ACORN PRODUCTS INC, 424B4, 1997-06-24

ACORN PRODUCTS INC
424B4, 1997-06-24
CUTLERY, HANDTOOLS & GENERAL HARDWARE

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Number 333-25325

3,250,000 SHARES

ACORN PRODUCTS, INC.

COMMON STOCK
------------------------

All of the shares of common stock, par value $.001 per share (the "Common
Stock"), of Acorn Products, Inc. ("Acorn") offered hereby (the "Offering"),
are being issued and sold by Acorn. Of the 3,250,000 shares being offered
hereby, 812,500 shares have been reserved for offer and sale to the OCM
Principal Opportunities Fund, L.P. (the "Oaktree Fund") and 66,500 shares have
been reserved for offer and sale to officers, directors and employees of Acorn
and its subsidiaries. See "Underwriting".

Prior to this Offering, there has been no public market for the Common
Stock. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "ACRN", subject to official notice of issuance.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT ACORN(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share......................... $14.00 $0.98 $13.02
- -------------------------------------------------------------------------------------------------
Total(2).......................... $45,500,000 $3,185,000 $42,315,000
=================================================================================================
</TABLE>

(1) Before deducting expenses payable by Acorn, estimated at $1.0 million. Acorn
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
(2) Acorn has granted the Underwriters a 30-day option to purchase up to 487,500
additional shares of Common Stock at the Price to Public less the
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Acorn will be $52,325,000, $3,662,750
and $48,662,250, respectively. See "Underwriting".
------------------------

The shares of Common Stock are offered by the Underwriters subject to
receipt and acceptance of the shares by them. The Underwriters reserve the right
to reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that delivery of shares of Common Stock
will be made on or about June 27, 1997.

A.G. EDWARDS & SONS, INC. MORGAN KEEGAN & COMPANY, INC.

The date of this Prospectus is June 24, 1997.
<PAGE> 2

[PHOTOGRAPHS DEPICTING THE COMPANY'S PRODUCTS, RAZOR-BACK LOGO,
GOOD -- BETTER -- BEST MERCHANDISING DISPLAYS AND BRAND TRADEMARKS]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements (including the Notes thereto) appearing elsewhere in this Prospectus.
As used in this Prospectus and except as the context otherwise may require, the
"Company" means Acorn and its subsidiaries, other than McGuire-Nicholas Company,
Inc. ("McGuire-Nicholas") and VSI Fasteners, Inc. ("VSI"). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Disposition of Non-Lawn and Garden Business Operations" and
"Description of McGuire-Nicholas". References to the Company's fiscal year mean
the fiscal year ended on the Friday closest to July 31 of the applicable year
(e.g., fiscal 1996 means the fiscal year ended August 2, 1996). Unless the
context otherwise requires, the information contained herein gives effect to a
1,446-for-1 split of the Common Stock effected on May 22, 1997 in the form of a
stock dividend to all stockholders of record on May 21, 1997. In addition,
unless the context otherwise requires, the information contained in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in such statements as a result of various factors,
including those set forth under the caption "Risk Factors" and elsewhere in this
Prospectus.

THE COMPANY

Founded in 1890, the Company is a leading manufacturer and marketer of
non-powered lawn and garden tools in the U.S. The Company's principal products
include long handle tools (such as forks, hoes, rakes and shovels), snow tools,
posthole diggers, wheelbarrows, striking tools and cutting tools. The Company
sells its products under a variety of well-known brand names, including
Razor-Back, Union, Yard 'n Garden, Perfect Cut and, pursuant to a license
agreement, Scotts. In addition, the Company manufactures private label products
for a variety of retailers, including products sold under Sears' Craftsman and
Cotter & Company's True Value brand names. The Company's customers include mass
merchants such as Sears, Kmart and Fred Meyer, home centers such as Home Depot,
HomeBase, Builders Square and Payless Cashways, buying groups such as Cotter &
Company and Ace Hardware and farm and industrial distributors.

The Company believes that the lawn and garden industry is the beneficiary
of several significant trends suggesting a growing demand for lawn and garden
tools, including (i) the continuing popularity of gardening (industry sources
estimate that approximately 80 million households in the U.S. purchased lawn and
garden equipment in 1994), (ii) the movement of the "baby boomer" generation
into the 45 to 54 age group (estimated to increase by approximately 54% from
1988 to 2000), which industry sources estimate represents the largest age group
of lawn and garden enthusiasts and (iii) a general increase in housing starts,
representing a net addition of homeowners who are likely purchasers of lawn and
garden tools. In addition, due in part to the low-cost nature of non-powered
equipment, the non-powered lawn and garden tool industry generally is
non-cyclical.

The Company's net sales increased from $56.2 million in fiscal 1991 to
$92.7 million in fiscal 1996, a compound annual growth rate ("CAGR") of 10.5%.
The Company's net sales were $78.0 million for the nine months ended May 2,
1997, an increase of 12.3% from the same period in fiscal 1996. In addition, net
sales of the Company's higher-margin, best-quality products increased to
approximately 36% of total net sales in fiscal 1996, while net sales of the
Company's lower-margin, opening-price-point products decreased to approximately
7% of total net sales in fiscal 1996. The Company generated approximately 92% of
its revenues in both fiscal 1996 and the nine months ended May 2, 1997 from
sales of long handle tools. The Company believes that it has gained the second
largest market share in the long handle tools segment of the industry (with an
estimated market share of approximately 28% in 1996) from the third largest
market share in the early 1990s.

BUSINESS STRATEGY

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<PAGE> 4

primarily on brand management and a merchandising strategy based on attractive
and informative product displays and labeling.

- Market Segmentation Strategy. The Company has developed a family of
brands, each targeted to one or more specific consumer segments and
price-points. For example, shovels sold under the Company's
opening-price-point Yard 'n Garden brand generally retail from $3.99 to
$5.99, while shovels sold under the Company's best-quality Razor-Back
brand generally retail from $19.99 to $21.99. The Company's products and
brands are differentiated by price, features and warranty, as well as by
the materials and production processes used.

- Merchandising Strategy. The Company was the first in the long handle
tool segment of the non-powered lawn and garden industry to successfully
implement sophisticated merchandising and marketing programs. The
Company's merchandising programs are designed to (i) create brand
identification among goods historically treated as commodities and (ii)
increase retail sales while reducing the amount of sales support needed
from the retailer's employees. The Company uses innovative product
labeling and point-of-sale signage and racking to highlight the
comparative value and quality of products within and among the Company's
brands. Products within the Company's Union, Scotts and Perfect Cut lines
are merchandised using the Company's trademarked "Good/Better/Best"
format. Where adequate shelf-space is available, the Company also
merchandises its brands together, from the Company's opening-price-point
Yard 'n Garden brand to its best-quality Razor-Back brand, using a
similar value positioning technique. The Company believes that its
merchandising strategy facilitates comparison shopping and encourages
consumers to purchase higher price-point products.

Over the past six years, the Company also has expanded its infrastructure
to support future growth by recruiting an experienced management team,
increasing manufacturing capacity and enhancing its management information
systems.

GROWTH STRATEGY

The Company believes that it can leverage the success of its business
strategy through the implementation of the following growth strategies:

- Increase Penetration in High Growth Distribution Channels. The Company
believes that certain distribution channels, such as home centers and
mass merchants, are growing more rapidly than the overall industry. The
Company believes that it can continue to increase its sales in these high
growth distribution channels through its unique combination of brand
names, innovative merchandising techniques and high quality products. For
example, in August 1996, after the Company demonstrated the effectiveness
of its market segmentation and merchandising strategies in a select
number of Home Depot stores, Home Depot selected the Company as the
supplier of long handle tools for all new Home Depot stores in new
markets and for 50 existing Home Depot stores. Home Depot has indicated
that it expects to open over 450 additional stores over the next five
years, primarily in new markets. In addition, the Company has been a
continuous supplier to Sears for over 80 years and the primary supplier
of long handle tools to Sears for over 50 years. In five of the last six
years the Company has received the prestigious "Partners in Progress"
trophy awarded to approximately 80 of Sears' 10,000 suppliers. Sears has
indicated that it expects to open or acquire over 500 additional non-mall
hardware stores over the next five years.

- Develop Product Line Extensions. The Company believes that product line
extensions allow the Company to increase sales with minimal incremental
expenditures. The Company recently expanded its cutting tool and striking
tool product lines with the introduction of Perfect Cut pruning shears
and loppers and Razor-Back mattocks, picks, axes, hammers and bars. The
Company also recently introduced the Lady Gardener line of tools, which
are ergonomically designed for female gardeners. The Company is actively
developing additional product line extension opportunities.

4
<PAGE> 5

- Complete Strategic Acquisitions. The Company intends to increase its
presence in certain segments of the lawn and garden industry through
selective acquisitions and to increase operating efficiencies through
vertical integration. Consistent with this strategy, in February 1997 the
Company acquired an injection molding facility from one of the Company's
largest suppliers of plastic parts. The Company's Credit Facility
contains a $35 million acquisition facility, approximately $28.8 million
of which will be available following consummation of the Offering and the
application of the net proceeds therefrom. In addition, Oaktree Capital
Management, LLC ("Oaktree"), the general partner of the Oaktree Fund, has
indicated its willingness to consider providing financing from the
Oaktree Fund for future acquisitions by the Company, however, there can
be no assurance in this regard.

The Company believes that continued application of its market segmentation and
merchandising strategies, together with the implementation of the foregoing
growth strategies, will enable the Company to continue its growth, increase its
profitability and enhance its market share.

The Company's executive offices are located at 500 Dublin Avenue, Columbus,
Ohio 43215, and its telephone number is (614) 222-4400.

DISPOSITION OF NON-LAWN AND GARDEN BUSINESS OPERATIONS

In December 1996 the Company sold substantially all of the assets of VSI, a
distributor of packaged fasteners, for approximately $6.9 million, plus the
assumption of approximately $2.3 million of related liabilities. The Company
also intends to sell McGuire-Nicholas within the next 12 months.
McGuire-Nicholas is a manufacturer and distributor of leather, canvas and
synthetic fabric tool holders and work aprons. On May 30, 1997, the Company
entered into a non-binding letter of intent to sell substantially all of the
assets of McGuire-Nicholas. The final terms of the proposed transaction remain
subject to a number of significant conditions, including the completion by the
proposed purchaser of its due diligence examination of McGuire-Nicholas,
financing arrangements and the negotiation of definitive documentation.
Accordingly, there can be no assurance that the proposed sale of
McGuire-Nicholas will be completed on the terms set forth in the letter of
intent, if at all. VSI's and McGuire-Nicholas' results of operations are shown
as "Loss from discontinued operations" in the Summary Consolidated Financial
Data, Selected Consolidated Financial Data and the Consolidated Financial
Statements appearing elsewhere in this Prospectus. Net assets and net
liabilities of the discontinued VSI and McGuire-Nicholas operations are shown as
"Net assets of discontinued operations" and "Net liabilities of discontinued
operations" in the Consolidated Financial Statements appearing elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Disposition of Non-Lawn and Garden Business Operations"
and "Description of McGuire-Nicholas". Following the intended sale of
McGuire-Nicholas, UnionTools, Inc. ("UnionTools") will be the Company's only
remaining operating subsidiary.

FUND TRANSACTIONS

Of the 3,250,000 shares being offered hereby, 812,500 shares have been
reserved for offer and sale to the Oaktree Fund.

In December 1993 and in May 1994 Acorn issued certain subordinated
promissory notes in the aggregate principal amount of approximately $31.4
million (the "Subordinated Notes") to several investment funds and accounts (the
"TCW Funds") managed by affiliates of The TCW Group, Inc. (the "TCW Group"). In
August 1996 Acorn issued 100 shares of Series A Preferred Stock with an
aggregate stated value of approximately $8.6 million (the "Series A Preferred
Stock") to the TCW Funds as payment in full of accrued interest on the
Subordinated Notes for fiscal 1995 and fiscal 1996. As of May 2, 1997, the
aggregate principal balance of the Subordinated Notes and accrued interest
thereon was approximately $34.4 million and the aggregate liquidation value of
the Series A Preferred Stock was approximately $9.4 million. See "Certain
Transactions".

5
<PAGE> 6

of the Offering, the TCW Funds will exchange the remainder of the Subordinated
Notes for a number of shares of Common Stock equal to the remaining aggregate
principal amount of the Subordinated Notes (approximately $24.0 million) divided
by the per share Price to Public set forth on the cover page of this Prospectus
(the "Exchange"). The TCW Funds will receive an aggregate of approximately
1,716,040 shares of Common Stock pursuant to the Exchange. See "Risk
Factors -- Control by Principal Stockholders", "Use of Proceeds" and "Certain
Transactions".

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered......................... 3,250,000 shares
Common Stock outstanding after the 6,464,096 shares
Offering(1)................................
Use of Proceeds.............................. The Company intends to use substantially all
of the estimated net proceeds of $41.3 million
to (i) repay indebtedness outstanding under
the Company's senior credit facility (the
"Credit Facility") and accrued interest
thereon, (ii) redeem the Series A Preferred
Stock and pay accumulated dividends thereon
and (iii) repay indebtedness outstanding under
the Subordinated Notes and accrued interest
thereon. See "Use of Proceeds" and "Certain
Transactions".
Nasdaq National Market symbol................ "ACRN"
</TABLE>

- ---------------
(1) Based upon the number of shares of Common Stock outstanding on June 23,
1997, as adjusted to give effect to the issuance of approximately 1,716,040
shares of Common Stock pursuant to the Exchange. Excludes (i) 39,042 shares
of Common Stock issuable upon the exercise of outstanding stock options,
(ii) 730,000 shares of Common Stock reserved for issuance under Acorn's 1997
Stock Incentive Plan (the "Incentive Plan"), pursuant to which options to
purchase 328,500 shares of Common Stock will be outstanding upon
consummation of the Offering and (iii) 73,000 shares of Common Stock
reserved for issuance under Acorn's Deferred Equity Compensation Plan for
Directors (the "Director Stock Plan"). See "Management -- 1997 Stock
Incentive Plan", "Management -- Director Stock Plan" and Notes 10 and 13 to
Consolidated Financial Statements.

RISK FACTORS

See "Risk Factors" beginning on page 10 for a description of certain risks
relevant to an investment in the Common Stock.
------------------------

As used in this Prospectus, "Ace Hardware" refers to Ace Hardware Corp.,
"Agway" refers to Agway, Inc., "Builders Square" refers to Builders Square,
Inc., "Cotter & Company" refers to Cotter & Company, "Fred Meyer" refers to Fred
Meyer, Inc., "Frank's Nursery" refers to Frank's Nursery & Crafts Inc.,
"HomeBase" refers to HomeBase, Inc., "Kmart" refers to Kmart Corporation,
"Payless Cashways" refers to Payless Cashways, Inc., "Sears" refers to Sears,
Roebuck & Company, and "Home Depot" refers to The Home Depot, Inc.

Lady Gardener(R), Perfect Cut(R), Pro Force(R), Razor-Back(R), Union(R),
Union Pro(R) and Yard 'n Garden(R) are registered trademarks of the Company.
Agway(R) is a registered trademark of Agway. Green Thumb(R) and True Value(R)
are registered trademarks of Cotter & Company. Frank's(R) is a registered
trademark of Frank's Nursery. Craftsman(R) and Sears(R) are registered
trademarks of Sears. Scotts(R) is a registered trademark of The Scotts Company.

6
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA

The Summary Consolidated Financial Data for fiscal 1992, fiscal 1993, the
four months ended December 2, 1993, the eight months ended July 29, 1994, fiscal
1995 and fiscal 1996 have been derived from the audited Consolidated Financial
Statements of the Company. The Summary Consolidated Financial Data for the nine
months ended April 26, 1996 and the nine months ended May 2, 1997 have been
derived from the unaudited Consolidated Financial Statements of the Company,
which reflect, in the opinion of management of the Company, all adjustments
(which include only normal recurring adjustments) necessary for the fair
presentation of financial data for such periods. The results of such interim
periods are not necessarily indicative of the results that will be reported for
the full fiscal year. The Summary Consolidated Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Consolidated Financial Statements and Notes
thereto and the other financial information included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SUCCESSOR COMPANY
PREDECESSOR COMPANY -------------------------------------------------------------------
--------------------------------
FOUR EIGHT
MONTHS MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED NINE MONTHS ENDED
------------------- ----------- -------- ----------------------- -------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1992 1993 1993(1) 1994 1995 1996 1996 1997
-------- -------- ----------- -------- -------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 60,699 $ 70,051 $ 20,331 $ 72,370 $ 86,543 $ 92,652 $ 69,407 $ 77,967
Cost of goods sold..... 43,856 50,548 14,185 52,271 63,411 67,496 51,036 57,077
------- -------- -------- ------- ------- ------- ------- --------
Gross profit........... 16,843 19,503 6,146 20,099 23,132 25,156 18,371 20,890
Selling, general and
administrative
expenses.............. 11,380 12,648 5,482 9,955 15,531 16,815 11,820 13,448
Interest expense....... 4,924 4,939 2,773 3,525 6,485 6,732 5,569 5,743
Amortization of
intangibles........... 2,525 2,520 124 601 1,061 1,173 603 703
Other expenses, net.... -- 34,409(2) -- 11 694 1,522 (3) 546 1,123(4)
------- -------- -------- ------- ------- ------- ------- --------
Income (loss) from
continuing operations
before income taxes... (1,986) (35,013) (2,233) 6,007 (639) (1,086) (167) (127)
Income taxes........... -- -- -- 290 -- 582 -- 52
------- -------- -------- ------- ------- ------- ------- --------
Income (loss) from
continuing
operations............ (1,986) (35,013) (2,233) 5,717 (639) (1,668) (167) (179)
Loss from discontinued
operations(5)......... (5,684) (33,560)(2) (8,373) (614) (1,800) (6,480) (766) (9,575)
Cumulative effect of
change in accounting
for post-retirement
benefits.............. -- -- -- -- -- 869 869 --
------- -------- -------- ------- ------- ------- ------- --------
Net income (loss)...... $ (7,670) $(68,573) $ (10,606) $ 5,103 $ (2,439) $ (7,279) $ (64) $ (9,754)
======= ======== ======== ======= ======= ======= ======= ========
Pro forma net loss from
continuing operations
per share(6)(7)....... $ (0.78) $ (0.08)
Pro forma weighted
average number of
shares
outstanding(6)(7)..... 2,134,066 2,200,172
OTHER DATA:
Gross margin........... 27.7% 27.8% 30.2% 27.8% 26.7% 27.2% 26.5% 26.8%
EBITDA(8).............. $ 6,466 $ 8,343 $ 1,168 $ 11,148 $ 9,570 $ 10,760 $ 8,384 $ 9,141
EBIT(9)................ 2,938 4,335 540 9,543 6,540 7,168 5,948 6,739

</TABLE>

<TABLE>
<CAPTION>
SUCCESSOR COMPANY
----------------------------------------------------------------------
PREDECESSOR COMPANY MAY 2, 1997
----------------------------------- -----------------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, PRO AS
1992 1993 1993 1994 1995 1996 ACTUAL FORMA(10) ADJUSTED(11)
-------- -------- ----------- -------- -------- ---------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
from continuing
operations........ $(20,250) $(17,255) $ (17,902) $ 21,081 $ 5,989 $ 8,543 $ 21,771 $ 12,337 $ 27,828
Assets of
continuing
operations........ 71,348 36,478 49,895 88,164 90,517 79,611 113,224 113,224 113,224
Net assets
(liabilities) of
discontinued
operations........ 70,056 31,676 29,544 13,669 21,763 19,284 (315) (315) (315)
Total assets....... 141,404 68,154 79,439 101,833 112,280 98,895 113,224 113,224 113,224
Total debt......... 132,382 127,458 137,437 58,854 72,104 61,891 78,641 78,641 27,238
Stockholders'
equity............ 269 (68,304) (78,910) 19,422 17,323 18,530 8,984 (450) 64,711
</TABLE>

7
<PAGE> 8

- ---------------
(1) Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The
following purchase accounting adjustments impacted the Company's income
(loss) from continuing operations: (i) the basis of certain manufacturing
equipment was increased by an aggregate of approximately $4.5 million; and
(ii) goodwill was restated to approximately $40.0 million. The increased
basis of the equipment resulted in an annual increase in depreciation
expense of approximately $747,000, which is reflected in cost of goods
sold. The restatement of goodwill resulted in an annual increase in
amortization of intangibles of approximately $430,000. On a pro forma
basis, giving effect to the purchase accounting adjustments described
above, cost of goods sold and amortization of intangibles for the four
months ended December 2, 1993 would have increased by approximately
$249,000 and $77,000, respectively. See Note 1 to Consolidated Financial
Statements.

(2) In fiscal 1993 the Company reduced goodwill from continuing operations by
$35.8 million and goodwill from discontinued operations by $29.7 million.

(3) In fiscal 1996 the Company recognized other expense of $563,000 in
connection with the resignation of Acorn's previous Chairman of the Board
and other expense of $750,000 in connection with self-insured life
insurance accruals related to the death of a former director of the
Company.

(4) In the nine months ended May 2, 1997 the Company recognized other expense
of $950,000 from the write-off of certain capitalized bank fees incurred in
connection with the Company's previous bank credit facility.

(5) Represents the loss from the discontinued VSI and McGuire-Nicholas
operations, as well as (i) a loss of $766,000 incurred upon the sale of
substantially all of the assets of VSI, reflecting a loss of $665,000
recorded in fiscal 1996 and a loss of $101,000 recorded in the nine months
ended May 2, 1997 and (ii) a loss of $8.8 million in the nine months ended
May 2, 1997 incurred in connection with the intended disposition of
McGuire-Nicholas. See Note 3 to Consolidated Financial Statements. In
addition, the four months ended December 2, 1993 include restructuring
costs of approximately $7.6 million.

(6) Based upon the number of shares of Common Stock outstanding on August 2,
1996 and May 2, 1997, as adjusted to give effect to (i) the issuance of
614,000 and 673,857 shares of Common Stock at August 2, 1996 and May 2,
1997, respectively, pursuant to the Offering to redeem the Series A
Preferred Stock and pay accumulated dividends thereon and (ii) the issuance
of 29,240 and 28,259 shares of Common Stock at August 2, 1996 and May 2,
1997, respectively, upon the exercise of outstanding stock options pursuant
to the treasury stock method.

(7) Income from continuing operations would have been approximately $2.6
million and $3.7 million for fiscal 1996 and the nine months ended May 2,
1997, respectively, as adjusted to give effect to (i) the Offering and the
application of the net proceeds therefrom to repay indebtedness outstanding
under the Credit Facility and accrued interest thereon (reducing interest
expense by approximately $1.2 million and $1.1 million in fiscal 1996 and
the nine months ended May 2, 1997, respectively) and to repay indebtedness
outstanding under the Subordinated Notes and accrued interest thereon
(reducing interest expense by approximately $779,000 and $717,000 in fiscal
1996 and the nine months ended May 2, 1997, respectively) and (ii) the
Exchange (reducing interest expense on the Subordinated Notes by
approximately $2.3 million and $2.1 million in fiscal 1996 and the nine
months ended May 2, 1997, respectively). On such a basis, income from
continuing operations per share would have been $0.40 and $0.58 for fiscal
1996 and the nine months ended May 2, 1997, respectively, (based upon the
number of shares of Common Stock outstanding on August 2, 1996 and May 2,
1997, (as adjusted to give effect to (i) the issuance of 3,250,000 shares
of Common Stock pursuant to the Offering, (ii) the issuance of 1,637,857
shares of Common Stock pursuant to the Exchange and (iii) the issuance of
29,240 and 28,259 shares of Common Stock at August 2, 1996 and May 2, 1997,
respectively, upon the exercise of outstanding stock options pursuant to
the treasury stock method)). See Note 14 of Notes to Consolidated Financial
Statements.

(8) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation, amortization and other expenses.
EBITDA is presented because it is a widely accepted financial indicator
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance. EBITDA is not intended to represent
cash flows for the period, nor has it been

8
<PAGE> 9

presented as an alternative to operating income as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles.

(9) EBIT represents earnings from continuing operations before interest
expense, income taxes and other expenses. EBIT is presented because it is a
financial indicator used by certain investors and analysts to analyze and
compare companies on the basis of operating performance. EBIT is not
intended to represent cash flows for the period, nor has it been presented
as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles.

(10) Gives effect to the proposed redemption of the Series A Preferred Stock and
the payment of the accumulated dividends thereon in connection with the
Offering, without giving effect to the proceeds from the Offering. See Note
14 to Consolidated Financial Statements.

(11) Gives effect to (i) the Offering and the application of the net proceeds
therefrom to repay indebtedness outstanding under the Credit Facility and
accrued interest thereon, to redeem the Series A Preferred Stock and pay
accumulated dividends thereon and to repay indebtedness outstanding under
the Subordinated Notes and accrued interest thereon and (ii) the Exchange.

9
<PAGE> 10

RISK FACTORS

Prospective purchasers of the Common Stock should consider carefully the
following risk factors relating to the Offering and the business of the Company,
together with the information and financial data set forth elsewhere in this
Prospectus, prior to making an investment decision.

IMPACT OF WEATHER ON RESULTS OF OPERATIONS

Weather is the most significant factor in determining market demand for the
Company's products and is inherently unpredictable. Inclement weather during the
spring gardening season and lack of snow during the winter may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonal and Quarterly Fluctuations; Impact of
Weather".

SEASONALITY

RECENT LOSSES

The Company incurred net losses of $7.7 million, $68.6 million, $5.5
million, $2.4 million and $7.3 million, respectively, in fiscal 1992, fiscal
1993, the twelve months ended July 29, 1994, fiscal 1995 and fiscal 1996 and a
net loss of $9.8 million during the nine months ended May 2, 1997. The Company
also incurred losses from continuing operations of $2.0 million, $35.0 million,
$639,000, $1.7 million and $179,000, respectively, in fiscal 1992, fiscal 1993,
fiscal 1995, fiscal 1996 and the nine months ended May 2, 1997. As a result of a
high degree of financial leverage incurred in buyout transactions effectuated in
1986 and 1989, the Company restructured certain of its debt obligations in
December 1993. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview" and Note 1 to Consolidated Financial
Statements. There can be no assurance that the Company will attain profitability
or achieve continued growth in operating performance.

DEPENDENCE ON SIGNIFICANT CUSTOMERS

The Company's largest customer, Sears, accounted for 7.6%, 12.5% and 11.5%
of gross sales in fiscal 1995, fiscal 1996 and the nine months ended May 2,
1997, respectively. There can be no assurance that the Company's sales to Sears
will continue at existing levels. Certain retail distribution channels in the
lawn and garden industry, such as mass merchants and home centers, are
experiencing consolidation. There can be no assurance that such consolidation
will not have an adverse impact on certain of Company's customers or result in a
substantial reduction or cessation of purchases of the Company's products by
certain customers. A substantial reduction or cessation of sales to Sears or
other major customers could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Customers".

A key element of the Company's growth strategy is to increase sales in
certain distribution channels, such as home centers and mass merchants through
retailers such as Home Depot and Sears. Although Home Depot has indicated that
it expects to open over 450 additional stores over the next five years and Sears
has indicated that it expects to open or acquire over 500 additional non-mall
hardware stores over the next five years, there can be no assurance that such
stores will be opened or, if opened, that the Company will be chosen to supply
its products to

10
<PAGE> 11

all or a significant portion of such stores. In addition, there can be no
assurance that such stores will generate significant additional sales for the
Company or that such stores will not result in a reduction of sales to the
Company's other customers, whether through consolidation or otherwise.

DEPENDENCE ON KEY PERSONNEL

The recent growth and development of the Company largely has been dependent
upon the services of Gabe Mihaly, President and Chief Executive Officer of Acorn
and UnionTools. The loss of Mr. Mihaly's services could have a material adverse
effect on the Company. The Company does not maintain any key-person or similar
insurance policies. See "Management".

UNCERTAINTY OF FUTURE ACQUISITIONS

A key element of the Company's strategy is the acquisition of businesses
and assets in the lawn and garden industry. There can be no assurance, however,
that the Company will be able to identify attractive acquisition opportunities,
obtain sufficient financing for acquisitions on satisfactory terms or
successfully acquire identified targets. In addition, there can be no assurance
that the Company will be successful in integrating acquired businesses into its
existing operations or that such integration will not result in unforeseen
operational difficulties or require a disproportionate amount of management's
attention. Such acquisitions may result in the incurrence of additional
indebtedness by the Company or the issuance of preferred stock or additional
Common Stock. Furthermore, there can be no assurance that competition for
acquisition opportunities in the industry will not escalate, thereby increasing
the cost to the Company of making acquisitions or causing the Company to refrain
from making further acquisitions. See "Business -- Growth Strategy".

AVAILABILITY AND PRICE OF RAW MATERIALS

The Company's products require the supply of raw materials consisting
primarily of steel, plastics and ash wood. The Company has several suppliers for
most of its raw materials. There can be no assurance, however, that the Company
will not experience shortages of raw materials or components essential to its
production processes or be forced to seek alternative sources of supply. In
addition, there can be no assurance that prices for such materials will remain
stable. Any shortages of raw materials may result in production delays and
increased costs which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Raw
Materials".

COMPETITION

All aspects of the lawn and garden industry, including attracting and
retaining customers and pricing, are highly competitive. The Company competes
for customers with large consumer product manufacturers and numerous other
companies that produce specialty home and garden products, as well as with
foreign manufacturers that export their products to the U.S. Many of these
competitors are larger and have significantly greater financial resources than
the Company. There can be no assurance that increased competition in the lawn
and garden industry will not have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Competition".

SUBSTANTIAL AMOUNT OF COMMON STOCK ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering and the Exchange, approximately 6,464,096
shares of Common Stock will be outstanding. The 3,250,000 shares of Common Stock
sold in the Offering will be available for resale in the public market without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares purchased by "affiliates" of the
Company (in general, any person who has a control relationship with the
Company), which shares will be subject to the resale limitations of Rule 144
promulgated under the Securities Act. The remaining 3,214,096 outstanding shares
of Common Stock are deemed to be "restricted securities" as that term is defined
in Rule 144, all of which are eligible for sale in the public market in
compliance with Rule 144.

The TCW Funds, the executive officers and directors of the Company (who in
the aggregate hold approximately 98.8% of the Common Stock outstanding prior to
the Offering) and the Oaktree Fund have

11
<PAGE> 12

agreed, subject to certain exceptions, that they will not offer, sell or
otherwise dispose of any of the shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of the representatives of the Underwriters. Additionally, the Company
has agreed that, during the period of 180 days from the date of this Prospectus,
subject to certain exceptions, that it will not issue, sell, offer or agree to
sell, grant any options for the sale of (other than employee stock options) or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable for Common Stock, other than pursuant
to the Offering.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, such as the TCW Funds, is entitled to sell, within any
three-month period, a number of shares of Common Stock which does not exceed the
greater of 1% of the number of then-outstanding shares of the Common Stock or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144 also
may be subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned shares within the definition of "restricted securities" under
Rule 144 for at least two years, is entitled to sell such shares under Rule
144(k) without regard to the volume limitation, manner of sale provisions,
public information requirements or notice requirements.

Acorn intends to file a registration statement on Form S-8 under the
Securities Act to register the sale of the 730,000 shares of Common Stock
reserved for issuance under the Incentive Plan. Acorn also intends to file a
registration statement on Form S-8 under the Securities Act to register the sale
of the 73,000 shares of Common Stock reserved for issuance under the Director
Stock Plan. As a result, any shares of Common Stock issued pursuant to awards
granted under such plans will be available, subject to special rules for
affiliates, for resale in the public market after the effective date of such
registration statement, subject to applicable lock-up arrangements. See
"Management -- 1997 Stock Incentive Plan" and "Management -- Director Stock
Plan".

The TCW Funds and the Oaktree Fund have, subject to certain conditions and
restrictions, the right to include the shares of Common Stock owned by them in
registered public offerings of Common Stock (or securities exchangeable for or
convertible into Common Stock) undertaken by Acorn for its own account, as well
as to require Acorn to register the sale of such shares, subject to certain
conditions, upon demand. The TCW Group has informed the Company that the TCW
Funds currently are in their respective liquidation periods, requiring such
funds to liquidate their investments in an orderly manner. Pursuant to their
organizational documents, the TCW Funds terminate over the period from November
2001 to June 2003. As a result, it is likely that the shares of Common Stock
held by the TCW Funds either will be sold prior to such time (whether as a
block, pursuant to a registered public offering or otherwise) or distributed to
investors in the TCW Funds. Upon any such distribution to investors in the TCW
Funds, all such shares, except those acquired by affiliates of the Company, will
be immediately eligible for resale under Rule 144(k).

No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities, or the availability of
such shares, will have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock and could impair the Company's future ability to raise capital
through an offering of equity or equity linked securities. See "Shares Available
for Future Sale" and "Underwriting".

IMPACT OF HOLDING COMPANY STRUCTURE

Acorn is a holding company with no business operations of its own.
Following the intended sale of McGuire-Nicholas, Acorn's only material asset
will be all of the outstanding capital stock of UnionTools. Accordingly, Acorn
is dependent upon the earnings and cash flows of, and dividends and
distributions from, UnionTools to pay its expenses and meet its obligations and
to pay any cash dividends or distributions on the Common Stock that may be
authorized by the Board of Directors of Acorn. There can be no assurance that
UnionTools will generate sufficient earnings and cash flows to pay dividends or
distribute funds to Acorn to

12
<PAGE> 13

enable Acorn to pay its expenses and meet its obligations or that applicable
state law and contractual restrictions, including negative covenants contained
in the debt instruments of UnionTools then in effect, will permit such dividends
or distributions. See " -- Restrictions Imposed by the Terms of the Company's
Indebtedness" and " -- No Dividends".

ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE

Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The initial public
offering price has been determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the market
price of the Common Stock after the Offering. See "Underwriting". Subsequent to
the Offering, prices for the Common Stock will be determined by the market and
may be influenced by a number of factors, including the depth and liquidity of
the market for the Common Stock, investor perceptions of the Company and other
participants in the lawn and garden industry, weather and general economic and
other conditions.

RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS

The terms and conditions of the Credit Facility impose, and the terms and
conditions of future debt instruments of the Company may impose, restrictions on
the Company that affect, among other things, its ability to incur debt, pay
dividends or make distributions, make acquisitions, create liens, sell assets
and make certain investments. The terms of the Credit Facility require
UnionTools to maintain specified financial ratios and satisfy certain tests,
including minimum interest coverage ratios, and place limits on future capital
expenditures of UnionTools. In addition, the Credit Facility restricts
UnionTools' ability to pay dividends and make distributions. As of May 2, 1997,
after giving effect to the Offering and the application of the net proceeds
therefrom there would have been approximately $27.2 million outstanding under
the Credit Facility, approximately $9.0 million available under the revolving
portion of the Credit Facility and approximately $28.8 million available under
the acquisition line of the Credit Facility. See " -- No Dividends" and
"Description of Certain Indebtedness".

The ability of the Company to comply with the terms of its debt instruments
can be affected by events beyond its control, including events and changes in
the competitive environment, which could impair the Company's operating
performance. There can be no assurance that the Company will be able to comply
with the provisions of its debt instruments, including compliance by UnionTools
with the financial ratios and tests contained in the Credit Facility. Breach of
any of these covenants or the failure to fulfill the obligations thereunder and
the lapse of any applicable grace periods could result in an event of default
pursuant to which holders of such indebtedness could declare all amounts
outstanding under such debt instruments to be due and payable immediately. Any
such declaration under a debt instrument is likely to result in an event of
default under one of the other debt instruments of the Company, if any, then
outstanding. There can be no assurance that the assets or cash flows of the
Company would be sufficient to repay in full borrowings under its outstanding
debt instruments, whether upon maturity or in the event of acceleration upon an
event of default, or that the Company would be able to refinance or restructure
the payments of such indebtedness. See "-- Impact of Holding Company Structure"
and "Description of Certain Indebtedness".

NO DIVIDENDS

Acorn currently does not intend to pay any cash dividends on the Common
Stock. Acorn is a holding company with no business operations of its own. Acorn
therefore is dependent upon payments, dividends and distributions from
UnionTools, its principal operating subsidiary, for funds to pay its expenses
and to pay future cash dividends or distributions, if any, to holders of the
Common Stock. UnionTools currently intends to retain any earnings for support of
its working capital, repayment of indebtedness, capital expenditures and general
corporate purposes. UnionTools has no current intention of paying dividends or
making other distributions to Acorn in excess of amounts necessary to pay
Acorn's operating expenses and taxes. The Credit Facility contains restrictions
on UnionTools' ability to pay dividends or make other distributions to Acorn.
The Credit Facility provides that, unless UnionTools meets certain financial
tests, it may not declare any dividends or make any other payments or
distributions to Acorn except for amounts necessary to pay Acorn's operating

13
<PAGE> 14

expense up to $125,000 per month and to pay Acorn's federal and state income
taxes. See "Dividend Policy" and "Description of Certain Indebtedness".

CONTROL BY PRINCIPAL STOCKHOLDERS

After giving effect to the Offering and the application of the net proceeds
therefrom and the Exchange, the TCW Group and the TCW Funds may be deemed to be
the beneficial owners of approximately 48.9% of the outstanding shares of Common
Stock. Upon consummation of the Offering, Oaktree and the Oaktree Fund may be
deemed to be the beneficial owner of approximately 12.6% of the outstanding
shares of Common Stock. In addition, Oaktree, the general partner of the Oaktree
Fund, has indicated its willingness to consider providing financing (which may
include equity financing) from the Oaktree Fund for future acquisitions by the
Company, however, there can be no assurance in this regard. Certain individuals
designated by the TCW Group to manage the TCW Funds also are principals of
Oaktree. However, Oaktree does not have voting or dispositive power with respect
to the shares of Common Stock owned by the TCW Funds. Until such time, if ever,
that there is a significant decrease in the number of shares of Common Stock
held by the TCW Funds and the Oaktree Fund, the TCW Group and Oaktree will be
able to control the Company through their ability to determine the outcome of
votes of stockholders regarding, among other things, election of directors and
approval of significant transactions. In addition, upon consummation of the
Offering officers and directors of Acorn will beneficially own an aggregate of
approximately 15.0% of the outstanding shares of the Common Stock. See
"-- Substantial Amount of Common Stock Eligible for Future Sale", "Management",
"Principal Stockholders" and "Certain Transactions".

EFFECT OF CERTAIN CHARTER, CHANGE OF CONTROL AND STATUTORY PROVISIONS

Acorn's Board of Directors is authorized, subject to certain limitations
prescribed by law, to issue up to 1,000 shares of preferred stock in one or more
classes or series and to fix the designations, powers, preferences, rights,
qualifications, limitations or restrictions, including voting rights, of those
shares without any further vote or action by stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of Acorn. Acorn has no current plans to issue
additional shares of preferred stock. See "Description of Capital
Stock -- Preferred Stock". The Credit Facility contains provisions that, under
certain circumstances, will cause such indebtedness to become due upon the
occurrence of a change of control of the Company. See "Description of Certain
Indebtedness". These provisions could have the effect of making it more
difficult for a third party to acquire control of the Company.

The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General
Corporation Law (the "DGCL"). In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. See "Description of
Capital Stock -- Certain Provisions of Delaware Law".

LABOR RELATIONS

Most of the Company's hourly employees are covered by collective bargaining
or similar labor agreements. The Company currently is a party to four such
agreements, one of which expires in 1997, one of which expires in 1998 and two
of which expire in 1999. There can be no assurance that the Company will be
successful in negotiating new labor contracts on terms satisfactory to the
Company or without work stoppages or strikes. A prolonged work stoppage or
strike at any of the Company's facilities could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Employees".

14
<PAGE> 15

ENVIRONMENTAL MATTERS

The Company is subject to various Federal, state, and local environmental
laws, ordinances and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. The Company has made,
and will continue to make, expenditures to comply with these environmental
requirements and regularly reviews its procedures and policies for compliance
with environmental laws. The Company also has been involved in remediation
actions with respect to certain of its facilities. Amounts expended by the
Company in such compliance and remediation activities have not been material to
the Company. However, current conditions and future events, such as changes in
existing laws and regulations, may give rise to additional compliance or
remediation costs that could have a material adverse effect on the Company's
business, financial condition or results of operations. Furthermore, as is the
case with manufacturers in general, if a release of hazardous substances occurs
on or from the Company's properties or any associated offsite disposal location,
or if contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable and the amount of such liability
could be material. See "Business -- Environmental Matters".

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the net tangible book value of their Common Stock. As of
May 2, 1997, the net tangible book value per share was $(14.89). As of such
date, current stockholders would experience an increase in net tangible book
value per share of $20.06 and purchasers of shares of Common Stock in the
Offering would experience dilution in net tangible book value of $8.83 per
share. See "Dilution".

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,250,000 shares of
Common Stock offered hereby are estimated to be $41.3 million. The Company
intends to use the net proceeds from the Offering as follows: (i) approximately
$20.65 million of the net proceeds to repay the term loan portion of the Credit
Facility and accrued interest thereon and a portion of the acquisition line
under the Credit Facility and accrued interest thereon; (ii) approximately $9.6
million of the net proceeds to redeem the Series A Preferred Stock and pay
accumulated dividends thereon; and (iii) approximately $11.05 million of the net
proceeds to repay indebtedness outstanding under the Subordinated Notes and
accrued interest thereon. Pursuant to the Exchange, the remainder of the
Subordinated Notes will be exchanged for shares of Common Stock. See "Certain
Transactions". Although application of the net proceeds from the Offering will
result in a permanent reduction of the principal amount of the term loan under
the Credit Facility, it will not reduce the amounts available to the Company
under either the revolving facility or the acquisition line of the Credit
Facility. Pursuant to its growth strategy, the Company is actively considering
acquisitions, although it currently does not have any understandings or
agreements with respect to potential acquisitions. See "Business -- Growth
Strategy".

The Series A Preferred Stock accrues cumulative dividends at a rate of 13%
per year. The Subordinated Notes bear interest at a rate of 13% per year and
mature in July 2003. Indebtedness outstanding under the Credit Facility bears
interest at variable rates (8.72% per year at May 2, 1997) and matures in June
2003. See "Description of Certain Indebtedness". Indebtedness under the
Subordinated Notes and the term loan portion of the Credit Facility originally
was incurred in connection with the acquisition of the Company by the TCW Funds
or refinancing of such indebtedness. Indebtedness under the acquisition line of
the Credit Facility was incurred in connection with the Company's recent
acquisition of an injection molding facility.

15
<PAGE> 16

DIVIDEND POLICY

Acorn has never paid, and currently does not intend to pay, any cash
dividends on the Common Stock. Acorn is a holding company with no business
operations of its own. Acorn therefore is dependent upon payments, dividends and
distributions from UnionTools for funds to pay dividends to stockholders of
Acorn. UnionTools currently intends to retain any earnings for support of its
working capital, repayment of indebtedness, capital expenditures and other
general corporate purposes. UnionTools has no current intention of paying
dividends or making other distributions to Acorn in excess of amounts necessary
to pay Acorn's operating expenses and taxes. The Credit Facility contains
restrictions on UnionTools' ability to pay dividends or make payments or other
distributions to Acorn. The Credit Facility provides that, unless UnionTools
meets certain financial tests, it may not declare any dividends or make any
other payments or distributions to Acorn except for amounts necessary to pay
Acorn's operating expenses up to $125,000 per month and to pay Acorn's federal
and state income taxes. See "Risk Factors -- Impact of Holding Company
Structure", "Risk Factors -- No Dividends" and "Description of Certain
Indebtedness".

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<PAGE> 17

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at May 2, 1997 and as adjusted as of such date to give effect to (i) the
issuance and sale of the 3,250,000 shares of Common Stock offered hereby and the
application of the net proceeds therefrom and (ii) the Exchange. This table
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MAY 2, 1997
-----------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
-------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Revolving portion of Credit Facility.................. $ 21,019 $ 21,019 $ 21,019
Current portion of long-term debt..................... 3,000 3,000 0
-------- -------- --------
Total short-term debt......................... $ 24,019 $ 24,019 $ 21,019
======== ======== ========
Long-term debt:
Term loan portion of Credit Facility(2)............... $ 17,000 $ 17,000 $ 0
Acquisition line portion of Credit Facility(2)........ 6,268 6,268 6,219
Subordinated Notes(2)................................. 31,354 31,354 0
-------- -------- --------
Total long-term debt.......................... 54,622 54,622 6,219
-------- -------- --------
Stockholders' equity:
Preferred stock, par value $.001 per share, 1,000
shares authorized, 100 shares of Series A Preferred
Stock issued and outstanding (no shares issued and
outstanding pro forma and as adjusted)(3).......... 8,596 0 0
Common Stock, par value $.001 per share, 20,000,000
shares authorized, 1,498,056 shares issued and
outstanding (1,498,056 shares issued and
outstanding pro forma and 6,464,096 shares issued
and outstanding as adjusted)(4).................... 14,494 13,656 78,817
Contributed capital-stock options(5).................. 460 460 460
Minimum pension liability(6).......................... (197) (197) (197)
Retained earnings (deficit)........................... (14,369) (14,369) (14,369)
-------- -------- --------
Total stockholders' equity......................... 8,984 (450) 64,711
-------- -------- --------
Total capitalization.......................... $ 63,606 $ 54,172 $ 70,930
======== ======== ========
</TABLE>

- ---------------
(1) Gives effect to the proposed redemption of the Series A Preferred Stock and
the payment of accumulated dividends thereon in connection with the
Offering, without giving effect to the proceeds from the Offering. See Note
14 to Consolidated Financial Statements.

(2) See Note 4 to Consolidated Financial Statements.

(3) See Note 5 to Consolidated Financial Statements.

(4) Excludes (i) 39,042 shares of Common Stock issuable upon the exercise of
outstanding stock options, (ii) 730,000 shares of Common Stock reserved for
issuance under the Incentive Plan, pursuant to which options to purchase
328,500 shares of Common Stock will be outstanding upon consummation of the
Offering and (iii) 73,000 shares of Common Stock reserved for issuance under
the Director Stock Plan. See "Management -- 1997 Stock Incentive Plan",
"Management -- Director Stock Plan" and Notes 10 and 13 to Consolidated
Financial Statements.

(5) See Note 10 to Consolidated Financial Statements.

(6) See Note 7 to Consolidated Financial Statements.

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<PAGE> 18

DILUTION

The net tangible book value of the Company at May 2, 1997 was $(22.3)
million, or $(14.89) per share of Common Stock. Net tangible book value per
share represents the amount of tangible assets of the Company, less total
liabilities, divided by the number of outstanding shares of Common Stock.
Without taking into account any other changes in net tangible book value after
May 2, 1997, other than to give effect to (i) the sale by the Company of the
3,250,000 shares of Common Stock offered hereby after deducting the underwriting
discount and estimated expenses of the Offering), and the application of the
estimated net proceeds therefrom and (ii) the Exchange, the pro forma net
tangible book value of the Company at May 2, 1997 would have been $33.4 million,
or $5.17 per share. This represents an immediate increase in net tangible book
value of $20.06 per share of Common Stock to existing stockholders and an
immediate dilution of approximately $8.83 per share to new investors purchasing
shares in the Offering. The following table illustrates the per share book value
dilution to new investors:

<TABLE>
<S> <C> <C>
Initial public offering price per share................................... $14.00
Net tangible book value per share before the Offering................... $(14.89)
Increase per share attributable to the Offering......................... 20.06(1)
------
Pro forma net tangible book value per share after the Offering............ 5.17
------
Net tangible book value dilution per share to new investors(2)............ $ 8.83
======
</TABLE>

- ---------------
(1) Of such increase, $7.68 is attributable to the Exchange.

(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the Offering from the initial public offering price per share of
Common Stock.

The following table sets forth as of May 2, 1997 the difference between the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing holders
of Common Stock and the new investors before deducting the underwriting discount
and estimated offering expenses payable by the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION PAID AVERAGE
--------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------- ------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 1,498,056 23.2% $ 14.5 17.2% $ 9.68
New investors........................... 3,250,000 50.3 45.5 54.2 14.00
Shares issued pursuant to the
Exchange.............................. 1,716,040 26.5 24.0 28.6 14.00
---------- --- ------ ---
Total......................... 6,464,096 100.0% $ 84.0 100.0%
========== === ====== ===
</TABLE>

As of May 2, 1997, there were vested options outstanding to purchase a
total of 33,258 shares of Common Stock at a weighted average exercise price of
$2.10 per share. To the extent that any of these options are exercised, there
will be further dilution to new investors. See "Capitalization" and Note 10 to
Consolidated Financial Statements.

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<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

The Selected Consolidated Financial Data for fiscal 1992, fiscal 1993, the
four months ended December 2, 1993, the eight months ended July 29, 1994, fiscal
1995 and fiscal 1996 have been derived from the audited Consolidated Financial
Statements of the Company. The Selected Consolidated Financial Data for the nine
months ended April 26, 1996 and the nine months ended May 2, 1997 have been
derived from the unaudited Consolidated Financial Statements of the Company,
which reflect, in the opinion of management of the Company, all adjustments
(which include only normal recurring adjustments) necessary for the fair
presentation of financial data for such periods. The results of such interim
periods are not necessarily indicative of the results that will be reported for
the full fiscal year. The Selected Consolidated Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Consolidated Financial Statements and Notes
thereto and the other financial information included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SUCCESSOR COMPANY
PREDECESSOR COMPANY ------------------------------------------------------------
----------------------------------
FOUR EIGHT
MONTHS MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED NINE MONTHS ENDED
------------------- ----------- -------- --------------------- -------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1992 1993 1993(1) 1994 1995 1996 1996 1997
-------- -------- ----------- -------- -------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 60,699 $ 70,051 $ 20,331 $ 72,370 $ 86,543 $ 92,652 $ 69,407 $ 77,967
Cost of goods sold......... 43,856 50,548 14,185 52,271 63,411 67,496 51,036 57,077
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............... 16,843 19,503 6,146 20,099 23,132 25,156 18,371 20,890
Selling, general and
administrative
expenses................. 11,380 12,648 5,482 9,955 15,531 16,815 11,820 13,448
Interest expense........... 4,924 4,939 2,773 3,525 6,485 6,732 5,569 5,743
Amortization of
intangibles.............. 2,525 2,520 124 601 1,061 1,173 603 703
Other expenses, net........ -- 34,409(2) -- 11 694 1,522 (3) 546 1,123 (4)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before income taxes...... (1,986) (35,013) (2,233) 6,007 (639) (1,086) (167) (127)
Income taxes............... -- -- -- 290 -- 582 -- 52
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
continuing operations.... (1,986) (35,013) (2,233) 5,717 (639) (1,668) (167) (179)
Loss from discontinued
operations(5)............ (5,684) (33,560)(2) (8,373) (614) (1,800) (6,480) (766) (9,575)
Cumulative effect of change
in accounting for post-
retirement benefits...... -- -- -- -- -- 869 869 --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).......... $ (7,670) $(68,573) $ (10,606) $ 5,103 $ (2,439) $ (7,279) $ (64) $ (9,754)
========= ========= ========= ========= ========= ========= ========= =========
Pro forma net loss from
continuing operations per
share(6)(7).............. $ (0.78) $ (0.08)
Pro forma weighted average
number of shares
outstanding(6)(7)........ 2,134,066 2,200,172
OTHER DATA:
Gross margin............... 27.7% 27.8% 30.2% 27.8% 26.7% 27.2% 26.5% 26.8%
EBITDA(8).................. $ 6,466 $ 8,343 $ 1,168 $ 11,148 $ 9,570 $ 10,760 $ 8,384 $ 9,141
EBIT(9).................... 2,938 4,335 540 9,543 6,540 7,168 5,948 6,739
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
---------------------------------- ------------------------------------------------------------
JULY 31, JULY 31, DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1992 1993 1993 1994 1995 1996 1996 1997
-------- -------- ----------- -------- -------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital from
continuing operations.... $(20,250) $(17,255) $ (17,902) $ 21,081 $ 5,989 $ 8,543 $ 4,663 $ 21,771
Assets of continuing
operations............... 71,348 36,478 49,895 88,164 90,517 79,611 96,308 113,224
Net assets (liabilities) of
discontinued
operations............... 70,056 31,676 29,544 13,669 21,763 19,284 24,237 (315)
Total assets............... 141,404 68,154 79,439 101,833 112,280 98,895 120,545 113,224
Total debt................. 132,382 127,458 137,437 58,854 72,104 61,891 76,221 78,641
Stockholders' equity....... 269 (68,304) (78,910) 19,422 17,323 18,530 17,346 8,984
</TABLE>

19
<PAGE> 20

- ---------------
(1) Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The
following purchase accounting adjustments impacted the Company's income
(loss) from continuing operations: (i) the basis of certain manufacturing
equipment was increased by an aggregate of approximately $4.5 million; and
(ii) goodwill was restated to approximately $40.0 million. The increased
basis of the equipment resulted in an annual increase in depreciation
expense of approximately $747,000, which is reflected in cost of goods sold.
The restatement of goodwill resulted in an annual increase in amortization
of intangibles of approximately $430,000. On a pro forma basis, giving
effect to the purchase accounting adjustments described above, cost of goods
sold and amortization of intangibles for the four months ended December 2,
1993 would have increased by approximately $249,000 and $77,000,
respectively. See Note 1 to Consolidated Financial Statements.

(2) In fiscal 1993 the Company reduced goodwill from continuing operations by
$35.8 million and goodwill from discontinued operations by $29.7 million.

(3) In fiscal 1996 the Company recognized other expense of $563,000 in
connection with the resignation of Acorn's previous Chairman of the Board
and other expense of $750,000 in connection with self-insured life insurance
accruals related to the death of a former director of the Company.

(4) In the nine months ended May 2, 1997 the Company recognized other expense of
$950,000 from the write-off of certain capitalized bank fees incurred in
connection with the Company's previous bank credit facility.

(7) Income from continuing operations would have been approximately $2.6 million
and $3.7 million for fiscal 1996 and the nine months ended May 2, 1997,
respectively, as adjusted to give effect to (i) the Offering and the
application of the net proceeds therefrom to repay indebtedness outstanding
under the Credit Facility and accrued interest thereon (reducing interest
expense by approximately $1.2 million and $1.1 million in fiscal 1996 and
the nine months ended May 2, 1997, respectively) and to repay indebtedness
outstanding under the Subordinated Notes and accrued interest thereon
(reducing interest expense by approximately $779,000 and $717,000 in fiscal
1996 and the nine months ended May 2, 1997, respectively) and (ii) the
Exchange (reducing interest expense on the Subordinated Notes by
approximately $2.3 million and $2.1 million in fiscal 1996 and the nine
months ended May 2, 1997, respectively). On such a basis, income from
continuing operations per share would have been $0.40 and $0.58 for fiscal
1996 and the nine months ended May 2, 1997, respectively, (based upon the
number of shares of Common Stock outstanding on August 2, 1996 and May 2,
1997, as adjusted to give effect to (i) the issuance of 3,250,000 shares of
Common Stock pursuant to the Offering, (ii) the issuance of 1,637,857 shares
of Common Stock pursuant to the Exchange and (iii) the issuance of 29,240
and 28,259 shares of Common Stock at August 2, 1996 and May 2, 1997,
respectively, upon the exercise of outstanding stock options pursuant to the
treasury stock method). See Note 14 of Notes to Consolidated Financial
Statements.

(8) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation, amortization and other expenses. EBITDA
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been

20
<PAGE> 21

presented as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.

(9) EBIT represents earnings from continuing operations before interest expense,
income taxes and other expenses. EBIT is presented because it is a financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBIT is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.

21
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Selected
Consolidated Financial Data, the Consolidated Financial Statements of the
Company and the Notes thereto and the other financial information included
elsewhere in this Prospectus. Certain statements under this caption constitute
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements as a result of various factors, including those set
forth under the caption "Risk Factors" and elsewhere in this Prospectus.

OVERVIEW

The Company is a leading manufacturer and distributor of non-powered lawn
and garden tools. Acorn is a holding company with no business operations of its
own. Following the intended sale of McGuire-Nicholas, Acorn's only material
asset will be all of the outstanding capital stock of UnionTools. See
"-- Disposition of Non-Lawn and Garden Business Operations".

Founded in 1890, the Company was operated as a family owned business until
its sale in 1986 pursuant to a leveraged buyout transaction. The Company was
sold in a second highly leveraged transaction in 1989. Primarily as a result of
these transactions, the Company had approximately $132.4 million and $127.5
million of total indebtedness at July 31, 1992 and July 31, 1993, respectively,
with approximately $60.7 million and $70.1 million of net sales in fiscal 1992
and fiscal 1993, respectively. The Company's results of operations from 1989
through December 1993 were adversely affected by a high degree of financial
leverage and a lack of liquidity, despite the implementation of successful
operating strategies by new senior management recruited in 1991. In December
1993, the Company restructured certain of its debt obligations in connection
with the acquisition of the Company by the TCW Funds, thereby significantly
reducing the Company's debt burden. Following the acquisition, the Company
revalued certain assets, reduced goodwill and recognized a gain on the
forgiveness of certain indebtedness. See "-- Results of Operations -- Fiscal
1995 Compared to Twelve Months Ended July 29, 1994".

Over the past six years the Company has successfully implemented a business
strategy designed to transform it from a manufacturing-oriented industrial
company into a marketing-oriented consumer products company. The central
elements of the Company's approach include a market segmentation strategy based
primarily on brand management and a merchandising strategy based on attractive
and informative product displays and labeling. Over the same period the Company
also has expanded its infrastructure to support future growth by recruiting an
experienced management team, increasing manufacturing capacity and enhancing
management information systems. Reflecting the success of these operating
strategies, the Company's net sales from continuing operations increased from
$56.2 million in fiscal 1991 to $92.7 million in fiscal 1996, a CAGR of 10.5%.
The Company's net sales from continuing operations were $78.0 million for the
nine months ended May 2, 1997, an increase of 12.3% from the same period in
fiscal 1996. In addition, net sales of the Company's higher-margin, best-quality
products increased to approximately 36% of total net sales in fiscal 1996, while
net sales of the Company's lower-margin, opening-price-point products decreased
to approximately 7% of total net sales in fiscal 1996.

The price of raw materials used in the Company's products remained
relatively stable during each of the periods discussed below.

Implementation of the Company's market segmentation and merchandising
strategies has resulted in increased selling, general and administrative
expenses as the Company has increased its marketing focus through the
development of merchandising displays, point-of-sale signage and product
labeling, as well as additional cooperative advertising. The Company also
incurred an increase in selling, general and administrative expenses due to
increased staffing and upgrades of management information systems. The Company
believes that its current level of selling, general and administrative expenses
as a percentage of net sales is now consistent with its marketing-oriented
focus.

22
<PAGE> 23

DISPOSITION OF NON-LAWN AND GARDEN BUSINESS OPERATIONS

In December 1996 the Company sold substantially all of the assets of VSI, a
distributor of packaged fasteners, for approximately $6.9 million, plus the
assumption of approximately $2.3 million of related liabilities. The Company
also intends to sell McGuire-Nicholas within the next 12 months.
McGuire-Nicholas is a manufacturer and distributor of leather, canvas and
synthetic fabric tool holders and work aprons. On May 30, 1997, the Company
entered into a non-binding letter of intent to sell substantially all of the
assets of McGuire-Nicholas. The final terms of the proposed transaction remain
subject to a number of significant conditions, including the completion by the
proposed purchaser of its due diligence examination of McGuire-Nicholas,
financing arrangements and the negotiation of definitive documentation.
Accordingly, there can be no assurance that the proposed sale of
McGuire-Nicholas will be completed on the terms set forth in the letter of
intent, if at all. See "Description of McGuire-Nicholas". VSI's and
McGuire-Nicholas' results of operations are shown as "Loss from discontinued
operations" in the Summary Consolidated Financial Data, Selected Consolidated
Financial Data and the Consolidated Financial Statements appearing elsewhere in
this Prospectus. Net assets and net liabilities of the discontinued VSI and
McGuire-Nicholas operations are shown as "Net assets of discontinued operations"
and "Net liabilities of discontinued operations" in the Consolidated Financial
Statements appearing elsewhere in this Prospectus. See Note 3 to Consolidated
Financial Statements.

RESULTS OF OPERATIONS

The following table sets forth certain components of the Company's
consolidated statement of operations data expressed as a percentage of net
sales:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
---------------------- -----------------------
TWELVE MONTHS ENDED JULY 28, AUGUST 2, APRIL 26, MAY 2,
JULY 29, 1994(1) 1995 1996 1996 1997
------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 72.0 73.3 72.8 73.5 73.2
----- ----- ----- ----- -----
Gross profit..................... 28.0 26.7 27.2 26.5 26.8
Selling, general and
administrative expenses........ 16.7 17.9 18.1 17.0 17.3
Interest expense................. 6.8 7.5 7.3 8.0 7.4
Amortization of intangibles...... 0.9 1.2 1.3 0.9 0.9
Other expenses, net.............. 0.0 0.8 1.6 0.8 1.4
----- ----- ----- ----- -----
Income (loss) from continuing
operations before income
taxes.......................... 3.6 (0.7) (1.1) (0.2) (0.2)
Income taxes..................... 0.3 -- 0.6 -- 0.0
----- ----- ----- ----- -----
Income (loss) from continuing
operations..................... 3.3 (0.7) (1.7) (0.2) (0.2)
Loss from discontinued
operations..................... (9.7) (2.1) (7.0) (1.1) (12.3)
Cumulative effect of change in
accounting for post-retirement
benefits....................... -- -- 0.9 1.3 --
----- ----- ----- ----- -----
Net loss......................... (6.4)% (2.8)% (7.8)% (0.0)% (12.5)%
===== ===== ===== ===== =====
</TABLE>

- ---------------
(1) Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The
following purchase accounting adjustments impacted the Company's income
(loss) from continuing operations: (i) the basis of certain manufacturing
equipment was increased by an aggregate of approximately $4.5 million; and
(ii) goodwill was restated to approximately $40.0 million. The increased
basis of the equipment resulted in an annual increase in depreciation
expense of approximately $747,000, which is reflected in cost of goods sold.
The restatement of goodwill resulted in an annual increase in amortization
of intangibles of approximately $430,000. On a pro forma basis, giving
effect to the purchase accounting adjustments described above, cost of goods
sold and amortization of intangibles for the four months ended December 2,
1993 would have increased by approximately $249,000 and $77,000,
respectively. The percentage of net sales data for the 12 months ended July
29, 1994 has been adjusted to give effect to the foregoing purchase
accounting adjustments throughout the period.

23
<PAGE> 24

NINE MONTHS ENDED MAY 2, 1997 COMPARED TO NINE MONTHS ENDED APRIL 26, 1996

Net Sales. Net sales increased 12.3%, or $8.6 million, to $78.0 million in
the nine months ended May 2, 1997 compared to $69.4 million in the same period
in the prior year. The increase in net sales principally reflected increased
unit sales of the Company's better- and best-quality products, which are sold at
higher wholesale prices than the Company's opening-price-point products, as well
as increased market penetration. The increase in net sales also reflected
increased unit sales across all product lines due to a relatively strong fall
lawn and garden season as a result of favorable weather conditions in the first
quarter. Less favorable spring weather conditions partially offset increased net
sales in the third quarter over the same period in the prior year. The Company
believes that the continuation of less favorable spring weather conditions may
have a similar impact on fourth quarter net sales.

Gross Profit. Gross profit increased 13.7%, or $2.5 million, to $20.9
million in the nine months ended May 2, 1997 compared to $18.4 million in the
same period in the prior year. Gross margin increased to 26.8% in the nine
months ended May 2, 1997 from 26.5% in the nine months ended April 26, 1996. The
increase in gross margin reflected improved product mix due to increased sales
of the Company's higher-margin, better-and best-quality products, partially
offset by the impact of certain new store openings and lower gross margins
realized on sales by the Company's recently acquired injection molding division.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 13.8%, or $1.6 million, to $13.4 million in
the nine months ended May 2, 1997 compared to $11.8 million in the same period
in the prior year. As a percentage of net sales, selling, general and
administrative expenses increased to 17.3% in the nine months ended May 2, 1997
from 17.0% in the first nine months of fiscal 1996. The increase principally is
due to merchandising costs related to the conversion of customer stores
previously serviced by the Company's competitors, as well as merchandising costs
associated with opening new customer stores.

Other Expenses, Net. Other expenses increased to $1,123,000 in the nine
months ended May 2, 1997 from $546,000 in the same period in the prior year
primarily due to the write-off of $950,000 of capitalized bank fees incurred in
connection with the Company's previous bank credit facility.

Loss From Continuing Operations Before Income Taxes. Loss from continuing
operations before income taxes increased $12,000, to a loss of $179,000 in the
nine months ended May 2, 1997 compared to a loss from continuing operations
before income taxes of $167,000 in the same period in the prior year. Interest
expense increased to $5.7 million in the nine months ended May 2, 1997 from $5.6
million in the nine months ended April 26, 1996.

Net Loss. Net loss increased to $9.8 million in the nine months ended May
2, 1997 compared to $64,000 in the same period in the prior year, primarily as a
result of a loss of $8.8 million incurred in connection with the intended
disposition of McGuire-Nicholas and a $101,000 loss in connection with the
disposition of VSI. Net loss in the nine months ended April 26, 1996 was
partially offset by income of $869,000 realized in connection with the
cumulative effect of a change in accounting for post-retirement benefits.

FISCAL 1996 COMPARED TO FISCAL 1995

Net Sales. Net sales increased 7.1%, or $6.1 million, to $92.7 million in
fiscal 1996 compared to $86.5 million in fiscal 1995. The increase in net sales
principally reflected increased unit sales across all product lines in fiscal
1996 due to the addition of new customers and favorable weather conditions, as
well as lower net sales in fiscal 1995 due to inventory reduction efforts by key
mass merchant customers and poor spring weather conditions.

Gross Profit. Gross profit increased 8.7%, or $2.0 million, to $25.2
million in fiscal 1996 compared to $23.1 million in fiscal 1995. Gross margin
increased to 27.2% in fiscal 1996 from 26.7% in fiscal 1995. The increase in
gross margin primarily resulted from increased manufacturing efficiencies
related to higher production levels, as well as improved product mix due to
increased sales of the Company's higher-margin, better- and best-quality
products.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8.3%, or $1.3 million, to $16.8 million in
fiscal 1996 compared to $15.5 million in fiscal 1995. As a percentage of net
sales, selling, general and administrative expenses increased to 18.1% in fiscal
1996 from 17.9% in fiscal 1995. The increase primarily results from an increase
in cooperative advertising expenditures and staffing costs.

24
<PAGE> 25

Other Expenses, Net. Other expenses increased $828,000 to $1.5 million in
fiscal 1996 compared to $694,000 in fiscal 1995. In fiscal 1996 the Company
recognized other expense of $563,000 in connection with the resignation of
Acorn's previous Chairman of the Board and other expense of $750,000 in
connection with self-insured life insurance accruals related to the death of a
former director of the Company.

Loss From Continuing Operations Before Income Taxes. Loss from continuing
operations before income taxes increased 70.0%, or $447,000, to $1.1 million in
fiscal 1996 compared to $639,000 in fiscal 1995.

Net Loss. Net loss increased $4.8 million to $7.3 million in fiscal 1996
compared to $2.4 million in fiscal 1995, primarily as a result of increased
losses from discontinued operations in 1996.

FISCAL 1995 COMPARED TO THE TWELVE MONTHS ENDED JULY 29, 1994

Pursuant to the acquisition of the Company by the TCW Funds, the Company
made certain purchase accounting adjustments on December 3, 1993. The following
purchase accounting adjustments impacted the Company's income (loss) from
continuing operations: (i) the basis of certain manufacturing equipment was
increased by an aggregate of approximately $4.5 million; and (ii) goodwill was
restated to approximately $40.0 million. The increased basis of the equipment
resulted in an annual increase in depreciation expense of approximately
$747,000, which is reflected in cost of goods sold. The restatement of goodwill
resulted in an annual increase in amortization of intangibles of approximately
$430,000. On a pro forma basis, giving effect to the purchase accounting
adjustments described above, cost of goods sold and amortization of intangibles
for the four months ended December 2, 1993 would have increased by approximately
$249,000 and $77,000, respectively. The following discussion compares the
Company's results of operations for fiscal 1995 to the Company's results of
operations for the 12 months ended July 29, 1994, as adjusted to give effect to
the foregoing purchase accounting adjustments throughout the period.

Net Sales. Net sales decreased 6.6%, or $6.2 million, to $86.5 million in
fiscal 1995 compared to $92.7 million in the twelve months ended July 29, 1994.
Net sales for the twelve months ended July 29, 1994 reflected record levels due
to significant initial inventory purchases by a key mass merchant customer and
favorable weather conditions. The decrease in net sales in fiscal 1995
principally reflected decreased unit sales across all product lines due to poor
spring weather conditions, as well as inventory reduction efforts by key mass
merchant customers which more than offset increased sales to other customers.

Gross Profit. Gross profit decreased 11.0%, or $2.9 million, to $23.1
million in fiscal 1995 compared to $26.0 million in the twelve months ended July
29, 1994. Gross margin decreased to 26.7% in fiscal 1995 from 28.0% in the
twelve months ended July 29, 1994. The decrease in gross margin primarily
resulted from manufacturing inefficiencies related to lower production levels
due to lower net sales.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 0.6%, or $100,000, to $15.5 million in fiscal
1995 compared to $15.4 million in the twelve months ended July 29, 1994. As a
percentage of net sales, selling, general and administrative expenses increased
to 17.9% in fiscal 1995 from 16.7% in the twelve months ended July 29, 1994. The
increase principally reflects an increase of approximately $1.1 million in
cooperative advertising expenditures, partially offset by reductions in other
variable costs related to lower net sales levels. Selling, general and
administrative expenses increased in fiscal 1995 and the twelve months ended
July 29, 1994 compared to prior periods as a result of management information
system improvements.

Other Expenses, Net. Other expenses increased to $694,000 in fiscal 1995
compared to $11,000 in the twelve months ended July 29, 1994. Other expenses in
fiscal 1995 resulted from compensation expense of $340,000 related to the
vesting of executive stock options, as well as banking fees.

Income (Loss) From Continuing Operations Before Income Taxes. Loss from
continuing operations before income taxes increased to $639,000 in fiscal 1995
compared to income from continuing operations of $3.4 million in the twelve
months ended July 29, 1994.

Net Loss. Net loss decreased to $2.4 million in fiscal 1995 compared to
net loss of $5.8 million in the twelve months ended July 29, 1994.

25
<PAGE> 26

SEASONAL AND QUARTERLY FLUCTUATIONS; IMPACT OF WEATHER

The lawn and garden industry is seasonal in nature, with a high proportion
of sales and operating income generated in January through May. Accordingly, the
Company's sales tend to be greater during its third and fourth fiscal quarters.
As a result, the Company's operating results depend significantly on the spring
selling season. To support this sales peak, the Company must anticipate demand
and build inventories of finished goods throughout the fall and winter.
Accordingly, the Company's levels of raw materials and finished goods
inventories tend to be at their highest, relative to sales, during the Company's
first and second fiscal quarters. These factors increase variations in the
Company's quarterly results of operations and potentially expose the Company to
greater adverse effects of changes in economic and industry trends. Moreover,
actual demand for the Company's products may vary substantially from the
anticipated demand, leaving the Company with excess inventory or insufficient
inventory to satisfy customer orders. The following table sets forth certain
unaudited data related to net sales for the fiscal quarters in fiscal 1995 and
fiscal 1996. The unaudited quarterly information has been prepared on the same
basis as the annual financial information and, in the opinion of management of
the Company, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information for the quarters
presented.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------------------------- -----------------------------------------------
QUARTER ENDED
----------------------------------------------------------------------------------------------
OCTOBER 28, JANUARY 27, APRIL 28, JULY 28, OCTOBER 27, JANUARY 26, APRIL 26, AUGUST 2,
1994 1995 1995 1995 1995 1996 1996 1996
----------- ----------- --------- -------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $19,150 $18,011 $ 32,609 $ 16,773 $16,486 $19,357 $ 33,564 $ 23,245
Cost of goods sold............ 13,623 13,416 23,995 12,377 12,544 14,731 23,738 16,483
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 5,527 4,595 8,614 4,396 3,942 4,626 9,826 6,762
Selling, general and
administrative expenses
(SG&A)...................... 3,886 3,681 4,490 3,474 3,635 3,721 4,464 4,995
------- ------- ------- ------- ------- ------- ------- -------
Gross profit less SG&A(1)..... $ 1,641 $ 914 $ 4,124 $ 922 $ 307 $ 905 $ 5,362 $ 1,767
======= ======= ======= ======= ======= ======= ======= =======
Net sales as a percentage of
full year net sales......... 22.1% 20.8% 37.7% 19.4% 17.8% 20.9% 36.2% 25.1%
Gross profit as a percentage
of full year gross profit... 23.9 19.9 37.2 19.0 15.7 18.4 39.1 26.9
Gross profit less SG&A(1) as a
percentage of full
year operating profit....... 21.6 12.0 54.3 12.1 3.7 10.9 64.3 21.2

<CAPTION>
NINE MONTHS ENDED
MAY 2, 1997
----------------------------------
NOVEMBER 1, JANUARY 31, MAY 2,
1996 1997 1997
------------ ----------- -------
<S> <C> <C> <C>
Net sales..................... $ 19,679 $21,018 $37,270
Cost of goods sold............ 14,507 15,635 26,935
------- ------- -------
Gross profit.................. 5,172 5,383 10,335
Selling, general and
administrative expenses
(SG&A)...................... 4,403 4,236 4,809
------- ------- -------
Gross profit less SG&A(1)..... $ 769 $ 1,147 $ 5,526
======= ======= =======
Net sales as a percentage of
full year net sales.........
Gross profit as a percentage
of full year gross profit...
Gross profit less SG&A(1) as a
percentage of full
year operating profit.......
</TABLE>

- ---------------
(1) Does not include amortization of intangibles and other expenses, each of
which generally are non-seasonal in nature.

Weather is the single most important factor in determining market demand
for the Company's products and also is the least predictable. For example, while
floods in the Midwest adversely affected the sale of most types of lawn and
garden equipment in 1992, the severe winter of 1994 resulted in a surge in
demand for snow shovels. In addition, bad weather during the spring gardening
season, such as that experienced throughout most of the U.S. in the spring of
1995, can adversely affect overall annual sales.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary cash needs are for working capital, capital
expenditures and debt service. The Company has financed its working capital,
capital expenditures and debt service requirements primarily through internally
generated cash flow and funds borrowed under the Credit Facility and the
Subordinated Notes. See "Use of Proceeds", "Certain Transactions" and
"Description of Certain Indebtedness".

Net cash used in continuing operations was $19.0 million in the nine months
ended May 2, 1997 compared to net cash used in continuing operations of $2.0
million in the comparable period in the prior fiscal year. This increase
principally reflects higher inventories of $7.3 million required to meet
anticipated sales demand and increase in accounts receivables of $20.9 million
due to higher net sales. A corresponding seasonal build of inventories was not
required in fiscal 1996 due to higher inventory levels at July 28, 1995,
resulting in a reduction of inventories in the nine months ended April 26, 1996
of $5.6 million. The seasonal build in accounts receivable combined with
increased revenues in the nine months ended May 2, 1997 resulted in an
additional use of cash of $5.3 million for the nine months ended May 2, 1997.
Net cash provided by

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<PAGE> 27

continuing operations was $14.0 million in fiscal 1996 compared to net cash used
in continuing operations of $504,000 in fiscal 1995. This increase resulted from
a reduction of inventory levels from July 28, 1995, which were unusually high as
a result of poor spring weather conditions in 1995, as well as inventory
reduction efforts by key mass merchant customers. Net cash used in continuing
operations decreased to $504,000 in fiscal 1995 from net cash used in continuing
operations of $7.7 million in the twelve months ended July 29, 1994. This
decrease primarily reflects increased inventory levels at July 28, 1995 required
to support increased net sales.

The Company made capital expenditures of approximately $2.3 million, $2.9
million, $1.5 million and $1.6 million during the twelve months ended July 29,
1994, fiscal 1995, fiscal 1996 and the nine months ended May 2, 1997,
respectively. The capital expenditures relate primarily to on-going improvements
of property, plant and equipment, manufacturing process improvements and
increased manufacturing capacity. The Company intends to make capital
expenditures of approximately $900,000 in the remainder of fiscal 1997 and
capital expenditures of approximately $3.4 million in fiscal 1998 primarily
related to the purchase of new equipment and equipment and facility maintenance.

In December 1993 and May 1994 Acorn issued the Subordinated Notes in the
aggregate principal amount of approximately $31.4 million. In August 1996 Acorn
issued 100 shares of Series A Preferred Stock as payment in full of accrued
interest on the Subordinated Notes for fiscal 1995 and fiscal 1996. As of May 2,
1997, the aggregate principal balance of the Subordinated Notes and accrued
interest thereon was approximately $34.4 million and the aggregate liquidation
value of the Series A Preferred Stock was approximately $9.4 million. The
Company intends to use a portion of the net proceeds from the Offering to redeem
the Series A Preferred Stock and pay accumulated dividends thereon and to repay
a portion of the Subordinated Notes and accrued interest thereon. Pursuant to
the Exchange, the remainder of the Subordinated Notes will be exchanged for
shares of Common Stock upon consummation of the Offering. See "Use of Proceeds"
and "Certain Transactions".

The Company entered into the Credit Facility to finance capital
expenditures, including future acquisitions, if any, and to fund working capital
and other general business purposes. As of May 2, 1997, after giving effect to
the Offering and the use of proceeds therefrom, there would have been
approximately $9.0 million available under the revolving portion of the Credit
Facility and approximately $28.8 million available under the acquisition line of
the Credit Facility. Indebtedness outstanding under the Credit Facility bears
interest at variable rates (8.72% per year at May 2, 1997).

The Company believes that cash generated from operations, together with
amounts available under the Credit Facility, will be adequate to meet its debt
service requirements, capital expenditures and working capital needs for the
foreseeable future, although no assurance can be given in this regard. In
addition, actual capital requirements may change, particularly as a result of
acquisitions, if any, that the Company may make in the future. Depending on the
nature, size and timing of future acquisitions, the Company may be required to
raise additional financing. There can be no assurance that such additional
financing will be available to the Company on acceptable terms.

EFFECTS OF INFLATION

The Company is affected by inflation primarily through the purchase of raw
materials, increased operating costs and expenses and higher interest rates. The
Company believes that the effects of inflation on the Company's operations have
not been material in recent years.

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<PAGE> 28

BUSINESS

GENERAL

The Company's net sales increased from $56.2 million in fiscal 1991 to
$92.7 million in fiscal 1996, a CAGR of 10.5%. The Company's net sales were
$78.0 million for the nine months ended May 2, 1997, an increase of 12.3% from
the same period in fiscal 1996. In addition, net sales of the Company's
higher-margin, best-quality products increased to approximately 36% of total net
sales in fiscal 1996, while net sales of the Company's lower-margin,
opening-price-point products decreased to approximately 7% of total net sales in
fiscal 1996. The Company generated approximately 92% of its revenues in both
fiscal 1996 and the nine months ended May 2, 1997 from sales of long handle
tools. The Company believes that it has gained the second largest market share
in the long handle tools segment of the industry (with an estimated market share
of approximately 28% in 1996) from the third largest market share in the early
1990s.

BUSINESS STRATEGY

- Merchandising Strategy. The Company was the first in the long handle
tool segment of the non-powered lawn and garden industry to successfully
implement sophisticated merchandising and marketing programs. The
Company's merchandising programs are designed to (i) create brand
identification among goods historically treated as commodities and (ii)
increase retail sales while reducing the amount of sales support needed
from the retailer's employees. The Company uses innovative product
labeling and point-of-sale signage and racking to highlight the
comparative value and quality of products within and among the Company's
brands. Products within the Company's Union, Scotts and Perfect Cut lines
are merchandised using the Company's trademarked "Good/Better/Best"
format. Where adequate shelf-space is available, the Company also
merchandises its brands together, from the Company's opening price-point
Yard 'n Garden brand to its best-quality Razor-Back brand, using a
similar value positioning technique. The Company believes that its
merchandising strategy facilitates comparison shopping and encourages
consumers to purchase higher price-point products.

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<PAGE> 29

GROWTH STRATEGY

The Company believes that it can leverage the success of its business
strategy through the implementation of the following growth strategies:

- Complete Strategic Acquisitions. The Company intends to increase its
presence in certain segments of the lawn and garden industry through
selective acquisitions and to increase operating efficiencies through
vertical integration. Consistent with this strategy, in February 1997 the
Company acquired an injection molding facility from one of the Company's
largest suppliers of plastics parts. The Company's Credit Facility
contains a $35 million acquisition facility, approximately $28.8 million
of which will be available following consummation of the Offering and the
application of the net proceeds therefrom. In addition, Oaktree, the
general partner of the Oaktree Fund, has indicated its willingness to
consider providing financing from the Oaktree Fund for future
acquisitions by the Company, however, there can be no assurance in this
regard.

INDUSTRY

The non-powered lawn and garden tool industry is mature and, due in part to
the low-cost nature of non-powered equipment, generally is non-cyclical. The
Company believes that demand for non-powered lawn and garden tools generally is
driven by the desire of do-it-yourself ("DIY") consumers to maintain and
landscape residential properties and the need of industrial and farm
professionals to acquire and utilize high-quality tools that will aid them in
efficiently completing their jobs. Industry sources estimate that the consumer
market for lawn and garden tools (which excludes the professional and industrial
markets) generated approximately $550 million in revenues in 1994, an increase
of approximately 5% over 1993 estimates. Industry sources also estimate that the
non-powered lawn and garden tool market will grow at a CAGR of 5.6% through
2001. The non-powered lawn and garden tool market is comprised of the following
product categories: long handle tools, garden hose, hose attachments, cutting
tools, hose reels, sprayers, wheelbarrows and spreaders. The Company believes
that long handle tools comprise the largest segment of the non-powered lawn and
garden tool market.

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<PAGE> 30

The Company believes that the lawn and garden industry is the beneficiary
of several trends suggesting a growing demand for lawn and garden tools,
including the following:

- Demographic Trends. According to industry sources, consumers age 45 to
54 represent the largest age group of lawn and garden enthusiasts.
Industry sources estimate that this group will increase by approximately
54% from 1988 to 2000 as "baby boomers" age.

- Lifestyle Trends. Industry sources estimate that approximately 80
million households in the U.S. purchased lawn and garden equipment in
1994. The Company believes that increased environmental awareness,
greater interest in healthy lifestyles and heightened concerns regarding
the maintenance of property values will continue to increase the
popularity of lawn and garden activities, particularly among young
adults. In addition, the success of several new gardening publications
has contributed to the increased popularity of gardening and the greater
sophistication of lawn and garden consumers.

- Housing Starts and Sales of Existing Homes. New housing starts often
represent an addition to the overall number of consumers in the lawn and
garden tool market and, accordingly, an increase in demand. Consumers
moving into new homes often spend substantially on landscaping, including
the purchase of lawn and garden equipment.

PRODUCTS AND BRANDS

Product Lines

The Company sells over 1,000 SKUs of non-powered lawn and garden tools. The
Company designs, manufactures and markets tools in the following product lines:
(i) shovels and scoops; (ii) other steel products, such as hoes, forks, scrapers
and rakes; (iii) garden hand tools and posthole diggers; (iv) snow tools, such
as shovels and pushers; and (v) other products such as repair handles, weeders,
edging tools and brooms. In addition, the Company sells wheelbarrows and cutting
and striking tools purchased from outside equipment manufacturers. As a result
of its recent acquisition of an injection molding facility, the Company also
manufactures proprietary custom molded products and component parts for other
manufacturers and distributors, as well as plastic components used in the
Company's products.

Brand Positioning

Pursuant to its market segmentation strategy, the Company has developed a
family of brands, each targeted to one or more specific consumer segments and
price-points. For example, shovels sold under the Company's opening-price-point
Yard 'n Garden brand generally retail from $3.99 to $5.99, while products sold
under the Company's best-quality Razor-Back brand generally retail from $19.99
to $21.99. The Company's products and brands are differentiated by price,
features and warranty (up to a lifetime warranty). Product grades also differ
with respect to the materials and production processes used. For example, the
steel components of the Company's Razor-Back line are heavy-gauge and forged in
order to maximize the product's strength and durability, while the Company's
Yard 'n Garden products are made with lighter gauge components. The Company
carefully monitors its products and searches for growth opportunities that
result from changes in market segments. For example, the Company repositioned
the Razor-Back brand to cater to the growing population of serious DIY consumers
by updating the brand image, introducing product line extensions and developing
new promotional campaigns. See "-- Merchandising and Marketing". The Company's
major brands are described below.

Razor-Back. The Company sells a full line of best-quality, industrial duty
tools for farm, industrial and professional users under the Razor-Back name. The
brand enjoys a strong franchise with agricultural and industrial professionals
and is widely acknowledged as the quality and performance standard for the long
handle tool industry. In 1995 the Company expanded the brand with a high quality
line of cutting and striking tools. The Razor-Back line is sold primarily
through home center, hardware store, industrial distributor and farm sector
distribution channels.

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<PAGE> 31

Union Pro. The Company sells a limited line of high quality, industrial
duty tools for farm, industrial and professional users under the Union Pro name.
The Union Pro line is sold primarily through industrial distributor and farm
sector distribution channels.

Union. The Union line generates the largest sales volume for the Company.
Under the Union name, the Company sells a full line of medium-quality,
professional duty tools with a wide range of features, quality points and
performance levels designed to match the needs of tradesmen and serious DIY
consumers. The Union line is sold through all distribution channels except
warehouse clubs and is merchandised in a trademarked Good/Better/Best quality
configuration.

Perfect Cut. The Perfect Cut line was introduced in August 1995. The
Company sells a limited line of consumer and professional duty cutting tools for
tradesmen and serious DIY consumers under the Perfect Cut name. The Perfect Cut
line is sold primarily through home centers, mass merchants and hardware store
distribution channels and is merchandised in a trademarked Good/Better/Best
quality configuration.

Scotts. In July 1992, the Company obtained from The Scotts Company the
exclusive right to manufacture, distribute and market in the U.S. and Canada an
extensive line of lawn and garden tools under the Scotts name. The Company has
sought to benefit from The Scotts Company's national prime time advertising
campaigns, to develop joint promotional programs with The Scotts Company and to
leverage the Scotts brand reputation and recognition among retailers that
support The Scotts Company bagged-goods program. Under the Scotts name, the
Company sells a full line of high quality, consumer-oriented tools for home
gardeners who associate the Scotts name with value and quality. The Scotts line
is sold primarily though mass merchant and home center distribution channels and
is merchandised in a trademarked Good/Better/ Best quality configuration.

ProForce. The ProForce line was introduced in August 1993 and is comprised
of a limited line of medium-quality, consumer-oriented tools for DIY consumers.
The ProForce line is sold exclusively through the warehouse club distribution
channel.

Yard 'n Garden. Under the Yard 'n Garden name, the Company sells a limited
line of standard quality, promotional tools designed for occasional DIY
consumers who demand value in basic tools for home use. The Yard'n Garden line
is sold through all distribution channels.

Lady Gardener. The Lady Gardener line was introduced in August 1996. Under
the Lady Gardener name, the Company sells a limited line of high-quality,
consumer oriented tools ergonomically designed for female gardeners. The Lady
Gardener line is sold primarily through mass merchant, home center and hardware
store distribution channels.

Private Label Products

In addition to its own brands, the Company also manufactures private label
products for a variety of customers including Sears, Cotter & Company, Frank's
Nursery and Agway, which are sold under the Craftsman and Sears, Green Thumb and
True Value, Frank's and Agway brand names, respectively. The Company has been a
continuous supplier to Sears for over 80 years and the primary supplier of long
handle tools to Sears for over 50 years. Private label products generated
approximately $17.1 million, or 16.8%, of the Company's gross sales in fiscal
1996 and approximately $11.1 million, or 13.1%, of the Company's gross sales in
the nine months ended May 2, 1997.

As a result of its recent acquisition of an injection molding facility, the
Company also manufactures proprietary custom molded products and component parts
for other manufacturers and distributors, as well as plastic components used in
the Company's products.

New Product Development

The Company believes that internally developed products, which often extend
existing product lines, allow it to increase sales with relatively modest
expenditures. For example, the Company recently introduced striking tools, such
as mattocks, picks, axes, hammers and bars, to extend the Razor-Back line. The
Company

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<PAGE> 32

also introduced cutting tools, such as pruners, loppers, shears and bow and
pruning saws marketed under the Perfect Cut line. The striking and cutting tools
are made for the Company by outside manufacturers. The Company also has recently
introduced redesigned posthole diggers with superior functionality and lower
production costs.

As part of its product development effort, the Company tests different
materials in order to enhance product features, reduce tool weight and
facilitate usage. For example, the Company's recently introduced Lady Gardener
line, ergonomically designed for female gardeners, employs plastic or plastic
and steel tool heads in order to make the equipment lighter and easier to
handle.

CUSTOMERS

The Company has well-established customer relationships with most major
retailers in the lawn and garden industry. The Company's largest customer,
Sears, accounted for 7.6%, 12.5% and 11.5% of gross sales in fiscal 1995, fiscal
1996 and the nine months ended May 2, 1997, respectively. The Company's ten
largest customers accounted for approximately 43.7%, 50.5% and 51.5% of gross
sales during each such period. The Company sells its products through a variety
of distribution channels, including (i) mass merchants such as Sears, Kmart and
Fred Meyer, (ii) home centers such as Home Depot, HomeBase, Builders Square and
Payless Cashways, (iii) buying groups such as Cotter & Company and Ace Hardware,
(iv) farm distributors and stores such as Mid-States Distributing Co., Agway,
Wheatbelt, Inc. and Tractor Supply Company, Inc. and (v) industrial distributors
such as Oklahoma Rig & Supply Company, Texas Mill Supply & Manufacturing, Inc.,
Hughes Supply, Inc. and McMaster-Carr Supply Company.

The Company believes that it provides value to its customers by offering a
wide selection of products at a variety of price-points and by reliably
servicing customer needs.

MERCHANDISING AND MARKETING

The Company was the first in the long handle tool segment of the
non-powered lawn and garden industry to successfully implement sophisticated
merchandising and marketing programs. The Company's merchandising programs are
designed to (i) create brand identification among goods historically treated as
commodities and (ii) increase retail sales while reducing the amount of sales
support needed from the retailer's employees. The Company uses innovative
product labeling and point-of-sale signage and racking to highlight the
comparative value and quality of products within and among the Company's brands.
Products within the Company's Union, Scotts and Perfect Cut lines are
merchandised using the Company's trademarked "Good/Better/Best" format. Where
adequate shelf-space is available, the Company also merchandises its brands
together, from the Company's opening price-point Yard 'n Garden brand to its
best-quality Razor-Back brand, using a similar value positioning technique. The
Company believes that its merchandising strategy facilitates comparison shopping
and encourages consumers to purchase higher price-point products.

Where applicable, the Company provides its customers with merchandising
plan-o-grams. The Company also provides its customers with custom designed
product displays complete with informative signs and other "wall-talkers" to
answer consumer questions without the help of the retailer's sales staff. The
Company primarily uses cooperative advertising to promote its products to
consumers.

SALES

The Company's sales force is divided into five regions, each led by a
regional manager. The regional manager supervises a sales force consisting of 14
direct sales professionals who are employed by the Company. In addition, the
Company utilizes 23 manufacturers' representative agencies who also report to
the regional managers. The manufacturers' representatives also sell lawn and
garden products for other manufacturers, but not products that compete with the
Company's products. Company management and senior sales professionals regularly
call on the Company's significant customers, while the manufacturing
representatives provide store level support. The Company's sales professionals
are compensated with a base salary and bonuses based upon a formula that rewards
them for individual performance against an established quota, as well as
Company-wide sales and earnings targets.

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<PAGE> 33

DISTRIBUTION AND LOGISTICS

Customer orders arrive at the Company's headquarters in Columbus, Ohio and
are processed centrally. If the Company can fill the order from the current
stock of finished goods, the order is forwarded to one of the Company's three
distribution centers for shipment based on proximity and availability. The
Company maintains distribution centers in La Mirada, California, Columbus, Ohio
and Frankfort, New York. As of May 2, 1997, the Company owned or leased a fleet
of four tractors and 27 trailers for transporting products between its
manufacturing and distribution facilities. Common carriers are used for shipping
finished products from warehouses to customer delivery points.

The Company uses a computerized management information and control system
which allows the Company to determine the status of customer orders and enables
the Company to process the orders quickly, respond to customer inquiries and
adjust shipping schedules to meet customer requirements. Within this system, the
Company uses an electronic data interchange system that enables customers,
through computerized telephone communications, to place orders directly with the
Company. The Company believes that these systems enable efficient order
processing, expedite shipments and improve customer service.

The Company also provides its customers with the service of pre-ticketing
and bar-coding its products in accordance with customer specifications.

MANUFACTURING

The production of non-powered lawn and garden tools is an extensive
manufacturing and assembly process that involves several different technologies,
including sawmill operations, wood finishing, heavy gauge forging, stamping,
grinding and metal painting. The complexity of certain tasks and the
coordination of the various steps of the manufacturing process have been
developed by the Company over the last 100 years.

At the Company's Columbus, Ohio and Frankfort, New York manufacturing
facilities, steel components undergo hot and cold stamping and hot forging or
welding, depending on the type of tool head being produced. The metal is then
cleaned by grinding and polishing the shaped steel heads. The steel components
then are painted using various techniques depending on product type and product
material. The Company operates its own water based paint manufacturing process
which is used for all steel tool components. Some steel components undergo
additional finishing steps such as anodization or immersion in special chemical
baths.

At the Company's eight saw mills, ash logs are cut into flitches, then into
squares and finally into rounds. The rounds, which have diameters of one to two
inches depending on the finished product requirements, then are inspected to
remove defects. The end product of this process is a green ash dowel that is
then shipped to either the Company's Frankfort, New York or Delaware, Ohio
sawmill to be kiln dried, cut to length, shaped and turned into a handle. The
kiln drying process takes approximately six days and removes enough moisture
from the wood to reduce the weight of the original green dowel by approximately
35%. Wood handles undergo chucking, boring, sanding and a finishing process at
the Company's Columbus and Frankfort facilities. The inventory of handles
maintained at these facilities is a function of both price and seasonal
considerations. The assembly of the steel tool head to the handle and packaging
take place in the final manufacturing stage.

The Company has implemented a seasonally adjusted production schedule in
order to maximize its inventories of finished goods. Production is increased
during December through March, the Company's busiest season, and lowered during
the summer and fall seasons.

RAW MATERIALS

The primary raw materials used to produce the Company's products are steel,
plastics and ash wood.

Steel. The Company purchases its steel requirements from several domestic
suppliers. The primary considerations in specialty steel sourcing are
metallurgy, price and width. The Company has strong and long established
relationships with its steel suppliers and has never experienced sourcing
problems. The Company does not enter into long-term contracts with regard to any
of its steel purchases. The Company purchased approximately 75% and 17% of its
steel requirements from Worthington Steel and Acme Steel Corporation,

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respectively, in fiscal 1996 and approximately 65% and 19%, respectively, from
such suppliers in the nine months ended May 2, 1997. The Company has had
relationships with these suppliers in excess of 15 and 7 years, respectively.

Plastics. The Company has selected specially formulated plastics and
resins for use in its tools. Plastic tool heads historically have been produced
by six outside injection molders (including the former owner of the injection
molding facility that the Company recently acquired), utilizing molds developed
and owned by the Company. The Company intends to use its new facility to
manufacture proprietary custom molded products and component parts for other
manufacturers and distributors, as well as to manufacture plastic components
used in the Company's products. The Company does not enter into any long-term
contracts with regard to its plastics purchases.

Ash Wood. Ash is the ideal hardwood for handles because it is lightweight,
flexible and splinters less than most hardwoods. The Company has wood
specialists who maintain relationships with numerous log suppliers and are
responsible for sourcing the Company's ash needs. The Company believes that it
will continue to be able to obtain sufficient quantities of ash. The Company
typically maintains a five to eight week inventory of ash at each of its
sawmills to cover occasional short-term fluctuations in supply. The Company
imports ramin wood handles for some of its promotionally priced Yard 'n Garden
brand products, such as rakes and hoes. Ramin wood is less expensive than ash
and is of sufficient quality for tools (other than shovels) designed for
opening-price-point levels.

FACILITIES

The Company's headquarters and executive offices, located in Columbus,
Ohio, occupy approximately 31,000 square feet in a facility owned by the
Company. As of May 2, 1997, the other principal properties owned or leased by
the Company for use in its business are set forth below.

DISTRIBUTION FACILITIES

<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FEET
------------------------------------------------------- --------- -------
<S> <C> <C>
Columbus, Ohio......................................... Leased 179,200
Frankfort, New York(1)................................. Owned 31,500
La Mirada, California.................................. Leased 19,100
</TABLE>

MANUFACTURING FACILITIES

<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FEET
------------------------------------------------------- --------- -------
<S> <C> <C>
Columbus, Ohio(2)...................................... Owned 160,900
Frankfort, New York(1)................................. Owned 360,500
Hebron, Ohio........................................... Owned 107,200
</TABLE>

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<PAGE> 35

SAWMILLS

<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FEET
------------------------------------------------------- --------- -------
<S> <C> <C>
Beverly, West Virginia................................. Owned 10,000
Cookeville, Tennessee.................................. Owned 12,100
Delaware, Ohio......................................... Owned 51,100
Frankfort, New York(1)................................. Owned 18,900
Huntington, Indiana.................................... Owned 7,600
Lebanon, Kentucky...................................... Owned 13,500
Portville, New York.................................... Owned 9,000
Shippenburg, Pennsylvania.............................. Owned 15,000
</TABLE>

- ---------------
(1) The Company's 399,500 square foot Frankfort, New York facility is comprised
of a distribution center, a manufacturing facility and a sawmill. The
Company also maintains approximately 20,000 square feet of office space in
this facility.

(2) The Company's 191,900 square foot Columbus, Ohio headquarters consists of
the Company's executive offices and a manufacturing facility.

The Company believes that its existing manufacturing facilities,
distribution centers and sawmills are adequate for the current level of the
Company's operations. The Company believes that its manufacturing facilities
have sufficient excess capacity to accommodate a 35% to 50% increase in the
current level of output. The Company believes that its current sawmill capacity
is sufficient to accommodate up to a 30% increase in the current level of
output.

EMPLOYEES

As of May 2, 1997, the Company employed approximately 670 people (including
seasonal employees), approximately 570 of whom were paid on an hourly basis. The
Company's staffing requirements fluctuate during the year as a result of the
seasonality of the lawn and garden industry, adding approximately 100 to 200
additional seasonal employees in the third quarter. The average tenure of the
Company's hourly employees is in excess of 10 years. Hourly employees at the
Company's Columbus, Ohio manufacturing facility and distribution center and
Delaware, Ohio sawmill are represented by the International Association of
Machinists (the "IAM"). Hourly employees at the Company's Frankfort, New York
facilities are represented by the International Brotherhood of Boilermakers,
Iron Ship Builders, Blacksmiths, Forgers and Helpers (the "IBB"). Hourly
employees at the Company's Portville, New York sawmill are represented by the
International Brotherhood of Teamsters (the "IBT"). Hourly employees at the
Company's Hebron, Ohio injection molding facility are represented by the Glass,
Molders, Pottery, Plastics & Allied Workers International Union AFL-CIO (the
"AGM"). The Company's contracts with the IAM, the IBB, the IBT and the AGM
expire in May 1999, June 1998, August 1997 and March 1999, respectively. No
other employees of the Company are represented by unions. The Company has not
been subject to a strike or work stoppage in over 20 years and believes that its
relationships with its employees, the IAM, the IBB, the IBT and the AGM are
good.

PATENTS AND TRADEMARKS

The Company's success and ability to compete are dependent to a significant
degree on its patents and trademarks. The Company registers its patents and
trademarks in the United States Patent and Trademark Office and the patent and
trademark offices of certain other countries and intends to continue to do so as
new patents and trademarks are developed or acquired. The Company's trademarks
include the Lady Gardener, Perfect Cut, Pro Force, Razor-Back, Union, Union Pro
and Yard 'n Garden brand names. In addition, the Company holds trademarks on
various configurations of its Good/Better/Best product labels and signage. In
July 1992, the Company obtained the exclusive right to manufacture, distribute
and market in the U.S. and Canada an extensive line of lawn and garden tools
under the Scotts brand name. The Company pays certain

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<PAGE> 36

royalties to The Scotts Company, the owner of the Scotts trademark, pursuant to
a license agreement. The current term of the license agreement expires in August
1998 and, subject to certain conditions, is automatically renewed for successive
three year periods.

COMPETITION

All aspects of the lawn and garden industry, including attracting and
retaining customers and pricing, are highly competitive. The Company competes
for customers in this industry with large consumer product manufacturers and
numerous other companies that produce specialty home and garden products, as
well as with foreign manufacturers that export their products to the U.S. Many
of these competitors are larger and have significantly greater financial
resources than the Company.

In the long handle tool segment of the industry, the Company competes
primarily with Ames Company, Inc. ("Ames") and True Temper Hardware Company,
Inc. ("True Temper"). The Company believes that it currently has the second
largest market share in the long handle tools segment of the industry. The
Company believes that Ames currently has the largest market share in the long
handle tools segment of the industry and that True Temper currently has the
third largest in this segment of the industry.

ENVIRONMENTAL MATTERS

At May 2, 1997 the Company had a reserve for environmental remediation of
$451,000. The actual cost of remediating environmental conditions may be
different than that accrued by the Company due to the difficulty in estimating
such costs and due to potential changes in the status of legislation. The
Company does not maintain an insurance policy for environmental matters.

LITIGATION

The Company from time to time is involved in routine litigation incidental
to the conduct of its business. Management believes that no currently pending
litigation to which the Company is a party will have a material adverse effect
on its financial position or results of operations.

36
<PAGE> 37

DESCRIPTION OF MCGUIRE-NICHOLAS

Founded in 1932, McGuire-Nicholas is a leader in the leather, canvas and
manmade fabric tool holder and work apron market. McGuire-Nicholas designs,
manufactures and markets construction aprons, nail and tool bags, tool pouches,
tool holders, work and support belts and knee pads. The Company believes that
the McGuire-Nicholas brand enjoys a reputation for superior design and quality,
as well as high name recognition among professional and serious DIY consumers.
McGuire-Nicholas sells its products through market leaders in all hardware
distribution channels, including mass merchants, home centers, buying groups,
distributors, industrial retailers and club stores.

McGuire-Nicholas' merchandising and marketing strategy is focused on brand
management, increased penetration of certain specified distribution channels and
satisfying customer needs. McGuire-Nicholas has developed innovative new
products, packaging and customer specific merchandising programs and provides
retail service and support through plan-o-gram services, custom flyers and
circulars. McGuire-Nicholas participates in distribution channel and customer
specific advertising and promotional events, including "best buy" and
"item-of-the-month" specials and special promotions using custom packaging.

McGuire-Nicholas' manufacturing process largely is comprised of cutting,
sewing and riveting. Leather or canvas is transported from an adjacent warehouse
to the cutting floor, where workers cut the raw material to size and shape.
After cutting, the material is sewn and riveted to form the finished product.
Finished items are packaged on the premises. The principal raw materials used in
McGuire-Nicholas' products consist of tanned leather, Cordura, canvas, nylon
webbing for belts, rivets and other hardware. McGuire-Nicholas does not engage
in leather tanning.

McGuire-Nicholas manufactures and distributes its products worldwide out of
a 72,000 square foot leased facility in Los Angeles, California. It currently is
in the process of moving a portion of its manufacturing facilities to Tecate,
Mexico. As of May 2, 1997, McGuire-Nicholas employed approximately 300 non-union
employees.

In December 1996 McGuire-Nicholas entered into a Loan and Credit Facility
(the "Loan Facility"). The Loan Facility is comprised of (i) a $9.25 million
revolving facility, (ii) a $250,000 term loan and (iii) a $500,000 non-revolving
capital expenditure facility to purchase new equipment. All borrowings made
under the Loan Facility bear interest at the rate of 1% over the Prime Rate (as
defined in the Loan Facility). The Loan Facility is secured by, among other
things, all of McGuire-Nicholas' accounts, general intangibles, securities,
inventory and equipment. Neither Acorn nor UnionTools is a party to the Loan
Agreement, either as principal or guarantor.

37
<PAGE> 38

MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the name, age and position of each of the
directors of Acorn and the executive officers of the Company. Each director of
Acorn will hold office until the next annual meeting of stockholders of Acorn or
until his successor has been elected and qualified.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
Gabe Mihaly................................ 49 President, Chief Executive Officer and
Director of Acorn and UnionTools
James B. Farland........................... 58 Vice President -- Sales and Marketing of
UnionTools
Thomas A. Hyrb............................. 53 Vice President -- Operations of UnionTools
Stephen M. Kasprisin....................... 43 Chief Financial Officer and Vice President
of Acorn and UnionTools
J. Mitchell Dolloff........................ 31 General Counsel and Vice President of Acorn
and UnionTools
Conor D. Reilly............................ 45 Chairman of the Board and Director of Acorn
and UnionTools
William W. Abbott.......................... 65 Director of Acorn
Matthew S. Barrett......................... 37 Director of Acorn
Stephen A. Kaplan.......................... 38 Director of Acorn
John I. Leahy.............................. 66 Director of Acorn
</TABLE>

Gabe Mihaly became President and Chief Executive Officer of UnionTools in
May 1991 and President, Chief Executive Officer and a director of Acorn in
August 1996. From October 1986 to May 1991, Mr. Mihaly was a partner at Ernst &
Young, where he provided consulting services to senior executives in the areas
of strategy, cost and operations management, performance and competitive
analysis and turnaround management.

James B. Farland became Vice President Sales and Marketing of UnionTools in
March 1992. From October 1990 to March 1992, Mr. Farland was Vice President
National Accounts of Poulan/Weedeater. From March 1988 to October 1990, Mr.
Farland was Vice President Sales and Marketing of Allegratti Co. until its
acquisition by Poulan/Weedeater.

Thomas A. Hyrb became Vice President Operations of UnionTools in August
1991. From September 1982 to July 1991, Mr. Hyrb was Director of Quality
Assurance and Plant Manager of True Temper. From May 1966 to August 1982, Mr.
Hyrb held various manufacturing and engineering management positions with Clarke
(a division of McGraw Edison), Roper Corporation and Allis Chalmers.

Stephen M. Kasprisin became Chief Financial Officer and Vice President of
Acorn in February 1989 and Chief Financial Officer and Vice President of
UnionTools in January 1994. From January 1981 to February 1989, Mr. Kasprisin
held various financial positions with certain private enterprises. From June
1976 to January 1981 Mr. Kasprisin was employed by Coopers & Lybrand, certified
public accountants.

J. Mitchell Dolloff became General Counsel and Vice President of Acorn and
UnionTools in June 1997. From October 1991 to June 1997, Mr. Dolloff was an
associate at Gibson, Dunn & Crutcher LLP.

Conor D. Reilly became Chairman and a director of Acorn and UnionTools in
August 1996. Mr. Reilly has been a partner at Gibson, Dunn & Crutcher LLP since
January 1988. Mr. Reilly served as Vice Chairman of Memorex-Telex N.V. in 1992
and 1993 and has been a director of John Deere Insurance Group, Inc. since
August 1992.

William W. Abbott became a director of Acorn in January 1997. Mr. Abbott
currently is self-employed as a business consultant. From August 1989 to January
1995, Mr. Abbott served as Senior Advisor to the United Nations Development
Programme. In 1989, Mr. Abbott retired from 35 years of service at Procter &
Gamble, as a Senior Vice President in charge of worldwide sales and other
operations. From April 1982 to April 1994 Mr. Abbot served as a member of the
Board of Directors of Armstrong World Industries. He currently serves as a
member of the Board of Directors of Horace Mann Educators Corporation, Fifth
Third Bank of Naples,

38
<PAGE> 39

Florida, a member of the Advisory Board of Deloitte & Touche LLP, a member of
the Advisory Board of Manco, a member of the Board of Overseers of the Duke
Cancer Center and an Executive in Residence of Appalachian State University.

Matthew S. Barrett became a director of the Company in December 1993. Mr.
Barrett is a managing director of Oaktree. Prior to joining Oaktree, from 1991
to April 1995, Mr. Barrett was Senior Vice President of TCW Asset Management
Company.

Stephen A. Kaplan became a director of Acorn in December 1993. Mr. Kaplan
is a principal of Oaktree, where he runs the Principal Activities Group. Prior
to joining Oaktree, from November 1993 to April 1995, Mr. Kaplan was a managing
director of Trust Company of the West and was portfolio manager of The Principal
Fund. From January 1991 to October 1993, Mr. Kaplan was a partner at Gibson,
Dunn & Crutcher LLP. Mr. Kaplan currently serves as a member of the Board of
Directors of Chief Auto Parts, Inc., Stratagene Holding Corporation, Decorative
Home Accents, Inc. and KinderCare Learning Centers, Inc.

John I. Leahy became a director of the Company in August 1994. Mr. Leahy
has been the President of Management & Marketing Associates, a management
consulting firm owned by Mr. Leahy, since 1987. In 1987, Mr. Leahy retired after
34 years of service at the Black & Decker Corporation, where he was President
and Group Executive, Western Hemisphere. Mr. Leahy currently serves as a
director of Allied Capital Corporation II, Motorvac Technologies, Inc. and
several privately held companies. Mr. Leahy is a Trustee of Loyola College of
Maryland and St. Mary's University.

COMMITTEES OF THE BOARD OF DIRECTORS

In March 1997 Acorn created a Management Development and Compensation
Committee (the "Compensation Committee") and an Audit Committee (the "Audit
Committee"). Messrs. Abbott (Chairman), Kaplan and Reilly were appointed to the
Compensation Committee and Messrs. Leahy (Chairman) and Barrett were appointed
to the Audit Committee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to March 1997, Acorn did not have a compensation committee. The full
Board of Directors of Acorn participated in deliberations concerning
compensation of executive officers of the Company during fiscal 1996. None of
the executive officers of Acorn served on the board of directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the compensation committee of Acorn.

DIRECTOR COMPENSATION

Directors who are employees of the Company receive no compensation for
serving as directors. Non-employee directors receive annual compensation of
$30,000, plus reimbursement of reasonable out-of-pocket expenses. Non-employee
directors can elect to have all of their annual compensation paid in shares of
Common Stock pursuant to the Director Stock Plan or one-half paid in cash and
one-half paid in shares of Common Stock pursuant to the Director Stock Plan.

39
<PAGE> 40

EXECUTIVE COMPENSATION

The following summary compensation table sets forth information concerning
the annual and long-term compensation earned by Acorn's chief executive officer
and each of the four other most highly compensated executive officers of the
Company whose annual salary and bonus during fiscal 1996 exceeded $100,000 (the
"Named Officers"). Mr. Mihaly's cash compensation was paid by Acorn. All other
compensation was paid by UnionTools.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
FISCAL ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ------------------------------------------------ ------ -------- ------- ---------------
<S> <C> <C> <C> <C>
Gabe Mihaly(2).................................. 1996 $286,461 $14,000 $ 22,706
President and Chief Executive Officer of Acorn
and UnionTools
James B. Farland................................ 1996 171,592 49,450 19,360
Vice President Sales and Marketing of
UnionTools
Thomas A. Hyrb.................................. 1996 151,335 46,500 60,383
Vice President Operations of UnionTools
Stephen M. Kasprisin............................ 1996 154,530 46,359 21,999
Chief Financial Officer and Vice President of
Acorn and UnionTools
Joseph J. Duffy(2).............................. 1996 393,166 -- 607,861
President and Chief Executive Officer of Acorn
</TABLE>

- ---------------
(1) Amounts shown include $4,500 of matching benefits paid under the Company's
defined contribution 401(k) plan and other miscellaneous cash benefits, but
do not include retirement benefits under the Company's Salaried Employee
Pension Plan or Supplemental Pension Plan. See "-- Pension Plans". Amounts
shown for Messrs. Mihaly, Farland, Hyrb, Kasprisin and Duffy include $9,720,
$9,890, $8,631, $10,112 and $12,067, respectively, paid by the Company for
car allowances. The amounts shown for Messrs. Mihaly and Duffy include
$2,553 and $4,200, respectively, paid by the Company with respect to
supplementary life insurance for the benefit of Messrs. Mihaly and Duffy.
The amount shown for Mr. Duffy also includes $6,850 paid by the Company with
respect to disability income insurance for the benefit of Mr. Duffy, as well
as $574,942 payable in connection with Mr. Duffy's resignation from the
Company. See note 2 below and "Certain Transactions". The amount shown for
Mr. Hyrb includes $43,454 paid by the Company with respect to relocation
expenses.

(2) Mr. Duffy was Chairman of the Board, President and Chief Executive Officer
of Acorn until August 1, 1996. Mr. Mihaly became President and Chief
Executive Officer, and Mr. Reilly became Chairman of the Board of Acorn,
immediately thereafter.

The following table contains certain information regarding options to
purchase Common Stock held as of August 2, 1996 by each of the Named Officers.
None of such Named Officers exercised any options during fiscal 1996.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gabe Mihaly................................ 17,352 13,014(2) $ 139,973 $0(2)
James B. Farland........................... -- -- -- --
Thomas A. Hyrb............................. -- -- -- --
Stephen M. Kasprisin....................... -- -- -- --
Joseph J. Duffy............................ 15,906 0 $ 192,452 --
</TABLE>

- ---------------
(1) Calculated on the basis of $12.10 per share, the fair market value of the
Common Stock at August 2, 1996, as determined by the Board of Directors,
less the exercise price payable for such shares.

(2) Upon consummation of the Offering, options exercisable for 5,784 of such
shares vest at an exercise price of $0 per share and options exercisable for
7,230 of such shares expire.

40
<PAGE> 41

PENSION PLANS

UnionTools maintains five noncontributory defined benefit pension plans
covering substantially all of the hourly employees of the Company. UnionTools
also maintains a noncontributory defined benefit pension plan covering salaried,
administrative and supervisory employees of the Company (the "Salaried Employee
Pension Plan") and a supplemental noncontributory defined benefit pension plan
covering certain senior executive officers of the Company (the "Supplemental
Pension Plan").

The following table sets forth the estimated annual benefits payable upon
retirement under the Salaried Employee Pension Plan based on retirement at age
65 and fiscal 1996 covered compensation.

- ---------------
(1) Based on final earnings.

For each Named Officer, the Salaried Employee Pension Plan covers total
compensation as listed in the summary compensation table, but limited to
$150,000 as required by the Employee Retirement Income Security Act of 1974.
Messrs. Mihaly, Farland, Hyrb and Kasprisin have credited service of
approximately 6, 5, 5 and 8 years, respectively, under the Salaried Employee
Pension Plan. Mr. Duffy was deemed to have credited service of approximately 8
years under the Salaried Employee Pension Plan at the time of termination of his
employment with Acorn. Benefits under the Salaried Employee Pension Plan are
based on years of credited service and final earnings (the highest average
monthly earnings over any 60 consecutive calendar month period in the 120
calendar months preceding retirement or termination of employment). Monthly
benefits are paid under the Salaried Employee Pension Plan in an amount equal to
2.25% of the employees' final earnings multiplied by the lesser of 25 years or
the total number of years of credited service. Benefits under the Salaried
Employee Pension Plan for credited years of service prior to 1993 were
determined pursuant to a formula that yielded slightly lower benefits.
Accordingly, actual benefits for each of the Named Officers are slightly lower
than the amounts indicated in the foregoing table. The Company's policy is to
fund the maximum amount deductible for federal income tax purposes. Benefits
under the Salaried Employee Pension Plan are not subject to any offset.

The following table sets forth the estimated annual benefits payable upon
retirement under the Supplemental Pension Plan based on retirement at age 65 and
fiscal 1996 covered compensation.

<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35
- ------------------------------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$175,000............................. $ 8,437 $ 11,250 $ 14,063 $ 14,063 $ 14,063
200,000............................. 16,875 22,500 28,125 28,125 28,125
225,000............................. 25,313 33,750 42,188 42,188 42,188
250,000............................. 33,750 45,000 56,250 56,250 56,250
300,000............................. 50,625 67,500 84,375 84,375 84,375
400,000............................. 84,375 112,500 140,625 140,625 140,625
</TABLE>

- ---------------
(1) Based on final earnings.

For Messrs. Mihaly and Duffy, the Supplemental Pension Plan covers
compensation as listed in the summary compensation table above $150,000. Mr.
Mihaly has credited service of approximately 6 years under the Supplemental
Pension Plan. Mr. Duffy was deemed to have credited service of approximately 8
years under the Supplemental Pension Plan at the time of termination of his
employment with Acorn. Benefits under the Supplemental Pension Plan are based on
years of credited service and final earnings (the highest average monthly
earnings over any 60 consecutive calendar month period in the 120 calendar
months preceding retirement or termination of employment). Monthly benefits are
paid under the Salaried Employee Pension Plan in an amount equal to 2.25% of the
employees' final earnings (as described above) multiplied by

41
<PAGE> 42

the lesser of 25 years or the total number of years of credited service.
Benefits under the Supplemental Pension Plan are not subject to any offset.

AGREEMENTS WITH KEY EMPLOYEES

In May 1997 the Company entered into an employment agreement with Mr.
Mihaly which provides for his employment as the President of Acorn and the
President and Chief Executive Officer of UnionTools. The agreement has a five
year term and automatically is extended for successive one-year periods
thereafter unless notice is given at least 90 days, if by Mr. Mihaly, or one
year, if by the Company, prior to expiration of the then-current term. Mr.
Mihaly's employment agreement provides for a base salary of $296,181 per year, a
bonus of $260,000 if Mr. Mihaly is employed by the Company on January 5, 1998,
an annual cash bonus in an amount to be determined by the Board of Directors of
Acorn and certain additional benefits, including participation in pension,
health and other employee benefits plans of the Company. Mr. Mihaly's employment
agreement provides that if the term of the agreement is not extended by the
Company, the Company is required to make a lump sum payment to Mr. Mihaly in an
amount equal to his then-current base salary. Mr. Mihaly's employment agreement
also provides that if Mr. Mihaly's employment is terminated by the Company
without cause (as defined in the agreement) or if Mr. Mihaly resigns due to a
material diminution in his responsibilities or a material breach by the Company
of its obligations under the agreement (collectively, "Termination"), the
Company is required to make a lump sum payment to Mr. Mihaly in an amount equal
to the full cash compensation due through the remaining term of the agreement
(the "Remaining Salary"). In addition, Mr. Mihaly will be treated for purposes
of pension and related plans as having been employed by the Company through the
end of the then-current term of the agreement. If such Termination occurs within
two years following a change in control of the Company (as defined in the
agreement), the Company also is required to pay to Mr. Mihaly an amount equal to
the difference between (i) three times the highest aggregate annual compensation
(including salary, bonuses and incentive payments) includable in gross income
paid to Mr. Mihaly during any one of the three taxable years preceding the date
of the Termination and (ii) the Remaining Salary.

In May 1997 the Company also entered into agreements with each of Messrs.
Farland, Hyrb and Kasprisin which provide that following the Termination of such
officers' employment with the Company, the Company will pay to such employee an
amount equal to the highest aggregate annual compensation (including salary,
bonuses and incentive payments) includable in gross income paid to such employee
during any one of the three taxable years preceding the date of his Termination.
If such Termination occurs within two years following a change in control of the
Company (as defined in such agreement), the Company also is required to pay to
such employee an amount equal to two times the amount described in the preceding
sentence. In June 1997 the Company entered into an agreement with Mr. Dolloff on
the same terms.

1997 STOCK INCENTIVE PLAN

In April 1997 Acorn adopted the Incentive Plan for members of senior
management and certain other officers and employees of the Company. The purpose
of the Incentive Plan is to provide incentives to employees of the Company by
granting awards tied to the performance of the Common Stock. The Incentive Plan
is administered by the Compensation Committee, which has broad authority in
administering the Incentive Plan. Awards to employees may take the form of
options, stock appreciation rights or sales or grants of restricted stock.
Options granted under the Incentive Plan may be options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, or options not intended to so qualify. An award granted to an
employee under the Incentive Plan may include a provision terminating the award
upon termination of employment under certain circumstances or accelerating the
receipt of benefits upon the occurrence of certain specified events. All awards
granted under the Incentive Plan immediately vest upon the occurrence of a
change in control of the Company, as defined in the Incentive Plan. Acorn has
reserved an aggregate of 730,000 shares of Common Stock for issuance under the
Incentive Plan.

42
<PAGE> 43

There are no awards currently outstanding under the Incentive Plan. Acorn
has approved the grant of options to the following executive officers and
directors under the Incentive Plan contingent upon the consummation of the
Offering:

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME SUBJECT TO OPTIONS
----------------------------------------------------- ------------------
<S> <C>
Gabe Mihaly.......................................... 81,300
James B. Farland..................................... 40,600
Thomas A. Hyrb....................................... 40,600
Stephen M. Kasprisin................................. 40,600
J. Mitchell Dolloff.................................. 32,500
Conor D. Reilly...................................... 32,500
</TABLE>

Acorn also has approved the grant of options to purchase an aggregate of 60,400
shares of Common Stock to other key employees of the Company. The exercise price
for each such option will equal the initial public offering price per share in
the Offering. Upon consummation of the Offering, 25% of each officer's options
vest, with an additional 25% vesting annually over the next three years.

DIRECTOR STOCK PLAN

In April 1997 Acorn adopted the Director Stock Plan. The purpose of the
Director Stock Plan is to increase the proprietary interest in Acorn of
non-employee members of the Board of Directors by providing for payment of all
or one half of their fees in the form of common stock units, thereby increasing
their incentive to contribute to the success of the Company. The Director Stock
Plan is administered by an Administrative Committee comprised of the Chief
Financial Officer and Secretary of Acorn. The Director Stock Plan is intended to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Only non-employee directors are eligible to participate in
the Director Stock Plan. The number of shares of Common Stock reserved for
issuance pursuant to the Director Stock Plan is 73,000.

In lieu of cash, non-employee directors can elect to receive all or
one-half of their fees in the form of common stock units. The number of common
stock units issued is determined by dividing (i) an amount equal to the dollar
amount of the fees to be received in the form of common stock units by (ii) the
average of the high and low sale prices of the Common Stock on the Nasdaq
National Market on the last business day preceding the date of payment. Any cash
or stock dividends payable on shares of Common Stock accrue for the benefit of
the directors in the form of additional common stock units. Common stock units
are distributed to non-employee directors in the form of Common Stock following
the director's resignation from the Board of Directors. Each non-employee
director may elect to receive the Common Stock distributed pursuant to common
stock units either (a) immediately following his or her resignation from the
Board of Directors or (b) in annual installments over a period of time following
such resignation. In addition, common stock units are distributed to directors
in the form of Common Stock following the death of the director or a change in
control of Acorn, as defined in the Director Stock Plan.

43
<PAGE> 44

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of June 1, 1997, by (i) each person who is
known by Acorn to own beneficially more than 5% of the outstanding shares of the
Common Stock; (ii) each director and executive officer and (iii) all executive
officers and directors as a group. Unless otherwise indicated, each person has
sole voting power and investment power with respect to the shares attributed to
them.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------------------------------
AFTER THE OFFERING
PRIOR TO THE OFFERING AND THE EXCHANGE
--------------------- ---------------------
NUMBER OF NUMBER OF
NAME OF BENEFICIAL OWNER(2) SHARES PERCENT SHARES PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
The TCW Group, Inc.(3)............................. 1,446,000 96.5% 3,162,040 48.9%
Oaktree Capital Management, LLC(4)................. -- -- 812,500 12.6
OCM Principal Opportunities Fund, L.P.............. -- -- 812,500 12.6
Joseph J. Duffy(5)................................. 33,258 2.2 33,258 *
Gabe Mihaly(6)..................................... 37,596 2.5 81,630 1.3
James B. Farland................................... -- -- 11,850(7) *
Thomas A. Hyrb..................................... -- -- 10,150(8) *
Stephen M. Kasprisin............................... -- -- 13,650(9) *
J. Mitchell Dolloff................................ -- -- 8,125(10) *
Conor D. Reilly.................................... -- -- 26,100(11) *
William W. Abbott.................................. -- -- 3,400(12) *
Matthew S. Barrett(13)............................. -- -- 812,500 12.6
Stephen A. Kaplan(14).............................. -- -- 812,500 12.6
John I. Leahy...................................... 14,460 * 14,460 *
All directors and executive officers as group (10
people)(15)...................................... 52,056 3.4 981,865 15.0
</TABLE>

- ---------------
* Less than 1%

(1) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (i) the power to vote, or direct
the voting of, such security or (ii) investment power which includes the
power to dispose, or to direct the disposition of, such security. In
addition, a person is deemed to be the beneficial owner of a security if
that person has the right to acquire beneficial ownership of such security
within 60 days.

(2) The address of the TCW Group is 865 South Figueroa Street, Los Angeles,
California 90017. The address of Oaktree, the Oaktree Fund, Mr. Barrett and
Mr. Kaplan is 550 South Hope Street, 22nd Floor, Los Angeles, California
90071. The address of Mr. Duffy is 1077 Old County Road, Severna Park,
Maryland 21146. The address for Messrs. Mihaly, Farland, Hyrb, Kasprisin,
Dolloff and Reilly is c/o Acorn Products, Inc., 500 Dublin Avenue,
Columbus, Ohio 43215. The address of Mr. Abbott is 6923 Greentree Drive,
Naples, Florida 33963. The address of Mr. Leahy is c/o Management &
Marketing Associates, 30 East Padonia Road, Timonium, Maryland 21093.

(3) All such shares of Common Stock are owned by the TCW Funds prior to the
Offering as follows: (i) TCW Special Credit Fund III (299,322 shares); (ii)
TCW Special Credits Fund IIIb (287,754 shares); (iii) TCW Special Credits
Plus Fund (104,112 shares); (iv) TCW Special Credits Trust IIIb (205,332
shares); (v) TCW Special Credits Fund IV (93,990 shares); (vi) TCW Special
Credits Trust (144,600 shares); (vii) TCW Special Credits, as investment
manager of Weyerhaeuser Company Pension Trust (104,112 shares); (viii) TCW
Special Credits Trust IV (82,422 shares); (ix) TCW Special Credits Trust
IVA (31,812 shares); (x) TCW Special Credits, as investment manager of
Delaware State Employees' Retirement Fund (72,300 shares) and (xi) TCW
Special Credits, as investment manager of The Common Fund for Bond
Investments (20,244 shares). The approximately 1,716,040 shares of Common
Stock to be issued pursuant to the Exchange will be owned by the TCW Funds
as follows: (i) TCW Special Credit Fund III (360,680 shares); (ii) TCW
Special Credits Fund IIIb (338,284 shares); (iii) TCW Special Credits Plus
Fund (123,695 shares); (iv) TCW Special Credits Trust IIIb (241,819
shares); (v) TCW Special Credits Fund IV (112,134 shares); (vi) TCW Special
Credits Trust (171,067 shares); (vii) TCW Special Credits, as investment
manager of Weyerhauser Company Pension Trust (123,668 shares); (viii) TCW
Special Credits Trust IV (99,418 shares); (ix) TCW Special Credits Trust
IVA (36,993 shares); (x) TCW Special Credits, as investment manager of
Delaware State Employees' Retirement Fund (84,006 shares); (xi) TCW Special
Credits, as investment manager of The Common Fund for Bond Investments
(24,276 shares). TCW Asset Management Company, a wholly-owned subsidiary of
the TCW Group, is the managing general

44
<PAGE> 45

partner of TCW Special Credits. TCW Special Credits is the general partner
of, or the investment advisor to, each of the TCW Funds. Certain principals
of Oaktree are individual general partners of TCW Special Credits (the
"Individual Partners"). The Individual Partners, in their capacity as
general partners of TCW Special Credits, have been designated to manage the
TCW Funds. Although Oaktree provides consulting, research and other
management support services to the Individual Partners, Oaktree does not
have any voting or dispositive power with respect to the TCW Funds.

(4) All of such shares of Common Stock are owned by the Oaktree Fund.

(5) Includes 15,906 shares of Common Stock issuable pursuant to options.

(6) Includes 17,352 shares of Common Stock issuable pursuant to options
currently held by Mr. Mihaly. After the Offering and Exchange includes
17,925 shares of Common Stock which are owned jointly by Mr. Mihaly and his
spouse. After the Offering and the Exchange also includes 5,784 shares of
Common Stock issuable pursuant to options vesting upon consummation of the
Offering and 20,325 shares of Common Stock issuable pursuant to options
granted under the Incentive Plan contingent upon the consummation of the
Offering.

(7) Also includes 10,150 shares of Common Stock issuable pursuant to options
granted under the Incentive Plan contingent upon the consummation of the
Offering.

(8) Reflects shares of Common Stock issuable pursuant to options granted under
the Incentive Plan contingent upon the consummation of the Offering.

(9) Includes 3,500 shares of Common Stock which are owned jointly by Mr.
Kasprisin and his spouse. Also includes 10,150 shares of Common Stock
issuable pursuant to options granted under the Incentive Plan contingent
upon the consummation of the Offering.

(10) Reflects shares of Common Stock issuable pursuant to options granted under
the Incentive Plan contingent upon the consummation of the Offering.

(11) Includes 1,000 shares of Common Stock held by Mr. Reilly's minor daughter.
Mr. Reilly, as custodian, holds voting and dispositive power over such
shares. Also includes 8,125 shares of Common Stock issuable pursuant to
options granted under the Incentive Plan contingent upon the consummation
of the Offering.

(12) Includes 1,000 shares of Common Stock held by Mr. Abbott's spouse. Mr.
Abbott disclaims beneficial ownership of such shares.

(13) Reflects shares of Common Stock owned by the Oaktree Fund and also shown as
beneficially owned by Oaktree. To the extent that Mr. Barrett, as a
managing director of Oaktree, participates in the process to vote or
dispose of any such shares, he may be deemed under such circumstances for
the purpose of Section 13 of the Exchange Act to be the beneficial owner of
such shares of Common Stock. Mr. Barrett disclaims beneficial ownership of
such shares of Common Stock.

(14) Reflects shares of Common Stock owned by the Oaktree Fund and also shown as
beneficially owned by Oaktree. To the extent that Mr. Kaplan, as a
principal of Oaktree, participates in the process to vote or dispose of any
such shares, he may be deemed under such circumstances for the purpose of
Section 13 of the Exchange Act to be the beneficial owner of such shares of
Common Stock. Mr. Kaplan disclaims beneficial ownership of such shares of
Common Stock.

(15) See notes (6) through (14) above.

45
<PAGE> 46

CERTAIN TRANSACTIONS

In December 1993 and May 1994 Acorn issued the Subordinated Notes in the
aggregate principal amount of approximately $31.4 million to the TCW Funds. The
Subordinated Notes mature in July 2003 and bear interest at a rate of 13% per
year. In August 1996 Acorn issued 100 shares of Series A Preferred Stock with an
aggregate stated value of approximately $8.6 million to the TCW Funds as payment
in full of accrued interest on the Subordinated Notes for fiscal 1995 and fiscal
1996. As of May 2, 1997, the aggregate principal amount of the Subordinated
Notes and accrued interest thereon was approximately $34.4 million and the
aggregate liquidation value of the Series A Preferred Stock was approximately
$9.4 million.

The Company intends to use approximately $20.65 million of the estimated
net proceeds of $41.3 million from the Offering to redeem the Series A Preferred
Stock and pay accumulated dividends thereon and to repay a portion of the
indebtedness outstanding under the Subordinated Notes and accrued interest
thereon. Pursuant to the Exchange, concurrent with the consummation of the
Offering the TCW Funds will exchange remainder of the Subordinated Notes for a
number of shares of Common Stock equal to the remaining aggregate principal
amount of the Subordinated Notes (approximately $24.0 million) divided by the
per share Price to Public set forth on the cover page of this Prospectus. The
TCW Funds will receive an aggregate of approximately 1,716,040 shares of Common
Stock pursuant to the Exchange. See "Risk Factors -- Control by Principal
Stockholders" and "Use of Proceeds".

In December 1996 Acorn issued a subordinated promissory note to the TCW
Funds in the aggregate principal amount of $6 million and bearing interest at a
rate of 13% per year as bridge financing. In December 1996 Acorn paid $6.3
million to the TCW Funds in prepayment of the subordinated promissory note,
accrued interest thereon and a $180,000 facility fee.

Conor D. Reilly, Chairman of the Board of Acorn and a director of Acorn and
UnionTools, is a partner in the law firm of Gibson, Dunn & Crutcher LLP. J.
Mitchell Dolloff was an associate at Gibson, Dunn & Crutcher LLP prior to
becoming General Counsel and a Vice President of Acorn and UnionTools on June
24, 1997. The Company paid fees of approximately $584,078 and $871,283 to
Gibson, Dunn & Crutcher LLP in fiscal 1996 and the nine months ended May 2,
1997, respectively.

In fiscal 1996 John I. Leahy, a director of Acorn, received fees in the
aggregate amount of $15,500 for consulting services rendered to the Company.

In connection with Joseph J. Duffy's resignation as the Chairman of the
Board, President and Chief Executive Officer of Acorn on August 1, 1996, upon
consummation of the Offering Mr. Duffy will receive accelerated payments
(aggregating $268,727 as of May 2, 1997) for certain consulting services
rendered to the Company. Mr. Duffy also is entitled to certain pension benefits.
See "Management -- Executive Compensation -- Pension Plans".

From time to time, the Company extends loans to certain officers and
directors in connection with the purchase of Common Stock. In January 1994, Mr.
Mihaly, the President, Chief Executive Officer and a director of Acorn and
UnionTools, received a loan from UnionTools in the aggregate principal amount of
$245,000. The loan matures in January 1998, bears interest at an annual rate of
5.34% and is secured by a pledge of Common Stock. The principal of, and accrued
interest on, the loan becomes due upon the occurrence of certain events,
including voluntary termination of Mr. Mihaly's employment with the Company.

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<PAGE> 47

DESCRIPTION OF CAPITAL STOCK

GENERAL

Acorn's authorized capital stock consists of 20 million shares of Common
Stock, $.001 par value per share, of which 1,498,056 shares are issued and
outstanding and 1,000 shares of Preferred Stock, par value $.001 per share, of
which 100 shares of Series A Preferred Stock are issued and outstanding. A
portion of the net proceeds from the Offering will be used to redeem the Series
A Preferred Stock and pay accumulated dividends thereon. See "Certain
Transactions". The material terms of Acorn's Amended and Restated Certificate of
Incorporation (the "Charter") and bylaws are discussed below.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled or
permitted to vote. Holders of Common Stock are not entitled to vote cumulatively
for the election of directors. Holders of Common Stock have no redemption,
conversion, preemptive or other subscription rights. There are no sinking fund
provisions relating to the Common Stock. Holders of Common Stock are entitled to
receive dividends when and as declared by the Board of Directors of Acorn out of
funds legally available therefor. Acorn does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. See "Dividend Policy".
In the event of the liquidation, dissolution or winding up of Acorn, the holders
of Common Stock will be entitled to share ratably in all of the assets of Acorn,
if any, remaining after satisfaction of the debts and liabilities of Acorn. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, upon payment therefor as contemplated herein, validly issued,
fully paid and nonassessable.

PREFERRED STOCK

Under the Charter, the Board of Directors is authorized, subject to certain
limitations prescribed by law, to issue the preferred stock in one or more
classes or series and to fix the designations, powers, preferences and relative
participation, option or other special rights and qualifications, limitations or
restrictions thereof, including, without limitation, the dividend rate,
conversion or exchange rights, redemption price and liquidation preference, of
any such class or series. In addition, the Board of Directors may fix the number
of shares constituting any such class or series, and increase or decrease the
number of shares of any such class or series, but not below the number of
outstanding shares of any such class or series. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of Acorn. Acorn has no current plans to issue
additional shares of preferred stock. See "Risk Factors -- Effect of Certain
Charter, Change of Control and Statutory Provisions".

CERTAIN PROVISIONS OF DELAWARE LAW

Acorn is incorporated under the DGCL. Acorn is subject to Section 203 of
the DGCL, which restricts certain transactions and "business combinations"
between a Delaware corporation and an "interested stockholder" (in general, a
stockholder owning 15% or more of the corporation's outstanding voting stock) or
an affiliate or associate of an interested stockholder, for a period of three
years from the date the stockholder becomes an interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, unless the transaction is approved by the Board of Directors
and the holders of at least 66 2/3% of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of assets to or receipt of disproportionate financial benefits by the interested
stockholder, or any other transaction that would increase the interested
stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an interested stockholder,

47
<PAGE> 48

the interested stockholder owns at least 85% of the outstanding voting stock of
the corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). See "Risk Factors -- Effect of
Certain Charter, Change of Control and Statutory Provisions".

Acorn's Charter contains certain provisions permitted under the DGCL
relating to the liability of directors. The Charter provides that, to the
fullest extent permitted by the DGCL, no director of Acorn will be personally
liable to Acorn or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Charter and Bylaws of Acorn also contain provisions
indemnifying the directors, officers and employees of Acorn or individuals
serving at the request of Acorn as directors, officers, employees or agents of
another corporation, partnership, joint venture, trust or other enterprise, to
the fullest extent permitted by the DGCL.

Section 203 and certain provisions of Acorn's Charter and Bylaws described
above may make it more difficult for a third party to acquire, or discourage
acquisition bids for, Acorn. Section 203 and these provisions could have the
effect of inhibiting attempts to change the membership of the Board of Directors
of Acorn. In addition, the limited liability provisions in the Charter and the
indemnification provisions in the Charter and Bylaws may discourage stockholders
from bringing a lawsuit against directors for breach of their fiduciary duty
(including breaches resulting from grossly negligent conduct) and may have the
effect of reducing the likelihood of derivative litigation against directors and
officers, even though such an action, if successful, might otherwise have
benefited Acorn and its stockholders. Furthermore, a stockholder's investment in
Acorn may be adversely affected to the extent Acorn pays the costs of settlement
and damage awards against directors and officers of Acorn pursuant to the
indemnification provisions in Acorn's Bylaws. The limited liability provisions
in the Charter will not limit the liability of directors under federal
securities laws.

SHARES RESERVED FOR ISSUANCE

Acorn has 39,042 shares of Common Stock reserved for issuance upon the
exercise of outstanding options. In addition, Acorn has 730,000 shares of Common
Stock reserved for issuance pursuant to awards available for grant under the
Incentive Plan a 73,000 shares of Common Stock reserved for issuance pursuant to
common stock units generated pursuant to the Director Stock Plan. Acorn has
approved the grant of options to purchase 328,500 shares of Common Stock
contingent upon consummation of the Offering. Upon consummation of the Offering,
options for the purchase of 121,167 shares of Common Stock will be fully vested.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.

LISTING

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "ACRN," subject to official notice of issuance.

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<PAGE> 49

DESCRIPTION OF CERTAIN INDEBTEDNESS

UnionTools entered into the Credit Facility with Heller Financial, Inc., as
agent for the lenders party thereto (the "Lenders"), in December 1996 and
amended and restated the Credit Facility in May 1997, contingent upon the
consummation of the Offering. Acorn guarantees the obligations of UnionTools
under the Credit Facility. Upon consummation of the Offering, the Credit
Facility will provide for a $30 million revolving credit facility (the
"Revolving Facility") and a $35 million acquisition facility (the "Acquisition
Line"). Prior to the consummation of the Offering, the Credit Facility contained
a $20 million term loan (the "Term Loan"). The Company intends to use
approximately $20.65 million of the net proceeds from the Offering to repay the
Term Loan and accrued interest thereon and a portion of the Acquisition Line and
accrued interest thereon.

The Revolving Facility is available until June 2003. The Revolving Facility
is subject to a maximum revolving loan balance equal to 85% of eligible accounts
receivable (as defined in the Credit Facility) plus 60% of eligible inventory
(as defined in the Credit Facility). There is a $3 million limit on the issuance
of letters of credit or other risk participation agreements under the terms of
the Credit Facility.

The Acquisition Line is available until June 2000 and is limited to $15
million per year and $7.5 million per acquisition without the prior approval of
the Lenders. Potential targets must be in a line of business similar to that of
UnionTools and have a positive pro forma EBIDAT (as defined in the Credit
Facility) for the previous twelve months. The Acquisition Facility will convert
into a three year term loan in June 2000, with 10.4% of the balance due in 2000
and 25% of the balance due in each of 2001 and 2002 and the remainder due in
2003.

Interest on all amounts outstanding under the Credit Facility are payable
quarterly in arrears at either the Base Rate (as defined in the Credit Facility)
plus a margin ranging from 0.25% to 0.75% or, at UnionTools' option, the LIBOR
Rate (as defined in the Credit Facility) plus a margin ranging from 2.25% to
2.75%. The applicable margin is determined based on the Adjusted Total
Indebtedness to Operating Cash Flow Ratio (as defined in the Credit Facility).
The Credit Facility is secured by a first priority, senior security interest in
and lien upon substantially all of UnionTools' real and personal property and is
guaranteed by Acorn. The Acorn guarantee is secured by a pledge of all of the
capital stock of UnionTools.

Under the terms of the Credit Facility, UnionTools is required to make
certain mandatory prepayments in an amount equal to (i) 50% of UnionTools'
Excess Cash Flow (as defined in the Credit Facility) commencing in fiscal 1998,
(ii) the net proceeds from the disposition of assets, including the proceeds
from the sale of stock of any of UnionTools' subsidiaries and (iii) the net
proceeds from the sale of equity securities of Acorn, UnionTools or any
subsidiary of UnionTools (other than in connection with the Offering).
UnionTools may elect to prepay all or a portion of the Credit Facility at any
time.

The Credit Facility contains certain covenants, which, among other things,
require UnionTools to maintain specified financial ratios and satisfy certain
tests including minimum interest coverage ratios and places limits on future
capital expenditures by UnionTools. The Credit Facility also includes negative
covenants affecting UnionTools including limitations on indebtedness, liens,
guarantees, obligations, mergers, consolidations, liquidations and dissolutions,
sales of assets, leases, dividends and other payments in respect of capital
stock, capital expenditures, investments, loans and advances, optional payments
and modifications and other debt instruments, transactions with affiliates,
changes in fiscal year, negative pledge clauses and changes in line of business.
The Credit Facility also places certain restrictions on Acorn, including
limitations on indebtedness and guarantees.

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<PAGE> 50

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering and the Exchange, approximately 6,464,096
shares of Common Stock will be outstanding. The 3,250,000 shares of Common Stock
sold in the Offering will be available for resale in the public market without
restriction or further registration under the Securities Act, except for shares
purchased by "affiliates" of the Company (in general, any person who has a
control relationship with the Company), which shares will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act. The
remaining 3,214,096 outstanding shares of Common Stock are deemed to be
"restricted securities" as that term is defined in Rule 144, all of which are
eligible for sale in the public market in compliance with Rule 144.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, such as the TCW Funds, is entitled to sell, within any
three-month period, a number of shares of Common Stock which does not exceed the
greater of 1% of the number of then-outstanding shares of the Common Stock or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 also may be subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months preceding a sale, and who has beneficially owned
shares within the definition of "restricted securities" under Rule 144 for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to the volume limitation, manner of sale provisions, public information
requirements or notice requirements.

The TCW Funds and the Oaktree Fund have, subject to certain conditions and
restrictions, the right to include the shares of Common Stock owned by them in
registered public offerings of Common Stock (or securities exchangeable for or
convertible into Common Stock) undertaken by Acorn for its own account, as well
as to require Acorn to register the sale of such shares, subject to certain
conditions, upon demand. The TCW Group has informed the Company that the TCW
Funds currently are in their respective liquidation periods, requiring such
funds to liquidate their investments in an orderly manner. Pursuant to their
organizational documents, the TCW Funds terminate over the period from November
2001 to June 2003. As a result, it is likely that some or all of the shares of
Common Stock held by the TCW Funds either will be sold prior to such time
(whether as a block, pursuant to a registered public offering or otherwise) or
distributed to investors in the TCW Funds. Upon any such distribution to
investors in the TCW Funds, all such shares, except those acquired by affiliates
of the Company, will be immediately eligible for resale under Rule 144(k).

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<PAGE> 51

UNDERWRITING

The Underwriters named below have severally agreed with the Company,
subject to the terms and conditions of the Underwriting Agreement, to purchase
the respective number of shares of Common Stock set forth opposite their names
below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
A.G. Edwards & Sons, Inc. ........................................... 1,052,500
Morgan Keegan & Company, Inc. ....................................... 1,052,500
Alex. Brown & Sons Incorporated...................................... 65,000
Credit Lyonnais Securities (USA) Inc. ............................... 65,000
Dillon, Read & Co. Inc. ............................................. 65,000
Donaldson, Lufkin & Jenrette Securities Corporation.................. 65,000
Lehman Brothers Inc. ................................................ 65,000
Oppenheimer & Co., Inc. ............................................. 65,000
PaineWebber Incorporated............................................. 65,000
Prudential Securities Incorporated................................... 65,000
Advest, Inc. ........................................................ 33,000
J.C. Bradford & Co. ................................................. 33,000
Crowell, Weedon & Co. ............................................... 33,000
Fahnestock & Co. Inc. ............................................... 33,000
First Albany Corporation............................................. 33,000
First of Michigan Corporation........................................ 33,000
Interstate/Johnson Lane Corporation.................................. 33,000
Janney Montgomery Scott Inc. ........................................ 33,000
Ladenburg Thalman & Co. Inc. ........................................ 33,000
Legg Mason Wood Walker Incorporated.................................. 33,000
Mesirow Financial Inc................................................ 33,000
The Ohio Company..................................................... 33,000
Parker/Hunter Inc. .................................................. 33.000
Raymond James & Associates, Inc. .................................... 33,000
Roney & Co. ......................................................... 33,000
Sutro & Co. Incorporated............................................. 33,000
Wheat, First Securities, Inc. ....................................... 33,000
Brean Murray, Foster Securities Inc. ................................ 16,000
Sanders Morris Mundy Inc. ........................................... 16,000
Sands Brothers & Co., Ltd. .......................................... 16,000
Starr Securities, Inc. .............................................. 16,000
---------
Total...................................................... 3,250,000
=========
</TABLE>

The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock if any shares of Common Stock are
purchased.

Acorn has been advised by A.G. Edwards & Sons, Inc. and Morgan Keegan &
Company, Inc., the Representatives of the severally Underwriters (the
"Representatives"), that the Underwriters propose to offer the shares of Common
Stock to the public at the offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.55 per share, and that the Underwriters and such dealers may reallow a
discount of not in excess of $0.10 per share to other dealers. The public
offering price and the concession and discount to dealers may be changed by the
Representatives after the Offering.

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<PAGE> 52

In the Underwriting Agreement, Acorn has granted the Underwriters an
option, expiring at the close of business on the 30th day subsequent to the date
of the Underwriting Agreement, to purchase up to 487,500 additional shares of
Common Stock at the offering price, less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriters may exercise such option
solely to cover over-allotments, if any, in connection with the sale of the
Common Stock. To the extent the Underwriters exercise such option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of the option shares as the number of
shares to be purchased by it given in the table above bears to 3,250,000 and
Acorn will be obligated, pursuant to the option, to sell such shares to the
Underwriters.

At the request of Acorn, up to 812,500 shares of Common Stock in the
Offering have been reserved for sale to the Oaktree Fund at the Price to Public
set forth on the cover page of this Prospectus, and up to 66,500 shares of
Common Stock in the Offering have been reserved for sale to certain officers and
directors of the Company at the Price to Public less the Underwriting Discount
set forth on the cover page of this Prospectus. The number of shares of Common
Stock available for sale in the Offering will be reduced to the extent such
persons purchase such shares. Purchases will be prohibited to the extent that
they are requested in lots of less than 100 shares. Any reserved shares not so
purchased will be offered by the Underwriters on the same basis as the other
shares available through the Offering.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price set forth on the cover page of this
Prospectus has been determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the initial public
offering price were the information set forth in this Prospectus and otherwise
available to the Representatives, the history and prospects for the industry in
which the Company competes, the ability of the Company's management, the past
and present operations of the Company, the historical results of operations, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
offering and the recent market prices and the demand for publicly traded common
stock of comparable companies.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments that the Underwriters may be required to make.

The TCW Funds, the executive officers and directors of the Company (who in
the aggregate hold approximately 98.8% of the Common Stock outstanding prior to
the Offering), and the Oaktree Fund have agreed, subject to certain exceptions,
that they will not offer, sell or otherwise dispose of any of the shares of
Common Stock owned by them for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives.
Additionally, the Company has agreed that, during the period of 180 days from
the date of this Prospectus, subject to certain exceptions, that it will not
issue, sell, offer or agree to sell, grant any options for the sale of (other
than employee stock options) or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable for
Common Stock, other than pursuant to the Offering without the prior written
consent of the Representatives. See "Shares Eligible for Future Sale". The
Representatives have informed the Company that they have no current intention of
consenting to the disposition by the TCW Funds, the executive officers and
directors of the Company, the Oaktree Fund or the Company of shares of Common
Stock, or any securities convertible into or exercisable for Common Stock, prior
to the expiration of the 180-day period described above.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

In connection with the Offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing its market price. The Underwriters
also may create a short position for the account of the Underwriters by selling
more Common Stock in connection with the offering than they are committed to
purchase from the Company, and in such case may purchase Common Stock in the
open market following completion of the offering to cover all or a portion of
such short position. The Underwriters also may cover all

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<PAGE> 53

or a portion of such short position by exercising the Underwriters'
over-allotment option to purchase up to 487,500 additional shares of Common
Stock. In addition, A.G. Edwards & Sons, Inc., on behalf of the Underwriters,
may impose "penalty bids" under contractual arrangements with the Underwriters
whereby it may reclaim from an Underwriter (or dealer participating in the
offering) for the account of the other Underwriters, the selling concession with
respect to Common Stock that is distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for Acorn by Gibson, Dunn & Crutcher LLP, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Jones, Day, Reavis & Pogue,
Cleveland, Ohio. Conor D. Reilly, a partner of Gibson, Dunn & Crutcher LLP, is
Chairman and a director of Acorn and UnionTools. J. Mitchell Dolloff was an
associate at Gibson, Dunn & Crutcher LLP prior to becoming General Counsel and a
Vice President of Acorn and UnionTools on June 24, 1997. See "Certain
Transactions" and "Principal Stockholders".

EXPERTS

The consolidated balance sheets of the Company as of July 28, 1995 and
August 2, 1996 and the consolidated statements of operations, stockholders'
equity and cash flows for the four months ended December 2, 1993, the eight
months ended July 29, 1994, fiscal 1995 and fiscal 1996, included in this
Prospectus have been included herein in reliance on the report of Ernst & Young
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.

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<PAGE> 54

ADDITIONAL INFORMATION

Acorn has filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions having been
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, although the material
terms thereof are described in this Prospectus, and, in each instance, reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified by such reference to
such exhibits. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office in Washington D.C., at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and through the SEC's internet site at http://www.sec.gov. Copies of all or any
part of the Registration Statement may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission.

Acorn intends to furnish its stockholders with annual reports containing
audited consolidated financial statements certified by its independent auditors
and quarterly reports for each of the first three fiscal quarters of each fiscal
year containing unaudited financial information.

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<PAGE> 55

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 56

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Acorn Products, Inc.

We have audited the accompanying consolidated balance sheets of Acorn
Products, Inc. (formerly Vision Hardware Group, Inc.) and Subsidiaries
(Successor Company) as of July 28, 1995 and August 2, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years then ended and for the period from December 3, 1993
through July 29, 1994 (Successor Company period), and consolidated statements of
operations, stockholders' equity and cash flows of Better Vision Hardware Group,
Inc. (Predecessor Company) for the period from August 1, 1993 through December
2, 1993 (Predecessor Company period). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned Successor Company consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Acorn Products, Inc. and Subsidiaries at July
28, 1995 and August 2, 1996, and the consolidated results of their operations
and their cash flows for the Successor Company period in conformity with
generally accepted accounting principles. Further, in our opinion, the
aforementioned Predecessor Company consolidated financial statements present
fairly, in all material respects, the results of their operations and their cash
flows for the Predecessor Company period, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective
December 3, 1993, all of the outstanding stock of the Predecessor Company was
acquired in a business combination accounted for as a purchase. As a result of
this acquisition, the consolidated financial information for the period after
the acquisition is presented on a different cost basis than that for the period
before the acquisition and, therefore, is not comparable.

As discussed in Note 8 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," in 1996.
Ernst & Young LLP

Columbus, Ohio
October 4, 1996,
except for Notes 3, 4, 11 and 13
as to which the date is
June 2, 1997

F-2
<PAGE> 57

ACORN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JULY 28, AUGUST 2, MAY 2, PRO FORMA
1995 1996 1997 MAY 2, 1997
-------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 14)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 2,109 $ 502 $ -- $ --
Accounts receivable, less allowance for doubtful
accounts (1995-$645; 1996-$557)................. 10,670 12,067 32,942 32,942
Inventories........................................ 31,802 23,433 31,777 31,777
Prepaids and other current assets.................. 1,511 1,701 1,754 1,754
-------- ------- --------- ---------
Total current assets............................ 46,092 37,703 66,473 66,473
Property, plant and equipment, net of accumulated
depreciation....................................... 11,511 10,558 15,468 15,468
Goodwill............................................. 30,988 30,184 29,590 29,590
Deferred income taxes................................ 756 -- -- --
Other intangible assets.............................. 1,170 1,166 1,693 1,693
Net assets of discontinued operations................ 21,763 19,284 -- --
-------- ------- --------- ---------
Total assets............................... $112,280 $98,895 $ 113,224 $ 113,224
======== ======= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility.......................... $ 19,250 $12,537 $ 21,019 $ 21,019
Accounts payable................................... 5,920 5,198 10,670 10,670
Accrued expenses................................... 4,845 6,154 6,057 6,057
Accrued interest................................... 4,133 -- 3,057 3,057
Current portion of long-term debt.................. 3,500 3,500 3,000 3,000
Income taxes payable............................... 1,756 1,100 189 189
Other current liabilities.......................... 699 671 710 710
Liability to redeem Series A Preferred Stock from
offering proceeds............................... -- -- -- 9,434
-------- ------- --------- ---------
Total current liabilities....................... 40,103 29,160 44,702 54,136
Long-term debt....................................... 49,354 45,854 54,622 54,622
Other long-term liabilities.......................... 5,500 5,351 4,601 4,601
Net liabilities of discontinued operations........... -- -- 315 315
-------- ------- --------- ---------
Total liabilities.......................... 94,957 80,365 104,240 113,674
Stockholders' equity:
Preferred stock, par value of $.001 per share,
1,000 shares authorized, 100 shares of Series A
Preferred Stock issued and outstanding in
1996............................................ -- 8,596 8,596 --
Common stock, par value of $.001 per share,
20,000,000 shares authorized, 1,483,596 and
1,490,826 shares issued and outstanding in 1995
and 1996, respectively.......................... 14,319 14,406 14,494 13,656
Contributed capital-stock options.................. 340 340 460 460
Minimum pension liability.......................... -- (197) (197) (197)
Retained earnings (deficit)........................ 2,664 (4,615) (14,369) (14,369)
-------- ------- --------- ---------
Total stockholders' equity...................... 17,323 18,530 8,984 (450)
-------- ------- --------- ---------
Total liabilities and stockholders'
equity................................... $112,280 $98,895 $ 113,224 $ 113,224
======== ======= ========= =========
</TABLE>

See accompanying notes.

F-3
<PAGE> 58

ACORN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY SUCCESSOR COMPANY
------------ -------------------------------------------------------------------
AUGUST 1, DECEMBER 3, YEAR ENDED NINE MONTHS NINE MONTHS
1993 THROUGH 1993 THROUGH ---------------------- ENDED ENDED
DECEMBER 2, JULY 29, JULY 28, AUGUST 2, APRIL 26, MAY 2,
1993 1994 1995 1996 1996 1997
------------ ------------ -------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 20,331 $ 72,370 $ 86,543 $ 92,652 $ 69,407 $ 77,967
Cost of goods sold............. 14,185 52,271 63,411 67,496 51,036 57,077
-------- -------- -------- -------- -------- --------
Gross profit................... 6,146 20,099 23,132 25,156 18,371 20,890
Selling, general and
administrative expenses...... 5,482 9,955 15,531 16,815 11,820 13,448
Interest expense............... 2,773 3,525 6,485 6,732 5,569 5,743
Amortization of intangibles.... 124 601 1,061 1,173 603 703
Other expenses, net............ -- 11 694 1,522 546 1,123
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes and cumulative effect
adjustment................... (2,233) 6,007 (639) (1,086) (167) (127)
Income taxes................... -- 290 -- 582 -- 52
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before cumulative
effect adjustment............ (2,233) 5,717 (639) (1,668) (167) (179)
Discontinued operations:
Loss from operations......... (8,373) (614) (1,800) (5,815) (766) (461)
Loss on disposal............. -- -- -- (665) -- (9,114)
-------- -------- -------- -------- -------- --------
Loss from discontinued
operations................. (8,373) (614) (1,800) (6,480) (766) (9,575)
-------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect adjustment............ (10,606) 5,103 (2,439) (8,148) (933) (9,754)
Cumulative effect of change in
accounting for
post-retirement benefits..... -- -- -- 869 869 --
-------- -------- -------- -------- -------- --------
Net income (loss).............. $(10,606) $ 5,103 $ (2,439) $ (7,279) $ (64) $ (9,754)
======== ======== ======== ======== ======== ========
Pro forma per share information
(unaudited):
Loss from continuing
operations................. $ (0.78) $ (0.08)
Loss from discontinued
operations................. (3.04) (4.35)
Adjustment for cumulative
effect of change in
accounting for
post-retirement benefits... 0.41 --
-------- --------
Net income (loss)............ $ (3.41) $ (4.43)
======== ========
Weighted average number of
shares outstanding......... 2,134,066 2,200,172
</TABLE>

See accompanying notes.

F-4
<PAGE> 59

ACORN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON SHARES PREFERRED SHARES
------------------- ------------------- CONTRIBUTED MINIMUM RETAINED
NUMBER NUMBER CAPITAL-STOCK PENSION EARNINGS
OF SHARES AMOUNT OF SHARES AMOUNT OPTIONS LIABILITY (DEFICIT) TOTAL
--------- ------- --------- ------- ------------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balances at July 31, 1993...... 1,446,000 $ 2,000 4,427 $43,364 $ -- $ -- $(113,668) $(68,304)
Net loss for the period August
1, 1993 through December 2,
1993......................... -- -- -- -- -- -- (10,606) (10,606)
--------- ------- ----- ------- ---- ----- --------- --------
Balances at December 2, 1993... 1,446,000 $ 2,000 4,427 $43,364 $ -- $ -- $(124,274) $(78,910)
========= ======= ===== ======= ==== ===== ========= ========
SUCCESSOR COMPANY:
Acquisition of Predecessor
Company...................... 1,446,000 $13,864 -- $ -- $ $ $ -- $ 13,864
Net income for the period
December 3, 1993 through July
29, 1994..................... -- -- -- -- -- -- 5,103 5,103
Stock issued................... 37,596 455 -- -- -- 455
--------- ------- ----- ------- ---- ----- --------- --------
Balances at July 29, 1994...... 1,483,596 14,319 -- -- -- -- 5,103 19,422
Net loss for the period August
1, 1994 through July 28,
1995......................... -- -- -- -- -- -- (2,439) (2,439)
Stock options issued........... -- -- -- -- 340 -- -- 340
--------- ------- ----- ------- ---- ----- --------- --------
Balances at July 28, 1995...... 1,483,596 14,319 -- -- 340 -- 2,664 17,323
Net loss for the period July
29, 1995 through August 2,
1996......................... -- -- -- -- -- -- (7,279) (7,279)
Conversion of debt............. -- -- 100 8,596 -- -- -- 8,596
Stock issued................... 7,230 87 -- -- -- -- -- 87
Adjustment to recognize minimum
pension liability............ -- -- -- -- -- (197) -- (197)
--------- ------- ----- ------- ---- ----- --------- --------
Balances at August 2, 1996..... 1,490,826 14,406 100 8,596 340 (197) (4,615) 18,530
Net loss for the period August
3, 1996 through May 2,
1997......................... -- -- -- -- -- -- (9,754) (9,754)
Stock issued................... 7,230 88 -- -- -- -- -- 88
Stock options issued........... -- -- -- -- 120 -- -- 120
--------- ------- ----- ------- ---- ----- --------- --------
Balances at May 2, 1997
(unaudited).................. 1,498,056 $14,494 100 $ 8,596 $ 460 $(197) $ (14,369) $ 8,984
========= ======= ===== ======= ==== ===== ========= ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 60

ACORN PRODUCTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR
COMPANY SUCCESSOR COMPANY
------------ -----------------------------------------------------------------
AUGUST 1, DECEMBER 3, YEAR ENDED NINE MONTHS
1993 THROUGH 1993 THROUGH -------------------- ENDED APRIL NINE MONTHS
DECEMBER 2, JULY 29, JULY 28, AUGUST 2, 26, ENDED MAY 2,
1993 1994 1995 1996 1996 1997
------------ ------------ -------- --------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)................ $(10,606) $ 5,103 $ (2,439) $ (7,279) $ (64) $ (9,754)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
continuing operations:
Loss from discontinued
operations................... 8,373 614 1,800 6,480 766 9,575
Depreciation and
amortization................. 628 1,605 3,030 3,592 2,436 2,402
Deferred income taxes.......... -- 87 -- 756 157 --
Conversion of debt to preferred
stock........................ -- -- -- 4,463 -- --
Financing fees and other,
net.......................... (364) (1,437) (556) (365) 45 30
Issuance of stock options...... -- -- 340 -- -- 120
Cumulative effect of the change
in accounting principal...... -- -- -- 869 869 --
Changes in operating assets and
liabilities:
Accounts receivable.......... 1,233 (5,359) 6,815 (1,397) (15,537) (20,875)
Inventories.................. (9,468) (2,652) (8,051) 8,369 5,576 (7,276)
Other assets................. (4,163) 3,963 (739) (190) 517 (53)
Accounts payable, accrued
expenses and accrued
interest................... 4,663 (170) 1,788 587 5,115 8,432
Income taxes payable......... 20 1,542 19 (656) (553) (911)
Other liabilities............ 125 (1,477) (2,511) (1,243) (1,306) (711)
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
continuing operations.......... (9,559) 1,819 (504) 13,986 (1,979) (19,021)
Net cash provided by (used in)
discontinued operations........ 1,363 (6,876) (9,894) (4,001) (3,240) 3,598
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
operating activities........... (8,196) (5,057) (10,398) 9,985 (5,219) (15,423)
CASH FLOWS FROM INVESTING
ACTIVITIES
Net assets from acquisitions..... -- -- -- -- -- (6,455)
Purchases of property, plant and
equipment, net................. (527) (1,738) (2,870) (1,466) (1,094) (1,639)
Proceeds from disposal of
discontinued operation......... -- -- -- -- -- 6,177
-------- -------- ------- -------- ------- --------
Net cash used in investing
activities..................... (527) (1,738) (2,870) (1,466) (1,094) (1,917)
CASH FLOWS FROM FINANCING
ACTIVITIES
Subordinated debt................ -- 6,354 -- -- -- --
Net activity on term loan........ 50 12,500 (3,500) (3,500) -- 8,268
Net activity on revolving loan... 9,931 (12,354) 16,750 (6,713) 4,117 8,482
Issuance of stock................ -- 455 -- 87 87 88
-------- -------- ------- -------- ------- --------
Net cash provided by (used in)
financing activities........... 9,981 6,955 13,250 (10,126) 4,204 16,838
-------- -------- ------- -------- ------- --------
Net increase (decrease) in
cash........................... 1,258 160 (18) (1,607) (2,109) (502)
Cash at beginning of period...... 730 1,967 2,127 2,109 2,109 502
-------- -------- ------- -------- ------- --------
Cash at end of period............ $ 1,988 $ 2,127 $ 2,109 $ 502 $ -- $ --
======== ======== ======= ======== ======= ========
</TABLE>

See accompanying notes.

F-6
<PAGE> 61

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACQUISITION AND DESCRIPTION OF THE BUSINESS

Effective December 3, 1993, Better Vision Hardware Group, Inc. (the
"Predecessor Company") merged with Acorn Products, Inc. (formerly Vision
Hardware Group, Inc.) ("Acorn" or the "Successor Company"), a corporation
controlled by several investment funds and accounts (the "TCW Funds") managed by
affiliates of The TCW Group, Inc. (the "TCW Group"). The merger was a part of a
series of transactions whereby the TCW Group acquired the revolving credit
facility and bank term loan of the Predecessor Company, as well as $5 million
aggregate principal amount of senior subordinated notes of the Predecessor
Company. The TCW Group also acquired all of the outstanding senior preferred
stock and class A, B and C preferred stock of the Predecessor Company. The
Predecessor Company and Successor Company collectively are referred to herein as
Acorn. Acorn and its subsidiaries collectively are referred to herein as the
"Company". Pursuant to the foregoing transaction, the TCW Funds became the
beneficial owners of substantially all of the capital stock of Acorn.

The total purchase price of the above transaction was approximately $66.2
million. The purchase accounting method was used to record the transaction. The
estimated fair value of the acquired assets, excluding goodwill, aggregated
approximately $31.7 million and liabilities assumed aggregated approximately
$5.5 million. The excess of the purchase price over the fair value of net assets
of approximately $40 million was established as goodwill and is being amortized
over 40 years.

Since purchase accounting was reflected in the opening balance sheet of the
Successor Company on December 3, 1993, the financial statements of the Successor
Company are not comparable to the financial statements of the Predecessor
Company. Accordingly, a vertical black line is shown to separate Successor
Company financial statements from those of the Predecessor Company for the
period ended December 2, 1993.

Business

Founded in 1890, the Company is a leading manufacturer and marketer of
non-powered lawn and garden tools in the U.S. The Company's principal products
include long handle tools (such as forks, hoes, rakes and shovels), snow tools,
posthole diggers, wheelbarrows, striking tools and cutting tools. The Company
sells its products under a variety of well-known brand names. In addition, the
Company manufactures private label products for a variety of retailers. The
Company sells its products through a variety of distribution channels. Acorn is
a holding company with no business operations of its own. (See Note 3 for a
discussion of the Company's disposition of non-lawn and garden operations.)

The lawn and garden industry is seasonal in nature, with a high proportion
of sales and operating income generated in January through May. As a result, the
Company's operating results depend significantly on the spring selling season.
To support this sales peak, the Company must build inventories of finished goods
throughout the fall and winter. Accordingly, the Company's levels of raw
materials and finished goods inventories tend to be at their highest, relative
to sales, during the Company's first and second fiscal quarters. See Note 12
below.

Weather is the most significant factor in determining market demand for the
Company's products and is inherently unpredictable. Fluctuations in weather can
be favorable or unfavorable for the sale of lawn and garden equipment.

The Company's largest customer, Sears, accounted for 7.6%, 12.5% and 11.5%
of gross sales in fiscal 1995 and fiscal 1996 and the nine months ended May 2,
1997, respectively. No other customer accounted for 10% or more of the Company's
gross sales in fiscal 1995, fiscal 1996 or the nine months ended May 2, 1997.

The Company's products require the supply of raw materials consisting
primarily of steel, plastics and ash wood. The Company has several suppliers for
most of its raw materials.

F-7
<PAGE> 62

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Acorn and its subsidiaries, UnionTools, Inc. ("UnionTools"), McGuire-Nicholas
Company, Inc. ("McGuire-Nicholas") and VSI, Fasteners, Inc. ("VSI"). All
intercompany accounts and transactions have been eliminated. See Note 3 --
Discontinued Operations.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist of the
following:

<TABLE>
<CAPTION>
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................................... $ 17,372 $12,473
Work in process.................................................. 6,021 5,703
Raw materials and supplies....................................... 8,759 5,932
------- -------
32,152 24,108
Valuation reserves............................................... (350) (675)
------- -------
Total inventories................................................ $ 31,802 $23,433
======= =======
</TABLE>

Property, Plant and Equipment

Property, plant and equipment is stated at cost and is depreciated using
the straight-line method over the following estimated useful lives:

<TABLE>
<S> <C>
Machinery and equipment........................................ 3 to 15 years
Buildings and improvements..................................... 3 to 40 years
Furniture and fixtures......................................... 3 to 15 years
</TABLE>

Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 1,181 $ 1,207
Buildings and improvements....................................... 2,431 2,553
Machinery and equipment.......................................... 9,610 10,840
Furniture and fixtures........................................... 1,266 1,355
-------- ---------
14,488 15,955
Accumulated depreciation and amortization........................ (2,977) (5,397)
-------- ---------
$ 11,511 $10,558
======= =======
</TABLE>

Goodwill

Goodwill, resulting from the cost of assets acquired exceeding the
underlying net asset value, is being amortized on the straight-line method over
a forty-year period. Accumulated amortization was $1.4 million at July 28, 1995
and $2.2 million at August 2, 1996. The Company assesses the recoverability of
its goodwill whenever adverse events or changes in circumstances or business
climate indicate that expected future cash flows (undiscounted) for individual
business units may not be sufficient to support recorded goodwill. If

F-8
<PAGE> 63

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

undiscounted cash flows are not sufficient to support the recorded asset, an
impairment is recognized to reduce the carrying value of the goodwill based on
the expected discounted cash flows of the business unit.

Income Taxes

The Company files a consolidated federal income tax return. Federal income
taxes are apportioned among Acorn and its subsidiaries based on each
corporation's taxes as determined on a separate return basis. State tax returns
are filed on a separate-company basis.

The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Fiscal Year

The Company's fiscal year is comprised of the 52 or 53 weeks, ending on the
Friday closest to July 31 of each year. Unless otherwise stated, references to
fiscal 1995 and 1996 relate to the fiscal years ended July 28, 1995 and August
2, 1996 and were comprised of 52 weeks and 53 weeks, respectively. The Company's
interim reporting periods for quarterly periods end on the Friday closest to the
last day of each month.

Interim Financial Reporting

In the opinion of management, the unaudited information as of May 2, 1997
and for the nine months ended April 26, 1996 and May 2, 1997 includes all
adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of such financial statements in
accordance with generally accepted accounting principles. Operating results for
the nine months ended May 2, 1997 are not necessarily indicative of the results
that may be expected for the year ending August 1, 1997.

3. DISCONTINUED OPERATIONS

In March 1996, the Company adopted a formal plan to sell VSI. Accordingly,
VSI was accounted for as a discontinued operation in the financial statements
for the fiscal year ended August 2, 1996. Prior year financial statements were
reclassified to conform to the 1996 presentation. During the fiscal year ended
August 2, 1996, the Company provided for estimated losses of $665,000 on the
disposal of VSI, which represented the write-down of inventory and other assets
to estimated net realizable value and the estimated loss through the disposal
date. The Company completed the sale of substantially all of the assets of VSI
on December 4, 1996 and recognized an additional loss on disposal of
approximately $101,000 during the nine months ended May 2, 1997.

On January 23, 1997, the Company adopted a formal plan to sell
McGuire-Nicholas. Accordingly, McGuire-Nicholas has been accounted for as a
discontinued operation and classified as such in the accompanying consolidated
financial statements. The prior year financial statements have been reclassified
to conform to the current year presentation. The estimated loss on the disposal
of McGuire-Nicholas is $9.2 million, consisting of an estimated loss on disposal
of $8.8 million and a provision of $483,000 for anticipated operating losses
until disposal. The loss on disposal represents the write-off of $7.3 million of
goodwill relating to McGuire-Nicholas and the write-down of inventory and other
assets to estimated net

F-9
<PAGE> 64

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

realizable value. On May 30, 1997, the Company entered into a non-binding letter
of intent to sell substantially all of the assets of McGuire-Nicholas. The final
terms of the proposed transaction remain subject to a number of significant
conditions, including the completion by the proposed purchaser of its due
diligence examination of McGuire-Nicholas, financing arrangements and the
negotiation of definitive documentation. Accordingly, there can be no assurance
that the proposed sale of McGuire-Nicholas will be completed on the terms set
forth in the letter of intent, if at all.

The following represents the combined results of operations of the
Company's discontinued operations:

<TABLE>
<CAPTION>
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 2, JULY 29, JULY 28, AUGUST 2,
1993 1994 1995 1996
----------- ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................... $18,738 $ 34,955 $ 53,050 $ 49,810
Costs and expenses................. 28,856 34,682 53,145 50,143
Interest expense................... (254) (670) (1,422) (1,577)
Loss from operations............... (8,373) (614) (1,800) (5,815)
</TABLE>

Interest expense has been allocated to discontinued operations for all
periods based on the ratio of net assets of discontinued operations to
consolidated net assets plus debt.

The following table summarizes the net assets (liabilities) of the
Company's discontinued operations:

<TABLE>
<CAPTION>
JULY 28, AUGUST 2, MAY 2,
1995 1996 1997
-------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable................................... $ 6,935 $ 6,109 $ 4,168
Inventories........................................... 14,781 10,321 2,765
Property and equipment................................ 2,299 2,470 1,550
Other assets (including goodwill of $7,600, $7,400 and
$0, respectively)................................... 7,725 8,518 --
Liabilities........................................... (9,977) (8,134) (8,798)
------- ------- -------
Net assets (liabilities) of discontinued
operations................................ $ 21,763 $19,284 $ (315)
======= ======= =======
</TABLE>

4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY

Long-term debt consists of the following:

<TABLE>
<CAPTION>
JULY 28, AUGUST 2, MAY 2,
1995 1996 1997
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loan............................................ $ 21,500 $18,000 $20,000
Subordinated debt to shareholder..................... 31,354 31,354 31,354
Acquisition line of credit facility.................. -- -- 6,268
------- ------- -------
52,854 49,354 57,622
Less current portion of long-term debt............... 3,500 3,500 3,000
------- ------- -------
$ 49,354 $45,854 $54,622
======= ======= =======
</TABLE>

F-10
<PAGE> 65

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In December 1996, UnionTools entered into a credit facility (the "Credit
Facility") which provided for a $20 million term loan (the "Term Loan"), a
revolving credit facility with a maximum borrowing of $30 million (the
"Revolving Facility") and a $15 million acquisition facility (the "Acquisition
Line"). UnionTools amended and restated the Credit Facility in May 1997,
contingent upon consummation of the Offering (as defined below).

Upon consummation of the Offering, the Credit Facility will provide for a
$30 million Revolving Facility and a $35 million Acquisition Line. The Company
intends to use a portion of the net proceeds from the Offering to repay the Term
Loan and accrued interest thereon and reduce indebtedness outstanding under the
Acquisition Line and accrued interest thereon.

The Credit Facility, which is secured by substantially all of the assets of
UnionTools, is guaranteed by Acorn. The Acorn guarantee is secured by a pledge
of all the capital stock of UnionTools. The Revolving Facility will expire in
June 2003. The Acquisition Line is available until June 2000.

Available borrowings under the Revolving Facility are based on specified
percentages of accounts receivable and inventory. As of May 2, 1997, there was
$9.0 million available for future borrowing under the Revolving Facility.
Available borrowings under the Acquisition Line are subject to various financial
and non-financial requirements and are limited to $7.5 million per acquisition
and $15 million per year without the prior approval of the lenders. The
Acquisition Line will convert to a three year term loan in June 2000 and will be
payable according to a predetermined amortization schedule. The Revolving
Facility has a letter of credit subcommitment of $3 million.

The Credit Facility bears interest at either the bank prime rate plus a
margin ranging from 0.25% to 0.75% (prime rate at August 2, 1996 was 8.25%) or
at UnionTools' option, the LIBOR rate plus a margin ranging from 2.25% to 2.75%
(LIBOR rate at August 2, 1996 was 5.5%). At May 2, 1997, UnionTools had all debt
outstanding under the LIBOR interest rate option. The interest rate margin
fluctuates based on the ratio of total senior debt to operating cash flow as set
forth in a predetermined pricing table. In addition, UnionTools is required to
pay a fee of 0.5% per year on the unused portion of the Revolving Facility and
the Acquisition Line.

The Credit Facility contains certain covenants, which, among other things,
require UnionTools to maintain specified financial ratios and satisfy certain
tests including minimum interest coverage ratios and places limits on future
capital expenditures by UnionTools. The Credit Facility also includes negative
covenants including limitations on indebtedness, liens, guarantees, obligations,
mergers, consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances, optional payments and modifications and other
debt instruments, transactions with affiliates, changes in fiscal year, negative
pledge clauses and changes in line of business. UnionTools was in compliance of
all debt covenants at May 2, 1997.

UnionTools is required to make certain mandatory prepayments under the
Credit Facility based upon cash flow and other events as defined. UnionTools may
elect to prepay all or a portion of the Credit Facility at any time. The fair
value of the Company's long-term debt approximates the carrying amount.

In December 1993, Acorn issued a Subordinated Unsecured Promissory Note in
the amount of $25 million to the TCW Funds. In May 1994 Acorn issued a Temporary
Subordinated Promissory Note in the amount of $6.4 million to the TCW Funds. The
Subordinated Unsecured Promissory Note and the Temporary Subordinated Promissory
Note collectively are referred to herein as the "Subordinated Notes". The
Subordinated Notes are due on July 31, 2003 and carry interest at 13% per year.

Annual interest payments for the Subordinated Notes are contingent upon
meeting certain financial measures. These financial measures were not met during
fiscal 1995 and 1996, thus, no cash interest payments were permitted. The
Subordinated Notes require that any non-payment of interest be added to the
principal balance of the outstanding Subordinated Notes. On August 2, 1996,
Acorn issued 100 shares of Series A

F-11
<PAGE> 66

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Preferred Stock (the "Series A Preferred Stock") with a par value of $.001 per
share and a stated value of $8.6 million as payment in full of accrued interest
on the Subordinated Notes due for fiscal years 1995 and 1996.

Interest paid on the Subordinated Notes was $2.1 million for the eight
month period ended July 29, 1994. Interest on the Subordinated Notes of $4.1
million and $4.5 million was paid in the form of Series A Preferred Stock during
fiscal 1995 and fiscal 1996, respectively.

Debt of Discontinued Operations

In December 1996, McGuire-Nicholas entered into a loan agreement which
provides for a revolving loan with a maximum borrowing of $9.25 million and a
term loan in the amount of $250,000. In addition, the loan agreement provides
for a $500,000 capital expenditure facility. Available borrowings are based on
specified percentages of accounts receivable and inventory. The revolving loan
has a letter of credit subcommitment of $1 million. The loan agreement is
collateralized by substantially all of the assets of McGuire-Nicholas and
expires on December 30, 1999. The Company does not guarantee McGuire-Nicholas'
debt nor do any of Acorn's or UnionTools' assets collateralize the debt. The
loan agreement will bear interest at the bank prime rate plus 1%. The term loan
calls for monthly maturities of $4,167.

Aggregate maturities of the McGuire-Nicholas term loan for the five years
following August 2, 1996 are as follows: $25,000 in 1997; $50,000 in 1998;
$50,000 in 1999; $50,000 in 2000; $50,000 in 2001; and $25,000 in 2002.

5. PREFERRED STOCK

At August 2, 1996, Acorn had 100 shares of non-voting, non-convertible,
Series A Preferred Stock issued and outstanding. Holders of the Series A
Preferred Stock are entitled to a cumulative 13% dividend, payable quarterly in
additional Series A Preferred Stock at a value of $85,962 per share. The Series
A Preferred Stock is redeemable at the option of Acorn at any time, in whole or
in part, at a price of $85,962 per share, plus accrued dividends. In the event
of an involuntary liquidation, the holders of the outstanding Series A Preferred
Stock would be entitled to full face value plus any unpaid accrued dividends
prior to any payment to common stockholders. As of May 2, 1997, the aggregate
liquidation value of the Series A Preferred Stock was approximately $9.4
million.

F-12
<PAGE> 67

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
JULY 28, AUGUST 2,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory.................................................... $ 1,971 $ 1,752
Restructuring expenses....................................... 2,909 230
Accrued expenses and other................................... 2,542 8,043
Net operating loss carryforwards............................. 4,531 5,910
-------- --------
Total deferred tax assets................................. 11,953 15,935
Valuation allowance for deferred tax assets.................... (10,693) (14,897)
-------- --------
Deferred tax assets............................................ 1,260 1,038
Deferred tax liabilities:
Income taxes................................................. 363 209
Depreciation and other....................................... 141 829
-------- --------
Total deferred tax liabilities............................ 504 1,038
-------- --------
Net deferred tax assets.............................. $ 756 $ --
======== ========
</TABLE>

Based upon the Company's operating losses in the past two fiscal years and
the uncertainty of operating earnings in the future, management has determined
that it is not likely that the deferred tax assets will be fully recognized.
Accordingly, a valuation allowance has been recorded.

The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
EIGHT MONTHS
FOUR MONTHS ENDED YEAR ENDED YEAR ENDED
ENDED JULY 29, JULY 28, AUGUST 2,
DECEMBER 2, 1993 1994 1995 1996
---------------- ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current -- state.............................. $ -- $215 $ -- $ --
Deferred -- state............................. -- 75 -- 582
---- ---- ---- ----
$ -- $290 $ -- $582
==== ==== ==== ====
</TABLE>

At August 2, 1996, the Company has net operating loss carryforwards of
$16.9 million for income tax purposes that expire in the years 2009 and 2010.

7. RETIREMENT PLANS

UnionTools maintains defined benefit pension plans which cover
substantially all employees. Benefits paid under the defined benefit plans are
based generally on either years of service and the employee's compensation in
recent years of employment or years of service multiplied by contractual
amounts. The Company's funding policy is to fund the maximum amount deductible
for federal income tax purposes.

F-13
<PAGE> 68

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following sets forth the funded status of the defined benefit plans:

<TABLE>
<CAPTION>
PLANS WHOSE ASSETS PLAN WHOSE BENEFITS
EXCEED BENEFITS EXCEED ASSETS
---------------------- ----------------------
JULY 28, AUGUST 2, JULY 28, AUGUST 2,
1995 1996 1995 1996
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, (primarily
vested)......................................... $ 8,101 $ 8,291 $ 4,714 $ 5,064
====== ====== ======= =======
Projected benefit obligation for service rendered
to date......................................... $ 8,194 $ 8,451 $ 4,714 $ 5,064
Plan assets at fair value.......................... 8,816 9,101 3,381 3,508
------ ------ ------- -------
Projected benefit obligation less than (in excess)
of plan assets.................................. 622 650 (1,333) (1,556)
Unrecognized prior service cost.................... (82) (61) 109 156
Unrecognized net losses (gains).................... 438 621 (109) 327
Adjustment to recognize minimum liability.......... -- -- -- (552)
------ ------ ------- -------
Prepaid (accrued) pension cost included in the
accompanying balance sheet...................... $ 978 $ 1,210 $ (1,333) $(1,625)
====== ====== ======= =======
</TABLE>

The components of net periodic pension cost are as follows:

<TABLE>
<CAPTION>
EIGHT MONTHS YEAR ENDED
ENDED ----------------------
JULY 29, JULY 28, AUGUST 2,
1994 1995 1996
------------ -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................ $ 345 $ 371 $ 438
Interest on projected benefit obligation............ 535 965 981
Return on plan assets............................... (338) (462) (411)
Net amortization and deferral....................... (194) (465) (582)
----- ----- -----
Net periodic pension cost......................... $ 348 $ 409 $ 426
===== ===== =====
</TABLE>

Significant assumptions used in 1994, 1995 and 1996 in calculating periodic
pension cost are as follows:

<TABLE>
<S> <C>
Discount rate.................................................. 8%
Expected long-term rate of return.............................. 8%
Rate of increase in future compensation........................ 4%
</TABLE>

Plan assets consist primarily of guaranteed interest contracts and pooled
investment debt securities.

8. POST-RETIREMENT BENEFITS

In addition to providing pension benefits, UnionTools sponsors a defined
benefit health care plan that provides post-retirement medical and life
insurance benefits to employees who had attained age 50 and 10 years of service
by August 1, 1996 and to current participants receiving benefits.

In connection with the merger between Better Vision Hardware Group, Inc.
and Acorn, the purchase price allocation included an estimated obligation for
the retiree health care benefits of the Company, and accordingly, an accrual of
approximately $5.5 million was recorded. Effective August 1, 1995, the Company
adopted SFAS No. 106, "Employers' Accounting for Post-retirement Benefits Other
Than Pensions," whereby the cost of such post-retirement benefits is accrued
during the employees' active service period. The Company elected to immediately
recognize the accumulated benefit obligation rather than amortize it over future
periods. The cumulative effect of this accounting change as of August 1, 1995
was to increase net income by $869,000.

F-14
<PAGE> 69

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Post-retirement benefit expense was $105,459 in the four months ended
December 2, 1993, $216,596 in the eight months ended July 29, 1994, $431,000 in
the fiscal year ended 1995 and $425,242 in the fiscal year ended 1996. The
components of expense in 1996 follow:

<TABLE>
<S> <C>
Service cost benefits earned.............................. $ 80,131
Interest cost on projected benefit obligations............ 345,111
--------
$425,242
========
</TABLE>

The following table presents supplemental information related to the
Company's post-retirement health care benefits:

<TABLE>
<CAPTION>
AUGUST 2, 1996
--------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees............................................. $2,773,644
Active employees..................................... 1,938,511
----------
4,712,155
Unrecognized net loss.................................. (111,046)
----------
Accrued postretirement benefit cost.................... $4,601,109
==========
</TABLE>

As the benefits provided by the plan are fixed by the plan document, no
annual assumed rate of increase in per capita cost of covered benefits is
included in the obligation calculation. The discount rate used in determining
the accumulated post-retirement benefit obligation was 7.5%.

9. COMMITMENTS AND CONTINGENCIES

UnionTools entered into a royalty agreement with The Scotts Company,
pursuant to which UnionTools obtained the exclusive right to manufacture,
distribute and market in the U.S. and Canada an extensive line of lawn and
garden tools under the Scotts(R) brand name. Under the agreement, UnionTools
must pay certain minimum royalty amounts annually.

Rent expense under operating leases was $662,000 in the four months ended
December 2, 1993, $1.1 million in the eight months ended July 29, 1994, $2.2
million in the year ended July 28, 1995 and $2 million in the year ended August
2, 1996. The minimum annual payments for leases under noncancelable operating
leases and the royalty agreement at August 2, 1996 are as follows (in
thousands):

<TABLE>
<S> <C>
1997........................................................ $2,036
1998........................................................ 1,735
1999........................................................ 1,571
2000........................................................ 917
2001........................................................ 812
Thereafter.................................................. 467
------
$7,538
======
</TABLE>

The Company is a party to personal injury litigation arising out of
incidents involving the use of Company products purchased by consumers from
retailers to whom the Company distributes. The Company generally is covered by
insurance for these product liability claims. Management believes that the
ultimate disposition of this litigation will not have a material effect on the
consolidated financial position or the results of future operations of the
Company.

F-15
<PAGE> 70

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CONTRIBUTED CAPITAL-STOCK OPTIONS

During the nine months ended May 2, 1997, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company has elected to continue to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its employee stock options and, accordingly, does not recognize
compensation costs when the exercise price of its employee stock options is
equal to the fair market value of the stock at the grant date.

Pursuant to employment agreements, certain executive officers of the
Company were granted options to purchase shares of Common Stock. Vesting of the
options and the related exercise price are contingent upon the attainment of
certain profitability targets, and portions of the options that fail to vest
expire.

The following table summarizes the stock option activity:

<TABLE>
<CAPTION>
EIGHT MONTHS YEAR ENDED NINE MONTHS
ENDED ---------------------- ENDED
JULY 29, JULY 28, AUGUST 2, MAY 2,
1994 1995 1996 1997
------------ -------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.... -- 111,342 111,342 70,854
Granted............................... 111,342 15,906 14,460 --
Exercised............................. -- -- 7,230 7,230
Expired/terminated.................... -- 15,906 47,718 17,352
------- ------- ------- ------
Outstanding at end of period.......... 111,342 111,342 70,854 46,272
======= ======= ======= ======
Exercisable at end of period.......... -- 27,474 34,704 33,258
</TABLE>

During fiscal 1995 options to purchase 27,474 shares of Common Stock vested
at an exercise price of $0 per share. During the nine months ended May 2, 1997
options to purchase 5,784 shares of Common Stock vested at an exercise price of
$12.10 per share. The Company recognized compensation expense of $340,000 and
$120,000 in fiscal 1995 and the nine months ended May 2, 1997, respectively,
related to the vesting of these options. Of the remaining options, options to
purchase 5,784 shares of Common Stock will vest at an exercise price of $0 upon
consummation of the Offering (as defined below) and options to purchase 7,230
shares of Common Stock will expire. Vested options expire in December 2003.

11. ACQUISITION OF BUSINESS

On February 19, 1997, the Company acquired for approximately $6.3 million
in cash certain assets of an injection molding company. The Company accounted
for the acquisition as a purchase and the results of the injection molding
division's operations are included in the accompanying financial statements
beginning with the date of acquisition. The Company's preliminary allocation of
the purchase price and capitalized transaction costs, based upon an assessment
of the fair value of such assets at the date of acquisition, is as follows:

<TABLE>
<S> <C>
Inventories.............................................................. $1,068,000
Land and buildings....................................................... 2,600,000
Equipment................................................................ 2,370,000
Non-compete agreement.................................................... 417,000
----------
$6,455,000
==========
</TABLE>

The non-compete agreement is to be amortized over a two year period.

F-16
<PAGE> 71

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth certain financial data of the Company for
each quarter of fiscal 1995 and 1996. The financial data for each of these
quarters is unaudited but includes all adjustments, consisting of only normal
recurring adjustments, which the Company believes to be necessary for a fair
presentation. These operating results, however, are not necessarily indicative
of results for any future period.

<TABLE>
<CAPTION>
INCOME (LOSS)
BEFORE
CUMULATIVE LOSS FROM
EFFECT DISCONTINUED NET INCOME
NET SALES GROSS PROFIT ADJUSTMENT OPERATIONS (LOSS)
--------- ------------ ------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995
First quarter.......................... $19,150 $ 5,527 $ 206 $ (589) $ (383)
Second quarter......................... 18,011 4,595 430 (547) (1,380)
Third quarter.......................... 32,609 8,614 1,972 (104) 1,868
Fourth quarter......................... 16,773 4,396 (3,247) (560) (2,544)
------- ------- ------- ------- -------
$86,543 $ 23,132 $ (639) $ (1,800) $ (2,439)
======= ======= ======= ======= =======

1996
First quarter.......................... $16,486 $ 3,942 $(1,614) $ (291) $ (1,036)
Second quarter......................... 19,357 4,626 (1,061) (477) (1,538)
Third quarter.......................... 33,564 9,826 2,888 (355) 2,533
Fourth quarter......................... 23,245 6,762 (1,881) (5,357) (7,238)
------- ------- ------- ------- -------
$92,652 $ 25,156 $(1,668) $ (6,480) $ (7,279)
======= ======= ======= ======= =======
</TABLE>

The fourth quarter of fiscal 1996 reflects expense of $563,000 incurred in
connection with the resignation of Acorn's previous Chairman of the Board and
expense of $750,000 incurred in connection with self-insured life insurance
accruals related to the death of a former director of the Company.

13. SUBSEQUENT EVENTS

Public Offering

In April 1997, Acorn filed a registration statement (the "Registration
Statement") with the Securities and Exchange Commission in connection with the
offer and sale of 3,250,000 shares (3,737,500 shares if the underwriters'
over-allotment option is exercised in full) of Common Stock (the "Offering").

Increase in Authorized Capital Stock and Stock Split

In May 1997, Acorn increased the number of authorized shares of Common
Stock to 20 million and effected a 1,446-for-1 split of the Common Stock in the
form of a common stock dividend (the "Stock Split"). All share and per share
information has been restated to reflect the stock split.

1997 Stock Incentive Plan

In April 1997, Acorn adopted the 1997 Stock Incentive Plan (the "Incentive
Plan") for members of senior management and certain other officers and employees
of the Company. The purpose of the Incentive Plan is to provide incentives to
employees of the Company by granting awards tied to the performance of the
Common Stock. Awards to employees may take the form of options, stock
appreciation rights or sales or grants of restricted stock. The Company has
reserved an aggregate of 730,000 shares of Common Stock for issuance under the
Incentive Plan. There are no options currently outstanding under the Incentive
Plan. Acorn

F-17
<PAGE> 72

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

has approved the grant of an aggregate of 328,500 options under the Incentive
Plan upon consummation of the Offering. The exercise price for each such option
will equal the initial public offering price per share in the Offering.

Director Stock Plan

In April 1997, Acorn adopted the Deferred Equity Compensation Plan for
Directors (the "Director Stock Plan"). The purpose of the Director Stock Plan is
to increase the proprietary interest in the Company of non-employee members of
the Board of Directors thereby increasing their incentive to contribute to the
success of the Company. Only non-employee directors are eligible to participate
in the Director Stock Plan. The number of shares of Common Stock reserved for
issuance pursuant to the Director Stock Plan is 73,000. In lieu of cash,
non-employee directors can elect to receive all or one-half of their fees in the
form of common stock units. The number of common stock units issued is
determined by dividing (i) an amount equal to the dollar amount of the fees to
be received in the form of common stock units by (ii) the average of the high
and low sale prices of the Common Stock on the Nasdaq National Market on the
last business day preceding the date of payment. Any cash or stock dividends
payable on shares of Common Stock accrue for the benefit of the directors in the
form of additional common stock units. Common stock units are distributed to
non-employee directors in the form of Common Stock following the director's
resignation from the Board of Directors. In addition, common stock units are
distributed to directors in the form of Common Stock following the death of the
director or a change in control of Acorn as defined in the Director Stock Plan.

Agreements with Key Employees

In May 1997, the Company terminated existing employment agreements with
certain executive officers of the Company and entered into a new employment
agreement with the President and Chief Executive Officer of Acorn and
UnionTools. In addition, the Company entered into agreements with certain of its
executive officers providing for, under certain circumstances, payments from the
Company following the termination of such officers' employment with the Company
or following a change in control of the Company (as defined therein).

14. PRO FORMA INFORMATION (UNAUDITED)

Pro Forma Balance Sheet Data

The pro forma balance sheet data at May 2, 1997 gives effect to the
proposed redemption of the Series A Preferred Stock and the payment of the
accumulated dividends thereon in connection with the Offering, without giving
effect to the proceeds from the Offering.

Pro Forma Per Share Information

The pro forma per share information is based upon the number of shares of
Common Stock outstanding on August 2, 1996 and May 2, 1997, as adjusted to give
effect to (i) the issuance of 614,000 and 673,857 shares of Common Stock at
August 2, 1996 and May 2, 1997, respectively, pursuant to the Offering to redeem
the Series A Preferred Stock and pay accumulated dividends thereon and (ii) the
issuance of 29,240 and 28,259 shares of Common Stock at August 2, 1996 and May
2, 1997, respectively, upon the exercise of outstanding stock options pursuant
to the treasury stock method.

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted for
periods ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
Company has not yet determined the impact that the adoption of SFAS 128 will
have on the calculation of the Company's earnings per share.

F-18
<PAGE> 73

ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Supplemental Adjusted Statement of Operations Data

The supplemental adjusted statement of operations data set forth below
presents the pro forma effects on the Company's historical results of operations
giving effect to the following transactions as if they occurred at the beginning
of each of the periods presented: (i) the Offering and the application of the
net proceeds therefrom to repay indebtedness outstanding under the Credit
Facility and accrued interest thereon and to repay indebtedness outstanding
under the Subordinated Notes and accrued interest thereon and (ii) the Exchange.
The redemption of the Series A Preferred Stock and accumulated dividends thereon
has no affect on the Company's historical results of operations.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
AUGUST 2, ENDED
1996 MAY 2, 1997
----------- -----------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
Historical loss from continuing operations before
cumulative effect adjustment............................ $ (1,668) $ (179)
The elimination of interest expense related to the
repayment of indebtedness under the Credit Facility..... 1,200 1,106
The elimination of interest expense related to the
repayment of indebtedness under the Subordinated
Notes................................................... 779 717
The elimination of interest expense related to the
conversion of Subordinated Notes to common stock........ 2,282 2,099
----------- -----------
Adjusted net income from continuing operations............ $ 2,593 $ 3,743
=========== ===========
Adjusted net income from continuing operations per
share................................................... $ 0.40 $ 0.58
=========== ===========

Historical loss from discontinued operations.............. $ (6,480) $ (9,575)
The elimination of interest expense related to the
repayment of indebtedness under the Credit Facility..... 400 96
The elimination of interest expense related to the
repayment of indebtedness under the Subordinated
Notes................................................... 259 62
The elimination of interest expense related to the
conversion of Subordinated Notes to common stock........ 761 182
----------- -----------
Adjusted loss from discontinued operations................ $ (5,060) $ (9,235)
=========== ===========
Adjusted loss from discontinued operations per share...... $ (0.79) $ (1.44)
=========== ===========

Adjusted weighted average number of shares outstanding.... 6,407,923 6,414,172
</TABLE>

Adjusted per share information is based on the number of shares of Common
Stock outstanding on August 2, 1996 and May 2, 1997, as adjusted to give effect
to (i) the issuance of 3,250,000 shares of Common Stock pursuant to the
Offering, (ii) the issuance of 1,637,857 shares of Common Stock pursuant to the
Exchange and (iii) the issuance of 29,240 and 28,259 shares of Common Stock at
August 2, 1996 and May 2, 1997, respectively, upon the exercise of outstanding
stock options pursuant to the treasury stock method.

F-19
<PAGE> 74

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 15
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 28
Description of McGuire-Nicholas....... 37
Management............................ 38
Principal Stockholders................ 44
Certain Transactions.................. 46
Description of Capital Stock.......... 47
Description of Certain Indebtedness... 49
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 53
Experts............................... 53
Additional Information................ 54
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

------------------------

UNTIL JULY 21, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

======================================================

======================================================
3,250,000 SHARES

ACORN PRODUCTS, INC.

COMMON STOCK
---------------------------

PROSPECTUS
---------------------------
A.G. EDWARDS & SONS, INC.
MORGAN KEEGAN & COMPANY, INC.
DATED JUNE 24, 1997
======================================================