<PAGE> 1
As filed with the Securities and Exchange Commission on September 20, 1994
Registration No. 33-54211
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SECURITIES AND EXCHANGE COMMISSION
__________
AMENDMENT NO. 3 TO
REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
__________
WAXMAN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5074
(Primary Standard Industrial Classification Code Number)
34-0899894
(I.R.S. Employer Identification Number)
24460 Aurora Road
Bedford Heights, Ohio 44146
(216) 439-1830
(Address, including zip code, and telephone number,
including area code, of registrant's principal offices)
__________
ARMOND WAXMAN
24460 Aurora Road
Bedford Heights, Ohio 44146
(216) 439-1830
(Name, address, including zip code, and telephone number,
including area code, of agents for service)
__________
Copies to:
SCOTT M. ZIMMERMAN, ESQ.
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, New York 10022
(212) 758-9500
__________
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
===============================================================================
<PAGE> 2
WAXMAN INDUSTRIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-1 PROSPECTUS CAPTION OR LOCATION
---------------- ------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside Outside Front Cover Page of Prospectus
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Inside Front Cover and Outside
Page of Prospectus Back Cover Pages of Prospectus
3. Summary Information, Risk Factors and Prospectus Summary; The Company; Selected Financial
Ratio of Earnings to Fixed Charges Data; Risk Factors; Consolidated Financial Statements
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders; Plan of Distribution
8. Plan of Distribution and Underwriting Outside Front Cover Page of Prospectus; Plan of
Distribution
9. Description of Securities to be Registered Prospectus Summary; Outside Front Cover Page of
Prospectus; Description of Warrants; Description of
Capital Stock
10. Interests of Named Experts and Counsel Legal Matters
11. Information with Respect to the Registrant Outside Front Cover Page of Prospectus; Available
Information; Prospectus Summary; Risk Factors;
Capitalization; Price Range of Common Stock;
Dividends; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Principal
Stockholders; Recent Securities Offering and Related
Matters; Consolidated Financial Statements
12. Disclosure on Commission Position on Not Applicable
Indemnification of Securities Act Liabilities
</TABLE>
i
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION: PRELIMINARY PROSPECTUS DATED SEPTEMBER 20, 1994
PROSPECTUS
WAXMAN INDUSTRIES, INC.
2,950,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK
2,950,000 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
This Prospectus relates to the offer and sale of 2,950,000 warrants
("Warrants") to purchase shares of common stock, par value $.01 per share (the
"Common Stock"), of Waxman Industries, Inc. (the "Company") and the 2,950,000
shares of Common Stock, subject to adjustment, issuable upon exercise of the
Warrants. The Warrants and shares of Common Stock referenced above offered
hereby are sometimes collectively referred to herein as the "Securities." The
Securities will be sold by the holders thereof (the "Selling Security
Holders"). See "Selling Security Holders."
On May 20, 1994, the Company issued Series A 12 3/4% Senior Secured Deferred
Coupon Notes Due 2004 having an initial accreted value of $50,000,000 (the
"Notes") together with the Warrants in exchange for $50,000,000 aggregate
principal amount of the Company's then outstanding 13 3/4% Senior Subordinated
Notes due June 1, 1999 pursuant to a private exchange offer (the "Private
Exchange Offer") which was a part of a series of interrelated transactions (the
"Reorganization"). In addition to the Private Exchange Offer, the components
of the Reorganization included (i) the solicitation of the consents of the
holders of the Company's 12.25% Fixed Rate Senior Secured Notes due September
1, 1998 and Floating Rate Senior Secured Notes due September 1, 1998 to certain
waivers of and the adoption of certain amendments to the indenture governing
such Senior Secured Notes, (ii) the establishment of a $55 million revolving
credit facility and a $15 million term loan, (iii) the solicitation of the
consents of the holders of the Company's Senior Subordinated Notes to certain
waivers of and the adoption of certain amendments to the indenture governing
the Senior Subordinated Notes and (iv) the repayment of the borrowings under
the Company's then existing domestic revolving credit facilities.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock, subject to adjustment in certain circumstances discussed below, at a
cash exercise price of $2.45 per share, subject to adjustment in certain
circumstances discussed below. The Company would receive all of the proceeds
from the exercise of the Warrants. The Warrants are currently exercisable and
expire on June 1, 2004. The Warrants were originally issued by the Company in
a private placement to certain institutional investors. There is presently no
active trading market for the Warrants and there can be no assurance that one
will develop. The Common Stock is traded on the New York Stock Exchange, Inc.
(the "NYSE") under the symbol "WAX." On September 12, 1994, the last reported
sales price per share of Common Stock, as reported by the NYSE, was $1.88.
The Securities are being offered for the accounts of the Selling Security
Holders. See "Selling Security Holders." The offer and sale of the Securities
is being registered under the Registration Statement of which this Prospectus
forms a part in order to satisfy certain obligations of the Company contained
in the Registration Rights Agreement (the "Equity Registration Rights
Agreement"), dated as of May 20, 1994, between the Company and The Huntington
National Bank, as Warrant Agent (the "Warrant Agent") under the Warrant
Agreement dated as of May 20, 1994 between such Warrant Agent and the Company,
on behalf of the original purchasers of the Warrants. The Company has agreed
to pay all expenses of this offering but will not receive any of the proceeds
from the sale of Securities being offered hereby. The aggregate proceeds to
the Selling Security Holders from the sale of the Securities will be the
purchase price of the Securities sold, less the aggregate underwriting fees,
discounts and commissions, if any. See "Plan of Distribution."
The Selling Security Holders directly, through agents designated from time to
time or through dealers or underwriters also to be designated, may sell the
Securities from time to time on terms to be determined at the time of sale. To
the extent required, the specific Securities to be sold, the names of the
Selling Security Holders, the purchase price, the public offering price, the
names of any such agents, dealers or underwriters and any applicable
commissions or discount with respect to a particular offer will be set forth in
an accompanying Prospectus supplement (or, if required, a post-effective
amendment to the Registration Statement of which this Prospectus forms a part).
The distribution of the Securities of the Selling Security Holders may be
effected in one or more transactions that may take place on the NYSE or the
over-the-counter market,
<PAGE> 4
including ordinary broker's transactions, privately negotiated transactions
or through sales to one or more dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees, commissions or discounts
may be paid by the Selling Security Holders in connection with such sales.
The Selling Security Holders and any broker-dealers, agents or underwriters
that participate with the Selling Security Holders in the distribution of the
Securities may be deemed to be "Underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act"), and any commissions received by
them and any profit on the resale of the Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Act. See "Plan of
Distribution" for indemnification arrangements."
PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE MATTERS SET FORTH UNDER "RISK FACTORS."
_________________________
THE 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.
THE SECURITIES HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE UNDER THE
SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE
SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THIS DOCUMENT MAY NOT BE PASSED ON IN THE UNITED KINGDOM TO ANY PERSON UNLESS
THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 9(3) OF THE FINANCIAL SERVICES
ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1988 OR IS A PERSON TO
WHOM THIS DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN
ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL
TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO
BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
_________________________
THE DATE OF THIS PROSPECTUS IS _____ __, 1994.
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<PAGE> 5
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 (together
with all amendments thereto referred to herein as the "Registration Statement")
under the Act, with the Commission covering the securities being offered by
this Prospectus. This Prospectus does not contain all the information set
forth or incorporated by reference in the Registration Statement and the
exhibits and schedules relating thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered by
this Prospectus, reference is made to the Registration Statement and the
exhibits and schedules thereto which are on file at the offices of the
Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and are qualified in
all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. The Registration Statement, as well as such
periodic reports, proxy statements and other information, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite 1400, Northwest
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661; and 7 World
Trade Center, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's
common stock is listed on the NYSE. Reports, proxy statements and other
information may also be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 1005.
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<PAGE> 6
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. REFERENCES IN THIS
PROSPECTUS TO A PARTICULAR FISCAL YEAR REFER TO THE 12-MONTH PERIOD ENDED ON
JUNE 30 IN THAT YEAR. UNLESS THE CONTEXT OTHERWISE INDICATES, ALL REFERENCES
TO THE "COMPANY" ARE TO THE CONTINUING OPERATIONS OF WAXMAN INDUSTRIES, INC.
AND ITS SUBSIDIARIES AND DIVISIONS AND TO THE BUSINESS CONDUCTED THROUGH SUCH
SUBSIDIARIES AND DIVISIONS.
THE COMPANY
The Company believes it is one of the leading suppliers of plumbing
products to the home repair and remodeling market in the United States. The
Company conducts its business in the United States primarily through its
wholly-owned subsidiaries, Barnett Inc. ("Barnett") and Waxman Consumer
Products Group Inc. ("Consumer Products"). The Company distributes plumbing,
electrical and hardware products, in both packaged and bulk form, to over
47,000 customers in the United States, including do-it-yourself ("D-I-Y")
retailers, mass merchandisers, smaller independent retailers and plumbing and
electrical repair and remodeling contractors. The Company's consolidated net
sales (excluding sales from discontinued operations) were $215.1 million in
fiscal 1994.
The Company's domestic business is conducted primarily through Barnett
and Consumer Products. Through their nationwide network of warehouses and
distribution centers, Barnett and Consumer Products provide their customers
with a single source for an extensive line of competitively priced quality
products. The Company's strategy of being a low-cost supplier is facilitated
by its purchase of a significant portion of its products from low-cost foreign
sources. Barnett's marketing strategy is directed predominantly to repair and
remodeling contractors and independent retailers, as compared to Consumer
Products' strategy of focusing on mass merchandisers and larger D-I-Y
retailers.
Based on management's experience and knowledge of the industry, the
Company believes that Barnett is the only national mail order and telemarketing
operation distributing plumbing, electrical and hardware products in the United
States. Barnett's marketing strategy is comprised of frequent catalog and
promotional mailings, supported by 24-hour telemarketing operations. Barnett
has averaged 15% net sales growth per annum during the period from fiscal 1992
to fiscal 1994 through (i) the expansion of its warehouse network to increase
its market penetration, (ii) the introduction of new product offerings and
(iii) the introduction of an additional catalog targeted at a new customer
base. Barnett's net sales were $95.2 million in fiscal 1994.
Consumer Products markets and distributes its products to a wide variety
of retailers, primarily national and regional warehouse home centers, home
improvement centers and mass merchandisers. An integral element of Consumer
Products' marketing strategy of serving as a single source supplier is offering
mass merchandisers and D-I-Y retailers innovative comprehensive marketing and
merchandising programs designed to improve their profitability, efficiently
manage shelf space, reduce inventory levels and maximize floor stock turnover.
Consumer Products' customers currently include national retailers such as
Kmart, Builders Square, Home Depot and Wal-Mart, as well as large regional
D-I-Y retailers. According to the most recent rankings of the largest D-I-Y
retailers published by National Home Center News, an industry trade
publication, Consumer Products' customers include 16 of the 25 largest D-I-Y
retailers in the United States. Management believes that Consumer Products is
the only supplier to the D-I-Y market that carries a complete line of plumbing,
electrical and floor protective hardware products, in both package and bulk
form. Consumer Products' net sales were $70.7 million in fiscal 1994 and have
remained generally consistent since fiscal 1992.
The Company, through its smaller domestic operations, also distributes a
full line of security hardware products and copper tubing, brass fittings and
other related products. Net sales from these other operations were $47.7
million in fiscal 1994.
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<PAGE> 7
The Company's business strategy is designed to capitalize on the growth
prospects for Barnett and Consumer Products. The Company's current strategy
includes the following elements:
- EXPANSION OF BARNETT. Since its acquisition in 1984, Barnett's
revenues and operating income have grown at compound annual rates
of 11.7% and 13.2% respectively, as a result of (i) the expansion
of its warehouse network, (ii) the introduction of new product
offerings and (iii) the introduction in January 1992 of an
additional catalog targeted at a new customer base. The Company
intends to continue to expand Barnett's national warehouse
network and expects to open as many as four new warehouses during
each of the next several fiscal years. Barnett expects to fund
this expansion using cash flow from operations and/or available
borrowings under the Debt Financing. Barnett also intends to
continue expanding its product offerings, allowing its customers
to utilize its catalogs as a means of one-stop shopping for many
of their needs. In an effort to further increase profitability,
Barnett is also increasing the number of higher margin product
offerings bearing its proprietary trade names and trademarks.
- ENHANCE COMPETITIVE POSITION OF CONSUMER PRODUCTS. During the
past 24 months, Consumer Products has restructured its sales and
marketing functions in order to better serve the needs of its
existing and potential customers. Consumer Products restructured
its sales department by defining formal regions of the country
for which regional sales managers would have responsibility.
Prior to the restructuring, sales managers had responsibility for
specific customers without regard to location. In addition, as
part of the restructuring, in fiscal 1993 a marketing department
was established separate and apart from the sales department.
The marketing department is staffed with product managers who
have the responsibility of identifying new product programs. The
restructuring of the sales and marketing departments is complete
at this time. Consumer Products' strategy is to achieve
consistent growth by expanding its business with existing
customers and by developing new products and new customers. In
order to increase business with existing customers, Consumer
Products is focusing on developing strategic alliances with its
customers. Consumer Products seeks to (i) introduce new products
within existing categories, as well as new product categories,
(ii) improve customer service, (iii) introduce full service
marketing programs and (iv) achieve higher profitability for both
the retailer and Consumer Products. Management believes that
Consumer Products is well positioned to benefit from the trend
among many large retailers to consolidate their purchases among
fewer vendors.
The Reorganization described below was an important element of this
strategy because it lowered the Company's cash interest expense, permitting the
Company to reinvest a greater portion of its cash flow in its domestic
businesses; stabilized the Company's capital structure by, among other things,
eliminating the impact of the adverse operating results of the Company's
discontinued Canadian operations on the Company's domestic operations; and
generally provided the Company with greater operating and financial
flexibility.
DISCONTINUED OPERATIONS
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. ("Ideal"). Unlike the
Company's United States operations which supply products to customers in the
home repair and remodeling market through mass retailers, Ideal primarily
served customers in the Canadian new construction market through independent
contractors. Accordingly, Ideal is reported as a discontinued operation and
the consolidated financial statements and financial information contained
herein have been reclassified to report separately Ideal's net assets and
results of operations. Prior period consolidated financial statements and
financial information have been reclassified to conform to the current period
presentation.
Ideal determined in April 1994 that, as of March 31, 1994, it was in
violation of several financial covenants included in its Canadian bank credit
agreements, including those related to the maintenance of a specified working
capital ratio, interest coverage ratio and borrowing base formulas. In
addition, on April 15, 1994, Ideal failed to make a Cdn. $150,000 payment on
the term loan portion of such agreements.
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<PAGE> 8
At the time the plan of disposition was adopted, the Company expected
that the disposition would be accomplished through a sale of the business to a
group of investors which included members of Ideal's management. Such
transaction would have required the consent of the lenders under Ideal's
Canadian bank credit agreements as borrowings under such credit agreements were
collateralized by all of the assets and capital stock of Ideal. The bank
considered the management group's acquisition proposal; however, the proposal
was subsequently rejected. On May 5, 1994, without advance notice, the bank
filed an involuntary bankruptcy petition against Ideal citing defaults under
the bank credit agreements (borrowings under these agreements are non-recourse
to Waxman Industries, Inc.). The Company has not contested the bank's efforts
to effect the orderly disposition of Ideal. On May 30, 1994, Ideal was
declared bankrupt by the Canadian courts and, as a result, the Company's
ownership and control of Ideal effectively ceased on such date. Upon the
petition of Ideal's Canadian lenders, Coopers & Lybrand Ltd. was appointed as
trustee to liquidate the assets of Ideal. As of the date of this Prospectus,
the Company has been advised that Ideal is no longer operating and that certain
of Ideal's branch operations have been sold but that the trustee has not yet
liquidated the remaining inventory, accounts receivable and fixed assets of
Ideal.
Ideal's defaults under its Canadian bank credit agreements and
subsequent bankruptcy do not trigger a "cross-default" under, or result in any
violation of the debt covenants contained in, the Company's or its
subsidiaries' outstanding debt obligations other than under the Company's
$155,000 principal amount outstanding of Convertible Debentures. In addition,
neither the Company nor any of its subsidiaries has any liability to creditors
of Ideal as a result of Ideal's bankruptcy.
The Company's principal executive offices are located at 24460 Aurora
Road, Bedford Heights, Ohio 44146, Telephone (216) 439-1830.
BACKGROUND OF EXCHANGE OFFER;
RECENT SECURITIES OFFERING AND RELATED MATTERS
On May 20, 1994, the Company issued Series A 12 3/4% Senior Secured
Deferred Coupon Notes Due 2004 having an initial accreted value of $50,000,000
(the "Notes") together with the Warrants to purchase 2,950,000 shares of Common
Stock in exchange for $50,000,000 aggregate principal amount of the Company's
outstanding 13 3/4% Senior Subordinated Notes due June 1, 1999 (the "Senior
Subordinated Notes") pursuant to a private exchange offer (the "Private
Exchange Offer") which was a part of a series of interrelated transactions (the
"Reorganization"). In addition to the Private Exchange Offer, the components
of the Reorganization included (i) the solicitation of the consents of the
holders of the Company's Senior Subordinated Notes to certain waivers of and
the adoption of certain amendments to the indenture governing the Senior
Subordinated Notes (the "Senior Subordinated Consent Solicitation"), (ii) the
establishment of a $55 million revolving credit facility (the "Domestic Credit
Facility") and a $15 million term loan (the "Domestic Term Loan"; and together
with the Domestic Credit Facility, the "Debt Financing"), (iii) the
solicitation of the consents of the holders of the Company's 12.25% Fixed Rate
Senior Secured Notes due September 1, 1998 and Floating Rate Senior Secured
Notes due September 1, 1998 (together, the "Senior Secured Notes") to certain
waivers of and the adoption of certain amendments to the indenture governing
the Senior Secured Notes (the "12 1/4% Consent Solicitation") and (iv) the
repayment of the borrowings under the Company's then existing domestic
revolving credit facilities (including $27.6 under the Company's then existing
working capital credit facility and $1.2 million under the $5.0 million
revolving credit facility of Barnett (the "Barnett Financing")). See "Recent
Securities Offering and Related Matters -- The Reorganization."
In connection with the Reorganization, the Company restructured (the
"Corporate Restructuring") its domestic operations such that after giving
effect thereto the Company became a holding company whose only material assets
are the capital stock of its subsidiaries. As part of the Corporate
Restructuring, the Company formed (a) Waxman USA Inc. ("Waxman USA"), as a
holding company for the subsidiaries that comprise and support the Company's
domestic operations, (b) Waxman Consumer Products Group Inc., a wholly owned
subsidiary of Waxman USA, to own and operate Waxman Industries' Consumer
Products Group Division (the "Consumer Products Division"; all references
herein to "Consumer Products" shall include the Consumer Products Division and
Waxman Consumer Products Group Inc., unless the context otherwise requires),
and (c) WOC Inc. ("WOC"), a wholly owned
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<PAGE> 9
subsidiary of Waxman USA, to own and operate Waxman USA's domestic
subsidiaries, other than Barnett and Consumer Products. On May 20, 1994, the
Company effected the Corporate Restructuring by (i) contributing the capital
stock of Barnett to Waxman USA, (ii) contributing the assets and liabilities of
the Consumer Products Division to Consumer Products, (iii) contributing the
assets and liabilities of its Madison Equipment Division to WOC, (iv)
contributing the assets and liabilities of its Medal Distributing Division to
WOC, (v) merging U.S. Lock Corporation ("U.S. Lock") and LeRan Copper & Brass,
Inc. ("LeRan"), each a wholly owned subsidiary of the Company, into WOC, (vi)
contributing the capital stock of TWI, International, Inc. ("TWI") to Waxman
USA and (vii) contributing the capital stock of Western American Manufacturing,
Inc. ("WAMI") to TWI.
As a result of the Corporate Restructuring, the corporate structure of
the Company and its subsidiaries is as follows:
-----------------------
WAXMAN INDUSTRIES, INC.
-----------------------
|
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| |
--------------- ----------------------------
WAXMAN USA INC. IDEAL HOLDING GROUP, INC.(1)
--------------- ----------------------------
| |
--------------------------------------------------- |
| | | | |
- ------- --------- -------- ------------------ -----------
WAXMAN
BARNETT, CONSUMER WOC INC. TWI, INTERNATIONAL IDEAL
INC. PRODUCTS INC. PLUMBING
GROUP INC. GROUP,INC(1)
- ------- --------- -------- ------------------ ------------
|
----------------------------------------------------------
| |
- ----------------- -------------------
TWI INTERNATIONAL WESTERN AMERICAN
TAIWAN, INC. MANUFACTURING, INC.
- ----------------- -------------------
| |
- ----------------- -------------------
CWI INTERNATIONAL COHART DE
CHINA, LTD. MEXICO SA DE CV
- ----------------- -------------------
- ----------------------
Each subsidiary depicted above is a wholly owned subsidiary, except for TWI
International Taiwan, Inc. and Cohart de Mexico SA de CV, which are 99% owned.
(1) Ideal Holding Group, Inc.'s sole asset, Ideal Plumbing Group, Inc., is
currently being liquidated pursuant to Canadian bankruptcy laws.
The Warrants were issued pursuant to exemptions from, or transactions
not subject to, the registration requirements of the Act and applicable state
securities laws. The Company structured the offering of the Warrants and Notes
as a private placement in order to consummate such offering on a more
expeditious basis than would have been possible had the offering and sale been
registered under the Act. The original purchasers of the Warrants, as a
condition to their purchase of the Warrants and Notes, required the Company to
enter into the Equity Registration Rights Agreement pursuant to which the
Company agreed, among other things, to file promptly a registration statement
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<PAGE> 10
under the Act to permit such original purchasers to offer and sell under the
Act the Warrants and shares of Common Stock issuable upon exercise of the
Warrants. The Company has prepared and filed the Registration Statement of
which this Prospectus forms a part with the Commission pursuant to the Equity
Registration Rights Agreement. The original purchasers of the Notes, as a
condition to their purchase of the Notes and Warrants, also required the
Company to enter into a registration rights agreement pursuant to which the
Company agreed, among other things, to promptly commence the Exchange Offer (as
defined herein) following the offering of the Notes. The Company has prepared
and filed a Registration Statement with the Commission pursuant to such
registration rights agreement. See "Recent Securities Offering and Related
Matters -- Registration Rights Agreements."
See "Selling Security Holders" and "Recent Securities Offering and
Related Matters" for a discussion of the offering of the Warrants, the
agreements referred to above and additional related agreements. See
"Description of the Warrants" for a discussion of the terms of the Warrants.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered . . . . . . . . . . . . . . . . . . 2,950,000 Warrants to purchase shares of Common Stock.
In addition, this Prospectus relates to the 2,950,000
shares of Common Stock issuable upon exercise of the
Warrants, subject to adjustment in the event of any
recapitalization, reclassification, stock dividend,
stock split, reverse stock split, stock issuance below
fair market value or other similar transaction.
Warrants
Underlying Common Stock . . . . . . . . . . . Each Warrant is exercisable to purchase one share of
Common Stock subject to adjustment under certain
circumstances. See "Description of Warrants."
Exercise Price . . . . . . . . . . . . . . . . $2.45 per share, subject to adjustment in certain
circumstances. See "Description of Warrants."
Exercise Period . . . . . . . . . . . . . . . The Warrants are currently exercisable. See
"Description of Warrants."
Expiration Date . . . . . . . . . . . . . . . The Warrants expire at 5:00 p.m. New York City time on
June 1, 2004.
Warrant Agent . . . . . . . . . . . . . . . . The Huntington National Bank is serving as Warrant Agent
under the Warrant Agreement.
Common Stock
Number of Shares . . . . . . . . . . . . . . . 2,950,000 shares, subject to adjustment in certain
circumstances, of Common Stock issuable upon the
exercise of the Warrants.
</TABLE>
- 8 -
<PAGE> 11
<TABLE>
<S> <C>
Common Stock Outstanding . . . . . . . . . . . 9,491,457 shares as of September 12, 1994.
NYSE symbol for
the Common Stock . . . . . . . . . . . . . . . WAX
Proceeds of the Offering . . . . . . . . . . . . . . . All of the proceeds from the sale of Securities offered
hereby will be received by the Selling Security Holders.
The Company will not receive any of the proceeds from
this offering.
If all of the 2,950,000 Warrants offered hereby are
exercised at the initial exercise price of $2.45 per
share, the Company would receive $7,227,500, which would
be added to the Company's working capital and used for
general corporate purposes.
</TABLE>
For more complete information regarding the Warrants, see "Description
of Warrants."
RISK FACTORS
Prospective purchasers of Securities offered hereby should carefully
consider the matters set forth under "Risk Factors," as well as the other
information and data included in this Prospectus.
- 9 -
<PAGE> 12
RISK FACTORS
Prospective purchasers of Securities offered hereby should carefully
read the entire Prospectus and, in particular, should consider, among other
things, the following risks.
LEVERAGE
The Company has a high degree of leverage. At June 30, 1994, the
outstanding consolidated indebtedness (excluding trade payables and accrued
liabilities) of the Company's continuing operations was $193.8 million. This
high degree of leverage may have important consequences, including the
following: (i) the ability of the Company to obtain additional financing in the
future for working capital, capital expenditures, debt service requirements or
other purposes may be impaired; (ii) a substantial portion of the Company's
cash flow from operations will be required to satisfy debt service obligations;
(iii) the Company may be more highly leveraged than companies with which it
competes, which may place it at a competitive disadvantage; and (iv) the
Company's high degree of leverage may make it more vulnerable in the event of a
downturn in its business and may limit its ability to capitalize on business
opportunities. Although the Company believes that its operating cash flow as
well as amounts available under the Domestic Credit Facility will be sufficient
to fund working capital, capital expenditures and debt service requirements for
the next 24 months, the Company's ability to satisfy its obligations will be
dependent upon its future performance, which is subject to prevailing economic
conditions and financial, business and other factors, including factors beyond
the Company's control. Commencing March 1995, the Company is required to make
quarterly principal payments of $1.0 million under its Domestic Term Loan. In
addition, the Company is required to make mandatory sinking fund payments of
$17.0 million on each of September 1, 1996 and September 1, 1997 with respect
to the Senior Secured Notes and a single payment of $8.8 million on June 1,
1998 with respect to the Senior Subordinated Notes. In addition, the Debt
Financing matures on May 20, 1997, subject to extension in certain
circumstances. The Company currently believes that it must obtain a
significant infusion of capital before any significant deleveraging can occur.
However, there can be no assurances as to the timing or likelihood of such
deleveraging.
To the Company's knowledge, neither its high degree of leverage nor the
bankruptcy of Ideal has resulted in the refusal by any of its customers,
suppliers or manufacturers to do business with the Company or in the alteration
of material terms which have had a material impact on the Company's business.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The terms and conditions of the instruments evidencing the Debt
Financing, as well as other indebtedness of the Company impose restrictions
that affect, among other things, the ability of the Company and/or its
subsidiaries to incur debt, pay dividends, make acquisitions, create liens,
sell assets and make certain investments. The breach of any of the foregoing
covenants would result in a default under the applicable debt instrument
permitting the holders of indebtedness outstanding thereunder, subject to
applicable grace periods, to accelerate such indebtedness. There can be no
assurance that the Company would have sufficient funds to repay or assets to
satisfy such obligations.
CONTROL BY PRINCIPAL STOCKHOLDERS; CERTAIN ANTI-TAKEOVER EFFECTS
Approximately 16.7% (and 12.7%, assuming the exercise of all of the
Warrants offered hereby) of the outstanding shares of the Company's common
stock, par value $.01 per share, and 82.7% of the outstanding shares of the
Company's Class B common stock are held by Melvin and Armond Waxman, brothers
and respectively, the Chairman of the Board and Co-Chief Executive Officer and
the President and Co-Chief Executive Officer of the Company (the "Principal
Stockholders"). These holdings represent 62.9% (and 57.6%, assuming the
exercise of
- 10 -
<PAGE> 13
all of the Warrants offered hereby) of the outstanding voting power of the
Company. Consequently, the Principal Stockholders have sufficient voting power
to elect the entire Board of Directors of the Company and, in general, to
determine the outcome of any corporate transaction or other matter submitted to
the stockholders for approval, including any merger, consolidation, sale of all
or substantially all of the Company's assets or "going private" transactions,
and to prevent or cause a change in control of the Company. In addition,
certain provisions in the Company's Certificate of Incorporation, By-laws and
debt instruments, including the Change of Control provisions in the Indenture
governing the Notes, may be deemed to have the effect of discouraging a third
party from pursuing a non-negotiated takeover of the Company and preventing
certain changes in control.
DEFICIENCY OF EARNINGS TO FIXED CHARGES
In fiscal 1994, 1993, and 1992, the Company's earnings (as defined in
footnote 4 to Selected Financial Data) were insufficient to cover its fixed
charges by $3.1 million, $15.7 million and $5.1 million, respectively. The
Company's business strategy, described herein, is designed to capitalize on the
growth prospects for Barnett and Consumer Products and thereby increase
earnings. The Company believes that the successful implementation of its
business strategy will enable it to reduce or eliminate the deficiency of
earnings to fixed charges. However, there can be no assurances regarding when
such deficiencies will be reduced or eliminated or that the deficiencies
experienced in the past will not reoccur.
FOREIGN SOURCING
In fiscal 1994, products manufactured outside of the United States
accounted for approximately 27.2% of the total product purchases made by the
Company's continuing operations. Foreign sourcing involves a number of risks,
including the availability of letters of credit, maintenance of quality
standards, work stoppages, transportation delays and interruptions, political
and economic disruptions, foreign currency fluctuations, expropriation,
nationalization, the imposition of tariffs and import and export controls and
changes in governmental policies (including United States' policy toward the
foreign country where the products are produced), which could have an adverse
effect on the Company's business. The occurrence of certain of these factors
would delay or prevent the delivery of goods ordered by the Company's
customers, and such delay or inability to meet delivery requirements would have
an adverse effect on the Company's results of operations and could have an
adverse effect on the Company's relationships with its customers. In addition,
the loss of a foreign manufacturer could have a short-term adverse effect on
the Company's business until alternative supply arrangements were secured.
RELIANCE ON KEY CUSTOMERS
During fiscal 1994, Kmart and its subsidiaries, Consumer Products'
largest customer, accounted for approximately 13% of the Company's continuing
operations' net sales. During the same period, Consumer Products' ten largest
customers accounted for approximately 25% of the Company's continuing
operations' net sales. The loss of or a substantial decrease in the business
of Consumer Products' largest customers could have a material adverse effect on
the Company's continuing operations.
PROCEEDS OF THE OFFERING
The Company will not receive any of the proceeds of this offering. All
of the proceeds of this offering will be received by the Selling Security
Holders.
- 11 -
<PAGE> 14
ABSENCE OF PUBLIC MARKET
At present, the Warrants are owned by a small number of investors and
there is no active trading market for the Warrants. If an active trading
market does not develop, purchasers of the Warrants may have difficulty
liquidating their investment and the Warrants may not be readily accepted as
collateral for loans. Accordingly, no assurances can be given as to the price
at which holders of the Warrants will be able to sell the Warrants, if at all.
The liquidity of and the market prices for the Warrants and Common Stock
can be expected to vary with changes in market and economic conditions, the
financial condition and prospects of the Company and other factors that
generally influence the market prices of securities, including fluctuations in
the market for warrants and common stock generally.
POSSIBLE FUTURE SALES OF SHARES BY THE SELLING SECURITY HOLDERS
Subject to the restrictions described under "Risk Factors -- Shares
Eligible for Future Sale" and applicable law, upon the effectiveness of the
Registration Statement of which this Prospectus forms a part, the Selling
Security Holders could cause the sale of any or all of the Warrants or
underlying shares of Common Stock they own. The Selling Security Holders may
determine to sell Warrants or the underlying shares of Common Stock from time
to time for any reason. Although the Company can make no prediction as to the
effect, if any, that sales of Warrants or shares of Common Stock owned by the
Selling Security Holders would have on the market price of Common Stock
prevailing from time to time, sales of substantial amounts of Warrants or
Common Stock, or the availability of such Warrants or shares of Common Stock
for sale in the public market, could adversely affect prevailing market prices
of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 12, 1994, there were 9,491,457 shares of Common Stock
outstanding and 2,220,705 shares of Class B Common Stock outstanding
(convertible into 2,220,705 shares of Common Stock). To the extent such shares
are not held by "affiliates" or otherwise subject to restrictions on resale,
including those imposed by Section 16(b) of the Exchange Act, the Warrants, and
upon exercise of the Warrants, the shares of Common Stock which are issuable
upon exercise of the Warrants and offered hereby are eligible for sale in the
public market. Although the Company can make no prediction as to the effect,
if any, that sales of the Warrants and shares of Common Stock referred to above
would have on the market price of the Common Stock prevailing from time to
time, sales of a substantial amount of Warrants or Common Stock, or the
availability of such Warrants or shares of Common Stock for sale in the public
market could adversely affect prevailing market prices of the Common Stock.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby, all of which will be received by the Selling
Security Holders.
If all of the 2,950,000 Warrants offered hereby are exercised at the
initial exercise price of $2.45 per share, the Company would receive
$7,227,500, which would be added to the Company's working capital and used for
general corporate purposes.
- 12 -
<PAGE> 15
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the consolidated capitalization of the
Company at June 30, 1994.
<TABLE>
<S> <C>
Current portion of long-term debt $ 4,144
========
Bank debt:
Domestic Credit Facility (2) 39,378
Domestic Term Loan, net of current portion(2) 13,000
Senior Secured Notes due September 1, 1998, net of discount 38,675
Senior Subordinated Notes due June 1, 1999 48,750
Senior Secured Deferred Coupon Notes due June 1, 2004,
net of discount (5) 48,031
Convertible Debentures 155
Other notes payable, net of current portion 1,685
--------
Total long-term debt (1) 189,674
--------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000 shares authorized; none issue $ ---
Common stock, $.01 par value, 22,000 shares authorized; 9,490 issued
and outstanding (3) 95
Class B common stock, $.01 par value, 6,000 shares authorized; 2,222
issued and outstanding (4) 23
Paid-in capital (5) 21,098
Retained deficit (58,325)
--------
Stockholders' equity before cumulative currency translation adjustments (37,109)
Cumulative currency translation adjustments (600)
--------
Total stockholders' equity (37,709)
--------
Total capitalization $151,965
========
<FN>
(1) For a description of the Company's debt, see Notes 6, 7, 8, 9 and 10
to the Notes to Consolidated Financial Statements as of June 30, 1994.
(2) Proceeds from the Domestic Credit Facility and Domestic Term Loan were
used to repay borrowings under the Company's then existing credit
facilities, accrued interest and fees and expenses associated with the
Reorganization.
(3) Does not include 2,950 shares of Common Stock reserved for issuance
upon exercise of the Warrants, 1,000 shares of Common Stock reserved
for issuance upon exercise of the warrants issued together with the
Senior Secured Notes or 48 shares of Common Stock reserved for
issuance upon conversion of the Convertible Debentures. Also does not
include 1,226 shares of Common Stock reserved for issuance under the
exercise of stock options outstanding as of June 30, 1994.
(4) The Class B Common Stock is generally not transferable but is
convertible into Common Stock on a share-for-share basis at any time.
See "Description of Capital Stock."
</TABLE>
- 13 -
<PAGE> 16
(5) A portion of the proceeds of the Units have been allocated to the
Warrants. As a result, an adjustment has been made to increase
paid-in capital by $2,500. The related $2,500 reduction in the
recorded principal amount of the Notes have been amortized as interest
expense over the life of the Notes.
- 14 -
<PAGE> 17
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "WAX". The Company's Class B Common Stock does not
trade in the public market due to restricted transferability. However, the
Class B Common Stock may be converted into Common Stock on a share-for-share
basis at any time.
The following table sets forth the high and low closing prices of the
Common Stock as reported by the NYSE for fiscal years 1994, 1993 and 1992, and
for the first quarter of fiscal year 1995 (through September 12, 1994).
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1995 1994 1993 1992
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $2.13 $1.88 $3.88 $2.25 $4.63 $3.38 $5.25 $3.75
Second Quarter 2.50 1.50 4.13 3.38 5.38 4.25
Third Quarter 3.25 2.25 5.25 3.75 8.38 4.88
Fourth Quarter 2.38 1.88 5.38 3.38 7.00 4.00
</TABLE>
On September 12, 1994, the closing price of the Common Stock, as
reported on the NYSE, was $1.88. As of September 12, 1994, there were
approximately 1,092 holders of record of Common Stock and approximately 144
holders of record of Class B Common Stock.
DIVIDENDS
The Company paid dividends of $.08 and $.12 per share on each class of
common stock in fiscal 1993 and 1992, respectively. On October 4, 1993, the
Company announced that it has suspended the payment of cash dividends on each
class of its common stock. Restrictions contained in the Company's debt
instruments currently prohibit the declaration and payment of any cash
dividends.
- 15 -
<PAGE> 18
SELECTED FINANCIAL DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
The selected historical financial data for the fiscal years 1990
through 1994 are derived from the Company's audited consolidated financial
statements. Effective March 31, 1994, the Company adopted a plan to dispose of
its Canadian subsidiary, Ideal. Accordingly, Ideal is reported as a
discontinued operation in the fiscal 1994 consolidated financial statements
and the prior period consolidated financial statements have been reclassified
to conform to the current period presentation.
- 16 -
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net sales $215,112 $204,778 $197,738 $186,327 $186,315
Cost of sales 140,011 137,244 127,115 121,397 120,976
-------- -------- -------- -------- --------
Gross profit 75,101 67,534 70,623 64,930 65,338
Operating expenses 56,888 56,081 51,824 50,263 49,452
Restructuring and other nonrecurring
charges - 6,762 3,900 - -
-------- -------- -------- -------- --------
Operating income 18,213 4,691 14,899 14,667 15,886
Interest expense, net 21,334 20,365 20,025 17,462 15,814
-------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary charges and cumulative
effect of accounting change (3,121) (15,674) (5,126) (2,795) 72
Provision (benefit) for income taxes 351 216 (768) (680) 27
-------- -------- -------- --------- --------
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect of
accounting change (3,472) (15,890) (4,358) (2,115) 45
Discontinued operations - Ideal
Income (loss) from discontinued
operations, net of taxes (3,249) (11,240) 1,146 4,343 6,743
Loss on disposal, without
tax benefit (38,343) - - - -
-------- -------- -------- -------- --------
Income (loss) before extraordinary
charge and cumulative effect of
accounting change (45,064) (27,130) (3,212) 2,228 6,788
Extraordinary charges, early
repayment of debt(2) (6,824) - (1,186) - (320)
Cumulative effect of
accounting change(3) - (2,110) - - -
-------- -------- -------- -------- --------
Net income (loss) $(51,888) $(29,240) $ (4,398) $ 2,228 $ 6,468
======== ======== ======== ======== ========
Average number of shares outstanding 11,674 11,662 9,794 9,570 9,659
Primary earnings per share:
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting change $ (.30) $ (1.36) $ (.44) $ (.06) $ .01
Income (loss) from discontinued operations (.28) (.97) .11 .29 .69
Loss on disposal (3.28) - - - -
Extraordinary charges (.58) - (.12) - (.03)
Cumulative effect of accounting
change - (.18) - - -
-------- -------- -------- --------- --------
Net income (loss) $ (4.44) $ (2.51) $ (.45) $ .23 $ .67
======== ======== ======== ========= ========
Fully diluted earnings per share:
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting change $ (.30) $ (1.36) $ (.44) $ (.06) $ .01
Income (loss) from discontinued operations (.28) (.97) .11 .29 .65
Loss on disposal (3.28) - - - -
Extraordinary charges (.58) - (.12) - (.03)
Cumulative effect of accounting
change - (.18) - - -
-------- -------- -------- -------- --------
Net income (loss) $ (4.44) $ (2.51) $ (.45) $ .23 $ .63
======== ======== ======== ========= ========
Cash dividends per share:
Common stock $ - $ .08 $ .12 $ .12 $ .12
Class B common stock $ - .08 .12 .12 .11
Ratio of earnings to fixed charges (4) - - - - 1.2x
BALANCE SHEET DATA(1):
Working capital $ 93,699 $117,730 $135,886 $133,654 $136,989
Total assets 183,043 198,525 237,481 236,437 249,892
Total long-term debt 189,674 161,910 148,894 156,431 176,523
Stockholders' equity (37,709) 7,496 40,827 38,066 39,242
</TABLE>
- 17 -
<PAGE> 20
WAXMAN INDUSTRIES
NOTES TO SELECTED FINANCIAL DATA
(1) Data relating to continuing operations reflects the acquisition of
Western American Manufacturing, Inc. in November 1990, which was
accounted for as a purchase. Discontinued operations data relates to
Ideal which was acquired in May 1989 and accounted for as a purchase.
(2) See Note 4 to the Notes to Consolidated Financial Statements for a
further discussion of the extraordinary charge for fiscal 1992 and
fiscal 1994. The fiscal 1990 extraordinary charge related to the
repurchase of the Company's Convertible Debentures.
(3) See Note 3 to the Notes to Consolidated Financial Statements.
(4) For purposes of calculating this ratio, "earnings" consist of income
(loss) from continuing operations before income taxes, extraordinary
charges and cumulative effect of accounting change and fixed charges,
and "fixed charges" consist of interest expense, including the
interest portion of rental obligations on capitalized and operating
leases (which is deemed by the Company to be one-third of all of its
rental obligations with respect to operating leases). Fiscal 1991
earnings were insufficient to cover fixed charges by $2.8 million.
Fiscal 1992 earnings were insufficient to cover fixed charges by $5.1
million. Fiscal 1993 earnings were insufficient to cover fixed
charges by $15.7 million. Fiscal 1994 earnings were insufficient to
cover fixed charges by $3.1 million.
- 18 -
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITON AND RESULTS OF OPERATIONS
GENERAL
The Company operates in a single business segment-the distribution of
plumbing, electrical and hardware products. The Company's business is
conducted primarily through Barnett and Consumer Products.
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal. Unlike the Company's U.S. operations which supply
products to customers in the home repair and remodeling market through mass
retailers, Ideal primarily served customers in the Canadian new construction
market through independent contractors. The decision to dispose of Ideal was
prompted by a number of factors which had adversely affected Ideal's results of
operations and resulted in severe liquidity problems which jeopardized Ideal's
ability to continue conducting its operations. At the time the plan of
disposition was adopted, the Company expected that the disposition would be
accomplished through a sale of the business to a group of investors which
included members of Ideal's management. Such transaction would have required
the consent of Ideal's Canadian banks as borrowings under its bank credit
agreements were collateralized by all of the assets and capital stock of Ideal.
The bank considered the management group's acquisition proposal; however, the
proposal was subsequently rejected. On May 5, 1994, without advance notice,
Ideal's Canadian bank filed an involuntary bankruptcy petition against Ideal
citing defaults under the bank credit agreements (borrowings under these
agreements are non-recourse to Waxman Industries). The Company has not
contested the bank's efforts to effect the orderly disposition of Ideal. On
May 30, 1994, Ideal was declared bankrupt by the Canadian court and, as a
result, the Company's ownership and control of Ideal effectively ceased on such
date. The estimated loss on disposal totaled $38.3 million, without tax
benefits, and represents a complete write-off of the Company's investment in
Ideal. See Note 2 to Notes to Consolidated Financial Statements.
For financial reporting purposes, Ideal is reported as a discontinued
operation and the Company's consolidated financial statements have been
reclassified to report separately Ideal's net assets and results of operations.
Prior period consolidated financial statements have been reclassified to
conform to the current period presentation.
- 19 -
<PAGE> 22
RESULTS OF OPERATIONS
The following tables set forth certain items reflected in the
Company's Consolidated Statements of Income expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
Years ended June 30,
--------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 34.9 33.0 35.7
Operating expenses 26.4 27.4 26.2
Restructuring and other
nonrecurring charges - 3.3 2.0
Operating income 8.5 2.3 7.5
Interest expense, net 9.9 9.9 10.1
Loss from continuing operations
before income taxes, extraordinary charge
and cumulative effect of accounting
change (1.5) (7.7) (2.6)
Income (loss) from discontinued
operations, net of taxes (1.5) (5.5) 4.1
Loss on disposal, without tax benefit (17.8) - -
Loss before extraordinary charge
and cumulative effect of accounting
change (20.9) (13.2) (1.6)
Net loss (24.1) (14.3) (2.2)
</TABLE>
FISCAL 1994 VERSUS FISCAL 1993
NET SALES
The Company's net sales from continuing operations for fiscal 1994
totaled $215.1 million compared with $204.8 million in fiscal 1993, an increase
of 5.0%. The Company' net sales were adversely affected by the sale of H.
Belanger Plumbing Accessories (Belanger) in October 1993. Belanger's net sales
for fiscal 1994 totaled $1.5 million compared with $6.3 million in fiscal 1993.
Net sales increased 7.6% after excluding the impact of Belanger. The net sales
increase is primarily the result of the continued growth of Barnett. Barnett's
net sales increased $12.3 million or 14.9%, from $82.9 million in fiscal 1993
to $95.2 million in fiscal 1994. Sales of new products accounted for $7.2
million of the increase. The remainder of Barnett's increase was the result of
opening additional mail order warehouses, as well as the growth of Barnett's
existing customer base. Barnett opened two additional warehouses during fiscal
1994, increasing the total number of warehouses to 28. Also contributing to
the overall increase in net sales from continuing operations was increased net
sales from Consumer Products. Consumer Products net sales increased $3.2
million or 4.8%, from $67.5 million in fiscal 1993 to $70.7 million in fiscal
1994. The increase in Consumer Products' net sales is primarily the result of
the sale of additional existing product lines to several of its existing
customers. Management believes that the change in the continuing operation's
net sales is primarily the result of changes in volume.
GROSS PROFIT
The Company's gross profit increased from 33.0% in fiscal 1993 to 34.9%
in fiscal 1994. The increase in the Company's gross margin is primarily a
result of improved margins at Barnett. Barnett's gross margin has been
favorably impacted by increased sales of higher margin proprietary branded
products. Also contributing to the increase in gross margins were improved
gross margins at Consumer Products. Consumer Products' margin increased as a
result of proportionately higher sales of higher margin packaged products during
the latter part of fiscal 1996. Overall, the Company's gross margins were
favorably impacted by an increase in the percentage of products purchased from
foreign sources. Such products typically generate higher gross margins than
products purchased domestically. The sale of Belanger had no significant effect
on gross margin. Excluding the impact of Belanger, gross margin would have been
32.9% in fiscal 1993 as compared to 34.9% in fiscal 1994.
OPERATING EXPENSES
The Company's operating expenses increased 1.4% for fiscal 1994 from
$56.1 million in fiscal 1993 to $56.9 in fiscal 1994. As discussed below,
prior year operating expenses included approximately $1.2 million of additional
amortization
- 20 -
<PAGE> 23
expense relating to an accounting change. Excluding the impact of this
additional amortization as well as the sale of Belanger, operating expenses
increased 6.9% from $52.7 million in fiscal 1993 to $56.4 million in fiscal
1994. This increase was due primarily to higher operating expenses at Barnett.
Barnett's operating expenses increased approximately $2.8 million. The
majority of the increase in Barnett's operating expenses related to increased
warehouse and selling and advertising costs. The increases in warehouse and
selling and advertising costs were $0.7 million and $1.1 million, respectively.
These increases primarily related to the opening of new mail order warehouses
and increased promotional activity during fiscal 1994. Consumer Products'
operating expenses increased approximately $0.5 million or 2.9% between years.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
As discussed below, the Company recorded a $6.8 million restructuring
charge during fiscal 1993.
OPERATING INCOME
The Company's operating income totaled $18.2 million or 8.5% of net
sales in fiscal 1994 compared to $4.7 million or 2.3% of net sales in fiscal
1993. Fiscal 1993 operating income included a $6.8 million restructuring
charge as well as $1.2 million of additional amortization expense relating to
an accounting change. The impact of the sale of Belanger on operating income
was not significant.
INTEREST EXPENSE
The Company's interest expense totaled $21.3 million in fiscal 1994
compared to $20.4 in fiscal 1993. Average borrowings increased from $159.1
million in fiscal 1993 to $172.2 million in fiscal 1994. The increase in
average borrowings outstanding is due to increased working capital needs
relating to the growth of the Company's operations as well as the impact of the
additional debt incurred to fund repurchase premiums, fees and expenses
relating to the Company's recent debt restructuring. The weighted average
interest rate decreased from 12.9% in fiscal 1993 to 12.4% in fiscal 1994. The
decrease in the weighted average interest rate results from proportionally
higher borrowings under the Company's revolving credit facilities during fiscal
1994. Revolving credit facility borrowings bear lower interest rates than the
Company's other indebtedness. As a result of the debt restructuring, cash
interest expense will be reduced by approximately $6.9 million annually for
five years. The reduction in cash interest requirements will be offset in part
by the $11.0 million of additional indebtedness incurred as part of the
Reorganization. The Company's weighted average interest is expected to increase
by approximately 0.5% as a result of the completion of the Reorganization.
See "Liquidity and Capital Resources".
INCOME TAXES
In accordance with the provisions of SFAS 109, the Company is unable to
benefit losses for tax purposes in fiscal 1994. The Company has $59.6 million
of available domestic net operating loss carryforwards which expire through
2009, the benefit of which has been reduced 100% by a valuation allowance.
This includes amounts relating to the disposition of Ideal. The Company will
continue to evaluate the valuation allowance and to the extent that the Company
is able to recognize tax benefits in the future, such recognition will
favorably affect future results of operations.
The provision for income taxes for both fiscal years 1993 and 1994
represent state and foreign taxes.
LOSS FROM CONTINUING OPERATIONS
The Company's loss from continuing operations totaled $3.5 million in
fiscal 1994 compared to $15.9 million in fiscal 1993.
DISCONTINUED OPERATIONS
The Company's net loss from discontinued operations totaled $3.2 in
fiscal 1994, compared to $11.2 million in fiscal 1993. The Company also
recognized a loss on the disposal of Ideal of approximately $38.3 million in
the 1994 third quarter.
EXTRAORDINARY CHARGE
The Company recognized $6.8 million of extraordinary charges, without
tax benefits, in fiscal 1994. Approximately, $6.6 million of the extraordinary
charges related to the refinancing of the $50 million of Subordinated Notes as
well as borrowings under the
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<PAGE> 24
domestic bank credit facilities. This extraordinary charge included the fees
paid upon the exchange of the Subordinated Notes along with the accelerated
amortization of unamortized debt discount and issuance costs. The remainder of
the extraordinary charges resulted from the Company's repurchase of $1.9 million
of its Convertible Subordinated Debentures pursuant to a mandatory repurchase
obligation. As a result of the repurchase, the Company recorded an
extraordinary charge of $.2 million which primarily represents the accelerated
amortization of unamortized debt discount and issuance costs.
As noted in "Liquidity and Capital Resources," commencing in September
1996, the Company is required to make certain substantial sinking fund payments
with respect to its Senior Secured Notes. In order to eliminate and/or satisfy
such sinking fund obligations, and to decrease the Company's high degree of
leverage, the Company will have to obtain a significant infusion of funds
either through additional debt refinancing transactions or the sale of equity
and/or assets. Although the Company is currently exploring its various
alternatives, it has not yet committed to any specific course of action or
transaction. The Company expects that additional extraordinary charges will be
incurred if additional debt refinancing transactions occur. There can, however,
be no assurances with respect to the timing and magnitude of any such
extraordinary charges.
NET LOSS
The Company's net loss (including those relating to Ideal) for fiscal
1994 totaled $51.9 million compared with a net loss of $29.2 million in fiscal
1993. The fiscal 1993 net loss includes a $2.1 million charge for the
cumulative effect of a change in accounting for warehouse and catalog costs,
which was made during the fourth quarter of fiscal 1993 and was applied
retroactively to July 1, 1992.
FISCAL 1993 VERSUS FISCAL 1992
NET SALES
The Company's net sales from continuing operations for fiscal 1993
totaled $204.8 million compared with $197.7 million in fiscal 1992, an increase
of 3.6%. Barnett's net sales increased 14.9% from $72.1 million in fiscal 1992
to $82.9 million in fiscal 1993. New product introductions accounted for $5.6
million of this increase. In addition, the new catalog of maintenance products
introduced in January 1992 generated approximately $2.2 million in incremental
sales. The remainder of Barnett's increase was the result of the opening of
additional mail order warehouses, as well as the growth of Barnett's existing
customer base. Barnett opened three additional mail order warehouses during
fiscal 1993, increasing the total number of warehouses to 26. The increase
from Barnett was offset, in part, by lower net sales from Consumer Products.
Consumer Products' net sales totaled $67.5 million in fiscal 1993 compared with
$70.0 million in fiscal 1992, a decrease of 3.6%. Management believes that the
change in the domestic operations' net sales is primarily the result of changes
in volume.
GROSS PROFIT
The Company's gross margin was 33.0% in fiscal 1993 compared with
35.7% in fiscal 1992. Barnett's gross margin declined approximately one-half
of one percentage point and Consumer Products' gross margin declined
approximately four percentage points. The majority of Consumer Products'
decline in margin is attributable to proportionately lower sales of higher
margin packaged products as well as competitive pressures within its markets
relating to the pricing of new business. Consumer Products' margins continued
to decline during the first part of fiscal 1994, however improved during the
latter part of that year.
OPERATING EXPENSES
The Company's operating expenses totaled $56.1 million or 27.4% of net
sales, in fiscal 1993 compared with $51.8 million, or 26.2% of net sales, in
fiscal 1992, an increase of $4.3 million, or 8.2%. Approximately $1.2 million
of this increase relates to accelerated amortization of certain warehouse
start-up and catalog costs during fiscal 1993 to conform with prevailing
industry practice. This change was made during the fourth quarter and was
applied retroactively to July 1, 1992. The effect of this change on fiscal
1993 results was to increase amortization expense by $1.2 million. This
increase is primarily the result of the introduction of a new catalog, and in
management's opinion, was not indicative of the expected impact of accelerated
amortization on future operating results. The cumulative effect of this change
on prior years totaled $2.1 million and is reported separately in the income
statement, without tax benefit, as a change in accounting. Excluding the
impact of this item, operating expenses were up 6.7% primarily due to increases
at Barnett. Barnett's
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operating expenses (excluding the accelerated amortization) increased
approximately $2.1 million or 13.4% which is less than Barnett's 14.9% increase
in net sales between the years. Approximately $1.3 million of Barnett's
increase in operating expenses is related to the opening of new mail order
warehouses. Consumer Products' operating expenses increased approximately $0.4
million between years.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES
In fiscal 1993, the Company recorded $6.8 million of restructuring and
other nonrecurring charges. In fiscal 1992, the Company recorded $3.9 million
of restructuring and other nonrecurring charges.
The fiscal 1993 restructuring charge consisted of $4.6 million related
to the expected losses in connection with the disposal of three small operating
units. The decision to dispose of the three entities was based in part on the
Company's strategy to refocus and build on its core businesses in the U.S.
(i.e., Consumer Products and Barnett). The Company completed the sale of one
of these operating units in October 1993. The Company was unable to come to
terms with the prospective buyer of the other two entitles and the consummation
of a sale of these businesses is not expected to occur in the foreseeable
future, if at all. The remainder of the restructuring charge included $1.6
million of costs incurred to consolidate administrative functions and transfer
two of Consumer Products' domestic packaging facilities to Mexico. These costs
principally consist of lease and severance termination costs of $0.5 million,
relocation costs, including payroll and freight costs of $0.5 million and a
write-off of fixed assets of $0.1 million. The relocation to Mexico was done in
order to take advantage of that country's lower labor costs which are expected
to benefit the Company annually through increased margins. No additional cash
disbursements relating to the $1.6 million restructuring charge are expected.
The remaining $0.6 million related to the Company's decision not to proceed
with the securities offering of Barnett in fiscal 1993.
The fiscal 1992 restructuring charge consisted of a $3.9 million
capital loss realized upon the sale of the Company's portfolio of debt
securities.
OPERATING INCOME
The Company's operating income totaled $4.7 million in fiscal 1993
compared with $14.9 million in fiscal 1992, a decrease of 68.5%. Fiscal year
1993 results were negatively impacted by the $6.8 million restructuring charge
described above, and the $1.2 million of accelerated amortization described
above. The remainder of the decrease was primarily attributable to a $2.5
million decline of Consumer Products' gross margin.
INTEREST EXPENSE
The Company's net interest expense totaled $20.4 million for fiscal
year 1993 compared with $20.0 million for fiscal year 1992, an increase of
1.7%. Average borrowings outstanding totaled $159.1 million in fiscal 1993, as
compared with $159.7 million in fiscal 1992. Weighted average borrowings in
fiscal 1992 included amounts which the Company borrowed under a domestic term
loan which were invested in highly liquid short-term securities and used for
working capital purposes until the Company obtained its revolving credit
facility in September 1991. Excluding the impact of these borrowings, average
borrowings for fiscal 1992 were $156.4 million. The weighted average interest
rate for fiscal year 1993 was 12.9% compared with 13.2% in the prior year.
LOSS FROM CONTINUING OPERATIONS
The Company's fiscal 1993 loss from continuing operations totaled
$15.9 million compared with a loss of $4.4 million in fiscal 1992.
DISCONTINUED OPERATIONS
The Company's fiscal 1993 net loss from discontinued operations
totaled $11.2 million compared with net income of $1.1 million in fiscal 1992.
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<PAGE> 26
NET INCOME (LOSS)
The Company's fiscal 1993 net loss totaled $29.2 million and included
a $2.1 million charge for the cumulative effect of the change in accounting
discussed above. The net loss for fiscal 1992 was $4.4 million and included a
$1.2 million extraordinary charge for the early repayment of debt. The Company
was not able to benefit any of its fiscal 1993 losses for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
On May 20, 1994, the Company completed a debt restructuring which
was undertaken to modify the Company's capital structure to facilitate the
growth of its domestic businesses by reducing cash interest expense and
increasing the Company's liquidity.
As part of the restructuring, the Company exchanged $50 million of its
Senior Subordinated Notes for $50 million initial accreted value of the Notes.
Approximately $48.8 million of the Senior Subordinated Notes remain
outstanding. The Deferred Coupon Notes have no cash interest requirements
until June, 1, 1999. As a result of the exchange, the Company's cash interest
requirements have been reduced by approximately $6.9 million annually for five
years. The reduction in cash interest requirements will be offset, in part, by
the $11.0 million of additional indebtedness incurred as part of the debt
restructuring. In addition, the $50 million of Senior Subordinated Notes
exchanged satisfy the Company's mandatory redemption requirements with respect
to such issue and, as a result, the $20 million mandatory redemption payments
due on June 1, 1996 and 1997 have been satisfied and the mandatory redemption
payment due on June 1, 1998 has been reduced to $8.8 million. The Company is,
however, required to make two mandatory redemption payments of $17.0 million
on each of September 1, 1996 and September 1, 1997 with respect to the Senior
Secured Notes.
As part of the restructuring, the Operating Companies entered into a
$55 million, four-year, secured credit facility with an affiliate of Citibank,
N.A., as agent for certain financial institutions. The Domestic Credit
Facility, which has an initial term of three years, will be extended for an
additional year if the Senior Secured Notes have been repaid on or before March
1997. The Domestic Credit Facility is subject to borrowing base formulas. The
Domestic Credit Facility prohibits dividends and distributions by the Operating
Companies except in certain limited instances. The Domestic Credit Facility
contains customary negative, affirmative and financial covenants and
conditions. At June 30, 1994, availability under the Domestic Credit Facility
totaled approximately $10 million.
As part of the restructuring, the Operating Companies also entered into
a $15.0 million three-year term loan with Citibank, N.A., as agent. A one-time
fee of 1.0% of the principal amount outstanding under the Domestic Term Loan
will be payable if such loan is not repaid by November 20, 1994. Principal
payments of the Domestic Term Loan of $1.0 million each will be required
quarterly commencing in March 1995. The Domestic Term Loan will be required to
be prepaid if the Company completes a financing sufficient to retire the Senior
Secured Notes and the Domestic Term Loan. The Domestic Term Loan contains
negative, affirmative and financial covenants, conditions and events of default
substantially the same as those under the Domestic Credit Facility.
See Note 6 to Consolidated Financial Statements for a more complete
discussion of the new Domestic Credit Facility and Domestic Term Loan.
The Company does not have any commitments to make substantial capital
expenditures. However, the Company does expect to open up to four Barnett
warehouses over the next twelve months. The average cash cost to open a
Barnett warehouse is approximately $0.5 million, including approximately
$250,000 for inventory and approximately $250,000 for fixed assets, leasehold
improvements and startup costs.
The Company expects to incur approximately $0.5 million of costs
relating to the disposition of Ideal, of which approximately $0.1 million has
been incurred as of June 30, 1994.
The Company currently has no significant principal repayment
requirements. Commencing March 1995, the Company will be required to make
quarterly principal payments of $1.0 million under its Domestic Term Loan. In
addition, the Company is required to make mandatory sinking fund payments of
$17.0 million relating to its Senior Secured Notes on each of September 1, 1996
and 1997. The Company is also
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<PAGE> 27
required to make a mandatory sinking fund payment of $8.8 million relating to
its Senior Subordinated Notes on June 1, 1998.
As a result of the issuance of the Deferred Coupon Notes, which reduces
cash interest requirements by approximately $6.9 million annually until June 1,
1999, the Company believes that funds generated from operations along with
funds available under the Company's revolving credit facility will be
sufficient to satisfy the Company's liquidity requirements (including the
Domestic Term Loan principal payments) until September 1996. In order to
eliminate and/or satisfy such sinking fund obligations, and to decrease the
Company's high degree of leverage, the Company will have to obtain a
significant infusion of funds either through additional debt refinancing
transactions or the sale of equity and/or assets. Although the Company is
currently exploring its various alternatives, it has not yet committed to any
specific course of action or transaction.
DISCUSSION OF CASH FLOWS
The Company's continuing operations used $6.2 million of cash flow for
operations primarily as a result of the $10.1 million dollar increase in
inventories. Inventory levels were up in response to the higher sales levels
achieved during fiscal 1994. In addition, the Company began building
inventories during the fourth quarter of fiscal 1994 relating to new business
commitments which Consumer Products obtained from several of its largest
customers. The opening orders of such additional business will be shipped
primarily during the first quarter of fiscal 1995. Cash flow used for
investments totaled $1.6 million in fiscal 1994. During October 1993, the
Company generated approximately $3.0 million of cash from the sale of Belanger.
The proceeds from the sale were offset by $3.4 million of capital expenditures
and a $1.3 million increase in other assets. Cash flow provided by financing
activities totaled $17.4 million. Additional borrowings under the Company's
revolving credit facilities along with the proceeds from the Domestic Term Loan
were offset, in part, by $1.8 million used to satisfy a mandatory repurchase
requirement relating to the Convertible Debentures and $13.9 million of
repurchase premiums, fees and expenses relating to the Reorganization.
FIXED CHARGE COVERAGE RATIO
Fiscal 1992 earnings were insufficient to cover fixed charges by $5.1
million. Fiscal 1993 earnings were insufficient to cover fixed charges by
$15.7 million. Fiscal 1994 earnings were insufficient to cover fixed charges
by $3.1 million. The Company's business strategy, described herein, is
designed to capitalize on the growth prospects for Barnett and Consumer
Products and thereby increase earnings. The Company believes that the
successful implementation of its business strategy will enable it to reduce or
eliminate the deficiency of earnings to fixed charges. However, there can be
no assurances regarding when such deficiencies will be reduced or eliminated or
that the deficiencies experienced in the past will not reoccur.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1992, the Financial Accounting Standards Board (the FASB)
issued SFAS No. 109, "Accounting for Income Taxes." The Company adopted SFAS
No. 109 during the first quarter of fiscal 1994. SFAS No. 109 requires the
Company to recognize income tax benefits for loss carryforwards which have not
previously been recorded. The tax benefits recognized must be reduced by a
valuation allowance in certain circumstances. The Company did not recognize a
benefit and such adoption did not have a material impact on its results of
operations or financial position. However, to the extent that the Company is
able to recognize tax benefits in the future, such recognition will favorably
effect future results of operations. The FASB has also issued SFAS No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions" and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The Company
does not currently maintain any postretirement or postemployment benefit plans
or programs which would be subject to such accounting standards.
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BUSINESS
GENERAL
The Company believes that it is one of the leading suppliers of
plumbing products to the home repair and remodeling market in the United
States. The Company distributes plumbing, electrical and hardware products, in
both packaged and bulk form, to D-I-Y retailers, mass merchandisers, smaller
independent retailers and plumbing, electrical repair and remodeling
contractors.
The Company's business is conducted through its indirect wholly owned
subsidiaries, Barnett, Consumer Products, WOC and TWI. Through their
nationwide network of warehouses and distribution centers, Barnett and Consumer
Products provide their customers with a single source for an extensive line of
competitively priced, quality products. The Company's strategy of being a
low-cost supplier is facilitated by its purchase of a significant portion of
its products from low-cost foreign sources. Barnett's marketing strategy is
directed predominantly to contractors and independent retailers, as compared to
Consumer Products' strategy of focusing on mass merchandisers and larger D-I-Y
retailers. The Company's continuing operations' consolidated net sales were
$215.1 million in fiscal 1994.
BUSINESS STRATEGY
During the 1980's, the Company achieved significant revenue increases
through a combination of internal growth and strategic acquisitions of
businesses that marketed similar or complementary product lines. During the
1990's, the Company has initiated steps and is continuing to focus on
integrating the acquired businesses and improving operating efficiencies. The
Company's current strategy includes the following elements:
- EXPANSION OF BARNETT. Since its acquisition in 1984,
Barnett's revenues and operating income have grown at compound
annual rates of 11.7% and 13.2%, respectively, as a result of
(i) the expansion of its warehouse network, (ii) the
introduction of new product offerings and (iii) the
introduction in January 1992 of an additional catalog targeted
at a new customer base. The Company intends to continue to
expand Barnett's national warehouse network and expects to
open as many as four new warehouses during each of the next
several fiscal years. Barnett expects to fund this expansion
using cash flow from operations and/or available borrowings
under the Debt Financing. Barnett also intends to continue
expanding its product offerings, allowing its customers to
utilize its catalogs as a means of one-stop shopping for many
of their needs. In an effort to further increase
profitability, Barnett is also increasing the number of higher
margin product offerings bearing its proprietary trade names
and trademarks.
- ENHANCE COMPETITIVE POSITION OF CONSUMER PRODUCTS. During the
past 24 months, Consumer Products has restructured its sales
and marketing functions in order to better serve the needs of
its existing and potential customers. Consumer Products
restructured its sales department by defining formal regions
of the country for which regional sales managers would have
responsibility. Prior to the restructuring, in fiscal 1993
sales managers had responsibility for specific customers
without regard to location. In addition, as part of the
restructuring, in fiscal 1993 a marketing department was
established separate and apart from the sales department. The
marketing department is staffed with product managers who have
the responsibility of identifying new product programs. The
restructuring of the sales and marketing departments is
complete at this time. Consumer Products' strategy is to
achieve consistent growth by expanding its business with
existing customers and by developing new products and new
customers. In order to increase business with existing
customers, Consumer Products is focusing on developing
strategic alliances with its customers. Consumer Products
seeks to (i) introduce new products within existing
categories, as well as new product categories, (ii) improve
customer service, (iii) introduce full service marketing
programs and (iv) achieve higher profitability for both the
retailer and Consumer Products. Management believes that
Consumer Products is well positioned to benefit from the trend
among many large retailers to consolidate their purchases
among fewer vendors.
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BARNETT
Barnett markets over 10,000 products to more than 33,000 active
customers through comprehensive quarterly catalogs, supplemented by monthly
promotional flyers and supported by telemarketing operations. Barnett services
its customers, who are primarily plumbing and electrical contractors serving
the repair and remodeling markets and independent retailers, through its
growing, nationwide network of 28 mail order warehouses. Barnett also
distributes a specialized quarterly catalog of maintenance products (also
supplemented by monthly promotional flyers) that is directed only to customers
responsible for the maintenance of hotels, motels, office buildings, healthcare
facilities and apartment complexes. The Company believes that this marketing
strategy effectively positions Barnett to continue to expand its customer base
and increase sales to existing customers. In fiscal 1994, Barnett's largest
customer accounted for less than 2% of Waxman USA's net sales and its top-ten
customers accounted for less than 6% of Waxman USA's net sales. Barnett's
average sale is $240. Barnett's net sales were approximately $95.2 million in
fiscal 1994.
Barnett was acquired by the Company in 1984. Since the acquisition,
Barnett has increased its number of warehouses from three to 28 and the number
of items in its catalog from 2,000 to 10,000. During this period, the number
of active accounts serviced by Barnett increased from 6,000 to over 33,000.
Barnett has added nine warehouses during the last three full fiscal years
including two warehouses in fiscal 1994. Barnett plans to open up to four
warehouses annually for the next several years. Barnett has been able to
maintain its overall operating margins throughout its expansion.
Based on management's experience and knowledge of the industry, the
Company believes, in the absence of any applicable statistics, that Barnett is
the only national mail order and telemarketing operation distributing plumbing,
electrical and hardware products in the United States. The Company believes
that Barnett has significant advantages over its regional and national
competitors. Due to its size and volume of purchases, Barnett is able to
obtain purchase terms which are more favorable than those available to its
competition, enabling it to offer prices which are generally lower than those
available from its competitors. In addition to Barnett's competitive pricing
strategy, by offering over 10,000 products, Barnett is able to provide its
customers with a single source of supply for all of their needs.
MARKETING AND DISTRIBUTION
Barnett markets its products nationwide principally through regular
catalog and promotional mailings to existing and potential customers, supported
by telemarketing operations providing 24-hour-a-day, toll-free ordering and an
expanding network of 28 warehouses allowing for delivery to customers generally
within one day of the receipt of an order. The telemarketing operations are
utilized to make telephonic sales presentations to certain potential customers
only after these customers have received written promotional materials.
Barnett's telemarketing operations are centralized in Jacksonville, Florida.
CATALOGS
Barnett's in-house art department produces the design and layout for
its catalogs and promotional mailings, including the quarterly catalog, the
monthly promotional flyers and Barnett's catalog of maintenance products.
Barnett's catalogs are indexed and illustrated, provide simplified pricing and
highlight new product offerings.
Barnett mails its principal catalog, containing plumbing, electrical
and hardware products, to over 33,000 active customers, including hardware and
building supply stores, lumberyards and plumbing, electrical repair and
remodeling contractors. The quarterly catalog is supplemented by monthly
promotional flyers mailed to approximately 180,000 active and potential
customers. In January 1992, Barnett introduced a new semi-annual catalog of
maintenance products designed to appeal to customers responsible for the
maintenance of hotels, motels, healthcare facilities, office buildings and
apartment complexes. Since the maintenance catalog was introduced in 1992,
Barnett has added approximately 6,000 new maintenance accounts.
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Barnett makes its initial contact with potential customers primarily
through promotional flyers. Barnett obtains the names of prospective customers
through the rental of mailing lists from outside marketing information services
and other sources. Barnett uses sophisticated proprietary information systems
to analyze the results of individual catalog and promotional flyer mailings and
uses the information derived from these mailings to target future mailings.
Barnett updates its mailing lists frequently to delete inactive customers.
TELEMARKETING
Barnett's telemarketing operations have been designed to make ordering
its products as convenient and efficient as possible. Barnett offers its
customers a nationwide toll-free telephone number which accepts orders on a
24-hour-a-day basis. Calls are handled by members of Barnett's well-trained
staff of 47 telemarketers who utilize Barnett's proprietary, on-line order
processing system. This system provides the telemarketing staff with access to
information about products, pricing and promotions which enables them to better
serve the customer. Barnett's telemarketing staff handles approximately 1,600
incoming calls per day.
After an order is received, a computer credit check is performed and
if credit is approved, the order is transmitted to the warehouse located
nearest the customer and is shipped within 24 hours.
In addition to receiving incoming calls, Barnett's telemarketing
operations are also utilized to make telephonic sales presentations to
potential customers who have received promotional flyers from Barnett. Also,
for several months prior to the opening of new mail order warehouses, Barnett
utilizes its telemarketing operations to generate awareness of Barnett, its
product offerings and the upcoming opening of new mail order warehouses located
near the target customers.
Barnett's telemarketing operations and information systems provide its
management with current market information such as customer purchasing patterns
and purchases, competitive pricing data, and potential new products. This
information allows Barnett to quickly react to and capitalize on business
opportunities.
WAREHOUSES
Barnett currently has four warehouses in Texas, three in Florida and
two in each of Pennsylvania, New York and California. The remaining 15
warehouses are dispersed among an equal number of states. Barnett's warehouses
are located in areas meeting certain criteria for overall population and
potential customers. Typical warehouses have approximately 15,000 to 18,000
square feet of space of which up to 600 square feet are devoted to
over-the-counter sales. Barnett has initiated a program to enlarge product
displays in the counter area of the warehouses in order to display the breadth
of its expanding product line.
Barnett's experience indicates that customers prefer to order from
local suppliers and that many local tradespeople prefer to pick up their orders
in person rather than to have them delivered. Therefore, Barnett intends to
continue the expansion of its warehouse network in order to reduce the distance
between it and the customer. For the year ended June 30, 1994, approximately
24% of Barnett's net sales were picked up by Barnett's customers.
The factors considered in site selection include the number of
prospective customers in the local target area, the existing sales volume in
such area and the availability and cost of warehouse space, as well as other
demographic information. From its experience in opening 25 new warehouses
since its acquisition by the Company, Barnett has gained substantial expertise
in warehouse site selection, negotiating leases, reconfiguring space to suit
its needs, and stocking and opening new warehouses. The average investment
required to open a warehouse is approximately $500,000, including approximately
$250,000 for inventory.
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PRODUCTS
Barnett markets an extensive line of over 10,000 plumbing, electrical
and hardware products, many of which are sold under its proprietary trade names
and trademarks. This extensive line of products allows Barnett to serve as a
single source supplier for many of its customers. Since the beginning of the
current fiscal year, Barnett has added approximately 1,400 new products,
including a new line of builders' hardware and light bulbs. Many of these
products are higher margin products bearing Barnett's proprietary trade names
and trademarks. Barnett tracks sales of new products the first year they are
offered and new products that fail to meet specified sales criteria are
discontinued. Barnett believes that its customers respond favorably to the
introduction of new product lines in areas that allow the customers to realize
additional cost savings and to utilize Barnett's catalogs as a means of
one-stop shopping for many of their needs.
In an effort to further increase profitability and to further enhance
Barnett's reputation as a leading supplier of plumbing, electrical and hardware
products, Barnett is presently increasing the number of its higher margin
product offerings bearing its proprietary trade names and trademarks.
Proprietary products offer customers high quality, lower cost alternatives to
the brand name products Barnett sells. Barnett's catalogs and monthly
promotional flyers emphasize the comparative value of such items. Barnett's
products are generally covered by a one year warranty, and returns (which
require prior authorization from Barnett) have historically been immaterial in
amount.
The following is a discussion of Barnett's principal product groups:
PLUMBING PRODUCTS. Barnett's plumbing products include faucets and
faucet parts, sinks, disposals, vanities and cabinets, tub and shower
accessories, and toilets and toilet tank repair items. Barnett's plumbing
products are sold under its proprietary trademarks PremierTM and RegentTM.
Barnett also sells branded products of leading plumbing manufacturers.
ELECTRICAL PRODUCTS. Barnett's electrical products include such items
as light bulbs, light fixtures, circuit panels and breakers, switches and
receptacles, wiring devices, chimes and bells, telephone and audio/video
accessories and various appliance repair items. Certain of Barnett's
electrical products are sold under its own proprietary trademarks, such as
PremierTM light bulbs, and the proprietary trademarks of leading manufacturers
of electrical supplies.
HARDWARE PRODUCTS. Barnett sells a broad range of hardware products,
including hand tools and power tools, patio and closet door repair accessories,
window hardware, paint supplies, fasteners, safety equipment, cleaning supplies
and garden hoses and sprinklers.
CONSUMER PRODUCTS
Consumer Products markets and distributes approximately 9,000 products
to a wide variety of retailers, primarily D-I-Y warehouse home centers, home
improvement centers, mass merchandisers, hardware stores and lumberyards.
Representative of Consumer Products' large national retailers are Kmart,
Builders Square and Wal-Mart. Representative of Consumer Products' large
regional D-I-Y retailers are Channel Home Centers and Fred Meyer Inc. According
to rankings of the largest D-I-Y retailers published in National Home Center
News, an industry trade publication, Consumer Products' customers include 16 of
the 25 largest D-I-Y retailers in the United States. Consumer Products works
closely with its customers to develop comprehensive marketing and merchandising
programs designed to improve their profitability, efficiently manage shelf
space, reduce inventory levels and maximize floor stock turnover. Management
believes that Consumer Products is the only supplier to the D-I-Y market that
carries a complete line of plumbing, electrical and floor protective hardware
products, in both packaged and bulk form. Consumer Products also offers
certain of its customers the option of private label programs. The Company
believes that Consumer Products will also benefit from the continued growth of
the D-I-Y market which, according to Do-It-Yourself Retailing, an industry
trade publication, is expected to expand at a compound annual rate of
approximately 8% over the next three years as well as from the expected growth
of existing customers, several of which have announced expansion plans.
- 29 -
<PAGE> 32
In fiscal 1994, Kmart and its subsidiaries accounted for approximately
13% of the Company's continuing operations' net sales. No other customer was
responsible for more than 2% of the Company's continuing operations' net sales
in fiscal 1994. Consumer Products' top ten customers accounted for
approximately 25% of the Company's continuing operations' net sales in fiscal
1994.
During the 1980's, Consumer Products significantly expanded its
business through a combination of internal growth and strategic acquisitions.
The Company's acquisition strategy focused on businesses which marketed similar
or complementary product lines to customers or markets not previously served or
through channels not previously utilized by the Company. In recent years,
Consumer Products has integrated the acquired businesses to enhance the
Company's purchasing power, improving operating efficiencies and enabling
Consumer Products to cross-sell a broader range of products to a larger
customer base. These improvements have enabled Consumer Products to withstand
financial downturns suffered by several important regional retailers to whom
Consumer Products sells its products and to significantly increase its sales to
several national retailers. Consumer Products' net sales were approximately
$70.7 million in fiscal 1994.
In recent years, the rapid growth of large mass merchandisers and
D-I-Y retailers has contributed to a significant consolidation of the United
States retail industry and the formation of large, dominant, product specific
and multi-category retailers. These retailers demand suppliers who can offer a
broad range of quality products and can provide strong marketing and
merchandising support. Due to the consolidation in the D-I-Y retail industry,
a substantial portion of Consumer Products' net sales are generated by a small
number of customers. During the past 24 months, Consumer Products has
restructured its sales and marketing functions in order to better position
itself to meet the demands of the retailers. Management believes that its
strategy of developing new products and forming strategic alliances with its
customers will enable Consumer Products to effectively compete and achieve
consistent growth. Consumer Products supplies products to its customers
pursuant to individual purchase orders and has no long-term written contract
with its customers.
MARKETING AND DISTRIBUTION
Consumer Products' marketing strategy includes offering mass
merchandisers and D-I-Y retailers a comprehensive merchandising program which
includes design, layout and setup of selling areas. Sales and service
personnel assist the retailer in determining the proper product mix in addition
to designing department layouts to effectively display products and optimally
utilize available floor and shelf space. Consumer Products supplies
point-of-purchase displays for both bulk and packaged products, including
color-coded product category signs and color-coordinated bin labels to help
identify products, and backup tags to signify products that require reordering.
Consumer Products also offers certain of its customers the option of private
label programs for their plumbing and floor care products. In-house design,
assembly and packaging capabilities enable Consumer Products to react quickly
and effectively to service its customers' changing needs. In addition,
Consumer Products' products are packaged and designed for ease of use, with
"how to" instructions included to simplify installation, even for the
uninitiated D-I-Y consumer.
Consumer Products' sales and service representatives visit stores
regularly to take reorders and recommend program improvements. These
representatives also file reports with Consumer Products, enabling it to stay
abreast of changing consumer demand and identify developing trends. In
addition, Consumer Products has identified a growing trend among retailers to
purchase on a "just-in-time" basis in order to reduce their inventory levels
and increase returns on investment. In order to support its customers'
"just-in-time" requirements, Consumer Products has significantly improved its
EDI capabilities.
Consumer Products operates and distributes its products through four
strategically located distribution facilities in Cleveland, Ohio, Lancaster,
Pennsylvania, Dallas, Texas and Reno, Nevada.
PRODUCTS
The following is a discussion of the principal product groups:
- 30 -
<PAGE> 33
PLUMBING PRODUCTS. Consumer Products' plumbing products include
valves and fittings, rubber products, repair kits and tubular products such as
traps and elbows. Many of Consumer Products' plumbing products are sold under
the proprietary trade names Plumbcraft(R), PlumbKing(R), Plumbline(TM) and
KF(R). In addition, Consumer Products offers certain of its customers the
option of private label programs. Consumer Products also offers proprietary
lines of faucets under the trade name Premier(R), as well as a line of shower
and bath accessories under the proprietary trade name Spray Sensations(TM).
ELECTRICAL PRODUCTS. Consumer Products' electrical products include
items such as plugs, adapters, outlets, wire, circuit breakers and various
tools and test equipment. Consumer Products sells many of its electrical
products under the proprietary trade name Electracraft(R). Consumer Products
also sells a line of outdoor weatherproof electrical products, a full line of
ceiling fan accessories, a line of telephone accessories and connecting
devices, a line of audio and video accessories and lamp and light fixture
replacement parts and replacement glassware.
FLOOR PROTECTIVE HARDWARE PRODUCTS. Consumer Products' floor
protective hardware products include casters, doorstops and other floor,
furniture and wall protective items. Consumer Products markets a complete line
of floor protective hardware products under the proprietary trade name KF(R)
and also under private labels.
OTHER OPERATIONS
The Company has several other operations which are conducted through
WOC and TWI. These operations in the aggregate generated net sales of $47.7
million in fiscal 1994, which accounted for approximately 22.1% of the net
sales from the Company's continuing operations during the period. The most
significant of these operations are U.S. Lock, a supplier of security hardware
products, and LeRan, a supplier of copper tubing and specialty plumbing
products. U.S. Lock and LeRan, as well as Madison Equipment and Medal
Distributing, are operated as separate divisions of WOC. TWI includes the
foreign sourcing operations which support the Company's continuing operations.
U.S. LOCK
U.S. Lock, which was acquired by the Company in 1988, carries a full
line of security hardware products, including locksets, door closers and
locksmith tools. Many of these products are sold under the U.S. Lock(R) and
Legend(TM) trademarks. U.S. Lock markets and distributes its products primarily
to locksmiths through a telemarketing sales team. U.S. Lock's telemarketing
effort is supplemented with a catalog that is mailed annually to 6,000 existing
customers and promotional flyers. Since its acquisition by the Company, U.S.
Lock has increased its number of warehouses from one to four, three of which
are shared with Barnett. Shared facilities allow the Company to realize
additional efficiencies by consolidating space requirements and reducing
personnel costs.
LERAN
LeRan, which was acquired by the Company in 1985, is a supplier of
copper tubing and fittings, brass valves and fittings, malleable fittings and
related products. Its customers include liquid petroleum gas dealers,
lumberyards, plumbing and mechanical contractors and D-I-Y retailers. LeRan
markets its products primarily through salesmen and outside service
representative organizations. These efforts are supported by a catalog, which
is mailed semiannually to 7,000 existing customers, monthly promotional flyers
and a telemarketing program. LeRan currently services its customers from four
regional warehouses, two of which are shared with Barnett.
OTHER OPERATIONS
WOC's other operations also include its Madison Equipment division, a
supplier of electrical products, and its Medal Distributing division, a
supplier of hardware products.
- 31 -
<PAGE> 34
PURCHASING, PACKAGING AND ASSEMBLY
Products bearing the Company's proprietary trade names and trademarks
are assembled and packaged in its Taiwan, Mainland China and Mexico facilities.
The products packaged in Taiwan and China are purchased locally in bulk and,
after assembly and packaging, are shipped to the Company's various distribution
centers in the United States. The Company also outsources the packaging of
certain products. For the year ended June 30, 1994, products purchased
overseas, primarily from Taiwan, accounted for approximately 27.2% of the total
product purchases made by the Company's continuing operations.
TWI, through its subsidiaries, operates the Taiwan and Mainland China
facilities, which assemble and package plumbing and electrical products. In
addition, the facility in Mainland China manufactures and packages plastic
floor protective hardware. The Company believes that these facilities give it
competitive advantages, in terms of cost and flexibility in sourcing. Both
labor and physical plant costs are significantly below those in the United
States.
During fiscal 1991, the Company purchased WAMI, a small manufacturer
of plumbing pipe nipples in Tijuana, Mexico. Pipe nipples are short lengths of
pipe from 1/2 of an inch to 6 feet long, threaded at each end. As a result of
this acquisition, the Company is now vertically integrated in the manufacture
and distribution of pipe nipples. Since the acquisition, in order to take
advantage of lower labor costs, the Company has relocated certain of its United
States packaging operations to TWI's WAMI subsidiary in Mexico.
Substantially all of the other products purchased by Waxman USA are
manufactured for it by third parties. Waxman USA estimates that it purchases
products and materials from over approximately 1,300 suppliers and is not
dependent on any single unaffiliated supplier for any of its requirements.
The following table sets forth the approximate percentage of net sales
from continuing operations attributable to the Company's principal product
groups:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Plumbing 72% 74% 73%
Electrical 11 10 9
Hardware 17 16 18
---- ---- ----
Net Sales 100% 100% 100%
==== ==== ====
</TABLE>
IMPORT RESTRICTIONS
Under current United States government regulations all products
manufactured offshore are subject to import restrictions. The Company
currently imports goods from Mexico under the preferential import regulations
commonly known as "807' and as direct imports from China and Taiwan. The "807'
arrangement permits an importer who purchases raw materials in the United
States and then ships the raw materials to an offshore factory for assembly, to
reimport the goods, without quota restriction and to pay a duty only on the
value added in the offshore factory.
Where the Company chooses to directly import goods purchased outside
of the United States, the Company may be subject to import quota restrictions,
depending on the country in which assembly takes place. These restrictions may
limit the amount of goods of a particular category that a country may export to
the United States. If the Company cannot obtain the necessary quota, the
Company will not be able to import the goods into the United States. Export
visas for the goods purchased offshore by the Company are readily available.
- 32 -
<PAGE> 35
The above arrangements, both 807 and quota restrictions, may be
superseded by more favorable regulations with respect to Mexico under the North
American Free Trade Agreement ("NAFTA"), or may be limited by revision or
cancelled at any time by the United States government. The Company does not
believe that its relative competitive position will be adversely affected by
NAFTA. As a result of the passage of NAFTA, importation from Mexico will
become more competitive in the near future relative to importation from other
exporting countries.
COMPETITION
Waxman USA faces significant competition from different competitors
within each of its product lines, although it has no competitor offering the
range of products in all of the product lines that Waxman USA offers. Waxman
USA believes that its buying power, extensive inventory, emphasis on customer
service and merchandising programs have contributed to its ability to compete
successfully in its various markets. In the areas of electrical and hardware
supplies, Waxman USA faces significant competition from smaller companies which
specialize in particular types of products and larger companies which
manufacture their own products and have greater financial resources than Waxman
USA. Barnett's mail order business competes principally with local
distributors of plumbing, electrical and hardware products. Waxman USA
believes that competition in sales to both mail order customers and retailers
is primarily based on price, product quality and selection, as well as customer
service, which includes speed of responses for mail order customers and
packaging and merchandising for retailers.
EMPLOYEES
As of June 30, 1994, the Company's continuing operations employed
1,211 persons, 273 of whom were clerical and administrative personnel, 190 of
whom were sales service representatives and 748 of whom were either production
or warehouse personnel. Approximately 8% of the employees of the Company's
continuing operations are represented by collective bargaining units. The
Company considers its relations with its employees, including those represented
by collective bargaining units, to be satisfactory.
TRADEMARKS
Several of the trademarks and trade names used by the Company are
considered to have significant value in its business. See "Business-
- -Barnett--Products," "--Consumer Products--Products" and "--Other Operations."
PROPERTIES
The following table sets forth, as of June 30, 1994, certain
information with respect to the Company's principal physical properties:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
SQUARE EXPIRATION
LOCATION FEET PURPOSE DATE
-------- ---- ------- ----
<S> <C> <C> <C>
24460 Aurora Road 21,000 Corporate Office Owned
Bedford Hts., OH
24455 Aurora Road 125,000 Consumer Products Corporate Office and Warehouse 6/30/02
Bedford Hts., OH(1)
330 Vine Street 80,000 Medal Distributing Office and Warehouse 2/28/96
Sharon, PA
</TABLE>
- 33 -
<PAGE> 36
<TABLE>
<S> <C> <C> <C>
902 Avenue T 77,000 Consumer Products Office and Warehouse 5/31/00
Grand Prairie, TX
945 Spice Island Drive 71,000 Consumer Products Office and Warehouse 7/31/98
Sparks, NV(3)
1842 Colonial Village Lane 72,000 Consumer Products Office and Warehouse 5/31/00
Lancaster, PA
3333 Lenox Avenue 60,000 Barnett Corporate Office and Warehouse 10/31/03
Jacksonville, FL
300 Jay Street 56,000 LeRan Corporate Office and Warehouse Owned
Coldwater, MI
No. 10, 7th Road 56,000 Office, Packaging, and Warehouse Owned
Industrial Park
Taichung, Taiwan
Republic of China
<FN>
(1) Aurora Investment Co., a partnership owned by Melvin and Armond Waxman
together with certain other members of their families, is the owner
and lessor of this property. The Company has the option to renew the
leases for a five-year term at the market rate at the time of renewal.
(2) The Company has the option to renew the lease for three additional
five-year terms.
(3) The Company has the option to renew the lease for a five-year term.
</TABLE>
In addition to the properties shown in the table, the Company owns 15
warehouses and leases 55 warehouses ranging in size from 6,000 to 50,000 square
feet (of these properties, Barnett leases 27 warehouses and Consumer Products
leases six warehouses).
The Company believes that its facilities are suitable for its
operations and provide the Company with adequate capacity.
LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not affect
materially the financial statements of the Company.
ENVIRONMENTAL REGULATIONS
The Company is subject to certain federal, state and local
environmental laws and regulations. The Company believes that it is in
material compliance with such laws and regulations applicable to it. To the
extent any subsidiaries of Waxman Industries are not in compliance with such
laws and regulations, Waxman Industries, as well as such subsidiaries, may be
liable for such non-compliance. However, in any event, the Company is not
aware of any such liabilities which could have a material adverse effect on it
or any of its subsidiaries.
- 34 -
<PAGE> 37
RECENT DEVELOPMENTS
BELANGER SALE. In October 1993, the Company completed the sale of all
of the capital stock of one of its Canadian operations, H. Belanger Plumbing
Accessories, Ltd. ("Belanger") to a group led by the management of Belanger in
exchange for cash and a promissory note. Belanger, based in Montreal, is
engaged in the distribution of plumbing specialty products, including bulk and
packaged products to plumbing and hardware wholesalers and retailers. During
fiscal 1993, Belanger had net sales of U.S. $6.3 million.
DISCONTINUED OPERATIONS. Effective March 31, 1994, the Company adopted
a plan to dispose of its Canadian subsidiary, Ideal. Unlike the Company's
United States operations which supply products to customers in the home repair
and remodeling market through mass retailers, Ideal primarily served customers
in the Canadian new construction market through independent contractors.
Accordingly, Ideal is reported as a discontinued operation and the consolidated
financial statements and financial information contained herein have been
reclassified to report separately Ideal's net assets and results of operations.
Prior period consolidated financial statements and financial information have
been reclassified to conform to the current period presentation.
Ideal determined in April 1994 that, as of March 31, 1994, it was in
violation of several financial covenants included in its Canadian bank credit
agreements, including those related to the maintenance of a specified working
capital ratio, interest coverage ratio and borrowing base formulas. In
addition, on April 15, 1994, Ideal failed to make a Cdn. $150,000 payment on
the term loan portion of such agreements.
At the time the plan of disposition was adopted, the Company expected
that the disposition would be accomplished through a sale of the business to a
group of investors which included members of Ideal's management. Such
transaction would have required the consent of the lenders under Ideal's
Canadian bank credit agreements as borrowings under such credit agreements were
collateralized by all of the assets and capital stock of Ideal. The bank
considered the management group's acquisition proposal; however, the proposal
was subsequently rejected. On May 5, 1994, without advance notice, the bank
filed an involuntary bankruptcy petition against Ideal citing defaults under
the bank credit agreements (borrowings under these agreements are non-recourse
to Waxman Industries, Inc.). The Company has not contested the bank's efforts
to effect the orderly disposition of Ideal. On May 30, 1994, Ideal was
declared bankrupt by the Canadian courts and, as a result, the Company's
ownership and control of Ideal effectively ceased on such date. Upon the
petition of Ideal's Canadian lenders, Coopers & Lybrand Ltd. was appointed as
trustee to liquidate the assets of Ideal. As of the date of this Prospectus,
the Company has been advised that Ideal is no longer operating and that certain
of Ideal's branch operations have been sold but that the trustee has not yet
liquidated the remaining inventory, accounts receivable and fixed assets of
Ideal.
Ideal's defaults under its Canadian bank credit agreements and
subsequent bankruptcy do not trigger a "cross-default" under, or result in any
violation of the debt covenants contained in, the Company's or its
subsidiaries' outstanding debt obligations other than under the Company's
$155,000 principal amount outstanding of Convertible Debentures. In addition,
neither the Company nor any of its subsidiaries has any liability to creditors
of Ideal as a result of Ideal's bankruptcy.
- 35 -
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors, executive officers and key
employees of the Company and their respective ages and positions are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Melvin Waxman 60 Chairman of the Board and Co-Chief Executive
Officer
Armond Waxman 55 President, Co-Chief Executive Officer, Treasurer
and Director
John S. Peters 46 Senior Vice President, Operations
William R. Pray 47 Senior Vice President
Laurence S. Waxman 37 Senior Vice President
Neal R. Restivo 34 Vice President, Finance and Chief Financial
Officer
Irving Z. Friedman 61 Director
Samuel J. Krasney 68 Director
Judy Robins 45 Director
</TABLE>
Set forth below is a biographical description of each director,
executive officer and key employee of the Company mentioned above.
Mr. Melvin Waxman was elected Co-Chief Executive Officer of the
Company in May 1988. Mr. Waxman has been a Chief Executive Officer of the
Company for over 20 years and has been a director of the Company since 1962.
Mr. Waxman has been Chairman of the Board of the Company since August 1976.
Melvin Waxman and Armond Waxman are brothers.
Mr. Armond Waxman was elected Co-Chief Executive Officer of the
Company in May 1988. Mr. Waxman has been the President and Treasurer of the
Company since August 1976. Mr. Waxman has been a director of the Company since
1962 and was Chief Operating Officer of the Company from August 1976 to May
1988. Armond Waxman and Melvin Waxman are brothers.
Mr. Peters was elected to the position of Senior Vice President,
Operations of the Company in April 1988, after serving as Vice President,
Operations of the Company since February 1985. Prior to that Mr. Peters had
been Vice President, Personnel/Administration of the Company since February
1979.
Mr. Pray was elected Senior Vice President of the Company in February
1991 and is also President of Barnett, a position he has held since 1987. Mr.
Pray joined Barnett in 1979 as Vice President of Sales and Marketing.
Mr. Laurence Waxman was elected Senior Vice President of the Company
in November 1993 and is also President of the Consumer Group Division, a
position he has held since 1988. Mr. Waxman joined the Company in 1981. Mr.
Laurence Waxman is the son of Melvin Waxman.
Mr. Restivo was elected Vice President, Finance and Chief Financial
Officer of the Company in November 1993, after serving as Vice President,
Corporate Controller since November 1990, and as Corporate Controller of the
Company since November 1989. From August 1982 until November 1989, Mr. Restivo
was employed by the public accounting firm of Arthur Andersen & Co., where he
was an audit manager since 1988.
- 36 -
<PAGE> 39
Mr. Friedman has been a director of the Company since 1989. Mr.
Friedman has been a certified public accountant with the firm of Krasney Polk
Friedman & Fishman for more than five years.
Mr. Krasney has been a director of the Company since 1977. In
September 1993, Mr. Krasney retired from his position of Chairman of the Board,
President and Chief Executive Officer of Banner Aerospace, Inc., a distributor
of parts in the aviation aftermarket, a position he had held since June 1990.
In September 1993, Mr. Krasney also retired from The Fairchild Corporation
(formerly Banner Industries, Inc.) where he had been Vice Chairman of the Board
since 1985. Fairchild is a manufacturer and distributor of fasteners to the
aerospace industry and industrial products for the plastic injection molding
industry and other industrial markets and is a furnisher of telecommunication
services to office buildings. Mr. Krasney is also a director of FabriCenters
of America, Inc.
Mrs. Robins has been a director of the Company since 1980. Mrs.
Robins has owned and operated an interior design business for more than five
years. Mrs. Robins is the sister of Melvin and Armond Waxman. Mrs. Robins'
husband is the Secretary of the Company.
BOARD OF DIRECTORS
The number of directors on the Board of the Company is presently fixed
at five. Directors are elected at the annual meeting of stockholders and hold
office for one year and until their successors are elected. The Company has an
Executive Committee, Audit Committee, Compensation Committee and Stock Option
Committee. Messrs. Melvin and Armond Waxman and Krasney serve on the Executive
Committee, Messrs. Friedman and Krasney serve on the Audit Committee and the
Stock Option Committee and Mrs. Robins and Messrs. Krasney and Friedman serve
on the Compensation Committee.
DIRECTOR REMUNERATION
Each director who is not an employee of the Company received a fee of
$3,000 per fiscal quarter for services as a director during fiscal 1994, in
addition to the foregoing compensation. In fiscal 1994, the Board of Directors
adopted the 1994 Non-Employee Directors Stock Option Plan pursuant to which
each current non-employee director of the Company was granted an option to
purchase an aggregate of 20,000 shares of the Company's Common Stock at an
exercise price of $2.25 per share and each future non-employee director of the
Company would be granted, on the date such person becomes a non-employee
director of the Company, an option to purchase an aggregate of 20,000 shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock on the date of grant. The grant of such options is subject to
stockholder approval, which the Company intends to seek at its next annual
meeting of stockholders.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid for services
rendered during fiscal 1994 to the Co-Chief Executive Officers and the three
other most highly compensated executive officers of the Company in the fiscal
years indicated:
- 37 -
<PAGE> 40
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Awards Payouts All Other
Annual Compensation(1) ------ ------- Compensation
---------------------- Restricted LTIP ------------
Name and Principal Position Year Salary($) Bonus($)(2) Stock($) Options(#) Payouts($) ($)(3)(4)(5)
--------------------------- ---- --------- ----------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Melvin Waxman 1994 325,000 100,000 -- 300,000(6) -- 45,604
Chairman of the Board and 1993 365,000 100,000 -- 250,000(6) -- 65,293
Co-Chief Executive Officer 1992 400,000 125,000 -- -- -- --
Armond Waxman 1994 366,923 200,000 -- 300,000(6) -- 86,766
President and Co-Chief 1993 378,942 100,000 -- 250,000(6) -- 50,464
Executive Officer 1992 400,000 125,000 -- -- -- --
William R. Pray 1994 206,000 75,000 -- 67,500(7) -- --
Senior Vice President 1993 200,000 45,000 -- 25,000(7) -- 14,789
1992 173,000 50,000 -- 7,500(7) -- --
John S. Peters 1994 130,018 42,500 -- 52,500(7) -- 12,500
Senior Vice President -- 1993 132,644 25,000 -- 45,000(7) -- 14,137
Operations 1992 125,000 25,000 -- 7,500(7) -- --
Laurence S. Waxman 1994 151,826 65,000 -- 57,500(7) -- 11,589
Senior Vice President 1993 135,000 40,000 -- 50,000(7) -- 14,058
1992 136,923 40,000 -- 7,500(7) -- --
Jerome C. Jaques(8) 1994 260,769 -- -- -- -- 1,472
Senior Vice President-Finance 1993 192,057 45,000 -- 50,000 -- 16,175
and Chief Financial Officer 1992 200,000 50,000 -- 12,500 -- --
<FN>
(1) Certain executive officers received compensation in fiscal 1992, 1993
and 1994 in the form of perquisites, the amount of which does not
exceed reporting thresholds.
(2) Messrs. Pray, Peters and Laurence Waxman received their bonuses under the Company's
Profit Incentive Plan.
(3) In accordance with the transitional provisions applicable to the rules
of the Securities and Exchange Commission, disclosure of All Other
Compensation is not required for 1992.
(4) For fiscal 1993, includes Company contributions to the
Company's Profit-Sharing Retirement Plan and premiums on split-dollar
life insurance policies. Profit Sharing Plan contributions were as
follows: $2,289 each for Messrs. Melvin and Armond Waxman and Mr.
Pray, $1,637 for Mr. Peters, $1,558 for Laurence Waxman and $2,289 for
Mr. Jacques. Premiums on split-dollar life insurance policies were as
follows: $63,004 for Melvin Waxman, $48,175 for Armond Waxman, $12,500
each for Messrs. Pray, Peters and Laurence Waxman and $13,886 for Mr.
Jacques.
(5) For fiscal 1994, amounts represent premiums on split-dollar life insurance policies.
(6) During May 1994, Messrs. Melvin and Armond Waxman agreed to relinquish all of
their existing stock options in exchange for the grant of a like number of new options.
The grant of 100,000 of the new options is subject to stockholder approval of an amendment
to the 1992 Non-Qualified and Incentive Stock Option Plan to increase the number of shares
subject thereto, which the Company intends to seek at the next annual meeting of stockholders
(the "1992 Plan Amendment").
(7) During May 1994, Messrs. Pray, Peters and Laurence Waxman agreed to relinquish
all of their existing stock options in exchange for the grant of a like number of new
options.
(8) Includes certain amounts paid to Mr. Jacques in connection with the termination of his
employment in November 1993.
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Peters entered into an employment agreement with the Company which
became effective as of January 1, 1992 and terminates on December 31, 1995.
Pursuant to such employment agreement, Mr. Peters is to serve as Senior Vice
President, Operations of the Company, and is also to serve in such substitute
or further offices or positions with the Company or any subsidiary or affiliate
of the Company as shall, from time to time, be assigned by the Board of
Directors of the Company. Mr. Peters' employment agreement provides for a
minimum annual salary of $125,000, which salary will be reviewed annually by
the Company. Increases in salary and the granting of bonuses to Mr. Peters
will be determined by the Company, in its sole discretion, based on such
individual's performance and contributions to the success of the Company, his
responsibilities and duties and the
- 38 -
<PAGE> 41
salaries of other senior executives of the Company. The employment agreement
also contains provisions which restrict Mr. Peters from competing with the
Company during the term of the agreement and for two years following the
termination thereof.
Mr. Pray has an employment agreement with Barnett and the Company
which became effective as of July 1, 1990 and which terminates on June 30,
2000. Pursuant to this employment agreement, Mr. Pray is to serve as President
of Barnett and provide services to Barnett in such managerial areas as Mr. Pray
served in the past and such additional duties as shall be assigned to Mr. Pray
by the Co-Chief Executive Officers of the Company. Mr. Pray's employment
agreement provides for a minimum annual salary of $165,000 for the first year
of the employment agreement and provides that for each year thereafter the
minimum annual salary will be increased by eight percent of the prior year's
salary or any salary amount separately agreed to in writing by Mr. Pray,
Barnett and the Company. Mr. Pray is also eligible to receive additional
discretionary bonuses as may from time to time be determined in the sole
discretion of the Board of Directors of the Company. The employment agreement
also contains provisions which restrict Mr. Pray from competing with the
Company during the term of the agreement and for two years following the
termination thereof.
STOCK OPTION AND SAR GRANTS
The following table sets forth the information noted for all grants of
stock options made by the Company during fiscal 1994 to each of the executive
officers named in the Summary Compensation Table:
<TABLE>
OPTIONS/SAR(1) GRANTS IN LAST FISCAL YEAR
<CAPTION> INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Melvin Waxman 300,000(3) 24.0 2.25 May 2004 424,575 1,075,950
Armond Waxman 300,000(3) 24.0 2.25 May 2004 424,575 1,075,950
William R. Pray 67,500 5.4 2.25 May 2004 95,529 242,089
John S. Peters 52,500 4.2 2.25 May 2004 74,301 188,291
Laurence S. Waxman 57,500 4.6 2.25 May 2004 81,377 206,244
<FN>
(1) There were no SARs granted to any of the executive officers named in
this table in fiscal 1994.
(2) The potential realizable values represent future opportunity and have
not been reduced to present value in 1994 dollars. The dollar amounts
included in these columns are the result of calculations at assumed
rates set by the Securities and Exchange Commission for illustration
purposes, and these rates are not intended to be a forecast of the
Common Stock price and are not necessarily indicative of the values
that may be realized by the named executive officer.
(3) The grant of options exercisable to acquire 100,000 of
the 300,000 shares shares of Common Stock subject to the options
granted to each of Messrs. Armond and Melvin Waxman is subject to the
approval of the stockholders of the Company of the 1992 Plan
Amendment.
</TABLE>
STOCK OPTION AND SAR EXERCISES
The following table sets forth the information noted for all exercises
of stock options and SARs during fiscal 1994 by each of the executive officers
named in the Summary Compensation Table:
- 39 -
<PAGE> 42
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF
SHARES OPTIONS AT FISCAL UNEXERCISED
ACQUIRED YEAR-END(#) IN-THE-MONEY
ON VALUE EXERCISABLE/ OPTIONS AT
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE YEAR-END($)
---- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Melvin Waxman -- -- 0/300,000(1) --
Armond Waxman -- -- 0/300,000(1) --
William R. Pray -- -- 0/67,500 --
John S. Peters -- -- 0/52,500 --
Laurence S. Waxman -- -- 0/57,500 --
<FN>
(1) The grant options exercisable to acquire 100,000 of the 300,000
shares of Common Stock subject to the options granted to each of Messrs.
Armond and Melvin Waxman is subject to the approval of the stockholders
of the Company of the 1992 Plan Amendment.
</TABLE>
- 40 -
<PAGE> 43
PRINCIPAL STOCKHOLDERS
CAPITAL STOCK
The following table sets forth, as of June 30, 1994 (except as noted in
footnote 4 below), the number of shares beneficially owned by each director, by
the directors and executive officers of the Company as a group and by each
holder of at least five percent of Common Stock, and the respective percentage
ownership of the outstanding Common Stock and Class B Common Stock and voting
power held by each such holder and group. The mailing address for Messrs.
Melvin and Armond Waxman is the executive office of the Company.
<TABLE>
<CAPTION> NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OWNED OWNERSHIP PERCENTAGE
------------------ --------- OF
CLASS B CLASS B AGGREGATE
NAME OF COMMON COMMON COMMON COMMON VOTING
BENEFICIAL OWNER STOCK STOCK STOCK STOCK POWER
- ---------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Melvin Waxman(1) 872,282 1,011,932 9.2% 45.5% 34.7%
Armond Waxman(2) 765,107 826,082 8.1 37.2 28.5
Samuel J. Krasney(3) 6,750 6,750 * * *
Judy Robins 66,750 78,750 * 3.5 2.7
Directors and officers
as a group (9
individuals) 1,755,714 1,978,766 18.5 89.0 67.9
Weiss, Peck & Greer(4) 1,182,500 -- 12.5 -- 3.7
One New York Plaza
New York, NY 10004
<FN>
* less than 1%
(1) Includes 100 shares of Common Stock owned by a member of Mr.
Melvin Waxman's immediate family, as to which shares Mr. Waxman
disclaims beneficial interest.
(2) Includes 55,825 shares of Common Stock and 55,800 shares of the
Class B Common Stock owned by members of Mr. Armond Waxman's immediate
family, as to which shares Mr. Waxman disclaims beneficial interest.
(3) Includes 4,500 shares of Common Stock and 4,500 shares of the
Class B Common Stock owned by Mr. Krasney's wife, as to which shares
Mr. Krasney disclaims beneficial interest.
</TABLE>
- 41 -
<PAGE> 44
(4) The information set forth in the table with respect to Weiss, Peck &
Greer was obtained from Amendment No. 2 to a Statement on Schedule
13G, dated February 11, 1994, filed with the Commission. Such
statement reflects Weiss, Peck & Greer's beneficial ownership as of
December 31, 1993.
RECENT SECURITIES OFFERING AND RELATED MATTERS
THE REORGANIZATION
On May 20, 1994, as part of the Reorganization, the Company issued the
Warrants together with the Notes in exchange for $50,000,000 aggregate
principal amount of the Company's outstanding Senior Subordinated Notes
pursuant to the Private Exchange Offer. In addition to the Private Exchange
Offer, the components of the Reorganization included (i) the Senior
Subordinated Consent Solicitation, (ii) the Debt Financing, (iii) the 12 1/4%
Consent Solicitation and (iv) the repayment of the borrowings under the
Company's then existing domestic revolving credit facilities (including $27.7
under the Company's then existing working capital credit facility and $2.5
million under the $5.0 million revolving credit facility of Barnett (the
"Barnett Financing")). No component of the Reorganization is dependent on the
successful completion of the Exchange Offer.
As a result of the Private Exchange Offer (and excluding any shares of
Common Stock acquired by the Selling Stockholders other than pursuant to the
offering of securities described in the two preceding paragraphs), the Selling
Stockholders beneficially own Warrants exercisable into 2,950,000 shares of
Common Stock or approximately 20% of the outstanding Common Stock assuming the
exercise of all of the Warrants.
In connection with the Reorganization, the Company completed the
Corporate Restructuring. As part of the Corporate Restructuring, the Company
formed (a) Waxman USA, as a holding company for the subsidiaries that comprise
and support the Company's domestic operations, (b) Consumer Products, a wholly
owned subsidiary of Waxman USA, to own and operate the Consumer Products
Division, and (c) WOC, a wholly owned subsidiary of Waxman USA, to own and
operate Waxman USA's domestic subsidiaries, other than Barnett and Consumer
Products. On May 20, 1994, the Company restructured its operations by (i)
contributing the capital stock of Barnett to Waxman USA, (ii) contributing the
assets and liabilities of the Consumer Products Division to Consumer Products,
(iii) contributing the assets and liabilities of its Madison Equipment Division
to WOC, (iv) contributing the assets and liabilities of its Medal Distributing
Division to WOC, (v) merging U.S. Lock and LeRan, each a wholly owned
subsidiary of the Company, into WOC, (vi) contributing the capital stock of TWI
to Waxman USA and (vii) contributing the capital stock of WAMI to TWI.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Equity Registration Rights Agreement, the Company has
agreed to use its best efforts to register the offer and sale of the Warrants
and shares of Common Stock underlying the Warrants under the Act, and pursuant
to a Registration Rights Agreement dated May 20, 1994, among the Company and
the trustee under the indenture governing the Notes, on behalf of the original
purchasers of the Notes (the "Debt Registration Rights Agreement"), the Company
has agreed to use its best efforts to register the offer and sale of the Notes
under the Act.
Pursuant to the Equity Registration Rights Agreement, the Company has
agreed to use its best efforts (i) to file, within 30 days of the issuance of
the Warrants, a registration statement under the Act to permit the original
purchasers of the Warrants to offer and sell under the Act the Warrants and
shares of Common Stock underlying the Warrants ("Warrant Shares"), (ii) to
cause such Equity Registration Statement to become effective within 120 days of
the date of issuance of the Warrants and (iii) to maintain such effectiveness
for a period of three years or
- 42 -
<PAGE> 45
such shorter period ending when all of the Warrants and Warrant Shares have
been sold pursuant to the Equity Registration Statement or the date three years
after all Warrants have been exercised. The period beginning on the date the
Equity Registration Statement is first declared effective by the Commission and
ending on the date which is three years after the expiration of the Warrants
or, if earlier, the date on which all Warrants and Warrant Shares have been
sold pursuant to the Equity Registration Statement or the date three years
after all Warrants have been exercised, is referred to herein as the
"Effectiveness Period." In the event that the Equity Registration Statement is
not filed or effective by, or continuously effective through, the dates
referred to above or prior to the end of the Effectiveness Period, the
Commission shall have issued a stop order suspending the effectiveness of the
Equity Registration Statement or the prospectus contained in the Equity
Registration Statement, as amended or supplemented, shall (x) not contain
current information required by the Securities Act and the rules and
regulations promulgated thereunder or (y) contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading, the Company has agreed to pay, or
cause to be paid, as liquidated damages and not as a penalty, to each holder of
a Warrant or Warrant Share, an amount equal to $0.0025 per week per Warrant or
Warrant Share, as the case my be, for each week beginning on such date and
ending 90 days thereafter. Such liquidated damages shall be increased by
$0.0025 per week per Warrant or Warrant Share, as the case may be, at the
beginning of each subsequent 90-day period up to a maximum aggregate amount of
$0.01 per week per Warrant or Warrant Share, as the case may be. The Company
has agreed to pay all expenses incident to the Company's performance of or
compliance with the Equity Registration Rights Agreement, including the
reasonable fees and expenses of counsel to the original purchasers of the
Warrants but excluding any underwriting fees, discounts or commissions
attributable to the sale of the Warrants or Warrant Shares. Each of the
Company and the Warrant Agent, on behalf of the original purchasers of the
Warrants, pursuant to the Equity Registration Rights Agreement, have agreed to
indemnify the other party, its officers, directors and controlling persons in
respect of certain liabilities and expenses arising, under certain
circumstances, out of any registration of the Securities pursuant to the Equity
Registration Rights Agreement. The Company has prepared and filed the
Registration Statement of which this Prospectus forms a part with the
Commission pursuant to the Equity Registration Rights Agreement.
Pursuant to the Debt Registration Rights Agreement, the Company has
agreed to use its best efforts (i) to file, within 30 days of the issuance of
the Notes, a registration statement (the "Debt Registration Statement") under
the Act with respect to an exchange offer (the "Exchange Offer") whereby
securities substantially identical to the Notes would be offered for exchange
with the Notes in order to permit the original purchasers of the Notes to offer
and sell such new notes under the Act and (ii) to cause such registration
statement to become effective within 120 days of the date of issuance of the
Notes. Upon the registration statement being declared effective, the Company
will offer such new notes in exchange for surrender of the Notes. The Company
has agreed to keep the Exchange Offer pursuant to the registration statement
open for not less than 30 days (or longer if required by applicable law) after
the date notice of such offer is mailed to the holders of the Notes. In the
event that the Company or the holders of 25% in aggregate principal amount of
the Notes reasonably determine in good faith that because of any change in law
or applicable interpretations of the Staff of the Commission the Company is not
permitted to effect the Exchange Offer, or if for any other reason the Exchange
Offer is not consummated within 180 days of the date of the Debt Registration
Rights Agreement or if a holder of the Notes is not permitted, because of a
change in law or interpretations of the Staff of the Commission, to participate
in the Exchange Offer, the Company will, at its cost, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Notes,
(b) use its best efforts to cause such shelf registration statement to be
declared effective under the Securities Act and (c) use its best efforts to
keep continuously effective such shelf registration statement until three years
after the issuance of the Notes or such shorter period ending when all of the
Notes eligible for sale thereunder have been sold thereunder. In the event
that the registration statement is not filed or effective by, or continuously
effective through, the dates referred to above or the Commission shall have
issued a stop order suspending the effectiveness of the registration statement
or any shelf registration statement with respect to the Notes at a time when
such registration statement or shelf registration statement, as the case may
be, is required to be kept effective by the Company or the prospectus contained
in any such registration statement or shelf registration statement, as amended
or supplemented, shall (x) not contain current information required by the
Securities Act and the rules and regulations promulgated thereunder
- 43 -
<PAGE> 46
or (y) contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the Company has agreed to pay, or cause to be paid, as liquidated
damages and not as a penalty to each holder of Notes, an amount equal to $0.05
per week per $1,000 of Accreted Value of Notes held by such holder, for each
week during the 90-day period beginning on the date referred to above or the
date of the order suspending effectiveness or the date on which the prospectus
shall not contain such current information or shall contain any such untrue
statement or omit to state any such material fact. Such liquidated damages
shall be increased by $0.05 per week per $1,000 of Accreted Value of Notes at
the beginning of each subsequent 90-day period up to a maximum aggregate amount
of $0.20 per week per $1,000 of Accreted Value of Notes. The Company has
agreed to pay all expenses incident to the Company's performance of or
compliance with the Debt Registration Rights Agreement, including the
reasonable fees and expenses of counsel to the original purchasers of the Notes
but excluding any underwriting fees, discounts or commissions attributable to
the sale of the Notes. Each of the Company and the Trustee, on behalf of the
original purchasers of the Notes, pursuant to the Debt Registration Rights
Agreement, have agreed to indemnify the other party, its officers, directors
and controlling persons in respect of certain liabilities and expenses arising,
under certain circumstances, out of any registration of the Notes pursuant to
the Debt Registration Rights Agreement. The Company has prepared and filed the
Debt Registration Statement with the Commission pursuant to the Debt
Registration Rights Agreement.
- 44 -
<PAGE> 47
SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to the
Securities beneficially owned and offered hereby by each Selling Security
Holder.
<TABLE>
<CAPTION>
Name Warrants Owned Warrants Offered
---- ---------------- ----------------------
<S> <C> <C>
American Enterprise Life Insurance Company 2,950 2,950
Citicorp Securities, Inc. 147,500 147,500
Colonial High Yield Securities Fund 59,000 59,000
Executive Investors High Yield Fund 5,900 5,900
First Investors Fund for Income 103,250 103,250
First Investors High Yield Fund 100,300 100,300
IDS Life Insurance Company 143,075 143,075
IDS Life Insurance Company of New York 10,325 10,325
Internationale Nederlanden (U.S.) Finance
Corporation 354,000 354,000
Kemper Diversified Income Fund 222,607 222,607
Kemper High Income Trust 55,106 55,106
Kemper High Yield Fund 800,453 800,453
Kemper Investors Fund-High Yield Portfolio 52,274 52,274
Kemper Multi-Market Income Trust 12,154 12,154
KML High Yield Investments N.V. 9,853 9,853
KML II High Yield Investments N.V. 9,853 9,853
MetLife-State Street High Income Fund 236,000 236,000
MetLife-State Street Managed Assets 29,500 29,500
Metropolitan Life Insurance Co. 59,000 59,000
Merrill Lynch Pierce Fenner & Smith Inc. 359,900 359,900
Northstar High Yield Fund 118,000 118,000
T.D. Partners 59,000 59,000
--------- ---------
Total 2,950,000 2,950,000
<FN>
- ---------------
The Company is registering, on behalf of each Selling Security Holder,
the offer and sale of the number of Warrants set forth opposite such Selling
Security Holder's name under the column captioned "Warrants Offered" and the
same number of shares of Common Stock, subject to adjustment in certain
circumstances, issuable upon exercise of the Warrants. As of the date hereof,
no Warrants have been exercised to purchase shares of Common Stock.
</TABLE>
- 45 -
<PAGE> 48
Because the Selling Security Holders may offer all or some part of the
Securities pursuant to this Prospectus and because this offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
amount of Securities to be offered for sale by the Selling Security Holders nor
the amount of Securities that will be held by the Selling Security Holders upon
termination of this offering. See "Plan of Distribution." To the extent
required, the specific amount of Securities to be sold by the Selling Security
Holders in connection with a particular offer will be set forth in an
accompanying Prospectus Supplement.
DESCRIPTION OF THE WARRANTS
The Warrants were issued pursuant to the terms of a Warrant Agreement,
dated as of May 20, 1994 (the "Warrant Agreement"), by and between the Company
and The Huntington National Bank, as warrant agent (the "Warrant Agent"), on
behalf of the original purchasers of the Warrants. The following summary of
the material provisions of the Warrant Agreement and the Warrant Certificate
attached thereto (the "Warrant Certificate") does not purport to be complete,
and where reference is made to particular provisions of the Warrant Agreement
or the Warrant Certificate, such provisions, including the definitions of
certain terms, are qualified in their entirety by reference to all of the
provisions of the Warrant Agreement and Warrant Certificate, which have been
filed or incorporated by reference as exhibits to the Registration Statement of
which this Prospectus forms a part.
The Warrants are currently exercisable. The Warrants will expire June
1, 2004. Upon exercise, each Warrant initially entitles the holder to receive
one Warrant Share at an initial cash exercise price of $2.45, subject to
adjustment in certain circumstances.
Holders of the Warrants do not have any of the rights or privileges of
the stockholders of the Company, including voting rights to receive dividends,
prior to exercise of the Warrants. The Company has reserved out of its
authorized but unissued shares a sufficient number of shares of Common Stock
for issuance upon exercise of the Warrants. The Common Stock issuable on
exercise of the Warrants will be, when issued, fully paid and nonassessable.
ANTI-DILUTION
The Warrants contain customary anti-dilution provisions, including
adjustments in the event of a reclassification, recapitalization, stock
dividend, stock split, reverse stock split, stock issuance below fair market
value or other similar transaction, and including protections in the event of a
transaction in which the Company is not the surviving entity.
METHOD OF EXERCISE
The Warrants may be exercised by surrendering to the Warrant Agent the
Warrant Certificates evidencing such Warrants, with the accompanying form of
election to purchase properly completed and executed. Upon surrender of the
Warrant Certificates and payment in cash of the exercise price, the Warrant
Agent will deliver, or cause to be delivered, to or upon the written order of
such holder, certificates representing the Warrant Shares to which such holder
is entitled.
Warrant Certificates will be issued in registered form only and no
service charge shall be made for registration of transfer or exchange upon
surrender of any Warrant Certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Warrant
Certificates.
AMENDMENT
-46-
<PAGE> 49
From time to time, the Company and the Warrant Agent, without the
consent of the holders of the Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including curing defects or inconsistencies or
making any change that does not adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has an adverse effect on
the interests of holders or that affects the anti-dilution provisions contained
therein shall require the written consent of registered holders of a majority
of the then outstanding Warrants. The consent of each holder of an Warrant
affected shall be required for any amendment pursuant to which the number of
Warrant Shares which could be acquired upon exercise of Warrants would be
decreased or the exercise period for the Warrants would be modified in any
manner.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 2,000,000
shares of Preferred Stock, $.01 par value, 22,000,000 shares of Common Stock,
$.01 par value, and 6,000,000 shares of Class B Common Stock, $.01 par value.
As of September 12, 1994, no shares of Preferred Stock, 9,491,457 shares of
Common Stock and 2,220,705 shares of Class B Common Stock were issued and
outstanding.
COMMON STOCK AND CLASS B COMMON STOCK
Each share of Common Stock entitles the holder to one vote on all
matters submitted to the stockholders, including the election of directors, and
each share of Class B Common Stock entitles the holder to ten votes on all such
matters. Except as set forth below, all actions submitted to a vote of
stockholders are voted on by holders of Common Stock and Class B Common Stock
voting together as a single class. The holders of Common Stock and Class B
Common Stock vote separately as classes with respect to any amendments to the
Company's Certificate of Incorporation that alter or change the powers,
preferences or special rights of their respective classes of stock so as to
affect them adversely, and with respect to such other matters as may require
class votes under the Delaware General Corporation Law.
Dividends on the Class B Common Stock may not exceed those on the
Common Stock. Each share of Common Stock and Class B Common Stock is equal in
respect of rights to dividends and other distributions in stock or property of
the Company (including distributions upon liquidation of the Company), except
that in the case of dividends or other distributions payable on the Common
Stock and the Class B Common Stock in shares of such stock, including
distributions pursuant to split-ups or divisions of the Common Stock or the
Class B Common Stock, only Common Stock will be distributed with respect to
Common Stock and only Class B Common Stock will be distributed with respect to
Class B Common Stock. In no event will either the Common Stock or the Class B
Common Stock be split, divided or combined unless the other is split, divided
or combined equally.
The Class B Common Stock is not transferable by a holder except to or
among such holder's spouse, certain of such holder's relatives and certain
trusts established for their benefit. The Class B Common Stock is convertible
into Common Stock on a share-for-share basis at any time.
If the number of outstanding shares of Class B Common Stock at any
time falls below 250,000 (as adjusted for any stock splits, combinations, stock
dividends or further issuances of Class B Common Stock), the outstanding shares
of Class B Common Stock will automatically be converted into shares of Common
Stock.
The Class B Common Stock may tend to have an anti-takeover effect.
Since voting control of the Company is vested primarily in the holders of the
Class B Common Stock, the issuance of the Class B Common Stock could render
more difficult, or discourage, a hostile merger proposal, a tender offer or a
proxy contest, even if such actions were favored by a majority of the holders
of Common Stock. As of September 12, 1994, Melvin Waxman and Armond Waxman
beneficially owned an aggregate of approximately 80.1% of the outstanding Class
B Common Stock and 61.2% of the aggregate outstanding voting power of the
Company.
- 47 -
<PAGE> 50
The transfer agent and registrar for the Common Stock and Class B
Common Stock is National City Bank, Cleveland, Ohio.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series, and the Board of Directors is authorized to fix the dividend rights and
terms, any conversion rights, any voting rights, any redemption rights and
terms (including sinking fund provisions), the rights in the event of
liquidation and any other rights, preferences, privileges and restrictions of
any series of Preferred Stock, as well as the number of shares constituting
such series and the designation thereof. The Preferred Stock, if issued, will
rank senior to the Company Common Stock as to dividends and as to liquidation
preference. Holders of Preferred Stock will have no preemptive rights. The
issuance of shares of Preferred Stock could have an anti-takeover effect under
certain circumstances. The issuance of shares of Preferred Stock could enable
the Board of Directors to render more difficult or discourage an attempt to
obtain control of the Company by means of a merger, tender offer or other
business combination transaction directed at the Company by, among other
things, placing shares of Preferred Stock with investors who might align
themselves with the Board of Directors, issuing new shares to dilute stock
ownership of a person or entity seeking control of the Company or creating a
class or series of Preferred Stock with voting rights. The issuance of shares
of the Preferred Stock as an anti-takeover device might preclude stockholders
from taking advantage of a situation which they believed could be favorable to
their interests. No shares of Preferred Stock are outstanding, and the Company
has no present plans to issue any shares of Preferred Stock.
PLAN OF DISTRIBUTION
Any or all of the Securities may be sold from time to time to
purchasers directly by the Selling Security Holders. Alternatively, the
Selling Security Holders may from time to time offer the Securities through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Security
Holders and/or the purchasers of Securities for whom they may act as agents.
The Selling Security Holders and any such underwriters, dealers or agents that
participate in the distribution of Securities may be deemed to be underwriters
under the Act, and any profit on the sale of the Securities by them and any
discounts, commissions or concessions received by them may be deemed to be
underwriting discounts and commissions under the Act. The Securities may be
sold from time to time in one or more transactions at a fixed offering price,
which may be changed, or at varying prices determined at the time of sale or at
negotiated prices. The distribution of Securities by the Selling Security
Holders may be effected in one or more transactions that may take place on the
NYSE or the over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees, discounts and commissions may be paid by the Selling Security
Holders in connection with such sales of securities.
At the time a particular offer of Securities is made, to the extent
required, a supplement to this Prospectus will be distributed (or, if required,
a post-effective amendment to the Registration Statement of which this
Prospectus is a part will be filed) which will identify the specific Securities
being offered and set forth the aggregate amount of Securities being offered,
the purchase price and the terms of the offering, including the name or names
of the Selling Security Holders and of any underwriters, dealers or agents, the
purchase price paid by any underwriter for Securities purchased from the
Selling Security Holders, any discounts, commissions and other items
constituting compensation from the Selling Security Holders and/or the Company
and any discounts, commissions or concessions allowed or reallowed or paid to
dealers, including the proposed selling price to the public. In addition, an
underwritten offering will require clearance by the National Association of
Securities Dealers, Inc. of the underwriter's compensation arrangements. The
Company will not receive any of the proceeds from the sale by the Selling
Security Holders of the Securities offered hereby. All of the filing fees and
other expenses of this
- 48 -
<PAGE> 51
Registration Statement will be borne in full by the Company, other than any
underwriting fees, discounts and commissions relating to this offering.
Pursuant to the Equity Registration Rights Agreement, the Company will
use its best efforts to keep the Registration Statement of which this
Prospectus forms a part effective under the Act for period of three years
following the initial effective date of such Registration Statement (or such
shorter period as permitted under the Equity Registration Rights Agreement) and
the Company will pay substantially all of the expenses incident to the offering
and sale of the Securities to the public, other than underwriting fees,
discounts and commissions. The Equity Registration Rights Agreement provides
for cross-indemnification of the Selling Security Holders and the Company, to
the extent permitted by law, for losses, claims, damages, liabilities and
expenses arising, under certain circumstances, out of any registration of the
Securities. The Equity Registration Rights Agreement also provides that in
connection with an underwriting offering, the Company will indemnify the
underwriters thereof, their officers and directors and each person who controls
such underwriters (within the meaning of the Act) to the same extent as
provided with respect to the indemnification of the Selling Security Holders
signatory to such agreement, except with respect to information provided by
such underwriters specifically for inclusion within the appropriate
registration statement. See "Selling Security Holders" and "Recent Securities
Offering and Related Matters -- REGISTRATION RIGHTS AGREEMENTS."
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Securities may not simultaneously
engage in market making activities with respect to the Securities for a period
of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling Security Holders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of the Securities
by the Selling Security Holders.
In order to comply with certain states' securities laws, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states the Securities
may not be sold unless the Securities have been registered or qualified for
sale in such state, or unless an exemption from registration or qualification
is available and is obtained.
The Warrants originally issued by the Company in the Private Exchange
Offer contained legends as to their restricted transferability. In addition,
the certificates for Common Stock issuable upon exercise of the Warrants would
contain, legends as to their restricted transferability. Upon the
effectiveness of the Registration Statement of which this Prospectus forms a
part and the transfer of the Securities pursuant thereto, these legends will no
longer be necessary, and accordingly, new certificates representing such
Securities will be issued to the transferee without any such legends unless
otherwise required by law.
In addition to sales pursuant to the Registration Statement of which
this Prospectus forms a part, the Warrants and the shares of Common Stock
issuable upon exercise of the Warrants may be sold in accordance with Rule 144
under the Act.
LEGAL MATTERS
The legality of the securities covered by this Prospectus has been
passed upon by Shereff, Friedman, Hoffman & Goodman, New York, New York,
counsel to the Company.
EXPERTS
The audited consolidated financial statements of the Company as of
June 30, 1993 and 1994 and for each of the three years in the period ended June
30, 1994 appearing in this Prospectus and elsewhere in this Registration
- 49 -
<PAGE> 52
Statement have been audited by Arthur Andersen LLP, independent certified
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
Reference is made to said report which includes an explanatory
paragraph with respect to the change in method of accounting for certain
warehousing and catalog costs as discussed in Note 3 to the consolidated
financial statements.
- 50 -
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Waxman Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Waxman
Industries, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
June 30, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Waxman Industries,
Inc. and Subsidiaries as of June 30, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1994, in conformity with generally accepted accounting principles.
As explained in Note 3 to the consolidated financial statements, effective
July 1, 1992, the Company changed its method of accounting for
certain warehousing and catalog costs.
Arthur Andersen LLP
Cleveland, Ohio,
August 23, 1994.
F-1
<PAGE> 54
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1993
(In Thousands)
ASSETS
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,026 $ 406
Accounts receivable, net 37,216 36,272
Inventories 80,969 72,942
Prepaid expenses 4,987 4,987
Net assets (liabilities) of
discontinued operations (421) 29,156
Net assets held for sale - 3,086
-------- --------
Total current assets 124,777 146,849
-------- --------
PROPERTY AND EQUIPMENT:
Land 1,461 1,420
Buildings 12,421 11,213
Equipment 20,655 18,824
-------- --------
34,537 31,457
Less accumulated depreciation and
amortization (17,163) (14,784)
-------- --------
Property and equipment, net 17,374 16,673
-------- --------
COST OF BUSINESSES IN EXCESS OF
NET ASSETS ACQUIRED, NET 24,774 25,498
OTHER ASSETS 16,118 9,505
-------- --------
$183,043 $198,525
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
F-2
<PAGE> 55
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1993
(In Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,144 $ 2,493
Accounts payable 20,427 19,934
Accrued liabilities 6,507 6,692
-------- --------
Total current liabilities 31,078 29,119
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION 54,063 22,567
SENIOR SECURED NOTES 38,675 38,563
SENIOR SECURED DEFERRED COUPON NOTES 48,031 -
SUBORDINATED DEBT 48,905 100,780
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share:
Authorized and unissued 2,000 shares - -
Common stock, $.01 par value per share:
Authorized 22,000 shares;
Issued 9,490 in 1994 and 9,424 in 1993 95 94
Class B common stock, $.01 par value per share:
Authorized 6,000 shares;
Issued 2,222 in 1994 and 2,238 in 1993 23 23
Paid-in capital 21,098 18,467
Retained deficit (58,325) (6,437)
-------- --------
(37,109) 12,147
Cumulative currency translation adjustments (600) (4,651)
-------- --------
Total stockholders' equity (37,709) 7,496
-------- --------
$183,043 $198,525
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
F-3
<PAGE> 56
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales $215,112 $204,778 $197,738
Cost of sales 140,011 137,244 127,115
-------- -------- --------
Gross Profit 75,101 67,534 70,623
Selling, general and administrative expenses 56,888 56,081 51,824
Restructuring and other non-recurring charges - 6,762 3,900
-------- -------- --------
Operating income 18,213 4,691 14,899
Interest expense (net of interest income
of $14, $5 and $978) 21,334 20,365 20,025
-------- -------- --------
Loss from continuing operations before
income taxes, extraordinary charge and
cumulative effect of accounting change (3,121) (15,674) (5,126)
Provision (benefit) for income taxes 351 216 (768)
-------- -------- --------
Loss from continuing operations before
extraordinary charge and cumulative
effect of accounting change (3,472) (15,890) (4,358)
Discontinued operations - Ideal
Income (loss) from discontinued
operations, net of taxes (3,249) (11,240) 1,146
Loss on disposal, without tax benefit (38,343) - -
-------- -------- --------
Loss before extraordinary charge and
cumulative effect of accounting change (45,064) (27,130) (3,212)
Extraordinary charge, early retirement
of debt (net of tax benefit in 1992) (6,824) - (1,186)
Cumulative effect of change in accounting
for warehouse and catalog costs,
without tax benefit - (2,110) -
-------- -------- --------
Net loss $(51,888) $(29,240) $ (4,398)
======== ======== ========
Primary and fully diluted earnings
(loss) per share:
From continuing operations $ (.30) $ (1.36) $ (.44)
Discontinued operations:
Income (loss) from discontinued operations (.28) (.97) .11
Loss on disposal (3.28) - -
Extraordinary charge (.58) - (.12)
Cumulative effect of accounting change - (.18) -
-------- -------- --------
Net loss per share $ (4.44) $ (2.51) $ (.45)
======== ======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
F-4
<PAGE> 57
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
CUMULATIVE
CLASS B RETAINED CURRENCY
COMMON COMMON PAID-IN EARNINGS TRANSLATION
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENTS
----- ----- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991 $ 72 $ 23 $ 7,684 $ 29,334 $ 953
Net loss (4,398)
Cash dividends:
-- $.12 per common share
and Class B share (1,201)
Issuance of common stock 22 9,763
Stock options exercised 20
Stock warrants issued 1,000
Currency translation
adjustments (2,445)
----- ----- ------- -------- -------
BALANCE, JUNE 30, 1992 $ 94 $ 23 $18,467 $23,735 $(1,492)
Net loss (29,240)
Cash dividends:
-- $.08 per common share
and Class B share (932)
Currency translation
adjustments (3,159)
----- ----- ------- -------- -------
BALANCE, JUNE 30, 1993 $ 94 $ 23 $18,467 $(6,437) $(4,651)
Net loss (51,888)
Currency translation
adjustments (2,368)
Elimination of currency translation
adjustment relating to discontinued
operation (Ideal) 6,419
Contribution to Profit
Sharing Plan 1 131
Stock warrants issued 2,500
----- ----- ------- -------- -------
BALANCE, JUNE 30, 1994 $ 95 $ 23 $21,098 $(58,325) $ (600)
===== ===== ======= ======== =======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements
</TABLE>
F-5
<PAGE> 58
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN THOUSANDS)
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FROM (USED FOR):
OPERATIONS:
Loss from continuing operations $ (3,472) $ (15,890) $ (4,358)
Adjustments to reconcile loss
from continuing operations to
net cash used for continuing
operations:
Non-cash interest 531 - -
Restructuring costs - 6,762 -
Loss on sale of investments - - 3,900
Depreciation and amortization 7,478 8,932 6,525
Changes in assets and liabilities:
Accounts receivable (944) (1,666) (1,841)
Inventory (10,109) 82 (15,664)
Prepaid expenses - 2,276 (2,285)
Accounts payable 493 (8,337) 11,050
Accrued liabilities (185) (1,691) (878)
------- ------- -------
Net cash used for continuing
operations (6,208) (9,532) (3,551)
Earnings (loss) from
discontinued operations (41,592) (11,240) 1,146
Other, net 4,054 (3,159) (2,444)
Change in net assets of
discontinued operations 29,577 13,027 6,646
------- ------- -------
Net cash provided by (used for)
operations (14,169) (10,904) 1,797
------- ------- -------
INVESTMENTS:
Proceeds from sale of business 3,006 - -
Capital expenditures, net (3,437) (1,336) (3,193)
Change in other assets (1,298) (1,826) (5,922)
Proceeds from sale of investments - - 4,386
Contribution of stock to
profit sharing plan 132 - -
------- ------- -------
Net cash used for investments (1,597) (3,162) (4,729)
------- ------- -------
FINANCING:
Net borrowings under
credit agreements 18,589 15,770 6,393
Repayments of long-term debt (442) (560) (508)
Borrowings (repayment) of domestic
term loan 15,000 - (60,000)
Proceeds from issuance of debt, net - - 48,500
Repurchase of debt (1,875) - (12,878)
Debt restructuring (13,886) - -
Proceeds from issuance of stock - - 9,805
Dividends paid - (932) (1,201)
------- ------- -------
Net cash provided by
(used for) financing 17,386 14,278 (9,889)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 1,620 212 (12,821)
BALANCE, BEGINNING OF PERIOD 406 194 13,015
------- ------- -------
BALANCE, END OF PERIOD $ 2,026 $ 406 $ 194
======= ======= =======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
F-6
<PAGE> 59
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Consolidation and Basis of Presentation
The financial statements include the accounts of Waxman Industries,
Inc. and its wholly-owned subsidiaries (the Company). All significant
intercompany transactions and balances are eliminated in consolidation.
Certain fiscal 1993 and 1992 amounts have been reclassified to conform with
the fiscal 1994 presentation, including a restatement to reflect the
discontinued operations discussed in Note 2.
The Company operates in a single business segment - the distribution
of plumbing, electrical and hardware products. Substantially all of the
Company's business is conducted in the United States.
During fiscal 1994, the Company restructured (the "Corporate
Restructuring") its domestic operations such that the Company is now a holding
company whose only material assets are the capital stock of its subsidiaries.
As part of the Corporate Restructuring, the Company formed (a) Waxman USA Inc.
("Waxman USA") as a holding company for the subsidiaries that comprise and
support the Company's domestic operations, (b) Waxman Consumer Products Group
Inc. ("Consumer Products"), a wholly owned subsidiary of Waxman USA, to own and
operate Consumer Products Group Division, and (c) WOC Inc. ("WOC"), a wholly
owned subsidiary of Waxman USA, to own and operate Waxman USA's domestic
subsidiaries, other than Barnett Inc. ("Barnett") and Consumer Products. On
May 20, 1994, the Company completed the Corporate Restructuring by (i)
contributing the capital stock of Barnett to Waxman USA, (ii) contributing the
assets and liabilities of the Consumer Products Group Division to Consumer
Products, (iii) contributing the assets and liabilities of its Madison
Equipment Division to WOC, (iv) contributing the assets and liabilities of its
Medal Distributing Division to WOC, (v) merging U.S. Lock Corporation ("U. S.
Lock") and LeRan Copper & Brass, Inc. ("LeRan"), each a wholly owned subsidiary
of the Company, into WOC, (vi) contributing the capital stock of TWI,
International, Inc. ("TWI") to Waxman USA and (vii) contributing the capital
stock of Western American Manufacturing, Inc. ("WAMI") to TWI. The "Operating
Companies" consist of Barnett, Consumer Products and WOC. This restructuring
was accounted for based upon each entities' historical carrying amounts with no
impact on the accompanying consolidated financial statements.
B. Restricted Cash Balances
In accordance with the terms of its Domestic Credit Facility (See
Note 6), all of the Operating Companies' available cash is pledged to the
lenders and is required to be used to pay down borrowings under the facility.
C. Accounts Receivable
Accounts receivable are presented net of allowances for doubtful
accounts of $1,353 and $1,352 at June 30, 1994 and 1993, respectively. Bad
debt expense totaled $617 in fiscal 1994, $695 in fiscal 1993 and $562 in
fiscal 1992.
The Company sells plumbing, electrical and hardware products
throughout the United States to do-it-yourself retailers, mass merchandisers,
smaller independent retailers and plumbing, electrical repair and remodeling
contractors. The Company performs ongoing credit evaluations of its customers'
financial condition. In fiscal years 1994, 1993 and 1992, the Company's
largest customer accounted for approximately 13%, 12% and 11% of its net sales,
respectively. The Company's ten largest customers accounted for approximately
25% of net sales in fiscal 1994, 23% in fiscal 1993 and 22% in fiscal 1992 and
approximately 28% and 26% of accounts receivable at June 30, 1994 and 1993,
respectively.
D. Inventories
At June 30, 1994 and 1993, inventories, consisting primarily of
finished goods, are carried at the lower of first-in, first-out (FIFO) cost or
market. The Company regularly evaluates its inventory carrying value, with
appropriate consideration given to any excess, slow-moving and/or nonsalable
inventories.
F-7
<PAGE> 60
E. Property and Equipment
Property and equipment is stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis over
their estimated useful lives at annual depreciation rates ranging from 2 1/2%
to 30%. For income tax purposes, accelerated methods generally are used.
Depreciation expense totaled $2,738 in fiscal 1994, $2,690 in fiscal 1993 and
$2,665 in fiscal 1992.
F. Cost of Businesses in Excess of Net Assets Acquired
Cost of businesses in excess of the fair market value of net assets
acquired is being amortized primarily over 40 years, using the straight-line
method. Management has evaluated its accounting for goodwill, considering such
factors as historical profitability and current operating cash flows and
believes that the asset is realizable and the amortization period is
appropriate. Goodwill amortization expense totaled $724 in fiscal 1994, $725
in fiscal 1993 and $756 in fiscal 1992. The accumulated amortization of
goodwill at June 30, 1994 and 1993 was $4,469 and $3,745, respectively.
G. Per Share Data
Primary earnings per share have been computed based on the weighted
average number of shares and share equivalents outstanding which totaled 11,674
in fiscal 1994, 11,662 in fiscal 1993 and 9,794 in fiscal 1992. Share
equivalents include the Company's common stock purchase warrants (see Notes 7
and 8). The conversion of the 9-1/2% Convertible Subordinated Debentures was
not assumed in computing fully diluted earnings per share for fiscal 1994,
fiscal 1993 and fiscal 1992 as the effect would be anti-dilutive.
H. Foreign Currency Translation
All balance sheet accounts of foreign subsidiaries are translated at
the exchange rate as of the end of the fiscal year. Income statement items are
translated at the average currency exchange rates during the fiscal year. The
resulting translation adjustment is recorded as a component of stockholders'
equity. Foreign currency transaction gains or losses are included in the
income statement as incurred and such net gains totaled $17 in fiscal 1994,
$80 in fiscal 1993 and $73 in fiscal 1992.
I. Impact of New Accounting Standards
The Company adopted SFAS No. 109 during 1994 (see Note 5). The FASB
has also issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The Company does not currently maintain any
postretirement or postemployment benefit plans or programs which would be
subject to such accounting standards.
J. Debt
The Company made interest payments of $20,523 in fiscal 1994, $19,540
in fiscal 1993 and $18,858 in fiscal 1992. Accrued liabilities in the
accompanying consolidated balance sheets include accrued interest of $2,101 and
$2,609 at June 30, 1994 and 1993, respectively. Other assets in the
accompanying consolidated balance sheets include deferred financing costs of
$10,284 and $3,935 at June 30, 1994 and 1993, respectively.
No quoted market prices are available for any of the Company's debt as
the debt is not actively traded. Management, however, believes the carrying
values of its bank loans approximate their fair values as they bear interest
based upon the banks' prime lending rates. It was not practical to determine
the fair value of the Company's Senior Secured Notes, Deferred Coupon Notes,
Convertible Debentures and Senior Subordinated Notes because of the inability
to determine fair value without incurring excessive costs.
F-8
<PAGE> 61
2. DISCONTINUED OPERATIONS - IDEAL
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. (Ideal). Unlike the Company's
U.S. operations, which supply products to customers in the home repair and
remodeling market through mass retailers, Ideal primarily serves customers in
the Canadian new construction market through independent contractors.
Accordingly, Ideal is reported as a discontinued operation and the consolidated
financial statements have been reclassified to report separately Ideal's net
assets and results of operations.
At the time the plan of disposition was adopted, the Company expected
that the disposition would be accomplished through a sale of the business to a
group which included members of Ideal's management. Such transaction would
have required the consent of Ideal's Canadian bank as borrowings under its bank
credit agreements were collateralized by all of the assets and capital stock of
Ideal. The bank considered the management group's acquisition proposal,
however, the proposal was subsequently rejected. On May 5, 1994, without
advance notice, the bank filed an involuntary bankruptcy petition against Ideal
citing defaults under the bank credit agreements (Borrowings under these
agreements are non-recourse to Waxman Industries, Inc.). On May 30, 1994,
Ideal was declared bankrupt by the Canadian courts and, as a result, the
Company's ownership and control of Ideal effectively ceased on such date. The
Canadian court appointed a trustee to liquidate the assets of Ideal. The
Company has been advised that Ideal is no longer operating and the liquidation
process is continuing at the present time. The Company has no liability to the
creditors of Ideal as a result of Ideal's bankruptcy.
The estimated loss on disposal, which was recorded by the Company in
its consolidated financial statements as of March 31, 1994, totaled $38.3
million, without tax benefit, and represents a complete write-off of the
Company's investment in Ideal. The loss included the estimated loss on
disposal, a provision for anticipated operating losses until disposal and
provisions for other estimated costs to be incurred in connection with the
disposal, as well as a $6.4 million foreign currency exchange loss which
results from the elimination of the currency translation adjustments relating
to Ideal. In accordance with SFAS No. 109. "Accounting for Income Taxes", any
tax benefits relating to the loss on disposal have been reduced 100% by a
valuation allowance. The Company will continue to evaluate the valuation
allowance and to the extent it is determined that such allowance is no longer
required, the tax benefit of such loss on disposal will be recognized in the
future.
Net assets of the discontinued operation at June 30, 1993 consisted of
working capital of $29,879, net plant, property and equipment of $15,171, other
assets of $40,561 and bank debt of $56,455 without any allowance for the
estimated loss on disposal.
Summary operating results of the discontinued operation for the periods
presented are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $87,265 $153,875 $181,305
Costs and expenses 90,262 164,684 178,540
------- ------- -------
Income (loss) before
income taxes (2,997) (10,809) 2,765
Income taxes 252 431 1,619
------- ------- -------
Net income (loss) $ (3,249) $(11,240) $ 1,146
======== ======== ========
</TABLE>
3. CHANGE IN ACCOUNTING:
During fiscal 1993, the Company accelerated its amortization of
certain warehouse start-up costs and catalog costs. This change was applied
retroactively to July 1, 1992. The Company had historically amortized such
costs over a period not to exceed five years which, in management's opinion,
represented the period over which economic benefits were received. The
acceleration of amortization was made to conform with prevailing industry
practice. By accelerating amortization, certain costs associated with the
opening of new warehouse operations are amortized over a period of twelve
months commencing the month in which the warehouse opens. Costs associated
with the development and introduction of new catalogs are amortized over the
life of the catalog, not to exceed a period of one year.
F-9
<PAGE> 62
The cumulative effect of this change on prior years totaled $2,110 or
$.18 per share, and is reported separately in the fiscal 1993 consolidated
income statement, without tax benefit. The additional effect of the change in
fiscal 1993 was to increase both the loss from continuing operations before
extraordinary charge and cumulative effect of accounting change and the net
loss by $1,191.
The following pro forma information reflects the Company's results for
fiscal 1992 as if the change had been retroactively applied:
<TABLE>
<CAPTION>
1992
----
<S> <C>
Loss from continuing operations
before extraordinary charge $(4,461)
Net loss (4,532)
Earnings (loss) per share:
Loss from continuing operations
before extraordinary charge $ (.45)
Net loss (.46)
</TABLE>
4. RESTRUCTURING, NONRECURRING AND EXTRAORDINARY CHARGES:
A. Extraordinary Charges
During fiscal 1994, the Company recognized a $6.6 million
extraordinary charge, without tax benefit, as a result of the refinancing of
$50 million of Senior Subordinated Notes as well as borrowings under the
domestic bank credit facilities. The extraordinary charge included the fees
paid upon the refinancing of the Senior Subordinated Notes along with the
accelerated amortization of unamortized debt discount and issuance costs.
Also during fiscal 1994, the Company purchased $1.9 million of its
Convertible Debentures pursuant to a mandatory repurchase obligation. As a
result of the repurchase, the Company recorded an extraordinary charge of $.2
million, without tax benefit, which primarily represents the accelerated
amortization of unamortized debt discount and issuance costs.
During fiscal 1992, the Company repurchased certain debt securities in
open market purchases. As a result, the Company incurred an extraordinary
charge which totaled $1,186 (net of applicable income tax benefit of $611) and
included the market premium paid along with the accelerated amortization of
unamortized debt discount and issuance costs.
B. Restructuring and Non-Recurring Charges
During fiscal 1993, as a result of certain actions taken as part of
its strategy to refocus and build its existing core businesses in the U.S.,
the Company recorded a $6,762 restructuring charge. The provision for
restructuring charge included an estimate of the loss to be incurred upon the
sale of three businesses, including anticipated operating results through the
projected disposal dates, and the write-off of intangible assets. Below is a
summary of the components comprising the restructuring charges as of
June 30, 1993:
<TABLE>
<S> <C>
Estimated loss on disposal of businesses $4,600
Relocation and consolidation costs 1,544
Other 618
------
$6,762
======
</TABLE>
The disposal of businesses included three operating entities for which
the Company had entered into letters of intent with prospective buyers.
During October 1993, the Company completed the sale of one of its
Canadian operations, H. Belanger Plumbing Accessories, Ltd. (Belanger). The
Company sold all of the capital stock of Belanger for approximately
U.S. $3 million in cash and a U.S. $0.3 million promissory note. The
promissory note, which matures on October 14, 1996, provides for three equal
consecutive annual payments. Interest is payable annually at a rate of 7%.
The loss on the sale of Belanger was approximately $3 million. Net assets held
for sale at June 30, 1993, included in the accompanying consolidated balance
sheets is comprised primarily of working capital items and fixed assets of
Belanger, net of the reserve for the estimated loss on disposal.
The Company was unable to come to terms with the prospective buyer of
the other two entities. At the present time, the Company is not engaged in any
other
F-10
<PAGE> 63
negotiations with respect to the sale of these entities. As such, the
consummation of a sale of these businesses is not expected to occur in the
foreseeable future, if at all. As a result, the individual assets and
liabilities of these businesses have been reclassified on the accompanying
consolidated balance sheets. The Company evaluated the net realizable value of
the carrying value of the assets previously held for sale in accordance with
its normal ongoing policy regarding impairment and concluded that no further
writedown of the net carrying values of these assets was required in excess of
the reserve previously established. Therefore, the reversal of the accrued loss
on disposal includes $1.4 million for the writedown of assets to net realizable
value and $.2 million for fees and expenses associated with the transaction.
During fiscal 1992, the Company recorded a $3.9 million nonrecurring
charge which represents a capital loss realized upon the sale of the Company's
portfolio of debt securities.
5. INCOME TAXES:
The Company adopted SFAS NO. 109 during the first quarter of fiscal
1994. SFAS 109 requires the Company to recognize income tax benefits for loss
carryforwards which have not previously been recorded. The tax benefits
recognized must be reduced by a valuation allowance in certain circumstances.
Upon the adoption of SFAS 109, the benefit of the Company's net operating loss
carryforwards was reduced 100% by a valuation allowance. The benefit of the
fiscal 1994 net operating loss has also been reduced 100% by a valuation
allowance. The adoption of SFAS 109 in fiscal 1994 had no material impact on
the accompanying consolidated financial statements. However, to the extent
that the Company is able to recognize tax benefits in the future, such
recognition will favorably effect future results of operations.
The components of income (loss) from continuing operations before
income taxes, extraordinary charges and cumulative effect of change in
accounting are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Domestic $ (4,127) $(13,442) $(6,179)
Foreign 1,006 (2,232) 1,053
------- -------- -------
Total $ (3,121) $(15,674) $(5,126)
======== ======== =======
</TABLE>
The components of the provision (benefit) for income taxes are:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ - $ -- $ (2,404)
Foreign and other 351 216 572
------ ---- --------
Total current 351 216 (1,832)
Deferred: Federal - -- 1,064
------ ---- --------
Total provision (benefit) $ 351 $216 $ (768)
======= ==== ========
</TABLE>
Deferred income taxes relate to the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Depreciation $ - $-- $ 68
Inventory valuation - -- (84)
Bad debt expense - -- 425
Deferred costs - -- 800
Other, net - -- (145)
------ --- ------
Total $ - $-- $1,064
======= === ======
</TABLE>
F-11
<PAGE> 64
The following table reconciles the U.S. statutory rate to the
Company's effective tax rate:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 34.0% 34.0% 34.0%
Domestic losses not benefited (41.8) (24.4) --
Capital losses not benefited -- (10.0) (18.1)
State taxes, net (4.2) (0.8) (2.3)
Goodwill amortization (7.1) (1.6) (4.5)
Effect of prior year purchase accounting adjustments -- -- 2.7
Foreign tax items 6.2 -- --
Other, net 1.7 1.4 3.2
------- ---- -----
Effective tax rate (11.2)% (1.4)% 15.0%
======= ==== =====
</TABLE>
At June 30, 1994, the Company had $59,598 of available domestic net
operating loss carryforwards for income tax purposes which expire through 2009.
For financial reporting purposes, the benefit of these net operating
loss carryforwards has been reduced 100% by a valuation allowance in
accordance with the provisions of SFAS No. 109.
At June 30, 1994, the Company had recorded deferred tax liabilities of
$3,218 and deferred tax assets (excluding the net operating loss carryforwards
discussed above) of $2,663. For financial reporting purposes, previously
recorded deferred income tax liabilities were reduced in fiscal 1993 by the tax
benefit of the fiscal 1992 net operating loss which could not be carried back
to prior years. In fiscal 1992 and fiscal 1993, the Company was able to
carryback domestic net operating losses to prior years which resulted in
refunds of previously paid taxes. Refunds received totaled $2,462 in fiscal
1993 and $435 in fiscal 1994.
The Company made income tax payments of $556 in fiscal 1994, $926 in
fiscal 1993 and $1,358 in fiscal 1992.
6. LONG TERM DEBT:
Long term debt at June 30, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
$55 million secured credit facility $ 39,378 $ -
Term loan 15,000 -
$30 million secured revolving credit
facility - 20,400
Other notes payable, maturing at
various dates through 2007, and
bearing interest at rates varying
from 7.35% to 10.00% 3,829 4,660
-------- --------
58,207 25,060
Less: current portion 4,144 2,493
-------- --------
Long-term debt net of current
portion $ 54,063 $ 22,567
======== ========
</TABLE>
On May 20, 1994, the Operating Companies entered into a new $55 million
secured credit facility with an affiliate of Citibank, N.A., as agent, which
includes a $20 million letter of credit subfacility. The secured credit
facility, which has an initial term of three years, will be extended for an
additional year if the Senior Secured Notes have been repaid on or before March
1997. The secured credit facility is subject to borrowing base formulas.
Interest is based, at the Company's option, on either (i) the prime rate of
Citibank, N.A. plus 1.5%, or (ii) LIBOR plus 3.0%. These rates will be
increased by 0.5% until such time as the term loan, discussed below, has been
repaid in full. The weighted average interest rate on borrowings outstanding
under the credit facility was 8.5% during fiscal 1994. The Company is required
to pay a committment fee of 0.5% per annum on the unused commitment. The
secured credit facility is secured by the accounts receivable, inventory,
certain general intangibles and
F-12
<PAGE> 65
unencumbered fixed assets of the Operating Companies and 65% of the capital
stock of one subsidiary of TWI. The agreement requires that Waxman USA
maintain certain leverage, fixed charge coverage, net worth, capital
expenditures and EBITDA to total cash interest ratios. All financial covenants
are based solely on the results of operations of Waxman USA. The Company was
in compliance with all covenants at June 30, 1994.
The Operating Companies also entered into a $15.0 million three-year
term loan with Citibank, N.A., as agent. The term loan bears interest at a
rate per annum equal to 1.5% over the interest rate under the secured credit
facility and is secured by a junior lien on the collateral under the secured
credit facility. A one-time fee of 1.0% of the principal amount outstanding
under the term loan will be payable if the loan is not repaid by November 20,
1994. Principal payments on the domestic term loan of $1.0 million each will
be required quarterly commencing in March 1995. The term loan's financial
covenants are identical to the covenants contained in the secured credit
facility and are based solely on the results of operations of Waxman USA.
The initial borrowings under the secured credit facility along with
proceeds from the term loan were used to repay all borrowings under the
Company's existing domestic bank credit facilities as well as fees and expenses
associated with the issuance of the Company's Deferred Coupon Notes (See Note
8). The $55 million secured credit facility, the $15 million term loan and the
issuance of the Deferred Coupon Notes were part of a financial restructuring
(the Restructuring).
In May 1994, the $30 million secured domestic revolving credit
facility was terminated by the Company, and borrowings thereunder were
refinanced using proceeds as discussed above. The weighted average interest
rate on borrowings outstanding under the $30 million secured domestic revolving
credit facility was 6.2% during fiscal 1994.
7. SENIOR SECURED NOTES
In September 1991, the Company completed a private placement of $50
million of 7-year Senior Secured Notes (the Senior Secured Notes), including
detachable warrants to purchase 1 million shares of the Company's common stock
(the Warrants). At the time of issuance, the Senior Secured Notes included
$42.5 million of 12.25% fixed rate notes and $7.5 million of floating rate
notes with interest at 300 basis points over the 90 day LIBOR rate. The Senior
Secured Notes are redeemable in whole or in part, at the option of the Company,
after September 1, 1993 at a price of 107.35% for the fixed rate notes and 103%
for the floating rate notes. The redemption prices decrease annually to 100%
of the principal amounts at September 1, 1996. Mandatory redemption payments
of $14.45 million for the fixed rate notes, and $2.55 million for the floating
rate notes are due on September 1, 1996 and September 1, 1997 and are
calculated to retire 68% of the principal amount of the Senior Secured Notes
prior to maturity. The Senior Secured Notes, which are secured by a pledge of
all of the outstanding stock of the Company's wholly-owned subsidiaries,
Barnett, Consumer Products and WOC, are senior in right of payment to all
subordinated indebtedness and pari passu with all other senior indebtedness of
the Company.
The Warrants are exercisable through September 1, 1996, at a price of
$4.60 per share. A portion of the proceeds of the private placement was
allocated to the Warrants and, as a result, paid-in capital increased by $1
million in fiscal year 1992. The related $1 million reduction in the recorded
principal amount of the Senior Secured Notes is being amortized as interest
expense over the life of the Senior Secured Notes.
During June 1992, the Company repurchased $10,850 principal amount of
the fixed rate notes in open market purchases.
The Senior Secured Note indenture contains various covenants, including
dividend restrictions and minimum operating cash flow requirements. The
operating cash flow covenant requires a minimum ratio of operating cash flow to
interest expense of 1.1 to 1.0 (the Company's actual ratio for fiscal 1994 was
approximately 1.2 to 1.0). For purposes of calculating this ratio, operating
cash flow is calculated based on the results of continuing operations only and
interest expense excludes any non-cash interest relating to the Company's
Deferred Coupon Notes.
During November 1993 and May 1994, the Company completed solicitations
of consents from the holders of the Senior Secured Notes which, among other
things, amended the net worth and certain other financial covenants and
permitted the completion of the Company's Restructuring and eliminated any
prospective defaults resulting from the adverse results and events relating to
the Company's discontinued Canadian operations.
F-13
<PAGE> 66
8. SENIOR SECURED DEFERRED COUPON NOTES
On May 20, 1994, the Company exchanged $50 million of its Senior
Subordinated Notes for $50 million initial accreted value of 12.75% Senior
Secured Deferred Coupon Notes due 2004 (the Deferred Coupon Notes) along with
detachable warrants to purchase 2.95 million shares of the Company's common
stock. The Deferred Coupon Notes have no cash interest requirements until 1999.
Thereafter interest on the Deferred Coupon Notes will accrue at a rate of 12.75%
and will be payable in cash semi-annually on June 1 and December 1. The
Deferred Coupon Notes are redeemable, in whole or in part, at the option of the
Company, after June 1, 1999 at 106.375% of accreted value, which decreases
annually to 100% at the maturity date. The Deferred Coupon Notes are secured by
a pledge of the capital stock of Waxman USA. Substantially all of the assets of
Waxman USA are pledged under the Restructuring. The Deferred Coupon Notes rank
senior in right of payment to all existing and future subordinated indebtedness
of the Company and rank pari passu in right of payment with all other existing
or future unsubordinated indebtedness of the Company. The Deferred Coupon Notes
contain certain covenants which, among other things, limit additional
indebtedness, the payment of dividends and any restricted payments.
The warrants are exercisable through June 1, 2004, at a price of $2.45 per
share. A portion of the initial accreted value of the Deferred Coupon Notes was
allocated to the warrants and as a result paid in capital increased by $2.5
million and the related $2.5 million reduction in the recorded initial accreted
value of the Deferred Coupon Notes is being amortized as interest expense over
the life of the Deferred Coupon Notes.
9. SENIOR SUBORDINATED NOTES
In June 1989, the Company issued $100 million principal amount of
13.75% Senior Subordinated Notes (Senior Subordinated Notes) due June 1, 1999.
The Senior Subordinated Notes are redeemable in whole or in part, at the option
of the Company, after June 1, 1994 at a price of 105.156% which decreases
annually to 100% of the principal amount at the maturity date. Annual
mandatory redemption payments of $20 million commencing June 1, 1996 are
calculated to retire 60% of the issue prior to maturity. In case of a change
in control, the noteholders have the right to require the Company to repurchase
the Senior Subordinated Notes at established redemption prices. The Senior
Subordinated Notes, which are unsecured, are subordinate in right of payment to
all senior debt and are senior in right of payment to the Company's Convertible
Debentures. Under the terms of the Senior Subordinated Note indenture, the
Company may not incur additional indebtedness which is subordinate to senior
debt and senior to the Senior Subordinated Notes. Additionally, the indenture
agreement contains various other covenants, including dividend restrictions and
minimum net worth requirements.
As discussed in Note 8, during 1994, the Company exchanged $50 million
principal amount of the Senior Subordinated Notes for a like amount of Deferred
Coupon Notes. The $50 million of Senior Subordinated Notes exchanged satisfy
the Company's mandatory redemption requirements with respect to such issue and,
as a result, the $20 million mandatory redemption payments due on June 1, 1996
and 1997 have been satisfied and the mandatory redemption payment due on June
1, 1998 has been reduced to $8.8 million.
During fiscal 1992, the Company repurchased $1,250 principal amount
of the Senior Subordinated Notes in an open market purchase.
During November 1993 and May 1994, the Company completed a solicitation
of consents from the holders of the Senior Subordinated Notes which, among other
things, amended the net worth and certain other financial covenants and
permitted the completion of the Company's Restructuring and eliminated any
prospective defaults resulting from the adverse results and events relating to
the Company's discontinued Canadian operations.
10. CONVERTIBLE SUBORDINATED DEBENTURES
In March 1987, the Company issued $25 million principal amount of
Convertible Subordinated Debentures (the Convertible Debentures) due March 15,
2007. The Convertible Debentures, which are unsecured, may be converted at any
time prior to maturity, unless previously redeemed, into shares of the Company's
common stock at a conversion price of $3.25 per share.
During fiscal 1990, the Company called $12.5 million principal amount
of the Convertible Debentures for redemption and subsequently $6.5 million
principal amount was converted into 683 shares of common stock and the remaining
$6.0 million principal amount was redeemed at the call price of 105%.
F-14
<PAGE> 67
During fiscal years 1990 and 1992, the Company also purchased $9.7
million and $.8 million, respectively, of the principal amount of the
Convertible Debentures in open market purchases at prices which approximated
the par value of the Convertible Debentures.
In June 1994, the Company purchased $1.9 million of the Convertible
Debentures pursuant to a mandatory repurchase obligation.
11. STOCKHOLDERS' EQUITY:
In March 1994, the Company contributed 50 shares of its common stock
to the profit sharing retirement plan in lieu of a cash contribution. The
total fair market value of the common stock at the date of contribution was
approximately $132.
In May 1992, the Company completed a public offering of 2,199 shares
of common stock at a price of $5.00 per share. The net proceeds from the
offering, after deducting all associated costs, were $9,785.
Each share of common stock entitles the holder to one vote, while each
share of Class B common stock entitles the holder to ten votes. Cash dividends
on the Class B common stock may not exceed those on the common stock. Due to
restricted transferability there is no trading market for the Class B common
stock. However, the Class B common stock may be converted, at the
stockholder's option, into common stock on a share-for-share basis at any time
without cost to the stockholder.
Stockholders' equity includes cumulative currency translation
adjustments of ($600) and ($4,651) at June 30, 1994 and 1993, respectively. A
foreign currency exchange loss of $6.4 million, which resulted from the
elimination of the currency translation adjustments relating to Ideal, was
realized as part of the loss on disposal of Ideal. See Note 2.
12. STOCK OPTIONS:
Stock Option Plan
Effective July 1, 1992, the Company's stockholders approved the 1992
Non-Qualified and Incentive Stock Option Plan (the 1992 Stock Option Plan)
which replaced the then existing stock option plan (the 1982 Plan) which
terminated by its terms on April 30, 1992. The 1992 Stock Option Plan
authorized the issuance of an aggregate of 1.1 million shares of common stock
as incentive stock options to officers and key employees of the Company or its
subsidiaries. During fiscal 1994, the Board of Directors of the Company
approved an amendment to the 1992 Stock Option Plan which would increase the
number of shares subject to the 1992 Stock Option Plan to 1.5 million shares.
Such amendment is subject to stockholder approval, which the Company intends to
seek at its next annual meeting of stockholders. Under the terms of the 1992
Stock Option Plan, all options granted are at an option price not less than the
market value at the date of grant and may be exercised for a period not
exceeding 10 years from the date of grant.
During fiscal 1994, options exercisable to purchase an aggregate of
1,250 shares were issued under the 1992 Stock Option Plan at exercise prices of
$2.25 to $3.88 per share, and options exercisable to purchase 1,046 shares with
exercise prices of $2.38 to $5.00 per share were cancelled. At June 30, 1994,
options for 1,194 shares were outstanding, of which none were exercisable. Of
the options granted in fiscal 1994, options to purchase an aggregate of
200 shares are subject to stockholder approval to the amendment to the
1992 Stock Option Plan. At June 30, 1993, there were options for 990 shares
outstanding under the 1992 Stock Option Plan.
Also during fiscal 1994, options for 271 shares under the 1982 Plan
with exercise prices of $4.75 to $6.00 per share were cancelled. At June 30,
1994, there were no options outstanding under the 1982 Plan. At June 30, 1993,
there were options for 271 shares outstanding under the 1982 Plan.
Other Stock Options
In fiscal 1994, the Board of Directors of the Company adopted the
1994 Non-Employee Directors Stock Option Plan pursuant to which each current
non-employee director of the Company was granted an option to purchase an
aggregate of 20 shares of the Company's Common Stock at an exercise price of
$2.25 per share and each future non-employee director of the Company would be
granted, on the date such person becomes a non-employee director of the
Company, an option to purchase an aggregate of 20 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date
of grant. The grant of such options is subject to stockholder approval, which
the Company intends to seek at its next annual meeting of stockholders. In
addition, during fiscal 1994 the Company granted a consultant to the Company an
option to purchase an aggregate of 10 shares of Common Stock at an exercise
price of $2.25 per share. At June 30, 1994, options to purchase a total of 70
shares were outstanding under the non-qualified options, of which none were
exercisable. During fiscal 1994, options to purchase 170 shares with
exercise prices of $4.25 to $6.00 per share were cancelled.
F-15
<PAGE> 68
13. LEASE COMMITMENTS:
The Company leases certain of its warehouse and office facilities and
equipment under operating lease agreements which expire at various dates
through 2003.
Future minimum rental payments are as follows: $3,856 in 1995, $3,254
in 1996, $3,016 in 1997, $2,361 in 1998, $1,850 in 1999 and $2,595 after 1999,
with a cumulative total of $16,932.
Total rent expense charged to operations was $3,951 in 1994, $3,758 in
1993 and $3,398 in 1992.
14. PROFIT SHARING PLAN:
The Company has a trusteed profit sharing retirement plan for
employees of certain of its divisions and subsidiaries. In fiscal 1989, the
plan was amended to qualify under Section 401(K) of the Internal Revenue Code.
Company contributions are determined by the Board of Directors. The charges to
operations for Company contributions totaled $132 in fiscal 1993 and $123
in fiscal 1992.
15. CONTINGENCIES:
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the Company's financial statements.
F-16
<PAGE> 69
<TABLE>
SUPPLEMENTARY FINANCIAL INFORMATION
Quarterly Results of Operations:
The following is a summary of the unaudited quarterly results of operations for
the fiscal years ended June 30, 1994 and 1993 (in thousands, except per share amounts):
<CAPTION>
AUDITED
FISCAL 1994 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
- ----------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Net sales $54,701 $53,233 $52,311 $54,867 $215,112
Gross profit 18,750 18,764 18,551 19,036 75,101
Operating income 4,759 5,124 4,413 3,917 18,213
Loss from continuing operations
before extraordinary charge (357) (42) (941) (2,132) (3,472)
Income (loss) from discontinued
operations 886 115 (4,250) - (3,249)
Loss on disposal (38,343) (38,343)
Extraordinary charge - - (6,625) (199) (6,824)
Net income (loss) 529 74 (50,159) (2,331) (51,888)
Primary and fully diluted
earnings per share:
Loss from continuing
operations before cumulative
effect of accounting change (.03) (.01) (.08) (.18) (.30)
Income (loss) from discontinued
operations .07 .02 (.36) - (.28)
Loss on disposal - - (3.28) - (3.28)
Extraordinary charge - - (.57) (.02) (.58)
Net income (loss) (.04) .01 (4.29) (.20) (4.44)
AUDITED
FISCAL 1993 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
- ----------- -------- -------- -------- -------- -----
Net sales $54,405 $50,969 $48,583 $50,821 $204,778
Gross profit 18,197 16,952 16,773 15,612 67,534
Operating income (loss) 4,303 3,985 3,905 (7,502) 4,691
Loss from continuing operations
before cumulative effect of
accounting change (363) (547) (710) (14,270) (15,890)
Income (loss) from discontinued
operations 785 733 (218) (12,540) (11,240)
Cumulative effect of accounting
change (2,110) -- -- -- (2,110)
Net income (loss) (1,688) 186 (928) (26,810) (29,240)
Primary and fully diluted
earnings per share:
Loss from continuing
operations before cumulative
effect of accounting change (.03) (.05) (.06) (1.22) (1.36)
Income (loss) from discontinued
operations .07 .07 (.02) (1.08) (.97)
Cumulative effect of accounting change (.18) -- -- -- (.18)
Net income (loss) (.14) .02 (.08) (2.30) (2.51)
</TABLE>
F-17
<PAGE> 70
<TABLE>
<S> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION WAXMAN INDUSTRIES, INC.
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE
HEREIN, IN CONNECTION WITH THIS OFFER AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO 2,950,000
BUY, ANY OF THESE SECURITIES IN ANY JURISDICTION TO WARRANTS TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER PURCHASE COMMON STOCK
OR SOLICITATION IN SUCH JURISDICTION. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE ------------------
INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
2,950,000
------------------------- SHARES OF
COMMON STOCK
PAR VALUE $.01 PER SHARE
-----------------------------
PROSPECTUS
TABLE OF CONTENTS
PAGE -----------------------------
----
Available Information . . . . . . 3
Prospectus Summary . . . . . . . 4
Risk Factors . . . . . . . . . . 10 , 1994
Use of Proceeds . . . . . . . . . 12 ------
Capitalization . . . . . . . . . 13
Price Range of Common Stock . . 15
Dividends . . . . . . . . . . . . 15
Selected Financial Data . . . . . 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . 19
Business . . . . . . . . . . . . 26
Management . . . . . . . . . . . 36
Principal Stockholders . . . . . 41
Recent Securities Offering and
Related Matters . . . . . . . . 42
Selling Security Holders . . . . 45
Description of Warrants . . . . . 46 -----------------------------
Description of Capital Stock . . 47
Plan of Distribution . . . . . . 48
Legal Matters . . . . . . . . . . 49
Experts . . . . . . . . . . . . . 49
Index to Financial Statements . . F-1
Financial Statements . . . . . . F-2
</TABLE>
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses incurred in connection with this Registration
Statement will be paid by the Company. The Selling Security Holders will not
bear any of such expenses.
<TABLE>
<S> <C>
Filing Fees - Securities and Exchange Commission $ 3,354
Accounting Fees and Expenses 25,000
Legal Fees and Expenses 40,000
Printing Fees and Expenses 10,000
Miscellaneous Expenses 24,646
--------
Total $103,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of Waxman Industries, Inc. provides that
each person who is a party to or involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she was a director or officer of Waxman Industries, shall be
indemnified and held harmless by Waxman Industries to the fullest extent
authorized by the Delaware General Corporation Law against all expense,
liability and loss reasonably incurred by such person in connection therewith.
The Certificate of Incorporation provides that the right to indemnification
contained therein is a contract right and includes the right to be paid by
Waxman Industries the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Delaware
General Corporation Law requires, the payment of such expenses incurred in
advance of the final disposition of a proceeding shall be made only upon
delivery to Waxman Industries of an undertaking to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified. Waxman Industries maintains directors' and
officers' liability insurance covering certain liabilities incurred by the
directors and officers of Waxman Industries in connection with the performance
of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On May 20, 1994, the Company issued Series A 12 3/4% Senior Secured
Deferred Coupon Notes Due 2004 having an initial accreted value of
$50,000,000 (the "Notes") together with warrants (the "Warrants") to
purchase 2,950,000 shares of Common Stock in exchange for $50,000,000
aggregate principal amount of the Company's outstanding 13 3/4% Senior
Subordinated Notes due June 1, 1994 pursuant to a private exchange offer
(the "Private Exchange Offer").
All of the participants in the Private Exchange Offer were either
Qualified Institutional Buyers (as defined in Rule 144A under the Act) or
Institutional Accredited Investors (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Act).
The Private Exchange Offer was made without registration under the Act in
reliance on the exemption from the requirements for such registration provided
under Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
II-1
<PAGE> 72
<TABLE>
<S> <C>
3.1** Certificate of Incorporation of Waxman Industries, Inc. (Exhibit 3(a)
to Waxman Industries, Inc.'s Form S-8 filed December 4, 1989, File No.
0-5888, incorporated herein by reference).
3.2** By-laws of Waxman Industries, Inc. (Exhibit 3.2 to Waxman Industries,
Inc.'s Annual Report on Form 10-K for the year ended June 30, 1990,
File No. 0-5888, incorporated herein by reference).
4.1** Indenture, dated as of May 20, 1994, by and between Waxman Industries,
Inc. and The Huntington National Bank, as Trustee, with respect to the
Senior Secured Deferred Coupon Notes, including the form of Senior
Secured Deferred Coupon Notes (Exhibit 4.1 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994, incorporated herein by
reference).
4.2** Warrant Agreement, dated as of May 20, 1994, by and between Waxman
Industries, Inc. and The Huntington National Bank, as Warrant Agent
(Exhibit 4.2 to Waxman Industries, Inc.'s Form S-4 filed June 20,
1994, incorporated herein by reference).
4.3** Warrant Certificate (Exhibit 4.3 to Waxman Industries, Inc.'s Form S-4
filed June 20, 1994, incorporated herein by reference).
5.1 Opinion of Shereff, Friedman, Hoffman & Goodman regarding legality.
10.1** Lease between Waxman Industries, Inc. as Lessee and Aurora Investment
Co. as Lessor dated June 30, 1992 (Exhibit 10.1 to Waxman Industries,
Inc.'s Annual Report on Form 10-K for the year ended June 30, 1992,
File No. 0-5888, incorporated herein by reference).
10.2** Policy Statement (revised as of June 1, 1980) regarding Waxman
Industries, Inc.'s Profit Incentive Plan (Exhibit 10(c)-1 to Waxman
Industries, Inc.'s Annual Report on Form 10-K for the year ended June
30, 1984, File No. 0-5888, incorporated herein by reference).
10.3** Employment Contract dated June 18, 1990 between Barnett Inc. and
William R. Pray (Exhibit 10.4 to Waxman Industries, Inc.'s Annual
Report on Form 10-K for the year ended June 30, 1991, File No.
0-5888, incorporated herein by reference).
10.4** Form of Stock Option Agreement between Waxman Industries, Inc. and its
Directors (Exhibit 10.5 to Waxman Industries, Inc.'s Annual Report on
Form 10-K for the year ended June 30, 1991, File No. 0-5888,
incorporated herein by reference).
10.5** Employment Contract dated January 1, 1992 between Waxman Industries,
Inc. and John S. Peters (Exhibit 10.6 to Waxman Industries, Inc.'s
Annual Report on Form 10-K for the year ended June 30, 1992, File No.
0-5888, incorporated herein by reference).
10.6** Tax Sharing Agreement dated May 20, 1994 among Waxman Industries,
Inc., Waxman USA, Barnett Inc., Waxman Consumer Products Group Inc.,
WOC Inc. and Western American Manufacturing, Inc. (Exhibit 10.6 to
Waxman Industries, Inc.'s Form S-4 filed June 20, 1994, incorporated
herein by reference).
10.7** Intercorporate Agreement dated May 20, 1994 among Waxman Industries,
Inc., Waxman USA, Barnett Inc., Waxman Consumer Products Group Inc.,
WOC Inc. and Western American Manufacturing, Inc. (Exhibit 10.7 to
Waxman Industries, Inc.'s Form S-4 filed June 20, 1994, incorporated
herein by reference).
10.8** Credit Agreement dated as of May 20, 1994 among Waxman USA, Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc., the
Lenders and Issuers party thereto and Citicorp
II-2
</TABLE>
<PAGE> 73
<TABLE>
<S> <C>
USA, Inc. as Agent, and certain exhibits thereto (Exhibit 10.8 to
Waxman Industries, Inc.'s Form S-4 filed June 20, 1994, incorporated
herein by reference).
10.9** Term Loan Credit Agreement dated as of May 20, 1994 among Waxman USA,
Inc., Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto and Citibank, N.A., as Agent
(Exhibit 10.9 to Waxman Industries, Inc.'s Form S-4 filed June 20,
1994, incorporated herein by reference).
12.1*** Statement re: computation of ratios.
21.1*** List of Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Shereff, Friedman, Hoffman & Goodman (contained in its
opinion filed as Exhibit 5.1 to this Registration Statement).
24.1 Power of Attorney (included in Part II of Registration Statement).
<FN>
__________________
* To be filed by amendment.
** Incorporated herein by reference as indicated.
*** Filed as exhibits to the Company's Amendment No. 1 to Form S-2 Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
July 18, 1994.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE> 74
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Waxman
Industries, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio on the 20th day of
September, 1994.
WAXMAN INDUSTRIES, INC.
By:/s/Neal R. Restivo
-------------------
Neal R. Restivo,
Vice President and Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
*
- --------------------------------------- Chairman of the Board, September 20, 1994
Melvin Waxman Co-Chief Executive Officer
and Director
*
- --------------------------------------- President, Co-Chief Executive September 20, 1994
Armond Waxman Officer, Treasurer and Director
/s/ Neal R. Restivo Vice President and Chief Financial September 20, 1994
- --------------------------------------- Officer (principal financial and
Neal R. Restivo accounting officer)
* Director September 20, 1994
- ---------------------------------------
Samuel J. Krasney
* Director September 20, 1994
- ---------------------------------------
Irving Z. Friedman
* Director September 20, 1994
- ---------------------------------------
Judy Robins
* By: /s/ Neal R. Restivo
------------------------------
Neal R. Restivo
As Attorney-in-Fact
</TABLE>
II-5
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description Sequential Page Number
-------------- ------------------------------------------ ----------------------
<S> <C> <C> <C>
3.1** Certificate of Incorporation of Waxman
Industries, Inc. (Exhibit 3(a) to Waxman
Industries, Inc.'s Form S-8 filed
December 4, 1989, File No. 0-5888,
incorporated herein by reference).
3.2** By-laws of Waxman Industries, Inc.
(Exhibit 3.2 to Waxman Industries, Inc.'s
Annual Report on Form 10-K for the year
ended June 30, 1990, File No. 0-5888,
incorporated herein by reference).
4.1** Indenture, dated as of May 20, 1994, by
and between Waxman Industries, Inc. and
The Huntington National Bank, as Trustee,
with respect to the Deferred Coupon Notes,
including the form of Deferred Coupon
Notes (Exhibit 4.1 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994,
incorporated herein by reference).
4.2** Warrant Agreement, dated as of May 20,
1994, by and between Waxman Industries,
Inc. and The Huntington National Bank, as
Warrant Agent (Exhibit 4.2 to Waxman
Industries, Inc.'s Form S-4 filed June 20,
1994, incorporated herein by reference).
4.3** Warrant Certificate (Exhibit 4.3 to Waxman
Industries, Inc.'s Form S-4 filed June 20,
1994, incorporated herein by reference).
5.1 Opinion of Shereff, Friedman, Hoffman &
Goodman regarding legality.
10.1** Lease between Waxman Industries, Inc. as
Lessee and Aurora Investment Co. as
Lessor dated June 30, 1992 (Exhibit 10.1
to Waxman Industries, Inc.'s Annual Report
on Form 10-K for the year ended June 30,
1992, File No. 0-5888, incorporated
herein by reference).
10.2** Policy Statement (revised as of June 1,
</TABLE>
II-6
<PAGE> 77
<TABLE>
<CAPTION>
Exhibit Number Exhibit Index Sequential Page Number
-------------- ------------------------------------------- ----------------------
<S> <C> <C>
1980) regarding Waxman Industries, Inc.'s
Profit Incentive Plan (Exhibit 10(c)-1 to
Waxman Industries, Inc.'s Annual Report on
Form 10-K for the year ended June 30,
1984, File No. 0-5888, incorporated
herein by reference).
10.3** Employment Contract dated June 18, 1990
between Barnett Inc. and William R. Pray
(Exhibit 10.4 to Waxman Industries, Inc.'s
Annual Report on Form 10-K for the year
ended June 30, 1991, File No. 0-5888,
incorporated herein by reference).
10.4** Form of Stock Option Agreement between
Waxman Industries, Inc. and its Directors
(Exhibit 10.5 to Waxman Industries, Inc.'s
Annual Report on Form 10-K for the year
ended June 30, 1991, File No. 0-5888,
incorporated herein by reference).
10.5** Employment Contract dated January 1, 1992
between Waxman Industries, Inc. and John
S. Peters (Exhibit 10.6 to Waxman
Industries, Inc.'s Annual Report on Form
10-K for the year ended June 30, 1992,
File No. 0-5888, incorporated herein by
reference).
10.6** Tax Sharing Agreement dated May 20, 1994
among Waxman Industries, Waxman USA,
Barnett Inc. , Waxman Consumer Products
Group Inc., WOC Inc. and Western American
Manufacturing, Inc. (Exhibit 10.6 to
Waxman Industries, Inc.'s Form S-4 filed
June 20, 1994, incorporated herein by
reference).
10.7** Intercorporate Agreement dated May 20,
1994 among Waxman Industries, Waxman USA,
Barnett Inc., Waxman Consumer Products
Group Inc., WOC Inc. and Western American
Manufacturing, Inc. (Exhibit 10.7 to
Waxman Industries, Inc.'s Form S-4
</TABLE>
II-7
<PAGE> 78
<TABLE>
<CAPTION>
Exhibit Number Exhibit Index Sequential Page Number
-------------- -------------------------------------------- ----------------------
<S> <C> <C>
filed June 20, 1994, incorporated herein
by reference).
10.8** Credit Agreement dated as of May 20, 1994
among Waxman USA, Inc., Barnett Inc.,
Waxman Consumer Products Group Inc. and
WOC Inc., the Lenders and Issuers party
thereto and Citicorp USA, Inc., as Agent,
and certain exhibits thereto (Exhibit 10.8
to Waxman Industries, Inc.'s Form S-4
filed June 20, 1994, incorporated herein
by reference).
10.9** Term Loan Credit Agreement dated as of May
20, 1994 among Waxman USA, Inc., Barnett
Inc., Waxman Consumer Products Group, Inc.
and WOC Inc., the Lenders and Issuers
party thereto and Citibank, N.A., as Agent
(Exhibit 10.9 to Waxman Industries, Inc.'s
Form S-4 filed June 20, 1994, incorporated
herein by reference).
12.1*** Statement re: computation of ratios.
21.1*** List of Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Shereff, Friedman, Hoffman &
Goodman (contained in its opinion filed as
Exhibit 5.1 to this Registration
Statement).
24.1 Power of Attorney (included in Part II of
Registration Statement).
<FN>
__________________
* To be filed by amendment.
** Incorporated herein by reference as indicated.
*** Filed as exhibits to the Company's Amendment No. 1 to Form S-2
Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on July 18, 1994.
</TABLE>
II-8
<PAGE> 1
Exhibit 5.1
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
919 THIRD AVENUE O NEW YORK, N.Y. 10022-9998
(212) 758-9500
CABLE: SHERFRIED TELEX:237328
WRITER'S DIRECT DIAL:
TELECOPIER:(212) 758-9526
September 20, 1994
Waxman Industries, Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
Gentlemen:
Waxman Industries, Inc., a Delaware corporation (the "Company"), is
transmitting for filing with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement"), relating to the offer and sale by the securityholders identified
as "Selling Securityholders" in the Prospectus included in the Registration
Statement of up to (i) 2,950,000 warrants (the "Warrants") to purchase
2,950,000 shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") and (ii) 2,950,000 shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares"). This opinion is an exhibit
to the Registration Statement.
We have from time to time acted as special securities counsel to the
Company in connection with certain corporate and securities matters, and in
such capacity we have participated in various corporate and other proceedings
taken by or on behalf of the Company in connection with the proposed offer and
sale of the Warrants and Warrant Shares by the Selling Securityholders, as
contemplated by the Registration Statement. We have examined copies (in each
case signed, certified or otherwise proven to our satisfaction to be genuine)
of the Company's Certificate of Incorporation and all amendments thereto, its
By-Laws as presently in effect, minutes and other instruments evidencing
actions taken by its directors and stockholders, the Registration Statement
and exhibits thereto and such other documents and instruments relating to the
Company and the proposed offering as we have deemed necessary under the
circumstances. Insofar as this opinion relates to securities to be issued in
the future, we have assumed that all applicable laws, rules and regulations in
effect at the time of such issuance are the same as such laws, rules and
regulations in effect as of the date hereof.
<PAGE> 2
We note that we are members of the Bar of the State of New York and insofar
as this opinion may involve the laws of the State of Delaware, our opinion is
based solely upon our reading of the Delaware General Corporation Law as
reported in the Prentice-Hall Corporation Law Service, provided, however, that
our opinion as to the due incorporation, valid existence and good standing of
the Company is based solely upon a Certificate of Good Standing obtained from
the Secretary of State of the State of Delaware. Whether or not expressly
stated in the opinion below, the conclusions set forth below are expressed with
respect to the laws of the State of New York, the Delaware General Corporation
Law (subject to the immediately preceding sentence) and the federal laws of the
United States of America, and we express no opinion as to the applicability or
effect of the laws of any other jurisdiction upon the conclusions set forth
below. We do not find it necessary for purposes of this opinion, and,
accordingly, we do not purport to cover herein, the application of the
securities or "blue sky" laws of any state, including the States of Delaware or
New York, to the offer and/or sale of the Warrants and Warrant Shares.
Based on the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly existing and in
good standing under the laws of the State of Delaware and has authorized
capital stock consisting of 22,000,000 shares of Common Stock, 6,000,000
shares of class B common stock, par value $.01 per share, and 2,000,000
shares of preferred stock, par value $.01 per share.
2. The Warrants have been duly authorized and legally issued.
3. The Warrant Shares have been duly authorized and reserved for issuance,
and upon the exercise of the Warrants and the issuance of the Warrant Shares in
accordance with the terms of the Warrants, the Warrant Shares will be legally
issued and fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any application under the
securities or other laws of any state of the United States or any foreign
jurisdiction which relates to the offering which is the subject of this
opinion, and to the references to this firm appearing under the heading "Legal
Matters" in the Prospectus which is contained in the Registration Statement.
This opinion is as of the date hereof, is limited to the law in effect as of
the date hereof, and we undertake no obligation to advise you of any change,
whether legal or factual, in any matter set forth herein. This opinion is
furnished to you in connection with the filing
- 2 -
<PAGE> 3
of the Registration Statement, and is not to be used, circulated, quoted or
otherwise relied upon for any other purposes, except as expressly provided in
the preceding paragraph.
Very truly yours,
/s/SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
- 3 -
<PAGE> 1
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
Registration Statement (File No. 33-54211).
ARTHUR ANDERSEN LLP
Cleveland, Ohio
September 20th, 1994
