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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. 3-- FINAL AMENDMENT)
BEST LOCK CORPORATION
(Name of the Issuer)
BEST LOCK CORPORATION (F/K/A WALTER E. BEST COMPANY, INC.), on its own behalf
and as successor in interest to:
WEBCO ONE, INC.
WEBCO TWO, INC.
WEBCO THREE, INC.
FRANK E. BEST, INC.
BEST UNIVERSAL LOCK CO.
BEST LOCK CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, no par value
(Title of Class of Securities)
CUSIP 08653010
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(CUSIP Number of Class of Securities)
Mark G. Ahearn, Esq.
General Counsel
Best Lock Corporation
8900 Keystone Crossing
Indianapolis, IN 46240
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
Copies to:
Craig R. Culbertson, Esq.
Jenner & Block
One IBM Plaza
Chicago, IL 60611
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. [ ]
Calculation of Filing Fee
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Transaction Valuation (1) Amount of Filing Fee (2)
$34,680,934.83 $6,936.19
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[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
Amount previously paid: $6,936.19 Filing party: Best Lock Corporation
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Form or registration no.: Schedule 14C Date filed: December 2, 1997
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Instruction. Eight copies of this statement, including all exhibits,
should be filed with the Commission.
(1) For purposes of calculating the filing fee only. This 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.
(2) The amount of the filing fee, calculated in accordance with Rule 0-11(c)
of the Securities Exchange Act of 1934, as amended, equals 1/50th of one
percent of the aggregate value of cash and the aggregate value of securities
offered for such number of shares.
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INTRODUCTION
This Amendment No. 3 to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 (the "Statement") amends and supplements the Schedule 13E-3 of
Webco One, Inc. ("W1"), Frank E. Best, Inc. ("FEB"), Webco Two, Inc. ("W2"),
Best Universal Lock Co. ("BUL"), Webco Three, Inc. ("W3"), Best Lock
Corporation ("BLC"), Walter E. Best Company, Inc. ("Webco") and Mr. Russell C.
Best.
This Statement relates to the mergers (the "Mergers") of W1 with and into
FEB, W2 with and into BUL and W3 with and into BLC. W1, W2 and W3 are wholly
owned subsidiaries of Webco.
This Statement is being filed jointly by Best Lock Corporation (f/k/a
Walter E. Best Company, Inc.) on its own behalf and as successor in interest
to W1, W2, W3, FEB, BUL and BLC, and Russell C. Best. By filing this Schedule
13E-3, neither of the joint signatories concedes that Rule 13e-3 under the
Securities Exchange Act of 1934, as amended, was applicable to the Mergers or
the other transactions contemplated by the Amended and Restated Agreement and
Plan of Merger, dated as of December 1, 1997, as amended, by and among Webco,
W1, W2, W3, FEB, BUL and BLC.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Information
Statement of the information required to be included in response to the items
of this Statement. The information in the Information Statement, including all
appendices thereto, is hereby expressly incorporated herein by reference and
the responses to each item in this Statement are qualified in their entirety by
the information contained in the Information Statement and such appendices.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Information Statement.
CROSS REFERENCE SHEET
Item in Schedule 13E-3 Information Statement
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Item 1(a)............. Front Cover Page of the Information Statement;
INTRODUCTION
Item 1(b)............. INTRODUCTION
Item 1(c)............. MARKET PRICES AND DIVIDENDS -- Market Prices
Item 1(d)............. MARKET PRICES AND DIVIDENDS -- Dividends
Item 1(e)............. *
Item 1(f)............. SPECIAL FACTORS -- Interests of Certain Persons in the
Mergers; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS;
MARKET PRICES AND DIVIDENDS -- Market Prices
Item 2(a)-(d)......... INTRODUCTION; AVAILABLE INFORMATION; CERTAIN
INFORMATION CONCERNING THE COMPANIES; DIRECTORS AND
EXECUTIVE OFFICERS; CERTAIN INFORMATION CONCERNING
WEBCO AND THE MERGER SUBS; CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Items 2(e)-(f)........ *
Item 2(g)............. United States
Item 3(a)(1).......... SPECIAL FACTORS -- Interests of Certain Persons in the
Mergers; CERTAIN INFORMATION CONCERNING THE COMPANIES;
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Item 3(a) (2), (b).... SPECIAL FACTORS -- Background of the Mergers; --
Interests of Certain Persons in the Mergers; THE MERGER
AGREEMENT; CERTAIN INFORMATION CONCERNING THE
COMPANIES; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS; Annex A
Item 4................ INTRODUCTION; SUMMARY; SPECIAL FACTORS -- Certain
Effects of the Mergers; -- Interests of Certain Persons
in the Mergers; SOURCE AND AMOUNT OF FUNDS; THE MERGER
AGREEMENT; Annex A
Item 5................ SPECIAL FACTORS -- Purpose and Structure of the
Mergers; -- Certain Effects of the Mergers; -- Plans
for the Companies after the Mergers; CERTAIN
INFORMATION CONCERNING WEBCO AND THE MERGER SUBS
Item 6(a)-(d)......... SOURCE AND AMOUNT OF FUNDS; FEES AND EXPENSES
Item 7(a)-(c)......... SPECIAL FACTORS -- Background of the Mergers; --
Determinations of the Boards; Fairness of the Mergers;
-- Purpose and Structure of the Mergers; -- Plans for
the Companies after the Mergers
Item 7(d)............. SPECIAL FACTORS -- Purpose and Structure of the
Mergers; -- Certain Effects of the Mergers; -- Plans
for the Companies after the Mergers; -- Interests of
Certain Persons in the Mergers; -- Certain Federal
Income Tax Consequences to Stockholders; -- Accounting
Treatment of the Mergers; STOCKHOLDERS' RIGHTS OF
APPRAISAL; THE MERGER AGREEMENT -- Dissenter's Rights;
CERTAIN INFORMATION CONCERNING WEBCO AND THE MERGER
SUBS; Annex C
Item 8(a)-(e)......... INTRODUCTION; SPECIAL FACTORS -- Background of the
Mergers; -- Financial Advisor; Determination of
Values; Fairness Opinions; -- Determinations of the
Boards; Fairness of the Mergers; -- Purpose and
Structure of the Mergers; -- Interests of Certain
Persons in the Mergers; Annex B
Item 8(f)............. *
Item 9................ INTRODUCTION; AVAILABLE INFORMATION; SPECIAL FACTORS --
Background of the Mergers; -- Financial Advisor;
Determination of Values; Fairness Opinions; --
Determinations of the Boards; Fairness of the Mergers;
Annex B
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Item 10............... INTRODUCTION; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Item 11............... INTRODUCTION; SPECIAL FACTORS -- Interests of Certain
Persons in the Mergers; THE MERGER AGREEMENT; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS; Annex A
Item 12(a)............ INTRODUCTION; SPECIAL FACTORS -- Background of the
Mergers; -- Determinations of the Boards; Fairness of
the Mergers
Item 12(b)............ SPECIAL FACTORS -- Determinations of the Boards;
Fairness of the Mergers
Item 13(a)............ STOCKHOLDERS' RIGHTS OF APPRAISAL; THE MERGER
AGREEMENT -- Dissenter's Rights; Annex C
Item 13(b), (c)....... *
Item 14(a)............ SUMMARY -- Selected Financial Data
Item 14(b)............ *
Item 15(a)............ SPECIAL FACTORS -- Purpose and Structure of the
Mergers; -- Plans for the Companies after the Mergers;
-- Interests of Certain Persons in the Mergers; SOURCE
AND AMOUNT OF FUNDS; CERTAIN INFORMATION CONCERNING
WEBCO AND THE MERGER SUBS; FEES AND EXPENSES
Item 15(b)............ *
* Omitted because the answer is negative or the Item is not applicable.
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth on the first page of the
Information Statement and under "INTRODUCTION" in the Information
Statement is incorporated herein by reference.
(b) The information set forth under "INTRODUCTION" in the Information
Statement is incorporated herein by reference.
(c) The information set forth under "MARKET PRICES AND
DIVIDENDS--Market Prices" in the Information Statement is
incorporated herein by reference.
(d) The information set forth under "MARKET PRICES AND
DIVIDENDS--Dividends" in the Information Statement is incorporated
herein by reference.
(e) Not applicable.
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(f) The information set forth under "SPECIAL FACTORS -- Interests of
Certain Persons in the Mergers," "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" and "MARKET PRICES AND DIVIDENDS--Market
Prices" in the Information Statement is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) This Statement is being filed jointly by FEB, BUL and BLC (which
are the issuers of the classes of equity securities that are the
subject of the Rule 13e-3 transaction), Webco, W1, W2 and W3. The
information set forth under "INTRODUCTION," "AVAILABLE
INFORMATION," "CERTAIN INFORMATION CONCERNING THE COMPANIES,
"DIRECTORS AND EXECUTIVE OFFICERS," "CERTAIN INFORMATION
CONCERNING WEBCO AND THE MERGER SUBS" and "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS" in the Information Statement is
incorporated herein by reference.
(e)-(f) During the last five years, none of FEB, BUL, BLC, Webco, W1,
W2, W3 nor, to the best of their knowledge, any of their directors
and executive officers (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors),
or (ii) has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final
order enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any
violation of such laws.
(g) The information set forth under "DIRECTORS AND EXECUTIVE OFFICERS"
in the Information Statement is incorporated herein by reference.
ITEM 3. PAST CONTACTS. TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth under "SPECIAL FACTORS--Interests of
Certain Persons in the Mergers," "CERTAIN INFORMATION CONCERNING
THE COMPANIES" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" in the Information Statement is incorporated herein
by reference.
(a)(2),(b)The information set forth under "SPECIAL FACTORS--Background of
the Mergers," "-Interests of Certain Persons in the Mergers," "THE
MERGER AGREEMENT," "CERTAIN INFORMATION CONCERNING THE COMPANIES"
and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the
Information Statement and Annex A thereto is incorporated herein
by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a)-(b) The information set forth under "INTRODUCTION," "SUMMARY,"
"SPECIAL FACTORS--Certain Effects of the Mergers," "Interests of
Certain Persons in the Mergers," "SOURCE AND AMOUNT OF FUNDS" and
"THE MERGER AGREEMENT" in the Information Statement and Annex A
thereto is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth under "SPECIAL FACTORS--Purpose and
Structure of the Mergers," "--Certain Effects of the Mergers,"
"--Plans for the Companies after the Mergers" and "CERTAIN
INFORMATION CONCERNING WEBCO AND THE MERGER SUBS" in the
Information Statement is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(d) The information set forth under "SOURCE AND AMOUNT OF FUNDS" and
"FEES AND EXPENSES" in the Information Statement is incorporated
herein by reference.
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ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth under "SPECIAL FACTORS--Background of
the Mergers," "--Determination of the Boards; Fairness of the
Mergers," "--Purpose and Structure of the Mergers" and "--Plans for
the Companies after the Mergers" in the Information Statement is
incorporated herein by reference.
(d) The information set forth under "SPECIAL FACTORS--Purpose
and Structure of the Mergers," "--Certain Effects of the Mergers",
"--Plans for the Companies after the Mergers," "--Interests of
Certain Persons in the Mergers," "--Certain Federal Income Tax
Consequences to Stockholders", "--Accounting Treatment of the
Mergers," "STOCKHOLDERS' RIGHTS OF APPRAISAL," "THE MERGER
AGREEMENT--Dissenter's Rights" and "CERTAIN INFORMATION CONCERNING
WEBCO AND THE MERGER SUBS" in the Information Statement and Annex C
attached thereto is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth under "INTRODUCTION," "SPECIAL
FACTORS--Financial Advisor; Determination of Values; Fairness
Opinions,"--Interests of Certain Persons in the Mergers,"
"--Background of the Mergers," "--Purpose and Structure of the
Mergers" and "--Determinations of the Boards; Fairness of the
Mergers" in the Information Statement and Annex B thereto is
incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth under "INTRODUCTION," "AVAILABLE
INFORMATION," "SPECIAL FACTORS--Background of the Mergers," "--
Financial Advisor; Determination of Values; Fairness Opinions"
and "--Determinations of the Boards; Fairness of the Mergers" in the
Information Statement and Annex B thereto is incorporated herein by
reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The information set forth under "INTRODUCTION," and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
in the Information Statement is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth under "INTRODUCTION," "SPECIAL
FACTORS--Interests of Certain Persons in the Mergers," "THE MERGER
AGREEMENT" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in
the Information Statement and Annex A thereto is incorporated
herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATIONS OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION.
(a) The information set forth under "INTRODUCTION," "SPECIAL
FACTORS--Background of the Mergers" and "--Determinations of the
Boards; Fairness of the Mergers" in the Information Statement is
incorporated herein by reference.
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(b) The information set forth under "SPECIAL FACTORS--Determinations
of the Boards; Fairness of the Mergers" in the Information
Statement is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth under "STOCKHOLDERS' RIGHTS OF
APPRAISAL" and "THE MERGER AGREEMENT--Dissenter's Rights" in the
Information Statement and Annex C thereto is incorporated herein by
reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth under "SELECTED FINANCIAL DATA"
in the Information Statement and the information set forth on pages
F-1 through F-34 of the Information Statement are incorporated
herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth under "SPECIAL FACTORS--Purpose
and Structure of the Mergers," "--Plans for the Companies after the
Mergers," "--Interests of Certain Persons in the Mergers," "SOURCE
AND AMOUNT OF FUNDS," "CERTAIN INFORMATION CONCERNING WEBCO AND THE
MERGER SUBS" and "FEES AND EXPENSES" in the Information Statement
is incorporated herein by reference.
(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
The information contained in the Information Statement is
incorporated by reference in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Credit Agreement Among Best Lock Corporation,
LaSalle National Bank and the other parties who are signataries
thereto dated as of March 24, 1998.
(b)(1) Fairness opinions of Piper Jaffray Inc. dated December 1, 1997
are incorporated by reference from Annex B to the Information
Statement filed as Exhibit (d)(1) hereto.
* (b)(2) Board presentation of Piper Jaffray, Inc. dated August 12, 1997.
* (b)(3) Board presentation of Piper Jaffray, Inc. dated August 26, 1997.
* (b)(4) Board presentation of Piper Jaffray, Inc. dated December 1, 1997.
* (b)(5) Back-up material for Board presentation of Piper Jaffray, Inc.
dated December 1, 1997.
(c)(1) Amended and Restated Agreement and Plan of Merger, dated as of
December 1, 1997, by and among FEB, BUL BLC, W1, W2, W3 and Webco is
incorporated by reference from Annex A to the Information
Statement filed as Exhibit (d)(1) hereto.
(c)(2) Amendment Number One to Amended and Restated Agreement and Plan of
Merger, dated as of January 29, 1998, by and among FEB, BUL, BLC,
W1, W2, W3 and Webco is incorporated by reference from Annex A to
the Information Statement filed as Exhibit (d)(1) hereto.
(c)(3) Amendment Number Two to Amended and Restated Agreement and Plan of
Merger, dated as of March 10, 1998, by and among FEB, BUL, BLC,
W1, W2, W3, and Webco.
(d)(1) Information Statement on Schedule 14C, Notice of Action
Taken Without Meeting and Notice of Appraisal Rights.
* (d)(2) Press Release dated December 5, 1997.
* (d)(3) Press Release dated February 4, 1998.
(e) Full text of Section 262 of the Delaware General
Corporation Law is incorporated by reference from Annex C to the
Information Statement filed as Exhibit (d)(1) hereto.
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(f) Not applicable.
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* Previously filed on February 23, 1998
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: March 27, 1998
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BEST LOCK CORPORATION (F/K/A WALTER E. BEST
COMPANY, INC.) on its own behalf and as
successor in interest to:
WEBCO ONE, INC.
WEBCO TWO, INC.
WEBCO THREE, INC.
FRANK E. BEST, INC.
BEST UNIVERSAL LOCK CO.
BEST LOCK CORPORATION
By: /s/ Russell C. Best
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Name: Russell C. Best
Title: President
After due inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: March 27, 1998 RUSSELL C. BEST
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By: /s/ Russell C. Best
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EXHIBIT INDEX
Exhibit No. Page No.
(a) Credit Agreement Among Best Lock Corporation, LaSalle
National Bank and the other parties who are signataries thereto,
dated as of March 24, 1998.
(b)(1) Fairness opinions of Piper Jaffray Inc. dated
December 1, 1997 are incorporated by reference from
Annex B to the Information Statement filed as
Exhibit (d)(1) hereto.
*(b)(2) Board presentation of Piper Jaffray, Inc. dated August 12, 1997.
*(b)(3) Board presentation of Piper Jaffray, Inc. dated August 26, 1997.
*(b)(4) Board presentation of Piper Jaffray, Inc. dated December 1, 1997.
*(b)(5) Back-up material for Board presentation of Piper Jaffray, Inc.
dated December 1, 1997.
(c)(1) Amended and Restated Agreement and Plan of Merger, dated as of
December 1, 1997, by and among FEB, BUL, BLC, W1, W2, W3 and
Webco is incorporated by reference from Annex A to the
Information Statement filed as Exhibit (d)(1) hereto.
(c)(2) Amendment Number One to Amended and Restated Agreement and
Plan of Merger, dated as of January 29, 1998, by and among
FEB,BUL, BLC, W1, W2, W3 and Webco is incorporated by reference
from Annex A to the Information Statement filed as Exhibit (d)(1)
hereto.
(c)(3) Amendment Number Two to Amended and Restated Agreement and Plan of
Merger, dated as of March 10, 1998, by and among FEB, BUL, BLC,
W1, W2, W3 and Webco.
(d)(1) Information Statement on Schedule 14C, Notice of Action
Taken Without Meeting and Notice of Appraisal Rights.
*(d)(2) Press Release dated December 5, 1997.
*(d)(3) Press Release dated February 4, 1998.
(e) Full text of Section 262 of the Delaware General
Corporation Law is incorporated by reference from
Annex C to the Information Statement filed as
Exhibit (d)(1) hereto.
(f) Not applicable.
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* Previously filed on February 23, 1998
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EXHIBIT (a)
________________________________________________________________________________
CREDIT AGREEMENT
Among
Best Lock Corporation
as the Borrower,
The Lenders Which are Parties Hereto,
and
La Salle National Bank
as the Issuing Bank
and
as the Agent
Dated as of March 24, 1998
________________________________________________________________________________
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TABLE OF CONTENTS
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ARTICLE 1. DEFINITIONS; RULES OF CONSTRUCTION 1
1.1 Defined Terms 1
1.2 Accounting Terms 21
1.3 Rules of Construction 21
ARTICLE 2. THE LOANS 22
2.1 Revolving Credit Commitment 22
2.1a Revolving Credit Loans 22
2.1b Commitments of the Lenders 22
2.1c Mandatory and Voluntary Reductions of Revolving Credit Commitment; Mandatory
and Voluntary Principal Payments 22
(i) Borrowing Base Amount 22
(ii) Voluntary Permanent Reductions 23
(iii) Effect of Reductions 23
(iv) Application of Reductions and Prepayments 23
(v) Funding Breakage Fee 23
2.1d Amount of Revolving Credit Loans 24
2.1e Repayments 24
2.1f Revolving Credit Note 24
2.2 Letters of Credit 25
2.2a Issuance of Letters of Credit 25
(i) Stated Amount 25
(ii) Terms of Letter of Credit 25
(iii) No Violation of Borrowing Base 25
(iv) Application 25
(v) Requests for Letters of Credit; Conditions Precedent 25
2.2b Suspension of Commitment to Issue Letters of Credit 25
(i) Suspension of Commitment 25
(ii) Action Upon Suspension of Commitment 26
2.2c Payments Under Letters of Credit 26
(i) Payments Upon Draw 26
(ii) Payment Upon Bankruptcy, Etc 26
(iii) Payments After Termination of Revolving
Credit Commitment 27
(iv) Conditions Precedent to Revolving Credit Loan Pursuant to Section
2.2c 27
(v) Interest Rates 27
2.2d Authority of Issuing Bank 27
2.2e Participation in Letters of Credit 27
2.3 Term Loan 28
2.3a Term Loan: Term Loan Notes 28
2.3b Commitments of the Lenders 28
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2.3c Term Loan Scheduled Payments 29
2.3d Prepayment of Term Loan 29
(i) Mandatory Prepayments 29
(ii) Voluntary Prepayments 29
(iii) Payment of Interest and Fees on Prepayment 30
2.3e Interest Rate 30
2.4 Interest 30
2.4a Interest Rates 30
(i) Base Rate and LIBOR-Rate Options 30
2.4b Adjustments to Interest Rates and Fees 30
(i) Changes in Funded Debt to EBITDA Ratio 30
(ii) Changes in Base Rate 31
(iii) Changes in LIBOR-Rate Reserve Percentage 31
(iv) Default Rate 31
2.4c Interest Rate Option Elections Renewals and Conversions 31
2.4d Limitation on Election of LIBOR-Rate Options 32
2.4e Special Provisions Relating to LIBOR-Rate Option 32
(i) LIBOR-Rate Unascertainable 32
(ii) Illegality of Offering LIBOR-Rate 32
(iii) Inability to Offer LIBOR-Rate 33
(iv) Indemnity 33
2.4f Yield Protection 34
2.4g Method of Calculation 34
2.4h Interest Payment Dates 34
2.4i Calculation of Interest 35
2.5 Requests for Loans, Interest Rate Options and Conversions 35
2.6 Method of Disbursements and Payments 35
2.7 Capital Adequacy 36
2.8 Loan Accounts 36
2.9 Fees 36
2.9a Commitment/Agency Fees 36
2.9b Letter of Credit Fees 36
2.9c Unused Line Fee 37
2.9d Fees Fully Earned 37
2.10 All Obligations to Constitute One Obligation 37
2.11 Payment From Accounts Maintained by the Borrower 37
ARTICLE 3. SET-OFF AND SECURITY INTERESTS 37
3.1 Set-Off 37
3.2 Personal Property Interests 38
3.3 Real Property Interests 38
ARTICLE 4. REPRESENTATIONS AND WARRANTIES 38
4.1 Organization and Powers 38
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4.2 Capitalization 39
4.3 Power and Authority 39
4.4 Validity; Binding Effect and Enforceability 39
4.5 No Conflict 39
4.6 Financial Matters 39
4.6a Historical Financial Statements 39
4.6b Financial Pro-Forma and Projections 40
4.7 Material Adverse Change 40
4.8 Litigation 40
4.9 Compliance with Laws 41
4.10 Material Contracts 41
4.11 Labor Matters 41
4.12 Account Warranties 41
4.13 Names 42
4.14 Locations: Mortgaged Parcelsn 42
4.15 Condition of and Title to Assets 42
4.16 Tax Returns and Payments 42
4.17 Intellectual Property 43
4.18 Insurance 43
4.19 Consents and Approvals 43
4.20 Plans and Benefit Arrangements 43
4.21 Solvency 44
4.22 Margin Stock 44
4.23 Investment Company Act 44
4.24 Public Utility Holding Company Act 44
4.25 Restructuring Transaction 44
4.26 Full Disclosure 45
ARTICLE 5. AFFIRMATIVE COVENANTS 45
5.1 Use of Proceeds 45
5.2 Delivery of Financial Statements and Other Information 45
5.2a Annual Financial Statements 45
5.2b Monthly Statement of Operations 46
5.2c Compliance Certificate 46
5.2d Borrowing Base Certificate 46
5.2e Management Letters 47
5.2f Other Reports, Information and Notices 47
(i) Notice of Defaults and Material Adverse Changes 47
(ii) Notice of Litigation 47
(iii) ERISA Reports 47
(iv) Notices of Tax Audits 47
(v) Notice of Name Change 48
(vi) Labor Matters 48
(vii) Annual Forecast 48
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5.2g Additional Information; Visitation. 48
5.3 Preservation of Existence; Qualification 48
5.4 Compliance with Laws, Contracts and Licenses 49
5.5 Continuance of Business 49
5.6 Accounting System: Books and Records 49
5.7 Payment of Taxes and Other Liabilities 49
5.8 Insurance 49
5.9 Maintenance of Properties 50
5.10 Plans and Benefit Arrangements 50
5.11 Access to Accountants and Management 50
5.12 Audit 50
5.13 Stock Bonus Plan 51
5.14 Collateral Locations 51
5.15 Updates to Representations, Warranties and Schedules 51
5.16 Further Assurances: Power of Attorney 51
5.17 Key Man Life Insurance Policy 52
5.18 Primary Banking Relationship 52
5.19 Ownership of Subsidiary Entities. 52
ARTICLE 6. NEGATIVE COVENANTS 52
6.1 Indebtedness 52
6.2 Guarantees 53
6.3 Liens: Negative Pledge 53
6.4 Financial Covenants 53
6.4a Leverage Ratio 53
6.4b Adjusted Debt Service Ratio 53
6.4c Minimum Tangible Net Worth 54
6.4d Quarterly Losses 54
6.4e Operating Lease Expense 54
6.5 Distribution Restriction 54
6.6 Liquidations, Mergers, Consolidations, Acquisitions, Etc 54
6.7 Subsidiaries 55
6.8 Loans and Other Advances and Payments 55
6.9 Investments 55
6.10 Affiliate Transactions 56
6.11 Change of Business 56
6.12 ERISA 56
6.13 Acquisitions 56
6.14 Capital Expenditure Limits 57
6.15 Asset Dispositions 57
ARTICLE 7. CONDITIONS TO EXTENSIONS OF CREDIT 57
7.1 All Loans and Letters of Credit 57
7.1a Request for Loan or Application for Letter of Credit 57
</TABLE>
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<TABLE>
<S> <C>
7.1b No Default or Event of Default 58
7.1c Representations Correct 58
7.1d Landlord Waivers and Consent 58
7.2 Initial Extension of Credit 58
7.2a Closing Documents 58
7.2b Lien Searches 59
7.2c Termination Statements, Etc 59
7.2d Title Insurance 59
7.2e Surveys 60
7.2f Site Assessments 60
7.2g Environmental Agreement 60
7.2h Appraisals 60
7.2i Audit of Accounts and Inventory 60
7.2j Hazard and Liability Insurance 60
7.2k Flood Insurance 60
7.2l Termination of Existing Bank Credit Agreement 60
7.2m Corporate Documents 61
7.2n Corporate Documents for First Thoroughbred and Best Access 61
7.2o Opinion of Counsel 61
7.2p Governmental Approvals 61
7.2q Performance of Agreements 61
7.2r Request for Initial Loans 62
7.2s Assignment of Life Insurance Policy 62
7.2t Landlord Waivers and Consents 62
7.2u Restructuring Transaction 62
7.2v Fairness Opinion 62
7.2w Tax Opinion 62
7.2x Financial Report 62
7.2y Solvency Certificate 62
7.2z September 30, 1997 62
7.2aa No Litigation 63
7.2bb Closing Date Applicable Margin Statement 63
7.2cc Payment of Fees 63
ARTICLE 8. EVENTS OF DEFAULT; REMEDIES 63
8.1 Events of Default63
8.1a Nonpayment of the Borrower's Obligations 63
8.1b Violations Under Other Indebtedness and Obligations 63
8.1c Insolvency, Etc. 63
(i) Involuntary Proceedings 63
(ii) Voluntary Proceedings 64
8.1d Dissolution; Cessation of Business 64
8.1e ERISA 64
8.1f Change of Control 64
</TABLE>
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<TABLE>
<S> <C>
8.1g Adverse Judgments 64
8.1h Failure to Comply with Loan Documents64
(i) Failure to Comply with Negative Covenants 65
(ii) Failure to Comply with Other Covenants 65
(iii) Defaults under or Failure to Comply with Other Loan Documents 65
8.1i Misrepresentation 65
8.1j Invalidity, Etc. of Loan Documents 65
8.1k Material Adverse Change 65
8.1l Agent's Lien 65
8.2 Remedies 66
8.2a Events of Default Under Sections 8.1c and 8.1d 66
8.2b Remaining Events of Default 66
8.2c Additional Remedies 66
8.2d Exercise of Remedies; Remedies Cumulative 66
ARTICLE 9. AGREEMENT AMONG LENDERS 67
9.1 General; No Third Party Beneficiary 67
9.2 Appointment and Grant of Authority 67
9.3 Non-Reliance on the Agent 67
9.4 Responsibility of the Agent and Other Matters 67
9.4a Ministerial Nature of Duties 67
9.4b Limitation of Liability 68
9.4c Reliance 68
9.5 Action on Instructions 69
9.6 Action Upon Occurrence of a Default or Event of Default 69
9.7 Indemnification 69
9.8 Agent's Rights as a Lender 69
9.9 Loan Advances by the Agent 69
9.10 Payment to Lenders 70
9.11 Pro Rata Sharing 70
9.12 Notice of Event of Default 70
9.13 Successor Agent 71
ARTICLE 10. GENERAL PROVISIONS 71
10.1 Amendments and Waivers 71
10.2 Taxes 72
10.3 Expenses 73
10.4 Notices 73
10.4a Notice to the Borrower 73
10.4b Notice to the Agent 74
10.4c Notice to the Lenders 74
10.4d Effectiveness of Notices 74
10.5 Assignments 75
</TABLE>
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<TABLE>
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10.5a Assignments 75
10.5b Assignment to Federal Reserve Bank 76
10.5c Assignment Register 76
10.6 Participations 76
10.6a Sale of Participations 76
10.6b Right of Setoff 77
10.7 Indemnity 77
10.8 Successors and Assigns 78
10.9 Confidentiality 78
10.10 Severability 78
10.11 Survival 78
10.12 Governing Law 78
10.13 Forum 78
10.14 Non-Business Days 79
10.15 Integration 79
10.16 Headings 79
10.17 Counterparts 79
10.18 Waiver of Jury Trial 79
</TABLE>
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<PAGE> 9
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of March 24, 1998, is entered into by
and among BEST LOCK CORPORATION, an Indiana corporation (the "BORROWER," as
further defined below), the financial institutions which are or which become
parties hereto (each a "LENDER" and collectively the "LENDERS," as further
defined below), LASALLE NATIONAL BANK, a national banking association, as the
issuer of Letters of Credit (in such capacity the "ISSUING BANK") and LASALLE
NATIONAL BANK, a national banking association, for itself as a Lender and as
the agent for the Lenders (in such capacity the "AGENT").
WITNESSETH:
WHEREAS, the Borrower has requested that the Lenders make available to
it (i) a revolving credit facility in the maximum principal amount of
$28,000,000, with a $5,000,000 sublimit for the issuance of commercial
documentary or standby letters of credit, and a six-year term loan in the
maximum principal amount of $22,000,000, and the Lenders have agreed to do so,
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises (each of which is
incorporated herein by reference) and the mutual promises contained herein and
other valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and with the intent to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE 1. DEFINITIONS; RULES OF CONSTRUCTION
1.1 DEFINED TERMS. As used in this Agreement, including the preamble and
recitals hereto, and in the other Loan Documents, the following terms shall
have the meanings set forth below or in the Section or Subsection of this
Agreement referred to, unless the context otherwise requires:
ACCOUNT: An account, as that term is defined in the Uniform Commercial Code,
due the Borrower, whether now in existence or hereafter created or acquired.
ACCOUNT DEBTOR: Any Person who is or become obligated under or with respect to
an Account.
ADJUSTED NET INCOME: Net income of Borrower on a consolidated basis determined
in accordance with GAAP, less any gain on the sale of any asset not in the
ordinary course of business and/or any extraordinary income.
AFFILIATE: As to any Person, any other person directly or indirectly through
one or more intermediaries Controlling, Controlled by, or under direct or
indirect common Control with such Person.
<PAGE> 10
AFFILIATED ENTITIES: Frank E. Best, Inc., a Delaware corporation, Best
Universal Lock Company, a Delaware corporation, and Best Lock Corporation, a
Delaware corporation.
AGENT: LaSalle National Bank, a national banking association, in its capacity
as agent for the Lenders hereunder, and its successors and assigns, and any
Person that becomes a successor agent hereunder.
AGREEMENT: This Credit Agreement, together with all exhibits and schedules
hereto and all extensions, renewals, amendments, restatements, substitutions,
and replacements hereto and hereof.
APPLICABLE MARGIN: As to each (i) Revolving Borrowing Tranche and Term Loan
Tranche, an incremental amount in excess of the Base Rate or the LIBOR-Rate
which will fluctuate as a function of the Funded Debt to EBITDA Ratio, pursuant
to Section 2.4a.
ASSIGNMENT AND ASSUMPTION AGREEMENT: An Assignment and Assumption Agreement
entered into by and between a Purchasing Lender, and a Transferor Lender,
substantially in the form of Exhibit "N" hereto, with appropriate insertions,
and all exhibits, schedules, extensions, renewals, amendments, substitutions,
and replacements thereto and thereof.
AUTHORIZED OFFICER: Russell C. Best, Stephen J. Cooper, Mark G. Ahearn or
Paula J. Tinkey. The Agent and the Lenders shall be entitled to rely on the
incumbency certificates delivered pursuant to Section 7.2 for the initial
designation of each Authorized Officer. Additions or deletions to the list of
Authorized Officers may be made by the Borrower at any time by delivering to
the Agent a revised, fully-executed incumbency certificate.
BASE RATE: The per annum rate of interest equal to the higher of (i) the
Prime Rate and (ii) the Fed Funds Rate plus 0.5% per annum.
BASE RATE LOAN: A Revolving Borrowing Tranche or Term Loan Tranche bearing
interest under the Base Rate Option, as set forth in Subsection 2.4a.
BASE RATE OPTION: The ability of the Borrower to elect Base Rate Loans, as set
forth in Subsection 2.4a.
BENEFIT ARRANGEMENT: An "employee benefit plan," within the meaning of Section
3(3) of ERISA, which is not a Plan or a Multiemployer Plan and which is
maintained or otherwise contributed to by the Borrower or any ERISA Affiliate
for the benefit of employees of the Borrower or any ERISA Affiliate.
BEST ACCESS: Best Access Systems Co., a Nova Scotia unlimited liability
company.
BLC: Best Lock Corporation, a Delaware corporation.
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<PAGE> 11
BORROWER: Best Lock Corporation, an Indiana corporation formerly known as
Walter E. Best Company, Inc., and the corporation surviving the mergers of
Frank E. Best, Inc., a Delaware corporation, Best Universal Lock Company, a
Delaware corporation, and BLC, effective immediately prior to the consummation
of the transactions contemplated by this Agreement.
BORROWING BASE: The sum of (i) 85% of the book value of the Qualified Accounts
and (ii) 40% of the book value of the Qualified Inventory; provided, however,
that the aggregate outstanding principal amount of Revolving Credit Loans
advanced against Qualified Inventory of the Borrower shall not at any time
exceed Ten Million and 00/100 Dollars ($10,000,000).
BORROWING BASE CERTIFICATE: A borrowing base certificate substantially in the
form of Exhibit "K" which has been executed by an Authorized Officer and
delivered to the Agent.
BULLC: Best Universal Locks Limited, an Ontario corporation wholly owned by
First Thoroughbred, and its successors, including, without limitation, Best
Access into and with which it is being amalgamated.
BUSINESS: The manufacture or sourcing, distribution and sale of access and
security products, systems, solutions and related services conducted by
Borrower and the Subsidiary Entities.
BUSINESS DAY: Any day other than a Saturday or a Sunday or a legal holiday on
which the offices of the Agent (currently located in Chicago, Illinois) or
offices of financial institutions in the State of Indiana are authorized or
required to be closed for business, and if the applicable Business Day related
to any LIBOR-Rate Loan, such day must also be a day on which dealings are
carried on in the London interbank market.
CAPITAL EXPENDITURE: Any expenditure which would be classified as a capital
expenditure in accordance with GAAP.
CAPITALIZED LEASE: Any lease of property which would be capitalized on a
balance sheet prepared in accordance with GAAP.
CAPITALIZED LEASE OBLIGATIONS: The amount of the obligations under Capitalized
Leases which would be shown as a liability on a balance sheet prepared in
accordance with GAAP.
CHANGE OF CONTROL: Either (i) any transaction or series of transactions or
occurrences which results at any time in Russell C. Best owning less than one
hundred percent (100%) of the outstanding shares of voting capital stock of the
Borrower, except that Mr. Best may transfer up to 20% of such shares to a trust
or trusts which may be established for the benefit of the members of his
immediate family provided that he maintains voting control of such shares, and
(ii) the death or total disability of Russell C. Best.
CHATTEL PAPER: Any chattel paper, as that term is defined in the Uniform
Commercial Code, of the Borrower, whether now owned or hereafter created or
acquired.
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CLOSING CERTIFICATE: A certificate substantially in the form of Exhibit "L"
which has been executed by the Borrower and delivered to the Agent.
CLOSING DATE: A date mutually agreed to by the parties hereto upon the
satisfaction or fulfillment of the conditions precedent set forth in Article 7.
CLOSING DATE APPLICABLE MARGIN STATEMENT: A proforma financial statement
showing Funded Debt of Borrower to the EBITDA of BLC for the twelve months
ended September 30, 1997 (or the twelve months ended December 31, 1997 if
statements for the last Fiscal Quarter of 1997 are available at the time of
calculation), which reflects the Funded Debt as of the Closing Date, the
Restructuring Transaction and costs and expenses of the Restructuring
Transaction and those hereunder.
COLLATERAL: Collectively, all of the property (whether real, personal or
mixed, and whether tangible or intangible), rights, titles and interests
subject to any Lien in favor of the Agent for the benefit of the Lenders
pursuant to this Agreement or any other Loan Document.
COMMITMENT: With respect to each Lender, the commitment of such Lender to make
Revolving Credit Loans, and the Term Loan pursuant to Article 2 in the
aggregate Dollar amounts not to exceed at any one time outstanding: (i) as to
any Lender which is an original signatory to this Agreement, the Dollar amounts
for such Lender set forth on Annex A hereto or as modified on Schedule I to the
most recent Assignment and Assumption Agreement, if any, which such Lender
executes as a Transferor Lender, as the case may be, or (ii) as to any Lender
which is not an original signatory to this Agreement but which becomes a Lender
by executing an Assignment and Assumption Agreement as a Purchasing Lender, the
Dollar amounts for such Lender set forth on Schedule I to such Assignment and
Assumption Agreement, or as modified on Schedule I to the most recent
Assignment and Assumption Agreement, if any, which such Lender executes as a
Transferor Lender.
COMMITMENT FEE: The fee described in Subsection 2.9a.
COMMITMENT PERCENTAGE: With respect to each Lender, its percentage commitment
of the Revolving Credit Commitment and Term Loan, which shall be (i) as to any
Lender which is an original signatory to this Agreement, the percentage set
forth on Annex A hereto or as modified on Schedule I to the most recent
Assignment and Assumption Agreement, if any, which such Lender executes as a
Transferor Lender, as the case may be, or (ii) as to any Lender which is not an
original signatory to this Agreement but which becomes a Lender by executing an
Assignment and Assumption Agreement as a Purchasing Lender, the percentage set
forth on Schedule I to such Assignment and Assumption Agreement, or as modified
on Schedule I to the most recent Assignment and Assumption Agreement, if any,
which such Lender executes as a Transferor Lender.
COMPLIANCE CERTIFICATE: A certificate substantially in the form of Exhibit
"J", as the case may be, which has been executed by an Authorized Officer and
delivered to the Agent.
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<PAGE> 13
CONTROL (AND ITS DERIVATIVES): Either (i) the ownership of twenty percent
(20%) or more of any class of voting securities, limited liability company
membership interests, partnership interests or other equity interest of a
Person, or (ii) the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether as a
general partner of a limited partnership, manager of a limited liability
company or through the ownership of voting securities, partnership interests or
other equity interests, by contract or otherwise, including without limitation
the power to elect a majority of the directors of a corporation or trustees of
a trust, as the case may be.
DEBT SERVICE: As of any date of determination, the sum of (i) interest expense
on Indebtedness and (ii) scheduled payments of principal on Indebtedness (other
than on the Revolving Credit Loans or any voluntary prepayments of principal),
all determined in accordance with GAAP consistently applied.
DEFAULT: Any condition, event, omission or act which with the giving of
notice, the passage of time or the occurrence of any condition, event or act
would constitute an Event of Default.
DEFAULT RATE: The rate of interest described in Section 2.4b(iv).
DOCUMENT: Any document, as that term is defined in the Uniform Commercial
Code, of the Borrower, whether now owned or in existence or hereafter created
or acquired.
DOLLARS OR $: The legal tender of the United States of America.
EBITDA: The sum of (i) Adjusted Net Income, (ii) interest expense, (iii)
depreciation, (iv) amortization, and (v) income taxes paid by Borrower, on a
consolidated basis, all determined in accordance with GAAP consistently applied
(and limited, in the cases of (ii) through (v) above, to the extent such items
are deducted from such Adjusted Net Income).
ENVIRONMENTAL AGREEMENT: The environmental Indemnity Agreement substantially
in the form of Exhibit "G", together with all exhibits, schedules, extensions,
renewals, amendments, substitutions and replacements thereto and thereof.
ENVIRONMENTAL LAW: This term shall have the meaning given it in the
Environmental Agreement.
EQUIPMENT: Any equipment, as that term is defined in the Uniform Commercial
Code, owned by the Borrower, whether now owned or hereafter acquired and
wherever located.
ERISA: The Employee Retirement Income Security Act of 1974, as it may from
time to time be amended, supplemented, or otherwise modified, or any successor
statute, and the rules and regulations promulgated thereunder.
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<PAGE> 14
ERISA AFFILIATE: At any time any member of a controlled group of corporations
under Section 414(b) of the Internal Revenue Code of which the Borrower is a
member, and any trade or business (whether or not incorporated) under common
control with the Borrower under Section 414(c) of the Internal Revenue Code,
and all other entities which, together with the Borrower, are or were treated
as a single employer under Section 414(m) or 414(o) of the Internal Revenue
Code.
EVENT OF DEFAULT: Any of the events specified in Section 8.1.
EXISTING BANK CREDIT AGREEMENT: Collectively, the Amended and Restated Credit
Agreement dated as of December 31, 1995 entered into by and between BLC and
Huntington, together with all extensions, renewals, amendments, substitutions
and replacements thereto and thereof and the loan from Huntington to Borrower,
evidenced by a Promissory Note dated August 25, 1997 in the principal amount of
$1,233,030, together with all extensions, renewals, substitutions and
replacements thereto and thereof.
EXISTING BANK INDEBTEDNESS: All outstanding principal, accrued and unpaid
interest and fees, and all other unpaid amounts owed to Huntington pursuant to
the Existing Bank Credit Agreement.
FED FUNDS RATE: For any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for the day of
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
FEE: Any of the Commitment Fee, any Letter of Credit Fee, or any other fee
payable by the Borrower to the Agent, the Issuing Bank, or the Lenders
hereunder, under the Fee Letter or under any of the other Loan Documents.
FEE LETTER: The letter agreement dated March 24, 1998, by and between Agent and
Borrower regarding certain fees to be paid by Borrower to Agent.
FIRST THOROUGHBRED: First Thoroughbred Ltd., an Indiana corporation.
FIRST THOROUGHBRED PLEDGE AGREEMENT: The pledge by First Thoroughbred of 65%
of the capital stock of Best Access, NSC and BULLC owned by First Thoroughbred
pursuant to the terms of a Pledge Agreement dated of even date executed by
First Thoroughbred in the form of Exhibit "E-1", together with all extensions,
renewals, amendments, restatements, substitutions and replacements thereto and
thereof.
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<PAGE> 15
FISCAL QUARTER: Each three-month fiscal period of the Borrower beginning
respectively on each successive January 1, April 1, July 1 and October 1 during
the term thereof and ending on the immediately succeeding March 31, June 30,
September 30 and December 31.
FISCAL YEAR: Each annual fiscal period of the Borrower beginning January 1 and
ending on the immediately succeeding December 31.
FIXTURE: Any fixture, as that term is defined in the Uniform Commercial Code,
owned by the Borrower, whether now owned or hereafter acquired and wherever
located.
FUNDED DEBT: As of any date of determination, the total amount of Borrower's
outstanding Indebtedness, less Borrower's outstanding Mezzanine Indebtedness.
FUNDED DEBT TO EBITDA RATIO: The ratio of Funded Debt of Borrower as of the
end of a Fiscal Quarter to EBITDA of Borrower for such Fiscal Quarter, on a
rolling four quarter basis, calculated on a consolidated basis; provided that
for periods prior to the Closing Date the ratio shall be determined on the
basis of the Funded Debt as of the Closing Date and the EBITDA of BLC for the
relevant period.
FUNDING BREAKAGE FEE: The prepayment fee described in Section 2.1c(v).
GAAP: Generally accepted accounting principles which are consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board,
its predecessors and its successors, including any official interpretations
thereof.
GENERAL INTANGIBLE: Any general intangible, as that term is defined in the
Uniform Commercial Code, of the Borrower, whether now owned or in existence or
hereafter created or acquired, including without limitation any cause of
action, business records, deposit account, invention, design, patent, patent
application, trademark, trademark application, service mark, service mark
application, trade name, trade name application, trade secret, goodwill,
copyright, copyright application, registration, license, franchise, customer
guaranties, security interests, rights to indemnification or any other
intangible property of any kind or nature (other than an Account).
GOODS: All goods, as that term is defined in the Uniform Commercial Code, of
the Borrower, whether now owned or hereafter acquired and wherever located.
GOVERNMENTAL APPROVAL: Any order, consent, authorization, license, validation,
approval or permit required to be issued to or obtained by the Borrower from
any Governmental Authority in connection with (i) the ownership, construction,
erection, installation, operation, use and maintenance by it of its properties,
(ii) the conduct of its present and proposed businesses and (iii) the
execution, delivery and performance by it of and under the Loan Documents.
7
<PAGE> 16
GOVERNMENTAL AUTHORITY: The government of the United States or the government
of any state or locality therein, the government of Canada or any of its
provinces or territories, any political subdivision or any governmental,
quasi-governmental, judicial, public or statutory instrumentality, court,
arbitrator, authority, body or entity or other regulatory bureau, authority,
body or entity of the United States or Canada or any state, province, territory
or municipality or locality therein, including but not limited to the Federal
Deposit Insurance Corporation, the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Canadian Deposit Insurance
Corporation, the Bank of Canada or any central bank or any comparable
authority, and any successor to any of the foregoing.
GOVERNMENTAL RULE: Any law, statute, rule, regulation, treaty, ordinance,
order, writ, injunction, decree, judgment, guideline, directive or decision of
any Governmental Authority, including without limitation Environmental Laws,
whether in existence on the Closing Date or whether issued, enacted or adopted
after the Closing Date, and any change therein or in the interpretation or
application thereof following the Closing Date.
GUARANTY: As to any Person, any obligation, direct or indirect, by which such
Person undertakes to guaranty, assume or remain liable for the payment of a
second Person's obligations, including but not limited to (i) endorsements or
negotiable instruments, (ii) discounts with recourse, (iii) agreements to pay
or perform upon a second Person's failure to pay or perform, (iv) agreements to
remain liable on obligations assumed by a second Person, (v) agreements to
maintain the capital, working capital, solvency or general financial condition
of a second Person and (vi) agreements for the purchase or other acquisition of
products, materials, supplies or services, if in any case payment therefor is
to be made regardless of the nondelivery of such products, materials or
supplies or the nonfurnishing of such services.
HUNTINGTON: The Huntington National Bank, a national banking association.
INDEBTEDNESS: Individually and collectively, (i) all obligations and
indebtedness for borrowed money, including but not limited to the Obligations
and mezzanine or subordinated financing (to the extent such financing shall be
treated as indebtedness (or debt) under GAAP); (ii) all obligations evidenced
by bonds, debentures, notes, including but not limited to the Notes, or similar
instruments; (iii) all obligations under conditional sale or other title
retention agreements relating to property purchased by the Borrower; (iv) all
obligations issued or assumed as the deferred purchase price of property or
services; (v) all Capitalized Lease Obligations; (vi) all obligations with
respect to letters of credit (including without limitation Letters of Credit
issued hereunder), whether matured or contingent; (vii) all obligations of
others secured by any Lien or property or assets owned or acquired, whether or
not the obligations secured thereby have been assumed; (viii) any Guaranty;
(ix) all obligations with respect to any interest hedge agreement (i.e. any
type of agreement or arrangement designed to provide protection against
fluctuations in interest rates); and (x) any other transaction which shall be
treated as indebtedness (or debt) in accordance with GAAP; provided, however,
that Indebtedness shall not include accounts payable incurred in the ordinary
course of business
8
<PAGE> 17
and not more than 90 days old, unless disputed in good faith, if those accounts
payable do not constitute obligations to repay borrowed money.
INDEMNIFIED PERSON: This term shall have the meaning given it in Section 10.7.
INSTRUMENT: Any instrument, as that term is defined in the Uniform Commercial
Code, owned or held by the Borrower, whether now owned or in existence or
hereafter created or acquired.
INTEREST RATE OPTION: Either the Base Rate Option or the LIBOR-Rate Option.
INTERNAL REVENUE CODE: The Internal Revenue Code of 1986 or any successor
legislation thereto, and the rules and regulations issued or promulgated
thereunder, including any amendments to any of the foregoing.
INVENTORY: All inventory, as that term is defined in the Uniform Commercial
Code, owned by the Borrower, including but not limited to any and all new or
used goods, merchandise or other personal property, including but not limited
to goods in transit, of the Borrower, and which is or may at any time be held
as finished goods, raw materials, work-in-process, supplies or materials used
or consumed in the business of the Borrower or held for sale or lease or
furnished under a contract of service in the ordinary course of the business of
the Borrower, including but not limited to all returned and repossessed goods
and all supplementary items, packing and shipping supplies and advertising
materials, all of the foregoing whether now owned or hereafter acquired and
wherever located.
INVESTMENT PROPERTY: Any investment property, as that term is defined in the
Uniform Commercial Code, of the Borrower, whether now owned or in existence as
hereinafter created or acquired.
ISSUING BANK: LaSalle National Bank, a national banking association, as the
issuer of the Letters of Credit, or any successor issuer of the Letters of
Credit.
LENDER: Each financial institution listed on Annex A, and any financial
institution which becomes a party hereto in the future, and its successors and
permitted assigns.
LETTER OF CREDIT: Any commercial documentary or standby letter of credit
issued by the Issuing Bank for the account of the Borrower upon the application
of the Borrower pursuant to this Agreement, and all extensions, renewals
amendments, substitutions and replacements to or of any of the foregoing.
LETTER OF CREDIT FEE: Any Fee relating to Letters of Credit described in
Section 2.9b.
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<PAGE> 18
LEVEL I-V: The term "Level" in the row captioned "Funded Debt/EBITDA" in the
Pricing Matrix set forth in Annex B refers to the Funded Debt to EBITDA Ratio
which shall be used to determine the Applicable Margin and certain fees.
LIBOR-RATE: With respect to each Revolving Borrowing Tranche and each Term
Loan Tranche to which the LIBOR-Rate Option applies for any LIBOR-Rate
Interest Period, the interest rate per annum determined by the Agent by
dividing (the resulting quotient rounded upward or downward to the nearest
1/16th of 1% per annum) (i) the rate of interest determined by the Agent in
accordance with its usual procedures (which determination shall be conclusive,
absent manifest error) to be quoted on the Reuters screen ISDA page to be the
average of the rates per annum for deposits in Dollars offered to major money
center banks in the London interbank market (or, if such Reuters quotation is
not available, determined in good faith by the Agent, after inquiry to three
reference banks selected by the Agent from among the Lenders, in accordance
with its usual procedures when reference banks are consulted), at approximately
11:00 a.m., London time, two Business Days prior to the first day of such
LIBOR-Rate Interest Period for delivery on the first day of such LIBOR-Rate
Interest period and in an amount comparable to such Revolving Borrowing Tranche
or Term Loan Tranche and having a borrowing date and a maturity comparable to
such LIBOR-Rate Interest Period by (ii) a number equal to 1.00 minus the
LIBOR-Rate Reserve Percentage.
LIBOR-RATE INTEREST PERIOD: (i) With respect to any Revolving Borrowing
Tranche or Term Loan Tranche, any individual period of one, two, three or six
months commencing on the date a LIBOR-Rate Option is effective; provided,
however, that (A) any LIBOR-Rate Interest Period which would otherwise end on a
day which is not a Business Day shall be extended to the next Business Day
unless such Business Day falls in the succeeding calendar month, in which case
such LIBOR-Rate Interest Period shall end on the next preceding Business Day,
(B) any LIBOR-Rate Interest Period which begins on the last day of a calendar
month or on a day for which there is no numerically corresponding day in the
subsequent calendar month during which such LIBOR-Rate Interest Period is to
end shall end on the last Business Day of such subsequent month, and (C) no
LIBOR-Rate Interest Period for any Revolving Borrowing Tranche may end after
the Revolving Credit Termination Date, and no LIBOR-Rate interest period for
any Term Loan Tranche may end after the Term Loan Maturity Date.
LIBOR-RATE LOAN: A Revolving Borrowing Tranche or Term Loan Tranche bearing
interest under the LIBOR-Rate Option, as set forth in Subsection 2.4a.
LIBOR-RATE OPTION: The ability of the Borrower to elect LIBOR-Rate Loans, as
set forth in Subsection 2.4a.
LIBOR-RATE RESERVE PERCENTAGE: The maximum percentage (expressed as a decimal
rounded upward to the nearest 1/16 of 1%), as determined by the Agent (which
determination shall be conclusive, absent manifest error) which is in effect
during any relevant period, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum reserve
requirements (including supplemental,
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marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "Eurocurrency Liabilities") of a member bank
in such System. The LIBOR-Rate shall be adjusted automatically as of the
effective date of each change in the LIBOR-Rate Reserve Percentage. The
LIBOR-Rate Option shall be calculated in accordance with the foregoing whether
or not any Lender is actually required to hold reserves in connection with its
eurocurrency funding or, if required to hold such reserves, is required to hold
reserves at the "LIBOR-Rate Reserve Percentage" as herein defined.
LIEN: Any security interest, mortgage, charge, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any Capitalized Lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code evidencing any of
the foregoing), in, upon or against any asset of the Borrower or any
Subsidiary, whether or not voluntarily given.
LOAN: A Revolving Credit Loan or the Term Loan, and collectively, all
Revolving Credit Loans and the Term Loan, the "LOANS."
LOAN ACCOUNT: Any loan account referred to in Section 2.8.
LOAN DOCUMENT: Any of this Agreement, any Revolving Credit Note, any Term
Note, any Security Document, any Letter of Credit, any application for Letter
of Credit, the Environmental Agreement, the Pledge Agreement, the Fee Letter
and all other agreements, documents and instruments executed and delivered to
govern, evidence or secure the Obligations, and the statements, reports,
certificates and other documents required by, or related to, any of the
foregoing, together with all extensions, renewals, amendments, substitutions
and replacements to and of any of the foregoing.
LOAN REQUEST: Each Loan Request executed by the Borrower and delivered to the
Agent, substantially in the form of Exhibit "C".
MATERIAL ADVERSE CHANGE: Any set of circumstances or events which (i) has or
could reasonably be expected to have any material adverse effect whatsoever
upon the validity of enforceability of this Agreement or any of the other Loan
Documents, (ii) is or could reasonably be expected to be material and adverse
to the business, properties, assets, financial condition or results of
operations of the Borrower and the Subsidiary Entities, taken as a whole, (iii)
impairs materially or could reasonably be expected to impair materially the
ability of the Borrower to duly and punctually pay or perform the Obligations,
or (iv) impairs materially or could reasonably be expected to impair materially
the ability of the Agent, the Issuing Bank or any Lender, to the extent
permitted, to enforce their respective legal remedies pursuant to this
Agreement and the other Loan Documents.
MATERIAL ADVERSE EFFECT: An effect that results in or causes a Material
Adverse Change.
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MEZZANINE INDEBTEDNESS: Indebtedness for borrowed money from a financial
institution or fund which (i) is unsecured, (ii) does not provide for the
payment in cash of principal or interest prior to the date that is 30 days
after the Term Loan Maturity Date, (iii) has a maturity date at least 30 days
after the Term Loan Maturity Date, (iv) contains covenants no more restrictive
than those hereunder or under any of the other Loan Documents, and (v) is
subordinated to the Obligations hereunder either by virtue of its place in the
capital structure of Borrower and its Affiliates or, if an obligation of
Borrower, by a subordination agreement in form and substance reasonably
acceptable to Lenders.
MONEY: Any money, as that term is defined in the Uniform Commercial Code, of
the Borrower, whether now owned or hereafter acquired.
MORTGAGE: Any mortgage or deed of trust delivered pursuant to this Agreement,
substantially in the form of Exhibit "F", for the Mortgaged Parcels, together
with all extensions, renewals, amendments, restatements, substitutions and
replacements thereto and thereof.
MORTGAGED PARCEL OR MORTGAGED PARCELS: The parcels of real estate and all
improvements and appurtenances owned by the Borrower, identified on Schedule
4.14, which are to be mortgaged by the Borrower pursuant to this Agreement.
MULTIEMPLOYER PLAN: A "Multiemployer plan" as defined in Section 4001(a)(3) of
ERISA to which the Borrower or any ERISA Affiliate is making or accruing an
obligation to make contributions, or has within any of the preceding five plan
years made or accrued an obligation to make contributions.
NOTE: Individually, any Revolving Credit Note and any Term Loan Note, and
collectively, all of the Revolving Credit Notes and Term Loan Notes, the
"NOTES".
NSC: 3016297 Nova Scotia Company, a Nova Scotia company.
OBLIGATIONS: Collectively, (i) all unpaid principal and accrued and unpaid
interest with respect to the Loans, (ii) all accrued and unpaid Fees, (iii) all
obligations (contingent or matured) due the Agent or the Issuing Bank pursuant
to draws on Letters of Credit, (iv) any other amounts due hereunder or under
any of the other Loan Documents, including all reimbursements, indemnities,
costs, expenses, prepayment premiums, yield protection obligations, the Funding
Breakage Fee and other obligations of the Borrower to the Agent, the Issuing
Bank, any Lender or any Indemnified Person hereunder and thereunder, and (v)
all out-of-pocket costs and expenses incurred by the Agent and any Lender in
connection with this Agreement and the other Loan Documents, including but not
limited to the reasonable fees and expenses of the Agent's, the Issuing Bank's
and the Lender's counsel which the Borrower is responsible to pay pursuant to
the terms of this Agreement and the other Loan Documents.
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OUTSTANDING REVOLVING CREDIT AMOUNT: The sum of (i) the aggregate principal
amount of outstanding Revolving Credit Loans plus (ii) the aggregate Stated
Amounts of all outstanding Letters of Credit, including any unreimbursed draws
on Letters of Credit which have not yet been converted to Revolving Credit
Loans.
PARTICIPANT: Any bank or financial institution which acquires from any Lender
an undivided interest in such Lender's Revolving Credit Commitment and Loans,
pursuant to Section 10.6.
PARTICIPATION: The sale, made in accordance with the provisions of Section
2.2e and 10.6, by a Lender to any Participant of an undivided interest in such
Lender's Revolving Credit Commitment and Loans.
PBGC: The Pension Benefit Guaranty Corporation established pursuant to ERISA,
or any entity succeeding to any or all of its functions under ERISA.
PERMITTED ENCUMBRANCES: Certain permitted liens, easements and encumbrances
described in Section 7.2d.
PERMITTED LIEN: Any of the following:
(i) The security interests in the Collateral granted to the Agent
for the benefit of the Lenders as security for the Obligations;
(ii) Liens to secure Indebtedness permitted to exist pursuant to
items (ii) and (iii) of Section 6.1, including, without limitation, purchase
money security interests granted in favor of sellers of personal property;
(iii) Good faith deposits made in the ordinary course of business in
connection with bids, tenders, contracts or leases to which the Borrower is a
party, or deposits made to secure public or statutory obligations;
(iv) Deposits to secure replevin, surety, attachment or appeal
bonds relating to legal proceedings to which the Borrower is a party;
(v) Liens for taxes, assessments, governmental charges or levies
on the Borrower's properties, including any such liens made pursuant to any
Environmental Law, if such taxes, assessments, governmental charges or levies
are not at the time due and payable or if they can thereafter be paid without
penalty or are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which the Borrower has created
adequate reserves;
(vi) Pledges or deposits to secure payment of workers' compensation
obligations, unemployment insurance, deposits or indemnities to secure public
or statutory obligations or for similar purposes;
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(vii) Liens arising out of judgments or awards against the Borrower
with respect to which enforcement has been stayed and the Borrower at the time
shall currently be prosecuting an appeal or proceeding for review in good faith
by appropriate proceedings diligently conducted and with respect to which
Borrower has created adequate reserves or has adequate insurance protection;
(viii) Mechanics', carriers', workmen's, repairmen's and other
similar statutory Liens incurred in the ordinary course of the business of the
Borrower, so long as the obligation secured is not overdue or, if overdue, is
being contested in good faith by appropriate actions or proceedings being
diligently conducted and as to which the Borrower or the Subsidiary Entities
have created adequate reserves;
(ix) Security interests in favor of lessors of personal property,
which property is the subject of a true lease between such lessor and the
Borrower;
(x) Landlord liens arising under leases in effect on the date
hereof for which Borrower has not obtained and is not required to obtain a
landlord waiver pursuant to Section 7.1d hereof; and
(xi) Liens existing on the Closing Date which are listed on
Schedule 6.3.
PERMITTED QUARTER LOSS: Any loss as of the end of a Fiscal Quarter which,
after giving effect thereto, does not cause the Borrower to be in violation of
any financial covenant set forth in Section 6.4, including but not limited to
the covenant set forth in Section 6.4d.
PERSON: Any individual, partnership, corporation, association, trust, business
trust, joint venture, joint stock company, limited liability company,
unincorporated organization or enterprise, entity or Governmental Authority.
PLAN: As to any Person, any employee pension benefit plan other than a
Multiemployer Plan which is covered by Title IV of ERISA and which either (i)
is maintained by such Person and/or any ERISA Affiliate of such Person for
employees of such Person and/or any ERISA Affiliate or (ii) has at any time
within the preceding five years been maintained by such Person and/or any
entity which was an ERISA Affiliate at such time for their respective
employees.
PLEDGE AGREEMENT: The pledge by the Borrower of 100% of the capital stock of
First Thoroughbred owned by the Borrower pursuant to the terms of a Pledge
Agreement dated of even date executed by the Borrower in the form of Exhibit
"E", together with all extensions, renewals, amendments, restatements,
substitutions and replacements thereto and thereof.
PRIME RATE: For any day, a variable per annum interest rate equal at all times
to the rate of interest established and quoted by the Agent as its Prime Rate,
such rate to change contemporaneously with each change in the established and
quoted rate. In the event that the
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Agent, during the term of the Loans, shall abolish or abandon the practice of
publishing the Prime Rate, the Prime Rate hereunder shall be the lowest
published prime rate announced by one of the other Lenders under this
Agreement. The Prime rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to a customer by Agent.
PROHIBITED TRANSACTION: A "prohibited transaction" as defined under Section
406 of ERISA or Section 4975 of the Internal Revenue Code.
PURCHASING LENDER: A Lender which becomes a party to this Agreement by
executing an Assignment and Assumption Agreement.
QUALIFIED ACCOUNT: Any Account of the Borrower which the Agent, in its sole
discretion exercised in good faith, determines to have met all of the following
minimum requirements:
(i) The Account represents a complete bona fide transaction for
goods sold and delivered or services rendered (excluding any amounts in the
nature of a service charge added to the amount due on an invoice because the
invoice has not been paid when due) which requires no further act under any
circumstances on the part of the Borrower to make such Account payable by the
Account Debtor;
(ii) The Account arises from an arm's-length transaction in the
ordinary course of the business of the Borrower between the Borrower and an
Account Debtor which (unless the Agent otherwise agrees in writing) is not (A)
an Affiliate or Subsidiary of the Borrower, (B) a Person Controlled by a
Subsidiary or Affiliate of the Borrower, (C) an officer, director, stockholder
or employee of the Borrower or any Affiliate or Subsidiary of Borrower, or (D)
a member of the family of an officer, director, stockholder or employee of the
Borrower or a Subsidiary or Affiliate of the Borrower;
(iii) The Account shall not (A) be or have been unpaid more than
ninety (90) days from the original due date of the invoice or (B) be payable by
an Account Debtor (1) more than 10% of whose Accounts are not deemed Qualified
Accounts or (2) whose Accounts constitute 20% or more of the aggregate amount
of all outstanding Accounts, provided, however, as to such (B)(2) Account
Debtors, only the amount of such Accounts in excess of 20% shall not be a
Qualified Account;
(iv) The goods the sale of which gave rise to the Account were
shipped or delivered or provided to the Account Debtor on an absolute sale
basis and not on a bill-and-hold, consignment sale, guaranteed sale or
sale-or-return basis or on the basis of any other similar understanding, and no
part of such goods have been returned or rejected;
(v) The Account is not evidenced by Chattel Paper or an Instrument
of any kind and has not been reduced to judgment;
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(vi) The Account Debtor with respect to the Account (A) is Solvent,
(B) is not the subject of any bankruptcy or insolvency proceedings of any kind
or of any other proceeding or action, threatened or pending, which might have a
materially adverse effect on his or its business, operations or properties, (C)
has not made an assignment for the benefit of his or its creditors, (D) has not
failed, suspended business, ceased to be Solvent, dissolved or consented to or
suffered the appointment of a receiver, trustee, liquidator or custodian for
him or it or for all or a significant portion of his or its assets or affairs,
(E) is not, in the sole discretion of the Agent exercised in good faith, deemed
ineligible for credit for other reasons (including, without limitations,
unsatisfactory past experience of the Borrower or any of the Subsidiary
Entities, respectively, or the Agent with such Account Debtor or the
unsatisfactory reputation of such account Debtor), and (F) is not located in
Indiana, Minnesota, New Jersey or any other jurisdiction which requires
Borrower, as a precondition to commencing or maintaining an action in the
courts of that jurisdiction, either (i) to receive a certificate of authority
to do business and be in good standing in that jurisdiction, or (ii) to file a
Notice of Business Activities Report or similar report with such jurisdiction's
taxing authority, unless (X) Borrower has taken one of the actions described in
clause (i) or (ii), (Y) the failure to take one of the actions described in
either clause (i) or (ii) may be cured retroactively by Borrower at its
election, or (Z) Borrower has proven, to the Agent's reasonable satisfaction,
that it is exempt from any such requirements under any such jurisdiction's laws
for all required periods;
(vii) The Account Debtor is not located outside of the United States
of America or Canada, unless the Borrower has delivered to the Bank any or all
letters of credit and/or cash against documents relating to such Account or
evidence of credit insurance, as requested by the Agent and deemed adequate and
acceptable by the Agent;
(viii) If an Event of Default exists, the Account Debtor is not the
government of the United States of America, or any department, agency or
instrumentality of the United States of America, unless the Borrower assigns
its right to payment of such Account to the Agent, in form and substance
satisfactory to the Agent, so as to comply with the Assignment of Claims Act of
1940 (31 U.S.C. Section 203 et seq.), as amended from time to time, or
applicable similar or successor legislation has been fully complied with to the
Agent's satisfaction with respect to such Account within a period of sixty (60)
days from the date the Agent advises the Borrower that such compliance is
required.
(ix) The Account is a valid, legally enforceable obligation of the
Account Debtor with respect thereto and is only that portion of an Account
which is not subject to any dispute, condition, contingency, offset,
recoupment, reduction, claim for credit, allowance, adjustment, counterclaim or
defense on the part of such Account Debtor, and the Account is not otherwise
subject to any right of setoff to the extent of any of the foregoing.
(x) The Account is subject to a valid, perfected, first priority
Lien in favor of the Agent (other than the governmental accounts described in
(viii) above), subject only to the Permitted Liens;
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(xi) The Account is evidenced by an invoice or other reasonably
appropriate documentation;
(xii) The Account is not subject to any provision prohibiting its
assignment or requiring notice of or consent to such assignment;
(xiii) The goods giving rise to the Account were not, at the time of
sale thereof, subject to any Lien except a Lien in favor of the Agent;
(xiv) The Account is payable in freely transferable Dollars;
(xv) The Borrower has not made any agreement with the Account
Debtor for any deduction therefrom, except for discounts or allowances which
are made in the ordinary course of business for prompt payment and which
discounts or allowances are reflected in the calculation of the face value of
each invoice related to such Account;
(xvi) The Borrower has not made any agreement with the Account
Debtor to extend the time of payment of such Account beyond the ninety (90) day
period referred to in (iii) unless the Account is supported by an irrevocable
letter of credit issued by a Bank acceptable to Agent without prior written
consent of the Lenders; and
(xvii) No covenant, representation or warranty contained in this
Agreement or any of the other Loan Documents with respect to such Account has
been breached.
In addition to the foregoing requirements, Accounts of any Account Debtor which
are otherwise Qualified Accounts shall be reduced to the extent of any accounts
payable (including, without limitation, the Agent's good faith estimate of any
contingent liabilities) owing by the Borrower or any of the Subsidiary Entities
to such Account Debtor, which accounts payable are known as "contras".
QUALIFIED INVENTORY: Any Inventory of the Borrower which the Agent, in its
sole discretion exercised in good faith, determines to have met all of the
following minimum requirements:
(i) The Inventory is finished goods, work in process or raw
materials of the Borrower;
(ii) The Inventory (A) is located in the United States or Canada at
the premises listed on Schedule 4.14 and the Agent's Lien has been perfected at
such location, unless the Borrower has complied with the terms of Section 5.14
and the Agent's Lien has been perfected in any new location for Inventory and
(B) is not in transit;
(iii) The Inventory is not stored with a bailee, warehouseman,
consignee or similar party;
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(iv) The Inventory is not located on the premises of an outside
processor or an independent sales office;
(v) The Inventory is new and of good and merchantable quality, is
not obsolete and represents no more than an 18-month supply of such finished
goods or raw materials;
(vi) The Inventory is not packaging material or packaging supplies
unless such materials or supplies have already been incorporated into the
finished goods;
(vii) The Inventory is subject to a valid, perfected, first priority
Lien in favor of the Agent and is not subject to any other Lien whatsoever,
other than the Permitted Liens;
(viii) No covenant, representation or warranty contained in this
Agreement or any of the other Loan Documents with respect to such Inventory has
been breached; and
(ix) The Inventory has not been manufactured in violation of any
Federal minimum wage or overtime laws, including the Fair Labor Standards Act,
29 U.S.C. 215(a)(1) or any similar or successor legislation.
QUALIFIED LENDER: Either (i) the Agent or any Lender or (ii) any other bank or
trust company organized under the laws of the United States of America or any
state thereof, having total assets in excess of $5,000,000,000 and whose
long-term certificates of deposit are rated "A" or better by Standard and
Poor's Ratings Group, a division of McGraw-Hill, Inc., or "A" or better by
Moody's Investors Service, Inc.
REGISTER: This term shall have the meaning given it in Section 10.5c.
REGULATIONS D,G,T,U AND X: Regulations D, G, T, U and X promulgated by the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 204 et seq.,
12 C.F.R. Part 207 et. seq., 12 C.F.R. Part 220 et. seq., 12 C.F.R. Part 221
et. seq. and 12 C.F.R. Part 224 et. seq., respectively), as such regulations
are now in effect and as may hereafter be amended.
REPORTABLE EVENT: A "reportable event" described in Section 4043 of ERISA and
in 29 C.F.R. Part 2615.
REQUIRED LENDERS: Prior to the termination of the Revolving Credit Commitment,
the Lenders whose Commitment Percentages aggregate at least sixty-six and
two-thirds percent (66-2/3%) of the aggregate Commitment Percentages of all the
Lenders, and after the termination of the Revolving Credit Commitment, whether
on the stated Revolving Credit Termination Date, by acceleration or otherwise,
the Lenders whose outstanding principal amounts of the Loans aggregate at least
sixty-six and two-thirds percent (66-2/3%) of the aggregate principal amount of
the outstanding Loans.
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RESTRUCTURING TRANSACTION: A series of transactions which have been
consummated prior to the funding of the Loans on the Closing Date involving (i)
the simultaneous mergers of the Affiliated Entities with and into the Borrower
(known as Walter E. Best Company, Inc., immediately prior to such mergers) and
(ii) an amendment to the Articles of Incorporation of the Borrower to change
its corporate name from Walter E. Best Company, Inc., to Best Lock Corporation.
REVOLVING BORROWING TRANCHE: A specified portion of a Revolving Credit Advance
as follows: (i) any Revolving Credit Advance to which the LIBOR-Rate Option
applies which becomes subject to the same LIBOR-Rate Option under the same Loan
Request and for election of or conversion to an Interest Rate Option by the
Borrower and which has the same LIBOR-Rate Interest Period shall constitute one
Revolving Borrowing Tranche and (ii) any Revolving Credit Advance to which the
Base Rate Option applies shall constitute one Revolving Borrowing Tranche.
REVOLVING CREDIT ADVANCE: Any individual borrowing by the Borrower under the
Revolving Credit Loan which is extended by the Lenders and collectively, such
advances the "REVOLVING CREDIT ADVANCES".
REVOLVING CREDIT COMMITMENT: The obligation of the Lenders to make available
to the Borrower Revolving Credit Loans in a maximum aggregate principal amount
not to exceed $28,000,000.
REVOLVING CREDIT LOAN: An individual borrowing by the Borrower under the
Revolving Credit Commitment including any increases, extensions or renewals
thereto or thereof and collectively, such loans the "REVOLVING CREDIT LOANS".
REVOLVING CREDIT NOTE: Any promissory note of the Borrower evidencing
Indebtedness of the Borrower under the Revolving Credit Commitment and in
substantially the form of Exhibit "A", together with all extensions, renewals,
amendments, substitutions and replacements thereto and thereof.
REVOLVING CREDIT TERMINATION DATE: March 31, 2003.
SECURITY AGREEMENT: The Security Agreement executed by the Borrower and
substantially in the form of Exhibit "D", together with all extensions,
renewals, amendments, restatements, substitutions and replacements thereto and
thereof.
SECURITY DOCUMENTS: Any and all of (i) the Security Agreement, (ii) the
Mortgages, (iii) the Pledge Agreement, (iv) the Thoroughbred Pledge Agreement,
(v) all additional documents and instruments entered into from time to time for
the purpose of securing the Obligations, (vi) any and all ancillary documents
and instruments relating to any of the foregoing, such as Uniform Commercial
Code financing statements, and (vii) all extensions, renewals, amendments,
substitutions, replacements and continuations to and of any of the foregoing.
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SHAREHOLDER DISTRIBUTION: Any dividend, redemption or other acquisition for
value of capital stock now or hereafter outstanding, return of capital or any
distribution of assets to any shareholder.
SOLVENT: As to any Person, the condition which exists when such Person (i)
owns assets whose value (both at fair market value and present fair saleable
value) is, on the date of determination, greater than the amount of such
Person's liabilities (including without limitation contingent and unliquidated
liabilities), (ii) is able to pay all of its obligations as they mature and
(iii) has capital that is not unreasonably small and is sufficient in relation
to its present business and transactions and all business and transactions in
which it is about to engage.
STATED AMOUNT: As to any Letter of Credit, the lower of (i) the face amount
thereof or (ii) the remaining available undrawn amount thereof (regardless of
whether any conditions for drawing could then be met).
SUBSIDIARY: Either (i) any corporation more than 50% of the outstanding voting
securities of which is at the time owned or Controlled, directly or indirectly,
by the Borrower or one or more Subsidiaries, or by the Borrower and one or more
Subsidiaries, or (ii) any other Person which is so owned or Controlled.
SUBSIDIARY ENTITIES: First Thoroughbred, BULLC, NSC and Best Access and their
respective successors.
TANGIBLE NET WORTH: An amount equal to (i) the sum of the capital stock and
additional paid-in capital plus retained earnings (or minus accumulated
deficit) calculated in accordance with GAAP, less intangible assets, whether or
not in accordance with GAAP, including, without limitation, unamortized
covenants not to compete, prepayments, deferred charges, unamortized debt
discount and expense, good will, franchises, licenses, patents, trademarks,
trade names, copyrights, service marks and brand names, all obligations owed to
the Borrower or any of the Subsidiary Entities by any Affiliate or Subsidiary,
and all loans by the Borrower or any of the Subsidiary Entities to its
officers, shareholders, subsidiaries or employees.
TERM LOAN: The term loan made by the Lenders to the Borrower in the aggregate
principal amount of $22,000,000, including any increases, extension or renewals
thereto or thereof.
TERM LOAN MATURITY DATE: March 31, 2004.
TERM LOAN NOTE: A promissory note of the Borrower evidencing indebtedness of
the Borrower under the Term Loan, in substantially the form of Exhibit "B" or
Exhibit "B-1", together with all extensions, renewals, amendments,
substitutions and replacements thereto and thereof, and collectively with each
other Term Loan Note, the "TERM NOTES".
TERM LOAN TRANCHE: A specified portion of the principal amount of the Term
Loan as follows: (i) any portion of the principal of the Term Loan to which the
LIBOR-Rate Option
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applies which becomes subject to the same LIBOR-Rate Option under the same
election of or conversion to an Interest Rate Option by the Borrower and which
has the same LIBOR-Rate Interest Period shall constitute one Term Loan Tranche
and (ii) the entire portion of the principal of the Term Loan to which the Base
Rate Option applies shall constitute one Term Loan Tranche.
TRANSFER EFFECTIVE DATE: For each Assignment and Assumption Agreement, the
date upon which such Assignment and Assumption Agreement is effective.
TRANSFEROR LENDER: The selling Lender pursuant to an Assignment and Assumption
Agreement as permitted by Section 10.5.
TREASURY RATE APPLICABLE TO LIBOR-RATE LOAN PREPAYMENT: The rate per annum as
of any "Funding Breakage Date" referenced in Subsection 2.1c(v) determined by
the applicable Lender (which determination shall be conclusive absent manifest
error) to be the semiannual equivalent yield to maturity (expressed as a
semiannual equivalent and decimal and, in the case of United States Treasury
bills, converted to a bond equivalent yield) for United States Treasury
securities maturing on the last day of the corresponding treasury rate maturity
date and trading in the secondary market in reasonable volume (or if no such
securities mature on such date, the rate determined by standard securities
interpolation methods as applied to the series of securities maturing as close
as possible to, but earlier than, such date, and the series of such securities
maturing as close as possible to, but later than, such date.)
UNIFORM COMMERCIAL CODE: The Uniform Commercial Code as enacted in the
applicable jurisdiction, in effect on the Closing Date and as amended from time
to time.
1.2 ACCOUNTING TERMS. Each accounting term not defined herein and each
accounting term partly defined herein, to the extent not defined, shall have
the meaning given it under GAAP.
1.3 RULES OF CONSTRUCTION. (i) Except as otherwise specified herein, all
references in any Loan Document (A) to any Person shall be deemed to include
such Person=s heirs, executors, administrators, successors and assigns, (B) to
any applicable Governmental Rule shall be deemed references to such
Governmental Rule as the same may have been or may be amended, supplemented or
replaced from time to time and (C) to any Loan Document defined or referred to
herein shall be deemed references to such Loan Document (and, in the case of
any Note or other instrument, any instrument issued in substitution therefor)
as the terms thereof may have been or may be amended, supplemented, waived or
otherwise modified from time to time.
(ii) When used in any Loan Document, the words "herein," and
"hereunder" and words of similar import shall refer to such Loan Document as a
whole and not to any particular provision of such Loan Document, and the words
"Article," "Section," "Subsection," "Schedule," "Exhibit," and "Annex" shall
refer to Articles, Sections and
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<PAGE> 30
Subsections of, and Schedules, Exhibits and Annexes to, such Loan Document,
unless otherwise specified.
(iii) Whenever the context so requires, in all Loan Documents the
use of or reference to any gender includes the masculine, feminine and neuter
genders; "or" has the inclusive meaning represented by the phrase "and/or";
"including" has the meaning represented by the phrase "including without
limitation"; and all terms used in the singular shall have comparable meanings
when used in the plural and vice versa.
ARTICLE 2. THE LOANS
2.1 REVOLVING CREDIT COMMITMENT.
2.1a REVOLVING CREDIT LOANS. The Lenders agree, severally and not
jointly, subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, that the Borrower shall have
the right to borrow, repay and reborrow, from the date hereof until the
Revolving Credit Termination Date, an aggregate principal amount which,
together with the aggregate Stated Amounts of all outstanding Letters of
Credit, including any unreimbursed draws thereunder which have not been
converted to Revolving Credit Loans, shall not exceed in the aggregate at any
one time outstanding the lesser of (i) $28,000,000 or (ii) the Borrowing Base.
2.1b COMMITMENTS OF THE LENDERS. Each Lender agrees, for itself
only, and subject to the terms and conditions of this Agreement, to make
Revolving Credit Loans to the Borrower from time to time not to exceed an
aggregate principal amount at any time equal to such Lender=s Commitment
Percentage of the Revolving Credit Commitment; provided, however, that in no
event shall any Lender be required to advance an amount in excess of its
Commitment with respect to the Revolving Credit Loans; and provided, further,
that if any Lender fails to advance to the Borrower its commitment Percentage
of any Revolving Credit Loan, the remaining Lenders shall not be required to
advance to the Borrower the defaulting Lender=s share of such Revolving Credit
Loan.
2.1c MANDATORY AND VOLUNTARY REDUCTIONS OF REVOLVING CREDIT
COMMITMENT; MANDATORY AND VOLUNTARY PRINCIPAL PAYMENTS.
(i) BORROWING BASE AMOUNT. In the event that at any time either
any Loan Account or the Borrowing Base Certificate most recently delivered by
the Borrower to the Agent shows that the Outstanding Revolving Credit Amount
exceeds the Borrowing Base, the Borrower shall repay, simultaneously with the
delivery of any such Borrowing Base Certificate to the Agent or upon demand by
the Agent, whichever is earlier, an amount which is sufficient to reduce the
Outstanding Revolving Credit Amount so that, after such repayment, the
Borrowing Base has not been exceeded. Until such repayment occurs, the Lenders
shall not be required to make additional Revolving Credit Loans to the
Borrower, and the Issuing Bank shall not be required to issue any Letters of
Credit.
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(ii) VOLUNTARY PERMANENT REDUCTIONS. Upon two Business Days'
written notice to the Agent, the Borrower may from time to time voluntarily
permanently reduce the Revolving Credit Commitment. Each voluntary reduction
shall be in a minimum amount of $1,000,000 or, if greater than $1,000,000, in
integral multiples of $500,000.
(iii) EFFECT OF REDUCTIONS. The portion of the Revolving Credit
Commitment so terminated pursuant to the preceding item (ii) shall no longer be
available for borrowing. Simultaneously with each voluntary permanent
reduction, the Borrower shall make a payment of the outstanding Revolving
Credit Loans equal to the excess, if any, of (A) the aggregate principal amount
of the Outstanding Revolving Credit Amount over (B) the Revolving Credit
Commitment, as so reduced, and all accrued and unpaid interest thereon. Notice
of a reduction, once given, shall be irrevocable. All such reductions shall be
without penalty or premium (except for amounts owing pursuant to Section
2.1c(v) and Section 2.4e, if any).
(iv) APPLICATION OF REDUCTIONS AND PREPAYMENTS. Any and all
Revolving Credit Commitment reductions or prepayments (mandatory or voluntary)
made pursuant to any particular item of this Section 2.1c shall be made in
addition to, and not in lieu of, any and all Revolving Credit Commitment
reductions and prepayments (mandatory or voluntary) to be made pursuant to any
other item of this Section 2.1c. All such mandatory and voluntary prepayments
of Revolving Credit Loans shall be accompanied by all accrued and unpaid
interest thereon and all amounts due pursuant to Section 2.1c(v) and Section
2.4e, if any, and, in the case of a permanent reduction of the Revolving Credit
Commitment to zero, any other outstanding Obligations relating to the Revolving
Credit Commitment which are then due and payable. All such mandatory and
voluntary prepayments shall be applied by the Agent to repay Base Rate Loans
first, and then to repay LIBOR-Rate Loans.
(v) FUNDING BREAKAGE FEE. In addition to all other amounts
payable hereunder, if and to the extent for any reason any part of any
Revolving Borrowing Tranche or Term Loan Tranche of any LIBOR-Rate Loan becomes
due (by acceleration or otherwise), or is paid, prepaid or converted to another
Interest Rate Option (whether or not such payment, prepayment or conversion is
mandatory or automatic and whether or not such payment or prepayment is then
due) on a day other than the last day of the corresponding LIBOR-Rate Interest
Period (the date such amount so becomes due, or is so paid, prepaid or
converted, being referred to as the "Funding Breakage Date"), the Borrower
shall pay each Lender an amount ("Funding Breakage Fee") determined by such
Lender as follows:
(A) first, calculate the following amount (w) the
principal amount of such Revolving Borrowing Tranche or Term Loan Tranche of
the Loans owing to such Lender which so became due, or which was so paid,
prepaid or converted, times (x) the greater of (1) zero or (2) the rate of
interest applicable to such principal amount on the Funding Breakage Date minus
the Treasury Rate Applicable to LIBOR-Rate Loan Prepayment as of the Funding
Breakage Date, times (y) the number of days from and including the Funding
Breakage Date to but not including the last day of such LIBOR-Rate Interest
Period, times (z) l/360; and
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(B) the Funding Breakage Fee to be paid by the Borrower
to such Lender shall be the amount equal to the present value as of the Funding
Breakage Date (discounted at the Treasury Rate Applicable to LIBOR-Rate Loan
Prepayment as of such Funding Breakage Date, and calculated on the basis of a
year of 360 days, as the case may be, and actual days elapsed) of the amount
described in the preceding clause (A) (which amount described in the preceding
clause (A) is assumed for purposes of such present value calculation to be
payable on the last day of the corresponding LIBOR-Rate Interest Period).
Such Funding Breakage Fee shall be due and payable on demand, and each Lender
shall, upon making such demand, notify the Agent of the amount so demanded. In
addition, the Borrower shall, on the due date for payment of any Funding
Breakage Fee, pay to such Lender an additional amount equal to interest on such
Funding Breakage Fee from the Funding Breakage Date to but not including such
due date at the Base Rate Option (calculated on the basis of a year of 360 days
and actual days elapsed). The amount payable to each Lender under this
Subsection shall be determined in good faith by such Lender, and such
determination shall be conclusive.
2.1d AMOUNT OF REVOLVING CREDIT LOANS. Except as required by
Section 2.4d, each Revolving Credit Loan shall be in a minimum amount of
$500,000, or if in excess of $500,000, in integral multiples of $100,000;
provided, however, that if the entire amount of Revolving Credit Loans
available to the Borrower is less than $500,000, then such Revolving Credit
Loan shall be for such entire amount.
2.1e REPAYMENTS. Except for prepayments or repayments required (i)
pursuant to Section 2.1c and (ii) as otherwise provided herein, each repayment
of Revolving Credit Loans made by the Borrower shall be in a minimum principal
amount and an integral multiple of $50,000; provided, however, that if the
entire amount of Revolving Credit Loans then outstanding is less than $50,000,
then the Borrower shall repay such entire lesser amount. On the Revolving
Credit Termination Date the entire Outstanding Revolving Credit Amount, plus
all accrued and unpaid interest thereon, any unpaid Fees relating thereto and
any other outstanding Obligations relating to the Revolving Credit Commitment
shall be due and payable in immediately available funds.
2.1f REVOLVING CREDIT NOTE. The obligation of the Borrower to
repay, on or before the Revolving Credit Termination Date, the aggregate unpaid
principal amount of Revolving Credit Loans shall be evidenced by Revolving
Credit Notes, each substantially in the form of Exhibit "A", (i) drawn by the
Borrower to the order of a Lender in the maximum amount of that Lender's
Commitment Percentage of the Revolving Credit Commitment, (ii) duly executed by
the Borrower and (iii) delivered to the Agent for redelivery to such Lender.
The principal amount actually due and owing each Lender under the Revolving
Credit Note payable to it shall be the aggregate unpaid principal amount of all
Revolving Credit Loans made by such Lender, all as shown on the Loan Accounts
established pursuant to Section 2.8.
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2.2 LETTERS OF CREDIT.
2.2a ISSUANCE OF LETTERS OF CREDIT. From time to time during the
term of the Revolving Credit Commitment and subject to the terms and conditions
hereof, the Issuing Bank hereby agrees to issue Letters of Credit for the
account of the Borrower. Each such Letter of Credit shall be in form and
substance satisfactory to the Issuing Bank. The issuance of all Letters of
Credit shall be subject to the following terms and conditions:
(i) STATED AMOUNT. The aggregate Stated Amount of all Letters of
Credit shall not exceed at any one time $5,000,000.
(ii) TERMS OF LETTER OF CREDIT. The Borrower shall not request any
Letter of Credit to be issued except within the following limitations: (A) each
Letter of Credit shall have an expiration date no later than the earlier of (x)
three hundred sixty-five (365) days after the date of issuance for any
commercial documentary Letter of Credit and (y) the date which is twenty (20)
Business Days prior to the Revolving Credit Termination Date, and (B) shall be
denominated in Dollars. Each Letter of Credit shall be satisfactory in form,
substance and beneficiary to the Issuing Bank in its discretion.
(iii) NO VIOLATION OF BORROWING BASE. At no time may a Letter of
Credit be issued if such issuance would cause the Borrower to be in violation
of the Borrowing Base restriction set forth in Section 2.1a.
(iv) APPLICATION. Each Letter of Credit shall be issued in
accordance with the Issuing Bank's then current practices relating to the
issuance by the Issuing Bank of commercial documentary or standby letters of
credit, including but not limited to the payment by the Borrower of all Letter
of Credit Fees and other charges, as set forth in Subsection 2.9b. Each Letter
of Credit shall be issued only after receipt by the Issuing Bank of its then
current application and agreement for commercial documentary or standby letters
of credit, properly completed and executed by the Borrower and delivered to the
Issuing Bank at least three (3) Business Days prior to the requested issuance
date.
(v) REQUESTS FOR LETTERS OF CREDIT; CONDITIONS PRECEDENT.
Letters of Credit may by requested by the Borrower at any time during which the
Revolving Credit Commitment is in place. Once requested, Letters of Credit
will be issued only after all conditions precedent to the issuance thereof, as
set forth in Section 7.1 have been satisfied, and all Letter of Credit Fees
described in Section 2.9b have been paid.
2.2b SUSPENSION OF COMMITMENT TO ISSUE LETTERS OF CREDIT.
(i) SUSPENSION OF COMMITMENT. In the event any restrictions are
imposed by any Governmental Rule which would prevent the Issuing Bank from
issuing any Letter of Credit, the commitment of the Issuing Bank to issue
Letters of Credit hereunder shall be immediately
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suspended. In the event of any such suspension, the Borrower may continue to
borrow under the Revolving Credit Commitment, subject to the terms and
conditions of this Agreement.
(ii) ACTION UPON SUSPENSION OF COMMITMENT. The Issuing Bank shall
notify the Agent, the Lenders and the Borrower as soon as practicable of the
existence and nature of any Governmental Rule which would cause or has caused
the suspension of its commitment to issue Letters of Credit hereunder. Such
suspension shall continue until the Issuing Bank notifies the Agent, the
Lenders and the Borrower that the Issuing Bank is no longer prevented from
issuing Letters of Credit.
2.2c PAYMENTS UNDER LETTERS OF CREDIT.
(i) PAYMENTS UPON DRAW. Upon the occurrence of any draw under any
Letter of Credit, the Borrower hereby agrees to repay immediately to the
Issuing Bank on the same day such draw is honored by the Issuing Bank, in
immediately available funds in Dollars, the amount of such draw or draft,
together with any and all costs or expenses which the Issuing Bank may incur in
connection with such Letter of Credit, without any requirement of notice,
presentment or demand by the Issuing Bank, all of which are hereby waived by
the Borrower. In order to implement the foregoing, upon the occurrence of draw
under any Letter of Credit, unless the Issuing Bank is immediately so
reimbursed by the Borrower with other funds, the Borrower irrevocably
authorizes the Agent to treat such draw as a request for a Revolving Credit
Loan in the amount of such draw, and the Borrower irrevocably authorizes the
Agent and the Lenders to make Revolving Credit Loans in the aggregate amount of
such draw. The Borrower further authorizes the Agent to retain the proceeds of
any such Revolving Credit Loan and credit such proceeds so as to immediately
eliminate the liability of the Borrower to the Issuing Bank pertaining to such
draw on such Letter of Credit. The Agent shall promptly notify each Lender
(which notice may be by telephone promptly confirmed in writing) of such
Revolving Credit Loans. No later than the Agent's close of business on the
date such notice is given if such notice is given prior to 12:00 p.m., Chicago
time, otherwise on the next succeeding Business Day, each Lender will pay to
the Agent, in immediately available funds, an amount equal to such Lender's
Commitment Percentage.
(ii) PAYMENT UPON BANKRUPTCY, ETC. In the event that an Event of
Default pursuant to Subsections 8.lc or 8.1d occurs and at such time there are
outstanding unexpired Letters of Credit, the Borrower hereby authorizes the
Agent and the Lenders to make a Revolving Credit Loan in the amount of the
aggregate Stated Amount of such unexpired Letters of Credit, the proceeds of
which Revolving Credit Loan shall be placed in a deposit account for the sole
benefit of and under the sole dominion and control of the Issuing Bank and
which shall be used to reimburse the Issuing Bank for draws upon any such
unexpired Letters of Credit. If from time to time as draws on outstanding
Letters of Credit have been honored and as outstanding Letters of Credit
expire, funds remain in such deposit account in excess of the then aggregate
Stated Amount of the remaining Letters of Credit, those funds shall be returned
to the Agent and shall be applied by the Agent to reduce the outstanding
Obligations.
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(iii) PAYMENTS AFTER TERMINATION OF REVOLVING CREDIT COMMITMENT. If
all Revolving Credit Loans have been paid and the Revolving Credit Commitment
terminated for any reason, whether on or prior to the Revolving Credit
Termination Date, the Borrower shall immediately upon demand by the Issuing
Bank or the Agent deposit into, and keep on deposit in, a deposit account, for
the sole benefit of and under the sole dominion and control of the Issuing
Bank, an amount equal to at least 100% of the aggregate Stated Amounts of all
outstanding Letters of Credit, from time to time, for the purpose of providing
the Issuing Bank with a means of repayment of draws or drafts under or against
the Letters of Credit. At such time as the Issuing Bank shall have no further
obligations under and pursuant to any Letter of Credit, the Issuing Bank, after
reimbursing itself for all draws and expenses against all Letters of Credit,
shall promptly remit the balance of such deposit account, if any, to the order
of the Borrower.
(iv) CONDITIONS PRECEDENT TO REVOLVING CREDIT LOAN PURSUANT TO
SECTION 2.2C. All Revolving Credit Loans which the Borrower authorizes the
Agent and the Lenders to make pursuant to this Section 2.2c shall be made
whether or not at the time of any such Revolving Credit Loan all conditions
precedent to the making of such Revolving Credit Loan, as set forth in Article
7, have been met. For the sole purpose of implementing this Section 2.2c, any
provisions of this Agreement which are inconsistent with this Section 2.2c are
superseded.
(v) INTEREST RATES. Any Revolving Credit Loans made pursuant to
this Section 2.2c shall initially bear interest at the Base Rate Option until
converted by the Borrower to another Interest Rate Option as provided in
Section 2.4a, unless the Default Rate is in effect at the time such Revolving
Credit Loan is made, in which case such Revolving Credit Loans shall bear
interest at the Default Rate until the Default Rate becomes inapplicable.
2.2d AUTHORITY OF ISSUING BANK. Each Lender irrevocably authorizes
the Issuing Bank to issue, reconfirm, renew, reissue, amend and extend Letters
of Credit in accordance with the Terms of this Agreement. Upon issuing any
Letter of Credit, the Issuing Bank shall promptly notify the Agent (by
telephone or otherwise), which notice shall specify the stated amount and term
of the Letter of Credit. The Agent shall, promptly upon receiving such notice,
notify each Lender of the issuance of a Letter of Credit and of its Commitment
Percentage.
2.2e PARTICIPATION IN LETTERS OF CREDIT. The Issuing Bank hereby
sells, and each Lender hereby purchases, on a continuing basis, a Participation
and an undivided interest in (i) the obligations of the Issuing Bank to honor
any drawing under any Letter of Credit issued pursuant to this Agreement, and
any drawing under any Letter of Credit and (ii) the Indebtedness of the
Borrower to the Issuing Bank under this Agreement in respect of each Letter of
Credit, such Participation being in the amount of such Lender's Commitment
Percentage of such obligations and Indebtedness. Concurrently with the
issuance of each Letter of Credit, the Issuing Bank automatically shall be
deemed, irrevocably and unconditionally, to have sold, assigned, transferred
and conveyed to each Lender, and each
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Lender automatically shall be deemed, irrevocably and unconditionally,
severally to have purchased, acquired, accepted and assumed from the Issuing
Bank, without recourse to, or representation or warranty by, the Issuing Bank,
an undivided interest, in the amount of each Lenders' Commitment Percentage, in
all of the Issuing Bank's rights and obligations in, to or under such Letter of
Credit.
2.3 TERM LOAN.
2.3a Term Loan: Term Loan Notes. The Lenders agree, severally and
not jointly, subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, to make the Term Loan to the
Borrower in an aggregate principal amount of $22,000,000. The Term Loan shall
be funded in one drawing and amounts borrowed thereunder and repaid may not be
reborrowed. The obligation of the Borrower to repay, on or before the Term
Loan Maturity Date shall be evidenced by the Term Loan Notes, each
substantially in the form of Exhibit "B," (except that $770,000 of the
principal amount due at the Term Loan Maturity Date shall be evidenced by Term
Loan Notes in the form of Exhibit "B-1" secured in part by Mortgage Parcel(s)
located in the State of New York) (i) drawn by the Borrower to the order of a
Lender in the amount of that Lender's Commitment Percentage of the Term Loan,
(ii) duly executed by the Borrower and (iii) delivered to the Agent for
redelivery to such Lender.
2.3b COMMITMENTS OF THE LENDERS. Each Lender agrees, for itself
only, and subject to the terms and conditions of this Agreement, to make the
Term Loan to the Borrower in an amount not to exceed the principal amount equal
to such Lender's Commitment Percentage of the Term Loan. If any Lender fails
to advance to the Borrower its Commitment Percentage of the Term Loan, the
remaining Lenders shall not be required to advance to the Borrower the
defaulting Lender's share of the Term Loan.
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2.3c TERM LOAN SCHEDULED PAYMENTS. Principal payments under the
Term Loan Notes shall be due and payable in consecutive quarterly installments
beginning on June 30, 1998 and continuing thereafter on the last day of each
September, December, March and June, in the amounts set forth in the chart
below, and otherwise in accordance with the terms set forth in the Term Loan
Notes.
<TABLE>
<CAPTION>
REQUIRED
DATE PRINCIPAL PAYMENT
<S> <C>
6/30, 9/30, 12/31/1998 and 3/31/99 $ 625,000.00
6/30, 9/30, 12/31/1999 and 3/31/00 750,000.00
6/30, 9/30, 12/31/2000 and 3/31/01 875,000.00
6/30, 9/30, 12/31/2001 and 3/31/02 1,000,000.00
6/30, 9/30, 12/31/2002 and 3/31/03 1,125,000.00
6/30, 9/30, 12/31/2003 1,125,000.00
</TABLE>
On the Term Loan Maturity Date, any outstanding Obligations relating to the
Term Loan shall be due and payable.
2.3d PREPAYMENT OF TERM LOAN
(i) MANDATORY PREPAYMENTS. Mandatory prepayments of the
Term Loan shall be due and payable upon the occurrence of any of the following
events in the amounts described below.
(A) Upon the issuance of any Indebtedness of the Borrower
or any Subsidiary superior to or on a parity with the Loans (other than
Indebtedness permitted pursuant to Section 6.1 hereof), a prepayment of the
outstanding principal of the Term Loan in an amount equal to 100% of the
proceeds of such issuance shall be and become immediately due and payable.
(B) Upon the issuance of equity securities by the
Borrower or any Subsidiary, a prepayment of the outstanding principal of the
Term Loan in an amount equal to 50% of the proceeds of such issuance (net of
usual and customary costs and expenses) shall be and become immediately due and
payable.
(ii) VOLUNTARY PREPAYMENTS. The Borrower may prepay the
outstanding principal of the Term Loan in amounts of $50,000 and any integral
multiple thereof (subject to the requirements of Section 2.4d) upon ten (10)
days prior without notice to the Agent specifying the proposed date of
prepayment and the amount to be prepaid ( a "Term Loan Prepayment Notice").
Each Term Loan Prepayment Notice shall be irrevocable and upon delivery thereof
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to the Agent the amount specified therein shall be and become due and payable
on the date specified therein.
(iii) PAYMENT OF INTEREST AND FEES ON PREPAYMENT. Each prepayment
of principal of the Term Loan pursuant to the Subsection 2.3d shall be
accompanied by payment of all accrued and unpaid interest on the amount
prepaid. Prepayment shall be without premium or penalty, provided that
prepayment of any Term Loan Tranche bearing interest under the LIBOR-Rate
Option shall be accompanied by the Funding Breakage Fee calculated pursuant to
Subsection 2.1c(v) and all amounts owed pursuant to Section 2.4e, if any.
2.3e INTEREST RATE. The Term Loan shall bear interest at the rate
or rates set forth in Section 2.4 hereof, unless the Default Rate is in effect
at that time, in which case the Term Loan shall bear interest at the Default
Rate until the Default Rate becomes inapplicable.
2.4 INTEREST.
2.4a INTEREST RATES. During the term hereof the interest
applicable to the Loans outstanding may fluctuate in accordance with the terms
and provisions of this Section 2.4a.
(i) BASE RATE AND LIBOR-RATE OPTIONS. Subject to the limitations
set forth in Subsection 2.4b(i), interest (A) under the Base Rate Option shall
accrue at a rate per annum equal to the sum of the Base Rate plus the
Applicable Margins as set forth on Annex B, and (B) under the LIBOR-Rate Option
shall accrue at a rate per annum equal to the sum of the LIBOR-Rate plus the
Applicable Margins as set forth on Annex B, and in all cases the Applicable
Margin shall fluctuate in accordance with the Funded Debt to EBITDA Ratio as
set forth on Annex B. The Applicable Margin for the Base Rate Loans and the
LIBOR-Rate Loans effective as of the Closing Date will be at the Level on Annex
B which corresponds to the Funded Debt to EBITDA Ratio to be determined by the
Lenders from the Closing Date Applicable Margin Statements delivered to the
Lenders by the Borrower.
2.4b ADJUSTMENTS TO INTEREST RATES AND FEES.
(i) CHANGES IN FUNDED DEBT TO EBITDA RATIO. Interest rate and Fee
adjustments resulting from changes in the Funded Debt to EBITDA Ratio shall be
made without notice to the Borrower, based on such ratio as of the end of a
Fiscal Quarter. The applicable interest rate or Fee shall be reduced to a
specified Level only in the event that (A) no Default or Event of Default
exists as of the date of determination and (B) the required Funded Debt to
EBITDA Ratio has been satisfied; provided, however, that if a Default or Event
of Default has been remedied as provided in Section 8.1 within any applicable
cure period set forth therein or waived by the Lenders in writing, the
applicable interest rate or Fee shall be reduced effective as of the applicable
date contemplated by Subsections (A) through (C) below. All adjustments shall
be determined by the Agent and shall be effective as follows:
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(A) the Agent shall make its interest rate determination
within five (5) Business Days of the receipt by the Lenders (the "Review
Period") of the Borrower's quarterly or annual financial statements and
Compliance Certificate indicating that an adjustment in the Applicable Margin
or Fee is warranted;
(B) any reduction or increase in the Applicable Margin
after the Review Period with respect to a Revolving Borrowing Tranche or a Term
Loan Tranche for a LIBOR-Rate Loan shall be effective on the first day
following the maturity of a LIBOR-Rate Interest Period; provided that if Funded
Debt to EBITDA Ratio which warranted an adjustment to the Applicable Margin has
not been maintained for any Fiscal Quarter pending maturity of such LIBOR-Rate
Interest Period the Applicable Margin shall not be reduced;
(C) any reduction or increase in the Applicable Margin
with respect to a Revolving Borrowing Tranche or a Term Loan Tranche for a Base
Rate Loan or any Fee shall be effective one (1) Business Day following the
Review Period; and
(D) if any financial statements necessary for calculation
of the Funded Debt to EBITDA Ratio provided for in this Section 2.4b are not
delivered to the Agent within the time periods specified in Section 5.2, and
such statements when ultimately delivered give rise to an increase in the
Applicable Margin or Fees, such increase shall be retroactive to the date such
financial statements were required to be delivered pursuant to Section 5.2.
(ii) CHANGES IN BASE RATE. The Base Rate Option shall be adjusted
from time to time, without notice to the Borrower, as necessary to reflect any
changes in the Prime Rate or the Fed Funds Rate, which adjustments shall be
automatically effective on the day of any such change.
(iii) CHANGES IN LIBOR-RATE RESERVE PERCENTAGE. The LIBOR-Rate
Option shall be adjusted from time to time, without notice to the Borrower, as
necessary to reflect any changes in the LIBOR-Rate Reserve Percentage, which
adjustments shall be automatically effective on the day of such change.
(iv) DEFAULT RATE. Upon the occurrence of and during the
continuance of an Event of Default, the outstanding principal amount of the
Loans shall bear interest from the date of such occurrence at a rate per annum
which is equal to two percent (2%) in excess of the rate then in effect (e.g.
the Base Rate plus the Applicable Margin plus 2%, or the LIBOR-Rate plus the
Applicable Margin plus 2%); provided that with respect to any sum other than
principal of the Loans which bears interest at the Default Rate pursuant to
this Agreement or any of the other Loan Documents, Default Rate shall mean the
Base Rate plus the Applicable Margin plus 2%.
2.4c INTEREST RATE OPTION ELECTIONS RENEWALS AND CONVERSIONS.
Subject to the remaining provisions of this Agreement, the Borrower shall have
the option to elect to have all or any Revolving Borrowing Tranche or Term Loan
Tranche bear interest at either of the
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Interest Rate Options and shall have the right to renew elections of Interest
Rate Options and convert Borrowing Tranches or Term Loan Tranches to other
Interest Rate Options. Notice of the Borrower's election shall be made in
accordance with Section 2.5. Elections of, conversions to or renewals of the
Base Rate Option shall continue in effect until converted to the LIBOR-Rate
Option. Elections of, conversions to or renewals of the LIBOR-Rate Option
shall expire as to each such LIBOR-Rate Option at the expiration of the
applicable LIBOR-Rate Interest Period. Any Revolving Borrowing Tranche or Term
Loan Tranche outstanding for which no elections have been made shall bear
interest under the Base Rate Option.
2.4d LIMITATION ON ELECTION OF LIBOR-RATE OPTIONS. Each election
of the LIBOR-Rate Option or the prepayment of all or any LIBOR-Rate Loans shall
be in the minimum principal amount of $1,000,000 or, if in excess of
$1,000,000, in integral multiples of $500,000. At no time during the term
hereof may there be more than (i) a total of six (6) separate Revolving
Borrowing Tranches in effect, no more than five (5) of which may bear interest
at the LIBOR-Rate Option, and (ii) a total of six (6) separate Term Loan
Tranches in effect, no more than five (5) of which may bear interest at the
LIBOR-Rate Option. Upon the occurrence and during the continuance of an Event
of Default, the Borrower's right to elect, renew or convert to LIBOR-Rate Loans
shall be suspended.
2.4e SPECIAL PROVISIONS RELATING TO LIBOR-RATE OPTION.
(i) LIBOR-RATE UNASCERTAINABLE. In the event that on any date on
which a LIBOR-Rate would otherwise be set the Agent shall have determined in
good faith (which determination shall be final and conclusive) that, by reason
of circumstances affecting the London interbank market, adequate and reasonable
means do not exist for ascertaining the LIBOR-Rate, the Agent shall give prompt
notice of such determination to the Borrower and the other Lenders, and until
the Agent notifies the Borrower that the circumstances giving rise to such
determination no longer exist, the right of the Borrower to borrow under, renew
or convert to the LIBOR-Rate Option shall be treated as a request to borrow
under, renew or convert to the Base Rate Option.
(ii) ILLEGALITY OF OFFERING LIBOR-RATE. If the Agent shall
determine in good faith, which determination shall be final and conclusive,
that compliance by the Agent or any Lender with any applicable Governmental
Rule (whether or not having the force of law), or the interpretation or
application thereof by any Governmental Authority has made it unlawful for such
Lender to make or maintain LIBOR-Rate Loans, the Agent shall give notice of
such determination to the Borrower and the Lenders. Notwithstanding any
provision of this Agreement to the contrary, unless and until the Agent shall
give notice to the Borrower that the circumstances giving rise to such
determination no longer apply:
(A) with respect to any LIBOR-Rate Interest Periods
thereafter commencing, interest on the corresponding LIBOR-Rate Loans shall be
computed and payable under the Base Rate Option; and
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(B) on such date, if any, as shall be required by law,
any LIBOR-Rate Loans then outstanding shall be automatically renewed at the
Base Rate Option: and the Borrower shall pay to the Lenders the accrued and
unpaid interest on such LIBOR-Rate Loans to (but not including) such renewal
date. The Borrower shall pay the Lenders any additional amounts reasonably
necessary to compensate the Lenders (on an after-tax basis) for any
out-of-pocket costs incurred by the Lenders as a result of any renewal pursuant
to item (B) above on a day other than the last day of the relevant LIBOR-Rate
Interest Period, including, but not limited to, any interest or fees payable by
the Lenders to lenders of funds obtained by them to loan or maintain the Loans
so converted. The Lenders shall furnish to the Borrower a certificate showing
the calculation of the amount necessary to compensate the Lenders (on an
after-tax basis) for such costs (which certificate, in the absence of manifest
error, shall be conclusive), and the Borrower shall pay such amount to the
Lenders, as additional consideration hereunder, within ten (10) days of the
Borrower's receipt of such certificate.
(iii) INABILITY TO OFFER LIBOR-RATE. In the event that a Lender
shall determine, in its sole discretion, that it is unable to obtain deposits
in the London interbank market in sufficient amounts and with maturities
related to the LIBOR-Rate Loans which would enable such Lender to fund such
LIBOR-Rate Loans, then such Lender shall immediately notify the Agent. The
Agent shall then notify the Borrower that the right of the Borrower to borrow
under, convert to or renew the LIBOR-Rate Option shall be suspended. Following
notification of the suspension of the LIBOR-Rate Option, the Borrower agrees to
negotiate with the affected Lender for a modified LIBOR-Rate which will allow
such Lender to realize its anticipated and bargained-for yield. In the event
that the Borrower and the affected Lender cannot agree on a modified
LIBOR-Rate, any notice of borrowing under, conversion to or renewal of the
LIBOR-Rate Option which was to become effective during the period of suspension
shall be treated as a request to borrow under, convert to or renew the Base
Rate Option with respect to the principal amount specified therein.
(iv) INDEMNITY. In addition to the other provisions of this
Section 2.4e, the Borrower hereby agrees to indemnify the Agent and the Lenders
against any loss or expense which the Agent or any Lender may sustain or incur
as a consequence of any default by the Borrower in failing to make any
borrowing, conversion or renewal hereunder to bear interest at the LIBOR-Rate
Option on the scheduled date, in failing to make when due (whether by
declaration, acceleration or otherwise) any payment of any LIBOR-Rate Loan or
in making any payment or prepayment of any LIBOR-Rate Loan or any part thereof
on any day other than the last day of the relevant LIBOR-Rate Interest Period,
including but not limited to any loss of profit, premium or penalty incurred by
the Agent or any Lender in respect of funds borrowed by it for the purpose of
making or maintaining any LIBOR-Rate Loan as determined in good faith by the
Agent or any Lender in the exercise of its sole but reasonable discretion. The
affected Lender shall furnish to the Borrower a certificate showing the
calculation of the amount of any such loss or expense (which certificate,
absent manifest error, shall be conclusive), and the Borrower shall pay such
amount to the affected Lender within ten days of the Borrower's receipt of such
certificate.
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2.4f YIELD PROTECTION. If any Governmental Rule or the
interpretation or application thereof by any court, any Governmental Authority
charged with the administration thereof or the compliance with any guideline or
request from any central bank or other Governmental Authority, whether or not
having the force of law:
(i) subjects the Agent or any Lender to any tax, levy, impost,
charge, fee, duty, deduction or withholding of any kind hereunder (other than
any tax imposed or based upon the income of the Agent or such Lender and
payable to any Governmental Authority or taxing authority of the United States
of America or any state thereof) or changes the basis of taxation of the Agent
or any Lender with respect to payments by the Borrower of principal, interest
or other amounts due from the Borrower hereunder (other than any change which
affects, and to the extent that it affects, the taxation by the United States
of America or any state thereof of the total net income of the Agent or such
Lender); or
(ii) imposes, modifies or deems applicable any reserve, special
deposit, special assessment or similar requirements against assets held by,
deposits with or for the account of or credit extended by the Agent or any
Lender (other than such requirements which are included in the determination of
the LIBOR-Rate hereunder); or
(iii) imposes upon the Agent or any Lender any other condition with
respect to this Agreement; and the result of any of the foregoing is to
increase the cost to the Agent or the affected Lender, reduce the income
receivable by the Agent or such Lender, reduce the rate of return on the
Agent's or such Lender's capital or impose any expense upon the Agent or such
Lender by an amount which the Agent or such Lender in its sole but reasonable
discretion deems to be material (each, a "Yield Protection Event"), the Agent
or the affected Lender shall from time to time notify the Agent of the amount
determined by such Lender (which determination absent manifest error, shall be
conclusive) to be reasonably necessary to compensate the Agent or such Lender
(on an after-tax basis) for such increase in cost, reduction in income,
reduction in rate of return or additional expense, and setting forth the
calculations therefor, and the Agent shall thereupon notify the Borrower. The
affected Lender shall notify the Borrower of any Yield Protection Event as
promptly as possible. The Borrower shall pay such amount to the Agent or the
affected Lender, as additional consideration hereunder, within ten (10) days of
the Borrower's receipt of such notice from the Agent.
2.4g METHOD OF CALCULATION. In determining the amount due the
Agent and the Lenders hereunder by reason of the application of this Section
2.4, the Agent and the Lenders may use any reasonable averaging or attribution
method; provided, however, that the Agent and each Lender must use reasonable
efforts to minimize such losses and costs.
2.4h INTEREST PAYMENT DATES. Interest due on all outstanding Base
Rate Loans shall be payable quarterly in arrears on the last day of each
calendar quarter for the period just ended, with the first such payment due on
June 30, 1998. Interest due on all outstanding LIBOR-Rate Loans shall be
payable on the last day of each LIBOR-Rate Interest Period and,
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for LIBOR-Rate Interest Periods of six months, also on the 90th day of such
LIBOR-Rate Interest Period. All accrued and unpaid interest on the Revolving
Credit Loans shall be due and payable on the Revolving Credit Termination Date
and all accrued and unpaid interest on the Term Loan shall be due and payable
on the Term Loan Maturity Date. After any maturity of any Note or the
Obligations, whether on a scheduled maturity date, by acceleration or
otherwise, all accrued and unpaid interest shall be due and payable on demand
until all amounts due hereunder are paid in full.
2.4i CALCULATION OF INTEREST. Interest under the Loans shall be
calculated on the basis of the actual number of days elapsed, using a year of
360 days. Interest for any period shall be calculated from and including the
first day thereof to but not including the last day thereof.
2.5 REQUESTS FOR LOANS, INTEREST RATE OPTIONS AND CONVERSIONS. Each
request for a Revolving Credit Loan (other than in connection with Letters of
Credit as to which Section 2.2c shall apply), and for the election or renewal
of or conversion to an Interest Rate Option for any Loan shall be made to the
Agent orally or in writing by an Authorized Officer no later than 11:00 a.m.
(Chicago time) (i) on the Business Day of such Loan or Interest Rate Option
election, renewal or conversion, with respect to Base Rate Loans and (ii) at
least three (3) Business Days prior thereto, with respect to LIBOR-Rate Loans.
Any oral request for a Loan or an Interest Rate Option shall be followed
immediately by the Borrower's written confirmation of such request executed by
an Authorized Officer, which confirmation must set forth the amount and date of
the Loan, if applicable, the Interest Rate Option selected and, if applicable,
the LIBOR-Rate Interest Period being selected and the proposed effective date
thereof. All written requests and confirmations shall be made pursuant to a
Loan Request in the form of Exhibit "C." A request from the Borrower pursuant
to this Section 2.5 with respect to a LIBOR-Rate Loan shall irrevocably commit
the Borrower to accept such LIBOR-Rate Loan on the date specified in such
request. The Agent shall promptly notify the Lenders of each request for a
Loan no later than by 12:00 p.m. (Chicago time) on the Business Days referred
to in clause (i) or (ii) above. Each Lender shall make its Commitment
Percentage of any Loan available to the Borrower in immediately available funds
at the principal office of the Agent prior to 2:00 p.m. (Chicago time) on the
date such Loan is to be made.
2.6 METHOD OF DISBURSEMENTS AND PAYMENTS. All Loans shall be made by the
Agent funding the account of the Borrower maintained at the Agent. All
payments of principal, interest, Fees, costs and other amounts due hereunder
and under the other Loan Documents shall be made by the Borrower to the Agent
at the Agent's principal office at 135 South LaSalle Street, Chicago, Illinois
60603 not later than 11:00 a.m. (Chicago time) on the due date, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Borrower, and without set-off, counterclaim or other
deduction of any nature, and an action therefor shall immediately accrue. All
such Loans and payments shall be made in cash or shall be immediately good
funds when either transferred by the Agent into the Borrower's account with the
Agent, or when delivered by the Borrower to the Agent, as the case may be.
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2.7 CAPITAL ADEQUACY. If (i) any adoption of, change in or interpretation
of any Governmental Rule, or (ii) compliance with any guideline, request or
directive of any central bank or other Governmental Authority or
quasi-Governmental Authority exercising control over banks or financial
institutions generally, including but not limited to regulations set forth at
12 C.F.R. Part 3 (Appendix A) 12 C.F.R. Part 208 (Appendix A), 12 C.F.R. Part
225 (Appendix A) and 12 C.F.R. Part 325 (Appendix A) or any court requires that
the commitments of any Lender hereunder be treated as an asset or otherwise be
included for purposes of calculating the appropriate amount of capital to be
maintained by such Lender or any corporation controlling such Lender (a
"Capital Adequacy Event"), the result of which is to reduce the rate of return
on such Lenders capital as a consequence of such commitments to a level below
that which such Lender could have achieved but for such Capital Adequacy Event,
taking into consideration such Lender's policies with respect to capital
adequacy, by an amount which such Lender deems to be material, such Lender
shall promptly deliver to the Agent and the Borrower a certificate of the
amount necessary to compensate such Lender for the reduction in the rate of
return on its capital attributable to such commitments (the ACapital
Compensation Amount"), calculated in good faith, using reasonable attribution
and averaging methods, which certificate, absent manifest error, shall be
presumed to be correct. Such amount shall be due and payable by the Borrower
to the affected Lender ten (10) days after such notice is given.
2.8 LOAN ACCOUNTS. Each Lender shall open and maintain on its books a
Loan Account in the Borrower's name with respect to Loans made, repayments,
prepayments, the computation and payment of interest, Fees and other amounts
due and sums paid to such Lender hereunder and under the other Loan Documents.
Except in the case of manifest error in computation, such records shall be
conclusive and binding on the Borrower as to the amount at any time due to such
Lender from the Borrower.
2.9 FEES. The Borrower shall pay the following Fees, all of which shall
be fully earned when due and nonrefundable:
2.9a COMMITMENT/AGENCY FEES. The Borrower shall pay a commitment
fee and agency fees to the Agent, as set forth in the Fee Letter.
2.9b LETTER OF CREDIT FEES. The Borrower shall pay to the Agent,
for the pro rata benefit of the Lenders, a per annum fee (A) for the issuance
of each standby Letter of Credit equal to the applicable fee for standby
Letters of Credit in the Pricing Matrix set forth in Annex B hereto, multiplied
by the daily stated amount of all such outstanding standby Letters of Credit
for the number of days outstanding, payable on the last day of each Calendar
Quarter and (B) for the issuance of each commercial documentary Letter of
Credit, equal to the applicable fee for commercial Letters of Credit
(determined on the date each payment is due) in the Pricing Matrix set forth in
Annex B hereto, multiplied by the stated amount of each such Letter of Credit,
and payable on the day of issuance of each Letter of Credit and annually
thereafter on each anniversary of such date of issuance. In addition, the
Borrower shall pay to the Issuing Bank, for its own account, a fronting fee for
each standby Letter of
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Credit issued hereunder in an amount equal to .125% of the stated amount of
each such Letter of Credit payable on the date of issuance thereof, and the
Issuing Bank's customary transaction charges, as from time to time in effect,
for the documentation, administration, amendment and transfer of all Letters of
Credit (both commercial and standby), including but not limited to any
amendment, renewal or assignment thereof, along with any telecommunications
costs and other incidental expenses incurred by the Issuing Bank in connection
therewith.
2.9c UNUSED LINE FEE. The Borrower shall pay to the Agent, for the
pro rata benefit of Lenders, a fee in an amount equal to the Revolving Credit
Commitment less the sum of the average daily balance of the Revolving Credit
Loans and the average daily face amount of the outstanding Letters of Credits
during the preceding Fiscal Quarter multiplied by the applicable Commitment Fee
(determined on the date such payment is due) in the Pricing Matrix set for in
Annex B hereto, such fee to be calculated on the basis of a 360 day year for
the actual number of days elapsed and to be payable quarterly in arrears on the
last day of the first Fiscal Quarter following the Closing Date and the last
day of each Fiscal Quarter thereafter.
2.9d FEES FULLY EARNED. All Fees payable to the Agent, the
Lenders or the Issuing Bank pursuant to any Loan Document shall
be fully earned when due and shall be non-refundable.
2.10 ALL OBLIGATIONS TO CONSTITUTE ONE OBLIGATION. All Obligations shall
constitute one general obligation of the Borrower, and shall be secured by the
Agent's Lien on the Collateral for the benefit of the Lenders and by all other
Liens heretofore, now or at any time or times hereafter granted by the Borrower
to the Agent.
2.11 PAYMENT FROM ACCOUNTS MAINTAINED BY THE BORROWER. The Agent is hereby
authorized to effect payment of principal, interest, the fees described in the
Fee Letter, and cash management fees by debiting a demand deposit account of
the Borrower now or in the future maintained with the Agent with appropriate
debits to the Loan Accounts for such amounts, provided that the Agent shall
give immediate notice thereof to the Borrower.
ARTICLE 3. SET-OFF AND SECURITY INTERESTS
3.1 SET-OFF. To secure the repayment of the Obligations, the Borrower
hereby gives to each Lender and any Participant a Lien and security interest
upon and in any of the Borrower's property, credits, securities and Money which
may at any time be delivered to, or be in the possession of, or owed by such
Lender and any Participant in any capacity whatever, including the balance of
any deposit account maintained by the Borrower with such Lender or the
Participant, as the case may be. The Borrower hereby authorizes each Lender
and each Participant, at any time and from time to time upon the occurrence and
during the continuance of an Event of Default, at such Lender's or the
Participant's option, to apply (through debit, set-off or otherwise), at the
discretion of such Lender or the Participant, to the payment of the
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Obligations any and all such property, credits, securities or Money now or
hereafter in the hands of the Lender or the Participant or belonging or owed to
the Borrower.
3.2 PERSONAL PROPERTY INTERESTS. To secure the repayment of the
Obligations, the Borrower hereby grants to the Agent for and on behalf of the
Lenders, a Lien, subject only to Permitted Liens, in all of its now owned or
hereafter acquired Equipment, Fixtures, Goods, Inventory, Accounts, Chattel
Paper, Documents, General Intangibles, Instruments and Investment Property, all
as more fully described in the Security Documents. To further evidence the
grant of such Liens, on or prior to the Closing Date and from time to time
thereafter the Borrower shall execute and deliver to the Agent (i) a Security
Agreement substantially in the form of Exhibit "D," (ii) the Pledge Agreement
and the First Thoroughbred Pledge Agreement substantially in the forms of
Exhibit "E" and Exhibit "E-1", respectively, (iii) a collateral assignment of
Patents and Trademarks substantially in the form of Exhibit "H" and (iv) all
Uniform Commercial Code financing statements reasonably requested by the Agent,
so that all times during the Term hereof the Borrower has granted to the Agent
a valid, first priority perfected Lien in and to all personal property owned by
it, subject only to the Permitted Liens.
3.3 REAL PROPERTY INTERESTS. To secure the repayment of the Obligations,
the Borrower hereby agrees to grant to the Agent for and on behalf of the
Lenders, a Lien, subject only to Permitted Encumbrances and Permitted Liens, in
all of its now owned or hereafter acquired interests in the Mortgaged Parcels.
To further evidence the grant of such Liens, on or prior to the Closing Date
and from time to time thereafter, the Borrower shall execute and deliver to the
agent a Mortgage or Deed of trust for each Mortgaged Parcel, in recordable
form, substantially in the form of Exhibit AF.@
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans herein provided for, the Borrower makes the following
representations and warranties to the Agent and the Lenders, all of which shall
survive the execution and delivery of this Agreement and the making of the
Loans:
4.1 ORGANIZATION AND POWERS. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Indiana and is qualified to do business in all states in which it owns
Mortgaged Parcels and in the States listed on Schedule 4.1, which represent all
of the States in which the leasing of its property or the operation of its
business requires the Borrower to be qualified, except where failure to be so
qualified could not be reasonably expected to have a Material Adverse Effect.
The Borrower has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted and proposed to be
conducted and to enter into each Loan Document.
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4.2 CAPITALIZATION. The authorized capital stock of the Borrower and its
Subsidiaries is as set forth on Schedule 4.2. All issued and outstanding
shares of capital stock of each of the Borrower and its Subsidiaries are duly
authorized and validly issued, fully paid, nonassessable, and such shares were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities. The capital stock of the Borrower and its Subsidiaries
are owned by the stockholders and in the amounts set forth on Schedule 4.2. No
shares of the capital stock of the Borrower or any Subsidiary, other than those
described above, are issued and outstanding. Except as set forth on Schedule
4.2, there are no preemptive or other outstanding rights, options, warrants,
conversion rights or similar agreements or understandings for the purchase or
acquisition from the Borrower or any Subsidiary, of any shares of capital stock
or other securities of any such entity. Except as set forth in Schedule 4.2,
Borrower has no Subsidiaries.
4.3 POWER AND AUTHORITY. The Borrower is duly authorized to enter into,
execute, deliver and perform all of the terms and provisions of this Agreement
and the other Loan Documents to which it is a party, to incur the Obligations
and to perform its obligations under the Loan Documents to which it is a party.
All necessary corporate action required to authorize the execution, delivery
and performance of this Agreement and the other Loan Documents to which the
Borrower is a party has been properly taken by the Borrower.
4.4 VALIDITY; BINDING EFFECT AND ENFORCEABILITY. This Agreement and the
other Loan Documents have been duly executed and delivered by the Borrower.
This Agreement and the other Loan Documents constitute legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their respective terms, excerpt as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally and except as such enforceability may be limited by the availability
of equitable remedies.
4.5 NO CONFLICT. Neither the execution and delivery of this Agreement and
the other Loan Documents by the Borrower, nor the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof or thereof by the Borrower, will conflict with, constitute a
default under or result in any breach of (i) the terms and conditions of the
Borrower's Articles of Incorporation, as amended or By-Laws, as amended, (ii)
any agreement or instrument which could reasonably be expected to have a
Material Adverse Effect, or (iii) any order, writ, judgment, injunction or
decree, to which the Borrower is a party or by which it is bound or to which it
is subject, or will result in the creation or enforcement of any Lien
whatsoever upon any property, whether now owned or hereafter acquired, of the
Borrower, except for Permitted Liens and Permitted Encumbrances.
4.6 FINANCIAL MATTERS.
4.6a HISTORICAL FINANCIAL STATEMENTS. The Borrower has delivered
to the Lenders the audited financial statements for the Fiscal Year ended
December 31, 1996 for each of the
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Affiliated Entities and the unaudited consolidated quarterly financial
statements of BLC, for the period ended September 30, 1997 (the "September 30,
1997 Balance Sheet"). Such financial statements are complete and correct in
all material respects (the September 30, 1997 Balance Sheet being without notes
and subject to year-end adjustments), and fairly present the financial
condition of the Affiliated Entities and BULLC on a consolidated basis,
respectively, in all material respects and the results of their operations as
of the dates and for the periods referred to, and have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except for the aforesaid lack of notes and year-end adjustment). The
Borrower, the Affiliated Entities and BULLC have no material liabilities,
whether direct or indirect, fixed or contingent, and no liability for taxes,
long-term leases or unusual forward or long-term commitments as of September
30, 1997 which are not reflected in the September 30, 1997 Balance Sheet.
4.6b FINANCIAL PRO-FORMA AND PROJECTIONS. The pro-forma unaudited
consolidated balance sheet of the Borrower dated as of the Closing Date and
delivered to the Lenders (the "Pro-Forma Balance Sheet") was based upon the
unaudited consolidated balance sheets of Borrower and the Affiliated Entities
as of September 30, 1997 and reflects the financial condition of the Borrower
after giving effect to the transactions contemplated by this Agreement and the
Restructuring Transaction. The Borrower has delivered to the Lenders financial
projections of the Borrower and its Subsidiaries for the five-year period
beginning with the Fiscal Year ending December 31, 1997, including detailed
assumptions and updated operating statements. Such projections set forth a
reasonable estimate of possible results in light of the history of the
Borrower's and the Affiliated Entities= business, present and foreseeable
conditions and the intentions of the Borrower's management, and were prepared
in good faith and on a basis determined by the Borrower to be reasonable based
on the assumptions set forth therein, which Borrower believes to be reasonable,
and three years of which were reviewed by the Borrower's independent certified
public accountants. Such projections accurately reflect the liabilities of the
Borrower owed to the Lenders upon consummation of the transactions contemplated
hereby as of the Closing Date.
4.7 MATERIAL ADVERSE CHANGE. Since December 31, 1996, there has been no
Material Adverse Change and there have been no events or developments that
individually or in the aggregate have had a Material Adverse Effect.
4.8 LITIGATION. There are no judgments outstanding against Borrower, any
of the Affiliated Entities or the Subsidiary Entities as of the date hereof,
and, except as set forth on Schedule 4.8, there are no actions, suits,
proceedings or investigations pending or, to the Borrower's knowledge,
threatened against the Borrower, any of the Affiliated Entities or any of the
Subsidiary Entities, or any of their respective businesses, operations,
properties, prospects, profits or condition (financial or otherwise), at law or
in equity, before any Governmental Authority which, individually or in the
aggregate, if adversely determined, could reasonably be expected to have a
Material Adverse Effect, or which purport to affect the rights and remedies of
the Agent and the Lenders pursuant to this Agreement or any other Loan Document
or which purport to restrain or enjoin (either temporarily, preliminarily or
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permanently) the performance by the Borrower, any of the Affiliated Entities or
any of the Subsidiary Entities of any action contemplated by any of the Loan
Documents.
4.9 COMPLIANCE WITH LAWS. The Borrower has duly complied with, and its
properties, business operations and leaseholds are in compliance with, all
Governmental Rules applicable to the Borrower, its respective properties and
the conduct of its business, except where the failure to comply will not have a
Material Adverse Effect.
4.10 MATERIAL CONTRACTS. All contracts material to the business of the
Borrower are valid, binding and enforceable upon the Borrower and, to the best
of the Borrower's knowledge, each of the other parties thereto in accordance
with their respective terms, except to the extent that such invalidity,
non-binding effect or unenforceability would not cause a Material Adverse
Change. The Borrower is not in default of any material provision of any such
material contract to which it is a party.
4.11 LABOR MATTERS. Except as set forth on Schedule 4.11, neither Borrower
nor any of the Subsidiary Entities is a party to any collective bargaining
agreement, and there are no strikes, work stoppages, material grievances,
disputes or controversies with any union or any other organization or known
threats of strikes, work stoppages or slowdowns, or any asserted pending
demands for collective bargaining by any union or organization or other union
organization effort. Except as set forth on Schedule 4.11, the Borrower and
the Affiliated Entities have not, within the two-year period preceding the date
hereof, taken any action which would have constituted or resulted in a "plant
closing" or "mass layoff" within the meaning of the Federal Worker Adjustment
and Retraining Notification Act of 1988 or any similar applicable Governmental
Rule. Any action taken by the Borrower or any of the Affiliated Entities which
constituted or resulted in such a Aplant closing@ or "mass layoff" has complied
in all material respects with the Federal Worker Adjustment and Retraining
Notification Act of 1988 or any similar applicable Governmental Rule. The
procedures by which the Borrower, any of the Affiliated Entities or any of the
Subsidiary Entities has hired or will hire its employees comply and will comply
in all respects with each collective bargaining agreement to which the
Borrower, any of the Affiliated Entities or any of the Subsidiary Entities is a
party and all applicable Governmental Rules, except to the extent that such
failure to comply would not cause a Material Adverse Change as to the Borrower.
4.12 ACCOUNT WARRANTIES. The Borrower represents, warrants and covenants
as to each Qualified Account that, to the best knowledge of the Borrower in the
exercise of its normal credit procedures, as of the date of the initial
Borrowing Base Certificate and each subsequent Borrowing Base Certificate (i)
the Qualified Account is a valid, bona fide account, representing an undisputed
indebtedness incurred by the named account debtor for goods actually sold and
delivered or for services completely rendered; (ii) there are no setoffs,
offsets or counterclaims, genuine or otherwise, against the Qualified Account,
except as taken into account in subsection (ix) of the definition of Qualified
Account; (iii) the Qualified Account does not represent a sale to an Affiliate
(except as permitted by this Agreement) or a consignment, sale or return or a
bill and hold transaction: (iv) no agreement exists permitting
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any deduction or discount (other than the discount stated on the invoice); (v)
the Borrower is the lawful owner of the Qualified Account and has the right to
assign the same to agent, for the benefit of Lenders; (vi) the Account is free
of all security interests, liens and encumbrances other than those in favor of
the Agent, on behalf of Lenders, and the Permitted Liens; (vii) the Qualified
Account is due and payable in accordance with its terms; (viii) there are no
facts, events or occurrences which in any material respect impair the validity
or enforcement of any Qualified Account; (ix) all Account Debtors have the
ability to contract and are solvent; and (x) there are no proceedings or
actions which are pending or threatened against any Account Debtor which are
reasonably expected to result in any material adverse change in such Account
Debtor=s financial condition.
4.13 NAMES. Schedule 4.13 sets forth all names, trade names, fictitious
names and business names under which the Borrower, the Affiliated Entities or
the Subsidiary Entities currently conducts business or has at any time during
the past Fiscal Year has conducted business.
4.14 LOCATIONS: MORTGAGED PARCELS. Schedule 4.14 sets forth the location
of the Borrower's chief executive and principal place of business, the location
of the Borrower's books and records, the location of all other offices of the
Borrower, a list of the Mortgaged Parcels, and all Collateral locations, and
such locations are the Borrower's sole locations for its business and the
Collateral. The Borrower=s federal employer identification number is set forth
on the signatures page hereof. Schedule 4.14 also sets forth similar
information for the Subsidiary Entities.
4.15 CONDITION OF AND TITLE TO ASSETS. The Borrower has good, sufficient
and legal title to its properties and assets, except for defects in title
which, taken as a whole, are not material to the Borrower. As of the date
hereof, none of the assets of the Borrower is subject to any Liens, except for
Permitted Liens and Permitted Encumbrances in existence on the Closing Date.
All of the assets and properties of the Borrower that are necessary for the
operation of its business are in good working condition, ordinary wear and tear
excepted, and are able to serve the functions for which they are currently
being used.
4.16 TAX RETURNS AND PAYMENTS. Each of Borrower, the Affiliated Entities
and the Subsidiary Entities (i) has filed all Federal, state, local and other
tax returns required by law to be filed and (ii) has paid all taxes,
assessments and other governmental charges levied upon it or any of its
properties, assets, income or franchises which are due and payable, other than
(A) those presently payable without penalty or interest, (B) those which are
being contested in good faith by appropriate proceedings and (C) those which,
if not paid, would not, in the aggregate, have a Material Adverse Effect; and
as to each of items (A), (B) and (C) the Borrower, the Affiliated Entities
and/or the Subsidiary Entities has set aside on its books reserves for such
claim as are determined to be adequate by application of GAAP consistently
applied. The charges, accruals, and reserves on the books of the Borrower or
the Subsidiary Entities in respect of Federal, state, local and other taxes and
assessments for all fiscal periods to date are adequate, and the Borrower knows
of no unpaid assessments for additional
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Federal, state, local or other taxes for any such fiscal period or any basis
therefor relating to the Borrower.
4.17 INTELLECTUAL PROPERTY. The Borrower and the Subsidiary Entities,
respectively, own or license all the material patents, patent applications,
trademarks, trademark applications, permits, service marks, trade names,
copyrights, copyright applications, licenses, franchises, authorizations and
other intellectual property rights that are necessary for the operations of its
business, without infringement upon or conflict with the rights of any other
Person with respect thereto. To the best knowledge of the Borrower, no slogan
or other advertising, device, product, process, method, substance, part or
component or other material now employed, or now contemplated to be employed,
by the Borrower or any of the Subsidiary Entities infringes upon or conflicts
with any rights owned by any other Person, and no claim or litigation regarding
any of the foregoing is pending or threatened. No patent, invention, device,
application, and no statute, law, rule, regulation, standard or code involving
the Borrower's intellectual property is pending or, to the knowledge of the
Borrower, proposed, except where the consequences in the aggregate have no
Material Adverse Effect as to the Borrower. All of the Borrower's material
patents, trademarks, permits, service marks, trade names, copyrights, licenses,
franchises and authorizations are listed on Schedule 4.17.
4.18 INSURANCE. The Borrower and the Subsidiary Entities currently
maintain insurance which meets or exceeds the requirements of Section 5.8
hereof and the applicable insurance requirements set forth in the other Loan
Documents, and such insurance is provided by insurers meeting the requirements
of Section 5.8 and is of such types and at least in such amounts as are
customarily carried by, and insures against such risks as are customarily
insured against by similar businesses similarly situated and owning, leasing
and operating similar properties to those owned, leased and operated by the
Borrower or any of the Subsidiary Entities. All of such insurance policies,
which are listed on Schedule 4.18, are valid and in full force and effect. No
notice has been given or claim made and no grounds exist to cancel or avoid any
of such policies or to reduce the coverage provided thereby.
4.19 CONSENTS AND APPROVALS. Except as listed on Schedule 4.19, no order,
authorization, consent, license, validation or approval of, or notice to,
filing, recording, or registration with any Governmental Authority, or the
exemption by any such Governmental Authority, is required to authorize, or is
required in connection with, (i) the execution, delivery and performance of any
of the Loan Documents, (ii) the legality binding effect or enforceability of
any Loan Document or (iii) the Restructuring Transaction.
4.20 PLANS AND BENEFIT ARRANGEMENTS. Each Plan and Benefit Arrangement has
been maintained and administered in all material respects in compliance with
ERISA and the Internal Revenue Code and all rules, orders and regulations
issued thereunder. The Internal Revenue Service has determined that each Plan
and Benefit Arrangement which constitutes an employee pension benefit plan as
defined in Section 3(2) of ERISA and which is intended to qualify under Section
401(a) of the Internal Revenue Code so qualifies under Section 401(a) of the
Internal Revenue Code, and that the trusts related thereto are exempt from tax
under the
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provisions of Section 501(a) of the Internal Revenue Code. Nothing has
occurred with respect to any such Plan or Benefit Arrangement or to the related
trusts since the date of the most recent favorable determination letter issued
by the Internal Revenue Service which has adversely affected or may reasonably
be expected to affect adversely such qualification or exemption. Except in
connection with the Restructuring Transaction, no Reportable Event for which
notice is not waived under applicable regulation, has occurred with respect to
any Plan. Neither the Borrower nor any ERISA Affiliate currently contributes
to, or is obligated to contribute to, or is a member of, any Multiemployer
Plan. Neither the Borrower nor any ERISA Affiliate has incurred, or is
reasonably expected to incur, any Withdrawal Liability to any Multiemployer
Plan.
4.21 SOLVENCY. After giving effect to the transactions contemplated by the
Restructuring Transaction and the Loan Documents, the Borrower is, and at all
times until the Obligations are satisfied in full, shall be Solvent.
4.22 MARGIN STOCK. The Borrower is not engaged principally or as one of
its important activities in the business of extending credit for the purpose,
immediately, incidentally or ultimately, of purchasing or carrying margin stock
(within the meaning of Regulation U). No Loan will be used, immediately,
incidentally or ultimately, to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying margin stock, or for
any other purpose which would violate or be inconsistent with any of the
regulations of the Board of Governors of the Federal Reserve System.
4.23 INVESTMENT COMPANY ACT. The Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended from time to time, or a company under the "control" of an
"investment company," as those terms are defined in such Act, and shall not
become such an "investment company" or under such "control."
4.24 PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is not a "holding
company or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or a "subsidiary company" of a "holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended from time
to time.
4.25 RESTRUCTURING TRANSACTION. Each of the Affiliated Entities has filed
an information statement and the Borrower has filed a Rule 13e-3 transaction
statement with the United States Securities and Exchange Commission pursuant to
Regulation 14C and Rule 13e-3 under the Securities and Exchange Act of 1934,
respectively. Each of such information statements and transaction statement
complied as to form in all material respects with the requirements of the
Securities and Exchange Act of 1934, and did 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 made therein not
misleading. As of the Closing Date, the Restructuring Transaction has been
completed, the Affiliated Entities have been merged with and into Walter E.
Best Company, Inc., an Indiana corporation, which has changed its name to Best
Lock
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Corporation, and the Borrower has succeeded to all of the assets and
liabilities of the Affiliated Entities including, without limitation, ownership
of 100% of the issued and outstanding capital stock of First Thoroughbred.
First Thoroughbred is the owner and holder of all of the issued and outstanding
capital stock of BULLC, NSC and Best Access.
4.26 FULL DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to the Agent or any Lender by or on behalf
of the Borrower pursuant to this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which they were made, not misleading. There is no fact known to the Borrower
which materially and adversely affects the business, property, assets,
financial condition, results of operations or prospects of the Borrower which
has not been set forth in this Agreement or in the other documents,
certificates and statements (financial or otherwise) furnished to the Agent or
any Lender by or on behalf of the Borrower prior to or on the date hereof in
connection with the transactions contemplated hereby.
ARTICLE 5. AFFIRMATIVE COVENANTS
From the date hereof and thereafter until the termination of the
Revolving Credit Commitment and until the Loans and the other Obligations of
the Borrower hereunder are paid in full, the Borrower agrees, for the benefit
of the Agent and the Lenders, that it will comply, and shall cause the
Subsidiary Entities to comply, with each of the following affirmative
covenants:
5.1 USE OF PROCEEDS. The Loans shall be used by the Borrower only for the
following purposes:
(i) The Revolving Credit Loans shall be used (A) to repay on the
Closing Date all outstanding Existing Bank Indebtedness, (B) to provide funds
for the Restructuring Transaction, and (C) for working capital.
(ii) The Term Loans shall be used (A) to repay on the Closing Date
all outstanding Existing Bank Indebtedness, (B) to provide funds for the
Restructuring Transaction, and (C) until all of the shares of the Affiliated
Entities have been redeemed, to provide working capital.
5.2 DELIVERY OF FINANCIAL STATEMENTS AND OTHER INFORMATION. During the
term hereof, the Borrower shall deliver or cause to be delivered to the Agent
and each Lender the following financial statements and other information:
5.2a ANNUAL FINANCIAL STATEMENTS. As soon as available and in any
event within one hundred twenty (120) days after the end of each Fiscal Year of
the Borrower, (i) a consolidated balance sheet of Borrower as of the end of
such Fiscal Year and the related consolidated statements of income, retained
earnings and cash flows for such Fiscal Year,
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setting forth in each case in comparative form the figures for the previous
Fiscal Year, all prepared on a consolidated basis in accordance with GAAP
consistently applied and presenting fairly the financial condition of the
Borrower and its Subsidiaries in such reasonable detail and scope as the Agent
may request from time to time, all of the foregoing to be audited and certified
by a recognized certified public accounting firm reasonably acceptable to the
Agent, whose opinion shall be unqualified, accompanied by a reliance letter
from such accountants permitting the Lender to rely on the contents thereof as
if prepared specifically for use by Lenders, and, (ii) a balance sheet of the
Subsidiary Entities as of the end of such Fiscal Year and the related
statements of income, retained earnings and cash flows for such Fiscal Year,
setting forth in each case in comparative form the figures for the previous
Fiscal Year, all prepared in accordance with GAAP consistently applied and
presenting fairly the financial condition of the Subsidiary Entities in such
reasonable detail and scope as the Agent may request from time to time, all of
the foregoing to be reviewed by a recognized certified public accounting firm
reasonably acceptable to the Agent, whose opinion shall be unqualified,
accompanied by a reliance letter from such accountants permitting the Lender to
rely on the contents thereof as if prepared specifically for use by Lenders.
5.2b MONTHLY STATEMENT OF OPERATIONS. As soon as possible and in
any event within thirty (30) days of the end of each month, a consolidated
balance sheet of Borrower as at the end of such month and the related
consolidated statements of income and retained earnings for such month and for
the period from the beginning of the then current Fiscal Year to the end of
such month, with related cash flow statements at the end of each Fiscal Quarter
setting forth in each case in comparative form, figures for (a) the
corresponding periods in the preceding fiscal year and as of a date one year
earlier and (b) the budget for such month of Borrower, all prepared on a
consolidated basis in accordance with GAAP consistent with Fiscal Year
financial statements but omitting notes and subject to year-end adjustments,
accompanied by the same statements for the Subsidiary Entities, each presenting
fairly the financial condition of the Borrower and its Subsidiaries and the
Subsidiary Entities in such reasonable detail as the Agent may request from
time to time and each certified as accurate by an Authorized Officer;
5.2c COMPLIANCE CERTIFICATE. Simultaneously with the delivery of
each set of annual financial statements and of each monthly financial statement
referred to in Sections 5.2a and 5.2b, respectively an executed, completed
Compliance Certificate substantially in the form of Exhibit "J," executed by an
Authorized Officer and, in the case of the Compliance Certificate submitted
with the financial statements at the end of each Fiscal Quarter, containing
calculations with respect to Borrower's compliance with each of the financial
covenants contained in this Agreement and such additional information as the
Agent may reasonably request from time to time;
5.2d BORROWING BASE CERTIFICATE. Within ten (10) Business Days
following the end of each calendar month, a completed, executed Borrowing Base
Certificate substantially in the form of Exhibit "K" for the calendar month
just ended, executed by an Authorized Officer and containing such additional
information as may be requested by the Agent from time to time;
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5.2e MANAGEMENT LETTERS. Within ten (10) Business Days after
receipt by the Borrower of any management or similar letters or reports from
such certified public accounts, a copy of each management letter or report;
5.2f OTHER REPORTS, INFORMATION AND NOTICES. Within the time
periods set forth below, the following other reports, information and notices:
(i) NOTICE OF DEFAULTS AND MATERIAL ADVERSE CHANGES. Promptly
after any officer of the Borrower has learned of the occurrence or existence of
a Default or Event of Default or an event or set of circumstances which has had
or which may reasonably be expected to have a Material Adverse Effect or which
has caused or which may reasonably be expected to cause a Material Adverse
Change, telephonic notice thereof specifying the details thereof, the
anticipated effect thereof and the action which the Borrower has taken, is
taking or proposes to take with respect thereto, which notice shall be promptly
confirmed in writing within five days by an Authorized Officer;
(ii) NOTICE OF LITIGATION. (A) Promptly after the commencement or
threat thereof, written notice of any action, suit, proceeding or investigation
by, against or which is reasonably likely to have a Material Adverse Change and
is before any Governmental Authority, court or arbitrator and, in any event, of
any action, suit, proceeding or investigation against the Borrower has a
reasonable possibility of incurring damages in excess of $1,000,000 and (B)
promptly after any Authorized Officer has notice thereof, written notice of any
decision, ruling, judgment, appeal, reversal or other significant action in
connection with any existing action, suit, proceeding or investigation before
any Governmental Authority, court or arbitrator which would or could reasonably
be expected to result in a Material Adverse Change;
(iii) ERISA REPORTS.
(A) as soon as possible, and in any event not later than
the date notice is sent to the PBGC, notice of any Reportable Event for which
notice is not waived under applicable regulation, regarding any Plan and an
explanation of any action which has been or which is proposed to be taken with
respect thereto;
(B) promptly after receipt thereof, a copy of any notice
which the Borrower or any ERISA Affiliate may receive from the PBGC relating to
the intention of the PBGC to terminate any Plan, or to appoint a trustee to
administer any Plan, or to assert any liability under Title IV of ERISA against
the Borrower or any ERISA Affiliate; and
(C) concurrent with the filing thereof, a copy of any
Notice of Intent to Terminate any Plan filed under Section 4041(c) of ERISA.
(iv) NOTICES OF TAX AUDITS. Promptly, and in any event within five
(5) Business Days after receipt thereof by the Borrower, a copy of each notice
from any Governmental
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Authority received by the Borrower of such Governmental Authority's intention
to audit any Federal tax return of the Borrower, any of the Subsidiary Entities
or any Subsidiary and a copy of each subsequent notice with respect thereto
from any such Governmental Authority;
(v) NOTICE OF NAME CHANGE. As soon as possible, and in any event
at least thirty (30) Business Days prior to the effective date thereof, written
notice of any change of the Borrower's or any Subsidiary Entity's name; and
(vi) LABOR MATTERS. Within two (2) Business Days after any
Authorized Officer of the Borrower has knowledge thereof, written notice of (A)
any demand for collective bargaining by any union or organization, (B) any
other union organizing effort, (C) any actual or threatened strike, work
stoppage or slowdown, or (D) any material grievance, dispute or controversy
involving any labor union or other organization.
(vii) ANNUAL FORECAST. Within sixty (60) days following the end of
each Fiscal Year of Borrower, an annual forecast for the forthcoming fiscal
year, which shall include, without limitation, (i) a projected consolidated
balance sheet and statements of income, retained earnings and cash flows of
Borrower, and (ii) a projected balance sheet and statements of income, retained
earnings and cash flows of the Subsidiary Entities, each accompanied by a
written explanation of material changes to or variances from prior projections.
5.2g ADDITIONAL INFORMATION; VISITATION. The Borrower shall deliver
to the Agent and each Lender such additional financial statements, reports,
financial projections, and other information, whether or not financial in
nature, as the Agent and the Lenders may reasonably request from time to time.
The Borrower will permit the Agent, the Lenders and their respective designated
employees and agents to have access, at any time and from time to time, upon
reasonable notice and during normal business hours, to visit any of the
properties of the Borrower or the Subsidiary Entities, to examine and make
copies of its books of record and account and such reports and returns as the
Borrower or any of the Subsidiary Entities may file with any Governmental
Authority and discuss the Borrower's affairs and accounts with, and be advised
about them by, any Authorized Officer and the Borrower's accountants; provided,
however, that no notice of a visitation need be given when a Default or Event
of Default exists.
5.3 PRESERVATION OF EXISTENCE; QUALIFICATION. At its own cost and
expense, the Borrower will to do all things necessary to preserve and keep in
full force and effect its and First Thoroughbred's corporate existence and
qualification under the laws of the State of Indiana (or other applicable State
of incorporation) and be and remain and cause First Thoroughbred to be and
remain qualified to transact business in each state where due to the nature of
its activities or the ownership of its properties, qualification to transact
business is required, except where the failure to be so qualified not
reasonably likely to have a Material Adverse Effect.
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5.4 COMPLIANCE WITH LAWS, CONTRACTS AND LICENSES. The Borrower and the
Subsidiary Entities shall each (i) comply with all applicable material
Governmental Rules, (ii) comply with all material provisions of each material
contract and agreement to which it is a party, and (iii) shall maintain in full
force and effect all material Governmental Approvals and other material
contracts and agreements which are necessary or advisable for the operation of
their respective businesses as now conducted and in compliance with all
applicable material Governmental Rules.
5.5 CONTINUANCE OF BUSINESS. The Borrower and the Subsidiary Entities
shall each (i) do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect all of its material permits, rights
and privileges necessary for the proper conduct of its businesses and (ii)
continue to engage in the Business.
5.6 ACCOUNTING SYSTEM: BOOKS AND RECORDS. The Borrower shall maintain a
system of accounting established and administered in accordance with GAAP
consistently applied and will set aside on its books all such proper reserves
as shall be required by GAAP. Further, the Borrower shall maintain proper
books of record and account in accordance with GAAP in which full, true and
correct entries shall be made of all of its properties, assets, dealings and
business affairs.
5.7 PAYMENT OF TAXES AND OTHER LIABILITIES. The Borrower shall promptly
pay and discharge all obligations, accounts and liabilities which are owned by
it, to which it is subject or which are asserted against it, including but not
limited to all taxes, assessments and governmental charges and levies upon it
or upon any of its income, profits, or property prior to the date on which
penalties attach thereto; provided, however, that for purposes of this
Agreement, the Borrower shall not be required to pay any tax, assessment,
charge or levy (i) the payment of which is being contested in good faith by
appropriate and lawful proceedings diligently conducted and (ii) as to which
the Borrower shall have set aside on its books reserves for such claim as are
determined to be adequate by the application of GAAP consistently applied, but
only to the extent that failure to discharge any such liabilities would not
result in any additional liability which would have a Material Adverse Effect;
and provided, further, that the Borrower shall pay all such contested
liabilities forthwith upon the commencement of proceedings to foreclose any
Lien which may have attached as security therefor.
5.8 INSURANCE. Each of Borrower and the Subsidiary Entities shall
maintain at all times adequate insurance to the reasonable satisfaction of the
Agent with the insurers shown on Schedule 4.18 or other financially sound and
reputable insurers acceptable to the Agent against such risks of loss as are
customarily insured against and in amounts customarily carried by Persons
owning, leasing or operating similar properties, including, but not limited to
(i) fire and theft and extended coverage insurance in an amount at least equal
to the total full insurable value of their respective insurable property, (ii)
liability insurance on account of injury to persons or property, (iii)
insurance which complies with all applicable workers compensation, unemployment
and similar laws: (iv) business interruption insurance; (v) flood
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insurance, for any real property of the Borrower designated by any Governmental
Authority to be in an area of special flood hazard, and (vi) product liability,
larceny embezzlement or other criminal misappropriation, all of the foregoing
to be acceptable to the Agent at all times during the term hereof. All
policies of insurance shall provide for thirty (30) day written minimum
cancellation notice to the Agent. Prior to the first borrowing under this
Agreement and thereafter within ninety (90) days of the close of each Fiscal
Year, the Borrower shall deliver to the Agent a schedule indicating all
insurance coverage then in effect for the Borrower, in such detail as the Agent
may reasonably request from time to time, along with evidence satisfactory to
the Agent showing that Agent is the named mortgagee and loss payee for the
insurance described in this Section 5.8 pursuant to standard long-term
mortgagee and loss payee clauses.
5.9 MAINTENANCE OF PROPERTIES. The Borrower shall maintain, preserve,
protect and keep its properties in good repair, working order and condition
(ordinary wear and tear excepted), and make all necessary and proper repairs,
renewals and replacements so that its business carried on in connection
therewith may be properly and advantageously conducted at all times.
5.10 PLANS AND BENEFIT ARRANGEMENTS. The Borrower shall, and shall cause
each ERISA Affiliate to, comply with ERISA, the Internal Revenue Code and all
other applicable laws which are applicable to Plans and Benefit Arrangements,
except where the failure to do so, alone or in conjunction with any other
failure, should not result in a Material Adverse Change.
5.11 ACCESS TO ACCOUNTANTS AND MANAGEMENT. The Borrower authorizes the
Agent and the Lenders to discuss the financial condition and financial
statements of the Borrower with the Borrower's independent public accountants
upon reasonable notice to the Borrower of its intention to do so, and
authorizes such accountants with an Authorized Officer present if requested by
Borrower to respond to all of the Agent's inquiries and to provide the Agent
with copies of or access to books, records or documents made available by the
accountants to the Borrower; provided, however, that when a Default or Event of
Default exists, Borrower shall not have the right to have an Authorized Officer
present and 24 hours shall be deemed reasonable notice to Borrower. Each
Lender may with the consent of the Agent, which will not be unreasonably
denied, confer with each Authorized Officer directly regarding the Borrower's
business, operations and financial condition.
5.12 AUDIT. The Agent shall conduct one audit of Collateral each Fiscal
Year at the Borrower's expense, not to exceed $5,000 per audit, which audit
process shall generate a report of ineligible accounts and ineligible inventory
of the Borrower for Borrowing Base purposes. Agent may conduct additional
audits, inventory analyses or business analyses as it sees fit, provided that
fees for such audits or analyses shall not be charged to Borrower unless a
Default or Event of Default exists at the time of any such audit or analysis.
The costs of any audits or analyses not paid by Borrower in excess of $5,000 in
any Fiscal Year, shall be shared by Lenders pro rata.
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5.13 STOCK BONUS PLAN. The Borrower will (i) cause the termination of the
Best Lock Corporation Stock Bonus Plan as promptly as possible after the
Closing Date, and (ii) not authorize, declare or pay any contribution to such
plan after the Closing Date.
5.14 COLLATERAL LOCATIONS. The Borrower will keep the Collateral
consisting of personal property at the locations specified on Schedule 5.14
(except for Collateral in transit in the ordinary course of business), unless
the Borrower complies with the terms and provisions of this Section. The
Borrower will give the Agent at least thirty (30) day's advance written notice
of any change in the Borrower's principal place of business, any change in the
location of its books and records or the personal property Collateral or any
new location for its books and records or other personal property Collateral.
With respect to any new location (which in any event shall be within the
continental United States), the Borrower will execute such documents and take
such actions as the Agent deems necessary to perfect and protect the security
interests of the Agent, on behalf of the Lenders, in the Collateral prior to
the transfer or removal of any Collateral to such new location.
5.15 UPDATES TO REPRESENTATIONS, WARRANTIES AND SCHEDULES. Should any of
the representations and warranties set forth herein or in any of the other Loan
Documents, or any of the Information or disclosures provided on any of the
Schedules hereto or to any of the other Loan Documents, become outdated or
incorrect in any material respect at any time during the term of this
Agreement, the Borrower shall promptly provide the Agent in writing with such
revisions or updates as may be necessary or appropriate to update or correct
same; divided, however, that no such representation, warranty or Schedule shall
be deemed to have been amended, modified or superseded by any such correction
or update, nor shall any breach of warranty or representation resulting from
such inaccuracy or incompleteness be deemed to have been cured thereby, unless
and until the Required Lenders, in their sole and absolute discretion, shall
have accepted in writing such revisions or updates.
5.16 FURTHER ASSURANCES: POWER OF ATTORNEY. At any time and from time to
time, upon the Agent's reasonable request, the Borrower shall make, execute and
deliver to the Agent, and where appropriate shall cause to be recorded or
filed, and from time to time thereafter to be re-recorded and refiled at such
time and in such offices and places as shall be deemed desirable by the Agent
any and all such further Security Documents, certificates and other documents
and instruments as the Agent may reasonably consider necessary or desirable in
order to effectuate, complete, perfect, continue or preserve the Obligations of
the Borrower hereunder or under the other Loan Documents and the Liens created
thereby including, without limitation, (i) any documents or assignments the
Agent deems necessary to perfect its Liens in any intellectual property rights
of the Borrower, and (ii) upon the occurrence of an Event of Default, any
documentation required by the Federal Assignment of Claims Act for U.S.
Government accounts. The Borrower hereby appoints the Agent, and any of its
officers, directors, employees and authorized agents, as its attorney-in-fact,
with full power of substitution, upon any failure by the Borrower to take or
cause to be taken any action described in the preceding sentence, to make,
execute, record, file, re-record or refile any and each such Security Document,
instrument certificate and document for and in he name of the
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Borrower. The power of attorney granted pursuant to this Section is coupled
with an interest and shall be irrevocable until all of the Obligations are paid
in full and the Revolving Credit Commitment is terminated.
5.17 KEY MAN LIFE INSURANCE POLICY. The Borrower shall deliver or cause to
be delivered to Agent an assignment of a term life insurance policy in the
amount of Twenty-Two Million and 00/100 Dollars ($22,000,000) insuring the life
of Russell C. Best, said assignment to be in substantially the form attached
hereto as Exhibit I, and shall maintain or cause to be maintained said policy
in full force and effect and assigned to Agent throughout the term of this
Agreement; provided that the Borrower shall hold the policy and be entitled to
receive the proceeds thereof (and the Agent shall promptly pay over to the
Borrower any of such proceeds received by the Agent) so long as no Event of
Default has occurred.
5.18 PRIMARY BANKING RELATIONSHIP. Throughout the term of this Agreement,
the Borrower shall maintain its primary banking relationship and substantially
all of its demand deposit accounts with the Agent, so long as the Agent's
prices and other charges with respect thereto are reasonably competitive with
the prices and charges for such services of comparable banks.
5.19 OWNERSHIP OF SUBSIDIARY ENTITIES. Throughout the term of this
Agreement, the Borrower shall be and remain the Owner and holder of 100% of the
issued and outstanding stock of First Thoroughbred, and shall cause First
Thoroughbred to be and remain the owner and holder of 100% of the issued and
outstanding shares of BULLC, NSC and Best Access, it being understood that upon
the amalgamation of BULLC with and into NSC, Best Access will be and become the
surviving entity.
ARTICLE 6. NEGATIVE COVENANTS
From the date hereof and thereafter until the termination of the
Revolving Credit Commitment and until the Loans and the other Obligations of
the Borrower hereunder are paid in full, the Borrower agrees to comply and
agrees to cause the Subsidiary Entities to comply, for the benefit of the Agent
and the Lenders, with the following negative covenants:
6.1 INDEBTEDNESS. Neither the Borrower nor any of the Subsidiary Entities
shall create, incur, assume or permit to exist or remain outstanding any
Indebtedness, except for:
(i) The Obligations owed by the Borrower to the Lenders hereunder;
(ii) Indebtedness existing as of the Closing Date which shall
continue to be outstanding after the Closing Date, all as shown on Schedule 6.1
hereto;
(iii) Indebtedness consisting of Capitalized Lease Obligations up to
the aggregate principal amount outstanding not to exceed $2,500,000 at any
time;
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(iv) Mezzanine Indebtedness (in addition to the Indebtedness
contemplated by Section 6.1(iii));
(v) Indebtedness related to the matter or matters described in
Subsection (v), (vi) or (vii) within the definition of Permitted Liens; and
(vi) Indebtedness incurred in connection with any interest rate
hedge agreement (i.e., any type of agreement or arrangement designed to provide
protection against fluctuations in interest rates) entered into with respect to
Indebtedness described in Subsection (i) or (ii).
6.2 GUARANTEES. Neither the Borrower nor any of the Subsidiary Entities
shall enter into any Guaranty, except endorsements of negotiable instruments
for deposit and collection and similar transactions in the ordinary course of
business, the guaranty described as item 3 on Schedule 6.1, and guaranties
approved by the Lenders in writing.
6.3 LIENS: NEGATIVE PLEDGE. Neither the Borrower nor any of the
Subsidiary Entities shall create, assume, incur, suffer or permit to exist any
Lien upon any of its assets and properties, whether tangible or intangible,
whether now owned or in existence or hereafter acquired or created and wherever
located, nor acquire nor agree to acquire any assets or properties subject to
any Lien except for Permitted Liens (including without limitation the Liens
described on Schedule 6.3) and Permitted Encumbrances. Neither the Borrower
nor any of the Subsidiary Entities shall make or enter into any agreement to
grant Liens for the benefit of any Person.
6.4 FINANCIAL COVENANTS.
6.4a LEVERAGE RATIO. As of the last day of each Fiscal Quarter and
the three immediately preceding Fiscal Quarters treated as a single accounting
period, calculated on a consolidated basis, the ratio of (i) Funded Debt to
(ii) EBITDA during the periods set forth below shall not exceed the ratios set
forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Periods Ratio
---------------------- ---------
<S> <C>
From Closing Date to and including September 30, 1998 3.25:1.0
From October 1, 1998 to and including September 30, 1999 3.00:1.0
From October 1, 1999 to and including September 30, 2000 2.75:1.0
From October 1, 2000 and at all times thereafter 2.50:1.0
</TABLE>
6.4b ADJUSTED DEBT SERVICE RATIO. As of the last day of each
Fiscal Quarter and the three immediately preceding Fiscal Quarters treated as a
single accounting period, calculated on a consolidated basis, the ratio of (i)
EBITDA less Shareholder Distributions less Capital Expenditures (provided that
all payments to shareholders of the Affiliated Entities
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made to consummate the Restructuring Transaction which in the aggregate exceed
$28,328,041 shall be included in the definition of Capital Expenditures, solely
for purposes of this Section 6.4b.) and less contributions (not reflected as an
expense in Borrower's statements of income) to any Plan or Multiemployer Plan
to (ii) Debt Service during the periods set forth below shall not be less than
the ratios set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Periods Ratio
---------------------- ---------
<S> <C>
From December 31, 1998 to and including December 31, 1999 1.10:1.0
From January 1, 2000 to and including December 31, 2000 1.15:1.0
From January 1, 2001 to and including December 31, 2001 1.20:1.0
From January 1, 2002 and at all times thereafter 1.25:1.0
</TABLE>
6.4c MINIMUM TANGIBLE NET WORTH. As of the last day of each Fiscal
Quarter, Tangible Net Worth shall be not less than Tangible Net Worth as of
March 23, 1998, as determined on the basis of the audited balance sheet of
Borrower as of that date less $1,000,000, and confirmed in a letter agreement
executed by the Borrower and the Agent, increased in each Fiscal Quarter as
compared to the previous Fiscal Quarter by an amount equal to 25% of Borrower's
net income prior to Shareholder Distributions for the Fiscal Quarter then
ended.
6.4d QUARTERLY LOSSES. There shall not occur, on a consolidated
basis (i) two consecutive Fiscal Quarter losses in the aggregate in excess of
$2,000,000, or (ii) an aggregate loss of $750,000 or more for any period of
four consecutive Fiscal Quarters.
6.4e OPERATING LEASE EXPENSE. Operating lease expenses, determined
and calculated in accordance with GAAP on a consolidated basis, shall not
exceed Two Million Five Hundred Thousand Dollars ($2,500,000) in the aggregate
in any given Fiscal Year.
6.5 DISTRIBUTION RESTRICTION. Neither the Borrower nor any of the
Subsidiary Entities shall declare or make any Shareholder Distribution;
provided, however, BULLC and Best Access may declare and make Shareholder
Distributions to First Thoroughbred, and First Thoroughbred may declare
Shareholder Distributions to the Borrower; provided further, the Borrower may
declare and make Shareholder Distributions (i) in a maximum amount not to
exceed in any Fiscal Year an amount equal to the federal, state and/or other
income tax which is payable by the shareholders of the Borrower in such Fiscal
Year in respect to the taxable income of the Borrower for either the Borrower's
immediately preceding Fiscal Year or as estimated payments for the Borrower's
current Fiscal Year so long as the Borrower continuously maintains its status
as a corporation recognized for federal income tax purposes as an "S"
Corporation under the Internal Revenue Code, as amended.
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6.6 LIQUIDATIONS, MERGERS, CONSOLIDATIONS, ACQUISITIONS, ETC. Neither the
Borrower nor any of the Subsidiary Entities shall dissolve, liquidate or wind
up its affairs, recapitalize or become a party to any merger or consolidation,
or acquire by purchase, lease or otherwise all or substantially all of the
assets, or any capital stock or other equity or ownership interest of any other
Person, or permit a majority of its capital stock to be acquired by any Person
except as permitted by Section 6.13.
6.7 SUBSIDIARIES. Neither the Borrower nor any of the Subsidiary Entities
shall form or acquire any new Subsidiary, without the prior written consent of
the Lenders, which consent shall not be unreasonably withheld.
6.8 LOANS AND OTHER ADVANCES AND PAYMENTS. Neither the Borrower nor any
of the Subsidiary Entities shall make loans, payments or other advances of
funds to any Person, except for:
(i) payments in the ordinary course of business for goods and
services, taxes and other assessments, and other ordinary course payments; and
(ii) advances for expenses made to the Borrower's employees in
reasonable amounts and in the ordinary course of business.
6.9 INVESTMENTS. Neither the Borrower nor any of the Subsidiary Entities
shall at any time purchase, acquire or own any stock, bonds, notes, or
securities of, or any partnership interest (whether general or limited) in, or
any other interest in, or make any capital contribution to, any other Person,
or become a joint venture partner in any joint venture, or repurchase any of
its stock or partnership interests, or enter into any interest hedge agreement
for purposes of speculation, or agree, become or remain liable to do any of the
foregoing, except for:
(i) debt securities having a maturity of not more than one year
issued or guaranteed by the United States (or, in the case of BULLC and Best
Access, the Canadian) government or by an agency or instrumentality thereof;
(ii) certificates of deposit, bankers acceptances and time
deposits, which in each case mature within one year from the date of purchase
thereof and which are issued by a Qualified Lender;
(iii) commercial paper maturing in 270 days or less from the date of
issuance which, at the time of acquisition by a Borrower either (A) is accorded
the highest rating by Standard and Poor's Rating Group, a division of
McGraw-Hill, Inc. or Moody's Investors Service, Inc. or (B) is issued by a
Qualified Lender;
(iv) direct obligations of the United States of America or any
agency or instrumentality of the United States of America (or, with respect to
BULLC and Best Access,
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Canada or any agency or instrumentality of Canada), the payment or guarantee of
which constitutes a full faith and credit obligation of the United States of
America (or, with respect to BULLC and Best Access, Canada) in each case
maturing in 12 months or less from the date of acquisition;
(v) cash management "sweep accounts" made available to the
Borrower by the Agent which invest directly or indirectly through common
investment funds, repurchase agreement or otherwise in securities of the type
described in items (i) through (iv) above; and
(vi) mutual funds made available by the Agent or its affiliates
which are invested in the types of investments described in items (i) through
and including (iv) above.
6.10 AFFILIATE TRANSACTIONS. Neither the Borrower nor any of the
Subsidiary Entities shall enter into or carry out any transaction with an
Affiliate (including, without limitation, purchasing or leasing property or
services from or selling or leasing property or services to any Affiliate)
unless such transaction (i) is not otherwise prohibited by this Agreement (ii)
is entered into in the ordinary course of business upon fair and reasonable
arm's-length terms and conditions which are fully disclosed to the Lenders and
(iii) is in accordance with all applicable Governmental Rules.
6.11 CHANGE OF BUSINESS. Neither the Borrower nor any of the Subsidiary
Entities shall engage in any business other than the Business.
6.12 ERISA. The Borrower shall not:
(i) (A) with respect to any Plan, incur any material
liability for failure to make timely payment of any contribution or installment
required under Section 302 of ERISA and Section 412 of the Internal Revenue
Code, whether or not waived, or otherwise materially fail to comply with the
funding provisions set forth therein (B) with respect to any Plan or suffer to
exist any lien under Section 302(f) of ERISA or Section 41 2(n) of the Internal
Revenue Code against the property and rights to property of the Borrower or any
ERISA Affiliate or (C) Terminate, or permit any ERISA Affiliate to terminate,
any such Plan in a manner which could reasonably be expected to result in the
imposition of a lien upon the property or rights to property of the Borrower or
any ERISA Affiliate pursuant to Section 4068 of ERISA; and
(ii) engage in any "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Internal Revenue Code) with respect to any
Aemployee benefit plan@ (as defined in Section 3(3) of ERISA) for which a
statutory or administrative exemption is not available under Section 408 of
ERISA or Section 4975 of the Internal Revenue Code.
6.13 ACQUISITIONS. Neither the Borrower nor any of the Subsidiary Entities
shall, without the prior written approval of the Lenders, engage in any
acquisition or acquisitions except for (i) acquisition or acquisitions of
companies which operate as independent sales offices involving payments not to
exceed $2,500,000 in the aggregate per Fiscal Year, or in the
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aggregate amount of $5,000,000 during the term of the Loans or (ii) other
additional acquisition or acquisitions involving payments not to exceed
$1,000,000 in the aggregate per Fiscal Year, or in the aggregate amount of
$3,000,000 during the term of the Loans; provided, however, that prior to the
consummation of any such acquisition (A) the Borrower shall furnish the Agent
with a proforma balance sheet and projections which demonstrate that after
giving effect to the acquisition no Default or Event of Default exists, and (B)
the acquired company had a positive net worth and cash flow.
6.14 CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital
Expenditures (excluding trade-ins and excluding Capital Expenditures in respect
of replacement assets to the extent funded with casualty insurance proceeds)
will not exceed the amounts specified below for Fiscal Years set forth below:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1998 $5,000,000
1999 $5,500,000
2000 $6,000,000
2001 and thereafter $6,500,000 and increasing by $500,000 for each
Fiscal Year thereafter
</TABLE>
In the event that the Borrower enters into a Capitalized Lease or
other contract with respect to fixed assets, for purposes of calculating
Capital Expenditures under this Section only, the amount of the Capitalized
Lease or contract initially capitalized on the Borrower's balance sheet
prepared in accordance with GAAP shall be considered expended in full on the
date that the Borrower enters into such Capitalized Lease or contract.
6.15 ASSET DISPOSITIONS. Neither the Borrower nor any of the Subsidiary
Entities shall sell, lease, assign transfer or otherwise dispose of any of
their respective rights, title or interest in and to the Collateral, excepting
only sales of inventory in the ordinary course of business and sales or other
dispositions of obsolete equipment or equipment being replaced in the ordinary
course of the business of the Borrower or the Subsidiary Entities.
ARTICLE 7. CONDITIONS TO EXTENSIONS OF CREDIT
7.1 ALL LOANS AND LETTERS OF CREDIT. The obligation of the Lenders to
make each Loan and the obligation of the Issuing Bank to issue each Letter of
Credit, is subject to the satisfaction of each of the following conditions
precedent:
7.1a REQUEST FOR LOAN OR APPLICATION FOR LETTER OF CREDIT. Receipt
by the Agent of a Loan Request satisfying the requirements of Section 2.5, and
with respect to a Letter of
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Credit, receipt by the Issuing Bank of an application for Letter of Credit
satisfying the requirements of Section 2.2.
7.1b NO DEFAULT OR EVENT OF DEFAULT. The Borrower shall have
performed and complied with all agreements and conditions in the Loan Documents
required to be performed or complied with by it prior to any Loan being made or
any Letter of Credit being issued and, at the time such Loan is made or such
Letter of Credit is issued or as a result of making such Loan or issuing such
Letter of Credit, no Default or Event of Default has occurred and is continuing
or will be caused by the making of such Loan or the issuance of such Letter of
Credit.
7.1c REPRESENTATIONS CORRECT. The representations and warranties
contained in Article 4 hereof and otherwise made in writing by or on behalf of
the Borrower in connection with the transactions contemplated by this Agreement
shall be (i) correct when made and (ii) correct in all material respects at the
time of the making of each Loan and the issuance of each Letter of Credit
(except as to any representation or warranty which was made as of a specific
date).
Each request for a Loan or a Letter of Credit, whether made orally or
in writing, shall be deemed to be, as of the time made, a representation and
warranty by the Borrower as to the accuracy of the matters set forth in
Sections 7.1b and 7.1c.
7.1d LANDLORD WAIVERS AND CONSENT. With respect to existing
landlords, Lenders and the Borrower have agreed that no landlord shall be
contacted until the date on which (the "LANDLORD WAIVER DATE") notice of the
Restructuring Transaction has been mailed to the public shareholders of the
Affiliated Entitles. The Borrower shall thereafter exercise its good faith
reasonable efforts to obtain the Landlord Waivers and Consents substantially in
the form of Exhibit "M" attached hereto and reasonably satisfactory to the
Agent within the sixty (60) day period following the Landlord Waiver Date. At
the end of such sixty (60) day period, Borrower shall furnish Agent with copies
of the leases and the names, addresses and telephone numbers of landlords from
whom no Landlord Waiver and Consent shall have been obtained. With respect to
leases of real property entered into after the date hereof, and each renewal of
any lease of real property or (whether existing or entered into after the date
hereof), Borrower shall deliver to Agent a Landlord Waiver and Consent
substantially in the form of Exhibit "M" hereto and reasonably satisfactory to
Agent prior to occupying the premises subject to any such leases or the
commencement of the renewal term, as applicable.
7.2 INITIAL EXTENSION OF CREDIT. The obligation of the Lenders and/or the
Issuing Bank to make the first Loan or issue the first Letter of Credit
hereunder is subject to the satisfaction of each of the following conditions
precedent, in addition to the applicable conditions precedent set forth in
Section 7.1, all of which must be in form and substance satisfactory to the
Agent, the Lenders and the Issuing Bank:
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7.2a CLOSING DOCUMENTS. Receipt by the Agent of the following
fully and duly executed documents:
(i) this Agreement;
(ii) all schedules to this Agreement and the other Loan Documents;
(iii) the Revolving Credit Notes executed by the Borrower and
payable to each Lender for redelivery to each Lender;
(iv) the Term Notes executed by the Borrower and payable to each
Lender for redelivery to each Lender;
(v) the Security Agreement, the Pledge Agreement and an Assignment
of Patents and Trademarks;
(vi) UCC-1 financing statements requested by it, signed by the
Borrower, and the filing of such financing statements by the Agent in the
appropriate filing offices;
(vii) a Mortgage or Deed of Trust for each Mortgaged Parcel in
recordable form and the recordation thereof in the appropriate recording
office;
(viii) a Borrowing Base Certificate; and
(ix) the Closing Certificate.
7.2b LIEN SEARCHES. Receipt by the Agent of Lien and judgment
searches with results reasonably satisfactory to the Lenders.
7.2c TERMINATION STATEMENTS, ETC. Receipt by the Agent of all
Uniform Commercial Code termination statements, mortgage satisfactions,
releases of pledge agreements and other documents and instruments of
termination and release necessary so that the security interests granted to the
Agent for the benefit of the Lenders pursuant to the Security Documents are
first priority Liens, subject only to Permitted Liens or Permitted
Encumbrances.
7.2d TITLE INSURANCE. The Borrower shall deliver or cause to be
delivered to the Agent on the Closing Date at an insured "New York Style"
closing, ALTA loan title insurance policies issued by title insurers reasonably
satisfactory to the Agent (the "Mortgage Policies") and in amounts reasonably
satisfactory to the Agent insuring the Agent that the Mortgages are valid and
enforceable first priority mortgage liens on the respective Mortgaged Parcel,
free and clear of all defects and encumbrances except the permitted
encumbrances which are reasonably acceptable to the Agent and are listed or
described in each Mortgage (the "Permitted Encumbrances"). The Mortgage
Policies shall (i) have all standard preprinted
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general exceptions deleted, (ii) include an endorsement insuring against any
gap, the effect of future advances under this Agreement, for mechanics' liens
and for any other matter that the Agent may reasonably request, and (iii)
provide for affirmative insurance as the Agent may reasonably request. All
taxes with respect to each Mortgaged parcel must be paid to the Closing Date if
due and payable.
7.2e SURVEYS. Receipt by the Agent of a current survey meeting the
Minimum Standard Detail Requirements for Land Title Survey jointly established
by ALTA and ACSM in 1992 (or similar requirements established under Canadian
Law and reasonably acceptable to the Agent) for each Mortgaged Parcel prepared
by a licensed registered surveyor and conforming to the Agent's standard survey
guidelines previously delivered to the Borrower. All such surveys shall be
sufficient to allow the title insurer of the Mortgage Policies to issue an ALTA
loan policy for each Mortgage Parcel with the standard survey exceptions
deleted.
7.2f SITE ASSESSMENTS. Receipt by the Agent of a Phase I, and if
reasonably requested by the Agent, a Phase II Environmental Site Assessment,
for each Mortgaged Parcel prepared by an environmental engineering firm
acceptable to Bank which complies with the Standard Practice for Environmental
Site Assessments: Phase I Environmental Site Assessment Process published by
the American Society for Testing and Materials (or, for Canada, which complies
with a comparable standard), and otherwise satisfactory to the Agent and
revealing no environmental defects unacceptable to the Agent.
7.2g ENVIRONMENTAL AGREEMENT. Receipt by the Agent of the
Environmental Agreement duly executed by the Borrower.
7.2h APPRAISALS. Receipt by the Agent of (i) an appraisal by an
independent valuation firm acceptable to the Agent of the machinery and
equipment of Borrower and the Subsidiary Entities and (ii) a self-contained
appraisal by a qualified and licensed appraiser of each Mortgaged Parcel, which
in the case of the Indianapolis, Indiana Mortgaged Parcel shall be an M.A.I.
appraisal, each satisfactory to the Lenders.
7.2i AUDIT OF ACCOUNTS AND INVENTORY. Each Lender shall have
satisfactorily completed its audit of the Accounts and Inventory of the
Borrower, and the results thereof shall be satisfactory to the Lenders in their
sole discretion.
7.2j HAZARD AND LIABILITY INSURANCE. Receipt by the Agent of (i) a
schedule of all of the current insurance coverage, and (ii) current insurance
certificates, with long-form loss payee and mortgagee's endorsements, showing
that the Borrower and the Subsidiary Entities, respectively, are in compliance
with Section 5.8 and the insurance requirements set forth in the other Loan
Documents.
7.2k FLOOD INSURANCE. Receipt by the Agent of evidence
satisfactory to it of flood insurance for each Mortgaged Parcel or other plants
or facilities of the Borrower which is located in a special flood hazard area
or other similarly designated area.
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7.2l TERMINATION OF EXISTING BANK CREDIT AGREEMENT. The Borrower
shall have authorized the Agent in writing to pay in full the Existing Bank
Indebtedness on the Closing Date with proceeds of the first Loans made
hereunder, including replacement of any letters of credit issued and
outstanding thereunder.
7.2m CORPORATE DOCUMENTS. Receipt by the Agent of the following
documents for the Borrower: (i) a copy of its Articles of Incorporation and any
amendments thereto, certified as of a recent date by the Secretary of State of
the State of Indiana; (ii) a copy of its by-laws and any amendments thereto,
certified by the Secretary or Assistant Secretary of the Borrower as being
true, correct, complete and in effect; (iii) a certificate of existence issued
by the Secretary of State of the State of Indiana; (iv) an incumbency
certificate, showing the names of the Persons designated as officers of the
Borrower, their respective titles and containing their true signatures; (v) the
certificates of good standing or existence for the Borrower issued by the
appropriate governmental agency from each State in which a Mortgaged Parcel is
located and those listed on Schedule 4.1; (vi) a resolution authorizing the
borrowing hereunder, execution of documents and the consummation of the
transactions contemplated hereby; and (vii) a signature authorization
certificate.
7.2n CORPORATE DOCUMENTS FOR FIRST THOROUGHBRED AND BEST ACCESS.
Receipt by the Agent of the following documents for First Thoroughbred: (i) a
copy of its Articles of Incorporation and any amendments thereto; certified as
of a recent date by the Secretary of State of Indiana; (ii) a copy of its
by-laws and any amendments thereto, certified by the Secretary or Assistant
Secretary of First Thoroughbred as being true, correct, complete and in effect;
(iii) a Certificate of Good Standing issued by the Secretary of State of
Indiana; (iv) an incumbency certificate, showing the names of the Persons
designated as officers of First Thoroughbred, their respective titles and
containing their true signatures; and (v) a resolution authorizing execution of
documents and the consummation of the transactions contemplated hereby.
Receipt by the Agent of copies of documents in form and substance satisfactory
to the Agent evidencing the amalgamation of BULLC with and into Best Access;
provided that a copy of the Certificate of Amalgamation certified and issued by
the Registrar of Joint Stock Companies of Nova Scotia shall be delivered to the
Agent as soon as possible, but in no event later than April 20, 1998.
7.2o OPINION OF COUNSEL. Receipt by the Agent of opinion letters
addressed to the Lenders from counsel to the Borrower and the Subsidiary
Entities in all respects reasonably satisfactory to the Lenders.
7.2p GOVERNMENTAL APPROVALS. All Governmental Approvals required
in connection with the execution, delivery and performance of this Agreement
shall have been obtained and be in full force and effect as of the Closing
Date. Any consent, approval, order or authorization of, and any waiting period
imposed by any Governmental Authority in connection with the Restructuring
Transaction shall have been obtained or, in the case of any waiting period,
shall have expired.
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7.2q PERFORMANCE OF AGREEMENTS. The Borrower shall have performed
in all material respects all agreements and satisfied all conditions which any
Loan Document provides shall be performed by it on or before the Closing Date.
7.2r REQUEST FOR INITIAL LOANS. Receipt by the Agent of written
instructions addressed to the Agent and executed by the Borrower, instructing
the Agent as to the extensions of credit to be made hereunder on the Closing
Date, and containing complete wire transfer instructions.
7.2s ASSIGNMENT OF LIFE INSURANCE POLICY. Receipt by the Agent of
a collateral assignment of a term life insurance Policy in the amount of
Twenty-Two Million and 00/100 Dollars ($22,000,000) insuring the life of
Russell C. Best.
7.2t LANDLORD WAIVERS AND CONSENTS. Compliance by Borrower with
the provisions of Section 7.1d., relating to each parcel of real property
leased by Borrower identified on Schedule 4.14.
7.2u RESTRUCTURING TRANSACTION. The Restructuring Transaction
shall have been consummated to the satisfaction of the Lenders, and Agent shall
have received certified copies of all documents related thereto resulting in
the Borrower owning all of the assets of the Affiliated Entities and Russell C.
Best owning 100% of the outstanding capital voting stock of the Borrower. The
acquisition price for the Restructuring Transaction shall not have exceeded
$30,000,000.
7.2v FAIRNESS OPINION. Receipt by the Agent of copies of favorable
fairness opinion letters issued by Piper Jaffray, Inc. to the Borrower or the
Affiliated Entities, as the case may be, relating to the price paid in
connection with the Restructuring Transaction.
7.2w TAX OPINION. Receipt by the Agent of a copy of the favorable
tax opinion letter issued by Arthur Andersen, LLP to the Borrower relating to
the effect of the Restructuring Transaction.
7.2x FINANCIAL REPORT. Receipt by the Agent of a report reviewed
by Arthur Andersen providing detailed assumptions describing the Restructuring
Transaction and providing updated operating projections through fiscal year
ending December 31, 2000, and otherwise reasonably satisfactory to the Lenders.
7.2y SOLVENCY CERTIFICATE. Receipt by the Agent of an acceptable
Financial Certificate of the Borrower, with the Pro-forma Balance Sheet
referenced in Section 4.6b attached, and the Lenders shall be satisfied with
the Borrower's financial condition and ability to meet its obligations.
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7.2z SEPTEMBER 30, 1997. The Lenders shall have determined that
there has been no material deterioration of the Borrower's, or Affiliated
Entities' financial position since September 30, 1997.
7.2aa NO LITIGATION. No litigation or other proceeding shall have
been commenced or threatened which could have a Material Adverse Effect on the
Restructuring Transaction, the Collateral or the Loans.
7.2bb CLOSING DATE APPLICABLE MARGIN STATEMENT. The Lenders shall
have received the Closing Date Applicable Margin Statements certified by the
Borrower as being accurate and complete, accompanied by an initial Compliance
Certificate.
7.2cc PAYMENT OF FEES. Receipt by Agent of all fees due as of the
Closing Date hereunder, under the Fee Letter and under the other Loan
Documents.
ARTICLE 8. EVENTS OF DEFAULT; REMEDIES
8.1 EVENTS OF DEFAULT. Each of the following events shall constitute an
Event of Default:
8.1a NONPAYMENT OF THE BORROWER'S OBLIGATIONS. Nonpayment by the
Borrower (i) of any payment of principal of the Loans when due, or of the
payment of interest on any Loans when due, and either default in payment shall
have continued for a period of five (5) calendar days after such due date, or
(ii) in the payment of any of the Fees, expenses or other amounts due hereunder
or under any of the other Loan Documents when due, and such default in payment
of interest, Fees, expenses or other amounts shall have continued for a period
of five (5) calendar days after notice of such due date has been given to the
Borrower by the Agent.
8.1b VIOLATIONS UNDER OTHER INDEBTEDNESS AND OBLIGATIONS. The
Borrower or any Subsidiary shall (i) default after any applicable grace periods
in the payment of any other Indebtedness, which Indebtedness has an aggregate
principal outstanding balance of $1,000,000 or more when such payment is due
(whether by acceleration or otherwise), or (ii) default after any applicable
grace periods in the performance of any other term of any agreement or
instrument under which any other Indebtedness with an aggregate principal
outstanding balance of $2,000,000 or more is created or by which it is governed
or evidenced, if the effect of any such default described in this clause (ii)
is to cause such Indebtedness to become, or if the holder or holders of such
Indebtedness (or any Person on behalf of such holder) declares such
Indebtedness, due prior to its expressed maturity.
8.1c INSOLVENCY, ETC.
(i) INVOLUNTARY PROCEEDINGS. A proceeding shall have been
instituted in a court having jurisdiction seeking a decree or order for relief
in respect of the Borrower or of any of the Subsidiary Entities in an
involuntary case under the Federal bankruptcy laws, or any other
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similar applicable Federal, Canadian provincial or state law, now or hereafter
in effect, or for the appointment of a receiver, liquidator, trustee,
sequestrator or similar official for the Borrower or any of the Subsidiary
Entities or for a substantial part of their respective property, or for the
winding up or liquidation of its affairs, and such shall remain undismissed or
unstayed and in effect for a period of sixty (60) days.
(ii) VOLUNTARY PROCEEDINGS. The Borrower or any of the Subsidiary
Entities shall institute proceedings to be adjudicated a voluntary bankrupt, or
shall consent to the filing of a bankruptcy proceeding against it, or shall
file a petition or answer or consent seeking reorganization under the Federal
bankruptcy laws, or any other similar applicable Federal, Canadian provincial
or state law now or hereafter in effect, or shall consent or acquiesce to the
filing of any such petition, or shall consent to or acquiesce in the
appointment of a receiver, liquidator, trustee, sequestrator or similar
official for the Borrower or any of the Subsidiary Entities or for a
substantial part of their respective property, or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due, or action shall be taken by the Borrower or
any of the Subsidiary Entities in furtherance of any of the foregoing.
8.1d DISSOLUTION; CESSATION OF BUSINESS. The Borrower or any of
the Subsidiary Entities shall terminate its existence, cease to exist,
dissolve, permanently cease operations or abandon the operation of any of its
material plants or facilities other than a merger, liquidation or other
transfer of BULLC directly into Best Access.
8.1e ERISA. One or more of the following events occur: (i) a
Notice of Intent to Terminate any Plan (including any Plan of an ERISA
Affiliate) is filed under Section 4041(c) of ERISA; (ii) proceedings shall be
instituted for the appointment of a trustee by the appropriate United States
court to administer any Plan (including any Plan of an ERISA Affiliate); or
(iii) the PBGC shall institute proceedings to terminate any Plan (including any
Plan of an ERISA Affiliate) or to appoint a trustee to administer any such
Plan.
8.1f CHANGE OF CONTROL. The occurrence of a Change of Control,
provided that no Change of Control shall deem to exist upon the death or total
disability of Russell C. Best if no other Event of Default exists and the
Borrower presents a succession plan which is satisfactory to the Lenders within
forty- five (45) days of the occurrence of either of such events; provided,
further that if such succession plan is not satisfactory to the Lenders and for
so long as no other Event of Default exists or shall occur, the Borrower shall
have a period of six (6) months to refinance the Loans before the Change of
Control shall be deemed an Event of Default or the Lenders shall be entitled to
exercise their respective rights and remedies under this Agreement or under any
other Loan Document.
8.1g ADVERSE JUDGMENTS. The aggregate amount of unpaid final
judgments against the Borrower for which no further appellate review exists
shall, at any one time, exceed for a period of thirty (30) calendar days, by
$1,000,000 or more, the aggregate amount of insurance proceeds available to pay
such judgments.
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8.1h FAILURE TO COMPLY WITH LOAN DOCUMENTS.
(i) FAILURE TO COMPLY WITH NEGATIVE COVENANTS. Any default shall
occur or exist under a negative covenant contained in Section 6.1, 6.2, 6.4,
6.5, 6.6, 6.7, 6.8, 6.9, 6.11, 6.13, 6.14 or 6.15 of this Agreement.
(ii) FAILURE TO COMPLY WITH OTHER COVENANTS. The Borrower shall
default in the due performance or observance of any term, agreement, covenant,
condition or provision set forth in this Agreement (other than occurrences
described in other provisions of this Section 8.1) or any default thereunder
shall occur or exist, and such default described in this item (ii) shall not be
remedied to the satisfaction of the Agent for a period of twenty (20) Business
Days after the earlier of (A) such default becoming known to any Authorized
Officer or (B) notice of such default being delivered by the Agent to the
Borrower.
(iii) DEFAULTS UNDER OR FAILURE TO COMPLY WITH OTHER LOAN DOCUMENTS.
(A) an "Event of Default" shall occur or exist as such term is defined in the
Security Agreement, or in any Mortgage of a Mortgaged Parcel to which the
Borrower is a party, or in the Pledge Agreement, or (B) the Borrower shall
default in the due performance of any covenant, condition or provision set
forth in any other Loan Document not listed in (A) to which the Borrower is a
party, or any default thereunder shall occur or exist (other than occurrences
described in other provisions of this Section 8.1h), and such default shall not
be remedied to the satisfaction of the Agent (x) within the cure or grace
period provided within any Loan Document, or (y) if no such cure or grace
period is provided, for a period of twenty (20) Business Days after the earlier
of (1) such default becoming known to any Authorized Officer or (2) notice of
such default being delivered by the Agent to the Borrower.
8.1i MISREPRESENTATION. Any representation or warranty made by the
Borrower or any of the Subsidiary Entities in any Loan Document to which it is
a party is untrue in any material respect as of the date made, or any schedule,
statement, report, notice, certificate or other writing furnished by the
Borrower to the Agent or any Lender is untrue in any material respect on the
date as of which the facts set forth therein are stated or certified.
8.1j INVALIDITY, ETC. OF LOAN DOCUMENTS. The validity or
enforceability of any material provision of this Agreement or any other Loan
Documents shall be contested by the Borrower or any Governmental Authority, or
the Borrower or any of the Subsidiary Entities shall deny that it has any or
further liability or obligation under any Loan Document to which it is a party.
8.1k MATERIAL ADVERSE CHANGE. The occurrence of any Material
Adverse Change.
8.1l AGENT'S LIEN. The Agent's Lien upon any material portion of
the Collateral, through no fault or inaction on the part of the Agent, is or
becomes unperfected or no longer constitutes, subject to Permitted Liens or to
Permitted Encumbrances, a valid, first priority perfected Lien, and such
failure is not remedied to the satisfaction of the Agent for a period of
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five (5) Business Days after the earlier of (i) such failure becomes known to
any Authorized Officer or (ii) notice of such failure being delivered by the
Agent to the Borrower.
8.2 REMEDIES.
8.2a EVENTS OF DEFAULT UNDER SECTIONS 8.1c AND 8.1d. Upon the
occurrence of an Event of Default set forth in Sections 8.1c and 8.1d and upon
the occurrence of any violation of Paragraph 14 of the Mortgages (Due on Sale
Clause) executed by the Borrower, a Revolving Credit Loan shall automatically
be made in accordance with the provisions of Sermon 2.2(c)(ii), the Revolving
Credit Commitment shall automatically terminate and the Revolving Credit Notes,
the Term Notes, interest accrued thereon and all other Obligations of the
Borrower to the Lenders, the Issuing Bank and the Agent shall become
immediately due and payable, without the necessity of demand, presentation,
protest, notice of dishonor or notice of default, all of which are hereby
expressly waived by the Borrower. Thereafter, the Lenders shall have no
further obligation to make any additional Loans hereunder, and the Issuing Bank
shall have no further obligation to issue, amend, extend or renew any Letters
of Credit hereunder.
8.2b REMAINING EVENTS OF DEFAULT. Upon the occurrence and during
the continuance of any Event of Default set forth in sections 8.1a, 8.1b, 8.1e,
8.1f, 8.lg, 8.1h, 8.1i, 8.1j, 8.1k, or 8.1l the Lenders may, at their option,
declare the Revolving Credit Commitment terminated and the Revolving Credit
Notes, the Term Notes, interest accrued thereon and all other Obligations of
the Borrower to the Lenders, the Issuing Bank and the Agent to be due and
payable, without the necessity of demand, presentation, protests notice of
dishonor or notice of default, all of which are hereby expressly waived by the
Borrower. Thereafter, the Lenders shall have no further obligation to make any
additional Loans hereunder and the Issuing Bank shall have no further
obligation to issue, amend extend or renew any Letters of Credit hereunder. In
addition, the Lenders may, at their option, require that a Revolving Credit
Loan shall be made in accordance with the provisions of Section 2.2(c)(ii).
8.2c ADDITIONAL REMEDIES. In addition to the remedies set forth
above, upon the occurrence of any Event of Default, the Lenders, the Issuing
Bank and the Agent shall have all of the rights and remedies granted to them
under this Agreement and the other Loan Documents and all other rights and
remedies granted by law to creditors.
8.2d EXERCISE OF REMEDIES; REMEDIES CUMULATIVE. No delay on the
part of the Agent, the Lenders or the Issuing Bank, and no failure by the
Agent, the Lenders or the Issuing Bank to exercise any power, right or remedy
under this Agreement or are other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any power, right or remedy
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude other or further exercises thereof, or the exercise of any
other powers right or remedy No waiver of any Event of Default shall extend to
any other or future Event of Default. No forbearance on the part of the Agent
in enforcing the Agent's or any of
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the Lender's rights shall constitute a waiver of any of their respective
rights. The rights and remedies in this Agreement and the other Loan Documents
are cumulative and not exclusive of any rights or remedies (including, without
limitation, the right of specific performance) which the Agent, the Lenders and
the Issuing Bank would otherwise have.
ARTICLE 9. AGREEMENT AMONG LENDERS
9.1 GENERAL; NO THIRD PARTY BENEFICIARY. The provisions of this Article
are solely for the benefit of the Agent and the Lenders, and the Borrower shall
not have any rights as a third-party beneficiary to any provisions hereof. In
performing its functions and duties under this Agreement and under the other
Loan Documents, the Agent shall act solely as agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for the Borrower.
9.2 APPOINTMENT AND GRANT OF AUTHORITY. Each Lender hereby irrevocably
appoints and authorizes LaSalle National Bank and LaSalle National Bank hereby
agrees to act as the Agent under this Agreement and the other Loan Documents.
The Agent shall have and may exercise such powers under this Agreement as are
specifically delegated to it by the terms hereof or of the other Loan
Documents, together with such other powers as are incidental thereto. Without
limiting the foregoing, the Agent, on behalf of the Lenders, is authorized to
execute all of the Loan Documents (other than this Agreement) for and on behalf
of the Lenders and to accept all of the Loan Documents and all other
agreements, documents or instruments reasonably required to carry out the
intent of the parties to this Agreement.
9.3 NON-RELIANCE ON THE AGENT. Each Lender agrees that it has,
independently and without reliance on the Agent, and based on such documents
and information as it has deemed appropriate, made its own credit analysis of
the Borrower and its own decision to enter into this Agreement and that it
will, independently and without reliance upon the Agent, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement. Except as otherwise provided herein, the Agent shall have no duty
to keep the Lenders informed as to the performance or observance by the
Borrower of this Agreement or any other Loan Document referred to or provided
for herein or to inspect the properties or books of the Borrower; provided,
however, that the Agent shall notify each Lender of any request received from
the Borrower for a waiver of any material term of, or any amendment to, any
Loan Document, and shall furnish to the Lenders upon request copies of results
of any field exams or audits of the Borrower's business or the Collateral
conducted by the Agent. The agent, in the absence of gross negligence or
willful misconduct, shall not be liable to any Lender for its failure to relay
or furnish to the Lender any information.
9.4 RESPONSIBILITY OF THE AGENT AND OTHER MATTERS.
9.4a MINISTERIAL NATURE OF DUTIES. As between the Lenders and
itself, the Agent shall not have any duties or responsibilities except those
expressly set forth in this Agreement
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or in the other Loan Documents, and those duties and responsibilities shall be
subject to the limitations and qualifications set forth in this Article 9. The
duties of the Agent shall be ministerial and administrative in nature.
9.4b LIMITATION OF LIABILITY. As between the Lenders and itself,
neither the Agent nor any of its directors, officers, employees or agents shall
be liable, in the absence of gross negligence or willful misconduct, for any
action taken or omitted (whether or not such action taken or omitted is within
or without the Agent's responsibilities and duties expressly set forth in this
Agreement) under or in connection with this Agreement, any other Loan Document,
or any other instrument or document in connection herewith. Without limiting
the foregoing, neither the Agent nor any of its directors, officers, employees
or agents shall be responsible for, or have any duty to examine (i) the
genuineness, execution, validity, effectiveness, enforceability, value or
sufficiency of this Agreement or any of the other Loan Documents or any other
document or instrument furnished pursuant to or in connection with this
Agreement; (ii) the collectibility of any amounts owed by the Borrower to the
Lenders; (iii) the truthfulness of any recitals, statements, representations or
warranties made to the Agent or the Lenders in connection with this Agreements
the other Loan Documents or any other document or instrument furnished pursuant
to or in connection with this Agreement; (iv) any failure of any party to this
Agreement to receive any communication sent, including any telegram, telex,
teletype, telecopy, bank wire, cable, radiogram or telephone message or any
writing, application, notice, report, statement, certificate, resolution,
request, order, consent letter or other instrument, paper or communication
entrusted to the mails or to a delivery service; or (v) the assets,
liabilities, financial condition, results of operations, business, prospects or
creditworthiness of the Borrower or any of its properties.
9.4c RELIANCE. The Agent shall be entitled to act, and shall be
fully protected in acting upon, any telegram, telex, teletype, telecopy, bank
wire, cable or radiogram or any writing, application, notice, report,
statement, certificate, resolution, request, order, consent letter, other
instrument, paper or communication believed by the Agent in good faith to be
genuine and correct and to have been signed or sent or made by a proper Person.
The Agent may consult counsel and shall be entitled to act, and shall be fully
protected in any action taken in good faith, in accordance with advice given by
counsel. The Agent may employ agents and attorneys-in-fact and shall not be
liable for the default or misconduct of any such agents or attorneys-in-fact
selected by the Agent with reasonable care. The Agent shall not be bound to
ascertain or inquire as to the performance or observance of any of the terms,
provisions or conditions of this Agreement or any of the other Loan Documents
on the part of the Borrower. The Agent may deem and treat the payee of any
note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been filed with the
Agent and the provisions of Section 10.5 have been satisfied. Any requests,
authority or consent of any Person who at the time of making such request or
giving such authority or consent is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee or assignee at that Note or of
any Note or Notes issued in exchange therefor or replacement thereof.
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9.5 ACTION ON INSTRUCTIONS. The Agent shall be entitled to act or refrain
from acting, and shall be fully protected in acting or refraining from acting,
under this Agreement, the other Loan Documents or any other instrument or
document in connection herewith or therewith, in accordance with written
instructions from the Required Lenders or, in the case of the matters set forth
in Section 10.1, from all of the Lenders. For purposes of this Agreement and
the other Loan Documents, unless expressly stated otherwise, all determinations
by, requests by, or other references to "Lenders" shall mean the Required
Lenders.
9.6 ACTION UPON OCCURRENCE OF A DEFAULT OR EVENT OF DEFAULT. If a Default
or Event of Default has occurred, the Lenders shall immediately consult with
one another in an attempt to agree upon a mutually acceptable course of
conduct.
9.7 INDEMNIFICATION. To the extent the Borrower does not reimburse and
save harmless the Agent according to the terms hereof for and from all
out-of-pocket costs, expenses and disbursements in connection herewith, such
costs, expenses and disbursements shall be borne by the Lenders ratably in
accordance with their respective Commitments. Each Lender hereby agrees on
such basis (i) to reimburse the Agent for such Lender's pro rata share of all
such out-of-pocket costs, expenses and disbursements on request and (ii) to the
extent of each such Lender's pro rata share, to indemnify and save harmless the
Agent against and from any and all losses, obligations, penalties, actions,
judgments and suits and other costs, expenses and disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent, other than as a consequence of gross negligence or willful misconduct on
the part of the Agent, arising out of or in connection with this Agreement, the
other Loan Documents or any other agreement, instrument or document in
connection herewith or therewith, or any request of the Required Lenders,
including without limitation the out-of-pocket costs, expenses and
disbursements in connection with defending itself against any claim or
liability related to the exercise or performance of any of its powers or duties
under this Agreement, the other Loan Documents, or any of the other agreements,
instruments or documents delivered in connection herewith or the taking of any
action under or on connection with any of the foregoing.
9.8 AGENT'S RIGHTS AS A LENDER. With respect to the Commitments of the
Agent as a Lender hereunder, and any Loans of the Agent under this Agreement,
the other Loan Documents and any other agreements, instruments and documents
delivered pursuant hereto, the Agent shall have the same rights, powers, duties
and obligations under this Agreement, the other Loan Documents or other
agreements, instruments or documents as any Lender, and may exercise such
rights and powers and shall perform such duties and fulfill such obligations as
though it were not the Agent. The Agent may accept deposits from, lend money
to, and generally engage, and continue to engage in any kind of business with
the Borrower and its Affiliates as if it were not the Agent.
9.9 LOAN ADVANCES BY THE AGENT. Unless the officers of the Agent
responsible for administering this Agreement shall have been notified in
writing by a Lender prior to the date and time specified herein of any Loan
that such Lender will not make the amount which
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would constitute its pro rata share of such Loan available to the Agent on or
prior to the date of such Loan, the Agent may (but shall not be required to)
assume that such Lender has made such amount available to the Agent on the date
of such Loan and the Agent may, in reliance upon such assumption make available
to the Borrower a corresponding amount. If such pro rata share is made
available to the Agent by a Lender on a date after the date of such Loan, such
Lender shall pay to the Agent on demand an amount equal to the product of (i)
the average, computed for the period referred to in clause (iii) below, of the
weighted average interest rate for federal funds as determined by the Agent
during each day included in such period, times (ii) the amount of such Lender's
pro rata share of such Loan, times (iii) a fraction, the numerator of which is
the number of days that elapsed from and including the date of such Loan, to
the date on which such pro rata share of such Loan became immediately available
to the Agent, and the denominator of which is 365. A statement of the Agent
submitted to any Lender with respect to any amounts owing under this Section
9.9 shall be prima facie evidence as to the amount owed by that Lender to the
Agent. If such Lender's pro rata share is not in fact made available to the
Agent by such Lender within three (3) Business Days of the date of any Loan,
such Lender shall pay such amount, with interest thereon at the rate per annum
then applicable under the Base Rate Option during such period, on demand, to
the Agent.
9.10 PAYMENT TO LENDERS. Promptly after receipt from the Borrower of any
principal repayment of the Loans, interest due on the Loans, and any Fees or
other amounts due under any of the Loan Documents which are for the benefit of
all the Lenders, the Agent shall distribute to each Lender that Lender's
Commitment Percentage of the funds so received. Such delivery shall be
accomplished in such a manner as to allow each Lender to receive its share of
such payment in immediately available funds on the same day that the funds
representing payment due from the Borrower are collected funds in the
possession of the Agent. If the Agent fails to make such a payment to a Lender
on the same day that the funds are received, such Lender shall be entitled to
receive a premium based upon such Lender's calculations made in accordance with
the same formula set forth in Section 9.9.
9.11 PRO RATA SHARING. Any sums obtained from the Borrower by any Lender
by reason of the exercise of its rights of setoff or banker's lien shall be
shared pro rata among the Lenders. Nothing in this Section 9.11 shall be
deemed to require the sharing among the Lenders of collections specifically
relating to, or of the proceeds of collateral which is not subject to or
contemplated by the Security Documents specifically securing, any other
Indebtedness of the Borrower to any Lender.
9.12 NOTICE OF EVENT OF DEFAULT. Each Lender shall use its best efforts to
notify the Agent immediately in writing of any Default or Event of Default of
which it becomes aware. Upon receipt of any such notice, the Agent shall use
its best efforts to notify the Lenders immediately in writing of such Default
or Event of Default. The Agent shall notify each Lender of any Default or
Event of Default as soon as practicable after obtaining knowledge thereof.
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9.13 SUCCESSOR AGENT. The Agent may resign as the Agent upon thirty (30)
calendar days' notice to the Lenders and the Borrower only in the event that an
Event of Default shall occur, be continuing and declared by the Lenders. If
such notice shall be given, the Lender shall appoint from among the Lenders a
successor agent for the Lenders, during such thirty (30) day period, which
successor agent shall be reasonable satisfactory to the Borrower, to serve as
agent under the Loan Documents. If at the end of such thirty (30) day period
the Lenders have not appointed such a successor, the Agent shall procure a
successor reasonably satisfactory to the Lenders and the Borrower, to serve as
agent for the Lenders under the Loan Documents, any such successor agent shall
succeed to the rights, powers and duties of the Agent. Upon the appointment of
such successor agent or upon the expiration of such thirty (30) day period (or
any longer period to which the Agent has agreed), the former Agent's rights,
powers and duties as the Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article 9 shall inure to the benefit of such retiring Agent
as to any actions taken or omitted to be taken by it while it was the Agent
under this Agreement.
ARTICLE 10. GENERAL PROVISIONS
10.1 AMENDMENTS AND WAIVERS.
(i) Subject to the remaining provisions of this Section 10.1, the
Required Lenders, or the Agent with the consent of the Required Lenders, and
the Borrower may from time to time enter into amendments, extensions,
supplements and replacements to and of this Agreement and the other Loan
Documents to which they are parties, and the Required Lenders may from time to
time waive compliance with a provision of any of the Loan Documents or consent
to action taken by the Borrower. Subject to the remaining provisions of this
Section 10.1, no amendment, extension, supplement, replacements waiver or
consent shall be effective unless it is in writing and is signed by the
Required Lenders and the Borrower. Each waiver and consent shall be effective
only for the specific instance and for the specific purpose for which it is
given.
(ii) The foregoing notwithstanding, no such amendment, extensions,
supplement, replacement or waiver shall, without the consent of all the
Lenders:
(A) increase the Revolving Credit Commitment or the
maximum principal amount of the Revolving Credit Loans or the Term Loans which
may be outstanding hereunder;
(B) reduce any of the Interest Rate Options hereunder or
any of the Fees due hereunder or under any of the other Loan Documents;
(C) extend the Revolving Credit Termination Date, the
Term Loan Maturity Date, or postpone any scheduled payment date of principal
(including any scheduled date tor a
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mandatory or voluntary principal prepayment), interest or Fees hereunder or
under any of the other Loan Documents;
(D) release any obliger under any Loan Document or all or
any part of the Collateral;
(E) amend the percentages set forth in the definition of
"Borrowing Base," or amend in any material respect the definitions of
"Qualified Account" or "Qualified Inventory";
(F) determine the rights or remedies to be exercised
after the declaration of an Event of Default by the Required Lenders, provided
that any consent or waiver to be obtained from the Lenders after the
declaration of an Event of Default (other than matters described in other
provisions of this Subsection 10.1(ii)) shall be effective if it is in writing
and is signed by only the Required Lenders;
(G) change, amend or waive any financial covenant set
forth in Section 6.4;
(H) forgive or reduce any principal or interest of any
Loans which are outstanding;
(I) change, amend or waive any of the covenants set forth
in Section 6.1(iii) or (iv) or 6.3;
(J) change, amend or waive the covenants set forth in
Section 6.13 only to the extent that an acquisition or acquisitions in any
given Fiscal Year or in the aggregate exceed twenty-five percent (25%) of the
payment amounts provided in such Section;
(K) change the definition of "Required Lenders"; or
(L) amend this Section 10.1.
10.2 TAXES. The Borrower shall pay any and all stamp, document, transfer
and recording taxes, filing fees and similar impositions payable or hereafter
reasonably determined by the Agent to be payable in connection with this
Agreement, the other Loan Documents and any other documents, instruments and
transactions pursuant to or in connection with any of the Loan Documents. The
Borrower agrees to save the Agent and the Lenders harmless from and against any
and all present and future claims or liabilities with respect to, or resulting
from, any delay in paying or failure to pay any such taxes or similar
impositions. The obligations of the Borrower pursuant to this Section 10.2
shall survive the termination of this Agreement and the repayment of the
Obligations.
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10.3 EXPENSES. The Borrower shall pay:
(i) All (A) out-of-pocket costs and expenses incurred by the Agent
in connection with the preparation, negotiation, execution and delivery of this
Agreement, the other Loan Documents, and any and all other documents and
instruments prepared in connection herewith, including the Agent's reasonable
legal fees and expenses in connection therewith; provided, however, that the
fees (but not the costs and expenses) of Seyfarth, Shaw, Fairweather and
Geraldson, counsel to Agent, shall not exceed $75,000; and provided further
that the foregoing fee cap shall not apply to local counsel retained by Agent;
and (B) all reasonable costs and expenses of the Agent (including but not
limited to reasonable fees and expenses of the Agent's counsel) in connection
with all amendments, waivers, consents and other documents and instruments
prepared or entered into from time to time in connection with this Agreement
and the other Loan Documents, after the Closing Date; and
(ii) All reasonable costs and expenses of the Agent, the Lenders
and the Issuing Bank (including without limitation the reasonable fees and
disbursements of the Lenders' counsel) in connection with (A) the enforcement
of this Agreement and the other Loan Documents arising pursuant to a breach by
any Person of any of the terms, conditions, representations, warranties or
covenants of any Loan Document or the occurrence of a Default or an Event of
Default; (B) the sale or other action taken with respect to any of the
Collateral; and (C) defending or prosecuting any actions, suits or proceedings
relating to any of the Loan Documents.
All of such costs and expenses shall be payable by the Borrower to the
Agent, for the benefit of the Lenders where appropriate, upon demand or as
otherwise agreed upon by the Agent and the Borrower, shall constitute
Obligations under this Agreement, and shall bear interest at the Default Rate
if not paid when due. The Borrower's obligations to pay such costs and
expenses shall survive the termination of this Agreement and the repayment of
the Obligations.
10.4 NOTICES.
10.4a NOTICE TO THE BORROWER. All notices required to be delivered
to the Borrower pursuant to this Agreement shall be in writing and shall be
sent to the following address, by hand delivery, recognized national overnight
courier service, telecopier or other means of electronic data communication:
Best Lock Corporation
8900 Keystone Crossing
Indianapolis, Indiana 46240
Attention: Stephen J. Cooper
Fax: (317) 817-9217
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<PAGE> 82
With copies to:
Jenner & Block
One IBM Plaza
Suite 4000
Chicago, Illinois 60611
Attention: Craig R. Culbertson
Fax: 312/923-2637
10.4b NOTICE TO THE AGENT. All notices required to be delivered to
the Agent pursuant to this Agreement shall be in writing and shall be sent to
the following address, by hand delivery, recognized national overnight courier
service, telecopier or other means of electronic data communication:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Todd J. Lanscioni
Fax: 312/904-6225
With copies to:
Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Suite 4200
Chicago, Illinois 60603
Attention: Theodore E. Cornell III
Fax: 312/269-8869
10.4c NOTICE TO THE LENDERS. All notices required to be delivered
to any Lender pursuant to this Agreement shall be in writing and shall be sent
to the address set forth on Annex A hereto or to the Assignment and Assumption
Agreement to which such Lender is a party, by hand delivery, recognized
national overnight courier service, telecopier or other means of electronic
data communication.
10.4d EFFECTIVENESS OF NOTICES. All such notices shall be effective
on the date of telecopy transmission or when received, whichever is earlier.
The parties hereto may each change the address for service of notice upon it by
a notice in writing to the other party hereto.
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<PAGE> 83
10.5 ASSIGNMENTS.
10.5a ASSIGNMENTS. Subject to the remaining provisions of this
Subsection 10.5a, any Lender may at any time, in the ordinary course of its
commercial banking business, in accordance with applicable law, sell to one or
more Purchasing Lenders (which Purchasing Lenders may be affiliates of the
Transferor Lender), a portion of its rights and obligations under this
Agreement, the Notes then held by it and the other Loan Documents pursuant to
an Assignment and Assumption Agreement substantially in the form of Exhibit "N"
and satisfactory to the Agent, executed by the Transferor Lender, such
Purchasing Lender, the Agent and the Borrower: subject, however to the
following requirements:
(i) Agent may sell any portion of its rights and obligations under
this Agreement pursuant to this Section 10.5 so long as its Commitment
Percentage remains not less than 50%;
(ii) The Borrower and the Agent must give their prior consent to
any such assignment, which consents shall not be unreasonably withheld;
(iii) Following an assignment permitted under this Section there
shall be no more than three (3) Lenders unless approved in writing by the
Borrower and the Agent in their sole discretion;
(iv) Each assignment to a Purchasing Lender which is not a Lender
immediately prior to such assignment must be in a minimum amount of $5,000,000,
and each assignment to a Purchasing Lender which is a Lender immediately period
to such assignment may be in any amount; and
(v) Each Transferor Lender shall pay to the Agent a $3,500 service
fee, for its sole benefit, in connection with each assignment made by it;
provided, however, that (A) if an Event of Default shall have occurred, be
continuing and declared by the Lenders the restrictions set forth in item (i)
above shall not be applicable, and (B) after the occurrence of and during the
continuance of an Event of Default (1) the restrictions set forth in item (iv)
above shall not be applicable and (2) the consents or agreements of the
Borrower contemplated in items (ii) and (iii) above shall not be required.
Upon the execution, delivery, acceptance and recording of any such
Assignment and Assumption Agreement, from and after the Transfer Effective Date
determined pursuant to such Assignment and Assumption Agreement, (i) the
Purchasing Lender thereunder shall be a party hereto as a Lender and, to the
extent provided in such Assignment and Assumption Agreement, shall have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (ii) the Transferor Lender thereunder shall, to the extent
provided in such Assignment and Assumption Agreement, be released from its
obligations under this Agreement as a Lender. Such Assignment and Assumption
Agreement shall be deemed to
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<PAGE> 84
amend this Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender as a Lender and the resulting
adjustments of Commitment Percentages arising from the purchase by such
Purchasing Lender of all or a portion of the rights and obligations of such
Transferor Lender under this Agreement and the Notes. On or prior to the
Transfer Effective Date, the Borrower shall execute and deliver to the Agent,
in exchange for the surrendered Notes held by the Transferor Lender, new Notes
to the order of such Purchasing Lender in an amount equal to the Commitment or
the Loans assumed by it and purchased by it pursuant to such Assignment and
Assumption Agreement, and new Notes to the order of the Transferor Lender in an
amount equal to the Commitment or the Loans retained by it hereunder.
10.5b ASSIGNMENT TO FEDERAL RESERVE BANK. In addition to the
assignments permitted above, any Lender may assign and pledge all or any
portion of its Loans and Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any Operating Circular issued by such Federal Reserve Bank.
No such assignment shall release the assigning Lender from its obligations and
duties hereunder or under the other Loan Documents.
10.5c ASSIGNMENT REGISTER. The Agent shall maintain at its address
referred to in Section 10.4 a copy of each Assignment and Assumption Agreement
delivered to it and a register (the "Register") for the recordation of the
names and addresses of the Lenders and the amount of the Loans owing to each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Agent, the Lenders and the
Issuing Bank may treat each Person whose name is recorded in the Register as
the owner of the Loans recorded therein for all purposes of this Agreement.
The Register shall be available at the office of the Agent set forth in Section
10.4 for inspection by the Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice.
10.6 PARTICIPATIONS.
10.6a SALE OF PARTICIPATIONS. The Lenders may, in the ordinary
course of their commercial banking business and in accordance with applicable
law, and after first obtaining the consent of the Agent, which consent shall
not be unreasonably withheld, at any time sell to one or more Participants
(which Participants may be Affiliates of a Lender) Participations in the
Revolving Credit Commitment, the Loans, the Notes and the other interests of
the Lenders hereunder. In the event of any such sale of a Participation, the
selling Lender's obligations under this Agreement to the Borrower shall remain
unchanged, such Lender shall remain solely responsible for its performance
under this Agreement, such Lender shall remain the holder of the Notes made
payable to it for all purposes under this Agreement, the Borrower shall
continue to deal solely and directly with the selling Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents and Participants shall not be permitted to have any voting rights.
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<PAGE> 85
10.6b RIGHT OF SETOFF. The Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due and unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have, to the extent
permitted by applicable law, the right of setoff in respect of its
Participation in amounts owing under this Agreement and the Notes to the same
extent as if the amount of its Participation were owing directly to it as a
lender under this Agreement or the Notes.
10.7 INDEMNITY. The Borrower hereby agrees to indemnify the Agent, the
Lenders, the Issuing Bank, each of their respective Controlling Persons, if
any, and the directors, officers, employees, attorneys, agents and Affiliates
or all of the foregoing (each of the foregoing an "INDEMNIFIED PERSON") against
and hold each of them harmless from, any loss, liabilities, damages, claims,
costs and expenses (including reasonable attorneys' fees and disbursements)
suffered or incurred by any Indemnified Person arising out of, resulting from
or in any manner connected with, the execution, delivery and performance of
each of the Loan Documents, the Obligations and any and all transactions
related to or consummated in connection with the Obligations, other than as a
consequence of the gross negligence or willful misconduct on the part of any
Indemnified Person including, without limitation, losses, liabilities, damages,
claims, costs and expenses suffered or incurred by any Indemnified Person
arising out of or related to investigating, preparing for, defending against,
or providing evidence, producing documents or taking any other action in
respect of any commenced or threatened litigation administrative proceeding or
investigation under any Federal securities law or any other Governmental Rule
of any jurisdiction, or at common law or otherwise, that is alleged to arise
out of or is based on (i) any untrue statement or alleged untrue statement of
any material fact of the Borrower or any Affiliate of the Borrower in any
document or schedule filed with the Securities and Exchange Commission or any
other Governmental Authority; (ii) any omission or alleged omission to state
any material fact required to be stated in such document or schedule, or
necessary to make the statements made therein, in light of the circumstances
under which made, not misleading; (iii) any actual or alleged acts, practices
or omissions of the Borrower or any of its respective directors, officers,
employees, attorneys, agents or Affiliates, related to the making of any
acquisition, purchase of shares or assets pursuant thereto, financing of such
purchases or the consummation of any other transactions contemplated by any
such acquisitions that are alleged to be in violation of any Federal securities
law or of any other statute, regulation or other law of any jurisdiction
applicable to the making of any such acquisition, the purchase of shares or
assets pursuant thereto, the financing of such purchases or the consummation of
the other transactions contemplated by any such acquisition; or (iv) any
withdrawals, termination or cancellation of any such proposed acquisition for
any reason whatsoever. The indemnity set forth in this Section 10.7 shall be
in addition to any other obligations or liabilities of the Borrower to the
Agent, the Lenders or the Issuing Bank, or at common law or otherwise. The
provisions of this Section 10.7 shall survive the payment of the Obligations
and the termination of this Agreement and the other Loan Documents.
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<PAGE> 86
10.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Borrower, the Agent, the Lenders, the Issuing Bank and their respective
successors and assigns, and shall inure to the benefit of the Borrower, the
Agent, the Lenders, the Issuing Bank and their respective successors and
assigns; provided however, that the Borrower shall not assign its rights or
duties hereunder or under any of the other Loan Documents without the prior
written consent of all of the Lenders and the Agent and the Lenders may only
assign as permitted in this Agreement.
10.9 CONFIDENTIALITY. The Agent, the Lenders and the Issuing Bank shall
keep confidential and not disclose to any Person, other than to their
respective directors, officers, employees, Affiliates and agents, and to actual
and potential Purchasing Lenders and Participants, all non-public information
concerning the Borrower and the Borrower's Affiliates which comes into the
possession of the Agent, the Lenders or the Issuing Bank during the term
hereof. Notwithstanding the foregoing, the Agent, the Lenders and the Issuing
Bank may disclose information concerning the Borrower (i) in accordance with
normal banking practices and the Agent's, such Lender's or the Issuing Bank's
policies concerning disclosure of such information, (ii) pursuant to what the
Agent, such Lender or the Issuing Bank believes to be the lawful requirements
or request of any Governmental Authority regulating banks or banking, (iii) as
required by Governmental Rule, judicial process or subpoena and (iv) to their
respective attorneys, accountants and auditors who shall also be bound by the
terms of this Section.
10.10 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or enforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
10.11 SURVIVAL. All representations, warranties, covenants and agreements
of the Borrower contained herein or in the other Loan Documents or made in
writing in connection herewith shall survive the issuance of the Notes and
shall continue in full force and effect so long as the Borrower may borrow
hereunder and so long thereafter until payment in full of the Notes and the
Obligations is made.
10.12 GOVERNING LAW. This Agreement and the other Loan Documents shall be
governed by and construed in accordance with the laws of the State of Illinois,
without regard to the principles thereof regarding conflict of laws, excepting
applicable federal law, except only to the extent precluded by the mandatory
application of the law of another jurisdiction and except as expressly set
forth in any of the other loan documents.
10.13 FORUM. THE PARTIES HERETO AGREE THAT THE COURTS OF THE STATE OF
ILLINOIS LOCATED IN CHICAGO, ILLINOIS, AND THE FEDERAL COURTS LOCATED IN THE
NORTHERN DISTRICT OF ILLINOIS, COOK COUNTY, HAVE EXCLUSIVE JURISDICTION OVER
ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS TO WHICH
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<PAGE> 87
THE BORROWER IS A PARTY AND EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR
PURPOSES OF ANY SUCH ACTION OR PROCEEDING. EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING ANY
CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF
PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL
JUDGMENT IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT.
10.14 NON-BUSINESS DAYS. Whenever any payment of principal, interest, Fees
or any other amounts hereunder or under any of the other Loan Documents is due
and payable on a day which is not a Business Day, except as otherwise provided
in this Agreement such payment may be made on the next succeeding Business Day,
and such extension of time shall in each such case be included in computing
interest, Fees or other amounts in connection with such payment.
10.15 INTEGRATION. This Agreement is the entire agreement among the parties
relating to this financing transaction and it supersedes all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the transactions provided for herein.
10.16 HEADINGS. Article, Section, Subsection and other headings used in
this Agreement are intended for convenience only and shall not affect the
meaning or construction of this Agreement.
10.17 COUNTERPARTS. This Agreement and any amendment hereto may be executed
in several counterparts and by each party on a separate counterpart, each of
which, when so executed and delivered, shall be an original, but all of which
together shall constitute but one and the same instrument. In proving this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart signed by the other party against whom enforcement is sought.
10.18 WAIVER OF JURY TRIAL. THE BORROWER, EACH LENDER, THE AGENT AND THE
ISSUING BANK EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND IN
ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER, THE LENDERS, THE
AGENT, THE ISSUING BANK OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IS A
PARTY, AS TO ALL MATTERS AND THINGS ARISING OUT OF THIS AGREEMENTS, THE NOTES
OR THE OTHER LOAN DOCUMENTS, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Credit Agreement to be executed by their respective
duly authorized officers as of the date first written above.
BEST LOCK CORPORATION, an Indiana corporation
By:
---------------------------------
Name:
------------------------------
Title:
-----------------------------
FEIN:
------------------------------
LA SALLE NATIONAL BANK, a
national banking association
By:
--------------------------
Name: Todd J. Lanscioni
Title: First Vice President
BANK ONE INDIANA, N.A.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NATIONAL CITY BANK OF INDIANA
By:
--------------------------
Name:
-----------------------
Title:
-----------------------
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<PAGE> 89
ANNEX A
Commitments of Lenders
and Addresses
for Notices to Lenders
<TABLE>
<CAPTION>
===============================================================================================================================
Amount of
Commitment for Amount of
Revolving Commitment Commitment
Credit Loans for Term Loan Commitment Percentage
A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name: LaSalle National Bank
Address: 135 South LaSalle Street
Chicago, Illinois 60603
Attention: Todd J. Lanscioni
First Vice President
Telephone: 312/904-2786
Telecopy: 312/904-6225 $14,000,000 $11,000,000 $25,000,000 50%
- -------------------------------------------------------------------------------------------------------------------------------
Name: Bank One Indiana, N.A.
Address: Bank One Center Tower
111 Monument Circle
Indianapolis, IN 46277-0119
Attention: William S. Denton, Jr.
Vice President
Telephone: 317/321-8354
Telecopy: 312/592-5269 $7,000,000 $5,500,000 $12,500,000 25%
- -------------------------------------------------------------------------------------------------------------------------------
Name: National City Bank of Indiana
Address: 1 National City Center
Suite 2006
Indianapolis, IN 46255
Attention: Randy J. Collier
Vice President, Senior Lending
Officer, Metro Lending
Telephone: 317/267-7921
Telecopy: 317/267-8899 $7,000,000 $5,500,000 $12,500,000 25%
===============================================================================================================================
</TABLE>
<PAGE> 90
ANNEX B
PRICING MATRIX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Funded
Debt/EBITDA Level I Level II Level III Level IV Level V
<1.5 1.5-2.0 >2.0-2.5 >2.5-3.0 >3.0
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIBOR Margin 1.0% 1.25% 1.50% 1.75% 2.0%
Commitment Fee .20% .25% .25% .25% .25%
- --------------------------------------------------------------------------------------------------------
Base Rate Margin 0.0% 0.0% 0.0% .25% .50%
- --------------------------------------------------------------------------------------------------------
Commercial Letters of .50% .625% .75% .875% 1.0%
Credit
- --------------------------------------------------------------------------------------------------------
Standby Letters of 1.0% 1.25% 1.50% 1.75% 2.0%
Credit
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 91
EXHIBITS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EXHIBIT DESIGNATION EXHIBIT PRINCIPAL SECTION
REFERENCE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A Form of Revolving Credit Note 2.1f
- ------------------------------------------------------------------------------------------------------------------
B Form of Term Loan Note 2.3a
- ------------------------------------------------------------------------------------------------------------------
B-1 Form of New York Term Loan Note 2.3a
- ------------------------------------------------------------------------------------------------------------------
C Form of Loan Request 2.5
- ------------------------------------------------------------------------------------------------------------------
D Form of Security Agreement 3.2
- ------------------------------------------------------------------------------------------------------------------
E Form of Pledge Agreement (First Thoroughbred Shares) 3.2
- ------------------------------------------------------------------------------------------------------------------
E-1 Form of First Thoroughbred Pledge Agreement 3.2
- ------------------------------------------------------------------------------------------------------------------
F Form of Mortgage 3.3
- ------------------------------------------------------------------------------------------------------------------
G Form of Environmental Agreement 7.2g
- ------------------------------------------------------------------------------------------------------------------
H Form of Assignment of Patents and Trademarks 3.2
- ------------------------------------------------------------------------------------------------------------------
I Assignment of Term Life Insurance Policy 5.17
- ------------------------------------------------------------------------------------------------------------------
J Compliance Certificate 5.2c
- ------------------------------------------------------------------------------------------------------------------
K Form of Borrowing Base Certificate 5.2d
- ------------------------------------------------------------------------------------------------------------------
L Closing Certificate 7.2a
- ------------------------------------------------------------------------------------------------------------------
M Form of Landlord Waiver and Consent 7.1d
- ------------------------------------------------------------------------------------------------------------------
N Assignment and Assumption Agreement 10.5a
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 92
ANNEXES AND SCHEDULES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNEX DESIGNATION ANNEX
- --------------------------------------------------------------------------------
<S> <C>
A Lenders; Commitments; Notice Addresses
- --------------------------------------------------------------------------------
B Pricing Matrix
- --------------------------------------------------------------------------------
SCHEDULE DESIGNATION SCHEDULE
- --------------------------------------------------------------------------------
4.1 Organization and Powers
- --------------------------------------------------------------------------------
4.2 Capitalization
- --------------------------------------------------------------------------------
4.8 Litigation
- --------------------------------------------------------------------------------
4.11 Labor Matters
- --------------------------------------------------------------------------------
4.13 Names
- --------------------------------------------------------------------------------
4.14 Locations; Mortgaged Parcels
- --------------------------------------------------------------------------------
4.17 Intellectual Property
- --------------------------------------------------------------------------------
4.18 Insurance
- --------------------------------------------------------------------------------
4.19 Consents and Approvals
- --------------------------------------------------------------------------------
6.1 Indebtedness
- --------------------------------------------------------------------------------
6.3 Permitted Liens
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 93
EXHIBIT A TO CREDIT AGREEMENT
REVOLVING CREDIT NOTE
Chicago, Illinois
$_____________________ [DATE]
This Revolving Credit Note is executed and delivered under and pursuant
to the terms of that certain Credit Agreement dated as of March __, 1998 entered
into by and among Best Lock Corporation, an Indiana corporation, its successors
and assigns (the "Borrower"), the lenders which are parties thereto and LaSalle
National Bank, a national banking association, as the Issuing Bank and as the
Agent (in such capacity the "Agent"), together with all extensions, renewals,
amendments, restatements, substitutions and replacements thereto and thereof
(the "Credit Agreement").
FOR VALUE RECEIVED, on or before the Revolving Credit Termination Date,
the Borrower promises to pay to the order of___________________________________
_______________________________, its successors and assigns (the "Lender") at
the office of the Agent at 135 South LaSalle Street, Chicago, Illinois 60603 the
principal sum of DOLLARS ($ ) or so much of the aggregate unpaid principal
amount of the Revolving Credit Loans made by the Lender to the Borrower which
are outstanding pursuant to the Credit Agreement, together with per annum
interest on the outstanding principal balance existing from time to time in
accordance with the terms of the Credit Agreement.
This Revolving Credit Note is one of the Revolving Credit Notes
referred to in the Credit Agreement and evidences Revolving Credit Loans which
may be advanced and repaid and readvanced from time to time as Revolving Credit
Advances as provided in the Credit Agreement. All capitalized terms used in this
Revolving Credit Note as defined terms which are not defined herein but which
are defined in the Credit Agreement shall have the meanings given them in the
Credit Agreement. Reference is made to the Credit Agreement for provisions
requiring prepayment of principal and for the acceleration of the maturity of
this Revolving Credit Note. All of the terms, conditions, covenants,
representations and warranties of the Credit Agreement are incorporated herein
by reference as if such terms, conditions, covenants, representations and
warranties were fully set forth herein. This Revolving Credit Note is secured by
the Liens granted pursuant to the Credit Agreement and the other Loan Documents.
The sums advanced under this Revolving Credit Note shall bear interest
commencing on the date hereof until maturity at the applicable Interest Rate
Option as provided in the Credit Agreement. Interest on the unpaid principal
balance hereof shall be due and payable and shall be calculated in accordance
with the terms of the Credit Agreement, including, without limitation, at the
Default Rate, whether or not judgment has been entered on this Revolving Credit
Note. The interest rate accruing hereunder will be adjusted, when necessary and
if appropriate, in accordance with the terms of the Credit Agreement.
Page 1 of 2
<PAGE> 94
All outstanding principal hereunder, together with all accrued and
unpaid interest hereon and all outstanding Obligations relating to the Revolving
Credit Loans, shall be due and payable on the Revolving Credit Termination Date.
All payments of principal and interest shall be made at the office of
the Agent set forth above.
Upon the occurrence of any Event of Default specified in the Credit
Agreement, the principal hereof and accrued interest hereon may become forthwith
due and payable and the Lender may exercise any other rights and remedies,
including, without limitation, its rights and remedies against the Collateral
given to secure the repayment of this Revolving Credit Note, all as provided in
the Credit Agreement.
All amounts payable under the terms of this Revolving Credit Note shall
be payable with expenses of and costs of collection, including reasonable
attorneys' fees, and without relief from valuation and appraisement laws. All
payments on account of this Revolving Credit Note shall be applied first to
expenses and costs of collection, next to all accrued and unpaid interest, to
any unpaid Fees under the Credit Agreement, and to any other outstanding
Obligations relating to the Revolving Credit Commitment, and only after the
satisfaction of all of such expenses, fees, interest and costs, to principal.
Demand, presentation, protest, notice of dishonor and notice of default
are hereby waived.
Time is of the essence of this Revolving Credit Note and each and every
provision hereof.
THE BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND
IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER IS A PARTY AS TO
ALL MATTERS AND THINGS ARISING OUT OF THIS REVOLVING CREDIT NOTE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, this Revolving Credit Note has been duly executed
and delivered as of this _____ day of _________________, 1998.
Best Lock Corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Page 2 of 2
<PAGE> 95
EXHIBIT B TO CREDIT AGREEMENT
TERM LOAN NOTE
Chicago, Illinois
$ _________________ [DATE]
This Term Loan Note is executed and delivered under and pursuant to the
terms of that certain Credit Agreement dated as of March__, 1998 entered into by
and among Best Lock Corporation, an Indiana corporation, its successors and
assigns (the "Borrower"), the lenders which are parties thereto and LaSalle
National Bank, a national banking association, as the Issuing Bank and as the
Agent (in such capacity the "Agent"), together with all extensions, renewals,
amendments, restatements, substitutions and replacements thereto and thereof
(the "Credit Agreement").
FOR VALUE RECEIVED, the Borrower promises to pay to the order of
____________________, its successors and assigns (the "Lender") at the office of
the Agent at 135 South LaSalle Street, Chicago, Illinois 60603, or at such other
place as Agent may from time to time designate to Borrower in writing, the
principal sum of Dollars ($ ), together with interest, without relief from
valuation and appraisement laws, principal and interest to be paid as follows:
(a) the principal payable in consecutive quarterly installments,
beginning on June 30, 1998 and continuing thereafter on the last day of
each September, December, March and June, until the Term Loan Maturity
Date, at which time all of the unpaid principal of this Term Loan Note
shall be and become due and payable, with each such quarterly installment
to be in the principal amount set forth in the chart below:
REQUIRED
DATE PRINCIPAL PAYMENT
6/30, 9/30, 12/31/1998 and 3/31/99 $ 625,000.00
6/30, 9/30, 12/31/1999 and 3/31/00 750,000.00
6/30, 9/30, 12/31/2000 and 3/31/01 875,000.00
6/30, 9/30, 12/31/2001 and 3/31/02 1,000,000.00
6/30, 9/30, 12/31/2002 and 3/31/03 1,125,000.00
6/30, 9/30, 12/31/2003 1,125,000.00
(b) interest on the unpaid principal sum of this Term Loan
Note shall accrue from the date hereof at the applicable Interest Rate
Option and shall be
Page 1 of 3
<PAGE> 96
calculated in accordance with the terms of the Credit Agreement, including
without limitation, at the Default Rate (as defined in the Credit
Agreement), whether or not judgment has been entered on this Term Loan
Note, payable quarterly in arrears on the last day of each June, September,
December and March commencing on June 30, 1998 and on the Term Loan
Maturity Date.
This Term Loan Note is one of the Term Loan Notes referred to in the
Credit Agreement. This Term Loan Note is secured by the Liens granted pursuant
to the Credit Agreement and the other Loan Documents. All capitalized terms used
in this Term Loan Note as defined terms which are not defined herein but which
are defined in the Credit Agreement shall have the meanings given them in the
Credit Agreement. Reference is made to the Credit Agreement for provisions
requiring prepayment of principal and for the acceleration of the maturity of
this Term Loan Note. All of the terms, conditions, covenants, representations
and warranties of the Credit Agreement are incorporated herein by reference as
if such terms, conditions, covenants, representations and warranties were fully
set forth herein.
All payments of principal and interest shall be made at the office of
the Agent set forth above.
Upon the occurrence of any Event of Default specified in the Credit
Agreement, the principal hereof and accrued interest hereon may become forthwith
due and payable and the Lender may exercise any other rights and remedies,
including, without limitation, its rights and remedies against the Collateral
given to secure the repayment of the Term Loan Note, all as provided in the
Credit Agreement.
All amounts payable under the terms of this Term Loan Note shall be
payable with expenses of collection, including reasonable attorneys' fees, and
without relief from valuation and appraisement laws. All payments on account of
this Term Loan Note shall be applied first to expenses and costs of collection,
next to all accrued and unpaid interest, to any unpaid Fees under the Credit
Agreement and to any other outstanding Obligations relating to this Term Loan
Note, and only after the satisfaction of all of such expenses, fees, interest
and costs, to principal.
Demand, presentation, protest, notice of dishonor and notice of default
are hereby waived.
Time is of the essence of this Term Loan Note and each and every
provision hereof.
THE BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND
IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER IS A PARTY AS TO
ALL MATTERS AND THINGS ARISING OUT OF THIS TERM LOAN NOTE WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
Page 2 of 3
<PAGE> 97
IN WITNESS WHEREOF, this Term Loan Note has been duly executed and
delivered as of this ____ day of ______________________, 1998.
Best Lock Corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Page 3 of 3
<PAGE> 98
EXHIBIT B-1 TO CREDIT AGREEMENT
NEW YORK
TERM LOAN NOTE
Chicago, Illinois
$__________ [DATE]
This New York Term Loan Note (this "Note") is executed and delivered
under and pursuant to the terms of that certain Credit Agreement dated as of
March ___, 1998 entered into by and among Best Lock Corporation, an Indiana
corporation, its successors and assigns (the "Borrower"), the lenders which are
parties thereto and LaSalle National Bank, a national banking association, as
the Issuing Bank and as the Agent (in such capacity the "Agent"), together with
all extensions, renewals, amendments, restatements, substitutions and
replacements thereto and thereof (the "Credit Agreement").
FOR VALUE RECEIVED, the Borrower promises to pay to the order of
____________________, its successors and assigns (the "Lender") at the office of
the Agent at 135 South LaSalle Street, Chicago, Illinois 60603, or at such other
place as Agent may from time to time designate to Borrower in writing, the
principal sum of __________________________________ Dollars ($______), together
with interest, without relief from valuation and appraisement laws, principal
and interest to be paid as follows:
(a) all of the unpaid principal of this Note shall be and
become due and payable on March ___, 2004.
(b) interest on the unpaid principal sum of this Note shall
accrue from the date hereof at the applicable Interest Rate Option and
shall be calculated in accordance with the terms of the Credit
Agreement, including without limitation, at the Default Rate (as
defined in the Credit Agreement), whether or not judgment has been
entered on this Note, payable quarterly in arrears on the last day of
each March, June, September and December commencing on June 30, 1998,
and on the Term Loan Maturity Date.
This Note is one of the New York Term Loan Notes referred to in the
Credit Agreement. This Note is secured by the Liens granted pursuant to the
Credit Agreement and the other Loan Documents. All capitalized terms used in
this Note as defined terms which are not defined herein but which are defined in
the Credit Agreement shall have the meanings given them in the Credit Agreement.
Reference is made to the Credit Agreement for provisions requiring prepayment of
principal and for the acceleration of the maturity of this Note. However, the
principal amount evidenced by this Note may not be prepaid until all other Notes
referred to in the Credit Agreement have been repaid in full. All of the terms,
conditions, covenants, representations and warranties of the Credit Agreement
are
Page 1 of 2
<PAGE> 99
incorporated herein by reference as if such terms, conditions, covenants,
representations and warranties were fully set forth herein.
All payments of principal and interest shall be made at the office of
the Agent set forth above.
Upon the occurrence of any Event of Default specified in the Credit
Agreement, the principal hereof and accrued interest hereon may become forthwith
due and payable and the Lender may exercise any other rights and remedies,
including, without limitation, its rights and remedies against the Collateral
given to secure the repayment of the Note, all as provided in the Credit
Agreement.
All amounts payable under the terms of this Note shall be payable with
expenses of collection, including reasonable attorneys' fees, and without relief
from valuation and appraisement laws. All payments on account of this Note shall
be applied first to expenses and costs of collection, next to all accrued and
unpaid interest, to any unpaid Fees under the Credit Agreement and to any other
outstanding Obligations relating to this Note, and only after the satisfaction
of all of such expenses, fees, interest and costs, to principal.
Demand, presentation, protest, notice of dishonor and notice of default
are hereby waived.
Time is of the essence of this Note and each and every provision
hereof.
THE BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND
IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER IS A PARTY AS TO
ALL MATTERS AND THINGS ARISING OUT OF THIS NOTE WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE.
IN WITNESS WHEREOF, this Note has been duly executed and delivered as
of this ____ day of ______________________, 1998.
Best Lock Corporation
By:________________________________
Name:______________________________
Title:_____________________________
Page 2 of 2
<PAGE> 100
3099136.2
3-19-98
EXHIBIT C TO CREDIT AGREEMENT
LOAN REQUEST
To: LaSalle National Bank, as Agent
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Todd J. Lanscioni
Pursuant to Section 2.5 of that certain Credit Agreement dated as of
March __, 1998, by and among the undersigned, Best Lock Corporation, an Indiana
corporation ("Borrower"), the Lenders which are party thereto, and LaSalle
National Bank, as the Issuing Bank and as Agent, the undersigned Borrower hereby
requests a Revolving Credit Loan, or election or renewal of or conversion to an
Interest Rate Option as follows:
1. Amount of new Revolving Credit Loan: $_______________
A. Interest Rate Option to apply to new Revolving Credit Loan:
(1) Principal amount to bear
interest at Base Rate Option $____________
(a) Effective date _____________
(2) Principal amount to bear interest at
LIBOR-Rate Option $____________
(3) LIBOR-Rate Interest Period(s) and amount(s)
Period Amount
------ ------
------------- $
------------- $
------------- $
(a) Effective Date _____________
2. Interest Rate Option Renewal or Conversion:
A. Revolving Credit Loan Renewal or Conversion
<PAGE> 101
(1) Renew LIBOR Interest Rate Period of
_______________ on __________________ for
$_____________ of principal of the
outstanding Revolving Credit Loans
(2) Convert [existing interest rate option] to
[proposed interest rate option] on [insert
proposed effective date] for [insert LIBOR-
Rate Interest Period in the case of
conversion to LIBOR-Rate Interest Option],
for $_________ of principal of the
outstanding Revolving Credit Loans.
B. Term Loan Renewal or Conversion
(1) Renew LIBOR-Interest Rate Period of
_______________ on __________________, for
$_____________ of principal of the Term
Loan.
(2) Convert [existing interest rate option] to
[proposed interest rate option] on [insert
proposed effective date] for [insert LIBOR-
Rate Interest Period in the case of
conversion to LIBOR-Rate Interest Option],
for $_____________ of principal of the Term
Loan.
The undersigned acknowledges that this request with respect to each
LIBOR-Rate Loan (whether for new borrowing, renewal or conversion) shall
irrevocably commit the Borrower to accept such LIBOR-Rate Loan on the effective
date specified in this request.
[SIGNATURE PAGE(S) AND EXHIBIT(S), IF ANY, FOLLOW THIS PAGE]
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<PAGE> 102
Dated and delivered: ________________________, 199__.
BEST LOCK CORPORATION
By ___________________________________
Name:______________________________
Title:_____________________________
- 3 -
<PAGE> 103
EXHIBIT D TO CREDIT AGREEMENT
SECURITY AGREEMENT
- --------------------------------------------------------------------------------
NAME: Best Lock Corporation
NO. AND STREET: 8900 Keystone Crossing
Suite 1100
CITY: Indianapolis COUNTY: Marion STATE: Indiana
BEST LOCK CORPORATION, a corporation organized under the laws of the
State of Indiana ("Debtor"), for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, hereby grants, pledges and assigns
to LASALLE NATIONAL BANK, a national banking association, as Agent for the
lenders now or hereafter named in the Credit Agreement (as hereinafter defined)
(in such capacity as the agent, hereinafter the "Lender"), a security interest
in the following property to the extent of Debtor's right, title and interest
therein, whether Debtor's interest therein is as owner, co-owner, lessee,
consignee, secured party, or otherwise, whether now owned or existing or
hereafter arising or acquired, and wherever located, together with all
substitutions, replacements, additions and accessions therefor or thereto, all
replacement and repair parts therefor, all negotiable documents relating
thereto, all products thereof and all cash and non-cash proceeds thereof
including, but not limited to, notes, drafts, checks, instruments, insurance
proceeds, indemnity proceeds, warranty and guaranty proceeds and proceeds
arising in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the following property by any governmental
body, authority, bureau or agency (or any person acting under color of
governmental authority):
(a) all of Debtor's presently existing and hereafter created
"accounts" (as defined in the Uniform Commercial Code as enacted
in the State of Illinois ("UCC")) including, without limitation,
accounts receivable, contract rights and general intangibles
relating thereto, notes, drafts and other forms of obligations
owed to or owned by Debtor arising or resulting from the sale of
goods or the rendering of services, and all guaranties and
security therefor, and all goods and rights represented thereby
or arising therefrom including the rights of stoppage in transit,
replevin and reclamation ("Accounts");
(b) all of Debtor's "inventory" (as defined in the UCC), including,
without limitation, finished goods, raw materials, work in
process and other materials and supplies used or consumed in
Debtor's business and goods which are returned or repossessed
("Inventory");
(c) all of Debtors "general intangibles" (as defined in the UCC);
(d) all of Debtor's "chattel paper," "instruments," "documents,"
"investment property," and "goods" (as such terms are defined in
the UCC);
<PAGE> 104
(e) all of Debtor's "equipment" (as defined in the UCC), including
without limitation, all furniture, furnishings, fixtures,
machinery, motor vehicles, trucks, trailers, vessels, aircraft
and rolling stock and all parts thereof and all additions and
accessions thereto and replacements therefor ("Equipment");
(f) all of Debtor's "intellectual property," including, without
limitation, all of Debtor's present and future designs, patents,
patent rights and applications therefor, trademarks and
registrations or applications therefor, trade names, inventions,
copyrights and all applications and registrations therefor,
software or computer programs, license rights, trade secrets,
methods, processes, know- how, drawings, specifications,
descriptions, and all memoranda, notes and records with respect
to any research and development, whether now owned or hereafter
acquired by Debtor, all goodwill associated with any of the
foregoing, and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon,
(g) all of Debtor's deposit accounts maintained with any bank or
financial institution;
(h) all cash and other monies and property of Debtor in the
possession or under the control of Lender, or any participant;
and
(i) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that
at any time evidence or contain information relating to any of
the property described above or are otherwise necessary to
helpful in the collection thereof or realization thereon,
(all of the foregoing hereinafter sometimes called the "Collateral"). All
capitalized terms used herein which are not defined herein but which are defined
in the Credit Agreement shall have the meanings given them in the Credit
Agreement.
The security interest hereby granted is to secure the prompt and full
payment and complete performance of all Obligations under that certain Credit
Agreement dated of even date herewith entered into by and among Debtor, the
lenders which are parties thereto and the Lender, as the Issuing Bank and the
Agent, together with all extensions, renewals, amendments, restatements,
substitutions and replacements thereto and thereof ("Credit Agreement"), of
every type and description, direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising.
It is Debtor's express intention that this agreement and the continuing
security interest granted hereby, in addition to covering all present
Obligations of Debtor to all of the lenders under the Credit Agreement, shall
extend to all future Obligations, whether or not such Obligations are reduced or
entirely extinguished and thereafter increased or reincurred, whether or not
such Obligations are related to the indebtedness identified above by class,
- 2 -
<PAGE> 105
type or kind and whether or not such Obligations are specifically contemplated
as of the date hereof. The absence of any reference to this agreement in any
documents, instruments or agreements evidencing or relating to any Obligation
secured hereby shall not limit or be construed to limit the scope of
applicability of this agreement.
1. GENERAL COVENANTS. Debtor represents, warrants and covenants as
follows:
(a) (i) Debtor is, or as to Collateral arising or to be acquired
after the date hereof, shall be, the sole owner of the
Collateral free from any and all liens, security interests,
encumbrances, claims and interests subject to Permitted Liens;
and
(ii) no security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering
any of the Collateral is on file or of record in any public
office except relating to Permitted Liens;
(b) Debtor shall not create, permit or suffer to exist, and shall take
such action as is necessary to remove, any claim to or interest in or
lien or encumbrance upon the Collateral, other than the Permitted
Liens, and shall defend the right, title and interest of Lender in and
to the Collateral against all claims and demands of all persons and
entities at any time claiming the same or any interest therein;
(c) Debtor's principal place of business and chief executive office is
located at the address set forth at the beginning of this agreement.
The Collateral is and shall continue to be located at the addresses
set forth in Exhibit A attached hereto, unless Lender consents in
writing to a change in the location of the Equipment, Inventory or
Debtor's records concerning the Accounts in accordance with the terms
of the Credit Agreement;
(d) at least twenty (20) Business Days prior to the occurrence of any of
the following events, Debtor shall deliver to Lender written notice of
such impending events:
(i) a change in Debtor's principal place of business or chief
executive office and/or residence;
(ii) the opening or closing of any place of business; or
(iii) a change in Debtor's name, identity or corporate structure;
(e) subject to any limitation stated therein or in connection therewith,
all information furnished by Debtor concerning the Collateral or
otherwise in
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<PAGE> 106
connection with the Obligations, is or shall be at the time the same
is furnished, accurate, correct and complete in all material respects;
(f) the Collateral is and shall be used primarily for business purposes;
(g) Debtor has full power and authority to enter into this agreement and
to comply with the terms, conditions and provision thereof. This
agreement has been duly executed and delivered by Debtor and
constitutes a legal, valid and binding obligation of the Debtor,
enforceable against the Debtor in accordance with its terms, except as
its enforcement may be affected by:
(i) bankruptcy, insolvency, reorganization, moratorium or other
laws or equitable principles relating to or affecting the
enforcement of creditors' rights generally;
(ii) the fact that the granting of specific performance and the
issuance of other rulings of enforcement are subject to the
discretion of a court in equity and to the application of
general principles of equity; and
(iii) emergency and other powers which may be exercised by
governmental bodies or entities with jurisdiction.
2. COLLECTION OF ACCOUNTS. Debtor shall, unless Lender requires Debtor to
establish a lockbox arrangement upon the occurrence and during the continuation
of an Event of Default (as defined in paragraph 9), collect all Accounts, and
whenever Debtor shall receive any payment of any Account, Debtor shall hold such
payment in trust for Lender. Debtor authorizes Lender to endorse the name of
Debtor upon any checks or other items received in payment of any Account and to
do any and all things necessary in order to reduce the same to money. During the
continuance of any Event of Default, Debtor also authorizes Lender, without
notice, to appropriate and apply any balances, credits, deposits, accounts or
money of Debtor in Lender's possession, custody or control to the payment of any
of the Obligations. If any of the Accounts arise out of contracts with or orders
from the United States or any State or any department, agency or instrumentality
thereof, but subject to the terms and conditions set forth in the Credit
Agreement, Debtor shall immediately notify Lender thereof in writing and shall
execute any instrument and take any steps required by Lender in order that all
money due and to become due under such contract or order shall be assigned to
Lender and due notice thereof given to the appropriate governmental agency.
Subject to the terms and conditions set forth in the Credit Agreement with
respect to U.S. government Accounts, Debtor agrees to execute, deliver, file and
record all such notices, affidavits, assignments, financing statements and other
instruments as shall in the judgment of Lender be necessary or desirable to
evidence, validate and perfect the security interest of Lender in the Accounts;
provided, however, that until the occurrence of an Event of Default, Debtor
shall not be required to comply with the Federal Assignment of Claim Act
(provided further that said Accounts may not be included in the "Borrowing Base"
following and
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<PAGE> 107
during the continuation of an "Event of Default" until compliance is completed,
as set forth in the Credit Agreement). Upon the occurrence and during the
continuation of an Event of Default, Lender shall have the right to notify any
persons or entities owning any Accounts and to demand and receive payment, but
Lender shall have no duty so to do. Upon the occurrence and during the
continuation of an Event of Default and upon the request of Lender, Debtor shall
notify such account debtors and shall indicate on all invoices to such account
debtors that the accounts are payable into a lockbox.
3. INSURANCE. Debtor shall keep the collateral insured as is required
in the Credit Agreement. During the continuation of an Event of Default, Lender
may act as attorney-in-fact for Debtor in obtaining, adjusting, settling and
canceling such insurance and endorsing any drafts. In the event of failure to
provide insurance as herein provided, Lender may, at its option, provide such
insurance and Debtor shall pay to Lender, upon demand, the cost thereof. Should
Debtor fail to pay said sum to Lender upon demand, interest shall accrue
thereon, from the date of demand until paid in full, at the Default Rate
applicable to advances other than principal of the Loans, made by Lender
pursuant to the Credit Agreement.
4. INSPECTION. Debtor shall at all times keep accurate and complete
records of the Accounts and Debtor shall, at all reasonable times and from time
to time, allow Lender, by or through any of its officers, agents, attorneys or
accountants, to examine, inspect and make extracts from Debtor's books and
records and to arrange for verification of the Accounts directly with account
debtors or by other methods and to examine and inspect the Collateral wherever
located. Debtor shall perform, do, make, execute and deliver all such additional
and further acts, things, deeds, assurances and instruments as Lender may
require to more completely vest in and assure to Lender its rights hereunder and
in or to the Collateral.
5. PRESERVATION AND DISPOSITION OF COLLATERAL. Debtor represents,
warrants and covenants as follows:
(a) except for the Permitted Liens, Debtor shall keep the Collateral
free from any and all liens, security interests, encumbrances,
claims and interests. Debtor shall advise Lender promptly, in
writing and in reasonable detail, of any Lien except those permitted
by the Credit Agreement;
(b) Debtor shall not sell or otherwise dispose of the Collateral;
provided, however, that until an Event of Default, Debtor may use the
Equipment and Inventory in any lawful manner not inconsistent with
this agreement or with the terms or conditions of any policy of
insurance thereon and may also sell or otherwise dispose of the
Collateral in the ordinary course of Debtor's business. A sale in the
ordinary course of business shall not include a transfer in partial or
total satisfaction of a debt;
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<PAGE> 108
(c) Debtor shall keep the Collateral in good condition (normal wear and
tear excepted) and shall not misuse, abuse, secrete, waste or destroy
any of the same;
(d) Debtor shall not use the Collateral in material violation of any
statute, ordinance, regulation, rule, decree or order;
(e) Debtor shall pay promptly when due all taxes, assessments, charges or
levies upon the Collateral or in respect to the income or profits
therefrom, except that no such charge need be paid if:
(i) the validity thereof is being contested in good faith by
appropriate proceedings;
(ii) such proceedings do not involve any danger of sale,
forfeiture or loss of any Collateral or any interest
therein; and
(iii) such charge is adequately reserved against in accordance with
generally accepted accounting principles; and
(f) upon failure of Debtor to procure any required insurance or to remove
any prohibited encumbrance upon the Collateral or if any policy
providing any required insurance is canceled, Lender may procure such
insurance or remove any encumbrance on the Collateral and any amounts
expended by Lender for such purposes shall be immediately due and
payable by Debtor to Lender and shall be added to and become a part of
the Obligations secured hereby and shall bear interest at the Default
Rate applicable to advances other than principal of the Loans, made by
Lender pursuant to the Credit Agreement.
6. EXTENSIONS AND COMPROMISES. With respect to any Collateral held by
Lender as security for the Obligations, Debtor assents to all extensions or
postponements of the time of payment thereof or any other indulgence in
connection therewith, to each substitution, exchange or release of Collateral,
to the addition or release of any party primarily or secondarily liable, to the
acceptance of partial payments thereon and to the settlement, compromise or
adjustment thereof, all in such manner and at such time or times as Lender may
deem advisable. Lender shall have no duty as to the collection or protection of
Collateral or any income therefrom, nor as to the preservation of rights against
prior parties, nor as to the preservation of any right pertaining thereto,
beyond the safe custody of Collateral in the possession of Lender.
7. FINANCING STATEMENTS. At the request of Lender, Debtor shall join
with Lender in executing one or more financing statements in a form satisfactory
to Lender and shall pay the cost of filing the same in all public offices
wherever filing is deemed by Lender to be necessary or desirable. Debtor
authorizes Lender at the expense of Debtor to execute
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<PAGE> 109
on its behalf and file a financing statement or statements in those public
offices deemed necessary by Lender to perfect Lender's security interest. Such
financing statements may be signed by Lender alone. A carbon, photographic or
other reproduction of this agreement or of a financing statement shall be
sufficient as a financing statement.
8. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT. Debtor hereby irrevocably
constitutes and appoints Lender and any officer or agent thereof, with full
power of substitution, as Debtor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Debtor and in the name
of Debtor or in Lender's own name, from time to time in Lender's discretion, for
the purpose of carrying out the terms of this agreement, to take any and all
appropriate action and to execute any and all documents and instruments that may
be necessary or desirable to accomplish the purposes of this agreement and,
without limiting the generality of the foregoing, hereby grants to Lender the
power and right, on behalf of Debtor, without notice to or assent by Debtor: (a)
to execute, file and record all such financing statements as Lender may deem
necessary or desirable to protect, perfect and validate Lender's security
interest therein; and (b) upon the occurrence and continuance of any Event of
Default: (i) to sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other documents
relating to the Collateral; (ii) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (iii) to defend any suit, action or proceeding
brought against Debtor with respect to any Collateral; (iv) to settle,
compromise or adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as Lender may deem
appropriate; and (v) generally, to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all purposes,
and to do, at Lender's option and Debtor's expense, at any time or from time to
time, all acts and things which Lender deems necessary to protect, preserve or
realize upon the Collateral and Lender's security interest therein, in order to
effect the intent of this agreement, all as fully and effectively as Debtor
might do.
Debtor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon Lender
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon Lender to exercise any such powers. Lender shall be
accountable only for amounts that Lender actually receives as a result of the
exercise of such powers and neither Lender nor any of its officers, directors,
employees or agents shall be responsible to Debtor for any act or failure to
act, except for Lender's own gross negligence or willful misconduct.
9. EVENTS OF DEFAULT. The occurrence of any of the following events or
conditions shall be deemed an event of default ("Event of Default") under this
agreement:
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<PAGE> 110
(a) an "Event of Default" as that term is defined in the Credit Agreement,
shall occur or exist; or
(b) any default in the performance or observance of any term, covenant or
agreement contained in this agreement and such default shall not be
remedied for a period of twenty (20) Business Days after the earlier
of (i) such default becoming known to any Authorized Officer or (ii)
notice of such default being delivered by Lender to Debtor.
10. REMEDIES UPON DEFAULT. Upon any Event of Default specified above
and at any time thereafter and to the extent permitted by applicable law: (a)
Lender may, subject to the limitations set forth in the Credit Agreement, at its
option and without notice, declare the unpaid balance of any or all of the
Obligations immediately due and payable under this agreement and any or all of
the Obligations in default; (b) all payments received by Debtor under or in
connection with any of the Collateral shall be held by Debtor in trust for
Lender, shall be segregated from other funds of Debtor and shall forthwith upon
receipt by Debtor be turned over to Lender in the same form as received by
Debtor (duly endorsed by Debtor to Lender, if required). Any and all such
payments so received by Lender (whether from Debtor or otherwise) may, in the
sole discretion of Lender, be held by Lender as collateral security for, and/or
then or at any time thereafter be applied in whole or in part by Lender against,
all or any part of the Obligations in such order as Lender may elect. Any
balance of such payments held by Lender and remaining after payment in full of
all the Obligations shall be paid over to Debtor or to whomsoever may be
lawfully entitled to receive the same. Nothing set forth in subparagraph 10(b)
shall authorize or be construed to authorize Debtor to sell or otherwise dispose
of any Collateral except as provided in subparagraph 5(b) hereof; and subject to
the limitations in the Credit Agreement, and in addition to all rights and
remedies specified in the Credit Agreement, this agreement or any other
agreement between Debtor and Lender, Lender shall have the rights and remedies
of a secured party under this agreement, under any other instrument or agreement
securing, evidencing or relating to the Obligations and under the law of the
State of Illinois. Without limiting the generality of the foregoing, Lender
shall have the right to take possession of the Collateral and all books and
records relating to the Collateral and for that purpose Lender may enter upon,
with or without breaking into, any premises on which the Collateral or books and
records relating to the Collateral or any part thereof may be situated and
remove the same therefrom. Debtor expressly agrees that Lender, without demand
of performance or other demand, advertisement or notice of any kind (except the
notices specified below of time and place of public sale or disposition or time
after which a private sale or disposition is to occur) to or upon Debtor or any
other person or entity (all and each of which demands, advertisements and/or
notices are hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase or sell or
otherwise dispose of and deliver the Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
of Lender's offices or elsewhere at such prices as Lender may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lender shall
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<PAGE> 111
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in Debtor.
Debtor further agrees, at Lender's request, to assemble the Collateral and to
make it available to Lender at such places as Lender may reasonably select,
whether at Debtor's premises or elsewhere. Debtor further agrees to allow Lender
to use or occupy Debtor's premises, without charge, for the purpose of effecting
Lender's remedies in respect of the Collateral. Lender shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
or all of the Collateral or in any way relating to the rights of Lender
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Obligations, in such order as Lender may
elect, and only after so paying over such net proceeds and after the payment by
Lender of any other amount required by any provision of law, including Illinois
Compiled Statutes, Chapter 810, Section 5/9-504, need Lender account for the
surplus, if any to Debtor. To the extent permitted by applicable law, Debtor
waves all claims, damages and demands against Lender arising out of the
repossession, retention, sale or disposition of the Collateral and waives relief
from valuation and appraisement laws. Debtor agrees that Lender need not give
more than five (5) days' notice (in the manner provided in the Credit Agreement)
of the time and place of any public sale or of the time after which a private
sale may take place and that such notice is reasonable notification of such
matters. Debtor shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all amounts to
which Lender is entitled. Debtor shall also be liable for the costs of
collecting any of the Obligations or otherwise enforcing the terms thereof or of
this agreement including reasonable attorneys' fees.
11. NOTICES. Any notice required or otherwise given concerning this
agreement by either party to the other shall be given as notices are required to
be given under the terms of the Credit Agreement.
12. GENERAL. Any provision of this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. This agreement is given pursuant to the terms of the Credit
Agreement and shall be deemed a part thereof and subject to the terms and
conditions of the Credit Agreement, and the Credit Agreement shall control in
the event of ambiguity or inconsistency. Lender shall not be deemed to have
waived any of its rights hereunder or under any other agreement, instrument or
paper signed by Debtor unless such waiver be in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. All of Lender's rights and remedies,
whether evidenced hereby or by any other agreement, instrument or paper, shall
be cumulative and may be exercised singularly or concurrently. Any written
demand upon or written notice to Debtor shall be effective when deposited in the
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<PAGE> 112
mails addressed to Debtor at the address shown at the beginning of this
agreement. This agreement and all rights and obligations hereunder, including
matters of construction, validity and performance, shall be governed by the law
of the State of Illinois, including, without limitation, the UCC. The provisions
hereof shall, as the case may require, bind or inure to the benefit of, the
respective heirs, successors, legal representatives and assigns of Debtor and
Lender.
13. WAIVER OF JURY TRIAL, WAIVERS AND CONSENTS. EACH OF DEBTOR AND
LENDER HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO A
TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, THIRD-PARTY CLAIM OR OTHERWISE, IN ANY
LEGAL ACTION OR PROCEEDING ARISING IN ANY WAY OUT OF OR WHICH IN ANY WAY
INVOLVES ANY OF THE RIGHTS, OBLIGATIONS OR REMEDIES OF ANY PARTY TO THIS
AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED PURSUANT TO OR OTHERWISE IN
CONNECTION WITH THIS AGREEMENT. THE PARTIES HERETO AGREE THAT ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS TO WHICH THE DEBTOR IS A PARTY MAY BE COMMENCED IN THE COURTS OF THE
STATE OF ILLINOIS LOCATED IN CHICAGO, ILLINOIS, AND THE FEDERAL COURTS LOCATED
IN THE NORTHERN DISTRICT OF ILLINOIS, COOK COUNTY. DEBTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR PURPOSES
OF ANY SUCH ACTION OR PROCEEDING. DEBTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT IS AN INCONVENIENT
FORUM, AND CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME IS IN ACCORDANCE
WITH THE TERMS HEREOF. FINAL JUDGMENT IN ANY SUCH PROCEEDING AFTER ALL APPEALS
HAVE BEEN EXHAUSTED OR WAIVED SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT IN THE JUDGMENT. DEBTOR HEREBY ACKNOWLEDGES AND AGREES
THAT THE CHOICE OF FORUM CONTAINED IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN ANY FORUM OR THE
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<PAGE> 113
TAKING OF ANY ACTION UNDER THE LOAN DOCUMENTS TO ENFORCE THE SAME IN ANY
APPROPRIATE JURISDICTION.
[SIGNATURE PAGE(S) AND EXHIBIT(S), IF ANY, FOLLOW THIS PAGE]
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<PAGE> 114
IN WITNESS WHEREOF, Debtor has signed this agreement this day of
,1998.
DEBTOR
Best Lock Corporation
By:
------------------------------------
Printed Name
------------------------
Its:
--------------------------------
Title
--------------------------------
STATE OF )
-------------------
) SS:
COUNTY OF )
------------------
Before me, a Notary Public in and for said County and State, personally
appeared , by me known and by me known to be of Best
Lock Corporation, an Indiana corporation, who acknowledged the execution of the
foregoing Security Agreement on behalf of said corporation.
Witness my hand and Notarial Seal this day of ,1998.
My Commission Expires:
---------------------- -------------------------
Notary Public
My County of Residence:
--------------------- -------------------------
(Printed Name)
This instrument prepared by and after recording return to: James A. Schraidt,
Esq., Seyfarth, Shaw, Fairweather & Geraldson, 55 East Monroe Street, Suite
4200, Chicago, Illinois 60603.
- 12 -
<PAGE> 115
EXHIBIT E TO CREDIT AGREEMENT
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (the "Pledge Agreement") is made as of March 24,
1998, by and between BEST LOCK CORPORATION, an Indiana corporation ("Pledgor"),
and LASALLE NATIONAL BANK, a national banking association for itself as a Lender
and as Agent for the Lenders now or hereafter named in the Credit Agreement as
such term is defined herein, together with their respective successors and
assigns (the "Lender").
WHEREAS, Pledgor is the sole shareholder of First Thoroughbred Ltd., an
Indiana corporation ("First Thoroughbred"); and
WHEREAS, Lender and Pledgor are parties to a Credit Agreement of even
date herewith (as the same may be amended, modified or supplemented and in
effect, the "Credit Agreement") (capitalized terms used and not defined herein
having the meanings given them in the Credit Agreement), pursuant to which
Lender has agreed, subject to and upon the terms and conditions therein set
forth, to loan to Pledgor up to $50,000,000 (the "Loans"); and
WHEREAS, it is a condition precedent to the making of the Loans that
Pledgor enter into this Pledge Agreement; and
WHEREAS, it is in the best interests of Pledgor to execute this Pledge
Agreement inasmuch as it will derive substantial direct and indirect benefits
from the Loans; and
WHEREAS, Pledgor wishes to secure the performance and payment of the
Credit Agreement and the Obligations;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein and in the Credit Agreement, it is agreed as follows:
1. Pledge and Grant of Security Interest. To secure Pledgor's payment,
observance and performance of the Credit Agreement, as same may be amended,
modified, supplemented or extended from time to time, and the Obligations,
Pledgor hereby mortgages, pledges, assigns, hypothecates, transfers, sets over
and delivers all of the Pledged Securities (as that term is hereinafter defined)
to Lender and grants to Lender a continuing first priority security interest in
and a continuing lien upon (the "Security Interest") all of the Pledged
Securities. This Agreement is intended to be a security agreement for purposes
of the Uniform Commercial Code of the State of Illinois (the "UCC"). "Pledged
Securities" shall mean and include (whether now owned or hereafter acquired and
whether or not the same is subject to Article 9 of the UCC):
<PAGE> 116
(a) the shares of stock of First Thoroughbred listed in Attachment
1 hereto and the certificates representing or evidencing such
shares of stock, and all cash, securities, interest,
dividends, rights and other property at any time and from time
to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares of
stock;
(b) all additional shares of stock of First Thoroughbred, acquired
by Pledgor in any manner, and the certificates representing or
evidencing such additional shares, and all cash, securities,
interest, dividends, rights and other property at any time and
from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of
such additional shares;
(c) all other property hereafter delivered to Lender in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such
other property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or
in exchange for any or all thereof; and
(d) all proceeds, rents, issues, profits and returns of and from all
of the foregoing.
Pledgor shall deliver to Lender the certificates evidencing the Pledged
Securities, together with executed assignments separate from certificate in
blank executed by Pledgor, (i) with regard to the Pledged Securities currently
owned by Pledgor, on the date hereof, and (ii) with regard to any other Pledged
Securities, immediately upon receipt thereof by Pledgor.
2. Perfection of Security Interest in Pledged Securities.
(a) Pledgor represents and warrants that the pledge and transfer of
the Pledged Securities to Lender to secure the Credit Agreement and the
Obligations shall be noted in the books and records of the issuer of the Pledged
Securities on or before delivery to Lender, and Pledgor shall deliver to Lender
written confirmation thereof executed by such issuer at the time of delivery of
the Pledged Securities to Lender.
(b) At any time and from time to time:
(i) After and during the continuance of an Event of Default
under the Credit Agreement or any default hereunder, Lender may cause all or any
of the Pledged Securities to be transferred or registered in its name or the
name of its nominee and may cause certificates evidencing said transfer or
registration to be issued in exchange for the certificates evidencing the
Pledged Securities deposited with Lender; and
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<PAGE> 117
(ii) Pledgor will perform all acts and execute all documents
requested by Lender to evidence, perfect, maintain and enforce Lender's first
priority Security Interest in the Pledged Securities, and Pledgor will, at its
expense, execute and deliver to Lender one or more endorsements, financing
statements or assignments pursuant to the UCC and any other papers,
acknowledgments, confirmations, notices, documents or instruments requested by
Lender in connection with this Pledge Agreement.
(c) In addition to, and not in limitation of, any term, provision,
representation, warranty or covenant contained herein, Lender and Pledgor
acknowledge and agree that the Pledged Securities shall constitute Collateral
for the purposes of the Credit Agreement and that any terms, provisions,
representations, warranties, and covenants relating to the Collateral in the
Credit Agreement shall be applicable to the Pledged Securities as if fully
restated herein.
3. LENDER'S SECURITY INTEREST.
(a) Pledgor represents, warrants and covenants to Lender that the
Security Interest granted by Pledgor shall at all times be valid, perfected and
enforceable against Pledgor and all third parties, in accordance with the terms
of this Agreement, as security for the Credit Agreement and the Obligations, and
the Pledged Securities shall not at any time hereafter be subject to any liens
that are prior to, on a parity with or junior to such Security Interest. Pledgor
agrees to promptly notify Lender of all claims and demands of which it is aware
of any third parties claiming the same or any interest therein.
(b) The Security Interest shall continue and apply to all future
Obligations, notwithstanding that at any particular time all of the Obligations
then outstanding shall have been paid in full, provided that Lender shall
terminate and release its Security Interest at such time when all of Lender's
obligations under the Credit Agreement shall have otherwise terminated and all
of the Obligations shall have been paid in full.
4. PLEDGOR'S RIGHTS PRIOR TO DEFAULT. So long as no default has
occurred and is continuing, Pledgor shall be entitled:
(a) to exercise any voting power with respect to the Pledged
Securities; provided that Pledgor agrees that it will not exercise any such
power in any manner which could have a material adverse effect on the value of
the Collateral or any part thereof; and
(b) to receive and retain for its own account any and all interest
payments, distributions or dividends (other than redemption payments or stock or
liquidating distributions or dividends) at any time and from to time declared or
paid upon any of the Pledged Securities.
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<PAGE> 118
5. ADDITIONAL PLEDGED SECURITIES.
(a) In case, upon the redemption of the Pledged Securities or the
dissolution or liquidation (in whole or in part) of the issuer of the Pledged
Securities, any sum shall be paid in redemption of the Pledged Securities, or as
a liquidating distribution or dividend or otherwise, such sum shall be paid over
to Lender, to be held by Lender as additional Pledged Securities hereunder or as
otherwise applied by Lender as provided in Section 5(c) below.
(b) If any stock dividend shall be declared on any of the Pledged
Securities, or any shares of stock shall otherwise be issued relating to any of
the Pledged Securities, or any distribution of capital shall be made on any of
the Pledged Securities, or any shares, warrants, rights, obligations or other
property shall be distributed upon or with respect to the Pledged Securities
pursuant to a recapitalization or reclassification of the capital of the issuer
thereof, or pursuant to the dissolution, liquidation (in whole or in part),
bankruptcy or reorganization of such issuer, or pursuant to the merger or
consolidation of such issuer with or into another corporation, the shares,
warrants, obligations, rights or other property so distributed shall be
delivered to Lender with such stock powers, assignments and endorsements as
Lender may request, to be held by it as additional Pledged Securities hereunder,
and all of the same shall constitute Pledged Securities for all purposes hereof.
(c) Any cash received and retained by Lender as additional Pledged
Securities pursuant to Sections 5(a) or (b) above shall be applied (in whole or
in part) by Lender to the payment of the outstanding balance of interest on
and/or principal of the Obligations in such order as Lender shall in its sole
discretion determine.
6. WARRANTIES AND COVENANTS. Pledgor represents, warrants and
covenants that as of the date of execution of this Agreement, and continuing
during the term of the Credit Agreement and so long as any of the Obligations
remain outstanding:
(a) The authorized capital stock of First Thoroughbred, consists of
1,000 shares of common stock, par value $.01 per share, of which 100 shares are
issued and outstanding as of the date hereof and represented by the Pledged
Securities. Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Securities, the Pledged Securities are all of
the issued and outstanding capital stock of First Thoroughbred, and the Pledged
Securities are and will remain free and clear of all pledges, liens, security
interests and encumbrances whatsoever, other than the Security Interest.
(b) Pledgor has full power, authority and legal right to execute this
Pledge Agreement and to grant the Security Interest in the Pledged Securities to
Lender.
(c) This Pledge Agreement has been duly authorized, executed and
delivered by Pledgor and constitutes a legal, valid and binding obligation of
Pledgor in accordance with its terms.
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<PAGE> 119
(d) Pledgor shall not sell, transfer, set over, mortgage, pledge,
hypothecate, exchange, assign or otherwise dispose of any of the Pledged
Securities nor any interest therein or enter into a contract to do so, except
with the prior written consent of Lender.
(e) The Pledged Securities are duly and validly issued, fully paid
and non-assessable, are not subject to any puts or calls, rights of first
refusal or options to purchase, and there are no outstanding options, warrants
or other agreements with respect to any other shares of First Thoroughbred's
capital stock.
(f) No notice to or consent or approval of any governmental or
regulatory authority, securities exchange or other third party which has not
been given or obtained was or is necessary to the valid and enforceable pledge,
assignment and transfer of the Pledged Securities to Lender or the performance
by Pledgor of this Agreement.
(g) The Pledged Securities are not margin securities or margin stock
as such terms are defined in Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System.
(h) Best Universal Locks, Limited, an Ontario corporation ("BULLC")
and 3016297 Nova Scotia Company, a Nova Scotia company ("NSC"), are being or
have been amalgamated to form Best Access Systems Co., a Nova Scotia unlimited
liability company ("Best Access"). To the extent such amalgamation has not
occurred, First Thoroughbred is the record and beneficial owner of all of the
issued and outstanding capital stock of BULLC and NSC, and to the extent the
amalgamation has occurred, BULLC and NSC no longer exist and First Thoroughbred
is the record and beneficial owner of all of the issued and outstanding capital
stock of Best Access. Pledgor will not suffer or permit any transfer of any such
shares other than the amalgamation of BULLC and NSC with and into Best Access,
and the pledge of such shares to Lender in accordance with that certain Pledge
Agreement of even date herewith (the "First Thoroughbred Pledge Agreement") from
First Thoroughbred to Lender. Pledgor will cause First Thoroughbred to enter
into the First Thoroughbred Pledge Agreement and comply on a continuing basis
with all of the terms and conditions thereof.
7. EXERCISE OF VOTING POWER. If a default shall occur and be
continuing, Lender shall be entitled to exercise all voting power with respect
to the Pledged Securities and to receive and retain, as additional Pledged
Securities hereunder, any and all interest payments, distributions or dividends
at any time declared or paid upon any of the Pledged Securities.
8. LENDER'S REMEDIES. If an Event of Default shall occur under the
Credit Agreement, Lender shall have all of its rights and remedies under the
Credit Agreement, and, in addition thereto:
(a) Lender, without obligation to resort to other security, shall
have the right at any time and from time to time to sell, resell, assign and
deliver, in its discretion, all or any
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<PAGE> 120
of the Pledged Securities, in one or more parcels at the same or different
times, and all right, title and interest, claim and demand therein and right of
redemption thereof, on any securities exchange on which the Pledged Securities
or other securities or any of them may be listed, or at public or private sale,
at Lender's premises or elsewhere, for cash, upon credit or for future delivery,
and in connection therewith Lender may grant options, Pledgor hereby waiving and
releasing any and all equity or right of redemption. If any of the Pledged
Securities are sold by Lender upon credit or for future delivery, Lender shall
not be liable for the failure of the purchaser to purchase or pay for the same
and, in the event of any such failure, Lender may resell such Pledged
Securities. In no event shall Pledgor be credited with any part of the proceeds
of sale of any Pledged Securities until cash payment thereof has actually been
received by Lender; and
(b) Lender shall be entitled to exercise all rights and to enjoy all
benefits of Pledgor under the Pledged Securities, including, without limitation,
the right to enforce any rights of Pledgor with respect to the Pledged
Securities, and to receive, retain and apply to the payment of the Credit
Agreement and the Obligations any and all monies paid upon or for the account of
Pledgor under the Pledged Securities.
9. SALE OF PLEDGED SECURITIES.
(a) No demand, advertisement or notice, all of which are hereby
expressly waived, shall be required in connection with any sale or other
disposition of any part of the Pledged Securities which threatens to decline
speedily in value or which is of a type customarily sold on a recognized market;
otherwise Lender shall give Pledgor at least ten (10) business days' prior
notice of the time and place of any public sale and of the time after which any
private sale or other disposition is to be made, which notice Pledgor agrees is
reasonable, all other demands, advertisements and notices being hereby waived.
(b) Lender shall not be obligated to sell the Pledged Securities if
it shall determine not to do so, regardless of the fact that notice of sale may
have been given. Lender may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. Upon each private sale of Pledged Securities, Lender may purchase all
or any of the Pledged Securities being sold, free from any equity or right of
redemption, which is hereby waived and released, and may offset payment therefor
(by endorsement without recourse) against the Obligations.
(c) In the case of all sales of Pledged Securities, public or
private, Pledgor shall pay all costs and expenses of every kind for retaking,
holding, preparing for sale and sale or delivery, including brokers' fees and
attorneys' fees, and after deducting such costs and expenses from the proceeds
of sale, Lender shall apply any residue to the payment of the Obligations, and
Pledgor shall remain liable for any deficiency. The balance, if any, remaining
after payment in full of all of the Obligations shall be paid to Pledgor,
subject to
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<PAGE> 121
any duty of Lender imposed by law to the holder of any subordinate security
interest in the Pledged Securities known to Lender.
10. APPLICATION OF SECURITIES LAWS. Pledgor recognizes that Lender's
ability to effect a public sale of all or a part of the Pledged Securities may
be limited by reason of certain prohibitions contained in the Securities Act of
1933, as amended, as now or hereafter in effect, the Securities Exchange Act of
1934, as amended, as now or hereafter in effect, or in applicable Blue Sky or
other state securities laws, as now or hereafter in effect, and Lender may be
compelled to resort to one or more private sales of the Pledged Securities to a
restricted group of purchasers who may be obliged to agree, among other things,
to acquire such Pledged Securities for their own account, for investment and not
with a view to the distribution or resale thereof. Pledgor agrees that private
sales so made may be at prices and other terms less favorable than if such
Pledged Securities were sold at public sales, and that Lender has no obligation
to delay sale of any such Pledged Securities for the period of time necessary to
permit the issuer of such Pledged Securities, even if such issuer would agree,
to register such Pledged Securities for public sale under such applicable
securities laws. Pledgor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
11. REMEDIES CUMULATIVE. The remedies provided herein in favor of
Lender shall not be deemed exclusive, but shall be cumulative, and shall be in
addition to all other remedies in favor of Lender existing at law or in equity,
including without limitation, those remedies specified in the Credit Agreement
and other Loan Documents.
12. LENDER'S RIGHT OF ENDORSEMENT. After the occurrence and during
the continuation of a default, Lender shall have the right, for and in the name,
place and stead of Pledgor, to execute endorsements, assignments or other
instruments of conveyance or transfer with respect to all or any of the Pledged
Securities.
13. LENDER'S DUTIES LIMITED. Lender shall have no duty as to the
collection or protection of the Pledged Securities or any income thereon or as
to the preservation of any rights pertaining thereto, beyond the safe custody of
any thereof actually in its possession.
14. ATTORNEY-IN-FACT. After the occurrence and during the
continuation of a default, Pledgor hereby appoints Lender as Pledgor's
attorney-in-fact for the purpose of carrying out the provisions of this Pledge
Agreement and taking any action and executing any instrument which Lender may
deem necessary or advisable to accomplish the purposes hereof. Without limiting
the generality of the foregoing, Lender shall have the right and power to
receive, endorse and collect all checks and other orders for the payment of
money made payable to Pledgor representing any interest or dividend or other
distribution payable in respect of the Pledged Securities or any part thereof
and to give full discharge for the same, provided that prior to the occurrence
of a default, Lender shall remit to Pledgor for its own account any interest
payments, distributions or cash dividends (other than liquidating
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<PAGE> 122
distributions or dividends or stock dividends) received by Lender in respect of
the Pledged Securities.
15. NO WAIVER. No delay on the part of Lender or of any holder of the
Obligations in exercising any of its options, powers or rights, or partial or
single exercise thereof, shall constitute a waiver thereof. No waiver or
amendment of any provision of this Agreement shall be enforceable unless in
writing and signed by Lender and unless it expressly refers to the provision
affected.
16. RETURN UPON FULL PAYMENT. Provided and to the extent that Lender
shall not have exercised any of its remedies hereunder after a default, upon the
termination of the Credit Agreement and the payment in full of the Credit
Agreement and the Obligations, Pledgor shall be entitled to the return of all of
the Pledged Securities and the release by Lender of its interest therein. The
assignment and endorsement by Lender to Pledgor of the Pledged Securities shall
be without representation or warranty of any nature whatsoever and wholly
without recourse, provided that the Pledged Securities shall not be subject to
any additional liens created or caused by Lender.
17. NOTICES. Any notice required or desired to be served, given or
delivered hereunder shall be given in accordance with the terms of the Credit
Agreement.
18. GOVERNING LAW. This Pledge Agreement and the rights and
obligations of Lender and Pledgor hereunder shall be construed in accordance
with and governed by the internal laws of the State of Illinois, cannot be
changed orally, and shall bind and inure to the benefit of Pledgor and Lender
and their respective successors and assigns.
19. COUNTERPARTS. This Pledge Agreement may be executed in any number
of counterparts, each of which shall be deemed an original and all of which
taken together shall constitute but one and the same instrument.
20. HEADINGS. The article headings of this Pledge Agreement are for
convenience of reference only, and will not affect the meaning of any of its
provisions.
[SIGNATURE PAGE(S) AND EXHIBIT(S), IF ANY, FOLLOW THIS PAGE]
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<PAGE> 123
IN WITNESS WHEREOF, Pledgor and Lender have caused this Pledge
Agreement to be duly executed by their respective officers duly authorized as of
the day and year first above written.
BEST LOCK CORPORATION, an Indiana corporation
By
-------------------------------------------
LASALLE NATIONAL BANK
By:
------------------------------------------
Title:
---------------------------------------
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<PAGE> 124
ATTACHMENT 1
DESCRPTION OF PLEDGED SECURITIES
100 common shares of First Thoroughbred Ltd, an Indiana corporation
- 10 -
<PAGE> 125
EXHIBIT E-1 TO CREDIT AGREEMENT
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (the "Pledge Agreement") is made as of March 24,
1998, by and between FIRST THOROUGHBRED LTD., an Indiana corporation
("Pledgor"), and LASALLE NATIONAL BANK, a national banking association for
itself as a Lender and as Agent for the Lenders now or hereafter named in the
Credit Agreement as such term is defined herein, together with their respective
successors and assigns (the "Lender").
WHEREAS, Pledgor is the sole shareholder of Best Access Systems Co., a
Nova Scotia unlimited liability company ("Best Access"), formed or to be formed
by the amalgamation ("Amalgamation") of Best Universal Locks Limited, an Ontario
corporation ("BULLC") and 3016297 Nova Scotia Company, a Nova Scotia company
("NSC"), and, to the extent that the Amalgamation has not occurred, is the sole
shareholder of each of BULLC and NSC; and
WHEREAS, Pledgor is a wholly owned subsidiary of Best Lock Corporation,
an Indiana corporation ("Borrower"); and
WHEREAS, Lender and Borrower are parties to a Credit Agreement of even
date herewith (as the same may be amended, modified or supplemented and in
effect, the "Credit Agreement") (capitalized terms used and not defined herein
having the meanings given them in the Credit Agreement), pursuant to which
Lender has agreed, subject to and upon the terms and conditions therein set
forth, to loan to Borrower up to $50,000,000 (the "Loans"); and
WHEREAS, it is a condition precedent to the making of the Loans that
Pledgor enter into this Pledge Agreement; and
WHEREAS, it is in the best interests of Pledgor to execute this Pledge
Agreement inasmuch as it will derive substantial direct and indirect benefits
from the Loans; and
WHEREAS, Pledgor wishes to secure the performance and payment of the
Credit Agreement and the Obligations;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein and in the Credit Agreement, it is agreed as follows:
1. Pledge and Grant of Security Interest. To secure Borrower's
payment, observance and performance of the Credit Agreement, as same may be
amended, modified, supplemented or extended from time to time, and the
Obligations, Pledgor hereby mortgages, pledges, assigns, hypothecates,
transfers, sets over and delivers all of the Pledged Securities (as that term is
hereinafter defined) to Lender and grants to Lender a continuing first priority
<PAGE> 126
security interest in and a continuing lien upon (the "Security Interest") all of
the Pledged Securities. This Agreement is intended to be a security agreement
for purposes of the Uniform Commercial Code of the State of Illinois (the
"UCC"). "Pledged Securities" shall mean and include (whether now owned or
hereafter acquired and whether or not the same is subject to Article 9 of the
UCC):
(a) the shares of stock of BULLC and NSC, if the Amalgamation has
not occurred, and if the Amalgamation has occurred, the shares
of stock of Best Access listed in Attachment 1 hereto and the
certificates representing or evidencing such shares of stock,
and all cash, securities, interest, dividends, rights and
other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in
exchange for any or all of such shares of stock;
(b) all additional shares of stock of BULLC, NSC and/or Best
Access, acquired by Pledgor in any manner, and the
certificates representing or evidencing such additional
shares, and all cash, securities, interest, dividends, rights
and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares;
(c) all other property hereafter delivered to Lender in
substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such
other property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or
in exchange for any or all thereof; and
(d) all proceeds, rents, issues, profits and returns of and from
all of the foregoing.
Pledgor shall deliver to Lender the certificates evidencing the Pledged
Securities, together with executed assignments separate from certificate in
blank executed by Pledgor, (i) with regard to the Pledged Securities currently
owned by Pledgor, on the date hereof, or, to the extent certificates have not
been issued as of the date hereof, within 30 days following the date hereof, and
(ii) with regard to any other Pledged Securities, immediately upon receipt
thereof by Pledgor.
2. Perfection of Security Interest in Pledged Securities.
(a) Pledgor represents and warrants that the pledge and transfer of
the Pledged Securities to Lender to secure the Credit Agreement and the
Obligations shall be noted in the books and records of the issuer of the Pledged
Securities on or before delivery to Lender, and Pledgor shall deliver to Lender
written confirmation thereof executed by such issuer at the time of delivery of
the Pledged Securities to Lender.
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<PAGE> 127
(b) At any time and from time to time:
(i) After and during the continuance of an Event of Default
under the Credit Agreement or any default hereunder, Lender may cause all or any
of the Pledged Securities to be transferred or registered in its name or the
name of its nominee and may cause certificates evidencing said transfer or
registration to be issued in exchange for the certificates evidencing the
Pledged Securities deposited with Lender; and
(ii) Pledgor will perform all acts and execute all documents
requested by Lender to evidence, perfect, maintain and enforce Lender's first
priority Security Interest in the Pledged Securities, and Pledgor will, at its
expense, execute and deliver to Lender one or more endorsements, financing
statements or assignments pursuant to the UCC and any other papers,
acknowledgments, confirmations, notices, documents or instruments requested by
Lender in connection with this Pledge Agreement.
(c) In addition to, and not in limitation of, any term, provision,
representation, warranty or covenant contained herein, Lender and Pledgor
acknowledge and agree that the Pledged Securities shall constitute Collateral
for the purposes of the Credit Agreement and that any terms, provisions,
representations, warranties, and covenants relating to the Collateral in the
Credit Agreement shall be applicable to the Pledged Securities as if fully
restated herein.
3. LENDER'S SECURITY INTEREST.
(a) Pledgor represents, warrants and covenants to Lender that the
Security Interest granted by Pledgor shall at all times be valid, perfected and
enforceable against Pledgor and all third parties, in accordance with the terms
of this Agreement, as security for the Credit Agreement and the Obligations, and
the Pledged Securities shall not at any time hereafter be subject to any liens
that are prior to, on a parity with or junior to such Security Interest. Pledgor
agrees to promptly notify Lender of all claims and demands of which it is aware
of any third parties claiming the same or any interest therein.
(b) The Security Interest shall continue and apply to all future
Obligations, notwithstanding that at any particular time all of the Obligations
then outstanding shall have been paid in full, provided that Lender shall
terminate and release its Security Interest at such time when all of Lender's
obligations under the Credit Agreement shall have otherwise terminated and all
of the Obligations shall have been paid in full.
4. PLEDGOR'S RIGHTS PRIOR TO DEFAULT. So long as no default has
occurred and is continuing, Pledgor shall be entitled:
(a) to exercise any voting power with respect to the Pledged
Securities; provided that Pledgor agrees that it will not exercise any such
power in any manner which could have a material adverse effect on the value of
the Collateral or any part thereof; and
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<PAGE> 128
(b) to receive and retain for its own account any and all interest
payments, distributions or dividends (other than redemption payments or stock or
liquidating distributions or dividends) at any time and from to time declared or
paid upon any of the Pledged Securities.
5. ADDITIONAL PLEDGED SECURITIES.
(a) In case, upon the redemption of the Pledged Securities or the
dissolution or liquidation (in whole or in part) of the issuer of the Pledged
Securities, any sum shall be paid in redemption of the Pledged Securities, or as
a liquidating distribution or dividend or otherwise, such sum shall be paid over
to Lender, to be held by Lender as additional Pledged Securities hereunder or as
otherwise applied by Lender as provided in Section 5(c) below.
(b) If any stock dividend shall be declared on any of the Pledged
Securities, or any shares of stock shall otherwise be issued relating to any of
the Pledged Securities, or any distribution of capital shall be made on any of
the Pledged Securities, or any shares, warrants, rights, obligations or other
property shall be distributed upon or with respect to the Pledged Securities
pursuant to a recapitalization or reclassification of the capital of the issuer
thereof, or pursuant to the dissolution, liquidation (in whole or in part),
bankruptcy or reorganization of such issuer, or pursuant to the merger or
consolidation of such issuer with or into another corporation, the shares,
warrants, obligations, rights or other property so distributed shall be
delivered to Lender with such stock powers, assignments and endorsements as
Lender may request, to be held by it as additional Pledged Securities hereunder,
and all of the same shall constitute Pledged Securities for all purposes hereof.
(c) Any cash received and retained by Lender as additional Pledged
Securities pursuant to Sections 5(a) or (b) above shall be applied (in whole or
in part) by Lender to the payment of the outstanding balance of interest on
and/or principal of the Obligations in such order as Lender shall in its sole
discretion determine.
6. WARRANTIES AND COVENANTS. Pledgor represents, warrants and
covenants that as of the date of execution of this Agreement, and continuing
during the term of the Credit Agreement and so long as any of the Obligations
remain outstanding:
(a) To the extent the Amalgamation has not occurred, the authorized
capital stock of BULLC, consists of 100,000 shares of common stock, no par
value, of which 1,000 shares are issued and outstanding as of the date hereof
and of which 650 shares are represented by the Pledged Securities. To the extent
the Amalgamation has not occurred, the authorized capital stock of NSC, consists
of 1 share of common stock, no par value, of which 1 share is issued and
outstanding as of the date hereof and of which .65 share is represented by the
Pledged Securities. To the extent the Amalgamation has occurred, the authorized
capital stock of Best Access, consists of 100,000 shares of common stock, no par
value, of which 1,000 shares are issued and outstanding as of the date hereof
and of which 650 shares are represented by the Pledged Securities. Pledgor is
the record and beneficial
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<PAGE> 129
owner of, and has good and marketable title to, all of the issued and
outstanding capital stock of BULLC, NSC and Best Access, the Pledged Securities
are 65% of the issued and outstanding capital stock of BULLC, NSC and Best
Access, and the Pledged Securities are and will remain free and clear of all
pledges, liens, security interests and encumbrances whatsoever, other than the
Security Interest.
(b) Pledgor has full power, authority and legal right to execute this
Pledge Agreement and to grant the Security Interest in the Pledged Securities to
Lender.
(c) This Pledge Agreement has been duly authorized, executed and
delivered by Pledgor and constitutes a legal, valid and binding obligation of
Pledgor in accordance with its terms.
(d) Pledgor shall not sell, transfer, set over, mortgage, pledge,
hypothecate, exchange, assign or otherwise dispose of any of the Pledged
Securities nor any interest therein or enter into a contract to do so, except
with the prior written consent of Lender.
(e) The Pledged Securities are duly and validly issued, fully paid and
non-assessable, are not subject to any puts or calls, rights of first refusal or
options to purchase, and there are no outstanding options, warrants or other
agreements with respect to any other shares of BULLC's, NSC's or Best Access'
capital stock.
(f) No notice to or consent or approval of any governmental or
regulatory authority, securities exchange or other third party which has not
been given or obtained was or is necessary to the valid and enforceable pledge,
assignment and transfer of the Pledged Securities to Lender or the performance
by Pledgor of this Agreement.
(g) The Pledged Securities are not margin securities or margin stock
as such terms are defined in Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System.
7. EXERCISE OF VOTING POWER. If a default shall occur and be
continuing, Lender shall be entitled to exercise all voting power with respect
to the Pledged Securities and to receive and retain, as additional Pledged
Securities hereunder, any and all interest payments, distributions or dividends
at any time declared or paid upon any of the Pledged Securities.
8. LENDER'S REMEDIES. If an Event of Default shall occur under the
Credit Agreement, Lender shall have all of its rights and remedies under the
Credit Agreement, and, in addition thereto:
(a) Lender, without obligation to resort to other security, shall have
the right at any time and from time to time to sell, resell, assign and deliver,
in its discretion, all or any of the Pledged Securities, in one or more parcels
at the same or different times, and all right, title and interest, claim and
demand therein and right of redemption thereof, on any securities
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<PAGE> 130
exchange on which the Pledged Securities or other securities or any of them may
be listed, or at public or private sale, at Lender's premises or elsewhere, for
cash, upon credit or for future delivery, and in connection therewith Lender may
grant options, Pledgor hereby waiving and releasing any and all equity or right
of redemption. If any of the Pledged Securities are sold by Lender upon credit
or for future delivery, Lender shall not be liable for the failure of the
purchaser to purchase or pay for the same and, in the event of any such failure,
Lender may resell such Pledged Securities. In no event shall Pledgor be credited
with any part of the proceeds of sale of any Pledged Securities until cash
payment thereof has actually been received by Lender; and
(b) Lender shall be entitled to exercise all rights and to enjoy all
benefits of Pledgor under the Pledged Securities, including, without limitation,
the right to enforce any rights of Pledgor with respect to the Pledged
Securities, and to receive, retain and apply to the payment of the Credit
Agreement and the Obligations any and all monies paid upon or for the account of
Pledgor under the Pledged Securities.
9. SALE OF PLEDGED SECURITIES.
(a) No demand, advertisement or notice, all of which are hereby
expressly waived, shall be required in connection with any sale or other
disposition of any part of the Pledged Securities which threatens to decline
speedily in value or which is of a type customarily sold on a recognized market;
otherwise Lender shall give Pledgor at least ten (10) business days' prior
notice of the time and place of any public sale and of the time after which any
private sale or other disposition is to be made, which notice Pledgor agrees is
reasonable, all other demands, advertisements and notices being hereby waived.
(b) Lender shall not be obligated to sell the Pledged Securities if
it shall determine not to do so, regardless of the fact that notice of sale may
have been given. Lender may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. Upon each private sale of Pledged Securities, Lender may purchase all
or any of the Pledged Securities being sold, free from any equity or right of
redemption, which is hereby waived and released, and may offset payment therefor
(by endorsement without recourse) against the Obligations.
(c) In the case of all sales of Pledged Securities, public or
private, Pledgor shall pay all costs and expenses of every kind for retaking,
holding, preparing for sale and sale or delivery, including brokers' fees and
attorneys' fees, and after deducting such costs and expenses from the proceeds
of sale, Lender shall apply any residue to the payment of the Obligations, and
Pledgor shall remain liable for any deficiency. The balance, if any, remaining
after payment in full of all of the Obligations shall be paid to Pledgor,
subject to any duty of Lender imposed by law to the holder of any subordinate
security interest in the Pledged Securities known to Lender.
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<PAGE> 131
10. APPLICATION OF SECURITIES LAWS. Pledgor recognizes that Lender's
ability to effect a public sale of all or a part of the Pledged Securities may
be limited by reason of certain prohibitions contained in the Securities Act of
1933, as amended, as now or hereafter in effect, the Securities Exchange Act of
1934, as amended, as now or hereafter in effect, or in applicable Blue Sky or
other state securities laws, as now or hereafter in effect, and Lender may be
compelled to resort to one or more private sales of the Pledged Securities to a
restricted group of purchasers who may be obliged to agree, among other things,
to acquire such Pledged Securities for their own account, for investment and not
with a view to the distribution or resale thereof. Pledgor agrees that private
sales so made may be at prices and other terms less favorable than if such
Pledged Securities were sold at public sales, and that Lender has no obligation
to delay sale of any such Pledged Securities for the period of time necessary to
permit the issuer of such Pledged Securities, even if such issuer would agree,
to register such Pledged Securities for public sale under such applicable
securities laws. Pledgor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
11. REMEDIES CUMULATIVE. The remedies provided herein in favor of
Lender shall not be deemed exclusive, but shall be cumulative, and shall be in
addition to all other remedies in favor of Lender existing at law or in equity,
including without limitation, those remedies specified in the Credit Agreement
and other Loan Documents.
12. LENDER'S RIGHT OF ENDORSEMENT. After the occurrence and during
the continuation of a default, Lender shall have the right, for and in the name,
place and stead of Pledgor, to execute endorsements, assignments or other
instruments of conveyance or transfer with respect to all or any of the Pledged
Securities.
13. LENDER'S DUTIES LIMITED. Lender shall have no duty as to the
collection or protection of the Pledged Securities or any income thereon or as
to the preservation of any rights pertaining thereto, beyond the safe custody of
any thereof actually in its possession.
14. ATTORNEY-IN-FACT. After the occurrence and during the
continuation of a default, Pledgor hereby appoints Lender as Pledgor's
attorney-in-fact for the purpose of carrying out the provisions of this Pledge
Agreement and taking any action and executing any instrument which Lender may
deem necessary or advisable to accomplish the purposes hereof. Without limiting
the generality of the foregoing, Lender shall have the right and power to
receive, endorse and collect all checks and other orders for the payment of
money made payable to Pledgor representing any interest or dividend or other
distribution payable in respect of the Pledged Securities or any part thereof
and to give full discharge for the same, provided that prior to the occurrence
of a default, Lender shall remit to Pledgor for its own account any interest
payments, distributions or cash dividends (other than liquidating distributions
or dividends or stock dividends) received by Lender in respect of the Pledged
Securities.
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<PAGE> 132
15. NO WAIVER. No delay on the part of Lender or of any holder of
the Obligations in exercising any of its options, powers or rights, or partial
or single exercise thereof, shall constitute a waiver thereof. No waiver or
amendment of any provision of this Agreement shall be enforceable unless in
writing and signed by Lender and unless it expressly refers to the provision
affected.
16. RETURN UPON FULL PAYMENT. Provided and to the extent that Lender
shall not have exercised any of its remedies hereunder after a default, upon the
termination of the Credit Agreement and the payment in full of the Credit
Agreement and the Obligations, Pledgor shall be entitled to the return of all of
the Pledged Securities and the release by Lender of its interest therein. The
assignment and endorsement by Lender to Pledgor of the Pledged Securities shall
be without representation or warranty of any nature whatsoever and wholly
without recourse, provided that the Pledged Securities shall not be subject to
any additional liens created or caused by Lender.
17. NOTICES. Any notice required or desired to be served, given or
delivered hereunder shall be given in accordance with the terms of the Credit
Agreement.
18. GOVERNING LAW. This Pledge Agreement and the rights and
obligations of Lender and Pledgor hereunder shall be construed in accordance
with and governed by the internal laws of the State of Illinois, cannot be
changed orally, and shall bind and inure to the benefit of Pledgor and Lender
and their respective successors and assigns.
19. COUNTERPARTS. This Pledge Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and all of
which taken together shall constitute but one and the same instrument.
20. HEADINGS. The article headings of this Pledge Agreement are for
convenience of reference only, and will not affect the meaning of any of its
provisions.
[SIGNATURE PAGE(S) AND EXHIBIT(S), IF ANY, FOLLOW THIS PAGE]
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<PAGE> 133
IN WITNESS WHEREOF, Pledgor and Lender have caused this Pledge
Agreement to be duly executed by their respective officers duly authorized as of
the day and year first above written.
FIRST THOROUGHBRED LTD., an Indiana
corporation
By
-------------------------------------------
LASALLE NATIONAL BANK
By:
------------------------------------------
Title:
---------------------------------------
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<PAGE> 134
ATTACHMENT 1
DESCRIPTION OF PLEDGED SECURITIES
650 common shares of Best Universal Locks Limited, an Ontario corporation
.65 common shares of 3016297 Nova Scotia Company, a Nova Scotia company
650 common shares of Best Access Systems Co., a Nova Scotia unlimited
liability company
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<PAGE> 135
IN
EXHIBIT F TO CREDIT AGREEMENT
REAL ESTATE MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING
(FUTURE ADVANCES)
THIS REAL ESTATE MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING (the
"Instrument") is made this _____ day of March, 1998, between BEST LOCK
CORPORATION, an Indiana corporation, whose address is 8900 Keystone Crossing,
Indianapolis, Indiana 46240 ("Borrower"), and LASALLE NATIONAL BANK, a national
banking association, whose address is 135 South LaSalle Street, Chicago,
Illinois 60674, as issuer of letters of credit, for itself as a lender and as
agent for the lenders now or hereafter named in the Credit Agreement as such
term is defined herein, together with their respective successors and assigns
("Lender").
For other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrower hereby MORTGAGES and WARRANTS to
Lender, the following real estate (the "Real Estate"):
See Exhibit A attached hereto and incorporated herein,
together with all rights, title and interests of Borrower in and to: (i) all
rights, privileges, interests, tenements, hereditaments, easements and
appurtenances in any way now or hereafter pertaining to the Real Estate (the
"Easements"); (ii) all building and other improvements of every kind and
description now or hereafter placed on the Real Estate, together with the grant
hereby of a security interest in all Fixtures (as defined in Paragraph 16
below), and other articles of personal property now or hereafter attached to the
Real Estate (excluding, however, the personal property and trade fixtures of any
tenant of the Real Estate and Improvements and trade fixtures owned by third
parties and leased to Borrower), and all replacements thereof (the
"Improvements"); (iii) all extensions, improvements, betterments, substitutes,
replacements, renewals, additions and appurtenances of or to the Easements or
Improvements (the "Additions"); (iv) all rents, issues, proceeds, income and
profits, license fees, revenues, charges, accounts and general intangibles
arising from the Real Estate, Easements, Improvements and Additions relating to
any business operations conducted by Borrower on the Property and/or under all
present or future leases, subleases and other agreements affecting the Real
Estate, Easements, Improvements or Additions or otherwise ("Rents"), together
with the grant hereby by Borrower of a security interest to Lender in Rents
which are hereby assigned and transferred to Lender (as specified in Paragraph
15 below); and (v) all awards. payments or proceeds of conversion, whether
voluntary or involuntary, of any of the foregoing, including, without
limitation, all insurance, condemnation and tort claims ("Proceeds").
(Hereinafter, the Real Estate, Easements, Improvements, Additions, Rents and
Proceeds are referred to together as the "Property.")
<PAGE> 136
This Instrument is given to secure performance by Borrower of the
covenants and agreements contained in this Instrument and to secure (i) the
payment of the principal of and interest on the indebtedness, now owing or
hereafter to become owing and any and all future advances as evidenced by a
Credit Agreement dated of even date herewith entered into by and among Borrower,
the lenders which are parties thereto and LaSalle National Bank, a national
banking association, as the Issuing Bank and as the Agent, together with all
extensions, renewals, amendments, restatements, substitutions and replacements
thereto and thereof (the "Credit Agreement"), concerning the credit facilities
in the aggregate principal sum of Fifty Million Dollars ($ 50,000,000) which
facilities are evidenced by (a)(a) the following "Revolving Credit Notes": (i) a
revolving credit note in the maximum principal amount of Fourteen Million and
No/100 Dollars ($14,000,000) from Borrower to LaSalle National Bank, (ii) a
revolving credit note in the maximum principal amount of Seven Million and
No/100 Dollars ($7,000,000) from Borrower to Bank One Indiana, N.A., (iii) a
revolving credit note in the maximum principal amount of Seven Million and
No/100 Dollars ($7,000,000) from Borrower to National City Bank of Indiana; and
(b) the following "Term Notes": (i) a term loan note in the principal amount of
Ten Million Six Hundred Fifteen Thousand Dollars ($10,615,000) from Borrower to
LaSalle National Bank, (ii) a New York term loan note in the principal amount of
Three Hundred Eighty-five Thousand Dollars ($385,000) from Borrower to LaSalle
National Bank, (iii) a term loan note in the principal amount of Five Million
Three Hundred Seven Thousand Five Hundred Dollars ($5,307,500) from Borrower to
Bank One Indiana, N.A., (iv) a New York term loan note in the principal amount
of One Hundred Ninety-two Thousand Five Hundred Dollars ($192,500) from Borrower
to Bank One Indiana, N.A., (v) a term loan note in the principal amount of Five
Million Three Hundred Seven Thousand Five Hundred Dollars ($5,307,500) from
Borrower to National City Bank of Indiana, and (vi) a New York term loan note in
the principal amount of One Hundred Ninety-two Thousand Five Hundred Dollars
($192,500) from Borrower to National City Bank of Indiana (the Revolving Credit
Notes and the Term Notes, as each may be renewed, extended or amended from time
to time and including any restatements or replacements thereof, shall be
hereinafter referred to collectively as the "Notes"); (ii) any unpaid balance of
advances made for the payment of taxes, assessments, insurance premium and other
costs incurred for the maintenance and protection of the Property; (iii) all
amounts due and payable and all covenants and agreements to be performed by
Borrower under the Credit Agreement or under any other agreement executed and
delivered by Borrower pursuant thereto; (iv) all sums advanced and costs and
expenses incurred by Lender which are made or incurred pursuant to, or allowed
by, the terms of this Instrument, plus interest thereon if such sums are not
paid within the time period required for reimbursement at the Default Rate (as
defined in the Credit Agreement) from the date paid or incurred until
reimbursement; (v) all reasonable costs and expenses relating to foreclosure,
repossession, collection, disposition (including, without limitation,
attorneys', accounting, appraiser, engineering and environmental consultant
fees) incurred by Lender; (vi) all other indebtedness, obligations and
liabilities of Borrower to Lender, now existing or hereafter arising, whether
fixed or contingent, direct or indirect, primary or secondary, joint or several,
and regardless of how created or evidenced; and (vii) any replacement notes and
all
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<PAGE> 137
future extensions, modifications, amendments or renewals of any of the foregoing
indebtedness.
Borrower acknowledges that this Instrument secures indebtedness and
obligations which may arise in the future and such future obligations and
advances, together with any interest thereon, which may be made by Lender as an
obligation, made at the option of Lender made after a reduction to a zero or
other balance, or made otherwise, to or for the benefit of Borrower up to a
maximum principal amount outstanding at any point in time of One Hundred Million
and 00/100 Dollars ($ 100,000,000.00).
Terms used herein which are defined in the Credit Agreement shall have
the respective meanings set forth in the Credit Agreement, unless otherwise
defined herein.
Borrower covenants, warrants, represents and agrees as follows:
1. PAYMENT OF OBLIGATIONS. Borrower shall promptly pay when due the
principal and interest on the indebtedness evidenced by the Notes, any late
charges, fees, prepayment premiums or other sums required to be paid by the
Notes, and all other sums secured by this Instrument, without relief from
valuation and appraisement laws.
2. WARRANTIES. Borrower warrants that Borrower is lawfully seized of
a fee simple estate in the Property hereby conveyed and has the right to
mortgage, convey, grant and assign the Property, that the Property is subject in
all cases to no lien, charge or encumbrance other than those set forth on
Exhibit B attached hereto or hereafter approved by Lender in writing after the
date hereof (collectively, the "Permitted Encumbrances"), that this Instrument
is and will remain a valid and enforceable first lien on the Property subject to
Permitted Encumbrances and the Permitted Liens, and that Borrower shall
cooperate to preserve such title, and will forever warrant and defend the title,
validity and priority of the lien hereof against the claims of all persons and
parties whomsoever except as to the Permitted Encumbrances. Borrower further
warrants that except as set forth in the Credit Agreement (i) Borrower has full
power and authority to consummate the transactions contemplated hereby and
perform its obligations under this Instrument, the Notes, the Credit Agreement
and any other documents given to evidence or further secure the obligations
provided for herein; (ii) there are no actions, suits or proceedings or
investigations at law or in equity pending, or to the knowledge of Borrower
threatened against or affecting it or the Property, and Borrower is not in
default with respect to any order, writ, judgment, decree or demand of any court
or any governmental authority; (iii) the execution and delivery by Borrower of
this Instrument, the Notes, the Credit Agreement and any other documents given
to evidence or further secure the obligations provided for herein do not and
will not result in any breach of, or constitute a default under, any mortgage,
deed of trust, lease, bank loan or credit agreement or other instrument or
document to which Borrower is a party or by which it may be bound or affected;
(iv) to the best of Borrower's knowledge, the Property is fully connected to all
utility services necessary for the use and operation of the Property in adequate
capacities to serve the Property for its intended purpose; (v) to the best of
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<PAGE> 138
Borrower's knowledge, a final unconditional certificate of occupancy (or
alternative certificate if no certificate of occupancy is issued under local
law) has been issued and all other material licenses and permits necessary for
the lawful use and operation of the Property have been obtained and will remain
in full force and effect; and (vi) to the best of Borrower's knowledge,
Borrower's operation of the Property is in material compliance with all
applicable laws, regulations, rules, ordinances and restrictive covenants.
3. APPLICATION OF PAYMENTS. Unless otherwise provided herein or the
Credit Agreement or applicable law provides otherwise, all payments received by
Lender from Borrower under the Notes, the Credit Agreement or this Instrument
shall be applied by Lender in the following order of priority: (i) interest
payable on advances made pursuant to Paragraph 20 hereof, (ii) principal of
advances made pursuant to Paragraph 20 hereof, (iii) amounts payable to Lender
by Borrower under Paragraph 5 hereof, (iv) interest payable on the Notes, (v)
principal of the Notes, and (vi) any other sums secured by this Instrument in
such order as Lender, at Lender's option, may determine.
4. TAXES AND IMPOSITIONS. Unless the Credit Agreement provides
otherwise, Borrower agrees to pay prior to delinquency, all real property taxes
and assessments, general and special, and all other taxes and assessments of any
kind or nature whatsoever, including without limitation, service payments in
lieu of real property taxes, non-governmental levies or assessments such as
maintenance charges, sewer user charges, owner association dues or charges or
fees, levies or charges resulting from covenants, conditions and restrictions
affecting the Property, which are assessed or imposed upon the Property, or
become due and payable, and which create, may create or appear to create a lien
upon the Property, or any part thereof (all of which taxes, assessments and
other charges of like nature are hereinafter referred to as "Impositions"),
subject to the Borrower's rights to contest any such Impositions as provided in
the Credit Agreement; provided, however, that if, by law, any such Imposition is
payable, or may at the option of Borrower be paid, in installments, Borrower may
pay the same together with any accrued interest on the unpaid balance of such
Impositions in installments as the same become due and before any fine, penalty,
interest or cost may be added thereto for the nonpayment of any such installment
and interest. Upon Lender's written request, Borrower shall promptly furnish to
Lender receipts evidencing such payments.
5. FUNDS FOR IMPOSITIONS, INSURANCE AND OTHER CHARGES. So long as any
Event of Default has occurred and is continuing, Lender shall have the right to
require that Borrower pay to Lender on the day installments are payable under
the Term Note (or on another day designated in writing by Lender), until the
Notes are paid in full, a sum (herein "Funds") equal to one quarter (1/4) of (i)
the annual Impositions, and (ii) the yearly premium installments for the
insurance required to be carried pursuant to Paragraph 6 below, all as
reasonably estimated by Lender, initially and from time to time, on the basis of
assessments and bills and reasonable estimates thereof. Upon the occurrence of
an Event of Default, Lender may also require Borrower to pay to Lender, in
advance, such other Funds
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for charges, premiums and assessments in connection with the Property which
Lender shall reasonably deem necessary to protect Lender's interests.
Lender shall apply the Funds to said Impositions, insurance premiums
and other charges as they become due and payable. Lender shall make no charge
for so holding and applying the Funds, analyzing said account or for verifying
and compiling said assessments and bills. Lender shall not be required to pay
Borrower any interest, earnings or profits on the Funds and shall have the right
to commingle the Funds with the general funds of Lender.
If the amount of the Funds held by Lender shall exceed the amount
reasonably deemed necessary by Lender to provide for the payment of such
Impositions, insurance premiums and other charges, as they fall due, such excess
shall be credited to Borrower on the next monthly installment or installments of
Funds due. If at any time the amount of the Funds held by Lender shall be less
than the amount deemed necessary by Lender to pay Impositions, insurance
premiums and other charges as they fall due, Borrower shall pay to Lender an
amount necessary to make up the deficiency within thirty (30) days after notice
from Lender to Borrower requesting payment thereof.
6. INSURANCE. Borrower shall keep the improvements now existing or
hereafter erected on the Property insured by carriers at all times reasonably
satisfactory to Lender and keep the Property insured as required by the Credit
Agreement. All premiums on insurance policies shall be paid, at Lender's option,
in the manner provided under Paragraph 5 hereof, or by Borrower making payment,
when due, directly to the carrier. All insurance policies and renewals thereof
shall be in a form acceptable to Lender and shall include a mortgagee, lender
loss payee, union, standard or New York clause in favor of Lender providing,
whether by endorsement or otherwise, that Lender's interest under such policy is
that of a mortgagee or lender loss payee. Upon request by Lender, Borrower shall
deposit copies of such policies of insurance and certificates of insurance with
Lender, and upon the request of Lender Borrower shall deliver to Lender a copy
of any renewal policy in form satisfactory to Lender.
In the event of loss, Borrower shall give prompt written notice to the
insurance carrier and to Lender. If Borrower has business interruption insurance
in effect providing coverage in such amount as may be required pursuant to
Section 5.8 of the Credit Agreement and no Event of Default exists, the Borrower
may collect and receive insurance proceeds related to any such loss; provided,
however, that if the loss involves damages to the Property in excess of One
Million Dollars ($1,000,000), all insurance proceeds relating to such loss shall
be deposited into an interest bearing escrow account with Lender to be used to
restore the Property as hereinafter provided. Upon the occurrence of an Event of
Default, Borrower hereby authorizes and empowers Lender as attorney-in-fact for
Borrower to make proof of loss, to adjust and compromise any claim under
insurance policies, to appear in and prosecute any action arising from such
insurance policies, to collect and receive insurance proceeds, and to deduct
therefrom Lender's expenses incurred in the collection of such proceeds;
provided, however, that nothing contained in this Paragraph 6 shall require
Lender
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to incur any expense or take any action hereunder. Upon the occurrence of an
Event of Default, Borrower further authorizes Lender, at Lender's option, (i) to
hold the balance of such proceeds to be used to reimburse Borrower for the cost
of restoration or repair of the Property, or (ii) to apply the balance of such
proceeds to the payment of the sums secured by this Instrument, whether or not
then due, in the order of application set forth in Paragraph 3 hereof.
If, pursuant to the preceding Paragraph, the insurance proceeds are
held by Lender either in the escrow account referenced above or otherwise, so
long as no Event of Default has occurred and is continuing, such proceeds shall
be used to reimburse Borrower for the cost of restoration or repair of the
Property, the Property shall be restored to the equivalent of its original
condition as is reasonably practicable or such other condition as Lender and
Borrower may approve in writing. Lender may, at Lender's option, condition
disbursement of said proceeds on Lender's reasonable approval of (i) plans and
specifications for the restoration which shall be prepared by an architect
reasonable satisfactory to Lender, (ii) contractor's cost estimates, (iii)
architect's certificates with respect to the progress and status of
reconstruction, (iv) waivers of liens, sworn statements of mechanics and
materialmen and such other evidence of costs as Lender may reasonably request,
(v) the percentage of completion of construction, (vi) Borrower's application of
payments, and (vii) the satisfactory discharge or bonding of such liens as
Lender may reasonably require. If the insurance proceeds are applied to the
payment of the sums secured by this Instrument, any such application of proceeds
to principal shall not extend or postpone the due dates of the monthly
installments required under the Notes or change the amounts of such
installments. If Lender acquires title to the Property, Lender shall have all of
the right, title and interest of Borrower in and to any insurance policies and
unearned premiums thereon and in and to the proceeds resulting from any damage
to the Property prior to such sale or acquisition.
7. CONDEMNATION. Borrower shall promptly notify Lender of any action
or proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or any part thereof, and Borrower may settle or
appear in and prosecute any such action or proceeding . Upon the occurrence of
an Event of Default under the Credit Agreement, Lender shall have the right, and
Borrower hereby authorizes and empowers Lender as attorney-in-fact for Borrower,
to commence, appear in and prosecute, in Lender's or Borrower's name, any action
or proceeding relating to any condemnation or other taking of the Property,
whether direct or indirect, and to settle or compromise any claim in connection
with such condemnation or other taking; provided, however, that nothing
contained in this Paragraph 7 shall require Lender to incur any expenses or take
any action hereunder. Unless an Event of Default shall have occurred, the
Borrower shall be entitled to retain all proceeds of any award, payment or claim
for damages received from any condemnation or taking. Upon the occurrence of an
Event of Default under the Credit Agreement, Borrower further hereby assigns to
Lender all rights of Borrower in and to the proceeds of any award, payment or
claim for damages, direct or consequential, in connection with any such
condemnation or other taking, whether direct or indirect, of the Property, or
any part thereof, or for conveyances in lieu of condemnation.
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Any such awards, payments, proceeds or damages, or portion thereof to
which Borrower is entitled shall, after the deduction of Lender's expenses
incurred in the collection of such amounts, at the election of Lender, (i) be
applied to the reconstruction, restoration or repair of the Property in
compliance with all applicable legal requirements, or (ii) be applied to the
payment of the sums secured by this Instrument, whether or not then due, in the
order of application set forth in Paragraph 3 hereof, with the balance, if any,
to Borrower. Unless Borrower and Lender otherwise agree in writing, any
application of proceeds to principal shall not extend or postpone the due date
or change the amount of the monthly installments required by the Notes. Borrower
agrees to execute such further evidence of assignment of any awards, proceeds,
damages or claims arising in connection with such condemnation Dr taking as
Lender may require.
8. RECEIVERSHIP. Upon the occurrence of an Event of Default, Lender
shall be entitled to have a receiver appointed by a court to enter upon, take
possession of and manage the Property and to collect the rents of the Property
including those past due. All rents collected by the receiver shall be applied
first to payment of the costs of management of the Property and collection of
rents, including, but not limited to receiver's fees, premiums on receiver's
bonds and reasonable attorneys' fees, and then to the sums secured by this
Instrument. The receiver shall be liable to account only for those rents
actually received.
9. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (i) shall not
commit waste or permit impairment or deterioration (normal wear and tear
excepted) of the Property and shall not abandon the Property, (ii) shall
reconstruct, restore or repair promptly and in a good and workmanlike manner all
or any part of the Property to the equivalent of its original condition as is
reasonably practicable, or such other condition as Lender and Borrower may
approve in writing, in the event of any damage, injury or loss thereto, but, if
insurance or condemnation proceeds have been paid to Lender, only to the extent
of the self-insured retention (if any) plus insurance proceeds or condemnation
awards or damages are made available by Lender for the costs of such
reconstruction, restoration or repair (normal wear and tear excepted), (iii)
shall keep the Property in good order, condition and repair and shall replace
fixtures, equipment, machinery and appliances on the Property when necessary to
keep such items in good repair, and will make or cause to be made, as and when
the same shall become necessary, all structural and nonstructural, interior and
exterior, ordinary and extraordinary, foreseen and unforeseen repairs,
replacements and renewals necessary to that end, (iv) shall comply in all
material respects with all zoning, building, health and environmental laws,
ordinances and regulations, and all other laws, regulations and requirements of
any governmental body or agency having jurisdiction over the Property, or the
use and occupancy thereof by Borrower, and (v) shall comply with all covenants
and agreements of record affecting the Property. Neither Borrower nor any other
person shall remove, demolish or alter any improvement now existing or hereafter
erected on the Property without the prior written consent of Lender except such
repairs and replacements made in the ordinary course of business as a result of
obsolescence or wear and
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tear and provided such replacements are made of material of substantially
equivalent or greater value.
10. USE OF PROPERTY. Unless required by applicable law or unless
Lender has otherwise agreed in writing, Borrower shall not allow material
changes in the use for which all or any part of the Property was intended at the
time this Instrument was executed. Borrower shall not initiate, approve,
participate in or acquiesce to any material change in or modification to the
zoning in effect for the Property or any portion thereof unless Lender shall
consent to such action which consent shall not be unreasonably withheld or
delayed.
11. LIENS. Except for Permitted Encumbrances and Permitted Liens,
Borrower shall promptly discharge any lien with respect to the Property, and
Borrower shall pay, when due, the claims of all persons supplying labor or
materials to or in connection with the Property subject to the Borrower's rights
to contest any such liens or claim as provided in the Credit Agreement. In the
event a mechanic's lien shall be filed against the Property, Borrower shall
cause same to be satisfied or bonded off within forty-five (45) days after the
filing thereof. Without Lender's prior written consent and except for Permitted
Encumbrances and Permitted Liens, Borrower shall not create, suffer, permit or
allow any statutory lien or other lien or encumbrance inferior or superior to or
having parity with this Instrument to be created or perfected against the
Property other than the Permitted Encumbrances. Borrower hereby covenants and
agrees that Lender shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the indebtedness secured hereby.
12. INSPECTION AND ADDITIONAL DOCUMENTATION. Lender may make or cause
to be made reasonable entries upon and inspections of the Property to assure
compliance with the terms of this Instrument.
13. BOOKS AND RECORDS. Borrower shall keep and maintain at all times
at Borrower's address stated herein, or such other place as Lender may approve
in writing, complete and accurate books of accounts and records adequate to
reflect correctly the results of the operation of the Property and copies of all
written contracts, leases and other instruments which affect the Property. Such
books, records, contracts, leases and other instruments shall be subject to
examination and inspection at any reasonable time by Lender.
14. TRANSFERS OF THE PROPERTY. In the event Borrower shall without
Lender's consent, directly or indirectly, sell, transfer, lease, assign, convey,
mortgage, or otherwise dispose of the Property, or any part or parts thereof, or
any legal or equitable interest therein, other than as permitted by Paragraph 7
and those certain leases listed as Permitted Encumbrances, including disposition
by land installment contract, Lender may, at Lender's option, declare all of the
sums secured by this Instrument to be immediately due and payable, and Lender
may invoke any default remedies permitted by this Instrument, the Notes or any
other documents delivered by Borrower to Lender in connection herewith.
Notwithstanding the foregoing, Borrower shall be permitted to execute utility
easements and
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other easements and real property documents necessary in the ordinary course of
business without Lender's consent, provided such instruments do not have a
materially adverse effect on the value and use of the Property.
15. ASSIGNMENT OF RENTS AND LEASES. As part of the consideration for
the indebtedness evidenced by the Notes, Borrower hereby absolutely and
unconditionally assigns and transfers to Lender all of the leases and subleases
now existing or hereafter entered into with respect to the Property, and all
modifications, renewals and extensions thereof (such existing and new leases or
subleases collectively, the "Leases") and all the rents and revenues, which
shall include all security deposits, of the Property, including those now due,
past due, or to become due by virtue of any of the Leases or any other agreement
for the occupancy or use of all or any part of the Property, regardless as to
whom the rents and revenues of the Property are payable. Borrower hereby
authorizes Lender or Lender's agents to exercise all of Borrower's rights under
the Leases and to collect the aforesaid rents and revenues and hereby directs
each tenant of the Property to pay such rents to Lender or Lender's agents;
provided, however, that prior to an Event of Default, Borrower shall exercise
all of its rights under the Leases and shall collect and receive all of the
rents and revenues of the Property as trustee for the benefit of Lender and
Borrower, and as such, Borrower shall apply the rents and revenues so collected
to the sums secured by this Instrument in the order provided in Paragraph 3
hereof with the balance, so long as no such Event of Default has occurred, to
the account of Borrower. Upon an Event of Default, as provided in Paragraph 20
below, and without the necessity of Lender entering upon and taking and
maintaining full control of the Property in person, by agent or by a court-
appointed receiver, Lender shall immediately (i) be entitled to exercise all of
Borrower's rights under the Leases, and (ii) be entitled to possession of all
rents and revenues of the Property as specified in this Paragraph 15 as the same
become due and payable, including but not limited to rents then due and unpaid.
At the time of any such default by Borrower, any such rents then held by
Borrower shall immediately be held by Borrower as trustee for the benefit of
Lender only. Borrower agrees that commencing upon an Event of Default, each
tenant of the Property shall make such rents payable to and pay such rents to
Lender or Lender's agents on Lender's written demand to each tenant therefor,
delivered to each tenant personally, by mail or by delivering such demand to
each rental unit, without any liability on the part of said tenant to inquire
further as to the existence of a default by Borrower. Lender shall not be liable
for any loss sustained by Borrower resulting from any failure by Lender either
to collect the rents and revenues of the Property or in exercising or failing to
exercise any of Borrower's rights under the Leases and Lender shall have no
liability to any tenant under any of the Leases for the performance or
observance of any of the terms, conditions or obligations contained therein and
Borrower hereby agrees to indemnify and hold Lender harmless from and against
any claim or liability with respect to such Leases.
16. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. In addition to being a
mortgage, this Instrument is intended to be a security agreement pursuant to the
Uniform Commercial Code as enacted in the state wherein the Property is located
("Uniform Commercial Code"), for all fixtures, equipment, machinery and other
articles of personal
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property now owned or hereafter acquired and now or hereafter attached to the
Property or which are or are to become fixtures on the Property as deemed under
law (collectively "Fixtures"). Borrower hereby grants to Lender a security
interest in said items. Borrower agrees that Lender may file this Instrument, or
a reproduction thereof, in the real estate records or other appropriate index,
as a financing statement filed as a fixture filing with respect to all items
constituting a part of the collateral which are or are to become fixtures
related to the Property, in accordance with the Uniform Commercial Code. The
information required under the Uniform Commercial Code is set forth in other
provisions of this Instrument. Borrower is the record owner of the Property. Any
reproduction of this Instrument or of any other security agreement or financing
statement shall be sufficient as a financing statement. In addition, Borrower
agrees to execute and deliver to Lender, upon Lender's request, any financing
statements, as well as extensions, renewals and amendments thereof, and
reproductions of this Instrument in such form as Lender may require to perfect a
security interest with respect to said items. Borrower shall pay all costs of
filing such financing statements and any extensions, renewals, amendments and
releases thereof, and shall pay all reasonable costs and expenses of any record
searches for financing statements which Lender may reasonably require. Without
the prior written consent of Lender, Borrower shall not create or suffer to be
created pursuant to the Uniform Commercial Code any other security interest in
said items, including replacements and additions thereto except for Permitted
Liens. Upon Borrower's breach of any covenant or agreement of Borrower contained
in this Instrument, Lender shall have the remedies of a secured party under the
Uniform Commercial Code and, at Lender's option, may also invoke the remedies
provided in this Instrument as to such items. In exercising any of said
remedies, Lender may proceed against the items of real property and any items of
personal property specified above as part of the Property, separately or
together and in any order whatsoever, without in any way affecting the
availability of Lender's remedies under the Uniform Commercial Code or of the
remedies provided in this Instrument.
17. LEASE AND SUBLEASES. Borrower shall comply with and observe
Borrower's obligations as landlord under all Leases of the Property or any part
thereof. All Leases will be in form and substance reasonably acceptable to
Lender. All Leases executed after the date of this Instrument of the Property to
which Borrower is a party shall specifically provide that (i) such Leases are
and shall remain subordinate to this Instrument, (ii) that the tenant thereof
shall attorn to Lender, such attornment to be effective upon Lender's
acquisition of title to Borrower's interest in the Property, (iii) that the
tenant agrees to execute such further evidences of attornment and/or
subordination as Lender may from time to time request, and (iv) that the
attornment of the tenant shall not, in any event, be terminated by foreclosure.
Borrower shall not, without Lender's written consent, execute, materially
modify, surrender or terminate, either orally or in writing, any Lease with
respect to all or any part of the Property. Borrower shall not, without Lender's
written consent, permit an assignment or sublease of any such Lease unless the
Lease otherwise permits assignment or subletting without Borrower consent or
request or consent to the subordination of any such Lease to which Borrower is a
party to any lien subordinate to this Instrument. If Borrower becomes aware that
any tenant proposes to do, or is doing, any act or thing which
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shall give rise to any right of set-off against rent in an amount exceeding
$5,000, Borrower shall (a) take such steps as shall be reasonably calculated to
prevent the accrual of any right to a set-off against rent, (b) notify Lender
thereof and of the amount of such set-off, and (c) within ten (10) days after
such accrual, reimburse the tenant who shall have acquired such right to set-off
or take such other steps as shall effectively discharge such set-off and as
shall assure that rents thereafter due shall continue to be payable without
set-off or deduction.
18. ENVIRONMENTAL COMPLIANCE. Borrower represents and warrants to the
best of its knowledge after due and diligent inquiry and except as identified in
the Phase I Site Assessment prepared by ATC dated October 30,1997 and identified
as Project No. 13999.0001 (the "ESA") that the Property is in compliance in all
material respects with all applicable Environmental Laws (as hereinafter
defined) and that, to the best of its knowledge after due and diligent inquiry
and except as identified in the ESA, the Property does not contain any Hazardous
Materials (as hereinafter defined) (except for materials used in the Business
and cleaning and office supplies used in the ordinary course of business that
are, in each case, used in accordance with Environmental Laws). Borrower
represents and warrants that to the best of its knowledge after due and diligent
inquiry and except as identified in the ESA, it has not caused or permitted any
Hazardous Materials to be placed on or in the Property (except for materials
used in the Business and cleaning and office supplies used in the ordinary
course of business that are, in each case, used in accordance with Environmental
Laws) and that there are no conditions currently existing or with the passage of
time which would require or are likely to require clean-up, removal, remedial
action, or other response pursuant to the Environmental Laws. Borrower
represents and warrants that to the best of its knowledge after due and diligent
inquiry and except as identified in the ESA the Property has not been used as a
dump site or storage site for Hazardous Materials, and Borrower will not cause
or permit the use of the Property or any parcel adjacent thereto as a dump site
for Hazardous Materials, nor will Borrower cause or permit any material
contamination on any part of the Property or any adjacent parcel. Borrower
represents and warrants that all Hazardous Materials which have been or may be
used by Borrower for any purpose upon the Property (except for materials used in
the Business and cleaning and office supplies used in the ordinary course of
business and in accordance with Environmental Laws) have been and will be
disclosed in writing to Lender and have been and shall be used and stored
thereon only in a safe manner, and in accordance with all industrial standards
and Environmental Laws. Borrower represents and warrants that Borrower is not a
party to any litigation or administrative proceeding, nor to the best of its
knowledge is any litigation or administrative proceeding threatened against it,
which asserts or alleges that there is any violation of Environmental Laws with
respect to the Property, nor is the Property subject to any judgment, decree,
order or citation relating to or arising out of Environmental Laws and Borrower
has obtained all permits and licenses are required under Environmental Laws
relating to the Property. Borrower covenants and agrees to provide to Lender,
promptly upon receipt by Borrower, copies of any correspondence, notice,
pleading, citation, indictment, complaint, order, decree or other document it
receives from any source asserting or alleging a circumstance or condition which
requires or may require a clean-up, removal, remedial action, or other response
by or on the part of Borrower under the Environmental Laws or
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which seeks criminal or punitive penalties from Borrower for an alleged
violation of Environmental Laws. Borrower further covenants and agrees to advise
Lender as soon as Borrower becomes aware of any condition or circumstance which
makes the covenants and warranties contained herein or in any other Loan
Document materially incomplete or inaccurate.
Borrower hereby covenants and agrees to protect, defend, indemnify and
hold Lender harmless from and against any and all loss, cost (including
reasonable attorneys' fees), liability, damage or expense whatsoever incurred by
Lender by reason of (i) a breach of the representations and warranties contained
in this Paragraph 18, (ii) the imposition or recordation of any governmental
lien or otherwise for the recovery of environmental clean-up and removal cost,
or (iii) any violation of any applicable Environmental Laws, including, but not
limited to any liability to any third party without regard to fault on the part
of Borrower. Borrower's obligations to protect, defend, indemnify and hold
Lender harmless, as set forth herein, shall survive the payment of the
indebtedness secured hereby and any release of this Instrument. Borrower further
covenants and agrees, at the request of Lender, to perform any acts necessary,
at Borrower's expense, to comply with all Environmental Laws except where the
failure to comply would not have a Material Adverse Effect, and if Borrower
fails to initiate and pursue diligently all necessary actions to comply within
twenty (20) Business Days after receiving written notice from Lender requesting
such compliance or within such shorter period of time which may be reasonable in
the event an emergency threatens to materially impair the value of the Property,
Lender, at its sole option, may declare a default under this Mortgage, and, at
Borrower's expense, enter upon the Property to cure any violation of any
Environmental Law.
For purposes of this Instrument, the term "Environmental Laws" shall
mean and refer to all federal, state and local laws relating to environmental
matters, including, without limitation, those relating to fines, orders,
injunctions, penalties, damages, contribution, permits, cost recovery
compensation, losses or injuries resulting from the release or threatened
release of hazardous materials and the generation, use, storage, transportation
or disposal of hazardous materials in any manner applicable to Borrower or the
Property, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and the Super Fund Amendments
and Reauthorization Act (42 USC Section 9601 et. seq.), the Hazardous Materials
Transportation Act (49 USC Section 1801 et. seq.), the Resource Conservation and
Recovery Act of 1976 (42 USC Section 6901 et. seq.), the Federal Water Pollution
Control Act (33 USC Section 1251 et. seq.), the Clean Air Act (42 USC Section
7401 et. seq.), the Toxic Substances Control Act of 1976 (15 USC Section 2601
et. seq.), the Safe Drinking Water Act (42 USC Section 300F-300J-11 et. seq.),
the Occupational Safety and Health Act of 1970 (29 USC Section 651 et. seq.) and
the Emergency Planning and Community Right to Know Act (42 USC Section 11001 et.
seq.), each as heretofore and hereafter amended or supplemented, and any
analogous future or present local, state or federal statues, rules and
regulations promulgated thereunder or pursuant thereto, and any other present or
future law, ordinance, rule, regulation, permit or permit condition, order or
directive addressing environmental, health, or safety issues of or by the
federal government, any state or any
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political subdivision thereof, or any agency, court, or body of the federal
government, any state or any political subdivision thereof, exercising
executive, legislative, judicial, regulatory or administrative functions which
are applicable to the Property.
In addition, for purposes of this Instrument, the term "Hazardous
Materials" shall mean and refer to (a) any chemical, material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," "toxic pollutants," "contaminants," "pollutants," "toxic
substances" or words of similar import under any applicable local, state or
federal law or under the regulations adopted or publications promulgated
pursuant thereto, including, without limitation, Environmental Laws, (b) any
oil, petroleum or petroleum derived substance, any drilling fluids, produced
waters or other wastes associated with the exploration, development or
production of crude oil, any flammable substances or explosives, any radioactive
materials, any hazardous wastes or substances, any toxic wastes or substances or
any other materials or pollutants which (i) pose a hazard to the Property or to
persons on or about the Property, or (ii) cause the Property to be in violation
of any Environmental Laws, and (c) asbestos and asbestos-containing-materials,
radon gas, urea formaldehyde, or transformers or other electrical equipment
which contain any oil or dielectric fluid containing polychlorinated biphenyls.
19. EVENTS OF DEFAULT; ACCELERATION; REMEDIES.
Upon occurrence of any of the following events or conditions. Borrower
shall be in default or breach of this Instrument (each event or
condition an "Event of Default"):
(a) an "Event of Default" as that term is defined in the Credit
Agreement shall occur or exist;
(b) any default in the performance or observance of any covenant or
agreement contained in Paragraph 14 of this Instrument; or
(c) any default in the performance or observance of any covenant or
agreement contained in this Instrument and such default shall not be
remedied for a period of twenty (20) Business Days after the earlier of
(i) such default becoming known to an Authorized Officer or (ii) notice
of such default being delivered by Lender to Borrower.
Upon the occurrence of an Event of Default, Lender at Lender's option
may declare all of the sums secured by this Instrument to be immediately due and
payable without further demand and may invoke any other remedies permitted by
applicable law, provided herein and/or in the Credit Agreement. Lender may, in
its sole discretion, upon the occurrence of an Event of Default (i) foreclose
this Instrument without relief under valuation and appraisement laws; and/or,
(ii) apply for and be entitled to the appointment of a receiver, the appointment
of which is hereby consented to by Borrower without notice thereof, and such
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receiver is hereby authorized to take possession of the Property, collect any
rental, accrued, or to accrue, whether in money or in kind, for the use and
occupancy of said Property by any persons, firm or corporation, and may let or
lease said Property or any part thereof, receive the rents, income and profits
therefrom, and hold the proceeds subject to the orders of the court, or the
judge thereof, for the benefit of Lender, pending the final decree in the
proceedings pursuant to which the receiver has been appointed, and during any
period allowed by law for the redemption from any sale ordered in foreclosure
proceedings, and said receiver may be appointed irrespective of the value of the
Property or its adequacy to secure or discharge the Obligations due or to become
due or the solvency of the Borrower; and/or, (iii) take possession of and hold
the Property with or without process of law and collect the rents and profits
therefrom, applying same to the charges and payments due under the conditions of
this Instrument so long as default shall continue, which such taking of
possession shall in no way waive the right of Lender to exercise the other
remedies set forth herein because of a default.
In the event the Property is sold under foreclosure and the proceeds
together with the rents, issues, income and profits collected by Lender are
insufficient to pay the total Obligations evidenced and secured by this
Instrument, the Lender shall be entitled to a deficiency judgment against the
Borrower.
Lender shall be entitled to collect all reasonable costs and expenses
incurred in pursuing such remedies, including, but not limited to, attorney
fees, costs of documentary evidence and title reports, environmental tests,
inspections and, if necessary, remediation. No remedy herein conferred upon or
reserved to Lender is intended to be exclusive of any other remedy or remedies,
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now hereafter existing at law or in equity
or by statute. To the extent permitted by law remedies may be exercised
concurrently, independently, or successively in any order whatsoever
20. PROTECTION OF LENDER'S SECURITY. If Borrower fails to perform the
covenants and agreements contained in this Instrument or if any action or
proceeding is commenced which has a Material Adverse Effect on the Property or
title thereto or the interest of Lender therein and which is not addressed
elsewhere herein, then, at Lender's option, Lender may make such appearances,
disburse such sums and take such actions as Lender deems reasonably necessary,
to protect Lender's interest herein, including, but not limited to, (i)
disbursement of attorney fees, (ii) entry upon the Property to make repairs or
to conduct any appropriate environmental tests and inspections or to perform any
necessary remediation, (iii) procurement of satisfactory insurance, and (iv)
payment of Impositions.
Any amounts reasonably expended by Lender pursuant to this Paragraph
20, together with interest thereon, shall become additional indebtedness of
Borrower secured by this Instrument. Unless Borrower and Lender agree to other
terms of payment, such amounts shall be immediately due and payable and shall
bear interest from the date of disbursement at
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<PAGE> 149
a rate equal to the Default Rate under the Credit Agreement. Nothing contained
in this Paragraph 20 shall require Lender to incur any expense or take any
action hereunder.
21. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at
Lender's option, without giving notice to or obtaining the consent of Borrower
(unless otherwise provided below), Borrower's successors or assigns, or of any
guarantors, without liability on Lender's part and notwithstanding Borrower's
breach of any covenant or agreement of Borrower in this Instrument, extend the
time for payment of the indebtedness evidenced by the Notes or any part thereof,
reduce the payments thereon, release anyone liable on any of said indebtedness,
accept a renewal or replacement note or notes therefore, agree with Borrower, in
writing, to modify the terms and time of payment of said indebtedness, release
from the lien of this Instrument any part of the Property, take additional
security from third persons or release other or additional security, reconvey
any part of the Property, consent to the granting of any easement, join in any
extension or subordination agreement, and agree in writing with Borrower to
modify the rate of interest or period of amortization of the Notes. Except as
specifically set forth in writing, any actions taken by Lender pursuant to the
terms of this Paragraph 21 shall not affect the obligation of Borrower, or
Borrower's successors or assigns, to pay the sums secured by this Instrument and
to observe the covenants of Borrower contained herein, shall not affect the
guaranty of any person, corporation, partnership or other entity for payment of
the indebtedness secured hereby, and shall not (unless agreed to in writing by
Lender) affect the lien or priority of the lien hereof on the Property. Borrower
shall pay Lender a reasonable service charge, together with such title insurance
premiums and attorney fees as may be incurred, at Lender's option, for any such
action if taken at Borrower's request but only to the extent approved in advance
by Borrower in writing.
22. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any such right or
remedy. The acceptance by Lender of payment of any sum secured by this
Instrument after the due date of such payment shall not be a waiver of Lender's
right to either require prompt payment when due of all other sums so secured or
to declare a default for failure to make prompt payment.
23. ESTOPPEL CERTIFICATE. Borrower shall, within ten (10) days of
written request from Lender, furnish Lender with a written statement, duly
acknowledged, setting forth the sums secured by this Instrument and any right of
set-off, counterclaim or other defense which exists, to the knowledge of the
Borrower, against such sums and the obligations of Borrower under the Notes and
this Instrument.
24. NOTICE. Except for any notice required under applicable law to be
given in another manner, any notice required or otherwise given concerning this
Instrument shall be given as notices as required under the terms of the Credit
Agreement.
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<PAGE> 150
25. SUCCESSORS AND ASSIGNS BOUND; AGENTS; CAPTIONS. The
covenants and agreements herein contained shall bind, and the rights hereunder
shall inure to, the respective successors and assigns of Lender and Borrower,
subject to the provisions of Paragraph 14 hereof. This Instrument, and any
instrument or documents made in connection herewith, may be assigned by Lender
only in accordance with and as permitted by the Credit Agreement. In exercising
any rights hereunder or taking any actions provided for herein, Lender may act
through its employees, agents or independent contractors as authorized by
Lender. The captions and headings of the paragraphs of this Instrument are for
convenience only and are not to be used to interpret or define the provisions
hereof.
26. GOVERNING LAW; SEVERABILITY. This Instrument shall be construed
under and governed by the law of the state wherein the Property is situated. In
the event that any provision of this Instrument or the notes conflicts with
applicable law, such conflict shall not affect any other provisions of this
Instrument or the notes which can be given effect without the conflicting
provisions, and to this end the provisions of this Instrument and the notes are
declared to be severable.
27. WAIVER OF JURY TRIAL, WAIVERS AND CONSENTS. EACH OF BORROWER AND
LENDER HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO A
TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, THIRD-PARTY CLAIM OR OTHERWISE, IN ANY
LEGAL ACTION OR PROCEEDING ARISING IN ANY WAY OUT OF OR WHICH IN ANY WAY
INVOLVES ANY OF THE RIGHTS, OBLIGATIONS OR REMEDIES OF ANY PARTY TO THIS
INSTRUMENT. BORROWER AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS INSTRUMENT MAY BE COMMENCED IN THE STATE OR FEDERAL COURTS
WHERE THE PROPERTY IS LOCATED. BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES TO SUBMIT TO THE JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH
ACTION OR PROCEEDING. BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND
CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS
HEREOF. FINAL JUDGMENT IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN
EXHAUSTED OR WAIVED SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT. BORROWER HEREBY ACKNOWLEDGES AND AGREES
THAT THE CHOICE OF FORUM CONTAINED IN THIS PARAGRAPH SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN ANY FORUM OR THE TAKING OF
ANY ACTION UNDER THE LOAN DOCUMENTS TO ENFORCE THE SAME IN ANY APPROPRIATE
JURISDICTION.
28. WAIVER OF MARSHALLING. Notwithstanding the existence of any other
security interests in the Property held by Lender or by any other party, Lender
shall have the
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<PAGE> 151
right to determine the order in which any or all of the Property shall be
subjected to the remedies provided herein. Lender shall have the right to
determine the order in which any or all portions of the indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof, hereby waives any and all
right to require the marshalling of assets in connection with the exercise of
any of the remedies permitted by applicable law or provided herein.
29. PROVISIONS SEVERABLE. In the event any one or more of the
provisions of this Instrument for any reason shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Instrument, but
this Instrument shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained in this Instrument.
30. MULTISTATE REAL ESTATE TRANSACTION. Borrower acknowledges that
this Instrument is one of a number of other mortgages, deeds of trust and
assignments of leases and rents and other security documents (collectively, the
"Other Loan Documents") which secure the indebtedness in whole or in part.
Borrower agrees that the lien of this Instrument shall be absolute and
unconditional and shall not in any manner be affected or impaired by any acts or
omissions whatsoever of Lender and, without limiting the generality of the
foregoing, the lien hereof shall not be impaired by any acceptance by Lender of
any security for or guaranty of any of the indebtedness or by any failure,
neglect or omission on the part of Lender to realize upon or protect any of the
indebtedness or any collateral security therefor including the Other Loan
Documents. The lien hereof shall not in any manner be impaired or affected by
any release (except as to the property released), sale, pledge, surrender,
compromise, settlement, renewal, extension, indulgence, alteration, changing,
modification or any disposition of any of the indebtedness or of any of the
collateral security therefor. Lender may, at its discretion, foreclose, exercise
any power of sale available under law or exercise any other remedy available to
it under any or all of the Other Loan Documents without first exercising or
enforcing any of its rights and remedies hereunder, or may foreclose, exercise
any power of sale, or exercise any other right available under this Instrument
without first exercising or enforcing any of its rights and remedies under any
or all of the Other Loan Documents. Such exercise of Lender's rights and
remedies under any or all of the Other Loan Documents shall not in any manner
impair the indebtedness or lien of this Instrument, and any exercise of the
rights or remedies of Lender hereunder shall not impair the lien of any of the
Other Loan Documents or any of Lender's rights and remedies thereunder. Borrower
specifically consents and agrees that Lender may exercise its rights and
remedies hereunder and under the Other Loan Documents separately or concurrently
and in any order that Lender may deem appropriate.
31. RELATION TO CREDIT AGREEMENT. This Instrument is given pursuant to
the terms of the Credit Agreement and shall be deemed a part thereof and subject
to the
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<PAGE> 152
terms and conditions of the Credit Agreement, and the Credit Agreement shall
control in the event of any ambiguity or inconsistency.
PROVIDED, however, that these presents are upon the condition that if
Borrower shall well and truly pay to Lender, its successors and assigns, the
total of the indebtedness secured hereby, and shall fully keep and perform all
of the conditions, covenants and agreements to be kept and performed by Borrower
under this Instrument, then this Instrument shall be void; otherwise to remain
in full force and virtue in law and equity until paid in full.
IN WITNESS WHEREOF, Borrower hereunder duly authorized, has caused this
Instrument to be executed.
BEST LOCK CORPORATION, an Indiana corporation
By:______________________________
Title:___________________________
STATE OF __________)
)SS:
COUNTY OF _________)
Before me, a Notary Public in and for said County and State, personally
appeared by me _______________________ known and by me known to be
_______________________of Best Lock Corporation, an Indiana corporation, who
acknowledged the execution of the foregoing Real Estate Mortgage, Security
Agreement and Fixture Filing (Future Advances) on behalf of said corporation.
Witness my hand and Notarial Seal this ________ day of _________, 1998.
_________________________________
Notary Public
_________________________________
(Printed Signature)
My Commission Expires: __________________________
My County of Residence:__________________________
This instrument prepared by and after recording return to:
Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Chicago, Illinois 60603.
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<PAGE> 153
EXHIBIT "A"
to
REAL ESTATE MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING
LEGAL DESCRIPTION
page 19
<PAGE> 154
EXHIBIT "B"
to
REAL ESTATE MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING
PERMITTED ENCUMBRANCES
Those special exceptions described on Schedule B to Lawyers Title Insurance
Corporation Loan Policy dated March 24, 1998, identified as its Case No.
CHI-23314 and Case No. 228938.
<PAGE> 155
EXHIBIT G TO CREDIT AGREEMENT
================================================================================
INDEMNITY AGREEMENT
from
BEST LOCK CORPORATION
to
LASALLE NATIONAL BANK,
a national banking association,
for Itself and as Agent
Dated as of March 24, 1998
================================================================================
<PAGE> 156
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT dated as of March 24, 1998, from BEST
LOCK CORPORATION, an Indiana corporation (the "Indemnitor") to LASALLE NATIONAL
BANK, a national banking association, for itself as a Lender and as Agent for
the Lenders now or hereafter named in the Credit Agreement as such term is
defined herein, together with their respective successors and assigns (the
"Lender");
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of
March 24, 1998, entered into by and among Indemnitor, the lenders which are
parties thereto and the Lender, as the Issuing Bank and the Agent, together with
all extensions, renewals, amendments, restatements, substitutions and
replacements thereto and thereof ("Credit Agreement"), the Lender is making
certain revolving loans and a term loan (collectively, the "Loans") to the
Indemnitor, which Loans are secured by, among other things, mortgages and or
deeds of trust (each a "Mortgage" and collectively, the "Mortgages") encumbering
the real estate and improvements which are described by their common addresses
in Exhibit A hereto (collectively, the "Premises"), and by the other Loan
Documents; and
WHEREAS, to induce the Lender to make the Loans, the
Indemnitor has agreed to enter into this Indemnity Agreement for the benefit of
the Lender;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Indemnitor agrees as follows:
Section 1. Recitals; Definitions. The foregoing recitals are
hereby incorporated into and made a part of this Indemnity Agreement.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Credit Agreement.
Section 2. Representations and Warranties. The Indemnitor
hereby represents and warrants to the Lender that neither the Indemnitor nor any
of its affiliates or subsidiaries, nor, to the Indemnitor's knowledge, any other
person or entity, has ever caused or permitted any Hazardous Material (defined
below), except for Hazardous Materials used by the Indemnitor in the ordinary
course of its business and in accordance with all applicable Environmental Laws
(as defined below), to be placed, held, located or disposed of on, under or at
(i) the Premises or any part thereof, or (ii) any other real property in which
the Indemnitor or any of its affiliates or subsidiaries holds any estate or
interest whatsoever (including, without limitation, any property owned by a land
trust the beneficial interest in which is owned, in whole or in part, by the
Indemnitor or any of its affiliates or subsidiaries), and that none of the
property described above has ever been used by the Indemnitor or any of its
affiliates or subsidiaries, or, to the Indemnitor's knowledge, by any other
person or entity, as a treatment, storage or disposal site (whether permanent or
temporary) for any Hazardous Material, except for Hazardous Materials used by
the Indemnitor in the ordinary course of its business and in accordance with all
applicable
<PAGE> 157
Environmental Laws, and there are no underground storage tanks located on the
Premises. For purposes hereof, the term "Hazardous Material" shall mean any
hazardous substance or any pollutant or contaminant defined as such in (or for
purposes of) any of the Environmental Laws, as now or at any time hereafter in
effect; asbestos or any substance or compound containing asbestos;
polychlorinated biphenyls or any substance or compound containing any
polychlorinated biphenyl; petroleum and petroleum products; pesticides; and any
other hazardous, toxic or dangerous waste, substance or material.
Section 3. Indemnification. The Indemnitor hereby agrees to
indemnify and hold the Lender harmless from the following:
(a) Any and all losses, liabilities, damages, injuries,
costs, expenses (including reasonable attorneys' fees and expenses) and
claims of any kind whatsoever (including, without limitation, any
losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under any of the following (collectively,
"Environmental Laws"): the Comprehensive Environmental Response,
Compensation, and Liability Act, any so-called "Superfund" or
"Superlien" law, the Toxic Substances Control Act, or any other
federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree, now or hereafter in force, regulating,
relating to, or imposing liability or standards of conduct concerning
any Hazardous Material) paid, incurred, suffered by or asserted against
the Lender as a direct or indirect result of any of the following,
regardless of whether or not caused by, or within the control of, the
Indemnitor: (i) the presence (in violation of any Environmental Law) of
any Hazardous Material on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or release of any Hazardous
Material from (A) the Premises or any part thereof, or (B) any other
real property in which the Indemnitor or any of their affiliates or
subsidiaries holds any estate or interest whatsoever (including,
without limitation, any property owned by a land trust the beneficial
interest in which is owned, in whole or in part, by the Indemnitor or
any of their affiliates or subsidiaries), or (ii) any liens against the
Premises permitted or imposed by any Environmental Laws, or any actual
or asserted liability or obligations of the Indemnitor, the Indemnitor
or any of their affiliates or subsidiaries under any Environmental
Laws, or (iii) any actual or asserted liability or obligations of the
Lender or any of its affiliates or subsidiaries under any Environmental
Law relating to the Premises (except for liabilities or obligations
arising solely as a direct result of the gross negligence or wilful
misconduct of the Lender or anyone acting under its direction).
This Indemnity Agreement shall not be subject to any limited recourse,
nonrecourse, exculpatory or other limitation of liability provisions in the Loan
Documents, and the Indemnitor acknowledges that its obligations under this
Indemnity Agreement are not limited by any such limited recourse, nonrecourse,
exculpatory or other limitation of liability provisions.
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<PAGE> 158
Section 4. Reimbursement. Those losses, liabilities, damages,
injuries, costs, expenses (including attorneys' fees and expenses) and claims
for which the Lender is indemnified hereunder shall be reimbursable to the
Lender as incurred without any requirement of waiting for the ultimate outcome
of any litigation, claim or other proceeding, and the Indemnitor shall pay same
to the Lender as incurred within 10 days after notice from the Lender itemizing
the amounts incurred to the date of such notice. In addition to any remedy
available for failure to periodically pay such amounts, such amounts shall
thereafter bear interest, following said 10-day period, at the Default Rate of
interest provided for in the Credit Agreement. Payment by the Lender shall not
be a condition precedent to the obligations of the Indemnitor under this
Indemnity Agreement.
Section 5. Compliance with IRPTL. If any of the provisions of
the Indiana Responsible Property Transfer Law (Indiana Code Section 13-25-3-1,
et seq., as amended) ("IRPTL"), or any other similar statute or regulation of
any Governmental Authority are now or hereafter become applicable to the
Premises or any portion thereof, the Indemnitor shall comply with such
provisions. Without limitation on the generality of the foregoing, (i) if the
delivery of a disclosure document is now or hereafter required by IRPTL, the
Indemnitor shall cause the delivery of such disclosure document to be made to
all parties entitled to receive same within the time period required by IRPTL;
and (ii) the Indemnitor shall cause any such disclosure document to be recorded
with the Recorder of Deeds of the county in which the Premises are located and
filed with the Indiana Environmental Protection Agency, all within the time
periods required by IRPTL. The Indemnitor shall promptly deliver to the Lender
evidence of such recording and filing of such disclosure document.
Section 6. Survival. The indemnities and obligations provided
for in this Indemnity Agreement shall be continuing and shall survive the
payment, performance, satisfaction, discharge, cancellation, termination,
release and foreclosure of any or all of the Mortgages; provided, however, that
such indemnities and obligations shall not apply with respect to Hazardous
Materials which are first placed on any portion of the Premises on or after the
date on which the Lender or any other party obtains title to and possession of
such portion of the Premises pursuant to an exercise by the Lender of its
remedies under the applicable Mortgage or any of the other Loan Documents or as
a result of a conveyance of title to such portion of the Premises by the
Indemnitor to the Lender or such other party in lieu of such exercise of
remedies.
Section 7. Enforcement. The Lender shall have the right to
enforce this Indemnity Agreement against the Indemnitor for and to the full
extent of its obligation hereunder, with or without enforcing or attempting to
enforce this Indemnity Agreement against any other indemnitor, if any, and
whether or not other proceedings or steps are pending or have been taken or have
been concluded to enforce or otherwise realize upon the obligation of the
Indemnitor or any other indemnitor. Failure by the Lender or any of its
successors or assigns to exercise any right which it may exercise hereunder
shall not be deemed a waiver of its rights of exercise thereafter.
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<PAGE> 159
Section 8. Time of Essence. Time is of the essence of this
Indemnity Agreement and of each and every provision hereof.
Section 9. Successors. This Indemnity Agreement and all
representations, warranties, agreements, rights and liabilities hereunder shall
inure to the benefit of the Lender and its successors and assigns, and any
participant in any loan hereby secured, and shall be binding upon the Indemnitor
and its successors and assigns.
Section 10. Entire Agreement. This Indemnity Agreement sets
forth all of the covenants, promises, agreements, conditions and understandings
of the parties relating to the subject matter of this Indemnity Agreement, and
there are no covenants, promises, agreements, conditions or understandings,
either oral or written, between them other than as are herein set forth.
Section 11. Modification, Waiver and Termination. This
Indemnity Agreement and each provision hereof may be modified, amended, changed,
altered, waived, terminated or discharged only by a written instrument signed by
the party sought to be bound by such modification, amendment, change,
alteration, waiver, termination or discharge.
Section 12. Notices. All notices required to be delivered to
the Indemnitor pursuant to this Indemnity Agreement shall be in writing and
shall be sent to the following address, by hand delivery, recognized national
overnight courier service, telecopier or other means of electronic data
communication:
Best Lock Corporation
8900 Keystone Crossing
Suite 1100
Indianapolis, Indiana 46240
Attention: Mark Ahearn
Fax: (317) 817-9217
With copies to:
Jenner & Block
One IBM Plaza
Suite 4000
Chicago, Illinois 60611
Attention: Craig R. Culbertson
Fax: 312/923-2637
All notices required to be delivered to the Lender pursuant to this Indemnity
Agreement shall be in writing and shall be sent to the following address, by
hand delivery, recognized
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<PAGE> 160
national overnight courier service, telecopier or other means of electronic data
communication:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Todd J. Lanscioni
Fax: 312/904-6225
With copies to:
Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Suite 4200
Chicago, Illinois 60603
Attention: Theodore E. Cornell III
Fax: 312/269-8869
All such notices shall be effective on the date of telecopy transmission or when
received, whichever is earlier. The parties hereto may each change the address
for service of notice upon it by a notice in writing to the other party hereto.
Section 13. Severability. In the event any provision of this
Indemnity Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision hereof.
Section 14. Execution of Counterparts. This Indemnity
Agreement may be simultaneously executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
Section 15. Construction.
(a) The words "hereof," "herein," "hereunder," and other words
of similar import refer to this Indemnity Agreement as a whole not to the
individual Sections in which such terms are used.
(b) References to Sections and other subdivisions of this
Indemnity Agreement are to the designated Sections and other subdivisions of
this Indemnity Agreement as originally executed.
(c) The headings of this Indemnity Agreement are for
convenience only and shall not define or limit the provisions hereof.
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<PAGE> 161
(d) Where the context so requires, words used in the singular
shall include the plural and vice versa, and words of one gender shall include
all other genders.
(f) The Indemnitor and the Lender, and their respective legal
counsel, have participated in the drafting of this Indemnity Agreement, and
accordingly the general rule of construction to the effect that any ambiguities
in a contract are to be resolved against the party drafting the contract shall
not be employed in the construction and interpretation of this Indemnity
Agreement.
Section 16. Governing Law. This Indemnity Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois,
without regard to the principles thereof regarding conflict of laws, excepting
applicable federal law, except only to the extent precluded by the mandatory
application of the law of another jurisdiction.
Section 17. Waiver of Jury Trial. THE INDEMNITOR HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING RELATING TO THIS INDEMNITY AGREEMENT.
[SIGNATURE PAGE(S) AND EXHIBIT(S),
IF ANY, FOLLOW THIS PAGE]
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<PAGE> 162
IN WITNESS WHEREOF the undersigned have executed this
instrument as of the date first above written.
BEST LOCK CORPORATION, an Indiana corporation
By
-------------------------------------------
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<PAGE> 163
EXHIBIT H TO CREDIT AGREEMENT
ASSIGNMENT OF PATENTS AND TRADEMARKS
THIS ASSIGNMENT OF PATENTS AND TRADEMARKS (this "Assignment") is dated
as of March __, 1998 and is made by BEST LOCK CORPORATION, an Indiana
corporation ("Assignor"), in favor of and for the benefit of LASALLE NATIONAL
BANK, as Agent (the "Agent").
RECITALS
A. Assignor, with its principal place of business at 8900
Keystone Crossing, Suite 1100, Indianapolis, Indiana 46240
owns the Trademarks, Trademark Applications, Patents and
Patent Applications listed on Schedule 1 annexed hereto, and
is a party to the Patent Licenses and Trademark Licenses
listed on Schedule 1 annexed hereto (the "Intellectual
Property").
B. Assignor has succeeded to ownership certain of the
Intellectual Property as successor to the registered owner
thereof by merger.
C. Assignor and Agent are parties to a Credit Agreement dated as
of the date hereof (the same, as it may be amended, restated,
supplemented or otherwise modified and in effect from time to
time, the "Credit Agreement"), providing for extensions of
credit to be made to Assignor by Agent and certain other
financial institutions that become lenders pursuant to the
Credit Agreement (Agent and such other lenders are
collectively called "Lenders").
D. Pursuant to the terms of that certain Security Agreement dated
as of the date hereof (the same, as it may be amended,
restated, supplemented or otherwise modified and in
effect from time to time, the "Security Agreement"; terms
defined in the Security Agreement and not otherwise defined
herein have the respective meanings provided for in the
Security Agreement), between Assignor and Agent (in such
capacity, together with its successors in such capacity, the
"Grantee"), Assignor has granted to Grantee for the benefit of
Lenders a security interest in substantially all the assets of
Assignor including all right, title and interest of Assignor
in, to and under all now owned and hereafter acquired
Trademarks, Trademark applications, Patents, Patent
applications, Patent Licenses, Trademark Licenses and all
products and proceeds thereof, to secure the payment of all
amounts owing by Assignor under the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor does hereby grant to
Grantee a
<PAGE> 164
continuing security interest in all of Assignor's right, title and interest in,
to and under the following (all of the following items or types of property
being herein collectively referred to as the "IP Collateral"), whether
presently existing or hereafter created or acquired:
(1) each Patent and Patent application, including, without
limitation, each Patent and Patent application listed
on Schedule 1 annexed hereto, together with any reissues,
continuations or extensions thereof;
(2) each Patent License, including, without limitation, each
Patent License listed on Schedule l annexed hereto;
(3) each Trademark and Trademark application, including, without
limitation, each Patent and Patent application listed on
Schedule 1 annexed hereto, together with any reissues,
continuations or extensions thereof, but excluding any
application based upon an "intent to use"; provided, however,
that Assignor shall promptly upon registration of any
Trademark based upon such application make an assignment of
such registration to Agent in the same manner as provided
herein;
(4) each Trademark License, including, without limitation, each
Patent License listed on Schedule l annexed hereto;
(5) all goodwill associated with all of the foregoing; and
(7) all products and proceeds of the foregoing, including, without
limitation, any claim by Assignor against third parties
for past, present or future infringement of any Patent or
Trademark, including, without limitation, any Patent or
Trademark referred to in Schedule 1 annexed hereto, any Patent
or Trademark issued pursuant to any Patent or Trademark
application referred to in Schedule 1 and any Patent or
Trademark licensed under any Patent or Trademark License
listed on Schedule 1 annexed hereto.
This security interest is granted in conjunction with the security
interests granted to Grantee pursuant to the Security Agreement. Assignor
hereby acknowledges and affirms that the rights and remedies of Grantee with
respect to the security interest in the Patent Collateral made and granted
hereby are more fully set forth in the Security Agreement, the terms and
provision of which are incorporated by reference herein as if fully set forth
herein.
Upon such termination of the security interests granted herein as
provided in the Credit Agreement and the Security Agreement, Agent will, at the
expense of Assignor, execute and deliver to Assignor such documents as Assignor
shall reasonably request to evidence the termination of such security interests
or the release of such Collateral, as the case may be.
- 2 -
<PAGE> 165
IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly
executed by its duly authorized officer thereunto as of the day and year first
above written.
DEBTOR
Best Lock Corporation
By: ___________________________
Printed Name ______________
Its: __________________________
Title ____________________
STATE OF ___________________)
) SS:
COUNTY OF __________________)
Before me, a Notary Public in and for said County and State, personally
appeared ___________________________, by me known and by me known to be
_______________________________ of Best Lock Corporation, an Indiana
corporation, who acknowledged the execution of the foregoing Security Agreement
on behalf of said corporation.
Witness my hand and Notarial Seal this ____________ day of
____________________________, 1998.
My Commission Expires: ___________________ ________________________
Notary Public
- 3 -
<PAGE> 166
Schedule 1
to Assignment of
Patents and Trademarks
<PAGE> 167
EXHIBIT J TO CREDIT AGREEMENT
COMPLIANCE CERTIFICATE
This Certificate and the financial statements attached hereto are made
and delivered to LASALLE NATIONAL BANK, a national banking association for
itself as a Lender and as Agent for the Lenders now or hereafter named in the
Credit Agreement dated as of March ___, 1998 (as the same may be amended,
modified or supplemented and in effect, called the "Credit Agreement"), by and
among Borrower and such Lenders (LaSalle and such other Lenders, together with
their respective successors and assigns being hereinafter collectively, the
"Lender"), pursuant to Section 5.2c of the Credit Agreement. Capitalized terms
used but not defined herein have the meanings assigned to such terms in the
Credit Agreement.
[Borrower hereby certifies and warrants to Lender that the following is
a true and correct computation as at March 23, 1998 (the "Computation Date"), of
the following ratios and/or financial restrictions contained in Section 6.4 of
the Credit Agreement (attach calculations on separate sheet):
6.4a Leverage Ratio = 1.9098
-----------------------------
6.4b Adjusted Debt Service Ratio =
----------------
6.4c Tangible Net Worth =
--------------------------
Tangible Net Worth (at end of immediately
preceding Fiscal Quarter) =
-----------------
6.4d Quarterly Losses
1) Fiscal Quarter ending on
Calculation Date -------
2) Immediately Preceding
Fiscal Quarter -------
3) Second Preceding
Fiscal Quarter -------
4) Third Preceding
Fiscal Quarter -------
6.4e Operating Lease Expense =
---------------------
The certifications, warranties and calculations of the foregoing paragraph are
required only with delivery of the financial statements as of the end of each of
Borrower's fiscal quarters.]
<PAGE> 168
Borrower hereby certifies and warrants to Lender that, as of the date
of this Certificate, no Default or Event of Default has occurred[, except:
describe the nature of each Default and/or Event of Default, the period of
existence thereof and the action taken or proposed to be taken with respect
thereto].
IN WITNESS WHEREOF, Borrower has caused this Certificate to be executed
and delivered by its duly Authorized Officer this ____ day of ____________,
____.
BEST LOCK CORPORATION, an Indiana corporation
By ________________________________
Title:
2
<PAGE> 169
ATTACHMENT
<TABLE>
<S> <C>
Estimated Funded Febt $33,000.00
EBITDA @ 12-31-97
Net Income 5,765,944
Depreciation and Amortization 5,661,014
Interest Expense 930,308
Provision for Income Tax 4,922,030
-----------
$17,279,296
===========
A / B = 1.9098
</TABLE>
3
<PAGE> 170
EXHIBIT K TO CREDIT AGREEMENT
BORROWING BASE CERTIFICATE
----------------------
(Date)
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Todd Lanscioni
Ladies and Gentlemen:
The undersigned hereby certifies that the following computation of the
Borrowing Base, as defined in the Credit Agreement dated as of March ___, 1998
by and among Best Lock Corporation ("Borrower"), the lenders which are parties
thereto and LaSalle National Bank, a national banking association, as the
Issuing Bank and as the Agent, together with all extensions, renewals,
amendments, restatements, substitutions and replacements thereto and thereof
(the "Credit Agreement"), is true and correct as of the date hereof (capitalized
terms used herein shall have the meaning ascribed to them in the Credit
Agreement):
1. Accounts of Borrower as of today's date: $
----------------
2. Accounts of Borrower not deemed to be $
Qualified Accounts of Borrower as of today's ----------------
date (Attach listing and reason for
disqualification):
3. Qualified Accounts as of today's date $
(item 1 minus item 2) ----------------
3a. 85% of Qualified Accounts as of $
today's date (85% of item 3) ----------------
4. Book Value of Inventory of Borrower $
----------------
5. Book Value of Inventory of Borrower not $
deemed to be Qualified Inventory of Borrower ----------------
as of today's date (Attach listing and reason
for disqualification):
<PAGE> 171
6. Qualified Inventory as of today's date $
(item 4 minus item 5) ----------------
6a. 40% of Qualified Inventory as of today's date $
(40% of item 6, not to exceed $10,000,000) ----------------
7. Borrowing Base (item 3a plus item 6a) $
(not to exceed $28,000,000 minus any reductions ----------------
pursuant to Section 2.1c of the Credit Agreement)
8. Outstanding advances of Revolving Credit Loans $
----------------
9. Commercial Letters of Credit $
--------------
Standby Letters of Credit $
--------------
Other $ $
-------------- ---------------
10. Available Revolving Credit Loans
(item 7 minus items 8 and 9) $
---------------
The undersigned further certifies and warrants that no Default or Event
of Default is existing on the date of this certificate. The undersigned is
executing this certificate on behalf of the Borrower.
Very truly yours,
---------------------------------
Name:
Title:
- 2 -
<PAGE> 172
EXHIBIT L TO CREDIT AGREEMENT
CLOSING CERTIFICATE
----------------------
(Date)
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Todd Lanscioni
Ladies and Gentlemen:
This Closing Certificate is delivered to you pursuant to the Credit
Agreement dated as of March ___, 1998 by and among Best Lock Corporation
("Borrower"), the lenders which are parties thereto and LaSalle National Bank, a
national banking association, as the Issuing Bank and as the Agent, together
with all extensions, renewals, amendments, restatements, substitutions and
replacements thereto and thereof (the "Credit Agreement"). Unless otherwise
defined herein, capitalized terms used herein have the meanings provided in the
Credit Agreement.
The Borrower hereby certifies and warrants that on the date hereof
after giving effect to the making of the Loans:
(a) No Default or Event of Default has occurred and is
continuing or will result from the borrowing of the Loans.
(b) The representations and warranties of the Borrower
contained in the Credit Agreement are true and correct with the same
effect as though made on the date hereof (except to the extent such
representations and warranties expressly refer to an earlier date).
(c) Since ______________ , there has been no change which has
had or will have a material adverse effect on the business, operations,
properties, condition (financial or otherwise) or prospects of
Borrower.
(d) No consents, licenses or approvals are required in
connection with the execution, delivery and performance by Borrower or
the validity or enforceability against Borrower of the Credit
Agreement.
<PAGE> 173
-2-
(e) Resolutions of the Board of Directors of the Borrower have
been adopted which authorize the execution, delivery and performance of
the Credit Agreement, and such Resolutions are in full force and
effect.
(f) Borrower is in compliance with all the terms and
provisions set forth in the Credit Agreement and in each of the Loan
Documents on its part to be observed or performed.
(g) The Restructuring Transaction has occurred, and Borrower
is the surviving entity as a result of the mergers, consolidations and
amendments that were a part of the Restructuring Transaction.
<PAGE> 174
- 3 -
The Borrower has caused this Closing Certificate to be executed and
delivered, and the certification and warranties contained herein to be made, by
an Authorized Officer this ___ day of March, 1998.
BEST LOCK CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 175
EXHIBIT N TO CREDIT AGREEMENT
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this "Agreement") is made as
of __________________ __, 199_, by and between ____________________________
("Transferor Lender") and ___________________________________ ("Purchasing
Lender") and acknowledged and consented to by LASALLE NATIONAL BANK, a national
banking association, as agent ("Agent"). All capitalized terms used in this
Agreement and not otherwise defined herein will have the respective meanings set
forth in the Credit Agreement as hereinafter defined.
RECITALS:
WHEREAS, Best Lock Corporation ("Borrower"), Agent, LaSalle National
Bank as Issuing Bank, Transferor Lender and other Persons parties thereto as
Lenders have entered into that certain Credit Agreement dated as of March 24,
1998 (as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement") pursuant to which Transferor Lender has agreed to
make certain Loans to, and incur certain Letter of Credit obligations for,
Borrower;
WHEREAS, Transferor Lender desires to assign to Purchasing Lender
[all/a portion] of its interest in the Loans (as described below), the Letter of
Credit obligations and the Collateral and to delegate to Purchasing Lender
[all/a portion] of its Commitments and other duties with respect to such Loans,
Letter of Credit obligations and Collateral;
WHEREAS, Purchasing Lender desires to become a Lender under the Credit
Agreement and to accept such assignment and delegation from Transferor Lender;
and
WHEREAS, Purchasing Lender desires to appoint Agent to serve as agent
for Purchasing Lender under the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions, and covenants herein contained, Transferor Lender and Purchasing
Lender agree as follows:
1. ASSIGNMENT, DELEGATION AND ACCEPTANCE
1.1 Assignment. Transferor Lender hereby transfers and assigns to
Purchasing Lender, without recourse and without representations or warranties of
any kind (except as set forth in Section 3.2), [all/such percentage] of
Transferor Lender's right, title, and interest in [the Revolving Loan], [Term
Loan], [Letter of Credit obligations], Loan Documents and Collateral as will
result in Purchasing Lender having as of the Transfer Effective Date (as
hereinafter defined) a Pro Rata Share thereof, as follows:
<PAGE> 176
PURCHASING LENDER'S LOANS PRINCIPAL AMOUNT PRO RATA SHARE
------------------------- ---------------- --------------
Revolving Loan $ %
------------------- ---------
Term Loan $ %
------------------- ---------
1.2. DELEGATION. Transferor Lender hereby irrevocably assigns and
delegates to Purchasing Lender [all/a portion] of its Commitments and its other
duties and obligations as a Lender under the Loan Documents equivalent to
[100%/_____%] of Transferor Lender's Revolving Loan Commitment (such percentage
representing a commitment of $__________), and [100%/_____%] of Transferor
Lender's Term Loan Commitment (such percentage representing a commitment of
$______).
1.3. ACCEPTANCE BY PURCHASING LENDER. By its execution of this
Agreement, Purchasing Lender irrevocably purchases, assumes and accepts such
assignment and delegation and agrees to be a Lender with respect to the
delegated interest under the Loan Documents and to be bound by the terms and
conditions thereof. By its execution of this Agreement, Transferor Lender
agrees, to the extent provided herein, to relinquish its rights and be released
from its obligations and duties under the Credit Agreement.
1.4. TRANSFER EFFECTIVE DATE. Such assignment and delegation by
Transferor Lender and acceptance by Purchasing Lender will be effective and
Purchasing Lender will become a Lender under the Loan Documents as of [the date
of this Agreement] ("Transfer Effective Date") and upon payment of the Assigned
Amount and the Assignment Fee (as each term is defined below). [Interest and
Fees accrued prior to the Transfer Effective Date are for the account of
Transferor Lender.]
2. INITIAL PAYMENT AND DELIVERY OF NOTES
2.1. PAYMENT OF THE ASSIGNED AMOUNT. Purchasing Lender will pay to
Transferor Lender, in immediately available funds, not later than 12:00 noon
(New York time) on the Transfer Effective Date, an amount equal to its Pro Rata
Share of the then outstanding principal amount of the Loans as set forth above
in Section 1.1 [together with accrued interest, fees and other amounts as set
forth on Schedule 2.1] (the "Assigned Amount").
2.2. PAYMENT OF ASSIGNMENT FEE. Transferor Lender will pay to Agent,
for its own account in immediately available funds, not later than 12:00 noon
(Chicago time) on the Transfer Effective Date, the assignment fee in the amount
of $3,500 (the "Assignment Fee") as required pursuant to Section 10.5a(v) of the
Credit Agreement.
2.3. EXECUTION AND DELIVERY OF NOTES. Following payment of the Assigned
Amount and the Assignment Fee, Transferor Lender will deliver to Agent the Notes
previously delivered to Transferor Lender for redelivery to Borrower and Agent
will obtain from Borrowers for delivery to [Transferor Lender and] Purchasing
Lender, new executed Notes
- 2 -
<PAGE> 177
evidencing Purchasing Lender's [and Transferor Lender's respective] Pro Rata
Share[s] in the Loans after giving effect to the assignment described in Section
1. Each new Note will be issued in the aggregate maximum principal amount of the
[applicable] Commitment [of the Lender to whom such Note is issued] OR [the
Purchasing Lender].
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1. PURCHASING LENDER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
Purchasing Lender hereby represents, warrants and covenants the following to
Transferor Lender and Agents:
(a) This Agreement is a legal, valid and binding agreement of
Purchasing Lender, enforceable according to its terms;
(b) The execution and performance by Purchasing Lender of its
duties and obligations under this Agreement and the Loan Documents will
not require any registration with, notice to, or consent or approval by
any Governmental Authority;
(c) Purchasing Lender is familiar with transactions of the
kind and scope reflected in the Loan Documents and in this Agreement;
(d) Purchasing Lender has made its own independent
investigation and appraisal of the financial condition and affairs of
Borrower, has conducted its own evaluation of the Loans and Letter of
Credit obligations, the Loan Documents and Borrower's creditworthiness,
has made its decision to become a Lender to Borrower under the Credit
Agreement independently and without reliance upon Transferor Lender or
Agent, and will continue to do so;
(e) Purchasing Lender is entering into this Agreement in the
ordinary course of its business, and is acquiring its interest in the
Loans and Letter of Credit obligations for its own account and not with
a view to or for sale in connection with any subsequent distribution;
provided, however, that at all times the distribution of Purchasing
Lender's property shall, subject to the terms of the Credit Agreement,
be and remain within its control;
(f) No future assignment or participation granted by
Purchasing Lender pursuant to Section 10.5a or Section 10.6a of the
Credit Agreement will require Transferor Lender, Agent, or Borrower to
file any registration statement with the Securities and Exchange
Commission or to apply to qualify under the blue sky laws of any state;
(g) Purchasing Lender has no loans to, written or oral
agreements with, or equity or other ownership interest in Borrower;
- 3 -
<PAGE> 178
(h) Purchasing Lender will not enter into any written oral
agreement with, or acquire any equity or other ownership interest in,
Borrower without the prior written consent of Agent; and
(i) As of the Transfer Effective Date, Purchasing Lender (i)
is entitled to receive payments of principal and interest in respect of
the Obligations without deduction for or on account of any taxes
imposed by the United States of America or any political subdivision
thereof, (ii) is not subject to capital adequacy or similar
requirements under Section 2.7 of the Credit Agreement, (iii) does not
require the payment of any increased costs under Section 2.4f of the
Credit Agreement, and (iv) is not unable to fund LIBOR Loans under
Section 2.4e of the Credit Agreement, and Purchasing Lender will
indemnify Agent from and against all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, or expenses that
result from Purchasing Lender's failure to fulfill its obligations
under the terms of Sections 2.1b, 2.2e and 2.3b of the Credit Agreement
or from any other inaccuracy in the foregoing.
3.2. TRANSFEROR LENDER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
Transferor Lender hereby represents, warrants and covenants the following to
Purchasing Lender:
(a) Transferor Lender is the legal and beneficial owner of
the Assigned Amount;
(b) This Agreement is a legal, valid and binding agreement of
Transferor Lender, enforceable according to its terms;
(c) The execution and performance by Transferor Lender of its
duties and obligations under this Agreement and the Loan Documents will
not require any registration with, notice or consent or approval by any
Governmental Authority;
(d) Transferor Lender has full power and authority, and has
taken all action necessary to execute and deliver this Agreement and to
fulfill the obligations hereunder and to consummate the transactions
contemplated hereby;
(e) Transferor Lender is the legal and beneficial owner of
the interests being assigned hereby, free and clear of any adverse
claim, lien, encumbrance, security interest, restriction on transfer,
purchase option, call or similar right of a third party; and
(f) This Assignment by Transferor Lender to Purchasing Lender
complies, in all material respects, with the terms of the Loan
Documents.
- 4 -
<PAGE> 179
4. LIMITATIONS OF LIABILITY
Neither Transferor Lender (except as provided in Section 3.2) nor any
Agent makes any representations or warranties of any kind, nor assumes any
responsibility or liability whatsoever, with regard to (a) the Loan Documents or
any other document or instrument furnished pursuant thereto or the Loans, Letter
of Credit obligations or other Obligations, (b) the creation, validity,
genuineness, enforceability, sufficiency, value or collectibility of any of
them, (c) the amount, value or existence of the Collateral, (d) the perfection
or priority of any Lien upon the Collateral, or (e) the financial condition of
Borrower or other obligor or the performance or observance by Borrower of its
obligations under any of the Loan Documents. Neither Transferor Lender nor any
Agent has or will have any duty, either initially or on a continuing basis, to
make any investigation, evaluation, appraisal of, or any responsibility or
liability with respect to the accuracy or completeness of, any information
provided to Purchasing Lender which has been provided to Transferor Lender or
any Agent by Borrower. Nothing in this Agreement or in the Loan Documents shall
impose upon the Transferor Lender or any Agent any fiduciary relationship in
respect of the Purchasing Lender.
5. FAILURE TO ENFORCE
No failure or delay on the part of any Agent or Transferor Lender in
the exercise of any power, right, or privilege hereunder or under any Loan
Document will impair such power, right, or privilege or be construed to be a
waiver of any default or acquiescence therein. No single or partial exercise of
any such power, right, or privilege will preclude further exercise thereof or of
any other right, power, or privilege. All rights and remedies existing under
this Agreement are cumulative with, and not exclusive of, any rights or remedies
otherwise available.
6. NOTICES
Unless otherwise specifically provided herein, any notice or other
communication required or permitted to be given will be in writing and addressed
to the respective party as set forth below its signature hereunder, or to such
other address as the party may designate in writing to the other.
7. AMENDMENTS AND WAIVERS
No amendment, modification, termination, or waiver of any provision of
this Agreement will be effective without the written concurrence of Transferor
Lender, Agent, Purchasing Lender and, provided no Event of Default has occurred
and is continuing under the Credit Agreement, Borrower.
- 5 -
<PAGE> 180
8. SEVERABILITY
Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law. In the event
any provision of this Agreement is or is held to be invalid, illegal, or
unenforceable under applicable law, such provision will be ineffective only to
the extent of such invalidity, illegality, or unenforceability, without
invaliding the remainder of such provision or the remaining provisions of the
Agreement. In addition, in the event any provision of or obligation under this
Agreement is or is held to be invalid, illegal, or unenforceable in any
jurisdiction, the validity, legality, and enforceability of the remaining
provisions or obligations in any other jurisdictions will not in any way be
affected or impaired thereby.
9. SECTION TITLES
Section and Subsection titles in this Agreement are included for
convenience of reference only, do not constitute a part of this Agreement for
any other purpose, and have no substantive effect.
10. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
11. APPLICABLE LAW
THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE.
12. COUNTERPARTS
This Agreement and any amendments, waivers, consents, or supplements
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which, when so executed and delivered, will be
deemed an original and all of which shall together constitute one and the same
instrument.
[SIGNATURE PAGE FOLLOWS]
- 6 -
<PAGE> 181
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
PURCHASING LENDER: TRANSFEROR LENDER:
- ------------------------------- -----------------------------
By: By:
---------------------------- --------------------------
Title: Title:
------------------------- -----------------------
Notice Address: Notice Address:
- ------------------------------- ------------------------------
- ------------------------------- ------------------------------
- ------------------------------- ------------------------------
Attention: Attention:
--------------------- --------------------
Telecopy: Telecopy:
---------------------- ---------------------
ACKNOWLEDGED AND CONSENTED TO:
LASALLE NATIONAL BANK, as Agent
By:
----------------------------
Title:
-------------------------
BEST LOCK CORPORATION, an Indiana corporation
By:
----------------------------
Title:
-------------------------
- 7 -
<PAGE> 182
SCHEDULE 2.1
Transferor Lender's Loans
Principal Amount
- ----------------
Revolving Loan $
-----------------------
Term Loan $
-----------------------
Subtotal $
-----------------------
Accrued Interest $
-----------------------
Unused Line Fees $
-----------------------
Letter of Credit Fees $
-----------------------
Other + or - $
-----------------------
Total $
=======================
All determined as of the Transfer Effective Date.
- 8 -
<PAGE> 1
EXHIBIT (c)(3)
AMENDMENT NUMBER TWO TO
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NUMBER TWO TO AMENDED AND RESTATED AGREEMENT AND PLAN
OF MERGER (this "Amendment") is made and entered into as of this 10th day of
March, 1998, by and among Frank E. Best, Inc., a Delaware corporation ("FEB"),
Best Universal Lock Co., 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").
R E C I T A L S
A. The Companies, the Merger Subs and Webco previously entered
into an Amended and Restated Agreement and Plan of Merger, dated as of December
1, 1997, which was amended on January 29, 1998 (as so amended, the "Merger
Agreement"), pursuant to which, among other things, W1 will be merged with and
into FEB, W2 will be merged with and into BUL and W3 will be merged with and
into BLC.
B. The Companies, the Merger Subs and Webco have determined that
there are certain typographical errors in the Exhibits to the Merger Agreement
and desire to amend the Merger Agreement as specifically provided for herein to
correct such errors.
C. NOW, THEREFORE, in consideration of the mutual promises and
agreements of the parties set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
AGREEMENTS
1. Amendments. Exhibits A-1, A-2 and A-3 to the Merger Agreement
are hereby deleted and replaced in their entirety by Exhibits A-1, A-2 and A-3,
attached hereto.
2. Merger Agreement in Full Force. Except as herein amended, the
Merger Agreement shall remain unchanged and in full force and effect and is
hereby satisfied, approved and confirmed in all respects.
3. References. After the date hereof, all references in the
Merger Agreement to "Agreement", "hereof", "herein", or similar terms shall
refer to the Merger Agreement as amended hereby.
4. Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of the Companies, the Merger Subs, Webco and their
respective successors and assigns.
5. Governing Law. This Amendment shall be governed by and in
accordance with the internal laws, and not the laws of conflict, of the State
of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, Webco, the Merger Subs and the Companies have
caused this Amendment to be signed 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 CO.
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
-2-
<PAGE> 3
EXHIBIT A-1
The Certificate of Incorporation of Frank E. Best, Inc. shall be
amended in its entirety 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. Name and Address of Incorporator. The name and address of the
incorporator of the Corporation is Gregg A. Dykstra, 6161 E. 75th Street,
Indianapolis, Indiana 46250.
<PAGE> 4
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;
-2-
<PAGE> 5
(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 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
-3-
<PAGE> 6
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.
-4-
<PAGE> 7
EXHIBIT A-2
The Certificate of Incorporation of Best Universal Lock Co. shall be
amended in its entirety as follows:
1. Corporate Name. The name of the corporation (hereinafter, the
"Corporation") is Best Universal Lock Co.
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. Name and Address of Incorporator. The name and address of the
incorporator of the Corporation is Gregg A. Dykstra, 6161 E. 75th Street,
Indianapolis, Indiana 46250.
<PAGE> 8
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;
-2-
<PAGE> 9
(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 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
-3-
<PAGE> 10
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.
-4-
<PAGE> 11
EXHIBIT A-3
The Restated Certificate of Incorporation of Best Lock
Corporation shall be amended in its entirety as follows:
1. Corporate Name. The name of the corporation
(hereinafter, the "Corporation") is Best Lock Corporation.
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. 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
<PAGE> 12
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;
-2-
<PAGE> 13
(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 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
-3-
<PAGE> 14
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.
6. 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.
7. 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.
8. 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 8.
-4-
<PAGE> 1
FRANK E. BEST, INC.
BEST UNIVERSAL LOCK CO.
BEST LOCK CORPORATION
8900 KEYSTONE CROSSING
INDIANAPOLIS, INDIANA 46240
March 2, 1998
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 Amended and Restated
Agreement and Plan of Merger, dated as of December 1, 1997, as further amended
on January 29, 1998, by and among FEB, BUL, BLC, W1, W2, W3 and Walter E. Best
Company, Inc. ("Webco"), a complete copy of which is attached as Annex A to the
Information Statement (as so amended, 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.
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 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) $53.61 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.
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
<PAGE> 2
FEB, BUL and BLC. In arriving at their determinations, 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 March 23, 1998. No further notice of the occurrence of
the Effective Time will be given except that each Company will send notice of
the Effective Time within ten days 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,
RUSSELL C. BEST
Russell C. Best,
Chief Executive Officer and President
Frank E. Best, Inc.
Best Universal Lock Co.
Best Lock Corporation
<PAGE> 3
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
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................ 1
AVAILABLE INFORMATION....................................... 4
SUMMARY..................................................... 5
The Companies, Webco and the Merger Subs.................. 5
Frank E. Best, Inc..................................... 5
Best Universal Lock Co................................. 5
Best Lock Corporation.................................. 5
Webco and the Merger Subs.............................. 5
The Mergers............................................... 6
General................................................ 6
Effective Time......................................... 7
Conditions to Consummation of the Mergers.............. 7
Background of the Mergers.............................. 7
Financial Advisor; Determination of Values; Fairness
Opinions.............................................. 7
Determinations of the Boards; Fairness of the
Mergers............................................... 8
Conflicts of Interest.................................. 8
Purpose and Structure of the Mergers................... 8
Plans for the Companies After the Mergers.............. 9
Interests of Certain Persons in the Mergers............ 9
Federal Income Tax Consequences........................ 9
Source and Amount of Funds................................ 9
Stockholders' Rights of Appraisal......................... 9
Market Prices and Dividends............................... 9
SELECTED FINANCIAL DATA..................................... 10
SPECIAL FACTORS............................................. 13
Background of the Mergers................................. 13
Financial Advisor; Determination of Values; Fairness
Opinions............................................... 15
Valuation of BLC....................................... 17
Comparable Public Company Analysis................... 17
Comparable Acquisitions Transactions Analysis........ 17
Discounted Cash Flow Analyses of BLC................. 18
Determination of Range of Values....................... 18
Deemed Sale Model.................................... 18
Long-Term Dividend Model............................. 19
Premium Analysis....................................... 19
Historical Stock Price Analyses...................... 19
Premiums in Selected Minority Interest
Transactions........................................ 19
Other Factors.......................................... 20
Compensation........................................... 20
Determinations of the Boards; Fairness of the Mergers..... 21
Reasons for the Boards' Determination.................. 21
Purpose and Structure of the Mergers...................... 23
Certain Effects of the Mergers............................ 24
FEB, BUL, BLC and Webco................................ 24
Stockholders........................................... 24
Plans for the Companies after the Mergers................. 25
Interests of Certain Persons in the Mergers............... 25
General................................................ 25
Employment Agreements.................................. 25
Indemnification........................................ 26
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Stock Bonus Plan Participants............................. 26
Certain Federal Income Tax Consequences to Stockholders... 26
Accounting Treatment of the Mergers....................... 27
SOURCE AND AMOUNT OF FUNDS.................................. 27
STOCKHOLDERS' RIGHTS OF APPRAISAL........................... 28
THE MERGER AGREEMENT........................................ 31
Effective Time............................................ 31
Merger Consideration; Conversion of Shares................ 31
Procedure for Payment..................................... 31
Dissenter's Rights........................................ 32
Certain Representations and Warranties.................... 32
The Companies.......................................... 32
Webco.................................................. 32
Conduct of Business Pending the Closing................... 33
Certain Other Covenants................................... 33
Further Action; Reasonable Efforts..................... 33
Action by Written Consent; Information Statement....... 33
Publicity.............................................. 33
Indemnification........................................ 33
Conditions to Consummation of the Mergers................. 33
Termination............................................... 34
Miscellaneous............................................. 34
Fees and Expenses...................................... 34
Amendment; Waiver; Termination......................... 34
REGULATORY MATTERS.......................................... 34
CERTAIN INFORMATION CONCERNING THE COMPANIES................ 34
Frank E. Best, Inc. ................................... 34
Best Universal Lock Co. ............................... 35
Best Lock Corporation.................................. 35
DIRECTORS AND EXECUTIVE OFFICERS............................ 36
CERTAIN INFORMATION CONCERNING WEBCO AND THE MERGER SUBS.... 37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 37
FEES AND EXPENSES........................................... 38
MARKET PRICES AND DIVIDENDS................................. 39
Market Prices............................................. 39
Dividends................................................. 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 43
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<PAGE> 6
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
February 27, 1998 (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 Amended and Restated
Agreement and Plan of Merger, dated as of December 1, 1997, as further amended
on January 29, 1998, by and among FEB, BUL, BLC, W1, W2, W3 and Walter E. Best
Company, Inc., an Indiana corporation ("Webco"), a complete copy of which is
attached hereto as Annex A (as so amended, 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 March 2, 1998.
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").
(continued on next page)
The date of this Information Statement is March 2, 1998.
<PAGE> 7
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 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) $53.61 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. 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. See "SPECIAL FACTORS -- Interests of
Certain Persons in the Mergers." In arriving at their determinations, 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 March 23, 1998. No further notice of
the occurrence of the Effective Time will be given except that each Company will
send notice of the Effective Time within ten days after the Effective Time.
(continued on next page)
2
<PAGE> 8
As of February 27, 1998, 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 575 record holders, 86,469 shares of BULA Common Stock held by 709
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 193 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.
3
<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 of such exhibits may be
inspected and copied at the principal executive offices of the Companies at 8900
Keystone Crossing, Indianapolis, Indiana 46240 during regular business hours by
any stockholder of any of the Companies or their representative who has been so
designated in writing.
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.
4
<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, 1997 of approximately 480
production and maintenance employees and 743 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
5
<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. Although the Merger Consideration is expressed as fractional shares of
New Common Stock, as a result of the Mergers each stockholder (other than Mr.
Best (with respect to his shares of FEB Common Stock only), Webco and the
Companies) will receive cash in lieu of such fractional shares, all as more
fully 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.
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) $53.61 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."
The Companies estimate that the Unaffiliated Stockholders of each of FEB,
BUL and BLC will receive aggregate consideration of approximately $7.1 million,
$6.8 million and $12.3 million, respectively.
6
<PAGE> 12
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 March 23, 1998. No further notice of the
occurrence of the Effective 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 initially limited
its review to deriving a range of equity values for 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 then 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 in the analyses it performed to derive ranges of
appropriate values of each Company's Common Stock. For a discussion of the
analyses performed and 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." Piper Jaffray presented its
recommended range of appropriate values for each of the Companies' Common Stock
to the Boards on December 1, 1997. 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
7
<PAGE> 13
to such stockholders (other than the Affiliated Stockholders) from a financial
point of view. On January 29, 1998, the Companies and Webco agreed to increase
the cash consideration to be received by a holder of a share of FEB Common Stock
in the Mergers. Piper Jaffray was advised of the increase in the cash
consideration and confirmed to the Boards that such increase did not affect its
opinions that the consideration to be received by the holders of Common Stock
pursuant to the Mergers 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."
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" and "-- Interests
of Certain Persons in the Mergers." On January 29, 1998, the FEB Board of
Directors determined and the other Companies and Webco agreed that the cash
consideration to be paid to a holder of a share of FEB Common Stock should be
increased to $53.61 so that the cash consideration to be received by such holder
would be not less than the per share amount Webco paid for shares of FEB Common
Stock in August 1997. See "SPECIAL FACTORS -- Interests of Certain Persons in
the Mergers" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
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. Combined, Mr. and Mrs.
Best beneficially own, 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
twelve-month average last bid prices of the Companies' Common Stock prior to the
announcement date of the transactions (although such acquisition prices
represent less of a premium (and in the case of the FEB Common Stock, a slight
discount) to the more recent historical trading prices). 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."
8
<PAGE> 14
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 "-- 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."
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 (each, a
"Dissenting Stockholder") 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 "SPECIAL FACTORS -- Interests of Certain Persons in the Mergers"
and "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 (discount) of approximately (a) (2)%, 145%
and 102% to the last 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) 88%, 215% and 232% to the twelve-month average last bid
prices of the FEB Common Stock, BULA Common Stock and BLC Common Stock,
respectively. On February 26, 1998, the last trading day before printing of this
Information Statement, the last bid price of the Common Stock of each of the
Companies was $53.54, $120.75 and $523.00, 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."
9
<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...................... 73.44 57.79 61.83 54.83 46.86 45.60 44.82
</TABLE>
10
<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 and BUL 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....................... 81.45 62.74 65.85 60.11 93.82 91.29 89.35
</TABLE>
11
<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
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...................... 328.56 267.16 276.38 257.14 380.75 370.01 362.01
</TABLE>
12
<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 (such as the inability to access the capital markets, the small
public float and the need to have appraisals performed periodically because of
the inefficiency of the public market with respect to the Common Stock) 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. For example, Assa
Abloy AB, which owns Arrow Lock Manufacturing Company, Sargent Manufacturing
Company and VingCard Systems, Inc.; Unican Security Systems Ltd., which owns
Ilco Unican Inc. and Ilco Unican Corp.; and Harrow Industries, which owns
Locknetics Security Engineering are all privately-held competitors of the
Companies that are not subject to the public disclosure obligations imposed by
the Exchange Act. In addition, Williams Holdings PLC, which owns Corbin Russwin,
Inc., and Yale Security, Inc.; Ingersoll-Rand Company, which owns Von Duprin and
Schlage Lock Company; Hillenbrand Industries, Inc., which owns Medeco Security
Locks; and Masco Corporation, which owns Falcon Locks are all publicly-held
competitors of the Companies subject to the public disclosure obligations
imposed by the Exchange Act. However, the publicly-held competitors are larger
and more diversified in their product lines than the Companies. As a result, in
the publicly-held competitors' public disclosures the access control products
segment is typically grouped together with other products such that specific
information regarding access control products is not disclosed separately.
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. 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,
13
<PAGE> 19
from a financial point of view, to the Company's Unaffiliated Stockholders.
Specifically, Piper Jaffray was engaged to establish a range of appropriate
values for the Common Stock of each of the Companies from which the respective
Boards could select the consideration to be paid to the stockholders of each
Company. In establishing the ranges of appropriate values for the Companies'
Common Stock, Piper Jaffray was aware how the ranges could be used by the Boards
in selecting the consideration to be received by their respective 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.
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 equity values of BLC and subsequently the range of appropriate
values to be paid in a transaction involving the Common Stock of BLC, BUL and
FEB. As discussed in more detail below in "-- Financial Advisor; Determination
of Values; Fairness Opinions," Piper Jaffray's initial report provided an
analysis of the Companies' complex organizational structure, valuations of BLC's
equity value using three different valuation methodologies, a weighted,
composite determination of BLC's total equity value and, based on the total
equity value of BLC, recommended ranges of appropriate values of each Company's
Common Stock to be paid as cash consideration in the Mergers. During its
presentation, Piper Jaffray made several oral revisions to its preliminary
report to correct certain errors in the printed materials. On August 26, 1997
Piper Jaffray presented a report to be used by the Boards in connection with a
transaction between Webco and BLC pursuant to which Webco purchased 23,000
shares of FEB from BLC at $53.61 per share for aggregate consideration of
$1,233,030. See "-- Interests of Certain Persons in the Mergers" and "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." The methodology of the report was
substantially similar to the preliminary report but modified the allocation of
the distribution of income to the partners of BLP (as defined) based on revised
information from the Companies, updated stockholder ownership data as a result
of the Webco purchase and provided an analysis of the Companies' Common Stock
both before and after the sale.
During the months of September, October and November, Piper Jaffray had
numerous lengthy telephonic discussions with the Boards and their tax and legal
counsel. During this period Piper Jaffray further refined its financial models
and projections and, at a meeting on December 1, 1997, Piper Jaffray delivered
its final presentation to the Boards as to the appropriate range of values for
the Common Stock of each of the Companies. The methodology of Piper Jaffray's
final report was substantially similar to its August 12th report but included
updated market data, BLC's financial information and stockholder ownership data,
made revisions to the printed preliminary presentation materials to correct
certain errors and modified the Deemed Sale Model (discussed below) by
allocating the control premium attributable to a sale of BLC solely to BUL. 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
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<PAGE> 20
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).
On January 29, 1998, the FEB Board of Directors determined and the other
Companies and Webco agreed that the cash consideration to be received by a
holder of a share of FEB Common Stock in the Mergers should be increased to
$53.61 so that the cash consideration to be received by such holder would be not
less than the amount per share that Webco paid for shares of FEB Common Stock in
August 1997. See "-- Interests of Certain Persons in the Mergers" and "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." Accordingly, on January 29, 1998, the
Companies and Webco amended the Merger Agreement increasing to $53.61 the cash
consideration to be received by the holder of a share of FEB Common Stock in the
Mergers. Piper Jaffray was advised of such increase and confirmed to the Boards
that such increase did not affect its opinions that the cash consideration to be
received by holders of shares of 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. 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 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). Piper Jaffray confirmed that its opinions were
not affected by the increase in consideration to be received by the holders of
FEB Common Stock pursuant to the Merger Agreement. The description of the
analyses provided below pertains solely to the Piper Jaffray Opinions dated
December 1, 1997.
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
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<PAGE> 21
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
2003, 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 of BLC for the years ending December 31, 1997 through 2001;
(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 "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
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<PAGE> 22
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 material 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.
VALUATION OF BLC
As indicated above, Piper Jaffray limited its review and comparisons in the
following subsections 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 flows through dividends
originating from BLC.
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").
The Public Comparables were selected because the companies or divisions of the
companies are involved in the manufacturing of locks, metal products or
commercial building materials, were actively traded and were profitable for at
least the last three years. 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 was then adjusted to
reflect the value which might be obtained in a sale of control of a comparable
company, by increasing the valuation range arrived at in the comparable public
company analysis by approximately 15%. The comparable public company analysis
yielded a valuation range for BLC's equity, as so adjusted, 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, that is, were
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<PAGE> 23
acquisitions of metal or metal products manufacturing companies effected during
the period from January 1994 to December 1997. The comparable 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. The financial planning data prepared by management was
based on the historical financial data of BLC adjusted for extraordinary or
non-recurring items. To derive the financial projections, management then
applied certain assumptions to the historical financial data, as adjusted, such
as: revenue was grown at 10% for 1997 and 7% annually thereafter; cost of goods
sold were held constant at 51% of revenue; and selling, general and
administrative costs were held constant at 40% of revenue. Management used a 10%
growth rate for 1997 based on BLC's year-to-date performance, its internal
industry market analysis and the combined input of its sales force. Management
used a 7% annual growth rate thereafter because management believes that such a
rate more closely reflects BLC's internal growth rate, as determined by
deducting from its historical growth rate the impact of its acquisitions. 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. Piper Jaffray utilized the
weighted average cost of capital method to calculate the discount rate for the
discounted cash flow analysis. The rate of 15% was adjusted by +/-2% for
sensitivity purposes. This analysis yielded a range of estimated equity values
from $41.6 million to $68.9 million with a median of $54.4 million.
DETERMINATION OF RANGE OF VALUES
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. Piper
Jaffray's calculations utilized equity values of $56.0 million, $58.0 million
and $60.0 million for BLC, which Piper Jaffray deemed the appropriate range of
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possible values for BLC after considering the results of the comparable company,
comparable transactions and discounted cash flow analyses, weighting the
discounted cash flow analysis most heavily in light of competitive pressures
facing BLC which were identified by management of BLC and which made the
discounted cash flow analysis more reflective of BLC's likely equity value.
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. Piper Jaffray's calculations
also allocated the "control premium" attributable to a sale of BLC to BUL, which
premium represented approximately 15% of the equity values of $56.0, $58.0 and
$60.0 million, and did not allocate any such premium to any other stockholder of
BLC.
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 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.
PREMIUM ANALYSIS
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 bid price one day and four weeks
prior to the announcement date and the twelve-month average last bid prices for
each of the Companies as set forth below. The following table does not include
the $0.06 increase on January 29, 1998 of the cash consideration to be received
by a holder of a share of FEB Common Stock in the Mergers.
<TABLE>
<CAPTION>
FEB BUL BLC
COMMON STOCK SERIES A STOCK COMMON STOCK
------------ -------------- ------------
<S> <C> <C> <C>
Twelve-Month Average Premium........................ $ 25.01/88% $82.41/215% $367.33/232%
Four-Week Premium (Discount)........................ (14.45)/(21) 74.69/162 283.43/117
One-Day Premium (Discount).......................... (1.2)/(2) 71.44/145 264.93/102
</TABLE>
BULB Common Stock is not publicly traded.
Premiums in Selected Minority Interest Transactions. Piper Jaffray reviewed
certain publicly available information regarding transactions between $10
million and $800 million involving the purchase of a minority interest in which
the acquiror held an existing equity interest in the target of greater than 50%
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,
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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 average twelve-month average bid
price for shares of Common Stock as follows: FEB Common Stock, 88%; BULA Common
Stock, 215%; and BLC Common Stock, 232%. The cash consideration represented
premiums (discounts) over the last bid price for the shares of Common Stock on
November 28, 1997 as follows: FEB Common Stock, (2)%; BULA Common Stock, 145%;
and BLC Common Stock, 102%.
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, except as noted herein 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. See
" -- Determination of Range of Values." 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 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; however, Piper Jaffray's
evaluation of the price ranges were established, at the request of the
Companies, in consultation with the Companies' counsel in terms of valuation
methods employed in appraisal proceedings under Section 262 of the DGCL and
applicable case law.
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
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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, however, see "-- Interests of Certain Persons in the Mergers" for
a discussion of certain actual or potential conflicts of interest both members
of the Boards and certain members of the Companies' management have with respect
to the Mergers. In reaching this conclusion, the Boards considered a number of
factors, including, among other things, the Piper Jaffray Opinions, that, as of
such dates 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 determinations,
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, 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, the purchase
price paid in previous transactions by any of the Companies or Webco, 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) 138%, 245% and 284% to the closing bid price of the
Common Stock of each of FEB, BUL and BLC, respectively, to the day six
months prior to the announcement of the transaction and (b) 88%, 215% and
232% to the twelve-month average last bid 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 the cash
consideration in the Mergers represents significant premiums over the
twelve-month average last bid prices of the Companies' Common Stock and in
each case such premiums are significantly larger than the average premiums
over the twelve-month prior period for the premiums in selected minority
interest transactions. The Boards do not believe that the smaller premiums
(or the existence of slight discounts in the case of the FEB Common Stock)
over the recent closing bid prices of the Common Stock of the
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Companies affect the ultimate determination of fairness of the cash
consideration in the Mergers. The Companies believe that the increase in
the prices of the Common Stock of the Companies (and a corresponding
decrease in the premiums) reflects the public's expectations of a possible
transaction or the public's perception that the Common Stock was
undervalued in the market, rather than a reflection of a change in the
intrinsic value of the Common Stock of the Companies. In particular, with
respect to the discounts in the FEB Common Stock for the one day and four
week comparison, the Boards believe that the filing of an amended Schedule
13D on September 9, 1997 by Mr. Best and Webco in connection with Webco's
purchase of 23,000 shares of FEB common stock from BLC affected the market
price of FEB. The price disclosed in the filing ($53.61 per share) is equal
to the cash consideration to be received by the holder of a share of FEB
Common Stock in the Mergers and represented an approximate 78% premium over
the then market price of FEB Common Stock (approximately $30 per share).
After the filing of the Schedule 13D, the FEB Common Stock quickly traded
up to its current price level, resulting in the elimination of any premium
over the recent bid price. The Boards did not consider a liquidation
valuation a meaningful factor or an effective indicator of the intrinsic
value of the Companies' Common Stock because the Boards believe that the
Companies have greater value as going concerns. The Boards also did not
consider net book value a meaningful factor or an effective indicator of
the intrinsic value of the Companies' Common Stock because net book value
measures historical costs of assets rather than fair market value.
Therefore, the Boards did not consider whether the Unaffiliated
Stockholders would receive more or less than their respective equity
interests in the net book value of the applicable Company.
(e) The availability of a statutory right of appraisal under Section
262 of the DGCL. See "STOCKHOLDERS' RIGHTS OF APPRAISAL."
The foregoing discussion describes the material information and factors
considered by the Boards, however it is not intended to be exhaustive of all
information and factors considered. 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. The Boards determined that the Mergers are fair to the
Unaffiliated Stockholders notwithstanding the fact that they did not (i) retain
an unaffiliated representative to act solely on behalf of the 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, both of which are devices
frequently employed in similar transactions. In particular, the Boards'
determination that the Mergers are fair to the Unaffiliated Stockholders relied
on the opinions of their independent financial advisor, Piper Jaffray, that the
cash consideration to be received by the Unaffiliated Stockholders is fair from
a financial point of view.
The Companies engaged Piper Jaffray to present to the Boards ranges of
appropriate values for each of the Companies' Common Stock. See "-- Financial
Advisor; Determination of Values; Fairness Opinions." The Boards then selected
as the Merger Consideration 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. On January 29, 1998, the Boards and Webco increased the amount of the
cash consideration to be received by a holder of a share of FEB Common Stock in
the Mergers so that the cash consideration to be received by such holder would
be not less than the per share amount paid by Webco to BLC for shares of FEB
Common Stock in August 1997. See "-- Interests of Certain Persons in the
Mergers"
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and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." 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, however, see "-- Interests of Certain Persons in the
Mergers" for a discussion of certain actual or potential conflicts of interest
both members of the Boards and certain members of the Companies' management have
with respect to the Mergers. The Boards believe the Mergers are procedurally
fair because the Boards determined to engage an independent financial advisor to
provide ranges of appropriate values for the Companies' Common Stock in the
manner discussed above rather than the traditional method of having a company
identify a purchase price and having such an independent financial advisor opine
solely as to its fairness. In addition, the Companies structured the transaction
in a way to ensure that the Unaffiliated Stockholders of each Company would have
dissenter's rights under Delaware law (as compared to accomplishing a similar
transaction via a reverse stock split which would not have provided stockholders
with the ability to have their shares appraised).
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 (such as the inability to access the capital markets, the small
public float and the need to have appraisals performed periodically because of
the inefficiency of the public market with respect to the Common Stock) 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. For example, Assa Abloy AB, which
owns Arrow Lock Manufacturing Company, Sargent Manufacturing Company and
VingCard Systems, Inc.; Unican Security Systems Ltd., which owns Ilco Unican
Inc. and Ilco Unican Corp.; and Harrow Industries, which owns Locknetics
Security Engineering are all privately-held competitors of the Companies that
are not subject to the public disclosure obligations imposed by the Exchange
Act. In addition, Williams Holdings PLC, which owns Corbin Russwin, Inc. and
Yale Security, Inc.; Ingersoll-Rand Company, which owns Von Duprin and Schlage
Lock Company, Hillenbrand Industries, Inc., which owns Medeco Security Locks;
and Masco Corporation, which owns Falcon Locks are all publicly-held competitors
of the Companies subject to the public disclosure obligations imposed by the
Exchange Act. However, the publicly-held competitors are larger and more
diversified in their product lines than the Companies. As a result, in the
publicly-held competitors public disclosures the access control products segment
is typically grouped together with other products such that specific information
regarding access control products is not disclosed separately.
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
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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,
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 (the "Subsequent Mergers"). Immediately following the
Subsequent Mergers, Webco will be wholly owned by Mr. and Mrs. Best.
Accordingly, subject to applicable law and contractual limitations, if any, Mr.
Best (who owns all of the voting shares of Webco) will be able to distribute, by
way of dividend, loan or otherwise, some or all of the assets of the Companies,
or otherwise make use of such assets, as Mr. Best in his sole discretion
determines. In addition, Mr. and Mrs. Best, as stockholders of Webco, will
acquire the entire interest in the net book value of the Companies, which at the
end of the 1996 fiscal year were $17.3 million, $23.7 million, and $33.3 million
for FEB, BUL and BLC, respectively and will acquire the entire interest in the
net earnings of the Companies, which at the end of the 1996 fiscal year were
$2.5 million, $2.9 million, and $3.5 million for FEB, BUL and BLC, respectively.
However, as a result of the bank financing incurred to accomplish the Mergers
and the Subsequent Mergers, Webco, as the ultimate surviving corporation, will
have significant additional debt to service; approximately $30 million of
incremental bank financing, resulting in total bank debt of approximately $40
million.
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. However, such stockholders will
receive cash representing a significant premium to the twelve-month average last
bid prices of the Common Stock (although such amounts represent less of a
premium (and in the case of the FEB Common Stock, a slight discount) to the more
recent historical trading prices) which such stockholders will then have the
opportunity to invest in other companies if they so choose. Trading in the
shares of Common Stock of each of the Companies will cease immediately following
the Effective Time. Registration of the
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Common Stock of each of the Companies under the Exchange Act also will be
terminated, as will the ongoing disclosure requirements thereunder. Furthermore,
following the Mergers, the Companies will no longer be subject to the short
swing profit provisions of Section 16 of the Exchange Act or the going-private
disclosure obligations of Rule 13e-3.
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 and Webco will consummate the Subsequent Mergers
and Webco, the surviving corporation, 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 Mergers, 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 Mergers), 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 Mergers), 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
Mr. and Mrs. Best, as the only members of the Boards and as members of
management have certain interests in the Mergers that 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 dissolution of BLP, Webco purchased 23,000 shares of FEB
Common Stock from BLC at $53.61 per share 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 in
connection with the Subsequent Mergers. Mr. Best serves on the Board of each of
the Companies, Webco and each of the Merger Subs. In connection with his
employment agreement, Mr. Best borrowed funds from BLC. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
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Following the Mergers and the Subsequent Mergers, Mr. Best, as sole voting
shareholder of Webco, will have the ability, subject to contractual limitations,
to cause his outstanding debt to Webco (as the surviving corporation in the
Subsequent Mergers) to be forgiven. Mr. Best has no current intention to have
such debt forgiven and in the event he does so, any such forgiveness at this
time would be a taxable event for Mr. Best and would reduce the assets of Webco.
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 March 22,
1998. 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 not more 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 portion generally will be subject to
U.S. federal income tax at a rate of 10%). Because the application of the
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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 BASED
ON EXISTING LAW AS OF THE DATE OF THIS INFORMATION STATEMENT AND IS BASED UPON
THE OPINION OF JENNER & BLOCK, SPECIAL COUNSEL TO THE COMPANIES. 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 is 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, however, see "SPECIAL FACTORS --
Interest of Certain Persons in the Mergers" for a discussion of certain actual
or potential conflicts of interest both members of the Boards and certain
members of the Companies' management have in the Mergers. 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 although all material provisions of Section 262 are summarized
herein, 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
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<PAGE> 34
record owner or owners and expressly disclose the fact that, in executing the
demand, the agent is acting as 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 March 22, 1998, 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. The
timely filing of a petition with the Court of Chancery by one stockholder of a
Company will preserve the rights of all other stockholders of such Company who
have otherwise properly perfected their appraisal rights in accordance with
Delaware law. 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
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<PAGE> 35
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 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 March 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) $53.61 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
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<PAGE> 37
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.
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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.
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<PAGE> 39
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 March 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.
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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.
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<PAGE> 41
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, 1997 of approximately 480
production and maintenance employees and 743 office, sales and executive
employees.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is the name, age, business address, present principal
occupation or employment and five-year employment history of each director and
executive officer of the Companies, the Merger Subs and Webco. All directors
serve until the next annual meeting of stockholders or until their successor is
elected and qualified. The business address of each person listed below is 8900
Keystone Crossing, Indianapolis, Indiana 46240. Each named person is a citizen
of the United States.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
- ---- --- ----------------
<S> <C> <C>
Russell C. Best............. 36 Director of each of the Companies, the Merger Subs and
Webco, Chairman of the Board of BLC, President of each of
the Companies, the Merger Subs and Webco, Chief Executive
Officer of the Companies, and Secretary and Treasurer of
each of the Merger Subs.
Mariea L. Best.............. 34 Director of each of the Companies and Webco, Vice President
of FEB, BUL and Webco.
Mark G. Ahearn.............. 43 Secretary of each of the Companies, General Counsel of BLC
Stephen J. Cooper........... 50 Treasurer of each of the Companies
Paula J. Tinkey............. 40 Controller of each of the Companies
</TABLE>
Mr. Best has served each of the Companies as President since 1995, as
Chairman of the Board of BLC since March 1995, as President of BLC since
February 15, 1995, as CEO of BLC since May 1994, as a Director of each of the
Companies since 1991, as President and Director of Webco since 1991, and as
President, Secretary, Treasurer and Director of each of the Merger Subs since
November 14, 1997. Mr. Best
36
<PAGE> 42
also served as Vice President of FEB and BUL from 1990 to 1995 and as Executive
Vice President of BLC from June 1992 to May 1994.
Mrs. Best has served as Vice President of FEB and BUL since 1995, as a
Director of each of the Companies since 1995, and as Vice President and Director
of Webco since 1991. Mrs. Best also served as sole shareholder and President of
Best Event and Travel, Inc. from 1991 to 1994.
Mr. Ahearn has served as General Counsel of BLC since July 1995, as
Secretary of FEB and BUL since April 1996 and as Secretary of BLC since March
1996. Mr. Ahearn also served as Associate Counsel for BLC from April 1994 to
July 1995 and as Staff Attorney for BLC from August 1992 to April 1994.
Mr. Cooper has served each of the Companies as Treasurer since March of
1996. Mr. Cooper also served as Senior Manager of Finance of BLC from June 1992
to March 1996.
Ms. Tinkey has served each of the Companies as Controller since May of
1996. Ms. Tinkey also served as Manager of General Accounting of BLC from June
1992 to May 1996.
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 at $49.71 per share for an aggregate of $882,786 and 65,114
shares of FEB Common Stock at $22.60 per share for an aggregate of $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 at
$30.13 per share for an aggregate of $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.
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 at $53.61 per share 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 December
31, 1997, $3,432,757 was outstanding on the loan including accrued interest.
37
<PAGE> 43
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..................................... $ 350,000
SEC filing fee.............................................. $ 20,288
Accounting fees............................................. $ 300,000
Printing and mailing fees................................... $ 75,000
Miscellaneous expenses...................................... $ 4,712
----------
Total.................................................. $1,200,000
==========
</TABLE>
38
<PAGE> 44
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. 31........................................... 68.00 50.00
</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. 31........................................... 119.75 46.00
</TABLE>
39
<PAGE> 45
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. 31........................................... 525.00 235.00
</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 did not pay
dividends in 1997. The Companies expected that dividends would have been
declared and paid in 1997 and in subsequent years 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) in the absence of the
Mergers. 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.
40
<PAGE> 46
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 31, 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(13)
---------------------------- --------------------------
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)(10)..................... 169,971(3) 56.2% 3(15) 100%
Mariea Best (Director)(10)............ 169,971(4) 56.2 3(15) 100
Gregg A. Dykstra(10)(11).............. 1 * -- --
Best Lock Corporation................. 296,318 --(12) 2 --(12)
All directors and officers as a group
(2 persons)........................ 169,971 56.2 3(15) 100
BEST UNIVERSAL LOCK CO.
BULA COMMON STOCK
Russell C. Best (Director and CEO/
President)(10)..................... 29,390(5) 50.3% 12(14)(16) 100%
Mariea Best (Director)(10)............ 29,390(6) 50.3 12(14)(16) 100
Best Lock Corporation................. 28,073 --(12) 1(14)(16) --(12)
Gregg A. Dykstra(10)(11).............. 1 * -- --
All directors and officers as a group
(2 persons)........................ 29,390 50.3 12(14)(16) 100
BULB COMMON STOCK
Russell C. Best (Director and CEO/
President)(10)..................... 300,000(7) 100% 12(14)(16) 100%
Mariea Best (Director)(10)............ 300,000(7) 100 12(14)(16) 100
All directors and officers as a group
(2 persons)........................ 300,000 100 12(14)(16) 100
BEST LOCK CORPORATION
BLC COMMON STOCK
Russell C. Best (Director and CEO/
President)(10)..................... 107,780(8) 89.3% 8(17) 100%
Mariea Best (Director)(10)............ 107,780(9) 89.3 8(17) 100
Gregg A. Dykstra(10)(11).............. -- -- -- --
All directors and officers as a group
(2 persons)........................ 107,780 89.3 8(17) 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. Pursuant to Rule 13d-4, the filing of this Information Statement
shall not be construed as an admission that any director or officer is the
beneficial owner of any securities covered by the Information Statement.
41
<PAGE> 47
(2) Percent of outstanding shares entitled to vote.
(3) This figure represents Russell C. Best's beneficial ownership (a) 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 and (b) of 1 share owned by Mr.
Best's wife, Mariea Best.
(4) This figure represents Mariea Best's beneficial ownership (a) by virtue of
her power to vote 1 share held in her name and (b) of 169,970 shares
beneficially owned by Mrs. Best's husband, Russell C. Best.
(5) This figure represents Russell C. Best's beneficial ownership (a) 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 and (b) of 1 share owned by Mr. Best's wife, Mariea Best.
(6) This figure represents Mariea Best's beneficial ownership (a) by virtue of
her power to vote 1 share held in her name and (b) of 29,389 shares
beneficially owned by Mariea's husband, Russell C. Best.
(7) This figure represents Russell C. Best's beneficial ownership by virtue of
his power to direct the voting of 300,000 shares held by FEB and Mariea
Best's beneficial ownership of such shares beneficially owned by Mr. Best.
(8) This figure represents Russell C. Best's beneficial ownership (a) 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 and (b) of 1 share owned by Mr. Best's wife,
Mariea Best.
(9) This figure represents Mariea Best's beneficial ownership (a) by virtue of
her power to vote 1 share held in her name and (b) of 107,779 shares
beneficially owned by Mrs. Best's husband, Russell C. Best.
(10) c/o Best Lock Corporation, 8900 Keystone Crossing, Indianapolis, Indiana
46240.
(11) Gregg A. Dykstra resigned as a Director and Vice President of each of the
Companies effective February 17, 1997.
(12) Pursuant to Section 160(c) of the DGCL, these shares are not entitled to
vote.
(13) Assuming consummation of the Mergers.
(14) Represents shares of New BUL Common Stock. BUL will not have more than one
series of common stock.
(15) This figure represents 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 and Mariea Best's beneficial ownership of such
shares beneficially owned by Mr. Best.
(16) This figure represents 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 and Mariea Best's beneficial ownership of such shares
beneficially owned by Mr. Best.
(17) This figure represents 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 and Mariea Best's beneficial ownership of such shares
beneficially owned by Mr. Best.
42
<PAGE> 48
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 PERIOD 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. In
1997, BLC modified the benefits provided employees including a change in
vacation policy, implementation of flexible work hours, conversion of sick days
to paid personal absence, accelerated eligibility for the Company's 401(k)
match, and an enhanced tuition reimbursement plan. Prior to 1997, vacation was
earned in one year and required to be taken in the next. Effective in 1997,
vacation is earned and is required to be taken in the same year. In the
transition to the new policy, employees did not earn vacation benefits in 1997.
The impact of these changes had a favorable impact on margins of $252,000 in the
third quarter. This is a one-time favorable impact on earnings that will not
benefit future periods. The changes to the 401(k) match and tuition
reimbursement plans will be put into effect in the fourth quarter of 1997,
therefore these benefits had no material impact on 1997 earnings but will
increase expense in the future. 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 change in the employee benefits policy, 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.
43
<PAGE> 49
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.
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 employee benefits policy, 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 employee benefits policy,
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
employee benefits policy, 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.
OTHER
BLC has completed its preliminary analysis of its computer software
applications with respect to the coming millenium and ensuring compatibility
with the year 2000. BLC's management has determined that expenditures
specifically related to software modifications for year 2000 compatibility are
not expected to be material.
44
<PAGE> 50
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 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. Amounts expensed associated with
development and installation of new software for the order processing, accounts
payable and general ledger functions decreased $1.9 million from 1995 due to the
substantial completion of the installation of the system 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.
45
<PAGE> 51
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.
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
46
<PAGE> 52
$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.
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.
47
<PAGE> 53
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-19
</TABLE>
BEST UNIVERSAL LOCK CO.
<TABLE>
<S> <C>
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-19
</TABLE>
BEST LOCK CORPORATION
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-16
Consolidated Balance Sheets, September 30, 1997 and December
31, 1996 and 1995......................................... F-17
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-19
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-20
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-21
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-22
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-23
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-25
F-1
<PAGE> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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) (90,391) (8,977,369) --
Shares issued........................ 1,233,030 -- -- --
----------- ----------- ----------- -----------
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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-17
<PAGE> 70
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-18
<PAGE> 71
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-19
<PAGE> 72
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-20
<PAGE> 73
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-21
<PAGE> 74
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-22
<PAGE> 75
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-23
<PAGE> 76
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-24
<PAGE> 77
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-25
<PAGE> 78
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. The total amount of costs capitalized for
the development of internal use software in 1994, 1995, and 1996 were $400,000,
$1,500,000 and $2,000,000. These capitalized software costs include purchased
software and costs for outside contractors to modify the software for use in the
Company's line of business. These costs are being depreciated over a 5-year life
using the straight-line method.
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-26
<PAGE> 79
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-27
<PAGE> 80
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-28
<PAGE> 81
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-29
<PAGE> 82
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-30
<PAGE> 83
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-31
<PAGE> 84
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-32
<PAGE> 85
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-33
<PAGE> 86
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-34
<PAGE> 87
ANNEX A
TABLE OF CONTENTS
<TABLE>
<S> <C>
Amended and Restated Agreement and Plan of Merger........... A-2
Exhibit A-1................................................. A-A-1
Exhibit A-2................................................. A-A-4
Exhibit A-3................................................. A-A-7
Amendment Number One to Amended and Restated Agreement and
Plan of Merger............................................ A-A-A-1
</TABLE>
A-1
<PAGE> 88
AMENDED AND RESTATED
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-2
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE MERGERS....................................................................... A-5
Section 1.1 The Mergers................................................. A-5
Section 1.2 Effective Time.............................................. A-5
Section 1.3 Closing..................................................... A-5
Section 1.4 Certificate of Incorporation; By-Laws....................... A-5
Section 1.5 Directors and Officers of Each of the Surviving
Corporations................................................ A-6
ARTICLE II
CONVERSION OF SHARES.............................................................. A-6
Section 2.1 Conversion of Capital Stock................................. A-6
Section 2.2 Exchange of Certificates.................................... A-7
Section 2.3 Dissenter's Rights.......................................... A-8
Section 2.4 Fractional Shares........................................... A-8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES................................... A-9
Section 3.1 Organization................................................ A-9
Section 3.2 Capitalization.............................................. A-9
Section 3.3 Authorization; Validity of Agreement........................ A-9
Section 3.4 No Violations; Consents and Approvals....................... A-10
Section 3.5 Information Statement; Schedule 13E-3....................... A-10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WEBCO AND THE MERGER SUBS....................... A-11
Section 4.1 Organization................................................ A-11
Section 4.2 Authorization; Validity of Agreement........................ A-11
Section 4.3 Consents and Approvals...................................... A-11
ARTICLE V
COVENANTS......................................................................... A-11
Section 5.1 Interim Operations of the Companies......................... A-11
Section 5.2 Further Action; Reasonable Efforts.......................... A-11
Section 5.3 Action by Written Consent; Information Statement............ A-12
Section 5.4 Notification of Certain Matters............................. A-12
Section 5.5 Publicity................................................... A-13
Section 5.6 Indemnification............................................. A-13
ARTICLE VI
CONDITIONS........................................................................ A-13
Section 6.1 Conditions to Each Party's Obligation To Effect the
Mergers..................................................... A-13
Section 6.2 Conditions to Obligations of Webco and the Merger Subs to
Effect the Mergers.......................................... A-13
ARTICLE VII
TERMINATION....................................................................... A-14
Section 7.1 Termination................................................. A-14
Section 7.2 Effect of Termination....................................... A-14
</TABLE>
A-3
<PAGE> 90
<TABLE>
<S> <C> <C>
ARTICLE VIII
MISCELLANEOUS..................................................................... A-14
Section 8.1 Fees and Expenses........................................... A-14
Section 8.2 Amendment; Waiver........................................... A-14
Section 8.3 Nonsurvival of Representations and Warranties............... A-15
Section 8.4 Notices..................................................... A-15
Section 8.5 Interpretation.............................................. A-15
Section 8.6 Headings.................................................... A-15
Section 8.7 Counterparts................................................ A-15
Section 8.8 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership................................................... A-15
Section 8.9 Severability................................................ A-16
Section 8.10 Governing Law............................................... A-16
Section 8.11 Submission to Jurisdiction; Appointment of Agent for
Service..................................................... A-16
Section 8.12 Assignment.................................................. A-16
</TABLE>
A-4
<PAGE> 91
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED 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
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"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.
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(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,
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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 (each, a "Dissenting Stockholder") 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 (the Schedule
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
A-12
<PAGE> 99
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
A-14
<PAGE> 101
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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<PAGE> 102
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.
A-16
<PAGE> 103
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
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<PAGE> 104
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. 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
A-A-1
<PAGE> 105
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
reimbursement for their expenses as such members. Nothing contained
herein shall preclude any
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<PAGE> 106
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.
6. 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.
7. 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.
8. 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 8.
A-A-3
<PAGE> 107
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:
1. Corporate Name. The name of the corporation (hereinafter, the
"Corporation") is BEST UNIVERSAL LOCK CO.
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. 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
A-A-4
<PAGE> 108
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
reimbursement for their expenses as such members. Nothing contained
herein shall preclude any
A-A-5
<PAGE> 109
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.
6. 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.
7. 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.
8. 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 8.
A-A-6
<PAGE> 110
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:
1. Corporate Name. The name of the corporation (hereinafter, the
"Corporation") is BEST LOCK CORPORATION.
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. 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
A-A-7
<PAGE> 111
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
reimbursement for their expenses as such members. Nothing contained
herein shall preclude any
A-A-8
<PAGE> 112
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.
6. 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.
7. 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.
8. 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 8.
A-A-9
<PAGE> 113
AMENDMENT NUMBER ONE TO
AMENDED AND RESTATED PLAN OF MERGER
THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER (this "Amendment") is made and entered into as of this 29th day of
January, 1998, by and among Frank E. Best, Inc., a Delaware corporation ("FEB"),
Best Universal Lock Co., 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 Companies, the Merger Subs and Webco previously entered into an
Amended and Restated Agreement and Plan of Merger, dated as of December 1, 1997
(the "Merger Agreement") pursuant to which among other things, W1 will be merged
with and into FEB, W2 will be merged with and into BUL and W3 will be merged
with and into BLC.
B. The Companies, the Merger Subs and Webco desire to amend the Merger
Agreement as specifically permitted thereunder.
NOW, THEREFORE, in consideration of the mutual promises and agreements of
the parties set forth herein and for other good and valuable consideration, the
receipt and sufficiency are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENTS
1. Terms. Unless otherwise defined herein, terms used herein shall have the
meaning ascribed to them as set forth in the Merger Agreement.
2. Amendments.
(a) Section 2.4(b) is hereby amended by deleting the reference to
"$53.55" and inserting in lieu thereof "$53.61".
(b) Section 7.1(b)(i) is hereby amended by deleting the word "January"
in the first sentence and inserting in lieu thereof the word "March".
3. Merger Agreement in Full Force. Except as here and amended or modified,
the Merger Agreement shall remain unchanged and in full force and effect and is
hereby ratified, approved and confirmed in all respects.
4. References. After the date hereof, all references in the Merger
Agreement to "Agreement," "hereof" or similar terms shall refer to the Merger
Agreement as hereby amended.
5. Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of the Companies, the Merger Subs and Webco and their respective
successors and assigns.
6. Governing Law. This Amendment shall be governed by concerning accordance
with the internal laws, not the laws of conflict, of the State of Delaware.
A-A-A-1
<PAGE> 114
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 CO.
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-A-A-2
<PAGE> 115
ANNEX B
OPINIONS OF PIPER JAFFRAY INC.
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 2003
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> 116
9. Performed discounted cash flow analysis on the financial forecasts
for the years ending December 31, 1997 through 2001.
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
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<PAGE> 117
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 Stockholders and Dissenting Stockholders, in
the Merger is fair from a financial point of view to such stockholders.
Sincerely,
PIPER JAFFRAY INC.
B-3
<PAGE> 118
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 2003
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
for the years ending December 31, 1997 through 2001.
B-4
<PAGE> 119
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.
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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 Stockholders and Dissenting Stockholders, in
the Merger is fair from a financial point of view to such stockholders.
Sincerely,
PIPER JAFFRAY INC.
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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 2003
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
for the years ending December 31, 1997 through 2001.
10. Consulted with the Companies' outside tax advisor as to the
assumptions concerning taxes set forth below and the application thereof in
our analyses.
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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
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Common Stock of the Company, other than Affiliated Stockholders and Dissenting
Stockholders, in the Merger is fair from a financial point of view to such
stockholders.
Sincerely,
PIPER JAFFRAY INC.
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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.
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(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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