<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary information statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive information statement
BEST LOCK CORPORATION
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(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, no par value per share
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(2) Aggregate number of securities to which transaction applies: 120,642
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined): The filing fee calculation
assumes the purchase of 25,085.66 shares of Common Stock at $525.43 in cash per
share, and the purchase of 95,556.34 shares of Common Stock with an average bid
and ask price of $225 per share (as of November 28, 1997) in exchange for new
common stock of the surviving corporation.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $34,680,934.83*
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* For purposes of calculating the filing fee only.
(5) Total fee paid: $6,936.19
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
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FRANK E. BEST, INC.
BEST UNIVERSAL LOCK CO.
BEST LOCK CORPORATION
8900 KEYSTONE CROSSING
INDIANAPOLIS, INDIANA 46240
December , 1997
The attached Information Statement, Notice of Action Taken Without a
Meeting and Notice of Appraisal Rights (collectively, the "Information
Statement") is being furnished to holders of common stock of each of Frank E.
Best, Inc. ("FEB"), Best Universal Lock Co. ("BUL") and Best Lock Corporation
("BLC") in connection with the proposed mergers (the "Mergers") of Webco One,
Inc. ("W1") with and into FEB, Webco Two, Inc. ("W2") with and into BUL and
Webco Three, Inc. ("W3") with and into BLC, pursuant to an Agreement and Plan of
Merger, dated as of December 1, 1997, by and among FEB, BUL, BLC, W1, W2, W3 and
Walter E. Best Company, Inc. ("Webco"), a copy of which is attached as Annex A
to the Information Statement (the "Merger Agreement"). FEB, BUL and BLC are
collectively referred to as the "Companies" and individually as a "Company." W1,
W2 and W3 are wholly owned subsidiaries of Webco. Russell C. Best, president,
chief executive officer and a director of each of FEB, BUL and BLC, owns all of
the outstanding voting shares of Webco. Mr. Best, directly or indirectly,
controls approximately 56%, 84% and 81% of the outstanding shares of the common
stock entitled to vote of FEB, BUL and BLC, respectively. As a result of the
Mergers, the Companies will be wholly owned, directly and indirectly, by Mr.
Best and Webco.
Pursuant to the Merger Agreement, each outstanding share of common stock of
each of the Companies, other than shares of common stock as to which dissenters'
rights of appraisal are duly asserted and perfected under Delaware law, will be
converted as follows: (i) each share of FEB common stock, $1.00 par value, will
be converted into the right to receive one-one hundred fifteen thousand eight
hundred and ninth (1/115,809) of a fully paid and nonassessable share of FEB
common stock, $.01 par value, (ii) each share of BUL Series A common stock, no
par value, will be converted into the right to receive one-twenty-seven thousand
two hundred seventy-second (1/27,272) of a fully paid and nonassessable share of
BUL common stock, $.01 par value, (iii) each share of BUL Series B common stock,
no par value, will be converted into the right to receive one-twenty-seven
thousand eight hundred sixty-fifth (1/27,865) of a fully paid and nonassessable
share of BUL common stock, $.01 par value, and (iv) each share of BLC common
stock, no par value, will be converted into the right to receive one-fifteen
thousand nine hundred twenty-sixth (1/15,926) of a share of BLC common stock,
$.01 par value.
HOWEVER, THE COMPANIES DO NOT ANTICIPATE THAT ANY STOCKHOLDER OTHER THAN
MR. BEST, WEBCO AND THE COMPANIES WILL, PURSUANT TO THE MERGERS, BE ENTITLED TO
RECEIVE A WHOLE SHARE OF ANY COMMON STOCK OF ANY OF THE SURVIVING CORPORATIONS.
NO FRACTIONAL SHARES WILL BE ISSUED, BUT STOCKHOLDERS (OTHER THAN WEBCO AND THE
COMPANIES) ENTITLED TO A FRACTIONAL SHARE WILL RECEIVE A CASH PAYMENT IN LIEU
THEREOF. THEREFORE, PURSUANT TO THE MERGERS, EACH STOCKHOLDER OF THE COMPANIES
AS OF THE EFFECTIVE TIME OF THE MERGERS, OTHER THAN WEBCO AND THE COMPANIES,
WILL BE ENTITLED TO RECEIVE THE FOLLOWING APPLICABLE CASH AMOUNT IN FULL PAYMENT
FOR, AND IN CANCELLATION OF, THE STOCKHOLDER'S RESPECTIVE SHARES OF COMMON STOCK
OF THE RESPECTIVE COMPANIES:
(i) $53.55 per share for each share of FEB common stock, $1.00 par value;
(ii) $120.69 per share for each share of BUL Series A common stock, no par
value;
(iii) $118.12 per share for each share of BUL Series B common stock, no par
value; and
(iv) $525.43 per share for each share of BLC common stock, no par value.
<PAGE> 3
The Boards of Directors of each of FEB, BUL and BLC (collectively, the
"Boards") have unanimously determined that the Merger Agreement and the Mergers
are fair to the respective stockholders of each of FEB, BUL and BLC. In arriving
at their recommendations, the Boards, assisted by Piper Jaffray Inc. ("Piper
Jaffray"), financial advisors to each of the Companies, considered a number of
factors described in the Information Statement, including, among other things,
the opinions of Piper Jaffray that the cash consideration to be received
pursuant to the Mergers by the stockholders of each of the Companies (other than
the Affiliated Stockholders (as defined in the Information Statement)), in the
amounts set forth above, is fair to such stockholders from a financial point of
view. The full text of such opinions, which, in addition to the opinions
expressed, set forth generally, among other things, the procedures followed, the
assumptions made, matters considered and limitations on review undertaken in
connection with such opinions, are attached as Annex B to the Information
Statement. Stockholders are urged to read the opinions in their entirety.
NOTICE TO PARTICIPANTS IN THE BEST LOCK CORPORATION STOCK BONUS PLAN:
Participants in the Best Lock Corporation Stock Bonus Plan will be provided
certain rights in connection with the Mergers with respect to their Stock Bonus
Plan accounts. If you are a participant in the Stock Bonus Plan, we refer you to
the section in the Information Statement entitled "SPECIAL FACTORS -- Stock
Bonus Plan Participants" for more information as to these rights.
The Companies are not seeking the consent, authorization or proxy of their
respective stockholders to approve the Mergers because the Mergers have been
approved by the requisite number of stockholders entitled to vote thereon by
written consent without a meeting in accordance with the provisions of Section
228 of the Delaware General Corporation Law (the "DGCL").
The Information Statement constitutes the notice of action taken without a
meeting required by Section 228(d) of the DGCL and notice of entitlement to
appraisal rights required by Section 262(d) of the DGCL.
The Mergers will become effective when certificates of merger are filed
with the Secretary of the State of Delaware or such later time as is agreed by
the parties and specified in such certificates (the "Effective Time"). The
Companies and Webco currently anticipate that the Effective Time for the Mergers
will occur on or about , 1997. No further notice of the
occurrence of the Effective Time will be given until after the Effective Time.
WE ARE NOT ASKING YOU FOR A PROXY OR WRITTEN CONSENT AND YOU ARE REQUESTED NOT
TO SEND TO US A PROXY OR WRITTEN CONSENT.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PLEASE DO NOT SEND TO US YOUR STOCK CERTIFICATES AT THIS TIME. ONCE THE MERGERS
BECOME EFFECTIVE, YOU WILL BE ADVISED OF THE PROCEDURE FOR SURRENDERING YOUR
CERTIFICATES FOR THE MERGER CONSIDERATION.
Sincerely,
/s/ RUSSELL C. BEST
Russell C. Best,
Chief Executive Officer and President
Frank E. Best, Inc.
Best Universal Lock Co.
Best Lock Corporation
<PAGE> 4
FRANK E. BEST, INC.
BEST UNIVERSAL LOCK CO.
BEST LOCK CORPORATION
8900 KEYSTONE CROSSING
INDIANAPOLIS, INDIANA 46240
INFORMATION STATEMENT,
NOTICE OF ACTION TAKEN WITHOUT A MEETING
AND
NOTICE OF APPRAISAL RIGHTS
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION................................................ 1
AVAILABLE INFORMATION....................................... 3
SUMMARY..................................................... 4
The Companies, Webco and the Merger Subs.................. 4
Frank E. Best, Inc..................................... 4
Best Universal Lock Co................................. 4
Best Lock Corporation.................................. 4
Webco and the Merger Subs.............................. 4
The Mergers............................................... 5
General................................................ 5
Effective Time......................................... 5
Conditions to Consummation of the Mergers.............. 6
Background of the Mergers.............................. 6
Financial Advisor; Determination of Values; Fairness
Opinions.............................................. 6
Determinations of the Boards; Fairness of the
Mergers............................................... 7
Potential Conflicts of Interest........................ 7
Purpose and Structure of the Mergers................... 7
Plans for the Companies After the Mergers.............. 7
Interests of Certain Persons in the Mergers............ 7
Federal Income Tax Consequences........................ 7
Source and Amount of Funds................................ 8
Stockholders Rights of Appraisal.......................... 8
Market Prices and Dividends............................... 8
SPECIAL FACTORS............................................. 12
Background of the Mergers................................. 12
Financial Advisor; Determination of Values; Fairness
Opinions............................................... 13
Comparable Public Company Analysis..................... 15
Comparable Acquisitions Transactions Analysis.......... 15
Discounted Cash Flow Analyses of BLC................... 16
Deemed Sale Model...................................... 16
Long-Term Dividend Model............................... 16
Historical Stock Price Analyses........................ 17
Premiums in Selected Minority Interest Transactions.... 17
Other Factors.......................................... 17
Compensation........................................... 18
Determinations of the Boards; Fairness of the Mergers..... 18
Reasons for the Boards' Determination.................. 18
Purpose and Structure of the Mergers...................... 20
Certain Effects of the Mergers............................ 20
FEB, BUL, BLC and Webco................................ 20
Stockholders........................................... 21
Plans for the Companies after the Mergers................. 21
Interests of Certain Persons in the Mergers............... 21
General................................................ 21
Employment Agreements.................................. 22
Indemnification........................................ 22
Stock Bonus Plan Participants............................. 22
Certain Federal Income Tax Consequences to Stockholders... 22
Accounting Treatment of the Mergers....................... 23
SOURCE AND AMOUNT OF FUNDS.................................. 23
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
STOCKHOLDERS' RIGHTS OF APPRAISAL........................... 23
THE MERGER AGREEMENT........................................ 26
Effective Time.............................................. 27
Merger Consideration; Conversion of Shares.................. 27
Procedure for Payment....................................... 27
Dissenters Rights........................................... 28
Certain Representations and Warranties...................... 28
The Companies............................................... 28
Webco....................................................... 28
Conduct of Business Pending the Closing..................... 28
Certain Other Covenants..................................... 29
Further Action; Reasonable Efforts.......................... 29
Action by Written Consent; Information Statement............ 29
Publicity................................................... 29
Indemnification............................................. 29
Conditions to Consummation of the Mergers................... 29
Termination................................................. 29
Miscellaneous............................................... 30
Fees and Expenses........................................... 30
Amendment; Waiver; Termination.............................. 30
REGULATORY MATTERS.......................................... 30
CERTAIN INFORMATION CONCERNING THE COMPANIES................ 30
Frank E. Best, Inc. ........................................ 30
Best Universal Lock Co. .................................... 30
Best Lock Corporation....................................... 30
CERTAIN INFORMATION CONCERNING WEBCO AND THE MERGER SUBS.... 32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 32
FEES AND EXPENSES........................................... 33
MARKET PRICES AND DIVIDENDS................................. 34
Market Prices............................................... 34
Dividends................................................... 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 38
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<PAGE> 7
INTRODUCTION
This Information Statement, Notice of Action Taken Without a Meeting and
Notice of Appraisal Rights (collectively, the "Information Statement") is being
furnished to holders of record ("stockholders") as of the close of business on
, 1997 (the "Record Date") of each of the following: (i) the common
stock, par value $1.00 per share ("FEB Common Stock"), of Frank E. Best, Inc., a
Delaware corporation ("FEB"), (ii) the Series A common stock, no par value
("BULA Common Stock"), of Best Universal Lock Co., a Delaware corporation
("BUL"), (iii) the Series B common stock, no par value ("BULB Common Stock" and,
together with the BULA Common Stock, "BUL Common Stock"), of BUL and (iv) the
common stock, no par value ("BLC Common Stock"), of Best Lock Corporation, a
Delaware corporation ("BLC"). This Information Statement is being furnished in
connection with the proposed mergers (the "Mergers") of (a) Webco One, Inc., a
Delaware corporation ("W1"), with and into FEB, (b) Webco Two, Inc., a Delaware
corporation ("W2"), with and into BUL and (c) Webco Three, Inc., a Delaware
corporation ("W3"), with and into BLC, all pursuant to the Agreement and Plan of
Merger, dated as of December 1, 1997, by and among FEB, BUL, BLC, W1, W2, W3 and
Walter E. Best Company, Inc., an Indiana corporation ("Webco"), a copy of which
is attached hereto as Annex A (the "Merger Agreement"). FEB, BUL and BLC are
collectively referred to as the "Companies" and individually as a "Company." W1,
W2 and W3 are collectively referred to as the "Merger Subs." The Merger Subs are
wholly owned subsidiaries of Webco and were formed for the purpose of effecting
the Mergers. Russell C. Best, president, chief executive officer and chairman of
the board of directors of each of the Companies ("Mr. Best"), owns all of the
voting shares of Webco. Mr. Best, directly and through Webco, owns approximately
56% of the outstanding shares of FEB Common Stock entitled to vote. FEB owns
approximately 84% of the outstanding shares of BUL Common Stock entitled to
vote. BUL owns approximately 79% of the outstanding shares of BLC Common Stock
entitled to vote. The aggregate percentage of shares entitled to vote of FEB
Common Stock owned by Mr. Best and Webco is greater than the percentage of
outstanding FEB Common Stock owned by Mr. Best and Webco and the aggregate
percentage of shares entitled to vote of BUL Common Stock owned by FEB and Mr.
Best is greater than the percentage of outstanding BUL Common Stock owned by FEB
and Mr. Best. See "SPECIAL FACTORS -- Interests of Certain Persons in the
Mergers," "CERTAIN INFORMATION CONCERNING THE COMPANIES" and "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." As a result of the Mergers, the
Companies will be wholly owned, directly and indirectly, by Mr. Best and Webco.
This Information Statement is first being mailed to stockholders on or about
December , 1997.
Pursuant to the Merger Agreement, each outstanding share of common stock of
each of the Companies, other than shares of common stock as to which dissenters'
rights of appraisal have been duly asserted and perfected under Delaware law,
will be converted into the right to receive the Merger Consideration, as
described below.
The "Merger Consideration" will be equal to (i) with respect to each share
of FEB Common Stock held, the right to receive one-one hundred fifteen thousand
eight hundred and ninth (1/115,809) of a fully paid and nonassessable share of
FEB common stock, $.01 par value ("New FEB Common Stock"), (ii) with respect to
each share of BULA common stock held, the right to receive one-twenty seven
thousand two hundred seventy-second (1/27,272) of a fully paid and nonassessable
share of BUL common stock, $.01 par value ("New BUL Common Stock"), (iii) with
respect to each share of BULB common stock held, the right to receive one-twenty
seven thousand eight hundred sixty-fifth (1/27,865) of a fully paid and
nonassessable share of New BUL Common Stock, and (iv) with respect to each share
of BLC common stock held, the right to receive one-fifteen thousand nine hundred
twenty-sixth (1/15,926) of a fully paid and nonassessable share of BLC common
stock, $.01 par value ("New BLC Common Stock" and, together with New FEB Common
Stock and New BUL Common Stock, "New Common Stock").
HOWEVER, THE COMPANIES DO NOT ANTICIPATE THAT ANY STOCKHOLDER OTHER THAN
MR. BEST, WEBCO AND THE COMPANIES (THE "AFFILIATED STOCKHOLDERS") WILL HAVE
ENOUGH SHARES OF FEB COMMON STOCK, BUL COMMON STOCK OR BLC COMMON STOCK TO
RECEIVE A WHOLE SHARE OF ANY NEW COMMON STOCK IN CONNECTION WITH THE MERGERS. NO
FRACTIONAL SHARES WILL BE ISSUED, BUT STOCKHOLDERS (OTHER THAN WEBCO AND THE
COMPANIES) ENTITLED TO A FRACTIONAL SHARE WILL RECEIVE A CASH PAYMENT IN LIEU
THEREOF. THEREFORE, PURSUANT TO THE MERGERS, EACH STOCKHOLDER AS OF THE
EFFECTIVE TIME OF THE MERGERS, OTHER THAN WEBCO OR ANY OF THE COMPANIES, WILL BE
ENTITLED TO RECEIVE THE FOLLOWING APPLICABLE CASH AMOUNT IN FULL PAYMENT FOR,
AND CANCELLATION OF, THE STOCKHOLDER'S RESPECTIVE SHARES OF COMMON STOCK OF THE
RESPECTIVE COMPANIES: (A) $53.55 PER SHARE OF FEB COMMON STOCK, (B) $120.69 PER
SHARE OF BULA COMMON STOCK, (C) $118.12 PER SHARE OF BULB
(continued on next page)
The date of this Information Statement is December , 1997.
<PAGE> 8
COMMON STOCK OR (D) $525.43 PER SHARE OF BLC COMMON STOCK. STOCKHOLDERS WILL
RECEIVE THE MERGER CONSIDERATION IN THE FORM OF CASH, WITHOUT INTEREST, UPON
SURRENDER OF THE CERTIFICATE(S) FORMERLY REPRESENTING THE SHARES OF COMMON
STOCK. See "THE MERGER AGREEMENT--Procedure for Payment."
The boards of directors of each of the Companies, consisting of Russell C.
Best and Mariea Best, the wife of Mr. Best (collectively, the "Boards"), have
unanimously determined that the Merger Agreement and the Mergers are fair to
stockholders of each of the Companies. In arriving at their recommendations, the
Boards, assisted by Piper Jaffray Inc. ("Piper Jaffray"), financial advisors to
each of the Companies, considered a number of factors described in this
Information Statement, including, among other things, the opinions of Piper
Jaffray that the cash consideration to be received pursuant to the Mergers by
the stockholders of each of the Companies (other than the Affiliated
Stockholders), in the amounts set forth above, is fair to such stockholders from
a financial point of view. The full text of such opinions, which, in addition to
the opinions expressed, set forth, among other things, the procedures followed,
the assumptions made, matters considered and limitations on review undertaken in
connection with such opinions, are attached hereto as Annex B. Stockholders are
urged to read the opinions in their entirety.
NOTICE TO PARTICIPANTS IN THE BEST LOCK CORPORATION STOCK BONUS PLAN:
Participants in the Best Lock Corporation Stock Bonus Plan will be provided
certain rights in connection with the Mergers with respect to their Stock Bonus
Plan accounts. If you are a participant in the Stock Bonus Plan, see "SPECIAL
FACTORS -- Stock Bonus Plan Participants" for more information as to these
rights.
The Companies are not seeking the consent, authorization or proxy of their
respective stockholders to approve the Mergers because the Mergers have been
approved by the stockholders of each of the Companies by written consent without
a meeting in accordance with the provisions of Section 228 of the Delaware
General Corporation Law (the "DGCL"). See "THE MERGER AGREEMENT -- Certain Other
Covenants -- Action by Written Consent; Information Statement."
This Information Statement constitutes the notice of action taken without a
meeting required by Section 228(d) of the DGCL and notice of appraisal rights
required by Section 262(d) of the DGCL.
The Mergers will become effective when certificates of merger are filed
with the Secretary of State of the State of Delaware or such later time as is
agreed by the parties and specified in such certificates (the "Effective Time").
The Companies, the Merger Subs and Webco currently anticipate that the Effective
Time for the Mergers will occur on or about , 1997. No further notice of
the occurrence of the Effective Time will be given until after the Effective
Time.
As of , 1997, the date of the written consent and the Record
Date for determining stockholders of each of the Companies entitled to receive
this Information Statement, there were outstanding 598,710 shares of FEB Common
Stock held by 544 record holders, 86,469 shares of BULA Common Stock held by 700
record holders, 300,000 shares of BULB Common Stock held by one record holder
(FEB) and 120,642 shares of BLC Common Stock held by 186 record holders. Each
share of Common Stock of a Company entitles the holder thereof to one vote with
respect to that Company. However, under the DGCL, BLC, as an indirect subsidiary
of FEB and a direct subsidiary of BUL, is not entitled to vote the 296,318 or
28,073 shares of FEB Common Stock or BULA Common Stock, respectively, held by
it. The term "Common Stock" as used in this Information Statement means any or
all of the FEB Common Stock, BULA Common Stock, BULB Common Stock, or BLC Common
Stock, as the context may require.
PLEASE DO NOT SEND TO US YOUR STOCK CERTIFICATES AT THIS TIME. ONCE THE MERGERS
BECOME EFFECTIVE, YOU WILL BE ADVISED OF THE PROCEDURE FOR SURRENDERING YOUR
CERTIFICATES FOR THE MERGER CONSIDERATION.
WE ARE NOT ASKING YOU FOR A PROXY OR WRITTEN CONSENT, AND YOU ARE REQUESTED NOT
TO SEND TO US A PROXY OR WRITTEN CONSENT.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
2
<PAGE> 9
AVAILABLE INFORMATION
FEB, BUL and BLC are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission" or the "SEC"). This
Information Statement includes information required to be disclosed by the
Commission pursuant to Rule 13e-3 under the Exchange Act which governs, among
other things, transactions by certain issuers or their affiliates which have a
reasonable likelihood or a purpose of, among other things, causing any class of
equity securities of an issuer which is subject to Section 12(g) or Section
15(d) of the Exchange Act to be held of record by fewer than 300 persons. Webco,
the Merger Subs and the Companies have also filed a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") with the Commission relating
to the Mergers described in this Information Statement. As permitted by the
rules and regulations of the Commission, this Information Statement omits
certain exhibits contained in the Schedule 13E-3.
All such reports, schedules and other information filed with the Commission
contain detailed financial and other information relating to FEB, BUL and BLC
and may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street N.W., Room 1024, Washington,
D.C. 20549 and at the Commission's regional office in Chicago, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained by mail from the Public Reference Section of the Commission at
prescribed rates. Written requests for such material should be addressed to the
Public Reference Section, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxies, information statements and
other information regarding registrants who file electronically with the
Commission.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED, OR INCORPORATED BY REFERENCE, IN
THIS INFORMATION STATEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY OF THE
COMPANIES OR ANY OTHER PERSON. ALL INFORMATION CONTAINED IN THIS INFORMATION
STATEMENT RELATING TO ANY OF THE COMPANIES HAS BEEN SUPPLIED BY THE COMPANIES,
AND ALL INFORMATION CONTAINED IN THIS INFORMATION STATEMENT RELATING TO THEIR
AFFILIATES HAS BEEN SUPPLIED BY WEBCO.
3
<PAGE> 10
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Information Statement. This Summary is not intended to be a complete
description of the matters covered in this Information Statement and is subject
to and qualified in its entirety by reference to the more detailed information
contained elsewhere in this Information Statement, including the Annexes hereto.
THE COMPANIES, WEBCO AND THE MERGER SUBS
THE COMPANIES
FRANK E. BEST, INC. FEB is a holding company with no business operations of
its own. FEB's only material asset is its ownership of 100% of the outstanding
BULB Common Stock, which is equal to approximately 78% of the total outstanding
shares of capital stock of BUL and which corresponds to approximately 84% of the
outstanding BUL Common Stock entitled to vote. FEB was organized in 1920 as a
corporation under the laws of the State of Washington and was reincorporated in
1995 under the laws of the State of Delaware.
BEST UNIVERSAL LOCK CO. BUL is a holding company with no business
operations of its own. BUL's only material asset is its ownership of
approximately 79% of the outstanding shares of BLC Common Stock. BUL was
organized in 1923 as a corporation under the laws of the State of Washington and
was reincorporated in 1995 under the laws of the State of Delaware.
BEST LOCK CORPORATION. BLC's principal business is the manufacture,
sourcing, distribution and sale of access control products, which primarily
includes locks, lock components and adaptions. BLC was organized in 1928 as a
Delaware corporation. BLC's mechanical locking system is built around a
proprietary removable key-controlled core and housing utilizing the tumbler
system. In connection with the sale of BLC's system of locks, BLC sets up and
maintains for its customers a masterkey plan for proper control and security of
the locking system. BLC provides these locking systems primarily for commercial
end-users, including institutional, industrial and government facilities.
Additionally, BLC has supplemented its product offerings to end-users with other
access control and auxiliary products, such as service equipment, training
programs, key control policy and record keeping.
BLC's mechanical locks, lock components and adaptions are manufactured or
assembled in its plant located in Indianapolis, Indiana and sold through sales
representatives throughout the United States, Canada (through BLC's wholly owned
Canadian subsidiary, Best Universal Locks Limited) and other countries. BLC's
sales representatives are independent representatives, maintaining separate
inventories, or corporate-owned sales offices, and sell directly to end-users.
BLC does not manufacture all of the access control products it sells, but
purchases a number of such items from other manufacturers. BLC is not
exclusively represented by any regional hardware house, as are a number of the
other large lock manufacturers, but its products are sold through many regional
hardware houses as a modification of their regular lines.
BLC had a total staff as of December 31, 1996 of approximately 448
production and maintenance employees and 714 office, sales and executive
employees.
BLC also owns 296,318 and 28,073 shares of FEB Common Stock and BUL Common
Stock, respectively, which are not entitled to vote under Delaware law by reason
of FEB's indirect, and BUL's direct, ownership of a majority of the BLC Common
Stock.
The executive offices and telephone numbers of the Companies are: 8900
Keystone Crossing, Indianapolis, Indiana 46240 and (317) 817-0000.
WEBCO AND THE MERGER SUBS.
Walter E. Best Company, Inc. ("Webco") is a holding company with no
business of its own. Russell Best owns all of the outstanding voting stock of
Webco. Mr. Best and his wife beneficially own all of the outstanding non-voting
stock of Webco. Webco's only material assets are its ownership of approximately
9.05% of the outstanding shares of FEB Common Stock (which represents
approximately 18% of the
4
<PAGE> 11
outstanding FEB Common Stock entitled to vote) and 100% of the outstanding
shares of each of the Merger Subs. The Merger Subs were recently incorporated
and organized for the purpose of acquiring all of the FEB Common Stock, BUL
Common Stock and BLC Common Stock owned by stockholders other than Mr. Best,
Webco and the Companies (the "Unaffiliated Stockholders") pursuant to the
Mergers. The Merger Subs have not conducted any business to date except in
conjunction with the transactions contemplated by the Merger Agreement.
THE MERGERS
GENERAL. Pursuant to the Merger Agreement, W1, W2 and W3, will merge with
and into FEB, BUL and BLC, respectively, and the separate corporate existences
of each of the Merger Subs will cease. The Companies, as the surviving
corporations in the Mergers (the "Surviving Corporations"), will be wholly
owned, directly and indirectly, by Mr. Best and Webco. Immediately following
consummation of the Mergers, each of the Surviving Corporations will be merged
with and into Webco. See "SPECIAL FACTORS -- Certain Effects of the Mergers."
As a result of the Mergers, each outstanding share of FEB Common Stock, BUL
Common Stock and BLC Common Stock, other than shares of Common Stock as to which
dissenters' rights have been duly asserted and perfected under the DGCL, will be
converted into the right to receive the Merger Consideration, as described
below.
The "Merger Consideration" will be equal to (i) with respect to each share
of FEB Common Stock held, the right to receive one-one hundred fifteen thousand
eight hundred and ninth (1/115,809) of a fully paid and nonassessable share of
New FEB Common Stock, (ii) with respect to each share of BULA Common Stock held,
the right to receive one-twenty-seven thousand two hundred seventy-second
(1/27,272) of a fully paid and nonassessable share of New BUL Common Stock,
(iii) with respect to each share of BULB Common Stock held, the right to receive
one-twenty-seven thousand eight hundred sixty-fifth (1/27,865) of a fully paid
and nonassessable share of New BUL Common Stock and (iv) with respect to each
share of BLC Common Stock held, the right to receive one-fifteen thousand nine
hundred twenty-sixth (1/15,926) of a fully paid and nonassessable share of New
BLC Common Stock.
HOWEVER, THE COMPANIES DO NOT ANTICIPATE THAT ANY STOCKHOLDER OTHER THAN
MR. BEST, WEBCO AND THE COMPANIES WILL HAVE ENOUGH SHARES OF FEB COMMON STOCK,
BUL COMMON STOCK OR BLC COMMON STOCK TO RECEIVE A WHOLE SHARE OF NEW COMMON
STOCK IN CONNECTION WITH THE MERGERS. NO FRACTIONAL SHARES WILL BE ISSUED, BUT
STOCKHOLDERS (OTHER THAN WEBCO AND THE COMPANIES) ENTITLED TO A FRACTIONAL SHARE
WILL RECEIVE A CASH PAYMENT IN LIEU THEREOF. THEREFORE, PURSUANT TO THE MERGERS
EACH STOCKHOLDER OF FEB, BUL AND BLC AS OF THE EFFECTIVE TIME OTHER THAN WEBCO
OR ANY OF THE COMPANIES, WILL BE ENTITLED TO RECEIVE THE FOLLOWING APPLICABLE
AMOUNT IN FULL PAYMENT FOR, AND IN CANCELLATION OF, THE STOCKHOLDER'S RESPECTIVE
SHARES OF COMMON STOCK OF THE RESPECTIVE COMPANIES: (A) $53.55 PER SHARE OF FEB
COMMON STOCK, (B) $120.69 PER SHARE OF BULA COMMON STOCK, (C) $118.12 PER SHARE
OF BULB COMMON STOCK OR (D) $525.43 PER SHARE OF BLC COMMON STOCK HELD BY SUCH
STOCKHOLDER. STOCKHOLDERS WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION
IN THE FORM OF CASH, WITHOUT INTEREST, UPON SURRENDER OF THE CERTIFICATE(S)
FORMERLY REPRESENTING THE SHARES OF COMMON STOCK. See "THE MERGER AGREEMENT --
Procedure for Payment."
EFFECTIVE TIME. The Mergers will become effective when certificates of
mergers are filed with the Secretary of State of the State of Delaware or such
later time as is agreed to by the parties and specified in such certificates
(the "Effective Time"). Webco and the Companies currently anticipate that the
Effective Time will occur on or about , 1997. No further
notice of the occurrence of the Effective
5
<PAGE> 12
Time will be given until after the Effective Time. See "THE MERGER AGREEMENT --
Effective Time" and "-- Conditions to Consummation of the Mergers."
CONDITIONS TO CONSUMMATION OF THE MERGERS. The obligations of Webco, the
Merger Subs and the Companies to consummate the Mergers are subject to approval
and adoption of the Merger Agreement by the affirmative vote or written consent
of the holders of a majority of the outstanding shares of Common Stock of each
of the Companies entitled to vote. Each of the Companies has already received a
written consent by the requisite number of stockholders entitled to vote
thereon. In addition, the obligations of Webco and the Merger Subs to effect the
Mergers are further subject to certain conditions (any or all of which may be
waived by Webco and the Merger Subs to the extent permitted by applicable law),
including: (i) the absence of any statute, rule, regulation, order, decree or
injunction that prohibits consummation of the Mergers; (ii) the representations
and warranties of each of the parties will be true and correct in all material
respects at and as of the Closing Date; and (iii) certain assurances of the
satisfaction of conditions precedent to the initial funding of the Credit
Facility (as defined). See "THE MERGER AGREEMENT -- Conditions to Consummation
of the Mergers."
BACKGROUND OF THE MERGERS. The Boards of Directors of each of the Companies
have increasingly recognized that (a) significant financial and operational
constraints have prevented and are likely to continue to prevent the
stockholders of each of the Companies from enjoying the benefits which usually
flow from being stockholders of a public company; (b) none of the Companies has
ever developed or is likely to develop in the foreseeable future any significant
trading market for shares of its Common Stock; (c) the Companies have incurred
and will continue to incur substantial costs as a result of each of their status
as a public company under the Exchange Act; (d) the multi-tiered corporate
structure makes it difficult for the public equity markets to evaluate the
Companies' net asset values and future prospects; and (e) the Companies' status
as public companies has placed and will continue to place them at a substantial
competitive disadvantage due to the required public disclosure of competitive
information that certain of the Companies' competitors currently do not have to
disclose.
The Boards have each determined that it is both appropriate and desirable
to convert the Companies to private ownership. Accordingly, Mr. Best prepared a
proposal to convert the Companies to private ownership. See "SPECIAL FACTORS --
Background of the Mergers."
FINANCIAL ADVISOR; DETERMINATION OF VALUES; FAIRNESS OPINIONS. Each of the
Boards engaged Piper Jaffray, an investment bank, to act as their financial
advisor in evaluating and establishing the appropriate consideration to be paid
to the stockholders of each of the Companies. Piper Jaffray presented its
recommended range of appropriate values for each of the Companies' Common Stock
to the Boards on December 1, 1997. For a discussion of the factors that Piper
Jaffray considered in reaching its determination of the recommended range of
appropriate values for each of the Companies' Common Stock, see "SPECIAL FACTORS
- -- Financial Advisor; Determination of Values; Fairness Opinions." The Boards
selected as the Merger Consideration for the Companies the highest point of the
recommended ranges of appropriate values for the respective Company's Common
Stock presented by Piper Jaffray, plus an amount for the Common Stock of the
respective Company which corresponds to the per share dividend which the Company
likely would have declared and paid in 1997 (in accordance with historical
practices) had the Mergers not been effected.
At the December 1, 1997 meeting of the Boards at which the Merger Agreement
was approved by the Boards, Piper Jaffray delivered its oral opinions (which it
has subsequently confirmed in writing) to the effect that the consideration to
be received pursuant to the Mergers by the holders of shares of Common Stock is
fair to such stockholders (other than the Affiliated Stockholders) from a
financial point of view. The full text of the opinions of Piper Jaffray, which,
in addition to the opinions expressed, set forth, among other things, the
procedures followed, the assumptions made, matters considered and limits on
review undertaken, are attached hereto as Annex B and are incorporated herein by
reference. STOCKHOLDERS ARE URGED TO READ THE OPINIONS OF PIPER JAFFRAY
CAREFULLY IN THEIR ENTIRETY. For a discussion of the factors that Piper Jaffray
considered in reaching its opinions, see "SPECIAL FACTORS -- Financial Advisor;
Determination of Values; Fairness Opinions."
6
<PAGE> 13
DETERMINATIONS OF THE BOARDS; FAIRNESS OF THE MERGERS. At a meeting held on
December 1, 1997, the Boards, which in each case consist of Mr. Best and his
wife, Mariea Best, unanimously determined that the Merger Agreement and the
Mergers are fair to the stockholders of each of the Companies. The Boards
selected as the Merger Consideration for the Companies the highest point of the
recommended ranges of appropriate values for the respective Company's Common
Stock presented by Piper Jaffray plus an amount for the Common Stock of the
respective Company which corresponds to the per share dividend which the Company
likely would have declared and paid in 1997 (in accordance with historical
practices) had the Mergers not been effected. For a discussion of the factors
that the Boards considered in arriving at their determinations, see "SPECIAL
FACTORS -- Determinations of Boards; Fairness of the Mergers."
POTENTIAL CONFLICTS OF INTEREST. Mr. Best and Mariea Best, his wife, are
the only two members of the Boards of Directors of the Companies and Webco. They
will continue to be directors of Webco and the Surviving Corporations (which
will be merged into Webco) after the consummation of the Mergers. Mr. Best is
Chief Executive Officer and President of each of the Companies. Mr. Best
beneficially owns, directly or indirectly, as of the date of this Information
Statement, in the aggregate 169,971 shares of FEB, 302,128 shares of BUL and
97,243 shares of BLC, representing approximately 56%, 84% and 81% respectively,
of the issued and outstanding Common Stock entitled to vote of each of the
Companies. See "SPECIAL FACTORS -- Interests of Certain Persons in the Mergers,"
"CERTAIN INFORMATION CONCERNING THE COMPANIES" and "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
PURPOSE AND STRUCTURE OF THE MERGERS. Webco and the Merger Subs entered
into the Merger Agreement to acquire beneficial ownership of the entire equity
interest in each of the Companies because of the recognition of the factors set
forth above in "-- Background of the Mergers." Mr. Best believes that it is
appropriate to structure a transaction to acquire the interests of the public
stockholders in the Companies at a price that reflects the fair value of their
interests in the Companies, which price is at a significant premium to the
historic trading prices of a share of each Company's Common Stock. The
transaction has been structured as a series of simultaneous mergers because it
is an efficient means of acquiring the entire public interest in the Companies
in a single transaction. Prior to determining to proceed with merger proposals,
Mr. Best also considered the following alternatives: cash tender offers (which
he rejected because there could be no assurance that it would result in Webco
acquiring the entire equity interests in the Companies); and reverse stock
splits (which he rejected because they could not be structured as efficiently or
in as cost effective a manner as the Mergers). See "SPECIAL FACTORS -- Purpose
and Structure of the Mergers."
PLANS FOR THE COMPANIES AFTER THE MERGERS. Following completion of the
Mergers, the Companies will be wholly owned, directly and indirectly, by Mr.
Best and Webco and the public will no longer own a minority equity interest in
any of the Companies. Immediately thereafter, the Companies will be merged with
and into Webco (which will change its name to "Best Lock Corporation") and the
business and operations of BLC, the only Company with any material operating
assets, will be continued by Webco substantially as they are currently being
conducted. For a more detailed discussion of the plans for the Companies
following the Mergers, see "SPECIAL FACTORS -- Plans for the Companies After the
Mergers."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS. The members of the Boards have
certain interests in the Mergers that are in addition to their interests as
stockholders of each of the Companies generally. In particular, the directors of
each of the Companies are the only directors and owners of Webco and the Merger
Subs. For a discussion of this and other interests of certain persons in the
Mergers not shared pro rata by all stockholders of the Companies, see "SPECIAL
FACTORS -- Interests of Certain Persons in the Mergers" and "SPECIAL FACTORS --
Fairness of the Mergers."
FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash by a stockholder
pursuant to the Mergers or pursuant to the exercise of stockholders' rights of
appraisal will be a taxable event to such stockholder for federal income tax
purposes and may also be a taxable event under applicable local, state and
foreign tax laws. For a more complete description of certain federal income tax
consequences of the Mergers, see "SPECIAL FACTORS -- Certain Federal Income Tax
Consequences to Stockholders."
7
<PAGE> 14
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Merger Agreement and to pay related fees and expenses is
estimated to be approximately $28.5 million. The total amount of funds will be
paid from cash proceeds from a $50 million credit facility with LaSalle National
Bank. See "SOURCE AND AMOUNT OF FUNDS."
STOCKHOLDERS' RIGHTS OF APPRAISAL
The DGCL provides that, as a result of the Mergers, a stockholder of any of
the Companies who perfects appraisal rights with respect to such shares will be
entitled to receive, in lieu of the Merger Consideration applicable to such
shares of Common Stock, payment in cash of the "fair value" of his shares of
such Common Stock as determined pursuant to the procedures set forth in Section
262 of the DGCL. For a summary of the procedures applicable to the perfection of
appraisal rights, see "STOCKHOLDERS' RIGHTS OF APPRAISAL" and Annex C hereto.
Because of the complexity of the procedures for exercising these rights,
stockholders who consider exercising such rights should seek the advice of
counsel. Stockholders electing to exercise their appraisal rights must strictly
comply with Section 262 of the DGCL. Failure to take any step in connection with
the exercise of appraisal rights may result in the termination or waiver of such
rights. The Board of each of the Companies believes that the cash consideration
to be paid to the stockholders of the respective Company is fair. There can be
no assurance, however, that if a stockholder of a Company properly perfected his
appraisal rights with respect to the Common Stock of such Company under the
DGCL, the stockholder would not receive more than or less than the cash
consideration applicable to such Company. See "STOCKHOLDERS' RIGHTS OF
APPRAISAL."
MARKET PRICES AND DIVIDENDS
The Common Stock of each of the Companies is traded in the National
Quotation Bureau, Inc.'s "pink-sheets" in the over-the-counter market. The cash
consideration represents a premium of approximately (a) 19%, 289% and 163% to
the closing bid price of the FEB Common Stock, BULA Common Stock and BLC Common
Stock, respectively, on the day prior to the announcement of the transaction and
(b) 76%, 206% and 231% to the twelve-month average last trading prices of the
FEB Common Stock, BULA Common Stock and BLC Common Stock, respectively. On
, 1997, the last trading day before printing of this Information
Statement, the high and low bid price of the Common Stock of each of the
Companies was $ , $ and $ , respectively. For information relating to
market prices of and dividends on the Common Stock of each of the Companies
during the current year and the past two years, see "MARKET PRICES AND
DIVIDENDS."
8
<PAGE> 15
SELECTED FINANCIAL DATA
FRANK E. BEST, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the fiscal
years in the five-year period ended December 31, 1996 were derived from audited
financial statements of FEB. The financial statements as of and for each of the
fiscal years in the five-year period ended December 31, 1996 have been audited
by Arthur Andersen LLP, independent public accountants. The selected financial
data as of and for each of the nine-month periods ended September 30, 1997 and
1996 were derived from the unaudited condensed financial statements of FEB. In
the opinion of FEB's management, the selected financial data of FEB as of and
for the nine-months ended September 30, 1997 and 1996 include all adjusting
entries (consisting only of normal recurring adjustments) necessary to present
fairly the information set forth therein. The results of operations for the
nine-months ended September 30, 1997 and 1996 should not be regarded as
indicative of the results that may be expected for the full year. This
information should be read in conjunction with FEB's financial statements, and
the notes thereto, contained in the FEB Annual Report on Form 10-K for the year
ended December 31, 1996 and the FEB Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $102,511 $89,774 $122,359 $117,706 $103,955 $ 98,896 $ 84,865
Net income (loss) before cumulative effect
of change in accounting principle....... 3,910 891 2,486 (3,255) 1,153 498 1,358
Net income (loss)......................... 3,910 891 2,486 (3,255) 1,153 865 1,358
Total assets.............................. 69,283 68,275 67,916 67,832 70,961 64,132 62,290
Long-term obligations (excluding deferred
taxes).................................. 14,783 18,635 18,213 19,067 4,445 4,745 4,552
FEB Common Stock, redeemable under
Stock Bonus Plan........................ -- -- -- -- 2,288 -- --
Earnings (loss) per share of common stock:
Weighted average shares outstanding..... 269,436 418,458 274,999 427,807 598,710 598,710 598,710
Net income (loss)....................... 14.51 2.13 9.04 (7.61) 1.93 1.45 2.27
Dividends per share....................... -- -- 0.54 0.53 0.52 0.51 0.49
Book value per share...................... 79.48 57.79 61.83 54.83 46.86 45.60 44.82
</TABLE>
9
<PAGE> 16
SELECTED FINANCIAL DATA
BEST UNIVERSAL LOCK CO. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the fiscal
years in the five-year period ended December 31, 1996 were derived from audited
financial statements of BUL. The financial statements as of and for each of the
fiscal years in the five-year period ended December 31, 1996 have been audited
by Arthur Andersen LLP, independent public accountants. The selected financial
data as of and for each of the nine-month periods ended September 30, 1997 and
1996 were derived from the unaudited condensed financial statements of BUL. In
the opinion of BUL's management, the selected financial data of BUL as of and
for the nine-months ended September 30, 1997 and 1996 include all adjusting
entries (consisting only of normal recurring adjustments) necessary to present
fairly the information set forth therein. The results of operations for the
nine-months ended September 30, 1997 and 1996 should not be regarded as
indicative of the results that may be expected for the full year. This
information should be read in conjunction with BUL's financial statements, and
the notes thereto, contained in the BUL Annual Report on Form 10-K for the year
ended December 31, 1996 and the BUL Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- --------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................. $102,511 $ 89,774 $122,359 $117,706 $103,955 $98,896 $84,865
Net income (loss) before cumulative effect
of change in accounting principle........ 4,639 1,006 2,925 (3,738) 1,515 803 1,767
Net income (loss).......................... 4,639 1,006 2,925 (3,738) 1,515 1,276 1,767
Total assets............................... 70,109 69,161 68,787 68,919 71,029 64,179 62,234
Long-term obligations (excluding deferred
taxes)................................... 14,783 18,635 18,213 19,067 4,445 4,745 4,552
FEB Common Stock, BUL Common Stock and BLC
Common Stock redeemable under Stock Bonus
Plan..................................... 3,290 1,845 1,869 1,822 4,087 -- --
Earnings (loss) per share of common stock:
Series A weighted average shares
outstanding............................ 59,588 60,739 60,589 75,670 86,469 86,469 86,469
Series A -- Net income (loss)............ 12.90 2.79 8.11 (9.95) 3.92 3.30 4.57
Series B weighted average shares
outstanding............................ 300,000 300,000 300,000 300,000 300,000 300,000 300,000
Series B -- net income (loss)............ 12.90 2.79 8.11 (9.95) 3.92 3.30 4.57
Dividends per share:
Preferred (7% cumulative)................ -- -- -- 7.00 7.00 7.00 7.00
Series A Common.......................... -- -- 1.68 1.67 1.66 1.63 1.61
Series B Common.......................... -- -- 1.11 1.10 1.09 1.06 1.04
Book value per share....................... 103.25 87.62 91.07 84.91 93.82 91.29 89.35
</TABLE>
10
<PAGE> 17
SELECTED FINANCIAL DATA
BEST LOCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the fiscal
years in the five-year period ended December 31, 1996 were derived from audited
financial statements of BLC. The financial statements as of and for each of the
fiscal years in the five-year period ended December 31, 1996 have been audited
by Arthur Andersen LLP, independent public accountants. The selected financial
data as of and for each of the nine-month periods ended September 30, 1997 and
1996 were derived from the unaudited condensed financial statements of BLC. In
the opinion of BLC's management, the selected financial data of BLC as of and
for the nine-months ended September 30, 1997 and 1996 include all adjusting
entries (consisting only of normal recurring adjustments) necessary to present
fairly the information set forth therein. The results of operations for the
nine-months ended September 30, 1997 and 1996 should not be regarded as
indicative of the results that may be expected for the full year. This
information should be read in conjunction with BLC's financial statements, and
the notes thereto, contained in the BLC Annual Report on Form 10-K for the year
ended December 31, 1996 and the BLC Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $102,511 $89,774 $122,359 $117,706 $103,955 $ 98,896 $ 84,865
Net income (loss) before cumulative effect
of change in accounting principle....... 5,402 1,325 3,455 (4,204) 2,208 1,150 2,458
Net income (loss)......................... 5,402 1,325 3,455 (4,204) 2,208 1,800 2,458
Total assets.............................. 70,258 69,317 68,883 69,017 71,003 64,217 62,260
Long-term obligations (excluding deferred
taxes).................................. 14,783 18,635 18,213 19,067 4,445 4,745 4,552
BLC Common Stock, BUL Common Stock and FEB
Common Stock redeemable
under Stock Bonus Plan.................. 8,827 6,007 6,083 5,932 8,939 -- --
Earnings (loss) per share of common stock:
Weighted average shares outstanding..... 120,649 121,654 121,517 124,144 131,235 131,239 131,239
Net income (loss) before cumulative
effect of change in accounting
principle............................. 44.77 10.89 28.43 (33.88) 16.83 8.76 18.73
Cumulative effect of SFAS 109
"Accounting for Income Taxes"....... -- -- -- -- -- 4.95 --
Net income (loss)..................... 44.77 10.89 28.43 (33.88) 16.83 13.71 18.73
Dividends per share....................... -- -- 5.42 5.41 5.40 5.00 4.90
Book value per share...................... 405.90 352.54 363.84 342.27 380.75 370.01 362.01
</TABLE>
11
<PAGE> 18
SPECIAL FACTORS
THE DISCUSSION IN THIS INFORMATION STATEMENT OF THE MERGERS AND THE DESCRIPTION
OF THE PRINCIPAL TERMS THEREOF ARE SUBJECT TO AND QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO
THIS INFORMATION STATEMENT AND WHICH IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY AND TO
CONSIDER IT CAREFULLY.
BACKGROUND OF THE MERGERS
FEB is a holding company with no operating assets. Its principal assets are
its substantial equity interests in a public company, BUL. BUL also is a holding
company with no assets other than a substantial equity interest in another
public company, BLC. The Boards of Directors of the Companies believe that this
multi-tiered corporate structure makes it difficult for the public equity market
to evaluate the Companies' net asset values and future prospects. In addition,
each of the Boards has recognized that there is not now, and for several years
there has not been, a market (other than de minimis or infrequent trading) in
the Common Stock of each of the Companies. In the Companies' view, these factors
have contributed to the historical trading prices of shares of Common Stock
being substantially below the fair value of each Company's Common Stock.
Mr. Best acquired voting control of the Companies in May, 1994. Since that
time, the Boards have recognized that (a) significant financial and operational
constraints have prevented and are likely to continue to prevent the
stockholders of each of the Companies from enjoying the benefits which usually
flow from being stockholders of a public company; (b) none of the Companies has
ever developed or is likely to develop in the foreseeable future any significant
trading market for shares of its Common Stock; (c) the Companies have incurred
and will continue to incur substantial costs as a result of each of their status
as a public company under the Exchange Act; (d) the multi-tiered corporate
structure makes it difficult for the public equity market to evaluate the
Companies' net asset values and future prospects; and (e) the Companies' status
as public companies has placed and will continue to place them at a substantial
competitive disadvantage due to the required public disclosure of competitive
information that certain of the Companies' competitors currently do not have to
disclose. Accordingly, Mr. Best prepared a proposal to convert the Companies to
private ownership.
In light of the overlapping equity ownership between Mr. Best, Webco and
the Companies and the fact that Mr. and Mrs. Best are the only directors of the
Companies and Webco, the Boards decided to engage an independent financial
advisor to assist the Boards in evaluating and establishing the appropriate
value to be paid to the public stockholders of the Companies. On or about May 8,
1997, the Boards of each of the Companies retained Piper Jaffray to act as their
financial advisor. Specifically, Piper Jaffray was engaged to (i) assist each
Board in evaluating and establishing the ranges of appropriate consideration to
be paid to stockholders in the Mergers and (ii) at the request of the Boards,
render written opinions as to whether the consideration to be paid to
stockholders ("Unaffiliated Stockholders") who are not Affiliated Stockholders
in the Mergers is fair, from a financial point of view, to the Company's
Unaffiliated Stockholders. In late August, 1997, representatives of the
Companies and Mr. Best advanced a general proposal pursuant to which newly
formed subsidiaries of Webco would merge into the Companies.
The proposal was structured as a series of simultaneous mergers because it
is an efficient means of acquiring the entire public interest in each of the
Companies in a single transaction. Prior to determining to proceed with a merger
proposal, Mr. Best also considered the following alternatives: cash tender
offers (which he rejected because there could be no assurance that it would
result in Webco acquiring the entire equity interests in the Companies) and
reverse stock splits (which he rejected because they could not be structured as
efficiently or in as cost effective a manner as the Mergers). Mr. Best did not
solicit other offers or engage Piper Jaffray to solicit other offers for any of
the Companies because Mr. Best was not willing to sell any of his interests in
any of the Companies to a third party.
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<PAGE> 19
During the course of the following months, including at meetings on May 15,
June 10, June 11 and August 4, 1997, representatives of Piper Jaffray met with
Mr. Best, Mrs. Best, representatives of the Companies, Arthur Andersen LLP (the
Companies' tax advisors) ("Arthur Andersen") and Jenner & Block (the Companies'
legal advisors), to analyze the complex structure of the Companies, the proposed
transaction and alternative transactions. The emphasis of such analysis focused
on determining the value of BLC (which is the only operating company), since
both BUL and FEB derive value only from their ownership, direct and indirect, of
BLC. The financial and tax analysis was further complicated by the extensive
interlocking ownership of the Companies.
On August 12, 1997 Piper Jaffray presented its preliminary results as to
the range of appropriate values of BLC and subsequently BUL and FEB. As a result
of numerous lengthy discussions with the Boards and their tax and legal counsel,
at the meeting and subsequently telephonically, Piper Jaffray further refined
its financial models and projections. Piper Jaffray met with the Boards and the
Companies' tax and legal counsel again on August 22, 1997 to present its revised
analysis of the proposed ranges of appropriate values.
The Boards and their advisors held additional discussions with Piper
Jaffray during the months of September, October and November regarding the
proposed transaction and variations thereof. As a result of the discussions,
Piper Jaffray further revised its analysis and, at a meeting on December 1,
1997, Piper Jaffray delivered its presentation to the Boards as to the
appropriate range of values for the Common Stock of each of the Companies. At
that meeting, the Boards selected the highest point of the ranges that Piper
Jaffray presented as constituting appropriate values of the respective Company's
Common Stock. The Boards then added to the consideration to be paid to the
stockholders of the Companies the amount of the per share dividend which the
respective Company likely would have declared and paid in 1997 (in accordance
with historical practices) had the Mergers not been effected. The additional
amount was $.55, $1.69, $1.12 and $5.43 with respect to the FEB Common Stock,
the BULA Common Stock, the BULB Common Stock and the BLC Common Stock,
respectively. The Boards were advised by Piper Jaffray that, in Piper Jaffray's
view, as of the date of such meeting, the cash consideration to be received by
the stockholders of each of the Companies in the Mergers was fair from a
financial point of view to the holders of FEB Common Stock, BULA Common Stock
and BLC Common Stock (other than the Affiliated Stockholders). After further
discussions and deliberation, a motion determining the Mergers and the Merger
Agreement to be fair to each of the Companies' stockholders and to approve the
Mergers and the Merger Agreement was made and carried unanimously by the Boards.
Piper Jaffray's oral opinions delivered to the Boards were subsequently
confirmed in written opinions, dated December 1, 1997, stating that as of such
date and based upon the factors and assumptions set forth in such opinions, the
cash consideration to be received by holders of shares of FEB Common Stock, BUL
Common Stock and BLC Common Stock pursuant to the Merger Agreement is fair from
a financial point of view to such stockholders (other than the Affiliated
Stockholders).
FINANCIAL ADVISOR; DETERMINATION OF VALUES; FAIRNESS OPINIONS
As stated above, Piper Jaffray was engaged to act as financial advisor to
each of the Boards on or about May 8, 1997 in connection with evaluating and
establishing the consideration to be paid to the stockholders of each of the
Companies (other than the Affiliated Stockholders). This engagement was
confirmed in a letter dated May 16, 1997. No limitations were imposed by the
Companies or their Boards of Directors with respect to the investigations made
or the procedures followed by it in rendering its opinions. Piper Jaffray
presented ranges of values that it determined were appropriate for the
Companies' Common Stock to the Boards on December 1, 1997. The Boards
subsequently selected as the cash consideration to be paid to the stockholders
of the Companies the highest point of the ranges for the respective Company
presented by Piper Jaffray, plus an amount for the Common Stock of the
respective Company which corresponds to the per share dividend which the Company
likely would have declared and paid (in accordance with historical practices)
had the Mergers not been effected. On December 1, 1997, Piper Jaffray rendered
its oral and written opinions to the Boards (the "Piper Jaffray Opinions"),
that, as of such date and based upon the assumptions noted therein, matters
considered and limits of review in connection with such opinions, the cash
consideration to be received
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<PAGE> 20
pursuant to the Mergers by the stockholders of shares of Common Stock pursuant
to the Merger Agreement is fair from a financial point of view to such
stockholders (other than Affiliated Stockholders).
THE FULL TEXT OF THE PIPER JAFFRAY OPINIONS, DATED DECEMBER 1, 1997, WHICH
IN ADDITION TO THE OPINIONS EXPRESSED, SET FORTH, AMONG OTHER THINGS, PROCEDURES
FOLLOWED, CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED, QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY PIPER JAFFRAY, ARE ATTACHED AS ANNEX B
TO THIS INFORMATION STATEMENT AND ARE INCORPORATED HEREIN BY REFERENCE. THE
SUMMARY OF THE PIPER JAFFRAY OPINIONS SET FORTH IN THIS INFORMATION STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINIONS AND
STOCKHOLDERS ARE URGED TO READ THESE OPINIONS IN THEIR ENTIRETY. THE PIPER
JAFFRAY OPINIONS WERE PROVIDED TO EACH OF THE BOARDS FOR ITS INFORMATION AND ARE
DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CASH
CONSIDERATION TO BE RECEIVED PURSUANT TO THE MERGERS BY THE HOLDERS (OTHER THAN
AFFILIATED STOCKHOLDERS) OF THE SHARES OF EACH COMPANY'S COMMON STOCK AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER ANY STOCKHOLDER
SHOULD EXERCISE APPRAISAL RIGHTS IN RESPECT OF THE MERGERS OR OTHERWISE ACT IN
RESPECT OF THE MERGER AGREEMENT AND THE MERGERS. THE PIPER JAFFRAY OPINIONS ARE
BASED UPON MARKET, ECONOMIC, FINANCIAL AND OTHER CONDITIONS AS THEY EXISTED AND
COULD BE EVALUATED AS OF THE DATE OF THE PIPER JAFFRAY OPINIONS.
In evaluating and establishing the ranges of appropriate values of the
Companies' Common Stock and subsequently rendering its opinion, Piper Jaffray,
among other things: (1) reviewed the final draft of the Merger Agreement; (2)
reviewed publicly available business and financial information relating to the
Companies that Piper Jaffray deemed relevant, including the Companies' annual
reports on Form 10-K for the years ended December 31, 1992 through 1996 and the
Companies' quarterly reports on Form 10-Q for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997; (3) reviewed certain information relating
to the business of BLC, including earnings, cash flow and liabilities, prospects
for BLC and financial forecasts for the years ending December 31, 1997 through
2001 ("Financial Forecasts"), furnished to Piper Jaffray by management of BLC;
(4) visited the headquarters of the Companies and conducted discussions with
members of senior management of the Companies concerning the matters described
in 2 and 3 above, and other matters concerning the financial condition and
business of the Companies that Piper Jaffray deemed relevant; (5) reviewed the
historical prices and trading activity for the FEB Common Stock, the BULA Common
Stock and the BLC Common Stock; (6) reviewed the financial terms, to the extent
publicly available, of certain comparable merger and acquisition transactions
which Piper Jaffray deemed relevant; (7) reviewed premiums paid in certain
minority interest, going-private transactions that Piper Jaffray deemed
relevant; (8) compared certain financial data of BLC with certain financial and
securities data of companies deemed similar to BLC or representative of the
business sector in which BLC operates; (9) performed discounted cash flow
analysis on the Financial Forecasts; (10) consulted with Arthur Andersen, the
Companies' outside tax advisor, as to the assumptions concerning taxes set forth
below and the application thereof in Piper Jaffray's analyses; and (11) reviewed
such other financial data, performed such other analyses and considered such
other information as Piper Jaffray deemed necessary and appropriate under the
circumstances. Piper Jaffray limited its review and comparisons in "Comparable
Public Company Analysis", "Comparable Acquisition Transaction Analyses" and
"Discounted Cash Flow Analysis" below to BLC alone, as BLC is the sole operating
company amongst the Companies. BLC is thus also the sole source of revenues and
income for the Companies; FEB and BUL receive all cash flow through dividends
originating from BLC.
Piper Jaffray also incorporated in its analysis the ownership among the
Companies of each other's shares, which materially impacted the corporate tax
consequences of the dividends and distributions evaluated below under "Long Term
Dividend Model" and "Deemed Sale Model". For purposes of the analyses and
conclusions regarding the Mergers, Piper Jaffray assumed, and the Companies and
Arthur Andersen, the Companies' tax advisor, have informed Piper Jaffray that:
(i) the effective tax rates, including the effect of the
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<PAGE> 21
"dividends received" deduction, utilized in the Long-Term Dividend Model (as set
forth below) were reasonable and appropriately applied, (ii) the effective tax
rates utilized in the Deemed Sale Model (as set forth below) were reasonable and
appropriately applied, and (iii) the tax structure assumed in the Deemed Sale
Model is a structure that independent boards of directors seeking to maximize
the value received by the stockholders of the Companies in an arms-length sale
of the equity interests in the Companies, and an arms-length buyer in such
circumstances, would consider appropriate.
In evaluating and establishing the ranges of appropriate values of the
Companies' Common Stock, and preparing its opinions, Piper Jaffray relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by the Companies. Piper Jaffray did not independently verify
such information or undertake an independent appraisal of the assets or
liabilities of any of the Companies. With respect to the financial forecasts of
the Companies furnished to it by the Companies, Piper Jaffray assumed that they
had been reasonably prepared and reflected the best currently available
estimates and judgment of the management of the Companies as to the expected
future financial performance of the Companies. With respect to tax matters,
Piper Jaffray relied upon the advice and conclusions of the Companies and their
tax advisor as noted above.
The following is a summary of the analyses performed by Piper Jaffray in
connection with its evaluation and establishment of the ranges of appropriate
values of the Companies' Common Stock, and with the preparation of the Piper
Jaffray Opinions.
COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available information
(including estimates by Institutional Broker Estimate Service), Piper Jaffray
compared certain financial and operational information and ratios (described
below) for BLC with corresponding financial and operating information and ratios
for a group of publicly traded companies that Piper Jaffray deemed to be those
most similar to BLC. The comparable public companies were Armstrong World
Industries, Inc., The Eastern Company, Ingersoll-Rand Co., Knape & Vogt Mfg.
Co., Masco Corp. and The Stanley Works (collectively, the "Public Comparables").
Piper Jaffray reviewed the last trading prices on November 4, 1997 of each of
the Public Comparables as a multiple of (a) five year average net income; (b)
three year average net income; (c) latest twelve months ("LTM") net income; (d)
estimated net income for each of the calendar years 1997 and 1998; (e) book
value; and (f) LTM and three year average cash flow (defined as net income plus
depreciation). Piper Jaffray also reviewed the dividend yield and payout ratios
for each of the Public Comparables and enterprise value (defined as equity value
plus the liquidation value of preferred stock, the principal amount of debt and
minority interests less cash and marketable securities) as a multiple of (a) LTM
revenues, (b) LTM operating income and (c) LTM EBITDA (latest twelve months
earnings before interest, taxes, depreciation and amortization). The following
multiples were derived from such calculations: (1) for share prices as a
multiple of five year average net income, a range of 19.9x to 35.1x and a median
of 24.0x; (2) for share prices as a multiple of three year average net income, a
range of 15.4x to 32.1x and a median of 22.9x; (3) for share prices as a
multiple of LTM net income, a range of 12.2x to 33.5x and a median of 19.5x; (4)
for share prices as a multiple of 1997 estimated net income, a range of 12.9x to
20.5x and a median of 16.4x; (5) for share prices as a multiple of 1998
estimated net income, a range of 11.4x to 18.0x and a median of 16.1x; (6) for
share prices as a multiple of book value, a range of 1.8x to 6.2x and a median
of 4.2x; (7) for share prices as a multiple of LTM cash flow, a range of 7.4x to
20.4x and a median of 10.5x; (8) for share prices as a multiple of three year
average cash flow, a range of 8.3x to 22.6x and a median of 12.2x; (9) for
enterprise value as a multiple of LTM revenues, a range of 0.9x to 2.4x and a
median of 1.3x; (10) for enterprise value as a multiple of LTM operating income,
a range of 8.9x to 17.4x and a median of 10.8x; (11) for enterprise value as a
multiple of LTM EBITDA, a range of 6.2x to 14.4x and a median of 7.7x; and (12)
for dividend yield and payout ratios, a range of 2% to 4% for dividend yield and
a range of 23% to 57% for payout ratio and a median of 43%. The comparable
public company analysis yielded a valuation range for BLC's equity on a control
basis of approximately $74 to $78 million.
COMPARABLE ACQUISITIONS TRANSACTIONS ANALYSIS. Using publicly available
information, Piper Jaffray reviewed eight transactions announced since January
1, 1994 that have closed involving the acquisition of manufacturing companies
which, in Piper Jaffray's judgment, were comparable to BLC. The comparable
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<PAGE> 22
acquisitions were the acquisition of Eljer Industries by Zurn Industries,
effective January 27, 1997; the acquisition of Medalist Industries, Inc. by
Illinois Tools Works Inc., effective May 31, 1996; the acquisition of Larizza
Industries Inc. by Collins & Aikman Corp., effective January 3, 1996; the
acquisition of Elco Industries by Textron, effective October 20, 1995; the
acquisition of American Consumer Products, Inc. by Vista 2000 Inc., effective
September 29, 1995; the acquisition of RB&W Corp. by Park-Ohio Industries Inc.,
effective March 31, 1995; the acquisition of Bettis Corp. by Shareholders of
Galveston Houston, effective May 20, 1994; and the acquisition of Mark Controls
Corp. by Crane Co., effective April 27, 1994 (the "Comparable Acquisitions").
The Comparable Acquisitions were used to derive estimates of valuations of BLC's
equity value.
With respect to each of the Comparable Acquisitions, Piper Jaffray compared
the enterprise value as a multiple of the LTM revenues and LTM operating income
and the equity value as a multiple of LTM net income and book value of each
acquired company. For the Comparable Acquisitions, the following multiples were
derived: (1) for enterprise value as a multiple of LTM revenues, a range of 0.4x
to 1.4x and a median of 0.7x; (2) for enterprise value as a multiple of LTM
operating income, a range of 4.1x to 22.1x and a median of 11.5x; (3) for equity
value as a multiple of LTM net income, a range of 6.4x to 39.9x and a median of
18.0x; and (4) for equity value as a multiple of LTM book value, a range of 0.8x
to 9.9x and a median of 2.9x.
Utilizing this methodology, Piper Jaffray derived an estimated valuation
range of approximately $60 to $65 million for the equity value of BLC.
No company utilized in the comparable public company analysis and the
comparable transactions analysis was identical to BLC. Accordingly, an analysis
of the results of such a comparison is not purely mathematical, but instead
involves complex considerations and judgments concerning historical performance,
projected financial results, competitive position and industry trends. These
factors were used to adjust the value of BLC versus the Public Comparables and
the Comparable Acquisitions.
DISCOUNTED CASH FLOW ANALYSES OF BLC. Using a discounted cash flow
analysis, Piper Jaffray calculated a range of equity values for BLC, based on
the net present value of implied future cash flows of BLC and a terminal value
assuming BLC is sold in 2001 at a multiple of operating income. Piper Jaffray
analyzed and used internal financial planning data prepared by management of BLC
for 1997 through 2001. Piper Jaffray calculated the range of net present values
for BLC based on a range of discount rates of 13% to 17% and a range of terminal
value multiples of forecasted 2001 operating income of 5.0x to 7.0x. This
analysis yielded a range of estimated equity values from $41.6 million to $68.9
million with a median of $54.4 million.
DEEMED SALE MODEL. Based upon the ranges of values of BLC estimated through
the discounted cash flow, comparable acquisitions and comparable company
analyses, Piper Jaffray estimated the financial consequences of a deemed sale of
BLC, and distribution of the proceeds thereof to the holders of Common Stock of
BLC, BUL and FEB, assuming a sale of shares of stock of BLC, and distribution of
such BLC sale proceeds by BUL and FEB to their respective holders. Using equity
values of $56.0 million, $58.0 million and $60.0 million for BLC (which Piper
Jaffray deemed the appropriate range of possible values for BLC after
considering the results of the comparable company, comparable transactions and
discounted cash flow analyses), Piper Jaffray's calculations, inclusive of the
tax consequences of the tax structures described above, resulted in the
following ranges of appropriate values: (1) for BLC Common Stock, $476 to $510
per share; (2) for BULA Common Stock, $84 to $90 per share; (3) for BULB Common
Stock, $84 to $90 per share and (4) for FEB Common Stock, $25 to $27 per share.
LONG-TERM DIVIDEND MODEL. Piper Jaffray also calculated the present value
to holders of the Common Stock of future dividends that could be made by BLC
based upon the operating plan for BLC for the years 1997-2001 prepared by the
Companies' management, if all net cash flow were distributed annually to holders
of the Common Stock of BLC, BUL and FEB, after giving effect (both in the
periods from 1997-2001 and after 2001) to (i) taxation of the dividends at the
corporate level, i.e., taxes imposed on dividends received by each of the
Companies, inclusive of the tax consequences of the tax structures, described
above, (ii) administrative expenses at each of BUL and FEB and (iii) the BULA
Common Stock dividend preference by calculating the present value of the
preferential dividend to which such shares are entitled. After
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<PAGE> 23
2001, a normalized dividend capacity was calculated based upon BLC's long-term
growth outlook established by management of BLC. A perpetuity value of future
dividends was calculated using a 10% growth rate. The present value of the
future dividends was calculated using discount rates of 17%, 19% and 21% based
on estimated required rates of returns for like equity investments.
Based upon such analyses, the following ranges of appropriate values of the
Common Stock were derived: BLC Common Stock, $447 to $520 per share; BULA Common
Stock, $103 to $120 per share; BULB Common Stock, $101 to $117 per share; and
FEB Common Stock, $46 to $53 per share.
HISTORICAL STOCK PRICE ANALYSES. Piper Jaffray reviewed the trading
performance of the Common Stock of each of the Companies for the period from
April 21, 1995 to November 28, 1997 for BLC and August 5, 1994 to November 28,
1997 for BUL and FEB. Piper Jaffray determined that the cash consideration
represents premiums (or discounts) to the last trading price one day and four
weeks prior to the announcement date and the twelve-month average trading prices
for each of the Companies as set forth below.
<TABLE>
<CAPTION>
FEB BUL BLC
COMMON STOCK SERIES A STOCK COMMON STOCK
------------ -------------- ------------
<S> <C> <C> <C>
Twelve-Month Average Premium........................ $ 23.09/76% $81.31/206% $366.59/231%
Four-Week Premium (discount)........................ (14.45)/(21) 74.69/162 283.43/117
One-Day Premium..................................... .43/1 67.69/128 269.13/105
</TABLE>
BULB Common Stock is not publicly traded.
PREMIUMS IN SELECTED MINORITY INTEREST TRANSACTIONS. Piper Jaffray reviewed
certain publicly available information regarding certain transactions involving
the purchase of a minority interest announced between January 1, 1991 and
November 28, 1997. The comparable minority interest, going-private transactions
were the acquisition of Acordia Inc. by Anthem Inc., effective July 15, 1997;
the acquisition of Mafco Consolidated Group by Mafco Holdings Inc., effective
July 9, 1997; the acquisition of Central Tractor Farm & Country by JW Childs
Equity Partners LP, effective March 27, 1997; the acquisition of WCI Steel Inc.
by Renco Group Inc., effective November 27, 1996; the acquisition of SyStemix
Inc. by Novartis AG, effective February 16, 1997; the acquisition of Great
American Management & Investment Inc. by Equity Holdings, Chicago, IL, effective
April 26, 1996; the acquisition of SCOR US Corp by SCOR, effective December 21,
1995; the acquisition of Ropak Corp. by LinPac Mouldings Ltd., effective June
16, 1995; the acquisition of United Medical Corp. by Investor Group, effective
May 13, 1993; the acquisition of Country Lake Foods Inc. by Land O'Lakes Inc.,
effective November 13, 1991; and the acquisition of Medical Management of
America by Investor Group, effective May 17, 1991 (the "Minority Interest
Comparables"). For each of the Minority Interest Comparables, Piper Jaffray (1)
compared the per share acquisition price and the per share pre-announcement
trading price and (2) calculated the premium over the pre-announcement trading
price represented by the acquisition price. Premiums paid in the Minority
Interest Comparables showed a mean of 24.9% and a median of 17.6% one day prior
to the announcement date, a mean of 38.5% and a median of 38.6% four weeks prior
to the announcement date and a mean of 46.9% and a median of 32.3% for the
average price during the twelve months prior to the announcement date. The cash
consideration represented premiums over the last trading price for the shares of
Common Stock on November 28, 1997 as follows: FEB Common Stock, 1%; BULA Common
Stock, 128%; and BLC Common Stock, 105%.
OTHER FACTORS. Arriving at a range of appropriate values for a company's
common stock and the preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances, and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In arriving at a range
of appropriate values of the Companies' Common Stock and delivering its
opinions, Piper Jaffray did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Piper
Jaffray believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. No limitations
were imposed by the Companies upon Piper Jaffray with respect to investigations
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<PAGE> 24
made or procedures followed by Piper Jaffray in arriving at ranges of
appropriate values of the Companies' Common Stock and rendering the Piper
Jaffray Opinions.
In performing its analyses, Piper Jaffray made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the Companies. Any estimates contained in the analyses performed by Piper
Jaffray are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses do not purport to be
appraisals or to reflect the prices at which such businesses might actually be
sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. In addition, as described below, the Piper Jaffray
Opinions and the analyses provided by Piper Jaffray to the Companies were among
several factors taken into consideration by the Companies in making their
determinations to effect the Mergers. Consequently, the Piper Jaffray analyses
described above should not be viewed as determinative of the decision of the
Companies to effect the Mergers.
Piper Jaffray is a nationally recognized investment banking firm and, as a
customary part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements, and valuations for
corporate and other purposes. Piper Jaffray was selected because of its
expertise, reputation and familiarity with transactions similar to the Mergers.
COMPENSATION. Pursuant to a letter agreement dated May 16, 1997, as amended
on October 1, 1997, the Companies jointly and severally agreed to pay to Piper
Jaffray (i) a retainer fee of $75,000, and (ii) an additional fee of $325,000
which was paid upon the delivery to the Companies of the Piper Jaffray Opinions.
In addition, the Companies agreed to reimburse Piper Jaffray for its reasonable
expenses (including certain fees and disbursements of its legal counsel) and to
indemnify Piper Jaffray and certain related parties from and against certain
liabilities, including liabilities under the federal securities laws, arising
out of its engagement. In the ordinary course of its business, Piper Jaffray and
its affiliates may actively trade the equity securities of the Companies for
their own account and for the accounts of their customers and, accordingly, may
at any time hold a long or short position in such securities.
DETERMINATIONS OF THE BOARDS; FAIRNESS OF THE MERGERS
As discussed under "-- Background of the Mergers," the Boards determined
the Merger Agreement and the Mergers to be fair to the stockholders of each of
the Companies. In reaching this conclusion, the Boards considered a number of
factors, including, among other things, the Piper Jaffray Opinions, that, as of
such date and subject to the assumptions and limitations therein, the cash
consideration to be received by holders of the Common Stock of each of the
Companies pursuant to the Merger Agreement is fair from a financial point of
view to such stockholders (other than the Affiliated Stockholders and the
Dissenting Stockholders). The full text of such opinions, which set forth, among
other things, the opinions expressed, procedures followed, matters considered
and limitations on review undertaken in connection with such opinions, are
attached as Annex B to this Information Statement. Stockholders are urged to
read the opinions in their entirety.
REASONS FOR THE BOARDS' DETERMINATION. In reaching their recommendation,
the Boards considered the following material factors:
(a) The analysis and subsequent presentation and opinions of Piper
Jaffray, which included, among other things, analyses of the value of the
Companies' Common Stock and comparisons with similar companies and similar
transactions, and which indicated that the cash consideration to be
received pursuant to the Merger by the holders of shares of Common Stock of
each of the Companies is fair to such stockholders (other than the
Affiliated Stockholders) from a financial point of view (such opinions of
Piper Jaffray were given subject to certain limitations, qualifications and
assumptions specified therein; see "-- Financial Advisor; Determination of
Values; Fairness Opinions"). In connection with their consideration of the
Piper Jaffray Opinions, as part of their determination with respect to the
fairness of the cash consideration to be received by holders of Common
Stock pursuant to the Merger Agreement,
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<PAGE> 25
the Boards adopted the conclusions, and the analyses underlying such
conclusions, of Piper Jaffray, based upon their view as to the
reasonableness of such analyses.
(b) The belief of each of the Boards that Piper Jaffray's analysis
supports the Boards' determination that the consideration to be received by
holders of Common Stock pursuant to the Merger Agreement is fair because
the aggregate value of the cash consideration exceeds the range of
appropriate values calculated by Piper Jaffray in its various analyses.
(c) The Companies' businesses, condition and prospects, and the
current and historical trading prices for the Companies shares. The Boards
believe that the Companies' stockholders were unlikely to realize the full
value of their shares under the current holding company structure given the
historic discount in the trading price for the Common Stock.
(d) The terms of the proposed Mergers, including, among other things,
the consideration to be paid to holders of Common Stock, including premiums
of approximately (a) 19%, 289% and 163% to the closing bid price of the
Common Stock of each of FEB, BUL and BLC, respectively, to the day prior to
the announcement of the transaction based on bid prices of $45, $31 and
$200 per share of FEB Common Stock, BULA Common Stock and BLC Common Stock,
respectively and (b) 76%, 206% and 231% to the twelve-month average last
trading prices of the FEB Common Stock, BULA Common Stock and BLC Common
Stock, respectively. The Boards determined that these terms provide full
value for stockholders because stockholders receive a premium over the
current and historical market price and net book value.
(e) The availability of a statutory right of appraisal under Section
262 of the DGCL. See "STOCKHOLDERS' RIGHTS OF APPRAISAL."
The foregoing discussion of the information and factors considered by the
Boards is not intended to be exhaustive. In view of the wide variety of the
factors considered in connection with its evaluation of the proposed Mergers,
the Boards did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the foregoing factors or determine that
any factor was of particular importance. Rather, the Boards viewed their
position and recommendation as being based on the totality of the information
presented and considered by them.
Because the consent of a majority of stockholders of each of the Companies
has already been obtained, there will not be a vote of the stockholders of any
of the Companies and none of the directors and executive officers of the
Companies or Webco is making a recommendation to stockholders of the Companies
regarding the Mergers.
FAIRNESS OF THE MERGERS TO UNAFFILIATED STOCKHOLDERS. The Boards believe
that the Mergers are fair to the Unaffiliated Stockholders for all of the
reasons set forth above.
Piper Jaffray presented the Boards with recommended ranges of appropriate
values of the Companies' Common Stock. See "-- Financial Advisor; Determination
of Values; Fairness Opinions." The Merger Consideration selected equals the
highest price of the range of values presented by Piper Jaffray for the
respective Company, plus the amount of the dividend the respective Company
likely would have declared and paid in 1997 (based on historical practices) to
its respective stockholders had the Mergers not taken place. The Piper Jaffray
Opinions considered the fairness of the cash consideration to be received
pursuant to the Merger by holders of the Common Stock (other than Affiliated
Stockholders). Webco will not receive the Merger Consideration. The Board of
each Company unanimously determined that the Merger Agreement and the Mergers
are fair to the Company's stockholders.
In light of the foregoing, the Boards did not consider it necessary to, and
the Boards believe the proposed transaction is fair despite the fact they did
not, (i) retain an unaffiliated representative to act solely on behalf of
Unaffiliated Stockholders for purposes of negotiating the terms of the Mergers
and the Merger Agreement or (ii) structure the Mergers to require the approval
of a majority of the Unaffiliated Stockholders of any of the Companies.
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PURPOSE AND STRUCTURE OF THE MERGERS
The parties entered into the Merger Agreement in order that Webco and Mr.
Best may acquire beneficial ownership of the entire equity interests in each of
the Companies. The Boards of Directors of each of the Companies have
increasingly recognized that (a) significant financial and operational
constraints have prevented and are likely to continue to prevent the Companies'
stockholders from enjoying the benefits which usually flow from being
stockholders of a public company; (b) the Companies have never developed and are
not likely to develop in the foreseeable future any significant trading market
for their shares of Common Stock; (c) the Companies have incurred and will
continue to incur substantial costs as a result of each of their status as
public companies under the Exchange Act; (d) the multi-tiered corporate
structure makes it difficult for the public equity market to evaluate the
Companies' net asset values and future prospects; and (e) the Companies' status
as public companies has placed and will continue to place them at a substantial
competitive disadvantage due to the required public disclosure of competitive
information that certain of the Companies' competitors currently do not have to
disclose.
The Boards have each determined that it is both appropriate and desirable
to convert the Companies to private ownership. Accordingly, Mr. Best prepared a
proposal to convert the Companies to private ownership.
The acquisition of the shares of Common Stock of each of the Companies from
holders of such shares has been structured as a series of simultaneous mergers
in order to transfer ownership of the remaining publicly held equity interests
in the Companies to Webco and Mr. Best in one transaction and at the same time
provide cash to the Unaffiliated Stockholders at a premium to historic trading
prices. See "MARKET PRICES AND DIVIDENDS" and "SOURCE AND AMOUNT OF FUNDS."
The Mergers have been structured as a merger of each of the Merger Subs
with and into the Companies with the Companies being the Surviving Corporations.
The transaction has been structured as a series of simultaneous mergers because
it is an efficient means of acquiring the entire public interests in the
Companies in a single transaction and because a merger provides flexibility with
respect to certain financial, operational and tax planning considerations. Prior
to determining to proceed with a merger proposal, Mr. Best also considered the
following alternatives: cash tender offers (which he rejected because there
could be no assurance that it would result in Webco acquiring the entire equity
interests in each of the Companies), and reverse stock splits (which he rejected
because they could not be structured as efficiently or in as cost effective
manner as the Mergers).
After the Mergers, the Surviving Corporations will be wholly owned,
directly and indirectly, by Mr. Best and Webco. Immediately following the
consummation of the Merger, each of the Surviving Corporations will be merged
with and into Webco.
For additional information concerning the purpose of the Mergers, see "--
Background of the Mergers," "-- Determinations of the Boards; Fairness of the
Mergers" and "-- Plans for the Companies After the Mergers."
CERTAIN EFFECTS OF THE MERGERS
FEB, BUL, BLC AND WEBCO. At the Effective Time, (i) each of W1, W2 and W3
will merge with and into FEB, BUL and BLC, respectively, and the separate
corporate existence of each of the Merger Subs will cease, (ii) the Companies
will be wholly owned, directly and indirectly, by Mr. Best and Webco, (iii) all
the rights, privileges, immunities, powers and franchises of the Companies and
the Merger Subs will vest in the Surviving Corporations and (iv) all
obligations, duties, debts and liabilities of the Companies and the Merger Subs
will be the obligations, duties, debts and liabilities of the Surviving
Corporations. The Certificate of Incorporation of each of the Companies, as in
effect immediately prior to the Effective Time, will be amended to read in their
entireties as Exhibits A-1, A-2 and A-3 to the Merger Agreement which is
attached hereto as Annex A. The By-laws of each of the Merger Subs, as in effect
immediately prior to the Effective Time, will be the By-laws of each respective
Surviving Corporation. The directors and officers of each of the Companies
immediately prior to the Effective Time will be, from and after the Effective
Time, the directors and officers of each respective Surviving Corporation. After
the Mergers, the Surviving Corporations will be wholly owned,
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directly and indirectly, by Mr. Best and Webco. Immediately following the
consummation of the Merger, each of the Surviving Corporations will be merged
with and into Webco.
STOCKHOLDERS. As a result of the Mergers, the Common Stock of each of the
Companies will no longer be publicly traded and the Surviving Corporations will
be wholly owned, directly and indirectly, by Mr. Best and Webco. Following the
Mergers, persons who were stockholders of any of the Companies immediately prior
to the Mergers will no longer have an opportunity to continue their interests in
any of the Companies as ongoing corporations and therefore will not share in
their future earnings and potential growth. Trading in the shares of Common
Stock of each of the Companies will cease immediately following the Effective
Time. Registration of the Common Stock of each of the Companies under the
Exchange Act also will be terminated, as will the ongoing disclosure
requirements thereunder.
Stockholders who properly perfect their statutory appraisal rights under
and in accordance with Section 262 of the DGCL will have the right to seek
appraisal of their Common Stock of each of the Companies owned by them. See
"STOCKHOLDERS' RIGHTS OF APPRAISAL."
PLANS FOR THE COMPANIES AFTER THE MERGERS
Following completion of the Mergers, the Companies will be wholly owned,
directly and indirectly, by Mr. Best and Webco and the public will no longer own
a minority equity interest in any of the Companies. Immediately following the
Mergers, each of the Companies will be merged with and into Webco, with Webco
surviving (the "Subsequent Merger"), and Webco will be renamed "Best Lock
Corporation." Accordingly, the business and operations of the Companies will be
continued by Webco substantially as they have been and are currently being
conducted. It is anticipated that the directors and officers of BLC will
ultimately be the directors and officers of Webco.
As a result of the Subsequent Merger, Mr. Best will be the sole voting
stockholder of the combined businesses of the Companies. Accordingly, Mr. Best
will be able to direct and control the policies of the Companies and any of
their subsidiaries, including with respect to any extraordinary corporate
transaction such as a merger (including the Subsequent Merger), reorganization
or liquidation involving the Companies or any of their subsidiaries, a sale or
transfer of a material amount of assets of the Companies or any of their
subsidiaries, a change in the capitalization or other changes in the Companies'
corporate structure or business or the composition of the Boards or management,
without taking into account the current public minority equity interest.
However, except as described in this Information Statement (including the
Subsequent Merger), Mr. Best and Webco do not have any present plans or
proposals that relate to a sale or transfer of a material amount of assets of
the Companies or any of their subsidiaries, a change in the capitalization or
other changes in the Companies' corporate structure or business or the
composition of the Boards or management.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
GENERAL. In considering the Merger Agreement and the transactions
contemplated thereby, stockholders of each of the Companies should be aware that
certain members of the Companies' management and the Boards have certain
interests in the Mergers that may present them with actual or potential
conflicts of interests with respect to the Mergers.
Mr. Best and his wife, Mariea Best, are the only two members of the Board
of Directors of each of FEB, BUL, BLC, the Merger Subs and Webco. In addition,
the Bests are the beneficial owners of all the capital stock of Webco which
owns, directly and indirectly, all of the capital stock of each of the Merger
Subs.
In February 1995, Mr. Best, Webco and BLC formed Best Lock Partnership, an
Indiana general partnership ("BLP"), to acquire 204,053 and 8,787 shares of FEB
Common Stock and BUL Common Stock, respectively, from various members of the
Best family. BLP was dissolved in August, 1997 and, in connection therewith, the
FEB Common Stock and BUL Common Stock held by BLP was distributed to Mr. Best,
Webco and BLC in accordance with the terms of the BLP partnership agreement. In
connection with the
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dissolution of BLP, Webco purchased 23,000 shares of FEB Common Stock from BLC
for aggregate consideration of $1,233,030.
EMPLOYMENT AGREEMENTS. Russell C. Best is a party to an employment
agreement with BLC. The terms of his employment agreement will not be affected
by the Mergers and his agreement ultimately will be assumed by Webco. Mr. Best
serves on the Board of each of the Companies, Webco and each of the Merger Subs.
INDEMNIFICATION. Pursuant to the Merger Agreement, Webco as the ultimate
surviving corporation will indemnify, defend and hold harmless the present
directors and officers of each of the Companies and their subsidiaries against
all losses, claims, damages, liabilities, fees and expenses arising out of
actions or omissions occurring at or prior to the Effective Time to the fullest
extent permitted under Delaware law as in effect at the date hereof. See "THE
MERGER AGREEMENT -- Certain Other Covenants -- Directors' and Officers'
Indemnification."
STOCK BONUS PLAN PARTICIPANTS
As part of the transaction but conditioned upon the consummation of the
Mergers, the Best Lock Corporation Stock Bonus Plan (the "Stock Bonus Plan")
will be terminated. The Stock Bonus Plan participants will be provided the right
to dissent from the Mergers and assert appraisal rights for the BLC Corporation
Stock and BULA Common Stock allocated to their Stock Bonus Plan accounts by
notifying NBD Bank, N.A., the Stock Bonus Plan trustee, on or before ,
1997. The Stock Bonus Plan trustee will assert appraisal rights on behalf of
those participants who give timely notice of such request. It is likely that the
costs associated with the assertion of appraisal rights will be borne on a pro
rata basis by those participants asserting their appraisal rights. See
"STOCKHOLDERS' RIGHTS OF APPRAISAL."
If the Mergers are consummated, the participants in the Stock Bonus Plan
will be entitled to have allocated to their respective accounts under the Stock
Bonus Plan, the same Merger Consideration, or cash in lieu thereof, for the
shares of BLC Common Stock and BULA Common Stock allocated to them under the
Stock Bonus Plan that the other stockholders of BLC and BUL will receive for
their shares of Common Stock. The Companies engaged Piper Jaffray, an
independent valuation company, to opine as to the fairness of the Merger
Consideration. For more information on the determination of the Merger
Consideration, see "SPECIAL FACTORS -- Financial Advisor, Determination of
Values; Fairness Opinions."
As soon as practicable after the transaction, BLC will request a favorable
determination from the Internal Revenue Service relating to termination of the
Stock Bonus Plan. Upon receipt of a favorable Internal Revenue Service ruling
and consistent with applicable tax laws and the provisions set forth in the
Stock Bonus Plan, participants will then be provided the right to have their
Stock Bonus Plan accounts distributed directly to them or transferred to the
Best Lock Corporation Retirement Savings Plan (the "401(k) Plan").
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
In general, under the Internal Revenue Code of 1986, as amended (the
"Code"), the receipt of cash by a stockholder pursuant to the series of
simultaneous mergers or pursuant to the exercise of stockholders' rights of
appraisal will be a taxable event for federal income tax purposes. Generally, a
stockholder will recognize capital gain or loss equal to the difference between
(i) the amount of cash received and (ii) such stockholder's tax basis in the
Common Stock surrendered in exchange therefor. To the extent an individual
stockholder has held the Common Stock of any of the Companies for one year or
less at the Effective Time, any such capital gain generally will be subject to
U.S. federal income tax at such stockholder's ordinary income tax rates. To the
extent an individual stockholder has held the Common Stock of any of the
Companies for more than one year but less than 18 months at the Effective Time,
any such capital gain generally will be subject to U.S. federal income tax at a
rate of 28%. To the extent an individual stockholder has held the Common Stock
of any of the Companies for more than 18 months at the Effective Time, any such
capital gain will increase the stockholder's adjusted net capital gain. An
individual stockholder's adjusted net capital gain generally will be subject to
U.S. federal income tax at a rate of 20% (except with respect to any portion of
such adjusted net capital gain which would be taxed at a rate below 28% in the
absence of Section 1(h) of the Code, which
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portion generally will be subject to U.S. federal income tax at a rate of 10%).
Because the application of the capital gain and loss rules enacted as part of
the Taxpayer Relief Act of 1997 depend on the particular circumstances of each
stockholder, each stockholder should consult with his or her own tax advisor
with respect to the particular tax consequences of the Mergers to him, her or
it. Such gain or loss must be calculated separately for each block of shares of
Common Stock (e.g., shares acquired at the same price in a single transaction)
held by the stockholder. Stockholders will not be entitled to use the
installment method to report any gain with respect to the exchange of the Common
Stock because the Common Stock is publicly traded.
The preceding discussion describes the material federal income tax
consequences to the Unaffiliated Stockholders of the Mergers, and does not
address any potentially applicable local, state or foreign tax laws. The
discussion assumes that stockholders hold their shares of Common Stock as
capital assets within the meaning of Section 1221 of the Code. Moreover, the
preceding discussion does not discuss all aspects of federal income taxation
that may be relevant to a stockholder and it may not apply to (i) Common Stock
acquired upon exercise of incentive stock options, non-qualified stock options
or otherwise as compensation; (ii) certain tax-exempt stockholders; (iii)
stockholders that are subject to special tax provisions, such as banks and
insurance companies; and (iv) certain nonresident aliens and foreign
corporations.
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of all amounts paid to the stockholder, unless such
stockholder provides a correct taxpayer identification number or proof of an
applicable exemption to the Companies, and otherwise complies with applicable
requirements under the Code.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS
INFORMATION STATEMENT. EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE
MERGERS (INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS).
ACCOUNTING TREATMENT OF THE MERGERS
The Mergers will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. Therefore, the
aggregate consideration paid by Webco in connection with the Mergers will be
allocated to the Companies identifiable assets and liabilities based on their
fair market values, with any excess being treated as goodwill.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to consummate the transactions
contemplated by the Merger Agreement and to pay related fees and expenses is
estimated to be approximately $28.5 million which includes (i) approximately
$27.3 million to pay the Merger Consideration and (ii) approximately $1.2
million to pay related fees and expenses. The total amount of funds will be paid
from cash proceeds from a $50 million credit facility with LaSalle National Bank
(the "Credit Facility"). The Credit Facility will have term and revolving loan
components as well as a letter of credit facility and will be secured by
substantially all of the assets of the Companies (which, as a result of the
Merger and the Subsequent Mergers, will be owned by Webco). The various
components of the Credit Facility will bear interest at floating spreads over
prime and LIBOR market rates. Webco plans to repay the Credit Facility out of
its cash flow from operations. Webco's ability to draw down funds under the
Credit Facility are subject to certain conditions, including, without
limitation, the execution and delivery of certain documentation (including
documents granting security interests in substantially all of the assets of
Webco (which, at that time, will consist of the assets of the Companies)), the
receipt of certain consents, waivers and approvals and the receipt of certain
opinions of the Companies' and Webco's legal and tax advisors.
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STOCKHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Section 262 of the DGCL, any holder of Common Stock of any of
the Companies who does not wish to accept the consideration to be paid pursuant
to the Merger Agreement with respect to one or more of the Companies may dissent
from any of the Mergers and elect to have the fair value of such stockholder's
shares (the "Dissenting Shares") of Common Stock of any of the Companies
(exclusive of any element of value arising from the accomplishment or
expectation of the Mergers) judicially determined and paid to such stockholder
in cash, together with a fair rate of interest, if any, provided that such
stockholder complies with the provisions of Section 262. The Boards of each of
the Companies believes that the Merger Consideration to be received by the
stockholders of the respective Company is fair. There can be no assurance,
however, that if a stockholder properly perfected his appraisal rights under the
DGCL, he would receive more or less than the applicable cash consideration to be
paid in the applicable Merger. The following discussion is not a complete
statement of the law pertaining to appraisal rights under Delaware law, and is
qualified in its entirety by the full text of Section 262, which is provided in
its entirety as Annex C to this Information Statement. All references in Section
262 and in this summary to a "stockholder" are to the record holder of the
shares of Common Stock of any of the Companies as to which appraisal rights are
asserted. If you wish to exercise appraisal rights but are not a record holder
of Common Stock of the Company or Companies beneficially owned by you for which
appraisal is sought, you must make arrangements to have the record owner of such
shares act for you in seeking appraisal. See "SPECIAL FACTORS -- Stock Bonus
Plan Participants."
Under Section 262, where a proposed merger is approved by written consent
of stockholders, the corporation must notify each of its stockholders that
appraisal rights are available, and must include in such notice a copy of
Section 262. This Information Statement constitutes such notice to stockholders
of the Company. Any stockholder who wishes to exercise such appraisal rights or
who wishes to preserve the right to do so should review carefully Annex C to
this Information Statement because failure to comply with the procedures
specified in Section 262 timely and properly will result in the loss of
appraisal rights. Moreover, because of the complexity of the procedures for
exercising the right to seek appraisal of the Common Stock, the Company believes
that stockholders who consider exercising such rights should seek the advice of
counsel.
Any holder of Common Stock of any of the Companies wishing to exercise the
right to dissent from any of the Mergers and demand appraisal under Section 262
of the DGCL must satisfy each of the following conditions:
(i) Such stockholder must deliver to the applicable Company a written
demand for appraisal of such stockholder's shares within 20 days after the
date of mailing of this notice of appraisal rights, which demand will be
sufficient if it reasonably informs the applicable Company of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares;
(ii) Such stockholder must continuously hold such shares from the date
of making the demand through the Effective Time. Accordingly, a stockholder
who is the record holder of shares of Common Stock on the date the written
demand for appraisal is made but who thereafter transfers such shares prior
to the Effective Time will lose any right to appraisal in respect of such
shares; and
(iii) Persons holding Common Stock in more than one of the Companies
should send a separate demand for each of the Mergers from which they are
dissenting.
A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as such stockholder's name appears
on such stock certificates, should specify the stockholder's name and mailing
address, the Merger from which the stockholder is dissenting, the number of
shares of Common Stock of the applicable Company owned and that such stockholder
intends thereby to demand appraisal of such stockholder's Common Stock of such
Company. If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as
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agent for such owner or owners. A record holder such as a broker who holds
shares as nominee for several beneficial owners of a Company may exercise
appraisal rights with respect to the shares held for one or more beneficial
owners while not exercising such rights with respect to the shares held for one
or more beneficial owners; in such case, the written demand should set forth the
number of shares as to which appraisal is sought, and where no number of shares
is expressly mentioned the demand will be presumed to cover all shares held in
the name of the record owner. Stockholders who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such a nominee.
A stockholder who elects to exercise appraisal rights should mail or
deliver a written demand with respect to each Merger in which such stockholder
desires to demand appraisal to: Best Lock Corporation, 8900 Keystone Crossing,
Indianapolis, Indiana 46240, Attention: General Counsel. Written demand for
appraisal pursuant to Section 262 must be received by the applicable Company no
later than , which is the 20th day after the date of mailing
of this notice.
Prior to, or within ten days after the Effective Time, each Company must
send notice of the Effective Time to its stockholders. If such notice is sent
more than 20 days after the sending of this notice, such second notice will be
sent only to those stockholders who have demanded appraisal for their shares of
Common Stock.
Within 120 days after the Effective Time, but not thereafter, either the
Surviving Corporation or any stockholder who has complied with the requirements
of Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the shares of Common Stock of a Company held by
all dissenting stockholders. None of Companies presently intend to file such a
petition, and stockholders seeking to exercise appraisal rights should not
assume that the Surviving Corporations will file such a petition or that the
Surviving Corporations will initiate any negotiations with respect to the fair
value of such shares. Accordingly, stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Inasmuch as none of the Companies has any obligation to file such a
petition, the failure of a stockholder to do so within the period specified
could nullify such stockholder's previous written demand for appraisal. In any
event, at any time within 60 days after the Effective Time (or at any time
thereafter with the written consent of any of the Companies), any stockholder
who has demanded appraisal has the right to withdraw the demand and to accept
payment of the consideration provided in the Merger Agreement, provided that no
appraisal in the Chancery Court shall be dismissed as to any stockholder with
approval of the Court, and such approval shall be conditioned on such terms as
the Court deems just.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the applicable Surviving Corporation, upon written request, a
statement setting forth the aggregate number of shares not voted in favor of the
applicable Merger and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. The applicable
Surviving Corporation must mail such statement to the stockholder within 10 days
of receipt of such request.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights and will appraise the "fair value" of their shares,
exclusive of any element of value arising from the accomplishment or expectation
of the applicable Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. The costs of the action
may be determined by the Delaware Court of Chancery and taxed upon the parties
as the Delaware Court of Chancery deems equitable. Upon application of a
dissenting stockholder, the Delaware Court of Chancery may also order that all
or a portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all of the shares entitled to appraisal. STOCKHOLDERS CONSIDERING SEEKING
APPRAISAL SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED
UNDER SECTION 262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE CONSIDERATION
THEY WOULD RECEIVE
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PURSUANT TO THE MERGER AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES.
In determining fair value, the Delaware Court of Chancery is to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods that are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that, in making this determination
of values, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts that could
be ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to
be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., decided October
21, 1996, the Delaware Supreme Court stated that such exclusion is a "narrow
exclusion [that] does not encompass known elements of value," but which rather
applies only to the speculative elements of value arising from such
accomplishment or expectation. In Weinberger, the Delaware Supreme Court
construed Section 262 to mean that "elements of future value, including the
nature of the enterprise, that are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered." In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on the factual circumstances, may or may not be a stockholder's
exclusive remedy in connection with transactions such as the Merger.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions, if any, declared by a Board as payable to holders of record of
shares as of a record date prior to the Effective Time).
At any time within 60 days after the Effective Time, any stockholder who
has demanded appraisal rights will have the right to withdraw such demand for
appraisal and to accept the terms offered in the applicable Merger; after this
period, the stockholder may withdraw such demand for appraisal only with the
consent of the applicable Surviving Corporation. If no petition for appraisal
with respect to the applicable Merger is filed with the Delaware Court of
Chancery within 120 days after the Effective Time, all holders of shares of
Common Stock of such Company will be entitled to receive the Merger
Consideration. Any stockholder may withdraw such stockholder's demand for
appraisal by delivering to the applicable Surviving Corporation a written
withdrawal of such stockholder's demand for appraisal and acceptance of the
Mergers, except that (i) any such attempt to withdraw made more than 60 days
after the Effective Time will require written approval of the applicable
Surviving Corporation and (ii) no appraisal proceeding in the Delaware Court of
Chancery shall be dismissed as to any stockholder without the approval of the
Delaware Court of Chancery, and such approval may be conditioned upon such terms
as the Delaware Court of Chancery deems just. If (i) the applicable Surviving
Corporation does not approve a stockholder's request to withdraw a demand for
appraisal when such approval is required or (ii) the Delaware Court of Chancery
does not approve the dismissal of an appraisal proceeding, the stockholder would
be entitled to receive only the appraised value determined in any such appraisal
proceeding, and interest, if any, thereon as determined by the Delaware Court of
Chancery.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE
DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL RIGHTS.
CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS URGED TO
CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
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THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER AGREEMENT
NOT SUMMARIZED ELSEWHERE IN THIS INFORMATION STATEMENT. THE FOLLOWING SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS
ATTACHED AS ANNEX A TO THIS INFORMATION STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY
AND TO CONSIDER IT CAREFULLY.
EFFECTIVE TIME
The Mergers will become effective, and the Effective Time will occur, upon
the filing of Certificates of Merger with the Secretary of State of the State of
Delaware as required by the DGCL or such later time as is agreed to by the
parties and specified in such certificates. Such filings will be made on or as
promptly as practicable following the closing date under the Merger Agreement,
which will take place not later than the second business day after the
satisfaction or waiver of all of the conditions set forth in the Merger
Agreement, or such other time as agreed by the Companies and Webco, (the
"Closing Date"). There can be no assurance as to when the Mergers will be
consummated. If the Mergers have not been consummated on or prior to January 31,
1998, the Merger Agreement may be terminated by any of the Companies, the Merger
Subs or Webco See "-- Conditions to Consummation of the Mergers" and "--
Termination."
MERGER CONSIDERATION; CONVERSION OF SHARES
At the Effective Time, each share of Common Stock of each of the Companies
(other than shares as to which dissenters' rights have been duly asserted and
perfected under the DGCL, treasury shares and shares held by Webco, which will
be cancelled) will be converted into the right to receive the Merger
Consideration. However, the Companies do not anticipate that any stockholder
other than Mr. Best, Webco and the Companies will have enough shares of FEB
Common Stock, BUL Common Stock or BLC Common Stock to receive a whole share of
any New Common Stock. No fractional shares will be issued, but stockholders
(other than Webco and the Companies) entitled to a fractional share will receive
a cash payment in lieu thereof. Therefore, pursuant to the Mergers, each
stockholder of FEB, BUL and BLC as of the Effective Time, other than Webco or
any of the Companies, will be entitled to receive the following applicable
amount in full payment for, and in cancellation of, the stockholder's respective
shares of Common Stock of the respective Company: (a) $53.55 per share of FEB
Common Stock, (b) $120.69 per share of BULA Common Stock, (c) $118.12 per share
of BULB Common Stock or (d) $525.43 per share of BLC Common Stock held by such
stockholder. Stockholders will receive the Merger Consideration in the form of
cash, without interest, upon surrender of the certificate formerly representing
shares of Common Stock. See "-- Procedure for Payment." Based on the conversion
ratio of BULB Common Stock and the number of shares held by FEB, the sole holder
of BULB Common Stock, FEB will receive only whole shares of New BUL Common Stock
in the Mergers. All such shares of Common Stock, when so converted, will no
longer be outstanding and will automatically be canceled and retired and will
cease to exist, and each holder of a certificate representing any such shares
will cease to have any rights with respect thereto, except the right to receive
the Merger Consideration therefor upon the surrender of such certificate.
PROCEDURE FOR PAYMENT
Prior to the Effective Time, Webco will designate an agent (the "Paying
Agent") to receive the funds, as needed, to effect the payment of the Merger
Consideration. Promptly after the Effective Time, the Paying Agent will mail to
each record holder of a certificate or certificates, which immediately prior to
the Effective Time represented outstanding shares of Common Stock of each of the
Companies (the "Certificates"), whose shares were converted into the right to
receive the Merger Consideration, a letter of transmittal (which will specify
that delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate to the
Paying Agent for
27
<PAGE> 34
cancellation, together with such letter of transmittal, duly executed, the
holder of such Certificate will receive in exchange therefor the cash
consideration for each share of Common Stock of each of the Companies formerly
represented by such Certificate, to be mailed within three business days of
receipt thereof, and the Certificate so surrendered shall forthwith be canceled.
STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE PAYING AGENT UNTIL THEY HAVE
RECEIVED TRANSMITTAL FORMS.
If payment of the cash consideration is to be made to a person other than
the person in whose name the surrendered Certificate is registered, it will be a
condition of payment that the Certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
payment will have paid any transfer and other taxes required by reason of the
payment of the cash consideration to a person other than the registered holder
of the Certificate surrendered or will have established to the satisfaction of
the applicable Surviving Corporation that such tax either has been paid or is
not applicable. Until surrendered, each Certificate (other than Certificates
representing Common Stock held by those stockholders who perfect their appraisal
rights pursuant to the DGCL) will be deemed at any time after the Effective Time
to represent only the right to receive the cash consideration.
In the event any Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the cash consideration deliverable in
respect thereof, provided that the person to whom the Merger Consideration is
paid will, as a condition precedent to the payment thereof, give the applicable
Surviving Corporation a bond in such sum as it may direct or otherwise indemnify
such Surviving Corporation in a manner satisfactory to it against any claim that
may be made against such Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
DISSENTER'S RIGHTS
The Merger Agreement provides that Common Stock of each of the Companies
outstanding immediately prior to the Effective Time and held by a stockholder
who has delivered a written demand for appraisal in accordance with Section 262
of the DGCL will not be converted into the right to receive the Merger
Consideration unless and until such stockholder fails to perfect or effectively
withdraws or otherwise loses the right to appraisal under the DGCL. See
"STOCKHOLDERS' RIGHTS OF APPRAISAL." The Merger Agreement further provides that,
if after the Effective Time, any such stockholder fails to perfect or
effectively withdraws or loses the right to appraisal, such dissenting shares
will be treated as if they had been converted as of the Effective Time into the
right to receive the Merger Consideration to which such stockholder is entitled,
without interest or dividends thereon.
CERTAIN REPRESENTATIONS AND WARRANTIES
THE COMPANIES. Pursuant to the Merger Agreement, each of the Companies has
made representations and warranties regarding, among other things, (i) such
Company's organization, existence and qualification to do business and similar
corporate matters, (ii) such Company's capitalization, (iii) such Company's
authority to enter into and perform its obligations under the Merger Agreement,
(iv) the absence of conflict of the Merger Agreement and the transactions
contemplated thereby with such Companies certificate of incorporation, by-laws,
certain agreements and applicable laws and (v) certain regulatory consents and
approvals.
WEBCO. Pursuant to the Merger Agreement, Webco and each of the Merger Subs
have made representations and warranties regarding, among other things, (i)
Webco's and each of the Merger Subs' organization and existence and similar
corporate matters, (ii) the capitalization of each of the Merger Subs, (iii)
Webco's and each of the Merger Subs' authority to enter into and perform its
respective obligations under the Merger Agreement, (iv) the absence of conflict
of the Merger Agreement and the transactions contemplated thereby with Webco's
and each of the Merger Subs' certificate of incorporation, by-laws, certain
agreements and applicable laws and (v) certain regulatory consents and
approvals.
28
<PAGE> 35
CONDUCT OF BUSINESS PENDING THE CLOSING
The Merger Agreement provides that except as expressly contemplated by the
Merger Agreement or as agreed to in writing by Webco, after the date of the
Merger Agreement and prior to the Effective Time, the business of each of the
Companies will be conducted only in the ordinary and usual course. In
particular, none of the Companies will directly or indirectly, (i) sell,
transfer or pledge or agree to sell, transfer or pledge any of the shares of
Common Stock of any of the Companies or capital stock of any subsidiaries
beneficially owned by it; (ii) amend its Certificate of Incorporation or
By-laws; (iii) split, combine or reclassify the outstanding shares of its Common
Stock; (iv) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to its capital stock; or (v) redeem,
purchase or otherwise acquire directly or indirectly any of its capital stock.
CERTAIN OTHER COVENANTS
FURTHER ACTION; REASONABLE EFFORTS. Pursuant to the Merger Agreement, each
of the parties has also agreed to use its reasonable efforts to take all actions
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement, including using reasonable efforts to satisfy the conditions
precedent to the obligations of any of the parties, to obtain all necessary
authorizations, consents and approvals, and to effect all necessary
registrations and filings. In addition, each of the Companies, the Merger Subs
and Webco will use their respective reasonable efforts to resolve such
objections, if any, as may be asserted with respect to the transactions
contemplated hereby under the laws, rules, guidelines or regulations of any
federal, state, local or foreign court, legislative, executive or regulatory
authority or agency.
ACTION BY WRITTEN CONSENT; INFORMATION STATEMENT. Each of the Companies and
Webco has agreed to execute a written consent, or cause a written consent to be
executed with respect to all of the shares of Common Stock of each of the
Companies and the Merger Subs owned by it in favor of the approval and adoption
of the Merger Agreement and to provide each of the Companies with all
information concerning Webco and the Merger Subs necessary or reasonably
appropriate to be included in this Information Statement.
PUBLICITY. The Merger Agreement also provides that no party to the Merger
Agreement will issue or cause the publication of any press release or other
announcement with respect to the Mergers, the Merger Agreement or the other
transactions contemplated thereby without the prior consultation of the other
parties, except as may be required by law if all reasonable efforts have been
made to consult with the other parties.
INDEMNIFICATION. Pursuant to the Merger Agreement, Webco, as the ultimate
surviving corporation after the Subsequent Merger, will indemnify, defend and
hold harmless the present directors and officers of each of the Companies
against all losses, claims, damages, liabilities, fees and expenses arising out
of actions or omissions occurring at or prior to the Effective Time to the
fullest extent permitted under Delaware law as in effect at the date of the
Merger Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGERS
The Merger Agreement provides that the obligation of each party to the
Merger Agreement to effect the Mergers is subject to approval and adoption of
the Merger Agreement by the affirmative vote or written consent of the holders
of a majority of the outstanding shares of Common Stock of each of the Companies
entitled to vote. In addition, the obligations of Webco and the Merger Subs to
effect the Mergers are further subject to the satisfaction on or prior to the
Closing Date of the following conditions (any or all of which may be waived by
Webco and the Merger Subs to the extent permitted by applicable law): (i) no
statute, rule, regulation, order, decree or injunction will have been enacted,
entered, promulgated or enforced by any Governmental Entity that prohibits the
consummation of the Mergers and will be in effect; (ii) the representations and
warranties of each of the parties to the Merger Agreement will be true and
correct in all material respects at and as of the Closing Date; and (iii) the
consummation of the Credit Facility by Webco and reasonable assurances, in
Webco's determination, of its ability to receive funds pursuant thereto.
29
<PAGE> 36
TERMINATION
The Merger Agreement may be terminated and the Mergers may be abandoned at
any time prior to the Effective Time, whether before or after stockholder
approval thereof:
(a) by the mutual consent of the Companies, the Merger Subs and Webco;
or
(b) by the Companies, on the one hand, or Webco on the other hand, if:
(i) the Mergers have not been consummated on or prior to January 31, 1998;
provided, however, such right will not be available to any party whose
failure to fulfill any obligation has been the cause of, or resulted in,
the failure of the Mergers to occur on or prior to such date, (ii) the
stockholders of any of the Companies fail to approve the Merger Agreement;
provided, however, such right will not be available to any party whose
failure to fulfill any obligation has been the cause of, or resulted in,
the failure of stockholders to approve the Merger Agreement or (iii) any
Governmental Entity has issued a statute, order, decree or regulation or
taken any other action, in each case permanently restraining, enjoining or
otherwise prohibiting the Mergers and such statute, order, decree,
regulation or other action will have become final and non-appealable. See
"-- Miscellaneous -- Amendment; Waiver; Termination."
Upon termination, the Merger Agreement will become null and void, without
liability on the part of any party thereto, except as set forth below. See "--
Miscellaneous; Fees and Expenses." Nothing will relieve any party, however, from
any liability or obligation with respect to any willful breach of the Merger
Agreement.
MISCELLANEOUS
FEES AND EXPENSES. The Merger Agreement provides that all costs and
expenses incurred in connection with the Merger Agreement and the consummation
of the transactions contemplated thereby will be paid by the party incurring
such expenses.
AMENDMENT; WAIVER; TERMINATION. The Merger Agreement may be amended by the
parties thereto at any time before or after approval by the stockholders of the
Companies of the matters presented in connection with the Mergers, but after any
such approval no amendment may be made without the approval of such stockholders
if such approval is required by law or if such amendment changes the Merger
Consideration or alters or changes any of the other terms or conditions of the
Merger Agreement if such alteration or change would adversely affect the rights
of stockholders unaffiliated with Webco.
At any time prior to the Effective Time, the parties to the Merger
Agreement may (i) extend the time for the performance of any of the obligations
or other acts of the other parties thereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained therein or in any
document, certificate or writing delivered pursuant thereto or (iii) waive
compliance with any of the agreements or conditions of the other parties thereto
contained therein.
REGULATORY MATTERS
Neither the Companies, the Merger Subs nor Webco are aware of any
governmental consents or approvals that are required prior to the parties'
consummation of the Mergers. It is presently contemplated that if such
governmental consents and approvals are required, such consents and approvals
will be sought. There can be no assurance that any such consents and approvals
will be obtained.
CERTAIN INFORMATION CONCERNING THE COMPANIES
FRANK E. BEST, INC. FEB is a holding company with no business operations of
its own. FEB's only material asset is its ownership of 100% of the outstanding
BULB Common Stock, which is equal to approximately 78% of the total outstanding
shares of capital stock of BUL and which corresponds to approximately 84% of the
outstanding BUL Common Stock entitled to vote. FEB was organized in 1920 as a
corporation under the laws of the State of Washington and was reincorporated in
1995 under the laws of the State of Delaware.
30
<PAGE> 37
BEST UNIVERSAL LOCK CO. BUL is a holding company with no business
operations of its own. BUL's only material asset is its ownership of
approximately 79% of the outstanding shares of BLC Common Stock. BUL was
organized in 1923 as a corporation under the laws of the State of Washington and
was reincorporated in 1995 under the laws of the State of Delaware.
BEST LOCK CORPORATION. BLC's principal business is the manufacture,
sourcing, distribution and sale of access control products, which primarily
includes locks, lock components and adaptions. BLC was organized in 1928 as a
Delaware corporation. BLC's mechanical locking system is built around a
proprietary removable key-controlled core and housing utilizing the tumbler
system. In connection with the sale of BLC's system of locks, BLC sets up and
maintains for its customers a masterkey plan for proper control and security of
the locking system. BLC provides these locking systems primarily for commercial
end-users, including institutional, industrial and government facilities.
Additionally, BLC has supplemented its product offerings to end-users with other
access control and auxiliary products, such as service equipment, training
programs, key control policy and record keeping.
BLC's mechanical locks, lock components and adaptions are manufactured or
assembled in its plant located in Indianapolis, Indiana and sold through sales
representatives throughout the United States, Canada (through BLC's wholly owned
Canadian subsidiary, Best Universal Lock Limited) and other countries. BLC's
sales representatives are independent representatives, maintaining separate
inventories, or corporate-owned sales offices, both selling directly to
end-users. BLC does not manufacture all of the access control products it sells,
but purchases a number of such items from other manufacturers. BLC is not
exclusively represented by any regional hardware house, as are a number of the
other large lock manufacturers, but its products are sold through many regional
hardware houses as a modification of their regular lines.
BLC's percentage of total sales revenue of classes of similar products for
each of the three last fiscal years is as follows:
<TABLE>
<CAPTION>
NAME OF CLASS 1996 1995 1994
- --------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Door Security Products............................. 71% 68% 67%
All Others......................................... 29 32 33
</TABLE>
BLC has a substantial number of patent rights relating to the locking art
and other mechanical fields, and has engaged in substantial experimental and
developmental work in connection with such patent rights. The first patent
rights acquired by BLC were related to the Best Universal removable core. A
number of the early patent rights licensed or otherwise acquired have expired.
In addition, BLC has a number of registered trademarks regarding the use of the
word 'Best' in association with security products which are considered important
and valuable assets of BLC.
BLC had a backlog of orders as of the following dates which are believed to
be firm: November 25, 1997: $4,208,319; November 25, 1996: $6,305,016. It is
expected that 100% of the backlog on November 25, 1997 will be filled within the
following twelve month period.
The business of BLC is highly competitive. The principal methods of
competition are in the areas of price, product performance, delivery and
service. There are 10 to 15 major lock manufacturing companies in the United
States, some of which have substantially greater sales and resources than BLC.
These companies manufacture and sell a wide variety of locks and locking
hardware or other access control products. The major companies also sell
masterkeyed systems of locks in competition with BLC's lock systems.
Due to the fact that BLC has been engaged in business for more than 65
years and has specialized in the sale of masterkeyed systems of locks, it
believes that it is a significant factor in this specialized field. Since
industry statistics are not available, BLC is not able to state its relative
standing in the overall lock market or in the more specialized masterkeyed
system of locks market.
BLC expended approximately $769,000, $3,055,000 and $3,050,000 on research
activities relating to the development of new products or the improvement of
existing products in the years ending December 31, 1996, 1995 and 1994,
respectively.
31
<PAGE> 38
BLC does not believe there will be any material effect that compliance with
Federal, state or local provisions regarding the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have upon the capital expenditures, earnings and competitive position of the BLC
or its subsidiary.
BLC estimates it will voluntarily invest approximately $336,802 during its
current and succeeding fiscal year to continue to enhance the Company's overall
environmental standards. This amount includes capital expenditures ($78,000) and
operating expenses of environmental protection facilities.
BLC is engaged, through its wholly owned Canadian subsidiary, Best
Universal Locks Limited, in sales in Canada. There are other foreign sales
throughout the world. The total of all such foreign sales amounted to
approximately 6%, 6% and 7% of BLC's total sales during 1996, 1995 and 1994,
respectively. The risk and profitability of such business does not differ
substantially from domestic sales.
Manufacturing facilities and engineering and executive offices of BLC are
located in multipurpose brick and masonry buildings containing a total of
approximately 215,000 square feet of manufacturing space, 30,000 square feet of
warehouse space and 57,000 square feet of office space at 6161 East 75th Street,
Indianapolis, Indiana. The buildings were built specifically for BLC's use in
four major phases in 1958, 1965, 1977 and 1989. BLC is using the majority of the
floor space in the premises. The production facilities located on the premises
include stamping, drilling, broaching, automatic screw machines and all other
equipment used by BLC in its manufacturing business. BLC also maintains an
engineering department, masterkey department, general accounting, marketing and
executive offices in the office portion of the buildings. These buildings are
located on an approximately 50 acre tract of real estate owned in fee simple by
BLC.
BLC and its totally-held subsidiary also occupy corporate sales
distribution offices, six of which are owned in fee simple and 24 of which are
leased. All properties, both owned and leased, together with the related
machinery and equipment contained therein, are considered to be well maintained,
in good operating condition and suitable and adequate for present and
foreseeable future needs.
BLC also owns 296,318 and 28,073 shares of FEB Common Stock and BUL Common
Stock, respectively, which are not entitled to vote under Delaware law by reason
of FEB's indirect, and BUL's direct, ownership of a majority of the BLC Common
Stock.
BLC had a total staff as of December 31, 1996 of approximately 448
production and maintenance employees and 714 office, sales and executive
employees.
CERTAIN INFORMATION CONCERNING WEBCO AND THE MERGER SUBS
Webco is a holding company with no business operations of its own. Webco's
only material assets are its ownership of approximately 9.05% of the outstanding
shares of FEB Common Stock (which represents approximately 18% of the
outstanding FEB Common Stock entitled to vote) and 100% of the outstanding
shares of the Merger Subs. The Merger Subs were recently incorporated and
organized for the purpose of Webco's acquisition of the Companies pursuant to
the Mergers. The Merger Subs have not conducted any business to date except in
conjunction with the transactions contemplated by the Merger Agreement. The
principal business address and telephone number of Webco and the Merger Subs are
c/o Best Lock Corporation, 8900 Keystone Crossing, Indianapolis, Indiana 46240
and (317) 817-0000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1995, BLC purchased from the State of Washington 17,759 shares
of BUL Common Stock for $882,786 and 65,114 shares of FEB Common Stock for
$1,471,821, which shares had escheated to the State of Washington. The purchase
price for such shares was determined pursuant to a bidding procedure established
by the State of Washington. In December 1995, in order to provide the Stock
Bonus Plan with additional liquidity in connection with the introduction of an
early retirement program at BLC, BLC purchased 77,935 shares of FEB Common Stock
for $2,348,182 from the Stock Bonus Plan. The purchase price for such shares was
based on a valuation performed by an independent third party.
32
<PAGE> 39
In February 1995, Mr. Best, Webco and BLC formed Best Lock Partnership, an
Indiana general partnership ("BLP"), to acquire 204,053 and 8,787 shares of FEB
Common Stock and BUL Common Stock, respectively, from various members of the
Best family. BLP was dissolved in August, 1997 and, in connection therewith, the
FEB Common Stock and BUL Common Stock held by BLP was distributed to Mr. Best,
Webco and BLC in accordance with the terms of the BLP partnership agreement. In
connection with the dissolution of BLP, Webco purchased 23,000 shares of FEB
Common Stock from BLC for aggregate consideration of $1,233,030.
Pursuant to the terms of Mr. Best's employment agreement with BLC, Mr. Best
borrowed $3.4 million from BLC, in May 1994 payable in 30 equal annual
installments of $279,519, including interest at 7.2% per annum. As of November
30, 1997, $3,313,799 was outstanding on the loan.
FEES AND EXPENSES
Estimated fees and expenses incurred or to be incurred by the Companies in
connection with the Mergers are approximately as follows:
<TABLE>
<S> <C>
Investment banking fees and expenses........................ $ 450,000
Legal fees and expenses..................................... $ 360,000
SEC filing fee.............................................. $ 20,288
Accounting fees............................................. $ 300,000
Printing and mailing fees................................... $ 50,000
Miscellaneous expenses...................................... $ 19,712
----------
Total.................................................. $1,200,000
==========
</TABLE>
33
<PAGE> 40
MARKET PRICES AND DIVIDENDS
MARKET PRICES
For the periods indicated below, the following tables sets forth the high
and low bid prices of each of the Companies' Common Stock as reported in the
National Quotation Bureau Inc.'s "pink sheets" for the over-the counter market,
rounded to the nearest 1/4th of a dollar. The table represents prices between
dealers that do not include retail mark-up, mark-down, or commissions, nor do
they represent actual transactions.
FRANK E. BEST, INC.
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
FISCAL 1995
Jan. 1 -- Mar. 31........................................... 28.00 24.00
Apr. 1 -- June 30........................................... 28.00 24.25
July 1 -- Sept. 30.......................................... 27.00 19.25
Oct. 1 -- Dec. 31........................................... 22.50 19.00
FISCAL 1996
Jan. 1 -- Mar. 31........................................... 22.00 19.00
Apr. 1 -- June 30........................................... 21.75 21.25
July 1 -- Sept. 30.......................................... 22.00 17.25
Oct. 1 -- Dec. 31........................................... 20.75 17.25
FISCAL 1997
Jan. 1 -- Mar. 31........................................... 21.50 17.25
Apr. 1 -- June 30........................................... 40.00 17.25
July 1 -- Sept. 30.......................................... 47.50 27.00
Oct. 1 -- Dec. ........................................... 68.00
</TABLE>
BEST UNIVERSAL LOCK CO.
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
FISCAL 1995
Jan. 1 -- Mar. 31........................................... 67.50 62.50
Apr. 1 -- June 30........................................... 63.00 63.00
July 1 -- Sept. 30.......................................... 66.00 40.00
Oct. 1 -- Dec. 31........................................... 55.00 30.00
FISCAL 1996
Jan. 1 -- Mar. 31........................................... 38.00 38.00
Apr. 1 -- June 30........................................... 44.00 29.00
July 1 -- Sept. 30.......................................... 42.00 29.00
Oct. 1 -- Dec. 31........................................... 43.00 30.50
FISCAL 1997
Jan. 1 -- Mar. 31........................................... 53.00 31.00
Apr. 1 -- June 30........................................... 42.00 32.00
July 1 -- Sept. 30.......................................... 48.00 37.00
Oct. 1 -- Dec. ........................................... 53.00
</TABLE>
34
<PAGE> 41
BEST LOCK CORPORATION
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
FISCAL 1995
Jan. 1 -- Mar. 31........................................... N/A N/A
Apr. 17(1) -- June 30....................................... 380.00 325.00
July 1 -- Sept. 30.......................................... 375.00 240.00
Oct. 1 -- Dec. 31........................................... 350.00 220.00
FISCAL 1996
Jan. 1 -- Mar. 31........................................... 290.00 150.00
Apr. 1 -- June 30........................................... 250.00 100.00
July 1 -- Sept. 30.......................................... 200.00 100.00
Oct. 1 -- Dec. 31........................................... 95.00 95.00
FISCAL 1997
Jan. 1 -- Mar. 31........................................... 100.00 90.00
Apr. 1 -- June 30........................................... 205.00 100.00
July 1 -- Sept. 30.......................................... 300.00 150.00
Oct. 1 -- Dec. ........................................... 290.00
</TABLE>
- -------------------------
(1) No market data is available for BLC Common Stock prior to April 17, 1995.
DIVIDENDS
Dividends have been declared and paid annually on FEB Common Stock in the
amounts of $.54 and $.53 per share in 1996 and 1995, respectively. Dividends
have been declared and paid annually in the amounts of $1.68 and $1.67 per share
on BULA Common Stock and $1.11 and $1.10 per share on BULB Common Stock in 1996
and 1995, respectively. Dividends of $7.00 per share were paid on preferred
stock of BUL in 1995, however, it was redeemed on July 1, 1995. Dividends have
been declared and paid annually on BLC Common Stock in the amounts of $5.42 and
$5.41 per share in 1996 and 1995, respectively. The Companies expected that
dividends would have been declared and paid in the future but for the occurrence
of the Mergers. Accordingly, each of the Boards determined it was fair to its
respective stockholders to add to the amount of consideration to be paid to
their stockholders an amount for each of the Companies which corresponds to the
per share dividend which each of the Companies likely would have declared and
paid in 1997 (in accordance with historical practices). There is no known
restriction on any of the Companies' present or future ability to pay such
dividends other than the availability of sufficient funds.
35
<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of each of the Companies as of December , 1997
by: (i) each person who is known by the applicable Company to own beneficially
more than 5% of the Common Stock of such Company; (ii) each of the Companies'
directors; (iii) the Companies' Chief Executive Officer and the most highly
compensated executive officers whose compensation exceeded $100,000 in fiscal
1996; and (iv) all directors and executive officers of the Companies as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1) PRO FORMA(10)
---------------------------- --------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES CLASS(2) SHARES CLASS(2)
---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
FRANK E. BEST, INC.
FEB COMMON STOCK
Russell C. Best (Director and CEO/
President)(7)...................... 169,970(3) 56.2% 3(12) 100%
Mariea Best (Director)(7)............. 1 * -- --
Gregg A. Dykstra(7)(8)................ 1 * -- --
Best Lock Corporation................. 296,318 --(9) 2 --(9)
All directors and officers as a group
(2 persons)........................ 169,971 56.2 3(12) 100
BEST UNIVERSAL LOCK CO.
BULA COMMON STOCK
Russell C. Best (Director and CEO/
President)(7)...................... 29,389(4) 50.3% 12(11)(13) 100%
Mariea Best (Director)(7)............. 1 * -- --
Best Lock Corporation................. 28,073 --(9) 1(11)(13) --(9)
Gregg A. Dykstra(7)(8)................ 1 * -- --
All directors and officers as a group
(2 persons)........................ 29,390 50.3 12(11)(13) 100
BULB COMMON STOCK
Russell C. Best (Director and CEO/
President)(7)...................... 300,000(5) 100% 12(11)(13) 100%
All directors and officers as a group
(2 persons)........................ 300,000 100 12(11)(13) 100
BEST LOCK CORPORATION
BLC COMMON STOCK
Russell C. Best (Director and CEO/
President)(7)...................... 107,779(6) 89.3% 8(14) 100%
Mariea Best (Director)(7)............. 1 * -- --
Greg Dykstra(7)(8).................... -- -- -- --
All directors and officers as a group
(2 persons)........................ 107,780 89.3 8(14) 100
</TABLE>
- -------------------------
* Less than 1%.
(1) Except as otherwise noted, each person named in the table has sole voting
and investment power with respect to all shares of common stock that the
person is shown to beneficially own. This table has been prepared in
accordance with Rule 13d-3 of the Exchange Act. There are no outstanding
warrants or options to purchase shares of Common Stock of any of the
Companies.
(2) Percent of outstanding shares entitled to vote.
(3) These figures represent Russell C. Best's beneficial ownership by virtue of
his power to vote or to direct the voting of 115,809 shares held in his own
name and 54,161 shares held by Webco.
36
<PAGE> 43
(4) These figures represent Russell C. Best's beneficial ownership by virtue of
his power to vote or to direct the voting of 2,127 shares held in his own
name and 27,262 shares held by the Best Lock Corporation Stock Bonus Plan.
(5) These figures represent Russell C. Best's beneficial ownership by virtue of
his power to direct the voting of 300,000 shares held by FEB.
(6) These figures represent Russell C. Best's beneficial ownership by virtue of
his power to vote or to direct the voting of 1,686 shares held in his own
name, 10,537 shares held by the Best Lock Corporation Stock Bonus Plan and
95,556 shares held by BUL.
(7) c/o Best Lock Corporation, 8900 Keystone Crossing, Indianapolis, Indiana
46240.
(8) Gregg A. Dykstra resigned as a Director and Vice President of each of the
Companies effective February 17, 1997.
(9) Pursuant to Section 160(c) of the DGCL, these shares are not entitled to
vote.
(10) Assuming consummation of the Mergers.
(11) Represents shares of New BUL Common Stock. BUL will not have more than one
series of common stock.
(12) These figures represent Russell C. Best's beneficial ownership by virtue of
his power to vote or direct the voting of 1 share held in his own name and
2 shares held by Webco.
(13) These figures represent Russell C. Best's beneficial ownership by virtue of
his power to vote or to direct the voting of 10 shares held by FEB and 2
shares held by Webco.
(14) These figures represent Russell C. Best's beneficial ownership by virtue of
his power to vote or direct the voting of 6 shares held by BUL and 2 shares
held by Webco.
37
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since Frank E. Best, Inc. and Best Universal Lock Co. are non-operating
parents of Best Lock Corporation, a discussion of Best Lock Corporation's
business is necessary in order to understand the character and development of
the total enterprise. As the variations between the financial statements of
these three companies are not significant, the discussion and analysis of Best
Lock Corporation is representative of all. The following, therefore, is a
discussion of the business of Best Lock Corporation.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
ANALYSIS OF RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Sales for the third quarter of 1997 were $4.8 million higher than the same
period of 1996. Higher sales from the distribution division ("BLS") to end users
accounted for $3.0 million of the increase, mainly due to higher sales of
electronic access control products. Sales from the manufacturing division
("BLM") to independent distributors and Authorized Contract Construction Dealers
increased by $1.8 million compared to the same period of 1996.
The gross margin on sales improved to 54.5% of sales, compared to 45.7% in
the prior year. The higher sales from the BLM division in 1997 resulted in
increased coverage of fixed costs, contributing to the improved gross margin.
Margins were also impacted favorably by $252,000 in the third quarter of 1997 by
a change in BLC's method for accounting for vacation benefits. Prior to 1997,
vacation was earned in one year and taken in the next. Effective in 1997,
vacation will be earned and taken in the same year. Additionally, margins were
positively impacted as a result of enhanced scrap reclamation processes in
manufacturing, implemented in the third quarter of 1997, which resulted in a
$270,000 increase in scrap sales over prior year. A $1.1 million increase in
product service expense for the estimated material, labor, and travel costs to
replace certain parts in defective locksets was recorded during the third
quarter of 1996, while there were no significant increases or adjustments to
product service expense during the third quarter of 1997.
Operating income increased $2.4 million to 15.0% of sales from 9.6% for the
same period in 1996, mainly due to the higher sales and improved gross margin
percentage. Selling, general and administrative, and engineering expenses
increased $3.0 million in the third quarter of 1997 over the third quarter of
1996. Expenditures that significantly increased in the third quarter of 1997
over the prior year were salaries, wages and fringe benefits ($2.2 million),
repairs and maintenance ($176,000), rent ($218,000), telephone ($228,000),
supplies ($321,000), bad debt ($143,000), depreciation ($200,000) and meals and
travel ($177,000). The increased expenditures in salaries, wages and fringe
benefits is due to additional headcount, a merit salary increase and bonus
expense. These higher expenses were offset by lower professional fees of
approximately $389,000. The method for accounting for vacation, described above,
lowered selling, general and administrative, and engineering expenses by
$368,000 during the third quarter of 1997. This change will result in a one-time
benefit to cost of goods sold and selling, general and administrative, and
engineering expenses of BLC of approximately $2.2 million for the year.
The effective tax rate for the third quarter of 1997 was 43.7%, compared
with 42.2% for the third quarter of 1996. The increase relates primarily to an
increase in state tax expense.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Sales for the nine months ended September 30, 1997 increased by $12.7
million, or 14.2% over the prior year. Higher sales from the BLM division to
independent distributors and Authorized Contract Construction Dealers accounted
for approximately $4.4 million of the increase. The remainder of the increase,
approximately $8.3 million, resulted from higher sales from the BLS division to
end users.
38
<PAGE> 45
The gross margin on sales for the first nine months of 1997 was 50.3% of
sales, compared to 45.7% of sales for the first nine months of 1996. The change
in the method for accounting for vacation, described above, positively impacted
margins by $672,000 during the first nine months of 1997. Also, as noted above,
the impact of the scrap reclamation process improvement and the product service
expense that affected the margin in 1996 only, contributed to the improved
margin for 1997. Higher absorption of fixed costs in the BLM division, due to
increased sales, also aided the increased margin percentage.
Operating income increased to 9.8% of sales in the nine months ended
September 30, 1997, from 3.5% of sales in the nine months ended September 30,
1996. The higher sales and improved gross margin were the main reasons for the
increase. Selling, general and administrative, and engineering expenses were
$3.6 million higher for the nine month period, compared to the prior year, due
to higher expenditures for salaries, wages and fringe benefits ($3.0 million),
repairs and maintenance ($316,000), telephone ($328,000), depreciation
($476,000), supplies ($229,000), sales commissions ($200,000), bad debt
($188,000), seminars and training ($440,000), meals and travel ($218,000). The
increased expenditures in salaries, wages and fringe benefits is due to
additional headcount, a merit salary increase and bonus expense. In addition,
BLC began leasing personal computers in late 1996 that had previously been
purchased. The impact of this change resulted in approximately $331,000 in
additional rent expense during the first nine months of 1997. These higher
expenses were offset by lower professional fees of approximately $824,000, dues,
fees and subscriptions $110,000 and the change in the method for accounting for
vacation, described above, which lowered selling, general and administrative,
and engineering expenses by $973,000 in the nine months ended September 30,
1997.
The effective tax rates for the nine months ended September 30, 1997 and
1996 were 43.3% and 46.2%, respectively. This decrease was due to a decrease in
foreign tax, as well as a decrease in permanent timing differences.
LIQUIDITY AND CAPITAL RESOURCES
BLC's liquidity continued to be strong for the first nine months of 1997.
Working capital at September 30, 1997 increased by approximately $3.9 million
from December 31, 1996 and the current ratio increased to 2.9:1 at September 30,
1997 from 2.5:1 at December 31, 1996. The increase in working capital is mainly
due to increased accounts receivable at September 30, 1997 and the change in the
method for accounting for vacation, as described previously, which decreased the
vacation liability. Cash and cash equivalents increased by $1.6 million from
December 31, 1996. Despite the increased working capital needs of the business,
BLC was able to invest $2.6 million in capital additions, reduce borrowings by
$3.0 million, and reduce the debt to net worth ratio from 55% to 36%. Inventory
turns declined slightly to 5.0 in the first nine months of 1997, compared to 5.5
in the first nine months of 1996. Capital spending is projected to total
approximately $4.0 million for the year. BLC plans to meet its 1997 and future
working capital and capital expenditure requirements through funds from
operations and from its bank credit facilities.
RESULTS OF OPERATIONS FOR THE YEARS 1996, 1995 AND 1994
ANALYSIS OF RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Sales grew modestly in 1996, increasing 4.0% over 1995 to a record of $122
million. The majority of the increase was generated from improved sales volumes
in the BLS division. A price increase on selected product lines, which became
effective late in the third quarter of 1996, also improved sales slightly.
The gross margin improved significantly over 1995, to 47.7% of sales,
compared to 41.0% in the prior year. BLC experienced a number of cost increases
in 1995 which were either reduced or not experienced during 1996. These costs
were for higher scrap rates (approximately $1.0 million), disposition of
obsolete inventory (approximately $2.1 million), and higher salaries, wages, and
fringe benefits associated with the manufacture of products ($1.9 million).
During 1996, a task force completed a project of decreasing manufacturing costs
associated with the production of the 9K lever handle lock. In 1995, BLC
experienced approximately $1.8 million in increased material costs associated
with the 9K lock, due to a redesign of the product which
39
<PAGE> 46
occurred in late 1994. During the third quarter of 1996, BLC discovered that
mortise locksets manufactured since December of 1995 did not meet stated
standards and could, in certain situations, cause a security breach. A $1.0
million charge to product service expense was recorded during the third quarter
of 1996 as a result.
Operating expenses decreased by $3.0 million from 1995, the majority which
is attributable to the following reasons. Salaries, wages and fringe benefits
were $2.9 million lower than 1996, due to the 1995 $3.1 million restructuring
charge associated with an early retirement, voluntary and involuntary separation
plans for employees in certain job classifications, which was completed in 1996.
BLC also made changes to the restructuring plan during 1996, which resulted in a
reduction in expense of $800 thousand. Professional fees decreased $1.9 million
from 1995, due to costs associated with development and installation of new
software for the order processing accounts payable and general ledger functions
which were incurred in 1995. These decreases were partially offset by increases
in certain other expenses. Depreciation expense associated with non-production
assets increased by $500 thousand, mainly due to depreciation on approximately
$4.4 million of computer equipment placed into service during 1995, the majority
of which is being depreciated over three years. Telephone, rent, seminars and
training, and dues, fees, and subscriptions increased $900 thousand over 1995.
BLC began leasing personal computers during 1996 which had previously been
purchased, and a full year of costs associated with a corporate computer
network, which was installed during 1995, were recognized.
Operating income increased by $13.0 million, to 5.7% of sales, due to the
improved margins and lower operating expenses described above. Interest expense
increased by $325 thousand in 1996, due to a full year of borrowing against a
bank line of credit which was established on February 15, 1995.
Net income increased by $7.7 million to $3.5 million, or 2.8% of sales in
1996. Income tax expense was 42.8% of the income before tax in 1996, compared to
a benefit of 35.9% of the loss before tax in 1995. The increase in the effective
tax rate is due to an increase in state tax expense.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
Sales for 1995 were $117.7 million, which was a record, and was 13.2%
higher than 1994. Improved sales volumes both at the Best Locking Systems
Division and at the Best Lock Manufacturing Division, as well as a decrease in
the backlog at Best Lock Manufacturing, attributed to the increase in sales. The
1995 gross margin decreased from 47.9% to 41.0% of sales, mainly due to
increased material costs. Approximately $1.8 million of the increase in material
costs was related to the redesign of BLC's 9K lever handle lock, which occurred
in late 1994. BLC did not increase the price of this product to its customers,
even though the standard cost per unit increased by approximately 18% due to the
redesign. Higher scrap rates in the production of this product were also
experienced during 1995, which increased costs by approximately $1.0 million. In
addition, BLC disposed of obsolete inventory during the year of approximately
$2.1 million. Salaries, wages and fringe benefits associated with the
manufacture of products increased by approximately $1.9 million during 1995.
Selling, general and administrative, and engineering costs were $7.3
million higher than 1994 levels. During the fourth quarter of 1995, BLC
announced a restructuring plan with the goal of significantly reducing
payroll-related expenses. The provisions of the plan included early retirement
as well as voluntary and involuntary separation for employees in certain job
classifications, mostly non-production related. BLC recorded a $3.1 million
restructuring charge in the fourth quarter of 1995 for costs associated with
this plan. Professional fees were $3.0 million higher than 1994, mainly due to
assistance required for the development and installation of new software for the
order fulfillment, accounts payable, and general ledger functions. This software
was put into production during the third quarter of 1995 and the first quarter
of 1996. Sales commissions were $485,000 higher than 1994, due to higher sales
and a change in commission rates. The remainder of the increase in selling,
general and administrative, and engineering expenses was mainly due to higher
travel expenses of $366,000.
Research and development expenditures for 1995 were approximately the same
level as 1994, at $3.1 million. BLC began marketing its electronic access
security product during the fourth quarter of 1995. Other research and
development expenditures related to the development of computer software.
40
<PAGE> 47
As a result of the factors described above, operating income decreased by
$8.9 million, or 7.6% of sales, to a loss of $6.1 million for 1995. Interest
expense increased by $863 thousand, due to borrowings against a bank line of
credit. Proceeds from the borrowings were used to finance the purchase of an
interest in Best Lock Partnership (a newly-formed partnership created for the
purpose of acquiring shares of Best and Universal from Walter E. Best and
certain other family members and trusts) and for the payment of severance,
vacation and bonus payments to Walter E. Best, Robert W. Best, Richard E. Best,
Marshall W. Best and Edwina McLemore in exchange for their resignations. $1.2
million of the proceeds from the borrowings was also used for payment in
exchange for covenants not to compete from Walter E. Best, Robert W. Best,
Richard E. Best, and Marshall W. Best.
Other income increased by $748,000 from 1994 to 1995. During 1994, BLC
accrued $701,000 of professional fees relating to the settlement of claims
arising from a derivative action against it by a director, as well as all claims
against the Chief Executive Officer and another officer. These expenses were
reflected in other income (expense) in 1994.
Net income decreased by $6.4 million to a loss of $4.2 million, or 3.6% of
sales in 1995. Income tax benefit was 35.9% of the loss before tax in 1995. For
1994, income tax expense was 8.1% of the income before tax, mainly due to the
generation of tax credits during 1993 that BLC recognized in 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
BLC's current ratio was 2.5 at December 31, 1996, compared to 2.0 at
December 31, 1995. Current assets increased by $3.9 million during 1996, due to
higher receivables. These higher receivables are associated with higher sales
during the fourth quarter of 1996 of approximately $5.1 million. Inventories
increased by $2.4 million, mainly at the manufacturing division, due to higher
order volume in the fourth quarter of 1996. Estimated refundable income taxes
decreased $2.6 million due to the receipt of refunds associated with the 1995
net loss.
Property, plant and equipment additions decreased by $4.2 million to $1.4
million in 1996 from the 1995 total of $5.6 million. Approximately $3.4 million
of the 1995 capital expenditures related to the installation of enhanced
computer systems and related software. Capital expenditures for 1997 are
expected to be in the $3.5 million range, which includes approximately $1.5
million for improvements to manufacturing equipment and tooling.
Total liabilities decreased by $2.2 million from 1995 to 1996.
Approximately $1.5 million of the decrease was in current liabilities. Accrued
restructuring expense decreased $2.5 million, due to payouts of amounts expensed
during 1995 and changes to the plan described in Note 14 to the consolidated
financial statements. Accounts payable decreased approximately $802 thousand.
Accrued income taxes increased $492 thousand, due to higher taxable income in
1996. The warranty accrual, established during 1996, increased $999 thousand.
This accrual is for the estimated material, labor and travel costs to replace
certain parts in mortise locksets manufactured from December of 1995 through
September of 1996, as discussed above.
BLC desires to retain its strong credit rating, and therefore pays all
vendors according to terms and takes all discounts offered.
Cash provided by operating activities increased to $3.3 million in 1996,
compared with $1.4 million in 1995. The $1.9 million increase was partially due
to the increase in net income of $7.7 million, offset by a $4.5 million increase
in accounts and notes receivable, and a $2.0 million decrease in accounts
payable, customer advances, and other liabilities.
During 1995, BLC negotiated a $25 million bank line of credit for the
purpose of acquiring an interest in Best Lock Partnership. On February 15, 1995,
$12.0 million was borrowed under the line of credit in order to finance this
transaction. As of December 31, 1996, $15.0 million was outstanding. The
remainder of the line remains available for additional funds, if required. BLC
expects to repay the loan from future operating cash flows. BLC also believes
that the amounts available from operating cash flows and under the line of
credit will be sufficient to meet its expected cash needs, including planned
capital expenditures.
41
<PAGE> 48
OTHER
Foreign sales were approximately 6% of sales during 1996, which was the
same percentage as 1995 and a slight decrease from the 7% level in 1994.
The firm backlog of approximately $4.7 million as of February 7, 1997 is
approximately $500 thousand higher than the prior year. The increase is
primarily due to a higher volume of orders in January 1997 compared with January
1996.
BLC has not experienced any unusual inflation in its purchases or sales for
the years 1996, 1995, or 1994.
BLC has not had and does not expect to incur any significant future
environmental liability.
42
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
FRANK E. BEST, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Corporate Balance Sheets, December 31, 1996 and 1995........ F-3
Corporate Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-4
Consolidated Balance Sheets, September 30, 1997 and December
31, 1996 and 1995......................................... F-5
Consolidated Statements of Shareholders' Equity for the Nine
Months Ended September 30, 1997 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-8
Consolidated Statements of Income (Loss) for the Nine Months
Ended September 30, 1997 and 1996 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-20
BEST UNIVERSAL LOCK CO.
Report of Independent Public Accountants.................... F-9
Corporate Balance Sheets, December 31, 1996 and 1995........ F-10
Corporate Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-11
Consolidated Balance Sheets, September 30, 1997 and December
31, 1996 and 1995......................................... F-12
Consolidated Statements of Shareholders' Equity for the Nine
Months Ended September 30, 1997 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-14
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-15
Consolidated Statements of Income (Loss) for the Nine Months
Ended September 30, 1997 and 1996 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-20
BEST LOCK CORPORATION
Report of Independent Public Accountants.................... F-16
Consolidated Summary of Selected Financial Data for the
Years Ended December 31, 1996 through 1992................ F-17
Consolidated Balance Sheets, September 30, 1997 and December
31, 1996 and 1995......................................... F-18
Consolidated Statements of Income (Loss) for the Nine Months
Ended September 30, 1997 and 1996 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-20
Consolidated Statements of Shareholders' Equity for the Nine
Months Ended September 30, 1997 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-21
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 and for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-22
SCHEDULES SUPPORTING CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE
NUMBER
--------
<C> <S> <C>
II Valuation and Qualifying Accounts -- Corporate and
Consolidated -- for the Years Ended December 31, 1996
through 1994................................................ F-23
III Investments in, Equity in Earnings of, and Dividends
Received from Affiliates and Other Persons -- for the Years
Ended December 31, 1996 through 1994........................ F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................... F-26
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SHAREHOLDERS OF FRANK E. BEST, INC.:
We have audited the accompanying corporate balance sheets of FRANK E. BEST,
INC. (a Delaware corporation) as of December 31, 1996 and 1995, and the related
corporate statements of cash flows for each of the three years in the period
ended December 31, 1996 and the accompanying consolidated balance sheets of
FRANK E. BEST, INC. AND SUBSIDIARIES as of December 31, 1996 and 1995, and the
related consolidated statements of income (loss), shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 financial position of the Companies as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
consolidated statements taken as a whole. The schedules to the financial
statements are the responsibility of the Company's management and are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied to the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
February 6, 1997.
F-2
<PAGE> 51
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY)
CORPORATE BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash................................................... $ 14,208 $ 23,545
Other assets........................................... 1 1
----------- -----------
Total current assets................................. 14,209 23,546
Investment in subsidiary at underlying book value,
eliminated in consolidation (Note 1) (Schedule III).... 17,436,124 15,607,328
----------- -----------
$17,450,333 $15,630,874
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities......................................... $ 13,077 $ 27,641
Advances from subsidiary, eliminated in consolidation..... 152,960 111,803
----------- -----------
Total liabilities.................................... 166,037 139,444
SHAREHOLDERS' EQUITY
Common stock, $1 par value, 600,000 shares authorized and
issued, 598,710 shares outstanding..................... 598,710 598,710
Capital surplus........................................... 77,972 77,972
----------- -----------
Total capital stock.................................. 676,682 676,682
----------- -----------
Accumulated earnings
Balance at beginning of year........................... 23,880,870 27,491,946
----------- -----------
Net income
Equity in income (loss) of Universal Consolidated,
eliminated in consolidation (Note 1)................ 2,412,249 (3,212,290)
Corporate income (expense), net...................... 74,148 (42,848)
----------- -----------
Total net income (loss)................................... 2,486,397 (3,255,138)
----------- -----------
Cash dividends paid ($.54 in 1996 and $.53 in 1995)....... (323,303) (317,316)
Difference between dividends of Series A and Series B
common shareholders of Best Universal Lock Co. (Note
2)..................................................... (38,622) (38,622)
Additional minimum liability for pension.................. (178,939) --
----------- -----------
Balance at end of year.................................... 25,826,403 23,880,870
----------- -----------
Cumulative translation adjustment......................... (151,029) (88,753)
Treasury Stock............................................ (9,067,760) (8,977,369)
----------- -----------
Total shareholders' equity........................... 17,284,296 15,491,430
----------- -----------
Total liabilities and shareholders' equity........... $17,450,333 $15,630,874
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 52
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY)
CORPORATE STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers................................... $ (36,738) $ (16,870) $ (22,032)
Cash received from subsidiary............................ 41,157 -- --
Income taxes paid........................................ (23,453) -- (24,500)
--------- --------- ---------
Net cash provided by operating activities............. (19,034) (16,870) (46,532)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments........................................ (323,303) (317,316) (311,330)
Dividend received from subsidiary........................ 333,000 330,000 327,000
--------- --------- ---------
Net cash used in financing activities................. 9,697 12,684 15,670
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... (9,337) (4,186) (30,862)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 23,545 27,731 58,593
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 14,208 $ 23,545 $ 27,731
========= ========= =========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss)........................................ $ 74,148 $ (42,848) $ (22,409)
Changes in assets and liabilities --
Increase (decrease) in
Accounts payable and accrued expenses............... (79,397) 9,562 (17,323)
Income taxes payable................................ (13,785) 16,416 (6,800)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. $ (19,034) $ (16,870) $ (46,532)
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 53
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 ----------------------------
(UNAUDITED) 1996 1995
------------------ ---- ----
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1)............. $ 3,761,195 $ 2,114,084 $ 1,413,372
Trade receivables
Direct...................................... 17,124,236 15,453,983 11,878,119
Sales representatives and other............. 3,066,586 2,486,882 1,893,871
Allowance for uncollectible accounts........ (299,571) (244,866) (263,559)
Estimated refundable income taxes.............. 50,953 51,632 2,628,103
Current portion of notes receivable (Note
16)......................................... 51,493 64,909 14,895
Inventories (Notes 1 and 4).................... 13,611,018 13,779,015 11,383,058
Deferred income taxes (Note 5)................. 2,180,817 3,224,592 4,239,578
Prepaid expenses and other..................... 848,022 490,872 379,906
------------ ------------ ------------
Total current assets...................... 40,394,749 37,421,103 3,3567,343
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 1
and 3)
Land and buildings............................. 14,110,366 13,802,456 14,037,266
Machinery and equipment........................ 27,185,555 27,173,450 28,694,247
Tooling........................................ 8,816,633 8,417,048 8,423,818
Furniture, fixtures and other.................. 13,000,743 12,092,891 9,927,645
Construction work-in-progress.................. 914,374 184,311 2,473,290
------------ ------------ ------------
64,027,671 61,670,156 63,556,266
Less -- accumulated depreciation............... (39,252,342) (35,515,151) (33,734,786)
------------ ------------ ------------
Total property, plant and equipment....... 24,775,329 26,155,005 29,821,480
------------ ------------ ------------
OTHER ASSETS
Long-term notes receivable (Note 16)........... 3,262,926 3,303,799 3,358,972
Other assets................................... 849,775 1,035,775 1,084,300
------------ ------------ ------------
Total assets.............................. $ 69,282,779 $ 67,915,682 $ 67,832,095
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 54
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 -------------------------
(UNAUDITED) 1996 1995
------------------ ---- ----
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable.................................... $ 2,500 $ 2,500 $ 2,500
Current portion of retirement benefit
obligation.................................... 1,343,228 1,364,671 1,362,431
Trade accounts payable........................... 2,915,208 2,685,231 3,517,797
Customer advances................................ 2,214,859 1,849,175 1,433,801
Accrued liabilities
Income taxes.................................. 2,211,530 932,055 478,185
Property and other taxes...................... 812,845 876,670 976,765
Payroll and vacation pay...................... 2,697,658 4,413,772 4,225,317
Accrued restructuring (Note 14)............... 174,962 999,111 3,462,508
Accrued medical claims........................ 765,000 750,000 970,000
Accrued warranty.............................. 570,908 998,835 --
Other......................................... 383,548 177,102 219,252
----------- ----------- -----------
Total current liabilities................... 14,092,246 15,049,122 16,648,556
----------- ----------- -----------
LONG-TERM DEBT (Note 7)............................ 12,000,000 15,000,000 15,197,079
RETIREMENT BENEFIT OBLIGATION (Note 10)............ 2,782,962 3,213,399 3,870,345
DEFERRED INCOME TAXES (Note 5)..................... 1,787,509 2,305,265 2,120,957
----------- ----------- -----------
Total liabilities........................... 30,662,717 35,567,786 37,836,937
----------- ----------- -----------
MINORITY INTEREST IN SUBSIDIARIES.................. 16,413,577 15,063,600 14,503,728
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $1 par value, 600,000 shares
authorized and issued, 598,710 outstanding.... 598,710 598,710 598,710
Capital surplus.................................. 77,972 77,972 77,972
----------- ----------- -----------
Total capital stock......................... 676,682 676,682 676,682
Accumulated earnings............................. 29,533,013 25,826,403 23,880,870
Cumulative translation adjustment (Note 1)....... (163,874) (151,029) (88,753)
Treasury stock................................... (7,839,336) (9,067,760) (8,977,369)
----------- ----------- -----------
Total shareholders' equity.................. 22,206,485 17,284,296 15,491,430
Total liabilities and shareholders'
equity................................... $69,282,779 $67,915,682 $67,832,095
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 55
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 ---------------------------------------
(UNAUDITED) 1996 1995 1994
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
COMMON STOCK, $1 par value, 600,000
shares authorized and issued, 598,710
shares outstanding................... $ 598,710 $ 598,710 $ 598,710 $ 598,710
CAPITAL SURPLUS........................ 77,972 77,972 77,972 77,972
----------- ----------- ----------- -----------
Total capital stock............. 676,682 676,682 676,682 676,682
----------- ----------- ----------- -----------
ACCUMULATED EARNINGS
Balance at beginning of year......... 25,826,403 23,880,870 27,491,946 26,688,607
Net income (loss).................... 3,910,390 2,486,397 (3,255,138) 1,153,290
Cash dividends (see below)........... -- (323,303) (317,316) (311,330)
Additional minimum liability for
pensions.......................... (203,780) (178,939) -- --
Difference between dividends of
Series A and Series B common
shareholders of Best Universal
Lock Co........................... -- (38,622) (38,622) (38,621)
----------- ----------- ----------- -----------
Balance at end of year............... 29,533,013 25,826,403 23,880,870 27,491,946
----------- ----------- ----------- -----------
CUMULATIVE TRANSLATION ADJUSTMENT...... (163,874) (151,029) (88,753) (111,935)
COMMON STOCK REDEEMABLE UNDER STOCK
BONUS PLAN (Note 8).................. -- -- -- (2,288,171)
TREASURY STOCK
Balance at beginning of year......... (9,067,760) (8,977,369) -- --
Shares purchased..................... (4,606) (9,067,760) (8,977,369) --
Shares issued........................ 1,233,030 (90,391) -- --
----------- ----------- ----------- -----------
Balance at end of period............. (7,839,336) (9,067,760) (8,977,369) --
----------- ----------- ----------- -----------
Total shareholders' equity...... $22,206,485 $17,284,296 $15,491,430 $25,768,522
=========== =========== =========== ===========
Cash dividends per share:.............. $ -- $ 0.54 $ 0.53 $ 0.52
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE> 56
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
---------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers.............. $100,110,767 $ 85,854,082 $ 118,027,816 $ 119,115,865 $103,456,897
Cash paid to suppliers and employees...... (91,375,183) (85,083,321) (115,354,393) (117,097,616) (92,594,751)
Interest received......................... 269,344 148,805 190,183 494,908 137,171
Interest paid............................. (629,319) (964,382) (1,208,188) (761,831) (3,353)
Income taxes refunded (paid).............. (2,369,128) 2,134,073 1,619,861 (1,460,682) (53,856)
------------ ------------ ------------- ------------- ------------
Net cash provided by operating
activities.......................... 6,006,481 2,089,257 3,275,279 290,644 10,942,108
------------ ------------ ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and
equipment............................... -- -- 50,433 88,383 167,565
Capital expenditures...................... (2,568,154) (999,117) (1,430,687) (4,543,267) (3,895,823)
Note receivable from an officer........... -- -- -- -- (3,400,000)
------------ ------------ ------------- ------------- ------------
Net cash used in investing
activities.......................... (2,568,154) (999,117) (1,380,254) (4,454,884) (7,128,258)
------------ ------------ ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings against unsecured line of
credit.................................. 3,200,000 26,200,000 30,300,000 29,064,607 --
Payments on unsecured line of credit...... (6,200,000) (25,580,843) (30,497,079) (14,100,000) --
Purchase of treasury stock................ (15,530) -- (559,973) (13,793,834) (20,405)
Redemption of preferred stock............. -- -- -- (6,300) --
Dividend receipts......................... -- -- 211,859 -- --
Dividend payments......................... -- -- (604,594) (437,904) (647,995)
Premium paid on redemption of preferred
stock................................... -- -- -- (315) --
Issuance of stock......................... 1,233,030 -- -- -- --
------------ ------------ ------------- ------------- ------------
Net cash provided by (used in)
financing activities................ (1,782,500) 619,157 (1,149,787) 726,254 (668,400)
------------ ------------ ------------- ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH... (8,716) (37,839) (44,524) 7,779 (6,860)
------------ ------------ ------------- ------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS... 1,647,111 1,671,458 700,714 (3,430,207) 3,138,590
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................. 2,114,084 1,413,372 1,413,372 4,843,579 1,704,989
------------ ------------ ------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................. $ 3,761,195 $ 3,084,830 $ 2,114,086 $ 1,413,372 $ 4,843,579
============ ============ ============= ============= ============
RECONCILIATION OF NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income (loss)......................... $ 3,910,390 $ 890,785 $ 2,486,397 $ (3,255,138) $ 1,153,290
Adjustments --
Depreciation and amortization........... 4,181,896 4,093,635 5,464,788 4,904,810 4,364,558
Provision for losses on accounts
receivable............................ 266,042 81,972 128,006 117,417 38,413
Loss (gain) on sale of property, plant
and equipment......................... 37,701 41,811 125,232 83,408 (4,875)
Minority interest related to current
year earnings......................... 1,474,726 453,576 992,231 (1,047,808) 993,124
Deferred income taxes (credit).......... 526,019 465,886 1,199,294 (148,412) (125,857)
Changes in assets and liabilities --
(Increase) decrease in
Accounts and notes receivable......... (2,421,512) (4,067,711) (4,482,755) 600,453 (703,419)
Refundable income taxes............... 680 2,628,103 2,576,471 (2,559,696) 1,484,991
Inventories........................... 162,347 (327,909) (2,431,366) 3,226,858 (139,575)
Prepaid expenses and other............ (392,505) (29,996) 24,856 (900,220) (1,860,533)
Other assets.......................... (255,889) (230,860) (452,224) (1,453,288) 127,582
Increase (decrease) in
Accounts payable, customer advances
and accrued liabilities............. (2,001,880) (1,239,392) (1,895,169) 1,707,866 4,968,206
Income taxes payable.................. 1,278,587 411,380 465,076 (391,444) 676,421
Additional minimum liability for
pension............................. (308,241) -- (270,852) -- --
Retirement benefit and benefit
obligation.......................... (451,880) (1,082,023) (654,706) (594,162) (30,218)
------------ ------------ ------------- ------------- ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.............................. $ 6,006,481 $ 2,089,257 $ 3,275,279 $ 290,644 $ 10,942,108
============ ============ ============= ============= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
<PAGE> 57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Shareholders of Best Universal Lock Co.:
We have audited the accompanying corporate balance sheets of BEST UNIVERSAL
LOCK CO. (a Delaware corporation) as of December 31, 1996 and 1995, and the
related corporate statements of cash flows for each of the three years in the
period ended December 31, 1996 and the accompanying consolidated balance sheets
of BEST UNIVERSAL LOCK CO. AND SUBSIDIARIES as of December 31, 1996 and 1995,
and the related consolidated statements of income (loss), shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. 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 financial position of the Companies as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
consolidated statements taken as a whole. The schedules to the financial
statements are the responsibility of the Company's management and are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied to the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
February 6, 1997.
F-9
<PAGE> 58
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY)
CORPORATE BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash................................................... $ 50,854 $ 40,951
------------ ------------
Total current assets................................. 50,854 40,951
Investment in subsidiary at underlying book value,
eliminated in consolidation (Note 1)(Schedule III)..... 21,920,171 19,954,080
------------ ------------
Total assets......................................... $ 21,971,025 $ 19,995,031
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.......................................... $ 138,220 $ 87,364
Other liabilities......................................... 18,709 44,340
------------ ------------
Total liabilities.................................... 156,929 131,704
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock:
Series A common stock, no par value, 100,000 shares
authorized, 59,637.31 shares outstanding 1996,
60,739.31 shares outstanding 1995 (Note 2)........... 1,102,579 1,102,579
Series B common stock, no par value, 300,000 shares
authorized and outstanding (Note 2).................. 1 1
------------ ------------
Total capital stock.................................. 1,102,580 1,102,580
------------ ------------
Accumulated earnings
Balance at beginning of year........................... 31,080,417 35,294,051
------------ ------------
Net income
Equity in income (loss) of Lock Consolidated,
eliminated in consolidation (Note 1).............. 2,975,453 (3,682,875)
Corporate expense, net............................... (50,133) (55,600)
------------ ------------
Total net income (loss)................................... 2,925,320 (3,738,475)
------------ ------------
Premium on redemption of preferred shares................. -- (315)
Cash dividends paid-
Preferred ($0 per share in 1996 and $7 per share in
1995)................................................ -- (441)
Series A common ($1.68 per share in 1996 and $1.67 per
share in 1995) (Note 2).............................. (145,268) (144,403)
Series B common ($1.11 per share in 1996 and $1.10 per
share in 1995) (Note 2).............................. (333,000) (330,000)
Additional minimum liability for pension.................. (214,510) --
------------ ------------
Balance at end of year.................................... 33,312,959 31,080,417
------------ ------------
Cumulative translation adjustment......................... (181,052) (111,142)
Common stock redeemable under Stock Bonus Plan (Note 8)... (1,868,537) (1,821,647)
Treasury stock............................................ (10,551,854) (10,386,881)
------------ ------------
Total shareholders' equity........................... 21,814,096 19,863,327
------------ ------------
Total liabilities and shareholders' equity........... $ 21,971,025 $ 19,995,031
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-10
<PAGE> 59
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY)
CORPORATE STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers................................... (35,853) (18,314) (21,764)
Cash received from subsidiary............................ 50,856 -- --
Income taxes paid........................................ (44,747) -- (43,400)
--------- --------- ---------
Net cash provided by operating activities............. (29,744) (18,314) (65,164)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments........................................ (478,268) (474,844) (470,980)
Dividend received from subsidiary........................ 517,915 516,960 516,004
Premium on redemption of preferred stock................. -- (315) --
Redemption of preferred stock............................ -- (6,300) --
--------- --------- ---------
Net cash used in financing activities................. 39,647 35,501 45,024
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... 9,903 17,187 (20,140)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 40,951 23,764 43,904
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 50,854 $ 40,951 $ 23,764
========= ========= =========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss)........................................ $ (50,133) $ (55,600) $ (39,332)
Changes in assets and liabilities--
Increase (decrease) in
Accounts payable and accrued expenses............... 45,034 5,827 (15,632)
Income taxes payable................................ (24,645) 31,459 (10,200)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. $ (29,744) $ (18,314) $ (65,164)
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-11
<PAGE> 60
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, 1997 ---------------------------
(UNAUDITED) 1996 1995
------------------ ---- ----
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1)............. $ 3,746,880 $ 2,099,876 $ 1,389,827
Trade receivables
Direct...................................... 17,124,236 15,453,983 11,878,119
Sales representatives and other............. 3,066,586 2,486,882 1,893,871
Allowance for uncollectible accounts........ (299,571) (244,866) (263,559)
Estimated refundable income taxes.............. 50,953 51,632 2,628,103
Current portion of notes receivable (Note
16)......................................... 51,493 64,909 14,895
Inventories (Notes 1 and 4).................... 13,611,018 13,779,015 11,383,058
Deferred income taxes (Note 5)................. 2,180,817 3,224,592 4,239,578
Prepaid expenses and other..................... 848,022 490,872 379,906
------------ ------------ ------------
Total current assets 40,380,434 37,406,895 33,543,798
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 1
and 3)
Land and buildings............................. 14,294,780 13,989,015 14,037,266
Machinery and equipment........................ 27,556,332 27,557,030 28,694,247
Tooling........................................ 8,937,088 8,536,128 8,423,818
Furniture, fixtures and other.................. 13,180,229 12,255,748 10,925,909
Construction work-in-progress.................. 914,374 184,311 2,473,290
------------ ------------ ------------
64,882,803 62,522,232 64,554,530
Less -- accumulated depreciation............... (39,463,627) (35,634,924) (33,734,786)
------------ ------------ ------------
Total property, plant and equipment....... 25,419,176 26,887,308 30,819,744
------------ ------------ ------------
OTHER ASSETS
Long-term notes receivable (Note 16)........... 3,262,926 3,303,799 3,358,972
Other assets................................... 1,045,986 1,188,736 1,196,103
------------ ------------ ------------
Total assets.............................. $ 70,108,522 $ 68,786,738 $ 68,918,617
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-12
<PAGE> 61
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 ---------------------------
(UNAUDITED) 1996 1995
------------------ ---- ----
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable................................... 2,500 $ 2,500 $ 2,500
Current portion of retirement benefit
obligations.................................. $ 1,343,228 1,364,671 1,362,431
Trade accounts payable.......................... 2,915,305 2,685,231 3,517,799
Customer advances............................... 2,214,859 1,849,175 1,433,801
Accrued liabilities
Income taxes................................. 2,201,043 929,850 462,195
Property and other taxes..................... 812,845 876,670 976,765
Payroll and vacation pay..................... 2,697,658 4,413,772 4,225,317
Accrued restructuring (Note 14).............. 174,962 999,111 3,462,508
Accrued medical claims....................... 765,000 750,000 970,000
Accrued warranty............................. 570,908 998,835 --
Other........................................ 372,903 166,325 207,599
----------- ------------ ------------
Total current liabilities.................. 14,071,211 15,036,140 16,620,915
----------- ------------ ------------
LONG-TERM DEBT (Note 7)........................... 12,000,000 15,000,000 15,197,079
RETIREMENT BENEFIT OBLIGATION (Note 10)........... 2,782,962 3,213,399 3,870,345
DEFERRED INCOME TAXES (Note 5).................... 1,787,509 2,305,265 2,120,957
----------- ------------ ------------
Total liabilities.......................... 30,641,682 35,554,804 37,809,296
----------- ------------ ------------
MINORITY INTEREST IN SUBSIDIARIES................. 10,183,430 9,549,301 9,424,347
----------- ------------ ------------
COMMON STOCK AND COMMON STOCK OF BEST, REDEEMABLE
UNDER STOCK BONUS PLAN (Note 8)................. 1,868,537 1,868,537 1,821,647
----------- ------------ ------------
SHAREHOLDERS' EQUITY
Capital stock:
Series A common stock, no par value, 100,000
shares authorized, 59,536.31 shares
outstanding September 30, 1997, 59,637.31
shares outstanding December 31, 1996,
60,739.31 shares outstanding December 31,
1995....................................... 1,102,579 1,102,579 1,102,579
Series B common stock, no par value, 300,000
shares authorized and outstanding.......... 1 1 1
----------- ------------ ------------
Total capital stock........................ 1,102,580 1,102,580 1,102,580
Accumulated earnings............................ 37,707,579 33,312,959 31,080,417
Additional paid in capital...................... 575,230 -- --
Cumulative translation adjustment (Note 1)...... (196,395) (181,052) (111,142)
Common stock redeemable under Stock Bonus Plan
(Note 8)..................................... (1,868,537) (1,868,537) (1,821,647)
Treasury stock.................................. (9,905,584) (10,551,854) (10,386,881)
----------- ------------ ------------
Total shareholders' equity................. 27,414,873 21,814,096 19,863,327
----------- ------------ ------------
Total liabilities and shareholders'
equity.................................. $70,108,522 $ 68,786,738 $ 68,918,617
=========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-13
<PAGE> 62
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 -----------------------------------------
(UNAUDITED) 1996 1995 1994
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
CAPITAL STOCK
Preferred stock, 7% cumulative, $100 par
value, 500 shares authorized, 63
shares outstanding 1994............... $ -- $ -- $ -- $ 6,300
Series A common stock, no par value,
100,000 shares authorized, 59,536.31
shares outstanding September 30, 1997,
59,637.31 shares outstanding December
31, 1996, 60,739.31 shares outstanding
December 31, 1995 and 86,469 shares
outstanding December 31, 1994......... 1,102,579 1,102,579 1,102,579 1,102,579
Series B common stock, no par value,
300,000 shares authorized and
outstanding........................... 1 1 1 1
------------ ------------ ------------ -----------
Total capital stock................... 1,102,580 1,102,580 1,102,580 1,108,880
------------ ------------ ------------ -----------
ACCUMULATED EARNINGS
Balance at beginning of year............ 33,312,959 31,080,417 35,294,051 34,250,100
Net income (loss)....................... 4,638,783 2,925,320 (3,738,475) 1,514,931
Premium on redemption of preferred
shares................................ -- -- (315) --
Cash dividends (see below).............. -- (478,268) (474,844) (470,980)
Additional minimum liability for
pensions.............................. (244,163) (214,510) -- --
------------ ------------ ------------ -----------
Balance at end of period................ 37,707,579 33,312,959 31,080,417 35,294,051
------------ ------------ ------------ -----------
CUMULATIVE TRANSLATION ADJUSTMENT......... (196,395) (181,052) (111,142) (144,190)
COMMON STOCK AND COMMON STOCK OF BEST,
REDEEMABLE UNDER STOCK BONUS PLAN
(Note 8)................................ (1,868,537) (1,868,537) (1,821,647) (4,087,473)
ADDITIONAL PAID IN CAPITAL
Balance at beginning of year............ -- -- -- --
Excess of sales price over book value of
parent shares sold.................... 575,230 -- -- --
------------ ------------ ------------ -----------
Balance at end of period................ 575,230 -- -- --
------------ ------------ ------------ -----------
TREASURY STOCK
Balance at beginning of year............ (10,551,854) (10,386,881) -- --
Shares purchased........................ (11,530) (164,973) (10,386,881) --
Sale of parent stock.................... 657,800 -- -- --
------------ ------------ ------------ -----------
Balance at end of year.................. (9,905,584) (10,551,854) (10,386,881) --
------------ ------------ ------------ -----------
Total shareholders' equity............ $ 27,414,873 $ 21,814,096 $ 19,863,327 $32,171,268
============ ============ ============ ===========
Cash dividends per share:
Preferred............................... $ -- $ -- $ 7.00 $ 7.00
Series A common......................... -- 1.68 1.67 1.66
Series B common......................... -- 1.11 1.10 1.09
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-14
<PAGE> 63
BEST UNIVERSAL LOCK CO.
(A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
--------------------------- --------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers........................ $100,110,766 $ 85,854,082 $ 118,027,815 $ 119,115,874 $103,456,897
Cash paid to suppliers and employees................ (91,388,484) (85,083,740) (115,358,147) (116,082,490) (92,572,720)
Interest received................................... 269,344 148,805 190,183 494,908 137,171
Interest paid....................................... (629,319) (964,382) (1,208,188) (761,831) (3,353)
Income taxes refunded (paid)........................ (2,355,933) 2,153,526 1,642,649 (1,460,682) (29,356)
------------ ------------ ------------- ------------- ------------
Net cash provided by operating activities......... 6,006,374 2,108,291 3,294,312 1,305,779 10,988,639
------------ ------------ ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and
equipment......................................... -- -- 50,433 88,383 167,790
Capital expenditures................................ (2,568,154) (999,117) (1,430,688) (5,541,531) (3,896,048)
Note receivable from an officer..................... -- -- -- -- (3,400,000)
------------ ------------ ------------- ------------- ------------
Net cash used in investing activities............. (2,568,154) (999,117) (1,380,255) (5,453,148) (7,128,258)
------------ ------------ ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings against unsecured line of credit......... 3,200,000 26,200,000 30,300,000 29,064,607 --
Payments on unsecured line of credit................ (6,200,000) (25,580,843) (30,497,079) (14,100,000) --
Purchase of treasury stock.......................... (15,530) -- (559,973) (13,793,834) (20,405)
Redemption of preferred stock....................... -- -- -- (6,300) --
Dividend receipts................................... -- -- 211,859 -- --
Dividend payments................................... -- -- (614,291) (450,588) (663,665)
Premium paid on redemption of preferred stock....... -- -- -- (315) --
Sale of Parent stock................................ 1,233,030 -- -- -- --
------------ ------------ ------------- ------------- ------------
Net cash (used in) provided by financing
activities...................................... (1,782,500) 619,157 (1,159,484) 713,570 (684,070)
------------ ------------ ------------- ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.............. (8,716) (37,839) (44,524) 7,779 (6,860)
------------ ------------ ------------- ------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.............. 1,647,004 1,690,492 710,049 (3,426,020) 3,169,451
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 2,099,876 1,389,827 1,389,827 4,815,847 1,646,396
------------ ------------ ------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 3,746,880 $ 3,080,319 $ 2,099,876 $ 1,389,827 $ 4,815,847
============ ============ ============= ============= ============
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss)................................... $ 4,638,783 $ 1,006,040 $ 2,925,320 $ (3,738,475) $ 1,514,931
Adjustments --
Depreciation and amortization..................... 4,181,896 4,093,635 5,464,788 4,904,810 4,364,558
Provision for losses on accounts receivable....... 266,042 81,972 128,006 117,417 38,413
Loss (gain) on sale of property, plant and
equipment....................................... 37,701 41,811 125,232 83,408 (4,875)
Minority interest related to current year earnings
(loss).......................................... 706,019 284,184 479,160 (521,623) 653,892
Deferred income taxes (credit).................... 526,019 465,886 1,199,294 (821,068) (1,200,316)
Changes in assets and liabilities --
(Increase) decrease in
Accounts and notes receivable................... (2,421,512) (4,067,711) (4,482,755) 600,453 (703,419)
Refundable income taxes......................... 680 2,628,103 2,576,471 (2,559,696) 1,484,991
Inventories..................................... 162,347 (327,909) (2,431,366) 3,226,858 (139,575)
Prepaid expenses and other...................... (392,505) (29,996) 24,856 (227,564) (786,074)
Other assets.................................... (59,679) (84,651) (299,264) (1,341,471) 222,977
Increase (decrease) in
Accounts payable, customer advances and accrued
liabilities..................................... (2,150,041) (1,329,883) (1,968,733) 2,584,752 4,890,133
Income taxes payable.............................. 1,270,745 428,833 478,861 (407,860) 683,221
Deferred income taxes............................. (308,241) -- -- -- --
Retirement benefit and benefit obligation......... (451,880) (1,082,023) (654,706) (594,162) (30,218)
Additional minimum liability for pension.......... (270,852) -- --
------------ ------------ ------------- ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ $ 6,006,374 $ 2,108,291 $ 3,294,312 $ 1,305,779 $ 10,988,639
============ ============ ============= ============= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-15
<PAGE> 64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Shareholders of Best Lock Corporation:
We have audited the accompanying consolidated balance sheets of BEST LOCK
CORPORATION (a Delaware corporation) AND SUBSIDIARY as of December 31, 1996 and
1995, and the related consolidated statements of income (loss), shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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 financial position of Best Lock Corporation and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
consolidated statements taken as a whole. The schedules to the financial
statements are the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied to the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
February 6, 1997.
F-16
<PAGE> 65
BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 1996 THROUGH 1992
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss) per share of
common stock:
Best Lock Corporation and
Subsidiary Weighted average
shares outstanding:........ 121,517.24 124,144.13 131,235.37 131,238.85 131,238.85
=========== =========== =========== =========== ===========
Net income (loss) before
cumulative effect of
change in accounting
principle................ $ 28.43 $ (33.88) $ 16.83 $ 8.76 $ 18.73
Cumulative effect of SFAS
109 "Accounting for
Income Taxes"............ $ 0.00 $ 0.00 $ 0.00 $ 4.95 $ 0.00
----------- ----------- ----------- ----------- -----------
Net income (loss).......... $ 28.43 $ (33.88) $ 16.83 $ 13.71 $ 18.73
=========== =========== =========== =========== ===========
Best Universal Lock Co. and
Subsidiaries Series A
weighted average shares
outstanding:............... 60,588.76 75,669.87 86,469.00 86,469.00 86,469.00
=========== =========== =========== =========== ===========
Series A -
Net income (loss).......... $ 8.11 $ (9.95) $ 3.92 $ 3.30 $ 4.57
=========== =========== =========== =========== ===========
Series B weighted average
shares outstanding:........ 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00
=========== =========== =========== =========== ===========
Series B -
Net income (loss).......... $ 8.11 $ (9.95) $ 3.92 $ 3.30 $ 4.57
=========== =========== =========== =========== ===========
Frank E. Best, Inc. and
Subsidiaries
Weighted average shares
outstanding:............... 274,999.05 427,806.72 598,710.00 598,710.00 598,710.00
=========== =========== =========== =========== ===========
Net income (loss)............. $ 9.04 $ (7.61) $ 1.93 $ 1.45 $ 2.27
=========== =========== =========== =========== ===========
Dividends per share:
Best Lock Corporation,
common..................... $ 5.42 $ 5.41 $ 5.40 $ 5.00 $ 4.90
=========== =========== =========== =========== ===========
Best Universal Lock Co. -
Preferred (7%
cumulative).............. $ -- $ 7.00 $ 7.00 $ 7.00 $ 7.00
=========== =========== =========== =========== ===========
Series A Common (Note 2)... 1.68 1.67 1.66 1.63 1.61
=========== =========== =========== =========== ===========
Series B Common (Note 2)... 1.11 1.10 1.09 1.06 1.04
=========== =========== =========== =========== ===========
Frank E. Best, Inc. Common.... $ 0.54 $ 0.53 $ 0.52 $ 0.51 $ 0.49
=========== =========== =========== =========== ===========
</TABLE>
F-17
<PAGE> 66
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 ---------------------------
(UNAUDITED) 1996 1995
------------------ ---- ----
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1)............. $ 3,696,006 $ 2,049,022 $ 1,348,876
Trade receivables
Direct...................................... 17,124,236 15,453,983 11,878,119
Sales representatives and other............. 3,066,586 2,486,882 1,893,871
Allowance for uncollectible accounts........ (299,571) (244,866) (263,559)
Estimated refundable income taxes.............. 50,953 51,632 2,628,103
Current portion of notes receivable (Note
16)......................................... 51,493 64,909 14,895
Inventories (Notes 1 and 4).................... 13,611,018 13,779,015 11,383,058
Deferred income taxes (Note 5)................. 2,180,817 3,224,592 4,239,578
Prepaid expenses and other..................... 848,021 490,872 379,906
----------- ------------ ------------
Total current assets...................... 40,329,559 37,356,041 33,502,847
----------- ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 1
and 3)
Land and buildings............................. 14,460,795 14,155,116 14,200,461
Machinery and equipment........................ 27,809,605 27,810,609 28,941,851
Tooling........................................ 9,034,595 8,633,648 8,519,483
Furniture, fixtures and other.................. 13,239,245 12,314,557 11,034,048
Construction work-in-progress.................. 914,374 184,311 2,473,290
----------- ------------ ------------
65,458,614 63,098,241 65,169,133
Less -- accumulated depreciation............... (40,032,605) (36,202,495) (34,297,523)
----------- ------------ ------------
Total property, plant and equipment....... 25,426,009 26,895,746 30,871,610
----------- ------------ ------------
OTHER ASSETS
Long-term notes receivable (Note 16)........... 3,262,926 3,303,799 3,358,972
Other assets................................... 1,239,910 1,326,957 1,283,467
----------- ------------ ------------
Total assets.............................. $70,258,404 $ 68,882,543 $ 69,016,896
=========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-18
<PAGE> 67
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
SEPTEMBER 30, 1997 1996 1995
------------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable.................................. $ 2,500 $ 2,500 $ 2,500
Current portion of retirement benefit
obligation.................................. 1,343,228 1,364,671 1,362,431
Trade accounts payable......................... 2,915,168 2,685,191 3,487,402
Customer advances.............................. 2,214,859 1,849,175 1,433,801
Accrued liabilities
Income taxes................................ 2,190,850 923,254 430,953
Property and other taxes.................... 812,845 876,669 976,765
Payroll and vacation pay.................... 2,697,658 4,413,772 4,225,317
Accrued restructuring (Note 14)............. 174,962 999,111 3,462,508
Accrued medical claims...................... 765,000 750,000 970,000
Accrued warranty............................ 570,908 998,835 --
Other....................................... 361,554 154,155 194,497
------------ ------------ ------------
Total current liabilities................. 14,049,532 15,017,333 16,546,174
------------ ------------ ------------
LONG-TERM DEBT (Note 7).......................... 12,000,000 15,000,000 15,197,079
RETIREMENT BENEFIT OBLIGATION (Note 10).......... 2,782,962 3,213,399 3,870,345
DEFERRED INCOME TAXES (Note 5)................... 1,787,509 2,305,265 2,120,957
------------ ------------ ------------
Total liabilities......................... 30,620,003 35,535,997 37,734,555
------------ ------------ ------------
COMMON STOCK AND COMMON STOCK OF UNIVERSAL
REDEEMABLE UNDER STOCK BONUS PLAN (Note 8)..... 6,083,413 6,083,413 5,931,931
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, no par value, 200,000 shares
authorized; 145,128.85 shares issued;
120,653.85 shares outstanding September 30,
1997 and December 31, 1996, 121,653.85
shares outstanding December 31, 1995........ 1,407,841 1,407,841 1,407,841
Accumulated earnings........................... 52,662,045 47,568,339 44,826,657
Additional paid in capital..................... 575,230 -- --
Cumulative translation adjustment (Note 1)..... (247,957) (228,605) (141,496)
Common stock and common stock of Universal
redeemable under Stock Bonus Plan (Note
8).......................................... (6,083,413) (6,083,413) (5,931,931)
Treasury stock................................. (14,758,758) (15,401,029) (14,810,661)
------------ ------------ ------------
Total shareholders' equity................ 33,554,988 27,263,133 25,350,410
------------ ------------ ------------
Total liabilities and shareholders'
equity................................. $ 70,258,404 $ 68,882,543 $ 69,016,896
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-19
<PAGE> 68
BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK CO. (A NON-OPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NON-OPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
-------------------------- ------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............................. $102,511,363 $89,774,150 $122,358,592 $117,705,629 $103,954,763
COST OF GOODS SOLD.................... 50,939,005 48,759,004 64,006,688 69,400,346 54,111,283
------------ ----------- ------------ ------------ ------------
GROSS MARGIN.......................... 51,572,358 41,015,146 58,351,904 48,305,283 49,843,480
OPERATING EXPENSES
Selling............................. 25,872,850 24,627,655 33,230,790 30,656,814 26,997,950
General and Administrative.......... 15,086,450 12,462,346 17,153,433 21,386,060 16,291,879
Engineering, research and
development....................... 554,494 826,862 997,249 2,336,673 3,775,743
------------ ----------- ------------ ------------ ------------
Total operating expenses.......... 41,513,794 37,916,863 51,381,472 54,379,547 47,065,572
------------ ----------- ------------ ------------ ------------
OPERATING INCOME (LOSS)............... 10,058,564 3,098,283 6,970,432 (6,074,264) 2,777,908
Interest expense.................... (784,605) (889,946) (1,194,986) (870,062) (6,809)
Other income (expense), net......... 252,559 253,803 272,102 380,427 (367,685)
------------ ----------- ------------ ------------ ------------
INCOME (LOSS) before provision for
income taxes........................ 9,526,518 2,462,140 6,047,548 (6,563,899) 2,403,414
Provision (benefit) for income taxes
(Note 5).......................... 4,124,571 1,136,968 2,592,935 (2,359,401) 195,259
------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS), Best Lock
Corporation and Subsidiary.......... 5,401,947 1,325,172 3,454,613 (4,204,498) 2,208,155
Minority interest in net (income)
loss, Best Lock Corporation and
Subsidiary........................ (1,123,502) (284,184) (479,160) 521,623 (653,892)
Corporate -- Best Universal Lock Co.
income (expense).................. 360,338 (34,948) (50,133) (55,600) (39,332)
------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS), Best Universal Lock
Co. and Subsidiaries................ 4,638,783 1,006,040 2,925,320 (3,738,475) 1,514,931
Minority interest in net (income)
loss, Best Universal Lock Co. and
Subsidiary........................ (768,707) (169,392) (513,071) 526,185 (339,232)
Corporate -- Frank E. Best, Inc.
income (expense).................. 40,314 54,136 74,148 (42,848) (22,409)
------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS), Frank E. Best, Inc.
and Subsidiaries.................... $ 3,910,390 $ 890,784 $ 2,486,397 $ (3,255,138) $ 1,153,290
============ =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
BEST UNIVERSAL LOCK CO.
BEST LOCK ----------------------- FRANK E.
CORPORATION SERIES A SERIES B BEST, INC.
----------- -------- -------- ----------
<S> <C> <C> <C> <C>
Earnings (loss) per common share:
Nine Months Ended September 30, 1997 (Unaudited)....... 44.77 12.90 12.90 14.51
========== ========== ========== ==========
Nine Months Ended September 30, 1996 (Unaudited)....... 10.89 2.79 2.79 2.13
========== ========== ========== ==========
Year Ended December 31, 1996........................... $ 28.43 $ 8.11 $ 8.11 $ 9.04
========== ========== ========== ==========
Year Ended December 31, 1995........................... $ (33.88) $ (9.95) $ (9.95) $ (7.61)
========== ========== ========== ==========
Year Ended December 31, 1994........................... $ 16.83 $ 3.92 $ 3.92 $ 1.93
========== ========== ========== ==========
Weighted average shares outstanding:
Nine Months Ended September 30, 1997 (Unaudited)....... 120,649.01 59,588.47 300,000.00 269,435.51
========== ========== ========== ==========
Nine Months Ended September 30, 1996 (Unaudited)....... 121,653.85 60,739.31 300,000.00 418,457.89
========== ========== ========== ==========
Year Ended December 31, 1996........................... 121,517.24 60,588.76 300,000.00 274,999.05
========== ========== ========== ==========
Year Ended December 31, 1995........................... 124,114.13 75,669.87 300,000.00 427,806.72
========== ========== ========== ==========
Year Ended December 31, 1994........................... 131,235.37 86,469.00 300,000.00 598,710.00
========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-20
<PAGE> 69
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 -----------------------------------------
(UNAUDITED) 1996 1995 1994
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
COMMON STOCK, no par value, 200,000
shares authorized; 145,128.85 shares
issued; 120,653.85 shares outstanding
September 30, 1997 and December 31,
1996, 121,653.85 shares outstanding
December 31, 1995, 131,185.85 shares
outstanding December 31, 1994......... $ 1,407,841 $ 1,407,841 $ 1,407,841 $ 1,407,841
------------ ------------ ------------ -----------
ACCUMULATED EARNINGS
Balance at beginning of year.......... 47,568,339 44,826,657 49,523,858 48,024,394
Net income (loss)..................... 5,401,947 3,454,613 (4,204,498) 2,208,155
Cash dividends received............... -- 211,859 165,444 --
Cash dividends paid (see below)....... -- (653,938) (658,147) (708,691)
Additional minimum liability for
pension............................. (308,241) (270,852) -- --.........
------------ ------------ ------------ -----------
Balance at end of period.............. 52,662,045 47,568,339 44,826,657 49,523,858
------------ ------------ ------------ -----------
COMMON STOCK AND COMMON STOCK OF
UNIVERSAL AND BEST, REDEEMABLE UNDER
STOCK BONUS PLAN (Note 8)............. (6,083,413) (6,083,413) (5,931,931) (8,939,316)
------------ ------------ ------------ -----------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of year.......... -- -- -- --
Excess of sales price over book value
of parent shares sold............... 575,230 -- -- --
------------ ------------ ------------ -----------
Balance at end of period.............. 575,230 -- -- --
CUMULATIVE TRANSLATION ADJUSTMENT (Note
1).................................... (247,957) (228,605) (141,496) (197,955)
------------ ------------ ------------ -----------
TREASURY STOCK
Balance at beginning of year.......... (15,401,029) (14,810,661) (784,355) (763,950)
Shares purchased...................... (15,529) (590,368) (14,026,306) (20,405)
Sale of parent stock.................. 657,800 -- -- --
------------ ------------ ------------ -----------
Balance at end of year................ (14,758,758) (15,401,029) (14,810,661) (784,355)
------------ ------------ ------------ -----------
Total shareholders' equity....... $ 33,554,988 $ 27,263,133 $ 25,350,410 $41,010,073
============ ============ ============ ===========
Cash dividends per share................ $ -- $ 5.42 $ 5.41 $ 5.40
============ ============ ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-21
<PAGE> 70
BEST LOCK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
---------------------------- --------------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers................. $ 100,110,765 $ 85,854,082 $ 118,027,815 $ 119,115,867 $103,456,897
Cash paid to suppliers and employees......... (91,414,460) (85,089,743) (115,372,089) (116,012,304) (92,551,180)
Interest received............................ 269,344 148,805 190,183 494,908 137,171
Interest paid................................ (629,319) (964,382) (1,208,188) (761,831) (3,353)
Income taxes refunded (paid)................. (2,329,977) 2,189,273 1,686,335 (1,460,682) 14,044
------------- ------------ ------------- ------------- ------------
Net cash provided by operating
activities............................. 6,006,353 2,138,035 3,324,056 1,375,958 11,053,579
------------- ------------ ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and
equipment.................................. -- -- 50,433 88,383 167,790
Capital expenditures......................... (2,568,154) (999,117) (1,430,688) (5,593,397) (3,895,823)
Note receivable from an officer.............. -- -- -- -- (3,400,000)
------------- ------------ ------------- ------------- ------------
Net cash used in investing activities.... (2,568,154) (999,117) (1,380,255) (5,505,014) (7,128,033)
------------- ------------ ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings against unsecured line of
credit..................................... 3,200,000 26,200,000 30,300,000 29,064,607 --
Payments on unsecured line of credit......... (6,200,000) (25,580,843) (30,497,079) (14,100,000) --
Purchase of treasury stock................... (15,529) -- (559,973) (13,793,834) (20,405)
Dividend receipts............................ -- -- 211,859 165,444 --
Dividend payments............................ -- -- (653,938) (658,147) (708,691)
Sale of parent stock......................... 1,233,030 -- -- -- --
------------- ------------ ------------- ------------- ------------
Net cash (used in) provided by financing
activities............................. (1,782,499) 619,157 (1,199,131) 678,070 (729,096)
------------- ------------ ------------- ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........ (8,716) (37,839) (44,524) 7,779 (6,859)
------------- ------------ ------------- ------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS........ 1,646,984 1,720,236 700,146 (3,443,207) 3,189,591
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 2,049,022 1,348,876 1,348,876.... 4,792,083.... 1,602,492
------------- ------------ ------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 3,696,006 $ 3,069,112 $ 2,049,022 $ 1,348,876 $ 4,792,083
============= ============ ============= ============= ============
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss)............................ $ 5,401,947 $ 1,325,172 $ 3,454,613 $ (4,204,498) $ 2,208,155
Adjustments --
Depreciation and amortization.............. 4,181,896 4,093,635 5,464,788 4,904,810 4,364,558
Provision for losses on accounts
receivable............................... 266,042 81,972 128,006 117,417 38,413
Loss (Gain) on sale of property, plant and
equipment................................ 37,701 41,811 125,232 83,408 (4,875)
Deferred income taxes (credit)............. 526,019 465,886 1,199,294 (821,068) (1,200,296)
Changes in assets and liabilities --
(Increase) decrease in
Accounts and notes receivable.............. (2,380,639) (4,067,711) (4,482,755) 600,453 (703,419)
Refundable income taxes.................... 680 2,628,103 2,576,471 (2,559,696) 1,484,991
Inventories................................ 162,347 (327,909) (2,431,366) 3,226,858 (139,575)
Prepaid expenses and other................. (392,505) (29,996) 24,856 (227,564) (786,074)
Other assets............................... (100,552) (84,651) (299,264) (1,341,482) 222,977
Increase (decrease) in Accounts payable,
customer advances and accrued
liabilities................................ (2,204,358) (1,367,834) (2,013,766) 2,630,801 4,905,541
Income taxes payable....................... 1,267,896 461,580 503,505 (439,319) 693,421
Retirement benefit obligation.............. (451,880) (1,082,023) (654,706) (594,162) (30,218)
Additional minimum liability for pension... (308,241) -- (270,852) -- --
------------- ------------ ------------- ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... $ 6,006,353 $ 2,138,035 $ 3,324,056 $ 1,375,958 $ 11,053,579
============= ============ ============= ============= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-22
<PAGE> 71
SCHEDULE II
BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS -- CORPORATE AND CONSOLIDATED
FOR THE YEARS ENDED DECEMBER 31, 1996 THROUGH 1994
<TABLE>
<CAPTION>
COLLECTIONS DEDUCTIONS
ADDITIONS OF ACCOUNTS FOR ACCOUNTS
BALANCE CHARGED TO PREVIOUSLY RECEIVABLE BALANCE
DESCRIPTION JANUARY 1 INCOME WRITTEN OFF WRITTEN OFF DECEMBER 31
----------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CORPORATE
Best Universal Lock Co. -- 1996..... $ -- $ -- $ -- $ -- $ --
======== ======== ======= ========= ========
Best Universal Lock Co. -- 1995..... $ -- $ -- $ -- $ -- $ --
======== ======== ======= ========= ========
Best Universal Lock Co. -- 1994..... $ -- $ -- $ -- $ -- $ --
======== ======== ======= ========= ========
Frank E. Best, Inc. -- 1996......... $ -- $ -- $ -- $ -- $ --
======== ======== ======= ========= ========
Frank E. Best, Inc. -- 1995......... $ -- $ -- $ -- $ -- $ --
======== ======== ======= ========= ========
Frank E. Best, Inc. -- 1994......... $ -- $ -- $ -- $ -- $ --
======== ======== ======= ========= ========
CONSOLIDATED
(Best Lock Corporation and
Subsidiaries)
Allowance for uncollectible accounts
receivable -- 1996............... $263,559 $128,006 $41,820 $(188,519) $244,866
======== ======== ======= ========= ========
Allowance for uncollectible accounts
receivable -- 1995............... $244,829 $117,417 $28,522 $(127,209) $263,559
======== ======== ======= ========= ========
Allowance for uncollectible accounts
receivable -- 1994............... $350,136 $ 38,413 $ 4,134 $(147,854) $244,829
======== ======== ======= ========= ========
</TABLE>
Note: Best Universal Lock Co. and the Frank E. Best, Inc. are nonoperating
holding companies and do not have any significant assets or liabilities,
other than their investment in subsidiaries.
F-23
<PAGE> 72
SCHEDULE III
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM
AFFILIATES AND OTHER PERSONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NAME OF ISSUER AND TITLE OF ISSUE 1996 1995 1994
--------------------------------- ---- ---- ----
<S> <C> <C> <C>
Frank E. Best, Inc.
SUBSIDIARY CONSOLIDATED:
Best Universal Lock Co.
Series B common stock, no par value
Year acquired: 1928 Through 1948
Consideration: Asset and Intangibles
Number of shares...................................... 300,000 300,000 300,000
=========== =========== ===========
Balance, January 1.................................... $15,607,328 $28,142,427 $27,382,921
Equity in net income of subsidiary consolidated..... 2,412,249 (3,212,290) 1,175,699
Distribution of earnings by subsidiary.............. (333,000) (330,000) (327,000)
Additional minimum liability for pension (178,939) -- --
Transfer of minority interests' proportionate
share............................................ (38,622) (38,622) (38,621)
Amortization of basis difference 119,735 -- --
Change in cumulative translation adjustment......... (62,276) 23,182 (50,572)
Change in treasury stock............................ (90,351) (8,977,369) --
----------- ----------- -----------
Balance, December 31.................................. $17,436,124 $15,607,328 $28,142,427
=========== =========== ===========
</TABLE>
F-24
<PAGE> 73
SCHEDULE III
BEST UNIVERSAL LOCK CO.
(A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED FROM
AFFILIATES AND OTHER PERSONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NAME OF ISSUER AND TITLE OF ISSUE 1996 1995 1994
--------------------------------- ---- ---- ----
<S> <C> <C> <C>
Best Universal Lock Co.
SUBSIDIARY CONSOLIDATED:
Best Lock Corporation
Common stock, no par value, 61,560.34 shares
issued for a nontransferable license to use
certain patents and processes; 33,996.00
issued in consideration for the net assets of
Best Universal Lock Co. (Notes 1 and 6)
Year acquired: 1928 Through 1948
Consideration: Asset and Intangibles
Number of shares..................................... 95,556.34 95,556.34 95,556.34
=========== ============ ===========
Balance, January 1................................... $19,954,080 $ 32,241,928 $35,356,287
----------- ------------ -----------
Equity in net income (loss) of subsidiary
consolidated, before market value adjustment
related to shares held by Stock Bonus Plan...... 2,889,996 (3,233,398) 1,607,822
Change in equity in excess of market value over
book value of subsidiary's shares held by Stock
Bonus Plan -- Note 8............................ 85,457 (449,483) (53,559)
Distribution of earnings by subsidiary............. (517,915) (516,960) (516,004)
Additional minimum liability for pension........... (214,510) -- --
Amortization of basis difference................... 4,932 -- --
Change in cumulative translation adjustment........ (69,910) 33,048 (65,145)
Change in common stock redeemable under Stock Plan
-- Note 8....................................... (46,890) 2,265,826 (4,087,473)
Change in Treasury stock........................... (165,069) (10,386,881) --
----------- ------------ -----------
Balance, December 31................................. $21,920,171 $ 19,954,080 $32,241,928
=========== ============ ===========
</TABLE>
F-25
<PAGE> 74
BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK COMPANY (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Business
The principal business of the Best Lock Companies is the manufacture or
sourcing, distribution and sale of access control products and services.
b. Principles of Consolidation
The consolidated financial statements for each parent company in the Best
Lock Companies include their respective subsidiaries as indicated below:
<TABLE>
<CAPTION>
PERCENT
PARENT COMPANY SUBSIDIARIES OWNED
-------------- ------------ -------
<S> <C> <C>
Frank E. Best, Inc................ Best Universal Lock Co. 83%
(Best)
Best Universal Lock Co.
(Universal)....................... Best Lock Corporation 79%
Best Lock Corporation
(Lock or the Company)............. Best Universal Locks Limited 100%
(Canada)
</TABLE>
All significant intercompany accounts, investments and transactions have
been eliminated in the consolidations.
Best and Universal, other than their investment in subsidiaries, have no
significant assets or liabilities.
c. Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
d. Inventories
Inventories are valued using the last-in, first-out (LIFO) method for
approximately 97% of consolidated inventories. The remaining inventories are
valued at the lower of cost, first-in, first-out (FIFO) or market.
e. Revenue Recognition
Sales are recognized when product is shipped to customers or when service
or installation is complete.
f. Depreciation
Depreciation is provided on the straight-line method for book purposes and
on an accelerated method for income tax purposes.
g. Amortization
During 1995, the Company purchased covenants not to compete for $1,240,000
which are being amortized ratably over the life of the covenants. Amortization
expense was $248,000 in 1996 and $206,667 in 1995.
F-26
<PAGE> 75
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
h. Research and Development
Research and development costs related to products are expensed as
incurred. Development costs related to software for internal use are expensed or
capitalized as incurred, depending on the useful life of the expenditure. The
total amounts expensed were approximately $769,000, $3,055,000 and $3,050,000 in
1996, 1995, and 1994, respectively.
i. Currency Translation
The accounts of Lock's Canadian subsidiary are translated whereby the
balance sheet accounts are translated at the exchange rate in effect at period
end, income accounts are translated at the average rate of exchange during the
period, and translation gains and losses are excluded from net earnings by being
recorded as a component of shareholders' equity (Cumulative Translation
Adjustment). The consolidated financial statements include translation (losses)
gains of ($87,109), $56,459 and ($89,392) in 1996, 1995 and 1994, respectively,
all of which are reflected as a component of shareholders' equity.
j. Noncash Transaction
The Company financed the purchase of $348,702 of treasury stock during 1995
by issuing a note payable.
k. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. DIVIDENDS
The Articles of Incorporation of Universal require that dividends on common
stock be distributed on a noncumulative basis as follows: a) the first
approximately $138,000 in dividends are to be distributed equally to Series A
holders and to Series B holders and, b) the remainder is distributed on an equal
per share basis to Series A and B holders. These disproportionate distributions
are reflected in calculating the minority interest of Best.
3. PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation is provided using the
following straight-line rates:
<TABLE>
<S> <C>
Buildings................................................... 2.50%, 3% & 5%
Land Improvements........................................... 6.67% & 10%
Machinery and equipment..................................... 8.33%
Tooling..................................................... 12.50% & 20%
Furniture and fixtures...................................... 10% to 33%
Vehicles.................................................... 20% to 50%
</TABLE>
A 3-year depreciation life was adopted in 1995 for certain items such as
computers, fax machines, copiers and telephone systems, to reflect a decreased
useful life resulting from accelerating technology changes. The depreciable life
for additions of this type was 5 years in 1994 and years prior. Computer
software is being depreciated using a 5 year life.
F-27
<PAGE> 76
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Expenditures for property, plant and equipment are reflected as
construction work-in-progress until they are placed into service. The type and
nature of the costs capitalized include only costs from unrelated third parties
for equipment and installation.
Maintenance and repairs are expensed as incurred. Replacements and
betterments which extend the useful life of an asset are capitalized in the
property accounts.
Retirements are removed from property accounts at cost and the related
depreciation is removed from the accumulated depreciation accounts. Gains or
losses on dispositions of property and equipment are reflected in other income
(expense), net in the consolidated statements of income (loss).
4. INVENTORIES
FIFO cost of inventories approximates replacement cost and exceeds LIFO
inventory by $7,923,000, $8,597,000, and $7,616,000 in 1996, 1995 and 1994,
respectively.
Inventories reflected at LIFO cost were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Finished goods.......................... $ 5,327,940 $ 4,958,614 $ 6,526,239
Work-in-process......................... 8,171,868 6,182,505 7,816,878
Raw material............................ 279,207 241,939 235,941
----------- ----------- -----------
Total Inventory.................... $13,779,015 $11,383,058 $14,579,058
=========== =========== ===========
</TABLE>
The cost of materials, direct labor and manufacturing overhead associated
with the production of inventories is included in the valuation of inventory.
During 1995, inventory quantities were reduced. This reduction resulted in
a liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of 1995 purchases. The effect of this
liquidation increased net income by approximately $480,000 or $3.87 per share of
common stock in 1995.
5. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Federal --
Current................................ $ 686,229 $(1,293,028) $ 1,688,594
Deferred............................... 1,101,944 (646,845) (1,847,248)
Foreign --
Current................................ 144,207 203,810 12,880
Deferred............................... -- 4,902 17,694
State --
Current................................ 563,205 (515,232) 462,885
Deferred............................... 97,350 (113,008) (139,546)
---------- ----------- -----------
$2,592,935 $(2,359,401) $ 195,259
========== =========== ===========
</TABLE>
F-28
<PAGE> 77
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Earnings (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic................................. $5,704,209 $(7,060,863) $ 2,335,442
Foreign.................................. 343,339 496,964 67,972
---------- ----------- -----------
$6,047,548 $(6,563,899) $ 2,403,414
========== =========== ===========
</TABLE>
The effective income tax rate varied from the U.S. Federal statutory rate
for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate........................ 34.0% (34.0)% 34.0%
The statutory rate of tax provided was increased
(decreased) by:
State income taxes, net of Federal income tax
benefit......................................... 7.2 (6.3) 8.8
Foreign tax credit................................ (7.4) -- (27.3)
Foreign income taxes.............................. 0.5 0.6 0.3
Alternative minimum tax credits and research and
development tax credits......................... -- -- (10.8)
Nondeductible expenses............................ 7.5 5.5 5.0
Other............................................. 1.1 (1.7) (1.9)
---- ----- -----
Effective rate of tax provided (benefited)........ 42.9% (35.9)% 8.1%
==== ===== =====
</TABLE>
At December 31, 1996, the Company had $605,000 of unutilized foreign tax
credits. Of this amount, approximately $158,000 must be used by 1998; the
balance expires in 2001. The Company believes these foreign tax credits will be
utilized during the carryover period and thus has recorded the benefit of the
credits as a reduction to the provision for income taxes for the year ended
December 31, 1996.
The Company also has alternative minimum tax credits available to offset
future U.S. tax obligations. These credits have no expiration date and were
generated as a result of the carryback of the 1995 net operating loss to 1992
and 1993. The benefit of the balance of these credits of $147,000 has been
reflected as a reduction to the provision for income taxes for the year ended
December 31, 1996.
F-29
<PAGE> 78
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effect of temporary differences giving rise to the Company's
consolidated current and noncurrent deferred income taxes are as follows:
<TABLE>
<CAPTION>
ASSET (LIABILITY) AS OF
DECEMBER 31
--------------------------
1996 1995
---- ----
<S> <C> <C>
Current deferred income taxes:
Vacation accrual.................................... $ 819,419 $ 768,760
Inventory capitalized for tax purposes, expensed for
book purposes..................................... 228,699 209,286
Current portion of pension and qualified retirement
benefit obligations............................... 692,502 625,097
Restructuring accrual............................... 398,029 1,382,926
Medical claims accrual.............................. 213,679 301,547
Inventory reserve................................... 119,820 119,820
Current portion of foreign tax credit............... 202,990 307,467
Current portion of AMT credit....................... 147,155 287,037
Warranty accrual.................................... 265,956 --
Other............................................... 136,343 237,638
----------- -----------
$ 3,224,592 $ 4,239,578
=========== ===========
Noncurrent deferred income taxes:
Excess tax over book depreciation................... $(3,811,799) $(4,366,125)
Noncurrent portion of foreign tax credit............ 401,769 508,612
Noncurrent portion of AMT credit.................... -- 345,788
Noncurrent portion of pension and qualified
retirement benefit obligations.................... 1,094,384 1,337,114
Other............................................... 10,381 53,654
----------- -----------
$(2,305,265) $(2,120,957)
=========== ===========
</TABLE>
6. LICENSE AGREEMENT
Under the terms of a 1928 license agreement between Lock and its parent
companies (Universal and Best), Lock agreed to issue a companion share of stock
to Universal for each share of voting stock sold or otherwise disposed of during
the full period of the corporate existence.
7. DEBT
The Company has an agreement with a financial institution for letters of
credit available primarily for issuance to a foreign vendor. At December 31,
1996, the Company had no outstanding letters of credit.
The Company entered into a $25.0 million line of credit agreement on
February 15, 1995, which was amended effective December 31, 1996 and December
31, 1995. The agreement expires on May 5, 1998 and bears interest at a variable
rate, based upon the prime rate or LIBOR, at the Company's election. The line of
credit is secured by a blanket lien on all accounts and notes receivable,
inventory, machinery and equipment, and intangible assets with a negative pledge
on real estate. The agreement contains financial covenants including those
relating to debt service coverage, tangible net worth, and liabilities to
tangible net worth. As of December 31, 1996, the Company was in compliance with
all required covenants.
F-30
<PAGE> 79
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK BONUS PLAN
The Best Lock Corporation Stock Bonus Plan (Stock Bonus Plan) is available
to Lock employees meeting certain eligibility requirements. The Stock Bonus Plan
is noncontributory and is qualified pursuant to the applicable provisions of the
Internal Revenue Code. Lock did not contribute to the Stock Bonus Plan in 1996,
1995, and 1994. Contributions are determined by Lock's Board of Directors.
Plan participants, upon reaching certain eligibility requirements, may
receive cash or shares of Lock, Universal and/or Best common stock. In the event
the participants elect or are required to receive shares, the participants have
the right to require Lock to repurchase such shares in cash at its fair market
value. As a result, the fair market value of the shares, determined based on an
independent appraisal, held by the Stock Bonus Plan, has been reflected in the
accompanying consolidated balance sheets as "Common stock and common stock of
Universal redeemable under Stock Bonus Plan." The Stock Bonus Plan was amended
in 1996 to allow 1996 retirees to receive distributions earlier than the plan
previously provided. The accelerated payout for the 1996 retirees is based on a
formula which considers age and years of service.
On December 28, 1995, Lock purchased all of the common stock of Best held
by the Stock Bonus Plan at an independently appraised value as of December 27,
1995, of $29.74 per share. The purpose of this transaction was to provide
liquidity to the Stock Bonus Plan in anticipation of payments out of the plan
pursuant to the early retirement plan discussed in Note 14.
9. SEGMENT REPORTING
The Best Lock Companies are engaged in the manufacture and sale of access
control products and services only, and as such do not report on a segment
basis. Sales outside the U.S. amounted to approximately 6% of total sales during
1996 and 1995 and 7% of total sales during 1994.
10. RETIREMENT PLANS
Effective September 1, 1989, the Company adopted a noncontributory defined
benefit Employees' Pension Plan (the Plan) to provide retirement benefits to
substantially all current and retired U.S. employees as of September 1, 1989.
The Company has received a favorable determination letter for the Plan from the
Internal Revenue Service. The Plan provides benefits for past service only. The
monthly benefit is based on the employee's years of service and compensation as
of September 1, 1989. The benefits for retired employees were based upon amounts
specified in the Plan. Under the Plan's provisions, all participants were 100%
vested at September 1, 1989. Normal retirement age is 65 with provisions for
earlier retirement with reduced benefits. After several years of accelerated
funding, the Company is currently making quarterly contributions to the Plan in
amounts necessary to meet minimum governmental funding requirements. Company
contributions are made to a trust fund whose assets consist of investments in
high-quality short-term money market instruments.
A summary of the components of net periodic pension cost in 1996, 1995 and
1994 for the Plan follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest cost on projected benefit
obligation................................. $ 557,686 $ 691,987 $ 230,566
Actual return on plan assets................. (277,736) (351,395) (198,724)
Net amortization and deferral................ (204,119) -- --
--------- --------- ---------
Net periodic pension costs................... $ 75,831 $ 340,592 $ 31,842
========= ========= =========
</TABLE>
Plan assumptions in 1996, 1995 and 1994 were:
Discount rate.................................................8.0%
Expected long-term rate of return on Plan assets..............8.0%
F-31
<PAGE> 80
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the Plan's funded status and amounts
recognized in the consolidated balance sheet at December 31, 1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligation............... $7,631,924
Plan assets at fair value................................... 6,298,993
----------
Projected benefit obligation in excess of plan assets....... 1,332,931
Unrecognized net gain (loss)................................ (376,747)
Prior service cost not yet recognized....................... (164,879)
Remaining net asset at transition........................... 259,065
Intangible asset............................................ 164,879
Charge to equity............................................ 117,682
----------
Net pension liability....................................... $1,332,931
==========
</TABLE>
In addition to the Plan adopted on September 1, 1989, the Company executed
supplemental retirement benefit agreements with certain retirees and officers.
For financial reporting purposes, the actuarial present value (discounted at 8%)
of the benefits to be provided under the terms of these agreements were
recognized in 1989 and subsequent years. Prior to 1995, the agreement with the
Company's former President was amortized over his estimated remaining service
life. Effective in 1994, the actuarial present value of the benefit to be
provided to the Company's former President under the terms of the agreement was
fully recognized. This change in assumptions resulted in an increase in 1994
expense of approximately $800,000. The benefits under these agreements will be
paid monthly by the Company over the lifetime of the recipients and, upon their
death, 50% of the scheduled amount for the lifetime of the surviving spouse.
A summary of the components of net periodic pension cost in 1996, 1995 and
1994 for the supplemental retirement benefit agreements follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest cost on projected benefit
obligation.................................. $226,858 $356,758 $1,030,833
Actual return on plan assets.................. -- -- --
Net amortization and deferral................. 4,325 -- --
-------- -------- ----------
Net periodic pension costs............... $231,183 $356,758 $1,030,833
======== ======== ==========
</TABLE>
Supplemental retirement benefit agreement assumptions in 1996, 1995 and
1994 were:
Discount rate.................................................8.0%
Expected long-term rate of return on assets...................8.0%
The following table sets forth the funded status of the supplemental
retirement benefit agreements and amounts recognized in the consolidated balance
sheet at December 31, 1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligation............... $2,991,444
Plan assets at fair value................................... 114,311
----------
Projected benefit obligation in excess of plan assets....... 2,877,133
Unrecognized net gain (loss)................................ (153,170)
Remaining net asset (obligation) at transition.............. (34,596)
Intangible asset............................................ 34,596
Charge to equity............................................ 153,170
----------
Net pension liability....................................... $2,877,133
==========
</TABLE>
F-32
<PAGE> 81
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the retirement benefit obligations included in the
consolidated balance sheets is presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Defined Benefit Employees Pension Plan................ $1,332,931 $1,777,989
Supplemental Retirement Benefit Agreements............ 2,877,133 3,035,429
Other................................................. 368,453 419,358
---------- ----------
$4,578,517 $5,232,776
========== ==========
Current Portion....................................... $1,365,118 $1,362,431
Noncurrent Portion.................................... 3,213,399 3,870,345
---------- ----------
$4,578,517 $5,232,776
========== ==========
</TABLE>
The Company implemented a 401(k) profit sharing plan (the 401(k) Plan)
during 1994. Employees are eligible after reaching age 21 and completing one
year of continuous service as of the enrollment dates each year. Employer
contributions to the 401(k) Plan are determined by the Company's Board of
Directors. Participants begin vesting in the employer contributions after 1 year
of service at which time they are 20% vested. Employees become 100% vested after
5 years of service. Company contributions to the 401(k) Plan amounted to
$541,000, $571,000 and $221,000 in 1996, 1995 and 1994, respectively.
11. CONTINGENCIES
From time to time the Company is a party to litigation incidental to its
business. Management is of the opinion that the ultimate resolution of known
claims will not have a material adverse impact on the Company's financial
position or results of operations.
The Company leases various office and warehouse facilities and other
vehicles under noncancelable lease arrangements. Lease terms are from one to ten
years and most provide options to renew. Future minimum lease payments under
noncancelable operating leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
1997.................................................... $ 991,592
1998.................................................... 774,249
1999.................................................... 452,072
2001.................................................... 223,066
2001-2005............................................... 448,784
----------
$2,889,763
==========
</TABLE>
Rent expense charged to operations totaled $956,413, $761,024 and $852,565
in 1996, 1995, and 1994, respectively.
12. UNDISTRIBUTED EARNINGS
In general, it is Lock's intention to reinvest the earnings of its foreign
subsidiary in its operations and to repatriate these earnings only when it is
advantageous to do so. Also, it is Universal's and Best's intention to minimize,
if not eliminate, any income taxes associated with amounts distributed by its
domestic subsidiaries. As a result, it is expected that the amount of income
taxes resulting from a repatriation will not be significant.
F-33
<PAGE> 82
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accordingly, deferred tax amounts are not being recorded related to
undistributed earnings. The cumulative amounts of undistributed earnings on
which income taxes have not been recognized are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1995
---- ----
<S> <C> <C>
Best................................................ $17,436,000 $15,607,000
Universal........................................... 21,920,000 19,954,000
Lock................................................ 2,056,000 1,934,000
</TABLE>
13. RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated statements of
income (loss) and balance sheet for the prior years to conform to the current
year presentation.
14. RESTRUCTURING
During 1995, the Company recorded a restructuring charge of $3.1 million in
connection with the announcement of a board approved early retirement, voluntary
and involuntary separation plan. The Company's plan was to reduce the number of
employees in all divisions and centralize certain functions in the distribution
division.
As of December 31, 1996, 63 employees had separated or agreed to separate
under the voluntary separation or early retirement provisions of the plan. In
conjunction with the acceptances, the Company accrued approximately an
additional $1 million in restructuring expenses during 1996, due to the
additional expenses associated with voluntary separation and early retirement.
The total number of anticipated separations was reduced from approximately 340
in the original plan to 63, resulting in an approximate $1.8 million reduction
in the reserve. The number of anticipated separations was reduced due to a
change in the management of the sales and marketing areas of the Company, which
resulted in a revision to the plan to eliminate positions in those areas.
15. PARTNERSHIP INTEREST
On February 15, 1995, the Company settled all claims arising from a
derivative action threatened against it by a director, as well as all claims
against Lock's Chief Executive Officer and another officer. The material
components of the settlement included: (i) the resignation of Walter E. Best
from the Board of Directors and as President of each of Lock, Universal, Best,
and Walter E. Best Company, Inc.; (ii) the resignation of Richard E. Best and
Marshall W. Best as officers and employees of Lock and the resignation of Robert
W. Best and Marshall W. Best as officers and employees of Lock and the
resignation of Robert W. Best as an employee; (iii) the payment of the total sum
of $2,134,349 as severance, vacation and bonus payments to Walter E. Best,
Robert W. Best, Rich E. Best, Marshall W. Best and Edwina McLemore, an employee
of Lock; (iv) the payment of the total sum of $1,240,000 in exchange for
covenants not to compete from Walter E. Best, Robert W. Best, Richard E. Best
and Marshall W. Best; and (v) the payment of the total sum of $8,178,296 for the
acquisition of shares of Lock and interests in a partnership as described below.
On February 15, 1995, Lock purchased for cash an 87% non-voting interest in
a partnership for $5,582,626. The purpose of the partnership, which was newly
formed, is to acquire and hold securities for investment purposes. The
partnership purchased directly or indirectly 204,053 shares of Best common
stock, 8,787 shares of Universal Series A common stock and 11.25 shares of
Universal preferred stock. In addition, Lock acquired 6,742 shares of its own
common stock at an appraised value of $385.00 per share or $2,595,670. Lock's
acquisition of its interest in the partnership and its redemption of its own
common shares were funded through the utilization of a portion of the line of
credit of $25,000,000 as discussed in Note 7.
F-34
<PAGE> 83
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company accounted for the purchase of the Lock shares and the 87%
partnership interest as treasury stock, which resulted in a reduction to
shareholders' equity of Lock of $8,178,296, Universal of $5,582,626 and Best of
$5,077,403. As a result of these transactions, the minority interest of
Universal decreased from 27% to 23% and the minority interest of Best decreased
from 22% to 21%.
During 1995, in addition to the above transactions, the Company acquired
shares of Lock, Universal and Best which were accounted for as treasury stock.
This treatment resulted in a reduction to shareholders' equity of Lock of
$5,848,082, Universal of $4,773,932 and Best of $3,869,643. As a result of these
transactions, the minority interest of Universal decreased from 23% to 21% and
the minority interest of Best decreased from 21% to 17%.
16. RELATED PARTY TRANSACTIONS
On May 5, 1994, Lock's Board of Directors approved a loan of $3.4 million
to Russell C. Best, Chief Executive Officer, under the terms of an Employment
Agreement entered into by Lock and Russell C. Best. On May 18, 1994, $3.4
million was borrowed, with interest at 7.2%, by Russell C. Best. The terms of
the loan include repayment over a thirty (30) year period in equal annual
installments of principal and interest totaling $279,519.
The Company entered into a split dollar life insurance agreement as of
December 29, 1995 with a trust established by Russell C. Best, pursuant to which
the Company and the trust will share in the premium costs of a whole life
insurance policy that has a face value death benefit of $5,000,000. Under the
agreement, the Company will pay approximately $55,000 each policy year for the
first 15 years of the policy. The Company is not obligated to make its share of
the annual premium. Only the trustee may cancel or surrender the policy. Upon
the death of Mr. Best, the Company will receive the cumulative amount of its
premium payments. Prior to Mr. Best's death and prior to the 30th year of the
policy, upon cancellation or surrender of the policy, the Company will receive
the lesser of its cumulative premium payments or the cash surrender value of the
policy. To the extent the policy is not canceled or surrendered in its first 30
years, the Company will receive its cumulative premium payments in the 30th year
of the policy.
Walter E. Best, former President of the Company, is the President and owns
in excess of 10% of the stock of Best Aircraft Corporation. The Company leased
automobiles from Best Aircraft Corporation during 1995 and 1994, paying $30,030
and $183,470 for such services, respectively. Larry W. Rottmeyer, employed
during 1994, became a Director and Vice President of the Company during 1995.
Mr. Rottmeyer resigned as a Director on February 26, 1996 and was removed as a
Vice President on March 5, 1996. During Mr. Rottmeyer's employment, he was also
a Director and a greater than 10% equity owner of Marcon, Inc. until June 9,
1995. The Company purchased market research services from Marcon, Inc., during
1995, paying $547,942 for such services. Eric M. Fogel, Director from October
30, 1995 until March 1, 1996, is a partner in the law firm of Holleb & Coff. The
Company paid Holleb & Coff $438,399 and $112,221 in 1996 and 1995 for legal
services.
17. REDEMPTION OF BEST UNIVERSAL LOCK CO. STOCK
On July 1, 1995, Universal redeemed all 63 shares of its outstanding
preferred stock at $105 per share plus cumulative dividend, for a total of
$7,056.
18. OUTSTANDING SHARES
The number of outstanding shares of Universal and Best used in the
calculation of earnings per share differs from the number of outstanding shares
shown on the cover page of the 10-K for each of the two companies. The cover
page of the 10-K reflects all shares legally outstanding. The earnings per share
disclosures reflect as treasury stock shares held by subsidiaries of Universal
and Best that are still legally outstanding, in accordance with generally
accepted accounting principles.
F-35
<PAGE> 84
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FRANK E. BEST, INC.,
BEST UNIVERSAL LOCK COMPANY,
BEST LOCK CORPORATION,
WEBCO ONE, INC.,
WEBCO TWO, INC.,
WEBCO THREE, INC.
AND
WALTER E. BEST COMPANY, INC.
DATED AS OF
DECEMBER 1, 1997
A-1
<PAGE> 85
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE MERGERS....................................................................... 1
Section 1.1 The Mergers................................................. 1
Section 1.2 Effective Time.............................................. 1
Section 1.3 Closing..................................................... 1
Section 1.4 Certificate of Incorporation; By-Laws....................... 1
Section 1.5 Directors and Officers of Each of the Surviving
Corporations................................................ 2
ARTICLE II
CONVERSION OF SHARES.............................................................. 2
Section 2.1 Conversion of Capital Stock................................. 2
Section 2.2 Exchange of Certificates.................................... 3
Section 2.3 Dissenter's Rights.......................................... 4
Section 2.4 Fractional Shares........................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES................................... 5
Section 3.1 Organization................................................ 5
Section 3.2 Capitalization.............................................. 5
Section 3.3 Authorization; Validity of Agreement........................ 5
Section 3.4 No Violations; Consents and Approvals....................... 6
Section 3.5 Information Statement; Schedule 13E-3....................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WEBCO AND THE MERGER SUBS....................... 7
Section 4.1 Organization................................................ 7
Section 4.2 Authorization; Validity of Agreement........................ 7
Section 4.3 Consents and Approvals...................................... 7
ARTICLE V
COVENANTS......................................................................... 7
Section 5.1 Interim Operations of the Companies......................... 7
Section 5.2 Further Action; Reasonable Efforts.......................... 7
Section 5.3 Action by Written Consent; Information Statement............ 8
Section 5.4 Notification of Certain Matters............................. 8
Section 5.5 Publicity................................................... 9
Section 5.6 Indemnification............................................. 9
ARTICLE VI
CONDITIONS........................................................................ 9
Section 6.1 Conditions to Each Party's Obligation To Effect the
Mergers..................................................... 9
Section 6.2 Conditions to Obligations of Webco and the Merger Subs to
Effect the Mergers.......................................... 9
ARTICLE VII
TERMINATION....................................................................... 10
Section 7.1 Termination................................................. 10
Section 7.2 Effect of Termination....................................... 10
</TABLE>
A-2
<PAGE> 86
<TABLE>
<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS..................................................................... 10
Section 8.1 Fees and Expenses........................................... 10
Section 8.2 Amendment; Waiver........................................... 10
Section 8.3 Nonsurvival of Representations and Warranties............... 11
Section 8.4 Notices..................................................... 11
Section 8.5 Interpretation.............................................. 11
Section 8.6 Headings.................................................... 11
Section 8.7 Counterparts................................................ 11
Section 8.8 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership................................................... 11
Section 8.9 Severability................................................ 12
Section 8.10 Governing Law............................................... 12
Section 8.11 Submission to Jurisdiction; Appointment of Agent for
Service..................................................... 12
Section 8.12 Assignment.................................................. 12
</TABLE>
A-3
<PAGE> 87
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of December 1,
1997, by and among Frank E. Best, Inc., a Delaware corporation ("FEB"), Best
Universal Lock Company, a Delaware corporation ("BUL"), Best Lock Corporation, a
Delaware corporation ("BLC" and, together with FEB and BUL, the "Companies"),
Webco One, Inc., a Delaware corporation ("W1"), Webco Two, Inc., a Delaware
corporation ("W2"), Webco Three, Inc., a Delaware corporation ("W3" and,
together with W1 and W2, the "Merger Subs"), and Walter E. Best Company, Inc.,
an Indiana corporation ("Webco").
RECITALS
A. The Board of Directors of each of the Companies (collectively, the
"Boards") and the Board of Directors of each of the Merger Subs and Webco have
each approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the acquisition of the Companies by Webco
upon the terms and subject to the conditions set forth herein; and
B. In furtherance of such acquisition, the Board of Directors of each of
the Merger Subs and Webco and each of the Companies have each approved this
Agreement and the simultaneous mergers of (i) W1 with and into FEB, (ii) W2 with
and into BUL and (iii) W3 with and into BLC, in accordance with the terms and
subject to the conditions of this Agreement and in accordance with the Delaware
General Corporation Law (the "DGCL") ;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGERS
SECTION 1.1 THE MERGERS. Upon the terms and subject to the conditions of
this Agreement and in accordance with the DGCL, at the Effective Time (as
defined in Section 1.2 hereof), (a) W1 will be merged with and into FEB, (b) W2
will be merged with and into BUL and (c) W3 will be merged with and into BLC
(collectively, the "Mergers") and the separate corporate existence of each of
the Merger Subs will cease. After the Mergers, each of the Companies will
continue as the surviving corporations (each, a "Surviving Corporation" and
collectively, the "Surviving Corporations"). The Mergers will have the effect as
provided in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, upon the Mergers (i) all the rights, privileges,
immunities, powers and franchises of the Merger Subs and the Companies will vest
in the respective Surviving Corporation and (ii) all obligations, duties, debts
and liabilities of the Merger Subs and the Companies will be the obligations,
duties, debts and liabilities of the respective Surviving Corporation.
SECTION 1.2 EFFECTIVE TIME. On or as promptly as practicable following the
Closing Date (as defined in Section 1.3), Webco, the Merger Subs and the
Companies will cause appropriate Certificates of Merger (the "Certificates of
Merger") to be executed and filed with the Secretary of State of the State of
Delaware (the "Delaware Secretary of State") in such form and executed as
provided in the DGCL. The Mergers will become effective on the date on which the
appropriate Certificates of Merger have been duly filed with the Delaware
Secretary of State or such other time as is agreed upon by the parties and
specified in the Certificates of Merger, and such time is hereinafter referred
to as the "Effective Time."
SECTION 1.3 CLOSING. The closing of the Mergers (the "Closing") will take
place at 10:00 a.m., Chicago time, on a date to be specified by the parties,
which will be no later than the second business day after satisfaction or waiver
of all of the conditions set forth in Article VI hereof (the "Closing Date"), at
the offices of Jenner & Block, One IBM Plaza, Chicago, Illinois 60611, unless
another date, time or place is agreed to in writing by the parties hereto.
SECTION 1.4 CERTIFICATE OF INCORPORATION; BY-LAWS. Pursuant to the Mergers,
(a) the certificate of incorporation of each of the Companies as in effect
immediately prior to the Effective Time (collectively, the
A-4
<PAGE> 88
"Certificates of Incorporation") will be amended in their entirety to read as
set forth in Exhibits A-1, A-2 and A-3, respectively, attached hereto and (b)
the by-laws of each of the Merger Subs, as in effect immediately prior to the
Effective Time (the "By-laws"), will be the by-laws of the applicable Surviving
Corporation until thereafter amended in accordance with applicable law.
SECTION 1.5 DIRECTORS AND OFFICERS OF EACH OF THE SURVIVING
CORPORATIONS. The directors and officers of each of the Companies immediately
prior to the Effective Time will, from and after the Effective Time, be the
directors and officers of the applicable Surviving Corporation until their
successors will have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with each such Surviving
Corporation's Certificate of Incorporation and By-laws.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Mergers and without any action on the part of any of the
Companies, the Merger Subs, Webco or the holders of any shares of (i) common
stock, par value $1.00 per share, of FEB ("FEB Common Stock"), (ii) Series A
common stock, no par value, of BUL ("BULA Common Stock"), (iii) Series B common
stock, no par value, of BUL ("BULB Common Stock" and, together with BULA Common
Stock, "BUL Common Stock") or (iv) common stock, no par value, of BLC ("BLC
Common Stock"):
(a) Subject to Section 2.4(b), each issued and outstanding share of
FEB Common Stock (other than Dissenting Shares as defined in and covered by
Section 2.3) will be converted into the right to receive one-one hundred
fifteen-thousand eight hundred and ninth (1/115,809) of a share of common
stock, $.01 par value, of FEB ("New FEB Common Stock");
(b) Subject to Section 2.4(c), each copy issued and outstanding share
of BULA Common Stock (other than Dissenting Shares covered by Section 2.3)
will be converted into the right to receive one-twenty seven thousand two
hundred seventy-second (1/27,272) of a share of common stock, $.01 par
value of BUL ("New BUL Common Stock");
(c) Subject to Section 2.4(d), each issued and outstanding share of
BULB Common Stock (other than Dissenting Shares covered by Section 2.3)
will be converted into the right to receive one-twenty seven thousand two
hundred seventy-second (1/27,272) of a share of New BUL Common Stock;
(d) Subject to Section 2.4(e), each issued and outstanding share of
BLC Common Stock (other than Dissenting Shares covered by Section 2.3) will
be converted into the right to receive one-fifteen thousand nine hundred
twenty-sixth (1/15,926) of a share of common stock, $.01 par value, of BLC
("New BLC Common Stock").
The stock referred to in Sections (a), (b), (c) and (d) is referred to as
the "Merger Consideration" applicable to each of FEB, BUL and BLC, respectively.
All shares of FEB Common Stock, BUL Common Stock and BLC Common Stock, upon
conversion into the Merger Consideration, or cash in lieu of fractions thereof
pursuant to Section 2.4, will no longer be outstanding and will automatically be
canceled and retired and will cease to exist, and each holder of a certificate
representing any such shares will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration therefor upon the surrender
of such certificate in accordance with Section 2.2 and any cash payable in lieu
of fractional shares in accordance with Section 2.4. Any payment made pursuant
to this Section 2.1 or Section 2.4 will be made net of applicable withholding
taxes to the extent such withholding is required by law.
(e) Each issued and outstanding share of common stock of W1 will be
converted into and become one-five hundredth (1/500) fully paid and
nonassessable share of New FEB Common Stock.
(f) Each issued and outstanding share of common stock of W2 will be
converted into and become one-five hundredth (1/500) fully paid and
nonassessable share of New BUL Common Stock.
A-5
<PAGE> 89
(g) Each issued and outstanding share of common stock of W3 will be
converted into and become one-five hundredth (1/500) fully paid and
nonassessable share of New BLC Common Stock.
(h) Each share of Common Stock of a Company that, immediately prior to
the Effective Time, is owned by such Company, shall automatically be
cancelled and retired and shall cease to exist, and no cash, New Common
Stock or other consideration shall be delivered or deliverable in exchange
therefor.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Time, Webco will designate a bank or trust
company to act as agent for the holders of the shares in connection with
the Mergers (the Paying Agent") to receive the shares of stock and funds
(the "Exchange Fund"), to which holders of the shares will become entitled
pursuant to Section 2.1 and Section 2.4. Such funds will be invested by the
Paying Agent as directed by Webco. All interest earned on any funds will be
paid to the Surviving Corporation whose stockholders were entitled to such
funds.
(b) At the Effective Time, Webco will instruct the Paying Agent to
promptly, and in any event not later than three business days following the
Effective Time, mail to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of FEB Common Stock, BULA Common Stock, BULB Common
Stock and BLC Common Stock, (collectively, the "Certificates"), whose
shares were converted pursuant to Section 2.1 into the right to receive the
Merger Consideration (i) a letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon delivery of the Certificates to the Paying Agent and
will be in such form and have such other provisions as Webco and the
applicable Company may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for payment of the
Merger Consideration. Upon surrender of a Certificate for cancellation to
the Paying Agent or to such other agent or agents as may be appointed by
the Companies, together with such letter of transmittal, duly executed, the
holder of such Certificate will be entitled to receive in exchange therefor
the Merger Consideration for each share of FEB Common Stock, BULA Common
Stock, BULB Common Stock or BLC Common Stock, as the case may be, formerly
represented by such Certificate, as well as any cash to be paid in
accordance with Section 2.4, and the Certificate so surrendered will
forthwith be canceled. If payment of the Merger Consideration is to be made
to a person other than the person in whose name the surrendered Certificate
is registered, it will be a condition of payment that the Certificate so
surrendered will be properly endorsed or will be otherwise in proper form
for transfer and that the person requesting such payment will have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration or cash payable pursuant to Section 2.4 to a person other
than the registered holder of the Certificate surrendered or will have
established to the satisfaction of the applicable Surviving Corporation
that such tax either has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.2, each Certificate (other than
Dissenting Shares) will be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration as
contemplated by this Section 2.2, as well as any cash to be paid in
accordance with Section 2.4.
(c) In the event any Certificate will have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person (as
defined in Section 3.1) claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration, and any cash payable
pursuant to Section 2.4, deliverable in respect thereof as determined in
accordance with this Article II, provided that the Person to whom the
Merger Consideration or cash payable pursuant to Section 2.4 is paid will,
as a condition precedent to the payment thereof, give the applicable
Surviving Corporation a bond in such sum as it may direct or otherwise
indemnify such Surviving Corporation in a manner satisfactory to it against
any claim that may be made against such Surviving Corporation with respect
to the Certificate claimed to have been lost, stolen or destroyed.
(d) After the Effective Time, there will be no transfers on the stock
transfer books of any of the Surviving Corporations of shares of FEB Common
Stock, BUL Common Stock or BLC Common Stock,
A-6
<PAGE> 90
respectively, which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to any
Surviving Corporation, they will be canceled and exchanged for the Merger
Consideration, as well as any cash to be paid in accordance with Section
2.4 as provided in this Article II.
(e) Any portion of the Exchange Fund which remains undistributed for
six months after the Effective Time will be delivered to the Surviving
Corporation (or its successor) whose stockholders were entitled to such
portion of the Exchange Fund, and any holders of FEB Common Stock, BULA
Common Stock or BLC Common Stock, who have not theretofore complied with
this Section 2.2 will thereafter look to such respective Surviving
Corporation (or its successor) for payment of their claim for Merger
Consideration, and any cash to be paid in accordance with Section 2.4
hereof.
SECTION 2.3 DISSENTER'S RIGHTS. Notwithstanding anything in this Agreement
to the contrary, shares of FEB, BUL or BLC outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger in
which such Company was a constituent, or consented thereto in writing, and who
complies in all respects with the provisions of Section 262 of the DGCL
("Dissenting Shares"), will not be converted into the right to receive the
Merger Consideration as provided in Section 2.1 hereof, or cash payable pursuant
to Section 2.4, unless and until such holder fails to perfect or effectively
withdraws or otherwise loses his right to appraisal and payment under the DGCL.
If, after the Effective Time, any such holder fails to perfect or effectively
withdraws or loses his right to appraisal, such Dissenting Shares will thereupon
be treated as if they had been converted as of the Effective Time into the right
to receive the Merger Consideration to which such holder is entitled, and any
cash pursuant to Section 2.4 hereof, without interest or dividends thereon.
SECTION 2.4 FRACTIONAL SHARES.
(a) No certificates or scrip representing fractional shares of New FEB
Common Stock, New BUL Common Stock, or New BLC Common Stock will be issued
upon surrender for exchange of certificates representing the FEB Common
Stock, the BUL Common Stock or the BLC Common Stock, respectively, or
otherwise in connection with the Mergers.
(b) Notwithstanding any other provision of this Agreement, each holder
of shares of FEB Common Stock converted pursuant to the Merger, who would,
except for Section 2.4(a) hereof, have been entitled to receive a fraction
of a share of New FEB Common Stock, will receive, in lieu thereof, cash
(without interest) in an amount equal to the number of shares of FEB Common
Stock held as of the Effective Time multiplied by $53.55.
(c) Notwithstanding any other provision of this Agreement, each holder
of shares of BULA Common Stock converted pursuant to the Merger, who would,
except for Section 2.4(a) hereof, have been entitled to receive a fraction
of a share of New BUL Common Stock, will receive, in lieu thereof, cash
(without interest) in an amount equal to the number of shares of BULA
Common Stock held as of the Effective Time multiplied by $120.69.
(d) Notwithstanding any other provision of this Agreement, each holder
of shares of BULB Common Stock converted pursuant to the Merger, who would,
except for Section 2.4(a) hereof, have been entitled to receive a fraction
of a share of New BUL Common Stock, will receive, in lieu thereof, cash
(without interest) in an amount equal to the number of shares of BULB
Common Stock held as of the Effective Time multiplied by $118.72.
(e) Notwithstanding any other provision of this Agreement, each holder
of shares of BLC Common Stock converted pursuant to the Merger, who would,
except for Section 2.4(a) hereof, have been entitled to receive a fraction
of a share of New BLC Common Stock, will receive, in lieu thereof, cash
(without interest) in an amount equal to the number of shares of BLC Common
Stock held as of the Effective Time multiplied by $525.43.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES
Each of the Companies, jointly and severally, represents and warrants to
Webco and the Merger Subs, as of the date hereof and as of and at the Closing
Date, except as disclosed in any form or document filed with the SEC since
January 1, 1994 (the "SEC Documents"), as follows:
SECTION 3.1 ORGANIZATION. Each of the Companies is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware,
and has all requisite corporate power and authority to own, lease, use and
operate its properties and to carry on its business as it is now being
conducted. Each of the Companies is qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction in which it
owns real property or in which the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
qualified or licensed individually and in the aggregate would not have or result
in a Material Adverse Effect. The term "Material Adverse Effect" means a
material adverse effect on the business, assets, liabilities, results of
operations or financial condition of a Company and its Subsidiaries, taken as a
whole. None of the Companies is in breach or violation of any of its certificate
of incorporation, by-laws or other organizational documents. The term
"Subsidiary" means, with respect to any Person, any corporation or other entity
of which 50% or more of the securities or other interests having by their terms
ordinary voting power for the election of directors or others performing similar
functions with respect to such entity is directly or indirectly owned by such
Person. The term "Person" means any natural person, firm, individual,
partnership, joint venture, business trust, trust, association, corporation,
limited liability company, unincorporated entity or Governmental Entity (as
defined in Section 3.4(b)).
SECTION 3.2 CAPITALIZATION.
(a) The authorized capital of FEB consists of 600,000 shares of FEB
Common Stock, 598,710 of which are issued and outstanding on the date
hereof. The authorized capital of BUL consists of 100,000 shares of BULA
Common Stock and 300,000 shares of BULB Common Stock of which 86,469 shares
of BULA Common Stock and 300,000 shares of BULB Common Stock are issued and
outstanding. The authorized capital of BLC consists of 200,000 shares of
BLC Common Stock, 120,642 of which are issued and outstanding. All the
outstanding shares of each of the Companies' capital stock are duly
authorized, validly issued, fully paid and nonassessable.
SECTION 3.3 AUTHORIZATION; VALIDITY OF AGREEMENT.
(a) Each of the Companies has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval of
their stockholders as contemplated by Section 5.3 hereof, to consummate the
transactions contemplated hereby. The execution, delivery and performance
by the Companies of this Agreement and the consummation by each of the
Companies of the transactions contemplated hereby have been authorized by
the Boards and, other than approval and adoption of this Agreement by the
holders of a majority of the outstanding shares entitled to vote of each of
the FEB Common Stock, BUL Common Stock and BLC Common Stock, respectively,
no other corporate proceedings on the part of any of the Companies are
necessary to authorize the execution, delivery and performance of this
Agreement by the Companies and the consummation by each of the Companies of
the transactions contemplated hereby. This Agreement has been executed and
delivered by each of the Companies and, assuming authorization, execution
and delivery of this Agreement by each of the other parties hereto, is a
valid and binding obligation of each of the Companies, enforceable against
each of the Companies in accordance with its terms, except that such
enforcement may be subject to or limited by (i) bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the effect of general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in
equity).
(b) The provisions of Section 203 of the DGCL are inapplicable to the
transactions contemplated by this Agreement.
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SECTION 3.4 NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Neither the execution, delivery and performance of this Agreement
by any of the Companies nor the consummation by any of the Companies of the
transactions contemplated hereby will (i) violate any provision of the
certificate of incorporation or by-laws of any of the Companies, (ii)
conflict with, result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or to the
imposition of any lien) under, or result in the acceleration or trigger of
any payment, time of payment, vesting or increase in the amount of any
compensation or benefit payable pursuant to, the terms, conditions or
provisions of any note, bond, mortgage, indenture, guarantee or other
evidence of indebtedness, lease, license, contract, agreement, plan or
other instrument or obligation to which any of the Companies is a party or
by which any of them or any of their assets may be bound or (iii) conflict
with or violate any federal, state, local or foreign order, writ,
injunction, judgment, award, decree, statute, law, rule or regulation
(collectively, "Laws") applicable to any of the Companies or any of their
properties or assets; except in the case of clauses (ii) or (iii) for such
conflicts, violations, breaches, defaults or liens which individually and
in the aggregate would not have or result in a Material Adverse Effect or
materially impair or delay the consummation of the transactions
contemplated hereby.
(b) No filing or registration with, declaration or notification to, or
order, authorization, consent or approval of, any federal, state, local or
foreign court, legislative, executive or regulatory authority or agency (a
"Governmental Entity") or any other Person is required in connection with
the execution, delivery and performance of this Agreement by any of the
Companies or the consummation by any of the Companies of the transactions
contemplated hereby, except (i) applicable requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) the
filing of the Certificates of Merger with the Delaware Secretary of State
and (iii) such other consents, approvals, orders, authorizations,
notifications, registrations, declarations and filings the failure of which
to be obtained or made individually and in the aggregate would not have or
result in a Material Adverse Effect or materially impair or delay the
consummation of the transactions contemplated hereby.
SECTION 3.5 INFORMATION STATEMENT; SCHEDULE 13E-3.
(a) The Information Statement (as defined in Section 5.3(b)) (and any
amendment thereof or supplement thereto), at the date mailed to
stockholders of each of the Companies and at the Effective Time, (i) will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading and (ii) will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder;
except that no representation is made by any of the Companies with respect
to statements made in the Information Statement based on information
supplied by Webco specifically for inclusion therein.
(b) The information provided by each of the Companies specifically for
use in any Rule 13e-3 Transaction Statement on Schedule 13E-3 required to
be filed with the SEC under the Exchange Act and mailed to the stockholders
of each of the Companies in connection with the Mergers (theSchedule
13E-3") (and any amendment thereto or supplement thereof), at the date
filed with the SEC and at the time mailed to the stockholders of each of
the Companies, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WEBCO AND THE MERGER SUBS
Webco and each of the Merger Subs, jointly and severally, represent and
warrant to each of the Companies, as of the date hereof and as of and at the
Closing Date, as follows:
SECTION 4.1 ORGANIZATION. Webco and each of the Merger Subs is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation. Webco and each of the Merger Subs has all
requisite corporate power and authority to own, lease, use and operate its
properties and to carry on its business as it is now being conducted. Webco owns
1,000 shares of each of the Merger Subs and none of the Merger Subs has
authorized or issued any other shares.
SECTION 4.2 AUTHORIZATION; VALIDITY OF AGREEMENT. Webco and each of the
Merger Subs has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by Webco and each of the Merger Subs of
this Agreement and the consummation by Webco and each of the Merger Subs of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Webco and each of the Merger Subs and no other corporate
proceedings on the part of Webco and each of the Merger Subs other than the vote
of their respective stockholders are necessary to authorize the execution,
delivery and performance of this Agreement by Webco and each of the Merger Subs
and the consummation by Webco and each of the Merger Subs of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Webco and each of the Merger Subs and, assuming due authorization, execution and
delivery of this Agreement by each of the Companies, is a valid and binding
obligation of Webco and each of the Merger Subs, enforceable against it in
accordance with its terms, except that such enforcement may be subject to or
limited by (i) bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity). Webco is the legal and beneficial owner of
54,161 shares of FEB Common Stock, all of which Webco has the right to vote with
respect to the transaction contemplated hereby.
SECTION 4.3 CONSENTS AND APPROVALS. No filing or registration with,
declaration or notification to, or order, authorization, consent or approval of,
any Governmental Entity is required in connection with the execution, delivery
and performance of this Agreement by Webco or any of the Merger Subs or the
consummation by Webco and the Merger Subs of the transactions contemplated
hereby, except (i) applicable requirements under the Exchange Act, (ii) the
filing of the Certificates of Merger with the Delaware Secretary of State and
(iii) such other consents, approvals, orders, authorizations, notifications,
registrations, declarations and filings the failure of which to be obtained or
made individually and in the aggregate would not have a material adverse effect
on the business, results of operations or financial condition of Webco on a
consolidated basis, or materially impair or delay the consummation of the
transactions contemplated hereby.
ARTICLE V
COVENANTS
SECTION 5.1 INTERIM OPERATIONS OF THE COMPANIES. The Companies covenant and
agree that, except (i) as expressly contemplated by this Agreement or (ii) as
agreed to in writing by Webco, after the date hereof and prior to the Effective
Time, the business of each of the Companies and their Subsidiaries will be
conducted only in the ordinary and usual course, and, in particular: none of the
Companies will, directly or indirectly, (a) sell, transfer or pledge or agree to
sell, transfer or pledge any of the shares of its capital stock, or any shares
of capital stock of any of its Subsidiaries beneficially owned by it; (b) amend
its Certificate of Incorporation or By-laws; (c) split, combine or reclassify
any of its outstanding shares; (d) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to its
capital stock; or (e) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock.
SECTION 5.2 FURTHER ACTION; REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions herein provided, each
of the parties hereto will use its reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things
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necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement, including using reasonable efforts to satisfy the conditions
precedent to the obligations of any of the parties hereto, to obtain all
necessary authorizations, consents and approvals, and to effect all
necessary registrations and filings. Each of the parties hereto will
promptly consult with the other parties with respect to, provide any
necessary information that is not subject to legal privilege with respect
to, and provide the other parties (or their counsel) copies of, all filings
made by such party with any Governmental Entity or any other information
supplied by such party to a Governmental Entity in connection with this
Agreement and the transactions contemplated hereby. Each of the parties
hereto will promptly inform the other of any communication from any
Governmental Entity regarding any of the transactions contemplated by this
Agreement. If such party receives a request from any such Governmental
Entity with respect to the transactions contemplated by this Agreement,
then such party will endeavor in good faith to make, or cause to be made,
as soon as reasonably practicable and after consultation with the other
parties, an appropriate response in compliance with such request.
(b) Webco, the Merger Subs and each of the Companies will use their
respective reasonable efforts to resolve such objections, if any, as may be
asserted with respect to the transactions contemplated hereby under the
laws, rules, guidelines or regulations of any Governmental Entity.
SECTION 5.3 ACTION BY WRITTEN CONSENT; INFORMATION STATEMENT.
(a) As promptly as practicable after the date hereof, Webco and each
of the Companies, will exercise written consents with respect to all of the
shares of the Merger Subs and each of the Companies owned by it or them in
favor of the approval and adoption of this Agreement and the transactions
contemplated hereby.
(b) As promptly as practicable after the date hereof, the Companies
will prepare and file with the SEC, and Webco and the Merger Subs will
cooperate with the Companies in such preparation and filing, a preliminary
information statement relating to this Agreement and the transactions
contemplated hereby and use their best efforts to furnish the information
required to be included by the SEC in the Information Statement and, after
consultation with Webco, to respond promptly to any comments made by the
SEC with respect to the preliminary information statement and cause a
definitive Information Statement (the "Information Statement") to be mailed
to their respective stockholders.
(c) The Companies, Webco and the Merger Subs will cooperate with one
another in the preparation and filing of the Schedule 13E-3 and will use
all reasonable efforts to promptly obtain and furnish the information
required to be included in the Schedule 13E-3 and to respond promptly to
any comments or requests made by the SEC with respect to the Schedule
13E-3. Each party hereto will promptly notify the other parties of the
receipt of comments of, or any requests by, the SEC with respect to the
Schedule 13E-3, and will promptly supply the other parties with copies of
all correspondence between such party (or its representatives) and the SEC
(or its staff) relating thereto. The Companies, Webco and the Merger Subs
each will correct any information provided by it for use in the Schedule
13E-3 which will have become, or is, false or misleading.
SECTION 5.4 NOTIFICATION OF CERTAIN MATTERS.
(a) Each Company will give prompt notice to Webco and Webco will give
prompt notice to each Company, of (i) the occurrence or nonoccurrence of
any event the occurrence or nonoccurrence of which would cause any
representation or warranty of such Company, or of Webco or any of the
Merger Subs, as the case may be, contained in this Agreement to be untrue
or inaccurate in any material respect at the Effective Time and (ii) any
material failure of any Company, or Webco or any of the Merger Subs, as the
case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
(b) If at any time prior to the Effective Time any event or
circumstance relating to any of the Companies or any of their Subsidiaries
or affiliates, or their respective officers or directors, should be
discovered by any of the Companies that is required to be set forth in a
supplement to the Information
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Statement, the Companies will promptly inform Webco, so supplement the
Information Statement and mail such supplement to its stockholders. If at
any time prior to the Effective Time any event or circumstance relating to
Webco or any of the Merger Subs or any of their officers or directors,
should be discovered by Webco or any of the Merger Subs that is required to
be set forth in a supplement to the Information Statement, Webco will
promptly inform the Companies; and upon receipt of such information the
Companies will promptly supplement the Information Statement and mail such
supplement to its stockholders.
SECTION 5.5 PUBLICITY. Neither the Companies, Webco, the Merger Subs nor
any of their respective affiliates will issue or cause the publication of any
press release or other announcement with respect to the Mergers, this Agreement
or the other transactions contemplated hereby without the prior consultation of
the other party, except as may be required by law if all reasonable efforts have
been made to consult with the other party.
SECTION 5.6 INDEMNIFICATION. The Surviving Corporations (or any successor
to the Surviving Corporations) will indemnify, defend and hold harmless the
present directors and officers of each of the Companies and their Subsidiaries
against all losses, claims, damages, liabilities, fees and expenses arising out
of actions or omissions occurring at or prior to the Effective Time to the
fullest extent permitted under Delaware law as in effect at the date hereof.
ARTICLE VI
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The respective obligation of each party to effect the Mergers will be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions (any or all of which may be waived by the parties hereto in
writing, in whole or in part, to the extent permitted by applicable law):
(a) This Agreement will have been approved and adopted by the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of FEB Common Stock, BUL Common Stock and BLC Common
Stock entitled to vote.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF WEBCO AND THE MERGER SUBS TO
EFFECT THE MERGERS. The obligations of Webco and the Merger Subs to effect the
Mergers are further subject to the satisfaction or waiver at or prior to the
Closing Date of the following conditions:
(a) The representations and warranties of each of the Companies
contained in this Agreement will be true and correct in all material
respects at and as of the date hereof, and true and correct in all material
respects at and as of the Closing Date as if made at and as such time;
(b) Webco will have received reasonable assurances, in its
determination, that its lender will provide funding to finance the Mergers
in accordance with the terms of the loan agreement entered into in
connection with the Mergers;
(c) No statute, rule, regulation, order, decree or injunction will
have been enacted, entered, promulgated or enforced by a Governmental
Entity which prohibits the consummation of the Mergers and will be in
effect; and
(d) There will not have been, since the date hereof, a Material
Adverse Effect on any of the Companies.
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ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated and the Mergers
may be abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof:
(a) By the mutual consent of each of Webco and the Companies.
(b) By either the Companies, on the one hand, or Webco, on the other
hand, if:
(i) the Mergers have not been consummated on or prior to January
31, 1998; provided, however, that the right to terminate this Agreement
under this Section 7.1(b)(i) will not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Mergers to occur on or
prior to such date;
(ii) the stockholders of any of the Companies fail to approve and
adopt this Agreement and the transactions contemplated hereby; provided,
however, that the right to terminate this Agreement under this Section
7.1(b)(ii) will not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted
in, the failure of the stockholders of any of the Companies to approve
and adopt this Agreement; or
(iii) any Governmental Entity will have issued a statute, order,
decree or regulation or taken any other action, in each case permanently
restraining, enjoining or otherwise prohibiting the Mergers and such
statute, order, decree, regulation or other action will have become
final and nonappealable.
SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 7.1, written notice thereof will forthwith be
given by the terminating party or parties to the other party or parties
specifying the provision hereof pursuant to which such termination is made, and
this Agreement will forthwith become null and void, and there will be no
liability on the part of Webco, the Merger Subs or any of the Companies (except
as set forth in this Section 7.2 and Section 8.1 hereof; each which will survive
any termination of this Agreement); provided that nothing herein will relieve
any party from any liability or obligation with respect to any willful breach of
this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 FEES AND EXPENSES. Except as contemplated by this Agreement,
all costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby will be paid by the party
incurring such expenses.
SECTION 8.2 AMENDMENT; WAIVER.
(a) To the fullest extent permitted by law, this Agreement may be
amended by the parties hereto at any time before or after approval by the
stockholders of the Companies of the matters presented in connection with
the Mergers. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
(b) At any time prior to the Effective Time, the parties may (i)
extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in
any document, certificate or writing delivered pursuant hereto or (iii)
waive compliance with any of the agreements or conditions of the other
parties hereto contained herein. Any agreement on the part of any party to
any such extension or waiver will be valid only if set forth in an
instrument in writing signed on behalf of such party. Any such waiver will
constitute a waiver only with respect to the specific matter described in
such writing and will in no way impair the rights of the party granting
such waiver in any other respect or at any other time. Neither the waiver
by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one
or more occasions, to enforce any of the
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provisions of this Agreement or to exercise any right or privilege
hereunder, will be construed as a waiver of any other breach or default of
a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies herein provided are
cumulative and none is exclusive of any other, or of any rights or remedies
that any party may otherwise have at law or in equity.
SECTION 8.3 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement will survive the
Effective Time.
SECTION 8.4 NOTICES. All notices and other communications hereunder will be
in writing and will be deemed given upon (a) transmitter's confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand, (c) the expiration of five business
days after the day when mailed in the United States by certified or registered
mail, postage prepaid, or (d) delivery in person, addressed at the following
addresses (or at such other address for a party as will be specified by like
notice):
(a) if to any of the Companies, to:
Best Lock Corporation
8900 Keystone Crossing
Indianapolis, Indiana 46240
Telephone: (317) 817-0000
Facsimile: (317) 817-9216
Attention: General Counsel
(b) if to Webco or any of the Merger Subs, to:
Walter E. Best Company, Inc.
8900 Keystone Crossing
Indianapolis, Indiana 46240
Telephone: (317) 817-0000
Facsimile: (317) 817-9216
Attention: General Counsel
in either case, with a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Telephone: (312) 222-9350
Facsimile: (312) 527-0484
Attention: Craig R. Culbertson
SECTION 8.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference will be to a Section of this Agreement unless otherwise
indicated. Whenever the words "include", "includes" or "including" are used in
this Agreement they will be deemed to be followed by the words "without
limitation". The phrase "made available" when used in this Agreement will mean
that the information referred to has been made available to the party to whom
such information is to be made available. The word "affiliates" when used in
this Agreement will have the meaning ascribed to it in Rule 12b-2 under the
Exchange Act. The phrase "beneficial ownership" and words of similar import when
used in this Agreement will have the meaning ascribed to it in Rule 13d-3 under
the Exchange Act.
SECTION 8.6 HEADINGS. The headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which will be
considered one and the same agreement.
SECTION 8.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP. This Agreement (including the documents and the instruments referred
to herein): (a) constitutes the entire agreement and
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supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided in Section 5.6 is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
SECTION 8.9 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement will remain in full force and effect and will in no way be affected,
impaired or invalidated.
SECTION 8.10 GOVERNING LAW. This Agreement will be governed, construed and
enforced in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
SECTION 8.11 SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENT FOR
SERVICE. To the fullest extent permitted by applicable law, Webco irrevocably
submits to the jurisdiction of any federal or state court in the State of
Delaware, United States of America, in any suit or proceeding based on or
arising under this Agreement (solely in connection with any such suit or
proceeding), and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in any such court. Webco irrevocably and fully
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Webco hereby irrevocably designates and appoints CT Corporation
System, the Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, DE 19801, as the authorized agent of Webco upon whom process
may be served in any such suit or proceeding.
SECTION 8.12 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other parties; provided, however, Webco and the Merger Subs may assign this
Agreement to any Subsidiary of Webco or the Merger Subs. No such assignment will
relieve either Webco or the Merger Subs of their obligations under this
Agreement. Subject to the first sentence of this Section 8.12, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the parties
hereto and their respective successors and assigns.
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IN WITNESS WHEREOF, Webco, the Merger Subs and each of the Companies have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
FRANK E. BEST, INC.
By: /s/ RUSSELL C. BEST
------------------------------------
Name: Russell C. Best
Title: President
BEST UNIVERSAL LOCK COMPANY
By: /s/ RUSSELL C. BEST
------------------------------------
Name: Russell C. Best
Title: President
BEST LOCK CORPORATION
By: /s/ RUSSELL C. BEST
------------------------------------
Name: Russell C. Best
Title: President
WALTER E. BEST COMPANY, INC.
By: /s/ RUSSELL C. BEST
------------------------------------
Name: Russell C. Best
Title: President
WEBCO ONE, INC.
By: /s/ RUSSELL C. BEST
------------------------------------
Name: Russell C. Best
Title: President
WEBCO TWO, INC.
By: /s/ RUSSELL C. BEST
------------------------------------
Name: Russell C. Best
Title: President
WEBCO THREE, INC.
By: /s/ RUSSELL C. BEST
------------------------------------
Name: Russell C. Best
Title: President
A-16
<PAGE> 100
EXHIBIT A-1
RESTATED CERTIFICATE OF INCORPORATION
OF
FRANK E. BEST, INC.
------------------------
PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------
Frank E. Best, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The Corporation was originally incorporated under the name Frank E.
Best, Inc. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on October 26, 1995.
2. This Restated Certificate of Incorporation restates and integrates and
also further amends the Certificate of Incorporation, as heretofore in effect.
This Restated Certificate of Incorporation has been proposed by the Board of
Directors of the Corporation and adopted by the stockholders of the Corporation
in the manner and by the vote prescribed by Sections 242 and 245 of the General
Corporation Law of the State of Delaware, and is as follows:
1. Corporate Name. The name of the corporation (hereinafter, the
"Corporation") is FRANK E. BEST, INC.
2. Registered Office and Agent. The address, including street, number,
city and county, of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, County of New Castle, Wilmington,
Delaware 19801. The name of the registered agent of the Corporation in the
State of Delaware at such address is The Corporation Trust Company.
3. Purposes. The nature of the business of the Corporation and the
objects or purposes to be transacted, promoted, conducted or carried on by
it are as follows:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
4. Authorized Capital Stock. The total number of shares of stock which
the Corporation shall have authority to issue is One Thousand (1,000)
shares of Common Stock, each with a par value of One Cent ($0.01) per share
(hereinafter, the "Capital Stock"). The rights and qualifications,
limitations or restrictions of the shares of Capital Stock are as follows:
(a) Voting Rights. Except as may otherwise be provided by
applicable law, each share of Common Stock shall be entitled to vote as
one class for election of directors and on all other matters which may
be submitted to a vote of stockholders of the Corporation.
(b) Dividends. Dividends may be declared from time to time on the
Common Stock at the discretion of the board of directors of the
Corporation and in accordance with the provisions of the General
Corporation Law of the State of Delaware.
(c) Additional Issuances. At any time and from time to time while
shares of Common Stock are outstanding, the Corporation may create one
or more series or one or more classes of capital stock senior to or on a
parity with the shares of Common Stock in payment of dividends or upon
liquidation, dissolution or winding up.
5. Incorporator. The name and mailing address of the incorporator of
the Corporation is Carol L. Helfrich, c/o Jenner & Block, One IBM Plaza,
Suite 3700, Chicago, Illinois 60611.
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<PAGE> 101
6. Additional Provisions. For the management of the business and for
the conduct of the affairs of the Corporation, and in further definition,
limitation and regulation of the powers of the Corporation and of its
directors and stockholders, the following additional provisions are set
forth and made a part of this Certificate of Incorporation:
(a) The number of directors which shall constitute the whole board
of directors of the Corporation shall be fixed by, or in the manner
provided in, the by-laws of the Corporation, but such number may from
time to time be increased or decreased in such manner as may be
prescribed by the by-laws. The election of directors need not be by
ballot.
(b) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the board of directors of the
Corporation is expressly authorized and empowered:
(1) to make, alter, amend and repeal the by-laws of the
Corporation, except as otherwise provided or permitted under the
General Corporation Law of the State of Delaware and except that any
by-law which, in accordance with the provisions of the by-laws, may
be altered, amended or repealed only by the stockholders may not be
altered, amended or repealed by the directors;
(2) subject to the applicable provisions of the by-laws then in
effect, to determine, from time to time, whether and to what extent
and at what times and places and under what conditions and
regulations the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the stockholders; and no
stockholder shall have any right, except as conferred by the laws of
the State of Delaware, to inspect any account or book or document of
the Corporation unless and until authorized so to do by resolution of
the board of directors or the stockholders of the Corporation;
(3) without the assent or vote of the stockholders of the
Corporation, to authorize and issue obligations of the Corporation,
secured or unsecured, to include therein such provisions as to
redeemability, convertibility or otherwise, as the board of
directors, in its sole discretion, may determine, and to authorize
the mortgaging or pledging, as security therefor, of any property of
the Corporation, real or personal, including after-acquired property;
(4) to determine whether any, and if any, what part, of the
surplus of the Corporation or, in the event there shall be no such
surplus, of the net profits of the Corporation for the then current
fiscal year or the then immediately preceding fiscal year shall be
declared in dividends and paid to the stockholders, and to direct and
determine the use and disposition of any such surplus or such net
profits;
(5) to fix from time to time the amount of profits of the
Corporation to be reserved as working capital or for any other lawful
purpose;
(6) to establish bonus, profit-sharing or other types of
incentive or compensation plans for employees (including officers and
directors) of the Corporation and to fix the amount of profits to be
distributed or shared and to determine the persons to participate in
any such plans and the amounts of their respective participation.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon it, the board of directors may exercise all
such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of the laws
of the State of Delaware and the Certificate of Incorporation and the
by-laws of the Corporation.
(c) Any director or any officer elected or appointed by the
stockholders or by the board of directors may be removed at any time in
such manner as shall be provided in the by-laws of the Corporation.
(d) Subject to any limitations in the by-laws of the Corporation,
the members of the board of directors shall be entitled to reasonable
fees, salaries or other compensation for their services and to
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<PAGE> 102
reimbursement for their expenses as such members. Nothing contained
herein shall preclude any director from serving the Corporation, or any
subsidiary or affiliated corporation, in any other capacity and
receiving proper compensation therefor.
(e) If the by-laws of the Corporation so provide, the stockholders
and board of directors of the Corporation shall have power to hold their
meetings, to have an office or offices and to keep the books of the
Corporation, subject to the provisions of the laws of the State of
Delaware, outside the State of Delaware at such place or places as may
from time to time be designated by the board of directors.
(f) Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation,
as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class
of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation,
as consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class
of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
7. Indemnification and Insurance. The board of directors of the
Corporation may, by resolution adopted from time to time, indemnify such
persons as permitted by the General Corporation Law of the State of
Delaware as amended from time to time. The board of directors of the
Corporation may, by resolution adopted from time to time, purchase and
maintain insurance on behalf of such persons as permitted by the General
Corporation Law of the State of Delaware as amended from time to time.
8. Liability of Directors. No directors of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, as the
same exists or hereafter may be amended, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this paragraph by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of
such repeal or modification. Nothing herein shall limit or otherwise affect
the obligation or right of the Corporation to indemnify its directors
pursuant to the provisions of this Certificate of Incorporation, the
by-laws of the Corporation or as may be permitted by the General
Corporation Law of the State of Delaware.
9. Amendment. Any of the provisions of this Certificate of
Incorporation may from time to time be amended, altered or repealed, and
other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of Incorporation are
granted subject to the provisions of this Section 9.
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EXHIBIT A-2
RESTATED CERTIFICATE OF INCORPORATION
OF
BEST UNIVERSAL LOCK CO.
------------------------
PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------
Best Universal Lock Co., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The Corporation was originally incorporated under the name Best
Universal Lock Co. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of Delaware on October 26, 1995.
2. This Restated Certificate of Incorporation restates and integrates and
also further amends the Certificate of Incorporation, as heretofore in effect.
This Restated Certificate of Incorporation has been proposed by the Board of
Directors of the Corporation and adopted by the stockholders of the Corporation
in the manner and by the vote prescribed by Sections 242 and 245 of the General
Corporation Law of the State of Delaware, and is as follows:
10. Corporate Name. The name of the corporation (hereinafter, the
"Corporation") is BEST UNIVERSAL LOCK CO.
11. Registered Office and Agent. The address, including street,
number, city and county, of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, County of New Castle, Wilmington,
Delaware 19801. The name of the registered agent of the Corporation in the
State of Delaware at such address is The Corporation Trust Company.
12. Purposes. The nature of the business of the Corporation and the
objects or purposes to be transacted, promoted, conducted or carried on by
it are as follows:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
13. Authorized Capital Stock. The total number of shares of stock
which the Corporation shall have authority to issue is One Thousand (1,000)
shares of Common Stock, each with a par value of One Cent ($0.01) per share
(hereinafter, the "Capital Stock"). The rights and qualifications,
limitations or restrictions of the shares of Capital Stock are as follows:
(a) Voting Rights. Except as may otherwise be provided by
applicable law, each share of Common Stock shall be entitled to vote as
one class for election of directors and on all other matters which may
be submitted to a vote of stockholders of the Corporation.
(b) Dividends. Dividends may be declared from time to time on the
Common Stock at the discretion of the board of directors of the
Corporation and in accordance with the provisions of the General
Corporation Law of the State of Delaware.
(c) Additional Issuances. At any time and from time to time while
shares of Common Stock are outstanding, the Corporation may create one
or more series or one or more classes of capital stock senior to or on a
parity with the shares of Common Stock in payment of dividends or upon
liquidation, dissolution or winding up.
14. Incorporator. The name and mailing address of the incorporator of
the Corporation is Carol L. Helfrich, c/o Jenner & Block, One IBM Plaza,
Suite 3700, Chicago, Illinois 60611.
A-A-4
<PAGE> 104
15. Additional Provisions. For the management of the business and for
the conduct of the affairs of the Corporation, and in further definition,
limitation and regulation of the powers of the Corporation and of its
directors and stockholders, the following additional provisions are set
forth and made a part of this Certificate of Incorporation:
(a) The number of directors which shall constitute the whole board
of directors of the Corporation shall be fixed by, or in the manner
provided in, the by-laws of the Corporation, but such number may from
time to time be increased or decreased in such manner as may be
prescribed by the by-laws. The election of directors need not be by
ballot.
(b) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the board of directors of the
Corporation is expressly authorized and empowered:
(1) to make, alter, amend and repeal the by-laws of the
Corporation, except as otherwise provided or permitted under the
General Corporation Law of the State of Delaware and except that any
bylaw which, in accordance with the provisions of the by-laws, may be
altered, amended or repealed only by the stockholders may not be
altered, amended or repealed by the directors;
(2) subject to the applicable provisions of the by-laws then in
effect, to determine, from time to time, whether and to what extent
and at what times and places and under what conditions and
regulations the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the stockholders; and no
stockholder shall have any right, except as conferred by the laws of
the State of Delaware, to inspect any account or book or document of
the Corporation unless and until authorized so to do by resolution of
the board of directors or the stockholders of the Corporation;
(3) without the assent or vote of the stockholders of the
Corporation, to authorize and issue obligations of the Corporation,
secured or unsecured, to include therein such provisions as to
redeemability, convertibility or otherwise, as the board of
directors, in its sole discretion, may determine, and to authorize
the mortgaging or pledging, as security therefor, of any property of
the Corporation, real or personal, including after-acquired property;
(4) to determine whether any, and if any, what part, of the
surplus of the Corporation or, in the event there shall be no such
surplus, of the net profits of the Corporation for the then current
fiscal year or the then immediately preceding fiscal year shall be
declared in dividends and paid to the stockholders, and to direct and
determine the use and disposition of any such surplus or such net
profits;
(5) to fix from time to time the amount of profits of the
Corporation to be reserved as working capital or for any other lawful
purpose;
(6) to establish bonus, profit-sharing or other types of
incentive or compensation plans for employees (including officers and
directors) of the Corporation and to fix the amount of profits to be
distributed or shared and to determine the persons to participate in
any such plans and the amounts of their respective participation.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon it, the board of directors may exercise all
such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of the laws
of the State of Delaware and the Certificate of Incorporation and the
by-laws of the Corporation.
(c) Any director or any officer elected or appointed by the
stockholders or by the board of directors may be removed at any time in
such manner as shall be provided in the by-laws of the Corporation.
(d) Subject to any limitations in the by-laws of the Corporation,
the members of the board of directors shall be entitled to reasonable
fees, salaries or other compensation for their services and to
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<PAGE> 105
reimbursement for their expenses as such members. Nothing contained
herein shall preclude any director from serving the Corporation, or any
subsidiary or affiliated corporation, in any other capacity and
receiving proper compensation therefor.
(e) If the by-laws of the Corporation so provide, the stockholders
and board of directors of the Corporation shall have power to hold their
meetings, to have an office or offices and to keep the books of the
Corporation, subject to the provisions of the laws of the State of
Delaware, outside the State of Delaware at such place or places as may
from time to time be designated by the board of directors.
(f) Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation,
as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class
of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation,
as consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class
of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
16. Indemnification and Insurance. The board of directors of the
Corporation may, by resolution adopted from time to time, indemnify such
persons as permitted by the General Corporation Law of the State of
Delaware as amended from time to time. The board of directors of the
Corporation may, by resolution adopted from time to time, purchase and
maintain insurance on behalf of such persons as permitted by the General
Corporation Law of the State of Delaware as amended from time to time.
17. Liability of Directors. No directors of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, as the
same exists or hereafter may be amended, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this paragraph by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of
such repeal or modification. Nothing herein shall limit or otherwise affect
the obligation or right of the Corporation to indemnify its directors
pursuant to the provisions of this Certificate of Incorporation, the
by-laws of the Corporation or as may be permitted by the General
Corporation Law of the State of Delaware.
18. Amendment. Any of the provisions of this Certificate of
Incorporation may from time to time be amended, altered or repealed, and
other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of Incorporation are
granted subject to the provisions of this Section 9.
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EXHIBIT A-3
RESTATED CERTIFICATE OF INCORPORATION
OF
BEST LOCK CORPORATION
------------------------
PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------
Best Lock Corporation, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The Corporation was originally incorporated under the name Automatic
Manufacturing Co. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of Delaware on April 19, 1928.
2. This Restated Certificate of Incorporation restates and integrates and
also further amends the Certificate of Incorporation, as heretofore in effect.
This Restated Certificate of Incorporation has been proposed by the Board of
Directors of the Corporation and adopted by the stockholders of the Corporation
in the manner and by the vote prescribed by Sections 242 and 245 of the General
Corporation Law of the State of Delaware, and is as follows:
10. Corporate Name. The name of the corporation (hereinafter, the
"Corporation") is BEST LOCK CORPORATION.
11. Registered Office and Agent. The address, including street,
number, city and county, of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, County of New Castle, Wilmington,
Delaware 19801. The name of the registered agent of the Corporation in the
State of Delaware at such address is The Corporation Trust Company.
12. Purposes. The nature of the business of the Corporation and the
objects or purposes to be transacted, promoted, conducted or carried on by
it are as follows:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
13. Authorized Capital Stock. The total number of shares of stock
which the Corporation shall have authority to issue is One Thousand (1,000)
shares of Common Stock, each with a par value of One Cent ($0.01) per share
(hereinafter, the "Capital Stock"). The rights and qualifications,
limitations or restrictions of the shares of Capital Stock are as follows:
(a) Voting Rights. Except as may otherwise be provided by
applicable law, each share of Common Stock shall be entitled to vote as
one class for election of directors and on all other matters which may
be submitted to a vote of stockholders of the Corporation.
(b) Dividends. Dividends may be declared from time to time on the
Common Stock at the discretion of the board of directors of the
Corporation and in accordance with the provisions of the General
Corporation Law of the State of Delaware.
(c) Additional Issuances. At any time and from time to time while
shares of Common Stock are outstanding, the Corporation may create one
or more series or one or more classes of capital stock senior to or on a
parity with the shares of Common Stock in payment of dividends or upon
liquidation, dissolution or winding up.
14. Incorporator. The name and mailing address of the incorporator of
the Corporation is Carol L. Helfrich, c/o Jenner & Block, One IBM Plaza,
Suite 3700, Chicago, Illinois 60611.
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<PAGE> 107
15. Additional Provisions. For the management of the business and for
the conduct of the affairs of the Corporation, and in further definition,
limitation and regulation of the powers of the Corporation and of its
directors and stockholders, the following additional provisions are set
forth and made a part of this Certificate of Incorporation:
(a) The number of directors which shall constitute the whole board
of directors of the Corporation shall be fixed by, or in the manner
provided in, the by-laws of the Corporation, but such number may from
time to time be increased or decreased in such manner as may be
prescribed by the by-laws. The election of directors need not be by
ballot.
(b) In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the board of directors of the
Corporation is expressly authorized and empowered:
(1) to make, alter, amend and repeal the by-laws of the
Corporation, except as otherwise provided or permitted under the
General Corporation Law of the State of Delaware and except that any
bylaw which, in accordance with the provisions of the by-laws, may be
altered, amended or repealed only by the stockholders may not be
altered, amended or repealed by the directors;
(2) subject to the applicable provisions of the by-laws then in
effect, to determine, from time to time, whether and to what extent
and at what times and places and under what conditions and
regulations the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the stockholders; and no
stockholder shall have any right, except as conferred by the laws of
the State of Delaware, to inspect any account or book or document of
the Corporation unless and until authorized so to do by resolution of
the board of directors or the stockholders of the Corporation;
(3) without the assent or vote of the stockholders of the
Corporation, to authorize and issue obligations of the Corporation,
secured or unsecured, to include therein such provisions as to
redeemability, convertibility or otherwise, as the board of
directors, in its sole discretion, may determine, and to authorize
the mortgaging or pledging, as security therefor, of any property of
the Corporation, real or personal, including after-acquired property;
(4) to determine whether any, and if any, what part, of the
surplus of the Corporation or, in the event there shall be no such
surplus, of the net profits of the Corporation for the then current
fiscal year or the then immediately preceding fiscal year shall be
declared in dividends and paid to the stockholders, and to direct and
determine the use and disposition of any such surplus or such net
profits;
(5) to fix from time to time the amount of profits of the
Corporation to be reserved as working capital or for any other lawful
purpose;
(6) to establish bonus, profit-sharing or other types of
incentive or compensation plans for employees (including officers and
directors) of the Corporation and to fix the amount of profits to be
distributed or shared and to determine the persons to participate in
any such plans and the amounts of their respective participation.
In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon it, the board of directors may exercise all
such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of the laws
of the State of Delaware and the Certificate of Incorporation and the
by-laws of the Corporation.
(c) Any director or any officer elected or appointed by the
stockholders or by the board of directors may be removed at any time in
such manner as shall be provided in the by-laws of the Corporation.
(d) Subject to any limitations in the by-laws of the Corporation,
the members of the board of directors shall be entitled to reasonable
fees, salaries or other compensation for their services and to
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<PAGE> 108
reimbursement for their expenses as such members. Nothing contained
herein shall preclude any director from serving the Corporation, or any
subsidiary or affiliated corporation, in any other capacity and
receiving proper compensation therefor.
(e) If the by-laws of the Corporation so provide, the stockholders
and board of directors of the Corporation shall have power to hold their
meetings, to have an office or offices and to keep the books of the
Corporation, subject to the provisions of the laws of the State of
Delaware, outside the State of Delaware at such place or places as may
from time to time be designated by the board of directors.
(f) Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for the Corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation,
as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class
of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation,
as consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class
of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
16. Indemnification and Insurance. The board of directors of the
Corporation may, by resolution adopted from time to time, indemnify such
persons as permitted by the General Corporation Law of the State of
Delaware as amended from time to time. The board of directors of the
Corporation may, by resolution adopted from time to time, purchase and
maintain insurance on behalf of such persons as permitted by the General
Corporation Law of the State of Delaware as amended from time to time.
17. Liability of Directors. No directors of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, as the
same exists or hereafter may be amended, or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this paragraph by the stockholders of the Corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of
such repeal or modification. Nothing herein shall limit or otherwise affect
the obligation or right of the Corporation to indemnify its directors
pursuant to the provisions of this Certificate of Incorporation, the
by-laws of the Corporation or as may be permitted by the General
Corporation Law of the State of Delaware.
18. Amendment. Any of the provisions of this Certificate of
Incorporation may from time to time be amended, altered or repealed, and
other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of Incorporation are
granted subject to the provisions of this Section 9.
A-A-9
<PAGE> 109
ANNEX B
December 1, 1997
Board of Directors
Frank E. Best, Inc.
P.O. Box 50444
Indianapolis, IN 46250
Members of the Board:
We understand that Frank E. Best, Inc. ("FEB" or the "Company"), Best
Universal Lock Co. ("BUL") and Best Lock Corporation ("BLC," and collectively,
FEB and BUL and BLC are referred to as the "Companies"), have entered into an
Agreement and Plan of Merger dated December 1, 1997 (the "Merger Agreement"),
pursuant to which Webco One, Inc., Webco Two, Inc. and Webco Three, Inc. which
are newly-formed, wholly-owned subsidiaries of Walter E. Best Company, Inc., an
Indiana corporation ("Webco"), will be merged with and into FEB, BUL and BLC
(the "Merger"), respectively. Pursuant to the Merger Agreement, at the effective
time of the Merger each share of common stock, par value $1.00 (the "Common
Stock"), of the Company, other than shares held by Webco or any of the Companies
(the "Affiliated Stockholders") or held by Dissenting Stockholders (as defined
in the Merger Agreement), will be converted into the right to receive $53.55 in
cash per share (the "Cash Consideration") in lieu of the fractional shares which
would otherwise be issued pursuant to the Merger. You have requested our opinion
as to whether the Cash Consideration to be received in the Merger by the
stockholders of the Company, other than Affiliated Stockholders or Dissenting
Stockholders, is fair from a financial point of view, as of the date hereof, to
such stockholders.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the final draft of the Merger Agreement.
2. Reviewed publicly available business and financial information
relating to the Companies that we have deemed relevant including the
Companies' annual reports on Form 10-K for the years ended December 31,
1992 through 1996, and the Companies' quarterly reports on Form 10-Q for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. Reviewed certain information relating to the business of BLC,
including earnings, cash flow, and liabilities, prospects for BLC and
financial forecasts for the years ending December 31, 1997 through 2001
("Financial Forecasts") furnished to us by management of BLC.
4. Visited the headquarters of the Companies and conducted discussions
with members of senior management of the Companies concerning the matters
described in 2 and 3 above, and other matters concerning the financial
condition and business of the Companies we deemed relevant.
5. Reviewed the historical prices and trading activity for the Common
Stock.
6. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions we deemed relevant.
7. Reviewed premiums paid in certain minority interest, going-private
transactions we deemed relevant.
8. Compared certain financial data of BLC with certain financial and
securities data of companies deemed similar to BLC or representative of the
business sector in which BLC operates.
B-1
<PAGE> 110
9. Performed discounted cash flow analysis on the Financial Forecasts.
10. Consulted with the Companies' outside tax advisor as to the
assumptions concerning taxes set forth below and the application thereof in
our analyses.
11. Reviewed such other financial data, performed such other analyses
and considered such other information as we deemed necessary and
appropriate under the circumstances.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by the Companies or
otherwise made available to us and have not assumed responsibility independently
to verify such information. We have further relied upon the assurances of
management of the Companies that the information provided has been prepared on a
reasonable basis in accordance with industry practice and, with respect to
financial planning data, reflects the best currently available estimates and
judgment of management of the Companies to the expected future financial
performance of the Companies, and that they are not aware of any information or
facts that would make the information provided to us incomplete or misleading.
Without limiting the generality of the foregoing, for the purpose of this
opinion, we have assumed that the Companies are not a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the Merger or a possible subsequent merger of the
Companies into Webco.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Companies and have not been
furnished with any such appraisals or valuations, have made no physical
inspection of the properties or assets of any of the Companies. Without limiting
the generality of the foregoing, we have undertaken no independent analysis of
any pending or threatened litigation, possible unasserted claims or other
contingent liabilities, to which any of the Companies or their respective
affiliates is a party or may be subject, and at the Companies' direction and
with their respective consents, our opinion makes no assumption concerning and
therefore does not consider, the possible assertion of claims, outcomes or
damages arising out of any such matters.
For purposes of our analyses and conclusions regarding the Merger we have
assumed, and the Companies and their tax advisor have informed us that: (i) the
effective tax rates, including the effect of the "dividends received" deduction,
utilized in the our analyses were reasonable and appropriately applied; and (ii)
the tax structure assumed in our "deemed sale" model is a structure that
independent boards of directors seeking to maximize the value received by the
stockholders of the Companies in an arms-length sale of the equity interests in
the Companies, and an arms-length buyer in such circumstances, would consider
appropriate.
Our opinion is necessarily based upon information available to us, facts
and circumstances and economic, market and other conditions as they exist on the
date hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the prices at which shares of the Common Stock have traded or at
which such shares may trade at any future time.
We were engaged for the purposes set forth above and not to (i) solicit
other purchasers for any of the Companies or alternative transactions to the
Merger, or (ii) opine as to, nor does this opinion in any manner address, the
Companies' underlying decision to effect the Merger or the structure chosen
therefor.
As a customary part of our investment banking business, we are engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings and secondary distributions of securities, private
placements, and valuations for estate, corporate and other purposes. For our
services in rendering this opinion, the Companies will pay us a fee and
indemnify us against certain liabilities. In the ordinary course of its
business, we and our affiliates may actively trade securities of the Companies
for our own account or the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is at the request of and for the benefit of the Board of
Directors of the Company in evaluating the Merger. This opinion is not intended
to be and does not constitute a recommendation to any
B-2
<PAGE> 111
stockholder as to how such stockholder should act with respect to the Merger,
including, without limitation, whether to exercise statutory dissenters' rights.
On the basis of, and subject to the foregoing, and based upon such other
factors as we considered relevant, it is our opinion that, as of the date
hereof, the Cash Consideration to be received by the holders of Common Stock of
the Company, other than Affiliated Stockholder and Dissenting Stockholders, in
the Merger is fair from a financial point of view to such stockholders.
Sincerely,
PIPER JAFFRAY INC.
B-3
<PAGE> 112
December 1, 1997
Board of Directors
Best Universal Lock Co.
P.O. Box 50444
Indianapolis, IN 46250
Members of the Board:
We understand that Frank E. Best, Inc. ("FEB"), Best Universal Lock Co.
("BUL" or the "Company") and Best Lock Corporation ("BLC," and collectively, FEB
and BUL and BLC are referred to as the "Companies"), have entered into an
Agreement and Plan of Merger dated December 1, 1997 ("Merger Agreement"),
pursuant to which Webco One, Inc., Webco Two, Inc. and Webco Three, Inc. which
are newly-formed, wholly-owned subsidiaries of Walter E. Best Company, Inc., an
Indiana corporation ("Webco"), will be merged with and into FEB, BUL and BLC
(the "Merger"), respectively. Pursuant to the Merger Agreement, at the effective
time of the Merger (i) each share of Series A common stock, no par value (the
"Series A Common Stock"), of the Company and (ii) each share of Series B common
stock, no par value (the "Series B Common Stock"), of the Company, other than
shares held by Webco or any of the Companies (the "Affiliated Stockholders") or
held by Dissenting Stockholders (as defined in the Merger Agreement), will be
converted into the right to receive $120.69 in cash per share of Series A Common
Stock and $118.12 in cash per share of Series B Common Stock (the "Cash
Consideration") in lieu of the fractional shares which would otherwise be issued
pursuant to the Merger. You have requested our opinion as to whether the Cash
Consideration to be received in the Merger by the stockholders of the Company,
other than Affiliated Stockholders or Dissenting Stockholders, is fair from a
financial point of view, as of the date hereof, to such stockholders.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the final draft of the Merger Agreement.
2. Reviewed publicly available business and financial information
relating to the Companies that we have deemed relevant including the
Companies' annual reports on Form 10-K for the years ended December 31,
1992 through 1996, and the Companies' quarterly reports on Form 10-Q for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. Reviewed certain information relating to the business of BLC,
including earnings, cash flow, and liabilities, prospects for BLC and
financial forecasts for the years ending December 31, 1997 through 2001
("Financial Forecasts") furnished to us by management of BLC.
4. Visited the headquarters of the Companies and conducted discussions
with members of senior management of the Companies concerning the matters
described in 2 and 3 above, and other matters concerning the financial
condition and business of the Companies we deemed relevant.
5. Reviewed the historical prices and trading activity for the Series
A Common Stock.
6. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions we deemed relevant.
7. Reviewed premiums paid in certain minority interest, going-private
transactions we deemed relevant.
8. Compared certain financial data of BLC with certain financial and
securities data of companies deemed similar to BLC or representative of the
business sector in which BLC operates.
9. Performed discounted cash flow analysis on the Financial Forecasts.
B-4
<PAGE> 113
10. Consulted with the Companies' outside tax advisor as to the
assumptions concerning taxes set forth below and the application thereof in
our analyses.
11. Reviewed such other financial data, performed such other analyses
and considered such other information as we deemed necessary and
appropriate under the circumstances.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by the Companies or
otherwise made available to us and have not assumed responsibility independently
to verify such information. We have further relied upon the assurances of
management of the Companies that the information provided has been prepared on a
reasonable basis in accordance with industry practice and, with respect to
financial planning data, reflects the best currently available estimates and
judgment of management of the Companies to the expected future financial
performance of the Companies, and that they are not aware of any information or
facts that would make the information provided to us incomplete or misleading.
Without limiting the generality of the foregoing, for the purpose of this
opinion, we have assumed that the Companies are not a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the Merger or a possible subsequent merger of the
Companies into Webco.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Companies and have not been
furnished with any such appraisals or valuations, have made no physical
inspection of the properties or assets of any of the Companies. Without limiting
the generality of the foregoing, we have undertaken no independent analysis of
any pending or threatened litigation, possible unasserted claims or other
contingent liabilities, to which any of the Companies or their respective
affiliates is a party or may be subject, and at the Companies' direction and
with their respective consents, our opinion makes no assumption concerning and
therefore does not consider, the possible assertion of claims, outcomes or
damages arising out of any such matters.
For purposes of our analyses and conclusions regarding the Merger we have
assumed, and the Companies and their tax advisor have informed us that: (i) the
effective tax rates, including the effect of the "dividends received" deduction,
utilized in the our analyses were reasonable and appropriately applied; and (ii)
the tax structure assumed in our "deemed sale" model is a structure that
independent boards of directors seeking to maximize the value received by the
stockholders of the Companies in an arms-length sale of the equity interests in
the Companies, and an arms-length buyer in such circumstances, would consider
appropriate.
Our opinion is necessarily based upon information available to us, facts
and circumstances and economic, market and other conditions as they exist on the
date hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the prices at which shares of the Series A Common Stock have traded
or at which such shares may trade at any future time.
We were engaged for the purposes set forth above and not to (i) solicit
other purchasers for any of the Companies or alternative transactions to the
Merger, or (ii) opine as to, nor does this opinion in any manner address, the
Companies' underlying decision to effect the Merger or the structure chosen
therefor.
As a customary part of our investment banking business, we are engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings and secondary distributions of securities, private
placements, and valuations for estate, corporate and other purposes. For our
services in rendering this opinion, the Companies will pay us a fee and
indemnify us against certain liabilities. In the ordinary course of its
business, we and our affiliates may actively trade securities of the Companies
for our own account or the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is at the request of and for the benefit of the Board of
Directors of the Company in evaluating the Merger. This opinion is not intended
to be and does not constitute a recommendation to any stockholder as to how such
stockholder should act with respect to the Merger, including, without
limitation, whether to exercise statutory dissenters' rights.
B-5
<PAGE> 114
On the basis of, and subject to the foregoing, and based upon such other
factors as we considered relevant, it is our opinion that, as of the date
hereof, the Cash Consideration to be received by the holders of Common Stock of
the Company, other than Affiliated Stockholder and Dissenting Stockholders, in
the Merger is fair from a financial point of view to such stockholders.
Sincerely,
PIPER JAFFRAY INC.
B-6
<PAGE> 115
December 1, 1997
Board of Directors
Best Lock Corporation
P.O. Box 50444
Indianapolis, IN 46250
Members of the Board:
We understand that Frank E. Best, Inc. ("FEB"), Best Universal Lock Co.
("BUL") and Best Lock Corporation ("BLC," or the "Company" and collectively, FEB
and BUL and BLC are referred to as the "Companies"), have entered into an
Agreement and Plan of Merger dated December 1, 1997 (the "Merger Agreement"),
pursuant to which Webco One, Inc., Webco Two, Inc. and Webco Three, Inc. which
are newly-formed, wholly-owned subsidiaries of Walter E. Best Company, Inc., an
Indiana corporation ("Webco"), will be merged with and into FEB, BUL and BLC
(the "Merger"), respectively. Pursuant to the Merger Agreement, at the effective
time of the Merger each share of common stock, no par value (the "Common
Stock"), of the Company, other than shares held by Webco or any of the Companies
(the "Affiliated Stockholders") or held by Dissenting Stockholders (as defined
in the Merger Agreement), will be converted into the right to receive $525.43 in
cash per share (the "Cash Consideration") in lieu of the fractional shares which
would otherwise be issued pursuant to the Merger. You have requested our opinion
as to whether the Cash Consideration to be received in the Merger by the
stockholders of the Company, other than Affiliated Stockholders or Dissenting
Stockholders, is fair from a financial point of view, as of the date hereof, to
such stockholders.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the final draft of the Merger Agreement.
2. Reviewed publicly available business and financial information
relating to the Companies that we have deemed relevant including the
Companies' annual reports on Form 10-K for the years ended December 31,
1992 through 1996, and the Companies' quarterly reports on Form 10-Q for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. Reviewed certain information relating to the business of BLC,
including earnings, cash flow, and liabilities, prospects for BLC and
financial forecasts for the years ending December 31, 1997 through 2001
("Financial Forecasts") furnished to us by management of BLC.
4. Visited the headquarters of the Companies and conducted discussions
with members of senior management of the Companies concerning the matters
described in 2 and 3 above, and other matters concerning the financial
condition and business of the Companies we deemed relevant.
5. Reviewed the historical prices and trading activity for the Common
Stock.
6. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions we deemed relevant.
7. Reviewed premiums paid in certain minority interest, going-private
transactions we deemed relevant.
8. Compared certain financial data of BLC with certain financial and
securities data of companies deemed similar to BLC or representative of the
business sector in which BLC operates.
9. Performed discounted cash flow analysis on the Financial Forecasts.
10. Consulted with the Companies' outside tax advisor as to the
assumptions concerning taxes set forth below and the application thereof in
our analyses.
B-7
<PAGE> 116
11. Reviewed such other financial data, performed such other analyses
and considered such other information as we deemed necessary and
appropriate under the circumstances.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by the Companies or
otherwise made available to us and have not assumed responsibility independently
to verify such information. We have further relied upon the assurances of
management of the Companies that the information provided has been prepared on a
reasonable basis in accordance with industry practice and, with respect to
financial planning data, reflects the best currently available estimates and
judgment of management of the Companies to the expected future financial
performance of the Companies, and that they are not aware of any information or
facts that would make the information provided to us incomplete or misleading.
Without limiting the generality of the foregoing, for the purpose of this
opinion, we have assumed that the Companies are not a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the Merger or a possible subsequent merger of the
Companies into Webco.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Companies and have not been
furnished with any such appraisals or valuations, have made no physical
inspection of the properties or assets of any of the Companies. Without limiting
the generality of the foregoing, we have undertaken no independent analysis of
any pending or threatened litigation, possible unasserted claims or other
contingent liabilities, to which any of the Companies or their respective
affiliates is a party or may be subject, and at the Companies' direction and
with their respective consents, our opinion makes no assumption concerning and
therefore does not consider, the possible assertion of claims, outcomes or
damages arising out of any such matters.
For purposes of our analyses and conclusions regarding the Merger we have
assumed, and the Companies and their tax advisor have informed us that: (i) the
effective tax rates, including the effect of the "dividends received" deduction,
utilized in the our analyses were reasonable and appropriately applied; and (ii)
the tax structure assumed in our "deemed sale" model is a structure that
independent boards of directors seeking to maximize the value received by the
stockholders of the Companies in an arms-length sale of the equity interests in
the Companies, and an arms-length buyer in such circumstances, would consider
appropriate.
Our opinion is necessarily based upon information available to us, facts
and circumstances and economic, market and other conditions as they exist on the
date hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the prices at which shares of the Common Stock have traded or at
which such shares may trade at any future time.
We were engaged for the purposes set forth above and not to (i) solicit
other purchasers for any of the Companies or alternative transactions to the
Merger, or (ii) opine as to, nor does this opinion in any manner address, the
Companies' underlying decision to effect the Merger or the structure chosen
therefor.
As a customary part of our investment banking business, we are engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings and secondary distributions of securities, private
placements, and valuations for estate, corporate and other purposes. For our
services in rendering this opinion, the Companies will pay us a fee and
indemnify us against certain liabilities. In the ordinary course of its
business, we and our affiliates may actively trade securities of the Companies
for our own account or the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is at the request of and for the benefit of the Board of
Directors of the Company in evaluating the Merger. This opinion is not intended
to be and does not constitute a recommendation to any stockholder as to how such
stockholder should act with respect to the Merger, including, without
limitation, whether to exercise statutory dissenters' rights.
On the basis of, and subject to the foregoing, and based upon such other
factors as we considered relevant, it is our opinion that, as of the date
hereof, the Cash Consideration to be received by the holders of
B-8
<PAGE> 117
Common Stock of the Company, other than Affiliated Stockholder and Dissenting
Stockholders, in the Merger is fair from a financial point of view to such
stockholders.
Sincerely,
PIPER JAFFRAY INC.
B-9
<PAGE> 118
ANNEX C
EXCERPTS FROM THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE RELATING TO THE RIGHTS
OF DISSENTING STOCKHOLDERS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the stockholders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
C-1
<PAGE> 119
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not
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more than 10 days prior to the date the notice is given; provided that, if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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