 9 1.3 Other Definitions; Singular and Plural . . . . . . . 9 SECTION 2. Credit . . . . . . . . . . . . . . . . . . . . . . 9 2.1 Commitment . . . . . . . . . . . . . . . . . . . . . 9 2.2 Interest . . . . . . . . . . . . . . . . . . . . . . 9 2.3 Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . 10 2.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . 10 2.5 Method of Advance . . . . . . . . . . . . . . . . . 10 2.6 Conversion of Advances . . . . . . . . . . . . . . . 11 2.7 Method of Payment. . . . . . . . . . . . . . . . . . 12 2.8 Prepayment . . . . . . . . . . . . . . . . . . . . . 13 2.9 Computations of Interest . . . . . . . . . . . . . . 13 2.10 Additional Costs . . . . . . . . . . . . . . . . . . 13 2.11 Commitment Fees . . . . . . . . . . . . . . . . . . 14 2.12 Reductions of Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . 14 SECTION 3. Conditions Precedent . . . . . . . . . . . . . . . 14 3.1 Conditions Precedent to the Initial Advance of the Loan . . . . . . . . . . . .14 3.2 Conditions to Subsequent Advances . . . . . . . . . .15 SECTION 4. Representations and Warranties . . . . . . . . . .15 4.1 Corporate Existence . . . . . . . . . . . . . . . . .15 4.2 Corporate Powers . . . . . . . . . . . . . . . . . .16 4.3 Power of Officers . . . . . . . . . . . . . . . . . .16 4.4 Government and Other Approvals . . . . . . . . . . .16 4.5 Compliance with Laws; Environmental Matters . . . . . . . . . . . . . . .16 4.6 Enforceability of Agreement . . . . . . . . . . . . .16 4.7 Litigation . . . . . . . . . . . . . . . . . . . . .17 4.8 Events of Default . . . . . . . . . . . . . . . . . .17 4.9 Investment Company Act of 1940. . . . . . . . . . . .17 4.10 Financial Information . . . . . . . . . . . . . . . .17 4.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . .17 4.12 Full Disclosure . . . . . . . . . . . . . . . . . . .18 - i - Page SECTION 5. Covenants . . . . . . . . . . . . . . . . . . . . 18 5.1 Use of Proceeds. . . . . . . . . . . . . . . . . . . 18 5.2 Maintain Existence, Etc. . . . . . . . . . . . . . . 18 5.3 Financial Statements, Etc. . . . . . . . . . . . . . 18 5.4 Adequate Books . . . . . . . . . . . . . . . . . . . 19 5.5 Leverage Ratio . . . . . . . . . . . . . . . . . . . 19 5.6 Current Ratio. . . . . . . . . . . . . . . . . . . . 19 5.7 Cash Flow Coverage Ratio . . . . . . . . . . . . . . 19 5.8 Net Worth. . . . . . . . . . . . . . . . . . . . . . 19 5.9 Hazardous Materials. . . . . . . . . . . . . . . . . 20 5.10 Mergers, Etc.. . . . . . . . . . . . . . . . . . . . 20 5.11 Liens. . . . . . . . . . . . . . . . . . . . . . . . 20 5.12 Notice of Default. . . . . . . . . . . . . . . . . . 20 5.13 Indebtedness . . . . . . . . . . . . . . . . . . . . 20 5.14 Insurance . . . . . . . . . . . . . . . . . . . . . 20 5.15 No Material Adverse Change . . . . . . . . . . . . . 20 5.16 Margin Rules . . . . . . . . . . . . . . . . . . . . 21 SECTION 6. Default and Remedy . . . . . . . . . . . . . . . . 21 6.1 Events of Default . . . . . . . . . . . . . . . . . 21 6.1.1 Nonpayment . . . . . . . . . . . . . . . . 21 6.1.2 Representation or Warranty . . . . . . . . 21 6.1.3 Other Defaults . . . . . . . . . . . . . . 21 6.1.4 Voluntary Bankruptcy . . . . . . . . . . . 21 6.1.5 Involuntary Bankruptcy . . . . . . . . . . 21 6.1.6 Cross Default . . . . . . . . . . . . . . 22 6.1.7 Adverse Judgments. . . . . . . . . . . . . 22 6.2 Remedy . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 7. Miscellaneous. . . . . . . . . . . . . . . . . . . 22 7.1 Notices. . . . . . . . . . . . . . . . . . . . . . . 22 7.2 Successors and Assigns . . . . . . . . . . . . . . . 23 7.3 Participation and Assignments . . . . . . . . . . . 23 7.4 Amendments and Waivers . . . . . . . . . . . . . . . 23 7.5 Costs and Expenses . . . . . . . . . . . . . . . . . 23 7.6 Entire Agreement . . . . . . . . . . . . . . . . . . 24 7.7 Governing Law. . . . . . . . . . . . . . . . . . . . 24 7.8 Section Headings . . . . . . . . . . . . . . . . . . 24 7.9 Severability . . . . . . . . . . . . . . . . . . . . 24 7.10 Indemnity . . . . . . . . . . . . . . . . . . . . . 24 7.11 Jury Trial Waiver. . . . . . . . . . . . . . . . . . 25 Schedule 1 Permitted Liens Exhibit A Revolving Credit Note Exhibit B Opinion of Counsel to Borrower - ii - REVOLVING CREDIT AGREEMENT NBD Bank, N.A. [1995] THIS AGREEMENT, is made as of the 27th day of January, 1995, between LILLY INDUSTRIES, INC., an Indiana corporation (the "Borrower") and NBD Bank, N.A., a national banking association (the "Bank"); SECTION 1 Definitions 1.1 Defined Terms. As used herein: "Additional Costs" shall have the meaning ascribed in Section 2.10. "Advance" means a disbursement of proceeds of a Loan. "Affiliate" means, with respect to any Person, any other Person (including, but not limited to, each officer and director of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. (A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.) "Agreement" means this Revolving Credit Agreement [1995], as the same may be amended from time to time. "Applicable Margin" means as to a Eurodollar Rate Advance (a) 43.75 basis points if the Cash Flow Coverage ratio is 1.3:1.0 or greater or (b) 56.25 basis points if the Cash Flow Coverage Ratio is less than 1.3:1.0. "Base Rate" means that rate of interest established from time to time by the Bank as the Bank's Prime Rate whether or not such rate is publicly announced, which rate may not be the lowest interest rate charged by the Bank for commercial or other extensions of credit. "Business Day" means a day other than a Saturday, Sunday or other day on which the Bank is open for the conduct of its general banking business and, if the applicable day relates to any Eurodollar Rate Advance, or notice with respect to any Eurodollar Rate Advance, a day on which dealings in Dollar deposits are also carried on in the London interbank market and banks are open for business in London. "Cash Flow Coverage Ratio" means, as of the date of determination, (a) the sum of (i) net income after taxes, plus (ii) income tax expense, plus (iii) interest expense, plus (iv) depreciation, amortization and other non-cash expenses; divided by (b) the sum of (i) income tax expense, plus (ii) interest expense, plus (iii) current maturities of long term debt, plus (iv) cash dividends, plus (v) additional Investments in treasury stock, for the four (4) fiscal quarters immediately preceding such date all as determined by reference to the financial statements furnished to the Bank from time to time pursuant to Section 5.3. "Commitment" means the obligation of the Bank to make Loans during the Commitment Period up to a maximum aggregate principal amount outstanding at any time of $15,000,000. "Commitment Period" means the period from the date hereof through June 30, 1996, unless extended or renewed by a prior written agreement executed by the Borrower and the Bank (it being understood that, if so agreed by the Borrower and the Bank, the Commitment Period shall be considered for extension annually and shall be extended for successive 2-year periods). "Compliance Certificate" means a Compliance Certificate in a form prescribed by the Bank, establishing Borrower's compliance with the terms and conditions of this Agreement. "Consolidated" means: (a) when used herein with reference to financial statements, ratios, assets or liabilities, that any calculations have been made by consolidating the assets, liabilities, income, expenses, and cash flows of a Person and its Consolidated Subsidiaries after eliminating all intercompany items and making such adjustments as required by GAAP; and (b) when used herein with reference to a Subsidiary of a Person, a Subsidiary, the financial statements of which have been or, in accordance with GAAP, are required to be presented together on a Consolidated basis with those of such Person. "Consolidated Net Worth" means the excess of total assets over total liabilities and reserves of a Person and its Consolidated Subsidiaries, computed on a Consolidated basis in accordance with GAAP consistently applied. "Consolidated Tangible Net Worth" means, with respect to any Person, such Person's Consolidated Net Worth, less: (a) Goodwill (including the unallocated excess purchase cost of assets acquired in a transaction accounted for as a purchase over the aggregate fair market value thereof on the date of acquisition), patents, trademarks, trade names, copyrights, franchises, deferred charges, (including unamortized debt discount and expense, deferred research and development expenses and organizational costs), treasury stock and all other items that would be treated as intangible assets under GAAP; and (b) Any write-up of the book value of any asset of such Person or any of its Consolidated Subsidiaries other than a write-up in accordance with GAAP of assets of a Subsidiary of such Person in connection with the acquisition of such Subsidiary by such Person. "Consolidated Total Liabilities" means the excess of (a) total assets of a Person and its Consolidated Subsidiaries, over (b) Consolidated Net Worth, computed on a Consolidated basis in accordance with GAAP consistently applied. "Conversion Date" means any date specified on which Borrower elects to convert an Advance of any type to an Advance of another type. "Current Assets" means, as to any Person, the aggregate book value of all assets which would be classified as current assets of such Person in accordance with GAAP after making adequate reserves in each case where a reserve is proper in accordance with GAAP. "Current Liabilities" means, as to any Person, all Indebtedness of such Person maturing on demand or within one (1) year after the date on which such determination is made and all other items (including estimated accrued taxes) which would be classified as current liabilities in accordance with GAAP. "Default" means an event, which with notice or lapse of time or both, would become an Event of Default. "Deposit Account" means Borrower's checking account at the Bank. "Dollars" and the sign "$" shall mean the lawful money of the United States of America. "ERISA" means the Employee Retirement Income Security Act of 1974 and all the rules and regulations promulgated pursuant thereto, as amended from time to time. "ERISA Event" means, as to any Person, (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for thirty (30)-day notice to the PBGC under such regulations); or (b) the withdrawal of such Person or any member of its controlled group from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; or (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA; or (d) the institution of proceedings to terminate a Plan by the PBGC; or (e) a transaction that occurs on or after April 7, 1986 and that is reasonably likely to be subject to Section 4060 of ERISA without regard to the termination date, if any, of any former Plan; or (f) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or to result in the imposition of any liability under Title IV of ERISA. "Eurocurrency Liabilities" has the meaning ascribed to such term in Regulation D of the Federal Reserve Board, as in effect from time to time. "Eurodollar Rate" means, for each Interest Period for a Eurodollar Rate Advance, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) determined pursuant to the following formula: Eurodollar Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means, for each Interest Period in respect of a Eurodollar Rate Advance, the maximum reserve percentage in effect on the date LIBOR for such Interest Period is determined under regulations (whether or not applicable to Bank) issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period; and "LIBOR" means, for each Interest Period in respect of a Eurodollar Rate Advance, the rate of interest determined and quoted by the Bank to be the rate of interest at which Dollar deposits for such Interest Period, and in an amount approximately equal to the principal amount of the Eurodollar Rate Advance to be made or maintained by the Bank during such Interest Period would be offered to major banks in the London interbank market at their request at or about 11:00 A.M. (London time) two (2) Business Days prior to the commencement of such Interest Period. "Eurodollar Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to the Eurodollar Rate. "Event of Default" means any event set forth in Section 6 hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on over night Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such date, as published for such date (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of Chicago, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11:00 a.m. (Indianapolis time) on such day on such transactions received by the Bank from three (3) Federal funds brokers of recognized standing selected by the Bank in its sole discretion. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereof. "Floating Rate" means, for any day, a rate of interest per annum equal to the greater of (a) the Base Rate for such day minus 50 basis points or (b) the Federal Funds Effective Rate for such day plus 100 basis points. "Floating Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to the Floating Rate. "Fiscal Year" means a year commencing December 1 and ending November 30. "Fixed Assets" means land, buildings, property and equipment. "GAAP" means generally accepted accounting principles in the United States of America from time to time as promulgated by the Financial Standards Accounting Board and recognized and interpreted by the American Institute of Certified Public Accountants; provided, however, that in the determination of the Borrower's compliance with Sections 5.5 through 5.8 hereof, the effect of FASB 106 shall be disregarded. "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material defined as such in or for the purpose of the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order, decree or other requirement of any governmental authority regulating, relating to, or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste or material, as now or at any time hereafter in effect. "Indebtedness" means as to any Person (a) all indebtedness or other obligations of a Person for borrowed money or for the deferred purchase price of property or services; (b) all indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services, the payment or collection of which the subject Person has guaranteed (except by reason of endorsement for collection in the ordinary course of business) or in respect of which the subject Person is liable, contingently or otherwise, including, without limitation, liability by way of agreement to purchase, to provide funds for payment, to supply funds to or otherwise to invest in such other Person, or otherwise to assure a creditor against loss; (c) all indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon or in property owned by the subject Person, whether or not the subject Person has assumed or become liable for the payment of such indebtedness or obligations; and (d) capitalized lease obligations of such Person. "Interest Period" means: (a) With respect to each Eurodollar Rate Advance, the period commencing on the Business Day such Advance is disbursed or on the Conversion Date on which an Advance is converted to such Eurodollar Rate Advance and ending either on the date thirty (30), sixty (60), ninety (90), one hundred twenty (120) or one hundred eighty (180) days thereafter, as selected by Borrower pursuant to Section 2.5 hereof; provided, however, that: (i) In the case of the continuation of a Eurodollar Rate Advance, the Interest Period applicable after the continuation of such Advance shall commence on the last day of the preceding Interest Period; and (ii) Any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; and (b) With respect to each Negotiated Rate Advance, the period commencing on the Business Day such Advance is disbursed and ending on the date specified in the Request for such Negotiated Rate Advance. "Interest Period Payment Date" means the first day of each calendar month. "Investment" means (a) any loan, advance, guarantee, extension of credit (other than in the ordinary course of business to trade customers) or contribution of capital to any Person or the purchase of any Persons' notes, stock, bonds or other securities; (b) advances to employees of a Person other than advances for the purpose of defraying travel, relocation or business expenses in the ordinary course of business; and (c) any capital, property, or services contributed or committed to be contributed to a Person in connection with the purchase of debt, equity or other ownership interest. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to provide any of the foregoing), any conditional sale or other title retention agreement or any lease in the nature thereof, or any filing or agreement to file a financing statement as debtor on any property leased under a lease which is not in the nature of a conditional sale or title retention agreement. "Loan Documents" means, collectively, this Agreement, the Note and each other document now or hereafter executed by the Borrower in favor of the Bank governing, evidencing or otherwise related to the Obligations. "Loans" means the revolving loans made by the Bank to the Borrower from time to time pursuant to Section 2.1 hereof in the maximum aggregate principal amount of $15,000,000 in accordance with the Commitment, including any extensions or renewals thereof. "Negotiated Rate" means a fixed rate per annum which is offered to Borrower by the Bank in its sole discretion and which is accepted by Borrower. "Negotiated Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to a Negotiated Rate. "Note" means the Revolving Credit Note in the form attached hereto as Exhibit A in the maximum aggregate principal amount of $15,000,000 (or so much thereof as may be advanced or outstanding from time to time) executed by the Borrower in favor of the Bank. "Obligations" means all obligations, indebtedness and liabilities of Borrower under the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation created under Section 4002(a) of ERISA or any successor thereto. "Permitted Liens" means: (a) Liens (i) for taxes not yet due or (ii) which are being actively contested in good faith by appropriate proceedings (in a manner sufficient to prevent enforcement of the matter under contest) as to which adequate reserves have been set aside in an amount determined in accordance with GAAP; (b) Liens incidental to the conduct of the business of the Borrower and its Consolidated Subsidiaries or the ownership of their respective owned properties and assets which were not incurred in connection with the incurring of Indebtedness, and which do not materially detract from the value of such property or assets or impair the use thereof in the operation of the Borrower's or such Subsidiaries' business; (c) Liens on property or assets of a Subsidiary of the Borrower to secure obligations of such Subsidiary to the Borrower or another Subsidiary of the Borrower; (d) Liens on the properties and assets acquired by the Borrower or of any Subsidiary of the Borrower subsequent to the date hereof, which Liens pre-exist the date of such acquisition; (e) Liens on properties or assets of the Borrower and its Consolidated Subsidiaries, which properties and assets do not exceed Ten Percent (10%) of the total tangible assets of the Borrower and its Consolidated Subsidiaries; and (f) As set forth on Schedule 1 hereto. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a governmental or political subdivision or an agent or instrumentality thereof. "Plan" means any defined benefit plan maintained or contributed to by Borrower or any of its Subsidiaries or by any trade or business (whether or not incorporated) under common control with Borrower or any of its Subsidiaries as defined in Section 4001(b) of ERISA and insured by the PBGC under Title IV of ERISA. "Regulatory Change" shall have the meaning ascribed in Section 2.10. "Reportable Event" shall be as defined in ERISA. "Request" shall have the meaning ascribed in Section 2.5 hereof. "Subsidiary" of a Person means any corporation of which such Person owns or otherwise controls, directly or indirectly, more than 50% of the total voting securities thereof, and shall include any such corporation which becomes a Subsidiary of such Person after the date hereof. "Termination Date" means July 1, 1996. "Wholly-Owned Subsidiary" means a Consolidated Subsidiary of a Person, 100% of the voting securities of which is owned or controlled by such Person. 1.2 Accounting Terms. All accounting terms used herein and not used herein and not expressly defined herein shall (unless otherwise expressly indicated) have the respective meanings given to them in accordance with GAAP. All financial computations made under this Agreement for the purpose of determining compliance with the financial requirements of this Agreement shall be made on a Consolidated basis and shall be made, and all financial information required under this Agreement shall be prepared, in accordance with GAAP consistently applied. In determining the value of assets, Investments in Persons other than Consolidated Subsidiaries shall be determined on the basis of the lesser of cost or the book value of such Person on the date of determination. 1.3 Other Definitions; Singular and Plural. The terms defined in the preamble of this Agreement and used herein shall have the meanings ascribed in the preamble hereof. Use of the terms "herein", "hereof", and "hereunder" shall be deemed references to this Agreement in its entirety and not to the Section or clause in which such term appears. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. SECTION 2 Credit 2.1 Commitments. Subject to the terms and conditions hereof, the Bank agrees to make Loans to the Borrower from time to time during the Commitment Period in a principal amount not in excess of the unborrowed portion of the Commitment on the borrowing date. During the Commitment Period, the Borrower may use the Commitment by borrowing, prepaying the Loans, in whole or in part, and reborrowing, all subject to, and in accordance with, the terms and conditions hereof. The Loans shall be evidenced by the Note. 2.2 Interest. Prior to maturity or the occurrence of an Event of Default, the principal amount of the Loans shall bear interest at the election of the Borrower at any of the following rates (a) a per annum rate equal to the Eurodollar Rate, plus the Applicable Margin; (b) at a per annum rate equal to the Floating Rate; or (c) at a Negotiated Rate. After maturity or the occurrence of an Event of Default, interest shall be calculated in accordance with Section 2.9 2.3 Payments of Principal and Interest. Interest only on the outstanding Advances of the Loans from time to time shall be due and payable on the Interest Period Payment Date throughout the term of the Commitment Period. Unless sooner paid, the Borrower shall make principal payments in an amount sufficient that the outstanding principal balance of the Loans shall not exceed the Commitment. Unless the Loans are sooner paid by the Borrower or extended by the Bank in its sole discretion, the entire principal balance of the Loans, together with all accrued and unpaid interest thereon, and all fees and charges payable in connection therewith, shall be due and payable on July 1, 1996. 2.4 Use of Proceeds. The proceeds of the Loans shall be used to fund the general working capital of the Borrower and its Subsidiaries (including, but not limited to, the construction or purchase of Fixed Assets) and for acquisition purposes. 2.5 Method of Advance. Subject to the provisions of Section 2.1: (a) Advances of the Loans shall be made available to Borrower prior to the Termination Date, provided the Bank receives, at the time and in accordance with the terms of this Section, a request ("Request") specifying the amount of the Advance, the interest rate election of Borrower related thereto and, if appropriate, the Interest Period related thereto. Requests may be made by telephone, and the Bank may rely, without further inquiry, on such telephonic Requests as the act of Borrower through an authorized representative; provided, however, that the Bank may require telephonic or other oral requests to be followed immediately by a written Request. Notwithstanding anything to the contrary contained in the definition of "Interest Period", the Borrower may not select an Interest Period with respect to any Advance which ends after the Termination Date. (b) Each Request shall constitute a representation and warranty by the Borrower that no Default or Event of Default has occurred and is continuing or would result from the making of the requested Advance and that the requested Advance shall not cause the principal balance of the Loans to exceed the Commitment. (c) Each Request, which shall be irrevocable once received, must be received by the Bank not later than 11:00 A.M. (Indianapolis time), (i) on the date such Advance is to be made, if such Advance is to be made as a Negotiated Rate Advance or a Floating Rate Advance, and (ii) three (3) Business Days prior to the date such Advance is to be made, if such Advance is to be an Eurodollar Rate Advance. Prior to 11:00 A.M. (Indianapolis time) on the second (2nd) Business Day prior to the date such Advance is to be made, the Bank will, through designated employees, quote the Eurodollar Rate. The Borrower shall then have until 1:00 P.M. (Indianapolis time) on that same Business Day of the quote by the Bank to execute its option to elect the Eurodollar Rate. (d) All Advances shall be in a minimum amount of $1,000,000 and integral multiples of $100,000 and shall be made by credit to the Deposit Account. (e) All notices (including Requests) made by Borrower to the Bank and received by the Bank after 11:00 A.M. (Indianapolis time) (or such other time as is specified in any Section hereof) on a Business Day shall be deemed received on the next succeeding Business Day. (f) If the Borrower fails to give timely notice of its interest rate election pursuant to this Section 2.5, or if the Borrower and the Bank do not agree on a Negotiated Rate, Borrower shall be deemed to have selected the Floating Rate. (g) All Advances by the Bank and payments by the Borrower shall be recorded by the Bank on its books and records, and the principal amount outstanding from time to time, plus interest payable thereon, shall be determined from the books and records of the Bank. The books and records of the Bank shall be presumed prima facie correct as to such matter. Any statement of a the Bank to the Borrower setting forth the Borrower's account regarding the Advances and payments shall be considered true and correct and binding on the Borrower unless the Bank is notified in writing of any discrepancy or exception within thirty (30) days from the date of mailing such monthly statement. Notwithstanding the foregoing, the failure to make, or an error in making, a notation with respect to any Advance shall not limit or otherwise affect the obligation of the Borrower hereunder. 2.6 Conversion of Advances. Borrower may, upon receipt by the Bank of a Request not later than 11:00 A.M. (Indianapolis time) three (3) Business Days prior to the applicable Conversion Date: (a) Elect to convert on any Business Day any Floating Rate Advance into an Advance of any other type; (b) Elect to convert upon expiration of any Interest Period, any Eurodollar Rate Advance or Negotiated Rate Advance maturing at the end of such Interest Period into an Advance of any other type; or (c) Elect to renew, upon expiration of any Interest Period, any Eurodollar Rate Advance maturing at the end of such Interest Period by selecting the duration of the next Interest Period thereof; provided, however, that if any Eurodollar Rate Advance shall have an outstanding principal balance of less than $1,000,000, the Eurodollar Rate Advance subject to renewal shall automatically convert to a Floating Rate Advance and after such date the right of Borrower to continue any such Advance as a Eurodollar Rate Advance shall terminate. If upon the expiration of any Interest Period applicable to a Eurodollar Rate Advance, Borrower has failed to select a new Interest Period to be applicable to such Advance as the case may be, Borrower shall be deemed to have elected to convert such Advance into a Floating Rate Advance effective as of the expiration of the then current Interest Period. Notwithstanding any other provision of this Agreement: (aa) If Borrower desires to convert any Advance to a Eurodollar Rate Advance or continue or renew any Eurodollar Rate Advance at the expiration of an Interest Period, the provisions of Section 2.5(c) shall apply; and (bb) In the event that the Bank determines (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Eurodollar Interest Period at a time when a Eurodollar Rate is requested or when the outstanding balance of Advances under the Loans is being maintained at the Eurodollar Rate, the Bank shall forthwith give notice of such determination, confirmed in writing, to the Borrower (if such confirmation is requested by the Borrower), whereupon the selection of an Eurodollar Rate shall be prohibited, and if the Borrower and the Bank are unable to agree on a Negotiated Rate, the outstanding principal balance of Advances under the Loans then bearing interest at the Eurodollar Rate shall be converted, on the last day of the then current Eurodollar Interest Period, to the Floating Rate. 2.7 Method of Payment. All payments of principal and interest on the Note shall be made without setoff or counterclaim by the Borrower to the Bank at its main office in Indianapolis, Indiana, by 11:30 A.M. (Indianapolis time) on the date when due. All sums received after such time shall be deemed received on the next Business Day. Any payment due on a day that is not a Business Day shall be made on the next Business Day. The Bank is hereby authorized by the Borrower to debit the Deposit Account for each payment of principal or interest under the Loans as it becomes due. All payments with respect to the Loans shall be payable in funds available for the Bank's immediate use at Indianapolis, Indiana, and no payment will be considered to have been made until received in such funds. All payments received on account of any of the Loans will be applied first to the satisfaction of any interest which is then due and payable, and to principal only after all interest which is due and payable has been satisfied. 2.8 Prepayment. The Borrower may prepay any Floating Rate Advance in whole or in any multiple at any time, and from time to time, without notice, premium or penalty. The Borrower may not prepay any Eurodollar Rate Advance or Negotiated Rate Advance at any time prior to the last day of the Interest Period applicable thereto. 2.9 Computations of Interest. All computations of interest and fees under this Agreement shall be made on the basis of a 360-day year and calculated for the actual number of days elapsed. Any change in the rate of interest on any Floating Rate Advance occasioned by a change in the Base Rate or Federal Funds Effective Rate shall be effective on the same day as the change in Base Rate or the Federal Funds Effective rate, as the case may be. Interest shall accrue on any principal balance outstanding from and including the date of disbursement to, but excluding, the date on which such principal balance is repaid. Notwithstanding anything to the contrary herein contained, all principal hereunder not paid when due, whether by lapse of time or by acceleration, shall bear interest after maturity at a per annum rate equal to Two Percent (2%) above the otherwise applicable rate. 2.10 Additional Costs. Borrower shall pay to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate the Bank for any costs incurred by the Bank which the Bank determines is attributable to its making or maintaining any Eurodollar Rate Advance hereunder or its obligation to make any Advance hereunder, or any reduction in any amount receivable by the Bank under this Agreement or the Note in respect of any such Advance or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs") resulting from any change after the date of this Agreement in federal, state, municipal, or foreign laws or regulations (including Regulation D of the Federal Reserve Board) or the adoption or making after such date of any interpretations, directives, or requirements applying to a class of banks including the Bank of or under any federal, state, municipal, or foreign laws or regulations (whether or not having the force of law) by any court or governmental authority charged with the administration thereof ("Regulatory Change"), which: (a) changes the basis of taxation of any amounts payable to the Bank under this Agreement in respect of any Advance (other than taxes imposed on the overall net income of the Bank); or (b) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of the Bank; or (c) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities). The Bank will notify Borrower of any event occurring after the date of this Agreement which will entitle the Bank to compensation under this Section 2.10 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Determinations by the Bank for the purposes of this Section 2.10 of the effect of any Regulatory Change on its cost of making or maintaining any Loan or on amounts receivable by or in respect of any Loan, and of the additional amounts required to compensate Bank in respect of Additional Costs, shall be conclusive, provided that such determinations are made on a reasonable basis and the Bank provides Borrower with its calculations of Additional Costs. 2.11 Commitment Fee. Borrower shall pay to the Bank a commitment fee equal to three-sixteenths (3/16) of one percent (1%) per annum on the maximum amount of the Commitment, which fee shall be due and payable quarterly in advance, within fifteen (15) days of receipt by the Borrower of an invoice therefor. 2.12 Reductions of Revolving Credit Commitment. The Borrower shall have the right to terminate or reduce the aggregate amount of the Commitment at any time or from time to time, provided that (a) the Borrower shall give notice of each such termination or reduction in the manner provided in Section 7.1; (b) each partial reduction shall be in an aggregate amount at least equal to $1,000,000 and integral multiples of $100,000; (c) the aggregate Commitment shall not be reduced to an amount less than the outstanding principal balance of the Revolving Credit Loans; and (d) the Commitment once terminated or reduced may not be reinstated without the prior written approval of the Bank. SECTION 3 Conditions Precedent 3.1 Conditions Precedent to the Initial Advance of the Loan. In addition to the requirements set forth in Section 3.2, the obligations of the Bank to make the initial Advance is subject to the condition precedent that the following shall have been delivered to the Bank in form and substance satisfactory to the Bank: (a) Organic Documents. A copy of the articles of incorporation and by-laws, including all amendments thereto, of Borrower, certified by the Secretary or an Assistant Secretary as being in full force and effect on the date hereof. (b) Corporate Resolutions. Copies of resolutions passed by the Board of Directors of Borrower, certified by the Secretary or Assistant Secretary of Borrower, as applicable, as being in full force and effect on the date hereof. (c) Loan Documents. The Loan Documents duly executed by Borrower. (d) Certificate of Existence. A Certificate of Existence or Good Standing for Borrower in the jurisdiction of its incorporation certified by the Secretary of State or other appropriate official of such jurisdictions. (e) Opinion of Counsel. The favorable written opinion of counsel to Borrower, dated as of the date hereof, substantially in the form and of the substance attached hereto as Exhibit B. (f) Other Evidence Bank May Require. Such other documents or evidence as the Bank may reasonably request in writing in order to consummate the transactions contemplated hereby or to evidence the taking of all necessary actions in any proceedings in connection herewith and compliance with the conditions set forth in this Agreement. (g) Expenses. Payment of the expenses of the Bank described in Section 7.5 for which Borrower has received proper invoices or requests for payment. 3.2 Conditions to Subsequent Advances. The obligations of the Bank to make any Advance after the date hereof is subject to the following conditions precedent: (a) The representations and warranties contained in Section 4 shall be true and correct and no Default or Event of Default shall have occurred and be continuing; (b) The Bank shall have received a Request; (c) All fees, expenses and other amounts due and payable to or for the benefit of the Bank under the Loan Documents shall have been paid; and (d) The aggregate outstanding principal balance of the Loans, after giving effect to the requested Advance, may not exceed the Commitment. SECTION 4 Representations and Warranties Borrower represents and warrants to the Bank on the date hereof, and shall be deemed to have made such representations and warranties to Bank on the date of each Advance hereunder, that: 4.1 Corporate Existence. Borrower and each of its Consolidated Subsidiaries is a corporation duly organized and existing under the laws of the jurisdiction of its incorporation, and is duly qualified as a foreign corporation and is properly licensed and in good standing in each jurisdiction where the failure to qualify or be licensed would have a material adverse effect on its business, properties or conditions (financial or otherwise). 4.2 Corporate Powers. The execution, delivery and performance of the Loan Documents by Borrower are within Borrower's corporate powers, have been duly authorized by all requisite corporate action, and are not in conflict with the terms of any charter, by-laws or other organization papers of Borrower, or any instrument or agreement to which Borrower is a party or by which Borrower is bound or affected. 4.3 Power of Officers. The officers of Borrower executing the Loan Documents and any certificate, instrument or agreement required to be delivered by Borrower thereunder have been duly elected or appointed and were fully authorized to execute the same at the time such agreement, certificate or instrument was executed. 4.4 Government and Other Approvals. No approval, consent, exemption or other action by, notice to or filing with, any governmental authority which has not been obtained is necessary in connection with the execution, delivery or performance by Borrower of the Loan Documents. 4.5 Compliance with Laws; Environmental Matters. To the best of Borrower's knowledge, there is no law, rule or regulation, nor is there any judgment, decree or order of any court or governmental authority specifically directed to Borrower or any of its Consolidated Subsidiaries and binding on Borrower or any of its Consolidated Subsidiaries which would be contravened by the execution, delivery or performance of the Loan Documents. Borrower and each of its Consolidated Subsidiaries is in material compliance with all material laws and regulations, including all material requirements of applicable federal, state and local environmental, health and safety statutes and regulations and to the best of Borrower's knowledge, neither it nor any of its Consolidated Subsidiaries, is the subject of any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Material which investigation will result in clean-up costs having a materially adverse effect on the Borrower and its Consolidated subsidiaries, taken as a whole, and for which Borrower, or such Consolidated Subsidiary is not indemnified. 4.6 Enforceability of Agreement. The Loan Documents are legal, valid and binding agreements of Borrower and are enforceable against Borrower in accordance with their respective terms, and any other exhibit, instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable in accordance with its terms. 4.7 Litigation. Except as disclosed in its financial statements, there are no suits, proceedings, claims or disputes pending or, to the knowledge of Borrower, threatened against or affecting Borrower, or any of its Consolidated Subsidiaries or any of their respective properties, which individually or in the aggregate will materially adversely affect the business, properties or condition (financial or otherwise) of the Borrower and its Consolidated Subsidiaries, taken as a whole, or impair Borrower's ability to perform the Obligations. 4.8 Events of Default. No Default or Event of Default has occurred and is continuing or would result from the execution or performance of any Loan Document or the incurring of the Obligations by Borrower. Neither Borrower nor any of its Consolidated Subsidiaries is in violation of, or default under, (a) any charter instrument or by-law, or under any loan agreement or (b) any material agreement or instrument to which it is a party or by which it or its properties are bound. 4.9 Investment Company Act of 1940. Borrower is not an investment company within the meaning of the Investment Company Act of 1940. 4.10 Financial Information. (a) The balance sheets of Borrower dated as of November 30, 1993 and August 31, 1994, and the operating statements for the fiscal periods then ended, (complete and accurate copies of which have been delivered by Borrower to Bank) and all other information and data furnished by Borrower to Bank are complete and correct, and such financial statements have been prepared in accordance with GAAP, consistently applied, and fairly present the Consolidated financial condition of Borrower on November 30, 1993 and August 31, 1994, and the Consolidated results of their operations for the periods then ended, except in the case of the unaudited interim financial statements for normal year end adjustments and the absence of footnote disclosures. (b) Since November 30, 1993, there has not been and Borrower does not know of any development or threatened development (other than general economic conditions) of a nature which may cause any material adverse change in the Consolidated financial condition or operations of Borrower and its Consolidated Subsidiaries, taken as a whole, or sufficient to impair Borrower's ability to repay the Loan and otherwise perform the Obligations in accordance with the terms of the Loan Documents. 4.11 ERISA. Except as previously disclosed to the Bank, no fact or circumstance, including but not limited to any Reportable Event, exists in connection with any Plan of Borrower, or any of its Consolidated Subsidiaries which would constitute grounds for the termination of any such plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan and which would result in the termination of a Plan and the incurrence of material liability by the beneficiaries or a trustee under ERISA. For the purposes of this Section 4.11, Borrower, if it is not the Plan administrator, shall be deemed to have knowledge of all facts attributable to the Plan administrator designated pursuant to ERISA. 4.12 Full Disclosure. To the knowledge of the Borrower, no information, exhibit, memorandum, or report furnished by the Borrower to the Bank in connection with the negotiation of the Loans contains any material misstatement of fact or omits to state any fact necessary to make the statements contained therein not materially misleading. SECTION 5 Covenants Borrower covenants that until all Obligations have been paid in full it will (and will cause its Subsidiaries to), unless otherwise agreed by the Bank: 5.1 Use of Proceeds. Use Advances solely for the purposes provided for herein. 5.2 Maintain Existence, Etc. Maintain its existence; maintain in good order its licenses, properties, insurance and books; pay when due taxes, trade accounts and other obligations; comply with law; and generally conduct its affairs in accordance with standard industry practices. 5.3 Financial Statements, Etc. During the term of the Loans, Borrower shall furnish to the Bank: (a) Within sixty (60) days after the end of each fiscal quarter, a balance sheet and operating statement of Borrower prepared on a Consolidated and consolidating basis and in accordance with GAAP consistently applied and accompanied by a Compliance Certificate completed and signed by the chief financial officer of Borrower certifying, among other things, that there exists no Default or Event of Default under the Loan Documents or, if a Default or Event of Default exists, stating the nature and status thereof; (b) Within one hundred twenty (120) days after the end of each of Borrower's Fiscal Years, a balance sheet and operating statement and statement of cash flows certified by an independent certified public accountant satisfactory to Bank (provided that any "Big Six" accounting firm shall be deemed satisfactory to the Bank); such financial statements to be prepared on a Consolidated basis in accordance with GAAP applied on a basis consistent with prior practice unless otherwise specifically noted thereon, accompanied by (i) unaudited consolidating balance sheets and operating statements of Borrower and each of its Consolidated Subsidiaries, (ii) a detailed letter from the chief financial officer of the Borrower which analyzes the results of operations for the period covered by such financial statements, and (iii) a Compliance Certificate completed and signed by the chief financial officer of Borrower certifying, among other things, that there exists no Default or Event of Default under the Loan Documents or, if a Default or Event of Default exists, stating the nature and status thereof; and (c) As soon as possible, but in any event within ten (10) days after the filing with the Securities and Exchange Commission, or any successor thereto, or any state securities regulatory authority, copies of all registration statements and all periodic and special reports required or permitted to be filed under federal or state securities laws and regulations. 5.4 Adequate Books. Permit representatives of the Bank, at any reasonable time and upon reasonable prior notice, to inspect its properties, to examine its inventory, books, and accounts, and to discuss its finances and affairs with its accountants (and by these provisions Borrower authorizes such accountants to discuss with the Bank the finances and affairs of Borrower). 5.5 Leverage Ratio. Maintain a ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth of not more than (a) 3.0 to 1.0 as at the end of each fiscal quarter ending on and after November 30, 1994 through August 31, 1995; and (b) 2.0 to 1.0 as at November 30, 1995 and as at the end of each fiscal quarter ending thereafter. 5.6 Current Ratio. Maintain a ratio of Consolidated Current Assets to Consolidated Current Liabilities of not less than 1.50 to 1.00 as at the end of each fiscal quarter. 5.7 Cash Flow Coverage Ratio. Maintain a Cash Flow Coverage Ratio of not less than (a) 1.15 to 1.00 as at the end of each fiscal quarter ending on and after the date hereof through August 31, 1995; and (b) 1.30 to 1.00 as at the end of each fiscal quarter ending thereafter. 5.8 Net Worth. Maintain Consolidated Tangible Net Worth of not less than the sum of (i) $14,000,000, plus (ii) an amount not less than Twenty-Five Percent (25%) of the cumulative reported net profits of the Borrower for all fiscal quarters ending after November 30, 1993, without reduction for any reported net losses incurred during such periods, as at the end of each fiscal quarter ending on or after the date hereof. 5.9 Hazardous Materials. Indemnify and hold harmless the Bank and its respective officers, employees, agents, consultants and affiliates from and against all losses, costs, damages and expenses (including reasonable attorneys' fees and expenses) any such person may sustain in connection with the use, disposal or release of any Hazardous Material or in connection with the existence of any Hazardous Material on or under any of the properties of Borrower or any of its Subsidiaries. 5.10 Mergers, Etc. Not permit Borrower to enter into any consolidation, merger, or other combination, or sell, lease, assign, transfer or otherwise dispose of any assets, whether now owned or hereafter acquired, in a single transaction or in a series of transactions, or enter into any sale and leaseback transactions, other than: (a) the sale of inventory in the ordinary course of business; (b) the disposition of property no longer used or useful in the conduct of its business; (c) any merger in which Borrower is the legal surviving corporation, provided no Default or Event of Default then exists or is occasioned thereby; (d) any merger, consolidation or transfer of the business or assets of any Subsidiary of the Borrower to Borrower or to any Consolidated Subsidiary; and (e) the sale and leaseback, sale or other disposition of assets in an amount not in excess of $20,000,000 in any Fiscal Year. 5.11 Liens. Not create, assume or suffer to exist any Lien on any of its properties or assets, whether now owned or hereafter acquired, except Permitted Liens. 5.12 Notice of Default. Immediately upon the occurrence of any Default or an Event of Default, furnish to the Bank a certificate of Borrower stating the specific nature of the Default or Event of Default, Borrower's intended actions to cure such Default or Event of Default and the time period in which such cure is to occur. 5.13 Indebtedness. Not create, incur or suffer to exist any Indebtedness for the purpose of refinancing a portion of the Loans, except on such terms and conditions as have been subject to the prior written approval of the Bank. 5.14 Insurance. Maintain in full force and effect adequate insurance in amounts and against liabilities consistent with sound business practices and with reputable insurers and upon terms acceptable to the Bank. 5.15 No Material Adverse Change. Not permit any event to occur or condition to exist which has a materially adverse effect upon business, operations, financial condition, properties or prospects of the Borrower or its Consolidated Subsidiaries, taken as a whole. 5.16 Margin Rules. Not use the Advances in any manner that would violate Regulation G, T, U or X of the Federal Reserve Board. SECTION 6 Default and Remedy 6.1 Events of Default. The occurrence of any of the following events shall be an Event of Default hereunder: 6.1.1 Nonpayment. Borrower fails to pay when due any installment of principal or interest or any other sum due under the Loan Documents and such failure continues for ten (10) Business Days thereafter. 6.1.2 Representation or Warranty. Any written represen-tation or warranty in any of the Loan Documents proves to have been materially false or misleading in any material respect when made. 6.1.3 Other Defaults. Borrower fails to perform or observe any of the other covenants or agreements contained in the Loan Documents, and such failure, if capable of being remedied, continues unremedied for a period of thirty (30) days after written notice thereof from the Bank. 6.1.4 Voluntary Bankruptcy. Borrower or any one or more of its Wholly-Owned Subsidiaries which, in the aggregate, have Twenty-Five Percent (25%) or more of the Consolidated total assets of the Borrower fails to pay or admits in writing its or their inability to pay debts as they come due, or files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other similar law for the relief of, or relating to, debtors, or applies for or consents to a receiver, trustee or custodian for it or a substantial portion of its property, or makes a general assignment for the benefit of creditors. 6.1.5 Involuntary Bankruptcy. An involuntary petition is filed under any bankruptcy or similar statute against Borrower or any one or more of its Wholly-Owned Subsidiaries which, in the aggregate, have Twenty-Five Percent (25%) or more of the Consolidated total assets of the Borrower, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of the properties of Borrower or any such Consolidated Subsidiary unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of such filing or appointment. 6.1.6 Cross Default. Any material breach or default shall have occurred (after giving effect to any applicable cure period or waiver) under any other agreement between Borrower, or any Consolidated Subsidiary and any bank, or under any other material agreement pursuant to which Borrower, or any of its Consolidated Subsidiaries may be obligated in an amount in excess of $1,000,000 as a borrower, guarantor or lessee (including, without limitation, any Indebtedness incurred to refinance any portion of the Loans), if such default consists of the failure by such borrower, guarantor or lessee to pay Indebtedness when due and, following any applicable cure period, permits the holder or any trustee thereof to cause the acceleration of such Indebtedness or the termination of any commitment to lend or permits a lessor to terminate the applicable lease. 6.1.7 Adverse Judgments. Any one or more judgments or orders for payment of money in an aggregate amount exceeding $1,000,000 shall be rendered against the Borrower and/or any of its Consolidated Subsidiaries and either (a) such judgment or order shall remain unsatisfied and the Borrower and/or its Consolidated Subsidiary shall not have taken action necessary to stay enforcement thereof prior to the expiration of the applicable period of limitations for taking such action or (b) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order. 6.2 Remedy. If any Event of Default described in Sections 6.1.4 and 6.1.5 occurs, the Commitment shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Bank. If any other Event of Default occurs, the Bank may terminate the Commitment and declare the Obligations to be due and payable, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which Borrower hereby expressly waives. Upon the occurrence of an Event of Default, the Bank may immediately proceed to exercise all remedies available to it under the Loan Documents or otherwise under applicable law. SECTION 7 Miscellaneous 7.1 Notices. Any communications between the parties hereto or notices or requests provided herein to be given may be given by mailing the same, first class postage prepaid, or by telex or electronic transmission to each party at its address set forth on the signature pages hereto (with a copy to each address indicated for notices), or to such other address as any party may in writing hereafter indicate to the other. Notices shall be effective on the date sent by electronic transmission and telex and three (3) Business Days after the date sent by U.S. mail. 7.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns; provided, however, that Borrower shall not assign this Agreement or any of its rights hereunder without the prior written consent of the Bank. 7.3 Participation and Assignments. The Bank may participate, sell, transfer or assign its rights and obligations under this Agreement to an entity Affiliate of the Bank without the prior written consent of the Borrower and to any other Person with the prior written consent of the Borrower, which consent shall not be unreasonably withheld or delayed; provided, however, that no prior consent of the Borrower shall be required at any time during which a Default or Event of Default shall have occurred and be continuing. Any participant purchasing such a participation shall have all rights of the Bank pursuant to this Agreement, and the Bank may provide such participant with credit information received by such Bank from Borrower or any Subsidiary which is otherwise publicly available. Borrower agrees that any participant permitted or consented to under this Section 7.3 shall at any time during the pendency of an Event of Default have the right to set off any Obligations not paid when due against any accounts or other assets of Borrower held by, on deposit with, or in the possession of, such participant. The Bank will use its best efforts to cause such participant to grant to Borrower the right to set off, appropriate and apply against that portion of the Obligations then owned by such other participant any monies, securities and other property of Borrower now or hereafter held or received by, or in transit to, such participant in the event such participant becomes involved in any voluntary insolvency, bankruptcy or receivership proceedings, or in any involuntary proceedings of such nature or comes under the management or control of any governmental or private deposit insurer. In no event shall the insolvency, bankruptcy or receivership of a participant grant to Borrower the right of set off against the Bank, including any other participant. 7.4 Amendments and Waivers. No delay or omission by the Bank to exercise any right under this Agreement shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Agreement shall be deemed a waiver of any other breach or default. Any waiver, modification, amendment, consent or approval relating to the Loan Documents, must be in writing to be effective and must be signed by or on behalf of the Bank. 7.5 Costs and Expenses. Borrower agrees to pay on demand to the Bank all reasonable costs and expenses incurred by the Bank including, without limitation, reasonable attorneys' and consultants' fees (a) in connection with the enforcement of the Loan Documents or in connection with any proposed refinancing or restructuring of the credit provided in this Agreement, and (b) for all stamp, registration and other duties to which any Loan Document may be subject. Borrower further agrees to pay or to reimburse the Bank upon demand for its reasonable attorneys' fees and other reasonable expenses incurred in connection with preparing, drafting and negotiating any amendments, consents, or waivers hereto requested by Borrower. Borrower shall indemnify the Bank against any and all liabilities and penalties resulting from any delay in payment, or failure to pay, any such duties referenced above upon written notice from the Bank that such amounts have been assessed. 7.6 Entire Agreement. The Loan Documents integrate all the terms and conditions mentioned herein or incidental hereto, and supersede all oral negotiations and prior writings in respect to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and the other Loan Documents, the provisions of this Agreement shall control. 7.7 Governing Law. This Agreement and all other Loan Documents executed in connection herewith shall be governed by and construed in accordance with the laws of the State of Indiana. 7.8 Section Headings. Section headings are for reference only, and shall not affect the interpretation of meanings of any provision of this Agreement. 7.9 Severability. The illegality or unenforceability of any provision of any Loan Document shall not in any way affect or impair the legality or enforceability of the remaining provisions of such Loan Document or any other Loan Document. 7.10 Indemnity. Borrower hereby agrees to indemnify, protect and hold harmless the Bank and its officers, directors, agents, employees, attorneys and shareholders ("Indemnified Persons") from and against all reasonable costs and expenses (including, without limitation, the reasonable cost of counsel), and all actions, claims (whether made or threatened), suits, liabilities, damages and losses incurred by or imposed on any Indemnified Persons in connection with or as a result of the execution, delivery and performance of the Loan Documents and the use of the proceeds thereunder, provided, however, that such indemnity shall not apply to any action by Borrower against a Bank; and provided, further, that the foregoing provision shall not be deemed to limit the provisions of Section 7.5 hereof. Notwithstanding anything to the contrary in this Section 7.10, Borrower shall not be obligated to indemnify any Indemnified Person for any losses, claims, damages, liabilities and expenses incurred by such Indemnified Person which have finally been determined to have resulted from the gross negligence or willful misconduct on the part of such Indemnified Person. Without limiting the generality of the foregoing, such indemnity shall extend to any and all reasonable costs and expenses whatsoever incurred by the Indemnified Persons (including, without limitation, the reasonable cost of counsel, whether staff counsel or otherwise and whether allocated or out-of-pocket) in connection with investigating, preparing for or defending against or providing evidence, producing documents or taking any action with respect to any such action, claim (whether made or threatened and whether or not such Indemnified Person is a party to such action or claim), suit, liability, damage or loss, whether or not resulting in any liability. The Indemnified Person may select its own legal counsel in connection with any matters indemnified against hereunder. This indemnity shall survive the execution, delivery and consummation of the transactions contemplated by this Agreement. Payment by Borrower in respect to an undisputed claim made by an Indemnified Person pursuant to this Section shall be made within thirty (30) days after demand therefor; otherwise, promptly upon resolution of such dispute. 7.11 JURY TRIAL WAIVER. THE BANK AND THE BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR RISING OUT OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS BETWEEN THEM CONTEMPLATED BY THE LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM. NEITHER SHALL THE BANK NOR THE BORROWER SEEK TO CONSOLIDATE, BY COUNTER-CLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THIS SECTION 7.11 SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANK NOR THE BORROWER EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date and year first above written. "BORROWER" LILLY INDUSTRIES, INC. Attest: By: /s/ Roman J. Klusas ----------------------- Roman J. Klusas, Vice President, Chief /s/ Kenneth L. Mills Financial Officer ----------------------------- and Secretary Kenneth L. Mills, Director of Corporate Accounting and Assistant Secretary Address: 733 South West Street Indianapolis, IN 46225 Attn: Vice President, Chief Financial Officer and Secretary Telephone: (317) 687-6702 Telecopier: (317) 687-6710 "BANK" NBD BANK, N.A. By: /s/ Thomas F. Bareford Title: Vice President Address: One Indiana Square, #460 Indianapolis, IN 46266 Attn: Thomas F. Bareford Telephone: (317) 266-6430 Telecopier: (317) 266-6042 Schedule 1 Immaterial leases of furniture, fixtures and equipment. EXHIBIT A REVOLVING CREDIT NOTE $15,000,000.00 Indianapolis, Indiana January ____, 1995 FOR VALUE RECEIVED, on or before July 1, 1996 (subject to acceleration, extension or prepayment), LILLY INDUSTRIES, INC., an Indiana corporation ("Borrower"), hereby promises to pay to the order of NBD BANK, N.A., a national banking association (the "Bank"), or its assigns, at the main office of the Bank at Indianapolis, Indiana, or at such other place as the holder hereof may designate in writing, in lawful money of the United States of America, the principal sum of Fifteen Million Dollars ($15,000,000), or so much thereof as may be advanced and outstanding from time to time, together with (a) interest on the unpaid principal balance existing from time to time at the rates set forth in Section 2.2 of the Agreement (as hereinafter defined) prior to maturity and while and so long as there exists no uncured Event of Default, and (b) interest after maturity, whether by acceleration or otherwise, or during any period while there exists any uncured Event of Default at a per annum rate equal to two percent (2%) above the otherwise applicable rate. Such interest shall be paid on actual daily balances of outstanding principal for the exact number of days such principal remains outstanding and shall be computed on the basis of a three hundred sixty (360) day year. Any change in the rate of interest on any Floating Rate Advance occasioned by a change in the Floating Rate shall be effective on the same day as the change in Floating Rate. Principal and interest under this Note shall be payable as follows: 1. Interest only on the outstanding principal balance shall be due and payable on the first day of each month, commencing on the first day of the month following the initial Advance; 2. From time to time, the Borrower shall pay installments of principal in an amount sufficient that the outstanding principal balance of this Note shall not exceed the Bank's commitment; and 3. Unless extended by the Bank or sooner paid by the Borrower, the entire unpaid balance of principal, and all accrued and unpaid interest thereon, shall be due and payable on July 1, 1996. If any installment of principal or interest under this Note is payable on a day other than a Business Day, the maturity of such installment shall be extended to the next succeeding Business Day, and interest shall be payable during such extension of maturity. Subject to the terms of the Agreement, the Borrower may borrow, pay, reborrow and repay the principal amount of this Note at any time and from time to time. This Note is referred to in, and is entitled to the benefit of, a certain Revolving Credit Agreement [1995] executed between Borrower and NBD Bank, N.A. of even date (as the same may be amended from time to time, the "Agreement"). Advances under this Note shall be made in accordance with the Agreement. The Agreement, among other things, contains a definition of the capitalized terms used herein and provisions for acceleration of the maturity hereof upon the happening of certain stated events. If Borrower fails to make the payment of any installment of principal or interest, as herein provided, when due, or fails in the performance of any of the terms, agreements, covenants or conditions contained in the Agreement beyond any applicable grace period set forth therein, then in any of such events, or at any time thereafter, the entire principal balance of this Note, and all accrued and unpaid interest thereon, irrespective of the maturity date specified herein, together with reasonable attorneys' fees and other costs incurred in collecting or enforcing payment or performance hereof and with interest from the date of the Event of Default on the unpaid principal balance hereof at the default rate hereinabove specified, shall, at the election of the holder hereof, and without relief from valuation and appraisement laws, become immediately due and payable. The Borrower and all endorsers, guarantors, sureties, accommodation parties hereof and all other parties liable or to become liable for all or any part of this indebtedness, severally waive demand, presentment for payment, notice of dishonor, protest and notice of protest and expressly agree that this Note and any payment coming due under it may be extended or otherwise modified from time to time without in any way affecting their liability hereunder. This Note shall be construed according to and governed by the laws of the State of Indiana. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly authorized officers as of the date and year first hereinabove written. LILLY INDUSTRIES, INC. an Indiana corporation By: /s/ Roman J. Klusas ----------------------- Roman J. Klusas, Vice President, Chief Financial Officer and Secretary Attest: /s/ Kenneth L. Mills ----------------------- Kenneth L. Mills, Director of Corporate Accounting and Assistant Secretary EXHIBIT B January 27, 1995 NBD Bank, N.A. One Indiana Square, # 460 Indianapolis, Indiana 46266 Re: Revolving Credit Agreement (1995) of even date between NBD Bank, N.A. (the "Bank") and Lilly Industries, Inc. (the "Borrower") (the "Agreement") Gentlemen: We have acted as special counsel to the Borrower in connection with the transactions contemplated by the above referenced Agreement. Capitalized terms used herein and not specifically herein defined shall have the meanings ascribed to them in the Agreement. In such capacity, and for the purpose of rendering this opinion, we have examined the following: (a) The Agreement; (b) The Revolving Credit Note; and (c) Copies, certified by the Secretary of the Corporation, of the corporate proceedings pursuant to which the execution of the Agreement, and the Revolving Credit Note (collectively, the "Loan Documents") were ratified, approved and authorized. In arriving at the opinions expressed below, we have examined such other documents and have considered such questions of law, as, in our judgment, have been necessary to enable us to render this opinion. With respect to factual matters material to our opinion, we have, when such facts have not been independently established, relied upon certificates of officers of the Borrower, certificates or other information obtained from governmental authorities and such other information as in our judgment is necessary or appropriate to render the opinions expressed below. In rendering the opinions set forth herein we have assumed, with your consent and without any independent inquiry, the following: (i) The genuineness of signatures of the persons executing all instruments, documents, certificates, and/or agreements evidenced by or related to the transactions contemplated by the Loan Documents; (ii) The authority of the persons executing the Loan Documents and all other instruments, documents, certificates and/or agreements related to the transactions contemplated thereby on behalf of the parties thereto (other than the Borrower); (iii) The due authorization by all necessary corporate action of the execution and delivery of the Loan Documents and all instruments, documents, certificates, and/or agreements related to the transactions contemplated thereby on behalf of the parties thereto (other than the Borrower); (iv) The authenticity of all documents submitted to us as originals; and (v) The conformity to authentic original documents of documents submitted to us as certified, conformed or photostatic copies. Based upon the foregoing and subject to the further qualifications and limitations hereinafter set forth, it is our opinion, limited in all respects to the present internal laws of the State of Indiana and the present federal laws of the United States of America, that, insofar as those laws are applicable: 1. The Borrower is a corporation, duly organized and validly existing under and by virtue of the laws of the State of Indiana. The Borrower has taken all necessary corporate action to authorize the execution and delivery of the Loan Documents. 2. The Borrower possesses the requisite corporate power to enter into the Loan Documents and to perform its obligations thereunder. 3. The execution and delivery of the Loan Documents by the Borrower will not violate, breach, contravene, cause a default or result in the imposition of a lien under any provision of the Articles of Incorporation or Bylaws of the Borrower or, to our knowledge, any existing note, bond, mortgage, debenture, indenture, trust, lease, instrument, judgment, order, decree, or other agreement to which the Borrower is a party or by which it or its assets may be bound. 4. The Loan Documents will, upon due execution and delivery by an authorized officer of the Borrower, constitute legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, except as the same may be limited by (i) the United States Bankruptcy Code, (ii) any applicable insolvency, reorganization, moratorium or similar laws of the State of Indiana or the United States relating to or affecting the enforcement of creditors' rights generally, (iii) general principles of equity, and (iv) judicial discretion. 5. To our knowledge, no authorization, consent, approval, registration, license or any form of exemption of any Indiana state or United States federal governmental authority is required in connection with the execution, delivery and performance by the Borrower of its obligations under the Loan Documents. 6. To our knowledge, (i) no litigation or proceeding of any Indiana state or United States federal governmental authority or any other person is presently pending or threatened against the Borrower, nor (ii) has any claim been asserted against the Borrower, which in the case of (i) or (ii) above seeks to enjoin the transactions contemplated by the Loan Documents. Our opinion is subject to the following qualifications: A. The enforceability of the Loan Documents may be limited if the Bank should fail to act in good faith or in a commercially reasonable manner in seeking to exercise rights or remedies thereunder. B. Whenever our opinion with respect to the existence or absence of facts is qualified by the phase "to our knowledge," it is intended to indicate that during the course of our representation of the Borrower no information has come to our attention which would give us actual knowledge of the existence or absence of such facts. Moreover, we have not undertaken any independent investigation to determine the existence or absence of such facts, and any limited inquiries made by us should not be regarded as such an investigation. Any certificates or representations obtained by us form officers of the Borrower with respect to such opinions have been relied upon without any independent verification. C. Whenever we have stated we assumed any matter, it is intended to indicate that we have assumed such matter without making any factual, legal, or other inquiry or investigation, and without expressing any opinion or stating any conclusion of any kind concerning such matter. D. This opinion is furnished to you pursuant to the Loan Documents and is not to be used, circulated, quoted or otherwise referred to for any other purpose. E. This opinion is dated and speaks as of the date of delivery. We have no obligation to advise you or any third parties of any changes in law or fact that may hereafter occur or come to our attention, even though the legal analysis or legal conclusions contained in this opinion letter may be affected by such change. Very truly yours, EX-10.(L) 4 EXHIBIT 10(L) - SOCIETY NATIONAL BANK, INDIANA AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT [1995] EXHIBIT 10(l) AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT [1995] Between LILLY INDUSTRIES, INC. and SOCIETY NATIONAL BANK, INDIANA Dated as of January 27, 1995 TABLE OF CONTENTS Page PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1. Definitions. . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . 1 1.2 Accounting Terms . . . . . . . . . . . . . . . . . . 9 1.3 Other Definitions; Singular and Plural . . . . . . . 9 SECTION 2. Credit . . . . . . . . . . . . . . . . . . . . . . 9 2.1 Commitment; Termination of Prior Revolving Credit Agreement . . . . . . . . . . . . . . . . . 9 2.2 Interest . . . . . . . . . . . . . . . . . . . . . . 10 2.3 Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . 10 2.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . 10 2.5 Method of Advance. . . . . . . . . . . . . . . . . . 10 2.6 Conversion of Advances . . . . . . . . . . . . . . . 11 2.7 Method of Payment. . . . . . . . . . . . . . . . . . 12 2.8 Prepayment . . . . . . . . . . . . . . . . . . . . . 13 2.9 Computations of Interest . . . . . . . . . . . . . . 13 2.10 Additional Costs . . . . . . . . . . . . . . . . . . 13 2.11 Commitment Fees . . . . . . . . . . . . . . . . . . 14 2.12 Reductions of Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . 14 SECTION 3. Conditions Precedent . . . . . . . . . . . . . . . 14 3.1 Conditions Precedent to the Initial Advance of the Loan. . . . . . . . . . . . 14 3.2 Conditions to Subsequent Advances. . . . . . . . . . 15 SECTION 4. Representations and Warranties . . . . . . . . . . 16 4.1 Corporate Existence. . . . . . . . . . . . . . . . . 16 4.2 Corporate Powers . . . . . . . . . . . . . . . . . . 16 4.3 Power of Officers. . . . . . . . . . . . . . . . . . 16 4.4 Government and Other Approvals . . . . . . . . . . . 16 4.5 Compliance with Laws; Environmental Matters. . . . . . . . . . . . . . . 16 4.6 Enforceability of Agreement. . . . . . . . . . . . . 17 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . 17 4.8 Events of Default. . . . . . . . . . . . . . . . . . 17 4.9 Investment Company Act of 1940 . . . . . . . . . . . 17 4.10 Financial Information . . . . . . . . . . . . . . . 17 4.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . 18 4.12 Full Disclosure. . . . . . . . . . . . . . . . . . . 18 - i - Page SECTION 5. Covenants . . . . . . . . . . . . . . . . . . . . 18 5.1 Use of Proceeds . . . . . . . . . . . . . . . . . . 18 5.2 Maintain Existence, Etc.. . . . . . . . . . . . . . 18 5.3 Financial Statements, Etc.. . . . . . . . . . . . . 18 5.4 Adequate Books . . . . . . . . . . . . . . . . . . 19 5.5 Leverage Ratio . . . . . . . . . . . . . . . . . . 19 5.6 Current Ratio . . . . . . . . . . . . . . . . . . . 19 5.7 Cash Flow Coverage Ratio . . . . . . . . . . . . . 20 5.8 Net Worth . . . . . . . . . . . . . . . . . . . . . 20 5.9 Hazardous Materials . . . . . . . . . . . . . . . . 20 5.10 Mergers, Etc. . . . . . . . . . . . . . . . . . . . 20 5.11 Liens . . . . . . . . . . . . . . . . . . . . . . . 20 5.12 Notice of Default . . . . . . . . . . . . . . . . . 20 5.13 Indebtedness. . . . . . . . . . . . . . . . . . . . 21 5.14 Insurance . . . . . . . . . . . . . . . . . . . . . 21 5.15 No Material Adverse Change . . . . . . . . . . . . 21 5.16 Margin Rules. . . . . . . . . . . . . . . . . . . . 21 SECTION 6. Default and Remedy. . . . . . . . . . . . . . . . 21 6.1 Events of Default . . . . . . . . . . . . . . . . . 21 6.1.1 Nonpayment. . . . . . . . . . . . . . . . 21 6.1.2 Representation or Warranty. . . . . . . . 21 6.1.3 Other Defaults. . . . . . . . . . . . . . 21 6.1.4 Voluntary Bankruptcy. . . . . . . . . . . 21 6.1.5 Involuntary Bankruptcy. . . . . . . . . . 22 6.1.6 Cross Default . . . . . . . . . . . . . . 22 6.1.7 Adverse Judgments . . . . . . . . . . . . 22 6.2 Remedy . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 7. Miscellaneous . . . . . . . . . . . . . . . . . . 23 7.1 Notices . . . . . . . . . . . . . . . . . . . . . . 23 7.2 Successors and Assigns. . . . . . . . . . . . . . . 23 7.3 Participation and Assignments . . . . . . . . . . . 23 7.4 Amendments and Waivers. . . . . . . . . . . . . . . 24 7.5 Costs and Expenses. . . . . . . . . . . . . . . . . 24 7.6 Entire Agreement. . . . . . . . . . . . . . . . . . 24 7.7 Governing Law . . . . . . . . . . . . . . . . . . . 24 7.8 Section Headings. . . . . . . . . . . . . . . . . . 24 7.9 Severability . . . . . . . . . . . . . . . . . . . 24 7.10 Indemnity . . . . . . . . . . . . . . . . . . . . . 24 7.11 Jury Trial Waiver . . . . . . . . . . . . . . . . . 25 Schedule 1 Permitted Liens Exhibit A Revolving Credit Note Exhibit B Opinion of Counsel to Borrower - ii - AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Society National Bank, Indiana [1995] THIS AGREEMENT, is made as of the 27th day of January, 1995, between LILLY INDUSTRIES, INC., an Indiana corporation (the "Borrower") and Society National Bank, Indiana, a national banking association (the "Bank"); SECTION 1 Definitions 1.1 Defined Terms. As used herein: "Additional Costs" shall have the meaning ascribed in Section 2.10. "Advance" means a disbursement of proceeds of a Loan. "Affiliate" means, with respect to any Person, any other Person (including, but not limited to, each officer and director of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. (A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.) "Agreement" means this Revolving Credit Agreement [1995], as the same may be amended from time to time. "Applicable Margin" means as to a Eurodollar Rate Advance (a) 43.75 basis points if the Cash Flow Coverage ratio is 1.3:1.0 or greater or (b) 56.25 basis points if the Cash Flow Coverage Ratio is less than 1.3:1.0. "Base Rate" means that rate of interest established from time to time by the Bank as the Bank's Prime Rate whether or not such rate is publicly announced, which rate may not be the lowest interest rate charged by the Bank for commercial or other extensions of credit. "Business Day" means a day other than a Saturday, Sunday or other day on which the Bank is open for the conduct of its general banking business and, if the applicable day relates to any Eurodollar Rate Advance, or notice with respect to any Eurodollar Rate Advance, a day on which dealings in Dollar deposits are also carried on in the London interbank market and banks are open for business in London. "Cash Flow Coverage Ratio" means, as of the date of determination, (a) the sum of (i) net income after taxes, plus (ii) income tax expense, plus (iii) interest expense, plus (iv) depreciation, amortization and other non-cash expenses; divided by (b) the sum of (i) income tax expense, plus (ii) interest expense, plus (iii) current maturities of long term debt, plus (iv) cash dividends, plus (v) additional Investments in treasury stock, for the four (4) fiscal quarters immediately preceding such date all as determined by reference to the financial statements furnished to the Bank from time to time pursuant to Section 5.3. "Commitment" means the obligation of the Bank to make Loans during the Commitment Period up to a maximum aggregate principal amount outstanding at any time of $15,000,000. "Commitment Period" means the period from the date hereof through June 30, 1996, unless extended or renewed by a prior written agreement executed by the Borrower and the Bank (it being understood that, if so agreed by the Borrower and the Bank, the Commitment Period shall be considered for extension annually and shall be extended for successive 2-year periods). "Compliance Certificate" means a Compliance Certificate in a form prescribed by the Bank, establishing Borrower's compliance with the terms and conditions of this Agreement. "Consolidated" means: (a) when used herein with reference to financial statements, ratios, assets or liabilities, that any calculations have been made by consolidating the assets, liabilities, income, expenses, and cash flows of a Person and its Consolidated Subsidiaries after eliminating all intercompany items and making such adjustments as required by GAAP; and (b) when used herein with reference to a Subsidiary of a Person, a Subsidiary, the financial statements of which have been or, in accordance with GAAP, are required to be presented together on a Consolidated basis with those of such Person. "Consolidated Net Worth" means the excess of total assets over total liabilities and reserves of a Person and its Consolidated Subsidiaries, computed on a Consolidated basis in accordance with GAAP consistently applied. "Consolidated Tangible Net Worth" means, with respect to any Person, such Person's Consolidated Net Worth, less: (a) Goodwill (including the unallocated excess purchase cost of assets acquired in a transaction accounted for as a purchase over the aggregate fair market value thereof on the date of acquisition), patents, trademarks, trade names, copyrights, franchises, deferred charges, (including unamortized debt discount and expense, deferred research and development expenses and organizational costs), treasury stock and all other items that would be treated as intangible assets under GAAP; and (b) Any write-up of the book value of any asset of such Person or any of its Consolidated Subsidiaries other than a write-up in accordance with GAAP of assets of a Subsidiary of such Person in connection with the acquisition of such Subsidiary by such Person. "Consolidated Total Liabilities" means the excess of (a) total assets of a Person and its Consolidated Subsidiaries, over (b) Consolidated Net Worth, computed on a Consolidated basis in accordance with GAAP consistently applied. "Conversion Date" means any date specified on which Borrower elects to convert an Advance of any type to an Advance of another type. "Current Assets" means, as to any Person, the aggregate book value of all assets which would be classified as current assets of such Person in accordance with GAAP after making adequate reserves in each case where a reserve is proper in accordance with GAAP. "Current Liabilities" means, as to any Person, all Indebtedness of such Person maturing on demand or within one (1) year after the date on which such determination is made and all other items (including estimated accrued taxes) which would be classified as current liabilities in accordance with GAAP. "Default" means an event, which with notice or lapse of time or both, would become an Event of Default. "Deposit Account" means Borrower's checking account at the Bank. "Dollars" and the sign "$" shall mean the lawful money of the United States of America. "ERISA" means the Employee Retirement Income Security Act of 1974 and all the rules and regulations promulgated pursuant thereto, as amended from time to time. "ERISA Event" means, as to any Person, (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for thirty (30)-day notice to the PBGC under such regulations); or (b) the withdrawal of such Person or any member of its controlled group from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; or (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA; or (d) the institution of proceedings to terminate a Plan by the PBGC; or (e) a transaction that occurs on or after April 7, 1986 and that is reasonably likely to be subject to Section 4060 of ERISA without regard to the termination date, if any, of any former Plan; or (f) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or to result in the imposition of any liability under Title IV of ERISA. "Eurocurrency Liabilities" has the meaning ascribed to such term in Regulation D of the Federal Reserve Board, as in effect from time to time. "Eurodollar Rate" means, for each Interest Period for a Eurodollar Rate Advance, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) determined pursuant to the following formula: Eurodollar Rate = LIBOR ------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means, for each Interest Period in respect of a Eurodollar Rate Advance, the maximum reserve percentage in effect on the date LIBOR for such Interest Period is determined under regulations (whether or not applicable to Bank) issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period; and "LIBOR" means, for each Interest Period in respect of a Eurodollar Rate Advance, the rate of interest determined and quoted by the Bank to be the rate of interest at which Dollar deposits for such Interest Period, and in an amount approximately equal to the principal amount of the Eurodollar Rate Advance to be made or maintained by the Bank during such Interest Period would be offered to major banks in the London interbank market at their request at or about 11:00 A.M. (London time) two (2) Business Days prior to the commencement of such Interest Period. "Eurodollar Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to the Eurodollar Rate. "Event of Default" means any event set forth in Section 6 hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on over night Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such date, as published for such date (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of Chicago, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11:00 a.m. (Indianapolis time) on such day on such transactions received by the Bank from three (3) Federal funds brokers of recognized standing selected by the Bank in its sole discretion. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereof. "Floating Rate" means, for any day, a rate of interest per annum equal to the greater of (a) the Base Rate for such day or (b) the Federal Funds Effective Rate for such day plus 100 basis points. "Floating Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to the Floating Rate. "Fiscal Year" means a year commencing December 1 and ending November 30. "Fixed Assets" means land, buildings, property and equipment. "GAAP" means generally accepted accounting principles in the United States of America from time to time as promulgated by the Financial Standards Accounting Board and recognized and interpreted by the American Institute of Certified Public Accountants; provided, however, that in the determination of the Borrower's compliance with Sections 5.5 through 5.8 hereof, the effect of FASB 106 shall be disregarded. "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material defined as such in or for the purpose of the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or any other federal, state or local statute, law, ordinance, code, rule, regulation, order, decree or other requirement of any governmental authority regulating, relating to, or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste or material, as now or at any time hereafter in effect. "Indebtedness" means as to any Person (a) all indebtedness or other obligations of a Person for borrowed money or for the deferred purchase price of property or services; (b) all indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services, the payment or collection of which the subject Person has guaranteed (except by reason of endorsement for collection in the ordinary course of business) or in respect of which the subject Person is liable, contingently or otherwise, including, without limitation, liability by way of agreement to purchase, to provide funds for payment, to supply funds to or otherwise to invest in such other Person, or otherwise to assure a creditor against loss; (c) all indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon or in property owned by the subject Person, whether or not the subject Person has assumed or become liable for the payment of such indebtedness or obligations; and (d) capitalized lease obligations of such Person. "Interest Period" means: (a) With respect to each Eurodollar Rate Advance, the period commencing on the Business Day such Advance is disbursed or on the Conversion Date on which an Advance is converted to such Eurodollar Rate Advance and ending either on the date thirty (30), sixty (60), ninety (90), one hundred twenty (120) or one hundred eighty (180) days thereafter, as selected by Borrower pursuant to Section 2.5 hereof; provided, however, that: (i) In the case of the continuation of a Eurodollar Rate Advance, the Interest Period applicable after the continuation of such Advance shall commence on the last day of the preceding Interest Period; and (ii) Any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; and (b) With respect to each Negotiated Rate Advance, the period commencing on the Business Day such Advance is disbursed and ending on the date specified in the Request for such Negotiated Rate Advance. "Interest Period Payment Date" means the first day of each calendar month. "Investment" means (a) any loan, advance, guarantee, extension of credit (other than in the ordinary course of business to trade customers) or contribution of capital to any Person or the purchase of any Persons' notes, stock, bonds or other securities; (b) advances to employees of a Person other than advances for the purpose of defraying travel, relocation or business expenses in the ordinary course of business; and (c) any capital, property, or services contributed or committed to be contributed to a Person in connection with the purchase of debt, equity or other ownership interest. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to provide any of the foregoing), any conditional sale or other title retention agreement or any lease in the nature thereof, or any filing or agreement to file a financing statement as debtor on any property leased under a lease which is not in the nature of a conditional sale or title retention agreement. "Loan Documents" means, collectively, this Agreement, the Note and each other document now or hereafter executed by the Borrower in favor of the Bank governing, evidencing or otherwise related to the Obligations. "Loans" means the revolving loans made by the Bank to the Borrower from time to time pursuant to Section 2.1 hereof in the maximum aggregate principal amount of $15,000,000 in accordance with the Commitment, including any extensions or renewals thereof. "Negotiated Rate" means a fixed rate per annum which is offered to Borrower by the Bank in its sole discretion and which is accepted by Borrower. "Negotiated Rate Advance" means the amount of an Advance on which interest is or is to be calculated with reference to a Negotiated Rate. "Note" means the Revolving Credit Note in the form attached hereto as Exhibit A in the maximum aggregate principal amount of $15,000,000 (or so much thereof as may be advanced or outstanding from time to time) executed by the Borrower in favor of the Bank. "Obligations" means all obligations, indebtedness and liabilities of Borrower under the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation created under Section 4002(a) of ERISA or any successor thereto. "Permitted Liens" means: (a) Liens (i) for taxes not yet due or (ii) which are being actively contested in good faith by appropriate proceedings (in a manner sufficient to prevent enforcement of the matter under contest) as to which adequate reserves have been set aside in an amount determined in accordance with GAAP; (b) Liens incidental to the conduct of the business of the Borrower and its Consolidated Subsidiaries or the ownership of their respective owned properties and assets which were not incurred in connection with the incurring of Indebtedness, and which do not materially detract from the value of such property or assets or impair the use thereof in the operation of the Borrower's or such Subsidiaries' business; (c) Liens on property or assets of a Subsidiary of the Borrower to secure obligations of such Subsidiary to the Borrower or another Subsidiary of the Borrower; (d) Liens on the properties and assets acquired by the Borrower or of any Subsidiary of the Borrower subsequent to the date hereof, which Liens pre-exist the date of such acquisition; (e) Liens on properties or assets of the Borrower and its Consolidated Subsidiaries, which properties and assets do not exceed Ten Percent (10%) of the total tangible assets of the Borrower and its Consolidated Subsidiaries; and (f) As set forth on Schedule 1 hereto. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a governmental or political subdivision or an agent or instrumentality thereof. "Plan" means any defined benefit plan maintained or contributed to by Borrower or any of its Subsidiaries or by any trade or business (whether or not incorporated) under common control with Borrower or any of its Subsidiaries as defined in Section 4001(b) of ERISA and insured by the PBGC under Title IV of ERISA. "Prior Revolving Credit Agreement" means the Revolving Credit Agreement [1993], dated October 6, 1993, between Lilly Industries, Inc., an Indiana corporation and Society National Bank, Indiana, a national banking association. "Regulatory Change" shall have the meaning ascribed in Section 2.10. "Reportable Event" shall be as defined in ERISA. "Request" shall have the meaning ascribed in Section 2.5 hereof. "Subsidiary" of a Person means any corporation of which such Person owns or otherwise controls, directly or indirectly, more than 50% of the total voting securities thereof, and shall include any such corporation which becomes a Subsidiary of such Person after the date hereof. "Termination Date" means July 1, 1996. "Wholly-Owned Subsidiary" means a Consolidated Subsidiary of a Person, 100% of the voting securities of which is owned or controlled by such Person. 1.2 Accounting Terms. All accounting terms used herein and not used herein and not expressly defined herein shall (unless otherwise expressly indicated) have the respective meanings given to them in accordance with GAAP. All financial computations made under this Agreement for the purpose of determining compliance with the financial requirements of this Agreement shall be made on a Consolidated basis and shall be made, and all financial information required under this Agreement shall be prepared, in accordance with GAAP consistently applied. In determining the value of assets, Investments in Persons other than Consolidated Subsidiaries shall be determined on the basis of the lesser of cost or the book value of such Person on the date of determination. 1.3 Other Definitions; Singular and Plural. The terms defined in the preamble of this Agreement and used herein shall have the meanings ascribed in the preamble hereof. Use of the terms "herein", "hereof", and "hereunder" shall be deemed references to this Agreement in its entirety and not to the Section or clause in which such term appears. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. SECTION 2 Credit 2.1 Commitments; Termination of Prior Revolving Credit Agreement. Subject to the terms and conditions hereof, the Bank agrees to make Loans to the Borrower from time to time during the Commitment Period in a principal amount not in excess of the unborrowed portion of the Commitment on the borrowing date. During the Commitment Period, the Borrower may use the Commitment by borrowing, prepaying the Loans, in whole or in part, and reborrowing, all subject to, and in accordance with, the terms and conditions hereof. The Loans shall be evidenced by the Note. This Agreement completely amends and supersedes the Prior Revolving Credit Agreement. The Prior Revolving Credit Agreement is hereby terminated, shall be of no further force or effect and none of the parties thereto shall have any further liabilities or obligations with respect thereto. All promissory notes executed and delivered in connection with the Prior Revolving Credit Agreement shall be cancelled by the Bank and delivered to the Borrower. 2.2 Interest. Prior to maturity or the occurrence of an Event of Default, the principal amount of the Loans shall bear interest at the election of the Borrower at any of the following rates (a) a per annum rate equal to the Eurodollar Rate, plus the Applicable Margin; (b) at a per annum rate equal to the Floating Rate; or (c) at a Negotiated Rate. After maturity or the occurrence of an Event of Default, interest shall be calculated in accordance with Section 2.9 2.3 Payments of Principal and Interest. Interest only on the outstanding Advances of the Loans from time to time shall be due and payable on the Interest Period Payment Date throughout the term of the Commitment Period. Unless sooner paid, the Borrower shall make principal payments in an amount sufficient that the outstanding principal balance of the Loans shall not exceed the Commitment. Unless the Loans are sooner paid by the Borrower or extended by the Bank in its sole discretion, the entire principal balance of the Loans, together with all accrued and unpaid interest thereon, and all fees and charges payable in connection therewith, shall be due and payable on July 1, 1996. 2.4 Use of Proceeds. The proceeds of the Loans shall be used to fund the general working capital of the Borrower and its Subsidiaries (including, but not limited to, the construction or purchase of Fixed Assets) and for acquisition purposes. 2.5 Method of Advance. Subject to the provisions of Section 2.1: (a) Advances of the Loans shall be made available to Borrower prior to the Termination Date, provided the Bank receives, at the time and in accordance with the terms of this Section, a request ("Request") specifying the amount of the Advance, the interest rate election of Borrower related thereto and, if appropriate, the Interest Period related thereto. Requests may be made by telephone, and the Bank may rely, without further inquiry, on such telephonic Requests as the act of Borrower through an authorized representative; provided, however, that the Bank may require telephonic or other oral requests to be followed immediately by a written Request. Notwithstanding anything to the contrary contained in the definition of "Interest Period", the Borrower may not select an Interest Period with respect to any Advance which ends after the Termination Date. (b) Each Request shall constitute a representation and warranty by the Borrower that no Default or Event of Default has occurred and is continuing or would result from the making of the requested Advance and that the requested Advance shall not cause the principal balance of the Loans to exceed the Commitment. (c) Each Request, which shall be irrevocable once received, must be received by the Bank not later than 11:00 A.M. (Indianapolis time), (i) on the date such Advance is to be made, if such Advance is to be made as a Negotiated Rate Advance or a Floating Rate Advance, and (ii) three (3) Business Days prior to the date such Advance is to be made, if such Advance is to be an Eurodollar Rate Advance. Prior to 11:00 A.M. (Indianapolis time) on the second (2nd) Business Day prior to the date such Advance is to be made, the Bank will, through designated employees, quote the Eurodollar Rate. The Borrower shall then have until 1:00 P.M. (Indianapolis time) on that same Business Day of the quote by the Bank to execute its option to elect the Eurodollar Rate. (d) All Advances shall be in a minimum amount of $1,000,000 and integral multiples of $100,000 and shall be made by credit to the Deposit Account. (e) All notices (including Requests) made by Borrower to the Bank and received by the Bank after 11:00 A.M. (Indianapolis time) (or such other time as is specified in any Section hereof) on a Business Day shall be deemed received on the next succeeding Business Day. (f) If the Borrower fails to give timely notice of its interest rate election pursuant to this Section 2.5, or if the Borrower and the Bank do not agree on a Negotiated Rate, Borrower shall be deemed to have selected the Floating Rate. (g) All Advances by the Bank and payments by the Borrower shall be recorded by the Bank on its books and records, and the principal amount outstanding from time to time, plus interest payable thereon, shall be determined from the books and records of the Bank. The books and records of the Bank shall be presumed prima facie correct as to such matter. Any statement of a the Bank to the Borrower setting forth the Borrower's account regarding the Advances and payments shall be considered true and correct and binding on the Borrower unless the Bank is notified in writing of any discrepancy or exception within thirty (30) days from the date of mailing such monthly statement. Notwithstanding the foregoing, the failure to make, or an error in making, a notation with respect to any Advance shall not limit or otherwise affect the obligation of the Borrower hereunder. 2.6 Conversion of Advances. Borrower may, upon receipt by the Bank of a Request not later than 11:00 A.M. (Indianapolis time) three (3) Business Days prior to the applicable Conversion Date: (a) Elect to convert on any Business Day any Floating Rate Advance into an Advance of any other type; (b) Elect to convert upon expiration of any Interest Period, any Eurodollar Rate Advance or Negotiated Rate Advance maturing at the end of such Interest Period into an Advance of any other type; or (c) Elect to renew, upon expiration of any Interest Period, any Eurodollar Rate Advance maturing at the end of such Interest Period by selecting the duration of the next Interest Period thereof; provided, however, that if any Eurodollar Rate Advance shall have an outstanding principal balance of less than $1,000,000, the Eurodollar Rate Advance subject to renewal shall automatically convert to a Floating Rate Advance and after such date the right of Borrower to continue any such Advance as a Eurodollar Rate Advance shall terminate. If upon the expiration of any Interest Period applicable to a Eurodollar Rate Advance, Borrower has failed to select a new Interest Period to be applicable to such Advance as the case may be, Borrower shall be deemed to have elected to convert such Advance into a Floating Rate Advance effective as of the expiration of the then current Interest Period. Notwithstanding any other provision of this Agreement: (aa) If Borrower desires to convert any Advance to a Eurodollar Rate Advance or continue or renew any Eurodollar Rate Advance at the expiration of an Interest Period, the provisions of Section 2.5(c) shall apply; and (bb) In the event that the Bank determines (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Eurodollar Interest Period at a time when a Eurodollar Rate is requested or when the outstanding balance of Advances under the Loans is being maintained at the Eurodollar Rate, the Bank shall forthwith give notice of such determination, confirmed in writing, to the Borrower (if such confirmation is requested by the Borrower), whereupon the selection of an Eurodollar Rate shall be prohibited, and if the Borrower and the Bank are unable to agree on a Negotiated Rate, the outstanding principal balance of Advances under the Loans then bearing interest at the Eurodollar Rate shall be converted, on the last day of the then current Eurodollar Interest Period, to the Floating Rate. 2.7 Method of Payment. All payments of principal and interest on the Note shall be made without setoff or counterclaim by the Borrower to the Bank at its main office in Indianapolis, Indiana, by 11:30 A.M. (Indianapolis time) on the date when due. All sums received after such time shall be deemed received on the next Business Day. Any payment due on a day that is not a Business Day shall be made on the next Business Day. The Bank is hereby authorized by the Borrower to debit the Deposit Account for each payment of principal or interest under the Loans as it becomes due. All payments with respect to the Loans shall be payable in funds available for the Bank's immediate use at Indianapolis, Indiana, and no payment will be considered to have been made until received in such funds. All payments received on account of any of the Loans will be applied first to the satisfaction of any interest which is then due and payable, and to principal only after all interest which is due and payable has been satisfied. 2.8 Prepayment. The Borrower may prepay any Floating Rate Advance in whole or in any multiple at any time, and from time to time, without notice, premium or penalty. The Borrower may not prepay any Eurodollar Rate Advance or Negotiated Rate Advance at any time prior to the last day of the Interest Period applicable thereto. 2.9 Computations of Interest. All computations of interest and fees under this Agreement shall be made on the basis of a 360-day year and calculated for the actual number of days elapsed. Any change in the rate of interest on any Floating Rate Advance occasioned by a change in the Base Rate or Federal Funds Effective Rate shall be effective on the same day as the change in Base Rate or the Federal Funds Effective rate, as the case may be. Interest shall accrue on any principal balance outstanding from and including the date of disbursement to, but excluding, the date on which such principal balance is repaid. Notwithstanding anything to the contrary herein contained, all principal hereunder not paid when due, whether by lapse of time or by acceleration, shall bear interest after maturity at a per annum rate equal to Two Percent (2%) above the otherwise applicable rate. 2.10 Additional Costs. Borrower shall pay to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate the Bank for any costs incurred by the Bank which the Bank determines is attributable to its making or maintaining any Eurodollar Rate Advance hereunder or its obligation to make any Advance hereunder, or any reduction in any amount receivable by the Bank under this Agreement or the Note in respect of any such Advance or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs") resulting from any change after the date of this Agreement in federal, state, municipal, or foreign laws or regulations (including Regulation D of the Federal Reserve Board) or the adoption or making after such date of any interpretations, directives, or requirements applying to a class of banks including the Bank of or under any federal, state, municipal, or foreign laws or regulations (whether or not having the force of law) by any court or governmental authority charged with the administration thereof ("Regulatory Change"), which: (a) changes the basis of taxation of any amounts payable to the Bank under this Agreement in respect of any Advance (other than taxes imposed on the overall net income of the Bank); or (b) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of the Bank; or (c) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities). The Bank will notify Borrower of any event occurring after the date of this Agreement which will entitle the Bank to compensation under this Section 2.10 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Determinations by the Bank for the purposes of this Section 2.10 of the effect of any Regulatory Change on its cost of making or maintaining any Loan or on amounts receivable by or in respect of any Loan, and of the additional amounts required to compensate Bank in respect of Additional Costs, shall be conclusive, provided that such determinations are made on a reasonable basis and the Bank provides Borrower with its calculations of Additional Costs. 2.11 Commitment Fee. Borrower shall pay to the Bank a commitment fee equal to three-sixteenths (3/16) of one percent (1%) per annum on the maximum amount of the Commitment, which fee shall be due and payable quarterly in advance, within fifteen (15) days of receipt by the Borrower of an invoice therefor. 2.12 Reductions of Revolving Credit Commitment. The Borrower shall have the right to terminate or reduce the aggregate amount of the Commitment at any time or from time to time, provided that (a) the Borrower shall give notice of each such termination or reduction in the manner provided in Section 7.1; (b) each partial reduction shall be in an aggregate amount at least equal to $1,000,000 and integral multiples of $100,000; (c) the aggregate Commitment shall not be reduced to an amount less than the outstanding principal balance of the Revolving Credit Loans; and (d) the Commitment once terminated or reduced may not be reinstated without the prior written approval of the Bank. SECTION 3 Conditions Precedent 3.1 Conditions Precedent to the Initial Advance of the Loan. In addition to the requirements set forth in Section 3.2, the obligations of the Bank to make the initial Advance is subject to the condition precedent that the following shall have been delivered to the Bank in form and substance satisfactory to the Bank: (a) Organic Documents. A copy of the articles of incorporation and by-laws, including all amendments thereto, of Borrower, certified by the Secretary or an Assistant Secretary as being in full force and effect on the date hereof. (b) Corporate Resolutions. Copies of resolutions passed by the Board of Directors of Borrower, certified by the Secretary or Assistant Secretary of Borrower, as applicable, as being in full force and effect on the date hereof. (c) Loan Documents. The Loan Documents duly executed by Borrower. (d) Certificate of Existence. A Certificate of Existence or Good Standing for Borrower in the jurisdiction of its incorporation certified by the Secretary of State or other appropriate official of such jurisdictions. (e) Opinion of Counsel. The favorable written opinion of counsel to Borrower, dated as of the date hereof, substantially in the form and of the substance attached hereto as Exhibit B. (f) Other Evidence Bank May Require. Such other documents or evidence as the Bank may reasonably request in writing in order to consummate the transactions contemplated hereby or to evidence the taking of all necessary actions in any proceedings in connection herewith and compliance with the conditions set forth in this Agreement. (g) Expenses. Payment of the expenses of the Bank described in Section 7.5 for which Borrower has received proper invoices or requests for payment. 3.2 Conditions to Subsequent Advances. The obligations of the Bank to make any Advance after the date hereof is subject to the following conditions precedent: (a) The representations and warranties contained in Section 4 shall be true and correct and no Default or Event of Default shall have occurred and be continuing; (b) The Bank shall have received a Request; (c) All fees, expenses and other amounts due and payable to or for the benefit of the Bank under the Loan Documents shall have been paid; and (d) The aggregate outstanding principal balance of the Loans, after giving effect to the requested Advance, may not exceed the Commitment. SECTION 4 Representations and Warranties Borrower represents and warrants to the Bank on the date hereof, and shall be deemed to have made such representations and warranties to Bank on the date of each Advance hereunder, that: 4.1 Corporate Existence. Borrower and each of its Consolidated Subsidiaries is a corporation duly organized and existing under the laws of the jurisdiction of its incorporation, and is duly qualified as a foreign corporation and is properly licensed and in good standing in each jurisdiction where the failure to qualify or be licensed would have a material adverse effect on its business, properties or conditions (financial or otherwise). 4.2 Corporate Powers. The execution, delivery and performance of the Loan Documents by Borrower are within Borrower's corporate powers, have been duly authorized by all requisite corporate action, and are not in conflict with the terms of any charter, by-laws or other organization papers of Borrower, or any instrument or agreement to which Borrower is a party or by which Borrower is bound or affected. 4.3 Power of Officers. The officers of Borrower executing the Loan Documents and any certificate, instrument or agreement required to be delivered by Borrower thereunder have been duly elected or appointed and were fully authorized to execute the same at the time such agreement, certificate or instrument was executed. 4.4 Government and Other Approvals. No approval, consent, exemption or other action by, notice to or filing with, any governmental authority which has not been obtained is necessary in connection with the execution, delivery or performance by Borrower of the Loan Documents. 4.5 Compliance with Laws; Environmental Matters. To the best of Borrower's knowledge, there is no law, rule or regulation, nor is there any judgment, decree or order of any court or governmental authority specifically directed to Borrower or any of its Consolidated Subsidiaries and binding on Borrower or any of its Consolidated Subsidiaries which would be contravened by the execution, delivery or performance of the Loan Documents. Borrower and each of its Consolidated Subsidiaries is in material compliance with all material laws and regulations, including all material requirements of applicable federal, state and local environmental, health and safety statutes and regulations and to the best of Borrower's knowledge, neither it nor any of its Consolidated Subsidiaries, is the subject of any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Material which investigation will result in clean-up costs having a materially adverse effect on the Borrower and its Consolidated subsidiaries, taken as a whole, and for which Borrower, or such Consolidated Subsidiary is not indemnified. 4.6 Enforceability of Agreement. The Loan Documents are legal, valid and binding agreements of Borrower and are enforceable against Borrower in accordance with their respective terms, and any other exhibit, instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable in accordance with its terms. 4.7 Litigation. Except as disclosed in its financial statements, there are no suits, proceedings, claims or disputes pending or, to the knowledge of Borrower, threatened against or affecting Borrower, or any of its Consolidated Subsidiaries or any of their respective properties, which individually or in the aggregate will materially adversely affect the business, properties or condition (financial or otherwise) of the Borrower and its Consolidated Subsidiaries, taken as a whole, or impair Borrower's ability to perform the Obligations. 4.8 Events of Default. No Default or Event of Default has occurred and is continuing or would result from the execution or performance of any Loan Document or the incurring of the Obligations by Borrower. Neither Borrower nor any of its Consolidated Subsidiaries is in violation of, or default under, (a) any charter instrument or by-law, or under any loan agreement or (b) any material agreement or instrument to which it is a party or by which it or its properties are bound. 4.9 Investment Company Act of 1940. Borrower is not an investment company within the meaning of the Investment Company Act of 1940. 4.10 Financial Information. (a) The balance sheets of Borrower dated as of November 30, 1993 and August 31, 1994, and the operating statements for the fiscal periods then ended, (complete and accurate copies of which have been delivered by Borrower to Bank) and all other information and data furnished by Borrower to Bank are complete and correct, and such financial statements have been prepared in accordance with GAAP, consistently applied, and fairly present the Consolidated financial condition of Borrower on November 30, 1993 and August 31, 1994 and the Consolidated results of their operations for the periods then ended, except in the case of the unaudited interim financial statements for normal year end adjustments and the absence of footnote disclosures. (b) Since November 30, 1993, there has not been and Borrower does not know of any development or threatened development (other than general economic conditions) of a nature which may cause any material adverse change in the Consolidated financial condition or operations of Borrower and its Consolidated Subsidiaries, taken as a whole, or sufficient to impair Borrower's ability to repay the Loan and otherwise perform the Obligations in accordance with the terms of the Loan Documents. 4.11 ERISA. Except as previously disclosed to the Bank, no fact or circumstance, including but not limited to any Reportable Event, exists in connection with any Plan of Borrower, or any of its Consolidated Subsidiaries which would constitute grounds for the termination of any such plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan and which would result in the termination of a Plan and the incurrence of material liability by the beneficiaries or a trustee under ERISA. For the purposes of this Section 4.11, Borrower, if it is not the Plan administrator, shall be deemed to have knowledge of all facts attributable to the Plan administrator designated pursuant to ERISA. 4.12 Full Disclosure. To the knowledge of the Borrower, no information, exhibit, memorandum, or report furnished by the Borrower to the Bank in connection with the negotiation of the Loans contains any material misstatement of fact or omits to state any fact necessary to make the statements contained therein not materially misleading. SECTION 5 Covenants Borrower covenants that until all Obligations have been paid in full it will (and will cause its Subsidiaries to), unless otherwise agreed by the Bank: 5.1 Use of Proceeds. Use Advances solely for the purposes provided for herein. 5.2 Maintain Existence, Etc. Maintain its existence; maintain in good order its licenses, properties, insurance and books; pay when due taxes, trade accounts and other obligations; comply with law; and generally conduct its affairs in accordance with standard industry practices. 5.3 Financial Statements, Etc. During the term of the Loans, Borrower shall furnish to the Bank: (a) Within sixty (60) days after the end of each fiscal quarter, a balance sheet and operating statement of Borrower prepared on a Consolidated and consolidating basis and in accordance with GAAP consistently applied and accompanied by a Compliance Certificate completed and signed by the chief financial officer of Borrower certifying, among other things, that there exists no Default or Event of Default under the Loan Documents or, if a Default or Event of Default exists, stating the nature and status thereof; (b) Within one hundred twenty (120) days after the end of each of Borrower's Fiscal Years, a balance sheet and operating statement and statement of cash flows certified by an independent certified public accountant satisfactory to Bank (provided that any "Big Six" accounting firm shall be deemed satisfactory to the Bank); such financial statements to be prepared on a Consolidated basis in accordance with GAAP applied on a basis consistent with prior practice unless otherwise specifically noted thereon, accompanied by (i) unaudited consolidating balance sheets and operating statements of Borrower and each of its Consolidated Subsidiaries, (ii) a detailed letter from the chief financial officer of the Borrower which analyzes the results of operations for the period covered by such financial statements, and (iii) a Compliance Certificate completed and signed by the chief financial officer of Borrower certifying, among other things, that there exists no Default or Event of Default under the Loan Documents or, if a Default or Event of Default exists, stating the nature and status thereof; and (c) As soon as possible, but in any event within ten (10) days after the filing with the Securities and Exchange Commission, or any successor thereto, or any state securities regulatory authority, copies of all registration statements and all periodic and special reports required or permitted to be filed under federal or state securities laws and regulations. 5.4 Adequate Books. Permit representatives of the Bank, at any reasonable time and upon reasonable prior notice, to inspect its properties, to examine its inventory, books, and accounts, and to discuss its finances and affairs with its accountants (and by these provisions Borrower authorizes such accountants to discuss with the Bank the finances and affairs of Borrower). 5.5 Leverage Ratio. Maintain a ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth of not more than (a) 3.0 to 1.0 as at the end of each fiscal quarter ending on and after November 30, 1994 through August 31, 1995; and (b) 2.0 to 1.0 as at November 30, 1995 and as at the end of each fiscal quarter ending thereafter. 5.6 Current Ratio. Maintain a ratio of Consolidated Current Assets to Consolidated Current Liabilities of not less than 1.50 to 1.00 as at the end of each fiscal quarter. 5.7 Cash Flow Coverage Ratio. Maintain a Cash Flow Coverage Ratio of not less than (a) 1.15 to 1.00 as at the end of each fiscal quarter ending on and after the date hereof through August 31, 1995; and (b) 1.30 to 1.00 as at the end of each fiscal quarter ending thereafter. 5.8 Net Worth. Maintain Consolidated Tangible Net Worth of not less than the sum of (i) $14,000,000, plus (ii) an amount not less than Twenty-Five Percent (25%) of the cumulative reported net profits of the Borrower for all fiscal quarters ending after November 30, 1993, without reduction for any reported net losses incurred during such periods, as at the end of each fiscal quarter ending on or after the date hereof. 5.9 Hazardous Materials. Indemnify and hold harmless the Bank and its respective officers, employees, agents, consultants and affiliates from and against all losses, costs, damages and expenses (including reasonable attorneys' fees and expenses) any such person may sustain in connection with the use, disposal or release of any Hazardous Material or in connection with the existence of any Hazardous Material on or under any of the properties of Borrower or any of its Subsidiaries. 5.10 Mergers, Etc. Not permit Borrower to enter into any consolidation, merger, or other combination, or sell, lease, assign, transfer or otherwise dispose of any assets, whether now owned or hereafter acquired, in a single transaction or in a series of transactions, or enter into any sale and leaseback transactions, other than: (a) the sale of inventory in the ordinary course of business; (b) the disposition of property no longer used or useful in the conduct of its business; (c) any merger in which Borrower is the legal surviving corporation, provided no Default or Event of Default then exists or is occasioned thereby; (d) any merger, consolidation or transfer of the business or assets of any Subsidiary of the Borrower to Borrower or to any Consolidated Subsidiary; and (e) the sale and leaseback, sale or other disposition of assets in an amount not in excess of $20,000,000 in any Fiscal Year. 5.11 Liens. Not create, assume or suffer to exist any Lien on any of its properties or assets, whether now owned or hereafter acquired, except Permitted Liens. 5.12 Notice of Default. Immediately upon the occurrence of any Default or an Event of Default, furnish to the Bank a certificate of Borrower stating the specific nature of the Default or Event of Default, Borrower's intended actions to cure such Default or Event of Default and the time period in which such cure is to occur. 5.13 Indebtedness. Not create, incur or suffer to exist any Indebtedness for the purpose of refinancing a portion of the Loans, except on such terms and conditions as have been subject to the prior written approval of the Bank. 5.14 Insurance. Maintain in full force and effect adequate insurance in amounts and against liabilities consistent with sound business practices and with reputable insurers and upon terms acceptable to the Bank. 5.15 No Material Adverse Change. Not permit any event to occur or condition to exist which has a materially adverse effect upon business, operations, financial condition, properties or prospects of the Borrower or its Consolidated Subsidiaries, taken as a whole. 5.16 Margin Rules. Not use the Advances in any manner that would violate Regulation G, T, U or X of the Federal Reserve Board. SECTION 6 Default and Remedy 6.1 Events of Default. The occurrence of any of the following events shall be an Event of Default hereunder: 6.1.1 Nonpayment. Borrower fails to pay when due any installment of principal or interest or any other sum due under the Loan Documents and such failure continues for ten (10) Business Days thereafter. 6.1.2 Representation or Warranty. Any written represen-tation or warranty in any of the Loan Documents proves to have been materially false or misleading in any material respect when made. 6.1.3 Other Defaults. Borrower fails to perform or observe any of the other covenants or agreements contained in the Loan Documents, and such failure, if capable of being remedied, continues unremedied for a period of thirty (30) days after written notice thereof from the Bank. 6.1.4 Voluntary Bankruptcy. Borrower or any one or more of its Wholly-Owned Subsidiaries which, in the aggregate, have Twenty-Five Percent (25%) or more of the Consolidated total assets of the Borrower fails to pay or admits in writing its or their inability to pay debts as they come due, or files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, or any other similar law for the relief of, or relating to, debtors, or applies for or consents to a receiver, trustee or custodian for it or a substantial portion of its property, or makes a general assignment for the benefit of creditors. 6.1.5 Involuntary Bankruptcy. An involuntary petition is filed under any bankruptcy or similar statute against Borrower or any one or more of its Wholly-Owned Subsidiaries which, in the aggregate, have Twenty-Five Percent (25%) or more of the Consolidated total assets of the Borrower, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of the properties of Borrower or any such Consolidated Subsidiary unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of such filing or appointment. 6.1.6 Cross Default. Any material breach or default shall have occurred (after giving effect to any applicable cure period or waiver) under any other agreement between Borrower, or any Consolidated Subsidiary and any bank, or under any other material agreement pursuant to which Borrower, or any of its Consolidated Subsidiaries may be obligated in an amount in excess of $1,000,000 as a borrower, guarantor or lessee (including, without limitation, any Indebtedness incurred to refinance any portion of the Loans), if such default consists of the failure by such borrower, guarantor or lessee to pay Indebtedness when due and, following any applicable cure period, permits the holder or any trustee thereof to cause the acceleration of such Indebtedness or the termination of any commitment to lend or permits a lessor to terminate the applicable lease. 6.1.7 Adverse Judgments. Any one or more judgments or orders for payment of money in an aggregate amount exceeding $1,000,000 shall be rendered against the Borrower and/or any of its Consolidated Subsidiaries and either (a) such judgment or order shall remain unsatisfied and the Borrower and/or its Consolidated Subsidiary shall not have taken action necessary to stay enforcement thereof prior to the expiration of the applicable period of limitations for taking such action or (b) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order. 6.2 Remedy. If any Event of Default described in Sections 6.1.4 and 6.1.5 occurs, the Commitment shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Bank. If any other Event of Default occurs, the Bank may terminate the Commitment and declare the Obligations to be due and payable, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which Borrower hereby expressly waives. Upon the occurrence of an Event of Default, the Bank may immediately proceed to exercise all remedies available to it under the Loan Documents or otherwise under applicable law. SECTION 7 Miscellaneous 7.1 Notices. Any communications between the parties hereto or notices or requests provided herein to be given may be given by mailing the same, first class postage prepaid, or by telex or electronic transmission to each party at its address set forth on the signature pages hereto (with a copy to each address indicated for notices), or to such other address as any party may in writing hereafter indicate to the other. Notices shall be effective on the date sent by electronic transmission and telex and three (3) Business Days after the date sent by U.S. mail. 7.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns; provided, however, that Borrower shall not assign this Agreement or any of its rights hereunder without the prior written consent of the Bank. 7.3 Participation and Assignments. The Bank may participate, sell, transfer or assign its rights and obligations under this Agreement to an entity Affiliate of the Bank without the prior written consent of the Borrower and to any other Person with the prior written consent of the Borrower, which consent shall not be unreasonably withheld or delayed; provided, however, that no prior consent of the Borrower shall be required at any time during which a Default or Event of Default shall have occurred and be continuing. Any participant purchasing such a participation shall have all rights of the Bank pursuant to this Agreement, and the Bank may provide such participant with credit information received by such Bank from Borrower or any Subsidiary which is otherwise publicly available. Borrower agrees that any participant permitted or consented to under this Section 7.3 shall at any time during the pendency of an Event of Default have the right to set off any Obligations not paid when due against any accounts or other assets of Borrower held by, on deposit with, or in the possession of, such participant. The Bank will use its best efforts to cause such participant to grant to Borrower the right to set off, appropriate and apply against that portion of the Obligations then owned by such other participant any monies, securities and other property of Borrower now or hereafter held or received by, or in transit to, such participant in the event such participant becomes involved in any voluntary insolvency, bankruptcy or receivership proceedings, or in any involuntary proceedings of such nature or comes under the management or control of any governmental or private deposit insurer. In no event shall the insolvency, bankruptcy or receivership of a participant grant to Borrower the right of set off against the Bank, including any other participant. 7.4 Amendments and Waivers. No delay or omission by the Bank to exercise any right under this Agreement shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Agreement shall be deemed a waiver of any other breach or default. Any waiver, modification, amendment, consent or approval relating to the Loan Documents, must be in writing to be effective and must be signed by or on behalf of the Bank. 7.5 Costs and Expenses. Borrower agrees to pay on demand to the Bank all reasonable costs and expenses incurred by the Bank including, without limitation, reasonable attorneys' and consultants' fees (a) in connection with the enforcement of the Loan Documents or in connection with any proposed refinancing or restructuring of the credit provided in this Agreement, and (b) for all stamp, registration and other duties to which any Loan Document may be subject. Borrower further agrees to pay or to reimburse the Bank upon demand for its reasonable attorneys' fees and other reasonable expenses incurred in connection with preparing, drafting and negotiating any amendments, consents, or waivers hereto requested by Borrower. Borrower shall indemnify the Bank against any and all liabilities and penalties resulting from any delay in payment, or failure to pay, any such duties referenced above upon written notice from the Bank that such amounts have been assessed. 7.6 Entire Agreement. The Loan Documents integrate all the terms and conditions mentioned herein or incidental hereto, and supersede all oral negotiations and prior writings in respect to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and the other Loan Documents, the provisions of this Agreement shall control. 7.7 Governing Law. This Agreement and all other Loan Documents executed in connection herewith shall be governed by and construed in accordance with the laws of the State of Indiana. 7.8 Section Headings. Section headings are for reference only, and shall not affect the interpretation of meanings of any provision of this Agreement. 7.9 Severability. The illegality or unenforceability of any provision of any Loan Document shall not in any way affect or impair the legality or enforceability of the remaining provisions of such Loan Document or any other Loan Document. 7.10 Indemnity. Borrower hereby agrees to indemnify, protect and hold harmless the Bank and its officers, directors, agents, employees, attorneys and shareholders ("Indemnified Persons") from and against all reasonable costs and expenses (including, without limitation, the reasonable cost of counsel), and all actions, claims (whether made or threatened), suits, liabilities, damages and losses incurred by or imposed on any Indemnified Persons in connection with or as a result of the execution, delivery and performance of the Loan Documents and the use of the proceeds thereunder, provided, however, that such indemnity shall not apply to any action by Borrower against a Bank; and provided, further, that the foregoing provision shall not be deemed to limit the provisions of Section 7.5 hereof. Notwithstanding anything to the contrary in this Section 7.10, Borrower shall not be obligated to indemnify any Indemnified Person for any losses, claims, damages, liabilities and expenses incurred by such Indemnified Person which have finally been determined to have resulted from the gross negligence or willful misconduct on the part of such Indemnified Person. Without limiting the generality of the foregoing, such indemnity shall extend to any and all reasonable costs and expenses whatsoever incurred by the Indemnified Persons (including, without limitation, the reasonable cost of counsel, whether staff counsel or otherwise and whether allocated or out-of-pocket) in connection with investigating, preparing for or defending against or providing evidence, producing documents or taking any action with respect to any such action, claim (whether made or threatened and whether or not such Indemnified Person is a party to such action or claim), suit, liability, damage or loss, whether or not resulting in any liability. The Indemnified Person may select its own legal counsel in connection with any matters indemnified against hereunder. This indemnity shall survive the execution, delivery and consummation of the transactions contemplated by this Agreement. Payment by Borrower in respect to an undisputed claim made by an Indemnified Person pursuant to this Section shall be made within thirty (30) days after demand therefor; otherwise, promptly upon resolution of such dispute. 7.11 JURY TRIAL WAIVER. THE BANK AND THE BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR RISING OUT OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS BETWEEN THEM CONTEMPLATED BY THE LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF THEM. NEITHER SHALL THE BANK NOR THE BORROWER SEEK TO CONSOLIDATE, BY COUNTER-CLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THIS SECTION 7.11 SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANK NOR THE BORROWER EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date and year first above written. "BORROWER" LILLY INDUSTRIES, INC. Attest: By: /s/ Roman J. Klusas Roman J. Klusas, /s/ Kenneth L. Mills Vice President, Chief -------------------------- Financial Officer and Kenneth L. Mills, Secretary Director of Corporate Accounting and Assistant Secretary Address: 733 South West Street Indianapolis, IN 46225 Attn: Vice President, Chief Financial Officer and Secretary Telephone: (317) 687-6702 Telecopier: (317) 687-6710 "BANK" SOCIETY NATIONAL BANK, INDIANA By: /s/ Daniel J. Lee Title: Vice President Address: 10 West Market Street Indianapolis, IN 46204 Attn: Daniel J. Lee Telephone: (317) Telecopier: (317) 464-8050 Schedule 1 Immaterial leases of furniture, fixtures and equipment. EXHIBIT A REVOLVING CREDIT NOTE $15,000,000.00 Indianapolis, Indiana January ____, 1995 FOR VALUE RECEIVED, on or before July 1, 1996 (subject to acceleration, extension or prepayment), LILLY INDUSTRIES, INC., an Indiana corporation ("Borrower"), hereby promises to pay to the order of SOCIETY NATIONAL BANK, INDIANA, a national banking association (the "Bank"), or its assigns, at the main office of the Bank at Indianapolis, Indiana, or at such other place as the holder hereof may designate in writing, in lawful money of the United States of America, the principal sum of Fifteen Million Dollars ($15,000,000), or so much thereof as may be advanced and outstanding from time to time, together with (a) interest on the unpaid principal balance existing from time to time at the rates set forth in Section 2.2 of the Agreement (as hereinafter defined) prior to maturity and while and so long as there exists no uncured Event of Default, and (b) interest after maturity, whether by acceleration or otherwise, or during any period while there exists any uncured Event of Default at a per annum rate equal to two percent (2%) above the otherwise applicable rate. Such interest shall be paid on actual daily balances of outstanding principal for the exact number of days such principal remains outstanding and shall be computed on the basis of a three hundred sixty (360) day year. Any change in the rate of interest on any Floating Rate Advance occasioned by a change in the Floating Rate shall be effective on the same day as the change in Floating Rate. Principal and interest under this Note shall be payable as follows: 1. Interest only on the outstanding principal balance shall be due and payable on the first day of each month, commencing on the first day of the month following the initial Advance; 2. From time to time, the Borrower shall pay installments of principal in an amount sufficient that the outstanding principal balance of this Note shall not exceed the Bank's commitment; and 3. Unless extended by the Bank or sooner paid by the Borrower, the entire unpaid balance of principal, and all accrued and unpaid interest thereon, shall be due and payable on July 1, 1996. If any installment of principal or interest under this Note is payable on a day other than a Business Day, the maturity of such installment shall be extended to the next succeeding Business Day, and interest shall be payable during such extension of maturity. Subject to the terms of the Agreement, the Borrower may borrow, pay, reborrow and repay the principal amount of this Note at any time and from time to time. This Note is referred to in, and is entitled to the benefit of, a certain Revolving Credit Agreement [1995] executed between Borrower and Society National Bank, Indiana of even date (as the same may be amended from time to time, the "Agreement"). Advances under this Note shall be made in accordance with the Agreement. The Agreement, among other things, contains a definition of the capitalized terms used herein and provisions for acceleration of the maturity hereof upon the happening of certain stated events. If Borrower fails to make the payment of any installment of principal or interest, as herein provided, when due, or fails in the performance of any of the terms, agreements, covenants or conditions contained in the Agreement beyond any applicable grace period set forth therein, then in any of such events, or at any time thereafter, the entire principal balance of this Note, and all accrued and unpaid interest thereon, irrespective of the maturity date specified herein, together with reasonable attorneys' fees and other costs incurred in collecting or enforcing payment or performance hereof and with interest from the date of the Event of Default on the unpaid principal balance hereof at the default rate hereinabove specified, shall, at the election of the holder hereof, and without relief from valuation and appraisement laws, become immediately due and payable. The Borrower and all endorsers, guarantors, sureties, accommodation parties hereof and all other parties liable or to become liable for all or any part of this indebtedness, severally waive demand, presentment for payment, notice of dishonor, protest and notice of protest and expressly agree that this Note and any payment coming due under it may be extended or otherwise modified from time to time without in any way affecting their liability hereunder. This Note shall be construed according to and governed by the laws of the State of Indiana. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly authorized officers as of the date and year first hereinabove written. LILLY INDUSTRIES, INC. an Indiana corporation By: /s/ Roman J. Klusas ------------------------- Roman J. Klusas, Vice President, Chief Financial Officer and Secretary Attest: /s/ Kenneth L. Mills ------------------------ Kenneth L. Mills, Director of Corporate Accounting and Assistant Secretary EXHIBIT B January 27, 1995 Society National Bank, Indiana 10 West Market Street Indianapolis, Indiana 46204 Re: Revolving Credit Agreement (1995) of even date between Society National Bank, Indiana (the "Bank") and Lilly Industries, Inc. (the "Borrower") (the "Agreement") Gentlemen: We have acted as special counsel to the Borrower in connection with the transactions contemplated by the above referenced Agreement. Capitalized terms used herein and not specifically herein defined shall have the meanings ascribed to them in the Agreement. In such capacity, and for the purpose of rendering this opinion, we have examined the following: (a) The Agreement; (b) The Revolving Credit Note; and (c) Copies, certified by the Secretary of the Corporation, of the corporate proceedings pursuant to which the execution of the Agreement, and the Revolving Credit Note (collectively, the "Loan Documents") were ratified, approved and authorized. In arriving at the opinions expressed below, we have examined such other documents and have considered such questions of law, as, in our judgment, have been necessary to enable us to render this opinion. With respect to factual matters material to our opinion, we have, when such facts have not been independently established, relied upon certificates of officers of the Borrower, certificates or other information obtained from governmental authorities and such other information as in our judgment is necessary or appropriate to render the opinions expressed below. In rendering the opinions set forth herein we have assumed, with your consent and without any independent inquiry, the following: (i) The genuineness of signatures of the persons executing all instruments, documents, certificates, and/or agreements evidenced by or related to the transactions contemplated by the Loan Documents; (ii) The authority of the persons executing the Loan Documents and all other instruments, documents, certificates and/or agreements related to the transactions contemplated thereby on behalf of the parties thereto (other than the Borrower); (iii) The due authorization by all necessary corporate action of the execution and delivery of the Loan Documents and all instruments, documents, certificates, and/or agreements related to the transactions contemplated thereby on behalf of the parties thereto (other than the Borrower); (iv) The authenticity of all documents submitted to us as originals; and (v) The conformity to authentic original documents of documents submitted to us as certified, conformed or photostatic copies. Based upon the foregoing and subject to the further qualifications and limitations hereinafter set forth, it is our opinion, limited in all respects to the present internal laws of the State of Indiana and the present federal laws of the United States of America, that, insofar as those laws are applicable: 1. The Borrower is a corporation, duly organized and validly existing under and by virtue of the laws of the State of Indiana. The Borrower has taken all necessary corporate action to authorize the execution and delivery of the Loan Documents. 2. The Borrower possesses the requisite corporate power to enter into the Loan Documents and to perform its obligations thereunder. 3. The execution and delivery of the Loan Documents by the Borrower will not violate, breach, contravene, cause a default or result in the imposition of a lien under any provision of the Articles of Incorporation or Bylaws of the Borrower or, to our knowledge, any existing note, bond, mortgage, debenture, indenture, trust, lease, instrument, judgment, order, decree, or other agreement to which the Borrower is a party or by which it or its assets may be bound. 4. The Loan Documents will, upon due execution and delivery by an authorized officer of the Borrower, constitute legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, except as the same may be limited by (i) the United States Bankruptcy Code, (ii) any applicable insolvency, reorganization, moratorium or similar laws of the State of Indiana or the United States relating to or affecting the enforcement of creditors' rights generally, (iii) general principles of equity, and (iv) judicial discretion. 5. To our knowledge, no authorization, consent, approval, registration, license or any form of exemption of any Indiana state or United States federal governmental authority is required in connection with the execution, delivery and performance by the Borrower of its obligations under the Loan Documents. 6. To our knowledge, (i) no litigation or proceeding of any Indiana state or United States federal governmental authority or any other person is presently pending or threatened against the Borrower, nor (ii) has any claim been asserted against the Borrower, which in the case of (i) or (ii) above seeks to enjoin the transactions contemplated by the Loan Documents. Our opinion is subject to the following qualifications: A. The enforceability of the Loan Documents may be limited if the Bank should fail to act in good faith or in a commercially reasonable manner in seeking to exercise rights or remedies thereunder. B. Whenever our opinion with respect to the existence or absence of facts is qualified by the phase "to our knowledge", it is intended to indicate that during the course of our representation of the Borrower no information has come to our attention which would give us actual knowledge of the existence or absence of such facts. Moreover, we have not undertaken any independent investigation to determine the existence or absence of such facts, and any limited inquiries made by us should not be regarded as such an investigation. Any certificates or representations obtained by us form officers of the Borrower with respect to such opinions have been relied upon without any independent verification. C. Whenever we have stated we assumed any matter, it is intended to indicate that we have assumed such matter without making any factual, legal, or other inquiry or investigation, and without expressing any opinion or stating any conclusion of any kind concerning such matter. D. This opinion is furnished to you pursuant to the Loan Documents and is not to be used, circulated, quoted or otherwise referred to for any other purpose. E. This opinion is dated and speaks as of the date of delivery. We have no obligation to advise you or any third parties of any changes in law or fact that may hereafter occur or come to our attention, even though the legal analysis or legal conclusions contained in this opinion letter may be affected by such change. Very truly yours, EX-11 5 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE Exhibit 11
COMPUTATION OF EARNINGS PER SHARE LILLY INDUSTRIES, INC. AND SUBSIDIARIES (In thousands, except per share data) Year Ended November 30 1994 1993 1992 Primary: Average shares outstanding - - Note A 22,660 22,383 22,715 Net Income $23,302 $16,155 $12,706 Net Income per common share - - Note A $1.03 $0.72 $0.56 ======= ======= ======= Average shares outstanding - - Note A 22,660 22,383 22,715 Dilutive stock options based on treasury stock method using average market price - - Note A 571 579 333 ------- ------- ------- 23,231 22,962 23,048 ======= ======= ======= Net Income $23,302 $16,155 $12,706 Net Income per common and common equivalent share - - Note A $1.00 $0.70 $0.55 ======= ======= ======= Fully diluted: Average shares outstanding - - Note A 22,660 22,383 22,715 Dilutive stock options based on treasury stock method using the higher of year end, quarter end or average market price - - Note A 590 740 474 ------- ------- ------- 23,250 23,123 23,189 ======= ======= ======= Net Income $23,302 $16,155 $12,706 Net Income per common and common equivalent share - - Note A $1.00 $0.70 $0.55 ======= ======= ======= Note A - - Amounts have been adjusted to recognize the effect of all stock splits and stock dividends through November 30, 1994.
EX-13 6 EXHIBIT 13 EXCERPTS FROM LILLY INDUSTRIES, INC. 1994 ANNUAL REPORT EXHIBIT 13 Dividend Information and Common Stock Prices Dividends are traditionally paid on the 1st business day of January, April, July and October to shareholders of record approximately three weeks prior. The following table sets forth the dividends paid per share of stock and the high and low prices in each of the quarters in the past two years ended November 30. Dividends have been adjusted for all stock splits. Quotations represent prices between dealers and do not reflect retail mark- ups, mark-downs or commissions.
Fiscal 1994 Dividends Per Share High Low 1st quarter ended February 28 $.060 $16 7/8 $13 1/2 2nd quarter ended May 31 .067 18 14 1/2 3rd quarter ended August 31 .070 15 11 3/4 4th quarter ended November 30 .070 14 1/2 12 ----------------------------- $.267 ===== Fiscal 1993 1st quarter ended February 28 $.058 $11 3/8 $ 9 3/8 2nd quarter ended May 31 .060 12 5/8 10 3/8 3rd quarter ended August 31 .060 12 1/2 10 1/2 4th quarter ended November 30 .060 15 7/8 11 1/2 ----------------------------- $.238 =====
Stock Trading The Company's Class A stock is traded on the national over-the- counter market. Its trading symbol is LICIA. Stock price quotations can be found in major daily newspapers and in The Wall Street Journal. At November 30, 1994, there were 2,080 registered shareholders of Class A stock and 78 registered shareholders of Class B stock.
SELECTED FINANCIAL DATA(1) (In thousands, except per share data) Year Ended November 30 1994 1993 1992 1991 Operations Net sales $331,306 $284,325 $236,476 $220,508 Cost of products sold 214,809 189,111 152,480 150,669 Selling, administrative, research and development expenses 74,480 65,644 61,158 57,527 Income taxes 16,350 11,784 9,201 4,417 Minority shareholders' interests (deduction) Net income 23,302 16,155 12,706 6,357 Per Share Data(2) Net income 1.00 .70 .55 .27 Cash dividends .267 .238 .223 .214 Book value 4.38 3.60 3.16 3.16 Average number of shares and equivalent shares outstanding(3) 23,250 23,123 23,189 23,499 Shares outstanding at year end 22,710 22,517 22,226 23,480 Price range of Class A stock 18 15-7/8 9-3/4 6-1/8 to 11-3/4 to 9-3/8 to 5-5/8 to 4-1/8 Other Data Working capital 41,604 33,270 27,131 30,405 Current ratio 1.8:1 1.9:1 2.0:1 2.0:1 Total assets 190,252 167,044 117,049 127,342 Additions to property and equipment(4) 6,693 7,598 3,262 1,928 Depreciation 4,637 3,746 3,965 4,038 Cash dividends 6,049 5,327 5,104 5,005 Long-term debt 28,026 40,621 10,361 16,638 Shareholders' equity 99,424 81,128 70,125 74,187 Return on average equity 25.8% 21.4% 17.6% 8.6% Return on sales before minority shareholders' interests 7.0% 5.7% 5.4% 2.9% (1) This table of Selected Financial Data should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition and the Company's consolidated financial statements included herein. (2) Adjusted for all stock splits and stock dividends through November 30, 1994, inclusive. Prices are rounded to nearest 1/8. (3) Used to calculate net income per share. (4) Excludes effect of acquisitions.
SELECTED FINANCIAL DATA (1) - Continued (In thousands, except per share data) Year Ended November 30 1990 1989 1988 1987 1986 1985 1984 Operations Net Sales $240,146 $219,713 $203,499 $189,213 $147,524 $149,858 $140,693 Cost of products sold 161,626 145,592 134,114 122,135 96,196 98,910 92,507 Selling, administrative, research and development expenses 61,218 53,821 51,496 48,651 35,551 35,502 32,079 Income taxes 6,850 8,399 7,550 8,599 7,785 7,542 8,469 Minority shareholders' interests (deduction) 286 356 94 (404) (437) (820) Net income 10,022 12,574 11,284 10,272 8,515 8,648 8,550 Per Share Data (2) Net income .41 .51 .45 .40 .33 .34 .34 Cash dividends .199 .173 .153 .141 .131 .113 .093 Book value 3.10 3.00 2.65 2.34 2.11 1.92 1.70 Average number of shares and equivalent shares outstanding(3) 24,659 24,863 24,921 25,511 25,482 25,416 25,317 Shares outstanding at year end 23,634 24,863 24,863 25,104 25,284 24,870 24,629 Price range of Class A stock 7-5/8 7-1/8 7-1/8 7-5/8 6 4-7/8 4-1/4 to 4 to 5-3/8 to 4-7/8 to 4-5/8 to 4-1/4 to 3-3/8 to 2-7/8 Other Data Working capital 34,513 40,389 36,368 26,006 31,798 32,891 32,819 Current ratio 2.6:1 2.5:1 2.8:1 2.0:1 3.6:1 3.4:1 3.7:1 Total assets 125,371 129,025 101,357 96,814 75,924 69,153 61,085 Additions to property and equipment(4) 3,968 2,486 2,930 5,397 4,304 4,447 4,165 Depreciation 4,021 3,387 3,133 2,785 2,123 2,098 1,576 Cash dividends 4,923 4,341 3,843 3,603 3,293 2,796 2,282 Long-term debt 23,016 21,105 5,829 3,137 1,006 910 1,050 Shareholders' equity 73,185 74,482 65,987 58,755 53,359 47,658 41,931 Return on average equity 13.6% 17.9% 18.1% 18.3% 16.9% 19.3% 22.1% Return on sales before minority shareholders' interests 4.2% 5.6% 5.4% 5.4% 6.0% 6.1% 6.7% (1) This table of Selected Financial Data should be read in conjunction with Management's Discussion and Analysis of Results of Operations and Financial Condition and the Company's consolidated financial statements included herein. (2) Adjusted for all stock splits and stock dividends through November 30, 1994, inclusive. Prices are rounded to nearest 1/8. (3) Used to calculate net income per share. (4) Excludes effect of acquisitions.
MANAGEMENT S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations The Company s fiscal 1994 operating results reached all-time record levels. Sales and net income increased 17% and 44%, respectively, over the prior year. Fiscal 1994 represents the third consecutive year in which record profitability has been achieved. Sales in 1994 climbed to $331.3 million from $284.3 million in 1993. Sales gains were realized in all business units resulting from a strong manufacturing sector of the North American economy and the integration of a full year of operations of the ICI Paints liquid industrial coatings business acquired in May 1993. Fiscal 1993 sales increased 20% over 1992 levels due largely to an improving economy and the acquired business. Cost of products sold represented 64.8% of net sales in 1994 as compared to 66.5% in 1993. This improvement resulted from gains in production efficiencies and higher business volumes. Fiscal 1993 cost of products sold as a percentage of net sales were 2% higher than 1992 due primarily to transition and start-up costs associated with the acquired business. Increased business volumes caused higher operating expenses in fiscal 1994 and 1993. However, operating expenses as a percentage of net sales continued to decrease due to effective cost control and were 22.5%, 23.1% and 25.9% of net sales in 1994, 1993 and 1992, respectively. Operating income of $42.0 million in 1994 was a record high and represents a 42% increase over the previous record high of $29.6 million attained in 1993. Increases in operating income in 1994 and 1993 resulted from increased business levels and effective cost control. Net non-operating expense increased in 1994 and 1993 due mainly to higher interest costs associated with debt obligations for the acquired business. Income tax rates remained relatively stable over the last three years with rates ranging from 41.2% to 42.2% of pre-tax income. In 1994, net income climbed to a record level of $23.3 million, or $1.00 per share, representing a 44% increase over 1993 net income of $16.2 million, or $.70 per share. Net income in 1993 increased 27% over net income earned in 1992. The Company adopted Statements of Financial Accounting Standards Nos. 106 and 109 in 1994. See Note 4 and Note 6 of the consolidated financial statements for a discussion of the effects of adopting these statements. Liquidity and Capital Resources During the year ended November 30, 1994, the Company generated sufficient cash flow from operations to meet operating requirements, reduce debt, pay increased dividends to shareholders and fund capital spending. Operating cash flow generated in 1994 totaled $39.0 million compared to $17.4 million in 1993. This increase is due to higher net income and the prior year increases in working capital accounts associated with higher business volumes. In 1993, the Company financed the acquired business with new short-term borrowings from banks. On January 12, 1994, the Company issued $35 million of 4.92% unsecured senior notes to refinance these borrowings from banks. Principal on the senior notes in the amount of $7 million is due annually beginning in January 1995. Concurrently with the issuance of these unsecured senior notes, the Company entered into a three year interest rate swap agreement with a notional amount of $35 million which declines ratably as principal payments are made on the senior notes. This swap agreement effectively converts the notes from fixed rate debt to six-month LIBOR-based floating rate debt. The Company s strong cash flow allowed it to pay off essentially all other outstanding debt during 1994. In addition to internal sources of funds, the Company maintains $46 million in lines of credit with various banks all of which were available at November 30, 1994. Use of these facilities was not required at any time during 1994. The Company s 1994 current ratio was 1.8:1 compared to the 1993 current ratio of 1.9:1. This decrease is due to an increase in current maturities of long-term debt associated with the senior notes and increases in other operating liabilities offset by an increase in cash. The Company s 1994 financing activities also included cash dividend payments to shareholders of $6.0 million compared to cash dividend payments of $5.3 million and $5.1 million in 1993 and 1992, respectively. The rate of dividends paid to shareholders was increased 17% in 1994 from 6 cents to 7 cents per share. The Company s 1994 investing activities included capital expenditures of $6.7 million. As is common in the paint and coatings industry, the Company has been notified that it is a potentially responsible party for clean-up costs with respect to several governmental investigations at independently operated waste disposal sites previously used by the Company. Management has accrued, as appropriate, for these environmental matters. Management believes expenditures associated with these sites will not have a material adverse effect on its consolidated financial position. The Company is well positioned financially to repay existing debt, fund general operating needs and obtain additional financing at reasonable rates and terms for additional investment opportunities. RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Lilly Industries, Inc. is responsible for the preparation of the financial statements in the Annual Report and for the integrity and objectivity of the information presented. The financial statements have been prepared in conformity with generally accepted accounting principles and necessarily include amounts which are estimates and judgments. The fairness of the presentation in these statements of the Company s financial position, results of operations and cash flows is reported on by the independent auditors. To assist in carrying out the above responsibility, the Company has internal systems which provide for selection of personnel, segregation of duties and the maintenance of accounting policies, systems, procedures and related controls. Although no cost-effective system can insure the elimination of errors, the Company s systems have been designed to provide reasonable but not absolute assurances that assets are safeguarded, that policies and procedures are followed, and that the financial records are adequate to permit the production of reliable financial statements. The Audit Committee of the Board of Directors, which is composed of directors who are not employees of the Company or its subsidiaries, meets regularly with Company officers and independent auditors in connection with the adequacy and integrity of the Company s financial reporting and internal controls. Roman J. Klusas Vice President and Chief Financial Officer Report of Independent Auditors Shareholders and Board of Directors Lilly Industries, Inc. REPORT OF INDEPENDENT AUDITORS We have audited the accompanying consolidated balance sheets of Lilly Industries, Inc. and subsidiaries as of November 30, 1994 and 1993, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended November 30, 1994. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lilly Industries, Inc. and subsidiaries at November 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1994, in conformity with generally accepted accounting principles. Ernst & Young LLP Indianapolis, Indiana January 27, 1995
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (In thousands, except per share data) Year Ended November 30 1994 1993 1992 Net sales $331,306 $284,325 $236,476 Costs and expenses Cost of products sold 214,809 189,111 152,480 Selling, administrative and general 61,498 53,319 50,128 Research and development 12,982 12,325 11,030 -------- -------- -------- 289,289 254,755 213,638 -------- -------- -------- Operating Income 42,017 29,570 22,838 Other income (expense) Interest income and sundry 554 294 731 Interest expense (2,919) (1,925) (1,662) -------- -------- -------- (2,365) (1,631) (931) -------- -------- -------- Income Before Income Taxes 39,652 27,939 21,907 Income taxes Note 6 16,350 11,784 9,201 -------- -------- -------- Net Income 23,302 16,155 12,706 Retained earnings at beginning of year 20,970 10,142 10,927 -------- -------- -------- 44,272 26,297 23,633 Deduct dividends paid Cash (1994, $.267 per share; 1993, $.238 per share; 1992, $.223 per share) 6,049 5,327 5,104 Stock - - 8,387 -------- -------- -------- 6,049 5,327 13,491 -------- -------- -------- Retained Earnings at End of Year $ 38,223 $ 20,970 $ 10,142 ======== ======== ======== Average number of shares and equivalent shares of capital stock outstanding 23,250 23,123 23,189 Net income per share $ 1.00 $ .70 $ .55
CONSOLIDATED BALANCE SHEETS (In thousands) November 30 1994 1993 Assets Current assets Cash and cash equivalents $ 26,581 $ 7,384 Accounts receivable, less allowances for doubtful accounts 1994, $1,759; 1993, $1,353) 42,231 39,936 Inventories Note 3 23,885 22,727 Other 360 174 -------- -------- Total Current Assets 93,057 70,221 Other assets Goodwill, less amortization (1994, $3,978; 1993, $2,968) 28,511 29,521 Other intangibles, less amortization (1994, $9,697; 1993, $9,996) 22,467 25,950 Sundry 10,464 7,576 -------- -------- 61,442 63,047 Property and equipment Land 4,044 3,910 Buildings 25,382 24,752 Equipment 46,339 41,143 Allowances for depreciation (deduction) (40,012) (36,029) -------- -------- 35,753 33,776 -------- -------- $190,252 $167,044 ======== ======== Liabilities and Shareholders Equity Current liabilities Accounts payable $ 29,288 $ 24,872 Salaries, wages, commissions and related items 9,160 7,341 State and local taxes 1,520 273 Federal income taxes 4,401 985 Current portion of long-term debt Note 5 7,084 3,480 -------- -------- Total Current Liabilities 51,453 36,951 Long-term debt Note 5 28,026 40,621 Other liabilities 11,349 8,344 Shareholders equity Notes 7 and 9 Capital stock $.55 stated value per share: Class A (limited voting) 26,695 shares issued (1993, 26,469 shares) 14,831 14,705 Class B (voting) 540 shares issued 300 300 Additional capital 71,972 70,635 Retained earnings 38,223 20,970 Currency translation adjustments 185 105 Cost of capital stock in treasury (deduction) (26,087) (25,587) -------- -------- 99,424 81,128 -------- -------- $190,252 $167,044 ======== ========
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended November 30 1994 1993 1992 Operating Activities Net income $ 23,302 $ 16,155 $ 12,706 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,637 3,746 3,965 Amortization of intangibles and other 4,328 3,141 2,827 Deferred income taxes (1,789) (745) (46) Changes in operating assets and liabilities net of effects from acquired business: Accounts receivable (2,295) (10,335) (903) Inventories (1,158) (2,974) 2,665 Other current assets (186) 121 382 Accounts payable and accrued expenses 7,482 9,185 228 Federal income taxes 3,416 398 (1,163) Sundry 1,233 (1,264) 1,588 --------- --------- --------- Net Cash Provided by Operating Activities 38,970 17,428 22,249 Investing Activities Purchases of property and equipment (6,693) (7,598) (3,262) Payment for acquired business - (37,500) - Purchases of short-term investments - - (2,778) Proceeds from maturities of short-term investments - 2,417 2,291 Sundry 1,005 159 1,390 --------- --------- --------- Net Cash Used by Investing Activities (5,688) (42,522) (2,359) Financing Activities Cash dividends paid (6,049) (5,327) (5,104) Proceeds from short-term and long-term borrowings - 39,000 - Principal payments on short-term and long-term borrowings (9,000) (9,529) (7,481) Purchases of capital stock for treasury - - (11,054) Sundry 964 - - --------- --------- --------- Net Cash (Used) Provided by Financing Activities (14,085) 24,144 (23,639) --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 19,197 (950) (3,749) Cash and cash equivalents at beginning of year 7,384 8,334 12,083 --------- --------- --------- Cash and cash equivalents at end of year $26,581 $ 7,384 $ 8,334 ========= ========= =========
Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Consolidation and Business The consolidated financial statements include the accounts of all subsidiaries after elimination of intercompany accounts and transactions. Lilly Industries, Inc. and its subsidiaries (the Company) are principally in the business of manufacturing and selling industrial coatings (including enamels, varnishes, lacquers, gelcoats, silver solutions and similar coatings) to other manufacturing companies. Cash Equivalents Cash equivalents include time deposits and certificates of deposit with original maturities of three months or less. Inventories Inventories in the United States are stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market. Inventories of foreign subsidiaries are stated at the lower of cost, determined by the first-in, first-out (FIFO) method, or market. Intangible Assets Goodwill (the excess of cost over the fair value of net assets of purchased businesses) and other intangible assets are amortized by the straight-line method over periods ranging from 5 to 40 years. Property and Equipment Property and equipment is recorded on the basis of cost and includes expenditures for new facilities and items which substantially increase the useful life of existing buildings and equipment. Depreciation is based on estimated useful lives and computed primarily by the straight-line method. Net Income Per Share Net income per share is computed on the basis of the weighted average number of shares outstanding during each year, adjusted for stock splits, stock dividends and the dilutive effect, if any, of common stock equivalents. 2. Acquisition On May 7, 1993, the Company acquired assets of ICI Paints North American wood, coil and general liquid industrial coatings business (the Acquired Business ), including inventory, certain laboratory equipment, patents, trademarks and other related intellectual property rights (together with a non-compete covenant from ICI) in exchange for $37,500,000 in cash and the Company s packaging coatings business. The acquired business was integrated into the Company s existing facilities. Proceeds of bank loans were used to fund the cash portion of the purchase price. The acquisition transaction was recorded by the purchase method and the consolidated financial statements include the results of operations of the acquired business since the date of acquisition. The excess of the purchase price over fair value of assets acquired is being amortized by the straight-line method over 20 years. The following pro forma consolidated results of operations are stated as though the acquisition occurred on December 1, 1991 and are not necessarily indicative of actual results of operations that would have occurred had the purchase been made at that date, or of future results of operations. Unaudited pro forma net sales, net income and net income per share for the year ended November 30, 1993 were $311,725,000, $16,913,000 and $.73, respectively. Unaudited pro forma net sales, net income and net income per share for the year ended November 30, 1992 were $296,876,000, $14,269,000 and $.61, respectively. 3. Inventories
The principal inventory classifications at November 30 are summarized as follows (in thousands): 1994 1993 Finished products $16,831 $12,971 Raw materials 15,127 17,619 ------- ------- 31,958 30,590 Less adjustment of certain inventories to last-in, first-out (LIFO) basis 8,073 7,863 ------- ------- $23,885 $22,727 ======= =======
Inventory cost is determined by the LIFO method of inventory valuation for approximately 82% and 85% of inventories at November 30, 1994 and 1993, respectively. While management believes the LIFO method results in a better matching of current costs and revenues, the FIFO method is used to cost inventories of foreign subsidiaries because foreign statutory requirements prohibit use of the LIFO method. 4. Benefit Plans The Company maintains defined benefit and defined contribution plans that cover substantially all employees. Retirement benefits under the defined benefit plans are based on final monthly compensation and years of service. Retirement benefits under the defined contribution plan are based on employer and employee contributions plus earnings to retirement. The plans assets consist primarily of common stock, fixed income securities and guaranteed insurance contracts. In addition, an unfunded supplemental executive retirement plan covers certain employees in which benefits, determined by the Board of Directors, are payable over 15 years. This plan is designed so that if certain assumptions regarding mortality experience, policy dividends and other factors are realized, the Company will recover all costs through insurance policies. The provision for defined benefit pension cost is determined using the projected unit credit actuarial method. The Company s policy is to fund amounts as are necessary on an actuarial basis to provide assets sufficient to meet the benefits to be paid to plan members in accordance with the Employee Retirement Income Security Act of 1974. Amounts contributed to union-sponsored pension plans are based upon requirements of collective bargaining agreements. Company contributions to the defined contribution plan are based on a percentage of employee contributions. A summary of the components of net pension cost for the defined benefit plans and amounts charged to expense for the other plans described above for the years ended November 30 follows (in thousands):
1994 1993 1992 Defined benefit plans: Service cost benefits earned during the period $ 2,109 $ 1,800 $ 1,680 Interest cost on projected benefit obligation 2,638 2,549 2,300 Actual net loss (gain) on plan assets 529 (3,503) (4,000) Net amortization and deferral (4,224) 160 937 ------- ------- ------- Net pension cost 1,052 1,006 917 Other plans 759 705 540 ------- ------- ------- Pension expense $ 1,811 $ 1,711 $ 1,457 ======= ======= =======
The expected long-term rate of return on assets used to compute the defined benefit plans pension expense was 9.25% for 1994, 1993 and 1992. Assumptions used in the accounting for the defined benefit plans as of November 30 were:
1994 1993 Discount rate on benefit obligation 8.0% 7.0% Rates of increase in compensation levels 5.0% 5.0%
Effective December 1, 1994, the defined benefit pension plan covering substantially all U.S. employees was amended to freeze years of service at November 30, 1994. Concurrently with this amendment, the Company increased its matching contribution rates to defined contribution plans. Total pension expense is not expected to change materially as a result of these modifications to the benefit plans. The following table sets forth the funded status and amounts recognized in the consolidated balance sheets at November 30 for the Company s defined benefit pension plans (in thousands). The 1994 amounts reflect the effect of the amendment to freeze years of service:
1994 1993 Actuarial present value of benefit obligations: Vested $ 27,598 $ 28,641 Nonvested 2,944 4,683 -------- -------- Total accumulated benefit obligations $ 30,542 $ 33,324 ======== ======== Actuarial present value of projected benefit obligations for services rendered to date $(35,257) $(38,579) Plan assets at fair value 38,714 40,100 -------- -------- Excess of plan assets over projected benefit obligations 3,457 1,521 Unrecognized net (gains) losses (990) 130 Unrecognized prior service cost 2,455 2,778 Unrecognized net excess plan assets at December 1, 1985, net of amortization (1,741) (1,943) -------- -------- Net pension asset $ 3,181 $ 2,486 ========= ========
The plan amendment and the increase in discount rate resulted in a decrease of approximately $5,000,000 in the projected benefit obligations. Accumulated benefits for the supplemental executive retirement plan totaled approximately $2,290,000 and $2,218,000 at November 30, 1994 and 1993, respectively. The Company provides health care benefits to retirees meeting certain eligibility requirements. Eligibility is based on age and years of service. Retirees participate in the cost of these benefits through contributions and other cost sharing features such as deductibles and coinsurance, which are subject to periodic adjustment by the Company. Funding of benefits is provided by the Company and retiree contributions. During the first quarter of fiscal 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions . SFAS No. 106 requires accrual accounting for the expected cost of providing postretirement health care benefits to retirees. Prior to fiscal 1994, the Company recognized the cost of these benefits as claims were paid. Expense recognized under SFAS No.106 is not materially different from expense recognized prior to 1994 using the cash basis. The accumulated postretirement benefit obligation resulting from the adoption of this statement is being amortized over 20 years.
Net periodic postretirement benefit cost includes the following components for the year ended November 30, 1994 (in thousands): 1994 Service cost $ 50 Interest cost 380 Amortization of transition obligation 238 ----- $ 668 =====
The funded status and amounts recognized in the Company s consolidated balance sheet for postretirement benefits at November 30, 1994 were as follows (in thousands): 1994 Accumulated postretirement benefit obligation: Retirees $3,469 Eligible active employees 1,429 ------ 4,898 Unrecognized transition obligation (4,530) ------ Accrued postretirement benefit cost $ 368 ======
The accumulated postretirement benefit obligation was determined using a discount rate of 8.5%. The health care cost trend rate used in determining the accumulated postretirement benefit obligation was 12% in 1994 and is assumed to decrease gradually to 6% in the year 2000 and finally to 5.5% in the year 2019 and thereafter. A one percent increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation by approximately 7% and fiscal 1994 expense by approximately 4%. 5. Long-Term Debt
Long-term debt consists of the following as of November 30 (in thousands): 1994 1993 4.92% unsecured senior notes $35,000 $ -- Unsecured revolving notes payable to banks -- 35,000 Unsecured note payable to bank -- 6,875 Unsecured note payable to bank -- 2,000 Other 110 226 ------- ------- 35,110 44,101 Less current portion 7,084 3,480 ------- ------- $28,026 $40,621 ======= =======
On January 12, 1994, the Company issued $35,000,000 of 4.92% unsecured senior notes. The proceeds were used to repay the unsecured revolving notes payable to banks. Outstanding principal of the senior notes in the amount of $7,000,000 becomes due each year beginning in 1995. The entire unpaid principal amount becomes due in 1999. Interest is payable semiannually beginning in 1994. Concurrently with the issuance of these senior notes, the Company entered into a three year interest rate swap agreement with a notional amount of $35,000,000 which declines ratably as principal payments are made on the senior notes. This agreement effectively converts the senior notes from fixed rate debt to six-month LIBOR-based floating rate debt. The unsecured notes payable to banks of $6,875,000 and $2,000,000 paid interest at 9.56% and 8.68%, respectively. Scheduled maturities of long-term debt are: 1995 - $7,084,000; 1996 - $7,026,000; 1997 - $7,000,000; 1998 - $7,000,000 and 1999 - $7,000,000. Interest of $1,853,000, $1,992,000 and $1,673,000 was paid in 1994, 1993 and 1992, respectively. The Company s term and revolving loan agreements provide for revolving lines of credit of up to $46,000,000 through June 1, 1995, all of which were available at November 30, 1994. Interest rates for these lines are to be determined at the time of borrowing based on a choice of formulas specified in the agreements. Certain of the Company s financing arrangements contain covenants which, among other things, require maintenance of certain financial ratios. The Company was in compliance with such ratios at November 30, 1994. 6. Income Taxes Effective December 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes which requires use of the liability method for financial reporting. Financial statements for prior years have not been restated and the cumulative effect of the accounting change was not material.
Income tax expense for the years ended November 30 is comprised of the following components (in thousands): Liability Deferred Method Method 1994 1993 1992 Current expense: Federal $12,395 $ 8,001 $5,521 Foreign 2,944 2,563 2,575 ------- -------- ------ 15,339 10,564 8,096 Deferred expense (credit): Federal (1,627) (674) 200 Foreign (162) (71) (246) ------- ------- ------ (1,789) (745) (46) State 2,800 1,965 1,151 ------- ------- ------ $16,350 $ 11,784 $9,201 ======= ======== ======
A reconciliation of the statutory U.S. federal rate to the effective income tax rate for the years ended November 30 is as follows: 1994 1993 1992 Statutory U.S. federal income tax rate 35.0% 34.9% 34.0% Increase resulting from: State income taxes, net of federal income tax benefit 3.7 3.6 3.5 Foreign tax rates .2 .1 1.0 Other items 2.3 3.6 3.5 ---- ---- ---- Effective income tax rate 41.2% 42.2% 42.0% ==== ==== ====
Deferred income taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. The deferred tax assets and liabilities recorded on the balance sheet at November 30, 1994 are as follows (in thousands):
1994 Deferred tax assets: Goodwill $1,308 Employee benefits 1,499 Accounts receivable, inventory and other 5,331 ------ 8,138 Deferred tax liabilities: Property and equipment $2,994 Pension 1,310 Intangibles and other 1,534 ------ 5,838 ------ Net deferred tax assets $2,300 ======
No provision has been made for U.S. federal income taxes on certain undistributed earnings of foreign subsidiaries that the Company intends to permanently invest or that may be remitted tax-free. The total of undistributed earnings that would be subject to federal income tax if remitted under existing law is approximately $10,000,000 at November 30, 1994. Determination of the unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. Upon distribution of these earnings, the Company will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid will be available to reduce the U.S. tax liability. Income taxes of $13,400,000, $12,877,000 and $9,840,000 were paid in 1994, 1993 and 1992, respectively. 7. Capital Stock Authorized shares of Class A and Class B stock are 48,500,000 and 1,500,000 shares, respectively. In May 1994, a three-for-two stock split was affected for Class A and Class B stock whereby one additional share was issued for every two shares outstanding. References to average number shares outstanding, net income per share and dividends per share have been adjusted to recognize the effect of this stock split. The limited voting rights of Class A shareholders are equal to voting rights of Class B shareholders only with regard to voting for merger, consolidation or dissolution of the Company and voting and electing four directors of the Company if there are ten or more directors and two directors if there are nine or fewer directors. With respect to all rights other than voting, Class A shareholders are the same as Class B shareholders. The terms of the Class B stock, which is held only by employees, provide that these shares be exchanged for Class A stock on a share-for-share basis when the shareholder ceases to be an employee or decides to dispose of the shares. Accordingly, 1,500,000 shares of authorized Class A stock are reserved for this purpose.
A summary of shares issued and held in treasury follows (in thousands): Capital Stock Capital Stock Issued Held in Treasury Class A Class B Class A Class B Balance at November 30, 1991 11,032 240 1,199 135 Class A exchanged for Class B - - 42 (42) Class B exchanged for Class A - - (33) 33 5% stock dividend 472 - - - Acquisition for treasury - - 575 - Stock options exercised 84 - 26 15 ------ ---- ----- --- Balance at November 30, 1992 11,588 240 1,809 141 Class A exchanged for Class B - - 66 (66) Class B exchanged for Class A - - (11) 11 Stock options exercised 237 - 40 21 Three-for-two stock split 5,821 120 921 63 ------ --- ----- --- Balance at November 30, 1993 17,646 360 2,825 170 Class A exchanged for Class B - - 74 (74) Class B exchanged for Class A - - (40) 40 Stock options exercised 161 - 8 17 Three-for-two stock split 8,888 180 1,437 69 ------ --- ----- --- Balance at November 30, 1994 26,695 540 4,304 222 ====== === ===== ===
Changes in capital stock are summarized as follows (in thousands): Cost of Capital Stock Capital (Stated Amount) Additional Stock in Class A Class B Capital Treasury November 30, 1991 $13,789 $300 $59,915 $12,544 5% stock dividend 591 - 7,796 - Acquisition for treasury - - - 11,054 Stock options exercised 104 - 970 790 ------- ---- ------- ------- November 30, 1992 14,484 300 68,681 24,388 Stock options exercised 221 - 1,954 1,199 ------- ---- ------- ------- November 30, 1993 14,705 300 70,635 25,587 Stock options exercised 126 - 1,177 500 Disqualifying disposition of stock options - - 160 - ------- ---- ------- ------- November 30, 1994 $14,831 $300 $71,972 $26,087 ======= ==== ======= =======
Incentive stock option plans entitle certain directors, officers and other key employees to buy shares of Class A stock at prices not less than fair market value on the date of grant. The number of shares reserved and the number and price per share of options granted are adjusted for subsequent stock dividends and stock splits. Shares originally reserved under these plans totaled 4,179,688 of which 776,509 shares remain reserved for the grant of options. At November 30, 1994, options to buy 1,319,418 shares at prices ranging from $5.01 per share to $17.17 per share were outstanding of which 390,754 shares were exercisable. The Company sponsors an employees stock purchase plan and a 401(k) savings plan that allow participants to acquire Class A stock at the current fair market value. At November 30, 1994, 2,167,000 shares of Class A stock were reserved for sale under the plans. 8. Foreign Operations
United States and foreign operations, which include subsidiaries located in Canada, Germany, Malaysia and Taiwan, are as follows (in thousands): 1994 1993 1992 Net sales to unaffiliated customers: United States $284,826 $246,162 $207,702 Foreign 46,480 38,163 28,774 -------- -------- -------- Consolidated $331,306 $284,325 $236,476 ======== ======== ======== Income before income taxes: United States $ 30,421 $ 19,638 $ 15,634 Foreign 9,231 8,301 6,273 -------- -------- -------- Consolidated $ 39,652 $ 27,939 $ 21,907 ======== ======== ======== Total assets: United States $165,182 $146,356 $102,139 Foreign 25,572 23,857 16,670 Eliminations (deductions) (502) (3,169) (1,760) -------- -------- -------- Consolidated $190,252 $167,044 $117,049 ======== ======== ========
9. Quarterly Results of Operations (Unaudited)
Quarterly results of operations are summarized as follows (in thousands, except per share data): 1994 Quarter Ended Feb 28 May 31 Aug 31 Nov 30 Net sales $73,972 $84,520 $86,639 $86,175 Gross profit 24,241 29,724 30,948 31,584 Net income 3,141 5,786 6,973 7,402 Net income per share .13 .25 .30 .32 1993 Quarter Ended Feb 28 May 31 Aug 31 Nov 30 Net sales $54,524 $65,825 $82,807 $81,169 Gross profit 18,125 23,124 26,731 27,234 Net income 2,288 4,106 4,601 5,160 Net income per share .10 .18 .20 .22
EX-21 7 SUBSIDIARIES OF LILLY INDUSTRIES, INC. Exhibit 21 SUBSIDIARIES OF LILLY INDUSTRIES, INC. AS OF FEBRUARY 23, 1995 All subsidiaries other than London Laboratories GmbH are doing business as Lilly Industries, Inc. Name of Subsidiary State of Incorporation 1. Lilly Industries, Inc.(Canada) Ontario, Canada 2. Lilly Jamestown, Inc. Indiana 3. Lilly High Point, Inc. Indiana 4. Lilly London, Inc. Indiana 5. London Laboratories Limited Ontario, Canada (Subsidiary of Lilly London, Inc.) 6. London Laboratories GmbH Germany (Subsidiary of Lilly London, Inc.) 7. Lilly Industries (Far East), Ltd. Taiwan 8. Lilly Industries (Malaysia) Sdn.Bhd. Malaysia 9. Lilly Industries (Asia) Ltd. Hong Kong 10. Lilly Industries (Thailand) Ltd. Thailand 11. Dongguan Lilly Paint Industries Ltd. Peoples Republic (Subsidiary of of China Lilly Industries (Asia) Ltd.) EX-23 8 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Lilly Industries, Inc. of our report dated January 27, 1995, included in the 1994 Annual Report to Shareholders of Lilly Industries, Inc. Our audits also included the financial statement schedule of Lilly Industries, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We further consent to the incorporation by reference in Registration Statements (Form S-8 Nos. 33-52959, 33-52956 and 33- 52958 pertaining to the Lilly Industries, Inc. 1991 Director Stock Option Plan, the Lilly Industries, Inc. Employee 401(k) Savings Plan and the Lilly Industries, Inc 1992 Stock Option Plan, respectively) of our report dated January 27, 1995, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Lilly Industries, Inc. /s/ Ernst & Young February 24, 1995 EX-27 9 ART. 5 FDS FOR FISCAL YEAR END 11-30-94 FOR LILLY INDUSTRIES, INC.
5 1,000
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED CONDENSED BALANCE SHEET OF LILLY INDUSTRIES, INC. AS AT November 30, 1994 AND THE CONSOLIDATED CONDENSED STATEMENT OF INCOME OF LILLY INDUSTRIES, INC. FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS Year NOV-30-1994 NOV-30-1994 26,581 75 43,990 ( 1,759) 23,885 93,057 75,765 ( 40,012) 190,252 51,453 0 0 0 87,104 12,321 190,252 331,306 331,306 214,809 289,289 ( 554) 0 2,919 39,652 16,350 0 0 0 0 23,302 1.00 1.00
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