UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
A. O. Smith Corporation
(Name of Issuer)
Common Stock, $1.00 par value
(Title of Class of Securities)
831865209
(CUSIP Number)
Wesley A. Ulrich c/o Smith Investment Company,
11270 West Park Place, Milwaukee, WI 53224/(414) 359-4030
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
(See Item 4)
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box [_].
Check the following box if a fee is being paid with the statement [_].
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent
of the class of securities described in Item 1; and (2) has filed no
amendment subsequent thereto reporting beneficial ownership of five
percent or less of such class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that Section of the Act but shall be subject to all other provisions of
the Act (however, see the Notes).
CUSIP No. 831865209
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Smith Investment Company 39-6043416
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [_]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Nevada
7 SOLE VOTING POWER
NUMBER OF
1,039,384
SHARES
8 SHARED VOTING POWER
BENEFICIALLY
-0-
OWNED BY
9 SOLE DISPOSITIVE POWER
EACH
1,039,384
REPORTING
PERSON
10 SHARED DISPOSITIVE POWER
WITH
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,039,384
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.9%* (See Item 4)
14 TYPE OF REPORTING PERSON*
CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Item 1. Security and Issuer.
Security: Common Stock, $1.00 par value ("Stock")
Issuer: A. O. Smith Corporation, a Delaware corporation
Principal Executive Office: 11270 West Park Place
Milwaukee, WI 53224
Item 2. Identity and Background of Reporting Person.
(a) Name: Smith Investment Company, a Nevada corporation
(b) Business Address: 11270 West Park Place
Milwaukee, WI 53224
(c) Present principal occupation:
The principal business of the Reporting Person is to act as an
operating company. It holds certain Stock and Class A Common
Stock, $5 par value per share ("Class A Stock"), of the Issuer
as elaborated in Item 5; operates a division, Belvedere Company,
1 Belvedere Boulevard, Belvidere, Illinois 61008-8596, which
manufactures beauty salon furniture and fixtures; manages Berlin
Industries, Inc., 175 Mercedes Drive, Carol Stream, Illinois
60188-9401, a wholly-owned subsidiary of the Reporting Person,
which engages in commercial printing; and manages Central States
Distribution Service, Inc., P.O. Box 682, 3401 Lynch Creek
Drive, Danville, Illinois 61832, a wholly-owned subsidiary of
the Reporting Person, which engages in trucking, packaging and
public warehousing.
The name, business address and present principal occupation or
employment of each executive officer, director and controlling
shareholder of the Reporting Person are set forth on Annex A.
(d) During the last five years, neither the Reporting Person, nor
any of its directors or executive officers, has been convicted
in a criminal proceeding.
(e) During the last five years, neither the Reporting Person, nor
any of its directors or executive officers, has been a party to
any civil proceeding of a judicial or administrative body as a
result of which proceeding it was or is subject to any judgment,
decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, Federal or state
securities laws or finding any violation with respect to such
laws.
(f) Citizenship: All individuals listed on Annex A are U. S.
citizens.
Item 3. Source and Amount of Funds or Other Consideration.
No purchases (and hence no funds or other consideration) are
reflected herein.
Item 4. Purpose of Transaction.
On January 19, 1998, the Issuer issued a press release (the
"Release"), a copy of which is filed as Exhibit 1 hereto. Pursuant to the
Release, the Reporting Person learned that the Issuer had acquired a
significant portion of its own shares of Stock. As a result, the
Reporting Person made a good faith effort to determine the current number
of issued and outstanding shares of the Issuer's Stock and whether it
should file an amendment to its Schedule 13D. The Reporting Person
determined that the Issuer's acquisition of its own Stock increased the
percentage of Issuer's Stock beneficially owned by the Reporting Person
from 6.9% to 9.9%, based on the number of shares outstanding as of
December 31, 1997. This increase was passive as the Reporting Person
acquired no Stock of the Issuer, but, instead experienced an increase in
beneficial ownership solely as a result of the Issuer acquiring its own
Stock as part of an ongoing plan, on the part of the Issuer, to repurchase
certain of its own shares of Stock.
The Reporting Person has provided the foregoing disclosure for
informational purposes only and does not thereby admit that the
acquisition by the Issuer of its own stock is a "plan or proposal" of the
Reporting Person. The position of the Reporting Person is that such
transactions represent the plan and proposal of the Issuer and has been
pursued only with the approval of the Issuer's Board of Directors.
The Reporting Person does not have any present plans or proposals
which relate to or would result in any of the items described in
subparagraphs (a) through (j) of Item 4, Schedule 13D, other than as
described above.
Item 5. Interest in Securities of the Issuer.
(a)-(b) The Reporting Person beneficially owns an aggregate of
1,039,384 shares of Stock, representing 9.9% of the Issuer's issued and
outstanding Stock as of December 31, 1997. The Reporting Person has sole
voting and sole dispositive power over such shares. As of December 31,
1997, the Reporting Person owned 5,378,168 shares of Class A Stock, or
approximately 92.4% of the outstanding shares of Class A Stock. The
Reporting Person has sole power to vote and dispose of such shares.
Mr. Glen R. Bomberger beneficially owns an aggregate of 16,440 shares
of Stock, representing approximately 0.2% of the Issuer's issued and
outstanding Stock as of December 31, 1997. Mr. Bomberger has sole voting
and sole dispositive power over such shares. Mr. Bomberger also holds
options for 200,900 shares of Stock, of which 184,700 were exercisable as
of December 31, 1997.
Mr. Jere D. McGaffey beneficially owns an aggregate of 300 shares of
Stock, representing approximately 0.003% of the Issuer's issued and
outstanding Stock as of December 31, 1997. Mr. McGaffey has sole voting
and sole dispositive power over such shares.
Mr. Arthur O. Smith is Chairman and Chief Executive Officer and a
director of Smith Investment Company; during 1993, Mr. Lloyd B. Smith
retired as Vice President and a director of Smith Investment Company.
On December 31, 1997, Arthur O. Smith owned beneficially 118,445
shares, and his wife owned of record and beneficially 3,485 shares of the
outstanding capital stock of the Reporting Person and 199,130 shares were
held in various trusts for the benefit of the wife and issue of Arthur O.
Smith. On December 31, 1997, Lloyd B. Smith owned beneficially 962 shares
of the outstanding capital stock of the Reporting Person and 312,043
shares were held in various trusts for the benefit of the wife and issue
of Lloyd B. Smith. In addition, Messrs. Smith were trustees of various
trusts for the benefit of persons other than themselves, their wives and
issue, which trusts held an aggregate of 501,910 shares of the capital
stock of the Reporting Person outstanding on December 31, 1997. Messrs.
Smith have shared investment and voting power on all trusts for which they
are co-trustees. On all other trusts one or the other shares trust powers
with at least one other person. The shares of capital stock of the
Reporting Person held beneficially by Messrs. Smith and their wives,
together with shares held by Messrs. Smith in trust for others comprised
68.5% of the 1,658,533 outstanding shares of capital stock of the
Reporting Person on December 31, 1997. Messrs. Smith disclaim that any of
the foregoing interests in the capital stock of the Reporting Person
constitute beneficial ownership of any Stock of A. O. Smith Corporation.
(c) Not applicable.
(d) (See Item 6)
(e) Not applicable.
Item 6. Contracts, Etc.
The Reporting Person has pledged 1,500,000 shares of Class A Stock
(approximately 25.8% of the outstanding shares of Class A Stock as of
December 31, 1997) beneficially owned by it to secure a note due 2003
issued by the Reporting Person to Aid Association for Lutherans (the
"Pledgee"). Upon the occurrence of an event of default (including failure
to pay principal when due), the Pledgee has the right to vote or, after
notice, to sell the pledged shares of Class A Stock. The Pledgee also
has, upon the occurrence of and during the continuation of an event of
default, the right to receive dividends on the pledged Class A Stock.
Further, under the agreement all of the shares of Class A Stock owned by
the Reporting Person are subject to a negative pledge. For further
information reference is made to Exhibit 3, the Pledge Agreement.
Item 7. Exhibits.
1. Press Release, dated January 19, 1998, of Issuer.
2. Loan Agreement, dated June 15, 1993, between Smith Investment
Company and Aid Association for Lutherans.
3. Pledge Agreement, dated June 30, 1993, between Smith Investment
Company and Aid Association for Lutherans.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true,
complete and correct.
Dated: February 26, 1998.
Smith Investment Company
By: /s/ Wesley A. Ulrich
Wesley A. Ulrich
Secretary and Treasurer
Annex A
The following table sets forth certain information about the
executive officers and directors of Reporting Person.
Principal Occupation
Name Position or Employment
A. O. Smith Chairman, Chief Executive Chief Executive
Officer and Director Officer of Smith
Investment Company
J. D. McGaffey Director Attorney at Law
A. O. Smith, III Director Employee of A. O.
Smith Corporation
B. M. Smith President and Director President of Smith
Investment Company
G. R. Bomberger Vice President and Executive Vice
Director President and Chief
Financial Officer of
A. O. Smith
Corporation
W. A. Ulrich Secretary and Treasurer Secretary and
Treasurer of Smith
Investment Company
H. M. Stratton, II Director President and Chief
Executive Officer of
STRATTEC Security
Corporation
L. B. Smith Retired Retired
The business address of each person listed above, other than Jere D.
McGaffey and Harold M. Stratton, II, and Arthur O. Smith, III is 11270
West Park Place, Milwaukee, Wisconsin 53224. Mr. McGaffey's business
address is Foley & Lardner, 777 E. Wisconsin Avenue, Milwaukee, Wisconsin
53202. Mr. Stratton's business address is STRATTEC Security Corporation,
3333 West Good Hope Road, Milwaukee, Wisconsin 53209. Mr. Smith's
business address is A. O. Smith Corporation, 531 North 4th Street, Tipp
City, Ohio 45371.
Messrs. Arthur O. Smith and Lloyd B. Smith may be deemed to be
controlling shareholders of the Reporting Person.
A O SMITH CORPORATION
For Release: IMMEDIATE
January 19, 1998
Contact: Edward J. O'Connor
Vice President-Human Resources & Public Affairs
P.O. Box 23974
Milwaukee, WI 53223-0974
(414) 359-4100
A. O. Smith 1997 earnings increase 68% to $2.00 per share
Fourth quarter earnings doubled, to $.56 per share
Milwaukee, Wis.---A. O. Smith Corporation (AOS-NYSE) today announced
1997 earnings increased 49 percent to $37.6 million, compared with 1996
earnings of $25.2 million.
Earnings per share of $2.00 (diluted) were 68 percent higher than the
$1.19 per share earned in 1996, underscoring the additional benefit of the
company's share repurchase program. Sales of $833 million were $52
million higher than 1996 sales of $781 million.
For the fourth quarter, earnings from continuing operations were $9.7
million or $.56 per share (diluted), significantly higher than the $6.0
million or $.28 per share earned during the same period in 1996. Sales of
$206 million represented a seven percent increase over fourth quarter 1996
sales of $192 million.
During the fourth quarter, the company completed the sale of its
Mexican automotive affiliate, Metalsa, bringing the divesture of its
automotive operations to a conclusion.
"The company was able to achieve its earnings objectives despite
recurring challenges in several of our major markets," Robert J. O'Toole,
chairman and chief executive officer, observed. "The acquisition of
UPPCO, reductions in general and administrative expense and higher
interest income contributed to the significant improvement in earnings."
Sales in the Electric Motor Technologies platform increased nearly 16
percent to a record $391 million. The March 31 acquisition of UPPCO, a
manufacturer of subfractional horsepower electric motors, added
approximately $57 million to 1997 sales. The company was able to overcome
a nearly 10 percent decline in the domestic air conditioning industry,
with sales of fractional horsepower and hermetic motors approximately the
same as in the prior year. Operating profits were moderately higher than
1996 due to contributions from the UPPCO acquisition.
Water Systems Technologies' sales of $287 million were slightly lower
than 1996 sales of $291 million. Higher sales of commercial water heaters
and boilers were offset by second-half weakness in the residential water
heater market. 1997 marked the sixth consecutive year that A. O. Smith
has increased its sales in the important commercial water heating market
segment. Profits were essentially unchanged compared with 1996.
Sales of the Storage and Fluid Handling Technologies platform of $155
million were slightly higher than 1996 sales of $153 million. Improved
performance by the Smith Fiberglass unit was partially offset by lower
sales of liquid storage tanks. Operating profits were essentially flat in
1997.
The company also announced that its Board of Directors approved an
authorization to repurchase an additional $50 million of its Common Stock
and Class A Common Stock. The company reported that it has nearly
completed the previous authorization to repurchase $80 million of common
stock granted on June 10, 1997. Since the inception of the program in
January of last year, the company has repurchased approximately 4.9
million shares for $181 million, representing 23 percent of the total
shares outstanding. As of January 19, 1998, there were 16.2 million
shares of Common Stock and Class A Common Stock issued and outstanding.
The Board of Directors also today declared a regular quarterly cash
dividend of $.17 per share on Common Stock and Class A Common Stock. The
dividend is payable February 17 to shareholders of record January 31,
1998.
A. O. Smith Corporation is a diversified manufacturer with
headquarters in Milwaukee, Wis. Its major product lines include
fractional horsepower, subfractional horsepower, and hermetic electric
motors; residential and commercial water heaters; industrial storage
tanks; and fiberglass reinforced plastic pipe.
A.O. SMITH CORPORATION AND SUBSIDIARIES
(condensed consolidated financial statements -
$000 omitted except per share data)
Statement of Earnings
Three Months ended Year ended
December 31 December 31
Continuing 1997 1996 1997 1996
Sales
Electric Motor Technologies $ 91,970 $ 73,094 $390,749 $337,138
Water Systems Technologies 76,240 79,943 287,458 291 281
Storage & Fluid Handling
Technologies 37,577 38,777 154,730 152,774
------- ------- ------- -------
Net Sales 205,787 191,814 832,937 781,193
Costs and Expenses
Cost of Products Sold 165,421 150,546 662,227 614,218
Selling, General and
Administrative 24,748 25,734 106,999 107,350
Interest Expense 1,160 2,231 7,762 8,114
Interest Income (2,665) (153) (9,035) (341)
Other Expense 1,243 2,192 3,328 5,629
Tax Provision 5,356 3,848 21,359 17,080
------- ------- ------- -------
Total Costs and Expenses 195,263 184,398 792,640 752,050
Earnings Before Equity in Loss
of Joint Ventures 10,524 7,416 40,297 29,143
Equity in Loss of Joint
Ventures (779) (1,385) (2,744) (3,894)
------- ------- ------- -------
Earnings from Continuing
Operations 9,745 6,031 37,553 25,249
Discontinued
Earnings from Operations (less
related income tax (1997-$0 &
$7,698; 1996-$4,880 &
$19,988)) - 10,778 15,231 40,168
Gain on Disposition (less
related income tax of $13,482
& $71,538) 6,430 - 101,046 -
------- ------- ------- -------
Net Earnings $ 16,175 $ 16,809 $ 153,830 $ 65,417
======= ======= ======= =======
Basic Earnings Per Share of
Common Stock
Continuing Operations $ 0.58 $ 0.29 $ 2.04 $ 1.21
Discontinued Operations $ 0.38 $ 0.51 $ 6.31 $ 1.92
------ ------ ------ ------
Net Earnings $ 0.96 $ 0.80 $ 8.35 $ 3.13
====== ====== ====== ======
Average Common Shares
Outstanding 16,880,268 20,929,264 18,422,871 20,922,195
Diluted Earnings Per Share of
Common Stock
Continuing Operations $ 0.56 $ 0.28 $ 2.00 $ 1.19
Discontinued Operations $ 0.37 $ 0.51 $ 6.19 $ 1.90
------ ------ ------ ------
Net Earnings $ 0.93 $ 0.79 $ 8.19 $ 3.09
========= ========== ========== ==========
Average Common Shares
Outstanding 17,278,684 21,200,534 18,794,190 21,156,193
A.O. SMITH CORPORATION
Balance Sheet
December 31, December 31,
1997 1996
ASSETS:
Cash and cash equivalents $145,896 $ 6,405
Receivables 126,232 121,571
Inventories 79,049 80,445
Deferred income taxes 11,849 12,416
Other current assets 2,702 4,537
-------- --------
Total Current Assets 365,728 225,374
Net property, plant and
equipment 207,756 182,600
Investments in and advances
to joint ventures 25,605 14,579
Prepaid pension asset 37,468 46,628
Goodwill 51,783 6,540
Other assets 28,176 37,777
Net long-term assets -
discontinued operations - 357,654
------- -------
Total Assets $716,516 $871,152
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Trade payables $ 61,299 $ 66,514
Accrued payroll and benefits 26,397 27,362
Product warranty 7,972 7,563
Income taxes 6,607 1,351
Long-term debt due within one
year 5,590 11,932
Other current liabilities 13,556 7,228
Net current liabilities -
discontinued operations 6,461 2,602
-------- --------
Total Current Liabilities 127,882 124,552
Long-term debt 100,972 238,446
Product warranty 18,349 17,109
Other liabilities 24,410 18,135
Deferred income taxes 28,442 31,271
Postretirement benefit
obligation 16,756 17,000
Stockholders' equity 399,705 424,639
------- -------
Total Liabilities and
Stockholders' Equity $716,516 $871,152
======= =======
A.O. SMITH CORPORATION
Statement of Cash Flows
Year Ended
December 31
1997 1996
Operating Activities
Continuing
Net earnings $ 37,553 $ 25,249
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation & amortization 26,286 23,601
Deferred income taxes (2,262) (3,345)
Equity in loss of joint
ventures 2,744 3,894
Net change in current assets
and liabilities 10,797 24,320
Net change in noncurrent
assets and liabilities 3,635 4,083
Other 1,495 2,630
-------- --------
Cash Provided by Operating
Activities 80,248 80,432
-------- --------
Investing Activities
Capital expenditures (44,886) (37,804)
Capitalized purchased software
costs (1,295) (2,567)
Investment in joint ventures (13,719) (15,147)
Acquisition of business (net of
cash acquired) (60,918) (1,111)
-------- --------
Cash Used by Investing Activities (120,818) (56,629)
-------- --------
Cash Flow Provided/(Used) by
Continuing Operations
before Financing Activities (40,570) 23,803
Discontinued
Cash provided/(used) by
operating activities (106,132) 113,644
Cash used by investing
activities (52,456) (177,116)
Proceeds from disposition 773,090 -
Tax payments associated with
disposition (106,039) -
------- --------
Cash Flow Provided/(Used) by
Discontinued Operations before
Financing Activities 508,463 (63,472)
Financing Activities
Long-term debt incurred - 58,507
Long-term debt retired (143,816) (4,000)
Purchase of common stock held in
treasury (176,550) -
Proceeds from common stock
options exercised 3,757 539
Tax benefit from exercise of
stock options 884 28
Dividends paid (12,677) (13,807)
-------- --------
Cash Provided/(Used) by Financing
Activities (328,402) 41,267
-------- --------
Net increase in cash and cash
equivalents 139,491 1,598
Cash and cash equivalents -
beginning period 6,405 4,807
------- -------
Cash and Cash Equivalents - End of
Period $145,896 $ 6,405
======= =======
AID ASSOCIATION FOR LUTHERANS
SMITH INVESTMENT COMPANY
$20,000,000 - 6.95%
June 15, 1993
SMITH INVESTMENT COMPANY
P.O. Box 23976
Milwaukee, Wisconsin 53223
June 15, 1993
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919
Attention: Investment Department
Gentlemen:
The undersigned, Smith Investment Company, a Delaware corporation
(herein called the "Company"), agrees with you as follows:
1. Authorization of Issue of Note. The Company will authorize the
issue of its promissory note (herein, together with any notes which may be
issued hereunder in substitution therefor, called the "Note" or "Notes")
in the aggregate principal amount of TWENTY MILLION and No/100 DOLLARS
($20,000,000.00) to be dated the Closing Date as hereinafter defined, to
mature June 30, 2003, to bear interest on the unpaid balance thereof from
the date thereof until the principal thereof shall become due and payable
at the rate of 6.95% per annum, payable quarterly, and to be substantially
in the form of Exhibit A hereto attached.
2. Sale and Purchase of Note. The Company hereby agrees to sell
to you, and subject to the terms and conditions herein set forth, you
agree to purchase from the Company, a Note in the aggregate principal
amount of TWENTY MILLION and No/100 DOLLARS ($20,000,000.00) at 100% of
such principal amount. The closing of such sale and purchase (herein
referred to as the "Closing") shall take place at the offices of Whyte &
Hirschboeck S.C., 111 East Wisconsin Avenue, Suite 2100, Milwaukee,
Wisconsin on June 30, 1993, or at such other time and place as may be
agreed to by you and the Company (herein referred to as the "Closing
Date"). At the Closing the Company will deliver to you the Note, payable
to you or your order, against payment of the purchase price thereof in
federal or other immediately available funds in Chicago, Illinois. If at
the Closing the conditions precedent thereto shall not have been
satisfied, you shall, at your option, be relieved of all further
obligations hereunder.
3. Conditions. Your obligation to purchase and pay for the Note is
subject to the satisfaction on or before the Closing Date of the following
conditions:
3A. Pledge Aqreement. The Pledge Agreement in the form of Exhibit B
hereto attached (the "Pledge Agreement") shall have been duly authorized,
executed and delivered by the Company, no default shall exist thereunder,
you shall have received a fully executed copy thereof, and you or your
agent shall have received A. O. Smith Corporation stock as provided in
paragraph 9 hereof.
3B. Opinion of Special Counsel. You shall have received on the
Closing Date from Whyte & Hirschboeck S.C., who are acting as special
counsel for you in connection with this transaction, a favorable opinion
satisfactory to you as to:
(i) the due organization, existence and good standing of the
Company under the laws of the State of Delaware;
(ii) the due authorization (including any consent of
stockholders required by law, by the charter or by-laws of the
Company or otherwise), execution and delivery and the validity and
enforceability of this Agreement and the Note, and the due
authorization (including any consent of stockholders required by law,
by the charter or by-laws of the Company or otherwise), execution and
delivery and the validity and enforceability (assuming delivery of
the stock described therein) of the Pledge Agreement;
(iii) the exemption of the issuance and delivery of the Note
from the registration provisions of the Securities Act of 1933, as
amended; and
(iv) such other matters incident to the matters herein
contemplated as you may reasonably request, including the form of all
papers and the validity of all proceedings.
3C. Opinion of Company Counsel. You shall have received on the
Closing Date from Messrs. Foley & Lardner, counsel for the Company, a
favorable opinion satisfactory to you and your special counsel as to the
matters specified in paragraph 3B and to the effect:
(i) that each Subsidiary of the Company is duly organized and
in good standing under the laws of its state or jurisdiction of
incorporation;
(ii) that the Company and each Subsidiary has the
corporate power to carry on its business as now being conducted;
(iii) that the Company and each Subsidiary is duly
qualified as a foreign corporation to transact business and is
in good standing in any jurisdiction where the nature of its
business transacted makes such qualification necessary and where
the failure to be so qualified would have a material, adverse
effect upon their business, financial or otherwise, taken as a
whole;
(iv) that, in connection with the issuance and delivery of the
Note under the circumstances contemplated by this Agreement, it is
exempt from the necessity of qualifying an indenture with respect to
the Note under the Trust Indenture Act of 1939, as amended;
(v) that there is no action, suit or proceeding pending or, to
the best of their knowledge, threatened against or affecting the
Company or any Subsidiary before or by any court, governmental
authority or arbitrator which, if adversely decided, might result,
either individually or collectively, in any material adverse change
in the business, properties, operations or condition, financial or
otherwise, of the Company or the applicable Subsidiary except for a
threatened claim by Michael J. Spitz against Berlin Industries, Inc.
involving forfeitable benefits under a long term incentive plan,
payments under which would total approximately $1,200,000 (if the
claimant is successful) but which would not (except for payments
aggregating approximately $140,000) commence prior to the maturity of
the Note in 2003;
(vi) that neither the Company nor any Subsidiary is bound by
any agreement or instrument of which they have knowledge, or subject
to any charter or corporate restriction, which to their knowledge
materially and adversely affects the business, properties, operations
or condition, financial or otherwise, of the Company or the
applicable Subsidiary;
(vii) that neither the authorization, execution and delivery
of this Agreement, the Note, and the Pledge Agreement nor the
consummation of the transactions therein contemplated, nor the
fulfillment or compliance with the terms thereof will conflict with
or result in a breach of any terms of the charter, by-laws or any
other corporate restriction or of any statute, law, rule or
regulation, or of any judgment, decree, writ, injunction, order or
award of any arbitrator, court or governmental authority or of any
instrument of which they have knowledge, which is applicable to the
Company or any Subsidiary or by which the Company or any Subsidiary
is bound, or constitute a default thereunder;
(viii) that neither the Company nor any Subsidiary is (a) a
"public utility company" or a "holding company," or an "affiliate" or
a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as
amended, or (b) a "public utility" as defined in the Federal Power
Act, as amended, or (c) an "investment company" or an "affiliated
person" thereof or an "affiliated person" of any such "affiliated
person" as such terms are defined in the Investment Company Act of
1940, as amended;
(ix) that the Company owns all of the stock of A. O. Smith
Corporation, a Delaware corporation ("A. O. Smith Corporation"),
described in Exhibit D beneficially and of record, free and clear of
any liens, encumbrances, charges of any kind or claims or rights of
any third parties whatsoever, excepting as set forth in the existing
loan documentation by and between you and the Company dated as of
July 13, 1988;
(x) that upon delivery of the stock described in the Pledge
Agreement, the Pledge Agreement will create a first lien security
interest in your favor in all right, title and interest of the
Company in and to such stock; and
(xi) that, with respect to you and the Company, the
issuance of the Note and the use by the Company of the proceeds
therefrom does not violate or conflict with Section 7 of the
Securities Exchange Act of 1934, as amended, or Regulations G,
T, U or X of the Board of Governors of the Federal Reserve
System (12 CFR Parts 207, 220, 221 and 224, respectively).
For purposes of this paragraph 3C, Subsidiaries do not include the Foreign
Subsidiaries.
3D. Additional Financial Information. If not previously furnished,
the Company shall furnish you with the same financial statements as
are set forth in paragraph 7A(i), as at March 31, 1993. The same
representations and warranties applicable to the financial statements
referred to in paragraph 5B shall be applicable to the financial
statements furnished pursuant to this paragraph 3D.
3E. Officer's Certificate. The representations and warranties of
the Company contained in paragraph 5 shall be true as of the Closing
Date, except to the extent of changes caused by the transaction herein
contemplated and dividends paid consistent with the provisions hereof;
there shall exist on such date no Event of Default or Default; and the
Company shall deliver to you an Officer's Certificate dated the Closing
Date to both such effects.
3F. Tax Certificate. The Company shall have delivered to you a
certificate of the principal financial officer of the Company stating that
such person has reviewed the federal income tax returns of the Company for
the fiscal years ended December 31, 1986 through 1991, inclusive (and for
the fiscal year ended December 31, 1992, if such tax returns have been
completed prior to the Closing Date), and in the opinion of such person
the Company has paid, or made adequate provision for the payment of, all
federal income taxes for said fiscal years.
3G. Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in substance and form to you and
your special counsel, and you and your special counsel shall have received
all such counterpart originals or certified or other copies of such
documents as you or they may request.
4. Prepayments. The Note shall be subject to prepayment with
respect to the required prepayments specified in paragraph 4A and also
under one or more of the circumstances set forth in the succeeding
paragraphs.
4A. Mandatory Prepayments. On June 30, 1996 and on June 30 of each
succeeding year, the Company shall apply to the prepayment of the Note,
without premium, $2,500,000 and such principal amount of the Note,
together with interest thereon to the prepayment dates, shall become due
and payable on such prepayment dates. The remaining principal amount of
the Note, together with interest thereon, shall become due and payable on
June 30, 2003. The Company's exercise of any prepayment option contained
in this Agreement shall not reduce or otherwise affect its obligation to
make any prepayment required by this paragraph 4A.
4B. Optional Prepayments on Mandatory Prepayment Dates. The Note
may be prepaid without premium, at the Company's option, on any date on
which a prepayment is required by paragraph 4A in multiples of $20,000,
provided that the optional prepayments permitted by this paragraph 4B
shall not, in the aggregate, exceed $2,500,000 and shall be applied to the
amounts due under the Note in the inverse order of their maturity.
4C. Optional Prepayment in Whole without Premium. The Note may be
prepaid without premium under the circumstances and as provided in
paragraph 6C and in paragraph 9E.
4D. Optional Prepayment in Whole with Premium. Except for the
mandatory prepayments and the optional prepayments provided in paragraphs
4A, 4B and 4C respectively, the Note shall not be subject to prepayment,
except that the Note may be prepaid at the Company's option, in whole (but
not in part) at any time (but upon notice as provided in paragraph 4E),
such prepayment to be equal to the unpaid principal amount of the Note,
plus accrued interest, and plus a Special Premium, which Special Premium
shall be determined by calculating the present value of all remaining
payments of interest and principal using a rate of interest equal to the
Applicable Treasury Rate and deducting therefrom the outstanding principal
balance of the Notes (provided that no Special Premium shall be payable if
such is less than or equal to zero). The Applicable Treasury Rate shall
mean the yield on the U.S. Treasury Note whose maturity most-closely
coincides with the remaining average life of the Notes plus 25 basis
points.
4E. Notice of Prepayment. The Company shall give you written
notice of each prepayment, other than prepayments pursuant to paragraphs
4A and 4C, not less than 30 days prior to the prepayment date, setting
forth the principal amount to be prepaid on such date and the paragraph
pursuant to which such prepayment is being made, whereupon the principal
amount specified in such notice together with the interest thereon to the
prepayment date, shall become due and payable on the prepayment date.
5. Representations and Warranties. The Company represents and
warrants that:
5A. Organization of the Company and Subsidiaries. The Company is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. It has only those Subsidiaries
set forth on Exhibit C. The Subsidiaries (other than the Foreign
Subsidiaries) are corporations duly organized, validly existing and in
good standing under the laws of the states set forth on Exhibit C, and
as to the Foreign Subsidiaries, the Company believes such Foreign
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of the other jurisdictions set forth on Exhibit C.
All of the other information set forth on said Exhibit C is true and
correct. The execution, delivery and performance by the Company of this
Agreement, the Note and the Pledge Agreement herein provided for are
within its corporate authority and have been duly authorized by proper
corporate proceedings and will not contravene any provision of law or
regulation, or of the Company's charter or by-laws or of any agreement,
judgment or order binding on it. This Agreement constitutes, and the Note
and Pledge Agreement, when executed and delivered by the Company will
constitute, valid and binding obligations of the Company enforceable in
accordance with their respective terms.
5B. Financial Statements; Fiscal Year. The Company has furnished
you with the following audited financial statements of the Company and its
Subsidiaries: statement of operations and retained earnings and statement
of changes in financial position or cash flows for the years ended
December 31, 1986 through 1988, and balance sheets at December 31, 1986
through 1988, all audited by Arthur Young & Company, together with the
unqualified opinion of such accountants to the effect that such statements
fairly present the financial condition and the results of operations of
the Company and its Subsidiaries for the periods and as of the relevant
dates thereof, in accordance with generally accepted accounting principles
(except as provided in paragraph 11P hereof), and for the years ended
December 31, 1989 through December 31, 1992, all audited by Ernst & Young,
together with the unqualified opinion of such accountants to the effect
that such statements fairly present the financial condition and the
results of operations of the Company and its Subsidiaries for the periods
and as of the relevant dates thereof, in accordance with generally
accepted accounting principles (except as provided in paragraph 11P
hereof). Such financial statements are true and correct and have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as provided
in paragraph 11P hereof). The balance sheets fairly present the financial
condition of the Company and its Subsidiaries as at the dates thereof, and
the statement of operations and retained earnings and the statement of
changes in financial position or cash flows fairly present the results of
the operations and changes in financial position or cash flows of the
Company and its Subsidiaries for the periods indicated. There has been no
material adverse change in the condition, financial or otherwise, of the
Company and its Subsidiaries, taken as a whole, and no dividends have been
authorized or paid, since December 31, 1992 except a dividend of 254 per
share payable March 1, 1993, and a dividend of 254 per share payable June
1, 1993. The fiscal years of the Company and its Subsidiaries end
December 31.
5C. Foreign Subsidiaries: Stockholders' Equity. The combined total
stockholders' equity of the Foreign Subsidiaries does not, as of December
31, 1992, exceed $350,000.
5D. Central States Distribution Service, Inc. Intangibles. The
total unamortized intangibles resulting from the acquisition of Central
States Distribution Service, Inc. do not exceed, as of the date hereof,
$1,000,000.
5E. Actions Pending; Compliance with Law. There is no action or
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary before any court or governmental or
administrative authority which might result in any material adverse change
in the business or condition of the Company or such Subsidiary except for
a threatened claim by Michael J. Spitz against Berlin Industries, Inc.
involving forfeitable benefits under a long term incentive plan, payments
under which would total approximately $1,200,000 (if the claimant is
successful) but which would not (except for payments aggregating
approximately $140,000) commence prior to the maturity of the Note in
2003, and to the best knowledge of the Company, the Company and its
Subsidiaries have complied with all applicable laws and requirements of
governmental and administrative authorities, the noncompliance with which
would have a material adverse effect on the condition, financial or
otherwise, of the Company and such Subsidiaries, taken as a whole.
5F. Outstanding Debt. The Company and its Subsidiaries have no
outstanding Debt, except as permitted by paragraph 6D. There exists no
material default under the provisions of any instrument evidencing any
indebtedness or any agreement relating thereto.
5G Qualification; Corporate Authority; Title to Property and A. O.
Smith Corporation Stock. The Company and each of its Subsidiaries has
duly qualified and is authorized to do business and is in good standing as
a foreign corporation in each jurisdiction where property owned by it or
the nature of its activities makes such qualification necessary and where
the failure to be so qualified would have a material, adverse effect upon
their business, financial or otherwise, taken as a whole. The Company and
each of its Subsidiaries has all requisite power and authority and all
necessary trademarks, tradenames, copyrights, patents, licenses and
permits to carry on its business as now conducted, and has good and
marketable title to its properties and assets, including the properties
and assets reflected in the financial statements described in paragraph 5B
and those shares of A. O. Smith Corporation stock as set forth on Exhibit
D, subject to no material liens or encumbrances excepting only that
certain properties and assets (other than those shares of A. O. Smith
Corporation stock as set forth on Exhibit D) may be subject to liens and
encumbrances securing Current and Funded Debt. The Company and each of
its Subsidiaries enjoys peaceful and undisturbed possession under all
leases necessary in any material respect for the operation of its
properties and assets, none of which contains any unusual or burdensome
provisions which might materially affect or impair the operation of such
properties and assets. All such leases are valid and subsisting and are
in full force and effect.
5H. Taxes. The Company and its Subsidiaries have filed all federal
and state income tax returns which, to the knowledge of the officers of
the Company, are required to be filed, and have paid all taxes as shown on
said returns and on all assessments received by them to the extent that
such taxes have become due. There is no unpaid assessment for Federal
income tax liability of the Company or any Subsidiary for any period, and
the Company knows of no basis for any claim for such liability. The
Company believes that the provisions in the accounts of the Company and
its Subsidiaries for any additional income tax liability are adequate.
The United States income tax liabilities of the Company have been finally
determined by the Internal Revenue Service and satisfied for all taxable
years up to and including the taxable year ended December 31, 1987.
5I. Conflicting Agreements and Charter Provisions. Neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement or subject to any charter or other corporate restriction which
materially and adversely affects its business, property or assets, or
financial condition. Neither the execution and delivery of this
Agreement, the Note or the Pledge Agreement, nor fulfillment of nor
compliance with the terms and provisions hereof and of the Note and of the
Pledge Agreement will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in
the creation of any lien upon any of the properties or assets of the
Company or any Subsidiary pursuant to, the charter or by-laws of the
Company or any Subsidiary, any award of any arbitrator or any agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which the Company or any
Subsidiary is subject. Except as set forth on Exhibit E, neither the
Company nor any Subsidiary is a party to, or otherwise subject to any
provisions contained in, any instrument evidencing indebtedness of the
Company or such Subsidiary, any agreement relating thereto or any other
contract or agreement (including its charter) which restricts or otherwise
limits the incurring of Funded Debt by the Company of the kind to be
evidenced by the Note.
5J. Governmental Consent. Neither the nature of the Company or of
any Subsidiary, nor any of their respective businesses or properties, nor
any relationship between the Company or any Subsidiary and any other
Person, nor any circumstance in connection with the offer, issue, sale or
delivery of the Note is such as to require the Company or any Subsidiary
to obtain any consent or approval or take any other action or give any
notice to or make any filing with any court or administrative or
governmental body (other than routine filings after the date of closing
with the Securities and Exchange Commission and/or State Blue Sky
authorities) in connection with the execution and delivery of this
Agreement, the offer, issue, sale or delivery of the Note or fulfillment
of or compliance with the terms and provisions hereof or of the Note.
5K. Federal Reserve Regulations. The Company does own a "margin
security," as defined in Regulation G of the Board of Governors of the
Federal Reserve System (12 CFR Part 207); provided, however, the Company
will not use any proceeds from the sale of the Notes to purchase or carry
any "security," as defined in Section 3(a)(10) of the Securities Exchange
Act of 1934, if such transaction would constitute a "purpose credit"
within the meaning of said Regulation G, or for any other purpose which
would constitute any transaction contemplated by this Agreement a "purpose
credit" within the meaning of said Regulation G, or which would involve a
violation of Section 7 of the Securities Exchange Act of 1934, or
Regulation T, U, or X of said Board of Governors (12 CFR Parts 220, 221
and 224, respectively).
5L. Offering of Notes. Neither the Company nor any agent acting on
its behalf has offered the Note or any similar obligation of the Company
for sale to, or solicited any offers to buy the Note or any similar
obligations of the Company from, any Person which would subject the
issuance of the Note to the provisions of Section 5 of the Federal
Securities Act of 1933, as amended, and neither the Company nor any agent
acting on its behalf will take any action which would subject the issuance
or sale of the Note to the provisions of Section 5 of the Federal
Securities Act of 1933, as amended, or to the comparable provisions of any
securities or Blue Sky law of any applicable jurisdiction.
5M. Laws and Regulations. The Company is and each Subsidiary is in
substantial compliance with all laws and regulations, including, without
limitation, laws and regulations relating to pollution and environmental
control, persons with disabilities, equal employment opportunity and
employee safety, in all jurisdictions in which it is presently doing
business, where the failure to be in compliance would, in the aggregate,
materially and adversely affect the business, condition or operations
(financial or otherwise) of the Company and the Subsidiaries taken as a
whole. The Company will use its best efforts to comply substantially and
to cause each Subsidiary to comply substantially with all such laws and
regulations which may be legally imposed in the future in jurisdictions in
which the Company or such Subsidiary may then be doing business.
5N. ERISA. The Company is not deficient as to any minimum funding
requirements under the Employee Retirement Income Security Act of 1974,as
amended ("ERISA") with respect to any employee benefit plan (within the
meaning of ERISA Section 3(3)) established or maintained by the Company.
The Company has not incurred any liability to the Pension Benefit Guaranty
Corporation ("PBGC"), or to any trustee appointed pursuant to ERISA
Sections 4042 or 4049, with respect to any such employee benefit plan, and
the PBGC has not instituted proceedings to terminate any such employee
benefit plan or to have a trustee appointed under ERISA Section 4042 to
administer or terminate any such employee benefit plan. The Company has
not engaged in any "prohibited transaction," as such term is defined in
ERISA Section 406 and Section 4975 of the Internal Revenue Code, which may
result in any civil penalty assessed pursuant to ERISA Section 502(i) or a
tax imposed by the Internal Revenue Code. The Company maintains no
unfunded employee welfare benefit plans (within the meaning of ERISA
Section 3(l)) for former employees of the Company which cannot be
terminated without further obligation on the part of the Company within
not more than thirty (30) days excepting a plan providing certain
supplemental medical benefits to Medicare for approximately 50 former
employees costing approximately $37,000 in 1991 and $48,000 in 1992. The
term "Company" as used herein includes all corporations which are members
of a controlled group of corporations within the meaning of I.R.C. Section
1563(a).
5O. There is no 5O.
5P. Undisclosed Statements. Neither this Agreement, nor any
document, certificate or statement referred to herein contains any untrue
statement of a material fact or omits to state a material fact necessary
to be stated in order to make the statements contained herein and therein
not misleading. There is no fact not generally known to the business or
financial community which the Company has not disclosed to you in writing
which materially affects adversely or, so far as the Company can
reasonably now foresee, will materially affect adversely the properties,
business, prospects, profits or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or the ability of the
Company to perform this Agreement.
5Q. Use of Proceeds. The proceeds of the sale of the Note will be
used by the Company to pay in full, without premium or penalty, all
amounts due on the 9.4% Notes heretofore sold to you and scheduled to
mature no later than June 30, 1995 (which amounts total $10,235,000 as of
June 30, 1993), to pay in full all amounts due on the short term bank debt
incurred to pay the balance due on the Company's acquisition of the
remaining 20% minority interest in Berlin Industries, Inc., and the
balance, if any, for general corporate purposes, and will not be used for
any purpose prohibited by law.
6. Negative Covenants. The Company agrees that, so long as any of
the Note or Notes shall be outstanding:
6A. Dividends and Other Restricted Payments. The Company will not
at any time after the date hereof pay or declare any dividend on any class
of its stock or make any other distribuion on account of any class of its
stock or purchase or otherwise acquire, directly or indirectly, any shares
of stock of A. O. Smith Corporation (all of the forgoing being herein call
"Restricted Payments") except out of Consolidated Net Income Available for
Restricted Payments. "Consolidated Net Income Available for Restricted
Payments" shall mean an amount equal to $3,000,000 plus 75% of "Adjusted
Net Income" for the period (taken as one accounting period) commencing on
January 1, 1993, and terminating at the end of the last fiscal quarter
preceding the date of any proposed Restricted Payment less the sum of the
aggregate amount of all Restricted Payments made by the Company on or
after Janaury 1, 1993. "Adjusted Net Income" shall mean the Consolidated
Net Income of the Company reduced by its equity in the net income (or
increased by its equity in any net loss) of A. O. Smith Corporation, and
increased by (i) all dividends received from A. O. Smith Corporation, and
(ii) by any amortization of goodwill and covenants not to compete not
exceeding $1,650,000 per annum from January 1, 1993, through and including
December 31, 1996, $1,504,000 for 1997, and nothing thereafter, arising
from the acquisition of Berlin Industries, Inc., all to the extent
reflected on the financial statements delivered to you pursuant to
paragraphs 7A(i) and (ii) hereof. There shall not be included in any
computation of Restricted Payments or of Consolidated Net Income Available
for Restricted Payments: (y) dividends payable in stock of the Company,
and (z) exchange of stock of one or more classes of the Company for other
stock of the Company, except to the extent that cash or other property is
involved in such exchange. Notwithstanding the limitations of this
paragraph 6A, the Company may with your prior written consent (which
consent will not be unreasonably withheld) pay dividends on its common
stock in excess of the permitted amount of Restricted Payments to the
extent, but only to the extent necessary to avoid incurring a personal
holding company tax liability (hereinafter an "Excess Restricted
Payment"). In the event the Company proposes to make an Excess Restricted
Payment, it shall furnish to you a report showing the calculation of the
potential personal holding company tax liability and amount of dividend
necessary to avoid such liability. You shall have ten business days after
receipt of such report within which to object to the proposed Excess
Restricted Payment. Excess Restricted Payments and payments made pursuant
to paragraph 6B shall be included in the computation of Restricted
Payments or of Consolidated Net Income Available for Restricted Payments.
6B. Redemption or Purchase of Common Stock. The Company shall not
redeem, purchase or otherwise acquire, directly or indirectly, any shares
of any class of its stock except for cash purchases or redemptions of its
common stock from time to time for an aggregate amount not exceeding
$200,000. Any such cash purchase or redemption shall be deemed a
Restricted Payment and shall be subject to the limitations set forth in
paragraph 6A hereof.
6C. Restriction on A. O. Smith Corporation Stock. The Company will
not at any time after the date hereof sell, transfer, assign, pledge or
otherwise encumber, or agree to sell, transfer, assign, pledge or
otherwise encumber, any of the shares of stock of A. O. Smith Corporation
owned by it and will at all times continue to hold the shares of such
stock as are set forth on Exhibit D, and any related stock dividends,
stock splits or the substantial equivalent thereof, free and clear of all
liens and encumbrances excepting that the Company may sell at market value
not more than 519,692 shares of Common Stock presently owned by it
provided (i) that if the proceeds thereof, net after the payment of
reasonable sale expenses and the payment of any income taxes actually
incurred as a result of such sale (such income taxes, however, not to be
in excess of the lesser of: (A) such taxes computed as if the Company had
no other income or gain for the year or years in which such tax is
computed or, (B) if such year or years had a loss carryforward, after
applying such income or gain against such loss carryforward and before
applying any other income or gain against such loss carryforward) are not,
within 12 months after the date of such sale, utilized (in good faith) in
the business development and business activities of the Company and its
Subsidiaries (including, without limitation, using such proceeds to
acquire another entity provided such other entity is engaged in a business
related to one or more of the businesses then engaged in by the Company or
a Subsidiary), and not, directly or indirectly, for any other purpose,
then, at your option, a prorata portion (with the numerator being the
outstanding principal balance of the Note, and the denominator being the
total outstanding principal balance of all Current Debt and Funded Debt)
of such proceeds not so utilized, shall be immediately applied, without
premium, to the principal amounts due under the Note in the inverse order
of their maturity, together with interest thereon to the date of payment,
(ii) that all of, or the remaining, proceeds thereof are immediately used
to reduce other Current Debt and/or Funded Debt, (iii) that any such sale
is made in compliance with all applicable federal and state laws, and (iv)
that copies of all documents filed with any regulatory agency or
authority, or furnished to the Company's shareholders, together with such
additional information and documents as you may reasonably request, are
furnished to you prior to such sale.
6D. Debt Restriction. The Company will not and will not permit any
Subsidiary to create, incur, assume or suffer to exist at any time Funded
Debt and Current Debt aggregating, on a consolidated basis, in excess of
the sum of (i) 100% of the current market value (as of the date of
computation of the aggregate of all such Debt) of the A. O. Smith
Corporation stock then owned by the Company (including any Pledged Stock
subject, at the time of such computation, to the Pledge Agreement) plus
(or minus) (ii) 25% of the Consolidated Tangible Net Worth of the Company
(or 100% of any negative Consolidated Tangible Net Worth of the Company)
in each instance as of the last day of the preceding calendar quarter, and
in each instance (when computing Consolidated Tangible Net Worth) after
deducting its investment in A. O. Smith Corporation. Market value of A.
O. Smith Corporation stock shall be determined as of the day preceding the
day on which such computation is made in the same manner set forth in
paragraph 9(b) hereof for determination of the market value of any Pledged
Stock.
6E. Merger, Consolidation or Sale of Assets. The Company will not,
and will not permit Belvedere Company, a division of the Company or any
Subsidiary to merge or consolidate with any other corporation or to sell,
transfer or assign all or substantially all of its assets to another
corporation or Person without, in each instance, your prior written
consent, which consent shall not be unreasonably withheld, except that (i)
any such Subsidiary may merge or consolidate with or sell, transfer or
assign its assets to the Company (provided that the Company shall be the
continuing or surviving corporation), and (ii) the Company may merge with
any other corporation, provided that (a) the Company shall be the
continuing or surviving corporation, and (b) the Company shall not,
immediately after such merger, be in default under any of its obligations
under this Agreement, the Notes or the Pledge Agreement.
6F. Compliance With Law. Neither the Company nor any of its
Subsidiaries will be in violation of any laws, ordinances, governmental
rules or regulations to which it is subject including, without limitation,
those relating to the environment or the removal and disposition of
hazardous or toxic material, or similar types of deposits, which
violations would in the aggregate materially adversely affect the
business, profits, properties, assets or financial condition of the
Company and its Subsidiaries on a consolidated basis, unless it is
contesting in good faith the validity, application or substance of any
such law, ordinance, governmental rule or regulation (the good faith and
appropriateness thereof to be the subject of an opinion of independent
counsel for the Company or the applicable Subsidiary, which opinion will
be furnished you upon your request).
6G. Employee Retirement Income Security Act of 1974. Neither the
Company nor any of its Subsidiaries will permit the existence of any
Reportable Event (as defined in Title IV of ERISA) to continue for more
than thirty days after you determine in good faith that such Event
constitutes grounds for the termination of any Plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United
States District Court of a trustee to administer any Plan (unless the
existence of such Event or such consequences thereof are being contested,
in good faith, by the Company), nor permit any Plan to be involuntarily
terminated within the meaning of Title IV of ERISA, or any trustee to be
appointed by the appropriate United States District Court to administer
any Plan, nor permit the Pension Benefit Guaranty Corporation to institute
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan. For purposes of this Agreement, "Plan" means any employee
pension benefit plan subject to Title IV of ERISA maintained by the
Company or any of its Subsidiaries, or any such plan to which the Company
or of its Subsidiaries is required to contribute on behalf of its
employees.
6H. Voting A. O. Smith Stock. In connection with any A. O. Smith
Corporation Class A Common Stock and Common Stock owned or hereafter
acquired by the Company, including without limitation, all of the stock
set forth on Exhibit D hereof, the Company shall not vote for, and shall
not give any consent, waiver or ratification which would result in an
amendment, modification or waiver of any of the provisions of the
Certificate of Incorporation of A. O. Smith Corporation affecting or
relating to the convertibility of any Class A Common Stock into Common
Stock, or which would otherwise affect or relate to the convertibility of
any Class A Common Stock into Common Stock, and shall affirmatively vote
against the same.
7. Affirmative Covenants. The Company agrees that, until the Note
or Notes have been paid in full in accordance with the terms hereof:
7A. Financial Statements. The Company will deliver to you so long
as you shall hold any Note and to any requesting holder or holders of 10%
or more in aggregate unpaid principal amount of the Notes then outstanding
in duplicate:
(i) as soon as practicable and in any event within 45 days
after the end of each quarterly period (other than the last) in each
fiscal year a consolidated statement of earnings, a consolidated
statement of earnings retained in the business and a consolidated
statement of cash flows of the Company for the periods from the
beginning of the current fiscal year and from the beginning of such
quarterly period to the end of such quarterly period, and a
consolidated balance sheet of the Company as at the end of such
quarterly period, setting forth in each case in comparative form
corresponding figures for the corresponding periods in the preceding
fiscal year, all in reasonable detail and certified by an authorized
financial officer of the Company, subject to changes resulting from
year-end adjustments;
(ii) as soon as practicable and in any event within 120 days
after the end of each fiscal year, a consolidated statement of
earnings, a consolidated statement of earnings retained in the
business and a consolidated statement of cash flows of the Company
for such year, and a consolidated balance sheet of the Company as of
the end of such year, setting forth in each case in comparative form
corresponding figures for the preceding fiscal year, all in
reasonable detail and satisfactory in scope to you and audited by
independent certified public accountants of nationally recognized
standing selected by the Company, whose opinion shall be in scope and
substance satisfactory to you and who shall have authorized the
Company to deliver such financial statements and opinion to you
pursuant to this Agreement;
(iii) as soon as possible, copies of all such financial
statements, reports and returns as it shall send to its stockholders
and of all regular or periodic reports which it is or may be required
to file with the Securities and Exchange Commission or any
governmental department, bureau, commission or agency succeeding to
the functions of the Securities and Exchange commission; and
(iv) with reasonable promptness, such other data, including
copies of any detailed reports submitted to the Company by
independent accountants in connection with each annual or interim
audit of the books of the Company and its Subsidiaries made by such
accountants, as you may reasonably request from time to time relating
to the covenants, terms and provisions of this Agreement and whether
the same have been complied with by the Company and its Subsidiaries.
All financial statements specified in clauses (i) and (ii) above shall
be furnished in consolidated form (and the financial statements specified
in clause (ii) above shall also be furnished in consolidating form), for
the Company and all consolidated subsidiaries which the Company may at the
time have. Together with each delivery of financial statements required by
clauses (i) and (ii) above, the Company will deliver to you an Officer's
Certificate stating that there exists no Event of Default or Default, or
if any such Event of Default or Default exists, specifying the nature
thereof, the period of existence thereof and what action the Company
proposes to take with respect thereto. The Company also covenants that
forthwith upon any officer of the Company obtaining knowledge of any Event
of Default or Default under this Agreement, it will deliver to you an
Officer's Certificate specifying the nature thereof, the period of
existence thereof and what action the Company proposes to take with
respect thereto. You are hereby authorized to deliver a copy of any
financial statement delivered to you pursuant to this paragraph 7A to any
regulatory body having jurisdiction over you.
7B. A. O. Smith Information. The Company shall deliver to you as
soon as possible copies of all financial statements, notices, reports and
other information or documentation which A. O. Smith Corporation shall
send to its stockholders and of all regular or periodic reports which it
is or may be required to file with the Securities and Exchange Commission
or any successor agency. In the event that A. O. Smith Corporation shall
fail or cease to file reports with the Securities and Exchange
Commission,you shall be furnished financial statements for A. O. Smith
Corporation substantially similar to those required from the Company by
clauses (i) and (ii) of paragraph 7A within the time periods specified
therein.
7C. Inspection of Property. The Company will permit any person
designated in writing by you so long as you shall hold any Notes and any
requesting holder or holders of 10% or more in aggregate unpaid principal
amount of the Notes then outstanding, to visit and inspect any of the
properties, corporate books and financial records of the Company and its
Subsidiaries, and to discuss the affairs, finances and accounts of any of
such corporations with the principal officers of the Company, all at such
reasonable times and as often as you may reasonably request. Except as
permitted in this Agreement or as may be necessary in connection with the
enforcement of the Company's obligations hereunder and under the Notes,
you agree, and any such holders must agree prior to making any inspection,
to keep all nonpublic information concerning the Company confidential.
7D. Maintenance of Business. The Company and its Subsidiaries will
preserve and keep in force and effect all licenses and permits necessary
to the proper conduct of their respective businesses, the failure of which
to keep in full force and effect would have a material adverse effect on
the condition, financial or otherwise, of the Company and its
Subsidiaries, taken as a whole.
7E. Taxes. The Company will duly pay or discharge and will cause
its Subsidiaries to duly pay and discharge all taxes, assessments and
other governmental charges upon or against the Company or such
Subsidiaries or their respective properties as well as all other
liabilities of the Company or such Subsidiaries, in each case before the
same become delinquent and before penalties accrue thereon, unless and to
the extent that the same are being contested in good faith and by
appropriate proceedings.
7F. Insurance. The Company will keep and maintain or cause to be
kept and maintained, with financially sound and reputable insurers,
insurance with respect to its properties and business and the properties
and businesses of each of its Subsidiaries against such casualties, risks
and contingencies, and of such types, and having such terms, and in such
amounts, as is required by law or as is customary for corporations or
other persons engaged in the same or similar business or having similar
properties similarly situated.
7G. Notice of Reportable Events. The Company will deliver to you as
long as you shall hold any Note and to any requesting holder or holders
of 10% or more in aggregate unpaid principal amount of the Notes then
outstanding, as soon as possible and in any event within 30 days after the
Company shall have obtained knowledge that a Reportable Event has occurred
with respect to any Plan, a certificate of an officer of the Company
setting forth the details as to such Reportable Event and the action which
the Company proposes to take with respect thereto, and a copy of each
notice of a Reportable Event sent to the Pension Benefit Guaranty
Corporation by the Company.
8. Events of Default; Remedies. If any of the following events
shall occur and be continuing, it shall constitute an Event of Default as
the term is used herein:
(a) If the Company defaults in the payment of any principal of
any Note, when the same shall become due, either by the terms thereof
or otherwise as herein provided; or
(b) If the Company defaults in the payment of any interest on
any Note for more than 10 days after the date due; or
(c) If the Company defaults in any payment of principal of or
interest on any other obligation for borrowed money (including
guarantees and any obligation secured by purchase money mortgage
which exceed $50,000 in the aggregate) beyond any period of grace
provided with respect thereto or defaults in the performance of any
other agreement, term or condition contained in any agreement under
which any such obligation is created if the effect of such default is
to cause such obligation to become due prior to its stated maturity
unless the Company is contesting in good faith by appropriate
proceedings the default or alleged default on such other obligation
and you have been furnished with an opinion of counsel satisfactory
to you to the effect that the Company is not in default on such
obligation; or
(d) If any material representation or warranty made by the
Company herein, in the Pledge Agreement or in any writing furnished
in connection with or pursuant to this Agreement or the Pledge
Agreement shall be false in any material respect on the date as of
which made; or
(e) If the Company defaults in the performance or observance of
any agreement or covenant contained in paragraph 6 or 9 hereof, or in
the Pledge Agreement;
(f) If the Company defaults in the performance or observance of
any other agreement, covenant, term or condition contained herein and
such default shall not have been remedied within 30 days after
written notice thereof shall have been received by the Company from
you; or
(g) If the Company makes an assignment for the benefit of
creditors; or
(h) If the Company petitions or applies to any tribunal for
the appointment of a trustee or receiver of the Company, or of any
substantial part of the assets of the Company, or commences any
proceedings relating to the Company under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation laws of any jurisdiction, whether now or
hereafter in effect; or
(i) If any such petition or application is filed, or any such
proceedings are commenced, against the Company, and the Company by
any act indicates its approval thereof, consent thereto, or
acquiescence therein, or an order entered appointing any such trustee
or receiver, or adjudicating the Company bankrupt or insolvent, or
approving the petition in any such proceedings, and such order
remains in effect for more than 60 days; or
(j) If any order is entered in any proceedings against the
Company decreeing the dissolution or split-up of the Company, and
such order remains in effect for more than 60 days.
When an Event of Default described in clauses (a) or (b) above has
occurred and is continuing, any holder of any Note may, and when any Event
of Default described in clauses (c) through (f) above has occurred and is
continuing, the holder or holders of 50% or more in aggregate unpaid
principal amount of the Notes at the time outstanding may, by notice in
writing to the Company, declare the principal of and any accrued interest
on all outstanding Notes to be immediately due and payable; and thereupon
all Notes, including both principal and interest, shall become immediately
due and payable. When any Event of Default described in clauses (g)
through (j), inclusive, has occurred then all outstanding Notes, including
both principal and interest, shall immediately become due and payable
without presentment, demand or notice of any kind.
The Company agrees to pay to the holder or holders of any of the
Notes then outstanding hereunder all costs and expenses incurred by them
in the collection of any such Notes, including reasonable compensation to
such holder or holders' attorneys for all services rendered in connection
therewith.
In addition to the other rights granted to the holder or holders of
the Notes herein upon the happening of an Event of Default, if the Event
of Default shall have occurred as a result of the intentional, deliberate
and willful violation by the Company of any provision, covenant or
agreement hereof, and if the principal and interest on the Notes have been
declared due and payable in the manner above specified, then, to the full
extent enforceable under applicable law, the holder or holders of the
Notes shall be entitled to receive and the Company shall be obligated and
promises to pay, in addition to all other amounts provided for herein, a
premium, which premium shall be equal to 6.95% of such principal and
interest, or such lesser premium which would have been payable under
paragraph 4D had there been a voluntary prepayment by the Company at the
time the principal was declared due and payable by said holder or holders.
The rights and remedies set forth in this letter agreement and in the
Pledge Agreement are in addition to all rights and remedies granted by law
or in equity.
9. Pledge of Stock.
9A. Delivery of Pledged Stock. At Closing the Company shall deliver
to you or your agent as security for the Notes the number of shares of A.
O. Smith Corporation stock (subject to adjustment from time to time as
hereinafter set forth) with appropriate stock powers executed by the
Company in blank, necessary to provide 150% market value coverage to the
principal amount of the Notes plus interest thereon for one quarter (the
"Pledged Stock"). Class A Common Stock shall be delivered first; if
exhausted, Common Stock shall be delivered. When so implemented, the
Pledge Agreement shall create a first lien security interest in the
Pledged Stock.
9B. Adjustments of Pledged Stock. The aggregate market value of
the Pledged Stock shall at all times be at least equal to 150% of the
aggregate outstanding principal balance of the Note or Notes plus accrued
interest and any other amounts due thereon. The aggregate market value of
the Pledged Stock shall be determined initially, that is, when delivered
to you, based on the last per share sale price for the stock of A. O.
Smith Corporation (Class A Common Stock or Common Stock depending on which
is being valued) as reported in the American Stock Exchange-Composite
Transactions section of the Midwest Edition of the Wall Street Journal for
the last business day prior to such delivery (unless the American Stock
Exchange is closed on such date, then the last business day the American
Stock Exchange is open prior to such delivery), or in case no sale of such
A. O. Smith Corporation stock has taken place on such day, then the
average of the closing bid and asked prices in the American Stock Exchange
on such day as confirmed in writing addressed to you and the Company by a
Milwaukee brokerage firm selected by you that is a member of the American
Stock Exchange and delivered to you with the Pledged Stock.
The aggregate market value of the Pledged Stock shall be computed by
the Company monthly on the first business day of each calendar month so
long as the Note or Notes remain outstanding based upon the last per share
sale price for the applicable class of stock of A. O. Smith Corporation as
reported in the American Stock Exchange-Composite Transactions section of
the Midwest Edition of the Wall Street Journal for the last business day
of the preceding calendar month (unless the American Stock Exchange is
closed on such date, then on the last business day the American Stock
Exchange is open prior to such date), or in case no sale of such A. O.
Smith Corporation stock has taken place on such day, then the average of
the closing bid and asked prices on such day on the American Stock
Exchange as confirmed to you and the Company by a Milwaukee brokerage firm
selected by you that is a member of the American Stock Exchange. Advice
as to such aggregate market value at the end of the preceding calendar
month and the basis for the computation thereof (including any report as
to the closing bid and asked prices by a Milwaukee brokerage firm) shall
be given to you by the Company by the third business day of each calendar
month in writing, or by telephonic or facsimile communication confirmed in
writing immediately thereafter.
In the event A. O. Smith Corporation (Class A Common Stock or Common
Stock depending on which is being valued) is no longer traded on the
American Stock Exchange but is regularly traded (and quoted) on another
recognized United States exchange, such other exchange shall be
substituted for the American Stock Exchange in this paragraph 9.
In the event the market value of Class A Common Stock cannot be
determined as provided herein, whether because such stock is no longer
regularly traded on any exchange or for any other reason, such market
value shall be determined as if such Class A Common Stock had been
converted to Common Stock.
To the extent that the aggregate market value of the Pledged Stock
held on the last day of any calendar month shall not be at least equal to
(i) 150% of the then outstanding principal balance of the Note or Notes
plus accrued interest and any other amounts due thereon less (ii)
$100,000, the Company shall deliver to you or your agent by the fifth
business day of the following calendar month additional certificates
representing sufficient additional shares of Pledged Stock so that the
aggregate market value of the Pledged Stock at the end of the preceding
calendar month, including such additional shares, shall be at least equal
to 150% of the then outstanding principal balance of the Note or Notes
plus accrued interest and any other amounts due thereon.
To the extent the aggregate market value of the Pledged Stock held on
the last day of any calendar month is more than $100,000 in excess of 150%
of the then outstanding principal balance of the Note or Notes plus
accrued interest and any other amounts due thereon, and providing no Event
of Default or Default exists, upon written request by the Company
addressed to you accompanied by an Officer's Certificate to the effect
that no Event of Default or Default exists, you shall, or you shall
instruct your agent to, return to the Company (subject to the provisions
of paragraph 9D hereof) within five business days after your receipt of
such notice and Officer's Certificate certificates for sufficient shares
of Pledged Stock to reduce the aggregate market value of the Pledged Stock
then held so that it shall not be in excess of 150% (or such higher
percentage as the Company shall specify in said written request to you) of
the then outstanding principal balance of the Note or Notes plus accrued
interest and any other amounts due thereon.
For the purpose of meeting the requirements of this subparagraph B,
certificates for shares of Pledged Stock required to be delivered to you
or your agent or returned to the Company as the case may be, shall (except
as otherwise provided in this subparagraph B or in the Pledge Agreement)
represent a number of shares of Pledged Stock, in the aggregate, so as to
be equal to the nearest 100 shares of the number of shares of Pledged
Stock required to be delivered to you or your agent or returned to the
Company, as the case may be. All Pledged Stock delivered to you or your
agent pursuant to the requirements of this subparagraph B shall be
accompanied by appropriate stock powers endorsed in blank by the Company
and shall be subject to the first lien of the Pledge Agreement.
9C. Agent Under the Pledge Agreement. You have advised us that
MARSHALL & ILSLEY TRUST COMPANY, 1000 North Water Street, Milwaukee,
Wisconsin ("Bank") will act, unless you advise the Company to the contrary
in writing, as agent for you to hold the Pledged Stock, together with the
stock powers relating thereto, in safekeeping. The Bank, as such agent,
will act with respect to the Pledged Stock only upon your express written
instructions. The Company agrees to pay all reasonable fees of the Bank
for its services as such agent, promptly after receipt from you of any
statement by the Bank for such services.
9D. Stock Not Pledged. Any of the A. O. Smith Corporation stock
referred to in paragraph 6C of this Agreement, when not subject to the
Pledge Agreement, shall be held in a safety deposit box in the Company's
name at the M&I Marshall & Ilsley Bank, Menomonee Falls, Wisconsin office
("M&I"). Promptly following the end of each calendar quarter an officer
of the M&I and an officer of the Company shall each certify to you in
writing that such stock remains in such safety deposit box, identifying
the same by certificate number, number of shares and class. You may, at
any time, upon reasonable notice to the Company, make your own examination
of said safety deposit box to confirm and identify that such A. O. Smith
Corporation stock remains in such box. The Company will provide access to
said box to any representative authorized by you who may be accompanied by
a representative of the Company and/or the M&I. Withdrawal of stock from
said safety deposit box to satisfy the requirements of this paragraph 9
may be made, provided, however, that prompt written notice thereof is
given by the Company to you, and provided also that such stock is directly
and promptly delivered to the Bank to be held by the Bank pursuant to the
Pledge Agreement. Withdrawal of stock from said safety deposit box may
also be made to divide an individual certificate into certificates
representing (in the aggregate) the same number of shares (in order to
satisfy the requirements of this paragraph 9) provided, however, that
prompt written notice thereof is given by the Company to you (giving the
certificate number and number of shares being withdrawn), that such
certificate is immediately delivered to the transfer agent for division,
that the resulting certificates are, upon return by the transfer agent,
immediately returned to the safety deposit box, and that no more than
750,000 shares evidenced by no more than one certificate, are withdrawn
and outstanding at any one time. The provisions of this paragraph shall
not limit or restrict the Company's right to sell 519,692 shares of Common
Stock pursuant to paragraph 6C hereof.
9E. Decline in Value: Prepayment. If at the time an additional
pledge of A. O. Smith Corporation stock is required under this paragraph
9, the market value of all of the A. O. Smith Corporation stock subject to
pledge under this Agreement (being all of the stock referred to in
paragraph 6C hereof) is not sufficient to satisfy the requirements of
subparagraph B above, the Company shall nevertheless complete the pledge
of stock required hereunder. The Company may then immediately prepay the
Note in full, and all accrued interest, without premium; otherwise you may
proceed to exercise your rights under paragraph 8 of this Agreement and
under the Pledge Agreement.
10. Representation by Aid Association for Lutherans. You represent
and in making this sale to you it is specifically understood and agreed
that you are acquiring the Note for the purpose of investment and not with
a present intention of selling or of making any other distribution
thereof, provided that the disposition of your property shall at all times
be and remain within your control.
11. Definitions. For the purposes of this Agreement, the following
terms shall have the following meanings:
11A. "Capitalized Lease Obligations" shall mean all rental
obligations which, under generally accepted accounting principles, are or
will be required to be capitalized on the books of the Company or any
Subsidiary in accordance with such principles. "Capitalized Lease" shall
mean a lease the rental obligations under which are Capitalized Lease
Obligations.
11B. "Consolidated Net Income" shall mean the consolidated net
income of the Company determined in accordance with generally accepted
accounting principles consistently applied. (See paragraph 11P.)
11C. "Consolidated Tangible Net Worth" shall mean the gross book
value of the assets of the Company and its Subsidiaries (exclusive of
goodwill, patents, trademarks, tradenames, organization expense, treasury
stock, unamortized debt discount and expense and other intangibles but
including those intangibles resulting from the acquisitions of Central
States Distribution Service, Inc. and Berlin Industries, Inc.) less
reserves applicable thereto and all liabilities (including deferred income
taxes and minority interests) other than capital stock and surplus, all
determined on a consoldiated basis in accordance with generally accepted
accounting principles consistently applied. (See paragraph 11P.)
11D. "Current Debt" shall mean all indebtedness for borrowed money
maturing on demand or not more than one year after the date of
determination thereof and not renewable or extendible at the option of the
obligor beyond such year, provided that indebtedness for borrowed money
arising under a revolving credit or similar agreement which obligates the
lender to extend credit over a period of more than one year shall
constitute Funded Debt and not Current Debt.
11E. "ERISA" shall mean the federal Employment Retirement Income
Security Act of 1974, as amended.
11F. "Event of Default" shall mean any of the events specified in
paragraph 8, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time,
or the happening of any further condition, event or act, and "Default"
shall mean any of such events, whether or not any such requirement has
been satisfied.
11G. "Foreign Subsidiaries" shall mean Belvedere Company Canada,
Inc. and Ensambles De Silleria Mexicana, S.A. de C.V.
11H. "Funded Debt" shall mean and include without duplication,
(i) any obligation payable more than one year from the date of
creation thereof, which under generally accepted accounting
principles is shown on the balance sheet as a liability (including
Capitalized Lease Obligations but excluding reserves for deferred
income taxes and other reserves to the extent that such reserves do
not constitute an obligation),
(ii) indebtedness payable more than one year from the date of
creation thereof which is secured by any lien on property owned by
the Company or any Subsidiary, whether or not the indebtedness
secured thereby shall have been assumed by the Company or such
Subsidiary,
(iii) guarantees, endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course of
business) and other contingent liabilities (whether direct or
indirect) in connection with the obligations, stock or dividends of
any Person,
(iv) obligations under any contract providing for the making of
loans, advances or capital contributions to any Person, in each case
in order to enable such Person primarily to maintain working capital,
net worth or any other balance sheet condition or to pay debts,
dividends or expenses,
(v) obligations under any contract for the purchase of
materials, supplies or other property or services if such contract
(or any related document) requires that payment for such materials,
supplies or other property or services shall be made regardless of
whether or not delivery of such materials, supplies or other property
or services is ever made or tendered,
(vi) obligations under any contract to rent or lease (as
lessee) any real or personal property if such contract (or any
related document) provides that the obligation to make payments
thereunder is absolute and unconditional under conditions not
customarily found in commercial leases then in general use or
requires that the lessee purchase or otherwise acquire securities or
obligations of the lessor,
(vii) obligations under any contract for the sale or use of
materials, supplies or other property or services if such contract
(or any related document) requires that payment for such materials,
supplies or other property or services, or the use thereof, shall be
subordinated to any indebtedness (of the purchaser or user of such
materials, supplies or other property or the Person entitled to the
benefit of such services) owed or to be owed to any Person, and
(viii) obligations under any other contract which, in economic
effect, is substantially equivalent to a guarantee,
all as determined in accordance with generally accepted accounting
principles.
11I. "Officer's Certificate" shall mean a certificate signed in the
name of the Company by its Chairman of the Board, President, one of its
Vice Presidents, its Treasurer or its Secretary.
11J. "Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and
a government or any department or agency thereof.
11K. "Plan" shall mean any pension benefit plan subject to Title IV
of ERISA maintained by the Company, any Subsidiary or any member of the
controlled group (a controlled group of corporations as defined in Section
1563 of the Internal Revenue Code of 1954, as amended, of which the
Company is a part), or any such Plan to which the Company, any Subsidiary
or any member of the controlled group is required to contribute on behalf
of its employees.
11L. "Reportable Event" shall mean a reportable event as that term
is defined in Title IV of ERISA.
11M. "Subsidiary" shall mean and include any corporation, more than
50% of the Voting Stock of which, shall, at the time any determination is
made, be owned by the Company either directly or through Subsidiaries.
(See paragraph 11P)
11N. "Voting Stock" shall mean and include stock of the class or
classes having general voting power under ordinary circumstances to elect
at least a majority of the board of directors, managers or trustees of
such corporation (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency).
11O. There is no 11O.
11P. Limitations (A. O. Smith Corporation). For purposes of this
Agreement and the definitions herein contained, A. O. Smith Corporation
shall not be deemed a Subsidiary, nor shall its financial statements be
consolidated with the financial statements of the Company notwithstanding
Statement of Financial Accounting Standards No. 94 or the references in
this Agreement to "consolidated" or to generally accepted accounting
principles; rather the interest of the Company in A. O. Smith Corporation,
shall, as it has in the past, continue to be reflected pursuant to the
equity method of accounting.
12. Miscellaneous.
12A. Home Office Payment. The Company agrees that, as long as you
shall hold any Note, it will make payments of principal thereof and
interest and premium, if any, thereon, and give notices relating thereto,
in the manner and to the account designated by you in Exhibit F hereto
attached, or in such other manner and to such other account within the
United States as you may designate in writing, not withstanding any
contrary provision herein or in any Note with respect to the place of
payment. You agree that, before disposing of any Note, you will make a
notation thereon of all principal payments previously made thereon and of
the date to which interest thereon has been paid, and will notify the
Company of the name and address of the transferee of such Note.
12B. Non-Business Due Date. If any payment of principal or interest
falls due on a Saturday, Sunday or other day which is not a business day,
then such due date shall be extended to the next following business day
and additional interest shall accrue and be payable for the period of such
extension.
12C. Expenses. Whether or not the transactions herein contemplated
shall be consummated, the Company agrees to pay all expenses incident to
the transactions contemplated by this Agreement, including but not limited
to, all printing expenses and the reasonable charges and disbursements of
your special counsel. In addition, so long as you hold any of the Notes,
the Company will pay all such expenses relating to amendments, waivers or
consents with respect thereto. Although the Company is of the opinion and
is so advised by its counsel that no federal or state documentary or
similar taxes are payable in respect to this Agreement or the Notes the
Company will pay such taxes, including interest and penalties, in the
event any such taxes are assessed irrespective of when such assessment is
made and whether or not any Notes are then outstanding and agrees to
indemnify and hold you harmless from any liability on account of such
taxes. If and to the extent that any interest equalization taxes or other
similar levies of the United States of America designed to limit or
restrict investments in foreign securities shall be payable or determined
to be payable in connection with any of the transactions hereby
contemplated as a result of your reliance upon the truth and accuracy of
the representations of the Company contained in paragraph 5K, the Company
will indemnify and hold you and all subsequent holders of any of the Notes
harmless from all such liabilities (including any income taxes in respect
of any reimbursement of any such interest equalization taxes or other
similar levies), whether or not any Notes are then outstanding.
12D. Consent to Amendments. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act given by the
holder or holders of at least two-thirds of the principal amount of the
Notes at the time outstanding, except that, without the written consent of
the holder or holders of all of the Notes affected thereby at the time
outstanding, no amendment to this Agreement shall extend the maturity of
any Note, or reduce the rate of interest or premium payable with respect
to any Note, or affect the amount of any required prepayments, or reduce
the proportion of the principal amount of the Notes required with respect
to any consent or give any Note preference over any other Note. Each
holder of any Note at the time or thereafter outstanding shall be bound by
any consent authorized by this paragraph 12D, whether or not such Note
shall have been marked to indicate such consent, but any Note issued
thereafter shall bear a notation referring to any such consent. No such
consent shall extend to or affect any obligation not expressly amended or
waived or impair any right consequent thereon.
12E. Form, Reqistration. Transfer and Exchange of Notes. The Notes
are issuable only as registered Notes without coupons in the denominations
of $1,000,000 and any integral multiple of $1,000,000. The Company shall
keep at its principal office a register in which the Company shall provide
for the registration of Notes and of transfers of Notes. Upon surrender
for registration of transfer of any Note at the office of the Company, the
Company shall execute and deliver, at its expense, one or more new Notes
of the same type and of a like aggregate unpaid principal amount
registered in the name of the designated transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for other
Notes of the same type of any authorized denominations, of a like
aggregate unpaid principal amount, upon surrender of the Note to be
exchanged at the office of the Company. Whenever any Notes are so
surrendered for exchange, the Company shall execute and deliver, at its
expense, the Notes which the Note holder making the exchange is entitled
to receive. Every Note presented or surrendered for registration of
transfer shall be duly endorsed, or be accompanied by a written instrument
of transfer duly executed, by the holder of such Note or his attorney duly
authorized in writing. Any Note or Notes issued in exchange for any Note
or upon transfer thereof shall be substantially in the form of Exhibit A
hereto attached, with appropriate insertions and variations and carrying
the rights to unpaid interest and interest to accrue were carried by the
Note so exchanged or transferred, and neither gain nor loss of interest
shall result from any such transfer or exchange.
12F. Persons Deemed Owners. The Company may treat the person in
whose name any Note is registered as the owner and holder of such Note for
the purpose of receiving payment of principal of (and premium, if any) and
interest on, such Note and for all other purposes whatsoever, whether or
not such Note shall be overdue, and the Company shall not be affected by
notice to the contrary.
12G. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by the Company in
connection herewith shall survive the execution and delivery of this
Agreement, the Pledge Agreement and of the Notes.
12H. Loss or Destruction of Note. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction
of any Note, and in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity in such form and amount as shall be
reasonably satisfactory to the Company, or in the event of such mutilation
upon surrender and cancellation of the Note, the Company will make and
deliver a new Note, of like tenor, in lieu of such lost, stolen, destroyed
or mutilated Note. If you are the owner of any such lost, stolen or
destroyed Note, then the affidavit of your president or treasurer setting
forth the fact of loss, theft or destruction and of your ownership of the
Note at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no indemnity shall be required as a
condition to execution and delivery of a new Note other than your written
agreement to indemnify the Company.
12I. Delay not Waiver. No delay or failure on the part of you or the
holder of any Note in the exercise of any power or right shall operate as
a waiver thereof; nor shall any single or partial exercise of the same
preclude any other or further exercise, thereof, or the exercise of any
other power or right, and the rights and remedies of you and the holder of
any Note are cumulative to and not exclusive of any rights or remedies
which you or any such holder would otherwise have.
12J. Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of either of the parties hereto shall
bind and inure, to the benefit of the respective successors and assigns of
the parties hereto whether so expressed or not.
12K. Notices. All communications provided for hereunder shall be
sent by first class mail and, if to you, addressed to you in the manner
(except as otherwise provided in paragraph 12A with respect to payments of
principal of and interest and premium, if any, on the Notes and notices
relating thereto) in which this letter is addressed, and if to the
Company, at Post Office Box 23976, Milwaukee,Wisconsin 53223 (Attention:
Treasurer), or to such other address with respect to either party as such
party shall notify the other in writing. Notices by the Company given
pursuant to paragraph 4E shall be given by registered or certified mail.
12L. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
12M. Governing Law. This Agreement is being delivered and is
intended to be performed in the State of Wisconsin, and shall be construed
and enforced in accordance with the laws of such state.
12N. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and
it shall not be necessary in making proof of this Agreement to produce or
account for more than one such counterpart.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same
to the undersigned, whereupon this letter shall become a binding agreement
between you and the undersigned.
Very truly yours,
(Corporate Seal) SMITH INVESTMENT COMPANY
Attest: By /s/ Arthur O. Smith
Arthur O. Smith
/s/ Wesley A. Ulrich Chairman, President & Chief
Executive Officer
Wesley A. Ulrich
Secretary & Treasurer AID ASSOCIATION FOR LUTHERANS
By /s/ James Abitz
James Abitz
Vice President - Securities
By /s/ R. Jerry Scheel
R. Jerry Scheel
Second Vice President -
Securities
Exhibit A - Note
Exhibit B - Pledge Agreement
Exhibit C - Subsidiaries
Exhibit D - A. O. Smith Corporation Stock
Exhibit E - Other Debt Restricting Funded Debt
Exhibit F - Note Payment and Notice Instructions
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Pledge Agreement"), dated June 30, 1993,
between SMITH INVESTMENT COMPANY, a Delaware corporation (the "Pledgor"),
the AID ASSOCIATION FOR LUTHERANS, a Wisconsin fraternal benefit society
(herein, in its capacity as pledgee hereunder, together with its
successors as pledgee hereunder, called the "Pledgee"):
PRELIMINARY STATEMENT
The Pledgor has entered into a letter agreement, dated as of June
15, 1993 (herein, as amended and modified from time to time, called the
"Agreement"), with Aid Association for Lutherans, a Wisconsin fraternal
benefit society, providing for the purchase by Pledgee of the Pledger's
6.95% Notes due June 30, 2003 (herein, together with all securities issued
in exchange or replacement therefor, called the "Notes"), in an aggregate
principal amount not to exceed $20,000,000. Capitalized terms used herein
without definition have the meanings ascribed to them in the Agreement.
The Agreement provides, among other things, that the Pledgor grant
to the Pledgee a first security interest in the Pledged Stock hereinafter
mentioned as security for the Notes.
PLEDGE
The Pledgor hereby grants a security interest in, and delivers to
the Pledgee or such agent as the Pledgee has duly designated in writing to
the Pledgor prior to or concurrently with such delivery, as security for
the payment of the Notes and the due performance of all obligations of the
Pledgor under the Agreement and under this Pledge Agreement, the A.O.
Smith Corporation shares of stock, with appropriate stock powers executed
by the Pledgor in blank, as required by and as described in the Agreement
(herein, together with any additional shares of such stock and stock
powers that may be delivered to the Pledgee or its agent in accordance
with the Agreement, called the "Pledged Stock"). The Pledgor represents
and warrants to, and agrees with, the Pledgee that as of the date hereof
and as of the date of any future delivery to the Pledgee or its agent,
such shares of stock of A.O. Smith Corporation are and will be represented
by stock certificates, and that each such stock certificate, accompanied
by an instrument of assignment duly executed in blank by the Pledgor, will
be delivered by the Pledgor to the Pledgee or the Pledgee's duly
designated agent. The number of shares of Pledged Stock subject hereto
may be increased or decreased, from time to time, all as provided in the
Agreement.
The Pledged Stock is to be held and disposed of subject to the terms,
covenants and conditions hereinafter set forth:
1. Terms of Acceptance by Pledgee. The Pledgee accepts the deposit
and pledge of the Pledged Stock made by the Pledgor hereunder and agrees
to hold the Pledged Stock, or by its duly designated agent, as herein
provided, but only upon the following terms and conditons:
(a) each holder of a Note by its acceptance thereof authorizes
the Pledgee to exercise such powers under this Pledge Agreement as
are specifically delegated to the Pledgee by the terms hereof,
together with such powers as are reasonably incidental thereto;
(b) the Pledgee may execute any of its duties under this Pledge
Agreement by or through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of such counsel
concerning all matters pertaining to its duties hereunder, and shall
hold, itself, or by its duly designated agent, any and all of the
Pledged Stock at any time received pursuant to the provisions of this
Pledge Agreement and the Agreement for the ratable benefit of all the
holders of the Notes;
(c) the Pledgee shall be under no obligation to take any action
in respect of this Pledge Agreement or pursuant to this Pledge
Agreement unless and until furnished with an indemnity satisfactory
to it against any liability and expense in connection with the taking
of such action;
(d) the Pledgee shall have no duty to take any affirmative
action under this Pledge Agreement unless directed to do so by the
holders of a majority in aggregate principal amount of the Notes then
outstanding, and shall in all cases be fully protected with the
written instructions signed by or on behalf of the holders of a
majority in aggregate principal amount of the Notes then outstanding,
and such instrument and any action taken or not taken pursuant
thereto, shall be binding upon the holders of the Notes;
(e) the Pledgee shall be entitled to rely, for all purposes of
this Pledge Agreement, upon any request or notice delivered to it as
provided herein, with respect to the matters stated therein and each
such request or notice shall be a full warrant to the Pledgee for any
action taken, suffered or omitted by it in reliance thereon;
(f) the Pledgee shall not be liable with respect to action
lawfully taken or omitted to be taken by it in good faith, in
accordance with the direction of the holders of a majority in
aggregate principal amount of the Notes then outstanding, relating to
the time, method and place of conducting any proceeding for any
remedy available to the Pledgee or exercising any power conferred
upon the Pledgee under the Agreement; and
(g) neither the Pledgee nor any of its directors, officers or
employees shall be liable for any action taken or omitted to be taken
by it or them under this Pledge Agreement, except for its or their
own gross negligence or willful misconduct, nor shall the Pledgee be
responsible for the validity, effectiveness or sufficiency of this
Pledge Agreement or any of the Pledged Stock.
2. Ownership and Reqistration of the Pledged Stock. The Pledgor
represents and warrants that
(a) the Pledged Stock is duly issued, fully paid and
nonassessable (except for statutory provisions imposing liability for
unpaid wages and salaries owing to employees);
(b) the Pledger owns the Pledged Stock free and clear of any
security interest or charge, except the security interest granted
under this Pledge Agreement; and
(c) the Pledgor has good right and lawful authority to grant a
security interest in and deliver the Pledged Stock as provided in
this Pledge Agreement.
The foregoing representations and warranties shall also be true and
correct at the time of any future delivery of Pledged Stock to the Pledgee
or its agent. The Pledgor will warrant and defend the Pledgor's title to
the Pledged Stock, and the security interest therein created by this
Pledge Agreement, against all claims of all persons, and will maintain and
preserve such security interest. Without the prior consent of the Pledgee
and the holders of all the Notes then outstanding, the Pledgor will not
transfer, create or otherwise dispose of any interest in, or grant any
option with respect to, or pledge the Pledged Stock.
3. Votes, Consents, Waivers and Ratifications of the Pledged Stock.
Unless a Default or an Event of Default shall have occurred and be
continuing, the Pledgor shall have the right to vote any and all of the
Pledged Stock and to give consents, waivers and ratifications in respect
of the Pledged Stock; provided, however, that no vote shall be cast, and
no consent, waiver or ratification shall be given, which would be
inconsistent with any of the provisions of the Notes, the Agreement, this
Pledge Agreement or any other instrument or agreement referred to herein
or therein, which would result in an amendment, modification or waiver of
any of the provisions of the Certificate of Incorporation of A.O. Smith
Corporation affecting or relating to the convertibility of any Class A
Common Stock into Common Stock, or which would otherwise affect or relate
to the convertibility of any Class A Common Stock into Common Stock. Such
right of the Pledgor to vote and give consents, waivers and ratifications
shall cease if a Default or an Event of Default shall occur and be
continuing. Whenever a Default or an Event of Default has occurred and is
continuing, the Pledgee may transfer into its name, or into the name of
its nominee or nominees, any or all of the Pledged Stock and may vote any
or all of the Pledged Stock (whether or not so transferred) and may give
all consents, waivers and ratifications in respect thereof and may
otherwise act with respect thereto as though it were the outright owner
thereof, the Pledgor hereby irrevocably constituting and appointing the
Pledgee as the proxy and attorney-in-fact of the Pledgor, with full power
of substitution, to do so.
4. Dividends on Pledged Stock.. All cash dividends on the Pledged
Stock shall be paid to the Pledgor, provided that no Default or Event of
Default shall have occurred and be continuing. All dividends (other than
cash dividends) and all other distributions in respect of any of the
Pledged Stock, whenever paid or made, and all cash dividends on the
Pledged Stock paid after the occurrence and during the continuance of a
Default or an Event of Default, shall be delivered to the Pledgee and held
by it or its duly designated agent, subject to the security interest
created by this Pledge Agreement.
5. Exchange of Pledged Stock. The Pledgee may deliver the Pledged
Stock or any part thereof to the issuer thereof or any other person for
the purpose of making denominational exchanges or registrations,
transfers, substitutions.or for any other purpose furthering the
provisions of this Pledge Agreement or the Agreement, and the Pledged
Stock or any part thereof so delivered, and any instruments issued as a
result of or in connection with such delivery, shall be subject to the
security interest created by this Pledge Agreement to the same extent as
if no such delivery had been made.
6. Remedies in Case of an Event of Default.
(a) If an Event of Default shall have occurred and be
continuing, the Pledgee shall have the following rights in respect
of the Pledged Stock, in addition to any rights provided by law:
(i) to vote the Pledged Stock; and
(ii) to convert the Pledged Stock which is Class A Common
Stock into Pledged Stock which is Common Stock and/or to sell the
Pledged Stock, upon at least 10 business days' prior notice to the
Pledgor of the time and place of sale (which notice the Pledgor and
the Pledgee agree is reasonable), for cash or upon credit or for
future delivery, the Pledgor hereby waiving all rights, if any, of
marshaling the Pledged Stock and any other security for the Notes,
at the option and in the complete discretion of the Pledgee, either:
(A) at public sale, including a sale at any broker's
board or exchange; or
(B) at private sale, in which event such notice shall
also contain the terms of the proposed sale and the Pledgor
shall have until the time of such proposed sale in which to
procure a purchaser willing, ready and able to purchase the
Pledged Stock on terms no less favorable to the Pledgee and the
holders of the Notes, and if such a purchaser is so procured,
the Pledgee shall sell the Pledged Stock to the purchaser so
procured; and
(iii) on behalf of the holders of the Notes, to bid for
the Pledged Stock and, in lieu of paying cash therefor, to make
settlement for the selling price by crediting ratably upon the
outstanding principal of, and interest and prepayment premium,
if any, on the Notes, and any other sums due under the
Agreement, the net selling price after deducting all reasonable
costs and expenses incurred in connection therewith. The
Pledgee, upon so acquiring the Pledged Stock, shall be entitled
to hold, deal with and sell the same in any manner not
prohibited by applicable laws.
From time to time the Pledgee may, but shall not be obligated to, postpone
the time and change the place of any proposed sale of any of the Pledged
Stock which has been noticed as provided above, upon at least 5 days'
prior notice to the Pledgor (which notice the Pledgor and the Pledgee
agree is reasonable) of the new time and place of such sale whenever, in
the judgment of the Pledgee, such postponement or change is necessary or
appropriate in order that the provisions of this Pledge Agreement
applicable to such sale may be fulfilled or in order to obtain more
favorable conditions under which such sale may take place. The method,
manner, time, place and terms of any such sale of Pledged Stock must be
commercially reasonable.
(b) In case of any sale by the Pledgee of the Pledged Stock on
credit or for future delivery, which may be elected at the option and
in the complete discretion of the Pledgee, the Pledged Stock so sold
may be retained by the Pledgee until the selling price is paid by the
purchaser, but the Pledgee shall incur no liability in case of
failure of the purchaser to take up and pay for the Pledged Stock so
sold. In case of any such failure, such Pledged Stock so sold may be
again similarly sold. After deducting all reasonable costs and
expenses of every kind, the Pledgee shall ratably apply the residue
of the proceeds of any sale or sales to pay the principal of, and
interest and prepayment premium, if any, on the Notes and any other
sums due under the Agreement. The excess, if any, shall be paid to
the Pledgor, except as may otherwise be required by law.
(c) Neither failure nor delay on the part of the Pledgee to
exercise any right, remedy, power or privilege provided for herein or
by statute or at law or in equity shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, remedy,
power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege.
(d) The Pledgor recognizes that, in taking actions pursuant to
this Paragraph 6, the Pledgee may be unable to effect a public sale
of all or a part of the Pledged Stock by reason of certain
requirements contained in the Securities Act of 1933, as amended, or
any similar federal statute then in effect, and under the applicable
securities or "blue sky" laws of one or more of the states (such Act,
statute and laws being herein collectively called the "Securities
Act"), but may, notwithstanding the rights and agreements set forth
in Paragraph 7 below, deem it necessary or appropriate to resort to
one or more private sales to a restricted group of purchasers who
will be obligated to agree, among other things, to acquire such
securities for their own account, for investment and not with a view
to the distribution or sale thereof. The Pledgor agrees,
notwithstanding the rights and agreements set forth in Paragraph 7
below, that such private sales so made may be at prices and on other
terms less favorable to the seller than if such securities were sold
at public sales, and the Pledgee has no obligation to delay sale of
any such securities for the period of time necessary to permit the
issuer of such securities, even if such issuer would agree, to
register such securities for public sale under applicable securities
laws. The Pledgor agrees that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially
reasonable manner.
7. Reqistration of the Pledged Stock. During the continuance of an
Event of Default, the Pledgor, upon the written request of the Pledgee;
(i) will promptly use its best efforts to cause A. O. Smith Corporation to
make all necessary filings (including the filing of one or more
registration statements) under the Securities Acts relating to any of the
Pledged Stock issued by it designated by the Pledgee in such request and
irrespective of the number of shares of such corporation then pledged to
the Pledgee, and the Pledgor will in good faith use its best efforts to
cause such filings to become and remain effective; (ii) will cause to be
furnished to the Pledgee such number of copies as the Pledgee may request
of each preliminary prospectus, prospectus and offering circular relating
to the Pledged Stock issued by A.O. Smith Corporation, all of which shall
comply with the requirements of the applicable securities law; (iii) will
promptly notify the Pledgee of the happening of any event (of which it has
knowledge) as a result of which the then effective prospectus or circular
includes an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein not misleading in
the light of the then existing circumstances and will cause the Pledgee to
be furnished with such number of copies as the Pledgee may request of such
supplement to or amendment of such prospectus or circular as is necessary
to eliminate such untrue statement or supply such omission; (iv) will
agree in writing to indemnify and hold the Pledgee harmless against any
claims and liabilities which the Pledgee may incur by reason of (a) any
failure on the part of the Pledgor or A. O. Smith Corporation to comply
with the provisions of any applicable securities laws; or (b) any untrue
statement of a material fact or omission to state a material fact required
to be stated in any registration statement, offering circular or
prospectus relating to the Pledged Stock issued by A.O. Smith Corporation,
or necessary to make the statements therein not misleading, except insofar
as such claims or liabilities are caused by any such untrue statement or
omission based upon, or in conformity with, information furnished in
writing to the Pledgor or such corporation by the Pledgee; (v) will do
any and all other acts and things which may be necessary or advisable to
enable the Pledgee to consummate any proposed sale or other disposition of
any of the Pledged Stock pursuant to this Pledge Agreement; and (vi) will
bear all costs and expenses of carrying out its obligations under this
Paragraph 7.
8. Obligations Not Affected. The obligations of the Pledgor under
this Pledge Agreement shall remain in full force and effect without regard
to, and shall not be impaired or affected by: (i) any amendment or
modification of or addition or supplement to the Notes, the Agreement or
any other instrument securing the Notes; (ii) any exercise or non-
exercise by the Pledgee of any right, remedy, power or privilege under or
in respect of this Pledge Agreement, the Notes, or any assignment or
transfer thereof or any waiver of any such right, remedy, power or
privilege (iii) except to the extent therein specified, any waiver,
termination, consent, extension, indulgence or other action or inaction in
respect of this Pledge Agreement, the Agreement, the Notes or any other
instrument securing the Notes; (iv) any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation or the
like, of the Pledgor or A. O. Smith Corporation; or (v) any limitation on
the liability or obligations under this Pledge Agreement of the Pledgor or
A. O. Smith Corporation which may now or hereafter be imposed by any
statute, regulation or rule of law or any invalidity or unenforceability,
in whole or in part, of this Pledge Agreement or any provision hereof, or
for any other reason, whether or not the Pledgor or A. O. Smith
Corporation (as the case may be) shall have notice or knowledge of any of
the foregoing.
9. Accidental Loss of Pledged Stock. So long as the Pledged Stock
is being held on behalf of the Pledgee by an agent designated by it for
that purpose as described in Paragraph 1, the risk of accidental loss of
or damage to the Pledged Stock shall be on the Pledgor to the extent of
any deficiency in any effective insurance coverage. In the event that the
Pledged Stock is at any time being held by the Pledgee directly rather
than by its designated agent, or if the agent designed by the Pledgee to
hold the Pledged Stock is not a bank or trust company having total capital
and surplus of not less than $100,000,000 at the time it is so designated
as agent to hold the Pledged Stock, then the Pledgee agrees to indemnify
the Pledgor against any accidental loss of or damage to the Pledged Stock
to the extent of any deficiency in any effective insurance coverage.
10. Notices. All notices, consents and other communications
hereunder shall be in writing and shall either be delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed (i)
if to the Pledgor, Post Office Box 23976, Milwaukee, Wisconsin 53223-0976,
with a copy to Jere D. McGaffey, Foley & Lardner, 777 E. Wisconsin Avenue,
Milwaukee, Wisconsin 53202, or (ii) if to the Pledgee, 4321 North Ballard
Road, Appleton, Wisconsin 54919, Attention: Investment Department, or as
to either party, at such other address as shall be designated by such
party by notice to the other party. The addresses for the holders of the
Notes for the purposes of this Pledge Agreement shall be their respective
addresses for notices specified in the register for the Notes maintained
by the Pledgor pursuant to Paragraph 11E of the Agreement. All notices
shall be deemed to have been given either at the time of the delivery
thereof to any officer or employee of the person entitled to receive such
notice at the address of such person for purposes of this Paragraph 10, or
at the completion of the third full day following the time of such mailing
thereof to such address, as the case may be.
11. Amendment, Succession and Headings. This Pledge Agreement may
not be changed, modified or discharged orally, nor may any waivers or
consents be given orally hereunder, and every such change, modification,
discharge, waiver or consent shall be in writing, duly signed by or on
behalf of the Pledgor and the Pledgee with the written consent of a
majority in aggregate principal amount of the Notes then outstanding.
This Pledge Agreement shall be binding upon the Pledgor, the Pledgee and
their respective successors and assigns, and shall inure to the benefit of
each holder of a Note. The captions in this Pledge Agreement are for
convenience reference only and shall not define or limit the provisions
hereof.
12. Return of Pledged Stock; Termination.
(a) The Pledgee shall forthwith assign, transfer and deliver,
without recourse and against receipt, such of the Pledged Stock (and
property received in respect thereof) as may be required pursuant to the
Agreement and which has not theretofore been returned to the Pledgor, sold
or otherwise applied pursuant to the provisions of this Pledge Agreement;
this Pledge Agreement shall continue as to any remaining Pledged Stock.
Any such assignment, transfer and delivery shall not affect the
obligations of the Pledgor to subsequently deliver Pledged Stock as
provided in the Agreement.
(b) Upon payment in full of the Notes and the due performance
of all obligations of the Pledgor under this Pledge Agreement and under
the Agreement, the Pledgee shall forthwith assign, transfer and deliver,
without recourse and against receipt, such of the Pledged Stock (and any
property received in respect thereof) as has not theretofore been sold or
otherwise applied pursuant to the provisions of this Pledge Agreement to
or upon the order of the Pledgor, whereupon this Agreement shall
terminate.
(c) The Pledgee shall not be required, however, to assign,
transfer and deliver any of the Pledged Stock as aforesaid unless and
until the Pledgee shall have received a favorable opinion of counsel or
other evidence, satisfactory to the Pledgee, as to the payment of all
transfer taxes and similar governmental charges, if any, payable in
connection with such assignment, transfer and delivery.
13. Holders of Notes. The Pledgee may deem and treat the person in
whose name a Note is registered as the holder and owner thereof for all
purposes. The Pledgor shall, upon the request of the Pledgee, furnish to
the Pledgee a copy of the register for the Notes which is maintained by
the Pledgor pursuant to Paragraph 12E of the Agreement.
14. Governing Law. This Agreement shall be deemed to be made under
and shall be governed by the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
executed by their respective officers thereunto duly authorized and, their
respective corporate seals to be duly affixed hereto as of the date first
set forth above.
SMITH INVESTMENT COMPANY
(Corporate Seal) Pledgor
Attest: By /s/ Arthur O. Smith
Arthur O. Smith
/s/ Wesley A. Ulrich Chairman, President & Chief
Wesley A. Ulrich Executive Officer
Secretary & Treasurer
AID ASSOCIATION FOR LUTHERANS
Pledgee
By /s/ R. Jerry Scheel
R. Jerry Scheel
Second Vice President -
Securities
By /s/ James Abitz
James Abitz
Vice President - Securities
