SYRATECH CORP, 10-K405, 1997-03-31

SYRATECH CORP
10-K405, 1997-03-31
JEWELRY, SILVERWARE & PLATED WARE

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-12624

SYRATECH CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 13-3354944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
175 MCCLELLAN HIGHWAY
EAST BOSTON, MASSACHUSETTS 02128-9114
(Address of principal executive office) (Zip Code)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 617-561-2200

<TABLE>
<S> <C>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF
THE ACT: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PREFERRED STOCK
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO __

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF REGISTRANT AT
MARCH 21, 1997 -- $162,111,819. NUMBER OF SHARES OF COMMON STOCK, PAR VALUE
$0.01 PER SHARE, OUTSTANDING AT MARCH 21, 1997 -- 8,703,231.

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-4 NO. 333-16917 --
PART II
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FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained or incorporated by reference in the Annual Report on Form 10-K, the
matters discussed or incorporated by reference herein are forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, general
economic and business conditions; industry capacity; industry trends; overseas
expansion; the loss of major customers; changes in demand for the Company's
products; the timing of orders received from customers; cost and availability of
raw materials; dependence on foreign sources of supply; changes in business
strategy or development plans; availability and quality of management;
availability, terms and deployment of capital; and the seasonal nature of the
business. SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS
INCLUDING, BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE COMPANY'S ABILITY
TO EXECUTE ITS GROWTH STRATEGIES AND TO REALIZE ITS GROWTH OBJECTIVES, (II) THE
COMPANY'S PLANNED EXPANSION OF ITS PRODUCT OFFERINGS, (III) THE COMPANY'S
ABILITY TO OBTAIN SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND
CAPITAL EXPENDITURE NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS, AND (IV) THE
CONTINUATION OF, AND THE COMPANY'S ABILITY TO BENEFIT FROM, THE VENDOR
CONSOLIDATION TREND IN THE RETAIL INDUSTRY DESCRIBED ELSEWHERE IN THE ANNUAL
REPORT ON FORM 10-K.

PART I

ITEM 1. BUSINESS

OVERVIEW

Syratech Corporation (the "Company"), manufactures, imports and markets a
diverse portfolio of tabletop, giftware and seasonal products, including:
sterling silver, silverplated and stainless steel flatware; sterling silver,
silverplated and brass hollowware; picture frames and photo albums; glassware,
woodenware and ceramics; fine porcelain boxes; figurines, waterglobes and
Christmas ornaments, trim, lighting and tree skirts.

The Company's net sales have grown from $82.9 million in 1991 to $169.5
million in 1995, a compounded annual growth rate of approximately 20%. For the
year ended December 31, 1996, the Company had net sales of $270.9 million, an
increase of 59.8% from the same period in 1995. Such growth was achieved through
the recent acquisitions, the addition of new products and product categories and
expanded distribution of existing products. The addition of new products and
product categories has been implemented through both internal development and
the acquisition of complementary brands. The Company has grown these acquired
brands into substantial product categories by expanding and improving their
product lines and distributing them through the Company's distribution channels.

On October 23, 1996, the Company and THL Transaction I Corp. ("THL I"),
entered into a merger agreement (which was restated on November 27, 1996 and was
further amended on February 14, 1997) (the "Merger Agreement") and pursuant to
which THL I will be merged into the Company (the "Merger"). Pursuant to the
transaction, stockholders of the Company will receive $32 in cash for each share
of Syratech Common Stock owned by them (other than Leonard Florence who will
receive $28 per share) or may elect to receive a portion of their consideration
by retaining stock of the surviving entity. A Special Meeting of the
Stockholders of Syratech Corporation will be held on April 14, 1997.

RECENT ACQUISITIONS

Rauch. Rauch, a leading domestic manufacturer and marketer of Christmas
and other seasonal products, in particular glass and satin tree ornaments, was
acquired in February 1996 for approximately $49.6 million. Rauch distributes its
products primarily to mass market merchandisers through its own sales force and
independent representatives. The acquisition included Rochard, a marketer of
fine porcelain boxes sold primarily to high-end specialty and department stores.

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Farberware. In April 1996, the Company acquired certain assets of
Farberware Inc., including its name, trademarks and other intellectual property,
inventory, tools and dies and machinery and equipment. The purchase price paid
by the Company was $32.6 million, subject to adjustment. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Recent Transactions." The Company has been selling the inventory
initially purchased and subsequently acquired pursuant to a manufacturing
services agreement and, in three separate transactions, has entered into
licensing agreements for use by third parties of the Farberware tradename in
connection with the sourcing, manufacturing and marketing of (a) certain
cookware and bakeware products for a one-time payment of $25.5 million, (b)
certain electric products for home use for an annual royalty payments and (c)
Commercial Products (defined as six specified urns and a specified convection
oven plus other products to be developed with the prior approval of Farberware)
for annual royalty payments. Pursuant to an agreement made with Lifetime Hoan
Corporation ("LHC") contemporaneously with the agreement for acquisition of
assets of Farberware Inc., the Company and LHC agreed to share the rights to
receive, and the obligation to pay certain commissions in respect of, royalties
under specified license agreements assigned to the Company by the prior owner of
the Farberware trade name. Through a joint venture to be, but which has not yet
been, formally established pursuant to the agreement with LHC and subject to
certain intellectual property rights that the Company has reserved exclusively
for itself, the Company and LHC expect to continue to grant licenses to third
parties for use of the Farberware trade name. The Company itself also intends to
market specific products from time to time under the Farberware trade name. The
agreement with LHC provides that for a period of sixty days following a change
of control of either Syratech of LHC, the other co-owner of the joint venture
will have to require the co-owner that has experienced the change in control to
set a price for one-half interest in the venture, and thereupon the other
co-owner (i.e., the one that has not experienced a change of control) can elect
either to buy its co-owner's interest at the price to set or to sell its own
interest at such price to the co-owner that set it. The Company expects to
continue to grant licenses and intends from time to time to market specific
products under the Farberware tradename.

Silvestri. In April 1996, the Company acquired certain inventory and
intangibles of the Silvestri Division of FFSC, Inc. for approximately $8.6
million. The Silvestri product line consists of high-end Christmas ornaments,
collectibles, lighting and trim, as well as other seasonal and nonseasonal
giftware and decorative accessories, distributed primarily to specialty and
department stores.

C.J. Vander. In May 1996, the Company acquired C. J. Vander, a
manufacturer and marketer of prestigious sterling silver flatware and hollowware
with manufacturing locations in Sheffield and London, England. C.J. Vander's
products are distributed primarily to jewelry and other specialty stores in the
United Kingdom and Europe for approximately $1.0 million.

Potpourri Press. On November 26, 1996, a wholly-owned subsidiary of the
Company acquired inventory, tangible property, intellectual property rights,
certain key records (including customer lists, customer files, supplier
information, catalogs) and certain contract rights (selected by the Company's
subsidiary) of Potpourri Press, a North Carolina-based manufacturer and marketer
of Christmas products for a purchase price of approximately $2.3 million plus a
$0.2 million promissory note.

COMPETITIVE STRENGTHS AND OPERATING STRATEGY

The Company's strategic goal is to be the leading domestic, one-source
supplier of tabletop, giftware and seasonal products to retailers. In order to
achieve this goal, the Company intends to rely on what it believes to be certain
competitive strengths and on certain operating strategies including:

Leadership in Key Product Categories. The Company believes that it is one
of the leading domestic manufacturers and marketers of sterling silver flatware
and sterling silver and silverplated hollowware, which products are sold under
many well-recognized tradenames. In addition, the Company believes it is one of
the leading domestic manufacturers of Christmas ornaments. Historically, the
Company has been able to increase sales by leveraging its strong presence with
retailers in certain categories, such as sterling silver flatware, to introduce
new products and product categories.

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Broad Portfolio of Products with Well-Recognized Tradenames. The Company
offers a broad portfolio of tabletop, giftware and seasonal products both in
terms of the different product categories and multiple retail price points
through its "good-better-best" strategy. Wallace, Towle and International Silver
are among the best recognized tradenames for sterling silver flatware in the
United States, dating back to the colonial period. Rauch and Silvestri are well
established brands for Christmas and other seasonal merchandise. The Company's
giftware products are marketed under well-recognized tradenames such as
International Silver Company, Rochard and Melannco. The Company believes that
certain of its strongest brands draw customers into retail stores specifically
to purchase products bearing those tradenames. In addition to its own
tradenames, the Company produces a variety of products under license from
certain entities including The Walt Disney Company(R), Cuisinart(R), Victoria &
Albert Museum(R) and Faberge, Inc.(R)

Diversified Distribution Channels. The Company sells its products to
approximately 30,000 customers in most major distribution channels, including
retail specialty stores, such as jewelry, seasonal and nonseasonal giftware and
collectible stores, department stores, mass market merchandisers, catalogue
showrooms and warehouse clubs. The Company believes that the recent Rauch and
Silvestri acquisitions will strengthen the Company's presence with mass market
merchandisers and department and specialty stores, respectively. The Company's
broad customer base, both in terms of number of customers and channels of
distribution, reduces its exposure to any single customer or channel of
distribution. In 1996, no single customer accounted for 10% or more of the
Company's net sales.

Strong Relationships with Retailers. The Company attributes the successful
development of its retail channels to a number of factors. The Company believes
that it has benefited from the vendor consolidation trend in the retail
industry, which has resulted in increased demand for vendors that have the
ability to make timely deliveries of a broad range of quality products and
provide advertising and other sales support. The Company also believes that the
maintenance of separate sales forces for its product categories has allowed the
Company to provide its customers with specialized sales and marketing expertise.
In addition, the Company has a policy of not owning or operating Company outlet
stores and believes that this policy further strengthens its relationships with
its customers.

Product Development Expertise. The vast majority of the Company's
products, including products that are sourced from outside vendors, are designed
by the Company's design team and independent designers in conjunction with the
Company's product development and marketing team. The Company's design and
product development and marketing teams work closely to (i) introduce innovative
new products and product categories, such as the Holiday Workshop line of
seasonal products, the Hostess Helpers(R) sterling accessory line and a
dinnerware category that coordinates with sterling silver flatware and (ii)
develop acquired brands into substantial product lines for the Company, such as
the Melannco lines of picture frames and photo albums and the Elements glassware
lines.

Integrated Manufacturing and Sourcing. The Company aims at delivering
quality products at competitive prices to its customers. In order to pursue this
goal, the Company relies both on its own domestic manufacturing capabilities and
on a variety of suppliers located primarily in the Asia Pacific Rim. The
Company's decision on whether to manufacture or import is based upon, among
other criteria, expertise, quality, availability and cost. The Company's
imported products are designed by the Company's design team with the assistance
of independent designers in conjunction with the Company's marketing team. In
addition, in order to ensure quality, products are generally manufactured using
Company-owned tools and dies. In 1996, through its import organization comprised
of approximately 150 employees, both in the U.S. and overseas, the Company
sourced products from over 480 manufacturers, with whom in many cases it has
long-standing relationships. The Company can rely on multiple manufacturers and
countries with respect to most of its imported products.

GROWTH STRATEGY

The Company's strategy for future growth focuses on the integration of its
recent acquisitions and on its continued ability to expand its product lines,
expand its distribution, both domestically and internationally, improve the
efficiency of its operations and pursue selected acquisitions of complementary
product lines and businesses.

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Integration of Recent and Pending Acquisitions. The Company believes that
significant opportunities for growth in sales and operating income exist if it
can successfully integrate its recent acquisitions into the Company's sales and
marketing organization and consolidate and rationalize certain operations.

The Company plans to expand the distribution of Rauch and Silvestri
products by marketing them through the Company's established distribution
channels and also plans to add new products to their existing lines. By
integrating Rauch, Silvestri and Potpourri with the Company's internally
developed Holiday Workshop line of seasonal products, the Company has
significantly expanded its product offerings in this product category, both in
terms of types of product and retail price points, and strengthened its presence
in major retail channels. In addition, the Company believes that such
strengthened presence will provide the Company with substantial opportunities to
cross-sell the Company's tabletop and giftware product lines through Rauch and
Silvestri distribution channels.

In order to support the growth in its seasonal business, the Company is in
the process of investing $15 million to expand its manufacturing, warehousing
and distribution capabilities, primarily by consolidating warehouse and
distribution facilities, building a new centralized customer showroom for
seasonal products and acquiring new tools and dies and machinery. These
investments, along with the consolidation of certain selling, general and
administrative functions, are also designed to generate significant cost
savings.

Through the acquisition of C.J. Vander, the Company believes that it will
be able to expand the distribution of Wallace and Towle sterling silver and
silverplated product lines into the European market, primarily through C.J.
Vander's existing distribution channels. In addition, the Company intends to
expand the distribution of C.J. Vander products in the United States, in
particular through the Rochard sales force, which consists of independent
representatives who sell to high-end specialty and department stores. The
Company also intends to capitalize on the Farberware brand name recognition to
introduce new tabletop products under that tradename beginning in 1997.

Expanded Distribution. In addition to the opportunities offered by the
recent acquisitions discussed above, the Company believes that it has
significant opportunities to expand the distribution of its existing product
lines by increasing the penetration of existing retailer customers and the
number of retail outlets to which it sells. Beginning in 1994, the Company
implemented a program with a specialty retailer and franchisee, whereby the
Company sources, markets and distributes giftware products for the customer's
retail system comprised of several thousand stores. With respect to this
program, the Company has identified several growth opportunities, both in terms
of expanded product offerings and additional store coverage. In addition, the
Company intends to expand the distribution of several product lines introduced
in the past several years, such as Melannco and Elements, which the Company
believes are not currently fully exploited.

New Product Introduction. The Company intends to continue to introduce
many new products each year. As a result of the planned investments in tools,
dies and machinery, the Company believes that it will be able to broaden
significantly its offering of Christmas and other seasonal merchandise beginning
in 1997. The Company intends to capitalize on the Farberware tradename
recognition for quality housewares to introduce new products beginning in 1997.
In addition, the Company continuously expands and upgrades its line of sterling
silver, silverplated and other tabletop and giftware products.

Continued Investment in Technology and Productivity. The Company, through
one of its indirect wholly-owned subsidiaries, has entered into a purchase and
sale agreement to acquire approximately 42 acres of land in Mira Loma,
California. The Company intends to construct a warehouse and distribution center
on the property to serve as its western region warehouse and distribution
center. The Company intends to invest in additional application solutions to
enhance its Electronic Data Interchange (EDI) and warehousing capabilities. The
Company plans to add a Warehouse Management System (WMS) to each of its
warehouses that would enhance the Company's ability to service its customers by
improving its order processing and logistics and storage utilization, minimize
order cycle times, enhance inventory management, and ensure that customer orders
are processed efficiently.

Acquisitions. The Company believes that the giftware and seasonal markets
and, to a lesser extent, the tabletop market are highly fragmented with a number
of small manufacturers and marketers of a limited line

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of products. The Company believes that these industry characteristics and the
continuing trend among retailers to consolidate their vendor base will generate
attractive opportunities to acquire complementary brands, products, product
categories and businesses.

Limitations on Growth Strategy. The Company's ability to follow the growth
plans outlined in preceding paragraphs may be constrained by the availability
and cost of capital following the Merger. Immediately following the Merger there
will be a substantial decrease in stockholders' equity, see the Company's
Consolidated Financial Statements Note 15, and, as a consequence, the Company
may find it necessary to curtail or abandon some or all of its growth plans.

PRODUCTS

The Company designs, manufactures, imports and markets a diverse offering
of quality tabletop, giftware and seasonal products. The Company defines
seasonal products as Christmas tree ornaments, other Christmas decorations and a
variety of other products sold for Halloween, Easter, Thanksgiving, Mothers Day
and Valentines Day. Seasonal products are marketed under a variety of the
Company's tradenames. Seasonal products are included in the Tabletop and
Giftware product category and are marketed under the Wallace, Towle, and
International Silver tradenames. For example, the Company considers picture
frames a tabletop and giftware item and also considers it seasonal just by
changing the packaging slightly (e.g., a red colored box at Christmas time).
Therefore, a number of the Company's products and/or product lines cannot be
categorized between Tabletop and Giftware and Seasonal.

The majority of the Company's products are sold through the same
distribution channels. Customers in each distribution channel purchase a wide
range of the Company's products. Distribution costs are not tracked by product
category and therefore are not distinguishable between Tabletop and Giftware and
Seasonal. In addition, selling and marketing costs, including product design,
trade shows and travel, are not tracked separately and are not reasonably
allocable by product category.

A significant portion of the Company's products are also sourced overseas.
This function is also not performed by product or product line and is therefore
not reasonably allocable by product category.

The Company also believes that a significant change in sales of specific
products will not materially impact operating results.

The following table presents a breakdown of the Company's net sales by
major product categories for the periods presented. For the purpose of this
table, seasonal products include the Rauch (including Rochard), Silvestri and
Holiday Workshop product lines. Certain seasonal products marketed under
Wallace, Towle and International Silver trademarks are included in the tabletop
and giftware product category.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tabletop and Giftware.................................. $139,510 $153,170 $171,824
Seasonal............................................... 7,781 16,350 99,107
-------- -------- --------
Total........................................ $147,291 $169,520 $270,931
======== ======== ========
</TABLE>

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The Company's products include those shown in the table below, all of which
are marketed under one of the Company's many well-recognized tradenames as shown
in the table:

<TABLE>
<CAPTION>
PRODUCT CATEGORY REPRESENTATIVE PRODUCTS PRINCIPAL TRADENAMES
- ------------------ -------------------------------- --------------------------------
<S> <C> <C>
TABLETOP AND Sterling Silver Flatware and Wallace Silversmiths(R), Towle
GIFTWARE Hollowware, Silverplated Silversmiths(R), International
Flatware and Hollowware, Silver Company(R),
Stainless Steel Flatware, Farberware(R), C.J. Vander,
Picture Frames and Photo Albums, Ltd.(TM), Roberts and Belk,
Porcelain Boxes, Candlesticks, Ltd.(TM), Tuttle Sterling(R),
Cosmetic Accessories, Glassware, Rochard(TM), Melannco(R), 1847
Woodenware, Ceramics, Brassware Rogers Bros.(R), Elements(R)

SEASONAL Waterglobes, Figurines, Rauch Industries(R),
Collectibles Silvestri(R), Holiday
Christmas Ornaments, Christmas Workshop(R), International
Stockings, Tree Skirts, Trim, Christmas(TM), Holiday
Lighting Products(TM), Rochard(TM),
Potpourri Press(R)
</TABLE>

Tabletop and Giftware

Sterling Silver and Silverplated Flatware and Hollowware. The Company
designs, markets and distributes a variety of products in these categories,
including flatware, serving pieces, cosmetic accessories and hollowware, such as
candlesticks, casseroles and coffee and tea services, that are marketed under
the tradenames Wallace Silversmiths(R), Towle Silversmiths(R), International
Silver Company(R), C.J. Vander(TM) and Tuttle Sterling(R). A vast majority of
the Company's products in this category are manufactured at the Company's plants
in Puerto Rico and Massachusetts. These products are sold primarily to specialty
stores, including jewelry stores and gift stores, and department stores and are
generally included in bridal registries.

Stainless Steel Flatware. The Company designs, markets and distributes
several lines of stainless steel flatware ranging from premium mass-produced
sets to high-end flatware place settings. The Company markets these products
under tradenames such as Wallace Silversmiths(R), Towle Silversmiths(R),
International Silver Company(R), 1847 Rogers Bros.(R) and, under a license
agreement, the tradename Cuisinart(R). The Company's products in this category
are imported from the Company's third-party vendors located primarily in the
Asia Pacific Rim. The primary channels of distribution include department
stores, mass market merchandisers, warehouse clubs and specialty stores and are
also included in bridal registries.

Picture Frames and Photo Albums. The Company designs, markets and
distributes several product lines of picture frames and photo albums. The
picture frames range from sterling silver on the high end to a variety of other
frames produced in wood, resin, ceramic, metal and other mediums. The photo
albums are produced in metal, fabric and resin. The Company markets these
products under tradenames such as Melannco International(R), International
Silver Company(R), Wallace Silversmiths(R) and Towle Silversmiths(R) and under
license from The Walt Disney Company(R). The Company's products in this category
are imported from the Company's third-party vendors located primarily in the
Asia Pacific Rim. The channels of distribution include department stores,
including stationery departments, specialty stores and mass market
merchandisers.

Glassware, Woodenware and Ceramics. The Company designs, markets and
distributes several lines of glassware products, including beverageware, glass
dinnerware and salad sets. The Company markets these products under the
tradenames International Silver Company(R) and Elements(R). The Company intends
to market a woodenware and ceramics line in 1997. The Company's products in this
category are imported from the Company's third-party vendors located primarily
in the Asia Pacific Rim. The channels of distribution of the Company's glassware
line include mass market merchandisers, warehouse clubs and specialty stores.

Porcelain Boxes. The Company designs, markets and distributes a diverse
range of high-end, hand-painted porcelain boxes under the Rochard(TM) tradename
which are primarily manufactured by third-party vendors located primarily in
France. The channels of distribution include specialty stores, including jewelry
stores and department stores.

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Other Tabletop and Giftware. The Company designs, markets and distributes
a wide range of other tabletop and giftware products, including premium products
such as picture frames and cosmetic accessories as "gift with purchase" items,
brassware, napkin rings and decorative clocks. The primary channels of
distribution include department stores, mass market merchandisers, warehouse
clubs and specialty stores.

Seasonal Products

Christmas Ornaments. The Company designs, markets and distributes
Christmas tree ornaments made of glass, satin, ceramic and resin. The Company's
products are distributed through specialty stores, department stores, jewelry
stores, mass market merchandisers and warehouse clubs. These products are
marketed under the tradenames Rauch(R), Silvestri(R), Holiday Workshop(R),
Potpourri Press(R), and International Christmas(TM). The Company also
manufactures limited edition, sterling silver Christmas ornaments that are
marketed under the tradenames Wallace Silversmiths(R) and Towle Silversmiths(R).

Other Christmas Decorations. The Company designs, markets and distributes
a diverse product offering of other Christmas decorations including figurines,
waterglobes, collectibles, trim, lighting, tree skirts and other decorative
items produced in wood, resin, metal, paper, textiles, glass and ceramic. These
products are marketed under the tradenames Silvestri(R), Rauch(R), Holiday
Workshop(R), Potpourri Press(R), International Christmas(TM) and Elements(R).
These products are distributed through specialty stores, department stores, mass
market merchandisers and warehouse clubs.

Other Seasonal Products. The Company designs, markets and distributes a
variety of other seasonal products for Halloween, Easter, Thanksgiving, Mothers
Day and Valentines Day. These products include figurines, vases, bowls, trays
and other items comprised of metal, resin, wood, ceramic and glass. These
products are distributed through specialty stores, department stores, mass
market merchandisers and warehouse clubs.

SALES, MARKETING AND DISTRIBUTION

On January 17, 1997, the Company, through one of its indirect wholly-owned
subsidiaries acquired approximately 42 acres of land in Mira Loma, California.
The Company intends to construct a warehouse and distribution center on the
property to serve as its western region warehouse and distribution center.

The Company sells many different types of products, with a variety of price
points and target customers. Accordingly, the Company sells its products through
a variety of distribution channels including department and speciality stores,
mass market merchandisers, warehouse clubs, catalogue showrooms, drugstores,
supermarkets, incentive marketers and jewelry stores. The Company maintains
separate sales forces for its product lines so as to provide the specialized
expertise and attention necessary to service its customer base. The Company's
sales and marketing staff coordinates with individual retailers to devise
marketing strategies and merchandising concepts and to furnish advice on
advertising and product promotion. The Company has developed several promotional
programs for use in the ordinary course of business to promote sales throughout
the year.

The Company's various sales and marketing efforts are supported from its
principal office and showroom in East Boston, Massachusetts and, for certain of
its products, from its offices and showrooms in Hong Kong and London. The
Company maintains additional showrooms in New York, Los Angeles, Atlanta, Dallas
and Chicago. The Company's sales and marketing staff at December 31, 1996,
consisted of approximately 150 employees who are salaried, paid commissions
based on sales or, in some instances, paid a base salary plus commissions. The
Company also distributes certain of its products through independent sales
representatives who work on a commission basis only.

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RETAILING CUSTOMERS

During 1996, 20 customers accounted for approximately 43% of the Company's
net sales. No one customer represented 10% or more of the Company's net sales.

<TABLE>
<CAPTION>
1996 CHANNELS OF DISTRIBUTION % OF 1996 NET SALES
----------------------------------------------------------------- ----------------------
<S> <C>
Mass Market Merchandisers, Catalogue Showrooms, Warehouse Clubs,
Drug Stores, Supermarkets...................................... 39%
Department Stores................................................ 19%
Specialty Stores, Jewelry Stores, Premium and Incentive
Marketers...................................................... 42%
</TABLE>

In order better to service its customers, the Company has invested in
equipment and software to allow its customers to transmit their orders
electronically throughout the EDI system.

MANUFACTURING AND RAW MATERIALS

The Company produces its sterling silver flatware at its manufacturing
facility in San German, Puerto Rico, where it fabricates and manufactures
sterling silver into finished products for the Wallace, International, Towle and
Tuttle lines, and in Sheffield, England for C.J. Vander, Ltd. and Roberts and
Belk. The Company also designs, produces and maintains the tools required for
manufacturing sterling silver flatware.

The Company has maintained, in the aggregate, approximately six months of
inventory. The Company's silver fabrication operation in its Puerto Rico
manufacturing plant became fully operational during 1994. This process reduces
the need for purchasing fabricated silver from outside vendors. The Company uses
substantial quantities of fabricated silver in its manufacturing operations.
Fabricated sterling silver made from fine silver purchased by the Company may be
readily obtainable from outside resources as well. The Company purchases fine
silver in the spot market in quantities the Company believes are adequate to
meet reasonably foreseeable consumer demand for its silver products. The Company
does not engage in speculative purchases of fine silver. In the five-year period
ended December 31, 1996, the closing price of silver as quoted by Handy & Harman
Inc. has ranged from $3.54 per troy ounce to $6.01 per troy ounce ($5.23 at
February 21, 1997).

The Company manufactures silverplated giftware and tabletop products,
including hollowware, at its manufacturing and silverplating facilities in North
Dighton, Massachusetts and Sheffield, England. These facilities have all the
stamping, processing, soldering, finishing, polishing, silverplating and
packaging capabilities necessary to turn unfinished metal into finished
products.

The Company's imported products originate as designs created by its
internal design staff or by independent designers, in each case in conjunction
with the Company's product development and marketing staffs. Products based on
these designs are manufactured to the Company's specifications in various
countries including Hong Kong, India, Korea, Taiwan, China, Japan, Indonesia,
Malaysia and certain European countries.

In 1996, the Company purchased an aggregate of approximately $104 million
of products from approximately 480 foreign manufacturers. No vendor accounted
for ten percent or more of such purchases in 1996. The Company does not have
information on the financial condition of its major foreign vendors, all of
which are privately held, but is not aware of any unfavorable information
related to their respective financial condition. Of the Company's foreign
purchases in 1996, approximately 92% were from vendors located in the Far East,
approximately 4% were from vendors located in India and approximately 4% in the
aggregate from vendors in other locations. The Company's arrangements with its
manufacturers are subject to the risks of doing business abroad, including risks
associated with economic or political instability in countries in which such
manufacturers are located, labor strikes and risks associated with foreign
currency and potential import restrictions. The Company does not believe that
the loss of any single foreign supplier would have a material long-term adverse
impact on the Company's source of supply, because other manufacturers with whom
the Company does business would be able to increase production to fulfill the
Company's requirements. The Company is also subject to risks associated with the
availability of, and time required for, the transportation of products from
foreign countries, including shipping losses or lost sales that may result from
delays or interruptions in shipping.

8
<PAGE> 10

The Company intends to invest in increasing production capacity and
improving productivity related to its Rauch operations. For several of the prior
selling seasons, the Company believes that Rauch had operated under capacity
constraints. The Company has developed and is in the process of installing new
automatic machinery with a production capacity exceeding 150% of the capacity of
its current machines. The Company expects that the new machinery will start
operating during the first quarter of 1997. The Company also purchased an
828,000 (approximately) square foot building in Chester, South Carolina, which
is in close proximity to the existing Rauch manufacturing plant. This new
facility will provide adequate space for the new machinery and allow for
automated material handling which is expected to reduce costs substantially.
This large warehouse and distribution center will also provide the Company an
opportunity to consolidate its outside warehouse and manufacturing. The Company
continuously looks for opportunities for new equipment to reduce production
costs.

The recently acquired Rauch Christmas decoration manufacturing process uses
three basic raw materials: (i) expandable polystyrene ("EPS") for unbreakable
ornaments, (ii) glass ornament blanks and (iii) acetate or polyester yarn
materials including boxes and packaging. To produce Christmas stockings, tree
skirts and Santa Claus hats and suits, Rauch purchases non-woven and knitted
pile fabric. Rauch has not experienced difficulty in obtaining raw materials or
other supplies from its suppliers and does not anticipate any such difficulty in
the foreseeable future. Rauch imports ornament hangers, small glass and satin
balls and assorted tree and off-the-tree decorations from Taiwan, Hong Kong,
Mexico and Colombia.

COMPETITION

The tabletop, giftware and seasonal products industries in which the
Company is engaged are highly competitive. Competition is affected not only by
the large number of domestic manufacturers, but also by the large volume of
foreign imports. Several of the Company's competitors are larger and have
greater financial resources than the Company. The Company's products compete
indirectly with a broad range of household products not offered by the Company.
Within the overall tabletop products industry, the production of sterling silver
flatware in the United States is relatively concentrated, with five
manufacturers, including the Company, accounting for substantially all of the
sterling silver flatware manufactured and sold in the United States. The other
principal manufacturers and marketers of sterling silver flatware are Gorham,
Inc. and its affiliate The Kirk Steiff Company, Reed & Barton Corp. and Lunt
Silversmiths, all of which have been in business for many years. The giftware
and seasonal products industries, however, are very fragmented with numerous
small manufacturers and marketers of a limited number of products. The Company
is not aware of any competitor having the same product line breadth.

A number of factors affect competition in the sale of products of the type
manufactured, imported and sold by the Company. Among these are brand
identification, style, design, packaging, price, quality, promotion, sales staff
and the level of service provided to customers. The importance of these
competitive factors varies from customer to customer and from product to product
and no one of these factors is dominant in all cases. The Company believes that
its ability to compete effectively can be attributed to its performance in all
of these areas. Certain of the Company's foreign competitors have tried to gain
market share in the United States by producing low-cost items and by taking
advantage of the increased purchasing power of the dollar in times when the
dollar is relatively strong as compared to foreign countries. Rising labor costs
in many foreign countries and the relative weakness of the dollar, as compared
to the exchange rates prevailing in the mid-1980's, have reduced these
advantages to some extent in recent years.

TRADEMARKS, COPYRIGHTS AND PATENTS

The success of the Company's various businesses depends in part on the
Company's ability to exploit certain proprietary designs, trademarks and brand
names on an exclusive basis in reliance upon the protections afforded by
applicable copyright, patent and trademark laws and regulations. The loss of
certain of the Company's rights to such designs, trademarks and brand names or
the inability of the Company effectively to protect or enforce such rights could
adversely affect the Company. The Company does not believe that there is a
significant danger that it will lose its rights to any of its material
trademarks and tradenames or be unable

9
<PAGE> 11

effectively to protect or enforce such rights. Although the loss of any right to
designs, trademarks and tradenames could have negative effects, any such effects
are unlikely to be material.

SEASONALITY

Sales are generally higher in the third and fourth quarters and are
strongly influenced by the buying patterns associated with the Christmas season.
The acquisitions of Rauch and Silvestri will intensify the seasonality of the
Company since the majority of Rauch and Silvestri products are Christmas items
and sales of these products are strongest in the third and fourth quarters. The
Company continues to introduce products appropriate to other holidays and
seasons in order to increase sales during the first and second quarters.

BACKLOG

Orders for the Company's products are generally subject to cancellation
until shipment. The Company's backlog consists of cancelable orders and is
dependent upon trends in consumer demand throughout the year. Customer order
patterns vary from year to year, largely because of annual differences in
consumer acceptance of product lines, product availability, marketing
strategies, inventory levels of retailers and differences in overall economic
and weather conditions. As a result, comparison of backlog as of any date in a
given year with backlog at the same date in a prior year are not necessarily
indicative of sales trends. The Company had (exclusive of Farberware) a backlog
of approximately $24.3 million as of December 31, 1996, compared to
approximately $24.0 million as of December 31, 1995. See "Seasonality." The
Company does not believe that backlog is necessarily indicative of the Company's
future results of operations or prospects.

The Company's warranty policy is to accept returns of products with defects
in materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer goodwill. In accordance with normal retail
industry practice, the Company ordinarily accepts returns only from its
customers and does not ordinarily accept returns directly from consumers.
Certain of the products returned to the Company by its customers, however, may
have been returned to those customers by consumers. The Company will routinely
accept returns for imported products that are received late by the customer. The
majority of the returned products are resold into the same distribution channel.
During the three year period ended December 31, 1996, returns and allowances
amounted to approximately 2.1% of sales.

ENVIRONMENTAL REGULATION

The Company's silverplating, chrome plating, tool making and painting
operations routinely involve the handling of waste materials that are classified
as hazardous. The Company also refabricates certain materials used in its
silverplating operations. The Company is subject to certain domestic federal,
state and local laws and regulations concerning the containment and disposal of
hazardous materials and, therefore, in the ordinary course of its business, the
Company incurs compliance costs and may be required to incur clean-up costs.
Based upon currently available information, the Company does not expect that the
costs of such compliance and clean-up costs will be material. In addition, the
Company's C.J. Vander facility is subject to many environmental regulations
related to its plating operations in the United Kingdom. Actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the products
manufactured by the Company or otherwise adversely affect the demand for its
products. In addition, the future costs of compliance with environmental laws
and regulations and liabilities resulting from currently unknown circumstances
or developments could be substantial and could have a material adverse effect on
the Company.

10
<PAGE> 12

PROPERTIES

The following table sets forth information with respect to the Company's
properties as of January 31, 1997:

<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
FOOTAGE OR
LOCATION TYPE OF FACILITY ACREAGE STATUS
- ----------------------- ----------------------------------------- ----------- -------
<S> <C> <C> <C>
Mira Loma, CA.......... Land 42 Acres Owned
Chester, SC*........... Warehouse/Manufacturing/Showroom 828,000 Owned
Revere, MA............. Warehouse/Distribution 580,000 Owned
Gastonia, NC........... Office/Manufacturing/Distribution 447,441 Owned
East Boston, MA........ Office/Showroom 292,000 Owned
Ontario, CA............ Office/Warehouse/Distribution 285,000 Leased
Dallas, TX............. Warehouse 189,100 Leased
El Paso, TX............ Office/Manufacturing 135,000 Owned
North Dighton, MA...... Office/Manufacturing/Warehouse 134,042 Leased
Crisfield, MD.......... Office/Manufacturing/Warehouse 71,754 Leased
San German, PR......... Office/Manufacturing 70,296 Leased
New York, NY........... Showrooms 45,361 Leased
Hong Kong.............. Office/Warehouse/Showroom 42,009 Leased
Atlanta, GA............ Showrooms 15,050 Leased
Dallas, TX............. Showrooms 9,716 Leased
Los Angeles, CA........ Showroom 10,095 Leased
Wallingford, CT........ Office 2,800 Leased
Cramerton, NC.......... Land 34.1 Acres Owned
Dallas, TX............. Office 20,000 Leased
Sheffield, England..... Manufacturing/Warehouse/Foundry 39,000 Owned
London, England........ Office/Showroom 4,000 Leased
China.................. Warehouse 56,512 Leased
Taiwan................. Office 6,253 Leased
Philippines............ Office 4,380 Leased
Chicago, IL............ Showroom 7,452 Leased
New York, NY........... Warehouse 3,800 Leased
</TABLE>

- ---------------
(*) Scheduled to be operational by March 31, 1997

EMPLOYEES

As of December 31, 1996, the Company had approximately 1,925 employees. The
Company believes that its relationship with its employees is good.

The Company's employees are not represented by labor unions; however,
Rauch, which merged with the Company on February 15, 1996, was a subject of
efforts by UNITE (the "Union") in the fall of 1995 to organize Rauch's
employees. A scheduled Union election was postponed because the Union filed
unfair labor practice charges against Rauch with the National Labor Relations
Board (the "NLRB"). These charges, which related to allegations of threats and
promises by Rauch officials and the termination of certain employees, were
settled pursuant to an agreement between Rauch and the Union. On May 2, 1996,
the NLRB approved the agreement and the Union's request that the petition for an
election be withdrawn with prejudice.

On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the
NLRB determined that the Company's subsidiaries Wallace International de P.R.,
Inc. and International Silver de P.R., Inc. (the "P.R. Subsidiaries") had
engaged in unfair labor practices incident to a union election (won by the P.R.

11
<PAGE> 13

Subsidiaries) held in February, 1993 and ordered the P.R. Subsidiaries to
refrain from certain conduct and to take certain affirmative action. The ALJ's
decision was affirmed by the NLRB on September 22, 1994. Incident to a second
union election (also won by the P.R. Subsidiaries) held on June 22, 1994
pursuant to stipulation, the P.R. Subsidiaries were again charged with unfair
labor practices. The ALJ again found that the P.R. Subsidiaries had engaged in
unfair labor practices. The Company has appealed to the NLRB, and the appeal is
pending.

LEGAL PROCEEDINGS

The Company has been named as a defendant in several legal actions arising
from its normal business activities, including routine copyright and trademark
litigation, which actions are considered normal in the businesses in which the
Company is engaged.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 1996, no matters were submitted to a vote of
the Company's shareholders through the solicitation of proxies or otherwise.

12
<PAGE> 14

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE OF SYRATECH COMMON STOCK

Syratech Common Stock is listed and traded on NYSE under the symbol "SYR."
The following table sets forth, for the periods indicated, the high and low
sales closing prices per share of Syratech Common Stock.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1995
First Quarter (ended March 31, 1995).............................. $19 1/4 $15
Second Quarter (ended June 30, 1995).............................. 19 16 3/4
Third Quarter (ended September 30, 1995).......................... 20 5/8 17 7/8
Fourth Quarter (ended December 31, 1995).......................... 23 19 3/4

FISCAL 1996
First Quarter (ended March 31, 1996).............................. $26 3/8 $20 1/2
Second Quarter (ended June 30, 1996).............................. 27 5/8 22 3/8
Third Quarter (ended September 30, 1996).......................... 24 1/2 22
Fourth Quarter (ended December 31, 1996).......................... 31 3/4 23 3/8
</TABLE>

On October 22, 1996, the last trading day before public announcement of
execution of the Merger Agreement, the last sale price of Syratech Common Stock
as reported on the NYSE was $26 1/4 per share. The average of the closing prices
for the 20 consecutive trading days ended October 22, 1996 was $24.59 per share.

As of March 5, 1997, the Company had approximately 3,489 shareholders of
record.

DIVIDENDS PAID

The Company has never paid cash dividends on its common stock and does not
expect to do so in the foreseeable future. The Company intends to retain all
earnings to provide funds for the operation and expansion of its businesses.
Under its revolving loan facility, the Company may not take cash dividends in
excess of 33 1/3% of its net income for the prior fiscal year.

13
<PAGE> 15

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial information as of December
31, 1992 through 1996 and for each of the years in the five-year period ended
December 31, 1996 has been derived from the consolidated financial statements of
the Company. The consolidated balance sheets of the Company as of December 31,
1995 and 1996 and the consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996, together with the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere herein. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Annual Report on Form 10-K.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net sales................................................. $103,735 $122,682 $147,291 $169,520 $270,931
Cost of sales............................................. 70,361 84,643 104,600 119,836 194,113
-------- -------- -------- -------- --------
Gross profit.............................................. 33,374 38,039 42,691 49,684 76,818
Selling, general and administrative expenses.............. 24,364 27,727 31,613 34,239 57,664
Other operating income.................................... 3,948(2)
-------- -------- -------- -------- --------
Income from operations.................................... 9,010 10,312 11,078 15,445 23,102
Interest expense.......................................... (2,757) (948) (559) (287) (3,150)
Interest income........................................... 23 82 98 4,881 771
Other income.............................................. 11,900(3)
-------- -------- -------- -------- --------
Income before income taxes................................ 6,276 9,446 10,617 20,039 32,623
Provision for income taxes................................ 1,657 2,390 2,758 6,863 12,234
-------- -------- -------- -------- --------
Income from continuing operations......................... 4,619 7,056 7,859 13,176 20,389
Discontinued operations:
Income from discontinued operations, net of income
taxes................................................. 10,284 10,838 12,068 2,572
Gain on sale of Syroco, Inc., net of income
taxes................................................. 30,451
-------- -------- -------- -------- --------
Net income................................................ $ 14,903 $ 17,894 $ 19,927 $ 46,199 $ 20,389
======== ======== ======== ======== ========
Earnings Per Share:
Continuing operations................................... $ .55 $ .60 $ .67 $ 1.12 $ 2.32
Discontinued operations................................. 1.10 .92 1.02 2.79
-------- -------- -------- -------- --------
Net income.............................................. $ 1.65 $ 1.52 $ 1.69 $ 3.91 $ 2.32
======== ======== ======== ======== ========
Weighted average common shares and common share
equivalents outstanding................................. 9,312 11,768 11,809 11,803 8,799
======== ======== ======== ======== ========

</TABLE>

- ---------------
(1) The income statement has been restated to reflect Syroco, Inc. as a
discontinued operation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Transactions."

(2) Consists of income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.

(3) Consists of nonrecurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.

14
<PAGE> 16

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 87,458 $105,115 $125,136 $122,050 $ 119,918
Total assets........................................ 141,294 152,060 190,684 220,566 227,254
Total debt(4)....................................... 6,446 5,060 15,379 51,735(5) 6,636
Stockholders' equity................................ 112,381 131,005 152,100 146,596 170,248
Book value per share................................ 10.55 11.25 13.01 16.91 19.58
</TABLE>

- ---------------
(4) Consists of long-term debt, notes payable and current maturities of
long-term debt.

(5) Reflects temporary borrowings of $51,735 made on December 29, 1995 in
connection with the purchase by the Company for retirement of 3,065 shares
of Common Stock owned by affiliates of Katy Industries, Inc. (the "Katy
Stock Repurchase"). These borrowings were paid on January 2, 1996.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Except for the historical information
contained or incorporated by reference in this Annual Report on Form 10-K, the
matters discussed or incorporated by reference herein are forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, general
economic and business conditions; industry capacity; industry trends; overseas
expansion; the loss of major customers; changes in demand for the Company's
products; the timing of orders received from customers; cost and availability of
raw materials; dependence on foreign sources of supply; changes in business
strategy or development plans; availability and quality of management;
availability, terms and deployment of capital; and the seasonal nature of the
business. SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS
INCLUDING, BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE COMPANY'S ABILITY
TO EXECUTE ITS GROWTH STRATEGIES AND TO REALIZE ITS GROWTH OBJECTIVES, (II) THE
COMPANY'S PLANNED EXPANSION OF ITS PRODUCT OFFERINGS, (III) THE COMPANY'S
ABILITY TO OBTAIN SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND
CAPITAL EXPENDITURE NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS, AND (IV) THE
CONTINUATION OF, AND THE COMPANY'S ABILITY TO BENEFIT FROM, THE VENDOR
CONSOLIDATION TREND IN THE RETAIL INDUSTRY DESCRIBED ELSEWHERE IN THE ANNUAL
REPORT ON FORM 10-K.

RECENT TRANSACTIONS

Rauch Industries, Inc.

On February 15, 1996, the Company, through an indirect wholly owned
subsidiary, acquired the outstanding shares of Rauch for approximately $49.6
million, including costs of the transaction. The acquisition was accounted for
under the purchase method of accounting, and the results of operations of Rauch
have been included with the results of the Company from February 15, 1996. The
purchase price in excess of net assets acquired of $7.2 million is being
amortized on the straight line basis over 30 years. During the year ended
December 31, 1996, the Company received $23.8 million in connection with an
insurance claim relating to a 1994 fire at Rauch. During the fiscal year ended
December 31, 1995, net sales of Rauch were $58.9 million.

Farberware

On April 2, 1996, the Company, through its indirect wholly owned
subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan
Corporation ("Lifetime"), acquired certain assets from Farberware Inc., a
subsidiary of U.S. Industries, Inc. ("USI"). Lifetime and the Company are not
affiliates.

15
<PAGE> 17

$45.8 million, subject to adjustment, of which Far-B paid approximately, $32.6
million. The amount of the adjustment was the subject of a dispute, as noted
below. The assets acquired by the Company included certain of the inventory, the
tradename "Farberware" and the intellectual property (including the intellectual
property that relates to cookware and bakeware and electric products other than
major kitchen appliances) and certain tools and dies and machinery and
equipment. Effective April 2, 1996, the Company, through Far-B, entered into a
manufacturing services agreement with Farberware Inc. for transitional
manufacturing services for certain finished goods previously produced by
Farberware Inc. The Company entered into the manufacturing services agreement in
part to provide continuity of product during a transition period in order to
protect the strength of the Farberware name in the marketplace. The
manufacturing services agreement has terminated.

The Company acquired Farberware Inc. assets in order to expand Farberware's
licensing activities and to use the Farberware name on certain of the Company's
existing and new products.

Upon disposal of acquired inventory, the Company will not manufacture or
sell Farberware cookware and bakeware products or noncommercial electric
products. Accordingly, net sales for the year ended December 31, 1996 exclude
sales of Farberware inventory, and $3.5 million, net of certain selling, general
and administrative expenses, from these sales has been recorded as other
operating income.

In a separate transaction, the Company and Far-B entered into an agreement
with Lifetime, which provided for the allocation between them of those assets
acquired from Farberware Inc., which had not been acquired by Lifetime directly
from Farberware Inc. the granting of a long-term license to Lifetime for use of
the Farberware name in connection with an extensive list of products, the
granting to Lifetime of long-term exclusive rights to operate Farberware outlet
stores, the reservation of certain exclusive rights to Far-B (including
exclusive rights to use of the Farberware name for corporate purposes and for
the marketing of cookware and bakeware products as well as electric products)
and for the future formation of a joint venture to administer certain licensing
rights.

On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B)
("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd.
("Meyer") pursuant to which Meyer was granted for a term of 200 years (i) an
exclusive worldwide license to use and exploit the Farberware name and certain
related intellectual property rights in connection with the sourcing,
manufacture and distribution of cookware and bakeware products for home use and
commercial, industrial and institutional size pots, pans and roasters, and (ii)
non-exclusive (shared) rights to use certain Farberware technology and other
intellectual property. For such grant, Meyer made a one-time payment to the
Company of $25.5 million, which resulted in recognition by the Company of $11.9
million of non-recurring income. Under the terms of the licensing agreement, the
Company has no further obligation with respect to the amount paid by Meyer. As
such, the entire proceeds received were recognized as revenue. On July 12, 1996,
Farberware granted to a major retail chain the exclusive license to use and
exploit the Farberware name and related intellectual property in connection with
the sourcing, manufacture, marketing and sale of certain electric products for
annual royalty payments. On October 25, 1996 Farberware granted to FCI Corp. a
license to use and exploit the Farberware name in connection with the sourcing,
manufacturing, marketing and sale of certain Commercial Products (defined as six
specified commercial urns and one specified commercial convection oven plus
cookware, bakeware and electric products developed by the Licensee solely and
exclusively for commercial, industrial or institutional use with the prior
written approval of Farberware) for the payment of annual royalties. Pursuant to
an agreement made with Lifetime Hoan Corporation ("LHC") contemporaneously with
the agreement for acquisition of assets of Farberware Inc., the Company and LHC
agreed to share the rights to receive, and the obligation to pay certain
commissions in respect of, royalties under specified license agreements assigned
to the Company by the prior owner of the Farberware trade name. Through a joint
venture to be, but which has not yet been, formally established pursuant to the
agreement with LHC and subject to certain intellectual property rights that the
Company has reserved exclusively for itself, the Company and LHC expect to
continue to grant licenses to third parties for use of the Farberware trade
name. The Company itself also intends to market specific products from time to
time under the Farberware trade name. The agreement with LHC provides that for a
period of sixty days following a change of control of either Syratech or LHC,
the other co-owner of the joint venture will have the right to require the
co-owner that has experienced the change in control to set a price for a
one-half interest in the venture, and thereupon the other co-owner (i.e., the
one

16
<PAGE> 18

that has not experienced a change of control) can elect either to buy its
co-owner's interest at the price so set or to sell its own interest at such
price to the co-owner that set it.

On February 3, 1997 the Company, Farberware, and Lifetime reached an
agreement (the "Settlement Agreement"), with USI and Bruckner Manufacturing
Corp. (formerly Farberware Inc., the USI subsidiary)("BMC") to settle all
previous outstanding legal disputes arising out of the Farberware asset purchase
agreement and the manufacturing services agreement. The Settlement Agreement
provides for no change to the aggregate consideration paid for the acquired
assets, and eliminates certain restrictions on the disposition of acquired
tools, machinery and equipment. The Company expects to recognize a gain of
approximately $2.5 million before taxes in 1997 on the disposition and sale of
certain of the tools and equipment. Under the terms of the Settlement Agreement,
Farberware will receive certain finished goods inventory at no cost which the
Company estimates has a net realizable value of approximately $1.2 million, and
agreed to pay for certain finished goods inventories purchased under the
manufacturing services agreement. The Settlement Agreement also resolved
outstanding claims and disputes related to purchase price adjustments, trade
accounts receivable, advertising commitments, and the administration of consumer
warranties.

Silvestri

On April 16, 1996, the Company purchased finished goods inventory and
intangible assets of the Silvestri division of FFSC, Inc. for approximately $8.6
million. Prior to the Company's purchase of such assets, FFSC, Inc., its
subsidiaries and affiliated companies had filed for protection under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Texas (the "Bankruptcy Court"). The Bankruptcy Court approved this
acquisition by the Company. Silvestri products include Christmas ornaments,
collectibles, lighting and trim as well as other seasonal and nonseasonal
giftware and decorative accessories.

The Company has given a Guaranty (limited to $4 million), dated as of May
21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain
related entities to The CIT Group/Business Credit, Inc. under a certain debtor
in possession financing agreement dated May 21, 1996 and, at the request of the
Company, NationsBank N.A. (South) has issued its letter of credit, dated May 21,
1996 in the amount of $4 million to CIT Group/Business Credit, Inc. to secure
the Company's aforesaid guaranty. Certain funds which are affiliates of the
Thomas H. Lee Company are creditors of FFSC, Inc. See "Agreement and Plan of
Merger" below.

C.J. Vander

On May 8, 1996, the Company, through one of its subsidiaries, acquired all
of the outstanding common stock of C.J. Vander, a manufacturer of sterling
silver and silverplated flatware and hollowware in Sheffield and London,
England. The purchase price was immaterial to the Company's consolidated
financial statements. The acquisition was accounted for under the purchase
method of accounting.

Potpourri Press

On November 26, 1996, a wholly-owned subsidiary of the Company acquired
inventory, tangible property, intellectual property rights, certain key records
(including customer lists, customer files, supplier information, catalogs) and
certain contract rights (selected by the Company's subsidiary) of Potpourri
Press, a North Carolina-based manufacturer of Christmas products for a purchase
price of approximately $2.3 million plus a $0.2 million promissory note.

Syroco

17
<PAGE> 19

amounting to $1.8 million at December 31, 1995. The Company does not expect that
the liquidation of the assets will have a material effect on the previously
recognized gain on disposal. The sale resulted in the discontinuance of the
Company's casual furniture and accessories business and resulted in an after tax
gain on disposal of $30.5 million which was recognized in the second quarter of
1995. The assets and liabilities relating to the discontinued business are
included in the caption, net assets of discontinued operations, in the
Consolidated Balance Sheets at December 31, 1994 and 1995. The results of
operations for the discontinued segment are included in discontinued operations
in the Consolidated Income Statements and Statements of Cash Flows for the years
ended December 31, 1994 and 1995.

AGREEMENT AND PLAN OF MERGER

On October 23, 1996, the Company and THL I, entered into the Merger
Agreement (which was restated on November 27, 1996 and was further amended on
February 14, 1997) and pursuant to which THL I will be merged into the Company.
Pursuant to the transaction, stockholders of the Company will receive $32 in
cash for each share of Syratech Common Stock owned by them (other than Leonard
Florence who will receive $28 per share) or may elect to receive a portion of
their consideration by retaining stock of the surviving entity.

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of
net sales of the Company for each of the periods presented.

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net Sales................................................. 100.0% 100.0% 100.0%
Cost of sales............................................. 71.0 70.7 71.6
----- ----- -----
Gross profit............................................ 29.0 29.3 28.4
Selling, general and administrative expenses.............. 21.5 20.2 21.3
Other operating income (1)................................ 1.4
----- ----- -----
Income from operations.................................. 7.5 9.1 8.5
Interest income (expense), net............................ (0.3) 2.7 (0.9)
Other income (2).......................................... 4.4
----- ----- -----
Income before income taxes.............................. 7.2 11.8 12.0
Provision for income taxes................................ 1.9 4.0 4.5
----- ----- -----
Income from continuing operations....................... 5.3% 7.8% 7.5%
===== ===== =====
</TABLE>

- ---------------
(1) Includes income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.

(2) Consists of non-recurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Net sales increased 59.8% to $270.9 million for the year ended December 31,
1996 from 169.5 million for the year ended December 31, 1995. Excluding the
impact of acquisitions of businesses and productlines completed in 1996, net
sales increased 8.1%. This increase reflects primarily increased sales volume of
giftware items (including seasonal items, picture frames and silver plated
items) and of sterling silver flatware. The changes in product prices did not
materially impact net sales.

Gross profit increased 54.6% to $76.8 million for the year ended December
31, 1996 from $49.7 million for the year ended December 31, 1995. Gross profit
as a percentage of sales was 28.4% for the year ended December 31, 1996 compared
to 29.3% for the year ended December 31, 1995. The decrease in gross profit

18
<PAGE> 20

percentage was primarily a result of the acquisition of Rauch, which gross
profit margin is lower than that of certain of the Company's other product lines
and a $1.3 million nonrecurring compensation expense charge related to the
transfer of shares to one of the executive officers. See note 11 to the
Company's consolidated financial statements. Partially offsetting this decrease
was the gross profit on the recently acquired high end Silvestri seasonal
productline. Excluding the impact of acquisitions, the gross profit percentage
was 30.3% for the year ended December 31, 1996. This increase in gross profit
percentage, exclusive of acquisitions, was due to increased sterling flatware
sales which have a higher profit margin than other tabletop and giftware items
and also to a change in product mix in the giftware lines to higher margin items
including frames and certain seasonal products. The increase in gross profit
margin was not materially impacted by change in product prices.

Selling, general and administrative expenses ("S,G & A expenses") increased
to 21.3% as a percentage of net sales or $57.7 million for the year ended
December 31, 1996 from 20.2% or $34.2 million for the year ended December 31,
1995. S,G & A expenses were $39.5 million or 21.5% as a percentage of net sales
excluding S,G & A expenses incurred at Rauch, Silvestri, C.J. Vander and
Potpourri. These acquired companies had $18.2 million of S,G & A expenses
including the allocation of existing and continuing corporate expenses.
Substantial resources were dedicated and additional expenses were incurred as a
result of acquiring productlines, integrating functions (including selling and
marketing, customer service and general and administrative functions) and in the
case of Farberware, general and administrative costs of disposing of the
productline during 1996. Allocated corporate costs incurred to sell the
Farberware product line of $2.6 million are not included in the other operating
income line and are included in the Company's S,G & A expenses. Also included in
S,G & A expenses in 1996 was $2.6 million of nonrecurring compensation expense
related to the transfer of shares to two other executive officers. See note 11
to the Company's consolidated financial statements.

Income from operations increased 49.6% to $23.1 million in the year ended
December 31, 1996. Included in income from operations for the year ended
December 31, 1996, was $3.5 million, net of certain S,G & A expenses, from the
disposal of Farberware inventory. The Company does not expect to incur any loss
on the disposal of the remaining Farberware inventory at December 31, 1996 of
$3.3 million.

Interest expense, net was $2.4 million for the year ended December 31, 1996
compared to interest income, net of $4.6 million for the year ended December 31,
1995. This change results from a reduction in invested cash used to purchase and
retire 3,064,751 shares of the Company's Common Stock, for recent acquisitions
and for seasonal working capital needs.

The provision for income taxes was $12.2 million for the year ended
December 31, 1996 compared to $6.9 million for the year ended December 31, 1995.
The effective income tax rate was 37.5% for the year ended December 31, 1996
compared to 34.3% for the year ended December 31, 1995. This increase in the
effective income tax rate in 1996 is due to a higher proportion of income earned
in tax jurisdictions with higher income tax rates, including but not limited to
the Farberware income.

Net income for the year ended December 31, 1996, all of which was income
from continuing operations, was $20.4 million or $2.32 per share, on shares of
8,799,000, compared to income from continuing operations of $13.2 million, or
$1.12 per share, on shares of 11,803,000, for the year ended December 31, 1995.
The year ended December 31, 1996 included non-recurring pre-tax income of $11.9
million, net of costs, resulting from a license agreement. Net income for the
year ended December 31, 1995 was $46.2 million or $3.91 per share. The year
ended December 31, 1995 included income from discontinued operations, net of
income taxes, of $2.6 million and the gain on sale of Syroco, Inc. of $30.5
million totaling $2.79 per share.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Net sales increased by 15.1% to $169.5 million in 1995 from $147.3 million
in 1994 primarily due to increased sales volume as a result of expanded product
offerings within the giftware line, as well as increased demand for the
Company's giftware products and an increase in its seasonal product category.
Changes in product prices did not materially impact net sales. The Company's
sales increased despite a difficult retail environment in 1995.

19
<PAGE> 21

The Company's gross profit increased 16.4% to $49.7 million in 1995 from
$42.7 million in 1994. The gross profit as a percentage of net sales increased
to 29.3% in 1995 from 29.0% in 1994. This increase is due primarily to improved
product mix in the giftware lines.

Selling, general and administrative expenses increased to $34.2 million in
1995 from $31.6 million in 1994 but decreased as a percentage of net sales to
20.2% in 1995 from 21.5% in 1994. The decrease of 1.3 percentage points is due
to the Company's cost reduction program following the sale of Syroco.

Income from operations increased 39.4% to $15.4 million in 1995 from $11.1
million in 1994 as a result of the factors discussed above.

Interest income, net, was $4.6 million in 1995 compared to net interest
expense of $0.5 million in 1994. Interest income was earned primarily as a
result of investing the net proceeds from the sale of Syroco in short-term,
investment grade securities.

The provision for income taxes in 1995 was $6.9 million compared with $2.8
million in 1994. The effective income tax rate increased to 34.3% in 1995 from
26.0% in 1994. The 1995 effective income tax rate increased primarily due to an
increase in the proportion of the Company's earnings in tax jurisdictions with
higher tax rates, primarily interest income earned in the United States.

LIQUIDITY AND CAPITAL RESOURCES

On March 28, 1995, the Company sold its casual furniture and accessories
business to Marley plc for net proceeds of $133.9 million after transaction
costs and income taxes. The Company has used the net proceeds from the sale of
Syroco for working capital requirements to grow its existing business, to effect
the Katy Stock Repurchase and to make several acquisitions in 1996.

Net cash provided by operating activities for the year ended December 31,
1996 was approximately $23.8 million. The primary sources of cash were the
decrease in marketable securities as a result of the repayment of temporary
borrowings used to effect the Katy Stock Repurchase and income generated which
includes the non-recurring pre-tax Farberware gain of $11.9 million. Partially
offsetting these sources was acquisition related increases in accounts
receivable and inventories.

At December 31, 1996, accounts receivable increased to $60.0 million from
$31.9 million at December 31, 1995. This increase is primarily the result of
sales of Farberware inventory, seasonality, the recent acquisitions and
increased sales volume in the tabletop and giftware product lines. The increase
in inventory from $41.2 million at December 31, 1995 to $79.4 million at
December 31, 1996 is due to recent acquisitions, including purchased Farberware
inventory. During 1996, $23.8 million was collected from the final settlement
agreement for the Rauch fire loss which occurred prior to the Company's
acquisition of Rauch.

The Company's working capital requirements are seasonal and tend to be
highest in the period from September through December due to the Christmas
selling season. Accounts receivable tend to decline during the first quarter as
receivables generated during the third and fourth quarters are collected and
remain lower until the next peak season beginning in September. This seasonality
has increased as a result of the acquisition of Rauch and the Silvestri product
line.

Capital expenditures were approximately $15.1 million for the year ended
December 31, 1996. These expenditures were primarily for a warehouse in South
Carolina, computer software and hardware, improvements at the Company's East
Boston facility, machinery, tools and dies for the Company's manufacturing
facilities and for a building and equipment for C.J. Vander.

The Company expects capital expenditures for the year ended December 31,
1997 to be approximately $17 million, including land and construction costs for
a warehouse facility on the West Coast, and the cost of certain machinery and
equipment for Rauch.

On December 29, 1995, the Company effected the Katy Stock Repurchase. The
aggregate purchase price of $52.1 million represented approximately $17 per
share. The purchase was substantially financed by the issuance of two promissory
notes due January 2, 1996 to subsidiaries of Katy and the assumption of short
term

20
<PAGE> 22

bank debt, all aggregating $51.7 million. The two promissory notes and the
short-term bank debt were paid on January 2, 1996.

Effective October 31, 1996, the Company's Loan Agreement was amended to add
Rauch, Farberware and Silvestri as borrowers and limited total borrowings,
including amounts reserved for drawings on letters of credit, to $100.0 million
through December 31, 1996 and thereafter to $60.0 million until the earlier of
April 30, 1997 or the completion of refinancing contemplated with respect to the
Merger. As of December 31, 1996, the amount of outstanding borrowings under the
Loan Agreement was $5.9 million.

The revolving credit facility of one of the Company's Puerto Rican
subsidiaries expired on May 30, 1996; however, the Company received a letter of
commitment increasing the line from $4.0 million to $10.0 million and extending
it to May 31, 1997. On October 15, 1996, the Puerto Rican subsidiary and the
lender entered into an Amended and Restated Line of Credit Agreement increasing
the facility to $10.0 million and renewing it to May 31, 1997. As of December
31, 1996, the amount of outstanding borrowings under the line was $0.6 million.

On December 31, 1996, credit availability, net of $10.3 million of
outstanding letters of credit, under the Company Loan Agreement and the Puerto
Rican subsidiary's line totaled $83.8 million and $9.4 million, respectively. On
January 1, 1997, the availability under the Company Loan Agreement is reduced by
$40.0 million.

Upon consummation of the Merger, the Company would have on a pro forma
basis (as of December 31, 1996) outstanding debt of approximately $162.3 million
plus up to $18.0 million of Cumulative Redeemable Preferred Stock which accrues
at 12% per annum. The transaction is expected to close in the first half of
1997. It is intended that the transaction will be accounted for as a
recapitalization.

The Company believes that the 1996 acquisitions of the businesses and
product lines together with the growth in the Company's existing businesses will
generate sufficient income from operations to cover the increased level of
interest to be incurred as a result of the Merger and allow the Company to
remain profitable. The Company has already begun to capitalize on the synergies
of the newly acquired businesses. As the new acquisitions continue to be
integrated with the core business, and with each other, cost savings are
expected to be realized as redundant functions, services and facilities are
eliminated. In addition, the construction of the West Coast warehouse and
distribution facility is expected to create significant savings beginning in
1998 when the warehouse becomes operational.

The Company believes that funds generated from operations and borrowings
available under existing revolving loan facilities will be sufficient to finance
the Company's working capital requirements, provide for all known obligations of
the Company (including the obligations of the Company under its operating
leases) and fund planned capital expenditures through December 31, 1998.

ACCOUNTING PRONOUNCEMENTS

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation"
("Statement 123"). The Company has continued to account for its stock-based
transactions to employees in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and will include the pro
forma disclosures required by Statement 123, if material, in its annual
financial statements. For stock option grants to non-employees, the Company
follows the provisions of Statement 123, calculates compensation expense using a
fair value based method and amortizes compensation expense over the vesting
period. During the year ended December 31, 1996, the Company did not grant any
options to purchase shares of common stock to non-employees.

Also, effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement
121 requires that long-lived assets held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an asset
may not be recoverable. It also requires that long-lived assets to be disposed
of be reported at the lower of the carrying amount or fair value less the cost
to sell. The adoption of Statement 121 did not have a material effect on the
Company's financial position or results of operations for the year ended
December 31, 1996.

21
<PAGE> 23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Deloitte & Touche LLP....................................................... 22
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 1995 and December 31, 1996............. 23
Consolidated income statements for the years ended December 31, 1994, December 31,
1995 and December 31, 1996.......................................................... 24
Consolidated statements of stockholders' equity for the years ended December 31, 1994,
December 31, 1995 and December 31, 1996............................................. 25
Consolidated statements of cash flows for the years ended December 31, 1994, December
31, 1995 and December 31, 1996...................................................... 26
Notes to consolidated financial statements............................................ 27
</TABLE>

22
<PAGE> 24

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Syratech Corporation:

We have audited the accompanying consolidated balance sheets of Syratech
Corporation and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Syratech Corporation and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Boston, Massachusetts
February 7, 1997 (February 14, 1997 as to Note 15)

23
<PAGE> 25

SYRATECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
NOTES 1995 1996
------------- -------- --------
<S> <C> <C> <C>
ASSETS 1, 7
Current assets:
Cash and equivalents.................................... $ 78,493 $ 3,605
Marketable securities................................... 4 30,561 --
Accounts receivable, net................................ 12 31,893 60,020
Inventories............................................. 5 41,151 79,355
Deferred income taxes................................... 8 5,105 8,940
Prepaid expenses and other.............................. 10 1,602 3,803
Net assets of discontinued operations................... 3 1,834 --
-------- --------
Total current assets............................ 190,639 155,723
Property, plant and equipment, net...................... 6 29,560 63,955
Purchase price in excess of net assets acquired......... -- 7,032
Other assets............................................ 367 544
-------- --------
Total........................................... $220,566 $227,254
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable............. 7 $ 51,735 $ 6,636
Accounts payable........................................ 12 6,438 9,689
Accrued expenses........................................ 4,436 11,049
Accrued compensation.................................... 11 2,478 4,228
Accrued advertising..................................... 1 1,991 3,273
Income taxes payable.................................... 1, 8 1,511 930
-------- --------
Total current liabilities....................... 68,589 35,805
Deferred income taxes..................................... 1, 2, 8 3,657 17,706
Pension liability......................................... 10 1,724 3,288
Other long-term liabilities............................... 11 -- 207
Commitments and contingencies............................. 9, 10, 14
Stockholders' equity: 1, 11, 15
Preferred stock, $.10 par value, 500,000 shares
authorized; no shares issued or outstanding (135,000
shares are designated Series A Preferred Stock)...... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,667,249 and 8,695,449 shares issued in
1995 and 1996, respectively.......................... 87 87
Additional paid-in capital.............................. 9,699 12,480
Retained earnings....................................... 7 136,728 157,117
Cumulative translation adjustment....................... 85 567
Less: Treasury stock; 218 shares, at cost............... (3) (3)
-------- --------
Total stockholders' equity...................... 146,596 170,248
-------- --------
Total........................................... $220,566 $227,254
======== ========
</TABLE>

See notes to consolidated financial statements.

24
<PAGE> 26

SYRATECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
NOTES 1994 1995 1996
----- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.......................................... 1 $147,291 $169,520 $270,931
Cost of sales...................................... 104,600 119,836 194,113
-------- -------- --------
Gross profit............................. 42,691 49,684 76,818
Selling, general and administrative expenses....... 31,613 34,239 57,664
Other operating income............................. 2, 12 -- -- 3,948(1)
-------- -------- --------
Income from operations................... 11,078 15,445 23,102
Interest expense................................... 7 (559) (287) (3,150)
Interest income.................................... 4 98 4,881 771
Other income....................................... 2 -- -- 11,900(2)
-------- -------- --------
Income before provision for income
taxes.................................. 10,617 20,039 32,623
Provision for income taxes......................... 1, 8 2,758 6,863 12,234
-------- -------- --------
Income from continuing operations........ 7,859 13,176 20,389
Discontinued operations:
Income from discontinued operations net of income
taxes of $7,421 and $1,645, respectively...... 3 12,068 2,572 --
Gain on sale of Syroco, Inc., net of income taxes
of $16,599.................................... 3 -- 30,451 --
-------- -------- --------
Net income............................... $ 19,927 $ 46,199 $ 20,389
======== ======== ========
Earnings per share: 1
Continuing operations............................ $ .67 $ 1.12 $ 2.32
Discontinued operations.......................... 1.02 2.79 --
-------- -------- --------
Net income............................... $ 1.69 $ 3.91 $ 2.32
======== ======== ========
Weighted average common and common equivalent
shares outstanding............................... 1 11,809 11,803 8,799
======== ======== ========
</TABLE>

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

(1) Consists of income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.

(2) Consists of non-recurring pre-tax income related to licensing the Farberware
name on cookware and bakeware.

See notes to consolidated financial statements.

25
<PAGE> 27

SYRATECH CORPORATION AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID-IN RETAINED TRANSLATION TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
---------- ------ ---------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994... 11,649,432 $116 $ 60,214 $ 70,602 $ 76 $ (3) $131,005
Exercise of stock
options.................. 38,200 297 297
Compensation related to
stock options............ 116 116
Tax effect of stock
options.................. 746 746
Net income................. 19,927 19,927
Translation adjustment..... 9 9
---------- ---- ------- -------- ---- --- --------
Balance, December 31,
1994..................... 11,687,632 116 61,373 90,529 85 (3) 152,100
Exercise of stock
options.................. 44,150 1 326 327
Compensation related to
stock options............ 102 102
Tax effect of stock
options.................. (78) (78)
Purchase of common stock
for retirement (Note
11)...................... (3,064,751) (30) (52,024) (52,054)
Net income................. 46,199 46,199
---------- ---- ------- -------- ---- --- --------
Balance, December 31,
1995..................... 8,667,031 87 9,699 136,728 85 (3) 146,596
Exercise of stock
options.................. 28,200 202 202
Compensation related to
stock options............ 78 78
Tax effect of stock
options.................. 250 250
Transfer of shares (Note
11)...................... 2,338 2,338
Rights redemption (Note
11)...................... (87) (87)
Net income................. 20,389 20,389
Translation adjustment..... 482 482
---------- ---- ------- -------- ---- --- --------
Balance, December 31,
1996..................... 8,695,231 $ 87 $ 12,480 $ 157,117 $ 567 $ (3) $170,248
========== ==== ======= ======== ==== === ========
</TABLE>

See notes to consolidated financial statements.

26
<PAGE> 28

SYRATECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income........................................................ $19,927 $46,199 $20,389
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization................................... 3,270 3,253 4,767
Deferred income taxes........................................... (452) (2,229) (2,756)
Acquisition of Farberware assets................................ -- -- (9,500)
Disposal of Farberware assets................................... -- -- 13,600
Farberware electrics license.................................... -- -- 500
Transfer of shares.............................................. -- -- 3,655
Pension liability............................................... 208 1,155 1,564
Compensation related to stock options........................... 116 102 78
Gain (loss) on disposal of assets and other..................... 8 3 (17)
Increase (decrease) in cash, net of effect of businesses
acquired:
Marketable securities...................................... -- (30,561) 30,561
Accounts receivable........................................ (7,984) (3,649) (18,356)
Inventories................................................ (6,590) (817) (17,106)
Prepaid expenses and other................................. 711 (1,446) (471)
Accounts payable and accrued expenses...................... 4,155 595 (2,870)
Income taxes payable....................................... 3,699 (2,306) (2,095)
Discontinued operations...................................... (27,660) (49,915) 1,834
------- ------- -------
Net cash provided by (used in) operating activities............... (10,592) (39,616) 23,777
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment........................ (2,603) (2,679) (15,125)
Net proceeds from sale of Syroco, Inc............................. -- 133,931 --
Proceeds from disposal of assets.................................. 336 -- 66
Insurance claim proceeds.......................................... -- -- 23,771
Acquisitions of businesses, net of cash acquired.................. -- -- (48,540)
Other............................................................. (529) 61 (186)
------- ------- -------
Net cash provided by (used in) investing activities............... (2,796) 131,313 (40,014)
------- ------- -------
Cash flows from financing activities:
Change in revolving loan facilities and notes payable............. 11,944 (14,504) (59,075)
Repayment of borrowings........................................... (1,624) (875) (300)
Tax effect on stock options....................................... 746 (78) 250
Exercise of stock options......................................... 297 327 202
Deferred financing costs and other................................ 62 60 (24)
------- ------- -------
Net cash provided by (used in) financing activities............... 11,425 (15,070) (58,947)
------- ------- -------
Effect of exchange rate changes on cash and equivalents........... -- -- 296
------- ------- -------
Net increase (decrease) in cash and equivalents................... (1,963) 76,627 (74,888)
Cash and equivalents, beginning of year........................... 3,829 1,866 78,493
------- ------- -------
Cash and equivalents, end of year................................. $ 1,866 $78,493 $ 3,605
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

27
<PAGE> 29

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Syratech Corporation designs, manufactures, imports and markets a diverse
portfolio of tabletop, giftware and seasonal products, including: sterling
silver, silverplated and stainless steel flatware; sterling silver, silverplated
and brass holloware; picture frames and photo albums; glassware, woodenware and
ceramics; fine porcelain boxes; figurines, waterglobes and Christmas ornaments,
trim, lighting and tree skirts.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the accounts of Syratech
Corporation and its subsidiaries (the Company), Syratech Holding Corporation and
its subsidiaries, Syratech Security Corporation, Wallace International
Silversmiths, Inc. and its subsidiaries (Wallace), Leonard Florence Associates,
Inc. (LFA), Towle Manufacturing Company and its subsidiaries (Towle), Rauch
Industries, Inc. and its subsidiaries (Rauch), Silvestri Inc. and subsidiaries
(Silvestri), Syratech (H.K.) Ltd. and its subsidiaries (Syratech H.K.). All
significant intercompany balances and transactions have been eliminated.

Adoption of New Accounting Pronouncements

Effective January 1, 1996, the Company adopted, prospectively, Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets be reviewed for impairment whenever
circumstances indicate that the carrying value of an asset may not be
recoverable. The adoption of SFAS No. 121 did not have a significant effect on
the Company's consolidated financial position or results of operations for the
year ended December 31, 1996.

Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
For Stock-Based Compensation." As permitted by SFAS No. 123, the Company has
continued to account for its stock-based transactions to employees in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As required by SFAS No. 123, for stock option grants to
non-employees, the Company calculates compensation expense using a fair value
based method and amortizes compensation expense over the vesting period. During
the year ended December 31, 1996, the Company did not grant any options to
purchase shares of common stock to non-employees.

Marketable Securities

The Company's marketable securities have been classified as trading
securities and are carried at their fair value on the consolidated balance
sheet.

Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and revenues and expenses during the reporting period. Actual results
could differ from these estimates.

28
<PAGE> 30

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition

Revenue is recognized when products are shipped. The Company provides
allowances for estimated doubtful accounts and sales returns based on historical
experience and evaluation of specific accounts. Such allowances, excluding
amounts related to Farberware Inc. (see Note 2), were comprised of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------ ------
<S> <C> <C>
Sales returns and allowances............................. $2,604 $3,501
Doubtful accounts........................................ 1,603 1,861
------ ------
$4,207 $5,362
====== ======
</TABLE>

Customers

Substantially all customers are retailers. No base of customers in one
geographic area constitutes a significant portion of sales. No single customer
represented 10% or greater of consolidated net sales in 1994, 1995 or 1996.

Inventories

Inventories are stated at the lower of cost or market. Two subsidiaries
determine cost on the last-in, first-out (LIFO) method for silver and certain
non-silver inventories. For all other inventories, cost is determined on the
first-in, first-out (FIFO) method.

Property, Plant and Equipment

Purchased property, plant and equipment is recorded at cost. Leased
equipment is recorded at the present value of the minimum lease payments
required during the lease term. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets and over the terms,
if shorter, of the related leases, as follows:

<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings and improvements.......................... 4 to 39
Tools and dies...................................... 3 to 10
Machinery and equipment............................. 3 to 10
Other............................................... 3 to 10
</TABLE>

Purchase Price in Excess of Net Assets Acquired

Purchase price in excess of net assets acquired is amortized using the
straight-line method over 30 years (Note 2). The Company evaluates the carrying
value of goodwill based upon current and anticipated net income and undiscounted
cash flows, and recognizes an impairment when it is probable that such estimated
future net income and/or cash flows will be less than the carrying value of
goodwill. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and estimated fair value.

Other Assets

Other assets consist principally of deposits, deferred fees, deferred
financing costs and deferred long-term rent. Deferred financing costs are being
amortized using the straight-line method over the terms of the related loans.
Accumulated amortization aggregated approximately $100 and $125 at December 31,
1995 and 1996 respectively.

29
<PAGE> 31

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Advertising Costs

Advertising costs are charged to operations when incurred. These costs
totaled $3,035, $3,064 and $3,690 in the years ended December 31, 1994, 1995 and
1996, respectively.

Financial Instruments

The carrying values of cash and equivalents, accounts receivable, accounts
payable and borrowings under revolving credit facilities approximate fair value
due to the short-term nature of these instruments.

Income Taxes

The Company and its domestic subsidiaries (except for Wallace's Puerto
Rican subsidiaries) file a consolidated federal income tax return. The Puerto
Rican subsidiaries file separate returns in accordance with Section 936 of the
Internal Revenue Code. Deferred income taxes are provided for certain income and
expense items which are accounted for differently for financial reporting and
income tax purposes.

Foreign Currency Translation

Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at year-end exchange rates and income and expense items are
translated at the average rates of exchange prevailing during each year. The
effects of foreign currency fluctuations on the foreign subsidiaries assets and
liabilities have been reflected as a separate component of stockholders' equity.
Transaction gains and losses have been insignificant.

Earnings Per Share

Earnings per share are computed based on the weighted average common and
common equivalent shares outstanding during each period presented. Common stock
equivalents include common stock options (treasury stock method). Primary and
fully diluted earnings per share are the same for each of the periods presented.

Reclassification

Certain prior year amounts have been reclassified to conform with the 1996
presentation.

Cash Flow Information

Supplemental cash flow information is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................ $ 827 $ 268 $ 2,383
======= ======= =======
Income taxes............................................ $10,741 $30,593 $16,791
======= ======= =======
Supplemental schedule of non-cash investing and financing
activities:
Purchase of common stock for retirement, financed by
issuance of promissory notes and assumption of bank
debt................................................. $51,735
=======
Rights redemption obligation............................ $ 87
=======
Share transfer by principal stockholder................. $ 2,338
=======
</TABLE>

30
<PAGE> 32

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ACQUISITIONS

Acquisitions of Businesses

On February 15, 1996, the Company, through an indirect wholly owned
subsidiary, acquired the outstanding shares of Rauch for approximately $49,626
including costs of the transaction. The acquisition was accounted for under the
purchase method of accounting, and the results of operations of Rauch have been
included with the results of the Company from February 15, 1996.

The purchase price in excess of net assets acquired of $7,224 is being
amortized on the straight line basis over 30 years. Rauch is a leading domestic
manufacturer and marketer of Christmas and other seasonal products, in
particular glass and satin tree ornaments. During 1996, the Company received
$23,771 in connection with an insurance claim relating to a 1994 fire at Rauch.
The allocation of purchase price is as follows:

<TABLE>
<S> <C>
Cash paid to Rauch shareholders................................... $ 48,042
Acquisition costs incurred........................................ 1,584
--------
Total purchase price.............................................. $ 49,626
========
Allocated to:
Cash............................................................ $ 2,084
Accounts receivable............................................. 8,461
Insurance receivable............................................ 23,771
Inventories..................................................... 19,206
Deferred income taxes........................................... 2,518
Prepaid expenses and other...................................... 983
Property, plant and equipment, net.............................. 23,081
Other assets.................................................... 89
Purchase price in excess of net assets required................. 7,224
Current liabilities............................................. (22,303)
Deferred income taxes........................................... (15,488)
--------
$ 49,626
========
</TABLE>

The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1995.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
-------- --------
<S> <C> <C>
Net sales.................................................... $228,439 $271,540
======== ========
Income from continuing operations............................ $ 15,316 $ 19,657
======== ========
Net income................................................... $ 48,339 $ 19,657
======== ========
Earnings per share:
Continuing operations...................................... $ 1.30 $ 2.23
======== ========
Net income................................................. $ 4.10 $ 2.23
======== ========
</TABLE>

On May 8, 1996, the Company, through one of its subsidiaries, acquired all
of the outstanding common stock of C.J. Vander Ltd., a manufacturer of sterling
silver and silverplated flatware and hollowware in Sheffield and London,
England. The purchase price was immaterial to the Company's consolidated
financial statements. The acquisition was accounted for under the purchase
method of accounting.

31
<PAGE> 33

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Acquisition of Assets

In February of 1996, the Company entered into an agreement to acquire
certain assets, including a major portion of the tangible assets, intellectual
property and the corporate name, of Farberware Inc. ("Farberware Inc.").

Effective April 2, 1996, the Company, through its indirect wholly-owned
subsidiary, Far-B Acquisition Corp. ("Far-B"), together with Lifetime Hoan
Corporation ("Lifetime") acquired certain assets from Farberware Inc., a
subsidiary of U.S. Industries, Inc. The Company and Lifetime are not affiliates.

Farberware Inc. was a manufacturer of aluminum clad, stainless steel
cookware and bakeware and small electric kitchen appliances. The aggregate
consideration paid by Far-B and Lifetime was $45,771, subject to adjustment, of
which Far-B paid approximately, $32,611. The amount of the adjustment was the
subject of a dispute which was settled on February 3, 1997. The assets acquired
by the Company included certain of the inventory, the tradename "Farberware" and
the intellectual property (including the intellectual property that relates to
cookware and bakeware and electric products other than major kitchen appliances)
and certain tools and dies and machinery and equipment. Effective April 2, 1996,
the Company, through Far-B, entered into a manufacturing services agreement with
Farberware Inc. for transitional manufacturing services for certain finished
goods previously produced by Farberware Inc. The Company entered into the
manufacturing services agreement in part to provide continuity of product during
a transition period in order to protect the strength of the Farberware name in
the marketplace. The manufacturing services agreement has terminated.

Upon disposal of the acquired inventory, the Company will not manufacture
or sell Farberware cookware and bakeware products or noncommercial electric
products. Accordingly, net sales for the year ended December 31, 1996 exclude
revenue from sales of Farberware inventory, and $3,948, net of certain selling,
general and administrative expenses, from these sales has been recorded as other
operating income. At December 31, 1996, accounts receivable, net and inventories
of the Company included $4,972 and $3,289, respectively related to Farberware.

In a separate transaction, the Company and Far-B entered into an agreement
with Lifetime, which provided for the allocation between them of the assets
acquired from Farberware Inc., the granting of a long-term license to Lifetime
for use of the Farberware name in connection with an extensive list of products,
the granting to Lifetime of long-term exclusive rights to operate Farberware
outlet stores, the reservation of certain exclusive rights to Far-B (including
exclusive rights to use of the Farberware name for corporate purposes and for
the marketing of cookware and bakeware products as well as electric products)
and for the future formation of a joint venture to administer certain licensing
rights.

32
<PAGE> 34

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

bakeware and electric products developed by the Licensee solely and exclusively
for commercial, industrial or institutional use with the prior written approval
of Farberware) for the payment of annual royalties. See Note 12.

On February 3, 1997 the Company, Farberware, and Lifetime reached an
agreement (the "Settlement Agreement"), with Bruckner Manufacturing Corp.
("BMC") and U.S. Industries Inc. ("USI") to settle all previous outstanding
legal disputes arising out of the Farberware Asset Purchase Agreement ("APA")
and the Manufacturing Services Agreement ("MSA"). Under the terms of the
Settlement Agreement, Farberware will receive certain finished goods inventory
at no cost, and pay for certain finished goods inventories purchased under the
MSA. Farberware will also receive a waiver of certain restrictions in the APA on
disposing of tools, machinery, and equipment formerly used by BMC in the
manufacture of Farberware products. The Company intends to sell the majority of
the tools, machinery and equipment and will retain the remainder for use in its
existing businesses. The settlement did not result in any adjustment to the
original purchase price and no loss is expected to be incurred as a result of
the settlement.

On April 16, 1996, the Company purchased finished goods inventory and
intangible assets of the Silvestri division of FFSC, Inc. ("Silvestri") for
approximately $8,600. Prior to the Company's purchase of such assets, FFSC,
Inc., its subsidiaries and affiliated companies had filed for protection under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas (the "Bankruptcy Court"). The Bankruptcy Court
approved this acquisition by the Company. Silvestri products include Christmas
ornaments, collectibles, lighting and trim as well as other seasonal and
nonseasonal giftware and decorative accessories.

The Corporation has given a Guaranty (limited to $4,000), dated as of May
21, 1996, of the obligations of FF Holding Company, FFSC, Inc. and certain
related entities to The CIT Group/Business Credit, Inc. under a certain debtor
in possession financing agreement dated May 21, 1996 and, at the request of the
Company, NationsBank N.A. (South) has issued its letter of credit, dated May 31,
1996 in the amount of $4,000 to CIT Group/Business Credit, Inc. to secure the
Company's aforesaid guaranty.

On November 26, 1996, a wholly-owned subsidiary of the Company acquired
inventory, tangible property, intellectual property rights, certain records
(including customer lists, customer files, supplier information, catalogs) and
certain contract rights of Potpourri Press, Inc., a North Carolina-based
manufacturer and marketer of Christmas products, for a purchase price of
approximately $2,300 plus a $240 promissory note (Note 7).

3. DISCONTINUED OPERATIONS

On April 11, 1995, pursuant to an agreement entered into on March 28, 1995,
the Company, through its subsidiary, Syratech Holding Corporation, sold Syroco,
Inc. ("Syroco"). The net proceeds received after costs of the sale and income
taxes were $133,931. On September 25, 1995, the Company reached a final
settlement regarding the sale of Syroco. Under the terms of the settlement, the
Company reacquired certain assets and reassumed certain liabilities of Syroco
which have been recorded at their estimated net fair value of $1,834 at December
31, 1995. The Company does not expect that the liquidation of the assets will
have a material effect on the previously recognized gain on disposal. An after
tax gain on disposal of Syroco of $30,451 was recognized in the second quarter
of 1995.

The sale resulted in the discontinuation of the Company's casual furniture
and accessories business. The assets and liabilities relating to the
discontinued business are included in net assets of discontinued operations in
the consolidated balance sheets at December 31, 1995. The results of operations
and cash flows for the discontinued segment are included in discontinued
operations in the consolidated income statements and the consolidated statements
of cash flows for years ended December 31, 1994, 1995 and 1996.

33
<PAGE> 35

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net assets of discontinued operations at December 31, 1995 consisted of the
following:

<TABLE>
<S> <C>
Inventories, net................................................... $ 1,778
Property, plant and equipment, net................................. 227
Other assets....................................................... 875
Liabilities........................................................ (1,046)
-------
Total.................................................... $ 1,834
=======
</TABLE>

Operating results of the discontinued segment consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1994 1995
------------ ---------------
(UNAUDITED)
<S> <C> <C>
Net sales............................................... $ 94,883 $33,626
======== =======
Income before provision for income taxes................ $ 19,489 $ 4,217
Provision for income taxes.............................. 7,421 1,645
-------- -------
Income from discontinued operations..................... $ 12,068 $ 2,572
======== =======
</TABLE>

The operating results of the discontinued segment exclude previously
allocated corporate expenses.

4. MARKETABLE SECURITIES

At December 31, 1995, marketable securities consisted of $30,000 of
short-term high grade notes having original maturities of six months. Marketable
securities are carried at fair value which approximates cost plus accrued
interest. Interest earned at December 31, 1995 but not paid, of $561, is
included in interest income for the year ended December 31, 1995. There were no
marketable securities at December 31, 1996.

5. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Inventories were comprised of the following:
Raw Materials.................................................... $ 3,908 $ 9,020
Work-in-process.................................................. 1,744 5,980
Finished goods................................................... 35,499 64,355
------- -------
Total.................................................. $41,151 $79,355
======= =======
</TABLE>

Inventories would have been approximately $2,752 and $3,430 higher at
December 31, 1995 and 1996, respectively, if the FIFO method had been used for
all inventories. Decreases in LIFO inventory quantities had the effect of
increasing consolidated net income by $4 in 1994, and decreasing consolidated
net income by $59 in 1996. There were no decreases in LIFO inventory quantities
in 1995.

34
<PAGE> 36

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment was comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Land and improvements.......................................... $ 7,813 $ 8,305
Buildings and improvements..................................... 18,780 41,838
Tools and dies................................................. 13,808 14,635
Machinery and equipment........................................ 6,046 25,388
Other.......................................................... 1,169 1,619
Construction in progress....................................... 1,239 4,923
-------- --------
Total..................................................... 48,855 96,708
Less: accumulated depreciation................................. (19,295) (32,753)
-------- --------
Net.......................................................... $ 29,560 $ 63,955
======== ========
</TABLE>

Capitalized interest was not material to the Company's consolidated
financial statements.

On January 17, 1997, the Company purchased a parcel of land in Mira Loma,
California for $3,179. The Company plans to begin construction of a warehouse
and distribution facility on this land in 1997.

7. REVOLVING LOAN FACILITIES AND NOTES PAYABLE

Revolving Loan Facilities

Effective October 31, 1996, the Company's Amended and Restated Loan and
Security Agreement (the "Company Loan Agreement") provides for maximum permitted
borrowings of $100,000 through December 31, 1996 and to $60,000 until the
earlier of April 30, 1997 or the completion of refinancing contemplated with
respect to the Agreement and Plan of Merger with THL Transaction I Corp. (Note
15). Interest on borrowings is charged at the bank's prime rate less .75% (7.5%
at December 31, 1996) or at an option to borrow at 1.0% over the Eurodollar rate
(6.53% using the 30 day Eurodollar rate, at December 31, 1996). The weighted
average interest rate on borrowings outstanding under this facility for the year
ended December 31, 1996 was 7.29%. The Company Loan Agreement as amended expires
on April 30, 1997. At December 31, 1996, there was $5,878 outstanding under the
Company Loan Agreement and credit availability (net of letters of credit
outstanding) was $83,770. On January 1, 1997 availability was reduced by
$40,000. Borrowings are collateralized by substantially all of the assets of the
Company and its subsidiaries with the exception of C.J. Vander. The Company Loan
Agreement restricts the payment of cash dividends to 33 1/3% of net income for
the prior year. In addition, it limits repurchases of the Company's outstanding
capital stock and capital expenditures, and contains covenants which require,
among other things, minimum levels of consolidated tangible net worth and the
maintenance of certain financial ratios. In December 1995, the restriction to
repurchase outstanding capital stock was modified to allow the Company to
repurchase all of the 3,064,751 shares of the Company's stock owned by
affiliates of Katy Industries, Inc. (the "Katy Stock Repurchase"). The agreement
was modified in December 1995 to permit the acquisition of Rauch referred to in
Note 2. During 1996, further modifications were made to permit the Farberware,
Silvestri, C.J. Vander and Potpourri acquisitions. At December 31, 1996, the
Company had $6,783 unrestricted retained earnings available for payment of cash
dividends.

During 1996, one of Wallace's Puerto Rican subsidiaries and its lender
entered into an Amended and Restated Line of Credit Agreement (the "Facility")
which provides for borrowings up to a maximum of $10,000 and expires on May 31,
1997. Interest on borrowings is charged at the bank's prime rate minus .30%
(7.95% at December 31, 1996 or at an option to borrow at the Eurodollar rate
plus 1.70% (7.2313%, using the

35
<PAGE> 37

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

30 day Eurodollar rate, at December 31, 1996). The weighted average interest
rate on borrowings outstanding under this Facility for the year ended December
31, 1996 was 8.08%. At December 31, 1996 $558 was outstanding under the Facility
and the credit availability was $9,442. Borrowings are uncollateralized;
however, the pledge of assets owned by one of the subsidiaries as collateral for
other loans is prohibited. Borrowings under the Facility are guaranteed by the
Company and cross-guaranteed by certain other subsidiaries.

Notes Payable

At December 31, 1996, the Company had a note payable of $200 related to the
purchase of Potpourri. (Note 2) At December 31, 1995, the Company had notes
payable of $51,735 related to the purchase of 3,064,751 shares of the Company's
common stock on December 29, 1995 (Note 11). These notes were paid on January 2,
1996.

8. INCOME TAXES

The provisions for income taxes were comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Current:
Federal............................................ $1,356 $ 6,518 $11,379
State.............................................. 524 1,674 3,542
Foreign............................................ 625 937 1,307
------ ------- -------
2,505 9,129 16,228
------ ------- -------
Deferred:
Federal............................................ (561) (1,805) (3,344)
State.............................................. 87 (383) (900)
Foreign............................................ (19) -- --
------ ------- -------
(493) (2,188) (4,244)
------ ------- -------
Tax effect of stock options:
Federal............................................ 574 (60) 193
State.............................................. 172 (18) 57
------ ------- -------
746 (78) 250
------ ------- -------
Total...................................... $2,758 $ 6,863 $12,234
====== ======= =======
</TABLE>

36
<PAGE> 38

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reconciliations between the Company's effective income tax rate and the
U.S. federal statutory rate are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate....................................... 35.0% 35.0% 35.0%
State taxes, net of federal income tax benefit............... 3.1 2.5 4.9
Hong Kong.................................................... (6.6) (4.8) (4.3)
Puerto Rico.................................................. (6.0) (3.8) (2.4)
United Kingdom............................................... -- -- 0.6
Provision for undistributed foreign earnings................. 1.6 5.0 1.6
Valuation allowance.......................................... -- -- 1.6
Other........................................................ (1.1) 0.4 0.5
---- ---- ----
Effective income tax rate............................... 26.0% 34.3% 37.5%
==== ==== ====
</TABLE>

The components of income before provision for income taxes were comprised
of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Domestic.................................................. $ 7,081 $14,480 $25,457
Foreign................................................... 3,536 5,559 7,166
------- ------- -------
Total................................................ $10,617 $20,039 $32,623
======= ======= =======
</TABLE>

Provisions have been made for taxes on the undistributed earnings of
Syratech H.K. and Wallace's Puerto Rican subsidiaries which are ultimately
expected to be remitted to the parent company. The Company has permanently
invested a portion of the undistributed earnings of its Puerto Rican and
Syratech H.K. subsidiaries. It is not practical to estimate the amount of
unrecognized deferred tax liability attributable to these undistributed foreign
earnings.

Wallace's Puerto Rican subsidiaries operate under grants from the
Commonwealth of Puerto Rico exempting 90% of their income from taxation until
December 2003. Had the Company not been eligible for the tax exemption, net
income in 1994, 1995, and 1996 would have been reduced by approximately $1,330,
$1,198, and $1,211, and earnings per share would have been decreased by
approximately $.11, $.10, and $.14, respectively.

37
<PAGE> 39

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of significant items comprising the Company's net deferred
tax asset (liability) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
------- --------
<S> <C> <C>
Deferred tax liability:
Property, plant and equipment............................. $(2,349) $(17,263)
Foreign earnings.......................................... (1,994) (2,525)
------- --------
Deferred tax liability................................. (4,343) (19,788)
Deferred tax assets:
Accounts receivable....................................... 2,171 4,475
Inventory................................................. 1,447 2,336
Reserves and accruals..................................... 1,567 2,266
Pension................................................... 522 1,876
Other deductible amounts.................................. 84 69
Contribution carryforwards................................ -- 433
Foreign operating loss carryforwards...................... -- 175
------- --------
Deferred tax asset..................................... 5,791 11,630
Valuation allowance....................................... -- (608)
------- --------
Net deferred tax asset (liability).......................... $ 1,448 $ (8,766)
======= ========
</TABLE>

The valuation allowance relates to the potential unusable portion of
foreign tax loss carryforwards of $530 and contribution carryforwards of $1,066.

9. COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries have various operating lease commitments
for buildings and equipment. The lease agreements generally require the Company
to pay insurance, real estate taxes, and maintenance and contain various renewal
options. Future minimum rental payments for all noncancellable operating leases
for each of the next five years and thereafter are as follows:

<TABLE>
<S> <C>
1997................................................ $3,552
1998................................................ 1,887
1999................................................ 1,632
2000................................................ 1,123
2001................................................ 628
Subsequent to 2001.................................. 480
</TABLE>

Rent expense for all operating leases was approximately $1,789, $1,821, and
$5,209 in 1994, 1995 and 1996, respectively.

Certain subsidiaries were contingently obligated for outstanding letters of
credit, trade acceptances and similar instruments aggregating $10,348 at
December 31, 1996 (Note 7). The assets of Syratech H.K. are pledged as
collateral for certain of these contingent obligations.

10. EMPLOYEE BENEFIT PLANS

The Company has three 401(k) savings plans. The 401(k) savings plans cover
substantially all employees of its domestic and Puerto Rican subsidiaries. The
401(k) plans are subject to certain minimum age and length of employment
requirements. Under two of these plans, the Company matches 30% of participants'

38
<PAGE> 40

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contributions up to 6% of compensation. Under the other plan, the Company
matches 50% of the first five hundred twenty dollars contributed and 25%
thereafter, of the participants' contributions up to 15% of compensation. The
Company also has a savings plan, established in 1991, covering substantially all
employees of the Company's Hong Kong subsidiary. Under the Hong Kong plan, the
Company contributes up to 10% of the participants' compensation. The Company
contributed an aggregate of $197, $256 and $597 to all of these Plans in 1994,
1995 and 1996.

The Company's C. J. Vander subsidiary also has an employee benefit plan.
The Company's obligation under the plan is not material to the Company's
consolidated financial position or results of operations.

The Company has employment agreements with certain officers and employees
for terms ranging from three to five years, which provide for minimum annual
salaries aggregating $2,451 and certain other benefits.

Agreements with the Company's five officers provide for retirement benefit
payments. With respect to two of these officers, for the year ended December 31,
1994, the agreements provided for benefit payments in amounts equal to two
percent of the officers' final year base salaries multiplied by the number of
years of service with the Company. In 1995, these two agreements were amended to
provide that the benefit payments be based upon two percent of the average total
annual compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service. In
addition, one of the agreements was amended (the "1995 Plan Amendment") to
provide for a 100% survivor benefit for the executive's spouse. In 1996 existing
employment agreements with two officers were amended to also provide for a
retirement benefit. Additionally, a third officer who does not have an
employment agreement with the Company was granted a retirement benefit. Two of
these agreements were amended to provide for benefit payments based upon the
greater of (i) $75,000 or (ii) one half of one percent of the average total
annual compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service. One
of these agreements was amended to provide for benefit payments based upon the
greater of (i) $75,000 or (ii) one percent of the average total annual
compensation (salary and bonus) for the three year period preceding the
executives' retirement dates multiplied by the number of years of service.

Upon consummation of the Merger (Note 15), an employment agreement with an
officer will be amended so as to (i) change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term, (ii) provide
for a minimum base salary of $1,150 per annum, (iii) establish $1,150 as the
minimum amount upon which the officer's retirement benefit (and the survivor's
benefit of his surviving spouse) will be computed and (iv) create contractual
rights with respect to certain perquisites that he is accorded informally under
present arrangements with the Company. Additionally, an employment agreement
with another officer will be amended to change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term.

Pension expense is determined using assumptions at the beginning of the
year. Assumptions used in determining the actuarial present value of the
projected benefit obligation include: a discount rate of 8.5% in 1994 and 1995
and 7.5% in 1996 and a rate of future increases in benefit compensation of 5%.
The effect of the change in discount rate was not material to the consolidated
financial statements.

39
<PAGE> 41

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net pension cost included the following components:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
<S> <C> <C> <C>
Service cost for benefits earned............................ $137 $196 $ 317
Interest cost benefit obligation............................ 71 123 199
Amortization of prior service cost.......................... -- 476 620
Amortization of (gain)/loss................................. -- -- 191
---- ---- ----
Net periodic pension cost................................... $208 $795 $1,327
==== ==== ====
</TABLE>

The following table summarizes the amounts recognized in the consolidated
balance sheets as of December 31, 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Actuarial present value of obligations:
Vested benefit obligation........................................ $1,724 $3,287
Projected benefit obligation..................................... 2,012 3,612
Fair value of plan assets.......................................... -- --
Projected benefit obligation in excess of plan assets.............. 2,012 3,612
Unrecognized prior service cost.................................... (603) (610)
Unrecognized gain/(loss)........................................... (45) (311)
Additional minimum liability....................................... 360 597
------ ------
Net accrued pension liability...................................... $1,724 $3,288
====== ======
</TABLE>

11. STOCKHOLDERS' EQUITY

Key Employee Stock Option Plans

Under the Company's 1986 Key Employee Stock Option Plan ("1986 Plan"),
qualified and non-qualified options to purchase up to a maximum of 1,300,000
shares of common stock were granted to certain employees at exercise prices not
less than 85% of the fair market value at the date of grant. Options become
exercisable ratably over a five-year period and expire ten years from the date
of grant. There were no shares available for grant under the 1986 Plan at
December 31, 1996. Compensation cost has been recognized for the Company's 1986
Plan for the amount equal to 15% of the fair market value at the date of grant
ratably over the five year period that they became exercisable over.

In 1993, the Company established the 1993 Key Employee Stock Option Plan
("1993 Plan"), with provisions similar to the 1986 Plan. Under the 1993 Plan,
qualified and non-qualified options to purchase up to a maximum of 400,000
shares of common stock may be granted to certain employees at an exercise price
not less than fair market value at the date of grant. At December 31, 1996,
67,000 options were outstanding under the 1993 plan.

In 1995, the Company established the 1995 Key Employee Stock Option Plan
("1995 Plan"). The 1995 Plan contains certain provisions similar to the 1993
Plan and would allow the grant of 800,000 options at an exercise price not less
than fair market value at the date of grant. At December 31, 1996, 20,000
options were outstanding under the 1995 plan.

No compensation cost has been recognized for the Company's 1993 and 1995
Plans.

40
<PAGE> 42

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of stock option activity under the Plans is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
-------- -------------- ----------------
<S> <C> <C> <C>
Outstanding at January 1, 1994.................... 297,350 $.0038-$13.70 $ 9.66
Canceled.......................................... (8,400) $10.67 $10.67
Granted........................................... 50,000 $14.35 $14.35
Exercised......................................... (38,200) $.0038-$10.67 $ 7.88
--------
Outstanding at December 31, 1994.................. 300,750 $.0038-$14.35 $10.64
Canceled.......................................... (90,900) $10.67-$14.56 $12.91
Granted........................................... 54,500 $14.56-$18.75 $16.87
Exercised......................................... (44,150) $.0038-$10.67 $ 7.29
--------
Outstanding at December 31, 1995.................. 220,200 $.0038-$18.75 $11.92
Canceled.......................................... (102,000) $10.67-$24.75 $24.47
Granted........................................... 139,500 $23.00-$24.75 $24.68
Exercised......................................... (28,200) $.0038-$10.67 $ 7.17
--------
Outstanding at December 31, 1996.................. 229,500 $10.67-$24.75 $14.68
========
Exercisable at December 31, 1996.................. 107,080 $10.67-$18.75
========
</TABLE>

The following table sets forth information regarding options outstanding at
December 31, 1996:

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
WEIGHTED AVERAGE EXERCISE
RANGE OF NUMBER AVERAGE REMAINING PRICE FOR
NUMBER OF EXERCISE CURRENTLY EXERCISE CONTRACTUAL CURRENTLY
OPTIONS PRICES EXERCISEABLE PRICE YEARS EXERCISEABLE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
142,500 $10.67 to $14.56 97,580 $11.11 5.97 $11.03
87,000 $17.13 to $24.75 9,500 $20.52 8.66 $17.22
------- -------
229,500 107,080 $14.68 6.99 $11.58
======= =======
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option and other employee stock
based compensation plans. Had compensation cost for the Company's stock option
plans been determined based on fair value at the grant dates for awards under
those plans which were granted on or after January 1, 1995 consistent with the
method of SFAS No. 123, the Company's net income and earnings per share for the
two years ended December 31, 1996 would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Net income
As reported.................................................... $46,199 $20,389
======= =======
Pro forma...................................................... $45,762 $20,036
======= =======
Net income per share
As reported.................................................... $ 3.91 $ 2.32
======= =======
Pro forma...................................................... $ 3.88 $ 2.28
======= =======
</TABLE>

41
<PAGE> 43

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The pro forma results are not necessarily indicative of results that would
have been reported if all options had been measured under SFAS No. 123.

The weighted average remaining contractual life of options outstanding at
December 31, 1996 was 6.99 years. The weighted average fair value of options
granted during 1995 and 1996 was $8.03 and $8.94 per share, respectively.

The fair value of options granted under the Company's stock option plans
during 1995 and 1996 was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used: no
dividend yield, expected volatility of 30.6%, risk free interest rate of 6.0%,
and expected lives of either 5.3 or 7.7 years.

Transfer of Shares

On December 31, 1996, the Company's Chief Executive Officer and principal
shareholder (the "Principal Shareholder") of the Company, the Company and THL
Transaction I Corp. entered into agreements with three executive officers
whereby the Principal Shareholder will transfer up to 73,068 shares (the Shares)
of his Syratech common stock to the Company to effect the transfer of an equal
number of newly issued shares to the executive officers. In connection with each
transfer of shares of stock, the agreements also provide for each executive to
receive, from the Company, as additional compensation, an annual lump sum cash
payment (the "Lump Sum Payments") for the reimbursement of income taxes owed by
the executive as a result of such transfer and payment. The transfer of Shares
by the Principal Shareholder and the Lump Sum Payments to the executives are
irrevocable and unconditional and are not based upon the executives future
employment with the Company. On December 31, 1996, 31,812 shares were
transferred and Lump Sum Payments totaling $703 were made to the executives.
Shares aggregating 31,884 were transferred as of January 14, 1997. Additional
shares of up to 9,372 will be transferred on January 14, 1998.

The estimated value of the shares has been recorded as an addition to
additional paid-in capital of $2,338. Total compensation expense equal to the
estimated fair value of the Shares plus an estimate of the aggregate Lump Sum
Payments, or $3,953 was recorded in the fourth quarter of 1996.

Short and long-term compensation payable was $705 and $207, respectively at
December 31, 1996.

The weighted average fair value of the shares was $31.50. The fair value of
the shares based on the provision of SFAS No. 123 was not materially different
from the amounts recorded.

Purchase of Common Stock

On December 29, 1995, the Company effected the Katy Stock Repurchase. The
aggregate purchase price of $52,054 represented approximately $17 per share. The
purchase was financed by the issuance of two promissory notes due January 2,
1996 to subsidiaries of Katy and the assumption of short-term bank debt, all
aggregating $51,735. The two promissory notes and the short-term bank debt were
paid on January 2, 1996. The Company's par and additional paid-in capital values
have been decreased to reflect the purchase.

Shareholder Rights Plan

On October 26, 1992 the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Plan"). Under the Plan, the Company distributed a dividend of
one right (a "Right") to purchase shares of preferred stock to stockholders of
record on October 31, 1992 and further authorized the issuance of one Right to
each share of common stock which becomes outstanding after the record date. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of a new series of preferred stock ("Series A Preferred
stock") at a price of $50, subject to adjustment. As amended on July 5, 1994,
the Rights become exercisable only if an individual or group (an "Acquiring
Person") acquires 15% or more of

42
<PAGE> 44

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the outstanding common stock or commences a tender offer which would result in
its ownership of 30% or more of the outstanding common stock, or in the case of
a person who beneficially owned 20% or more of the outstanding common stock on
October 26, 1992, such person acquires an additional 1% or more of the
outstanding common stock.

As required by the Agreement and Plan of Merger (Note 15), effective on
November 8, 1996, the Company redeemed all outstanding Rights and terminated the
Shareholder Rights Plan pursuant to which the Rights were issued. The redemption
price for each Right is one cent and if holders of Rights have not received
payment of the redemption price prior to the Effective Time they will have the
redemption price of their Rights added to the payment of the cash price for
their shares of Company Common Stock in the Merger.

12. RELATED PARTY TRANSACTIONS

A beneficial owner of less than 1% of the Company holds a significant
management role in Service Merchandise Co., Inc. ("Service"). A different person
is a director of the Company and is also a director of Service. The Company had
net sales to Service of approximately $9,909, $10,706 and $12,432 in 1994, 1995
and 1996, respectively. The Company had accounts receivable from Service of
approximately $756 and $1,260 at December 31, 1995 and 1996, respectively.

Effective July 12, 1996, the Company, through an indirect wholly-owned
subsidiary, granted a license to Service to use certain trademarks, patents and
copyrights relating to certain electric and other products. The agreement is
subject to cancellation with six months notice by the licensee.

Wacker Industrial Company ("Wacker"), a major supplier, is owned by a
holder of less than 1% of the Company's common stock. In 1994, 1995 and 1996,
the Company had purchases from this supplier of approximately $6,176, $5,371 and
$4,478 respectively. Accounts payable to this supplier approximated $75 and $93
at December 31, 1995 and 1996 respectively.

Other transactions with companies affiliated with certain
directors/stockholders include net sales of approximately $297, $735 and $790
and purchases of products and services of $1,228 and $746 in 1994 and 1995,
respectively. There were no purchases of products and services in 1996. As of
December 31, 1996, amounts receivable from these companies approximated $7,
there were no accounts payable.

In addition, included in other operating income in 1996 was revenue from
the disposal of Farberware inventory of $10,166 to Service, $5,033 to Lifetime
and $1,660 to a company affiliated with a certain director/stockholder. At
December 31, 1996 amounts receivable from Service and Lifetime were $316 and
$455, respectively.

43
<PAGE> 45

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. FOREIGN OPERATIONS

The Company's foreign operations relate to its Hong Kong subsidiary, and as
of May 8, 1996, its C.J. Vander subsidiary, the sales of the Hong Kong
subsidiary are substantially to customers in the United States and the sales of
its C.J. Vander subsidiary are primarily to foreign customers. Summarized
financial information about the Company's operations in different geographic
areas is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States............................................ $114,457 $122,950 $212,516
Hong Kong................................................ 32,834 46,570 54,749
Other foreign............................................ -- -- 3,666
-------- -------- --------
Total............................................ $147,291 $169,520 $270,931
======== ======== ========
Income (loss) from operations:
United States............................................ $ 7,497 $ 9,846 $ 15,372
Hong Kong................................................ 3,581 5,599 8,235
Other foreign............................................ -- -- (505)
-------- -------- --------
Total............................................ $ 11,078 $ 15,445 $ 23,102
======== ======== ========
Identifiable assets:
United States............................................ $185,632 $213,162 $212,377
Hong Kong................................................ 5,052 7,404 7,754
Other foreign............................................ -- -- 7,123
-------- -------- --------
Total............................................ $190,684 $220,566 $227,254
======== ======== ========
</TABLE>

14. LITIGATION

The Company has been named as a defendant in several legal actions arising
from its normal business activities. The Company carries insurance against
liability for certain types of risks. Although the amount of liability that
could result from any litigation cannot be predicted, in the opinion of
management, the Company's potential liability on all known claims would not have
a material adverse effect on the consolidated financial position or results of
operations of the Company.

15. AGREEMENT AND PLAN OF MERGER

On October 23, 1996, the Company and THL Transaction I Corp., a company
organized and controlled by affiliates of Thomas H. Lee Company, entered into an
Agreement and Plan of Merger, dated November 27, 1996, effective, as of October
23, 1996, as amended effective as of February 14, 1997, pursuant to which THL
Transaction I Corp. will be merged into the Company (the "Merger"). Pursuant to
the transaction, stockholders of the Company will receive $32.00 in cash per
share (except that the Principal Shareholder will receive $28.00 in cash per
share) or may elect to receive a portion of their consideration by retaining
stock of the surviving entity.

Upon consummation of the Merger, the Company would have on a pro forma
basis, as of December 31, 1996, outstanding debt of approximately $162,319
(unaudited). The transaction is expected to close in the first half of 1997. It
is intended that the transaction will be accounted for as a recapitalization.
The common equity contribution to be made by THL I Transaction Corp. will
constitute approximately $100,217 (unaudited) and

44
<PAGE> 46

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

up to $18,000 (unaudited) of Cumulative Redeemable Preferred Stock will be
issued (less the value of the shares retained by stockholders other than the
Company's Principal Shareholder and 63,696 shares that were issued to, and will
be retained by, certain management stockholders). The Company's stockholders'
equity on a pro forma basis is $22,048 (unaudited) at December 31, 1996
considering the effects of the Merger, because the distribution to stockholders,
as well as approximately one-third of the Merger expenses, will reduce
stockholders' equity.

The consummation of the Merger is conditioned upon the availability of
adequate financing (both debt and equity). It is expected that the financing
will include the issuance of $155,000 of Senior Notes (the "Senior Notes"). The
Senior Notes are expected to be general unsecured obligations of the Company
ranking senior to all existing and future subordinated indebtedness of the
Company, including indebtedness of up to $130,000, including a $30,000 letter of
credit sublimit, under a 5 year Credit Facility (the "Revolving Credit
Facility"). However, the obligations of the Company under the Revolving Credit
Facility are expected to be secured by the accounts receivable and inventory of
the Company and its domestic subsidiaries and, accordingly, such indebtedness
would effectively rank senior to the Senior Notes to the extent of such assets.
The Revolving Credit Facility is expected to include a requirement to maintain
excess availability of at least $45.0 million at certain periods during the
year. The Senior Notes will be fully and unconditionally guaranteed on a joint
and several basis by each of the Company's wholly-owned domestic subsidiaries.
(The "Guarantor Subsidiaries").

The following condensed consolidating financial statements as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, present separate financial information for the Company
("Issuer/Guarantor Parent"), the Guarantor Subsidiaries, the Non Guarantor
Subsidiaries, and Discontinued Operations. Separate financial statements of each
guarantor are not presented because management believes that such statements
would not be materially different from the information presented herein.

45
<PAGE> 47

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents................ $ 63,354 $ 11,786 $ 3,353 $ 78,493
Marketable securities............... 30,561 30,561
Accounts receivable, net............ 30,129 1,764 31,893
Inventories......................... 39,415 1,695 $ 41 41,151
Deferred income taxes............... 1,582 3,523 5,105
Prepaid expenses and other.......... 516 854 232 1,602
Net assets of discontinued
operations....................... 1,834 1,834
--------- -------- ------- ---------- --------
Total current assets........ 97,847 85,707 7,044 41 190,639
Property, plant and equipment, net.... 29,256 351 (47) 29,560
Other assets.......................... 130,914 358 9 (130,914) 367
--------- -------- ------- ---------- --------
Total....................... $ 228,761 $115,321 $ 7,404 $ (130,920) $220,566
========= ======== ======= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes
payable.......................... $ 51,735 $ 51,735
Accounts payable.................... $ 4,964 $ 1,474 6,438
Accrued expenses.................... 922 3,314 199 $ 1 4,436
Accrued compensation................ 2,212 266 2,478
Accrued advertising................. 1,991 1,991
Income taxes payable................ 20,152 (19,104) 469 (6) 1,511
--------- -------- ------- ---------- --------
Total current liabilities... 72,809 (6,623) 2,408 (5) 68,589
Deferred income taxes................. 1,819 1,838 3,657
Pension liability..................... 1,724 1,724
Intercompany (receivable) payable..... (63,540) 68,727 (5,590) 403
Stockholders' equity.................. 217,673 49,655 10,586 (131,318) 146,596
--------- -------- ------- ---------- --------
Total....................... $ 228,761 $115,321 $ 7,404 $ (130,920) $220,566
========= ======== ======= ========== ========
</TABLE>

46
<PAGE> 48

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents................ $ 18 $ 146 $ 3,441 $ 3,605
Accounts receivable, net............ 56,719 3,301 60,020
Inventories......................... 74,134 5,180 $ 41 79,355
Deferred income taxes............... 729 8,211 8,940
Prepaid expenses and other.......... 2,653 1,150 3,803
Net assets of discontinued
operations.......................
--------- -------- --------- ---------- --------
Total current assets........ 747 141,863 13,072 41 155,723
Property, plant and equipment, net.... 62,219 1,805 (69) 63,955
Purchase price in excess of net assets
acquired............................ 7,032 7,032
Other assets.......................... 179,442 544 (179,442) 544
--------- -------- --------- ---------- --------
Total....................... $ 180,189 $211,658 $ 14,877 $ (179,470) $227,254
========= ======== ========= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes
payable.......................... $ 6,604 $ 32 $ 6,636
Accounts payable.................... 7,637 2,052 9,689
Accrued expenses.................... $ 1,058 9,420 571 11,049
Accrued compensation................ 3,812 416 4,228
Accrued advertising................. 3,273 3,273
Income taxes payable................ 19,907 (19,581) 598 $ 6 930
--------- -------- --------- ---------- --------
Total current liabilities... 20,965 11,165 3,669 6 35,805
Deferred income taxes................. 2,295 15,411 17,706
Pension liability..................... 3,288 3,288
Other long-term liabilities........... 207 207
Intercompany (receivable) payable..... (62,863) 62,863 (5,718) 5,718
Stockholders' equity.................. 219,792 118,724 16,926 (185,194) 170,248
--------- -------- --------- ---------- --------
Total....................... $ 180,189 $211,658 $ 14,877 $ (179,470) $227,254
========= ======== ========= ========== ========
</TABLE>

47
<PAGE> 49

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $114,457 $53,495 $(20,661) $147,291
Cost of sales.............. 81,946 43,315 (20,661) 104,600
-------- ------- -------- --------
Gross profit............. 32,511 10,180 42,691
Selling, general and
administrative
expenses................. 25,269 6,599 (255) 31,613
-------- ------- -------- --------
Income from operations... 7,242 3,581 255 11,078
Interest expense........... (496) (63) (559)
Interest income............ 80 18 98
Other income............... $ 2,000 2,000 (4,000)
------- -------- ------- -------- --------
Income before provision
for income taxes...... 2,000 8,826 3,536 (3,745) 10,617
Provision for income
taxes.................... 157 1,995 606 2,758
------- -------- ------- -------- --------
Income from continuing
operations............ 1,843 6,831 2,930 (3,745) 7,859
Discontinued operations,
net...................... $ 12,068 -- 12,068
------- -------- ------- -------- -------- --------
Net income............ $ 1,843 $ 6,831 $ 2,930 $ 12,068 $ (3,745) $ 19,927
======= ======== ======= ======== ======== ========
</TABLE>

48
<PAGE> 50

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $122,950 $67,354 $(20,784) $169,520
Cost of sales......................... 87,593 53,027 (20,784) 119,836
-------- ------- -------- --------
Gross profit........................ 35,357 14,327 49,684
Selling, general and administrative
expenses............................ 25,522 8,728 (11) 34,239
-------- ------- -------- --------
Income from operations.............. 9,835 5,599 11 15,445
Interest expense...................... (198) (89) (287)
Interest income....................... $ 4,496 336 49 4,881
Other income.......................... 1,300 1,300 (2,600)
------- -------- ------- -------- --------
Income before provision for income
taxes............................ 5,796 11,273 5,559 (2,589) 20,039
Provision for income taxes............ 2,623 3,303 937 6,863
------- -------- ------- -------- --------
Income from continuing operations... 3,173 7,970 4,622 (2,589) 13,176
Discontinued operations, net.......... 33,023 33,023
------- -------- ------- -------- --------
Net income....................... $36,196 $ 7,970 $ 4,622 $ (2,589) $ 46,199
======= ======== ======= ======== ========
</TABLE>

49
<PAGE> 51

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $212,530 $85,498 $(27,097) $270,931
Cost of sales......................... 154,622 66,582 (27,091) 194,113
-------- ------- -------- --------
Gross profit........................ 57,908 18,916 (6) 76,818
Selling, general and administrative
expenses............................ $ (360) 46,844 11,880 (700) 57,664
Other operating income................ 3,948 3,948
------- -------- ------- -------- --------
Income from operations.............. 360 15,012 7,036 694 23,102
Interest expense...................... (3,114) (36) (3,150)
Interest income....................... 70 535 166 771
Other income.......................... 11,900 11,900
------- -------- ------- -------- --------
Income before provision for income
taxes............................ 430 24,333 7,166 694 32,623
Provision for income taxes............ 1,092 9,835 1,307 12,234
------- -------- ------- -------- --------
Net (loss) income................... $ (662) $ 14,498 $ 5,859 $ 694 $ 20,389
======= ======== ======= ======== ========
</TABLE>

50
<PAGE> 52

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR DISCONTINUED
PARENT SUBSIDIARIES SUBSIDIARIES OPERATIONS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 1,843 $ 6,831 $ 2,930 $ 12,068 $ (3,745) $ 19,927
Adjustments to reconcile net
income to net cash provided
by (used in) operations:
Depreciation and
amortization............ 3,074 451 (255) 3,270
Deferred income taxes...... 1,439 (1,870) (21) (452)
Other...................... 116 217 (1) 332
Increase (decrease) in
cash:
Accounts receivable..... (7,738) (246) (7,984)
Inventories............. (6,350) (240) (6,590)
Prepaid expenses and
other................. 566 145 711
Accounts payable and
accrued expenses...... 3,661 494 4,155
Income taxes payable.... (1,283) 5,046 (64) 3,699
Intercompany account.... (3,158) (13,235) (3,199) 15,592 4,000
Discontinued operations.... (27,660) (27,660)
------- -------- ------- -------- -------- --------
Net cash provided by (used
in) operating activities... (1,043) (9,798) 249 (10,592)
------- -------- ------- -------- -------- --------
Cash flows from investing
activities:
Purchases of property, plant
and equipment.............. (2,391) (212) (2,603)
Other........................ (194) 1 (193)
------- -------- ------- -------- -------- --------
Net cash used in investing
activities................. (2,585) (211) (2,796)
------- -------- ------- -------- -------- --------
Cash flows from financing
activities:
Change in revolving loan
facilities................. 11,944 11,944
Repayment of borrowings...... (1,624) (1,624)
Other........................ 1,043 62 1,105
------- -------- ------- -------- -------- --------
Net cash provided by
financing activities....... 1,043 10,382 11,425
------- -------- ------- -------- -------- --------
Net (decrease) increase in
cash and equivalents....... (2,001) 38 (1,963)
Cash and equivalents,
beginning of year.......... 2,475 1,354 3,829
------- -------- ------- -------- -------- --------
Cash and equivalents, end of
year....................... $ -- $ 474 $ 1,392 $ -- $ -- $ 1,866
======= ======== ======= ======== ======== ========
</TABLE>

51
<PAGE> 53

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 36,196 $ 7,970 $ 4,622 $ (2,589) $ 46,199
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Depreciation and amortization....... 3,089 175 (11) 3,253
Deferred income taxes............... (1,202) (1,027) (2,229)
Other............................... 102 1,158 1,260
Increase (decrease) in cash:
Marketable securities............ (30,561) (30,561)
Accounts receivable.............. (3,273) (376) (3,649)
Inventories...................... (772) (45) (817)
Prepaid expenses and other....... (516) (914) (16) (1,446)
Accounts payable and accrued
expenses....................... 922 (686) 359 595
Income taxes payable............. 21,241 (23,837) 290 (2,306)
Intercompany account............. (47,093) 47,421 (2,928) 2,600
Discontinued operations............. (49,915) (49,915)
--------- -------- -------- -------- --------
Net cash (used in) provided by
operating activities................ (70,826) 29,129 2,081 (39,616)
--------- -------- -------- -------- --------
Cash flows from investing activities:
Net proceeds on sale of Syroco,
Inc................................. 133,931 133,931
Purchases of property, plant and
equipment........................... (2,559) (120) (2,679)
Other................................. 61 61
--------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities................ 133,931 (2,498) (120) 131,313
--------- -------- -------- -------- --------
Cash flows from financing activities:
Change in revolving loan facilities... (14,504) (14,504)
Repayment of borrowings............... (875) (875)
Other................................. 249 60 309
--------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities................ 249 (15,319) (15,070)
--------- -------- -------- -------- --------
Net increase in cash and
equivalents......................... 63,354 11,312 1,961 76,627
Cash and equivalents, beginning of
year................................ 474 1,392 1,866
--------- -------- -------- -------- --------
Cash and equivalents, end of year..... $ 63,354 $ 11,786 $ 3,353 $ -- $ 78,493
========= ======== ======== ======== ========
</TABLE>

52
<PAGE> 54

SYRATECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
ISSUER/
GUARANTOR GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income....................... $ (662) $ 14,498 $ 5,859 $ 694 $ 20,389
Adjustments to reconcile net (loss)
income to net cash provided by (used
in) operations:
Depreciation and amortization......... 4,466 279 22 4,767
Deferred income taxes................. 1,329 (4,085) (2,756)
Acquisition of Farberware assets...... (9,500) (9,500)
Disposal of Farberware assets......... 13,600 13,600
Farberware electrics license.......... 500 500
Transfer of shares.................... 2,338 1,317 3,655
Other................................. 78 1,542 5 1,625
Increase (decrease) in cash net of
effect of businesses acquired:
Marketable securities.............. 30,561 30,561
Accounts receivable................ (18,129) (227) (18,356)
Inventories........................ (16,352) (754) (17,106)
Prepaid expenses and other......... 516 (816) (171) (471)
Accounts payable and accrued
expenses......................... 49 (2,235) (684) (2,870)
Income taxes payable............... (245) (1,979) 129 (2,095)
Intercompany account............... 689 1,147 (122) (1,714)
Discontinued operations............... 1,834 1,834
------- -------- ------- -------- --------
Net cash provided by (used in) operating
activities............................ 36,487 (16,026) 4,314 (998) 23,777
Cash flows from investing activities:
Insurance claim proceeds................ 23,771 23,771
Acquisitions of businesses net of cash
acquired.............................. (48,540) (998) 998 (48,540)
Purchases of property, plant and
equipment............................. (13,643) (1,482) (15,125)
Other................................... (130) 10 (120)
------- -------- ------- -------- --------
Net cash used in investing activities... (48,540) 9,998 (2,470) 998 (40,014)
------- -------- ------- -------- --------
Cash flows from financing activities:
Change in revolving loan facilities..... (51,735) (5,296) (2,044) (59,075)
Repayment of borrowings................. (300) (300)
Other................................... 452 (16) (8) 428
------- -------- ------- -------- --------
Net cash used in financing activities... (51,283) (5,612) (2,052) (58,947)
------- -------- ------- -------- --------
Effect of exchange rate changes on cash
and equivalents....................... 296 296
Net increase (decrease) in cash and
equivalents........................... (63,336) (11,640) 88 (74,888)
Cash and equivalents, beginning of
year.................................. 63,354 11,786 3,353 (78,493)
------- -------- ------- -------- --------
Cash and equivalents, end of year....... $ 18 $ 146 $ 3,441 $ -- $ 3,605
======= ======== ======= ======== ========
</TABLE>

53
<PAGE> 55

SUPPLEMENTARY INFORMATION
QUARTERLY RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Net sales.......................................... $31,266 $38,592 $112,869 $88,204
Gross profit....................................... 9,048 10,178 33,198 24,394
Income (loss) from operations...................... (290) 2,183 16,427 4,782
Income before provision for income taxes........... 143 13,261 15,395 3,824
Net income......................................... 90 8,623 10,006 1,670
Earnings per share................................. .01 .98 1.14 .19
Year Ended December 31, 1995:
Net sales.......................................... $26,912 $29,357 $ 62,350 $50,901
Gross profit....................................... 7,533 8,317 17,475 16,359
Income from operations............................. 62 1,522 7,737 6,124
Income before provision for income taxes........... 10 3,137 9,376 7,516
Income from continuing operations.................. 7 2,086 6,141 4,942
Discontinued operations, net of income taxes....... 2,572 -- -- --
Gain on sale Syroco, Inc., net of income taxes..... -- 30,451 -- --
Net income......................................... 2,579 32,537 6,141 4,942
Earnings per share:
Continuing operations......................... -- .18 .52 .42
Discontinued operations....................... .22 2.58 -- --
Net income.................................... .22 2.76 .52 .42
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

54
<PAGE> 56

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
OFFICER/
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---------------------------- --- --------------------------------------------------- --------
<S> <C> <C> <C>
Leonard Florence............ 65 Chairman of the Board, Chief Executive Officer and
President of the Company 1986
E. Merle Randolph........... 64 Vice President, Chief Financial Officer and
Treasurer of the Company 1986
Melvin L. Levine............ 65 Vice President of Purchasing of the Company 1986
Alan R. Kanter.............. 44 Vice President of Sales of the Company 1986
Faye A. Florence............ 40 Vice President and General Counsel; Secretary of
the Company 1987
Frederick H. Chicos......... 42 President, Chickering Benefit Planning Insurance
Agency, Inc. 1989
Irwin Chafetz............... 60 President, Interface Group-Massachusetts, Inc. 1995
Harold Cohen................ 66 Chairman Emeritus, Somerville Lumber & Supply Co. 1989
Jerry R. Jacob.............. 63 Chairman, Midway Airlines Corporation 1991
*Dan W. Lufkin.............. 65 Private Investor 1992
Alan Perlman................ 46 Vice President and Secretary, Ocean State Jobbers,
Inc. 1989
**Peter D. Rauch............ 44 President and Chief Executive Officer, Rauch
Industries, Inc. 1996
Harold Roitenberg........... 70 President, Roitenberg Investments, Inc. 1990
Jacob Saliba................ 83 Director, Katy Industries, Inc. 1989
</TABLE>

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

* Resigned as of July, 1996

** Resigned as of November, 1996

Leonard Florence is Chairman of the Board, Chief Executive Officer and
President of the Company. He has served in the capacity of Chairman of the Board
and Chief Executive Officer continuously since September 1986. He has also been
President and a director of certain of its subsidiaries since their respective
dates of organization. Mr. Florence previously served as President of the
Company from 1986 to 1994 and resumed the position in 1995. Mr. Florence has
been an executive in the tabletop and giftware products industry for more than
35 years.

E. Merle Randolph has been Vice President, Chief Financial Officer and
Treasurer of the Company since September 1986. He became a director of the
Company in May 1989. Mr. Randolph is also an officer of certain of the Company's
subsidiaries. For 17 years prior to joining the Company, Mr. Randolph was
employed in various financial positions by Rockwell International Corporation.

Melvin L. Levine has been a Vice President of the Company and certain of
its subsidiaries since September 1986. Mr. Levine has been an executive in the
tabletop and giftware products industry for more than 35 years. He became a
director of the Company in May 1989. Mr. Levine is also an officer and director
of certain of the Company's subsidiaries.

Alan R. Kanter has been a Vice President of the Company and a subsidiary of
the Company since September 1986. Mr. Kanter has been employed in the tabletop
and giftware industry for more than 20 years.

Faye A. Florence an attorney, has been Vice President and General Counsel
of the Company since June 1987 and Secretary since August 1987. Ms. Florence is
also an officer of certain of the Company's subsidiaries. Ms. Florence is the
daughter of Leonard Florence.

55
<PAGE> 57

Irwin Chafetz served as a director of the Company from 1989 to 1991 and was
reelected to the Board in 1995. Mr. Chafetz is currently President of Interface
Group-Massachusetts, Inc. Mr. Chafetz is also a director of this company, and a
director of Back Bay Restaurant Group, Inc.

Frederick H. Chicos has been a director of the Company since 1989. Mr.
Chicos is President of Chickering Benefit Planning Insurance Agency, Inc. (a
property, casualty and employee benefits insurance consulting and brokerage
firm), and was President of Chickering Insurance Agency, Inc. (a property and
casualty insurance consulting and brokerage firm) from 1974 to 1990.

Harold Cohen has been a director of the Company since 1989. Mr. Cohen is
co-founder of Somerville Lumber & Supply Co. (a home building center
headquartered in Somerville, Massachusetts and a wholly-owned subsidiary of
Payless Cashways, Inc., a national home building supply company). Mr. Cohen was
Co-Chairman of Somerville Lumber & Supply Co. from 1956 to 1993 and is currently
Chairman Emeritus of Somerville Lumber & Supply Co. Mr. Cohen has been a
director of Payless Cashways, Inc. since 1984, and served as the Vice Chairman
of its Board of Directors from 1988 to 1993.

Jerry R. Jacob has been a director of the Company since 1991. Mr. Jacob was
the Chairman of Midway Airlines Corporation from 1994 to 1997. Prior thereto Mr.
Jacob was Vice President of American Airlines-Eastern Division (a domestic and
international air carrier) from 1974 to 1993. Mr. Jacob is also a director of
American Classic Voyages (the Delta Queen Steamboat Company).

Dan W. Lufkin was a director of the Company from 1992 to July 1996. Mr.
Lufkin's principal occupation during the past five years has been as a private
investor. Mr. Lufkin is also a director of Culbro Corp. and Allen & Company
Incorporated.

Peter D. Rauch was President and Chief Executive Officer of Rauch
Industries, Inc., a subsidiary of the Company acquired in February, 1996. He had
held this position from February 1995 until November 30, 1996. Prior thereto Mr.
Rauch was employed in various positions at Rauch Industries, Inc. since 1975.

Alan Perlman has been a director of the Company since 1989. Mr. Perlman is
currently Vice President and Secretary of Ocean State Jobbers, Inc. (a general
merchandise discount retailer). Mr. Perlman has been an executive officer of
Ocean State Jobbers, Inc. since 1977.

Harold Roitenberg has been a director of the Company since 1990. Mr.
Roitenberg has been President of Roitenberg Investments, Inc. (a venture capital
and real estate firm) since 1983. Mr. Roitenberg is also a director of Service
Merchandise Company, Inc. and Damark International, Inc.

Jacob Saliba has been a director of the Company since 1989. Mr. Saliba
currently serves on the Board of Directors of Katy Industries, Inc. (a
diversified manufacturing and oil field related services company) where he also
served as Chief Executive Officer from 1988 to 1993. Prior thereto he was
President and Chief Operating Officer of Katy Industries, Inc. from 1968 to
1988. Mr. Saliba is also a director of The Emerging Germany Fund, Inc., and
Schon and CIE (Frankfurt).

MEETINGS OF THE BOARD OF DIRECTORS

The Board of Directors held eight meetings during fiscal year 1996. Each
director attended at least 75% of the aggregate number of all meetings of the
Board of Directors and committees of which he was a member during such fiscal
year.

The Board of Directors has an Audit Committee, a Compensation and Stock
Option Committee, an Executive Committee, a Nominating Committee and a Planning
Committee. Changes in directors are considered by the Board of Directors as a
whole upon the recommendations of the Nominating committee.

The Audit Committee is currently composed of Messrs. Roitenberg, Chafetz,
Cohen, and Jacob. The Committee held two meetings during fiscal year 1996. The
Audit Committee has oversight authority and responsibility for the financial
statements of the Company and its subsidiaries. In conjunction with its
responsibilities, the Committee invited representatives of Deloitte & Touche LLP
to be present, at both of its meetings.

56
<PAGE> 58

The Compensation and Stock Option Committee is currently composed of
Messrs. Jacob, Chafetz, Chicos, Cohen and Saliba. The Committee held three
meetings during fiscal year 1996. The functions of the Compensation and Stock
Option Committee include fixing the compensation and reviewing the salaries, of
the Chief Executive Officer and the executive officers of the Company, including
the review of incentive plans and benefits. The Committee also administers the
Company's Key Employees' Stock Option Plans, to determine the terms upon which,
and the identities of the persons to whom, options to purchase shares of Common
Stock of the Company shall be granted.

The Executive Committee, currently composed of Messrs. Florence, Cohen,
Levine, Perlman and Randolph, did not meet during fiscal year 1996. The
Executive Committee has and may exercise certain of the powers and authority of
the Board of Directors in connection with the management and affairs of the
Company.

The Nominating Committee, is currently composed of Messrs. Levine, Chicos,
Randolph and Chafetz. The Nominating Committee held one meeting during fiscal
year 1996. The Nominating Committee recommends the criteria for the selection of
candidates to serve on the Board of Directors, proposes nominees to fill
vacancies, and recommends to the Board of Directors a slate of individuals for
election at the Annual Meeting of Stockholders. The Nominating Committee will
consider nominees proposed by the stockholders. Any proposals which stockholders
intend to present at the Company's Annual Meeting of Stockholders should be
submitted to the Company as set forth in the section entitled "Stockholders
Proposals" in this Proxy Statement.

The Planning Committee, currently composed of Messrs. Chicos, Florence,
Perlman, Roitenberg and Saliba did not meet during fiscal year 1996. The
functions of the Planning Committee are to work with the management of the
Company to examine long term issues, review potential acquisitions and
dispositions of significant assets, and formulate recommendations to the Board
of Directors with respect to management development and succession issues.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded to, earned by or
paid to the Chief Executive Officer and the four other most highly compensated
executive officers during the fiscal years ended December 31, 1996, 1995 and
1994 for services rendered in all capacities to the Company and its
subsidiaries.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
FISCAL --------------------- ALL OTHER
YEAR SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION ENDED $ $ ($)(2)
- -------------------------------------------- --------- -------- -------- ------------
<S> <C> <C> <C> <C>
Leonard Florence............................ 12/31/96 $700,000 $500,000 $ 22,401
Chairman of the Board, President 12/31/95 $650,000 $500,000 $ 22,790
and Chief Executive Officer 12/31/94 $400,000 $450,000 $ 17,867
Melvin L. Levine............................ 12/31/96 $350,000 $ 75,000 $1,320,520
Vice President of Purchasing 12/31/95 $325,000 $ 75,000 $ 2,772
12/31/94 $274,583 $ 50,000 $ 2,469
Alan R. Kanter.............................. 12/31/96 $350,000 $ 75,000 $1,320,520
Vice President of Sales 12/31/95 $325,000 $ 75,000 $ 2,772
12/31/94 $274,583 $ 50,000 $ 2,469
E. Merle Randolph........................... 12/31/96 $325,000 $ 75,000 $1,320,520
Vice President and Chief Financial 12/31/95 $300,000 $350,000 $ 2,772
Officer; Treasurer 12/31/94 $238,333 $ 50,000 $ 2,724
Faye A. Florence............................ 12/31/96 $200,000 $ 30,000 $ 2,850
Vice President and General 12/31/95 $175,000 $ 30,000 $ 2,772
Counsel; Secretary 12/31/94 $130,000 $ 20,000 $ 1,475
</TABLE>

57
<PAGE> 59

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

(1) The column designated "Other Annual Compensation" by the Securities and
Exchange Commission ("SEC") for the reporting of perquisites and other
personal benefits has been eliminated because the amounts paid to each
executive officer do not exceed the disclosure threshold established by the
SEC pursuant to applicable rules and no other compensation required to be
reported under that column was awarded to, earned by or paid to any of the
named executive officers during the period covered by the table. In
addition, the columns designated by the SEC for the reporting of certain
long-term compensation, including awards of restricted stock and long-term
incentive plan payouts have been eliminated as no such awards or payouts
were made during the period covered by the table.

(2) The estimated dollar value benefit of insurance premiums paid by the Company
with respect to life insurance for the benefit of Leonard Florence for the
years ended December 31, 1996, 1995 and 1994 was $19,551, $20,018, and
$15,537 respectively. Messrs. Levine, Kanter and Randolph entered into
agreement with Leonard Florence, the Company, and THL Transaction I Corp.,
whereby they will each receive 24,356 shares of Syratech common stock valued
at $779,392 and lump sum cash payments totaling $538,278 for reimbursement
of income taxes pursuant to a transfer of 73,068 shares of Syratech common
stock by Leonard Florence to the Compnay. See Note 11 to the Company's
Consolidated Financial Statements. All other amounts represent contributions
made by the Company to the accounts of named executive officers pursuant to
the Company's 401(k) Plan.

STOCK OPTION GRANTS

There were no grants of stock options to any of the named executive
officers during the last fiscal year. The Company does not grant stock
appreciation rights ("SARs") of any kind.

OPTION EXERCISES/VALUE OF UNEXERCISED OPTIONS

The following table sets forth certain information concerning options to
purchase Common Stock of the Company exercised during the fiscal year ending
December 31, 1996 and the fiscal year end value of unexercised stock options
held by each of the named executive officers. None of the named executive
officers has any SARs.

AGGREGATED OPTIONS EXERCISED IN LAST
FISCAL YEAR AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
STOCK OPTIONS AT STOCK OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED ON VALUE ---------------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE(2) UNEXERCISABLE(#) EXERCISABLE(2) UNEXERCISABLE(#)
- ------------------------- ----------- -------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Florence......... 0 $0 0 0 $ 0 $ 0
E. Merle Randolph........ 0 0 2,000 8,000 28,740 114,960
Melvin L. Levine......... 0 0 2,000 8,000 28,740 114,960
Alan R. Kanter........... 0 0 2,000 8,000 28,740 114,960
Faye A. Florence......... 0 0 9,000 6,000 181,010 99,140
</TABLE>

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

(1) Based upon the closing sale price of the Company's Common Stock on December
31, 1996 on the NYSE minus the respective option exercise price.

(2) Does not include an aggregate of 7,000 options to purchase Common Stock
which becomes exercisable on February 16, 1997.

COMPENSATION OF DIRECTORS

Messrs. Chicos, Cohen, Chafetz, Jacob, Perlman, Roitenberg and Saliba are
members of the Board of Directors who are neither officers nor employees of the
Company. As such, they each receive an annual retainer of $10,000 payable
quarter annually. In addition they receive a fee of $1,000 for each Board
meeting attended in person and a fee of $500 for each Board meeting attended by
conference telephone. Additionally,

58
<PAGE> 60

the compensation structure provides for payments for attendance at meetings,
participation on committees and additional compensation for chairing such
committees as follows:

The Chairman of each committee receives an annual retainer of $4,000 for
services as Chairman, and a member receives $2,000 for service on each
committee. An additional fee of $1,000 is paid for each committee meeting
attended in person if a member is in attendance on a day other than the day of a
scheduled Board of Directors Meeting. If a member attends a committee meeting on
the day of a scheduled Board of Directors Meeting, the member is compensated
$500 (Participation via conference telephone constitutes one-half of the
compensation paid for attendance in person). An additional $1,000 is paid to a
member for each day spent on special assignments for the Company undertaken at
the request of the Chairman of the Board.

All such amounts are payable quarterly. Notwithstanding the foregoing, the
aggregate amount of the retainers and fees to be paid to any director, who is
not an employee of the Company, for service on the Board and committees of the
Board cannot exceed $25,000 in any 365-day period. Directors who are also
employees of the Company do not receive any additional compensation for serving
as members of the Board of Directors or of any committee of the Board. Directors
are reimbursed for their reasonable travel and other expenses incurred in
attending meetings of the Board and of committees of the Board.

COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation and Stock Option Committee consists of Irwin Chafetz,
Frederick H. Chicos, Harold Cohen, Jerry R. Jacob, and Jacob Saliba. No member
of the Compensation and Stock Option Committee is a former or current officer or
employee of the Company.

COMPENSATION AND STOCK OPTION COMMITTEE REPORT

The Members of the Compensation and Stock Option Committee of the Board of
Directors are all non-employee directors. The Committee is charged with the
responsibility of fixing the annual compensation of the Chief Executive Officer
of the Company, and in consultation with the Chief Executive Officer of the
Company, determining the annual compensation of the other executive officers of
the Company and the officers of each subsidiary of the Company, subject in each
case to any employment or other contract between the Company or a subsidiary
thereof and any such officer. In addition, the Committee is charged with the
responsibility to determine the payment of bonuses or other supplemental
compensation to the Chief Executive Officer of the Company and, in consultation
with the Chief Executive Officer, to determine payment of bonuses or other
supplemental compensation to any other officer of the Company or any subsidiary
thereof.

Further, the Committee has the authority over the issuance of stock options
or the grant of awards under any stock option, stock bonus or other stock based
compensation and/or incentive plans for officers and/or employees of the
Company.

The overall compensation paid to executive officers of the Company includes
cash compensation consisting of a base salary plus a performance bonus, stock
options for executive officers and participation in various benefit plans
generally available to employees, such as health insurance and contributions
made to the accounts of its employees pursuant to the Company's 401(k) Plan.

The Committee attempts to balance the compensation paid to the executive
officers of the Company to the Company's performance. In its review, the
Committee may consider the level of compensation paid to executive officers of
companies of comparable market capitalization, however, this is somewhat
difficult since industry peers, and principal competitors are often either
privately held companies or divisions of large publicly held companies, and
therefore, executive compensation information is not publicly available. The
Committee, therefore, has generally relied upon its analysis of overall Company
performance including the level of net sales and net income and the individual
efforts and achievements of each executive officer during the fiscal year.

The Company was a party to employment agreements with certain of the named
executive officers during fiscal year 1996. Such agreements were approved by
both the Committee and the Board of Directors of the

59
<PAGE> 61

Company in August, 1991 and fixed the minimum salary levels of such officers.
Employment agreements with two of its officers, including the Chief Executive
Officer were amended in August, 1995 reflecting changes to the annual retirement
benefits to be received. Additionally, the employment agreements with Messrs.
Randolph and Kanter were amended in July 1996, to provide, and during the same
month Faye A. Florence and the Company entered into a Retirement Benefit
Agreement that provides for certain retirement benefits to be received.

In addition, all executive officers were awarded bonuses for services
rendered to the Company during the period ended December 31, 1996. In
determining the amount of bonuses payable to the Company's executive officers
for 1996, the Committee evaluated the record level of net sales and net income
achieved during the year.

In evaluating the compensation paid to the Chief Executive Officer, Mr.
Florence, the Committee evaluates many factors. Mr. Florence's overall
compensation is established by the Committee following an analysis of the
Company's overall performance and financial results. Additionally, Mr.
Florence's performance in his position is reviewed in conjunction with his
ongoing ability to provide the necessary direction for the Company's continued
growth. Moreover, the Committee determined as it has in the past that Mr.
Florence's compensation should also be determined in conjunction with the
visibility and leadership roles which Mr. Florence continues to possess in the
industries in which the Company operates.

COMPENSATION AND STOCK OPTION COMMITTEE
Jerry R. Jacob - Chairman
Irwin Chafetz
Frederick H. Chicos
Harold Cohen
Jacob Saliba

60
<PAGE> 62

PERFORMANCE GRAPH

The following line graph compares the Company's total stockholder return
for the period beginning on the date of the Company's initial public offering on
December 16, 1992 and ending on the last day of the Company's last completed
fiscal year December 31, 1996, with the total return of a group of peer
companies in the housewares industry (the "Peer Group"), selected in good faith
by the Company, and the companies in the Russell 2000 Index.

COMPARISON OF CUMULATIVE TOTAL RETURN*
FOR PERIOD FROM 12/16/92 TO 12/31/96
AMONG SYRATECH CORPORATION, PEER GROUP, AND RUSSELL 2000 INDEX

<TABLE>
<CAPTION>
MEASUREMENT PERIOD SYRATECH COMMON RUSSELL 2000
(FISCAL YEAR COVERED) STOCK PEER GROUP INDEX
<S> <C> <C> <C>
12/16/92 100.0 100.0 100.0
12/31/92 109.3 106.8 103.3
12/31/93 100.0 115.9 122.8
12/30/94 98.0 117.4 120.6
12/29/95 107.3 145.6 154.9
12/31/96 168.0 178.7 180.4
</TABLE>

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

* The return assumes reinvestment of dividends

The companies included in the Peer Group are: Ekco Group, Inc., General
Housewares Corporation, Lancaster Colony Corp., Lifetime Hoan Corp., Newell Co.,
and Oneida Ltd.

The returns of the companies included in the Peer Group were weighted based
on their respective market capitalization. The Russell 2000 Index is a small
capitalization index composed of 2000 U.S. companies. The market capitalization
of these companies ranges from approximately $162 million to $1.0 billion (as of
May 31, 1996 the date the index was last constituted). The average
capitalization (as of May 31, 1996) was $421 million as compared to the Company,
whose market capitalization (as of March 21, 1997) was approximately $277
million. The total stockholder return assumes $100 invested at the beginning of
the period in the Common Stock of the Company and comparison groups on December
16, 1992 and that all dividends have been reinvested.

EMPLOYMENT AGREEMENTS

Effective August 16, 1991, the Company entered into an employment agreement
with Leonard Florence (the "Florence Employment Agreement") providing for the
employment of Mr. Florence as Chief Executive Officer of the Company at an
annual base salary, payable in month installments, of not less than $0.35
million as well as for certain other benefits and the reimbursement of expenses.
Unless otherwise terminated by the

61
<PAGE> 63

Company as provided in the Florence Employment Agreement, Mr. Florence's term of
full-time employment will continue until the earlier of (i) the fifth
anniversary of receipt of a notice of termination given by either party to the
other or (ii) the first anniversary of receipt of a notice of termination given
by Mr. Florence to the Company on or after his 64th birthday. The Company may,
at its discretion, but without any obligation, increase Mr. Florence's base
salary during the term of full-time employment. Once the base salary shall have
been increased, it shall not thereafter be decreased without his written
consent. Mr. Florence's current base salary is $0.7 million per annum. The
Florence Employment Agreement obligates Mr. Florence to provide certain advisory
services to the Company during the five-year period following the term of Mr.
Florence's full-time employment (the "Advisory Period") and provides for Mr.
Florence to receive annual compensation during the Advisory Period in an amount
equal to not less than 25% of his base salary during the final year of his
full-time employment. During the period of his full-time employment and the
Advisory Period, Mr. Florence is prohibited from engaging in any business that
is competitive with any line of business in which the Company is engaged that
contributes three percent or more of the gross revenues of the Company. The
Florence Employment Agreement also provides for payment to Mr. Florence of a
retirement benefit.

The Company entered into a similar employment agreement, also effective as
of August 16, 1991, with Melvin L. Levine, Vice President of Purchasing of the
Company, except in Mr. Levine's case the base salary was $0.225 million for the
year ended December 31, 1992. Mr. Levine's current base salary is $0.350 million
per annum.

As of May 1995 and July 1995, the employment agreements with Messrs. Levine
and Florence were amended with respect to the computation and payment of
retirement benefits to each and, in the case of Mr. Florence, to provide for
payment of a survivor's benefit to his surviving spouse. Specifically, the
amendments provided for annual retirement benefit payments in amounts equal to
2% of their respective average total compensation (i.e., base salary and bonus
compensation) in the three years preceding attainment by the relevant executive
of age sixty-five or termination of such executive's full time employment,
whichever occurs later, multiplied by the number of years of such executive's
employment by the Company.

The Employment Agreements with Messrs. Florence and Levine, as amended,
provide for retirement benefit payments determined and payable in accordance
with the agreements. The following table shows the estimated annual benefits
payable to Messrs. Florence and Levine upon retirement based upon various
compensation levels and years of service.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
REMUNERATION 5 10 15
- ------------ ------- ------- -------
<S> <C> <C> <C>
400,000 40,000 80,000 120,000
500,000 50,000 100,000 150,000
600,000 60,000 120,000 180,000
700,000 70,000 140,000 210,000
800,000 80,000 160,000 240,000
900,000 90,000 180,000 270,000
1,000,000 100,000 200,000 300,000
1,100,000 110,000 220,000 330,000
1,200,000 120,000 240,000 360,000
1,300,000 130,000 260,000 390,000
1,400,000 140,000 280,000 420,000
</TABLE>

Messrs. Florence and Levine have each completed ten years of credited
service. Retirement benefits under the employment agreements are computed on the
basis of a straight-life annuity and are not reduced by the benefits received
under Social Security, but would be reduced by any benefits received under any
Company funded pension plan that hereafter may be adopted.

62
<PAGE> 64

Under Section 162(m) of the Internal Revenue Code, so much of the
compensation paid to Mr. Florence as exceeds $1 million annually may not be
deductible by the Company for federal income tax purposes. The Employment
Agreement with Melvin L. Levine will be amended, as of the Effective Time, to
change his term of full-time employment from a rolling five-year term to a fixed
five-year term.

The Company has also entered into employment agreements, effective as of
August 16, 1991, with E. Merle Randolph, Vice President, Chief Financial Officer
and Treasurer, and Alan R. Kanter, Vice President of Sales of the Company. The
agreements with Messrs. Randolph and Kanter are similar to those with Messrs.
Florence and Levine described above, except that (i) the term of full-time
employment of each of Messrs. Randolph and Kanter will continue until the third
anniversary of receipt of a notice of termination given by the Company to the
executive involved or by such executive to the Company, (ii) the period during
which each of Messrs. Randolph and Kanter has agreed to provide advisory
services to the Company (and to be bound by a non-competition agreement)
following the term of his full-time employment will be the lesser of three years
or six months for each year of his full-time employment beginning with the date
of the employment agreement, with such advisory period and the coextensive
non-competition covenant being subject to termination at the election of the
Company on six months prior notice to the executive involved, and (iii) no
provision was originally made therein for a payment of a retirement benefit.

The employment agreements of Messrs. Randolph and Kanter were amended in
July 1996, to provide, and during the same month Faye A. Florence and the
Company entered into a Retirement Benefit Agreement that provides, inter alia,
for the payment at age 65 or upon termination of such officer's employment,
whichever is later, of an annual retirement benefit to each such officer equal
to a percentage of his or her average annual compensation for the three fiscal
years ended immediately prior to the date on which such officer ceases to be a
full time employee of the Company multiplied by the number of years of such
officer's service to the Company. The minimum annual retirement benefit for each
such officer will be $75,000.

On December 31, 1996, the Company, THL I and Leonard Florence entered into
three separate agreements, one with each of Alan R. Kanter, Melvin L. Levine and
E. Merle Randolph (each an "Executive Party"). Pursuant to each of the three
agreements (i) Mr. Florence agreed to contributed to the Company (a) on December
31, 1996, 10,604 shares of Syratech Common Stock, (b) on January 14, 1997,
10,628 shares of Syratech Common Stock and (c) will contribute on January 14,
1998, the largest number (not exceeding 3,124) of shares of Syratech Common
Stock as shall have an aggregate value of approximately $99,991, (ii) on each of
the dates of contribution of such shares of Syratech Common Stock by Mr.
Florence to the Company, such shares were to be canceled and the Company was to
issue to the Executive Party, that number of shares of Syratech Common Stock
that would be equal to the number of shares of Syratech Common Stock contributed
to the Company on such date by Mr. Florence; (iii) on December 31, 1996 the
Company paid each Executive Party the sum of $234,346; (iv) on January 14, 1997
the Company paid to each Executive Party an amount equal to the lesser of (x)
the income tax benefit to the Company from the issuance of shares of Syratech
Common Stock and the cash payment required to be made to him on such date or (y)
the aggregate amount of federal, state and local income taxes to be owed by each
Executive Party as a result of the issuance of such shares and the making of
such cash payment; and (v) on January 14, 1998 the Company is required to pay to
each Executive Party an amount equal to the lesser of (x) the income tax benefit
to the Company from the issuance of shares of Common Stock and the cash payment
to be made to each Executive Party on such date or (y) the aggregate amount of
federal, state and local income taxes that will be owed by each Executive Party
as a result of the issuance of shares of Common Stock and cash payment to be
made to him on such date. Each agreement provides that the manner in which the
payments to be made to each Executive Party for the purpose of transferring to
each Executive Party the tax benefits to the Company from such transactions are
to be calculated and subsequently adjusted is to be in the sole discretion of
the Company.

The Company and each Executive Party also entered into an amendment to the
respective Executive Party's Employment Agreement (each an "Amendment No. 2 to
Employment Agreement") dated January 31, 1997, to be effective as of December
31, 1996, to clarify and ensure that the transfer of shares referenced in the
above paragraph did not alter the total compensation of the relevant Executive
Party for purposes of calculating the Executive Party's retirement benefit.

63
<PAGE> 65

At the Effective Time of the Merger, the Employment Agreement with Leonard
Florence will be amended so as to (i) change his term of full-time employment
from a rolling five-year term to a fixed five-year term, (ii) provide for a
minimum base compensation of $1.15 million per annum, (iii) establish $1.15
million as the minimum amount upon which his retirement benefit (and the
survivor's benefit of his surviving spouse) will be computed and (iv) create
contractual rights with respect to certain perquisites that are accorded to him
informally under his present arrangements with the Company.

It is not contemplated that any changes will be made in the agreements with
Messrs. Randolph and Kanter and Ms. Florence.

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<PAGE> 66

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information concerning the
beneficial ownership of Syratech Common Stock (i) by each stockholder who is
known by the Company to own beneficially in excess of 5% of the outstanding
Common Stock, (ii) by each director, and (iii) by all officers and directors as
a group, as of January 31, 1997. Except as otherwise indicated, all persons
listed below have (i) sole voting power and investment power with respect to
their shares of Common Stock, except to the extent that authority is shared by
spouses under applicable law, and (ii) record and beneficial ownership with
respect to their shares of Common Stock.

<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
NAME OWNED PERCENTAGE
- ------------------------------------------------------------------ ------------ ---------
<S> <C> <C>
Leonard Florence(a)............................................... 2,794,304(b,c) 32.1%
E. Merle Randolph................................................. 91,197(d,e) (f)
Melvin L. Levine.................................................. 224,232(d) 2.6%
Alan R. Kanter.................................................... 204,914(d) 2.4%
Faye A. Florence.................................................. 27,633(g) (f)
Irwin Chafetz..................................................... 18,461(h) (f)
Frederick H. Chicos............................................... 4,400(i) (f)
Harold Cohen...................................................... 94,925(j) 1.1%
Jerry R. Jacob.................................................... 20,505 (f)
Alan Perlman...................................................... 104,337(k,l) 1.2%
Harold Roitenberg................................................. 54,462(m) (f)
Jacob Saliba...................................................... 0 (f)
Officers and Directors as a group (12 persons).................... 3,639,370 41.7%
Gabelli Funds, Inc. & related entities(n)......................... 913,100 10.5%
Artisan Partners L.P. & related entities(o)(p).................... 461,200 5.3%
</TABLE>

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

(a) The business address for Leonard Florence is c/o Syratech Corporation, 175
McClellan Highway, East Boston, Massachusetts, 02128-9114.

(b) Includes 87,000 shares held by the Florence Family Foundation.

(d) Includes 4,000 shares of Common Stock issuable upon exercise of vested
employee stock options.

(e) Includes an aggregate of 2,975 shares of Common Stock held of record by Mr.
Randolph's wife, and dependent daughter.

(f) Represents less than 1% of the issued and outstanding shares of Common
Stock.

(g) Includes 10,000 shares of Common Stock issuable upon exercise of vested
employee stock options.

(h) Includes 6,000 shares held by the Chafetz Family Charitable Trust.

(i) Represents shares of Common Stock held of record by Transeo Trust No. 2, of
which the mother of Frederick H. Chicos, Mary L. Chicos is trustee.

(j) Includes 5,000 shares of Common Stock held of record in trust for Brian S.
Cohen, Mr. Cohen's son.

(k) Includes 16,000 shares held by the Pisa Foundation Under Indenture of Trust
in which Alan Perlman and Ann P. Perlman, his wife, are Co-Trustees.

(l) Includes Common Stock held of record by Mr. Perlman's wife, and Common
Stock held of record in trusts for Mr. Perlman's children and nephews,
aggregating 35,800 shares as to which Mr. Perlman disclaims beneficial
ownership.

(m) Represents shares of Common Stock held of record by Roitenberg Investments,
Inc., of which Harold Roitenberg is President.

65
<PAGE> 67

(n) The business address for Gabelli Funds, Inc. and related entities is One
Center, Rye, NY 10580.

(o) Represents Artisan Partners L.P. and related entities' holdings as of
September 30, 1996.

(p) The business address for Artisan Partners L.P. and related entities is 1000
North Water Street, Suite 1770, Milwaukee, WI 53202.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Ocean State Jobbers, Inc. ("Ocean State") purchased from the Company
merchandise in the amount of approximately $2.450 million for the year ended
December 31, 1996. Alan Perlman, a director of the Company, has been an officer
and director of Ocean State since 1977.

Service Merchandise Co. Inc., ("Service") purchased from the Company
merchandise in the amount of approximately $22.598 million for the year ended
December 31, 1996. On July 12, 1996, Farberware granted to Service, in
consideration of royalty payments to be made by Service, the exclusive license
to use and exploit the Farberware name and related intellectual property in
connection with the sourcing, manufacture, marketing and sale of certain
electric products. An indirect beneficial owner of less than 1% of the Company's
Common Stock holds a significant management position in Service. Harold
Roitenberg, a director of the Company, is also a director of Service.

Wacker Industrial Company ("Wacker"), a major supplier, is owned by a
holder of less than 1% of Syratech Common Stock. For the year ended December 31,
1996, the Company had purchases from Wacker of approximately $4.478 million.

Lifetime Hoan Corporation ("Lifetime") purchased from the Company
merchandise in the amount of approximately $5.033 million during the year ended
December 31, 1996. In April 1996, the Company and Lifetime, acting together,
acquired certain assets of Farberware, including the rights to share in certain
royalties under certain license agreements entered into and assigned to the
Company by the prior owner of the Farberware trade name. In addition, the
Company expects to continue to grant licenses with respect to the Farberware
trade name in conjunction with Lifetime.

The Company believes that the transactions described or referred to above
were effected on terms no less favorable to the Company than those that could
have been obtained from unaffiliated third parties.

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<PAGE> 68

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<C> <S>
(a) Exhibits
2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective as of
October 23, 1996 between Syratech and THL Transaction I Corp. and the
Amendment, dated February 14, 1997 to the Restated Agreement and Plan of
Merger. Incorporated by reference from Exhibit 2.1 to Form S-4 Registration
Statement No. 333-16917.
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by reference
from Exhibit 3.1 to Form S-1 Registration Statement No. 33-41619.
3.2 Syratech Corporation Certificate of Designations in respect of Series A
Preferred Stock dated October 26, 1992. Incorporated by reference from Exhibit
3.2 to Form S-4 Registration Statement No. 333-16917.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form S-1
Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15, 1991.
Incorporated by reference from Exhibit 3.3 to Form S-1 Registration Statement
No. 33-41619.
3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into
Syratech Corporation dated May 9, 1996. Incorporated by reference from Exhibit
3.5 to Form S-4 Registration Statement No. 333-16917.
3.6 Specimen Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to
Form 10-K of Syratech for the year ended December 31, 1993.
10.1 Form of Amended and Restated Employment Agreement dated as of April , 1997
between Leonard Florence and the Company. Incorporated by reference from
Exhibit 10.1 to Form S-4 Registration Statement No. 333-16917.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and the
Company. Incorporated by reference from Exhibit 10.17 to Form S-1 Registration
Statement No. 33-41619.
10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine and the
Company. Incorporated by reference from Exhibit 10.18 to Form S-1 Registration
Statement No. 33-41619.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the
Company. Incorporated by reference from Exhibit 10.19 to Form S-1 Registration
Statement No. 33-41619.
10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between E. Merle Randolph and Company. Incorporated by
reference from Exhibit 10.5 to Form S-4 Registration Statement No. 333-16917.
10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated as of
August 16, 1991 between Melvin L. Levine and the Company. Incorporated by
reference from Exhibit 10.8 to Form 10-K for Syratech for the year ended
December 31, 1995.
10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between Alan R. Kanter and the Company. Incorporated by
reference from Exhibit 10.7 to Form S-4 Registration Statement No. 333-16917.
10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A.
Florence and the Company. Incorporated by reference from Exhibit 10.8 to Form
S-4 Registration Statement No. 333-16917.
10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December 31,
1996, to Employment Agreement dated as of August 16, 1991 between E. Merle
Randolph and the Company. Incorporated by reference from Exhibit 10.9 to Form
S-4 Registration Statement No. 333-16917.
</TABLE>

67
<PAGE> 69

<TABLE>
<C> <S>
10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December 31,
1996, to Employment Agreement dated as of August 16, 1991 between Melvin L.
Levine and the Company. Incorporated by reference from Exhibit 10.10 to Form
S-4 Registration Statement No. 333-16917.
10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31, 1996, to
Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and
the Company. Incorporated by reference from Exhibit 10.11 to Form S-4
Registration Statement No. 333-16917.
10.12 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Melvin L. Levine. Incorporated by
reference from Exhibit 10.12 to Form S-4 Registration Statement No. 333-16917.
10.13 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and E. Merle Randolph. Incorporated by
reference from Exhibit 10.13 to Form S-4 Registration Statement No. 333-16917.
10.14 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Alan R. Kanter. Incorporated by
reference from Exhibit 10.14 to Form S-4 Registration Statement No. 333-16917.
10.15 Asset Purchase Agreement dated February 2, 1996 by and between Farberware
Inc., the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp., Inc.
Incorporated by reference from Exhibit 1 to Form 8-K dated April 16, 1996.
10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner
Manufacturing Corp. (formerly Farberware Inc.), U.S. Industries, Inc.,
Farberware Inc. (formerly Far-B Acquisition Corp.) and Lifetime Hoan
Corporation. Incorporated by reference from Exhibit 10.16 to Form S-4
Registration Statement No. 333-16917.
10.17 Agreement dated as of December 7, 1995 among the Company, SYR Acquisition Inc.
and Rauch Industries, Inc. Incorporated by reference from Exhibit 1 to Form
8-K of the Company dated December 7, 1995. Incorporated by reference from
Exhibit 10.17 to Form S-4 Registration Statement No. 333-16917.
10.18 Amended and Restated Line of Credit Agreement among Wallace International de
Puerto Rico, Inc., International Silver de Puerto Rico, Inc. and Banco Popular
de Puerto Rico dated October 15, 1996. Incorporated by reference from Exhibit
10.18 to Form S-4 Registration Statement No. 333-16917.
10.19 Agreement, dated as of February 2, 1996, by and among the Company, Lifetime
Hoan Corporation and Far-B Acquisition Corp. Incorporated by reference from
Exhibit 10.19 to Form S-4 Registration Statement No. 333-16917.
10.20 Agreement, dated as of May 3, 1996, by and among the Company, Farberware Inc.
and Meyer Manufacturing Co. Ltd. Incorporated by reference from Exhibit 10.20
to Form S-4 Registration Statement No. 333-16917.
10.21 License Agreement, dated as of July 12, 1996, by and between Farberware Inc.
and Service Merchandise Company, Inc. (redacted to omit certain royalty
information). Incorporated by reference from Exhibit 10.21 to Form S-4
Registration Statement No. 333-16917.
10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service
Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending Item
10.21). Incorporated by reference from Exhibit 10.22 to Form S-4 Registration
Statement No. 333-16917.
11 Statement re: computation of per share earnings.
22 List of Subsidiaries. Incorporated by reference from Exhibit 22 to Form S-4
Registration Statement No. 333-16917.
27 Financial Data Schedule
</TABLE>

68
<PAGE> 70

(b) Financial Statement Schedule:

Independent Auditors' Report on Schedule

Schedule II: Valuation and Qualifying Accounts

The Company filed a Current Report on Form 8-K, dated October 25, 1996,
with the Securities and Exchange Commission which reported the announcement of
the Agreement and Plan of Merger between Syratech Corporation and Thomas H. Lee
Equity Fund III LP.

The Company filed a Current Report on Form 8-K, dated November 12, 1996,
with the Securities and Exchange Commission which reported the termination of
Syratech Corporation's Rights Agreement.

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<PAGE> 71

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Act of
1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Boston, State of Massachusetts, on the 31st day of March, 1997.

SYRATECH CORPORATION

By: /s/ LEONARD FLORENCE
------------------------------------
Leonard Florence
Chairman of the Board,
Chief Executive Officer and
President

Pursuant to the requirements of the Securities Act of 1934, this Annual
Report on Form 10-K has been signed by the following persons in the capacities
and on the dates indicated below.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ------------------
<C> <S> <C>
/s/ LEONARD FLORENCE Chairman of the Board of March 31, 1997
- --------------------------------------------- Directors, Chief Executive
Leonard Florence Officer and President
(Principal Executive Officer)

/s/ E. MERLE RANDOLPH Vice President, Chief March 31, 1997
- --------------------------------------------- Financial Officer, Treasurer
E. Merle Randolph and Director (Principal
Financial and Accounting
Officer)

/s/ IRWIN CHAFETZ Director March 31, 1997
- ---------------------------------------------
Irwin Chafetz
/s/ FREDERICK H. CHICOS Director March 31, 1997
- ---------------------------------------------
Frederick H. Chicos

/s/ HAROLD COHEN Director March 31, 1997
- ---------------------------------------------
Harold Cohen

Director March 31, 1997
- ---------------------------------------------
Jerry R. Jacob

/s/ MELVIN L. LEVINE Director March 31, 1997
- ---------------------------------------------
Melvin L. Levine

/s/ ALAN PERLMAN Director March 31, 1997
- ---------------------------------------------
Alan Perlman

/s/ HAROLD ROITENBERG Director March 31, 1997
- ---------------------------------------------
Harold Roitenberg

/s/ JACOB SALIBA Director March 31, 1997
- ---------------------------------------------
Jacob Saliba
</TABLE>

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<PAGE> 72

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Syratech Corporation
Boston, Massachusetts

We have audited the consolidated financial statements of Syratech
Corporation (the "Company") as of December 31, 1996 and 1995, and for each of
the three years in the period ended December 31, 1996, and have issued our
report thereon dated February 7, 1997 (February 14, 1997 as to Note 15) included
elsewhere in the Annual Report on Form 10-K ("Annual Report"). Our audits also
included the consolidated financial statement schedule listed in Item 14 of this
Annual Report. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

DELOITTE & TOUCHE LLP

Boston, Massachusetts
February 7, 1997
<PAGE> 73

SCHEDULE II

SYRATECH CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN C
-------------------------
COLUMN B COLUMN E
------------ (1) ----------
COLUMN A BALANCE AT CHARGED TO (2) COLUMN D BALANCE AT
- ------------------------------------ BEGINNING OF COSTS AND CHARGED TO ---------- END OF
DESCRIPTION PERIOD EXPENSES OTHER ACCTS DEDUCTIONS PERIOD
- ------------------------------------ ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts..... $1,603 $ 93 $-- $ 165(a) $1,861
Sales returns and allowances........ 2,604 5,813 -- (4,916)(b) 3,501
------ ------ ------- -------- ------
$4,207 $5,906 $-- $ (4,751) $5,362
====== ====== ======= ======== ======

YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts..... $1,372 $ 602 $-- $ (371)(a) $1,603
Sales returns and allowances........ 2,133 5,206 -- (4,735)(b) 2,604
------ ------ ------- -------- ------
$3,505 $5,808 $-- $ (5,106) $4,207
====== ====== ======= ======== ======
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts..... $1,385 $ 84 -- $ (97)(a) $1,372
Sales returns and allowances........ 2,397 3,868 -- (4,132)(b) 2,133
------ ------ ------- -------- ------
$3,782 $3,952 $-- $ (4,229) $3,505
====== ====== ======= ======== ======
</TABLE>

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

(a) Doubtful accounts written off

(b) Sales returns and other
<PAGE> 74

INDEX TO EXHIBITS

<TABLE>
<C> <S>
2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective as of
October 23, 1996 between Syratech and THL Transaction I Corp. and the Amendment,
dated February 14, 1997 to the Restated Agreement and Plan of Merger. Incorporated
by reference from Exhibit 2.1 to Form S-4 Registration Statement No. 333-16917.
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by reference from
Exhibit 3.1 to Form S-1 Registration Statement No. 33-41619.
3.2 Syratech Corporation Certificate of Designations in respect of Series A Preferred
Stock dated October 26, 1992. Incorporated by reference from Exhibit 3.2 to Form
S-4 Registration Statement No. 333-16917.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form S-1
Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15, 1991.
Incorporated by reference from Exhibit 3.3 to Form S-1 Registration Statement No.
33-41619.
3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into Syratech
Corporation dated May 9, 1996. Incorporated by reference from Exhibit 3.5 to Form
S-4 Registration Statement No. 333-16917.
3.6 Specimen Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to
Form 10-K of Syratech for the year ended December 31, 1993.
10.1 Form of Amended and Restated Employment Agreement dated as of April , 1997
between Leonard Florence and the Company. Incorporated by reference from Exhibit
10.1 to Form S-4 Registration Statement No. 333-16917.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and the
Company. Incorporated by reference from Exhibit 10.17 to Form S-1 Registration
Statement No. 33-41619.
10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine and the
Company. Incorporated by reference from Exhibit 10.18 to Form S-1 Registration
Statement No. 33-41619.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the Company.
Incorporated by reference from Exhibit 10.19 to Form S-1 Registration Statement
No. 33-41619.
10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between E. Merle Randolph and Company. Incorporated by reference
from Exhibit 10.5 to Form S-4 Registration Statement No. 333-16917.
10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated as of
August 16, 1991 between Melvin L. Levine and the Company. Incorporated by
reference from Exhibit 10.8 to Form 10-K for Syratech for the year ended December
31, 1995.
10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated as of
August 16, 1991 between Alan R. Kanter and the Company. Incorporated by reference
from Exhibit 10.7 to Form S-4 Registration Statement No. 333-16917.
10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A. Florence
and the Company. Incorporated by reference from Exhibit 10.8 to Form S-4
Registration Statement No. 333-16917.
10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996,
to Employment Agreement dated as of August 16, 1991 between E. Merle Randolph and
the Company. Incorporated by reference from Exhibit 10.9 to Form S-4 Registration
Statement No. 333-16917.
10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December 31, 1996,
to Employment Agreement dated as of August 16, 1991 between Melvin L. Levine and
the Company. Incorporated by reference from Exhibit 10.10 to Form S-4 Registration
Statement No. 333-16917.
</TABLE>
<PAGE> 75

<TABLE>
<C> <S>
10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31, 1996, to
Employment Agreement dated as of August 16, 1991 between Alan R. Kanter and the
Company. Incorporated by reference from Exhibit 10.11 to Form S-4 Registration
Statement No. 333- 16917.
10.12 Agreement dated December 31, 1996 by and between the Company, THL I Transaction
Corp., Leonard Florence and Melvin L. Levine. Incorporated by reference from
Exhibit 10.12 to Form S-4 Registration Statement No. 333-16917.
10.13 Agreement dated December 31, 1996 by and between the Company, THL I Transaction
Corp., Leonard Florence and E. Merle Randolph. Incorporated by reference from
Exhibit 10.13 to Form S-4 Registration Statement No. 333-16917.
10.14 Agreement dated December 31, 1996 by and between the Company, THL I Transaction
Corp., Leonard Florence and Alan R. Kanter. Incorporated by reference from Exhibit
10.14 to Form S-4 Registration Statement No. 333-16917.
10.15 Asset Purchase Agreement dated February 2, 1996 by and between Farberware Inc.,
the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp., Inc.
Incorporated by reference from Exhibit 1 to Form 8-K dated April 16, 1996.
10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner Manufacturing
Corp. (formerly Farberware Inc.), U.S. Industries, Inc., Farberware Inc. (formerly
Far-B Acquisition Corp.) and Lifetime Hoan Corporation. Incorporated by reference
from Exhibit 10.16 to Form S-4 Registration Statement No. 333-16917.
10.17 Agreement dated as of December 7, 1995 among the Company, SYR Acquisition Inc. and
Rauch Industries, Inc. Incorporated by reference from Exhibit 1 to Form 8-K of the
Company dated December 7, 1995. Incorporated by reference from Exhibit 10.17 to
Form S-4 Registration Statement No. 333-16917.
10.18 Amended and Restated Line of Credit Agreement among Wallace International de
Puerto Rico, Inc., International Silver de Puerto Rico, Inc. and Banco Popular de
Puerto Rico dated October 15, 1996. Incorporated by reference from Exhibit 10.18
to Form S-4 Registration Statement No. 333-16917.
10.19 Agreement, dated as of February 2, 1996, by and among the Company, Lifetime Hoan
Corporation and Far-B Acquisition Corp. Incorporated by reference from Exhibit
10.19 to Form S-4 Registration Statement No. 333-16917.
10.20 Agreement, dated as of May 3, 1996, by and among the Company, Farberware Inc. and
Meyer Manufacturing Co. Ltd. Incorporated by reference from Exhibit 10.20 to Form
S-4 Registration Statement No. 333-16917.
10.21 License Agreement, dated as of July 12, 1996, by and between Farberware Inc. and
Service Merchandise Company, Inc. (redacted to omit certain royalty information).
Incorporated by reference from Exhibit 10.21 to Form S-4 Registration Statement
No. 333-16917.
10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service
Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending Item
10.21). Incorporated by reference from Exhibit 10.22 to Form S-4 Registration
Statement No. 333-16917.
11 Statement re: computation of per share earnings.
22 List of Subsidiaries. Incorporated by reference from Exhibit 22 to Form S-4
Registration Statement No. 333-16917.
27 Financial Data Schedule
</TABLE>

<PAGE> 1
EXHIBIT 11

SYRATECH CORPORATION AND SUBSIDIARIES

<TABLE>
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPTS PER SHARE DATA)

<CAPTION>
Year Ended December 31,
---------------------------
1994 1995 1996
------- ------- -------

<S> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:

Common Stock..................................... 11,688 11,707 8,695
Common equivalent shares resulting from
stock options (treasury stock method).......... 23 9
------- ------- -------
Subtotal..................................... 11,711 11,716 8,695

Adjustment to reflect the requirements of the SEC:
Common equivalent shares resulting from stock
options (treasury stock method)................ 98 87 104
------- ------- -------

Total.................................... 11,809 11,803 8,799
======= ======= =======

Income from continuing operations................ $ 7,859 $13,176 $20,389
Discontinued operations.......................... 12,068 33,023
------- ------- -------
Net income..................................... $19,927 $46,199 $20,389
======= ======= =======
Net Income Per Common Share:
Continuing operations............................ $ 0.67 $ 1.12 $ 2.32
Discontinued operations.......................... 1.02 2.79
------- ------- -------
Net income per common share.................... $ 1.69 $ 3.91 $ 2.32
======= ======= =======

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SYRATECH
CORPORATION CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT
OF INCOME AS FILED AS PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,605
<SECURITIES> 0
<RECEIVABLES> 65,382
<ALLOWANCES> 5,362
<INVENTORY> 79,355
<CURRENT-ASSETS> 155,723
<PP&E> 96,708
<DEPRECIATION> 32,753
<TOTAL-ASSETS> 227,254
<CURRENT-LIABILITIES> 35,805
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 170,161
<TOTAL-LIABILITY-AND-EQUITY> 227,254
<SALES> 270,931
<TOTAL-REVENUES> 270,931
<CGS> 194,113
<TOTAL-COSTS> 194,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,150
<INCOME-PRETAX> 32,623
<INCOME-TAX> 12,234
<INCOME-CONTINUING> 20,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,389
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 2.32

</TABLE>