<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
of the securities exchange act of 1934
For the transition period from to
------------------ -------------------
Commission file number 0-1489
BEST UNIVERSAL LOCK CO.
(Exact name of registrant as specified in its charter)
DELAWARE 91-0144790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 50444, INDIANAPOLIS, INDIANA 46250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 849-2250
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK WITHOUT NOMINAL OR PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(Any sales of the registrant's stock by nonaffiliates within 60 days prior to
the date of filing would have sold at a price unknown to the registrant.)
Indicate the number of shares outstanding of each of the registrant's classes of
common, as of February 7,1997.
SERIES A COMMON STOCK 86,469 SHARES
SERIES B COMMON STOCK 300,000 SHARES
Documents incorporated by reference: List the following documents if
incorporated by reference and the part of the form 10-K into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1993. The listed documents should be clearly
described for identification purposes.
NONE
<PAGE>
BEST UNIVERSAL LOCK CO. (a nonoperating holding company)
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FORM 10-K ANNUAL REPORT
-----------------------
INDEX
-----
Item No. Page
and Title No.
--------- -----
1 Description of Business 3
2 Properties 6
3 Pending Legal Proceedings 6
4 Submission of Matters to a Vote of Security Holders 6
5 Market for the Registrant's Common Stock and Related Security-Holder
Matters 7
6 Selected Financial Data 8
7 Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
8 Financial Statements and Supplementary Data 13
9 Disagreements on Accounting and Financial Disclosure 38
10 Directors and Executive Officers of the Registrant 38
11 Executive Compensation 40
12 Security Ownership of Certain Beneficial Owners and Management 42
13 Certain Relationships and Related Transactions 45
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 45
Signatures 46
Index to Exhibits 47
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS. Registrant 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. Neither the
registrant nor any subsidiary has ever been the subject of any bankruptcy,
receivership or similar proceedings. There has not been any material
reclassification, merger, consolidation, nor changes in the mode of conducting
business of the registrant or of any of its significant subsidiaries during the
fiscal year just ended, other than the reincorporation described above.
Registrant originally obtained certain licenses and assignments of
patent rights to a removable key-controlled core mechanism and other inventions
and started the manufacture of certain of the Best locking devices incorporating
said removable key-controlled core mechanism.
About 1928 registrant reassigned and transferred its equipment,
inventory and patents to its subsidiary, Best Lock Corporation, in exchange for
controlling stock; and Best Lock Corporation has continued since said date, in
its own right or through its agents and its totally-held subsidiaries, to
manufacture and sell Best locking devices.
Since registrant is a nonoperating parent of Best Lock Corporation, it
is necessary to include a description of Best Lock Corporation's business in
order to understand the character and development of the total enterprise. The
following, therefore, is a description of the business of Best Lock Corporation
(hereinafter sometimes referred to as "Lock").
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
(1) Industry segments. Lock is engaged in only one industry
segment. All reports and comments in this Form 10-K apply to that one industry.
(2) Lines of business. Lock is engaged in only one line of
business, i.e., the manufacture or sourcing, distribution and sale of access
control products and related services.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(1) The principal business of Lock is the manufacture or
sourcing, distribution and sale of access control products and services,
primarily including locks, lock components and adaptations. Lock specializes in
providing locking systems for commercial end-users, including institutional,
industrial and government facilities.
(i) Lock's mechanical locking system is built around a
removable key-controlled core and housing utilizing the tumbler system. The
sale of Lock's system of locks includes the adaptation of other lock
manufacturers' hardware to receive this removable key-controlled core and
housing which is manufactured by Lock. Additionally, Lock has supplemented its
product offerings to end-users with other access control and auxiliary products.
Best Lock Corporation's mechanical locks, lock
components and adaptations are manufactured or assembled in its plant located in
Indianapolis, Indiana and sold by Lock through sales representatives throughout
the United States, Canada and other countries. Lock's representatives are
independent representatives maintaining separate inventories, or corporate-owned
sales offices, both selling directly to end-users.
3
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Lock does not manufacture all of the access
control products it sells, but purchases a number of such items from other
manufacturers. Lock is not exclusively represented by any regional hardware
house as are most of the large lock manufacturers but its products are sold
through many regional hardware houses as a modification of their regular lines.
In connection with the sale of its system of locks, Lock assists in maintaining
and setting up for its customers a masterkey plan for proper control and
security of the customer's locking system.
Lock sells its products in the United States and
abroad. Some of its foreign sales are made by its agent and totally-held
subsidiary, Best Universal Locks Limited, of the Province of Ontario, Canada.
Lock's sales have generally increased during the past five years.
Information as to approximate percentage of total
sales revenue of classes of similar products for each of the specified fiscal
years is as follows. It is not believed that the changes in percentages
represent a material change in the mix of the product line.
Name of Class 1996 1995 1994
------------- ---- ---- ----
Door Security Products 71% 68% 67%
All Others 29 32 33
There have not been any significant changes in the
kinds of products produced or products or services sold since the beginning of
the fiscal year.
Lock is continuing its program of selling to
contract hardware houses in an attempt to enlarge its sales to new construction
projects.
(ii) There has not been any public announcement of a
new product or industry segment which would require the investment of a material
amount of the assets of Lock during the next fiscal year.
(iii) The raw materials essential to Lock's
manufacturing business are standard metals in bar stock of various
cross-sectional shapes. Approximately 80% of the shapes are standard and
approximately 20% are specially made. The majority of essential raw materials
are purchased from three midwestern suppliers. There are no significant
problems related to the procurement of raw materials for Lock's manufacturing
business, other than the normal forces of supply and demand, possible strikes or
other production factors of the suppliers.
(iv) Patents and patent rights have been and are a
significant factor in Lock's business. Lock has a substantial number of
licenses and patent rights relating to the locking art and other mechanical
fields, and has engaged in substantial experimental and developmental work in
connection with such licenses and patent rights. The first patent rights
acquired by registrant were related to the Best Universal removable core. A
number of the early patent rights licensed or otherwise acquired have expired.
Registrant has several registered trademarks regarding the use of the word
'Best' in association with security products. These are considered important
and valuable assets of the company.
(v) While there is no particular seasonal factor in
Lock's business, a backlog for its manufacturing business exists for production
planning.
(vi) There is no unusual working capital requirement by
Lock. Normal working capital requirements for inventory and accounts receivable
are met through internal funding or borrowings from outside bank sources.
4
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(vii) The manufacturing, sourcing, distribution or
selling business of Lock is not dependent upon any one single customer, or very
few customers, the loss of which would have a material adverse effect on Lock.
(viii) Lock's backlog of orders as of the dates
shown below are believed to be firm.
February 7, 1997 $4,702,439
February 9, 1996 4,219,942
It is expected that 100% of the backlog on
February 7, 1997 will be filled within the current fiscal year. Lock's order
sales and order flow do not generally reflect any seasonal fluctuations.
(ix) It is not believed that any material portion of
the business of Lock is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the government.
(x) The business of Lock is highly competitive. The
principal methods of competition are in the areas of price, product performance,
delivery and service. There are ten to fifteen major lock manufacturing
companies in the United States, some of which have substantially greater sales
and resources than Lock. 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 Lock's lock
systems.
Due to the fact that registrant and Lock have been
engaged in business for more than sixty-five years and have specialized in the
sale of masterkeyed systems of locks, it believes that Lock is a significant
factor in this specialized field. Since industry statistics are not available,
registrant is not able to state Lock's relative standing in the overall lock
market or in the more specialized masterkeyed system of locks market.
(xi) Registrant did not expend any funds on research.
Lock 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.
Lock has not engaged in any material customer
sponsored research during the past three fiscal years.
(xii) Lock 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 Lock or its subsidiary.
Lock 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.
(xiii) The staff of registrant, being a nonoperating
holding corporation, consisted of its directors, officers and their assistants,
being five in number. The staff of Lock as of the close of its fiscal year
consisted of approximately 448 production and maintenance employees; and 714
office, sales and executive employees.
5
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(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES. Lock is engaged, through its totally-held 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 Lock's total sales during 1996, 1995 and 1994, respectively. The risk and
profitability of such business does not differ substantially from domestic
sales.
ITEM 2. PROPERTIES.
Registrant and its parent, Frank E. Best, Inc., do not own or operate any
plants, manufacturing or physical properties. The following is a description of
the properties of registrant's subsidiary, Best Lock Corporation and its
subsidiary.
Manufacturing facilities and engineering and executive offices of Lock are
located in multi-purpose 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 Lock's use in
four major phases in 1958, 1965, 1977 and 1989. Lock 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 registrant in its manufacturing business. Lock 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 Lock.
Lock 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.
ITEM 3. PENDING LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
6
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY-HOLDER
MATTERS.
The registrant's Series A stock is classified as over-the-counter, and from
time to time may be listed in the National Quotation Bureau, Inc.'s "Pink
Sheets." Such quotations may not necessarily represent the value of actual
transactions. As determined by a third party professional appraiser each year
for the purpose of the Best Lock Corporation Stock Bonus Plan, the value of
registrant's Class A shares as of December 31, 1996 and 1995 was $68.54 and
$67.68 per share respectively. There are 711 shareholders of record of
registrant's Series A stock as of February 7, 1997.
The registrant's Series B stock is totally-held by its parent, Frank E.
Best, Inc. This stock was valued as of December 31, 1996 and 1995 at $75.39 and
$74.45 per share, respectively, by a third party professional appraiser.
The registrant's preferred stock was redeemed on July 1, 1995. It was
valued at $100.00 per share by a third party professional appraiser as of
December 31, 1994.
Dividends have been declared and paid annually in the respective amounts of
$1.68 and $1.67 per share on the Series A common stock, and $1.11 and $1.10 per
share on the Series B common stock. Dividends of $7.00 per share on the
preferred stock were paid annually for both 1995 and 1994. There is no known
restriction on registrant's present or future ability to pay such dividends
other than the availability of sufficient funds. There is a present expectation
that dividends will continue to be paid in the future.
Registrant is utilizing an independent clearinghouse to facilitate
submission of stock deemed to be "abandoned property" under various state laws.
During 1996, 1995, and 1994, 50, 243 and 0 shares respectively, were submitted
to the appropriate state authorities through this clearinghouse. Such property
will be held for various periods of time as required by each state prior to
being placed on the market for disposition.
7
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ITEM 6. Selected Financial Data.
BEST UNIVERSAL LOCK CO. (a nonoperating holding company) AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 1996 THROUGH 1992
- --------------------------------------------------------------------------------
The following consolidated summary of selected financial data should be read in
conjunction with the accompanying notes to consolidated financial statements:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 122,358,592 $ 117,705,629 $ 103,954,763 $ 98,895,807 $ 84,865,287
Net income (loss) before cumulative
effect of change in accounting principle 2,925,320 (3,738,475) 1,514,931 802,612 1,766,630
Net income 2,925,320 (3,738,475) 1,514,931 1,275,877 1,766,630
Total assets 68,786,738 68,918,617 71,028,899 64,178,858 62,233,977
Long-term obligations
(excluding deferred taxes) 18,213,399 19,067,424 4,444,971 4,745,065 4,552,378
Common stock and common stock of
Best, redeemable under Stock
Bonus Plan 1,868,537 1,821,647 4,087,473 - -
</TABLE>
Earnings and dividends per common share - see page 9.
8
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BEST LOCK COMPANIES
BEST LOCK CORPORATION AND SUBSIDIARY
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
FRANK E. BEST, INC. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31, 1996 THROUGH 1992
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings (loss) per share of common stock:
Best Lock Corporation and Subsidiary
Weighted average shares outstanding: 121,517.24 124,144.13 131,235.37 131,238.85 131,238.85
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income (loss) before cumulative effect of
change in accounting principle $ 28.43 $ (33.88) $ 16.83 $ 8.76 $ 18.73
Cumulative effect of SFAS 109 "Accounting
for Income Taxes" $ 0.00 $ 0.00 $ 0.00 $ 4.95 $ 0.00
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 28.43 $ (33.88) $ 16.83 $ 13.71 $ 18.73
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Best Universal Lock Co. and Subsidiaries
Series A weighted average shares outstanding: 60,588.76 75,669.87 86,469.00 86,469.00 86,469.00
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Series A -
Net income (loss) $ 8.11 $ (9.95) $ 3.92 $ 3.30 $ 4.57
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Series B weighted average shares outstanding: 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Series B -
Net income (loss) $ 8.11 $ (9.95) $ 3.92 $ 3.30 $ 4.57
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Frank E. Best, Inc. and Subsidiaries
weighted average shares outstanding: 274,999.05 427,806.72 598,710.00 598,710.00 598,710.00
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 9.04 $ (7.61) $ 1.93 $ 1.45 $ 2.27
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Dividends per share:
Best Lock Corporation, common $ 5.42 $ 5.41 $ 5.40 $ 5.00 $ 4.90
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Best Universal Lock Co. -
Preferred (7% cumulative) $ - $ 7.00 $ 7.00 $ 7.00 $ 7.00
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Series A Common (Note 2) 1.68 1.67 1.66 1.63 1.61
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Series B Common (Note 2) 1.11 1.10 1.09 1.06 1.04
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Frank E. Best, Inc. Common $ 0.54 $ 0.53 $ 0.52 $ 0.51 $ 0.49
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
9
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ITEM 7. 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 - 1996 VS. 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 Best Locking Systems (distribution) 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. The Company 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, the
Company 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, the Company 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. The
Company also made changes to the restructuring plan during 1996, which resulted
in a reduction in expense of $800 thousand. Professional fees decreased $1.9
million from 1995, due to costs associated with development and installation of
new software for the order processing accounts payable and general ledger
functions which were incurred in 1995. These decreases were partially offset by
increases in certain other expenses. Depreciation expense associated with
non-production assets increased by $500 thousand, mainly due to depreciation on
approximately $4.4 million of computer equipment placed into service during
1995, the majority of which is being depreciated over three years. Telephone,
rent, seminars and training, and dues, fees, and subscriptions increased $900
thousand over 1995. The Company 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.
10
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RESULTS OF OPERATIONS - 1995 VS. 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 the Company's 9K lever handle
lock, which occurred in late 1994. The Company 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, the Company disposed of obsolete
inventory during the year of approximately $2.1 million. Salaries, wages and
fringe benefits associated with the manufacture of products increased by
approximately $1.9 million during 1995.
Selling, general and administrative, and engineering costs were $7.3 million
higher than 1994 levels. During the fourth quarter of 1995, the Company
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. The Company 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. The Company 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, the Company
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 Office 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 the company recognized in 1994.
11
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.5 at December 31, 1996, compared to 2.0 at
December 31, 1995. Current assets increased by $3.9 million during 1996, due to
higher receivables. These higher receivables are associated with higher sales
during the fourth quarter of 1996 of approximately $5.1 million. Inventories
increased by $2.4 million, mainly at the manufacturing division, due to higher
order volume in the fourth quarter of 1996. Estimated refundable income taxes
decreased $2.6 million due to the receipt of refunds associated with the 1995
net loss.
Property, plant and equipment additions decreased by $4.2 million to $1.4
million in 1996 from the 1995 total of $5.6 million. Approximately $3.4 million
of the 1995 capital expenditures related to the installation of enhanced
computer systems and related software. Capital expenditures for 1997 are
expected to be in the $3.5 million range, which includes approximately $1.5
million for improvements to manufacturing equipment and tooling.
Total liabilities decreased by $2.2 million from 1995 to 1996. Approximately
$1.5 million of the decrease was in current liabilities. Accrued restructuring
expense decreased $2.5 million, due to payouts of amounts expensed during 1995
and changes to the plan described in Note 14 to the consolidated financial
statements. Accounts payable decreased approximately $802 thousand. Accrued
income taxes increased $492 thousand, due to higher taxable income in 1996. The
warranty accrual, established during 1996, increased $999 thousand. This
accrual is for the estimated material, labor and travel costs to replace certain
parts in mortise locksets manufactured from December of 1995 through September
of 1996, as discussed above.
The Company 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, the Company 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. The
Company expects to repay the loan from future operating cash flows. The Company
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.
The Company has not experienced any unusual inflation in its purchases or sales
for the years 1996, 1995, or 1994.
The Company has not had and does not expect to incur any significant future
environmental liability.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) 1. Financial Statements:
Report of Independent Public Accountants
Corporate Balance Sheets, December 31, 1996 and 1995
Corporate Statements of Cash Flows for the Years Ended December 31,
1996, 1995, and 1994
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Income (Loss) for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Schedules Supporting Consolidated Financial Statements-
Schedule
Number
--------
II Valuation and Qualifying Accounts - Corporate and
Consolidated - for the Years Ended
December 31, 1996 through 1994
III Investments in, Equity in Earnings of, and Dividends
Received From Affiliates and Other Persons - for the
Years Ended December 31, 1996 through 1994
13
<PAGE>
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 listed under Item 8 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.
14
<PAGE>
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 (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) (333,000)
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.
15
<PAGE>
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) $(39,322)
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.
16
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 2,099,876 $ 1,389,827
Trade receivables
Direct 15,453,983 11,878,119
Sales representatives and other 2,486,882 1,893,871
Allowance for uncollectible accounts (244,866) (263,559)
Estimated refundable income taxes 51,632 2,628,103
Current portion of notes receivable (Note 16) 64,909 14,895
Inventories (Notes 1 and 4) 13,779,015 11,383,058
Deferred income taxes (Note 5) 3,224,592 4,239,578
Prepaid expenses and other 355,050 379,906
----------- -----------
Total current assets 37,406,895 33,543,798
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 1 and 3)
Land and buildings 13,989,015 14,037,266
Machinery and equipment 27,557,030 28,694,247
Tooling 8,536,128 8,423,818
Furniture, fixtures and other 12,225,748 10,925,909
Construction work-in-progress 184,311 2,473,290
----------- -----------
62,522,232 64,554,530
Less - accumulated depreciation (35,634,924) (33,734,786)
----------- -----------
Total property, plant and equipment 26,887,308 30,819,744
----------- -----------
OTHER ASSETS
Long-term notes receivable (Note 16) 3,303,799 3,358,972
Other assets 1,188,736 1,196,103
----------- -----------
Total assets $68,786,738 $68,918,617
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
17
<PAGE>
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 2,500 $ 2,500
Current portion of retirement benefit obligation 1,364,671 1,362,431
Trade accounts payable 2,685,231 3,517,799
Customer advances 1,849,175 1,433,801
Accrued liabilities
Income taxes 929,850 462,195
Property and other taxes 876,670 976,765
Payroll and vacation pay 4,413,772 4,225,317
Accrued restructuring (Note 14) 999,111 3,462,508
Accrued medical claims 750,000 970,000
Accrued warranty 998,835 -
Other 166,325 207,599
----------- -----------
Total current liabilities 15,036,140 16,620,915
----------- -----------
LONG-TERM DEBT (Note 7) 15,000,000 15,197,079
RETIREMENT BENEFIT OBLIGATION (Note 10) 3,213,399 3,870,345
DEFERRED INCOME TAXES (Note 5) 2,305,265 2,120,957
----------- -----------
Total liabilities 35,554,804 37,809,296
----------- -----------
MINORITY INTEREST IN SUBSIDARIES 9,549,301 9,424,347
----------- -----------
COMMON STOCK AND COMMON STOCK OF BEST,
REDEEMABLE UNDER STOCK BONUS PLAN (Note 8) 1,868,537 1,821,647
----------- -----------
SHAREHOLDERS' EQUITY
Capital stock:
Series A common stock, no par value, 100,000 shares authorized,
59,637.31 shares outstanding 1,102,579 1,102,579
Series B common stock, no par value, 300,000 shares authorized
and outstanding 1 1
----------- -----------
Total capital stock 1,102,580 1,102,580
Accumulated earnings 33,312,959 31,080,417
Cumulative translation adjustment (Note 1) (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 $ 68,786,738 $ 68,918,617
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
18
<PAGE>
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>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 122,358,592 $ 117,705,629 $ 103,954,763
COST OF GOODS SOLD 64,006,688 69,400,346 54,111,283
------------- ------------- -------------
GROSS MARGIN 58,351,904 48,305,283 49,843,480
OPERATING EXPENSES
Selling 33,230,790 30,656,814 26,997,950
General and Administrative 17,153,433 21,386,060 16,291,879
Engineering, research and development 997,249 2,336,673 3,775,743
------------- ------------- -------------
Total operating expenses 51,381,472 54,379,547 47,065,572
------------- ------------- -------------
OPERATING INCOME (LOSS) 6,970,432 (6,074,264) 2,777,908
Interest expense (1,194,986) (870,062) (6,809)
Other income (expense), net 272,102 380,427 (367,685)
------------- ------------- -------------
INCOME (LOSS) before provision for income taxes 6,047,548 (6,563,899) 2,403,414
Provision (benefit) for income taxes (Note 5) 2,592,935 (2,359,401) 195,259
------------- ------------- -------------
NET INCOME (LOSS), Best Lock Corporation and Subsidiary 3,454,613 (4,204,498) 2,208,155
Minority interest in net (income) loss, Best Lock Corporation and Subsidiary (479,160) 521,623 (653,892)
Corporate - Best Universal Lock Co. expense (50,133) (55,600) (39,332)
------------- ------------- -------------
NET INCOME (LOSS), Best Universal Lock Co. and Subsidiaries 2,925,320 (3,738,475) 1,514,931
Minority interest in net (income) loss, Best Universal Lock Co. and Subsidiaries (513,071) 526,185 (339,232)
Corporate - Frank E. Best, Inc. expense 74,148 (42,848) (22,409)
------------- ------------- -------------
NET INCOME (LOSS), Frank E. Best, Inc. and Subsidiaries $ 2,486,397 $ (3,255,138) $ 1,153,290
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
Best Universal Lock Co.
Best Lock --------------------------- Frank E.
Earnings (loss) per common share: Corporation Series A Series B Best, Inc.
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1996 $ 28.43 $ 8.11 $ 8.11 $ 9.04
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
1995 $ (33.88) $ (9.95) $ (9.95) $ (7.61)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
1994 $ 16.83 $ 3.92 $ 3.92 $ 1.93
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Weighted average shares outstanding:
1996 121,517.24 60,588.76 300,000.00 274,999.05
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
1995 124,114.13 75,669.87 300,000.00 427,806.72
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
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.
19
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
BEST UNIVERSAL LOCK CO. (A NONOPERATING HOLDING COMPANY) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------
Year Ended December 31
----------------------------------------
1996 1995 1994
---------- ----------- ----------
<S> <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, 59,637.31 shares outstanding in 1996,
60,739.31 shares outstanding in 1995 and 86,469
shares outstanding in 1994 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 1,108,880
---------- ----------- ----------
ACCUMULATED EARNINGS
Balance at beginning of year 31,080,417 35,294,051 34,250,100
Net income (loss) 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 pension (214,510) - -
---------- ----------- ----------
Balance at end of year 33,312,959 31,080,417 35,294,051
---------- ----------- ----------
CUMULATIVE TRANSLATION ADJUSTMENT (181,052) (111,142) (144,190)
COMMON STOCK AND COMMON STOCK OF BEST,
REDEEMABLE UNDER STOCK BONUS PLAN (Note 8) (1,868,537) (1,821,647) (4,087,473)
TREASURY STOCK
Balance at beginning of year (10,386,881) - -
Shares purchased (164,973) (10,386,881) -
---------- ----------- ----------
Balance at end of year (10,551,854) (10,386,881) -
---------- ----------- ----------
Total shareholders' equity $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.
20
<PAGE>
BEST UNIVERSAL LOCK CO. (a nonoperating holding company) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 118,027,815 $ 119,115,874 $ 103,456,897
Cash paid to suppliers and employees (115,358,147) (116,082,490) (92,572,720)
Interest received 190,183 494,908 137,171
Interest paid (1,208,188) (761,831) (3,353)
Income taxes refunded (paid) 1,642,649 (1,460,682) (29,356)
-------------- ------------- -------------
Net cash provided by operating activities 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 (1,430,688) (5,541,531) (3,896,048)
Note receivable from an officer - - (3,400,000)
-------------- ------------- -------------
Net cash used in investing activities (1,380,255) (5,453,148) (7,128,258)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings against unsecured line of credit 30,300,000 29,064,607 -
Payments on unsecured line of credit (30,497,079) (14,100,000) -
Purchase of treasury stock (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) -
-------------- ------------- -------------
Net cash (used in) provided by financing activities (1,159,484) 713,570 (684,070)
-------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (44,524) 7,779 (6,860)
-------------- ------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 710,049 (3,426,020) 3,169,451
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,389,827 4,815,847 1,646,396
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,099,876 $ 1,389,827 $ 4,815,847
-------------- ------------- -------------
-------------- ------------- -------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 2,925,320 $ (3,738,475) $ 1,514,931
Adjustments-
Depreciation and amortization 5,464,788 4,904,810 4,364,558
Provision for losses on accounts receivable 128,006 117,417 38,413
Loss (Gain) on sale of property, plant and equipment 125,232 83,408 (4,875)
Minority interest related to current year earnings (loss) 479,160 (521,623) 653,892
Deferred income taxes (credit) 1,199,294 (821,068) (1,200,316)
Changes in assets and liabilities-
(Increase) decrease in
Accounts and notes receivable (4,482,755) 600,453 (703,419)
Refundable income taxes 2,576,471 (2,559,696) 1,484,991
Inventories (2,431,366) 3,226,858 (139,575)
Prepaid expenses and other 24,856 (227,564) (786,074)
Other assets (299,264) (1,341,471) 222,977
Increase (decrease) in
Accounts payable, customer advances and accrued liabilities (1,968,733) 2,584,752 4,890,133
Income taxes payable 478,861 (407,860) 683,221
Retirement benefit obligation (654,706) (594,162) (30,218)
Additional minimum liability for pension (270,852) - -
-------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,294,312 $ 1,305,779 $ 10,988,639
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
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:
Percent
Parent Company Subsidiaries Owned
-------------- ------------ -------
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 (Canada) 100%
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.
22
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
h. RESEARCH AND DEVELOPMENT
Research and development costs related to products are expensed as
incurred. Development costs related to software for internal use are expensed
or capitalized as incurred, depending on the useful life of the expenditure.
The total amounts expensed were approximately $769,000, $3,055,000 and
$3,050,000 in 1996, 1995, and 1994, respectively.
i. CURRENCY TRANSLATION
The accounts of Lock's Canadian subsidiary are translated whereby the
balance sheet accounts are translated at the exchange rate in effect at period
end, income accounts are translated at the average rate of exchange during the
period, and translation gains and losses are excluded from net earnings by being
recorded as a component of shareholders' equity (Cumulative Translation
Adjustment). The consolidated financial statements include translation (losses)
gains of ($87,109), $56,459 and ($89,392) in 1996, 1995 and 1994, respectively,
all of which are reflected as a component of shareholders' equity.
j. NONCASH TRANSACTION
The Company financed the purchase of $348,702 of treasury stock during
1995 by issuing a note payable.
k. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. DIVIDENDS
The Articles of Incorporation of Universal require that dividends on common
stock be distributed on a noncumulative basis as follows: a) the first
approximately $138,000 in dividends are to be distributed equally to Series A
holders and to Series B holders and, b) the remainder is distributed on an equal
per share basis to Series A and B holders. These disproportionate distributions
are reflected in calculating the minority interest of Best.
23
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
For financial reporting purposes, depreciation is provided using the
following straight-line rates:
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%
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.
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:
December 31
---------------------------------------
1996 1995 1994
----------- ----------- ------------
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
----------- ----------- ------------
----------- ----------- ------------
24
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
Earnings (loss) before income taxes were as follows:
Years Ended December 31
---------------------------------------
1996 1995 1994
---------- ------------ -----------
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
---------- ------------ -----------
---------- ------------ -----------
25
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
26
<PAGE>
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>
27
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
28
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
1996 1995 1994
--------- -------- --------
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
--------- -------- --------
--------- -------- --------
Plan assumptions in 1996, 1995 and 1994 were:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . 8.0%
Expected long-term rate of return on Plan assets. . . . . . . 8.0%
29
<PAGE>
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>
30
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
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
-----------
-----------
A summary of the retirement benefit obligations included in the
consolidated balance sheets is presented below:
1996 1995
---------- ----------
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
---------- ----------
---------- ----------
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.
31
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
Amount
----------
1997 $ 991,592
1998 774,249
1999 452,072
2001 223,066
2001-2005 448,784
----------
$2,889,763
----------
----------
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.
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:
December 31
----------- -----------
1996 1995
----------- -----------
Best $17,436,000 $15,607,000
Universal 21,920,000 19,954,000
Lock 2,056,000 1,934,000
32
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
33
<PAGE>
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.
34
<PAGE>
BEST LOCK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
35
<PAGE>
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
------- ------- ------- --------- -------
------- ------- ------- --------- -------
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.
</TABLE>
36
<PAGE>
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>
37
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and officers have not been selected as such under any
arrangement or understanding between them and any other person(s).
(a) IDENTIFICATION OF DIRECTORS. Russell C. Best, 35, holds the
position of Director, Chief Executive Officer and President. He has served as a
director since 1991. Mariea L. Best, 33, Director, has served in this position
since 1995. Gregg A. Dykstra, 40, served as Director and Vice President until
February 17, 1997 when he resigned his officer and director positions. He has
served as a director since 1995. All directors serve until the next annual
meeting or until their successor is elected and qualified.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS. Russell C. Best, 35, has
served as Chief Executive Officer since 1994 and as President since 1995. Gregg
A. Dykstra, 40, served as Vice President from 1995 until February 17, 1997, when
he resigned his officer position. Mark G. Ahearn, 42, has served as Secretary
since 1996. Stephen J. Cooper, 49, has served as Treasurer since 1996. Paula
J. Tinkey, 39, has served as Controller since 1996. All officers serve until
their successor is appointed.
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES.
None.
(d) FAMILY RELATIONSHIPS. Mariea L. Best is the spouse of Russell C.
Best.
(e) BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
DURING THE PAST FIVE YEARS.
(1) Russell C. Best, President/Chief Executive Officer and
Director, has served registrant and Frank E. Best, Inc. as President since 1995;
prior thereto Vice President of registrant and Frank E. Best, Inc. since 1990;
Chairman of the Board of Lock since March 1995; President of Lock since February
15, 1995; CEO of Lock since May, 1994; Executive Vice President of Lock from
June 1992 to May 1994; Marketing Director of Lock from 1989-1992; Director of
registrant, Frank E. Best, Inc. and Lock since 1991.
Mariea L. Best, Director, has served as a Director of registrant
since 1995; Vice President of registrant and Frank E. Best, Inc. since 1995;
sole shareholder and president of Best Event and Travel, Inc. from 1991-1994;
Special Event Coordinator for Wiersma from 1987-1990; Director of registrant,
Frank E. Best, Inc. and Lock since 1995.
Gregg A. Dykstra, Vice President, has served registrant and Frank
E. Best, Inc. in this capacity since May 1996 until February 17, 1997; Secretary
of registrant and Frank E. Best, Inc. from March 1995 to April 1996; Treasurer
of registrant, Frank E. Best, Inc. and Lock from March 1995 to March 1996;
Secretary of Lock from March 1995 to October 1995; Vice President of Lock since
1995 until February 17, 1997; General Counsel of Lock from November 1989 to July
1995; Director of registrant, Frank E. Best, Inc. and Lock since 1995 until
February 17, 1997.
38
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Mark G. Ahearn, Secretary, has served Lock as General Counsel
since July of 1995; Secretary of registrant and Frank E. Best, Inc. since April
1996; Secretary of Lock since March 1996; Associate Counsel for Lock from April
1994 to July 1995; Staff Attorney for Lock from August 1992 to April 1994; self
employed private legal practice from July 1991 to August 1992; State Director
for United States Senator Dan Coats of Indiana from January 1989 to June 1991.
Stephen J. Cooper, Treasurer, has served registrant, Frank E.
Best, Inc. and Lock as Treasurer since March of 1996; Senior Manager of Finance
of Lock from June 1992 to March 1996; Controller of Lock from October 1986 to
June 1992.
Paula J. Tinkey, Controller, has served registrant, Frank E.
Best, Inc. and Lock as Controller since May of 1996; Manager of General
Accounting of Lock from June 1992 to May 1996; Manager of Accounting for Hook
Drugs Division, Hook-SupeRx, Inc. from April 1987 to April 1992.
(2) Directorships. Russell C. Best, who was a Director of registrant
thorough December 31, 1996, was also a Director of Best Lock Corporation and
Frank E. Best, Inc. through December 31, 1996. Mariea L. Best and Gregg A.
Dykstra became Directors of registrant, Best Lock Corporation and Best Universal
Lock Co. in 1995.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. To the knowledge of the
registrant, none of the directors within the previous five years has filed a
petition under the Bankruptcy Act or any state insolvency law nor was a
receiver, fiscal agent or similar officer appointed for such persons or any
partnership in which they may have been general partners or any corporation of
which they were executive officers. Furthermore, to the knowledge of the
registrant no director or executive officer has been convicted in a criminal
proceeding (except traffic violation or other minor offense) or is subject to a
criminal proceeding presently pending, nor to the knowledge of management is any
director subject to any order, judgment or decree by any Court of competent
jurisdiction, permanently or temporarily enjoining such director from acting as
an investment adviser, underwriter, broker or dealer in securities or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company or from engaging in or conducting any
conduct or practice in connection with such activity or in connection with the
purchase or sale of any security.
39
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ITEM 11. EXECUTIVE COMPENSATION.
(a) COMPENSATION. The information in the following table
discloses all remuneration paid to the Chief Executive Officer and the other
most highly compensated executive officers or directors of registrant whose
total annual salary and bonus exceeds $100,000, for services in all capacities
to the registrant and its subsidiary during the fiscal years ended December 31,
1996, 1995 and 1994, all of such remuneration having been paid by Lock.
(b) SUMMARY COMPENSATION TABLE
Name & Principal
Position Year Total Salary(3) Total Bonus(4) Total Other(5)
-------- ---- --------------- -------------- --------------
Russell C. Best 1996 $629,942 $ 0 $138,945
Chief Executive Officer 1995 597,745 0 96,487
1994 406,657 343,665 13,562
Gregg A. Dykstra(1) 1996 265,196 0 19,093
Vice-President 1995 260,687 100,000 9,581
1994 155,832 11,475 7,760
Larry W. Rottmeyer(2) 1996 210,794 0 8,655
Vice-President 1995 273,986 100,000 10,565
1994 41,539 270 43
(1) Resigned as an officer effective February 17, 1997.
(2) Removed as an officer effective March 5, 1996.
(3) In the case of Russell C. Best, the salary amount includes $735 and $7,867
in taxes paid by the Company on the value of a trip paid by the Company in 1996
and 1995, respectively. In the case of Gregg A. Dykstra, the salary amount
includes an auto stipend of $11,380 and $11,577 in 1996 and 1995, respectively.
The 1996 salary amount for Gregg A. Dykstra also includes $735 in taxes paid by
the Company on the value of a trip paid by the Company. The 1995 salary amount
for Gregg A. Dykstra also includes an amount equal to $80,033 as a retroactive
base pay adjustment for 1995 which was paid in 1996. In the case of Larry W.
Rottmeyer, the salary amount includes an auto stipend of $3,602 and $17,300 in
1996 and 1995, respectively, and $735 and $7,228 in taxes paid by the Company on
the value of a trip paid by the Company in 1996 and 1995, respectively. The
1995 salary amount for Larry W. Rottmeyer also includes an amount equal to
$64,584 as a retroactive base pay adjustment for 1995 which was paid in 1996.
(4) In 1995, the bonus payments were discretionary and were paid in 1996 in
recognition of services provided in 1995. In the case of Russell C. Best, the
bonus amount for 1994 includes an amount equal to $340,000 in recognition of
services provided in calendar year 1994, payable in accordance with the
employment agreement between the Company and Mr. Best. In 1994, the bonus
payments consisted of a flat base amount plus a percentage based on the
employee's achievement of certain business objectives.
(5) In the case of Russell C. Best, this amount includes the value of group
term life premiums in excess of $50,000 ($746, $920, and $459 respectively, in
1996, 1995 and 1994), the annual lease value of his company vehicle ($15,250,
$16,449, and $12,316 respectively, in 1996, 1995 and 1994), the amount paid by
the Company for tax return preparation and legal fees on his behalf ($7,268,
$14,882, and $787 respectively in 1996, 1995 and 1994), contributions by the
Company to the 401(k) plan on his behalf ($3,000 each in 1996 and 1995), $10,130
and $317 in disability insurance premiums paid on his behalf in
40
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1996 and 1995, respectively, $547 in spousal travel paid by the Company in 1995,
$3,100 and $11,205 in value of a trip paid by the Company in 1996 and 1995,
respectively, $5,000 in value of a home security system paid by the Company on
his behalf in 1996, and $94,451 and $49,168 in 1996 and 1995, respectively,
reflecting the present value of the economic benefit of the portion of a split
dollar life insurance premium paid by the Company, based on the time period
between the date the premiums were paid and December 29, 2025, the earliest date
the Company could receive a refund, without interest, of the premium paid. In
the case of Gregg A. Dykstra, this amount includes the value of group term life
premiums in excess of $50,000 ($436, $149, and $218 respectively, in 1996, 1995
and 1994), the annual lease value of his company vehicle ($6,100 each in 1995
and 1994), the excess of market value over purchase price of his company vehicle
of $12,557 in 1996, the value of spousal travel paid by the Company ($332 in
1995), $3,100 in value of a trip paid by the company 1996, the amount paid by
the Company for tax return preparation fees on his behalf ($375 in 1994), and
contributions by the Company to the 401(k) plan on his behalf ($3,000, $3,000
and $1,067 respectively in 1996, 1995 and 1994). In the case of Larry W.
Rottmeyer, this amount includes the value of group term life premiums in excess
of $50,000 ($340, $190 and $43 respectively, in 1996, 1995 and 1994), the excess
of market value over purchase price of a computer purchased by the company of
$1,720 in 1996, $332 in spousal travel paid by the Company in 1995, $3,100 and
$10,043 in value of a trip paid by the Company in 1996 and 1995, respectively,
and contributions by the company to the 401(k) plan on his behalf of $699 in
1996.
(c) COMPENSATION PURSUANT TO PLANS.
(1) The Best Lock Corporation Stock Bonus Plan is a qualified
noncontributory defined contribution plan available to all employees above the
age of 21 with one year of full-time service. Voluntary contributions by Lock
to the plan are made upon the authority of the Board of Directors, and are
allocated on the basis of annual compensation and years of service. The funds
of the Plan are to be invested primarily in securities of the registrant or its
affiliates. Amounts are distributed from the Plan upon the resignation,
retirement, termination, or death of the employee in accordance with Plan
provisions. Employer contributions for the account of the individuals named in
the Compensation Table are less than $50,000 in each year presented.
(2) Russell C. Best, along with other employees, participates in a
qualified noncontributory defined benefit pension plan approved by Lock's Board
of Directors in 1989. The monthly benefit payable thereunder is based on the
employee's compensation and years of past service as of September 1, 1989.
Normal retirement age is 65, with provisions for earlier retirement with reduced
benefits. Such payments are to be made for their lifetime, following which 50%
of the monthly amount will be provided for the lifetime of a surviving spouse.
The monthly benefit payable to Russell C. Best under this Plan is $490.
(d)(e)(f) OTHER COMPENSATION. There was no other compensation paid to the
named individuals exceeding 10% of the compensation reported for such
individual.
(g) COMPENSATION OF DIRECTORS. Directors are paid $5,000 per calendar
year for services rendered, effective April 1, 1995.
(h) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN
CONTROL ARRANGEMENT. On May 5, 1994, Lock and Russell C. Best entered into an
Employment Agreement (the "Agreement") pursuant to which Russell C. Best assumed
the duties of Chief Executive Officer of Lock. The initial term of the
Agreement expires December 31, 1998; however, the term is automatically extended
by one additional year on December 31 of each year unless earlier terminated
such as by notice by either party to the other at least thirty (30) days prior
to December 31 of such year.
The Agreement provides for a base salary of $425,000 pear year,
subject to increases for inflation and other factors, plus the participation of
Russell C. Best in all general and
41
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executive compensation and benefit plans of Lock, including any incentive or
bonus plans. The Agreement further provides for a loan of up to $3,400,000 to
Russell C. Best, to be repaid to Lock over a thirty year period with interest at
7.2% per annum. Such loan must be secured by acceptable collateral, but in any
event by all assets acquired with the proceeds of the loan. The loan is secured
by a pledge of certain of the shares of Frank E. Best, Inc. acquired with its
proceeds and certain shares of registrant owned by Russell C. Best. Such shares
will be released from this pledge pro rata as the principal of the loan is
repaid to Lock.
The Agreement also provides severance benefits in the event of
termination of employment under certain circumstances. In the event of
termination of employment by Lock without "cause" or by Russell C. Best with
"cause" (as such terms are defined in the Agreement), he will receive in each
year throughout the unexpired portion of the term of the Agreement including any
extensions occurring prior to the date of termination, his then current base
salary, plus the average of the aggregate amounts of any bonuses, incentive
payments, and/or contingent compensation received by him in each of the three
immediately preceding calendar years. If Lock terminates Russell C. Best's
employment with "cause," or if he terminates employment without "cause," Russell
C. Best would forfeit all compensation and benefits following such termination.
Consistent with the terms of the Agreement, on May 18, 1994, Lock
loaned $3,400,000 to Russell C. Best pursuant to the terms of a Loan Agreement
dated May 5, 1994, to which Lock and Russell C. Best are parties. The terms of
the loan were as provided in the Agreement.
On May 16, 1994, the Company entered into an Agreement Respecting
Sale of Stock (the "Put Agreement") with Russell C. Best. The Put Agreement
provided that Russell C. Best had the right, exercisable at any time on or
before December 31, 1994, to require the Corporation to purchase from him any
shares of Frank E. Best, Inc. owned by him at the time of exercise at a price of
$29.36 per share. The Put Agreement expired unexercised on December 31, 1994.
There are no compensatory plans or arrangements with respect to any individual
named in the compensation tables, resulting from the individual's resignation,
retirement, or any changes following a change in control of the registrant.
(i) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
There are no interlock or insider participation arrangements involving any
executive or board member of registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following
information is given as of February 7, 1997:
42
<PAGE>
(1) (2) (3) (3) (4)
Title of Name and Type of Amount Percent
Class Address Ownership Owned of Class
- -------------------------------------------------------------------------------
Series B, Frank E. Best, Inc. Of Record 300,000 100%
common c/o Best Lock
Corporation
P. O. Box 50444
Indianapolis, Indiana
46250
Series A, The NBD Bank, N.A. As Trustee 27,262 41%
common One Indiana Square for Stock
Indianapolis, Bonus Plan
Indiana 46204
Series A, Best Lock Partnership Of Record 8,787 13%
common c/o Best Lock
Corporation
P. O. Box 50444
Indianapolis, Indiana
46250
(b) SECURITY OWNERSHIP OF MANAGEMENT. The following information is
given as of February 7, 1997:
Amount Percent
TITLE OF CLASS BENEFICIALLY OWNED OF CLASS
-------------- ------------------ --------
Common stock, $1 par value, of Frank E.
Best, Inc., (registrant's parent)
(Owned by Russell C. Best, Director and
CEO/President) 317,364.00(1) 71%
(Owned by Mariea L. Best, Director and
Vice President) 1.00 0%
(Owned by Gregg A. Dykstra, Director and
Vice President)(2) 1.00 0%
(Owned by Directors and Officers of
registrant, as a group, 3 in number) 317,366.00 71%
Series A, common stock, no par value, of
registrant
(Owned by Russell C. Best, Director and
President) 38,176.00 (3) 57%
(Owned by Mariea L. Best, Director and
Vice President) 1.00 0%
43
<PAGE>
(Owned by Gregg A. Dykstra, Director and
Vice President)(2) 27,263.00 (3) 41%
(Owned by Directors and Officers of the
registrant, as a group, 3 in number) 38,178.00 57%
Series B, common stock, no par value, of registrant
(Owned by Russell C. Best, Director and
President) 300,000.00 (4) 100%
Common stock, no par value, of Lock,
(registrant's subsidiary)
(Owned by Russell C. Best, Director and
President) 107,779.53(5) 89%
(Owned by Mariea L. Best, Director) 1.00 0%
(Owned by Gregg A. Dykstra, Director and
Vice President)(2) 10,537.19(5) 9%
(Owned by Directors and Officers of the
registrant, as a group, 2 in number) 107,780.53 89%
(1) This figure represents Russell C. Best's direct and beneficial ownership
by virtue of his power to vote or direct the voting of 113,311 shares held
by him and 204,053 shares held by Best Lock Partnership.
(2) Gregg A. Dykstra resigned his Director and Vice President positions
effective February 17, 1997.
(3) This figure represents the named individual's direct and beneficial
ownership by virtue of his or her power to vote or to direct the
voting of shares held in his own name (or in the case of Russell C.
Best, 8,787 shares owned by Best Lock Partnership), and shared power
to direct the disposition of 27,262 shares held by the Best Lock
Corporation Stock Bonus Plan.
(4) This figure represents Russell C. Best's beneficial ownership by
virtue of his power to vote or to direct the voting of 300,000 shares
held by Frank E. Best, Inc., of which he has voting control.
(5) This figure represents the named individual's direct and beneficial
ownership by virtue of his power to vote or to direct the voting of
shares held in his own name (or in the case of Russell C. Best,
95,556.34 shares owned by registrant, of which he has voting control),
and shared power to direct the disposition of 10,537.19 shares held by
the Best Lock Corporation Stock Bonus Plan.
(c) CHANGES IN CONTROL. There are no arrangements known to
registrant, the operation of which may at a subsequent date result in a change
in control of the registrant.
44
<PAGE>
(d) SECTION 16(A) REPORTING DELINQUENCIES. Based solely
upon a review of Forms 3 and 4 and amendments thereto provided to the
Corporation during the most recent fiscal year and Form 5 and amendments thereto
furnished to the Corporation with respect to its most recent fiscal year and
written representations from its directors, officers and more than 10%
shareholders, the following sets forth certain information concerning Section
16(a) reporting delinquencies by the above-referenced persons during the
Corporation's most recently completed fiscal year.
With respect to Section 16(a) of the Exchange Act, the
following insider filings were delinquent: Mark G. Ahearn, Form 3; Paula J.
Tinkey, Form 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS. On May 5, 1994,
Best Lock Corporation'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 Best Lock Corporation and Russell C. Best. On May 18,
1994, $3.4 million was borrowed by Russell C. Best under the terms of the loan,
which include repayment over a thirty (30) year period in equal annual
installments of $279,519, including interest at 7.2%
(b) CERTAIN BUSINESS RELATIONSHIPS. Larry W. Rottmeyer became a
Director of registrant in 1995. Mr. Rottmeyer resigned as a Director on
February 26, 1996. During Mr. Rottmeyer's directorship, he was also a Director
and a greater than 10% equity owner of Marcon, Inc. until June 9, 1995. Lock
purchased market research services from Marcon, Inc., during 1995 and 1994,
paying $547,942 and $291,716 for such services, respectively. Eric M. Fogel,
Director from October 30, 1995 until March 1, 1996, is a partner in the law firm
of Holleb & Coff. Registrant paid Holleb & Coff $438,399 in 1996 and $112,221
in 1995 for legal services.
(c) Indebtedness of management. There was no indebtedness to
the registrant at any time since the beginning of the registrant's last fiscal
year in an amount in excess of $60,000 by any (1) executive officer, director,
nominee for director, or immediate family member of the preceding; (2) entity in
which any executive officer or director is an executive officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; or (3) trust or estate in which any executive officer or
director has a substantial beneficial interest or as to which he serves as a
trustee or in a similar capacity, other than the indebtedness described in (a)
above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS: All required financial statements and
schedules are included in Item 8 of this Form 10-K.
(b) REPORTS ON FORM 8-K: None filed in last quarter of 1996.
Exhibits are omitted because they are not required or because the
required information is included in the notes to consolidated financial
statements.
45
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized and representing a
majority of the Board of Directors.
Date: March 31, 1997
BEST UNIVERSAL LOCK CO.
By: /s/ Russell C. Best By: /s/ Mariea L. Best
-------------------------- --------------------------
Russell C. Best Mariea L. Best
Chief Executive Officer Director
and Director
By: /s/ Paula J. Tinkey
----------------------------
Paula J. Tinkey
Controller
Principal Accounting Officer
46
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INDEX TO EXHIBITS
Exhibit
-------
3(ii) Bylaws
21 Subsidiaries (incorporated by reference in Note 1 to the
consolidated financial statements)
27 Financial Data Schedule
47
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
BEST UNIVERSAL LOCK, CO.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . 1
2.1 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . 1
2.3 MEETINGS BY COMMUNICATION EQUIPMENT. . . . . . . . . . . . . 1
2.4 DATE, TIME AND PLACE OF MEETING. . . . . . . . . . . . . . . 1
2.5 NOTICE OF MEETING. . . . . . . . . . . . . . . . . . . . . . 2
2.6 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . 2
2.7 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS . . . . . 2
2.8 VOTING RECORD. . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 MANNER OF ACTING. . . . . . . . . . . . . . . . . . . . . . 3
2.11 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 VOTING OF SHARES. . . . . . . . . . . . . . . . . . . . . . 4
2.13 VOTING FOR DIRECTORS. . . . . . . . . . . . . . . . . . . . 4
2.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING. . . . . . . . . . 4
ARTICLE 3. BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . 5
3.1 GENERAL POWERS . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 NUMBER AND TENURE. . . . . . . . . . . . . . . . . . . . . . 5
3.3 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . 5
3.4 ANNUAL AND REGULAR MEETINGS. . . . . . . . . . . . . . . . . 6
3.5 SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . 6
3.6 MEETINGS BY COMMUNICATIONS EQUIPMENT . . . . . . . . . . . . 6
3.7 NOTICE OF SPECIAL MEETINGS . . . . . . . . . . . . . . . . . 6
3.7.1 PERSONAL DELIVERY. . . . . . . . . . . . . . . . . . . 6
3.7.2 DELIVERY BY MAIL . . . . . . . . . . . . . . . . . . . 6
3.7.3 DELIVERY BY PRIVATE CARRIER. . . . . . . . . . . . . . 7
3.7.4 FACSIMILE NOTICE . . . . . . . . . . . . . . . . . . . 7
3.7.5 ORAL NOTICE . . . . . . . . . . . . . . . . . . . . . 7
3.8 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . 7
3.8.1 IN WRITING . . . . . . . . . . . . . . . . . . . . . . 7
3.8.2 BY ATTENDANCE. . . . . . . . . . . . . . . . . . . . . 7
3.9 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.10 MANNER OF ACTING. . . . . . . . . . . . . . . . . . . . . . 8
3.11 PRESUMPTION OF ASSENT . . . . . . . . . . . . . . . . . . . 8
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING . . . . . . 8
3.13 RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . 8
3.14 REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.15 VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.16 EXECUTIVE AND OTHER COMMITTEES. . . . . . . . . . . . . . . 9
3.16.1 CREATION OF COMMITTEES . . . . . . . . . . . . . . . 9
3.16.2 AUTHORITY OF COMMITTEES . . . . . . . . . . . . . . 9
3.16.3 QUORUM AND MANNER OF ACTING . . . . . . . . . . . . 9
3.16.4 MINUTES OF MEETINGS . . . . . . . . . . . . . . . . 10
3.16.5 RESIGNATION . . . . . . . . . . . . . . . . . . . . 10
3.16.6 REMOVAL . . . . . . . . . . . . . . . . . . . . . . 10
3.17 COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . 10
i
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ARTICLE 4. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 APPOINTMENT AND TERM . . . . . . . . . . . . . . . . . . . . 10
4.2 RESIGNATION. . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 CONTRACT RIGHTS OF OFFICERS. . . . . . . . . . . . . . . . . 11
4.5 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.6 CHIEF EXECUTIVE OFFICER. . . . . . . . . . . . . . . . . . . 11
4.7 VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . 12
4.8 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.9 TREASURER. . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10 CONTROLLER. . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 SALARIES AND OTHER COMPENSATION . . . . . . . . . . . . . . 13
ARTICLE 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS . . . . . . . . . . 13
5.1 CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 LOANS TO THE CORPORATION . . . . . . . . . . . . . . . . . . 13
5.3 CHECKS AND DRAFTS. . . . . . . . . . . . . . . . . . . . . . 13
5.4 DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER. . . . . . . . 14
6.1 ISSUANCE OF SHARES . . . . . . . . . . . . . . . . . . . . . 14
6.2 CERTIFICATES FOR SHARES. . . . . . . . . . . . . . . . . . . 14
6.3 STOCK RECORDS. . . . . . . . . . . . . . . . . . . . . . . . 14
6.4 TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . 14
6.5 LOST OR DESTROYED CERTIFICATES . . . . . . . . . . . . . . . 14
ARTICLE 7. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 8. ACCOUNTING YEAR . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 9. SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 10. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 16
10.1 RIGHT TO INDEMNIFICATION. . . . . . . . . . . . . . . . . . 16
10.2 PREPAYMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . 16
10.3 CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.4 NON-EXCLUSIVITY OF RIGHTS . . . . . . . . . . . . . . . . . 17
10.5 OTHER INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 17
10.6 AMENDMENT OR REPEAL . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 11. INTERESTED DIRECTOR CONTRACTS AND TRANSACTIONS . . . . . 17
ARTICLE 12. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . 18
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AMENDED AND RESTATED
BYLAWS
OF
BEST UNIVERSAL LOCK CO.
ARTICLE 1. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the Board of Directors ("Board") may
designate. The corporation may have such other offices, either within or without
the State of Delaware, as the Board may designate or as the business of the
corporation may require from time to time.
ARTICLE 2. SHAREHOLDERS
2.1 ANNUAL MEETING.
The annual meeting of the shareholders shall be held at such date, time and
location as the Board may designate, for the purpose of electing Directors and
transacting such other business as may properly come before the meeting.
2.2 SPECIAL MEETINGS.
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 50% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 MEETINGS BY COMMUNICATION EQUIPMENT.
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
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2.4 DATE, TIME AND PLACE OF MEETING.
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Delaware, designated by or at the direction of the Board.
2.5 NOTICE OF MEETING.
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting. Such notice may be transmitted by mail, private carrier, personal
delivery or communications equipment which transmits a facsimile of the notice
to like equipment which receives and reproduces such notice. If such notice is
mailed, it shall be deemed effective when deposited in the official government
mail, first-class postage prepaid, properly addressed to the shareholder at such
shareholder's address as it appears in the corporation's current record of
shareholders. Notice given in any other manner shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation.
2.6 WAIVER OF NOTICE.
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance thereat in
person or by proxy, unless such shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
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2.7 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS.
For the purpose of determining shareholders entitled (a) to notice of or to
vote at any meeting of shareholders or any adjournment thereof, (b) to demand a
special meeting, or (c) to receive payment of any dividend, or in order to make
a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than 60 days, and in case of a meeting of shareholders not
less than 10 days prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date. If no
record date is set for the determination of shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, the record date shall be the date the Board
adopted the resolution relating thereto or authorized such action.
2.8 VOTING RECORD.
At least 10 days before each meeting of shareholders, an alphabetical list
of the shareholders entitled to notice of such meeting shall be made, with the
address of and number of shares held by each shareholder. This record shall be
kept at the principal office of the corporation for 10 days prior to such
meeting, and shall be kept open at such meeting, for the inspection of any
shareholder or any shareholder's agent.
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2.9 QUORUM.
A majority of the votes entitled to be cast on a matter by the holders of
shares that, pursuant to the Certificate of Incorporation or the Delaware
General Corporation Law, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business thereat, it is
deemed present for quorum purposes for the remainder of the meeting and any
adjournment thereof (unless a new record date is or must be set for the
adjourned meeting) notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
2.10 MANNER OF ACTING.
If a quorum is present, action on a matter shall be approved if the votes
cast in favor of the action by the shares entitled to vote and be counted
collectively upon such matter exceed the votes cast against such action by the
shares entitled to vote and be counted collectively thereon, unless the
Certificate of Incorporation or the Delaware General Corporation Law requires a
greater number of affirmative votes.
2.11 PROXIES.
A shareholder may vote by proxy executed in writing by the shareholder or
by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 3 years after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle the holder thereof to vote at any reconvened meeting
following adjournment of such meeting but shall not be valid after the final
adjournment thereof.
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2.12 VOTING OF SHARES.
Except as otherwise provided in the Certificate of Incorporation, each
outstanding share entitled to vote with respect to a matter submitted to a
meeting of shareholders shall be entitled to one vote upon such matter.
2.13 VOTING FOR DIRECTORS.
Each shareholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such shareholder for as many
persons as there are Directors to be elected and for whose election such
shareholder has a right to vote. Unless otherwise provided in the Certificate of
Incorporation, the candidates elected shall be those receiving the largest
number of votes cast, up to the number of Directors to be elected. Cumulative
voting for Directors is prohibited.
2.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING.
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting if one or more written consents setting forth the action
so taken are signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and delivered to the corporation. If not otherwise fixed by the Board, the
record date for determining shareholders entitled to take action without a
meeting is the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by this chapter, the record date for determining
shareholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action. Action taken by
written consent of shareholders without a meeting is effective when all required
consents are in the possession of the corporation, unless the consent specifies
a later effective date. Any such consent shall be inserted in the minute book as
if it were the minutes of a meeting of the shareholders. Prompt notice of the
taking of the corporate action without a meeting by LESS THAN UNANIMOUS WRITTEN
CONSENT shall be given to those shareholders or members, as the case may be, who
have not consented in writing.
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ARTICLE 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS.
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the
Certificate of Incorporation or the Delaware General Corporation Law.
3.2 NUMBER AND TENURE.
The Board shall be composed of no fewer than three and no more than eleven
Directors. The number of Directors may be changed from time to time by amendment
to these Bylaws, but no decrease in the number of Directors shall have the
effect of shortening the term of any incumbent Director. Unless a Director dies,
resigns, or is removed, his or her term of office shall expire at the next
annual meeting of shareholders; provided, however, that a Director shall
continue to serve until his or her successor is elected and qualified or until
there is a decrease in the authorized number of Directors. Directors need not be
shareholders of the corporation or residents of the State of Delaware and need
not meet any other qualifications.
3.3 CHAIRMAN OF THE BOARD.
The Board shall elect a director as chairman, which director shall be known
as the Chairman of the Board. The Chairman of the Board shall preside at all
meetings of the Board, and in addition, shall perform the following functions:
a. general planning and management of all functions of the Board of
Directors;
b. organization of Board committees and assignments thereto;
c. recruitment and nomination of additional or successor directors;
d. determining the agenda for all Board meetings; and
e. development of Board members as appropriate for effectiveness on
behalf of shareholders.
The Chairman of the Board shall serve for a term of one (1) year and shall be
elected at the annual meeting; PROVIDED, HOWEVER, that the initial Chairman of
the Board shall be elected by Written Consent of the Board of Directors and
shall serve until the next ensuing annual meeting.
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3.4 ANNUAL AND REGULAR MEETINGS.
An annual Board meeting shall be held at such date, time, and location as
the board may designate.
3.5 SPECIAL MEETINGS.
Special meetings of the Board or any committee designated by the Board may
be called by or at the request of the Chairman of the Board, the President, and
in the case of any special meeting of any committee designated by the Board, by
the Chairman thereof. The person or persons authorized to call special meetings
may fix any place either within or without the State of Delaware as the place
for holding any special Board or committee meeting called by them.
3.6 MEETINGS BY COMMUNICATIONS EQUIPMENT.
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.7 NOTICE OF SPECIAL MEETINGS.
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally. Neither
the business to be transacted at, nor the purpose of, any special meeting need
be specified in the notice of such meeting.
3.7.1 PERSONAL DELIVERY.
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two days before the meeting.
3.7.2 DELIVERY BY MAIL.
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting,
properly addressed to a Director at his or her address shown on the records of
the corporation, with postage thereon prepaid.
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3.7.3 DELIVERY BY PRIVATE CARRIER.
If notice is given by private carrier, the notice shall be deemed effective
when dispatched to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.7.4 FACSIMILE NOTICE.
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.7.5 ORAL NOTICE.
If notice is delivered orally, by telephone or in person, the notice shall
be deemed effective if personally given to the Director at least two days before
the meeting.
3.8 WAIVER OF NOTICE.
3.8.1 IN WRITING.
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board or any committee designated by
the Board need be specified in the waiver of notice of such meeting.
3.8.2 BY ATTENDANCE.
A Director's attendance at or participation in a Board or committee meeting
shall constitute a waiver of notice of such meeting, unless the Director at the
beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
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3.9 QUORUM.
A majority of the number of Directors fixed by or in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
3.10 MANNER OF ACTING.
If a quorum is present when the vote is taken, the act of the majority of
the Directors present at a Board meeting shall be the act of the Board, unless
the vote of a greater number is required by these Bylaws, the Certificate of
Incorporation or the Delaware General Corporation Law.
3.11 PRESUMPTION OF ASSENT.
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING.
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
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3.13 RESIGNATION.
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President or the Secretary. Any such resignation is
effective upon delivery thereof unless the notice of resignation specifies a
later effective date and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
3.14 REMOVAL.
At a meeting of shareholders called expressly for that purpose, or in
accordance with the provisions of Article 2.14 of these Bylaws, one or more
members of the Board, including the entire Board, may be removed with or without
cause by the holders of a majority of the shares then entitled to vote at an
election of Directors.
3.15 VACANCIES.
Unless the Certificate of Incorporation provides otherwise, any vacancy
occurring on the Board may be filled by the shareholders or the remaining
numbers of the Board. A Director elected to fill a vacancy shall serve only
until the next election of Directors by the shareholders.
3.16 EXECUTIVE AND OTHER COMMITTEES.
3.16.1 CREATION OF COMMITTEES.
The Board, by resolution adopted by a majority of the members, may create
standing or temporary committees, including an Executive Committee, and appoint
members thereto from its own number and invest such committees with such powers
as it may see fit, subject to such conditions as may be prescribed by the Board,
these Bylaws and applicable law. Each committee must have one or more members,
who shall serve at the pleasure of the Board.
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3.16.2 AUTHORITY OF COMMITTEES.
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (1) adopt,
amend or repeal Bylaws, (2) amend the Certificate of Incorporation, (3) adopt an
agreement of merger or consolidation under Sections 251, 252, 254, 255, 256,
257, 158, 263 or 264 of the Delaware General Corporation Law, (4) recommend to
the shareholders the sale, lease, or exchange of all or substantially all of the
corporation's property or assets; or (5) recommend to the shareholders a
dissolution of the corporation or a revocation of a dissolution.
3.16.3 QUORUM AND MANNER OF ACTING.
A majority of the number of Directors composing any committee of the Board,
as established and fixed by resolution of the Board, shall constitute a quorum
for the transaction of business at any meeting of such committee but, if less
than a majority are present at a meeting, a majority of such Directors present
may adjourn the meeting from time to time without further notice. Except as may
be otherwise provided in the Delaware General Corporation Law, if a quorum is
present when the vote is taken, the act of a majority of the members present
shall be the act of the committee.
3.16.4 MINUTES OF MEETINGS.
All committees shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose.
3.16.5 RESIGNATION.
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the President, the Secretary or the
Board. Any such resignation is effective upon delivery thereof, unless the
notice of resignation specifies a later effective date, and the acceptance of
such resignation shall not be necessary to make it effective.
3.16.6 REMOVAL.
The Board may remove any member of any committee elected or appointed by it
but only by the affirmative vote of a majority of the members.
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3.17 COMPENSATION.
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE 4. OFFICERS
4.1 APPOINTMENT AND TERM.
The officers of the corporation shall be a President, a Chief Executive
Officer, one or more Vice Presidents, a Secretary, a Treasurer, a Controller,
and any other officers appointed from time to time by the Board or by any other
officer empowered to do so. The Board shall have sole power and authority to
appoint and remove executive officers. As used herein, the term "executive
officer" shall mean the Chief Executive Officer, the President, any Vice
President, the Secretary, the Treasurer, and the Controller. The Board or the
President may appoint such other officers and assistant officers to hold office
for such period, have such authority and perform such duties as may be
prescribed. The Board may delegate to any other officer the power to appoint any
subordinate officers and to prescribe their respective terms of office,
authority and duties. Any two or more offices may be held by the same person.
Unless an officer dies, resigns or is removed from office, he or she shall hold
office until his or her successor is appointed.
4.2 RESIGNATION.
Any officer may resign at any time by delivering written notice thereof to
the corporation. Any such resignation is effective upon delivery thereof, unless
the notice of resignation specifies a later effective date; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
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4.3 REMOVAL.
Any officer may be removed at any time, with or without cause, by the Board
or by a signed writing delivered to the Secretary of the Corporation by the
holders of a majority of the Corporation's outstanding common stock. An officer
or assistant officer, if appointed by another officer, may be removed by any
officer authorized to appoint officers or assistant officers.
4.4 CONTRACT RIGHTS OF OFFICERS.
The appointment of an officer does not itself create contract rights.
4.5 PRESIDENT.
The President shall be the chief executive officer of the corporation
unless some other officer is so designated by the Board, shall preside over
meetings of the Board and shareholders in the absence of a Chairman of the
Board, and, subject to the Board's control, shall supervise and control all of
the assets, business and affairs of the corporation. In general, the President
shall perform all duties incident to the office of President and such other
duties as are prescribed by the Board from time to time. Unless the Board
expressly directs otherwise, the President shall have the duty and the authority
to cast the corporation's vote with respect to any shares of the stock or
securities of any other corporation or entity which are held by the corporation.
If no person is serving as Secretary, the President shall have responsibility
for the preparation of minutes of meetings of the Board and shareholders and for
authentication of the records of the corporation.
In the event of the death of the President or his or her inability to act,
the member of the Board of Directors with the longest continuous service on the
Board of Directors; or in the event of his or her death or inability to act, the
Chief Executive Officer; or in the event or his or her death or inability to
act, the Vice President who is also the Chief Operating Officer, shall perform
the duties of the President, except as may be limited by resolution of the Board
of Directors, with all the powers of and subject to the restrictions upon the
President.
4.6 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall perform such duties as shall be assigned
to him or her by the President or Board from time to time.
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4.7 VICE PRESIDENT.
Vice Presidents shall perform such duties as from time to time may be
assigned to them by the President or by or at the direction of the Board.
4.8 SECRETARY.
The Secretary shall be responsible for preparation of minutes of the
meetings of the Board and shareholders, maintenance of the corporation's records
and stock registers, and authentication of the corporation's records and shall
in general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the President or by
or at the direction of the Board. In the absence of the Secretary, an Assistant
Secretary may perform the duties of the Secretary.
4.9 TREASURER.
The Treasurer shall have charge and custody of and be responsible for all
funds and securities of the corporation, receive and give receipts for moneys
due and payable to the corporation from any source whatsoever, and deposit all
such moneys in the name of the corporation in banks, trust companies or other
depositories selected in accordance with the provisions of these Bylaws, and in
general perform all of the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him or her by the President
or by or at the direction of the Board. In the absence of the Treasurer, an
Assistant Treasurer may perform the duties of the Treasurer. If required by the
Board, the Treasurer or any Assistant Treasurer shall give a bond for the
faithful discharge of his or her duties in such amount and with such surety or
sureties as the Board shall determine.
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4.10 CONTROLLER
The Controller shall be responsible for the preparation and distribution of
all financial statements and other such information as may necessarily accompany
financial statements both internally to the corporation and to such external
entities as are required by law or otherwise, and in general perform all of the
duties incident to the Office of Controller and such other duties as from time
to time may be assigned to him or her by the President or by or at the direction
of the Board.
4.11 SALARIES AND OTHER COMPENSATION.
The salaries and other compensation of the officers shall be fixed from
time to time by the Board or by any person or persons to whom the Board has
delegated such authority. No officer shall be prevented from receiving such
salary by reason of the fact that he or she is also a Director of the
corporation.
ARTICLE 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS.
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 LOANS TO THE CORPORATION.
No significant loans shall be contracted on behalf of the corporation and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 CHECKS AND DRAFTS.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board.
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5.4 DEPOSITS.
All funds of the corporation, except for petty cash, not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board may select.
ARTICLE 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES.
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
6.2 CERTIFICATES FOR SHARES.
All stock certificates shall be signed in the name of the corporation by
the chairman or vice chairman of the board of directors, or the president or
vice president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary. Any or all signatures on a certificate may be a
facsimile. A record of each certificate shall be kept with the stub, and a stock
record book shall be kept showing the holders of all outstanding certificates of
stock.
6.3 STOCK RECORDS.
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
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6.4 TRANSFER OF SHARES.
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.5 LOST OR DESTROYED CERTIFICATES.
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
ARTICLE 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its shareholders
and the Board, a record of all actions taken by the shareholders or the Board
without a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
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1. the Certificate of Incorporation and all amendments thereto as
currently in effect;
2. the Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three years;
4. financial statements for the past three years;
5. all written communications to shareholders generally within the
past three years;
6. a list of the names and business addresses of the current
Directors and officers; and
7. the most recent annual report delivered to the Delaware Secretary
of State.
ARTICLE 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected by the Board for
purposes of federal income taxes, or any other purpose, the accounting year
shall be the year so selected.
ARTICLE 9. SEAL
The Board may provide for a corporate seal which shall consist of the name
of the corporation, the state of its incorporation and the year of its
incorporation.
18
<PAGE>
ARTICLE 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION.
The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
any person who was or is made or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative, or investigative (a "Proceeding") by reason of the fact that he,
or a person for whom he is the legal representative, is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust enterprise or non-profit
entity, including service with respect to employee benefits plans, against all
liability and loss suffered and expenses reasonably incurred by such person. The
corporation shall be required to indemnify a person in connection with a
proceeding initiated by such person only if the proceeding was authorized by the
Board of Directors of the corporation.
10.2 PREPAYMENT OF EXPENSES.
The corporation shall pay the expenses incurred in defending any proceeding
in advance of its final disposition, provided, however, that the payment of
expenses incurred by a director, officer or employee in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director, officer or employee to repay all amounts advanced if it should
be ultimately determined that the director, officer or employee is not entitled
to be indemnified under this Article or otherwise.
10.3 CLAIMS.
If a claim for indemnification or payment of expenses under this Article is
not paid in full with sixty days after a written claim therefore has been
received by the corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
19
<PAGE>
10.4 NON-EXCLUSIVITY OF RIGHTS.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, these by-laws,
agreement, vote of shareholders or disinterested directors or otherwise.
10.5 OTHER INDEMNIFICATION.
The corporation's obligation, if any, to indemnify any person who was or is
serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or
nonprofit enterprise.
10.6 AMENDMENT OR REPEAL.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
20
<PAGE>
ARTICLE 11. INTERESTED DIRECTOR CONTRACTS AND TRANSACTIONS
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
shareholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE 12. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board. The shareholders may also alter, amend and repeal these
Bylaws or adopt new Bylaws. All Bylaws made by the Board may be amended,
repealed, altered or modified by the shareholders.
The foregoing Bylaws were adopted by the Board on May 31, 1996.
BEST UNIVERSAL LOCK CO.
/s/ Russell C. Best
-------------------
Chairman of the Board
21
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