<PAGE> 1
As filed with the Securities and Exchange Commission on April 25, 1997
Registration No. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HOME PRODUCTS INTERNATIONAL, INC.
(Name of Registrant as Specified in its Charter)
DELAWARE (Applied for)
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4501 WEST 47TH STREET
CHICAGO, ILLINOIS 60632
(773) 890-1010
(Address and Telephone Number of Registrant's Principal Executive Offices)
JAMES R. TENNANT
CHAIRMAN OF THE BOARD
HOME PRODUCTS INTERNATIONAL, INC.
4501 WEST 47TH STREET
CHICAGO, ILLINOIS 60632
(773) 890-1010
(Name, Address and Telephone Number of Agent for Service)
Please address a copy of all communications to:
<TABLE>
<S> <C>
Joseph A. Cari, Jr.
Michael J. Gamsky Joseph K. Hasson
Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. Ungaretti & Harris
200 N. LaSalle Street, Suite 2100 3500 Three First National Plaza
Chicago, Illinois 60601 Chicago, Illinois 60602
Telephone No: (312) 346-3100 Telephone No: (312) 977-4400
Fax No: (312) 621-1750 Fax No: (312) 977-4405
</TABLE>
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================
PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT (1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($0.01 par value)(2) 4,025,000 $10.625 $42,765,625 $12,960
===================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the
registration fee based on the average of the high and low sales prices of
the Common Stock as reported on The Nasdaq National Market(SM) on April 21,
1997, pursuant to Rule 457(c) under the Securities Act of 1933, as
amended.
(2) Includes 525,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED APRIL ___, 1997
PROSPECTUS
[HOME PRODUCTS INTERNATIONAL, INC. LOGO]
3,500,000 SHARES
HOME PRODUCTS INTERNATIONAL, INC.
COMMON STOCK
Of the 3,500,000 shares of common stock, $0.01 par value (the "Common
Stock") of Home Products International, Inc. (the "Company") being offered,
2,000,000 shares are being sold by the Company and 1,500,000 shares are
being sold by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any proceeds from the sale of
Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders." The Common Stock is traded on The Nasdaq National Market(SM)
under the symbol "HPII." On April 21, 1997, the last reported sale price of
the Common Stock as reported on The Nasdaq National Market(SM) was $10.265 per
share. See "Price Range of Common Stock."
_____________________
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING SHAREHOLDERS(3)
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- -----------------------------------------------------------------------------
Total(4) $ $ $ $
=============================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting the Company's share of expenses, estimated at
$__________.
(3) Before deducting the Selling Shareholders' share of expenses,
estimated at $____________.
(4) The Company has granted to the Underwriters an option, exercisable
within 30 days hereof, to purchase up to an aggregate of 525,000 of
additional shares of Common Stock at the price to the public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $_________, $_________, and
$____________, respectively. See "Underwriting."
_____________________
The shares of Common Stock are offered by the Underwriters named
herein, subject to prior sale, when, as and if issued by the Company and
delivered to and accepted by the Underwriters and subject to certain prior
conditions including the right of the Underwriters to reject any order in
whole or in part. It is expected that delivery of the shares of Common
Stock will be made through the facilities of The Depository Trust Company,
New York, New York on or about __________ __, 1997.
EVEREN SECURITIES, INC.
_____________, 1997
<PAGE> 3
[ARTWORK -- PICTURE OF HOUSEWARE PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, references herein to (i)
"HPI" or the "Company" are to Home Products International, Inc., a Delaware
corporation, and its wholly-owned subsidiaries, Selfix, Inc., a Delaware
corporation ("SELFIX"), Tamor Corporation, a Massachusetts corporation
("TAMOR"), and Shutters, Inc., an Illinois corporation ("SHUTTERS"), (ii)
"Selfix" include both Selfix and, unless the context otherwise requires,
Shutters which was previously a wholly-owned subsidiary of Selfix, (iii)
"Tamor" include both Tamor and Housewares Sales, Inc., a Massachusetts
corporation and Tamor's affiliated product distribution company which was
merged into Tamor as part of the Tamor Acquisition (as defined), and (iv) the
"Tamor Acquisition" are to the acquisition by the Company of the business of
Tamor and Housewares Sales, Inc. which was acquired in February, 1997,
effective as of January 1, 1997. Pro forma information gives effect to the
Tamor Acquisition as if the transaction had occurred on December 31, 1995, or
as of December 28, 1996, as the context requires, and all references to pro
forma information refer to the fiscal year ending the last Saturday of December
of each year. As adjusted information gives effect to the Offering and the
application of the estimated net proceeds therefrom as if such transactions had
occurred on December 31, 1995, or on December 28, 1996, or as of March 29,
1997, as the context requires. All references to the Company's and Selfix's
fiscal year refer to the fiscal year ending on the last Saturday of December of
each year, and all references to Tamor's fiscal year refer to the fiscal year
ending on December 31 of each year.
THE COMPANY
Home Products International, Inc. designs, manufactures and markets a
broad range of quality consumer houseware products. The Company is a leading
supplier to large national retailers of value-priced storage and organization
products including storage containers, bath and shower organization products,
hooks, hangers, home/closet organization products and juvenile organization
products. The Company holds a significant market share in the United States in
its key product categories of plastic storage containers, plastic hangers and
bath and shower organization products. The Company's products are sold in the
United States through most of the large national retailers, including Wal-Mart,
Target, Kmart, Home Depot, Toys 'R Us, Walgreens and Bed Bath & Beyond. The
Company also sells its products internationally in over 40 countries.
After giving effect to the Tamor Acquisition, on a pro forma basis, the
Company would have had record net sales and record operating profit for fiscal
1996 of $113.9 million and $8.2 million, respectively. For the fiscal quarter
ended March 29, 1997, the Company reported record quarterly net sales and
record operating profit of $31.7 million and $2.5 million, respectively.
The Company is comprised of three operating subsidiaries, Tamor, which was
acquired in February, 1997, effective as of January 1, 1997, Selfix and
Shutters. Collectively these three companies have over 100 years of operating
history. Tamor's primary product line is plastic storage containers, ranging
from shoe boxes to jumbo 48 gallon totes, in which it holds a significant
market share in the United States. Through Tamor, the Company is also among
the nation's leading suppliers of plastic hangers. Selfix's primary product
line is bath and shower organization products, in which it holds a significant
market share in the United States. Through Selfix, the Company is also among
the nation's leading suppliers of hooks and home helpers and juvenile
organization products. The Company currently offers more than 750 products, in
approximately 2,000 color and feature combinations or "stock keeping units"
("SKUS"), and intends to continue to aggressively develop and introduce new
products with a target of achieving at least 10% of annual net sales from new
products introduced in the prior year. Through Shutters, the Company has a
significant market share in durable plastic exterior shutters.
3
<PAGE> 5
The Company plans to take advantage of consolidation opportunities in the
housewares industry, a large market comprised of a highly fragmented supplier
base. The majority of the Company's products are classified in the "plastic
storage" segment of the market for housewares products. According to a
published industry source, 1996 retail sales in the plastic storage market were
approximately $1 billion, an increase of 7.5% from 1995. Sales were driven by
the increased popularity of plastic storage totes and containers which
accounted for approximately 50% of total market sales. According to industry
reports, sales of plastic storage products are expected to remain strong given
consumers' growing needs for easy solutions to storage problems. As in many
product areas, large national retailers are reducing the number of suppliers of
storage products and forming key partnerships with suppliers that can provide
them product depth. As large national retailers seek greater product depth,
the suppliers of storage products have begun to consolidate. Consolidation of
suppliers in the plastic storage market is expected to continue based on the
large number of relatively small suppliers in this market.
The Company believes the completion of the Tamor Acquisition is a
significant first step in the Company becoming a major diversified houseware
products company through its strategy of disciplined growth through
acquisition. After giving effect to the Tamor Acquisition, on a pro forma
basis in fiscal 1996, the Company's net sales would have almost tripled and its
operating profit would have increased more than six-fold. The Company believes
the increased credibility and visibility resulting from the Tamor Acquisition
will position the Company to aggressively pursue its strategy of disciplined
growth through acquisition as smaller suppliers are pressured by large national
retailers to consolidate.
The Company believes that its competitive strengths combined with the
following strategies will enable the Company to continue its growth, increase
its profitability and gain market share.
PURSUE ADDITIONAL STRATEGIC ACQUISITIONS, by acquiring companies which
manufacture products within the Company's existing product categories and, in
the future, acquiring companies that will enable it to enter new related
product categories more rapidly and cost-effectively.
LEVERAGE MARKET SHARE POSITION, by using its aggressive new product
development program to increase sales in all of its product categories and to
become a leading supplier of opening price point products in more of its
existing product categories.
CAPITALIZE ON TAMOR ACQUISITION SYNERGIES, by using excess manufacturing
capacity, by expanding the number of product categories offered and the number
of product lines offered within existing product categories, and by increasing
its distribution network and international sales.
CONTINUE TO BE A LOW COST PRODUCER, by remaining focused on continuous
cost reduction and productivity improvement as well as maximizing the use of
each operating facility and leveraging the Company's purchasing power to
achieve certain economies of scale in the purchase of plastic resin and other
materials.
INTRODUCE HIGH-VALUE LOW-COST NEW PRODUCTS, that are attractively designed
with consumer driven features and benefits.
EMPHASIZE CUSTOMER SERVICE THROUGH OPERATIONAL AND INFORMATION SYSTEM
INFRASTRUCTURE, by using its state-of-the-art retail information technology
such as Electronic-Data-Interchange (EDI) and planogram (shelf-space management
techniques) technology, to respond to the demands of its retail customers.
EXPAND MERCHANDISING RELATIONSHIPS WITH KEY CUSTOMERS, by maintaining
close and interactive relationships with its retailers and distributors by
focusing on new product development and creative merchandising ideas.
4
<PAGE> 6
INCREASE PENETRATION IN INTERNATIONAL MARKETS, by emphasizing further
penetration in Western Europe, Mexico and Latin America and by cross-marketing
newly acquired product lines through existing international channels.
The Company manufactures and distributes the majority of its products
through a network of seven facilities in the United States aggregating over
877,000 square feet. The Company's executive offices are located at 4501 West
47th Street, Chicago, Illinois 60632, and its telephone number is (773)
890-1010.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered
By the Company ............................... 2,000,000 shares(1)
By the Selling Shareholders .................. 1,500,000 shares
Total ................................ 3,500,000 shares
Common Stock to be outstanding after the Offering ..... 6,322,922(1)(2)
Estimated Net Proceeds to the Company ................. $18.2 million
Use of proceeds ....................................... The Company will use all of the net proceeds of the Offering (i) to repay
$11.2 million of the principal amount of the Term Loans and (ii) to repay
in full the $7.0 million Subordinated Note.(3)(4)
The Nasdaq National Market(SM) symbol ................. HPII
</TABLE>
_________________
(1) Excludes up to 525,000 shares of Common Stock subject to an over-allotment
option granted to the Underwriters by the Company. See "Underwriting."
(2) Excludes 1,356,998 shares of Common Stock reserved for issuance under the
Home Products International, Inc. 1987, 1991 and 1994 Plans (together, the
"Stock Option Plans"). There are currently 965,017 options outstanding
under the Stock Option Plans, each of which entitles the holder thereof to
purchase one share of Common Stock. See "Management--Stock Option Plans."
The weighted average exercise price for all of the options currently
outstanding under the Stock Option Plans is $6.79 per share. Also
excludes 183,690 shares of Common Stock reserved for issuance under the
Company's 1995 Employee Stock Purchase Plan (the "Stock Purchase Plan")
and 79,204 shares reserved for issuance pursuant to the Warrant (as
defined below) issued in connection with the financing of the Tamor
Acquisition.
(3) The Company has entered into a Credit Agreement dated as of February 27,
1997 (the "Credit Agreement"), with General Electric Capital Corporation
("GECC"), as agent ("Agent") and individually, and one other lender (such
lender and GECC, collectively, the "Lenders") which provides: (i) a 5 1/2
year revolving credit facility (the "Revolving Credit Facility") under
which up to an aggregate principal amount of $20.0 million (subject to a
borrowing base limitation and including a letter of credit subfacility of
up to $10.0 million) are available for borrowing, (ii) a 5 1/2 year $20.0
million term loan ("Term Loan A") and (iii) a 7 1/2 year $20.0 million
term loan ("Term Loan B"). Proceeds of Term Loan A and Term Loan B
(collectively, the "Term Loans") were used, together with the combined
proceeds of a $7.0 million subordinated equity bridge note issued to GECC
(the "Subordinated Note") and a Warrant (the "Warrant") to purchase 79,204
shares of Common Stock issued to GECC to finance the Tamor Acquisition, to
repay certain indebtedness of Tamor and to pay transaction costs related
thereto. See "Description of the Credit Agreement and Other Debt."
(4) See "Use of Proceeds."
6
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth (i) the historical financial data of the
Company (formerly Selfix) for fiscal 1995, fiscal 1996 and the thirteen weeks
ended March 29, 1997, (ii) the pro forma (as adjusted) financial data for the
Company for fiscal 1996, (iii) the pro forma (as adjusted) financial data for
the Company (formerly Selfix) for the thirteen weeks ended March 30, 1996, and
(iv) the as adjusted financial data of the Company for the thirteen weeks ended
March 29, 1997. The historical, as adjusted, and pro forma data should be read
in conjunction with the "Unaudited Pro Forma Condensed Combined Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical financial statements of the Company
(formerly Selfix) and Tamor and related notes thereto included elsewhere in this
Prospectus. The balance sheet data as of March 29, 1997, and the statement of
operations data for the thirteen weeks ended March 29, 1997, have been derived
from the Company's unaudited financial statements. Operating results for the
thirteen weeks ended March 29, 1997, may not be indicative of the results that
may be expected for fiscal 1997 or any future period.
<TABLE>
<CAPTION>
PRO FORMA(a)
PRO FORMA(a) THIRTEEN WEEKS THIRTEEN WEEKS(b)
YEAR ENDED THIRTEEN WEEKS YEAR ENDED ENDED ENDED
------------------------ ENDED DECEMBER 28, MARCH 30, MARCH 29,
DECEMBER 30, DECEMBER 28, MARCH 29, 1996 1996 1997
1995 1996 1997(n) (AS ADJUSTED) (AS ADJUSTED) (AS ADJUSTED)
----------- ----------- ------------- ------------ ------------ -------------
(dollars in thousands (dollars in thousands
except per share amounts) except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 41,039 $ 38,200 $ 31,738 $ 113,914 $ 27,389 $ 31,738
Cost of goods sold........................ 25,678 22,992 22,610 80,810 19,154 22,610
---------- --------- --------- --------- --------- ---------
Gross profit......................... 15,361 15,208 9,128 33,104 8,235 9,128
Operating expenses(c)..................... 17,385 13,843 6,602 24,864 6,707 6,602
Restructuring charge(d)................... 2,051 --- --- --- --- ---
---------- --------- --------- --------- --------- ---------
Operating profit (loss).............. (4,075) 1,365 2,526 8,240 1,528 2,526
Interest expense(e)....................... (896) (707) (1,532) (4,543) (1,110) (1,086)
Other income - net........................ 688 148 155 847 64 155
---------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes.. (4,283) 806 1,149 4,544 482 1,595
Income tax (expense) benefit(f)........... 273 -- (117) (1,817) (193) (638)
---------- --------- --------- --------- --------- ---------
Net earnings (loss)....................... $ (4,010) $ 806 $ 1,032 $ 2,727 $ 289 $ 957
========== ========= ========= ========= ========= =========
Net earnings (loss) per common and
common equivalent share.............. $ (1.11) $ 0.21 $ 0.23 $ 0.43 $ 0.05 $ 0.15
========== ========= ========= ========= ========= =========
Number of weighted average shares
outstanding(g)....................... 3,616,924 3,853,502 4,513,683 6,373,104 6,336,783 6,513,683
OTHER DATA:
Net sales growth (decrease)(h)............ 0.1 % (6.9)% 15.9% 15.9%
Gross profit margin....................... 37.4 % 39.8 % 28.8% 29.1% 30.1% 28.8%
Operating profit (loss) margin............ (9.9)% 3.6 % 8.0% 7.2% 5.6% 8.0%
Net earnings (loss) margin................ (9.8)% 2.1 % 3.3% 2.4% 1.1% 3.0%
EBITDA(i)................................. $ (280) $ 3,647 $ 4,371 $ 13,900 $ 3,013 $ 4,371
<CAPTION>
AS OF MARCH 29, 1997
------------------------
ACTUAL AS ADJUSTED(b)
--------- -------------
BALANCE SHEET DATA: (dollars in thousands)
<S> <C> <C>
Working capital(j)........................................... $ 11,201 $ 11,201
Property, plant and equipment, net........................... 23,880 23,880
Intangible assets, net....................................... 28,060 28,060
Total assets................................................. 92,131 92,131
Total debt, including capital lease obligations.............. 53,951 35,751
Total stockholders' equity................................... 15,583 33,783
</TABLE>
(footnotes on following page)
7
<PAGE> 9
The following tables set forth the historical financial data of Selfix and
Tamor. This data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
historical financial statements of the Company (formerly Selfix) and Tamor and
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28,
1992 1993 1994 1995 1996
--------- ---------- --------- ---------- ---------
SELFIX (dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 35,209 $ 39,711 $ 40,985 $ 41,039 $ 38,200
Cost of goods sold.............. 22,297 22,504 25,587 25,678 22,992
--------- ---------- --------- ---------- ---------
Gross profit................. 12,912 17,207 15,398 15,361 15,208
Operating expenses.............. 13,501 14,214 18,185 17,385 13,843
Restructuring charges(k)........ --- --- 1,701 2,051 ---
--------- ---------- --------- ---------- ---------
Operating profit (loss)...... $ (589) $ 2,993 $ (4,488) $ (4,075) $ 1,365
========= ========== ========= ========== =========
OTHER DATA:
Net sales growth (decrease)(h)(m) (4.9)% 12.8% 3.2 % 0.1 % (6.9)%
Gross profit margin............. 36.7 % 43.3% 37.6 % 37.4 % 39.8 %
Operating profit (loss) margin.. (1.7)% 7.5% (11.0)% (9.9)% 3.6 %
EBITDA(i)....................... $ 2,599 $ 5,825 $ (659) $ (280) $ 3,647
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
--------- ------------ ---------
TAMOR(l) (dollars in thousands)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 53,806 $ 60,301 $ 75,714
Cost of goods sold................................... 43,235 50,194 57,818
--------- ------------ ---------
Gross profit..................................... 10,571 10,107 17,896
Operating expenses................................... 8,426 8,839 13,524
--------- ------------ ---------
Operating profit................................. $ 2,145 $ 1,268 $ 4,372
========= ============ =========
OTHER DATA:
Net sales growth(m).................................. 12.1% 25.6%
Gross profit margin.................................. 19.6% 16.8% 23.6%
Operating profit margin.............................. 4.0% 2.1% 5.8%
EBITDA(i)............................................ $ 4,576 $ 3,926 $ 7,767
</TABLE>
- -------------------
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) The pro forma (as adjusted) condensed combined financial data gives
effect to the Tamor Acquisition, the Offering and the application of the
estimated net proceeds therefrom and the other transactions referred to
herein, as if each of the transactions had occurred on December 31, 1995.
See "Unaudited Pro Forma Condensed Combined Financial Statements."
(b) The as adjusted condensed combined financial data for the thirteen weeks
ended March 29, 1997, gives effect to the Offering and the application of
the estimated net proceeds therefrom, as if the Offering had occurred on
December 29, 1996. Pursuant to an agreement dated October 29, 1996, the
Company, as of January 1, 1997, took operating and financial control of
Tamor, assumed substantially all of the liabilities of Tamor and retained
substantially all of the earnings from Tamor's operations. See "Unaudited
Pro Forma Condensed Combined Financial Statements."
(c) The pro forma operating expenses reflect: (i) additional amortization
expense resulting from the recording of goodwill with the Tamor
Acquisition and (ii) net estimated cost savings as a result of the Tamor
Acquisition, including a net reduction in discretionary distributions paid
to and on the behalf of related parties of Tamor and (iii) additional
costs associated with the Company's 401(k) and profit sharing plans and
certain other fees.
(d) The 1995 restructuring charge is a result of the Company's decision to
discontinue certain unprofitable product lines, close the Company's
Canadian facility and move the Canadian operations to the Chicago
manufacturing and distribution facilities.
8
<PAGE> 10
(e) The pro forma (as adjusted) interest expense for the year ended December
28, 1996 and the thirteen weeks ended March 30, 1996 reflects the
estimated net increase in interest expense as if the Tamor Acquisition,
the Offering and the application of the estimated net proceeds therefrom
and the other transactions referred to herein had occurred on December 31,
1995.
The interest expense (as adjusted) for the thirteen weeks ended March 29,
1997 reflects the estimated decrease in interest expense as if the Offering
and the application of the estimated net proceeds therefrom had occurred on
December 29, 1996.
(f) Selfix's fiscal 1995 and fiscal 1996 historical income tax (expense)
benefit differed significantly from the statutory rates as a result of
foreign loss carryforwards and changes to the valuation allowance. See
Note 10 of the Notes to Financial Statements of the Company for a further
description.
The pro forma (as adjusted) and the thirteen weeks ended March 29, 1997 (as
adjusted) income tax (expense) benefit assumes all entities are taxed as C
corporations and gives no benefit to the net operating loss carryforwards.
These income tax expense amounts are computed by applying the estimated
combined statutory rate of 40%.
(g) The pro forma (as adjusted) and the thirteen weeks ended March 29, 1997
(as adjusted) number of weighted average shares assumes the shares issued
as a result of the Tamor Acquisition (480,000 shares), the Warrant and the
Offering (2,000,000 shares) were outstanding as of the first day of the
applicable periods presented.
(h) The reduction in Selfix sales in fiscal 1996 was a result of decisions
made in fiscal 1995 to discontinue the sale of certain under-performing
housewares products, which resulted in a significant decrease in stock
keeping units (SKUs).
(i) EBITDA is defined as the sum of (i) earnings (loss) before income taxes,
(ii) interest expense, (iii) interest income, and (iv) depreciation and
amortization. EBITDA is not presented as an alternative measure of
operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), should not be
considered by the reader as an alternative to net income as an indicator
of the Company's operating results and is not indicative of cash flow
available to fund all cash flow needs.
(j) Working capital is computed as current assets less current liabilities.
(k) The fiscal 1994 restructuring charge relates to cost of severance and
termination benefits paid or accrued for a change in the level and
composition of employees, termination of existing employee arrangements,
inventory adjustments and fixed asset writedowns related to product lines
to be discontinued. See note (d) above regarding the 1995 restructuring
charge.
(l) Financial statements for combined Tamor Corporation and Housewares Sales,
Inc., its affiliated product distribution company, were not prepared for
periods prior to December 31, 1994.
(m) Net sales growth (decrease) represents the percentage increase (decrease)
in net sales from the corresponding period, presented on a comparable
basis, in the prior year.
(n) Pursuant to an agreement dated October 29, 1996, the Company, as of
January 1, 1997, took operating and financial control of Tamor, assumed
substantially all of the liabilities of Tamor and retained substantially
all of the earnings from Tamor's operations. Actual results are combined
since the date of effective control although the purchase transaction did
not close until February 28, 1997.
9
<PAGE> 11
RISK FACTORS
Each prospective investor should carefully consider, in addition to the
other information contained in this Prospectus, the following information in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's growth strategy includes the possible acquisition of other
manufacturers of plastic houseware products and manufacturers of other home
products. The Company's acquisition strategy is primarily based on identifying
and acquiring selected companies either with product lines within the Company's
markets or that will enable the Company to enter new product categories more
rapidly and cost-effectively. The Company's ability to accomplish its strategy
will depend upon a number of factors including, among other things, the
Company's ability to identify acceptable acquisition candidates, to consummate
such acquisitions on terms favorable to the Company, to retain, hire and train
professional management and sale personnel at each such acquired business and
to promptly and profitably integrate the acquired operations into the Company's
operations. See "Business--Business Strategy." Acquiring additional
businesses may require additional capital and the consent of the Company's
lenders and may have a significant impact on the Company's financial position
and results of operations. Any such acquisitions may involve the issuance of
additional debt or the issuance of one or more classes or series of the
Company's equity securities, which could have a dilutive effect on the then
outstanding Common Stock of the Company. Acquisitions could result in
substantial amortization charges to the Company from the accumulation of
goodwill and other intangible assets which could reduce reported earnings.
There can be no assurance that the Company will be successful in accomplishing
its acquisition strategy or that any acquired operations will be profitable or
will be successfully integrated into the Company or that any such future
acquisitions will not materially and adversely affect the Company's financial
condition or results of operations. Opportunities for growth through
acquisitions, future operating results and the success of acquisitions may be
subject to the effects of, and changes in, U.S. and foreign trade and monetary
policies, laws and regulations, political and economic developments, inflation
rates, and the effect of taxes and operating conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity."
RISKS ASSOCIATED WITH THE TAMOR ACQUISITION
In furtherance of the Company's growth strategy, the Company recently
completed the Tamor Acquisition. See "Business--The Tamor Acquisition." The
Company's future operating results will depend upon the continued profitably of
Tamor's operations. However, there is no assurance that Tamor will continue to
operate profitably. The failure of Tamor to operate profitably could have a
material adverse effect on the Company's financial position and results of
operations. The growth of Tamor's operation will be dependent upon the
Company's ability to make significant capital expenditures to improve and
expand Tamor's existing manufacturing equipment and facilities. See
"Business--Facilities." There is no assurance that in the future the Company
will have adequate financing on favorable terms to make such capital
expenditures.
As a result of the Tamor Acquisition, the Company has greater exposure to
the risks of unfavorable changes in the costs of plastic resin, the primary raw
material for the Company's products. Tamor uses significantly more plastic
resin than the Company's other subsidiaries and operates at lower margins than
the Company's other subsidiaries. Fluctuations in resin costs could, therefore
have a material adverse effect on Tamor's results of operations which would
have a material adverse effect on the Company's results of operations. See
"Risk Factors--Increases in Cost of Plastic Resin." In addition,
the Company is highly leveraged as a result of the Tamor Acquisition and will
be more sensitive to fluctuations in interest rates. See "Risk
Factors--Leverage; Restrictive Covenants."
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<PAGE> 12
ABILITY TO MANAGE GROWTH AND EXPANSION
As a result of the Tamor Acquisition, the Company has experienced
significant growth and will seek to continue to expand its operations through
acquisitions. The management of the Company's growth, if any, will require
continued expansion and refinement of the Company's control systems and a
significant increase in the Company's development, manufacturing, quality
control, marketing, logistics and service capabilities, all of which could
place a significant strain on the Company's resources. There is no assurance
that the Company will adequately anticipate all of the demands that its growth,
if any, will impose on such control systems. If the Company's management is
unable to manage growth effectively, then the quality of the Company's
products, its ability to retain and hire key personnel and its financial
condition and results of operations could be materially and adversely affected.
Failure to integrate new personnel on a timely basis could also have an
adverse effect on the Company.
INCREASES IN COST OF PLASTIC RESIN
The primary raw materials used in plastic injection molding are various
plastic resins - primarily polypropylene and its derivatives. The plastic
resins used by the Company are produced from petrochemical intermediates which
are, in turn, derived from natural gas liquids. Plastic resin prices may
fluctuate as a result of natural gas and crude oil prices and capacity, supply
and demand for resin and petrochemical intermediates from which they are
produced. The automotive and housing industries are significant users of
plastic resin. As a result, significant changes in the demand for automobiles
or housing starts may cause significant fluctuations in the price of plastic
resin. See "Business--Manufacturing and Raw Materials."
The Company has no long-term supply contracts for the purchase of resin,
although the Company generally maintains a 60-day supply of resin. For fiscal
1996, the cost of resin accounted for approximately 24% of the Company's total
cost of goods sold on a pro forma basis. In the past, the Company has had
limited ability to increase product pricing in response to plastic resin price
increases. Any future increases in the price of plastic resins could have a
material adverse effect on the Company's financial position and results of
operation. The Company generally attempts to reduce its resin costs by
purchasing off-prime grades of material primarily through brokers in secondary
markets enabling the Company to buy resin at a discount. There is no assurance
that the Company will continue to have available necessary quantities of resin
at reasonable prices. See "Business--Manufacturing and Raw Materials."
RECENT LOSSES; SELFIX RESTRUCTURING
The Company has incurred net losses in three of the last five fiscal
years. The Company's net losses for fiscal years 1992, 1994 and 1995 were $0.8
million, $6.0 million and $4.0 million, respectively. Beginning in 1994,
management of the Company restructured the Company's operations to improve its
profitability by, among other things, eliminating unprofitable product lines,
reducing overhead, upgrading financial controls and increasing international
distribution capabilities. See "Business--Company Background." After
implementing the restructuring, the Company had operating profits of $1.4
million in fiscal 1996.
Although the Company has restructured its Selfix operations and returned
to profitability in 1996, there is no assurance that the Company will be able
to maintain profitability. The Company's ability to sustain profitability is
dependent upon a number of factors, including the continued successful
implementation of cost control measures, the successful integration of Tamor's
operations into the Company's operations, maintenance of the Company's existing
customer relationships at current levels of
sales volume and various other factors beyond the Company's control, such as
plastic resin price increases and the effect of general economic conditions.
The failure of the Company to sustain profitability could hinder its ability to
service its debt, to make capital expenditures or to take advantage of business
opportunities, any one of which could have a material adverse effect on the
Company's financial condition and results of operations.
11
<PAGE> 13
LEVERAGE; RESTRICTIVE COVENANTS
The Company incurred substantial indebtedness as a result of the Tamor
Acquisition and will remain highly leveraged after the Offering. See
"Business", "Description of the Credit Agreement and Other Debt" and
"Capitalization." At March 29, 1997, the Company had approximately $54.0
million of total consolidated indebtedness. Subject to restrictions in its
debt instruments, the Company may incur significant amounts of additional
indebtedness in the future, particularly in connection with acquisitions.
The Company's high degree of leverage could have important consequences to
investors, including the following: (i) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired in the future;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) certain
of the Company's borrowings are and will continue to be at variable rates of
interest, including borrowings under the Credit Agreement, which will expose
the Company to interest rate fluctuations and consequently an increase in
interest expense which could have a material adverse impact on the Company's
results of operations; (iv) the Company may be substantially more leveraged
than certain of its competitors, which may place the Company at a competitive
disadvantage; and (v) the Company's substantial degree of leverage may limit
its flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business. See "Description of the Credit
Agreement and Other Debt."
If the Company is unable to generate sufficient cash flow from operations
in the future to service its indebtedness, it may be required to refinance all
or a portion of its existing indebtedness or to obtain additional financing.
There can be no assurance that any such refinancing would be possible or that
any additional financing could be obtained. The inability to obtain additional
financing could have a material adverse effect on the Company.
The Company's instruments and agreements governing its indebtedness
contain numerous covenants, including financial and operating covenants,
certain of which are quite restrictive. In particular, certain financial
covenants under the Credit Agreement with GECC become more restrictive over
time in anticipation of scheduled debt amortization and improved operating
results. For a description of such covenants, see "Description of the Credit
Agreement and Other Debt." The ability of the Company to comply with such
provisions will depend on its future performance, which will be subject to,
among other things, then prevailing economic, financial and business
conditions. The failure of the Company to comply with such provisions could
result in a default or an event of default under the Credit Agreement which
would have a material adverse effect on the Company's financial position and
results of operations.
The failure to comply with the obligations contained in the Credit
Agreement, if not cured, or waived, could permit acceleration of the
indebtedness under the Credit Agreement and acceleration of indebtedness under
other instruments that contain cross-acceleration or cross-default provisions.
If the Company were obligated to repay all or a significant portion of its
indebtedness, there can be no assurance that the Company would have sufficient
cash to do so or that the Company could successfully refinance such
indebtedness. In addition, the obligations of the Company and its subsidiaries
under the Credit Agreement are secured by substantially all of their respective
assets. If an event of default occurs under the Credit Agreement, the lenders
would be entitled to exercise the remedies available to a secured lender under
applicable law, including foreclosure. See "Description of the Credit
Agreement and Other Debt."
DEPENDENCE ON LARGE SALES VOLUME
The Company derives substantially all of its revenues from products which
are sold at relatively low prices. These products must be sold in relatively
large volumes in order to maintain profitability at current or higher levels
and to achieve the manufacturing and logistical efficiencies that are necessary
to
12
<PAGE> 14
enable the Company to price its products competitively and to maintain and
expand its customer base. There can be no assurance that the Company can
continue to sell its products in current or increased volumes and its failure
to do so could have a material adverse effect on the Company's financial
position and results of operations.
CUSTOMER CONCENTRATION/CONSOLIDATING CUSTOMER BASE
During fiscal 1996, on a pro forma basis, Wal-Mart/Sam's Club, Kmart and
Target accounted for approximately 21%, 8%, and 5%, respectively, of the
Company's net sales. During fiscal 1996, no other customer represented 5% or
more of the net sales ($5.7 million on a pro forma basis) of the Company.
Although the Company believes that its relationships with Wal-Mart, Kmart,
Target and its other large customers are good, it does not have long-term
purchase agreements or other contractual assurances as to future sales to these
customers. If any significant customer substantially reduces its level of
purchases from the Company, the Company's financial position and results of
operations would be adversely affected. Moreover, continued consolidation
within the retail industry may result in an increasingly concentrated customer
base. To the extent such consolidation continues to occur, the Company's
revenues and profitability may be increasingly sensitive to a significant
deterioration in the financial condition of or other adverse developments in
its relationships with one or more customers. From time to time, the Company
has experienced credit losses due to customers seeking protection under
bankruptcy or similar laws. Although such credit losses have not had a
material adverse effect on the Company to date, there can be no assurance that
future credit losses will not have a material adverse effect on the Company.
See "Business--Marketing and Distribution."
RETAIL INDUSTRY; ECONOMIC CONDITIONS
The Company sells its products through retailers, including mass
merchandisers, supermarkets, hardware stores, specialty stores and other retail
channels. See "Business--Marketing and Distribution." Retail sales depend, in
part, on general economic conditions. A significant decline in such conditions
could have a negative impact on sales by retailers of products sold by the
Company and consequently could have an adverse effect on the Company's sales,
profitability and cash flows. Retail environments which are poor or perceived
to be poor, whether due to economic or other conditions, may lead houseware
manufacturers and marketers, including the Company, to increase their
discounting and promotional activities. Such activities could have an adverse
effect on the Company's profit margins and, consequently, its results of
operations. The Company may also not be able to fully offset the impact of
inflation through price increases due to the unfavorable retail environment.
RISKS ASSOCIATED WITH DEVELOPING NEW PRODUCTS
In order to remain competitive, the Company is developing and introducing
new products and intends to continue to develop and introduce other new
products in the future. The development, production and marketing of new
products require significant investment of financial resources. Despite such
investment, there is no assurance that the Company will achieve market
acceptance of any new products. The Company's future growth and profitability
will in part be dependent on achieving market acceptance of its new products
and the Company's ability to market such products. Although management intends
to introduce and develop new products which are complementary to the Company's
existing products, the Company may encounter production and marketing obstacles
which would have a material adverse effect on sales of these new products and
the Company's results of operations. See "Business--Product and Research
Development." See "Business--Business Strategy."
COMPETITION
The market for the Company's products is highly competitive. The Company
competes with a significant number of smaller privately held companies and a
few public companies, some of which have greater name/brand recognition, larger
customer bases and/or significantly greater financial resources than the
Company, such as Rubbermaid Inc. There are no substantial regulatory or other
barriers to
13
<PAGE> 15
entry of new competitors into the Company's industries. A supplier
that is able to maintain, or increase, the amount of retail space allocated to
its product may gain a competitive advantage in that product market. There can
be no assurance that the Company will be able to compete successfully against
current and future sources of competition or that the current and future
competitive pressures faced by the Company will not adversely affect its
profitability or financial performance. See "Business--Competition."
A number of the Company's products are similar in design and/or function
to competitor's products. There can be no assurance that third parties will
not assert infringement or misappropriation claims against the Company in the
future with respect to current or future products. Any such claims or
litigation, whether with or without merit, could be costly and could have a
material adverse effect on the Company's financial position and results of
operations. See "Business--Patents, Trademarks and Licenses" and "--Legal
Proceedings."
ENVIRONMENTAL COMPLIANCE
The operations of the Company are subject to environmental laws and
regulations that impose limitations on the discharge of pollutants into the air
and water and establish standards for the treatment, storage and disposal of
solid and hazardous wastes. Although the Company has not historically been
required to make significant capital expenditures for environmental compliance,
there can be no assurance that changes in environmental requirements or the
technological processes used by the Company will not result in the Company
incurring significant costs in the future to comply with environmental
requirements. See "Business--Environmental Matters."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in large part, upon the efforts and
abilities of its executive officers and key employees, particularly James R.
Tennant, the Company's Chief Executive Officer, and Leonard J. Tocci, the Chief
Executive Officer of Tamor. The loss of the services of Mr. Tennant or Mr.
Tocci or one or more of the Company's other key employees could have a material
adverse effect on the Company's business. Mr. Tennant and Mr. Tocci have
entered into employment agreements with the Company, containing certain
noncompetition provisions. See "Management--Employment Agreements." The
Company does not carry key man life insurance on Mr. Tennant or on Mr. Tocci.
See "Management."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Company's board of directors (the
"BOARD OF DIRECTORS"). See "Management--Anti-Takeover Provisions."
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue such preferred stock with dividend, liquidation, conversion, voting or
other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. Issuance of "blank check" preferred stock
could be utilized under certain circumstances as a method of discouraging,
delaying or preventing a
change in control of the Company. The issuance of such preferred stock could
materially and adversely affect the voting powers and other rights of the
holders of Common Stock and could be used to discourage an unsolicited
acquisition proposal. See "Description of Company's Securities--Preferred
Stock."
The Board of Directors has preliminarily approved the implementation of a
stockholders rights plan (the "RIGHTS PLAN"). See "Management--Shareholders
Rights Plan." The Rights Plan may have the effect of delaying, discouraging,
inhibiting, preventing or rendering more difficult an attempt to obtain control
of the Company by means of a tender offer, business combination, proxy contest
or otherwise. The issuance of rights to purchase preferred stock under the
Rights Plan could make the acquisition of a
14
<PAGE> 16
substantial block of the Company's Common Stock more difficult or limit
the price that investors might be willing to pay in the future for shares of
the Company's Common Stock. See "Management--Stockholder Rights Plan."
In addition, certain provisions of Delaware law applicable to the Company
could delay or make more difficult a merger, tender offer or proxy contest
involving the Company. See "Management--Anti-Takeover Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of substantial amounts of Common Stock
in the public market subsequent to this Offering may adversely affect the
prevailing market price of Common Stock and may impair the Company's ability to
raise additional capital by the sale of its equity securities. The Company
will have 6,322,922 shares of Common Stock outstanding immediately following
the Offering (assuming the Underwriters do not exercise the over-allotment
option), of which 1,057,931 shares will be held by executive officers and
directors of the Company. In addition, as of the date of this Prospectus, a
total of 1,356,998 shares of Common Stock are reserved for issuance under the
Stock Option Plans and 183,690 shares are reserved for issuance under the Stock
Purchase Plan. In connection with the Subordinated Note, the Company, on
February 27, 1997, issued the Warrant to GECC to purchase 79,204 shares of
Common Stock. The Company, its directors, executive officers and certain
shareholders, including the Selling Shareholders, have agreed that for a period
of 180 days from the date of this Prospectus they will not, without the prior
written consent of EVEREN Securities, Inc., directly or indirectly offer for
sale, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for shares of
Common Stock, subject to certain exceptions. See "Description of Company's
Securities," "Shares Eligible For Future Sale" and "Underwriting."
LIMITED HISTORICAL TRADING VOLUME IN THE COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICE
While the Common Stock has been publicly traded since 1988 and is listed
on The Nasdaq National Market under the symbol "HPII", the Common Stock has
historically experienced low trading volume due, in part, to substantial
holdings by the estates of the founders of the Company, and certain trusts of
which the adult children of the founders are beneficiaries. Quarterly and
annual operating results of the Company, variations between such results and
the results expected by investors and analysts, changes in general economic
conditions, loss of significant customers, fluctuations in the price of plastic
resin or developments in the retail housewares industry could cause the market
price of the Common Stock to fluctuate substantially. In addition, the stock
market from time to time experiences extreme price and volume fluctuations that
have particularly affected the market price for many companies and that often
have been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the
Company's Common Stock. See "Price Range of Common Stock."
LABOR RELATIONS
The Company employed approximately 499 people at March 29, 1997 (including
persons employed by Tamor) in the United States. Approximately 92 of such
people are hourly employees at its Leominster, Massachusetts facility, covered
by a collective bargaining agreement which expires March, 1999; 151 are hourly
employees at its Chicago, Illinois facilities, covered by a collective
bargaining agreement which expires January, 1998. There can be no assurance
that the Company will successfully renegotiate the labor contracts when they
expire without work stoppages. However, the Company does not anticipate having
problems renegotiating any contracts that would materially affect its results
of operations. See "Business--Employees."
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<PAGE> 17
Although the Company believes its relationship with its employees is good,
there can be no assurance that the Company will not experience significant work
stoppages in the future or that its relations with employees will continue to
be satisfactory.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock are estimated to be approximately $18.2 million ($23.1 million if the
Underwriters' over-allotment option is exercised in full) after deducting the
estimated underwriting discounts and offering expenses. The net proceeds from
the Offering will be used (i) to repay $11.2 million of the outstanding $40.0
million principal amount of the Term Loans, and (ii) to repay in full the $7.0
million Subordinated Note. The Company used the proceeds of the portion of the
Term Loans being repaid and the proceeds of the Subordinated Note and Warrant
to fund a portion of the purchase price of Tamor. The Company will not receive
any of the proceeds from the sale of the shares of Common Stock being sold by
the Selling Shareholders.
After completion of this Offering, the Company may borrow under the
Revolving Credit Facility and incur other debt as necessary from time to time
for general corporate purposes and to fund acquisitions; however, no general
corporate purpose has been specifically identified by the Company at this time
and the Company has no arrangements, agreements or understandings concerning
specific acquisitions.
The Subordinated Note matures in February, 2005 (subject to earlier
maturity in certain circumstances) and Term Loans A and B have a final maturity
in August, 2002 and August, 2004, respectively. As of March 29, 1997, the
Subordinated Note bears interest at the rate of 13.5% per annum and Term Loans
A and B bear interest at the rate of 10.00% and 10.50%, respectively, per
annum. See "Description of the Credit Agreement and Other Debt."
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<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "HPII." The following table sets forth for the periods indicated
the high and low bid quotations for the Common Stock as reported on The Nasdaq
National Market. The prices reported do not include retail mark-up, mark-down
or commissions and may not reflect actual transactions. See "Risk
Factors--Limited Historical Trading Volume in Common Stock; Possible Volatility
of Stock Price."
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fifty-two Weeks Ended December 30,1995:
First Quarter............................. $5.25 $ 4.00
Second Quarter............................ $5.25 $ 4.25
Third Quarter............................. $5.75 $ 4.25
Fourth Quarter............................ $5.875 $ 4.75
Fifty-two Weeks Ended December 28,1996:
First Quarter............................. $5.625 $ 4.125
Second Quarter............................ $5.125 $ 4.125
Third Quarter............................. $5.00 $ 4.50
Fourth Quarter............................ $8.625 $ 4.25
Fifty-two Weeks Ended December 27,1997:
First Quarter............................. $12.75 $ 8.00
Second Quarter (through April 21, 1997)... $10.50 $ 9.50
</TABLE>
On April 21, 1997, the last reported sale price of the Common Stock on The
Nasdaq National Market was $10.265.
As of March 26, 1997, there were 156 holders of record and the Company
believes that the total number of beneficial owners of the Company's Common
Stock is in excess of 590.
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<PAGE> 20
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization
as of March 29, 1997 (i) on a historical basis and (ii) on an as adjusted
basis, giving effect to the Offering (assuming net proceeds of $18.2 million
and assuming the Underwriters do not exercise the over-allotment option) and
the application of the net proceeds therefrom. This data should be read in
conjunction with the financial statements of the Company included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 29, 1997
-------------------------------------
ACTUAL AS ADJUSTED
------------------- ----------------
(dollars in thousands)
<S> <C> <C>
Total debt, including capital lease obligations(a).. $ 53,951 $35,751
Stockholders' equity(b):
Preferred Stock - authorized, 500,000 shares, $0.01
par value; none issued.............................. -- --
Common Stock - authorized, 15,000,000 shares, $0.01
par value: 4,322,922 shares issued and outstanding;
6,322,922, shares issued and outstanding, as
adjusted............................................ 44 64
Additional paid-in capital.......................... 13,669 31,849
Retained earnings................................... 2,328 2,328
Currency translation adjustments.................... (194) (194)
Common Stock held in treasury -- at cost
(58,762 shares)..................................... (264) (264)
Total shareholders' equity......................... 15,583 33,783
------- -------
Total capitalization.............................. $69,534 $69,534
======= =======
</TABLE>
(a) Includes current maturities of long-term debt and long-term capital lease
obligations. See Notes 8 and 15 of Notes to Financial Statements of the
Company for a description of the Company's long-term obligations.
(b) Excludes 1,356,998 shares of Common Stock reserved for issuance under the
Stock Option Plans. There are currently 965,017 options outstanding under
the Stock Option Plans, each of which entitles the holder thereof to
purchase one share of Common Stock. See "Management--Stock Option Plans."
The weighted average exercise price for all of the options currently
outstanding under the Stock Option Plans is $6.79 per share. Also
excludes 183,690 shares of Common Stock reserved for issuance under the
Stock Purchase Plan and 79,204 shares reserved for issuance pursuant to
the Warrant issued in connection with the financing of the Tamor
Acquisition.
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<PAGE> 21
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock.
The payment of dividends by the Company is currently not permitted under the
Credit Agreement. The Company anticipates that all future earnings, if any,
will be retained for use in the Company's business and it does not anticipate
paying any cash dividends. Payment of future dividends, if any, will be as
permitted under the Credit Agreement and at the discretion of the Board of
Directors after taking into account various factors, including the Company's
financial condition, operating results, current and anticipated cash needs and
plans for expansion. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Resources and Liquidity," "Risk
Factors--Leverage; Restrictive Covenants," and "Description of the Credit
Agreement and Other Debt."
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 28, 1996 gives effect to the Tamor Acquisition, the Offering and the
application of the estimated net proceeds therefrom as if each had occurred on
December 28, 1996. The Unaudited Pro Forma Condensed Balance Sheet as of March
29, 1997, gives effect to the Offering and the application of the net proceeds
as if the Offering had occurred on March 29, 1997. The Unaudited Pro Forma
Condensed Combined Statement of Operations for fiscal 1996 gives effect to the
Tamor Acquisition, the Offering and the application of the estimated net
proceeds therefrom, as if each had occurred on December 31, 1995. The
Unaudited Pro Forma Condensed Combined Statement of Operations for the thirteen
weeks ended March 29, 1997, gives effect to the Offering and the application of
the estimated net proceeds therefrom, as if the Offering had occurred on
December 29, 1996.
The Unaudited Pro Forma Condensed Combined Financial Statements should be
read in conjunction with the "Use of Proceeds," "Capitalization," "Selected
Historical Financial Data of Selfix," "Selected Historical Financial Data of
Tamor" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus. The pro forma
data do not purport to represent what the Company's actual results of
operations or financial position would have been had such transactions in fact
occurred on such dates. The pro forma statement of operations also does not
purport to project the results of operations of the Company for the current
year or for any other period.
21
<PAGE> 23
HOME PRODUCTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
SELFIX TAMOR PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ACQUISITION OFFERING
DECEMBER 28, 1996 DECEMBER 31, 1996 ADJUSTMENTS ADJUSTMENT
ASSETS ----------------- ------------------ ----------- ----------
----- (dollars in thousands)
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 2,879 $ 1,188 $ 3,720 (c) $ ---
(920) (f) ---
Accounts receivable, net...................... 6,594 8,860 --- ---
Inventories, net.............................. 4,391 6,427 (300) (h) ---
Prepaid expenses and other current assets..... 100 354 445 (s) ---
(48) (f)
--------- ----------- --------- ---------
Total current assets....................... 13,964 16,829 2,897 ---
Property, plant and equipment, net.............. 7,934 16,905 (37) (f) ---
Goodwill and other intangible assets, net....... 2,527 --- 25,676 (a) ---
Deferred financing fees......................... --- --- 3,328 (c) ---
Cash surrender value of life insurance and other 280 362 --- ---
--------- ----------- -------- ---------
Total assets.................................... $ 24,705 $ 34,096 $ 31,864 $ ---
========= =========== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued against future deposits........... $ --- $ 4,377 $ --- $ ---
Accounts payable - trade........................ 1,956 4,202 --- ---
Accounts payable - other........................ --- 3,824 --- ---
Accrued liabilities............................. 4,018 1,730 (60) (f) ---
2,487 (i) ---
Current maturities of long-term debt............ 838 1,099 1,101 (e) ---
Current maturities of long-term capital
lease obligations............................ --------- 634 (621) (e) ---
(13) (f) ---
-------- ---------
Total current liabilities..................... 6,812 15,866 2,894 ---
Total long-term debt.............................. 6,184 6,032 38,368 (e) (18,200)
Long-term capital lease obligations............... 4,016 (3,992) (e) ---
(24) (f) ---
--------- ----------- -------- ---------
12,996 25,914 37,246 (18,200)
Stockholders' equity:
Common Stock.................................... 39 6 (6) (g) 20
5 (b) ---
Additional paid-in capital...................... 10,839 294 (294) (g) 18,180
2,395 (b) ---
400 (c) ---
Retained earnings............................... 1,296 9,364 (908) (f) ---
(8,456) (g) ---
Currency translation adjustments................ (201) --- --- ---
Common stock held in treasury - at cost......... (264) (1,482) 1,482 (g) ---
--------- ----------- -------- ---------
Total stockholders' equity...................... 11,709 8,182 (5,382) 18,200
--------- ----------- -------- ---------
Total liabilities and stockholders' equity...... $ 24,705 $ 34,096 $ 31,864 $ ---
========= =========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
COMPANY COMPANY
TOTAL COMPANY PRO FORMA TOTAL
DECEMBER HISTORICAL OFFERING MARCH 29,
28, 1996 MARCH 29, 1997 ADJUSTMENT 1997
ASSETS -------- -------------- ---------- ---------
------ (dollars in thousands)
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 6,867 $ 6,709 $ --- $ 6,709
---
Accounts receivable, net...................... 15,454 17,414 --- 17,414
Inventories, net.............................. 10,518 11,602 --- 11,602
Prepaid expenses and other current assets..... 851 883 --- 883
Total current assets........................ 33,690 36,608 --- 36,608
Property, plant and equipment, net.............. 24,802 23,880 --- 23,880
Goodwill and other intangible assets, net....... 28,203 28,060 --- 28,060
Deferred financing fees......................... 3,328 3,208 --- 3,208
Cash surrender value of life insurance and other 642 375 --- 375
--------- --------- ---------- ---------
Total assets.................................... $ 90,665 $ 92,131 $ --- $ 92,131
========= ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued against future deposits......... $ 4,377 $ --- $ --- $ ---
Accounts payable - trade...................... 6,158 14,048 --- 14,048
Accounts payable - other...................... 3,824 --- --- ---
Accrued liabilities........................... 8,175 8,549 --- 8,549
---
Current maturities of long-term debt............ 3,038 2,810 --- 2,810
Current maturities of long-term capital
lease obligations......................... --- --- --- ---
--- ---
--------- --------- ---------- ---------
Total current liabilities.................... 25,572 25,407 --- 25,407
Total long-term debt............................ 32,384 51,141 (18,200) (d) 32,941
Long-term capital lease obligations............. --- --- --- ---
--------- --------- ---------- ---------
57,956 76,548 (18,200) 58,348
Stockholders' equity:
Common Stock.................................. 64 44 20 (d) 64
---
Additional paid-in capital.................... 31,814 13,669 18,180 (d) 31,849
---
---
Retained earnings............................. 1,296 2,328 --- 2,328
---
Currency translation adjustments.............. (201) (194) --- (194)
Common stock held in treasury - at cost....... (264) (264) --- (264)
--------- --------- ---------- ---------
Total stockholders' equity.................... 32,709 15,583 18,200 33,783
--------- --------- ---------- ---------
Total liabilities and stockholders' equity...... $ 90,665 $ 92,131 $ --- $ 92,131
</TABLE>
22
<PAGE> 24
HOME PRODUCTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SELFIX TAMOR PRO
HISTORICAL HISTORICAL FORMA
DECEMBER 28, 1996 DECEMBER 31, 1996 ADJUSTMENTS TOTAL
----------------- ----------------- ----------- ----------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales........................... $ 38,200 $ 75,714 $ --- $ 113,914
Cost of goods sold.................. 22,992 57,818 --- 80,810
------ ------ ------ -------
Gross profit..................... 15,208 17,896 --- 33,104
Operating expenses.................. 13,843 13,524 642 (j) 24,864
(3,145) (k)
------
Operating profit................. 1,365 4,372 2,503 8,240
Interest expense.................... (707) (1,191) (2,645) (l) (4,543)
Other income - net.................. 148 494 205 (m) 847
------ ------ ------ -------
Earnings before income taxes..... 806 3,675 63 4,544
Income tax expense.................. --- (160) (1,657) (n) (1,817)
------ ------ ------ -------
Net earnings (loss)................. $ 806 $ 3,515 $ (1,594) $ 2,727
====== ====== ====== =======
Net earnings per common and
common equivalent share.......... $ 0.21 --- --- $ 0.43
========= ========= ========= ==========
Number of weighted average common
and common equivalent shares
outstanding...................... 3,853,502 --- 2,519,602 (o) 6,373,104
========= ========= ========= ==========
<CAPTION>
THIRTEEN WEEKS ENDED
MARCH 29, 1997
--------------------------------------------------------------
PRO
COMPANY FORMA
HISTORICAL ADJUSTMENTS TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
Net sales........................... $ 31,738 $ --- $ 31,738
Cost of goods sold.................. 22,610 --- 22,610
------ ---- ------
Gross profit..................... 9,128 ---- 9,128
Operating expenses.................. 6,602 --- 6,602
------ ---- ---------
Operating profit................. 2,526 --- 2,526
Interest expense.................... (1,532) 446 (p) (1,086)
Other income - net.................. 155 --- 155
------ ---- ------
Earnings before income taxes..... 1,149 446 1,595
Income tax expense.................. (117) (521) (q) (638)
------ ----
Net earnings (loss)................. $ 1,032 $ (75) $ 957
====== ==== ======
Net earnings per common and
common equivalent share.......... $ 0.23 --- $ 0.15
========= ======= =========
Number of weighted average common
and common equivalent shares
outstanding...................... 4,513,683 2,000,000 (r) 6,513,683
========= ========= =========
</TABLE>
23
<PAGE> 25
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Reflects the Tamor Acquisition at a purchase price of $41.9
million, consisting of approximately $27.8 million in cash, $2.4
million of Common Stock (480,000 shares) and the repayment of $11.7
million of Tamor's long-term debt, including long-term capital lease
obligations. Pursuant to an agreement dated October 29, 1996, the
Company, as of January 1, 1997, took operating and financial control
of Tamor, assumed substantially all of the liabilities of Tamor and
retained substantially all of the earnings from Tamor's operations.
The Tamor Acquisition was accounted for as a purchase. The purchase
price will be allocated to the assets acquired and liabilities
assumed based upon their estimated fair values. Certain transaction
fees and expenses totaling $1.2 million that were incurred in
connection with the Tamor Acquisition are included in the excess of
cost over book value of net assets acquired (i.e., goodwill). The
preliminary pro forma calculation of the excess of the cost over the
book value of net assets acquired is $25.7 million.
(b) Reflects the issuance of 480,000 shares of the Company's
Common Stock at a value of $5.00 per share to Tamor stockholders as
partial consideration for the Tamor Acquisition.
(c) Reflects the cash flows in connection with the Tamor
Acquisition and the related financing (as shown in the table below)
through the receipt of (i) $20.0 million of proceeds from Term Loan
A, (ii) $20.0 million of proceeds from Term Loan B, and (iii) $7.0
million of proceeds from the Subordinated Note and Warrant issued to
acquire 79,204 shares of the Company's Common Stock. The Company
has the option to repurchase the Warrant at a price equal to $0.8
million. The Company also entered into a revolving credit facility
but did not utilize any of these available funds in connection with
the Tamor Acquisition.
<TABLE>
<CAPTION>
(in thousands)
-----------------
<S> <C> <C> <C>
Proceeds from Term Loan A............... $ 20,000
Proceeds from Term Loan B............... 20,000
Proceeds from Subordinated Note......... 6,600
Proceeds from the Warrant............... 400
Cash portion of Tamor purchase price.... (27,792)
Payment of transaction fees and expenses (3,744)
Repayment of Tamor obligations.......... (11,744)
-------
Change in cash......................... $ 3,720
=======
</TABLE>
Deferred financing fees related to the above financing are $3.3
million. These fees will be amortized over the average life of the
obligations. Debt discount created as a result of the issuance of
the Warrant is assumed to be amortized over a period of seven
months.
(d) Reflects $18.2 million estimated net proceeds from the
Offering (2,000,000 shares at $10.00 per share, net of related
commissions and fees). These proceeds are assumed to be used to
repay a portion of borrowings under the Term Loans, as well as the
entire Subordinated Note according to the terms outlined in the
Credit and Note Agreements as follows:
<TABLE>
<CAPTION>
(in thousands)
----------------
<S> <C>
Net proceeds from the Offering.. $ 18,200
Repayment of Subordinated Note.. (7,000)
Partial repayment of Term Loan A (5,600)
Partial repayment of Term Loan B (5,600)
------
Change in cash................. $ --
======
</TABLE>
(e) Reflects the adjustment to long-term debt and long-term capital
lease obligations, including current maturities, resulting from the
borrowings under the Term Loans and the Subordinated Note net of
repayment of the Tamor obligations. A total of $2.2 million of the
Term Loans are classified as current.
24
<PAGE> 26
(f) Reflects the Tamor assets and liabilities retained by the
seller.
(g) Reflects the elimination of the remaining Tamor stockholders'
equity.
(h) Reflects an increase to Tamor inventory reserves as a result
of the Tamor Acquisition.
(i) Reflects $0.3 million increase to promotional reserves and
accrued transaction fees and expenses incurred in connection with
the Tamor Acquisition.
(j) Reflects the additional amortization expense resulting from
the recording of goodwill associated with the Tamor Acquisition.
Goodwill is amortized over 40 years.
(k) Reflects the net estimated cost savings as a result of the
Tamor Acquisition as follows:
<TABLE>
<CAPTION>
(in thousands)
----------------
<S> <C>
Net reduction in discretionary distributions paid to
and on the behalf of related parties of Tamor....... $ (3,385)
Additional costs associated with the Company's 401(k)
and profit sharing plans and certain other fees..... 240
---------
Net adjustment..................................... $ (3,145)
=========
</TABLE>
(l) Reflects the estimated net increase in interest expense as if
the Tamor Acquisition, the Offering and the application of the
estimated net proceeds therefrom and the other transactions referred
to herein had occurred on December 31, 1995. In as much as the $7.0
million Subordinated Note and $11.2 million of the Term Loans, which
are being repaid from the net proceeds of the Offering, were not in
existence during fiscal 1996, no effect is given to such borrowings.
The pro forma adjustment to interest expense is comprised of the
following:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Interest expense on the estimated weighted
average amounts outstanding under the Term Loan
A and Term Loan B in the principal amount of $
$28.8 million with an effective interest rate of 9.2%.... 2,642
Amortization of deferred financing fees................... 557
Amortization of debt discount created from issuance of
Warrant.................................................. 400
Facility and Letter of Credit fees........................ 237
Less interest expense related to retired Tamor obligations (1,191)
-------------
Net adjustments......................................... $ 2,645
=============
</TABLE>
(m) Reflects the estimated increase in interest income as a
result of an average $3.7 million in proceeds on the Term Loans not
used in connection with the Tamor Acquisition and earning interest
at an assumed rate of 5.5%.
(n) Tamor was taxed as an S corporation prior to the Tamor
Acquisition. Selfix's fiscal 1996 historical results of operations
reflected no income tax expense as a result of net operating loss
carryforwards. The pro forma income tax expense assumes all
entities are taxed as C corporations and gives no benefit to the net
operating loss carryforwards. The pro forma income tax expense is
computed by applying an estimated combined statutory rate of 40%.
(o) Reflects the assumed increase in the weighted average common
and common equivalent shares outstanding as a result of the Tamor
Acquisition (480,000 shares), the Warrant and the Offering
(2,000,000 shares).
(p) Reflects the estimated decrease in interest expense as if the
Offering and the application of the estimated net proceeds had
occurred on December 29, 1996.
25
<PAGE> 27
(q) Reflects an increase in income tax expense assuming all
entities are taxed as C corporations and gives no benefit to the net
operating loss carryforwards. The pro forma income tax expense is
computed by applying an estimated combined statutory rate of 40%.
(r) Reflects the assumed increase in the weighted average common
and common equivalent shares as a result of the Offering.
(s) Reflects the establishment of deferred imputed interest
expense resulting from the effective date of the Tamor Acquisition
prior to the closing date. This amount is amortized to interest
expense during January and February of fiscal 1997.
26
<PAGE> 28
SELECTED HISTORICAL FINANCIAL DATA OF SELFIX
The following selected historical financial data should be read in
conjunction with the financial statements and related notes of the Company
(formerly Selfix) and other financial data included elsewhere in this
Prospectus. The balance sheet data and the statement of operations data
presented below are derived from the audited financial statements of the
Company (formerly Selfix).
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28,
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 35,209 $ 39,711 $ 40,985 $ 41,039 $ 38,200
Cost of goods sold............................. 22,297 22,504 25,587 25,678 22,992
------ ------ ------ ---------
Gross profit............................... 12,912 17,207 15,398 15,361 15,208
Operating expenses............................. 13,501 14,214 18,185 17,385 13,843
Restructuring charges(a)....................... --- --- 1,701 2,051 ---
------ ------ ------ ------ ---------
Operating profit (loss).................... (589) 2,993 (4,488) (4,075) 1,365
Interest expense............................... (1,038) (1,066) (999) (896) (707)
Other income (expense)-net..................... 192 126 (295) 688 148
------ ------ ------ ------
Earnings (loss) before income taxes........ (1,435) 2,053 (5,782) (4,283) 806
Income tax (expense) benefit(b)................ 654 (574) (221) 273 ---
------ ------ ------ ------ ---------
Earnings (loss) before the cumulative
effect of a change in accounting for
income taxes................................. (781) 1,479 (6,003) (4,010) 806
Cumulative effect of a change in income
tax accounting.............................. --- 36 --- --- ---
Net earnings (loss)............................ $ (781) $ 1,515 $ (6,003) $ (4,010) $ 806
========= ========= ========= ========= =========
Net earnings (loss) per common and
common equivalent share.................... $ (0.23) $ 0.43 $ (1.70) $ (1.11) 0.21
Number of weighted average common and ========= ========= ========= ========= =========
common equivalent shares outstanding....... 3,448,267 3,511,100 3,538,758 3,616,924 3,853,502
OTHER DATA:
Net sales growth (decrease)(c)(f).............. (4.9)% 12.8% 3.2 % 0.1 % (6.9)%
Gross profit margin............................ 36.7 % 43.3% 37.6 % 37.4 % 39.8 %
Operating profit (loss) margin................. (1.7)% 7.5% (11.0) % (9.9)% 3.6 %
EBITDA(d)...................................... $ 2,599 5,825 $ (659) $ (280) $ 3,647
<CAPTION>
AS OF AS OF AS OF AS OF AS OF
DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28,
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(e)............................. $ 11,599 $ 12,752 $ 11,026 $ 6,712 $ 7,152
Property, plant and equipment, net............. 10,154 11,524 10,466 8,453 7,934
Intangible assets, net......................... 3,828 2,941 1,536 2,693 2,527
Total assets................................... 32,828 35,354 30,761 24,976 24,705
Total debt, including capital lease obligations 11,884 12,033 10,413 7,914 7,022
Total stockholders' equity..................... 17,715 19,326 13,623 10,847 11,709
</TABLE>
27
<PAGE> 29
NOTES TO SELECTED HISTORICAL FINANCIAL DATA OF SELFIX
(a) The fiscal 1994 restructuring charge relates to costs of severance and
termination benefits paid or accrued for a change in the level and
composition of employees, termination of existing employee arrangements,
inventory adjustments and fixed asset writedowns related to product lines
to be discontinued.
The fiscal 1995 restructuring charge is a result of the Company's
decision to discontinue certain unprofitable product lines, close the
Company's Canadian facility and move the Canadian operations to the
Chicago manufacturing and distribution facilities.
(b) Selfix's historical income tax (expense) benefit differed significantly
from the statutory rates as a result of foreign loss carryforwards and
changes to the valuation allowance. See Note 10 of the Notes to Financial
Statements of the Company for a further description.
(c) The reduction in Selfix net sales in fiscal 1996 was a result of
decisions made in fiscal 1995 to discontinue the sale of certain
under-performing housewares products.
(d) EBITDA is defined as the sum of (i) earnings (loss) before income taxes,
(ii) interest expense, (iii) interest income, and (iv) depreciation and
amortization. EBITDA is not presented as an alternative measure of
operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), should not be
considered by the reader as an alternative to net income as an indicator
of the Company's operating results and is not indicative of cash flow
available to fund all cash needs.
(e) Working capital is computed as current assets less current liabilities.
(f) Net sales growth (decrease) represents the percentage increase (decrease)
in net sales from the corresponding period, presented on a comparable
basis, in the prior year.
28
<PAGE> 30
SELECTED HISTORICAL FINANCIAL DATA OF TAMOR
The following selected historical financial data should be read in
conjunction with the financial statements and related notes of Tamor and other
financial data included elsewhere in this Prospectus. The balance sheet data
and statement of operations data presented below are derived from the audited
financial statements of Tamor.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996
------------ --------- --------
(dollars in thousands)
STATEMENT OF OPERATIONS DATA(a):
<S> <C> <C> <C>
Net sales...................................... $ 53,806 $ 60,301 $ 75,714
Cost of goods sold............................. 43,235 50,194 57,818
--------- --------- ---------
Gross profit................................... 10,571 10,107 17,896
Operating expenses............................. 8,426 8,839 13,524
--------- --------- ---------
Operating profit............................... 2,145 1,268 4,372
Interest expense............................... (531) (1,140) (1,191)
Other income - net............................. 225 98 494
--------- --------- ---------
Earnings before income taxes.................. 1,839 226 3,675
Income tax (expense) benefit(b)................ (93) 25 (160)
--------- --------- ---------
Net earnings................................... $ 1,746 $ 251 $ 3,515
========= ========= =========
OTHER DATA:
Net sales growth(e)............................ 12.1% 25.6%
Gross profit margin............................ 19.6% 16.8% 23.6%
Operating profit margin........................ 4.0% 2.1% 5.8%
EBITDA(c)...................................... $ 4,576 $ 3,926 $ 7,767
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1995 1996
------------ ---------------
(dollars in thousands)
BALANCE SHEET DATA:
Working capital(d)............................. $ 6,079 $ 963
Property, plant and equipment, net............. 12,908 16,905
Intangible assets, net......................... -- --
Total assets................................... 29,377 34,096
Total debt, including capital lease obligations 13,516 11,781
Total stockholders' equity..................... 7,397 8,182
</TABLE>
29
<PAGE> 31
NOTES TO SELECTED HISTORICAL FINANCIAL DATA OF TAMOR
(a) Financial statements for combined Tamor Corporation and Housewares Sales,
Inc., its affiliated product distribution company, were not prepared for
periods prior to December 31, 1994.
(b) Tamor's historical income tax (expense) benefit differed significantly
from the statutory rates as Tamor was taxed as an S corporation prior to
the Tamor Acquisition.
(c) EBITDA is defined as the sum of (i) earnings (loss) before income taxes,
(ii) interest expense, (iii) interest income, and (iv) depreciation and
amortization. EBITDA is not presented as an alternative measure of
operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), should not be
considered by the reader as an alternative to net income as an indicator
of the Company's operating results and is not indicative of cash flow
available to fund all cash needs.
(d) Working capital is computed as current assets less current liabilities.
(e) Net sales growth (decrease) represents the percentage increase (decrease)
in net sales from the corresponding period, presented on a comparable
basis, in the prior year.
30
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Prospectus and includes
forward-looking statements the realization of which may be impacted by certain
important factors discussed under "Forward Looking Statements."
GENERAL
The Company designs, manufactures and markets diversified housewares
products through its three wholly-owned operating subsidiaries, Tamor, Selfix
and Shutters. In February, 1997, the Company became the holding company for,
and successor registrant under the Exchange Act of 1934 (the "1934 ACT") to,
Selfix, and Selfix and Shutters became wholly-owned subsidiaries of the
Company. Selfix, founded in 1952, manufactures and markets bath and shower
organizers, hooks and home helpers, home/closet organizers and juvenile
organization products. Shutters, acquired by Selfix in 1987, manufactures and
markets durable, plastic exterior shutters. Tamor, acquired by the Company
effective as of January 1, 1997, manufactures and markets, among other things,
plastic storage containers, hangers, hooks and juvenile organization products.
In 1994, the Company began to restructure its operations to improve its
profitability. As part of the restructuring, the Company eliminated
unprofitable product lines, reduced its overhead, refocused its sales and
marketing efforts, increased its international distribution capabilities and
upgraded its financial controls. The Company incurred operating losses of
approximately $4.5 million in 1994 and $4.1 million in 1995 as a result of the
costs of the restructuring. During 1996, the Company significantly improved
its operating results and had operating profits of $1.4 million. In
particular, during the last nine months of 1996 the Company's operating profits
increased to $2.3 million as compared to a $0.7 million loss in the prior nine
month period, net of 1995 unusual items related to the restructuring. See
"Risk Factors--Recent Losses; Selfix Restructuring."
The Company acquired Tamor for a total purchase price of $41.9 million,
consisting of approximately $27.8 million in cash, $2.4 million of Common Stock
(480,000 shares) and the repayment of $11.7 million of Tamor's long-term debt,
including long-term capital lease obligations. Pursuant to an agreement dated
October 29, 1996, the Company, as of January 1, 1997, took operating and
financial control of Tamor, assumed substantially all of the liabilities of
Tamor and retained substantially all of the earnings from Tamor's operations.
See "Business--The Tamor Acquisition." In connection with the Tamor
Acquisition, the Company entered into the Credit Agreement with GECC, as agent.
The financing facilities under the Credit Agreement consisted of the Revolving
Credit Facility and the Term Loans which provided a total of $60.0 million of
available financing. The proceeds of the Term Loans, the Subordinated Note and
the Warrant were used to finance the Tamor Acquisition, to repay certain
indebtedness of Tamor and to pay transaction costs related thereto. See
"Description of the Credit Agreement and Other Debt" contained in this
Prospectus for a description of the terms of the Credit Agreement, the
Subordinated Note and the Warrant.
After giving effect to the Tamor Acquisition, on a pro forma basis, the
Company would have had record net sales and record operating profit for fiscal
1996 of $113.9 million and $8.2 million, respectively. For the fiscal quarter
ended March 29, 1997, the Company reported record quarterly net sales and
record operating profit of $31.7 million and $2.5 million, respectively.
Management believes that the future financial and operating performance of
the Company will be significantly impacted by the financial and operating
performance of Tamor and the Company's ability to successfully integrate Tamor.
See "Risk Factors--Risks Associated with the Tamor Acquisition." The Company's
business strategy contemplates that the Company will pursue other potential
acquisitions.See "Business--Business Strategy." The Company currently has no
agreements or understandings with respect to any acquisitions and there can be
no assurance that the Company will be successful in
31
<PAGE> 33
completing other acquisitions. The financing costs and other costs
associated with this strategy of growth through acquisitions and the process of
integrating acquired companies into the Company's operations could
significantly impact the Company's financial and operating performance.
Further, restrictive covenants in the Credit Agreement may limit the Company's
ability to pursue its acquisition strategy. See "Risk Factors--Risks
Associated with Acquisitions Strategy."
In connection with its acquisition of Tamor, the Company capitalized as
goodwill the amount of $25.7 million, representing the excess of the purchase
price over the net assets acquired, and will amortize such goodwill over a
period of 40 years. The Company will have annual expense of $0.6 million
reflecting such goodwill amortization (or approximately $0.10 per share after
giving effect to the Offering).
The Company reports on a 52-53 week year ending on the last Saturday of
December. References to fiscal 1994, 1995 and 1996 are for the fifty-three
weeks ended December 31, 1994, fifty-two weeks ended December 30, 1995 and the
fifty-two weeks ended December 28, 1996, respectively. The favorable impact on
net sales of the fifty-third week in fiscal 1994 was offset by additional
salaries and operating expenses of the additional week. Management, therefore,
believes the fifty-third week had no meaningful impact on fiscal 1994 results
or on comparisons between years.
The following discussion and analysis of financial condition and results
of operations will compare (i) the Company's thirteen weeks ended March 29,
1997 to the thirteen weeks ended March 30, 1996, (ii) Selfix's fiscal 1996 to
fiscal 1995, (iii) Selfix's fiscal 1995 to fiscal 1994, (iv) Tamor's fiscal
1996 to fiscal 1995 and (v) Tamor's fiscal 1995 to fiscal 1994.
32
<PAGE> 34
COMPANY-RESULTS OF OPERATIONS
The following table sets forth certain historical and pro forma
information for the thirteen weeks ended March 30, 1996 and the thirteen weeks
ended March 29, 1997. The historical data for the thirteen weeks ended March
30, 1996 has been derived from the Company's (formerly Selfix) unaudited
financial statements. The data for the pro forma thirteen weeks ended March
30, 1996, has been derived from the Unaudited Pro Forma Condensed Combined
Statement of Operations of the Company appearing elsewhere in this Prospectus.
The data for the pro forma thirteen weeks ended March 30, 1996 gives effect to
the Tamor Acquisition and related financing as if each of the transactions had
occurred on December 31, 1995. The data for the thirteen weeks ended March 29,
1997, has been derived from the Company's unaudited financial statements.
Operating results for the thirteen weeks ended March 29, 1997, may not be
indicative of the results that may be expected for fiscal 1997 or any future
period.
<TABLE>
<CAPTION>
PRO FORMA (a)
THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS(g)
ENDED ENDED ENDED
MARCH 30, 1996 MARCH 30, 1996 MARCH 29, 1997
---------------- --------------- --------------
(dollars in thousands except per share amounts)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Net sales............................ $ 8,625 $ 27,389 $ 31,738
Cost of goods sold................... 5,767 19,154 22,610
----------- ---------- ----------
Gross profit......................... 2,858 8,235 9,128
Operating expenses(b)................ 3,826 6,707 6,602
----------- ---------- ----------
Operating profit (loss).............. (968) 1,528 2,526
Interest expense(c).................. (180) (1,556) (1,532)
Other income (expense)-net........... 32 64 155
----------- ---------- ----------
Earnings (loss) before income taxes. (1,116) 36 1,149
Income tax (expense) benefit(d)...... -- (58) (117)
----------- ---------- ----------
Net earnings (loss).................. $ (1,116) $ (22) $ 1,032
=========== ========== ==========
Net earnings (loss) per common
and common equivalent share......... $ (0.29) $ (0.01) $ 0.23
Number of weighted average common and
common equivalent shares
outstanding(e)...................... 3,817,181 4,336,783 4,513,683
OTHER DATA:
Net sales growth (decrease)(h)(i).... (19.7)% 15.9%
Gross profit margin.................. 33.1 % 30.1 % 28.8%
Operating profit (loss) margin....... (11.2)% 5.6 % 8.0%
Net earnings (loss) margin........... (12.9)% (0.1)% 3.3%
EBITDA(f)............................ $ (337) $ 3,013 $ 4,371
</TABLE>
- ------------------
(a) The pro forma condensed combined financial data gives effect to the Tamor
Acquisition, and related financing, as if each of the transactions had
occurred on December 31, 1995. See "Unaudited Pro Forma Condensed
Combined Financial Statements."
(b) The pro forma operating expenses reflects (i) additional amortization
expense resulting from the recording of goodwill associated with the Tamor
Acquisition and (ii) net estimated cost savings as a result of the Tamor
Acquisition, including a net reduction in discretionary distributions paid
to and on the behalf of related parties of Tamor and additional costs
associated with the Company's 401(k) and profit sharing plans and certain
other fees.
(c) The pro forma interest expense reflects the estimated net increase in
interest expense as if the Tamor Acquisition and related financing had
occurred on December 31, 1995.
(d) The Company's historical income tax (expense) benefit differed
significantly from the statutory rates as a result of foreign loss
carryforwards and changes to the valuation allowance.
(e) The pro forma number of weighted average shares assumes the shares issued
as a result of the Tamor Acquisition (480,000 shares) and the Warrant were
outstanding as of December 31, 1995.
(f) EBITDA is defined as the sum of (i) earnings (loss) before income taxes,
(ii) interest expense, (iii) interest income, and (iv) depreciation and
amortization. EBITDA is not presented as an alternative measure of
operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), should not be
considered
by the reader as an alternative to net income as an indicator of the
Company's operating results and is not indicative of cash flow available
to fund all cash flow needs.
33
<PAGE> 35
(g) Pursuant to an agreement dated October 29, 1996, the Company, as of
January 1, 1997, took operating and financial control of Tamor, assumed
substantially all of the liabilities of Tamor and retained substantially
all of the earnings from Tamor's operations. Actual results are combined
since the date of effective control although the purchase transaction did
not close until February 28, 1997.
(h) The reduction in Selfix net sales in 1996 was a result of decisions made
in 1995 to discontinue the sale of certain under-performing housewares
products, which resulted in a significant decrease in stock keeping units
(SKUs).
(i) Net sales growth (decrease) represents the percentage increase (decrease)
in net sales from the corresponding period, presented on a comparable
basis, in the prior year.
34
<PAGE> 36
THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED TO THE THIRTEEN WEEKS ENDED MARCH
30, 1996
General. The Tamor Acquisition and the related financing significantly
impacted the Company's operating results for the first quarter of 1997. The
acquisition of Tamor substantially improved the Company's net earnings from a
net loss of $1.1 million in the first quarter of fiscal 1996 to net earnings of
$1.0 million for the first quarter of fiscal 1997. The improved earnings were
also the result of significant improvements in the financial performance of
Selfix and Shutters. Tamor contributed $1.2 million of pre-tax earnings in the
quarter, net of related financing expenses, transaction costs and goodwill
amortization. Selfix and Shutters had an operating loss of $0.05 million in
the first quarter of fiscal 1997 as compared to a $1.1 million loss in the
first quarter of fiscal 1996. The improved results at Selfix and Shutters were
also due to higher gross profit margins and reduced operating expenses
consistent with management initiatives implemented in 1996.
The following discussion and analysis compares the results for the first
quarter of fiscal 1997 to the pro forma results for the first quarter of fiscal
1996 as if the Tamor Acquisition had occurred as of December 30, 1995.
Management believes that such a comparison is necessary to meaningfully analyze
the changes occurring in such quarters.
Net sales. Net sales of $31.7 million in the first quarter of fiscal 1997
increased $4.3 million, or 16%, from net sales of $27.4 million in the first
quarter of fiscal 1996. The increase was primarily the result of increased
distribution and the introduction of new Tamor plastic storage products. Sales
increases occurred primarily in home/closet organization and storage containers
product lines. Sales of Tamor home/closet organization products increased
13.1% as a result of increased distribution of hanger products. Sales of Tamor
storage containers increased 26.5% due to new product introductions (66% of the
growth in the category) and additional distribution of existing products.
Sales of Shutters home improvement products increased 24% due to several new
customers.
Gross profit. Gross profit increased 10% from $8.2 million in the first
quarter of fiscal 1996 to $9.1 million in the first quarter of fiscal 1997, as
a result of the increased sales described above. Gross profit margins
decreased from 30.1% in the first quarter of fiscal 1996 to 28.8% in the first
quarter of fiscal 1997, due primarily to increases in the cost of plastic
resin. The cost of plastic resin increased approximately 12.4% between
quarters resulting in a 3% drop in gross profit margin. Partially offsetting
the increase in plastic resin costs were improvements in capacity utilization.
During the first quarter of 1997, the Company was able to increase the use of
excess capacity at its Selfix and Shutters manufacturing facilities for molding
and packaging products for Tamor, which allowed Tamor to reduce outside molding
costs and Selfix and Shutters to reduce per unit overhead costs.
Operating expense. Operating expenses in the first quarter of 1997 of
$6.6 million were essentially the same as compared to the first quarter of
1996. Selling expenses decreased from 17.0% of net sales in the first quarter
of fiscal 1996 to 14.5% of net sales in the first quarter of fiscal 1997.
Warehousing and customer service costs in the first quarter of fiscal 1997 were
reduced by the 1996 closing of Selfix's Canadian facility in March, 1996. The
1996 decision to outsource certain product design services resulted in further
personnel related savings.
Administrative expenses also declined as a percentage of net sales from
6.6% in 1996 to 5.7% in the first quarter of fiscal 1997. The decrease in
administrative expenses as a percentage of sales was the result of increases in
sales that were achieved while holding administrative costs flat as compared to
1996.
Amortization of intangibles decreased slightly from 0.8% of net sales in
the first quarter of fiscal 1996 to .6% in the first quarter of fiscal 1997.
The decrease was the result of a higher sales base.
Operating profit. As a result of improved sales, operating profit
increased $1.0 million, or 65%, to $2.5 million in the first quarter of 1997
from $1.5 million in the first quarter of 1996. In the first quarter of 1997,
operating profit was 8.0% of net sales as compared to 5.6% of net sales in the
first quarter of 1996.
35
<PAGE> 37
Interest expense. Interest expense of $1.5 million in the first quarter
of fiscal 1997 was essentially unchanged from the first quarter of fiscal 1996.
Both periods reflect amortization of debt discount related to the Subordinated
Note. The debt discount of $0.4 million is being amortized over the 7 month
period of time the Subordinated Note is expected to be outstanding. Both
periods also reflect approximately $0.1 million of amortization related to fees
and expenses incurred in connection with the Credit Agreement.
Other income. Other income increased $0.1 million from 1996 to 1997 as a
result of the reversal of excess accruals related to the 1996 closing of the
Company's Canadian distribution facility.
Income tax (expense) benefit. The income tax expense recorded in the
first quarter of fiscal 1997 reflects tax expenses for state income taxes in
states where the Company does not have tax loss carryforwards. No
carryforwards are available in Massachusetts, Tamor's primary state of
business. The Company does not expect to record a material federal tax expense
during fiscal 1997 as a result of tax loss carryforwards. Accordingly, no
federal tax expense was recorded in the first quarter of fiscal 1997.
The Company decreased the valuation allowance for net deferred tax assets
by $0.4 million to $3.1 million. The Company carries the remaining allowance
because although the Company has restructured its Selfix operations and
returned to profitability in 1996, there is no assurance that the Company will
be able to maintain profitability. The Company's ability to sustain
profitability is dependent upon a number of factors, including the continued
successful implementation of cost control measures, the successful integration
of Tamor's operations into the Company's operations, maintenance of the
Company's existing customer relationships at current levels of sales volume and
various other factors beyond the Company's control, such as plastic resin price
increases and the effect of general economic conditions.
Net earnings (loss). Net earnings increased to $1.0 million in the first
quarter of 1997 from the first quarter of 1996 net loss of $0.02 million.
Earnings per share increased to $0.23 in the first quarter of fiscal 1997 based
on 4,513,683 weighted average shares outstanding as compared to the first
quarter of 1996 loss per share of $0.01 based on 4,336,783 weighted average
shares outstanding. If the Company had incurred a tax expense using a tax rate
of 40% assuming no federal or state tax loss carryforwards, net earnings in the
first quarter of 1997 would have been $0.7 million, or $0.15 per share based on
4,513,683 weighted average shares outstanding.
HOUSEWARES
First quarter 1997 performance in the housewares segment was significantly
improved as compared to the first quarter of 1996 on a pro forma basis. Net
sales increased 15% from $25.1 million, on a pro forma basis, in the first
quarter of 1996 to $30.0 million in the first quarter of 1997 as a result of
new product introductions and expanded distribution. Operating profit
increased 27% from $2.0 million (7.8% of net sales) on a pro forma basis in the
first quarter of 1996 to $2.6 million, 8.5% of net sales, in the first quarter
of 1997. Increased profitability was a result of the increased sales as well
as decreased operating expenses both in absolute dollars and as a percent to
sales. Decreases in operating expenses were related to personnel reductions
initiated in the second and third quarters of 1996 together with the March 31,
1996 closing of the Company's Canadian distribution facility.
HOME IMPROVEMENT PRODUCTS
First quarter 1997 sales and operating profit increased substantially from
the first quarter of 1996. Net sales increased 38% from $1.3 million in the
first quarter of 1996 to $1.8 million in the first quarter of 1997. The
increase in sales was a result of new customers. Net sales in the first
quarter are traditionally lower than the second and third quarter as sales are
impacted by weather conditions which are generally better in the late spring,
summer and early fall. The 1997 first quarter operating loss of $0.03 million
was significantly decreased from the 1996 first quarter operating loss of $0.5
million. The reduction in the loss
36
<PAGE> 38
was a result of the increased sales and a $0.2 million decrease in operating
expenses. The decrease in operating expenses was due to personnel cutbacks
and less spending on marketing brochures.
37
<PAGE> 39
SELFIX--RESULTS OF OPERATIONS
The following table sets forth certain historical information for Selfix
for fiscal years 1994, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ -------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................................... $ 40,985 $ 41,039 $ 38,200
Cost of goods sold.............................................. 25,587 25,678 22,992
-------- ---------- -----------
Gross profit................................................ 15,398 15,361 15,208
Operating expenses.............................................. 18,185 17,385 13,843
Restructuring charges(a)........................................ 1,701 2,051 ---
-------- ---------- -----------
Operating profit (loss)..................................... (4,488) (4,075) 1,365
Interest expense................................................ (999) (896) (707)
Other income (expense)-net...................................... (295) 688 148
-------- ---------- -----------
Earnings (loss) before income taxes......................... (5,782) (4,283) 806
Income tax (expense) benefit(b)................................. (221) 273 ---
--------- ---------- ------------
Net earnings (loss)............................................. $ (6,003) $ (4,010) $ 806
========= ========== ============
Net earnings (loss) per common
and common equivalent share................................. $ (1.70) $ (1.11) $ 0.21
Number of weighted average common and common
equivalent shares outstanding............................... 3,538,758 3,616,924 3,853,502
OTHER DATA:
Net sales growth (decrease)(c)(e)............................... 3.2% 0.1% (6.9)%
Gross profit margin............................................. 37.6% 37.4% 39.8%
Operating profit (loss) margin.................................. (11.0)% (9.9)% 3.6%
EBITDA(d)....................................................... $ (659) $ (280) $ 3,647
</TABLE>
(a) The fiscal 1994 restructuring charge relates to costs of severance and
termination benefits paid or accrued for a change in the level and
composition of employees, termination of existing employee arrangements,
inventory adjustments and fixed asset writedowns related to product lines
to be discontinued.
The fiscal 1995 restructuring charge is a result of the Company's
decision to exit certain unprofitable product lines, close the Company's
Canadian facility and move the Canadian operations to the Chicago
manufacturing and distribution facilities.
(b) Selfix's historical income tax (expense) benefit differed significantly
from the statutory rates as a result of foreign loss carryforwards and
changes to the valuation allowance. See Note 10 of the Notes to Financial
Statements of the Company for a further description.
(c) The reduction in Selfix net sales in fiscal 1996 was a result of
decisions made in fiscal 1995 to discontinue the sale of certain
under-performing housewares products.
(d) EBITDA is defined as the sum of (i) earnings (loss) before income taxes,
(ii) interest expense, (iii) interest income, and (iv) depreciation and
amortization. EBITDA is not presented as an alternative measure of
operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), should not be
considered by the reader as an alternative to net income as an indicator
of the Company's operating results and is not indicative of cash flow
available to fund all cash flow needs.
(e) Net sales growth (decrease) represents the percentage increase (decrease)
in net sales from the corresponding period, presented on a comparable
basis, in the prior year.
38
<PAGE> 40
FISCAL 1996 COMPARED TO FISCAL 1995
General. Fiscal 1996 results began to reflect the positive benefits of
the restructuring actions taken during fiscal years 1994 and 1995. Selfix's
net earnings in fiscal 1996 of $0.8 million reflect reduced operating expenses,
improved manufacturing efficiencies and increased gross profit margins.
Overhead reductions and operating initiatives which were implemented in
1994 and 1995 directly benefited 1996 results as follows: (i) a 24% reduction
in the workforce; (ii) the elimination of unprofitable product lines; (iii) the
closing of three facilities; (iv) a reduction in outside warehousing costs; (v)
a 29% reduction of gross inventory; and (vi) the reduction of operating
expenses below amounts spent in fiscal 1993.
The following discussion describes the impact of several items affecting
financial comparability. The items include management operating initiatives
implemented in 1994 and 1995 as well as other significant items. Restructuring
charges totaling $2.1 million were recorded in 1995 related to discontinuing
certain unprofitable product lines, closing Selfix's Canadian facility and
moving the Canadian operations to Chicago. Such charges included severance
benefits, the write-off of Canadian fixed assets, early lease termination
charges on the Canadian building lease and the write-off of inventory and
intangibles related to discontinued product lines. The charges for the closing
and relocation of the Canadian operation totaled $1.0 million including
severance benefits of $0.2 million covering all of the Canadian employees. The
relocation of the Canadian operation was completed in the first half of 1996.
The remaining $1.1 million of restructuring charges related to product lines
Selfix decided to discontinue and the write-off of related product molds,
inventory and patents. In addition to the restructuring charges, other
management initiatives and unusual items included an increase in the allowances
for uncollectible accounts receivable of $0.4 million to address the uncertain
financial condition of several retailers; charges of $0.5 million to reflect
the cost to implement management initiatives to re-engineer operations from
both a customer service and manufacturing perspective; and a reduction of fixed
asset values by $0.3 million as a result of a reassessment of expected utility
and useful lives. Further, other income was positively impacted by the
favorable settlement of a non-compete and consulting agreement. The favorable
settlement allowed $0.3 million of related accruals to be reversed into
earnings. The items and charges discussed in this paragraph are collectively
referred to as "the 1995 unusual items." The impact of the 1995 unusual items
on operating profit (loss) and earnings (loss) before income taxes was to
increase the loss by $3.3 million and $3.0 million, respectively.
In the discussion that follows, comparisons of 1996 results to 1995
results are net of the 1995 unusual items. Management believes that this
allows for a better understanding of 1996 operating performance.
Net sales. Net sales of $38.2 million in 1996 decreased $2.8 million, or
7%, from net sales in 1995 of $41.0 million. The reduction in sales was a
direct result of decisions made in 1995 to discontinue the sale of certain
under performing housewares products. Discontinued products, accounting for
$3.3 million of 1995 net sales, were across all of the housewares product lines
but were greatest in the hooks and home helpers and home organization product
lines. Home bathwares sales increased 3% from 1995 as a result of an expanded
line of shower organizers. Juvenile products sales increased 10% as Selfix had
a full year in which to sell the child safety product line acquired in October,
1995. Home improvement products increased 5% as a result of increased placement
with remodeling distributors.
Gross profit. Gross profit margins in 1996 were 39.8% of net sales, a
slight increase from margins in 1995 of 38.5% of net sales, net of the 1995
unusual items. Increased gross profit margins were attributable to a slight
decrease in the cost of plastic resin but more significantly to the impact of
decisions made in 1995 and the selling of fewer lower margin products. Plastic
resin costs declined about 9% during 1996 to an average cost of $0.48 per pound
from an average cost of $0.53 per pound for plastic resin during 1995. Selfix
used approximately seven million pounds of plastic resin resulting in
39
<PAGE> 41
a cost savings of $0.3 million as compared to 1995 cost levels. The declines
in resin costs were a reflection of plastic resin market factors and not as a
result of any change in Selfix's buying practices.
Operating expenses. Selling expenses, net of the 1995 unusual items,
decreased from 25.6% of net sales in 1995 to 23.7% of net sales in 1996.
Warehousing and customer service costs were reduced by the first quarter
closing of Selfix's Canadian facility. All Canadian business is now serviced
from Selfix's manufacturing and distribution facilities in Chicago. The
closing resulted in personnel reductions and reduced warehousing costs. In
addition, management decided that the Company was better served by outsourcing
certain product design services. This resulted in further personnel related
savings.
Administrative expenses also decreased as a percent of net sales.
Administrative expenses were 12.0% of net sales in 1996 as compared to 13.7% in
1995, net of the 1995 unusual items. Management efforts to evaluate and reduce
spending successfully reduced personnel costs, professional fees and nearly all
other administrative items. Costs related to the search and evaluation of
acquisition targets were significantly decreased in 1996. Management devoted
the majority of its attention to cost reduction efforts, manufacturing
efficiencies, and managing the impact of selling a reduced number of product
lines. Fourth quarter costs of approximately $0.2 million related to the Tamor
Acquisition were capitalized.
Amortization of intangibles decreased from 1.2% of net sales in 1995 to
0.5% in 1996. The decrease in amortization is the result of 1995 write-offs of
previously capitalized patents and trademarks related to discontinued product
lines.
Interest income; Interest expense. In December, 1995, Selfix used excess
cash to pay down a $1.5 million note payable to a bank. In addition, $0.8
million of installment payments on variable rate demand bonds were made. As a
result of these payments, Selfix's interest income in 1996 decreased $0.15
million as compared to 1995 and interest expense was reduced $0.2 million.
Changes in interest rates had no significant impact on interest income or
expense between years.
Income taxes. Selfix was able to use tax losses from prior years to
reduce current year tax provisions to zero. In 1995 and 1994, however, Selfix
was unable to record a significant tax benefit on pre-tax losses because of the
unavailability of tax loss carrybacks. An income tax benefit of $0.3 million
was recorded in 1995 through the utilization of alternative minimum tax
carrybacks. Selfix has about $6.5 million of book tax losses to shelter future
reported pre-tax earnings.
Net earnings (loss). Net earnings in 1996 were $0.8 million or $0.21 per
share, based on 3,853,502 weighted average common shares outstanding. This
compares to a net loss of $4.0 million in 1995 (a $1.0 million net loss, net of
the 1995 unusual items), or $1.11 loss per share ($0.28 loss per share, net of
the 1995 unusual items) based on 3,616,924 weighted average common shares
outstanding. The $4.8 million turnaround in profitability was due to the
operating improvements achieved over the past few years and a $3.0 million
reduction in unusual charges. The increase in common shares and common share
equivalents was the result of stock issued in connection with the Company's
Employee Stock Purchase Plan and the dilutive impact of stock options. The
increase in the Company's year end stock price from $5.625 to $8.625 caused
several previously issued stock option grants to be treated as dilutive for
purposes of the common share equivalent determination.
40
<PAGE> 42
FISCAL 1995 COMPARED TO FISCAL 1994
General. During 1994, management began a restructuring of operations and
analysis of market trends which resulted in the decision to discontinue certain
product lines, consolidate facilities and take actions to reduce fixed costs.
Restructuring charges were incurred in both 1995 and 1994. Such charges
increased from $1.7 million in 1994 to $2.1 million in 1995. In 1994, Selfix's
new senior management team began a restructuring of operations, analysis of
customer and market trends, assessment of product lines, SKUs and customers
served together with a review of operating strategies. In 1994, Selfix
recorded a $1.7 million restructuring charge related to the analysis and
assessments completed at that time. The 1994 charge relates to cost of
severance and termination benefits paid or accrued for a change in level and
composition of employees at Selfix's Chicago facilities, as well as inventory
adjustments and fixed asset writedowns related to product lines to be
discontinued.
In the fourth quarter of 1995, Selfix announced its intent to further
consolidate facilities and discontinue additional product lines. The 1995
restructuring charge was a result of Selfix's decision to discontinue certain
unprofitable product lines, close Selfix's Canadian facility and move the
Canadian operations to the Chicago manufacturing and distribution facilities.
The restructuring charges for these initiatives totaled $2.1 million. The
charges for the closing and relocation of the Canadian operation totaled $1.0
million including severance benefits of $0.2 million covering all of the
Canadian employees. The relocation of the Canadian operation was completed in
the first quarter of 1996. The remaining $1.1 million of restructuring charges
pertains to product lines Selfix decided to discontinue and the write-off of
related product molds, inventory and patents.
In addition to the 1994 restructuring charges, other management
initiatives and unusual items in fiscal 1994 included an increase in the
reserves for returns and allowances of $0.8 million to reflect current market
pricing trends and potential product warranty claims; inventory reserves were
increased $1.0 million to address slow moving and obsolete finished goods and
packaging; fixed asset write-offs of $0.4 million were recorded for assets that
had significantly diminished useful lives; search and relocation costs of $0.2
million were incurred for the turnover of the senior management team; accounts
receivable of $0.2 million were written off related to the bankruptcy of a
significant home improvement products customer; and intangible assets from
previous acquisitions were reduced $0.6 million due to projected sales declines
on the related product lines acquired. Further, other expense was increased
$0.5 million related to the write-off of future benefits from non-compete and
consulting agreements arising from a previous acquisition; $0.3 million related
to the investigation and remediation of an environmental matter; and $0.1
million for losses on fixed assets sold. Partially offsetting these additional
expenses was $0.5 million of income from the favorable settlement of a patent
infringement lawsuit. The items and charges, including the restructuring
charges, discussed above are collectively referred to as "the 1994 unusual
items". The impact of the 1994 unusual items on operating profit (loss) and
earnings (loss) before income taxes was to increase the 1994 loss by $4.9
million and $5.3 million, respectively.
In the discussion that follows, comparisons of 1995 results to 1994
results are net of both the 1995 unusual items and the 1994 unusual items.
Management believes this allows for a better understanding of 1995 operating
performance.
Net sales. Net sales during 1995 of $41.0 million were unchanged from the
net sales during 1994 of $41.0 million. During the year, however, Selfix
identified certain products to discontinue primarily in the home organization
category. As a result, product sales of this category declined 15%. Further,
juvenile products declined 19% as a result of reduced trade channel fill-in of
initial product offerings. These reductions were offset by healthy
improvements (up 4%) in Selfix's stronger categories of home bathwares and
hooks, where Selfix has larger market shares. Increased sales of these
products were driven by a 16% increase in domestic sales to Selfix's largest
customer due to improved distribution and new product offerings. Sales of
Selfix's home improvement products increased 7% as a result of increased
penetration of the home center retail market and also through increased volume
with
41
<PAGE> 43
remodeling distributors. Penetration of the home center retail market was
supported by Selfix's make to order program allowing consumers to customize
both the color and size of their shutters.
Gross profit. Gross profit, net of the 1995 and 1994 unusual items,
declined from 42.0% of net sales in 1994 to 38.5% of net sales in 1995. The
decrease in gross profit margins was primarily the result of cost increases
related to plastic resin, Selfix's primary raw material. During 1995, Selfix's
cost of plastic resin increased 34%, causing gross profit margins to decline by
2.6%. Plastic resin costs declined in the third and fourth quarters from their
mid year highs. Gross margins were also impacted by Canadian sales mix shifts
away from high margin core product categories to the lower margin hanging
hardware product line. Selfix concluded it could not effectively and profitably
compete in hanging hardware and decided to discontinue this product line. The
related costs to exit this product line are included in the 1995 restructuring
charge.
Operating expenses. Selling expenses, net of the 1995 and 1994 unusual
items, were 25.6% of net sales as compared to 25.9% in 1994. The decrease was
a result of Selfix's consolidation of its Chicago warehousing facilities from
four to two. This action was taken to improve customer service, increase
operating efficiencies and reduce costs. Selfix's ability to consolidate
warehouses was also a direct result of actions taken in 1994 and 1995 to reduce
Stock Keeping Units (SKUs) and inventory. Selfix's restructuring actions in
1994 to reduce headcount also had a favorable impact on selling expenses.
Offsetting much of the savings from the above actions were increased payroll
and travel costs for sales personnel.
Administrative expenses, net of the 1995 and 1994 unusual items, increased
slightly from 13.2 % of net sales in 1994 to 13.7% in 1995. The increase is
attributable to costs incurred related to Selfix's search for strategic
acquisitions. During 1995, Selfix evaluated several acquisition targets and
incurred legal, audit and investment banking fees during the evaluation and
negotiation process. Fees and costs related to acquisition activities are
expensed as incurred unless a transaction is completed. Administrative
expenses also increased as a result of Selfix's management incentive plans.
Expenses for such plans increased as a result of Selfix achieving its operating
budget in 1995. The operating budget was not achieved in 1994 and no
management incentive costs were incurred.
Amortization of intangibles, net of the 1995 and 1994 unusual items,
decreased from 2.1% of sales in 1994 to 1.2% in 1995. The decrease is the
result of the reduction in patents, trademarks and other intangibles during
1994. The reduction in these assets resulted in reduced amortization in 1995.
Further, some of Selfix's intangibles reached the end of their respective
amortization periods during early 1995 further reducing amortization expense as
compared to 1994.
Interest income; Interest expense. Interest income was essentially
unchanged from the prior year. Interest expense declined $0.1 million as a
result of lower debt levels. Changes in interest rates between years had no
significant impact on interest income or expense. Other income, net of the
1995 and 1994 unusual items discussed above, increased $0.3 million as a result
of gains on sales of fixed assets and a franchise tax refund from prior years.
Income tax (expense) benefit. An income tax benefit of $0.3 million was
recorded in 1995 through the utilization of alternative minimum tax carrybacks.
This compares to income tax expense in 1994 to $0.2 million related to foreign
income taxes. During 1995, Selfix ceased operation of its United Kingdom and
Hong Kong subsidiaries and, as a result, did not generate any foreign taxed
earnings or losses of significance. Selfix was unable to record a significant
tax benefit on the 1995 or 1994 pre-tax losses because of the unavailability of
tax loss carrybacks. The losses from both years will be available to reduce
future taxable income.
Net loss. The net loss in 1995 decreased by 33% to $4.0 million or $1.11
per share based on 3,616,924 weighted average common shares and common
share equivalents from the net loss of $6.0 million in 1994, or $1.70
per share based on 3,538,758 of weighted average common shares and common share
equivalents. The increase in common shares and common share equivalents in
1995
42
<PAGE> 44
was the result of stock issued in connection with the acquisition of Mericon
Child Safety Products and the partially offsetting impact of treasury shares
acquired during the year. The $2.0 million decrease in net loss between
years was due primarily to the $2.3 million reduction in unusual items
discussed above.
Net of the 1995 and 1994 unusual items, Selfix had a net loss of $1.0
million in 1995 as compared to a net loss in 1994 of $0.7 million, or a 30%
reduction in earnings. The decline in earnings in 1995 was primarily the
result of decreased gross margins.
43
<PAGE> 45
TAMOR--RESULTS OF OPERATIONS
The following table sets forth certain historical information for Tamor
for the years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
(dollars in thousands)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 53,806 $ 60,301 $ 75,714
Cost of goods sold............. 43,235 50,194 57,818
------ ------ ------
Gross profit................ 10,571 10,107 17,896
Operating expenses............. 8,426 8,839 13,524
------ ------ ------
Operating profit............ 2,145 1,268 4,372
Interest expense............... (531) (1,140) (1,191)
Other income-net............... 225 98 494
------ ------ ------
Earnings before income taxes 1,839 226 3,675
Income tax (expense) benefit(a) (93) 25 (160)
------ ------ ------
Net earnings................... $ 1,746 $ 251 $ 3,515
====== ====== ======
OTHER DATA:
Net sales growth(c)............ 12.1% 25.6%
Gross profit margin............ 19.6% 16.8% 23.6%
Operating profit margin........ 4.0% 2.1% 5.8%
EBITDA(b)...................... $ 4,576 $ 3,926 $ 7,767
</TABLE>
- -----------------
(a) Tamor's historical income tax (expense) benefit differed significantly
from the statutory rates as Tamor was taxed as an S corporation prior to
the Tamor Acquisition.
(b) EBITDA is defined as the sum of (i) earnings (loss) before income taxes,
(ii) interest expense, (iii) interest income, and (iv) depreciation and
amortization. EBITDA is not presented as an alternative measure of
operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), should not be
considered by the reader as an alternative to net income as an indicator
of the Company's operating results and is not indicative of cash flow
available to fund all cash flow needs.
(c) Net sales growth (decrease) represents the percentage increase (decrease)
in net sales from the corresponding period, presented on a comparable
basis, in the prior year.
44
<PAGE> 46
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales. Net sales in 1996 of $75.7 million increased $15.4 million, or
25.6%, from net sales in 1995 of $60.3 million. The sales increase was driven
by new product introductions, particularly in the storage container product
line. The introduction of the 20-gallon and 33-gallon storage totes, both with
high-dome hinged lids for increased capacity, contributed $15.0 million of new
product sales. This represented a 53% growth in the storage product category.
Volume growth in this area is being driven by consumer demands for larger,
lower cost means by which to store seasonal items like clothing and seasonal
decorations. The success of the new storage container products also benefited
sales of existing product lines. Hangers in particular benefited from the
additional vendor exposure created by the storage container new product
introduction. Hanger sales increased $3.5 million (10%) as compared to 1995.
Gross profit. Gross profit margins in 1996 were 23.6% of net sales up
significantly from margins of 16.8% of net sales in 1995. The margin
improvement was a direct result of declines in the cost of Tamor's primary raw
material, plastic resin. Tamor's average cost of plastic resin dropped from
$0.425 per pound in 1995 to $0.357 per pound in 1996. Tamor used 48.2 million
pounds of plastic resin in 1995 and as such received savings of approximately
$3.3 million as compared to 1995. This savings represents 4.4% of 1996 net
sales. Margins were also favorably impacted by changes in the mix of products
sold. Closet organization products, primarily plastic hangers, accounted for
33% of net sales in 1996, down from 38% in 1995. Plastic hangers are among the
lower margin products sold by Tamor due to their commodity nature and selling
price sensitivity. The increase in sales of higher margin storage container
products from 38% of net sales in 1995 to 48% in 1996 helped improve overall
gross profit margins. Tamor was also able to reduce its costs by adding
production capacity at its Missouri and Georgia facilities. The addition of
productive capacity allowed Tamor to bring production in-house which had been
previously outsourced to contract injection molders.
Operating expenses. Selling and warehouse expenses increased to 13.1% of
net sales in 1996 from 10.9% in 1995. The increase relates to salaries and
commissions paid to the previous owners of Tamor. The increases in 1996 are
not indicative of future spending levels and will be significantly reduced in
1997.
General and Administrative expenses were 4.7% of sales in 1996, up from
3.8% in 1995. The increase relates to wages and bonuses paid to the previous
owners as well as the reversal in 1995 of accruals totaling $0.3 million
related to the realizability of life insurance cash surrender values. The
increase in wages and bonus is not indicative of future spending levels and the
Company anticipates such costs will be significantly reduced in 1997.
Interest expense. Interest expense of $1.2 million in 1996 is essentially
unchanged from 1995. Tamor was able to finance operations and capital spending
from operating cash flows until the fourth quarter. Additional lease financing
was obtained at that time and certain trade payables were extended.
Net earnings. Net earnings increased by $3.2 million in 1996 to $3.5
million from $0.3 million in 1995. Increased profitability was driven by
reduced plastic resin costs and additional sales volume. Offsetting the $7.8
million gain in gross profit was a $4.7 million increase in operating expenses
primarily related to salaries and bonuses paid to the prior owners.
45
<PAGE> 47
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales. Net sales of $60.3 million increased $6.5 million, or 12.1%,
from net sales of $53.8 million in 1994. The increase of 12.1% was driven by
new product introductions in the storage container product line and by
increased distribution of plastic hanger products.
Gross profit. Gross profit of $10.1 million decreased slightly in 1995
from $10.6 million in 1994. Despite higher sales, gross profits declined as a
result of increased product costs and the resulting unfavorable impact on gross
profit margins. Gross margins were 16.8% in 1995 as compared to 19.6% in 1994.
Tamor's average cost of plastic resin increased from $.34 per pound in 1994 to
$.425 per pound in 1995 as a result of price increases from vendors. Tamor
used 33.8 million pounds of plastic resin in 1994 but its plastic resin costs
increased by $2.9 million from 1993 when Tamor used a comparable amount of
plastic resin. In addition, margins on incremental sales were lower due to the
higher costs. Partially offsetting the increased cost of plastic resin was an
overall improvement in product mix resulting from the sales growth of higher
margin storage container products.
Operating expenses. Selling and warehouse expenses decreased to 10.9% of
net sales from 11.6% in 1994. The decrease was a result of lower sales
commission in reaction to the decrease in gross profit margins. General and
administrative expenses were 3.8% of net sales in 1995, down slightly from 4.1%
in 1994. The decrease as a percent of sales is a function of the relatively
fixed nature of these costs. 1995 was also favorably impacted by the reversal
of accruals totaling $.3 million related to the realizability of life insurance
cash surrender values.
Net earnings. Tamor's net earnings in 1995 decreased $1.4 million to $0.3
million from $1.7 million in 1994.
OPERATING RESULTS BY INDUSTRY SEGMENT
The Company operates in two industry segments: housewares products and
home improvement products. The housewares segment sells its products under the
Selfix brand and operates as Selfix, Inc. The home improvement products
segment is operated as Shutters, Inc.
Although both segments use plastic resin as the primary raw material, the
products of each segment are quite different and are sold through different
trade channels. The two segments operate independently with separate
management teams. The 1995 and 1994 unusual items impacted both segments. The
housewares segment operating profit was negatively impacted in 1995 and 1994 by
$3.3 million and $4.0 million, respectively. The home improvement segment was
not impacted in 1995 but was negatively impacted by $0.9 million in 1994.
HOUSEWARES
The housewares segment significantly improved its profitability in 1996.
Operating profits of $0.9 million were achieved as compared to an operating
loss of $1.6 million in 1995, net of the 1995 unusual items. The improvement
resulted from higher gross profit margins and reduced operating expenses. The
majority of the operating initiatives and cost cutting measures of the past
three years benefited the housewares segment. The Selfix line of products has
been significantly streamlined from nearly 2,000 SKUs in 1994 to under 700 as
of the end of 1996. The reduction in SKUs has allowed management to
concentrate on selling more profitable products, allocate capital resources
accordingly and cutback personnel. The reduction in expense base and the
improved margins on items sold, has positioned the segment for continued
profitability.
The 1995 operating loss of the housewares segment, net of the 1995 unusual
items, was $1.6 million as compared to an operating profit of $0.1 million in
1994. The operating loss was partially the result of higher resin costs.
Other factors impacting results were the decline in gross profit margins due to
Canadian sales mix shifts to a lower margin hardware product line, the costs
associated with Selfix's search for strategic acquisitions and the additional
costs of new management incentive plans.
46
<PAGE> 48
HOME IMPROVEMENT PRODUCTS
Operating profits of the home improvement segment declined in 1996 to $0.5
million from $0.8 million in 1995. The decline in profitability occurred
primarily in the first quarter when sales were significantly constrained by
weather conditions in the midwest and northeast. Late winter storms deferred
the start of the building season. This resulted in missed sales and
significant unabsorbed fixed manufacturing costs. Although sales caught up
later in the year, the unabsorbed manufacturing costs could not be recovered.
In addition, operating expenses increased 11% to support new product
introductions and to pursue new trade channel opportunities. During the fourth
quarter, management initiated a series of changes to permanently reduce
manufacturing costs and operating expenses. This resulted in a fourth quarter
profit as compared to historical fourth quarter losses. Further, these changes
positioned the home improvement segment for improved profitability in 1997.
Operating profits in 1995 of $0.8 million increased $0.4 million as
compared to 1994's result of $0.4 million, net of the 1995 and 1994 unusual
items. Increased profitability was the result of improved manufacturing
efficiencies through reduced turnover of personnel and improved work flows.
These cost efficiencies offset the increased cost of plastic resins.
Additional savings occurred in operating expenses related to new product
development costs and amortization of intangibles. Amortization expenses were
reduced as a result of the expiration of non-compete and consulting agreements
arising from the 1988 acquisition of Shutters by Selfix.
QUARTERLY RESULTS
The information set forth below is derived from unaudited quarterly
results of operations of the Company for each quarter of fiscal 1996 and the
first quarter of fiscal 1997. The pro forma data for each quarter of fiscal
1996 has been prepared in a manner consistent with fiscal 1996 quarterly
results, except for the assumption that the Tamor Acquisition occurred on
December 31, 1995. The data has been prepared by the Company on a basis
consistent with the Consolidated Financial Statements included elsewhere in
this Prospectus. These operating results are not necessarily indicative of the
Company's future performance.
47
<PAGE> 49
<TABLE>
QUARTERS ENDING
----------------------------------------------------------------------------------------
(dollars in thousands except per share amounts)
3/30/96 6/29/96 9/28/96 12/28/96 3/29/97
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1996 AND 1997
Net sales.................... $ 8,625 $ 10,155 $ 10,728 $ 8,692 $ 31,738
Gross profit................. 2,858 4,311 4,388 3,651 9,128
Net earnings (loss).......... (1,116) 709 764 449 1,032
Earnings (loss) per share.... (0.29) 0.19 0.20 0.11 0.23
1996 AND 1997
PRO FORMA (AS ADJUSTED)(a)(b)
Net sales.................... $27,389 $ 28,227 $ 32,123 $ 26,175 $ 31,738
Net earnings(c).............. 289 794 1,339 305 957
Earnings per share(d)........ 0.05 0.13 0.21 0.05 0.15
</TABLE>
(a) The pro forma (as adjusted) condensed combined financial data for 1996
and 1997 gives effect to the Tamor Acquisition and related financing, the
Offering and the application of the estimated net proceeds therefrom and
the other transactions referred to herein, as if each of the transactions
had occurred on December 31, 1995.
The as adjusted condensed combined financial data as and for the
thirteen weeks ended March 29, 1997 gives effect to the Offering and the
application of the estimated net proceeds therefrom, as if the Offering
had occurred on December 29, 1996.
(b) The pro forma (as adjusted) and the thirteen weeks ended March 29, 1997
(as adjusted) income tax (expense) benefit assumes all entities are taxed
as C corporations and gives no benefit to net operating loss
carryforwards. The pro forma (as adjusted) and the thirteen weeks ended
March 29, 1997 (as adjusted) income tax (expense) benefit is computed by
applying the estimated combined statutory rate of 40%.
(c) The pro forma (as adjusted) net earnings (loss) for 1996 reflects (i)
additional amortization expense resulting from the recording of goodwill
associated with the Tamor Acquisition (ii) net estimated cost savings as a
result of the Tamor Acquisition, including a net reduction in
discretionary distributions paid to and on the behalf of related parties
of Tamor and additional costs associated with the Company's 401(k) and
profit sharing plans and certain other fees, (iii) estimated net increase
in interest expense as if the Tamor Acquisition, the Offering and the
application of the estimated net proceeds therefrom and the other
transactions referred to herein had occurred on December 31, 1995 and (iv)
income tax (expense) benefit computed as discussed in Note (b) above.
The as adjusted net earnings for the thirteen weeks ended March 29,
1997 reflects (i) the estimated decrease in interest expense as if the
Offering and the application of the estimated net proceeds therefrom had
occurred on December 29, 1996 and (ii) income tax (expense) benefit
computed as discussed in Note (b) above.
(d) The pro forma (as adjusted) and the thirteen weeks ended March 29, 1997
(as adjusted) number of weighted average shares utilized in the
computation of pro forma (as adjusted) and the thirteen weeks ended March
29, 1997 (as adjusted) earnings per share assumes the shares issued as a
result of the Tamor Acquisition (480,000 shares), the Warrant (79,204
shares) and the Offering (2,000,000 shares) were outstanding as of the
first day of the applicable years presented.
SEASONALITY
Revenues of the Company are slightly lower in the first and third quarters
of each fiscal year because of the seasonality of the Company's businesses.
Operating expenses are higher in the first quarter of each fiscal year due, in
part, to the Company's attendance at annual trade shows.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents at December 28, 1996, were $2.9 million, as
compared to $3.0 million at December 30, 1995. The Company's cash flow from
operating activities of $1.8 million was sufficient to fund operations, pay
down debt of $0.9 million and acquire new fixed assets totaling $1.6 million.
In fiscal 1996, pro forma combined EBITDA was $13.9 million. In the first
quarter of fiscal 1997, cash flow from operating activities was $0.3 million
and EBITDA was $4.4 million.
The required borrowings for the Tamor Acquisition have significantly
changed the Company's financial structure. To fund the acquisition, financing
facilities were provided by commercial lenders to replace and augment the
financing facilities in place at December 28, 1996. The financing facilities
consist of $40.0 million of term notes and a $20.0 million revolving line of
credit under the Credit
48
<PAGE> 50
Agreement and the $7.0 million Subordinated Note. See "Description of the
Credit Agreement and Other Debt." At March 29, 1997, the Company had total
short and long term debt outstanding of $54.0 million and unused availability
under the revolving line of credit of $12.2 million. During 1997, $2.5 million
of debt will come due. At March 29, 1997, there were no borrowings outstanding
under the revolving line of credit.
The Company's ability to make scheduled principal or interest payments or
to refinance its indebtedness will depend upon its future operating performance
and cash flow, which are subject to prevailing economic conditions, prevailing
interest rate levels, and financial, competitive, business and other factors,
many of which are beyond its control, as well as the availability of borrowings
under the Credit Agreement or successor facility. See "Risk Factors--Retail
Industry; Economic Condition."
The Company's capital spending needs in 1997 are expected to be $8.5
million. Most of the spending relates to new injection molding presses and
molds to support Tamor's sales growth and new product development. Also
included in the capital spending forecast is approximately $2.4 million to
expand Tamor's Missouri manufacturing and warehouse facility. The Company
believes that its existing financing facilities together with its cash flow
from operations will provide sufficient capital to fund operations, make the
required debt repayments and meet anticipated capital spending needs.
There can be no assurance, however, that the Company will continue to
generate sufficient cash flow at or above current levels. If the Company is
unable to generate sufficient cash flow from operations in the future to
service its indebtedness, it may be required to refinance all or a portion of
its existing indebtedness or to obtain additional financing. There is no
assurance that any such refinancing would be possible or that any additional
financing could be obtained at all or on favorable terms. See "Risk
Factors--Leverage; Restrictive Covenants."
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
FORWARD-LOOKING STATEMENTS
This Prospectus, including "Business," "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contains forward-looking statements within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. Such factors and uncertainties include, but are not limited to:
(i) the anticipated effect of the Tamor Acquisition on the Company's sales and
earnings; (ii) the impact of the level of the Company's indebtedness; (iii)
restrictive covenants contained in the Company's various debt documents; (iv)
general economic conditions and conditions in the retail environment; (v) the
Company's dependence on a few large customers; (vi) price fluctuations in the
raw materials used by the Company, particularly plastic resin; (vii)
competitive conditions in the Company's markets; (viii) the seasonal nature of
the Company's business; (ix) the Company's ability to execute its acquisition
strategy; (x) fluctuations in the stock market; (xi) the extent to which the
Company is able to retain and attract key personnel; (xii) relationships with
retailers; and (xiii) the impact of federal, state and local environmental
requirements (including the impact of future environmental claims against the
Company). As a result, the Company's operating results may fluctuate,
especially when measured on a quarterly basis.
49
<PAGE> 51
BUSINESS
The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Forward Looking
Statements."
GENERAL
Home Products International, Inc. designs, manufactures and markets a
broad range of quality consumer houseware products. The Company is a leading
supplier to large national retailers of value-priced storage and organization
products including storage containers, bath and shower organization products,
hooks, hangers, home/closet organization products and juvenile organization
products. The Company holds a significant market share in the United States in
its key product categories of plastic storage containers, plastic hangers and
bath and shower organization products. The Company's products are sold in the
United States through most of the large national retailers, including Wal-Mart,
Target, Kmart, Home Depot, Toys 'R Us, Walgreens and Bed Bath & Beyond. The
Company also sells its products internationally in over 40 countries. The
Company is comprised of three operating subsidiaries, Tamor, which was acquired
in February, 1997, effective as of January 1, 1997, Selfix and Shutters. After
giving effect to the Tamor Acquisition, on a pro forma basis, the Company would
have had record net sales and record operating profit for fiscal 1996 of $113.9
million and $8.2 million, respectively. For the fiscal quarter ended March 29,
1997, the Company reported record quarterly net sales and record operating
profit of $31.7 million and $2.5 million, respectively.
COMPANY BACKGROUND
The Company was founded as Selfix in 1952 as a privately held manufacturer
and distributor of plastic hooks. After being acquired in 1962 by Meyer and
Norma Ragir, the Company expanded the number of product categories it offered,
as well as the product lines within each category, resulting in increased net
sales and net earnings. In fiscal 1987, Selfix acquired Shutters, a
manufacturer and marketer of home improvement products, primarily durable
plastic exterior shutters. Selfix became a public company following an initial
public offering of its Common Stock in fiscal 1988. Although net sales had
increased to approximately $40 million in fiscal 1993, Selfix's operating
profits were marginal primarily due to under performing products, some of which
were acquired in two unsuccessful acquisitions in the early 1990's, and the
death of the Company's chief executive officer in 1992 which caused a void in
management. In addition, a lack of management controls resulted in sales of
many under performing products and a significant increase in operating expenses
attributable primarily to increased overhead expenses.
In April, 1994, Selfix hired James Tennant, then a member of its Board of
Directors with substantial marketing and management experience, to be Chairman
of the Board of Directors and Chief Executive Officer. Mr. Tennant set out to
restructure the Company's operations and improve its profitability. As part of
this restructuring, the Company replaced its entire senior management group,
focused its sales and marketing efforts, increased its distribution
capabilities, upgraded its financial and systems controls, eliminated under
performing product lines which resulted in a significant decrease of SKUs and
reduced overhead expenses. The Company incurred operating losses of
approximately $4.5 million in fiscal 1994 and $4.0 million in fiscal 1995,
resulting primarily from the costs of this restructuring. The restructuring,
completed in fiscal 1995, contributed to operating profits of $1.4 million in
fiscal 1996 and net earnings of $0.8 million.
Once the restructuring was completed, Selfix began to aggressively pursue
a strategy of disciplined growth through acquisition. This strategy has
initially focused on acquiring companies manufacturing products within the
Company's existing product categories and, in the future, will expand
to acquiring companies that will enable it to enter new related product
categories more rapidly and cost-effectively. Effective January 1, 1997, the
Company completed the acquisition of Tamor and its affiliated product
distribution company, Housewares. The Company believes that the Tamor
Acquisition
50
<PAGE> 52
will result in significant increases in fiscal 1997 net sales and operating
profits. After giving effect to the Tamor Acquisition, on a pro forma basis in
fiscal 1996, the Company's net sales would have almost tripled and its
operating profit would have increased more than six-fold. Selfix, in
anticipation of the Tamor Acquisition and to position itself for future growth,
established a holding company organizational structure in February, 1997. Home
Products International, Inc. is the new holding company for its direct
wholly-owned operating subsidiaries, Tamor, Selfix and Shutters.
THE TAMOR ACQUISITION
On February 28, 1997, pursuant to a Stock Purchase Agreement among the
Company and the stockholders of Tamor (the "Tamor Shareholders"), and an
Agreement and Plan of Merger among the Company, Housewares Sales, Inc., and the
stockholders of Housewares Sales, Inc., effective as of January 1, 1997,
Housewares was merged into a wholly-owned acquisition subsidiary of the Company
and the Company, through the same acquisition subsidiary, acquired 100% of the
outstanding capital stock of Tamor. The acquisition subsidiary then merged
into Tamor and Tamor became a wholly-owned direct subsidiary of the Company.
Tamor, a privately held company founded in 1947, designs, manufactures and
markets quality plastic housewares products, including storage totes, hooks,
and juvenile organization products.
The Company acquired Tamor for a total purchase price of $41.9 million,
consisting of approximately $27.8 million in cash, $2.4 million of Common Stock
(480,000 shares) and the repayment of $11,7 million of Tamor's long-term debt,
including long-term capital lease obligations. Pursuant to an agreement dated
October 29, 1996, the Company, effective as of January 1, 1997, took operating
and financial control of Tamor, assumed substantially all of the liabilities of
Tamor and retained substantially all of the earnings from Tamor's operations.
Tamor's 1996 EBITDA was $7.8 million. See "Summary Historical and Pro Forma
Data."
The Stock Purchase Agreement contains certain customary representations,
warranties and covenants. The Stock Purchase Agreement requires the Tamor
Shareholders to indemnify the Company and its affiliates for inaccuracies in
the representations and warranties in the Stock Purchase Agreement, and for the
failure of any such party to comply with covenants made in the Stock Purchase
Agreement. Subject to certain exceptions, the indemnification obligations of
the Shareholders with respect to inaccuracies in representations and warranties
and breaches of covenants are subject to a deductible of $75,000 and an
aggregate maximum liability of $10.0 million. The Tamor Shareholders have
placed $1.1 million in escrow to (i) secure certain environmental clean up or
other remedial work at Tamor's Leominster, Massachusetts facility and (ii) to
secure the indemnity obligations of the Tamor Shareholders. See "Environmental
Matters." The Company is obligated to place a letter of credit in the amount
of $1.5 million in escrow to secure certain tax indemnity obligations to the
Tamor Shareholders.
The Company believes the completion of the Tamor Acquisition is a
significant first step in the Company becoming a major diversified houseware
products company through its strategy of disciplined growth through
acquisition. The Company believes the increased credibility and visibility
resulting from the Tamor Acquisition will position the Company to aggressively
pursue its strategy of disciplined growth through acquisition as smaller
suppliers are pressured by large national retailers to consolidate. See "Risk
Factors--Risks Associated with the Tamor Acquisition."
INDUSTRY
The Company plans to take advantage of consolidation opportunities in the
housewares industry, a large market comprised of a highly fragmented supplier
base. The majority of the Company's products are classified in the "plastic
storage" segment of the market for housewares products. The home
organization category, which includes the plastic storage segment, has been a
strong performer for retailers who are committing an increasing amount of shelf
space to the storage category. According to an industry source, the plastic
storage market accounted for 50% of total 1996 retail sales of $1.85 billion
home organization market. The plastic storage market grew 7.0% from 1995 to
1996 (versus 6.0% for
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<PAGE> 53
the wire storage category) and, according to an industry source, is expected to
remain strong for the foreseeable future as consumers look for easy, durable,
inexpensive ways to solve storage problems. In addition to the popularity of
large-capacity totes, the market is driven by a movement away from generic
products toward items designed to perform specific functions. In particular,
juvenile storage systems, bathroom wire and plastic organizers using suction
cups for mounting and storage and organization products catering to the home
office boom continue to create opportunities for growth in this market.
To improve margins and operating efficiencies, large national retailers
are continuing to reduce the number of suppliers of storage and other
housewares products. These retailers are forming key partnerships with
suppliers that can provide complete product lines within product categories,
profitable fast-turning products, timely delivery and merchandising support.
With its numerous product lines and strong relationships with these retailers,
the Company believes it is well positioned to continue to meet their needs.
To provide complete product lines to national retailers, suppliers of
housewares products have begun to consolidate. The Company believes that there
are a number of excellent acquisition candidates because the suppliers of
consumer houseware products are highly fragmented with no single supplier
accounting for more than 5% of the total sales. For example, the National
Housewares Manufacturers Association consists of 2,000 members of which
approximately 25% participate in the Company's product categories. The Company
believes it is well-positioned to pursue its strategy of growth through
acquisition given its access to the capital markets and its increased
visibility from the recent acquisition of Tamor.
BUSINESS STRATEGY
The Company believes that its competitive strengths, combined with the
following strategies, will enable the Company to continue its growth, increase
its profitability and gain market share.
Pursue Additional Strategic Acquisitions. The Company intends to
aggressively pursue a strategy of disciplined growth through acquisition. This
strategy will initially focus on acquiring companies which manufacture products
within the Company's existing product categories and, in the future, will
expand to acquiring companies that will enable the Company to enter new related
product categories more rapidly and cost effectively. By consolidating product
lines and customers bases through acquisitions, the Company believes it can
successfully gain market share and increase sales in its key product categories
of plastic storage containers, plastic hangers and bath and shower organization
products.
Leverage Market Share Position. The Company holds a significant market
share in the United States in its key product categories of plastic storage
containers, plastic hangers and bath and shower organization products. Using
its aggressive new product development program, the Company intends to leverage
its market presence, particularly in core product categories such as storage
containers and bath and shower organizers, to increase sales in all of its
product categories.
The Company's strategy is to be a leading supplier to major retailers of
opening price point products in its key product categories. The Company
believes that being the leading supplier of opening price point products in
more of its existing product categories will increase the likelihood that the
Company will be selected by retailers as a preferred single source vendor.
Capitalize on Tamor Acquisition Synergies. The Company believes that it
will be able to capitalize on certain marketing and operational synergies that
exist between Selfix and Tamor. The Tamor Acquisition has enabled the Company
to expand the number of product categories and product lines
offered within existing product categories as well as increase its distribution
network and international sales. Selfix's largest selling product categories,
bath and shower organizers and hooks and home helpers, complement Tamor's
largest selling product categories, storage containers and hangers. Currently,
Tamor sells its products primarily through major discount retailers and has
very limited
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<PAGE> 54
international sales. Although Selfix also has the major discount retailers as
customers, it also sells more of its products through hardware/home centers and
has increasing international sales. The Tamor Acquisition has also enabled the
Company to use excess manufacturing capacity at the Selfix and Shutters
facilities for production of Tamor products which would otherwise be outsourced
resulting in a more efficient use of fixed costs and increased gross profit
margins.
Continue To Be A Low Cost Producer. The Company remains focused on
continuous cost reduction and productivity improvement in its effort to become
the lowest cost houseware products producer. The Company, as a result of the
Tamor Ac quisition, has five manufacturing facilities using similar
manufacturing processes and injection molding technology as well as similar raw
materials. The Company's objective is to maximize the use of each operating
facility and leverage its purchasing power to achieve certain economies of
scale in the purchase of plastic resin and other materials. Before the Tamor
Acquisition, Tamor was operating over capacity at its manufacturing facilities
which constrained its growth and forced it to outsource a substantial portion
of its production while Selfix's and Shutter's manufacturing facilities were
operating at less than full capacity. Following the Tamor Acquisition, the
Company shifted some of Tamor's outsourced production to the Selfix and
Shutters facilities which enabled the Company to achieve full manufacturing
capacity at all of its facilities.
Introduce High-Value Low-Cost New Products. The Company intends to
continue to leverage its design capabilities and know-how in plastics to create
new products and launch new product lines that respond to consumer preferences
and market trends. The Company intends to continue developing new and
innovative products that are attractively designed with consumer driven
features and benefits. The Company has established a target of achieving at
least 10% of annual net sales from new products introduced in the prior year.
By developing and introducing new products, the Company believes it is well
positioned to maintain, and expand on, its existing allocation of shelf space,
to secure additional shelf space and to be selected as a single-resource vendor
by major discount retailers. The Company also believes that the development and
introduction of new products leads to increased sales. In 1993, Tamor
identified a market opportunity to introduce quality storage containers at
opening price-points. In 1996, storage containers accounted for 48.1% of
Tamor's net sales and were primarily responsible for Tamor's 41% compounded
annual growth rate in net sales from 1993 through 1996. The Company has
established minimum margin levels for all of its new products and actively
eliminates under performing product lines.
Emphasize Customer Service through Operational and Information System
Infrastructure. The Company has developed and implemented a multi-faceted
customer service program to address the requirements of its major discount
retail, mass market and hardware/home center customers. Through its
state-of-the-art retail information technology, such as
Electronic-Data-Interchange (EDI) order transmission and planogram (shelf space
management techniques) technology, the Company is in a position to immediately
respond to the demands of its retail customers. Because houseware retailers
place considerable value on the customer service provided by their vendors, the
Company anticipates continually updating its customer service program in the
future in order to respond to the needs of its customers.
Expand Merchandising Relationships with Key Customers. The Company
maintains close and interactive relationships with its retailers and
distributors by engaging in a continuing dialogue concerning new product and
merchandising ideas. The Company continually works to strengthen such
relationships and develop relationships with other major retailers and
distributors in order to provide them with timely and innovative solutions to
their merchandising requirements. Key customers of the Company include
Wal-Mart, Kmart, Target, Toys 'R Us, Home Depot, Walgreens and Bed Bath &
Beyond. By offering retail customers a broad line of product offerings, the
Company can create cross-company promotional programs to gain shelf space over
smaller competitors. Additionally, the Company can merchandise specially
selected items from one or more operating companies to win seasonal promotions.
For example, a Tamor storage container can be filled with a selection of Selfix
hooks and bathwares as a special promotion.
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Increase Penetration in International Markets. The Company intends to
continue to expand its international market penetration, by emphasizing further
penetration in Western Europe, Mexico and Latin America and by cross-marketing
newly acquired product lines through existing international channels. The
Company, through its international distribution network, currently sells its
products in over 40 countries.
PRODUCTS
Storage Containers. The Company offers a variety of plastic home storage
containers under the "Tamor" brand name. These range in size from shoe boxes to
jumbo (48 gallon) totes, and include specialty seasonal containers. These
products range in retail price from $2.00 to $20.00 and contain a variety of
product attributes, including removable wheels and domed-top lids which
increase storage capacity. Management believes these features are key to
obtaining and maintaining shelf space and competing in the market. This is the
fastest growing segment for Tamor, and management believes it holds a
significant market share in the plastic storage container market.
Key products in this category include:
- Jumbo storage containers
- Under-bed storage containers
- Hampers and laundry baskets
- Waste baskets
- Refuse containers
Home/Closet Organization Products. The Company offers a variety of
products for general home organization, under both the "Selfix" and "Tamor"
brand names. This category is comprised primarily of plastic clothes hangers,
which represented 60% of this category's pro forma gross dollar sales in 1996.
Due to the commodity nature of the hanger segment, margins in this category are
inherently lower, while unit volumes are substantially higher. Management
believes that Tamor is among the nation's leading suppliers of plastic clothes
hangers and that its broad product offering gives it a competitive advantage
over other hanger manufacturers.
Key products in this category include:
- Tubular plastic hangers
- Wood hangers
- Acrylic hangers
- Shirt and slack hangers
- Shoe racks
Also included in this category are other plastic organizers, closet and
clothing care products, recycling containers, plastic kitchen organizers and
housewares products, and vinyl coated wire kitchen organizers.
Bath and Shower Products. The Company markets a broad line of
value-priced plastic bath accessories and organizers, primarily under the brand
name "Selfix." In January, 1997, Selfix launched Suction-Lock(R) Organizers, a
major line extension in the Bath and Shower Products category. The Company
believes it is a leading producer of opening price-point plastic bath and
shower accessories.
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<PAGE> 56
Key products in this category include:
- Shower caddies
- Toothbrush, tissue and soap holders
- Fogless shave mirrors
- Vanity-top accessories
- Bath and shower shelving
- Towel bars
- Hand-held shower spray
Hooks. The Company markets a complete line of over 150 hooks, primarily
made of plastic, under the brand name "Selfix." The original product marketed
by Selfix was a plastic hook, unique in that it employed a proprietary adhesive
mounting system. Selfix has expanded its offering of these patented,
self-adhesive hooks, and the Company offers a complete line of hooks in the
opening price point segment. Augmenting the plastic hooks are a line of metal
picture hooks, sold to the same customer base.
Key products in this category include:
- Patented self-adhesive hooks
- Closet hooks
- Utility area hooks
Also included in this category are home helpers such as faucet sprays,
line traps, suction clips, magnetic clips and towel grips.
Juvenile Products. The Company, through Selfix and Tamor, markets a line
of quality children's organization products, under the brand names Tidy
Kids(R), Kidtivity(R) and Lil' Helpers(TM). These include closet
extenders, hook racks, storage cubes, clothes hangers, and under-the-bed
storage trolleys. These products are sold in the juvenile or housewares
departments of its largest retail customers, and also through specialty
juvenile retailers like Toys `R Us and Baby Superstores. The Company
believes it created a market niche of children's organization products in the
development and successful sales of its Tidy Kids(R) and Lil Helpers(TM)
products and that it offers the premier children's organization program in the
industry. The Company also markets child safety products under the licensed
Fisher-Price(R) brand, which are sold in the same channels as the Company's
other juvenile products.
Key products in this category include:
- Under-bed storage containers
- Toy chest
- Shoe racks
- General storage containers
- Wall racks
- Closet organizers
- Homework organizers
Home Improvement Products. Through Shutters, the Company markets a unique
line of plastic exterior shutters to the construction trades and consumer home
improvement catalogs. Because of a patented design, the shutters are assembled
from components, rather than formed in a single piece. This allows the
shutters to be configured in the largest variety of sizes and colors in the
industry. Shutters markets the shutters in component form to remodeling
distributors, and in finished form to home center retailers. In both cases,
the key competitive advantage is customization of size and color, and
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<PAGE> 57
quick turnaround service. In early 1997, Shutters entered a new market
segment with "fixed-size" shutters, utilizing existing trade channels.
Key products in this category include:
- Plastic shutters
- Wood shutters
- Exterior housing trim
- Exterior millwork
Pro Forma Sales by Product Category
The following table sets forth the amounts and percentages of the
Company's pro forma sales for its product categories for the periods indicated.
<TABLE>
<CAPTION>
THIRTEEN
YEAR WEEKS
ENDED ENDED
DECEMBER 28, 1996 MARCH 28, 1997
----------------- --------------
<S> <C> <C>
Storage Containers............... 32% 35%
Home/Closet Organization Products 33 35
Bath and Shower Products......... 13 5
Hooks and Home Helpers........... 5 11
Juvenile Products................ 9 9
------ -----
Housewares Products.............. 92 95
Home Improvement Products........ 8 5
------ -----
Total Gross Sales................ 100% 100%
====== =====
</TABLE>
MARKETING AND DISTRIBUTION
The Company's housewares products are sold through national and regional
discount, variety, supermarket, drug, hardware/home center, and specialty
stores. Selfix and Tamor both sell directly to major retail customers through
internal sales management personnel. Selfix and Tamor also sell to
approximately 3,000 other customers, through a network of approximately 50
independent manufacturers representatives. During fiscal 1996, including Tamor
on a pro forma basis, Wal-Mart/Sam's Club, Kmart and Target represented
approximately 21%, 8% and 5% respectively, of the Company's net sales. During
fiscal 1996, no other customer represented 5% or more of the net sales. See
"Risk Factors--Customer Concentration/Consolidating Customer Base."
Key channels include the following:
<TABLE>
<CAPTION>
FOOD/
MASS MERCHANT HOME/HARDWARE DRUG STORES JUVENILE SPECIALTY RETAIL
- ------------- --------------- --------------- -------- -----------------
<S> <C> <C> <C> <C>
Wal-Mart/ Home Depot Walgreens Toy-R-Us Bed Bath & Beyond
Sam's Club
Kmart Lowes Kroger Baby Superstore Linens 'n Things
Target Builders Square Rite-Aid
Ace Hardware Thrifty/Payless
True Value
</TABLE>
The Company's primary marketing strategy is to design innovative products
with consumer features and benefits, and focus on marketing the product to its
retail selling partners. Management
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believes that one of its competitive advantages is prompt and reliable product
delivery of value-priced high-volume products, allowing customers to maintain
minimal inventories. The Company believes that the customer specific
merchandising programs it offers enable retailers to achieve a higher return on
the Company's products than the products of many of its competitors. To that
end, both Selfix and Tamor offer customers a variety of retail support
services, including customized merchandise planogramming, small shipping packs,
point-of-purchase displays, EDI, and just-in-time (JIT) product delivery
designed to continue their growth with volume retailers.
Shutters markets its products in component form to remodeling
distributors, and in finished form to home center retailers.
Including Tamor on a pro forma basis, the Company's 1996 sales outside the
United States accounted for 5% of its total net sales primarily in Canada,
Australia, Argentina, Brazil, United Kingdom and Mexico.
PRODUCT RESEARCH AND DEVELOPMENT
At April 1, 1997, the Company employed ten people in Product Research and
Development and uses computer-aided design (CAD) systems to enhance its product
development efforts. New products have been the critical stimulus to the
Company's sales growth. The Company has established a target of achieving at
least 10% of annual net sales from new products introduced in the prior year.
MANAGEMENT INFORMATION SYSTEMS
The Company's retail information technology allows it to be online with
any customer who requires EDI (electronic data interchange). With the
Company's largest customers, Kmart, Wal-Mart, Target and Toys 'R Us, all orders
are transmitted via EDI. Additionally, these customers are on VMR (vendor
management replenishment) and E-Mail. Finally, with Kmart and Wal-Mart, the
Company's POS (point-of-sale) technology allows it to access daily sales
activity directly from retail cash register point of sale information.
Internally, the manufacturing process is guided by a state-of-the art MRP
(manufacturing resource planning) system. This computerized planning
infrastructure allows the Company to plan its manufacturing, purchasing and
labor resources and make revisions on a daily basis in reaction to
ever-changing sales activity.
COMPETITION
The market for the Company's products is highly competitive. The Company
believes it is recognized as a strong competitor in the marketplace based on
its innovative yet value-priced products and reliable, timely volume delivery.
However, the Company competes with a significant number of smaller privately
held companies and a few public companies, some of which have greater
name/brand recognition, larger customer bases and/or significantly greater
financial resources than the Company, such as Rubbermaid Inc. There are no
substantial regulatory or other barriers to entry of new competitors into the
Company's industries. A supplier that is able to maintain, or increase, the
amount of retail space allocated to its product may gain a competitive
advantage in that product market. There can be no assurance that the Company
will be able to compete successfully against current and future sources of
competition or that the current and future competitive pressures faced by the
Company will not adversely affect its profitability or financial performance.
MANUFACTURING AND RAW MATERIALS
The Company manufactures the majority of its products at its five
manufacturing facilities using injection molding and extrusion processes. The
Company's production processes utilize fully automated raw material handling
systems and high speed packaging equipment. Many of the injection molding and
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extrusion operations are also automated and are supported by incentive based,
manually performed secondary operations.
The Company works closely with subcontractors which use the Company's
molds to manufacture, assemble and package some of its products. By
outsourcing a portion of manufacturing to such subcontractors, the Company has
been able to devote its resources to product development and marketing while
maintaining control over production quality. As a result of the Tamor
Acquisition, the Company has shifted some of Tamor's outsourced manufacturing
to Company facilities.
The primary raw material used in the Company's plastic injection molding
operations is plastic resin, primarily polypropylene. Plastic resin is a
commodity with pricing parameters tied to supply and demand characteristics
beyond the Company's control. As a result of the Tamor Acquisition, the
Company is now a significant user of plastic resin. In total, the Company used
75.4 million pounds of plastic resin on a pro forma basis in 1996. Because of
the large amount of plastic resin used and the relative inability to pass cost
increases along to its retail customers, the Company is highly susceptible to
changes in plastic resin pricing. See "Risk Factors--Increases in Cost of
Plastic Resin."
Plastic resin prices can vary widely from year to year and are very
difficult to predict beyond a few months. Tamor's plastic resin cost history
is illustrative of the swings that can occur in resin pricing. Tamor, which
uses about 90% of the Company's resin requirements, experienced average price
increases from 1993 to 1994 of 26%, from 1994 to 1995 of another 25% but then
experienced a price decrease from 1995 to 1996 of 16%. See "Risk
Factors--Increases in Cost of Plastic Resin."
Due to the nature of its products, the Company is able to use off-prime
grades of resin. As a result, it does not purchase its plastic resin directly
from manufacturers but rather is able to buy through brokers in a secondary
market. This enables the Company to buy at a discount. Buying off-prime
material at a discount gives the Company a cost advantage over some of its
larger competitors but does not alleviate the pricing risks inherent with
buying a commodity raw material. Plastic resin is in demand by a number of
different industries, many of which are quite different from the Company's
primary housewares business. For example, the automobile and housing
industries are very large users of plastic resin. Demand changes in the
automobile industry or the number of new housing starts can have an impact on
plastic resin pricing. See "Risk Factors--Increases in Cost of Plastic Resin."
There is no futures market for plastic resin, and as a result, the Company
cannot lock in its costs without purchasing significant quantities beyond its
immediate manufacturing needs. The Company has no long-term supply contracts
for the purchase of resin, however, the Company generally maintains a 60-day
supply of resin.
EMPLOYEES
As of March 29, 1997, the Company employed 499 persons in the United
States. The Company believes its relationship with its employees is good.
Approximately 91 are hourly employees at its Leominster, Massachusetts
facility, covered by a collective bargaining agreement which expires in March,
1999; 151 are hourly employees at its Chicago, Illinois facilities, covered by
a collective bargaining agreement which expires in January, 1998. See "Risk
Factors--Labor Relations."
FACILITIES
At March 29, 1997, the Company maintained facilities with an aggregate of
approximately 877,000 square feet of space for its operations. The Company
considers all of its facilities to be in good operating
condition. Currently, all of the Company's manufacturing facilities are
operating at or near approximately full capacity. The following table
summarizes the principal physical properties, both owned and leased, used by
the Company in its operations:
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<PAGE> 60
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION USE FOOTAGE OWNED/LEASED EXPIRATION DATE
- -------------- ------------------------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
TAMOR
Leominster, MA Manufacturing 100,000 Owned
Louisiana, MO Manufacturing/Distribution 180,000 Leased February 9, 1999(1)
Thomasville, GA Manufacturing/Distribution 45,000 Owned
Fitchburg, MA Distribution 220,000 Leased March 31, 1998
SELFIX
Chicago, IL Manufacturing/Distribution 186,000 Leased July, 2010
Chicago, IL Storage/Distribution 83,505 Leased September, 1997
SHUTTERS
Hebron, IL Manufacturing/Distribution 62,500 Owned
</TABLE>
- ----------
(1) The Company has a commitment to construct an addition to this facility at
an estimated cost of $2,400,000. The Company has the option through
September, 1998 to purchase the building for $1,500,000.
During 1997, the Company plans to make capital expenditures in the amount
of up to $8.5 million to expand Tamor's manufacturing facility in Missouri and
acquire new machinery and molds for all of its facilities. The Company's
manufacturing facilities are currently being used at or near full capacity,
and, as a result, During the first quarter of fiscal 1997, the Company sent
approximately 25-30% of its production to various other manufacturers. See
"Business--Manufacturing and Raw Materials."
Tamor's and Selfix's backlog at March 29, 1997 was approximately one
month's sales and one week's sales, respectively. Consequently, the Company
does not believe that backlog is indicative of the Company's results of
operations or prospects.
PATENTS, TRADEMARKS AND LICENSES
Selfix, Tamor, and Shutters own a number of trademarks and approximately
100 United States mechanical and design patents relating to various products
and manufacturing processes. The Company believes that in the aggregate its
patents enhance its business, in part by discouraging competitors from adopting
patented features of its products. No single patent, trademark or license is
material to the business of the Company.
Through the acquisition of Mericon Child Safety Products in 1995, Selfix
entered into a licensing agreement with Fisher-Price, Inc. of East Aurora, N.Y.
The agreement requires the Company to pay a percentage-based royalty to
Fisher-Price, a minimum of $100,000 for calendar year 1997, for sales by Selfix
of Fisher-Price brand products, which are designed, manufactured and marketed
by Selfix. The agreement, which calls for certain conditions to be met by both
parties, is in effect through December 31, 1997.
ENVIRONMENTAL MATTERS
An environmental report obtained in connection with the Tamor Acquisition
indicated that certain remedial work relating to ground contamination of
Tamor's Leominster, Massachusetts facility was required. The former
shareholders of Tamor escrowed $1.1 million to pay for, among other things, any
required remediation at the Leominster, Massachusetts facility. The Company
believes that the remediation can be completed for less than the amount of the
escrow.
Except as described, the Company believes that its properties and
facilities are in compliance, in all material respects with applicable Federal,
state and local laws, ordinances and regulations concerning
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<PAGE> 61
the presence of hazardous substances and that continued compliance with such
laws, ordinances and regulations will not have a material effect on the
Company's capital expenditures, earnings or competitive position.
No assurances can be given that (i) future laws, ordinances or regulations
will not require or impose any material expenditures or liabilities in
connection with any environmental conditions on the Company's facilities, (ii)
the current environmental condition of the Company's properties will not be
affected by the condition of properties in the vicinity of the Company's
facilities or by third parties unrelated to the Company and (iii) prior owners
of any of the Company's properties and facilities did not create environmental
problems of which the Company is not aware. See "Risk Factors--Environmental
Compliance."
LEGAL PROCEEDINGS
The Company is not subject to or involved in, nor is the Company aware of,
any pending or threatened litigation which could be material to the financial
position or results of operations of the Company.
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<PAGE> 62
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and certain other key employees of the
Company, and their respective ages and principal positions as of March 29,
1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -----------------------------------------------------
<S> <C> <C>
James R. Tennant......... 44 Chairman of the Board, Chief Executive Officer of
Home Products and Chief Executive Officer of Selfix
James E. Winslow......... 42 Executive Vice President, Chief Financial Officer
and Secretary of Home Products and Executive Vice
President of Selfix
Leonard J. Tocci......... 55 Chief Executive Officer of Tamor
Dennis M. Gerrard........ 44 President of Tamor
Jeffrey R. Dolan......... 40 Senior Vice President - Sales and Marketing of Selfix
David E. Limanni......... 48 Vice President - Manufacturing of Tamor
Peter L. Graves.......... 40 Vice President - Product Marketing of Selfix
Robert Holz.............. 48 Vice President - International Sales of Selfix
Richard M. Tocci......... 48 Vice President - Operations of Tamor
Michael J. Ricard........ 57 Vice President - General Manager of Shutters
Charles R. Campbell(1)(2) 57 Director
Marshall Ragir(2)........ 52 Director
Jeffrey C. Rubenstein(1). 55 Director
Daniel B. Shure(2)....... 38 Director
Joel D. Spungin.......... 59 Director
</TABLE>
- ----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
James R. Tennant joined the Company as Chairman of the Board and Chief
Executive Officer in April, 1994. Mr. Tennant was elected a Director of the
Company in December, 1992, and was a member of the Company's Compensation
Committee until April, 1994. From 1982 to 1994, Mr. Tennant was President of
Foote, Cone & Belding/Direct, an international marketing services company. From
1979 to 1982, he was employed by Young and Rubicam, an advertising agency, his
final position being Senior Vice President.
James E. Winslow joined the Company as Executive Vice President in
October, 1996. Mr. Winslow joined the Company as Chief Financial Officer and
Senior Vice President in November, 1994. In 1994, Mr. Winslow was Executive
Vice President and Chief Financial Officer of Stella Foods, Inc. From
1983 to 1994, Mr. Winslow was employed by Wilson Sporting Goods Co. in various
capacities, his final position being Vice President and Chief Financial
Officer.
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Leonard J. Tocci joined the Company as Chief Executive Officer of Tamor
in February, 1997. From 1988 until 1997, Mr. Tocci was President of Tamor.
From 1977 to 1986, Mr. Tocci owned and operated American Hanger, Inc. Leonard
J. Tocci is the brother of Richard M. Tocci.
Dennis M. Gerrard joined the Company as President of Tamor in February,
1997. From 1995 to 1996, Mr. Gerrard was Vice President of Marketing -
Plastics of EKCO Housewares. From 1993 to 1995, he was Vice President of Sales
and Marketing for Tamor. From 1985 to 1993, Mr. Gerrard was employed by Whitney
Productions, Inc., a supplier of corrugated storage products, with his final
position being President.
Jeffrey R. Dolan joined the Company as Senior Vice President - Sales of
Selfix in August, 1995. In 1996, Mr. Dolan was named Senior Vice President -
Sales and Marketing of Selfix. From 1982 to 1995, Mr. Dolan was employed by
Rubbermaid, Inc., in various sales management capacities, his final position
being Vice President National Accounts.
David E. Limanni joined the Company as Vice President - Manufacturing of
Tamor in February, 1997. From 1994 to 1997, Mr. Limanni was Director of
Operations Midwest region for Tamor. From 1993 to 1994, Mr. Limanni was
Operations Manager - West Coast for Syroco, Inc. From 1991 to 1993, Mr.
Limanni was General Manager of Alpha Plastics. From 1989 to 1991, Mr. Limanni
was General Manager of Syroco, Inc. From 1983 to 1989, Mr. Limanni was Vice
President of Operations for Beacon Plastics.
Peter L. Graves has been Vice President - Product Marketing of Selfix
since October, 1994. Mr. Graves joined the Company in 1981 as a copywriter and
has served in various sales and marketing positions in the Company, with his
previous position in the Company being Manager of Sales and Marketing
Administration of Selfix.
Robert Holz has been Vice President - International Sales of Selfix since
1996. Mr. Holz joined the Company as Director of International Sales in 1995.
From 1993 to 1995, he was Director of Sales for Sunbeam/Oster International.
From 1987 to 1993, Mr. Holz was Sales Manager for Frigidaire. From 1984 to
1987, Mr. Holz was Sales Manager for H.R. Johnson.
Richard M. Tocci joined the Company as Vice President - Operations of
Tamor in February, 1997. From 1988 to 1997, Mr. R. M. Tocci was Treasurer and
Vice President - Operations of Tamor. From 1977 to 1987, he was employed by
American Hanger, Inc., with his final position being Vice President of
Operations. Richard M. Tocci is the brother of Leonard J. Tocci.
Michael J. Ricard has been Vice President and General Manager of Shutters
since September, 1996. From October, 1995, to September, 1996, he was Vice
President - Sales of Shutters. Mr. Ricard joined the Company in 1988 as
Product Development Manager of Selfix. He became National Sales Manager of
Shutters in 1989. From 1986 to 1988, he was employed by Cedco as General
Manager. From 1983 to 1986, he was Vice President - Sales of Superior Plastics.
Charles R. Campbell has been a Director of the Company since September,
1994. Mr. Campbell has been President of C. R. Campbell & Associates, a
management consulting firm, since January, 1995. From 1985 to 1995, Mr.
Campbell was Senior Vice President, Chief Financial and Administrative Officer
of Federal Signal Corporation, a diversified manufacturer of capital goods.
From 1982 to 1985, he was Vice President and Chief Financial Officer of the
Masonite Corporation, a manufacturer of building products. Mr. Campbell is a
member of the Compensation Committee and Audit Committee.
Marshall Ragir has been a Director of the Company since July, 1995. Since
1991, Mr. Ragir has been President and Chief Executive Officer of Know Business
Inc., a venture capital and investment
company. Mr. Ragir is a member of the Compensation Committee. Mr. Ragir is a
director of several charitable foundations and non-profit agencies.
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Jeffrey C. Rubenstein has been a director of the Company since September,
1986. Since 1991, Mr. Rubenstein has been a partner in the law firm of Much
Shelist Freed Denenberg Ament Bell & Rubenstein, P.C., an Illinois professional
corporation, which is counsel to the Company. From January, 1989 until June,
1991, Mr. Rubenstein was of counsel to the law firm of Sachnoff & Weaver, Ltd.,
an Illinois professional corporation, and of which he had been a principal
prior to July, 1988. From March, 1988 until January, 1989, Mr. Rubenstein was
President of Medical Management of America, Inc. ("MMA"), a management services
company for health care providers. Mr. Rubenstein is a member of the Company's
Audit Committee. Mr. Rubenstein is a director of Miller Building Systems, Inc.,
Vita Food Products, Inc. and a number of privately held firms. Mr. Rubenstein
is the executor of the estate of Norma L. Ragir (the "Ragir Estate") and in
such capacity exercises voting and investment power with respect to the shares
of Common Stock beneficially owned by the Ragir Estate. Mr. Rubenstein is
co-trustee of the MJR/ NLR Gift Trust - Judith Ragir Separate Trust, the
MJR/NLR Gift Trust - Robert Ragir Separate Trust and the MJR/NLR Gift Trust -
Marshall Ragir Separate Trust (collectively, the "Ragir Gift Trusts") and, in
such capacities, exercises shared voting and investment power with respect to
the shares of Common Stock beneficially owned by the Ragir Gift Trusts. Mr.
Rubenstein is also co-trustee of the Meyer J. Ragir Family Irrevocable Trust -
Judith Ragir Separate Trust and the Meyer J. Ragir Family Irrevocable Trust -
Marshall Ragir Separate Trust (collectively, the "Ragir Family Trusts") and, in
such capacities, exercises shared voting and investment power with respect to
the shares of Common Stock beneficially owned by the Ragir Family Trusts. The
Ragir Gift Trusts and the Ragir Family Trusts Estates are collectively referred
to as the "Ragir Trusts." Mr. Rubenstein, as executor of the Ragir Estate and
co-trustee of the Ragir Trusts, exercises either sole or shared voting and
investment power with respect to 2,083,358 shares of Common Stock or 48% of the
outstanding shares of Common Stock as of March 26, 1997.
Daniel B. Shure has been a director of the Company since December, 1994.
Since 1988, Mr. Shure has been President and Chief Executive Officer of
Strombecker Corporation, an international toy manufacturer and distributor.
From 1987 to 1988, he was Vice President of Giftco, Inc., a wholesaler and
distributor of non-durable products. From 1986 to 1987, Mr. Shure was Executive
Vice President of North American Bear Company, a toy manufacturer. Mr. Shure is
a member of the Compensation Committee. He is also a director of a number of
privately held firms.
Joel D. Spungin has been director of the Company since September, 1996.
Mr. Spungin is managing Partner of DMS Enterprises, L.P., a consulting and
management advisory partnership. Mr. Spungin was formerly Chairman and Chief
Executive Officer of United Stationers and since 1994, he has been Chairman
Emeritus of United Stationers, Inc. Mr. Spungin is also a director of AAR
Corporation and a number of privately-held firms.
Officers serve at the discretion of the Board of Directors, except as
provided in the employment agreements of Mr. Tennant, Mr. Leonard Tocci and Mr.
Richard Tocci. See "Management--Employment Agreements."
The Company's Bylaws provide that the Board of Directors of the Company
shall consist of six directors. The number of authorized directors may be
increased or decreased from time to time by either the Board of Directors or
the affirmative vote of a majority of the Company's shareholders. Directors
are elected annually to serve until the next annual meeting of shareholders and
until their successors are elected and qualified. Executive officers are
appointed annually by the Board of Directors and serve at the Board's
discretion, subject to any written employment agreements with the Company. See
"Management--Employment Agreements."
BOARD COMMITTEES
The Audit Committee is comprised of directors Charles R. Campbell and
Jeffrey C. Rubenstein. The Audit Committee oversees the activities of the
Company's independent auditors. The Compensation Committee is comprised of
directors Charles R. Campbell, Marshall Ragir and Daniel B. Shure. This
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Committee reviews and makes recommendations to the Board of Directors with
regard to the salaries, incentive compensation and related benefits of
corporate officers and other employees.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not separately compensated
for serving on the Board of Directors. Non-employee directors are paid an
annual retainer of $2,500. In addition, they receive a fee of $1,750 for each
board meeting attended. Non-employee directors who are members of board
committees also receive $500 for each committee meeting attended. During 1996,
one non-employee director was granted options to purchase 5,000 shares of
Common Stock at an exercise price of $4.625 per share, the fair market value as
defined in the 1994 Plan, on the date of grant.
EXECUTIVE COMPENSATION
The following table shows certain information concerning the compensation
of the Chief Executive Officer and each other executive officer of the Company
where aggregate compensation for services in all capacities rendered during the
year ended December 31, 1996, exceeded $100,000 (collectively the "NAMED
EXECUTIVE OFFICERS").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) UNDERLYING OPTIONS COMPENSATION
- --------------------------- ---- ----------- ------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
James R. Tennant................... 1996 $250,000 $ 125,000 200,000 $13,161
Chairman of the Board and 1995 250,000 100,000 350,000 (2) 4,243
Chief Executive Officer of 1994 175,769 -0- 350,000 -0-
Home Products and Chief
Executive Officer of Selfix, Inc.
James E. Winslow................... 1996 173,262 60,000 25,000 10,576
Executive Vice President, Chief 1995 170,000 118,000 (3) 60,000 (2) 4,141
Financial Officer and Secretary of
Home Products and Executive
Vice President of Selfix, Inc.
Jeffrey R. Dolan................... 1996 131,292 20,000 -0- 3,443
Senior Vice President - Sales
and Marketing of Selfix, Inc.
Peter L. Graves.................... 1996 102,865 15,000 6,000 8,298
Vice President - Product Marketing 1995 102,865 34,254 10,000 (4) 7,141
of Selfix, Inc.
Michael J. Ricard.................. 1996 104,120 12,000 -0- 6,375
Vice President - General Manager 1995 100,732 32,786 20,000 6,570
of Shutters, Inc.
</TABLE>
(1) Reflects amounts contributed by the Company to the Company's Profit
Sharing /401(k) Plan and Trust (including elective 401(k) deferrals).
(2) Reflects replacement options granted in fiscal 1995 to these executive
officers. During 1995, the Company's Board of Directors cancelled options
to purchase 460,000 shares of Common Stock held by various members of
senior management at exercise prices ranging from $7.50 to $12.00 per share
and issued replacement options to purchase the same number of shares of
Common Stock at prices ranging from $6.00 to $8.00 per share which exceeded
the fair market value, as defined in the 1994 Stock Option Plan, on the
date of grant. The options were cancelled and repriced to provide a more
realistic and attainable incentive based on the market price of the Common
Stock ($4.25) on the date of grant. No other options were granted to these
executive officers in fiscal 1995.
(3) Includes a $50,000 contingent payout pursuant to Mr. Winslow's continued
employment by the Company.
(4) Reflects replacement options granted in fiscal 1995 to replace cancelled
options that were also granted in fiscal 1995.
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<PAGE> 66
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in fiscal
1996 by the Named Executive Officers and the value of such officers'
unexercised options at fiscal 1996 year-end.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT MONEY OPTIONS AT
FISCAL YEAR-END(1) FISCAL YEAR-END(2)
--------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ---------- -------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James R. Tennant. -0- $-0- 5,000 550,000 $10,625 $1,318,750
James E. Winslow. -0- -0- -0- 85,100 -0- 192,313
Jeffrey R. Dolan. -0- -0- -0- 30,100 -0- 49,138
Peter L. Graves.. -0- -0- 1,629 16,100 6,840 40,689
Michael J. Ricard -0- -0- 1,117 20,100 2,779 32,938
</TABLE>
(1) Future exercisability is subject to vesting and the optionee remaining
employed by the Company.
(2) Value is calculated by subtracting the exercise price from the assumed
fair market value of the securities underlying the option at fiscal
year-end and multiplying the result by the number of in-the-money options
held. There is no guarantee that if and when these options are exercised
they will have this value. Fair market value was calculated based on the
last reported sale price per share of the Common Stock as reported on The
NASDAQ National MarketSM on December 28, 1996 ($8,625).
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<PAGE> 67
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1996
to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------- POTEMTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------------
NAME GRANTED (1) IN YEAR (3) ($/SHARE) DATE 5% 10%
- ---- ----------- ------------ -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Tennant.... 200,000 (4) 80.3% $ 5.00 12/31/99 $70,803 $231,175
James E. Winslow.... 10,000 4.0% 4.625 02/08/06 29,086 73,711
15,000 6.0% 5.00 11/07/06 86,871 182,753
Jeffrey R. Dolan.... -- -- -- -- -- --
Peter L. Graves..... 6,000 2.4% 4.625 02/08/06 17,452 44,226
Michael J. Ricard... -- -- -- -- -- --
</TABLE>
- --------------
(1) All options (with the exception of options granted to Mr. Tennant) have a
ten year term and become exercisable in equal annual increments over a
three year vesting period beginning three years from the date of grant.
(2) Potential realizable value is based on an assumption that the stock price
of the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the option term. These
numbers are based on the requirements of the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
performance.
(3) The Company granted options representing 238,500 shares in 1996. The
Company granted options representing 10,400 shares in 1997 to persons
other than those named in the table above.
(4) The options became exercisable in equal annual increments over a three
year vesting period beginning January 1, 1997.
EMPLOYMENT AGREEMENTS
James R. Tennant is employed as Chairman of the Board and Chief Executive
Officer of the Company pursuant to an employment agreement which commenced
January 1, 1997, and expires on December 31, 1999, with automatic one year
extensions thereafter unless cancelled by either parties. The employment
agreement provides for an annual base salary of $275,000. Mr. Tennant is also
entitled to receive a discretionary bonus, based on the Company's financial
performance. If the Company does not renew Mr. Tennant's employment agreement
for any renewal year after December 31, 1999, Mr. Tennant will be entitled to
receive a severance payment of $275,000, payable in twelve monthly
installments, and may exercise options which have vested prior to such date.
In the event that the Company is sold for a price of $5.50 per share or more in
a stock sale or asset sale and Mr. Tennant is employed by the Company on the
closing of any such event, Mr. Tennant will be entitled, at his option, to (i)
receive a $1,000,000 payment from the Company or (ii) exercise all stock
options he holds as if they were then available and vested. Pursuant to his
employment agreement, Mr. Tennant was also granted 350,000 replacement options
at prices ranging from $6.00 to $8.00, which expire December 31, 1999. The
expiration date of these options can be extended for a period of five years if
the trading price of the Common Stock exceeds $10.00 per share for the entire
month of December, 1999. He was also granted additional options for 200,000
shares at a price of $5.00 per share, which vest in equal
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<PAGE> 68
increments over a three year period. These options may be extended
until April 30, 2005, under the same conditions as the other options. See
"Risk Factors--Dependence on Key Personnel."
Leonard J. Tocci is employed as Chief Executive Officer of Tamor pursuant
to an employment agreement which commenced February 26, 1997, and expires on
February 26, 2000, with automatic one year extensions thereafter unless
canceled by either party. The employment agreement provides for an annual base
salary of $300,000. Mr. Tocci is also entitled to receive a discretionary
bonus, based on Tamor's financial performance. In addition, Mr. Tocci is
entitled to receive from Tamor an amount equal to 100% of his base salary then
in effect and exercise all stock options he holds as if they were then
available and vested, if a change in control of Company ownership, as defined
in the employment agreement, occurs and Mr. Tocci's full-time employment with
Tamor terminates within 180 days after such change in control. Pursuant to his
employment agreement, Mr. Tocci was also granted options to purchase 50,000
shares of Common Stock at an exercise price of $4.375 per share which vest over
a three year period commencing February 26, 1998 and expire on December 31,
2003. See "Risk Factors--Dependence on Key Personnel."
STOCK OPTION PLANS
The Company's 1994 Stock Option Plan (the "1994 PLAN") was adopted by the
Board of Directors in April, 1994, and approved by the shareholders in July,
1994. The Company also has a 1987 Stock Option Plan and a 1991 Stock Option
Plan, the terms of which are substantially similar to the 1994 Stock Option
Plan (the 1987, 1991 and 1994 Stock Option Plans are collectively referred to
as the "STOCK OPTION PLANS"). The purpose of the Stock Option Plans are to
attract and retain qualified personnel, to provide additional incentives to
employees of the Company and to promote the success of the Company's business.
A total of 1,475,000 shares of Common Stock have been reserved for issuance
under the Stock Option Plans, of which, as of April 21, 1997, 118,002 have been
issued and 1,356,998 remain in reserve. The Stock Option Plans provides for
the granting to key employees and key non-employees of incentive stock options
and/or nonstatutory stock options. As of April 21, 1997, key employees and
certain key nonemployees have been granted options to purchase up to 965,017
shares of Common Stock under the Stock Option Plans, as amended.
The Stock Option Plans are administered by either the Board of Directors
or a committee of the Board of Directors ("ISO COMMITTEE"), whose members are
not entitled to receive options. The ISO Committee has complete discretion to
select the optionees, the exercise price and payment terms and to establish the
terms and conditions of each option, subject to the provisions of the Stock
Option Plans and applicable laws and regulations. The ISO Committee also has
the authority to interpret the Stock Option Plans. Options granted may or may
not be "incentive stock options" as defined by the Internal Revenue Code of
1986 ("QUALIFIED INCENTIVE OPTIONS") depending upon the terms established by
the ISO Committee at the time of grant. The exercise price of incentive stock
options granted under the Stock Option Plans is determined by the Board of
Directors at the time of grant, but in the case of Qualified Incentive Options,
the exercise price may not be less than 100% of the fair market value of the
Common Stock subject to the option on the date of grant (110% if the optionee
owns more than 10% of the Company's Common Stock). The exercise price may be
paid in any form of consideration if authorized by the Board of Directors in
connection with the grant of an option. Qualified Incentive Options may not be
granted for a term greater than 10 years (five years if the optionee owns more
than 10% of the Company's Common Stock).
The Stock Option Plans may be amended at any time by the Board of
Directors, although certain amendments would require stockholder approval. The
Board of Directors may terminate any of the Stock Option Plans at any time.
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<PAGE> 69
1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1995 Employee Stock Purchase Plan (the "STOCK PURCHASE
PLAN") was adopted by the Board of Directors in December, 1994, and was
approved by the shareholders in July, 1995. A total of 200,000 shares of Common
Stock has been authorized for issuance to eligible employees under the Stock
Purchase Plan. As of March 29, 1997, 16,310 shares have been purchased under
the Stock Purchase Plan. The Stock Purchase Plan, which is intended to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended (the
"CODE"), is administered by the 1995 Employee Stock Purchase Plan Committee.
Members of the Committee are selected by the Board of Directors and cannot
satisfy the eligibility requirements to participate in the Stock Purchase Plan.
Under the Stock Purchase Plan, an employee shall be entitled to elect to have
between 2% and 12% of his salary withheld from each paycheck. Any employee who
has been continuously in the employment of the Company for six months and is
not a member of the union collective bargaining agreement will be eligible to
participate in the Stock Purchase Plan; provided, however, an employee who owns
more than 5% of the outstanding Common Stock is not eligible to participate in
the Stock Purchase Plan. The first purchase period under the Stock Purchase
Plan commenced on July 1, 1995, and continued for the six months immediately
following such date. New six-month purchasing periods commence thereafter on
December 31 and July 1 (individually, a "Purchase Date" and collectively, the
"Purchase Dates"). In the event of a change in control of the Company,
including a merger or sale of substantially all of the Company's assets, where
the Company survives, the employee may receive the number of shares for which
he would have been entitled to receive had he purchased the shares before the
event. If the Company is not the survivor, the employee shall be entitled to
receive the number of shares which he would have been entitled to pursuant to
the terms of the merger, if he had held such shares prior to the merger. The
price at which Common Stock will be purchased under the Stock Purchase Plan is
the lesser of 85% of the fair market value of the Common Stock on the first day
of the applicable purchase period or the fair market value of the Common Stock
on the last day of such purchase period adjusted to the nearest 1/8 point.
Employees may end their participation in the Offering effective on the next
succeeding Purchase Date and participation ends automatically on termination of
employment with the Company. No person may purchase shares under the Stock
Purchase Plan to the extent such person would own stock with a fair market
value (determined at the beginning of each six month purchasing period) in
excess of $25,000 in any calendar year. The Board of Directors may terminate
the Stock Purchase Plan at any time. The Stock Purchase Plan will terminate on
December 31, 1999, unless earlier terminated by the Board of Directors.
PROFIT SHARING PLAN
The Company's Profit Sharing and 401(k) Plan and Trust, as amended and
restated as of May 1, 1995 (the "PROFIT SHARING PLAN"), is a qualified profit
sharing plan with a 401(k) feature which covers all full-time employees of the
Company (other than employees whose employment is covered by collective
bargaining agreements) who have completed six months of service in the
Company's employ and attained age 21. In addition, the Company may contribute
an amount to the Profit Sharing Plan each year based on its net profits for
such year, and all covered employees who have met the eligibility requirements
may share in the Company's contribution for a given year according to a
prescribed allocation formula. The amount of the Company's contribution is
determined at the discretion of the Board of Directors. Subject to adjustments
based upon regulatory provisions, each participant's share of Company profit
sharing contributions vests at the rate of 20% per year, beginning after two
full years of employment, and the employee becomes fully vested after six
years. During fiscal 1996, the Company contributed $201,000 under the Profit
Sharing Plan. Because additional profit sharing contributions in the future
will be contingent on future profits and are at the discretion of the Board of
Directors, the amount of benefits that will be payable to the executive
officers named is impossible to predict.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation, as amended, limits the
personal liability of directors to the fullest extent permitted by Delaware
law. Under the Company's Certificate of Incorporation and as
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<PAGE> 70
permitted under Delaware law, directors are not personally liable for monetary
damages for breach of their fiduciary duties of care as directors. Such
provision does not, however, affect liability for any breach of a director's
duty of loyalty to the Company or its shareholders, for acts or omissions not in
good faith or which involve intentional misconduct, fraud or a knowing violation
of law or unlawful payments of dividends or for any transaction in which the
director received an improper personal benefit. Such limitation of liability
does not apply to liabilities arising under the federal securities laws and does
not affect the availability of equitable remedies such as injunctive relief or
rescission. In addition, the Company's Certificate of Incorporation and By-laws
provide that the Company shall to the fullest extent permitted by Delaware law,
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that he
or she is or was a director, officer, employee or agent of the Company or
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any and all expenses, liabilities or other matters referred to or
covered by Delaware law, which were reasonably incurred by such person. This
indemnification is in addition to any other rights of indemnification to which
such persons may be entitled under the Company's By-laws, any agreement or vote
of shareholders or disinterested directors. The Company's Certificate of
Incorporation and By-laws also permit it to secure insurance on behalf of any
director, officer, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether Delaware law, the
Certificate of Incorporation or By-laws would permit indemnification.
At present there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification. The Company
believes that the indemnification provisions in its Certificate of
Incorporation and By-laws are necessary to attract and retain qualified persons
as directors and officers. The Company does not have any separate
indemnification agreements with its directors or officers.
ANTI-TAKEOVER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in a business combination (as defined therein) with an "interested
stockholder" (defined generally as any person who beneficially owns 15% or more
of the outstanding voting stock of the Company or any person affiliated with
such person) for a period of three years following the date that such
stockholder became an interested stockholder, unless (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which the
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (iii) on or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
two-thirds of the outstanding voting stock which is not owned by the interested
stockholder.
STOCKHOLDER RIGHTS PLAN
The Board of Directors has preliminarily approved the implementation of a
stockholders rights plan (the "RIGHTS PLAN"). The Company currently
anticipates that the Rights Plan will become effective in May, 1997. To
implement the Rights Plan, the Board of Directors intends to declare a dividend
of one preferred stock purchase right (individually, a "RIGHT" and
collectively, the "RIGHTS") for each outstanding share of Common Stock at the
close of business on a to be determined record date (the
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<PAGE> 71
"RECORD DATE") and with respect to each share of Common Stock which shall become
outstanding after the Record Date and prior to the earlier of the Redemption
Date and the Final Expiration Date (as such terms are defined in the Rights
Agreement referred to below). The Rights, exercisable only in certain
circumstances, will trade together with the Common Stock until a Distribution
Date (as defined below). Under the terms of the proposed rights agreement
between the Company and the rights agent (the "RIGHTS AGREEMENT"), each Right,
when it becomes exercisable, will entitle the holder to purchase one
one-hundredth of a share (a "UNIT") of Series B Junior Participating Preferred
Stock, $0.01 par value ("PREFERRED STOCK"), of the Company at a purchase price
of $40.00 per Unit (the "PURCHASE PRICE"), subject to the conditions set forth
in the Rights Agreement.
Until the earlier of (a) 10 days following a public announcement that a
person or a group of affiliated persons (an "ACQUIRING PERSON") has acquired
beneficial ownership of 15% or more of the shares of Common Stock then
outstanding or (b) 10 business days after the commencement of, or the first
public announcement of the intention of a tender or exchange offer the
consummation of which would result in beneficial ownership by a person or group
of 15% or more of the shares of Common Stock then outstanding (the earliest of
the dates specified in clauses (a) and (b) being hereinafter called the
"DISTRIBUTION DATE"). The Rights are evidenced, with respect to any
certificate for Common Stock outstanding as of the Record Date by such
certificate, together with a Summary of Rights.
On the Record Date, or as soon as practicable thereafter, the Company
shall mail a copy of the Summary of Rights to the holders of record of the
Common Stock on the Record Date. The Rights Agreement provides that, until the
Distribution Date (or earlier redemption or expiration of the Rights), (i) the
Rights will be transferred with and only with the Common Stock , (ii) new
Common Stock certificates issued after the Rights Record Date will contain a
notation incorporating the Rights Agreement by reference, and (iii) the
surrender for transfer of any certificates for Common Stock outstanding as of
the Record Date, even without such notation or a copy of the Summary of Rights
being attached thereto, will constitute a transfer of the Rights associated
with the Common Stock represented by such certificate. As soon as practicable
after the Distribution Date, the Company shall deliver separate certificates
evidencing the Rights ("RIGHTS CERTIFICATES") and the Rights Certificates above
will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
in 2007, unless extended or unless the Rights are redeemed or exchanged by the
Company, in each case described below.
The purchase price payable and the number of shares of Preferred Stock or
other securities or property issuable upon the exercise of the Rights are
subject to adjustment from time to time to prevent dilution (a) in the event of
a stock dividend on, or a subdivision, combination, or reclassification of the
shares of Preferred Stock, (b) upon the grant to the holders of shares of
Preferred Stock of certain rights or warrants to subscribe for or purchase
shares of Preferred Stock at a price less than the then-current market price of
the Preferred Stock, or securities convertible into shares of Preferred Stock
or (c) upon the distribution to holders of shares of Preferred Stock of
evidences of indebtedness or assets (excluding regularly periodic cash
dividends) or of subscription rights or warrants (other than those referred to
above).
If any person becomes an Acquiring Person, each holder of a Right, other
than the Acquiring Person, will thereafter have the right to receive, upon the
exercise thereof and payment of an amount equal to the then current Purchase
Price of a Right, that number of shares of Common Stock that, at the time of
such transaction, will have a market value of two times the Purchase Price of a
Right. If the Company is acquired in a merger or other business combination or
50% or more of its consolidated assets or earning power is sold, each holder of
a Right will thereafter have the right to receive, upon the exercise
thereof and payment of an amount equal to the then current Purchase Price of a
Right, that number of shares of Common Stock of the Acquiring Person that, at
the time of the transaction, will have a market value of two times the Purchase
Price of a Right.
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Under certain circumstances, after a person becomes an Acquiring Person,
the Board of Directors of the Company may exchange the Rights (other than
Rights owned by the Acquiring Person, which are void), in whole or in part, at
an exchange ratio of one share of Common Stock per Right (subject to
adjustment).
At any time before a person has become an Acquiring Person, the Company
may redeem the rights in whole, but not in part, at a price of $0.01 per Right,
subject to adjustment ("Redemption Price"). Immediately upon the action of the
Board of Directors to redeem the Rights, the Company will announce the
redemption, the right to exercise the Rights will terminate, and the only right
of the holders of Rights will be to receive the Redemption Price. The Company
may, at its option, pay the Redemption Price in cash, shares of Common Stock
based on fair market value, or any other form of consideration deemed
appropriate by the Board of Directors.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the
right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on a substantial number of Rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors of the Company since the Board
of Directors may, at its option, redeem all but not less than all, of the then
outstanding Rights at the Redemption Price.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its principal office and the Selfix manufacturing and
distribution facility in Chicago, Illinois from the Ragir Gift Trusts.
Marshall Ragir is a director of the Company and is the brother of Judith Ragir
and Robert Ragir. The Company made aggregate payments to the Ragir Gift Trusts
under the lease of $467,139 during fiscal 1996 and $491,417 during fiscal 1995.
Rent payments are subject to adjustment every three years to reflect increases
in the Consumer Price Index. The lease expires in July, 2010. The Company
believes that the rent paid to the Ragir Gift Trusts under the lease represents
fair market value and that the other terms and conditions are commercially
reasonable.
The Company entered into three exclusive patent licensing agreements with
Meyer J. Ragir, two in 1971 and one in 1981, relating to patented manufacturing
processes used to produce wood insert molded products and the patented design
of certain suction lock and shower organizer products, which in each case was
developed by Mr. Ragir. The licensing agreements also cover any improvements
which Mr. Ragir developed with respect to such patents. The licensing
agreements provide for payment of royalties based upon unit sales of licensed
products subject to annual minimum royalties in the aggregate amount of $8,500.
Pursuant to the licensing agreements, the Company accrued approximately
$47,208 for fiscal 1996 payable to Mr. Ragir's estate (the "MEYER J. RAGIR
ESTATE") and paid $75,385 to the Meyer J. Ragir Estate for fiscal 1995. The
Meyer J. Ragir Estate beneficially owns more than 5% of the outstanding shares
of the Company's Common Stock.
Certain legal matters in connection with the validity of the shares of
Common Stock offered hereby will be passed upon for the Company and the Selling
Shareholders by Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.,
Chicago, Illinois which serves as the Company general counsel. Jeffrey C.
Rubenstein, a principal of Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C., as executor of the Ragir Estate, and co-trustee of the Ragir
Trusts, exercises either sole or shared voting and investment power with
respect to 2,083,358 shares of Common Stock or 48% of the outstanding shares of
Common Stock as of March 26, 1997. Mr. Rubenstein is also a director of the
Company. The Company's principal office and the Selfix manufacturing and
distribution facility in Chicago, Illinois is owned by the Ragir Gift Trusts of
which Mr. Rubenstein serves as co-trustee.
In fiscal 1996, Tamor purchased raw materials and packaging from vendors
whose ownership was, or related, to officers of the Company. Such transactions
were as follows: (i) raw materials totaling $1.9 million were purchased from a
vendor which is owned by the brother of Leonard and Richard Tocci, and (ii)
packaging totaling $1.9 million was purchased from a vendor which is 50% owned
by Richard Tocci's father-in-law. Management believes the transactions were
conducted on an arm's length basis at competitive prices.
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<PAGE> 74
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 26, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, for
(i) each person or entity who is known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each of the Selling Shareholders,
(iii) each Named Executive Officer (iv) each director of the Company, and (v)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP AFTER
BENEFICIAL OWNER PRIOR TO OFFERING NUMBER OF OFFERING
------------------- -------------------- SHARES --------------------------
NUMBER OF BEING NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
--------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Estate of Norma L. Ragir(1)(8)................................... 1,489,001 34.6% 1,050,000 439,001 6.9%
200 North LaSalle Street
Suite 2100
Chicago, Illinois 60606 --
Leonard Tocci....................................................
4501 West 47th Street
Chicago, Illinois 60632 379,200 8.8
379,200 6.0
MJR/NLR Gift Trust - Judith Ragir Separate Trust(1) (3).......... 157,623 * 142,434 15,189 *
MJR/NLR Gift Trust - Robert Ragir Separate Trust(1) (3).......... 145,123 * 131,138 13,985 *
MJR/NLR Gift Trust - Marshall Ragir Separate Trust(1) (3)........ 157,624 * 142,434 15,190 *
Meyer J. Ragir Family Irrevocable Trust - Judith Ragir Separate
Trust(1)........................................................ 66,994 * 33,994 33,000 *
Meyer J. Ragir Family Irrevocable Trust - Marshall Ragir Separate
Trust(1)........................................................ 66,993 -- 66,993
Jeffrey C. Rubenstein(1)(2)...................................... 25,550 * -- 25,550 *
Lowell L. Ruffer(3).............................................. 0 * -- 0 *
James R. Tennant(4).............................................. 197,486 4.6 -- 197,486 3.1
Charles R. Campbell.............................................. 6,000 * -- 6,000 *
Daniel B. Shure.................................................. 6,400 * -- 6,400 *
Marshall Ragir(5)................................................ 67,093 1.6 -- 67,093 1.1
James E. Winslow................................................. 8,477 * -- 8,477 *
Peter L. Graves.................................................. 3,566 * -- 3,566 *
Michael J. Ricard(6)............................................. 2,265 * -- 2,265 *
Joel D. Spungin.................................................. 7,500 * -- 7,500 *
Jeffrey R. Dolan................................................. 3,003 * -- 3,003 *
All directors and executive
officers as a group (15 persons) (7)............................ 2,195,567 50.8% -- 1,145,567 18.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Jeffrey C. Rubenstein is the executor of the Norma L. Ragir Estate and in
such capacity exercises voting and investment power with respect to the
shares of Common Stock beneficially owned by the Norma L. Ragir Estate.
These shares of Common Stock are deemed to be beneficially owned by Mr.
Rubenstein pursuant to the 1934 Act and the rules and regulations
thereunder. Mr. Rubenstein is co-trustee of the Ragir Trusts and, in such
capacities exercises shared voting and investment power with respect to
the shares of Common Stock beneficially owned by the Ragir Trusts. These
shares of Common Stock are not deemed to be beneficially owned by Mr.
Rubenstein pursuant to the 1934 Act and the rules and regulations
thereunder. Mr. Rubenstein, as executor of the Norma L. Ragir Estate and
co-trustee of the Ragir Trusts, exercises either sole or shared voting and
investment power with respect to 2,083,358 shares of Common Stock or 48%
of the outstanding shares of Common Stock as of March 26, 1997. Mr.
Rubenstein disclaims beneficial ownership of all but 20,500 these shares
of Common Stock.
(2) Includes 5,050 shares beneficially owned by Mr. Rubenstein's adult
children, as to which 5,050 shares Mr. Rubenstein disclaims beneficial
ownership. Does not include the 1,489,001 shares beneficially owned by
the Norma L. Ragir Estate which Mr. Rubenstein is deemed to beneficially
own pursuant to Section 16 of the 1934 Act and the rules and regulations
thereunder.
(3) Mr. Ruffer is a co-trustee of the Ragir Gift Trusts and, in such in such
capacities, exercises shared voting and investment power with respect to
the shares of Common Stock owned by the Ragir Gift Trusts. These shares
of Common Stock are not deemed to be beneficially owned by Mr. Ruffer
pursuant to the 1934 Act and the rules and regulations thereunder. Mr.
Ruffer in his various capacities, exercises shared voting and investment
power with respect to 460,370 shares of
Common Stock or 11% of the outstanding shares of stock as of March 26,
1997. Mr. Ruffer disclaims beneficial ownership of these shares of Common
Stock.
(4) Includes 188,150 shares of Common Stock subject to stock options
exercisable within 60 days of March 26, 1997.
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<PAGE> 75
(5) Includes 66,963 shares of Common Stock beneficially owned by the Meyer J.
Ragir Family Irrevocable Trust -Marshall Ragir Separate Trust with respect
to which Mr. Ragir, in his capacity as a co-trustee, exercises shared
voting and investment power. Does not include 157,624 shares of Common
Stock beneficially owned by the MJR/NLR Gift Trust - Marshall Ragir
Separate Trust with respect to which Mr. Ragir does not exercise sole or
shared voting or investment power.
(6) Includes 1,117 shares of Common Stock subject to stock options exercisable
within 60 days of March 26, 1997.
(7) Includes 189,267 shares of Common Stock subject to stock options exercisable
within 60 days of March 26, 1997.
(8) Immediately prior to the Offering, the Norma L. Ragir Estate will transfer
1,050,000 of its shares of Common Stock of the Company to the Meyer J. and
Norma L. Ragir Foundation ("FOUNDATION"). As a result, the Selling
Shareholder with respect to such shares will be the Foundation. The
Foundation is an Illinois not-for-profit corporation. The Foundation is a
tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code
("CODE") and is a private foundation within the meaning of Code Section
509(a). Under the terms of the will of Norma L. Ragir, her estate is
required to transfer 58.82% of the residuary trust (prior to the payment of
taxes) to the Foundation. Her shares of the Common Stock of the Company are
included in the residuary trust. As a general rule, a private foundation
may not own 20% of the voting stock of an incorporated business (with such
percentage reduced by the percentage of voting stock owned by disqualified
persons). Disqualified persons include family members of substantial
contributors to the foundation. If the above percentage limit is violated,
an excise tax is imposed on holdings that are not corrected within a
required period of time. To avoid the imposition of an excise tax, the
applicable shares owned by the Norma L. Ragir Estate will not be transferred
to the Foundation until immediately prior to the time of the Offering.
74
<PAGE> 76
DESCRIPTION OF COMPANY'S SECURITIES
The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, $0.01 par value, and 500,000 shares of Preferred Stock, $0.01
par value. No Shares of Preferred Stock are currently issued and outstanding.
As of March 29, 1997, there were 4,322,922 shares of Common Stock issued and
outstanding. The following summary description of the capital stock of the
Company is qualified in its entirety by reference to the form of the
Certificate of Incorporation of the Company, as amended, and the By-laws of the
Company, which are incorporated by reference as an Exhibit to the Registration
Statement (as defined herein) of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and are entitled to receive such
dividends, if any, as may be declared from time-to-time by the Board of
Directors from funds legally available therefor, subject to the dividend
preferences of the Preferred Stock, if any. Each member of the Board of
Directors stands for election at each annual meeting of the Company's
shareholders. Upon liquidation or dissolution of the Company, the holders of
Common Stock are entitled to share ratably in all assets available for
distribution after payment of liabilities and liquidation preferences of the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights, no
cumulative voting rights and no rights to convert their Common Stock into any
other securities. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of any
series of Preferred Stock which the Company may issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, without any further vote or action
by the Company's shareholders, authorize the issuance of up to 500,000 shares
of preferred stock. The Board of Directors is authorized to provide for the
issuance of additional classes and series of preferred stock out of these
undesignated shares, and the Board Directors may establish the voting powers,
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions of any such
additional class or series of preferred stock, including the dividend rights,
dividend rate, terms of redemption, redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any series,
without any further vote or action by the stockholders of the Company. The
issuance of preferred stock could adversely affect, among other things, the
rights of existing shareholders or could delay or prevent a change in control
of the Company without further action by the shareholders. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and satisfaction of any dividend
preferences of outstanding shares of preferred stock would reduce the amount of
funds available for the payment of dividends on Common Stock. Holders of
preferred stock would be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding up of the Company before any payment
is made to the holders of Common Stock.
The Company has preliminarily designated shares of preferred stock as
Series B Junior Participating Preferred Stock, $0.01 par value, which may be
issued upon the exercise of any of the preferred stock purchase rights that are
associated with the Common Stock. The rights of the holders of Common Stock
will generally be subject to the prior rights of the holders of any outstanding
shares of Preferred Stock with respect to dividends, liquidation preferences
and other matters. The holders of shares of the Preferred Stock are entitled
to receive, when, as and if declared by the Board, quarterly dividends. In
addition to any other voting rights required by applicable law, each share of
the Preferred Stock entitles the holder to 100 votes on all matters submitted
to a vote of the stockholders of the Corporation. In the event that the
Corporation shall be a party to any transaction in which the outstanding
shares of Common Stock are converted or changed into or exchanged for other
capital
75
<PAGE> 77
stock, securities, cash or other property, or any combination thereof,
then each share of the Preferred Stock shall at the same time be similarly
converted or changed into or exchanged for an aggregate amount, subject to
adjustment, equal to 100 times the aggregate amount of capital stock,
securities, cash and/or other property, as the case may be, into which or for
which each share of Common Stock is being converted or changed or exchanged.
The shares of the Preferred Stock are not redeemable at any time. See
"Management--Stockholder Rights Plan."
The issuance of preferred stock by the Board of Directors could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company.
TRANSFER AGENT
The transfer agent for the Common Stock is ChaseMellon Shareholder
Services.
76
<PAGE> 78
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 6,322,922 shares of Common
Stock issued and outstanding (6,847,922 if the Underwriters' over-allotment
option is exercised in full). All of the shares sold in this Offering, will be
freely tradeable without registration or other restrictions under the
Securities Act of 1933, as amended (the "Act"), except for any shares held by
an "affiliate" of the Company (as defined in the Act).
Of the currently outstanding shares, 1,384,131 shares are deemed
restricted securities within the meaning of Rule 144 ("Restricted Shares").
Restricted Shares may not be sold unless they are registered under the Act or
are sold pursuant to an applicable exemption from registration, including an
exemption under Rule 144 and Rule 144A.
The Company has, or intends to, register 1,475,000 shares of Common Stock
that were reserved for issuance under its Stock Option Plans and 200,000 shares
that were reserved for issuance under the Stock Purchase Plan. As of April 21,
1997, options to purchase 965,017 shares were outstanding, each of which
entitles the holder thereof to purchase one share of Common Stock. Once
registered, shares issued upon exercise of options will be generally eligible
for immediate resale in the public market, subject to vesting under the
applicable option agreements.
In connection with the Subordinated Note, the Company issued the Warrant
on February 27, 1997, to GECC to purchase 79,204 shares of Common Stock.
The Company, its directors, executive officers and certain shareholders,
including the Selling Shareholders, have agreed that for a period of 180 days
from the date of this Prospectus that they will not, without the prior written
consent of EVEREN Securities, Inc., directly or indirectly offer for sale,
sell, contract to sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for shares of
Common Stock, subject to certain exceptions.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least two years (including the holding period of any immediate prior owner,
except an affiliate), shares of Common Stock that have not been registered
under the Securities Act or that were acquired from an "affiliate" of the
Company (in a transaction or chain of transactions not involving a public
offering) is entitled to sell in "broker's transactions" or to market makers,
within any three month period commencing 90 days after the date of this
Prospectus, a number of shares of Common Stock which does not exceed the
greater of (i) 1% of the number of shares of Common Stock then outstanding
(approximately 63,362 shares immediately after this Offering assuming the
Underwriters do not exercise the over-allotment option) or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the sale. Sales under Rule 144 are generally subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during a
90-day period preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years (including the holding period of
any immediate prior owner, except an affiliate), is entitled to sell such
shares without having to comply with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
The Commission has recently promulgated regulations reducing the initial
Rule 144 holding period to one year and the Rule 144(k) holding period to two
years effective April 29, 1997. The Company is unable to estimate the number of
shares that will be sold under Rule 144, since this will depend on the market
price for the Common Stock of the Company, the personal circumstances of the
sellers and other factors. There can be no assurance that a significant public
market for the Common Stock will be sustained after the Offering. Any future
sale of substantial amounts of Common Stock in the open market may adversely
affect the market price of the Common Stock offered hereby.
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<PAGE> 79
The Company cannot predict the effect, if any, that sales of the Common
Stock or the availability of such Common Stock for sale, will have on the market
price prevailing from time to time. Nevertheless, sales by existing
stockholders of substantial amounts of Common Stock could adversely affect
prevailing market prices for the Common Stock. See "Risk Factors--Shares
Eligible for Future Sale."
78
<PAGE> 80
DESCRIPTION OF THE CREDIT AGREEMENT AND OTHER DEBT
The Company has entered into a Credit Agreement dated as of February 27,
1997 (the "CREDIT AGREEMENT"), with General Electric Capital Corporation
("GECC"), as agent ("AGENT") and individually, and one other lender (such
lender and GECC, collectively, the "LENDERS") which provides: (i) a 5 1/2 year
revolving credit facility (the "REVOLVING CREDIT FACILITY") under which up to
an aggregate principal amount of $20.0 million (subject to a borrowing base
limitation and including a letter of credit subfacility of up to $10.0 million)
are available for borrowing, (ii) a 5 1/2 year $20.0 million term loan ("TERM
LOAN A") and (iii) a 7 1/2 year $20.0 million term loan ("TERM LOAN B").
Proceeds of Term Loan A and Term Loan B were used, together with the combined
proceeds of a $7.0 million subordinated equity bridge note (the "SUBORDINATED
NOTE") issued to GECC and a Warrant to purchase 79,204 shares of the Company's
Common Stock (as more fully described below), to finance the Tamor Acquisition,
to refinance certain indebtedness of Tamor and to pay transaction costs related
thereto. The availability under the Revolving Credit Facility was reduced by
the issuance of two letters of credit in the aggregate face amount of $5.6
million which secure certain industrial development bonds of Selfix. The
balance of the Revolving Credit Facility is available for general corporate
purposes. Upon consummation of the Offering and the application of the net
proceeds as provided in "Use of Proceeds," the Subordinated Note, will be
repaid in full and a portion of the outstanding principal amounts of Term Loan
A and Term Loan B will be repaid.
The above description and the following summaries of the material
provisions of the Credit Agreement and Subordinated Note do not purport to be
complete, and such description and summaries, including definitions of certain
terms, are qualified in their entirety by reference to the Credit Agreement and
Subordinated Note.
GENERAL
The Revolving Credit Facility terminates in August, 2002, at which time
borrowings thereunder will be due. Term Loan A matures in August, 2002 and is
payable in quarterly installments commencing in April, 1997. Term Loan B
matures in August, 2004, and is payable in quarterly installments commencing in
April, 1997. Aggregate annual principal repayments for Term Loan A and Term
Loan B are set forth below. The Company is required to make mandatory
prepayments of principal of the Subordinated Note, Term Loan A and Term Loan B
from a fixed percentage of excess cash flow and upon the occurrence of certain
events, including but not limited to, certain asset sales and certain issuances
and sales of securities. The Company may make voluntary prepayments at any
time. However, the Company will be required to pay a prepayment premium, if
the Revolving Credit Facility is terminated prior to its maturity date or the
Company prepays all or any portion of Term Loan A or Term Loan B other than as
a result of a mandatory prepayment.
Aggregate principal repayments for Term Loan A are as follows:
Years Ending (in thousands)
------------ --------------
[S] [C]
1997 $1,500
1998 2,750
1999 3,375
2000 3,500
2001 4,625
Thereafter 4,250
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<PAGE> 81
Aggregate principal repayments for Term Loan B are as follows:
Years Ending (in thousands)
------------ --------------
[S] [C]
1997 $ 150
1998 200
1999 200
2000 200
2001 200
Thereafter 19,050
In connection with the Subordinated Note, the Company on February 27,
1997, issued a warrant (the "WARRANT") to GECC to purchase 79,204 shares of
Common Stock exercisable at 50% of the Market Price (as defined in the
Warrant), at any time during the period commencing on August 1, 1997, through
February 27, 2007. If the Subordinated Note has been paid in full on or prior
to July 31, 1997, the Company has the option to repurchase the Warrant at a
price equal to $792,000. If the Subordinated Note is not repaid in full on or
prior to July 31, 1997, the number of shares issuable upon exercise of the
Warrant will increase as determined pursuant to a formula set forth in the
Warrant and the price at which the Company may repurchase the Warrant may
increase as determined pursuant to a formula set forth in the Warrant.
INTEREST RATE
Interest on the Revolving Credit Facility is charged, at the Company's
option, at either: (i) the 1, 2, or 3 month reserve adjusted LIBOR plus a
margin of 2.75% or (ii) a floating rate equal to the prime rate plus a margin
of 1.25%. Interest is paid monthly for borrowings which bear interest based on
the prime rate, and is paid at the end of the applicable LIBOR period for
borrowings which bear interest based on a LIBOR rate. An unused facility fee
of 0.5% per annum is charged on the average unused daily balance.
Interest on Term Loan A is charged, at the Company's option, at either the
1, 2 or 3 month reserve adjusted LIBOR rate plus a margin of 3.00% or a
floating rate equal to the prime rate plus a margin of 1.50%. At March 29,
1997, the rate was 10.0%. Interest is paid monthly for prime rate based loans
and at the end of the applicable LIBOR period for LIBOR based loans.
Interest on Term Loan B is charged, at the Company's option, at either 1,
2 or 3 month reserve adjusted LIBOR rate plus a margin of 3.50% or a floating
rate equal to the prime rate plus a margin of 2.00%. At March 29, 1997, the
rate was 10.5%. Interest is paid monthly for prime rate based loans and at the
end of the applicable LIBOR period for LIBOR based loans.
After the fiscal quarter of the Company ending in December, 1997, the
interest rates applicable to the obligations outstanding under the Credit
Agreement are subject to adjustment (up or down) based on the Company's
quarterly consolidated financial performance.
At March 29, 1997, the interest rate on the Subordinated Note was 13.5%.
GUARANTEES AND SECURITY
Borrowings and other obligations under the Credit Agreement and
Subordinated Note are guaranteed by the Company. Loans and other obligations
under the Credit Agreement and the guarantee are secured by substantially all
of the assets of the Company's subsidiaries, and a pledge by the Company of the
stock of the Company's subsidiaries. The Subordinated Note is secured by a
second lien on substantially all of the assets of the Company's subsidiaries.
The Subordinated Note is subordinated in right of payment to the Revolving
Credit Facility and Term Loan A and Term Loan B.
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<PAGE> 82
COVENANTS; EVENTS OF DEFAULT
The Credit Agreement contains a number of customary covenants, including,
among other things, (i) prohibitions and/or limitations on the incurrence of
debt, liens, payment of dividends or distributions, redemptions of capital
stock, investments, transactions with affiliates, mergers, acquisitions and
asset dispositions and (ii) financial covenants covering interest coverage,
fixed charge coverage, leverage, net worth and capital expenditures. The
Credit Agreement also contains customary events of default, including an event
of default if a "charge of control" occurs.
CONDITIONS
The Credit Agreement contains a number of conditions to any subsequent
funding by the Lenders.
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<PAGE> 83
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
the syndicate of underwriters named below (the "UNDERWRITERS"), for whom EVEREN
Securities, Inc. is acting as representative (the "REPRESENTATIVE"), have
severally agreed, to purchase from the Company and the Selling Shareholders,
and the Company and the Selling Shareholders have agreed to sell, the
respective number of shares of Common Stock set forth opposite the names of
such Underwriters below:
NUMBER OF
NAME SHARES OF COMMON STOCK
- ---------------------------- ------------------------
EVEREN Securities, Inc.
---------
Total.................. 3,500,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than the
shares of Common Stock covered by the over-allotment option described below) if
any are purchased.
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the Common Stock to the public
initially at the prices set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price, less a
concession not in excess of $__________ per share of Common Stock. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $__________ per share of Common Stock to certain other dealers. The
price to the public, the concession and the discount to dealers may be changed.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Offering of the Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the Common Stock.
The Company has granted to the Underwriters an option, exercisable for the
30 days from the date of this Prospectus, to purchase up to an aggregate of
525,000 additional shares of Common Stock at the initial price to public, less
the underwriting discounts and commissions, solely to cover over-allotments.
To the extent that the Underwriters exercise such option, each Underwriter may
be committed, subject to certain conditions, to purchase a number of additional
Common Stock proportionate to such Underwriter's initial commitment pursuant to
the Underwriting Agreement.
In the Underwriting Agreement, the Company and the Underwriters have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
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<PAGE> 84
Subject to certain exceptions, the Company, the executive officers and
directors of the Company, and certain stockholders of the Company each have
agreed that they will not, without the prior written consent of EVEREN
Securities, Inc., offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for such Common Stock or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of any such Common Stock for a period of 180 days from the date of
this Prospectus.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. Underwriters may bid for and purchase
shares of Common Stock in the open market to cover syndicate short positions.
In addition, the Underwriters may bid for and purchase shares of Common Stock
in the open market to stabilize the price of the Common Stock. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. The Underwriters and dealers will not engage in
passive market making when a stabilizing bid for the Common Stock is in effect.
In general, a passive market maker may not bid for or purchase the Common
Stock at a price that exceeds the highest independent bid. In addition, the
net daily purchases made by any passive market maker generally may not exceed
30% of its average daily trading volume in the Common Stock during a specified
two month prior period, or 200 shares, whichever is greater. A passive market
maker must identify passive market making bids on the Nasdaq electronic
inter-dealer reporting system. Passive market making may stabilize or maintain
the market price of the Common Stock above independent market levels.
Underwriters and dealers are not required to engage in passive market making
and may end passive market making activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
Common Stock offered hereby will be passed upon for the Company and the Selling
Shareholders by Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.,
Chicago, Illinois which serves as the Company general counsel. Jeffrey C.
Rubenstein, a principal of Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C., as executor of the Ragir Estate and co-trustee of the Ragir
Trusts, exercises either sole or shared voting and investment power with
respect to 2,083,358 shares of Common Stock or 48% of the outstanding shares of
Common Stock as of March 26, 1997. Mr. Rubenstein is also a director of the
Company. The Company's principal office and the Selfix manufacturing and
distribution facility in Chicago, Illinois is owned by the Ragir Gift Trusts of
which Mr. Rubenstein serves as co-trustee. See "Management," "Principal and
Selling Shareholders" and "Certain Relationships and Related Transactions."
Certain legal matters will be passed upon for the Underwriters by Ungaretti &
Harris, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of December 28,
1996, and for the fifty-two week period ended December 28, 1996, included in
this Prospectus and the Registration Statement of which it is a part, have been
so included in reliance on the report of Arthur Andersen LLP, independent
public accountants, given on the authority of said firm as experts in auditing
and accounting. The consolidated financial statements of Selfix as of December
30, 1995, and as of December 31, 1994, and for the fifty-two week period ended
December 30, 1995 and the fifty-three week period ended December 31, 1994,
included in this Prospectus and the Registration Statement of which it is part,
have been so included in reliance on the report of Grant Thornton LLP,
independent public accountants, given
83
<PAGE> 85
on the authority of said firm as experts in accounting and auditing. The
financial statements of Tamor Plastics Corporation and Houseware Sales, Inc. as
of December 31, 1996, and December 31, 1995, and for each of the three years in
the period ended December 31, 1996, included in this Prospectus and Registration
Statement have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of said firm as experts in auditing and
accounting.
The Company dismissed Grant Thornton LLP, its independent certified public
accountants, effective April 12, 1996. In connection with the 1995 and 1994
Audits and during the interim period prior to the dismissal, there were no
disagreements with the former accountants on any matter or accounting principle
or practice, financial statement disclosure, or auditing scope or procedure.
The former accountant's reports included in the 1995 and 1994 Audits were
unqualified. The Company engaged Arthur Andersen LLP as its new independent
public accountants effective with the dismissal of its former accountants.
During the Company's fiscal years 1994 and 1995 and during the interim period
prior to engagement, there were no consultations with Arthur Andersen LLP with
regard to either the application of accounting principles as to any specific
transaction, either completed or proposed; the type of audit opinion that would
be rendered on the Company's financial statements; or any matter of
disagreements with the former accountants. The Board of Directors approved the
Audit Committee's recommendation to change accountants.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "COMMISSION").
Such reports, proxy statements and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C., as well as the regional
offices of the Commission located at 500 West Madison Street, Chicago,
Illinois, and 7 World Trade Center, New York, New York. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a site on the World Wide Web that contains reports,
proxy and information statements and other information regarding the Company.
The address for such site is http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-2 (together with all amendments and exhibits thereto, the "REGISTRATION
STATEMENT") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto, as certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information with respect to the Company and the Common Stock,
reference is made to the Registration Statement and the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission, or may be examined
without charge at the offices of the Commission described above.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus: (i) the Company's Annual Report
on Form 10-K for the fifty-two weeks ended December 28, 1996 (File No.
0-17237), (ii) the Company's Current Report on Form 8-K dated February 18,
1997, (iii) the Company's Registration Statement on Form 8-B filed on February
21, 1997,
84
<PAGE> 86
and (iv) the Company's Current Report on Form 8-K dated February 28, 1997, and
the Company's Quarterly Report on Form10-Q for the thirteen weeks ended March
29, 1997.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement. The
Company will provide without charge to each person to whom a copy of the
Prospectus has been delivered, and who makes a written or oral request, a copy
of any and all of the information that has been incorporated by reference in the
Registration Statement (other than exhibits unless such exhibits are
specifically incorporated by reference therein). Requests should be submitted
in writing or by telephone to James E. Winslow, Executive Vice President, Home
Products International, Inc., 4501 West 47th Street, Chicago, Illinois 60632,
telephone: (773) 890-1010.
85
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
HOME PRODUCTS INTERNATIONAL, INC.
<TABLE>
PAGE
<S> <C>
Report of Arthur Andersen LLP F-
Report of Grant Thornton LLP F-
Consolidated Balance Sheets at December 28, 1996 and December 30, 1995 F-
Consolidated Statements of Operations for the fiscal years 1996, 1995 and 1994 F-
Consolidated Statements of Stockholders' Equity for the fiscal years 1996, 1995 and 1994 F-
Consolidated Statements of Cash Flows for the fiscal years 1996, 1995 and 1994 F-
Notes to Consolidated Financial Statements F-
Consolidated Balance Sheet at March 29, 1997 (unaudited) F-
Consolidated Statements of Operations for the thirteen week
periods ended March 29, 1997 and March 30, 1996 (unaudited) F-
Consolidated Statements of Stockholders' Equity for the thirteen week
periods ended March 29, 1997 and March 30, 1996 (unaudited) F-
Consolidated Statements of Cash Flows for the thirteen week periods
ended March 29, 1997 and March 30, 1996 (unaudited) F-
Notes to Consolidated Financial Statements F-
TAMOR PLASTICS CORPORATION AND HOUSEWARE SALES, INC.
Report of BDO Seidman, LLP F-
Combined Balance Sheets as of December 31, 1996 and 1995 F-
Combined Statements of Income for each of the three years in the period ended
December 31, 1996 F-
Combined Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1996 F-
Combined Statements of Cash Flows for each of the three years in the period
ended December 31, 1996 F-
Notes to Combined Financial Statements F-
</TABLE>
F-1
<PAGE> 88
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Home Products International, Inc.
We have audited the accompanying consolidated balance sheet of Home Products
International, Inc. (formerly Selfix, Inc.) (a Delaware corporation) and
subsidiaries as of December 28, 1996, and the related consolidated statements
of operations, stockholders' equity and cash flows for the fifty-two week
period then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Home Product International,
Inc. and subsidiaries as of December 28, 1996, and the results of its
operations and its cash flows for the fifty-two week period then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 7, 1997, except with
respect to the transactions discussed
in Note 15, as to which the date
is February 28, 1997
F-2
<PAGE> 89
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Home Products International, Inc. (formerly Selfix, Inc.)
We have audited the accompanying consolidated balance sheet of Home Products
International, Inc. (formerly Selfix, Inc.) and Subsidiaries as of December 30,
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the 52-week period ended December 30, 1995 and the
53-week period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Home Products
International, Inc. and Subsidiaries as of December 30, 1995, and the
consolidated results of their operations and their consolidated cash flows for
the 52-week period ended December 30, 1995 and the 53-week period ended
December 31, 1994, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
February 9, 1996
F-3
<PAGE> 90
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
FISCAL YEAR
______________________________________________
1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales........................... $40,985 $41,039 $38,200
Cost of goods sold.................. 25,587 25,678 22,992
-------------- -------------- --------------
Gross profit...................... 15,398 15,361 15,208
Operating expenses
Selling........................... 10,991 10,474 9,042
Administrative.................... 5,789 6,433 4,600
Amortization of intangible assets. 1,405 478 201
Restructuring charge.............. 1,701 2,051 -
-------------- -------------- --------------
19,886 19,436 13,843
-------------- -------------- --------------
Operating profit (loss)........... (4,488) (4,075) 1,365
-------------- -------------- --------------
Other income (expense)
Interest income................... 206 230 80
Interest (expense)................ (999) (896) (707)
Other income (expense)............ (501) 458 68
-------------- -------------- --------------
(1,294) (208) (559)
-------------- -------------- --------------
Earnings (loss) before income taxes (5,782) (4,283) 806
Income tax (expense) benefit........ (221) 273 -
-------------- -------------- --------------
Net earnings (loss)................. $ (6,003) $(4,010) $806
============== ============== ==============
Net earnings (loss) per common and
common equivalent share............. $(1.70) $(1.11) $0.21
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 91
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
_____________________
1995 1996
ASSETS (IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 2,982 $ 2,878
Investments in marketable securities................................. 516 1
Accounts receivable net of allowance for doubtful accounts of $1,395
at December 30, 1995, $901 at December 28, 1996.................... 4,690 6,476
Notes and other receivables.......................................... 83 118
Refundable income taxes.............................................. 222 -
Inventories, net..................................................... 5,151 4,391
Prepaid expenses and other current assets............................ 175 100
----------- -----------
Total current assets............................................... 13,819 13,964
----------- -----------
Property, plant and equipment - at cost................................ 21,362 22,515
Less accumulated depreciation and amortization......................... (12,909) (14,581)
----------- -----------
Property, plant and equipment, net..................................... 8,453 7,934
----------- -----------
Intangible and other assets............................................ 2,704 2,807
----------- -----------
TOTAL ASSETS........................................................... $24,976 $24,705
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations.......................... $ 892 $ 838
Accounts payable..................................................... 1,334 1,956
Accrued liabilities.................................................. 4,881 4,018
----------- -----------
Total current liabilities.......................................... 7,107 6,812
----------- -----------
Long-term obligations - net of current maturities...................... 7,022 6,184
Stockholders' equity:
Preferred stock - authorized, 500,000 shares, $.01 par value;
none issued........................................................ - -
Common stock - authorized 7,500,000 shares, $.01 par value;
3,861,784 shares issued at December 30, 1995 and
3,881,423 shares issued at December 28,1996........................ 39 39
Additional paid-in capital........................................... 10,765 10,839
Retained earnings.................................................... 490 1,296
Common stock held in treasury - at cost (58,762 shares).............. (264) (264)
Currency translation adjustments..................................... (192) (201)
Other, net........................................................... 9 -
----------- -----------
Total stockholders' equity......................................... 10,847 11,709
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $24,976 $24,705
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 92
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
ADDITIONAL CURRENCY STOCK HELD
PREFERRED COMMON PAID-IN RETAINED TRANSLATION OTHER, IN TREASURY
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS NET AT COST TOTAL
--------- ------ ---------- -------- ----------- ------ ----------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 25, 1993.............. $- $35 $8,945 $10,503 $(157) $- $- $19,326
Net loss.................................. - - - (6,003) - - - (6,003)
Issuance of 99,385 shares of common
stock in connection with
exercise of stock options............... - 1 415 - - - - 416
Other..................................... - - - - - (51) - (51)
Translation adjustments................... - - - - (65) - - (65)
--------- -------- ---------- -------- -------- -------- --------- --------
BALANCE AT DECEMBER 31, 1994.............. - 36 9,360 4,500 (222) (51) - 13,623
Net loss.................................. - - - (4,010) - - - (4,010)
Issuance of 250,000 shares of common stock
in connection with the acquisition of
Mericon Child Safety Products............. - 3 1,372 - - - - 1,375
Issuance of 8,147 shares of common stock
in connection with exercise of
stock options........................... - - 33 - - - - 33
Purchase of 58,762 common shares
held in treasury at cost................ - - - - - - (264) (264)
Other..................................... - - - - - 60 - 60
Translation adjustments................... - - - - 30 - - 30
--------- -------- ---------- -------- -------- -------- --------- --------
BALANCE AT DECEMBER 30, 1995.............. - 39 10,765 490 (192) 9 (264) 10,847
Net earnings.............................. - - - 806 - - - 806
Issuance of 19,639 shares
of common stock in connection
with employee stock purchase plan....... - - 74 - - - - 74
Other..................................... - - - - - (9) - (9)
Translation adjustments................... - - - - (9) - - (9)
--------- -------- ---------- -------- -------- -------- --------- --------
BALANCE AT DECEMBER 28, 1996.............. $- $39 $10,839 $1,296 $ (201) $- $ (264) $11,709
========= ======== ========== ======== ======== ======== ========= ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-6
<PAGE> 93
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
FISCAL YEAR
1994 1995 1996
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (IN THOUSANDS)
<S> <C> <C> <C>
Net earnings (loss)....................................... $(6,003) $(4,010) $806
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................... 4,330 3,337 2,214
Deferred income tax expense............................. 378 - -
Provision for restructuring charge...................... 1,701 2,051 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............. (765) 494 (1,786)
Decrease in inventories................................ 1,312 105 760
(Increase) decrease in refundable income taxes......... (151) 159 222
(Increase) decrease in other assets................... 469 23 (269)
(Increase) decrease in notes and other receivables..... (1,709) 1,691 (35)
Increase (decrease) in accounts payable................ 551 (681) 622
Increase (decrease) in accrued liabilities............. 1,768 (603) (793)
Other operating activities, net......................... 151 9 82
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 2,032 2,575 1,823
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale or maturity of marketable securities. 2,231 408 515
Capital expenditures, net............................... (2,326) (1,215) (1,624)
Investment in marketable securities..................... (1,485) - -
Restricted cash - Industrial Revenue Bond............... 1,221 5 -
Payment and direct costs for Mericon Child Safety Products - (921) -
-------- -------- --------
NET CASH (USED IN) INVESTING ACTIVITIES................... (359) (1,723) (1,109)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings.................................. (3,098) (2,471) (860)
Proceeds from borrowings................................ 1,500 - -
Payment of capital lease obligation..................... (23) (27) (32)
Purchase of treasury stock.............................. - (264) -
Issuance of common stock under stock purchase plan...... - - 74
Exercise of common stock options........................ 416 33 -
-------- -------- --------
NET CASH (USED IN) FINANCING ACTIVITIES................... (1,205) (2,729) (818)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 468 (1,877) (104)
Cash and cash equivalents at beginning of year.......... 4,391 4,859 2,982
-------- -------- --------
Cash and cash equivalents at end of year................ $4,859 $2,982 $2,878
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest and swap fees.................................. $905 $822 $599
Income taxes, net....................................... 10 (457) (314)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 94
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Home Products International, Inc. (the "Company") and its subsidiaries
design, manufacture and market products in two industry segments: housewares
products and home improvement products. Housewares products are marketed
principally through mass market trade channels throughout the United States and
internationally. Home improvement products are sold principally through
wholesalers that service the residential construction, repair and remodeling
industry throughout the United States.
Principles of Consolidation.
The accompanying statements include the accounts of the Company and its
wholly-owned subsidiaries, Selfix, Inc. and Shutters, Inc. All significant
intercompany transactions and balances have been eliminated. The accompanying
statements do not include the accounts of Tamor Corporation, a Massachusetts
corporation ("Tamor"), and Housewares, Inc. ("Housewares") since the Company
did not complete the acquisition until after the end of fiscal year 1996. See
Note 15 for more information regarding the acquisition of Tamor and Housewares.
Use of Estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments and Credit Risk.
The carrying value of cash, cash equivalents, investments and long-term
obligations approximate their fair values based upon quoted market rates. As
of December 30, 1995 and December 28, 1996, the Company had no significant
concentrations of credit risk related to cash equivalents.
Translation of Foreign Currencies.
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end exchange rates. Statement of operations items are
translated at the weighted average exchange rates for the year. The resulting
currency translation adjustments are made directly to a separate component of
stockholders' equity.
Inventories.
Inventories are stated at the lower of cost or net realizable value with
cost determined on a first in, first out (FIFO) basis.
Property, Plant and Equipment.
Property, plant and equipment are stated at cost. Depreciation is charged
against results of operations over the estimated service lives of the related
assets.
Improvements to leased property are amortized over the life of the lease
or the life of the improvement, whichever is shorter. For financial reporting
purposes, the Company uses both straight-line and declining-balance methods of
depreciation. For tax purposes, the Company generally uses accelerated methods
where permitted.
F-8
<PAGE> 95
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The estimated service lives of the fixed assets are as follows:
<TABLE>
<S> <C>
Buildings 30 years
Land and building under capital lease lease term
Machinery, equipment and vehicles 3 - 8 years
Tools and dies 5 years
Furniture, fixtures and office equipment 2 - 8 years
Leasehold improvements lease term
</TABLE>
Revenue Recognition.
The Company recognizes revenue as products are shipped to customers.
Intangible Assets.
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized over periods ranging from 20 to 40
years. Covenants not to compete are amortized on a straight-line basis over
the terms of the respective agreements. Patents, royalty rights, trademarks
acquired and licensing agreements are amortized over their estimated useful
lives ranging from 5 to 10 years.
Income Taxes.
Deferred tax assets and liabilities are determined at the end of each
period, based on differences between the financial statement bases of assets
and liabilities and the tax bases of those same assets and liabilities, using
the currently enacted statutory tax rates. Deferred income tax expense is
measured by the change in the net deferred income tax asset or liability during
the year.
Earnings (Loss) Per Share.
Earnings (loss) per share is computed by dividing net earnings (loss) by
the weighted average number of common share and common share equivalents
outstanding during the year. Weighted average common share and common share
equivalents were 3,538,758, 3,616,924 and 3,853,502, for 1994, 1995 and 1996,
respectively.
Benefit Plans.
The Company provides a profit sharing and savings plan (including a 401(k)
plan) to which both the Company and eligible employees may contribute. Company
contributions to the profit sharing and savings plan are voluntary and at the
discretion of the Board of Directors. The Company matches the employee 401(k)
plan contributions with limitations. The total Company contributions to both
plans are limited to the maximum deductible amount under the Federal income tax
law.
The Company also provides a retirement plan for its employees covered
under a collective bargaining agreement. The Company is required to contribute
to this plan based on the number of employees in the collective bargaining unit
who have satisfied eligibility requirements. Employees do not contribute to
the plan. The amount of the Company contribution is determined by the
collective bargaining agreement.
The contributions to all the profit sharing, savings, and retirement plans
for 1994, 1995 and 1996, were $257, $259, and $248, respectively.
F-9
<PAGE> 96
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Cash and Cash Equivalents.
The Company considers all highly liquid, short-term investments with an
original maturity of three months or less, to be cash equivalents.
Investments in Marketable Securities
At the beginning of fiscal 1994, the Company adopted a new accounting
method for investment securities in accordance with Statement of Financial
Accounting Standard (SFAS) No. 115 which required the Company to designate its
securities as held to maturity, available for sale or trading. Securities held
to maturity are accounted for at amortized cost and management must express a
positive intent to hold these securities to maturity. Available-for-sale
securities are those that management designates as available to be sold in
response to changes in market interest rates or liquidity needs. All
marketable securities held by the Company are accounted for as
available-for-sale securities. The Company does not invest in trading
securities. The effect of the accounting change was not applied retroactively;
therefore, there was no restatement of prior year investments or cumulative
effect of a change in accounting principle on prior year income. The
cumulative effect at the beginning of fiscal year 1994 was not material.
Fiscal Year.
The Company's fiscal year ends on the last Saturday in December and, as a
result, a fifty-third week is added every 5 or 6 years. The fiscal year ending
December 31, 1994 consisted of fifty-three weeks. References to the fiscal
years 1994, 1995 and 1996 are for the fifty-three weeks ended December 31,
1994, the fifty-two weeks ended December 30, 1995 and the fifty-two weeks ended
December 28, 1996, respectively.
Related Party.
A director of the Company is the executor and co-trustee of certain
estates and trusts which beneficially own 48% of the Company's outstanding
common stock as of February 28, 1997. In such capacities, the director
exercises either sole or shared voting and investment power for these shares.
The director disclaims beneficial ownership of this stock. The director is
also co-trustee to certain related trusts which lease facilities to the Company
as discussed in Notes 8 and 9. In addition, the director is a partner in a law
firm which is the Company's general counsel.
NOTE 2. STATEMENT OF OPERATIONS AND RESTRUCTURING CHARGES
The 1994 restructuring charge of $1,701 relates to costs of severance and
termination benefits paid or accrued for a change in the level and composition
of employees, termination of existing employee arrangements, inventory
adjustments and fixed asset writedowns related to product lines to be
discontinued. The actions and charges were based on assessments completed by
year-end 1994. The Company provided for severance benefits approximating
$1,010 for employee terminations during the third and fourth quarters. Such
benefits covered approximately 25 employees across most departments, which
represented 17% of the administrative staff, or 5% of total employees. All
such terminations were completed by the end of the first quarter of 1995.
Inventory and fixed asset write-offs related to products to be discontinued
were $460 and $231, respectively. At the end of 1995, no balances remained in
these accounts.
In the fourth quarter of 1995, the Company announced its intent to
consolidate facilities and exit additional product lines. The 1995 charge is a
result of the Company's decision to exit certain unprofitable product lines,
close the Company's Canadian facility and move the Canadian operations to the
Chicago manufacturing and distribution facilities. The restructuring charges
for these initiatives totaled $2,051. The charges for the closing and
relocation of the Canadian operation totaled $951 including severance benefits
of $184 covering all of the Canadian employees. The relocation of the Canadian
operation was completed in the first half of 1996. The remaining $1,100 of
restructuring charges pertains to product lines the Company has decided to exit
and the related write-off of product molds, inventory and patents.
F-10
<PAGE> 97
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Approximately $66 of inventory reserves, $74 of accrued legal and accrued
severance and $140 of accrued facility closing costs remained on the Company's
books at December 28, 1996.
In 1995, the Company received approximately $1,400, net of a contingent
liability, as its share of the net proceeds from a patent suit settlement. The
Company recorded approximately $500 as its share of the proceeds in other
income in 1994.
NOTE 3. INVENTORIES
The components of the Company's inventory were as follows:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Finished goods................................... $3,165 $2,604
Work-in-process.................................. 893 1,003
Raw materials.................................... 1,093 784
------ ------
$5,151 $4,391
====== ======
</TABLE>
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Buildings and land............................ $2,167 $2,176
Land and building under capital lease......... 2,535 2,535
Machinery, equipment and vehicles............. 7,259 7,092
Tools and dies................................ 5,570 6,704
Furniture, fixtures and office equipment...... 2,446 2,679
Leasehold improvements........................ 1,385 1,329
-------- --------
21,362 22,515
Less accumulated depreciation and amortization (12,909) (14,581)
-------- --------
$8,453 $7,934
======== ========
</TABLE>
F-11
<PAGE> 98
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------------
<S> <C> <C>
Goodwill, net of accumulated amortization of $174 on
December 30, 1995 and $223 on December 28, 1996...................... $2,027 $1,978
Covenants not to compete, net of accumulated amortization of $1
on December 30, 1995 and $7 on December 28, 1996..................... 29 23
Industrial Revenue Bond fees, net of accumulated amortization of $169
on December 30, 1995 and $202 on December 28, 1996................... 234 201
Patents, net of accumulated amortization of $1,269 on
December 30, 1995 and $1,327 on December 28, 1996.................... 211 153
Licensing agreement, net of accumulated amortization of $3 on
December 30, 1995 and $23 on December 28, 1996....................... 192 172
------ ------
$2,693 $2,527
====== ======
</TABLE>
NOTE 6. LINE OF CREDIT
On April 12, 1996 the Company completed the consolidation of its banking
relationships and entered into a credit agreement with LaSalle National Bank
(the "LaSalle Credit Agreement"). The LaSalle Credit Agreement provided an
$8,000 line of credit subject to asset based availability formulas and a line
of credit to support letters of credit required for the Company's Industrial
Development Finance Authority Bonds (the "IDBs"). All of the Company's assets
were pledged as collateral in support of the LaSalle Credit Agreement. At
December 28, 1996 there were no borrowings outstanding under the asset based
line of credit. The LaSalle Credit Agreement was terminated and all collateral
was released in connection with the debt incurred relating to the acquisition
of Tamor. (See Note 15).
NOTE 7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------------
<S> <C> <C>
Salaries and wages............... $1,585 $1,104
Property, payroll and other taxes 317 296
Profit sharing trust............. 204 217
Sales incentives and commissions. 731 814
Accrued professional fees........ 337 192
Warranty reserve................. 495 453
Accrued facility closing costs... 484 140
Other............................ 728 802
------ ------
$4,881 $4,018
====== ======
</TABLE>
F-12
<PAGE> 99
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
1995 1996
-------- -------
<S> <C> <C>
Mortgage note payable bearing interest at 85.6% of prime,
payable in equal monthly installments of $5,208 through
January 1997; collateralized by land and buildings of
Shutters, Inc.............................................. $60 $-
Illinois Development Finance Authority (IDFA) variable rate
demand bonds (Shutters, Inc. Project) Series 1989, issued
December 1989, with interest at a weekly variable rate and
principal payable in annual installments on December 1.
The variable rate at December 28, 1996 was 4.6%............ 2,800 2,400
Illinois Development Finance Authority (IDFA) variable rate
demand Industrial Development Revenue Bonds (Selfix,
Inc. Project) Series 1990, issued September 1990, with
interest at a weekly variable rate and principal payable
in annual installments due December 1. The variable
rate at December 28, 1996 was 4.6%......................... 3,200 2,800
Capital lease obligations.................................... 1,854 1,822
------------- -------
7,914 7,022
Less current maturities...................................... (892) (838)
------------- -------
$7,022 $6,184
============= =======
</TABLE>
F-13
<PAGE> 100
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Under the terms of the IDFA agreements, the Company may not distribute any
cash dividends. Terms of both IDFA demand bonds provide that the holder may
periodically put the bonds back to the Company which are then remarketed under
a remarketing agreement with a bank. Terms of each remarketing agreement
include irrevocable letters of credit, which provides for borrowings by the
Company to repurchase the bonds until remarketed. The letters of credit have
an interest rate of 1/2%. The terms of these debt agreements include several
financial covenants which have been met by the Company.
The Company entered into an interest rate swap on May 1, 1994 with a
termination date of May 1, 1997. The notional amount of the contract is $1,500
with a fixed rate of 6.45% and a floating rate option based on the U.S. dollar
LIBOR rate. Settlement dates are calendar quarters which commenced on August
1, 1994. The swap fees are included in interest expense.
Aggregate principal payments on long-term debt, excluding capital lease
obligations as of December 28, 1996 are as follows:
Years ending:
<TABLE>
<S> <C>
1997............................................ $800
1998............................................ 800
1999............................................ 800
2000............................................ 800
2001............................................ 800
Thereafter...................................... 1,200
</TABLE>
Capital lease obligations include a lease agreement between the Company
and two related trusts for the Company's principal factory and corporate
office. Lease payments to the trusts were $478, $491 and $467, in 1994, 1995
and 1996, respectively. The lease payments were adjusted in July of 1995 to
reflect increases in the Consumer Price Index.
The following schedule shows future minimum lease payments (excluding
rental increases resulting from increases in the Consumer Price Index) together
with the present value of the payments for capital lease obligations.
Years ending:
<TABLE>
<S> <C>
1997............................................ $342
1998............................................ 342
1999............................................ 342
2000............................................ 342
2001............................................ 342
Thereafter...................................... 2,939
--------
4,649
Less amount representing interest............... (2,827)
--------
Present value of minimum lease payments......... $1,822
========
Long-term portion............................... $1,784
Current portion................................. 38
--------
$1,822
========
</TABLE>
F-14
<PAGE> 101
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following is an analysis of the leased land and building under
capitalized lease:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land and building............................ $2,535 $2,535
Less accumulated amortization................ (1,638) (1,769)
------- -------
$ 897 $ 766
======= =======
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company also leases certain manufacturing, distribution and office
facilities, including the Canadian facility which is leased from a related
trust (annual rental expense of approximately $115), under operating leases
expiring at various dates through 1999. Most of these leases contain renewal
options.
Future minimum rental payments under noncancellable operating leases are
as follows:
Years ending:
<TABLE>
<S> <C>
1997......................................... $297
1998......................................... 115
1999......................................... 96
----
$508
====
</TABLE>
Rent expense under operating leases for 1994, 1995 and 1996 was $399,
$381, and $354, respectively.
The Company has investigated and remediated an environmental matter at its
principal facility in Chicago. In 1994, the Company recorded a $300 accrual
for the cost of such investigation and remediation. Actions to date have been
funded from this accrual. Approximately $61 remained in this account at the
end of 1996.
NOTE 10. INCOME TAXES
The components of earnings (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Domestic..................... $ (5,631) $(3,262) $1,122
Foreign...................... ( 151) (1,021) (316)
-------- -------- -------
$(5,782) $(4,283) $806
======== ======== =======
</TABLE>
F-15
<PAGE> 102
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Significant components of the Company's deferred tax items as of December
30, 1995 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Inventory reserves......................................... $ 463 $ 388
Employee benefit expenses and other accruals............... 513 450
Accounts receivable reserve................................ 365 241
Overhead capitalized in inventory for tax purposes only.... 171 26
Capitalized lease treated as operating lease for tax purposes 393 430
Reserve for returns........................................ 291 109
Minimum tax, R&D and other credits......................... 332 349
Other accrued liabilities.................................. 398 344
Unrealized capital losses and contribution carryforwards... 151 133
Net operating loss carryforward............................ 393 612
Other...................................................... 417 407
--------- ---------
Gross deferred tax assets.................................... 3,887 3,489
--------- ---------
DEFERRED TAX LIABILITIES
Depreciation............................................... 447 301
Other...................................................... 41 45
--------- ---------
Gross deferred tax liabilities............................... 488 346
--------- ---------
Deferred tax assets net of deferred liabilities.............. 3,399 3,143
Valuation allowance.......................................... (3,399) (3,143)
--------- ---------
Net deferred tax asset....................................... $ - $ -
========= =========
</TABLE>
Income tax (expense) benefit is as follows:
<TABLE>
<S> <C> <C> <C>
1994 1995 1996
--------- ------- --------
Current
U.S. federal.............................. $ 45 $247 $ 0
Foreign................................... 67 ( 22) 10
State..................................... 45 48 0
--------- ------ --------
157 273 10
--------- ------ --------
Deferred
U.S. federal.............................. 2,215 463 (266)
(Increase) decrease in valuation allowance (2,593) (463) 256
--------- ------ --------
(378) - (10)
--------- ------ --------
Total income tax (expense) benefit........ $ (221) $273 $-
========= ====== ========
</TABLE>
F-16
<PAGE> 103
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income tax (expense) benefit differs from amounts computed based on the
U.S. federal statutory tax rate applied to earnings (loss) before tax as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Computed at statutory U.S. federal income tax rate. $1,966 $1,456 $(282)
State income taxes, net of U.S. federal tax benefit 267 32 39
Foreign tax rate difference and foreign loss
carryforwards..................................... 13 (460) -
Tax exempt interest................................ 26 25 12
Other.............................................. 100 317 (25)
Change in valuation allowance...................... (2,593) (463) 256
-------- -------- -------
$ (221) $ 273 $ -
======== ======== =======
</TABLE>
The Company decreased the valuation allowance from $3,399 as of December
30, 1995 to $3,143 as of December 28, 1996. The decrease is based on the
Company's evaluation of the future realization of tax benefits recorded as
deferred tax assets.
The Company also has research and development credit carryforwards of
approximately $61 expiring through the year 2010, net operating loss
carryforwards of $1,576 expiring through 2011, state investment tax credit
carryforwards of approximately $88 expiring through 2000, foreign net operating
loss carryforwards of $1,082 expiring in 2002 and alternative minimum tax
credit carryforwards of approximately $198 which do not have an expiration
date.
NOTE 11. STOCK OPTIONS
Under the 1987, 1991 and 1994 stock option plans, as amended, key
employees and certain key nonemployees were granted options to purchase shares
of the Company's common stock.
Options granted may or may not be "incentive stock options" as defined by
the Internal Revenue Code of 1986. The exercise price is determined by the
Company's Board of Directors at the time of grant but may not be less than 100%
of the market price at the time of grant for incentive stock options. Options
may not be granted for a term greater than ten years.
During 1995, the Company's Board of Directors cancelled 460,000 options to
various members of senior management at prices ranging from $7.50 to $12.00 and
reissued these options at prices ranging from $6.00 to $8.00 which exceeded the
market price on the date of reissuance.
F-17
<PAGE> 104
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A summary of the transactions in the option plans is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
SHARES PRICE* SHARES PRICE* SHARES PRICE*
-------- ------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year. 228,460 $4.65 557,842 $8.65 598,527 $6.74
Granted.................................. 458,800 9.51 626,700 7.22 248,900 4.95
Exercised................................ (99,385) 4.23 (8,147) 4.15 - -
Cancelled................................ (30,033) 6.13 (577,868) 9.14 (65,440) 6.20
-------- --------- --------
Unexercised Options outstanding at end of
year.................................... 557,842 8.65 598,527 6.74 781,987 6.21
======== ======== ========
Options exercisable at end of year....... 58,487 4.41 15,784 4.69 16,754 4.89
======== ======== ========
Available for grant...................... 234,226 195,394 1,934
======== ======== ========
</TABLE>
*Weighted average
<TABLE>
Price range of options
<S> <C> <C> <C>
Granted............... $4.25 - $12.00 $4.13 - $12.00 $4.25 - $6.00
Exercised............. $4.23 - $ 5.00 $4.00 - $ 4.23 -
Cancelled............. $4.75 - $ 6.14 $3.13 - $12.00 $4.13 - $8.00
Outstanding........... $3.13 - $12.00 $4.13 - $ 8.00 $4.13 - $8.00
</TABLE>
The above stock options have the following characteristics as of December
28, 1996:
<TABLE>
<CAPTION>
REMAINING
SHARES LIFE SHARES
GRANT YEAR OUTSTANDING PRICE* (IN YEARS)* EXERCISABLE
- ---------- ----------- ------ ----------- -----------
<S> <C> <C> <C> <C>
1987 5,971 $4.23 .3 5,971
1988 1,117 6.14 1.5 1,117
1991 8,000 4.88 4.3 8,000
1993 5,000 6.50 6.8 1,666
1994 10,399 4.25 8.0 -
1995 513,000 6.87 8.4 -
1996 238,500 4.96 9.7 -
----------- -----------
781,987 16,754
=========== ===========
</TABLE>
*Weighted average
F-18
<PAGE> 105
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting For Stock-Based Compensation." The statement required the Company
to calculate the value of stock options at the date of the grant using an
option pricing model. The Company has elected the "pro forma, disclosure only"
option permitted under SFAS No. 123, instead of recording a charge to
operations.
A summary of the average grant date exercise price and fair value per
option share is as follows:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
EXERCISE EXERCISE
PRICE* FAIR VALUE* PRICE* FAIR VALUE*
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Exercise price exceeds market price $7.19 $1.33 $5.00 $2.01
Exercise price equals market price. 5.19 2.34 4.74 2.11
</TABLE>
*Weighted average
During 1995 and 1996, 600,000 and 200,000 options, respectively, were
granted with an exercise price exceeding the market price. All other options
were granted with an exercise price equal to the market price.
Had compensation cost for the Company's 1995 and 1996 grants been
determined using the above fair values and considering the applicable vesting
periods, the Company's reported results would have been impacted as follows:
<TABLE>
<CAPTION>
1995 1996
--------- -----
<S> <C> <C>
Net earnings (loss)
As reported............................................... $(4,010) $806
Pro forma................................................. (4,092) 564
========= =====
Net earnings (loss) per common and common equivalent share
As reported............................................... $(1.11) $.21
Pro forma................................................. (1.13) .15
========= =====
</TABLE>
The fair value of each option granted during 1995 and 1996 is estimated
using the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 41%, (3) risk free rate at grant date averaging 6.2% for 1995 and
6.5% for 1996 and (4) expected life of 5 years.
F-19
<PAGE> 106
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two industry segments, the housewares segment and
the home improvement products segment. The housewares segment provided
approximately 77% of the Company's gross sales in 1996 through sales of its
home bathware, hook and home helpers, juvenile products and home organization
products to national and regional discount, variety, supermarket, drug,
hardware/home center and specialty store customers. The home improvement
products segment provided approximately 23% of the Company's gross sales in
1996. The segment's plastic exterior shutters are sold to distributors as well
as national and regional home center retailers. 1996 sales to customers outside
the United States accounted for approximately 17% of total net sales with
Canada accounting for approximately 7% of total net sales. Information about
the Company's operations in these segments is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Gross sales:
Housewares.................... $35,805 $34,543 $31,375
Home improvement products..... 8,417 8,993 9,457
--------- -------- --------
Consolidated.................. $44,222 $43,536 $40,832
========= ======== ========
Operating profit (loss):
Housewares.................... $(3,949) $(4,892) $904
Home improvement products..... (539) 817 461
--------- -------- --------
Consolidated.................. $(4,488) $(4,075) $1,365
========= ======== ========
Identifiable assets:
Housewares.................... $24,785 $19,687 $19,615
Home improvement products..... 5,998 5,300 5,090
Eliminations.................. (22) (11) -
--------- -------- --------
Consolidated.................. $30,761 $24,976 $24,705
========= ======== ========
Depreciation and amortization:
Housewares.................... $3,083 $2,684 $1,532
Home improvement products..... 1,247 653 682
--------- -------- --------
Consolidated.................. $4,330 $3,337 $2,214
========= ======== ========
Capital expenditures, net:
Housewares.................... $2,158 $880 $982
Home improvement products..... 168 335 642
--------- -------- --------
Consolidated.................. $2,326 $1,215 $1,624
========= ======== ========
</TABLE>
F-20
<PAGE> 107
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Information about the Company's operations by geographic area is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------------------------
<S> <C> <C> <C>
Gross sales:
United States........... $40,422 $40,283 $38,855
Foreign................. 3,800 3,253 1,977
-------- -------- -------
Consolidated............ $44,222 $43,536 $40,832
======== ======== =======
Operating profit (loss):
United States........... $(4,185) $(2,975) $1,386
Foreign................. (303) (1,100) (21)
-------- -------- -------
Consolidated............ $(4,488) $(4,075) $1,365
======== ======== =======
Identifiable assets:
United States........... $27,468 $23,699 $24,170
Foreign................. 3,315 1,288 535
Eliminations............ (22) (11) -
-------- -------- -------
Consolidated............ $30,761 $24,976 $24,705
======== ======== =======
</TABLE>
One customer represented 11%, 12% and 12% of gross sales for 1994, 1995,
and 1996. The percentage of their receivable to the total receivable is
slightly above their relationship to sales.
NOTE 13. EMPLOYEE STOCK PURCHASE PLAN
The 1995 Employee Stock Purchase Plan allows eligible employees to
purchase up to 200,000 shares of the Company's stock. The purchase price shall
be the lesser of 85% of the fair market value of a common share on the first
day of each purchase period or the fair market value of a common share on the
last day of such purchase period adjusted to the nearest 1/8 point. As of
December 28, 1996, 19,639 shares had been purchased under the plan.
NOTE 14. ACQUISITION OF MERICON CHILD SAFETY PRODUCTS
On October 24, 1995, the Company acquired the common stock of Mericon
Child Safety Products for a purchase price of $2,421. The acquisition
agreement also provided for a non-compete period of five years.
Consideration for the acquisition included issuance of 250,000 shares of
the Company's common stock. The Purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets................................. $ 400
Goodwill....................................... 1,796
Licensing agreement and covenant not to compete 225
-------
$ 2,421
Less:
Liabilities.................................... $ 125
Common stock issued............................ 1,375
-------
Cash consideration and direct costs............ $ 921
=======
</TABLE>
Results of operations are included from the date of acquisition. Results
of operations prior to date of acquisition were not material.
F-21
<PAGE> 108
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 15. SUBSEQUENT EVENTS
Effective January 1, 1997, the Company acquired Tamor and its affiliated
product distribution company, Housewares. Tamor, headquartered in Leominster,
Massachusetts, is a leading manufacturer of home storage and organization
products and has three manufacturing facilities in the United States. Following
are audited combined financial results for Tamor and Housewares for 1996:
<TABLE>
1996
----
<S> <C>
Net sales $75,714
Gross profit 17,896
Operating expenses 13,524
Operating income 4,372
Net income 3,515
</TABLE>
The acquisition will be accounted for as a purchase in 1997. The purchase
price will be allocated to the assets acquired and liabilities assumed based
upon their estimated fair values. Results of operations for Tamor and
Housewares will be included with those of the Company for periods subsequent to
January 1, 1997.
The excess of the purchase price over the net assets acquired, which is
expected to be approximately $25,000, will be amortized over a period not
exceeding 40 years. The purchase price allocation will be determined during
1997 when appraisals, other studies and additional information become
available. Accordingly, the final allocation may have a material effect on the
supplemental unaudited pro forma information presented below.
The following unaudited pro forma information presents the combined
results of operations as if the acquisition had been completed at the beginning
of 1996 and may not be indicative of what would have occurred had the
acquisition actually been made as of such date or results which may occur in
the future.
<TABLE>
1996
(unaudited)
-----------
<S> <C>
Net sales $113,914
Operating income 7,748
Net income 2,472
</TABLE>
Adjustments made in arriving at the pro forma unaudited combined results
include increased interest expense and amortization of debt issuance costs on
acquisition debt, amortization of goodwill, certain operating expense
reductions and related tax adjustments. No effect has been given in operating
expenses to the fair value of assets acquired, depreciable values or lives,
transition and restructuring costs or synergistic benefits which may be
realized from the acquisition.
Total consideration for the acquisition was approximately $42,600
consisting of approximately $27,800 in cash, $2,400 in common stock (480,000
shares) and the assumption of $12,400 in short and long term debt. The source
of funds for the acquisition included cash of the Company as well as a portion
of the proceeds of a new $60,000 Credit Agreement (the "CREDIT AGREEMENT"),
dated as of February 27, 1997, among the Company, Selfix, Tamor, Shutters, the
lenders which are parties thereto and General Electric Capital Corporation
("GECC"), as agent, and a new $7,000 Note Purchase Agreement (the "NOTE
AGREEMENT"), dated as of February 27, 1997, among Selfix, Tamor, Shutters (the
foregoing, collectively, the "JOINT ISSUERS"), the Company and GECC. The Credit
Agreement consists of a revolving credit facility and term loans. GECC
purchased a $7,000 subordinated equity bridge note (the "SUBORDINATED NOTE")
dated February 27, 1997 issued by the Joint Issuers pursuant to the Note
Agreement. All loans under the Credit Agreement are secured by substantially
all of the assets of the subsidiaries of the Company and a pledge by the
Company of all of the outstanding shares of capital stock of such subsidiaries.
The provisions of the Credit Agreement include restrictions on additional
indebtedness, asset sales, acquisitions or mergers, capital expenditures and
dividend payments, among other things. As defined in the Credit Agreement, the
F-22
<PAGE> 109
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Company is also required to meet certain financial tests which include, but are
not limited to, those relating to a minimum net worth test and a minimum
interest coverage ratio.
The revolving credit facility provides up to $20,000 (including a letter
of credit subfacility of up to $10,000) subject to the availability of
sufficient qualifying collateral consisting of certain accounts receivable and
inventory. Interest is charged, at the Company's option, at either: (i) the 1,
2, or 3 month reserve adjusted LIBOR plus a margin of 2.75%; or (ii) a floating
rate equal to the prime rate plus a margin of 1.25%. Interest is paid monthly
for borrowings which bear interest based on the prime rate, and is paid at the
end of the applicable LIBOR period for borrowings which bear interest based on
a LIBOR rate. An unused facility fee of .5% per annum is charged on the average
unused daily balance. On February 28, 1997, there was no balance outstanding
under the revolving line of credit and unused availability was $11,100. The
availability under the revolving credit facility was reduced by the issuance of
two letters of credit in the aggregate face amount of $5,600 which secure the
IDBs. The revolving credit facility terminates on August 28, 2002.
The Credit Agreement also includes two term loans consisting of a $20,000
22 quarter term loan A and a $20,000 30 quarter term loan B. Both term loans
are immediately due and payable in full if the revolving credit facility is
terminated.
Term loan A is required to be repaid in quarterly principal installments
commencing in April of 1997. Aggregate principal repayments for term loan A are
as follows:
<TABLE>
Years Ending
<S> <C>
1997 $1,500
1998 2,750
1999 3,375
2000 3,500
2001 4,625
Thereafter 4,250
</TABLE>
Interest is charged, at the Company's option, at either the 1, 2 or 3
month reserve adjusted LIBOR rate plus a margin of 3.00% or a floating rate
equal to the prime rate plus a margin of 1.50%. At February 28, 1997, the rate
was 9.75%. Interest is paid monthly for prime rate based loans and at the end
of the applicable LIBOR period for LIBOR based loans.
Term loan B is required to be repaid in quarterly principal installments
commencing in April of 1997. Aggregate principal repayments for term loan B
are as follows:
<TABLE>
Years Ending
<S> <C>
1997 $150
1998 200
1999 200
2000 200
2001 200
Thereafter 19,050
</TABLE>
Interest is charged, at the Company's option, at either the 1, 2 or 3
month reserve adjusted LIBOR rate plus a margin of 3.50% or a floating rate
equal to the prime rate plus a margin of 2.00%. At February 28, 1997, the rate
was 10.25%. Interest is paid monthly for prime rate based loans and at the end
of the applicable LIBOR period for LIBOR based loans.
After the fiscal quarter of the Company ended in December, 1997 the
interest rates applicable to the obligations outstanding under the Credit
Agreement are subject to adjustment (up or down) based on the Company's
quarterly consolidated financial performance.
F-23
<PAGE> 110
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Subordinated Note matures on February 27, 2005, and is secured by a
second lien on substantially all of the assets of the Company's subsidiaries.
As such, the Subordinated Note is subordinated in right of payment from the
proceeds of such collateral to the revolving credit facility and to term loans
A and B. If all outstanding obligations under the Credit Agreement have been
paid and the commitment under the revolving credit facility has been
terminated, the Joint Issuers must prepay the Subordinated Note in full.
Interest is payable quarterly and is charged, at the Company's option, at a
rate of 11.5% per annum, provided that such cash payments shall not exceed 25%
of the Company's Excess Cash Flow (as defined in the Note Agreement) or through
the issuance of payment-in-kind notes bearing interest at a rate of 13.5% per
annum. At February 28, 1997, the rate on the Subordinated Note was 13.5%.
In connection with the Subordinated Note, the Company issued a warrant to
GECC to purchase 79,204 shares of common stock (the "Warrant") exercisable at
50% of the Market Price (as defined in the Warrant) on February 27, 1997 (the
"Closing Date"), at any time during the period commencing on August 1, 1997
through February 27, 2007. If the Subordinated Note has been paid in full on or
prior to July 31, 1997, the Company has the option to repurchase the Warrant at
a price equal to $792.
If the Subordinated Note is not repaid in full on or prior to July 31,
1997, the number of shares issuable upon exercise of the Warrant will be
increased by that number of shares which is equal to the difference between (i)
5% of the total number of shares of the Company's common stock then outstanding
on a fully diluted basis, and (ii) 79,204 shares. If the Subordinated Note is
not repaid in full on or prior to February 27, 1998, the number of shares
issuable upon exercise of the Warrant will be further increased by that number
of shares which is equal to 2% of the total number of shares of the Company's
common stock then outstanding on a fully diluted basis. The number of shares
issuable upon exercise of the Warrant will be further increased annually by 1%
of the total number of shares of the Company's common stock then outstanding on
a fully diluted basis if the Subordinated Note is not repaid in full on or
prior to February 27, 1999 and on each anniversary date of the Closing Date
thereafter. The exercise price for the shares issuable upon exercise of the
Warrant issued after the Closing Date will be 50% of the Market Price. The
Company may call the shares issued or issuable upon the exercise of the Warrant
and terminate the Warrant at any time after July 31, 2002 at a call price equal
to the Market Price for such shares, but in no event will the call price be
less than $10 per share.
The Credit Agreement provides for mandatory prepayments of obligations
under the Credit Agreement and the Subordinated Note from the following funds:
all net proceeds of any sale or other disposition of any assets (other than the
sale of inventory and other items in the ordinary course of business), all net
insurance proceeds, 100% of the net cash proceeds from the issuance of equity
securities and 75% of annual consolidated excess cash flow as defined in the
Credit Agreement. Mandatory prepayments from the proceeds of any issuance of
equity securities shall be applied as follows: first, 50% of such proceeds
applied to accrued interest and principal of the Subordinated Note and the
remaining 50% applied to accrued interest and principal of term loan A and term
loan B, ratably; and second, 100% of such proceeds applied ratably to accrued
interest and principal of term loan A and term loan B after the Subordinated
Note has been repaid in full. All mandatory prepayments from sources other than
the issuance of equity securities shall be applied as follows: (a) fees and
expenses owed under the Credit Agreement; (b) pro rata to term loans A and B
until both such loans are repaid in full; (c) to repay amounts outstanding
under the revolving credit facility without reduction in availability; and (d)
other obligations outstanding under the Credit Agreement. The Company will also
be required to pay a prepayment premium, as defined in the Credit Agreement, if
the revolving credit facility is terminated or the Company prepays all or any
portion of term loan A or term loan B other than as a result of the mandatory
prepayment discussed above.
F-24
<PAGE> 111
HOME PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------------------
MARCH 30, 1996 MARCH 29, 1997
------------------ -------------------
(in thousands, except per share amounts)
<S> <C> <C>
Net sales................................................. $ 8,625 $ 31,738
Cost of goods sold........................................ 5,767 22,610
--------- ---------
Gross profit........................................... 2,858 9,128
Operating expenses
Selling................................................ 2,482 4,588
Administrative......................................... 1,301 1,809
Amortization of intangible assets...................... 43 205
--------- ---------
3,826 6,602
--------- ---------
Operating profit (loss)................................ (968) 2,526
--------- ---------
Other income (expense)
Interest income........................................ 11 31
Interest (expense)..................................... (180) (1,532)
Other income, net....................................... 21 124
--------- ---------
(148) (1,377)
--------- ---------
Earnings (loss) before income taxes...................... (1,116) 1,149
Income tax (expense) benefit.............................. -- (117)
--------- ---------
Net earnings (loss)....................................... $ (1,116) $ 1,032
Retained earnings at beginning of period.................. 490 1,296
--------- ---------
Retaining earnings at end of period....................... $ (626) $ 2,328
========= =========
Net earnings (loss) per common and common equivalent share $ (.29) $ .23
========= =========
Number of weighted common and common equivalent shares
outstanding.............................................. 3,817,181 4,513,683
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE> 112
HOME PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 29
DECEMBER 28, 1997
1996 (UNAUDITED)
-------- ---------
ASSETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 2,879 $ 6,709
Accounts receivable, net....................................... 6,594 17,414
Inventories, net............................................... 4,391 11,602
Prepaid expenses and other current assets...................... 100 883
-------- --------
Total current assets....................................... 13,964 36,608
Property, plant and equipment - at cost............................ 22,515 56,338
Less accumulated depreciation and amortization..................... (14,581) (32,458)
-------- --------
Property, plant and equipment, net................................. 7,934 23,880
Intangible and other assets........................................ 2,807 31,643
-------- --------
TOTAL ASSETS....................................................... $ 24,705 $ 92,131
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations.................... $ 838 $ 2,810
Accounts payable............................................... 1,956 14,048
Accrued liabilities............................................ 4,018 8,549
-------- --------
Total current liabilities.................................. 6,812 25,407
Long-term obligations - net of current maturities.................. 6,184 51,141
Stockholders' equity:
Preferred Stock - authorized, 500,000 shares, $.01 par value;
none issued................................................ - -
Common Stock - authorized 15,000,000 shares, $.01 par value;
3,881,423 shares issued at December 28, 1996 and
4,322,922 shares issued at March 29,1997................... 38 44
Additional paid-in capital..................................... 10,840 13,669
Retained earnings.............................................. 1,296 2,328
Common stock held in treasury - at cost (58,762 shares)........ (264) (264)
Currency translation adjustments............................... (201) (194)
Other, net..................................................... -
-------- ---------
Total stockholders' equity................................. 11,709 15,583
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $ 24,705 $ 92,131
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE> 113
HOME PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------
MARCH 30, MARCH 29,
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).................................... $(1,116) $ 1,032
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization....................... 605 1,721
Changes in assets and liabilities:
(Increase) in accounts receivable................ (702) (1,960)
(Increase) decrease in inventories............... 209 (1,086)
Increase in accounts payable..................... 681 (310)
Increase (decrease) in accrued liabilities....... (733) 697
Other operating activities, net..................... (23) 160
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. (1,079) 254
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tamor Acquisition, net of cash acquired................ --- (27,792)
Proceeds from sale or maturity of marketable securities 280 ---
Capital expenditures, net.............................. (330) (597)
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES................... (50) (28,389)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings................................. (16) (11,744)
Net proceeds from borrowings and warrants.............. --- 43,671
Payment of capital lease obligation.................... (7) (9)
Exercise of common stock options and
issuance of common stock under stock purchase plan.. 59 47
-------- --------
NET CASH (USED IN) FINANCING ACTIVITIES................ 36 31,965
-------- --------
Net increase (decrease) in cash and cash equivalents... (1,093) 3,830
Cash and cash equivalents at beginning of period....... 2,982 2,879
-------- --------
Cash and cash equivalents at end of period............. $ 1,889 $ 6,709
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest and swap fees................................. $ 140 $ 1,361
Income taxes, net...................................... 1 ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE> 114
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. The unaudited condensed financial statements included herein as of and
for the thirteen weeks ended March 29, 1996 and March 29, 1997 reflect, in the
opinion of the Company, all adjustments (which include only normal recurring
accruals) necessary for the fair presentation of the financial position, the
results of operations and cash flows. These unaudited financial statements
should be read in conjunction with the audited financial statements and related
notes thereto. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full year.
NOTE 2. Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, MARCH 29,
1996 1997
------------ ---------
<S> <C> <C>
Finished goods................... $2,604 $ 6,531
Work-in-process.................. 1,003 2,045
Raw materials.................... 784 3,026
------ -------
$4,391 $11,602
====== =======
</TABLE>
NOTE 3. No provision was made for federal income taxes in 1996 or 1997 due to
net operating loss carryforwards available to the Company. The provision for
income taxes for 1997 reflects state income taxes in states in which the
Company has no tax loss carryforwards.
NOTE 4. Earnings per share have been computed by dividing net earnings (loss)
for the thirteen weeks ended March 30, 1996 and March 29, 1997 by the weighted
average common and common equivalent shares of 3,817,181 and 4,513,683,
respectively. Common equivalent shares included in the computation of common
and common equivalent shares represent shares issuable upon assumed exercise of
the stock options using the treasury stock method. Common share equivalents
are not included under the treasury stock method when their effect is
antidulitive.
NOTE 5. Pursuant to an Agreement dated October 29, 1996, the Company, as of
January 1, 1997, took operating and financial control of Tamor Corporation,
assumed substantially all of the liabilities of Tamor and retained
substantially all of the earnings from Tamor's operations. Actual results are
combined since the date of effective control although the purchase transaction
did not close until February 29, 1997. The thirteen weeks ended March 29, 1997
includes imputed interest and other financing related charges resulting from
the effective date of the Tamor Acquisition prior to the closing date.
The pro forma impact of the Tamor Acquisition on the Company's historical
results together with a detailed description of the related financing is more
fully described in Note 15 to the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus.
The $41.9 million purchase price was allocated as follows:
<TABLE>
<S> <C>
Preliminary estimated fair value of net assets acquired $58,173
Less: Common Stock issued, 450,000 shares.............. 2,400
Cash paid............................................. 27,792
-------
Liabilities assumed.................................... $27,981
=======
</TABLE>
F-28
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Tamor Plastics Corporation and
Houseware Sales, Inc.
Leominster, Massachusetts
We have audited the accompanying combined balance sheets of Tamor Plastics
Corporation and Houseware Sales, Inc. as of December 31, 1996 and 1995 and
the related combined statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These combined financial statements are the responsibility of the
Companies management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Tamor
Plastics Corporation and Houseware Sales, Inc. at December 31, 1996 and
1995, and the combined 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.
BDO Seidman, LLP
January 24, 1997
Gardner, MA 01440
F-29
<PAGE> 116
<TABLE>
----------------------------------------------------------------------
December 31, 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 6)
CURRENT:
Cash and cash equivalents $ 1,187,858 $ 266,783
Accounts receivable, less allowance of
$659,000 in 1996 and $237,000 in 1995 8,859,561 9,255,377
Inventories (Note 2) 6,427,148 6,188,565
Prepaid expenses and other 354,019 331,375
--------------------------------------------------------------------
Total current assets 16,828,586 16,042,100
--------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost
less accumulated depreciation and
amortization (Notes 3 and 4) 16,904,864 12,907,887
--------------------------------------------------------------------
CASH SURRENDER VALUE OF LIFE INSURANCE
($8,912,000 face amount) 362,088 347,300
--------------------------------------------------------------------
DEFERRED FINANCING COSTS - 34,709
--------------------------------------------------------------------
DEFERRED STATE TAX ASSETS (NOTE 8) - 45,000
--------------------------------------------------------------------
$34,095,538 $29,376,996
====================================================================
</TABLE>
F-30
<PAGE> 117
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
December 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks issued against future deposits $ 4,376,807 $ 2,222,518
Notes payable - 115,000
Accounts payable - trade (Note 7) 4,202,355 4,654,920
Accounts payable - other (Note 3) 3,824,227 -
Accrued liabilities (Note 5) 1,730,076 1,471,879
Current maturities of long-term debt (Note 6) 1,099,000 909,476
Current maturities of capital lease obligations (Note 4) 634,000 589,470
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,866,465 9,963,263
LONG-TERM DEBT, less current maturities (Note 6) 6,031,963 7,434,253
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES (Note 4) 4,015,795 4,582,591
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 25,914,223 21,980,107
- --------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 4, 6, 7, 9 and 10)
STOCKHOLDERS' EQUITY:
Tamor Plastics Corporation common stock, $100 par value;
100 shares authorized; 50 shares issued 5,000 5,000
Additional paid-in capital 294,425 294,425
Houseware Sales, Inc. common stock, no par value;
1,000 shares authorized; 100 shares issued 500 500
Retained earnings 9,363,618 7,096,964
- --------------------------------------------------------------------------------------------------------------------------
9,663,543 7,396,889
Less treasury stock, 11.23 shares at cost (Note 13) 1,482,228 -
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 8,181,315 7,396,889
- --------------------------------------------------------------------------------------------------------------------------
$34,095,538 $29,376,996
==========================================================================================================================
See accompanying summary of accounting policies and notes to combined financial statements
</TABLE>
F-31
<PAGE> 118
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
Years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (Note 10) $75,713,837 $60,300,801 $53,806,571
COST OF SALES (Note 7) 57,817,814 50,193,776 43,235,407
- --------------------------------------------------------------------------------
GROSS PROFIT 17,896,023 10,107,025 10,571,164
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling and warehousing (Note 7) 9,885,973 6,565,029 6,220,829
General and administrative 3,637,606 2,274,035 2,205,219
- --------------------------------------------------------------------------------
Total operating expenses 13,523,579 8,839,064 8,426,048
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS 4,372,444 1,267,961 2,145,116
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (1,190,764) (1,140,353) (530,901)
Other income, net 493,886 97,582 224,806
- --------------------------------------------------------------------------------
Total other expense, net (696,878) (1,042,771) (306,095)
- --------------------------------------------------------------------------------
INCOME BEFORE STATE TAXES ON
INCOME (BENEFIT) 3,675,566 225,190 1,839,021
STATE TAXES ON INCOME (BENEFIT) (Note 8) 160,000 (25,000) 93,000
- --------------------------------------------------------------------------------
NET INCOME $3,515,566 $250,190 $1,746,021
================================================================================
See accompanying summary of accounting policies and notes to combined financial
statements.
</TABLE>
F-32
<PAGE> 119
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Tamor Plastics Corporation
----------------------------------
Common Stock Additional
-------------------- Paid-In
Shares Amount Capital
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, December 31, 1993 3 $ 300 $ 51,125
Net income - - -
Distributions to stockholders - - -
- -----------------------------------------------------------------------------
BALANCE, December 31, 1994 3 300 51,125
Merger of Victory Button Company, Inc.
(Note 12) 47 4,700 243,300
Net income - - -
Distributions to stockholders - - -
- -----------------------------------------------------------------------------
BALANCE, December 31, 1995 50 5,000 294,425
Net income - - -
Purchase of Tamor Plastics Corporation
treasury stock (Note 13) - - -
Distributions to stockholders - - -
- -----------------------------------------------------------------------------
BALANCE, December 31, 1996 50 $5,000 $294,425
=============================================================================
</TABLE>
F-33
<PAGE> 120
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Victory Button Company, Inc. Houseware Sales, Inc.
- --------------------------------- -------------------------
Common Stock Additional Common Stock Treasury Stock
- --------------------- Paid-In ------------------- Retained ---------------------
Shares Amount Capital Shares Amount Earnings Shares Amount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
400 $198,000 $100,000 100 $500 $6,145,495 100 $ 50,000
- - - - - 1,746,021 - -
- - - - - (350,877) - -
- ---------------------------------------------------------------------------------------------------
400 198,000 100,000 100 500 7,540,639 100 50,000
(400) (198,000) (100,000) - - - (100) (50,000)
- - - - - 250,190 - -
- - - - - (693,865) - -
- ---------------------------------------------------------------------------------------------------
- - - 100 500 7,096,964 - -
- - - - - 3,515,566 - -
- - - - - - 11.23 1,482,228
- - - - - (1,248,912) - -
- ---------------------------------------------------------------------------------------------------
- $ - $ - 100 $500 $9,363,618 11.23 $1,482,228
===================================================================================================
See accompanying summary of accounting policies and notes to combined financial statements.
</TABLE>
F-34
<PAGE> 121
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED STATEMENTS OF CASH FLOWS
(NOTE 11)
<TABLE>
- -----------------------------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 3,515,566 $ 250,190 $1,746,021
Adjustments to reconcile net income to net
cash provided (used) by operations:
Depreciation and amortization 2,900,809 2,559,819 2,206,048
(Gain) loss on sales of fixed assets 31,025 4,901 (62,358)
Deferred state taxes 45,000 (45,000) -
Changes in operating assets and liabilities:
Accounts receivable 395,816 (2,659,462) (2,233,842)
Inventories (238,583) (841,399) (1,037,450)
Prepaid expenses and other assets (37,432) (280,132) 84,988
Checks issued against future deposits 2,154,289 (1,208,451) 1,173,094
Accounts payable and accrued liabilities 3,629,859 2,215,253 (423,147)
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 12,396,349 (4,281) 1,453,354
- -----------------------------------------------------------------------------------------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to property and equipment (6,889,402) (1,654,653) (3,047,867)
Proceeds from sales of fixed assets 32,000 6,500 106,000
- -----------------------------------------------------------------------------------------------------
Net cash used for investing activities (6,857,402) (1,648,153) (2,941,867)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
lines of credit (1,818,149) 1,816,189 2,780,005
Proceeds from vehicle loans 140,830 52,365 90,182
Proceeds from term loans 306,000 1,300,000 -
Payments of capital lease obligations (558,966) (318,343) -
Principal repayment of term loans (1,009,256) (887,616) (514,213)
Distributions paid to stockholders (1,248,912) (693,865) (350,877)
Purchase of treasury stock (429,419) - -
- -----------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (4,617,872) 1,268,730 2,005,097
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 921,075 (383,704) 516,584
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 266,783 650,487 133,903
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,187,858 $ 266,783 $ 650,487
- -----------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to combined financial statements
</TABLE>
F-35
<PAGE> 122
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PRINCIPLES OF The Combined financial statements include the accounts of Tamor Plastics
COMBINATION AND Corporation ("Tamor") and Houseware Sales, Inc. (Housewares"), ("the
REPORTING Companies"), which are related through common ownership and management.
All significant interaffiliate transactions and balances have been eliminated.
BUSINESS Tamor is engaged in the manufacturing and sale of plastic hangers, closet
accessories and houseware products, including an environmental product line
of recycling and separation containers. The company has manufacturing
facilities in Leominster, Massachusetts, Louisiana, Missouri and Thomasville,
Georgia, and sells to retail stores throughout the United States.
Housewares has an exclusive sales agreement with Tamor expiring in February,
2009. Under the terms of the agreement, the company acts as the sole sales
representative for substantially all of Tamor's product lines and has agreed
not to sell, distribute or promote the sale of any other goods of a
competitive nature.
CASH EQUIVALENTS For purposes of balance sheet classification and the statements of cash
flows, all highly liquid debt instruments purchased with a maturity of three
months or less are considered to be cash equivalents.
INVENTORIES Inventories are valued at the lower of cost (first-in, first-out) or market.
Inventory costs include materials, direct labor, depreciation and other
factory overhead costs.
PROPERTY, Property and equipment are stated at cost. Depreciation is computed over the
EQUIPMENT AND estimated useful lives of the related assets using both straight-line and
DEPRECIATION accelerated methods. The estimated useful lives are as follows:
</TABLE>
<TABLE>
CATEGORY LIFE
----------------------------------------------------------------------------
<S> <C>
Machinery and equipment 5 - 11 years
Real estate and improvements 31 - 33 years
Leasehold improvements 5 - 7 years
Office furniture and equipment 5 - 7 years
Vehicles 3 - 5 years
</TABLE>
F-36
<PAGE> 123
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
SUMMARY OF ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCOME TAXES The Companies, with the consent of their stockholders, have elected S
Corporation status, whereby the stockholders of each corporation are
taxed on their proportionate share of each Corporation's taxable
income. Accordingly, the accompanying combined financial statements do
not include a provision or liability for federal income taxes.
Deferred income taxes are recognized for the tax consequences of
temporary differences between the financial reporting basis and the tax
basis of the Companies assets and liabilities. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
ESTIMATES AND The preparation of financial statements in conformity with generally
ASSUMPTIONS accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates and assumptions.
FAIR VALUE Cash and cash equivalents, accounts receivable, accounts payable and
OF FINANCIAL accrued liabilities are reflected in the financial statements at fair
INSTRUMENTS value because of the short-term maturity of those instruments.
Based upon borrowing rates currently available to the Companies for
issuance of similar debt with similar terms and remaining maturities,
the estimated fair value of the long-term debt and capital lease
obligations at December 31, 1996 approximates carrying value.
CONCENTRATION OF Cash and temporary cash investments are with financial institutions
CREDIT RISK which management considers to be of high quality; however, at times
such deposits may be in excess of the Federal Deposit Insurance
Corporation insurance limits.
REVENUE The Companies recognize revenue when product is shipped to the customer.
RECOGNITION
</TABLE>
F-37
<PAGE> 124
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. SUBSEQUENT Tamor's stockholders have entered into a stock purchase
EVENT agreement with another company which will result in the sale
of 100% of the Company's outstanding common stock
subject to certain provisions, effective January 1, 1997.
Housewares has entered into a merger agreement which
would result in the Company being merged into the company
that agreed to purchase Tamor's stock. All shares of
Housewares stock will be canceled, effective January 1, 1997.
Prior to the merger, assets and liabilities included in the
December 31, 1996 combined balance sheet are to be
distributed/discharged as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 920,204
Other 84,502
----------------------------------------------
Assets to be distributed 1,004,706
Liabilities to be discharged (97,075)
----------------------------------------------
Net distributions $ 907,631
==============================================
</TABLE>
2. INVENTORIES Inventories consist of the following:
----------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Finished goods $3,325,827 $3,464,297
Work-in-process 1,175,432 870,517
Raw materials 1,925,889 1,853,751
-------------------------------------------------------------
Total $6,427,148 $6,188,565
=============================================================
</TABLE>
F-38
<PAGE> 125
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. PROPERTY AND Property and equipment consist of the following:
EQUIPMENT 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $21,544,567 $17,813,633
Real estate and improvements 1,205,847 839,533
Leasehold improvements 627,147 563,393
Office furniture and equipment 951,248 751,246
Vehicles 639,393 671,691
Machinery and equipment deposits 2,693,848 330,579
--------------------------------------------------------------------------------------
Total 27,662,050 20,970,075
Less accumulated depreciation 15,045,366 13,068,850
--------------------------------------------------------------------------------------
Net property and equipment owned 12,616,684 7,901,225
Leased property under capital leases, net of
accumulated amortization (Note 4) 4,288,180 5,006,662
--------------------------------------------------------------------------------------
Net property and equipment $16,904,864 $12,907,887
======================================================================================
Tamor has a commitment to construct an addition to the
manufacturing facility in Louisiana, Missouri which it
currently leases (Note 4). The Company has the option
through September, 1998 to purchase the building for
$1,500,000. The addition is estimated to cost
approximately $2,400,000.
Accounts payable other consists of $3,824,227 of
equipment purchases which are expected to be refinanced
on a long-term basis. Long-term financing has not
been arranged due to the impending change in ownership as
described in Note 1.
</TABLE>
F-39
<PAGE> 126
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LEASES The Companies lease warehouse and manufacturing facilities,
vehicles and and factory and office equipment under capital and
operating leases. Assets held under
capital leases include:
<TABLE>
<S> <C> <C>
1996 1995
-------------------------------------------------------
Molding machines $4,008,600 $4,008,600
Molds 767,614 767,614
Equipment 791,254 791,254
Vehicles 36,700 -
-------------------------------------------------------
Total 5,604,168 5,567,468
Less accumulated amortization 1,315,988 560,806
-------------------------------------------------------
Leased property, net $4,288,180 $5,006,662
=======================================================
</TABLE>
Lease amortization is included in depreciation expense.
Future minimum payments under capital leases and noncancellable
operating leases with an initial term of one year or more are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------------------------------------------------------------------
<S> <C> <C>
Fiscal 1997 $1,139,220 $338,000
1998 1,046,120 292,000
1999 1,037,869 292,000
2000 1,029,200 292,000
2001 1,029,200 73,000
Thereafter 1,164,451 -
-------------------------------------------------------------------
Total minimum lease payments 6,446,060 $1,287,000
===========
Amount representing interest 1,796,265
------------------------------------------------------
Present value of net minimum lease payments 4,649,795
Less current obligations 634,000
------------------------------------------------------
Long-term obligations $4,015,795
======================================================
</TABLE>
F-40
<PAGE> 127
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LEASES Capital lease obligations include $4,527,717 due to a related
(CONTINUED) entity. Payments on such obligations aggregated $1,227,104 in
1996 and $591,300 in 1995. Tamor has also guaranteed the related
entity's obligations related to these same leases in the amount
of $4,527,717 (Note 7).
Operating lease expense, including ancillary costs of warehouse
and manufacturing facilities, amounted to $729,000 in 1996,
$608,000 in 1995 and $345,000 in 1994. The operating leases
contain renewal options and require the Companies to pay certain
operating costs including maintenance, insurance, and taxes in
addition to the minimum lease payments.
5. ACCRUED Accrued liabilities consist of the following:
LIABILITIES
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------
<S> <C> <C>
Customer rebates $ 643,596 $ 583,645
Materials 442,209 483,386
Bonus 330,000 -
State taxes 90,836 3,662
Utilities 60,000 120,614
Payroll and retirement 103,600 176,062
Other 59,835 104,510
----------------------------------------------------------------
Total $1,730,076 $1,471,879
================================================================
</TABLE>
6. LONG-TERM Long-term debt consists of the following:
DEBT
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------
<S> <C> <C>
Tamor
------
Revolving line of credit with interest at
variable rates (7.6% at December 31,
1996) maturing May, 1988 $4,671,129 $6,374,278
Term note payable in monthly installments
of $35,983 plus interest at variable
rates (7.6% at December 31, 1996)
through May, 1998 572,700 1,004,501
</TABLE>
F-41
<PAGE> 128
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. LONG-TERM
DEBT
(CONTINUED)
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------
<S> <C> <C>
Term note payable in monthly installments
of $36,111 plus interest at variable
rates (7.6% at December 31, 1996)
through January, 1998 469,444 902,778
Note payable to former stockholder's estate
in monthly installments of $20,031
including interest at 5.0% through
August, 2001 989,875 -
Term note payable in monthly installments
of $2,600 including interest at 6.0%
through June, 2001 with a final payment
of approximately $230,000 due August, 2001,
collateralized by a building in Thomasville,
Georgia 300,489 -
Tamor and Housewares
----------------------
Various vehicle loans payable in monthly
installments through September, 2001 with
interest at rates from 7.4% to 8.4% 127,326 62,172
-----------------------------------------------------------------
Total 7,130,963 8,343,729
Less scheduled current maturities 1,099,000 909,476
-----------------------------------------------------------------
Long-term portion $6,031,963 $7,434,253
=================================================================
</TABLE>
The bank revolving line of credit and term notes (that mature
in 1998), are collateralized by all of Tamor's assets. The
revolving credit line is advanced based on 80% of qualified
accounts receivable, plus 50% of raw material and finished
goods inventories, less certain outstanding letters of credit,
all as defined in the security agreement.
F-42
<PAGE> 129
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. LONG-TERM The loan agreements contain, among other matters,
DEBT certain restrictive covenants relating to ownership
(CONTINUED) control, payment of dividends, further liens and
security interests, mergers or consolidation with
others, investments and advances, guaranties,
borrowings, disposition of collateral, and capital
expenditures in excess of $1,500,000 for 1996 and
$1,000,000 thereafter. Tamor is also required to
maintain certain financial ratios related to minimum
net worth, debt to equity and cash flow coverage.
Tamor was not in compliance with the capital
expenditures limitation, cash flow coverage ratio,
and additional borrowings. Noncompliance has been
waived by the bank for fiscal 1996.
Scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1997 $1,099,000
1998 5,095,000
1999 260,000
2000 274,000
2001 402,963
-------------------------------------
Total $7,130,963
=====================================
</TABLE>
7. RELATED Tamor purchases packaging materials from an entity which is
PARTY partially owned by two stockholders of Tamor. Payments to
TRANSACTIONS this entity for packaging materials were $1,313,000 in 1996,
$1,151,000 in 1995 and $1,096,713 in 1994. Accounts payable
trade includes $40,304 at December 31, 1996 and $97,109 at
December 31, 1995 due to the related entity.
Tamor also purchases various raw materials from other related
parties at prevailing market prices. Payments to such related
parties were $14,270,000 in 1996, $6,826,000 in 1995 and
$4,707,730 in 1994. Accounts payable trade includes
$1,679,826 at December 31, 1996 and $1,396,584 at December 31,
1995 due to the related entities.
Housewares pays commissions to related parties. These
commissions amounted to $1,193,770 in 1996, $154,862 in 1995
and $334,917 in 1994.
Housewares leases its office facilities as a tenant-at-will
from a real estate entity partially owned by the
President of Housewares. Rent expense was $46,936 in 1996,
$48,591 in 1995 and $52,588 in 1994.
F-43
<PAGE> 130
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
8. STATE TAXES State taxes on income (benefit) consist of the following:
ON INCOME
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C>
Current $115,000 $ 20,000 $93,000
Deferred 45,000 (45,000) -
-------------------------------------------------------------
Total $160,000 $(25,000) $93,000
=============================================================
</TABLE>
A provision for Federal income taxes is not made due to the
election by the Companies, and consent by their stockholders,
to include their respective shares of the taxable income or
loss of the Companies in their individual tax returns. As a
result, no Federal income tax is imposed on the Companies.
Under Massachusetts state tax rules, Subchapter S corporate
earnings are taxed atdifferent rates depending on sales
volume as well as includable in the stockholders'
Massachusetts income tax returns.
Deferred state tax assets at December 31, 1996 consist of
Massachusetts investment tax credit carryforwards and other
temporary differences aggregating $125,000 less a valuation
allowance of the same amount due to the expected ownership
change which would result in a change in the Company's tax
status and the elimination of all differences in the book and
tax basis of assets and liabilities.
9. COMMITMENTS
AND Employment Agreement
CONTINGENCIES --------------------
Tamor has an employment agreement with an officer who is also
a stockholder of Tamor. The agreement provides for
compensation above a minimum amount determined by the board
of didrectors, inflationary increases, and additional
compensation equal to four percent of Tamor'
<TABLE>
<S> <C>
Year ended December 31,
1997 $ 165,000
1998 165,000
1999 165,000
2000 165,000
2001 165,000
Thereafter 197,000
-------------------------------------
Total $1,022,000
=====================================
</TABLE>
F-44
<PAGE> 131
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMMITMENTS Retirement Plan
AND ---------------
CONTINGENCIES
(CONTINUED) Housewares has a profit sharing retirement plan in which
eligible employees may elect to contribute up to 15% of
their annual compensation and the Company will match up to
2% of an employee's annual compensation. In addition, the
Company contributes an amount once a year based upon profits
for the year. Pension expense was $51,403 in 1996, $45,575
in 1995 and $50,358 in 1994.
10. SIGNIFICANT The Companies have two significant customers that each
CUSTOMERS comprise more than 10% of total sales in 1996, 1995 and
1994. Sales to these customers represent approximately 28%
and 11% of total sales in 1996, 33% and 12% of total sales
in 1995 and 31% and 17% of total sales in 1994.
11. SUPPLEMENTAL Cash paid for interest and state income taxes was as follows:
CASH FLOW
INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C>
Interest $1,204,106 $1,096,590 $508,918
State income taxes 14,364 93,401 30,476
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company issued a note payable for $1,052,809 to the
estate of a former stockholder for the purchase of treasury
stock in 1996.
The Companies incurred capital lease obligations of $36,700
in 1996 and $5,243,529 in 1995.
F-45
<PAGE> 132
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. MERGER On January 1, 1995, Victory Button Company, Inc. was merged
with and into Tamor Plastics Corporation. Both corporations
were commonly owned by the same stockholders. The merger was
accounted for as a pooling of interests, and accordingly, the
accompanying financial statements include the accounts and
operations of Victory Button Company, Inc. for all periods
prior to the merger.
13. TREASURY The stockholders' have a stock redemption agreement which
STOCK requires each stockholder desiring to sell their stock to first
offer the stock for sale to the Company, and if not purchased
by the Company, to the other stockholders, at agreed upon book
value. The stock redemption agreement will be rescinded upon
the closing of the stock sale as described in Note 1.
Upon the death of any stockholder, the Company is required to
purchase the decedent's stock at agreed upon book value.
During 1996, 11.23 shares were purchased by the Company for
$1,482,228 including a note payable to the former stockholders
estate for $1,052,809 (See Note 6).
F-46
<PAGE> 133
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, to any person in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making the
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale make hereunder shall create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 10
Use of Proceeds 17
Price Range of Common Stock 18
Capitalization 19
Dividend Policy 20
Selected Financial Data 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 31
Business 50
Management 61
Certain Relationships and Related
Transactions
Principal and Selling Shareholders 73
Description of Company's Securities 75
Shares Eligible for Future Sale 78
Description of the Credit Agreement and Other Debt 80
Underwriting 83
Legal Matters 83
Experts 83
Additional Information 84
Financial Statements F-1
_________SHARES
HOME PRODUCTS INTERNATIONAL, INC.
COMMON STOCK
-------------
PROSPECTUS
-------------
EVEREN SECURITIES, INC.
____________, 1997
<PAGE> 134
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director for
violations of the director's fiduciary duty, except (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the DGCL
(providing for liability of directors for unlawful payments of dividends of
unlawful stock purchase or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such
officer, director, employee or agent acting in good faith and in a manner he
reasonably believed to be in, or not opposed to, the corporation's best
interest and, for criminal proceeding, had no reasonable cause to believe that
his conduct was unlawful. A Delaware corporation may indemnify any officer or
director in any action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer of director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expense that such officer or director actually and
reasonably incurred.
The Company's Certificate of Incorporation limits the personal liability
of directors to the fullest extend permitted by Delaware law. In addition, the
Company's Certificate of Incorporation and By-laws provide that the Company
shall to the fullest extent permitted by Delaware law, indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that he or she is or was
a director, officer, employee or agent of the Company or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
and all expenses, liabilities or other matters referred to or covered by
Delaware law, which were reasonably incurred by such person. This
indemnification is in addition to any other rights of indemnification to which
such persons may be entitled under the Company's Certificate of Incorporation,
By-laws, any agreement or notice of shareholders or disinterested directors.
The Company's Certificate of Incorporation and By-laws also permit it to
secure insurance on behalf of any director, officer, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether Delaware law, the Certificate of Incorporation or By-laws
would permit indemnification. The Company does not have any separate
indemnification agreements with its directors or officers.
The description of Delaware law is not intended to be complete. The
description of the Company's Certificate of Incorporation and its By-laws is
not intended to be complete and is respectively qualified in its entirety by
such Certificate and By-laws.
II-1
<PAGE> 135
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions and the Representatives' non-accountable expense
allowance) expected to be incurred in connection with the offering described in
this Registration Statement. All amounts are estimated except the SEC
Registration Fee and the NASD Fee.
<TABLE>
<S> <C>
SEC Registration Fee............. $12,960
NASD Fee......................... 4,779
NASDAQ National Market Filing Fee *
Printing Costs................... *
Accounting Fees and Expenses..... *
Legal Fees and Expenses.......... *
Transfer Agent Fees and Expenses. *
Miscellaneous.................... *
-------
Total........................... $*
=======
</TABLE>
All of the listed expenses of this Offering will be paid by the Company.
* To be supplied by amendment.
ITEM 16. EXHIBITS.
See Exhibit Index E-1 which is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "SECURITIES ACT") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the provisions
described in Item 15, or otherwise, the Registrant has been advised that, in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer of controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act,
the Registrant will treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 424(b)(1), or (4), or 497(h) under the Securities Act as part
of this registration statement as of the time the Commission declares it
effective.
For purposes of determining any liability under the Securities Act,
the Registrant will treat each post-effective amendment that contains a
form of prospectus as a new registration
II-2
<PAGE> 136
statement for the securities offered in this registration statement, and that
offering of the securities at that time as the initial bona fide offering of
those securities.
II-3
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on April 23, 1997.
HOME PRODUCTS INTERNATIONAL, INC.
By: // James R. Tennant //
-----------------------------
James R. Tennant
Chairman of the Board
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
following capacities on April 23, 1997.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James R. Tennant and James E. Winslow,
and each of them, his attorney-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign any registration statement for the same
offering covered by this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933,
and all post-effective amendments thereto, and to file the same, with all
exhibits thereto in all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
SIGNATURES TITLE
---------- -----
//James R. Tennant// Chairman of the Board
- -------------------- and
James R. Tennant Chief Executive Officer
(Principal Executive Officer)
//James E. Winslow// Executive Vice President
- -------------------- Chief Financial Officer and Secretary
James E. Winslow (Principal Financial and
Accounting Officer)
//Charles R. Campbell//
- ----------------------- Director
Charles R. Campbell
//Marshall Ragir//
- ------------------ Director
Marshall Ragir
//Daniel B. Shure//
- ------------------- Director
Daniel B. Shure
II-4
<PAGE> 138
//Jeffrey C. Rubenstein//
- ------------------------- Director
Jeffrey C. Rubenstein
//Joel D. Spungin//
- ------------------- Director
Joel D. Spungin
II-5
<PAGE> 139
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
**1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated as of February 13, 1997, by and
among Selfix, Inc., HPI Merger, Inc. and Home Products International,
Inc. Incorporated by reference from Exhibit 2.1 to Form 8-B Registration
Statement filed on February 20, 1997.
2.2 Agreement and Plan of Merger, dated as of October 24, 1995, by and
among Selfix, Inc., Mericon Corporation, Claw, L.L.C. and Dennis
Buckshaw. Incorporated by reference from Exhibit 2.2 to Form 8-B
Registration Statement filed on February 20, 1997.
2.3 Stock Purchase Agreement, made as of January 1, 1997, between the
Company, Leonard J. Tocci, Richard M. Tocci, Lawrence J. Tata, Michael
P. Tata and Barbara L. Tata. Incorporated by reference from Exhibit 2.2
to Form 8-K dated February 28, 1997.
2.4 Agreement and Plan of Merger, dated as of January 1, 1997, by and
among the Company, Houseware Sales, Inc. and the individual shareholders
of Houseware Sales, Inc. Incorporated by reference from Exhibit 2.1 to
Form 8-K dated February 28, 1997.
3.1 Certificate of Incorporation of the Company filed with the Delaware
Secretary of State on February 7, 1997. Incorporated by reference from
Exhibit 3.1 to Form 8-B Registration Statement filed on February 20,
1997.
3.2 By-laws of the Company. Incorporated by reference from Exhibit 3.2 to
Form 8-B Registration Statement filed on February 20, 1997.
*4.1 Specimen Common Stock Certificate.
*4.2 Form of Rights Agreement.
**5.1 Opinion of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
10.1 The Company's 1994 Stock Option Plan. Incorporated by reference by
Exhibit A of the Company's Proxy Statement for its 1994 Annual Meeting.X
10.2 The Company's 1991 Stock Option Plan. Incorporated by reference from
Exhibit A of the Company's Proxy Statement for its 1991 Annual Meeting.X
10.3 The Company's 1987 Stock Option Plan Incorporated by reference from
Exhibit 10.8 to Form S-1 Registration Statement No. 33-23881.X
10.4 Lease, dated July 24, 1980, among Selfix as Tenant and NLR Gift Trust
and MJR Gift Trust as Landlord concerning Selfix's facility in Chicago,
Illinois. Incorporated by reference from Exhibit 10.9 to Form S-1
Registration Statement No. 33-23881.
E-1
<PAGE> 140
10.5 Patent licensing agreement, dated as of November 2, 1971, between
Selfix and Meyer J. Ragir concerning M.J. Molding Process. Incorporated
by reference from Exhibit 10.13 to Form S-1 Registration Statement No.
33-23881.
10.6 Patent licensing agreement, dated as of November 15, 1971, between
Selfix and Meyer J. Ragir concerning Suction Lock Products. Incorporated
by reference from Exhibit 10.14 to Form S-1 Registration Statement No.
33-23881.
10.7 Patent licensing agreement, dated as of June 1, 1981, between Selfix
and Meyer J. Ragir concerning Shower Organizer Products. Incorporated by
reference from Exhibit 10.15 to Form S-1 Registration Statement No.
33-23881.
10.8 Loan Agreement dated December, 1989 between Selfix and Illinois
Development Finance Authority in connection with Selfix's Industrial
Revenue Bond. Incorporated by reference from the Company's Form 10-K for
the year ended May 31, 1990.
10.9 Loan Agreement dated September, 1990 between Selfix and Illinois
Development Finance Authority in connection with Selfix's Industrial
Revenue Bond. Incorporated by reference from the Company's Form 10-K for
the fifty-two weeks ended December 28, 1991.
10.10 Credit Agreement dated February 27, 1997 among Selfix, Inc., Tamor
Corporation and Shutters, Inc. as Borrowers, the Company, General Electric
Capital Corporation, as Agent and Lender, and LaSalle National Bank, as
Lender. Incorporated by reference from Exhibit 10.10 to the Company's
Form 10-K for the fifty-two weeks ended December 28, 1996.
10.11 The Company, Selfix, Inc., Tamor Corporation, Shutters, Inc.
Subordinated Equity Bridge Notes due February 27, 2005 Note Purchase
Agreement. Incorporated by reference from Exhibit 10.11 to the Company's
Form 10-K for the fifty-two weeks ended December 28, 1996.
10.12 Employment Agreement dated January 1, 1997 between the Company and James
R. Tennant, Chairman of the Board and Chief Executive Officer.
Incorporated by reference from Exhibit 10.10 to Form 8-B Registration
Statement filed on February 20, 1997.
10.13 Reimbursement Agreement by and among Selfix, Shutters, Inc. and LaSalle
National Bank dated as of April 12, 1996 relating to letter of credit
issued in connection with the Series 1990 Bonds. Incorporated by reference
from Exhibit 10.11 to Form 8-B Registration Statement filed on February
20, 1997.
10.14 Employment Agreement dated February 28, 1997 between the Company and
Leonard Tocci. Incorporated by reference from Exhibit 10.14 to the
Company's Form 10-K for the fifty-two weeks ended December 28, 1996.
10.15 Lease Agreement, dated February 7, 1995, by and between Packaging
Resources, Inc., as Landlord, and Tamor Corporation, as Tenant for
Manufacturing and Distribution Facilities at Louisiana, Missouri, as
amended by First Amendment dated March 29, 1995. Incorporated by
reference from Exhibit 10.16 to the Company's Form 10-K for the fifty-two
weeks ended December 28, 1996.
E-2
<PAGE> 141
10.17 Lease Agreement, dated March 6, 1992, by and between Gottsegen Realty
Venture, Robert Gottsegen, Trustee, as Landlord and Victory Button, Inc.,
as Tenant (predecessor in interest to Tamor) for Warehouse Facilities at
Fitchburg, Massachusetts, and First Addendum dated May 10, 1993.
Incorporated by reference from Exhibit 10.17 to the Company's Form 10-K
for the fifty-two weeks ended December 28, 1996.
*11.1 Statement Regarding Computation of Earnings Per Share is included in the
Notes to the Consolidated Financial Statements referred to in Item 8
hereof.
16.1 Letter re: Change in Certifying Accountant. Incorporated by reference
from Exhibit 16.1 to Form 8-K filed by the Company on April 22, 1996.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Grant Thornton LLP.
*23.3 Consent of BDO Seidman, LLP.
**23.4 Consent of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
(included as part of Exhibit 5.1).
24.1 Power of Attorney (included on page II-4 of the Registration Statement
on Form S-2).
*27.1 Financial Data Schedule.
Exhibits not marked with an asterisk are incorporated by reference.
* Filed herewith.
** To be filed by Amendment.
E-3
<PAGE> 1
EXHIBIT 4.1
Number Shares
[HPI LOGO] HOME PRODUCTS INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies That CUSIP 437305 10 5
SPECIMEN
Is the Registered Owner of
FULLY PAID AND NON-ASSESSABLE SHARES, PAR VALUE $0.01 PER SHARE, OF THE COMMON
STOCK OF
HOME PRODUCTS INTERNATIONAL, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed or assigned. By the acceptance of this Certificate, the holder hereof
assents to and agrees to be bound by all of the provisions of the
Certificate of Incorporation, the By-Laws and any Certificate of Designation
of the Corporation and all amendments thereto (copies of which are on file at
the office of the Transfer Agent). This Certificate is not valid until
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duty authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
[SIG]
SPECIMEN
CHAIRMAN AND CHIEF
AUTHORIZED SIGNATURE [HPI SEAL] EXECUTIVE OFFICER
[SIG]
SPECIMEN
SECRETARY
<PAGE> 2
HOME PRODUCTS INTERNATIONAL, INC.
The Corporation will furnish without charge to each stockholder who so
requests a copy of the statement of the powers, designations, preferences and
relative and participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
each preference and/or rights granted to or imposed upon the respective
classes or series of shares and upon the holder thereof, as established by the
Certificate of Incorporation of the Corporation, as amended, or by any
Certificate of Designation, and of the number of shares constituting each
series and the designation thereof. Such copy may be obtained by a request in
writing to the Corporation or the Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
<TABLE>
<S> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT -as tenants by the entireties ---------------------------------
JT TEN - \\\\\\ (Cust) (Minor)
under Uniform Gifts to Minors
Act
-----------------
(State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT or typewrite NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint.
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of situation in the premises.
Date____________________
AFFIX MEDALLION SIGNATURE X____________________________________
GUARANTEE IMPRINT BELOW (SIGNATURE)
X____________________________________
(SIGNATURE)
_______________________________________
ABOVE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR, INSTITUTION SUCH
AS A SECURITIES BROKER/DEALER,
COMMERCIAL BANK & TRUST COMPANY, SAVINGS
& LOAN ASSOCIATION OR A CREDIT UNION
PARTICIPATING IN A MEDALLION PROGRAM
APPROVED BY THE SECURITIES TRANSFER
ASSOCIATION, INC.
<PAGE> 1
EXHIBIT 4.2
RIGHTS AGREEMENT
Dated as of _______________, 1997
between
HOME PRODUCTS INTERNATIONAL, INC.
and
[RIGHTS AGENT]
as Rights Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Certain Definitions............................................................... 1
Section 2. Appointment of Rights Agent....................................................... 7
Section 3. Issuance of Rights Certificates................................................... 7
Section 4. Form of Rights Certificates...................................................... 10
Section 5. Countersignature and Registration................................................ 11
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates....................... 12
Section 7. Exercise of rights; Exercise Price;
Expiration Date of Rights...................................................... 13
Section 8. Cancellation and Destruction of Rights Certificates.............................. 16
Section 9. Reservation and Availability of Preferred Shares................................. 16
Section 10. Record Date of Preferred Share Ownership......................................... 18
Section 11. Adjustment of Exercise Price, Number and Kind of Shares and
Number of Rights............................................................... 18
Section 12. Certificate of Adjusted Exercise Price or Number of Shares....................... 28
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power............. 28
Section 14. Fractional Rights and Fractional Shares.......................................... 33
Section 15. Rights of Action................................................................. 33
Section 16. Agreements of Holders of Rights.................................................. 34
Section 17. Rights Certificate Holder Not Deemed a Stockholder............................... 35
Section 18. Concerning the Rights Agent...................................................... 35
Section 19. Merger or Consolidation of the Rights Agent...................................... 36
Section 20. Duties of the Rights Agent....................................................... 37
Section 21. Resignation or Removal of the Rights Agent....................................... 39
Section 22. Issuance of New Rights Certificates.............................................. 41
Section 23. Redemption....................................................................... 41
Section 24. Exchange......................................................................... 43
Section 25. Notice to Holders of Rights Certificates of Certain Events....................... 45
Section 26. Other Notices.................................................................... 46
Section 27. Supplements and Amendments....................................................... 47
Section 28. Successors....................................................................... 48
Section 29. Certain Determinations and Actions by the Board.................................. 48
Section 30. Benefits of this Agreement....................................................... 48
Section 31. Severability..................................................................... 49
Section 32. Governing Law.................................................................... 49
Section 33. Counterparts..................................................................... 49
Section 34. Descriptive Headings............................................................. 49
Exhibit A - Form of Certificate of Designations of
Series B Junior Participating Preferred Stock............................... A-1
Exhibit B - Form of Rights Certificate.................................................. B-1
Exhibit C - Summary of Rights to Purchase Shares of
Series B Junior Participating Preferred Stock............................... C-1
</TABLE>
<PAGE> 3
RIGHTS AGREEMENT
This Rights Agreement is entered into as of _______________, 1997 (this
"Agreement") between Home Products International, Inc., a Delaware corporation
(the "Company"), and [Rights Agent], a national banking association (the
"Rights Agent").
R E C I T A L S :
---------------
A. The Board of Directors of the Company desires to provide all
stockholders of the Company with the opportunity to benefit from the long-term
prospects and value of the Company and to ensure that all such stockholders
receive fair and equal treatment in the event of any proposed takeover of the
Company; and
B. On March ___, 1997, the Board of Directors of the Company authorized
and declared a dividend of one preferred stock purchase right (individually a
"Right" and collectively the "Rights") for each share of Common Stock (as
hereinafter defined) of the Company outstanding at the Close of Business on
April ___, 1997 (the "Record Date"), each Right representing the right to
purchase one one-hundredth of a Preferred Share (as hereinafter defined) upon
the terms and subject to the conditions herein after set forth, and
contemplates that one Right will be issued with respect to each share of Common
Stock which shall become outstanding after the Record Date and prior to the
earlier of the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined), including any shares of Common Stock issued by reason of
the exercise of any option, warrant, right (other than the Rights) or
conversion or exchange privilege contained in any option, warrant, right (other
than the Rights) or convertible or exchangeable security issued by the Company
prior to the Distribution Date, unless the Board (as hereinafter defined) shall
expressly provide to the contrary at the time of issuance of any such option,
warrant, right or convertible or exchangeable security.
C L A U S E S :
-------------
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For all purposes of this Agreement,
unless the context otherwise requires, the following terms shall have the
respective meanings set forth below:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
15% or more of the shares of Common Stock of the Company then outstanding, but
shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii)
any employee benefit plan or other compensation program or arrangement of the
Company or of any such Subsidiary or (iv) any Person holding such shares of
Common Stock for or pursuant to the terms of any such plan, program or
arrangement (the Persons specified in clauses (i) through (iv) being
hereinafter collectively called "Exempt Persons"). Notwithstanding the
preceding sentence, no Person shall become an "Acquiring Person" as the result
of an acquisition by the Company of shares of its Common Stock which, by reason
of reducing the number of its then outstanding shares of Common Stock,
increases the percentage of its then outstanding shares of Common Stock
Beneficially Owned by such Person to 15% or more; provided, however, that if
such Person shall, after such purchase by the Company, become the Beneficial
Owner of any additional shares of
<PAGE> 4
Common Stock of the Company, then such Person shall be deemed to be an
"Acquiring Person."
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2, as in effect on the date of this
Agreement, under the Exchange Act.
(c) "Beneficial Owner" (including the terms "Beneficially Own" and
"Beneficial Ownership"), when used with respect to any Person, shall be deemed
to include any securities which:
(i) such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly (determined
as provided in Rule 13d-3, as in effect on the date of this
Agreement, under the Exchange Act);
(ii) such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has:
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time or upon the
satisfaction of any conditions, or both) pursuant to any written or
oral agreement, arrangement or understanding (other than customary
agreements with and among underwriters and selling group members
with respect to a bona fide public offering of securities), upon
the exercise of any options, warrants, rights (other than the
Rights) or conversion or exchange privileges or otherwise;
provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to Beneficially Own: (I) securities tendered pursuant
to a tender or exchange offer made by or on behalf of such Person
or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange or (II)
securities issuable upon exercise of the Rights at any time prior
to the Distribution Date; or
(B) the right to vote pursuant to any written or oral
agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to
Beneficially Own, any security otherwise subject to this item (B)
if such agreement, arrangement or understanding to vote (I) arises
solely from a revocable proxy or consent given to such Person or
any of such Person's Affiliates or Associates in response to a
public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations under the
Exchange Act and (II) is not also then reportable by such Person on
Schedule 13D (or any comparable or successor report then in effect)
under the Exchange Act; or
(C) the right to dispose of pursuant to any written or oral
agreement, arrangement or understanding (other than customary
agreements with and among underwriters and selling group members
with respect to a bona fide public offering of securities); or
(iii) are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's
Affiliates or Associates has any written or oral agreement,
arrangement or understanding (other than customary agreements with
and among underwriters and selling group members with respect to a
bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by
the proviso to item (B) of subparagraph (ii) of the first
paragraph of this definition) or disposing of any securities of
the Company.
<PAGE> 5
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the State of Illinois are authorized or
obligated by law or executive order to close.
(f) "Certificate of Designations" shall mean the Certificate of
Designations for the Preferred Shares in substantially the form attached hereto
as Exhibit A.
(g) "Close of Business" on any given date shall mean 5:00 P.M., Chicago,
Illinois time, on such date or, if such date is not a Business Day, then 5:00
P.M., Chicago time, on the next succeeding Business Day.
(h) "Common Stock," when used with reference to the Company, shall mean
the Common Stock, $___ par value, of the Company. "Common Stock," when used
with reference to any Person other than the Company, shall mean the capital
stock with the greatest voting power (or the other equity securities or equity
interests having the power to control or direct management) of such Person or,
if such Person is a Subsidiary of another Person, of the Person which
ultimately controls such first-mentioned Person and which has issued and
outstanding such capital stock, equity securities or equity interests.
(i) "Continuing Director" shall mean (i) any member of the Board, while
such a member, who is not a Restricted Person, or a representative or nominee
of a Restricted Person, and was a member of the Board prior to the date of this
Agreement and (ii) any individual who subsequently becomes a member of the
Board and is not a Restricted Person, or a representative or nominee of a
Restricted Person, if such individual's nomination for election or election to
the Board is recommended or approved by a majority of the Continuing Directors
then in office.
(j) "Distribution Date" shall have the meaning set forth in Section 3(a).
(k) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b).
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect on the date of this Agreement.
(m) "Exchange Rate" shall have the meaning set forth in Section 24(a).
(n) "Exempt Persons" shall have the meaning set forth in the definition of
"Acquiring Person."
(o) "Exercise Price" shall have the meaning set forth in Section 7(b).
(p) "Fair Market Value" shall have the meaning and be determined as set
forth in Section 11(d).
(q) "Final Expiration Date" shall have the meaning set forth in Section
7(a).
(r) "Interested Stockholder" shall mean any Restricted Person or any
Affiliate or Associate of any other Person in which such Restricted Person has
an interest, or any Person acting, directly or indirectly, on behalf of or in
concert with any such Restricted Person.
<PAGE> 6
(s) "NASDAQ" shall have the meaning set forth in Section 9(c).
(t) "Permitted Offer" shall mean any tender or exchange offer for all of
the outstanding shares of Common Stock of the Company at a price and on terms
determined, prior to the purchase of shares under such tender or exchange
offer, by at least a majority of the members of the Board who are Continuing
Directors and who are not officers of the Company to be appropriate (taking
into account all factors which such Continuing Directors deem relevant,
including, without limitation, prices reasonably obtainable if the Company or
its assets were sold on an orderly basis designed to realize maximum value) and
otherwise in the best interests of the Company and its stockholders (other than
the Person or any Affiliate or Associate thereof on whose behalf or for whose
benefit such tender or exchange offer is being made).
(u) "Person" shall mean any individual, firm, corporation, partnership or
other entity, and shall include any successor (by merger or otherwise) of any
of the foregoing.
(v) "Preferred Shares" shall mean the shares of Junior Participating
Preferred Stock.
(w) "Preferred Stock," when used with reference to the Company, shall mean
the Series B Junior Participating Preferred Stock, $.01 par value, of the
Company, which series shall have the powers, preferences and other rights set
forth in the Certificate of Designations.
(x) "Principal Party" shall have the meaning set forth in Section 13(e).
(y) "Redemption Date" shall have the meaning set forth in Section 7(a).
(z) "Redemption Price" shall have the meaning set forth in Section 23(a).
(aa) "Restricted Person" shall mean an Acquiring Person, an Adverse Person
or any Affiliate or Associate of an Acquiring Person or an Adverse Person.
(bb) "Rights Certificates" shall mean the certificates evidencing the
Rights after the Distribution Date.
(cc) "Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii).
(dd) "Section 13 Event" shall mean any transaction described in Section
13(a).
(ee) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(ff) "Security" shall have the meaning set forth in Section 11(d).
(gg) "Share Acquisition Date" shall mean the first date on which there
shall be a public announcement (which shall include, without limitation, any
press release or publicly available filing with the Securities and Exchange
Commission or any other federal or state governmental authority or agency) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(hh) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power or the other equity securities or
equity interests having the power to control or direct management) is owned,
directly or indirectly, by such Person.
<PAGE> 7
(ii) "Summary of Rights" shall mean the Summary of Rights to Purchase
shares of Junior Participating Preferred Stock in substantially the form
attached hereto as Exhibit C.
(jj) "Trading Day" shall have the meaning set forth in Section 11(d)(i).
(kk) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights
(which holders, as provided in Section 3, shall, prior to the Distribution
Date, also be the holders of the Common Stock of the Company) in accordance
with the terms and conditions of this Agreement. The Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable. In the event the
Company appoints one or more Co-Rights Agents, the respective obligations and
duties of the Rights Agent and of any Co-Rights Agent shall be as the Company
shall specify in writing. The Rights Agent shall have no duty to supervise,
and shall not be liable for the acts or omissions of, any Co-Rights Agent.
SECTION 3. ISSUANCE OF RIGHTS CERTIFICATES. (a) Until the earliest of
(i) the Close of Business on the 10th Business Day after the Share Acquisition
Date (or, if the Share Acquisition Date shall have occurred prior to the Record
Date, the Close of Business on the 10th Business Day after the Record Date), or
(ii) the Close of Business on the 10th Business Day (or, anything in Section 27
to the contrary notwithstanding, such other Business Day as may be determined
by action of the Board prior to the occurrence of any Section 11(a)(ii) Event)
after the date of the commencement by any Person (other than an Exempt Person)
of, or the first public announcement of the intention of any Person (other than
an Exempt Person) to commence, a tender or exchange offer if, upon the
consummation thereof, such Person would be the Beneficial Owner of 15% or more
of the shares of Common Stock of the Company then outstanding, including any
such date which is after the date of this Agreement and prior to the date of
issuance of the Rights (the earliest of the dates specified in clauses (i) and
(ii) being hereinafter called the "Distribution Date"), the Rights shall be
evidenced and be transferable only as provided in Section 3(b). As soon as
practicable after the Distribution Date or, in the case of any shares of Common
Stock of the Company which are issued or otherwise become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date, including any shares of Common Stock issued by reason of the
exercise of any option, warrant, right (other than the Rights) or conversion or
exchange privilege contained in any option, warrant, right (other than the
Rights) or convertible or exchangeable security issued by the Company prior to
the Distribution Date, unless the Board shall have expressly provided to the
contrary at the time of issuance of any such option, warrant, right or
convertible or exchangeable security, simultaneously with the issuance of stock
certificates for such shares of Common Stock, the Company shall prepare and
execute, the Rights Agent shall countersign and the Company shall deliver or
cause to be delivered (or the Rights Agent shall, if requested, deliver), by
first-class mail, postage prepaid, to each record holder of shares of Common
Stock of the Company as of the Close of Business on the Distribution Date or,
in the case of shares of Common Stock issued or otherwise becoming outstanding
after the Distribution Date (unless otherwise provided with respect thereto as
aforesaid), to each record holder of the shares of Common Stock so being issued
or becoming outstanding at the time of such occurrence, at its last address
shown on the registry books of the transfer agent for the Common Stock of the
Company, one or more Rights Certificates evidencing one Right for each share of
Common Stock of the Company so held, issued or becoming outstanding. As of and
after the Distribution Date, the Rights shall be evi-
<PAGE> 8
denced solely by the Rights Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
shall send a copy of the Summary of Rights, by first-class mail, postage
prepaid, to each record holder of shares of Common Stock of the Company as of
the Close of Business on the Record Date, at its last address shown on the
registry books of the transfer agent for the Common Stock of the Company.
Until the Distribution Date, no Rights Certificates shall be issued; each stock
certificate for shares of Common Stock of the Company outstanding as of the
Record Date, until the earliest of the Distribution Date, the Redemption Date
and the Final Expiration Date, shall be deemed also to constitute a certificate
for the Rights associated with the shares represented thereby, together with a
copy of the Summary of Rights attached thereto; and the registered holder of
such shares shall also be the registered holder of the associated Rights.
Until the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date, the surrender for transfer of any such stock certificate, with
or without a copy of the Summary of Rights attached thereto, shall also
constitute the transfer of the Rights associated with the shares of Common
Stock represented thereby.
(c) Any stock certificate for shares of Common Stock of the Company which
shall be delivered by or on behalf of the Company (including, without
limitation, stock certificates for shares of Common Stock which are reacquired
by the Company and then transferred) after the Record Date and prior to the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date shall have impressed, printed or written thereon, or otherwise affixed
thereto, the following legend:
"This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in the Rights Agreement
dated as of ______________, 1997 (the "Rights Agreement") between
Home Products International Inc. (the "Company") and [Rights
Agent], as Rights Agent, the terms, provisions and conditions of
which are incorporated herein by reference and made a part hereof.
The Rights Agreement is on file at the principal office of
Company and the principal office of such Rights Agent, and Company
will mail to the holder of this certificate a copy without charge
after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Under certain circumstances, as
set forth in the Rights Agreement, Rights Beneficially Owned by a
Restricted Person (as such terms are defined in the Rights
Agreement), or by specified transferees from a Restricted Person,
shall be or may become void."
Each stock certificate containing the foregoing legend, until the earliest of
the Distribution Date, the Redemption Date and the Final Expiration Date, shall
be deemed also to constitute a certificate for the Rights associated with the
shares represented thereby, and the registered holder of such shares shall also
be the registered holder of the associated Rights. Until the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date, the
surrender for transfer of any such stock certificate shall also constitute the
transfer of the Rights associated with the shares of Common Stock represented
thereby. The omission of the foregoing legend shall not in any manner
whatsoever affect the application or interpretation of Section 7(d).
(d) In the event that the Company shall reacquire any shares of its Common
Stock after the Record Date and prior to the Distribution Date, the Rights
associated with such shares shall be deemed canceled and retired, the Company
not being entitled to exercise any Rights associated with shares of its Common
Stock which are no longer outstanding.
<PAGE> 9
SECTION 4. FORM OF RIGHTS CERTIFICATES. (a) The Rights Certificates
(including the forms of election to purchase and assignment to be set forth on
the reverse side thereof) shall be in substantially the form attached hereto as
Exhibit B and may have such marks of identification or designation and such
legends, summaries or endorsements set forth thereon as the Company may deem
appropriate and are not inconsistent with the provisions of this Agreement, or
as may be required to conform to customary practice or to comply with any
applicable law or any rule or regulation made pursuant thereto or with any rule
or regulation of any stock exchange on which the Rights may from time to time
be listed. Subject to Sections 11 and 22, the Rights Certificates, whenever
distributed, shall be dated as of the Record Date (or, in the case of Rights
with respect to shares of Common Stock issued or becoming outstanding after the
Record Date, the same date as the stock certificate evidencing such shares),
shall entitle the holders thereof to purchase such number of one one-hundredths
of a Preferred Share at the Exercise Price as shall be set forth therein, but
the number of such one one-hundredths of a Preferred Share and the Exercise
Price shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22
that represents Rights Beneficially Owned by: (i) a Restricted Person, (ii) a
transferee from a Restricted Person who becomes a transferee after the
Acquiring Person or Adverse Person becomes such or (iii) a transferee from a
Restricted Person who becomes a transferee prior to or concurrently with the
Acquiring Person or Adverse Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from such
Acquiring Person or Adverse Person (or any Affiliate or Associate thereof) to
holders of equity interests in such Acquiring Person or Adverse Person (or any
such Affiliate or Associate) or to any Person with whom such Acquiring Person
or Adverse Person (or any such Affiliate or Associate) has any continuing
written or oral agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer which the Board has determined is part of
a plan, arrangement or understanding which has as a primary purpose or effect
the avoidance of Section 7(d), and any Rights Certificate issued pursuant to
Section 6, 11 or 22 upon the transfer, exchange, replacement or adjustment of
any other Rights Certificate referred to in this sentence, shall have deleted
therefrom the second sentence of the legend on the Form of Rights Certificate
attached hereto as Exhibit B and, in lieu thereof, shall contain the following
two sentences:
"The Rights represented by this Rights Certificate are or
were Beneficially Owned by a Restricted Person (as such term is
defined in such Agreement). This Rights Certificate and the
Rights represented hereby shall be or may become void under the
circumstances specified in Section 7(d) of such Agreement."
The Company shall give prompt written notice to the Rights Agent after becoming
aware of the existence and identity of any Restricted Person. The failure to
insert the foregoing sentences on any such Rights Certificate or any defect
therein shall not in any manner whatsoever affect the application or
interpretation of Section 7(d). The Company shall specify to the Rights Agent
in writing which Rights Certificates are to be so legended.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Rights
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its President, or any of its Vice Presidents, either manually or by
facsimile signature, and shall have affixed thereto the Company's seal or a
facsimile thereof attested by its Secretary or any of its Assistant
Secretaries, either manually or by facsimile signature. The Rights
Certificates shall be manually countersigned by an authorized signatory of the
Rights Agent and shall not be valid or obligatory for any purpose unless so
countersigned. In case any officer of the Company who shall have executed any
Rights Certificate or who shall have attested the Company's seal thereon shall
<PAGE> 10
cease to be such officer of the Company before such Rights Certificate shall
have been countersigned by an authorized signatory of the Rights Agent and
issued and delivered by or on behalf of the Company, such Rights Certificate,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by or on behalf of the Company with the same force and effect as though the
individual who executed such Rights Certificate or who attested the Company's
seal thereon had not ceased to be such officer; and any Rights Certificate may
be executed on behalf of the Company and the Company's seal may be attested by
any individual who, at the actual date of such execution or attestation, shall
be a proper officer of the Company, although at the date of execution of this
Rights Agreement such person was not such an officer.
(b) After the Distribution Date, the Rights Agent shall keep or cause to
be kept, at its principal office, books for registration and transfer of the
Rights Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Rights Certificates, the number of
Rights evidenced on its face by each Rights Certificate, the date of each
Rights Certificate and (if required by the Company) the date of
countersignature by the Rights Agent.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a)
Subject to Sections 4(b), 7(d) and 14, at any time after the Close of Business
on the Distribution Date and prior to the Close of Business on the earlier of
the Redemption Date and the Final Expiration Date, any Rights Certificate
(other than any Rights Certificate which shall have been exchanged pursuant to
Section 24) may be transferred, split up, combined or exchanged for one or more
other Rights Certificates, entitling the registered holder to purchase the same
number of one one-hundredths of a Preferred Share (or after a Triggering Event,
the securities, cash and other property purchasable in lieu thereof) as the
Rights Certificate or Rights Certificates surrendered entitled such registered
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange one or more Rights Certificates shall make such request in
a writing delivered to the Rights Agent, and shall surrender the Rights
Certificates to be transferred, split up, combined or exchanged, with the form
of assignment on the reverse side thereof duly executed, together with such
signature guarantees and other documentation as the Rights Agent may reasonably
request, at the principal office of the Rights Agent. Thereupon the Company
shall prepare and execute, the Rights Agent shall countersign and the Company
shall deliver or cause to be delivered (or the Rights Agent shall, if
requested, deliver), subject to Section 4(b), 7(d) and 14, to the person
entitled thereto one or more Rights Certificates as so requested. The Company
may require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates and reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Rights Certificate, and, in the case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them or, in the case of
mutilation, upon surrender to the Rights Agent of the mutilated Rights
Certificate, and, at the Company's request, reimbursement to the Company and
the Rights Agent of all reasonable expenses incidental thereto, the Company
shall prepare and execute, the Rights Agent shall countersign and the Company
shall deliver or cause to be delivered (or the Rights Agent shall, if
requested, deliver) to the registered holder thereof a new Rights Certificate
of like tenor in lieu of the Rights Certificate so lost, stolen, destroyed or
mutilated.
SECTION 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Subject to Section 7(d), the registered holder of any Rights Certificate
may exercise the Rights
<PAGE> 11
evidenced thereby (except as otherwise provided herein), in whole or in part,
at any time after the Distribution Date and prior to the earliest of (i) the
Close of Business on March ___, 2007 (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 (the
"Redemption Date") and (iii) the time at which such Rights are exchanged as
provided in Section 24, upon surrender of such Rights Certificate, with the
form of election to purchase on the reverse side thereof duly executed,
together with such signature guarantees and other documentation as the Rights
Agent may reasonably request, to the Rights Agent at its principal office,
accompanied by payment (as provided in subsection (c) of this Section 7) of the
Exercise Price for each one one-hundredth of a Preferred Share (or after a
Triggering Event, the securities, cash and other property purchasable in lieu
thereof) as to which the surrendered Rights are then being exercised.
(b) The price (the "Exercise Price") for each one one-hundredth of a
Preferred Share purchased upon exercise of the Rights shall initially be $40,
shall be subject to adjustment from time to time as provided in Sections 11 and
13 and shall be payable in lawful money of the United States of America in
accordance with subsection (c) of this Section 7.
(c) Upon receipt of a Rights Certificate representing then exercisable
Rights, with the form of election to purchase and certification of status on
the reverse side thereof duly executed, together with such signature guarantees
and other documentation as the Rights Agent may reasonably request, accompanied
by payment of the Exercise Price for the number of one one-hundredths of a
Preferred Share (or after a Triggering Event, the securities, cash and other
property purchasable in lieu thereof) being purchased, plus the amount of any
applicable transfer tax (as determined by the Rights Agent) required to be paid
by the holder of such Rights Certificate in accordance with Section 9, the
Rights Agent shall, subject to the terms and conditions of this Agreement,
thereupon promptly (i) requisition from any transfer agent for the Preferred
Shares (or, if the Rights Agent is such a transfer agent, make available) stock
certificates for the number of one one-hundredths of a Preferred Share being
purchased, the Company hereby irrevocably authorizing any such transfer agent
to comply with all such requests, (ii) if the Company shall have elected to
deposit the Preferred Shares issuable upon exercise of the Rights with a
depository agent, requisition from the depository agent depository receipts for
the number of one one-hundredths of a Preferred Share being purchased (in which
case stock certificates for the Preferred Shares represented by such depository
receipts shall be deposited by the transfer agent for the Preferred Shares with
the depository agent), the Company hereby irrevocably authorizing any such
depository agent to comply with all such requests, (iii) after a Triggering
Event, requisition or obtain from the appropriate Person or Persons such
securities, cash and other property as may then be purchasable in lieu of
Preferred Shares, the Company hereby irrevocably authorizing all such requests,
(iv) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of the issuance of any fractional share in accordance with Section
14 and (v) promptly after receipt of such stock certificates, depository
receipts, securities, cash and/or other property, cause the same to be
delivered to or upon the order of the registered holder of such Rights
Certificate, registered (when appropriate) in such name or names as may be
designated by such registered holder.
(d) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of any Section 11(a)(ii) Event, any Rights
Beneficially Owned by: (i) a Restricted Person, (ii) a transferee from a
Restricted Person who becomes a transferee after the Acquiring Person or
Adverse Person becomes such or (iii) a transferee from a Restricted Person who
becomes a transferee prior to or concurrently with the Acquiring Person or
Adverse Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from such Acquiring Person or
Adverse Person (or any Affiliate or Associate thereof) to holders of equity
interests in such Acquiring Person or Adverse Person (or any such
<PAGE> 12
Associate or Affiliate) or to any Person with whom such Acquiring Person or
Adverse Person (or any such Associate or Affiliate) has any continuing written
or oral agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(d) shall be or become void without any further
action; and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise, from and after such first occurrence. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 7(d) and
Section 4(b) are complied with, but shall have no liability to any holder of
the Rights Certificates or to any other Person as a result of the Company's
failure to make any applicable finding or determination with respect to any
Restricted Person, or any transferee therefrom.
(e) Notwithstanding subsection (a) of this Section 7, a Right may be
exercised by the holder thereof on or after the Distribution Date and prior to
the receipt of the associated Rights Certificate by notifying the Rights Agent
in writing and furnishing to the Rights Agent such information and evidence as
to such election as the Rights Agent may reasonably request; provided, however,
that the Rights Agent shall not be required to take any of the actions
specified in subsection (c) of this Section 7 until such holder shall have
fully satisfied the applicable requirements specified therein.
(f) Neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to any Rights or Rights Certificate upon the
purported exercise or transfer thereof unless the registered holder thereof
shall have (i) completed and signed the certification of status following the
form of election to purchase or the form of assignment, as the case may be, set
forth on the reverse side of the Rights Certificate surrendered for such
exercise or transfer and (ii) provided such additional evidence as to the
identity of the Beneficial Owner (or former Beneficial Owner) thereof or the
Affiliates or Associates thereof as the Company shall reasonably request.
(g) In case the registered holder of any Rights Certificate shall
exercise less than all of the Rights evidenced thereby, then, subject to the
provisions of Section 14, a new Rights Certificate evidencing the Rights
remaining unexercised shall be prepared and executed by the Company and
countersigned and delivered by the Rights Agent to the registered holder of
such surrendered Rights Certificate or to such registered holder's duly
authorized assigns.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form or, if surrendered to the Rights Agent, shall be canceled by it; and no
Rights Certificates shall be issued in lieu thereof except as expressly
permitted by this Agreement. The Company shall deliver to the Rights Agent for
cancellation, and the Rights Agent shall cancel, any other Rights Certificate
purchased or reacquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all canceled Rights Certificates to
the Company or shall, at the written request of the Company, destroy such
canceled Rights Certificates and deliver a certificate of the destruction
thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares, (and following
the occurrence of a Triggering Event, out of its authorized and unissued shares
of Common Stock and/or other securities, or out of any authorized and issued
shares held in its treasury), the number of Preferred Shares (and, following
the occurrence of a Triggering Event, Common Stock and/or other securities)
required
<PAGE> 13
to permit the exercise in full of all outstanding Rights.
(b) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all one one-hundredths of a Preferred Share
delivered upon exercise of the Rights shall, at the time of delivery of the
stock certificates therefor in accordance with Section 7(c) (including the
receipt of payment of the Exercise Price), be duly and validly authorized and
issued and fully paid and nonassessable.
(c) The Company covenants and agrees that it will use its best efforts to
cause, from and after such time as the Rights shall become exercisable, all
Preferred Shares issued or reserved for issuance to be listed, upon official
notice of issuance, on the principal national securities exchange, if any, on
which its Common Stock is listed or, if the principal market for Common Stock
is not on any national securities exchange, to be eligible for quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any successor thereto or other comparable quotation system.
(d) The Company covenants and agrees that it will use its best efforts to
(i) file, as soon as practicable after the occurrence of any Section 11(a)(ii)
Event for which the consideration to be delivered by the Company upon exercise
of the Rights has been determined in accordance with Section 11(a)(iii), or as
soon as required by law after the Distribution Date, as the case may be, a
registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Rights, (ii) cause
such registration statement to become effective as soon as practicable after
such filing and (iii) cause such registration statement to remain effective
(with a prospectus which at all times meets the requirements of the Securities
Act) until the earliest of (A) the date as of which the Rights are no longer
exercisable for such securities, (B) the Redemption Date and (C) the Final
Expiration Date. The Company further covenants and agrees that it will take
such action as may be appropriate under, and which will ensure compliance with,
the securities or "blue sky" laws of such jurisdictions as may be necessary or
appropriate in connection with the exercisability of the Rights. The Company
may temporarily suspend, for not more than 90 days after the applicable date
specified in the first sentence of this subsection (d), the exercisability of
the Rights in order to prepare and file such registration statement and permit
it to become effective and to complete such securities or "blue sky" law
action. Upon such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended,
and the Company shall also issue a public announcement at such time as the
suspension shall no longer be in effect. Failure of the Company to notify the
Rights Agent of any such suspension shall not affect the effectiveness thereof.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
or exemption in such jurisdiction shall have been effected. Until otherwise
notified in writing by the Company, the Rights Agent may assume that each
purported exercise of the Rights is permitted by this Agreement and by
applicable law, and the Rights Agent shall not be liable for acting in reliance
upon such assumption.
(e) The Company covenants and agrees that, subject to Section 6, it will
pay when due and payable any and all federal and state original issue or
transfer taxes and charges which may be payable in respect of the issuance or
delivery of the Rights or the Rights Certificates or of any stock certificate
for Preferred Shares (or Common Stock and/or other securities, as the case may
be) issued upon exercise of the Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any
transfer or delivery of any Rights Certificate to a Person other than, or the
issuance of any stock certificate for Preferred Shares (or Common Stock and/or
other securities, as the case may be) upon exercise of any of the Rights
represented by such Rights Certificate in a name other than, the
<PAGE> 14
registered holder of such Rights Certificate or to issue or deliver any Rights
Certificate or stock certificate for Preferred Shares upon such transfer or
exercise until any such tax shall have been paid (any such tax being payable by
the holder of such Rights Certificate at the time of surrender thereof) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
(f) After a Triggering Event, the provisions of this Section 9 shall
apply, to the extent applicable and appropriate, to all shares of capital stock
and other securities then purchasable upon exercise of the Rights.
SECTION 10. RECORD DATE OF PREFERRED SHARE OWNERSHIP. The Person in
whose name any stock certificate for Preferred Shares (or Common Stock and/or
other securities, as the case may be) is issued upon exercise of any of the
Rights shall for all purposes be deemed to have become the holder of record of
the Preferred Shares (or Common Stock and/or other securities, as the case may
be) represented thereby on, and such stock certificate shall be dated, the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
to the Rights Agent with proper payment of the Exercise Price (and all
applicable transfer taxes, if any); provided, however, that if the date of such
surrender and payment shall be a date upon which the registry books of the
transfer agent for the Preferred Shares are closed, such Person shall be deemed
to have become the record holder of such Preferred Shares on, and such stock
certificate shall be dated, the next succeeding Business Day on which such
registry books are open. Prior to the exercise of the Rights evidenced
thereby, the holder of a Rights Certificate shall not be entitled to any rights
of a stockholder of the Company with respect to shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
SECTION 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER AND KIND OF SHARES AND
NUMBER OF RIGHTS. The Exercise Price, the number and kind of shares of capital
stock for which each Right is exercisable and the number of Rights outstanding
are subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event that the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares into a greater
number of Preferred Shares, (C) combine or consolidate the outstanding
Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of capital stock of any class in a reclassification of the Preferred
Shares (including any such reclassification in connection with a combination or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and in Section 7(d), the Exercise
Price in effect at the Close of Business on the record date for such dividend
or at the effective time of such subdivision, combination, consolidation or
reclassification, and the number and kind of shares of capital stock issuable
upon exercise of the Rights at such date or time, shall be proportionately
adjusted so that the registered holder of each Right exercised after such date
or time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date or time and at a time when the registry books of the transfer agent for
the Preferred Shares were open, such registered holder would have been entitled
to receive by reason of such dividend, subdivision, combination, consolidation
or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
the exercise thereof. If an event shall occur which would require an
adjustment under both this paragraph (i) and paragraph (ii) of this subsection
(a), the adjustment provided for in this
<PAGE> 15
paragraph (i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to such paragraph (ii).
(ii) Subject to Section 24, in the event that any Person, either alone or
together with its Affiliates and Associates, shall become an Acquiring Person,
proper provision shall be made so that the registered holder of each Right,
except as otherwise provided in Section 7(d), shall thereafter have the right
to receive, upon exercise thereof and payment of an amount equal to the then
current Exercise Price, in accordance with this Agreement, in lieu of Preferred
Shares, the number of shares of Common Stock determined by multiplying the then
current Exercise Line by the number of one one-hundredth of a Preferred Share
for which a Right was exercisable immediately prior to a first occurrence
Section 11(a)(ii) Event and (y) of a dividing such product by 50% of the Fair
Market Value (determined as provided in subsection (d) of this Section 11) of
one share of Common Stock on the date of such occurrence (such number of
shares, the "Adjustment Shares").
(iii) In the event that there shall not be sufficient treasury shares or
authorized but unissued (and unreserved) Common Shares to permit the exercise
in full of the Rights in accordance with the foregoing subparagraph (ii) and
the Rights become so exercisable (and the Board has determined to make the
Rights exercisable into fractions of a Preferred Share), notwithstanding any
other provision of this Agreement, to the extent necessary and permitted by
applicable law, each Right shall thereafter represent the right to receive,
upon exercise thereof at the then current Purchase Price in accordance with the
terms of this Agreement, (x) a number of (or fractions of) Common Shares (up to
the maximum number of Common Shares which may permissibly be issued) and (y)
one one-hundredth of a Preferred Share or a number of, or fractions of other
equity securities of the Corporation (or, in the discretion of the Board of
Directors, debt) which the Board of Directors of the Corporation has determined
to have the same aggregate current market value (determined pursuant to Section
11(d)(i) and (ii) hereof, to the extent applicable,) as one Common Share (such
number of, or fractions of, Preferred Shares, debt, or other equity securities
or debt of the Corporation) being referred to as a "capital stock equivalent"),
equal in the aggregate to the number of Adjustment Shares; provided, however,
if sufficient Common Shares and/or capital stock equivalents are unavailable,
then the Company shall, to the extent permitted by applicable law, take all
such action as may be necessary to authorize additional Common Shares or
capital stock equivalents for issuance upon exercise of the Rights, including
the calling of a meeting of stockholders; and provided, further, that if the
Company is unable to cause sufficient Common Shares and/or capital stock
equivalents to be available for issuance upon exercise in full of the Rights,
then each Right shall thereafter represent the right to receive the Adjusted
Number of Shares upon exercise at the Adjusted Purchase Price (as such terms
are hereinafter defined). As used herein, the term "Adjusted Number of Shares"
shall be equal to that number of (or fractions of) Common Shares (and/or
capital stock equivalents) equal to the product of (x) the number of Adjustment
Shares and (y) a fraction, the numerator of which is the number of Common
Shares (and/or capital stock equivalents) available for issuance upon exercise
of the Rights and the denominator of which is the aggregate number of
Adjustment Shares otherwise issuable upon exercise in full of all Rights,
assuming there were a sufficient number of Common Shares available (such
fraction being referred to as the "Proration Factor"). The "Adjusted Purchase
Price" shall mean the product of the Purchase Price and the Proration Factor.
The Board of Directors may, but shall not be required to, establish procedures
to allocate the right to receive Common Shares and capital stock equivalents
upon exercise of the Rights among holders of Rights.
(b) In the event that the Company shall fix a record date for the making
of any distribution to all registered holders of Preferred Shares of options,
warrants or rights entitling
<PAGE> 16
them (for a period expiring not later than 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares of capital
stock of any class of the Company having the same (or more
favorable) powers, preferences and rights as the Preferred Shares ("Equivalent
Preferred Shares"), or securities convertible into or exchangeable for
Preferred Shares or Equivalent Preferred Shares, at a price per Preferred Share
or per Equivalent Preferred Share (or having a conversion or exchange price per
share, in the case of securities convertible into or exchangeable for Preferred
Shares or Equivalent Preferred Shares) less than the Fair Market Value
(determined as provided in subsection (d) of this Section 11) of one Preferred
Share on such record date, the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date, plus
the number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or Equivalent Preferred Shares so to be offered
(and/or the aggregate initial conversion or exchange price, in the case of
convertible or exchangeable securities so to be offered) would purchase at such
Fair Market Value, and the denominator of which shall be the number of
Preferred Shares outstanding on such record date, plus the total number of
Preferred Shares and/or Equivalent Preferred Shares so to be offered (and/or
into or for which the convertible or exchangeable securities so to be offered
are initially convertible or exchangeable); provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon the exercise thereof. In case all or part of such subscription price may
be paid in a form other than cash, the value of such non-cash consideration
shall be its Fair Market Value (determined as provided in such subsection (d)).
Preferred Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any computation provided for in this
subsection (b). The adjustment required by this subsection (b) shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Exercise Price shall be adjusted to the
Exercise Price which would have been in effect if such record date had not been
fixed.
(c) In the event that the Company shall fix a record date for the making
of any distribution to all registered holders of Preferred Shares (including
any such distribution made in connection with a combination or merger in which
the Company is the continuing or surviving corporation) of cash (other than a
regular quarterly cash dividend), options, warrants, rights (other than those
referred to in subsection (b) of this Section 11), securities, evidences of
indebtedness or other property (excluding any dividend payable in Preferred
Shares, but including any dividend payable in other shares of capital stock),
the Exercise Price to be in effect after such record date shall be determined
by multiplying the Exercise Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the Fair Market Value
(determined as provided in subsection (d) of this Section 11) of one
one-hundredth of a Preferred Share on such record date, less the Fair Market
Value (as so determined) of the cash, options, warrants, rights, securities,
evidences of indebtedness or other property so to be distributed and properly
attributable to one one-hundredth of a Preferred Share, and the denominator of
which shall be such Fair Market Value of one one-hundredth of a Preferred
Share; provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon the exercise thereof. The
adjustment required by this subsection (c) shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Exercise Price shall be adjusted to the Exercise Price which would
have been in effect if such record date had not been fixed.
(d) For the purpose of any computation required under this Agreement,
"Fair Market Value," when used with respect to Preferred Shares or shares of
Common Stock or other
<PAGE> 17
capital stock of any class (collectively, a "Stock"), to any option, warrant,
right or other security or evidence of indebtedness (collectively, a
"Security") or to any other property, shall be determined as provided in this
subsection (d):
(i) In the case of any Stock or Security which is publicly traded,
the Fair Market Value on any date shall be deemed to be the average of
the daily closing prices per share of such Stock or per unit of such
Security for the 30 consecutive Trading Days immediately prior to such
date; provided, however, that in the event that the Fair Market Value per
share of any Stock is determined during a period commencing after the
public announcement by its issuer of (A) a dividend or distribution on
such Stock payable in shares of such Stock or securities convertible into
or exchangeable for shares of such Stock or (B) a subdivision,
combination, consolidation or reclassification of such Stock, and ending
prior to the expiration of the 30 Trading Days after the ex-dividend date
for such dividend or distribution, or the record date for such
subdivision, combination, consolidation or reclassification, then, in
each such case, the Fair Market Value of such Stock shall be properly
adjusted to take into account "ex-dividend" trading. The closing price
for each day shall be the last sale price, regular way, or, in case no
such sale shall take place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange
or, if such Stock or Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the principal national securities exchange on
which such Stock or Security is listed or admitted to trading; or if such
Stock or Security is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the last quoted high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or any other similar
system then in use; or if on any such day no bid for such Stock or
Security is quoted by any such organization, the average of the closing
bid and asked prices, as furnished by a professional market maker making
a market in such Stock or Security selected by the Board. If during any
relevant period no market maker is making a market in such Stock or
Security, its Fair Market Value on a specified date shall be determined
reasonably and with utmost good faith to the holders of the Rights by the
Board; provided, however, that if at the time of such determination there
shall be an Acquiring Person, the Fair Market Value of such Stock or
Security on such date shall be determined by a nationally recognized
investment banking firm selected by the Board, which determination shall
be described in a statement filed with the Rights Agent and shall be
binding on the Company, the Rights Agent and the holders of the Rights.
The term "Trading Day" shall mean a day on which the principal national
securities exchange on which such Stock or Security is listed or admitted
to trading is open for the transaction of business or, if such Stock or
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) In the case of any Stock or Security which is not publicly
traded, the Fair Market Value on any date shall be the fair value per
share of such Stock or per unit of such Security as determined reasonably
and with utmost good faith to the holders of the Rights by the Board;
provided, however, that if at the time of such determination there shall
be an Acquiring Person or an Adverse Person, the Fair Market Value of
such Stock or Security on such date shall be determined by a nationally
recognized investment banking firm selected by the Board, which
determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Company, the Rights Agent and the
holders of the Rights.
<PAGE> 18
(iii) In the case of any property which is not a Stock or a
Security, the Fair Market Value on any date shall be determined
reasonably and with utmost good faith to the holders of Rights by the
Board; provided, however, that if at the time of such determination there
shall be an Acquiring Person, the Fair Market Value of such property on
such date shall be determined by a nationally recognized investment
banking firm selected by the Board, which determination shall be
described in a statement filed with the Rights Agent and shall be binding
on the Company, the Rights Agent and the holders of the Rights.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Exercise
Price then in effect; provided, however, that any adjustments which by reason
of this subsection (e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest whole cent, to the nearest one
ten-thousandth of a share of Common Stock or other capital stock of any class
(other than Preferred Shares) or to the nearest one one-millionth of a
Preferred Share, as the case may be. Notwithstanding the first sentence of
this subsection (e), any adjustment required by this Section 11 shall be made
no later than the earliest of (i) three years after the date of the occurrence
requiring such adjustment, (ii) the Redemption Date and (iii) the Final
Expiration Date.
(f) If as a result of an adjustment required by any Triggering Event the
holder of any Rights thereafter exercised shall become entitled to receive any
shares of capital stock of any class of the Company (other than Preferred
Shares), the number of such other shares so receivable upon exercise of any
Rights shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as reasonably possible to the provisions with
respect to the Preferred Shares contained in this Section 11, and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised the option provided in
subsection (i) of this Section 11, upon each adjustment of the Exercise Price
as a result of the calculations required by subsection (b) or (c) of this
Section 11, each Right outstanding immediately prior to the making of such
Exercise Price adjustment shall thereafter evidence the right to purchase, at
the adjusted Exercise Price, the number of one one-hundredths of a Preferred
Share (calculated to the nearest one one-millionth) determined by (i)
multiplying the number of one one-hundredths of a Preferred Share purchasable
upon exercise of such Right immediately prior to such adjustment by the
Exercise Price in effect immediately prior to such adjustment and (ii) dividing
the product so obtained by the Exercise Price in effect immediately after such
adjustment.
(i) The Company may elect, on or after the date on which any adjustment
of the Exercise Price is required to be made hereunder, to adjust the number of
Rights outstanding in substitution for making an adjustment in the number of
one one-hundredths of a Preferred Share purchasable upon exercise of each
Right. Each Right outstanding after such an adjustment in the number of Rights
shall be exercisable for the same number of one one-hundredths of a Preferred
Share as such Right was exercisable for immediately prior to such adjustment;
but each Right held of record prior to such adjustment shall become the number
of Rights (calculated to the nearest one ten-thousandth) determined by dividing
the Exercise Price in effect
<PAGE> 19
immediately prior to the occurrence requiring the adjustment of the Exercise
Price by the Exercise Price in effect immediately after such adjustment of the
Exercise Price. The Company shall make a prompt public announcement of its
election to adjust the number of Rights outstanding, indicating the record date
for the adjustment and, if known at the time of such announcement, the amount
of the adjustment to be made. Such record date may be the date on which the
Exercise Price is required to be adjusted or any day thereafter, unless the
Rights Certificates shall have been issued, in which case such record date
shall be at least 10 days after the date of such public announcement. If the
Rights Certificates shall have been issued, upon each adjustment of the number
of Rights outstanding pursuant to this subsection (i), the Company shall, as
promptly as practicable, cause to be distributed to each registered holder of
the Rights Certificates on such record date Rights Certificates evidencing,
subject to Section 14, the additional Rights to which such registered holder
shall be entitled as a result of such adjustment; or, at its option, the
Company shall cause to be distributed to each such registered holder, in
substitution and replacement for the Rights Certificates held by such
registered holder prior to the date of such adjustment, but only upon surrender
thereof (if so required by the Company), new Rights Certificates evidencing all
the Rights to which such registered holder shall be entitled after such
adjustment. Rights Certificates so distributed shall be executed and
countersigned in the manner provided in Section 5 (and may designate, at the
option of the Company, the adjusted Exercise Price) and shall be registered in
the names of the registered holders of the Rights Certificates on the record
date specified in the aforesaid public announcement.
(j) Irrespective of any adjustment or change in the Exercise Price or the
number of one one-hundredths of a Preferred Share issuable upon exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to designate the Exercise Price and the number of one one-hundredths of a
Preferred Share which were designated in the Rights Certificates originally
issued hereunder.
(k) Before taking any action which would cause an adjustment reducing the
Exercise Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Exercise Price.
(l) In any case in which this Section 11 shall require an adjustment of
the Exercise Price effective as of the record date for a particular event, the
Company may elect to defer until the occurrence of such event the issuing to
the holder of any Rights exercised after such record date of the Preferred
Shares (and/or the other shares of capital stock, securities or other property
of the Company, if any) issuable upon such exercise in excess of the Preferred
Shares (and/or the other shares of capital stock, securities or other property
of the Company, if any) issuable upon such exercise on the basis of the
Exercise Price in effect immediately prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such excess
upon the occurrence of such event.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Board shall be entitled to make reductions in the Exercise Price, in addition
to the adjustments expressly required by this Section 11, as and to the extent
that the Board, in its sole discretion, shall determine to be advisable in
order that any dividend on the Preferred Shares payable in Preferred Shares,
any subdivision, combination or consolidation of the Preferred Shares (by
reclassification or otherwise than by payment of dividends in Preferred Shares)
into a greater or lesser number of Preferred Shares, any issuance of Preferred
Shares solely for cash at less than
<PAGE> 20
the Fair Market Value thereof, any issuance solely for cash of Preferred
Shares or securities which by their terms are convertible into
or exchangeable for Preferred Shares or any issuance of options, warrants,
rights, securities, evidences of indebtedness or other property subject to
subsection (b) or (c) of this Section 11, hereafter made by the Company to the
holders of the Preferred Shares, shall not be taxable to such holders.
(n) After the Distribution Date, the Company shall not consolidate or
merge with any other Person (other than a wholly-owned Subsidiary of the
Company in a transaction not prohibited by Section 11(o)), or sell or otherwise
transfer (or permit one or more of its Subsidiaries to sell or otherwise
transfer), in one or a series of related transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company or one or more of its wholly-owned Subsidiaries in one or more
transactions, each of which is not prohibited by Section 11(o)), if (i) at the
time of or immediately after the consummation of such transaction there are any
options, warrants, rights, conversion or exchange privileges or securities
outstanding or any written or oral agreements, arrangements or understandings
(including provisions contained in the Company's Certificate of Incorporation
or By-laws) in effect which, as a result of the consummation of such
transaction, would eliminate or substantially diminish the benefits intended to
be afforded by the Rights, or (ii) prior to, at the time of or immediately
after the consummation of such transaction the stockholders of the Person who
constitutes, or would constitute, the Principal Party for the purpose of
subsection (a) of this Section 13 shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates.
(o) Except as permitted by Sections 23 and 27, the Company covenants and
agrees that, after the Distribution Date, it will not take, or permit any of
its Subsidiaries to take, any action if at the time such action would be taken
it is reasonably foreseeable that such action would eliminate or substantially
diminish the benefits intended to be afforded by the Rights.
(p) In the event that the Company shall at any time after the date of
this Agreement and prior to the Distribution Date (i) declare a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock or (ii)
effect a subdivision, combination or consolidation of its outstanding shares of
Common Stock (by reclassification or otherwise than by payment of dividends in
shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then, in each such case: (i) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after such
event; and (ii) each share of Common Stock outstanding immediately after such
event shall have issued with respect to it the same number of Rights which each
share of Common Stock outstanding immediately prior to such event had issued
with respect to it. The adjustment required by this subsection (n) shall be
made successively whenever such a dividend is declared or such a subdivision,
combination or consolidation is effected.
SECTION 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER OF SHARES.
Whenever any adjustment shall be required by Section 11, 13 or 23(g), the
Company shall promptly (i) prepare a certificate setting forth such adjustment
and a brief statement of the facts requiring such adjustment, (ii) file with
the Rights Agent and with each transfer agent for the Preferred Shares or the
Common Stock of the Company a copy of such certificate and (iii) mail a
<PAGE> 21
brief summary thereof to each registered holder of the Rights in accordance with
Section 26. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment described therein and shall not be deemed to
have knowledge of any such adjustment unless and until it shall have received
such certificate.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER. (a) In the event that, on or after the occurrence of any
Section 11(a)(ii) Event, directly or indirectly: (i) the Company shall
consolidate with, or merge with and into, any Interested Stockholder or, if in
such consolidation or merger all holders of the Common Stock of the Company are
not treated the same, any other Person (other than a wholly-owned Subsidiary of
the Company in a transaction not prohibited by Section 11(o)), so that the
Company shall not be the continuing or surviving corporation, (ii) any
Interested Stockholder or, if in such merger all holders of the Common Stock of
the Company are not treated the same, any other Person (other than a
wholly-owned Subsidiary of the Company in a transaction not prohibited by
Section 11(o)) shall merge with and into the Company, so that the Company shall
be the continuing or surviving corporation, and in connection with such merger
either (A) all or part of the outstanding shares of Common Stock of the Company
shall be converted or changed into or exchanged for capital stock or other
securities of any other Person (or the Company), cash and/or other property or
(B) such shares of Common Stock shall remain outstanding, unconverted and
unchanged, or (iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or a series
of related transactions, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any Interested Stockholder or, if in such transaction or transactions the
holders of the Common Stock of the Company are not treated the same, any other
Person or Persons (other than the Company or one or more of its wholly-owned
Subsidiaries in one or more transactions, each of which is not prohibited by
Section 11(o)), then, in each such case, proper provision shall be made so that
(w) the registered holder of each Right, except as otherwise provided in
Section 7(d), shall thereafter have the right to receive, upon exercise thereof
and payment of an amount equal to the product determined by multiplying the
then current Exercise Price by the number of one one-hundredths of a Preferred
Share for which such Right is then exercisable, in accordance with this
Agreement, in lieu of Preferred Shares, the number of freely tradable shares
(which shall be duly authorized, validly issued, fully paid and non-assessable)
of Common Stock of the Principal Party or, in the case of a merger described in
clause (ii) of this sentence in which the Common Stock of the Company shall
remain outstanding, unconverted and unchanged, of the Company, free and clear
of all rights of call or first refusal, liens, encumbrances or other adverse
claims, determined by dividing such product by 50% of the Fair Market Value
(determined as provided in Section 11(d)) of the shares of Common Stock of such
Principal Party (or, if appropriate, the Company) on the date of consummation
of such Section 13 Event; (x) such Principal Party shall thereafter be liable
for, and shall assume, by reason of the consummation of such Section 13 Event,
all the obligations and duties of the Company under this Agreement; (y) the
term "Company" shall thereafter be deemed to refer to such Principal Party, it
being specifically intended that the provisions of Section 11 shall apply to
such Principal Party; and (z) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
shares of Common Stock to permit exercise of all outstanding Rights in
accordance with this subsection (a) and the distribution of cash, debt
securities, shares and other property in accordance with Section 11(a)(iv))in
connection with the consummation of such Section 13 Event as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably possible, in relation to the shares of Common Stock thereafter
deliverable upon exercise of the Rights.
(b) The Company shall not consummate any Section 13 Event unless prior
thereto (i) the Principal Party shall have a sufficient number of authorized
shares of its Common
<PAGE> 22
Stock which have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and (ii) the
Company, the Principal Party and each other Person who may become the
Principal Party as a result of the consummation of such
Section 13 Event shall have executed and delivered to the Rights Agent a
supplemental agreement providing (x) for the implementation of all the terms
and conditions set forth in this Section 13 and (y) that, as soon as
practicable after the date of such Section 13 Event, the Principal Party, at
its own expense, shall:
(A) prepare and file a registration statement on an appropriate form
under the Securities Act with respect to the Rights and the securities
purchasable upon exercise thereof, and use its best efforts to cause such
registration statement to become effective as soon as practicable after
such filing and to remain effective (with a prospectus which at all times
meets the requirements of the Securities Act) until the earliest of the
date as of which the Rights are no longer exercisable for such
securities, the Redemption Date and the Final Expiration Date;
(B) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise thereof under the securities or
"blue sky" laws of such jurisdictions as may be necessary or appropriate
in connection with the exercisability of the Rights;
(C) use its best efforts to list (or continue the listing of) the
Rights and the securities purchasable upon exercise thereof on a national
securities exchange or to meet the eligibility requirements for quotation
on NASDAQ; and
(D) deliver to the registered holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
complying in all material respects with the requirements for registration
of securities on Form 10 under the Exchange Act.
(c) Notwithstanding anything in this Agreement to the contrary, Section 13
shall not apply to a transaction described in clause (i) or (ii) of subsection
(a) thereof if (i) such transaction is consummated with a Person or Persons who
acquired their shares of Common Stock of the Company pursuant to a Permitted
Offer, (ii) the price per share of Common Stock of the Company provided in such
transaction shall not be less than the price per share of Common Stock of the
Company paid to all holders whose shares were purchased pursuant to such
Permitted Offer and (iii) the form of consideration being offered to the
remaining holders of the Common Stock of the Company pursuant to such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any transaction authorized by this
subsection (d), all Rights shall expire.
(d) "Principal Party" shall mean: in the case of any transaction
described in clause (i) or (ii) of subsection (a) of this Section 13, the
Person which is the issuer of the securities into which shares of Common Stock
of the Company are being converted or changed in such transaction or, if there
shall be more than one such issuer, the issuer having shares of Common Stock
with the greatest aggregate market value; or if no securities are being issued
in such transaction for shares of Common Stock of the Company, the Person which
is the other party to such transaction or, if there shall be more than one such
Person, the Person having shares of Common Stock with the greatest aggregate
market value; and in the case of any transaction described in clause (iii) of
such subsection (a), the Person which is the party receiving the greatest
portion of the assets or earning power sold or otherwise transferred pursuant
to such transaction or transactions; provided, however, that in any such case
(i) if the shares of
<PAGE> 23
Common Stock of such Person shall not at the time of the consummation of such
transaction have been continuously registered under Section 12 of the Exchange
Act during the immediately preceding 12-month period, and such Person shall be
a direct or indirect Subsidiary or Affiliate of another Person the shares of
Common Stock of which shall have been so registered, "Principal Party" shall
mean such other Person; and (ii) if such Person shall be a direct or indirect
Subsidiary or Affiliate of more than one other Person, the shares of Common
Stock of two or more of which shall have been so registered, "Principal Party"
shall mean whichever of such other Persons shall have Common Stock with the
greatest aggregate market value; and (iii) if such Person shall be owned,
directly or indirectly, by a joint venture formed by two or more Persons which
are not owned, directly or indirectly, by the same Person, the rules set forth
in clauses (i) and (ii) of this proviso shall apply to each chain of ownership
of any joint venturer as though such joint venture were a "Subsidiary" of all
of such joint venturers, and the Principal Party in each such chain shall bear
the obligations and duties set forth in this Section 13 in the same proportion
as their direct or indirect ownership interest in such Person bears to the
total of such ownership interests.
(e) If, in the case of any transaction described in clause (iii) of
subsection (a) of this Section 13, the Person or Persons to whom assets or
earning power are sold or otherwise transferred are individuals, then, in lieu
of any other payment or distribution required by this Section 13, and the
Company shall require as a condition to such transaction that, such Person or
Persons shall pay to each holder of a Rights Certificate, upon its surrender to
the Rights Agent and in exchange therefor (without requiring any payment by
such holder), cash in the amount determined by multiplying the then current
Exercise Price by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable.
(f) In no event shall the Rights Agent have any obligations or duties in
respect of any Section 13 Event, except as expressly set forth in this
Agreement. The Rights Agent may rely, and shall be fully protected in relying
upon, a certificate of the Company stating that the provisions of this Section
13 have been fulfilled. The prior written consent of the Rights Agent shall be
required in connection with any supplemental agreement which alters or impairs
the rights, obligations, duties or immunities of the Rights Agent hereunder.
(g) The provisions of this Section 13 shall similarly apply to successive
consolidations, mergers, sales or other transfers. In the event that any
Section 13 Event shall occur at any time after the occurrence of any Section
11(a)(ii) Event, the Rights which have not been theretofore exercised shall
thereafter be exercisable in the manner described in this Section 13.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company
shall not be required to issue fractional Rights or to distribute Rights
Certificates which evidence fractional Rights. If the Company shall determine
not to issued fractional Rights, the Company shall pay, in lieu of issuing
fractional Rights, to the registered holders of the Rights with respect to
which fractional Rights would otherwise be issuable an amount in cash equal to
the same fraction of the Fair Market Value (determined as provided in Section
11(d) for the Trading Day immediately prior to the date on which such
fractional Rights would otherwise have been issued) of one Right.
(b) The Company shall not be required to issue fractional Preferred
Shares (other than fractions which are multiples of one one-hundredth of a
Preferred Share) upon exercise of the Rights or to distribute stock
certificates which evidence fractional Preferred Shares (other than fractions
which are multiples of one one-hundredth of a Preferred Share). If the Company
shall determine not to issue fractional Preferred Shares that are not multiples
of one one-
<PAGE> 24
hundredth of a Preferred Share, the Company shall pay to the registered
holders of the Rights Certificates at the time Rights represented thereby are
exercised, in lieu of such fractional Preferred Shares, an amount in cash equal
tothe same fraction of the Fair Market Value (determined as provided in Section
11(d) for the Trading Day immediately prior to the date of such exercise) of
one one-hundredth of a Preferred Share.
(c) Following the occurrence of a Triggering Event, the Company, at its
option, shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of one (1) share of Common Stock.
For purposes of this Section 14(c), the current market value of one share of
Common Stock shall be the closing price of one share of Common Stock (as
determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(d) Each holder of a Right, by accepting the same, expressly waives such
holder's right to receive or exercise any fractional Right or to receive any
fractional Preferred Share upon the exercise of such Right (except as provided
in this Section 14).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, other than rights of action which the Rights Agent may have under
Sections 18 and 20, are vested in the registered holders of the Rights
Certificates (or, prior to the Distribution Date, the registered holders of the
Common Stock of the Company); and the registered holder of any Rights
Certificate (or, prior to the Distribution Date, of any stock certificate for
shares of such Common Stock), without the consent of the Rights Agent or of the
holder of any other Rights Certificate (or, prior to the Distribution Date, of
any other stock certificate for shares of Common Stock), may, on such
registered holder's own behalf and for such registered holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, such registered
holder's right to exercise the Rights evidenced by such Rights Certificate (or,
prior to the Distribution Date, such stock certificate) in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the
generality of the foregoing or any remedies available to the holders of the
Rights, it is specifically acknowledged that the registered holders of the
Rights would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the obligations and
duties under, and injunctive relief against any actual or threatened violations
of the obligations and duties of any Person subject to, this Agreement.
SECTION 16. AGREEMENTS OF HOLDERS OF RIGHTS. Each holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(i) prior to the Distribution Date, the Rights shall be
transferable only simultaneously and together with the transfer of
shares of Common Stock of the Company;
(ii) after the Distribution Date, the Rights Certificates
shall be transferable on the registry books of the Rights Agent
only if surrendered at the principal office of the Rights Agent,
with the Form of Assignment and Certification of Status on the
reverse side thereof duly executed, together with such signature
guarantees and other documentation as the Rights Agent may
reasonably request;
<PAGE> 25
(iii) subject to Sections 6 and 7(d), the Company and the
Rights Agent may deem and treat the Person in whose name any
Rights Certificate (or, prior to the Distribution Date, any stock
certificate for Common Stock of the Company) is registered as the
absolute owner thereof and of the Rights represented thereby
(notwithstanding any notations of ownership or other writing on
such Rights Certificate or stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary; and
(iv) neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or to any other Person because of its
inability to perform any of its obligations or duties under this
Agreement by reason of any applicable law, any preliminary or permanent
injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission or any rule, regulation or executive order
promulgated or enacted by any such governmental authority prohibiting or
otherwise restraining performance of any such obligation or duty;
provided, however, that the Company shall use its best efforts to have
any such injunction, order, decree or ruling lifted or otherwise
overturned as soon as reasonably possible.
SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, to
receive dividends or other distributions on or to exercise any preemptive
rights with respect to, or shall be deemed for any other purpose to be the
holder of, the Preferred Shares or other shares of capital stock of any class
of the Company which may at the time be issuable upon exercise of the Rights
represented thereby; nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate,
as such, any of the rights of a stockholder of the Company, or any right to
vote for the election of directors or upon any other matter submitted to
stockholders at any meeting thereof, to give or withhold consent to any
corporate action, to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25) or to receive dividends,
subscription rights or other distributions, until the Rights represented by
such Rights Certificate shall have been exercised, in whole or in part, in
accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT. (a) The Company covenants and
agrees to pay to the Rights Agent reasonable compensation for all services
rendered by it hereunder and, from time to time on the written request of the
Rights Agent, to reimburse it for all reasonable expenses and counsel fees
incurred in connection with the acceptance and administration of this Agreement
and the performance of its obligations and duties hereunder. The Company also
covenants and agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability or expense, incurred without negligence, bad faith
or willful misconduct on its part, for any action taken, suffered or omitted by
it in connection with the acceptance and administration of this Agreement and
the performance of its obligations and duties hereunder, including the costs
and expenses of defending against any claim of liability arising therefrom,
directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no liability for,
or in respect of, any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate, stock certificate for Preferred Shares, Common Stock or other
shares of capital stock of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be executed and,
<PAGE> 26
where necessary, verified or acknowledged by the proper Person or Persons.
SECTION 19. MERGER OR CONSOLIDATION OF THE RIGHTS AGENT. (a) Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stockholder
services or corporate trust business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as successor Rights Agent under Section 21. In case at the time
any successor Rights Agent shall succeed to the agency created by this
Agreement any of the Rights Certificates countersigned by its predecessor
Rights Agent shall not have been delivered, such successor Rights Agent may
adopt the countersignature of its predecessor Rights Agent and deliver the
Rights Certificates so countersigned; or in case at such time any of the Rights
Certificates shall not have been countersigned, such successor Rights Agent may
countersign such Rights Certificates either in the name of its predecessor
Rights Agent or in the name of such successor Rights Agent; and in all such
cases, such Rights Certificates shall have the full force and effect provided
therein and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver the Rights Certificates so countersigned; or in case at such
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases, such Rights Certificates shall
have the full force and effect provided therein and in this Agreement.
SECTION 20. DUTIES OF THE RIGHTS AGENT. The Rights Agent undertakes the
obligations and duties imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of the Rights
Certificates (or, prior to the Distribution Date, the stock certificates for
Common Stock of the Company), by accepting the same, shall be bound, and no
implied obligations or duties shall be read into this Agreement against the
Rights Agent:
(i) the Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the written opinion of such
legal counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken, suffered or
omitted by it in good faith and in accordance with such opinion;
(ii) whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company
prior to taking, suffering or omitting any action hereunder, such
fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved
and established by a certificate executed by any one of the
Chairman of the Board, the President, any Vice President, the
Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full and complete
authorization and protection to the Rights Agent as to any action
taken, suffered or omitted by it in good faith in reliance upon
such certificate;
(iii) the Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad
faith or willful misconduct;
<PAGE> 27
(iv) the Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Rights Certificates (except its
countersignature thereon) or be required to verify the same, but
all such statements and recitals are and shall be deemed to have
been made by the Company only;
(v) the Rights Agent shall not be responsible for the
validity of this Agreement or the execution and delivery hereof
(except for its due execution hereof) or for the validity or
execution of any Rights Certificate (except for its
countersignature thereon); nor shall the Rights Agent be
responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights
Certificate; nor shall the Rights Agent be responsible for any
change in the exercisability of the Rights (including Rights
becoming void pursuant to Section 7(d)), for any adjustment or
change (or for the manner or method of determining same) in the
terms of the Rights (including any adjustment or change in the
Exercise Price or in the number or kind of shares, securities or
other property issuable upon the exercise thereof) required by
Section 11, 13, 23 or 24 or for ascertaining the existence of
facts which would require any such change or adjustment (except
with respect to the exercise of Rights evidenced by Rights
Certificates after actual notice, in the manner provided in
Section 12, that such change or adjustment is required); nor shall
the Rights Agent by any act hereunder be deemed to have made any
representation or warranty as to the authorization or reservation
of any Preferred Shares or shares of Common Stock to be issued
pursuant to this Agreement or any Rights Certificate or as to
whether any Preferred Shares or shares of Common Stock will, when
issued, be validly authorized and issued and fully paid and
nonassessable;
(vi) the Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further acts, instruments and
assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the
provisions of this Agreement;
(vii) the Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its
obligations and duties hereunder from any one of the Chairman of
the Board, the President, any Vice President, the Treasurer or the
Secretary of the Company, and to apply to such officers for advice
or instructions in connection with its obligations and duties; and
the Rights Agent shall not be liable for any action taken,
suffered or omitted by it in good faith and in accordance with the
written instructions of any such officer or for any delay in
acting while waiting for such instructions;
(viii) the Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in
the Rights or in any other securities of the Company (including
the Preferred Shares and its Common Stock) or become pecuniarily
interested in any transaction in which the Company (or any of its
Subsidiaries) may be interested, or contract with or lend money to
the Company (or any of its Subsidiaries), and may otherwise act as
fully and freely as though it were not the Rights Agent under this
Agreement; and nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company, any of its
Subsidiaries or any other entity;
<PAGE> 28
(ix) the Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any of its
obligations or duties hereunder either directly or by or through
its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or
misconduct of any such attorney or agent or for any loss to the
Company resulting from any such act, default, neglect or
misconduct, provided the Rights Agent exercised reasonable care in
the selection and continued employment of such attorney or agent;
(x) if, with respect to any Rights Certificate surrendered
to the Rights Agent for exercise or transfer, the Form of
Certification of Status attached to the Form of Election to
Purchase or the Form of Assignment, as the case may be, has either
not been completed or indicates an affirmative response to
Question 1 and/or 2 thereof, the Rights Agent shall not take any
further action with respect to the requested exercise or transfer
without first consulting with the Company; and
(xi) no provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its obligations or duties or in
the exercise of its rights or powers hereunder if there shall be
reasonable grounds for believing that repayment of such funds or adequate
indemnification against such risk or liability is not reasonably assured.
SECTION 21. RESIGNATION OR REMOVAL OF THE RIGHTS AGENT. The Rights Agent
or any successor Rights Agent may resign and be discharged from its obligations
and duties under this Agreement upon 30 days' prior notice to the Company and
to each transfer agent for the Preferred Shares and for the Common Stock of the
Company, sent by registered or certified mail, postage prepaid, and to each
registered holder of the Rights Certificates, sent by first-class mail, postage
prepaid. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days' prior notice to the Rights Agent or successor Rights Agent, as
the case may be, and to each transfer agent for the Preferred Shares and for
the Common Stock of the Company, sent by registered or certified mail, postage
prepaid, and to each registered holder of the Rights Certificates, sent by
first-class mail, postage prepaid. If the Rights Agent or any successor Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor Rights Agent. If the Company shall fail
to make such appointment within 30 days after giving notice of such removal or
after receiving notice of such resignation or incapacity, either from the
resigning or incapacitated Rights Agent or from the registered holder of any
Rights Certificate (who shall, with such notice, submit its Rights Certificate
for inspection by the Company), then the incumbent Rights Agent or the
registered holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a successor Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States of
America, the State of Delaware, the State of New York or the State of Illinois
(or of any other state so long as such corporation is authorized to do business
as a banking institution in the State of Delaware, the State of New York or the
State of Illinois), be in good standing under the laws of the jurisdiction of
its incorporation, have an office in the State of Delaware, the State of New
York or the State of Illinois, be authorized under such laws to exercise
corporate trust or stock transfer powers, be subject to supervision or
examination by federal or state authority and have at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After its appointment, the successor Rights Agent shall be vested
with the same rights, powers, obligations, duties and immunities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent
<PAGE> 29
shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall file notice thereof
in writing with the predecessor Rights Agent and each transfer agent for the
Preferred Shares and for the Common Stock of the Company, and mail notice
thereof to the registered holders of the Rights Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or any successor Rights Agent or the appointment of any successor
thereto.
SECTION 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any
provision of this Agreement or of the Rights Certificates to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing the Rights
in such form as may be approved by the Board to reflect any adjustment or
change in the Exercise Price or in the number or kind of shares, securities or
other property issuable upon exercise of the Rights in accordance with the
provisions of this Agreement; provided, however, that (i) no such Rights
Certificates shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance could create a significant risk of
material adverse tax consequences to the Company or to the Persons to whom such
Rights Certificates would be issued and (ii) no such Rights Certificates shall
be issued if, and to the extent that, appropriate adjustment shall otherwise
have been made in lieu of the issuance thereof.
SECTION 23. REDEMPTION. (a) The Board may, at its option, at any time
prior to the earliest of (i) the Close of Business on the 10th Business Day
after the Share Acquisition Date (or, if the Share Acquisition Date shall have
occurred prior to the Record Date, the Close of Business on the 10th Business
Day after the Record Date), or (ii) the occurrence of any Section 13 Event and
(iii) the Final Expiration Date, redeem all, but not less than all, of the then
outstanding Rights at a redemption price of $.01 per Right, adjusted as
provided in subsection (g) of this Section 23 (such redemption price being
hereinafter called the "Redemption Price"); provided, however, that if the
Board shall authorize the redemption of the Rights in the circumstances set
forth in either clause (A) or (B) below, there must be Continuing Directors
then in office and such authorization shall require the concurrence of at least
a majority of such Continuing Directors: (A) such authorization shall occur on
or after the date a Person becomes an Acquiring Person or an Adverse Person or
(B) such authorization shall occur on or after the date of a change (resulting
from a solicitation of either proxies or one or more written stockholder
consents) in a majority of the directors in office at the commencement of such
solicitation if any Person who shall be a participant in such solicitation has
stated (or, if upon the commencement of such solicitation, at least a majority
of the Continuing Directors shall have determined in good faith) that such
Person (or any of its Affiliates or Associates) intends to take, or may
consider taking, any action which would result in such Person becoming an
Acquiring Person or an Adverse Person or which would cause the occurrence of a
Triggering Event.
(b) In addition to the right of redemption reserved in the first sentence
of subsection (a) of this Section 23, if there shall be Continuing Directors
then in office, the Board may redeem, with the concurrence of at least a
majority of the Continuing Directors, all, but not less than all, of the then
outstanding Rights at the Redemption Price after the Share Acquisition Date,
but prior to the occurrence of any Section 13 Event, if either (i) the Person
who is an Acquiring Person shall have transferred or otherwise disposed of
(either alone or together with its Affiliates and Associates) such number of
shares of Common Stock of the Company, in one or a series of related
transactions not directly or indirectly involving the Company or any of its
Subsidiaries or the occurrence of any Section 13 Event, as shall result in such
Person thereafter being a Beneficial Owner of less than 10% of the then
outstanding shares of Common Stock of
<PAGE> 30
the Company, and after such transfer or other disposition there is no other
Acquiring Person, or (ii) in connection with any Section 13 Event which shall
not involve an Interested Stockholder and in which all holders of the Common
Stock of the Company are treated the same.
(c) Notwithstanding any other provision of this Agreement, the Rights
shall not be exercisable after the first occurrence of any Section 11(a)(ii)
Event until such time as the Company's right of redemption under this Section
23 shall have expired.
(d) In considering whether to redeem the Rights, the Board and the
Continuing Directors may consider the best long-term and short-term interests
of the Company and its stockholders, including, without limitation, the effects
of the redemption of the Rights upon employees, creditors, suppliers and
customers of the Company or of its Subsidiaries and upon the communities in
which offices or other establishments of the Company and such Subsidiaries are
located and all other pertinent factors. The redemption of the Rights by the
Board may be made effective at such time, on such basis and with such
conditions as the Board, in its sole discretion, may establish.
(e) Immediately after action by the Board directing the redemption of the
Rights pursuant to subsection (a) or (b) of this Section 23, and without any
further action and without any notice, the right to exercise the Rights shall
terminate, and thereafter each registered holder of the Rights shall only be
entitled to receive the Redemption Price therefor. The Company shall give
prompt written notice to the Rights Agent and prompt public notice to the
holders of the Rights of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the
validity of such redemption. Within 10 days after action by the Board
directing the redemption of the Rights, the Company shall mail (or cause the
Rights Agent to mail) a notice of redemption to each registered holder of the
then outstanding Rights, at its last address appearing on the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the transfer agent for the Common Stock of the Company. Any notice which is
mailed in the manner provided in this subsection (e) shall be deemed given,
whether or not received by the registered holder to whom sent. Each notice of
redemption shall state the method by which payment of the Redemption Price is
to be made. Neither the Company nor any of its Affiliates or Associates may at
any time redeem, acquire or purchase for value any Rights other than in the
manner set forth in this Section 23 and Section 24 or in connection with any
purchase of outstanding shares of its Common Stock prior to the Distribution
Date.
(f) The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock based on its Fair Market Value (determined as provided
in Section 11(d)) as of the date of redemption or any other form of
consideration deemed appropriate by the Board.
(g) In the event that the Company shall at any time after the date of this
Agreement (i) declare a dividend on its outstanding shares of Common Stock
payable in shares of Common Stock or (ii) effect a subdivision, combination or
consolidation of its outstanding shares of Common Stock (by reclassification or
otherwise than by payment of dividends in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then, in each such case,
the Redemption Price after such event shall equal the Redemption Price in
effect immediately prior to such event multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event; provided, however,
that such adjustment shall be made only if the amount of the Redemption Price
would be reduced or increased by at least $0.001 per Right.
SECTION 24. EXCHANGE. (a) The Board may, at its option, at any time on
or after
<PAGE> 31
the occurrence of any Section 11(a)(ii) Event, exchange all or any part of the
then outstanding and exercisable Rights (which shall not include any Rights
which have become void pursuant to Section 7(d)) for shares of Common Stock of
the Company at an exchange rate of one share of Common Stock per Right,
appropriately adjusted to reflect any event specified in clauses (A) through
(D), inclusive, of the first sentence of Section 11(a)(i) or in Section 11(n)
occurring after the date hereof (such exchange rate being hereinafter called
the "Exchange Rate"); provided, however, that the Board shall not be authorized
to effect such an exchange at any time after any Person (other than an Exempt
Person), together with the Affiliates and Associates of such Person, shall have
become the Beneficial Owner of 50% or more of the then outstanding shares of
Common Stock of the Company.
(b) Immediately after action by the Board directing the exchange of any
Rights pursuant to subsection (a) of this Section 24, and without any further
action and without any notice, the right to exercise such Rights shall
terminate, and thereafter each registered holder of such Rights shall only be
entitled to receive the number of shares of Common Stock of the Company which
shall equal the number of such Rights held by such registered holder multiplied
by the Exchange Rate then in effect. The Company shall give prompt written
notice to the Rights Agent and prompt public notice to the holders of the
Rights of any such exchange; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such exchange.
Within 10 days after action by the Board directing the exchange of any Rights,
the Company shall mail (or cause the Rights Agent to mail) a notice of exchange
to each registered holder of such Rights, at its last address appearing on the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Stock of the Company. Any
notice which is mailed in the manner provided in this subsection (b) shall be
deemed given, whether or not received by the registered holder to whom sent.
Each notice of exchange shall state the method by which the exchange of shares
of Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata among the registered holders of the Rights based
upon the number of Rights held (excluding Rights which shall have become void
pursuant to Section 7(d)); and, in such case, a new Rights Certificate
evidencing the Rights not being exchanged shall be prepared and executed by the
Company and countersigned and delivered by the Rights Agent to the registered
holder of such Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Shares (or Equivalent Preferred Shares) for
shares of Common Stock in effecting an exchange for Rights, at the initial rate
of one one-hundredth of a Preferred Share (or Equivalent Preferred Share) for
each share of Common Stock, appropriately adjusted to reflect any adjustments
in the voting rights of the Preferred Shares pursuant to the Certificate of
Designations attached hereto as Exhibit A, so that the fractional Preferred
Share delivered in lieu of each share of Common Stock shall have the same
voting rights as one share of Common Stock.
(d) In the event that there shall not be sufficient authorized and
unissued or treasury shares of Common Stock or Preferred Shares (or Equivalent
Preferred Shares) to permit the exchange of Rights directed by the Board, the
Company shall take all necessary action to authorize and reserve for issuance
such number of additional shares of Common Stock or Preferred Shares (or
Equivalent Preferred Shares) as may be required for issuance upon such exchange
and, if necessary, shall use its best efforts to obtain stockholder approval
thereof.
(e) The Company shall not be required to issue fractional shares of
Common Stock in exchange for Rights or to distribute stock certificates which
evidence fractional shares of Common Stock. If the Company shall determine not
to issue fractional shares of Common
<PAGE> 32
Stock, the Company shall pay to the registered holders of the Rights with
respect to which such fractional shares would otherwise be issuable an amount
in cash equal to the same fraction of the Fair Market Value (determined as
provided in Section 11(d) for the Trading Day immediately prior to the date of
such exchange) of one share of Common Stock.
SECTION 25. NOTICE TO HOLDERS OF RIGHTS CERTIFICATES OF CERTAIN EVENTS.
(a) In the event that at any time after the Distribution Date, the Company
shall propose: (i) to pay any dividend payable in shares of capital stock of
any class of the Company to the holders of Preferred Shares or to make any
other cash distribution to the holders of Preferred Shares (other than a
regular quarterly cash dividend); (ii) to effect any reclassification of the
Preferred Shares (other than a reclassification involving only the subdivision
of the outstanding Preferred Shares); (iii) to make any distribution to the
holders of Preferred Shares described in subsection (b) or (c) of Section 11;
(iv) to effect any Section 13 Event; (v) to pay any dividend on its shares of
Common Stock payable in shares of Common Stock or to effect a subdivision,
combination or consolidation of its outstanding shares of Common Stock (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock); or (vi) to effect the liquidation, dissolution or winding up of the
Company; then, in each such case, the Company shall give to the Rights Agent
and each registered holder of the Rights, in the manner provided in Section 26,
written notice of such proposed action, which shall specify the record date for
such stock dividend or distribution or the date on which such reclassification,
Section 13 Event, liquidation, dissolution or winding up is expected to occur
(and the date for participation therein by the holders of the Common Stock
and/or Preferred Shares if any such date is to be fixed). Such notice shall be
given, in the case of any action described in clause (i) or (iii) of the
preceding sentence, at least [10] days prior to the record date and, in the
case of any other such action, at least [20] days prior to the date of taking
of such proposed action or the date for participation therein by the holders of
Preferred Shares, whichever shall be the earlier.
(b) In case any Section 11(a)(ii) Event shall occur, the Company shall,
as soon as practicable thereafter, give to the Rights Agent and each registered
holder of the Rights, in the manner provided in Section 26, written notice of
the occurrence thereof, which notice shall describe such occurrence and its
consequences in reasonable detail.
SECTION 26. OTHER NOTICES. Except as otherwise provided herein, notices
or demands authorized by this Agreement to be given or made by the Rights Agent
or by the registered holder of any Rights, Rights Certificate or stock
certificate for shares of Common Stock of the Company to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address shall be filed in writing with the
Rights Agent) as follows:
Home Products International, Inc.
4501 West 47th Street
Chicago, IL 60632
Attention: Corporate Secretary
Except as otherwise provided herein, notices or demands authorized by this
Agreement to be given or made by the Company or by the registered holder of any
Rights, Rights Certificate or stock certificate for shares of Common Stock of
the Company to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address
shall be filed in writing with the Company) as follows:
<PAGE> 33
_________________________________
_________________________________
_________________________________
Attention:_______________________
Except as otherwise provided herein, notices or demands authorized by this
Agreement to be given or made by the Company or the Rights Agent to the
registered holder of any Rights, Rights Certificate or stock certificate for
shares of Common Stock of the Company shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed to such holder at its last
address appearing on the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Stock of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date,
but subject to the last sentence of this Section 27, the Company and the Rights
Agent, if so directed in writing by the Company, shall supplement or amend any
term, provision or condition of this Agreement, without the approval of the
registered holders of the stock certificates representing the Common Stock and
the Rights. From and after the Distribution Date, but subject to the last
sentence of this Section 27, the Company and the Rights Agent, if so directed
in writing by the Company, shall supplement or amend this Agreement, without
the approval of the registered holders of the Rights (however represented), in
order: (i) to cure any ambiguity, (ii) to correct or supplement any term,
provision or condition of this Agreement which may be defective or inconsistent
with any other term, provision or condition hereof, (iii) to shorten or
lengthen any time period specified herein (except that after the first
occurrence of an event described in either clause (A) or (B) of the proviso in
the first sentence of Section 23(a), there must be Continuing Directors then in
office and any such shortening or lengthening shall require the concurrence of
at least a majority of such Continuing Directors) or (iv) to change or
supplement one or more of the terms, provisions or conditions hereof in any
manner which the Company may deem necessary or desirable and which shall not
adversely affect, as determined by the Board (with the concurrence of at least
a majority of the Continuing Directors), the interests of the holders (other
than any Restricted Person or the transferees therefrom specified in Section
7(d) of the Rights (however represented); provided, however, that this
Agreement may not be supplemented or amended pursuant to clause (iii) of this
sentence (A) to lengthen any time period (except as permitted by Section
3(a)(ii)) unless (I) approved by at least a majority of the Continuing
Directors and (II) such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders (other than
any Restricted Person or the transferees therefrom specified in Section 7(d))
of the Rights or (B) to lengthen any time period relating to when the Rights
may be redeemed if at such time the Rights are not then redeemable. Upon the
delivery of a certificate from an appropriate officer of the Company stating
that the proposed supplement or amendment is in compliance with the terms of
this Section 27, the Rights Agent shall execute such supplement or amendment;
provided, however, that the Rights Agent shall not be required to execute any
supplement or amendment which affects any of the Rights Agent's rights, powers,
obligations, duties or immunities under this Agreement without its consent. On
and after the Distribution Date, no supplement or amendment shall be made which
changes the Exercise Price, the number of one one-hundredths of a Preferred
Share for which a Right is exercisable, the Redemption Price or the Final
Expiration Date. Prior to the Distribution Date, the interests of the holders
of the Rights shall be deemed coincident with the interests of the holders of
the Common Stock of the Company.
SECTION 28. SUCCESSORS. All of the terms, provisions and conditions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns.
<PAGE> 34
SECTION 29. CERTAIN DETERMINATIONS AND ACTIONS BY THE BOARD. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including the determination of the
percentage of such outstanding shares of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i), as in effect on the date hereof, under the Exchange Act. The
Board (or, as and when set forth herein, the Continuing Directors) shall have
the exclusive power and authority to interpret this Agreement and to exercise
all rights and powers specifically granted to the Board or to the Company, or
as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to make all determinations
deemed necessary or advisable for such administration, including, without
limitation, a determination to redeem or not to redeem the Rights, to exchange
or not to exchange the Rights, to declare a Person to be an Adverse Person or
to supplement or amend this Agreement. All such calculations, determinations,
interpretations and exercises (including, for purposes of clause (ii) below,
all omissions with respect to the foregoing) which are done or made by the
Board (or the Continuing Directors) in good faith shall (i) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other Persons and (ii) not subject any director (including any
Continuing Director) to any liability to the holders of the Rights or to any
other Person.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the registered holders of the stock certificates for the
Common Stock of the Company) any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Rights Agent and the registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered
holders of the stock certificates for the Common Stock of the Company).
SECTION 31. SEVERABILITY. If any term, provision or condition of this
Agreement shall be held by a court of competent jurisdiction or other lawful
authority to be invalid, void or unenforceable, the remaining terms,
provisions, and conditions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that if any such term, provision or condition is held by such court or
authority to be invalid, void or unenforceable and the Board (with the
concurrence of at least a majority of the Continuing Directors then in office)
shall determine in good faith that severing the same from this Agreement would
adversely affect the purposes or effect of this Agreement, the right of
redemption set forth in Section 23 shall be reinstated and shall not expire
until the Close of Business on the 10th day following the date of such
determination by the Board.
SECTION 32. GOVERNING LAW. This Agreement and each Rights Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of [Delaware] and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts made and to be
performed entirely within such State.
SECTION 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall for all purposes be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
HOME PRODUCTS INTERNATIONAL, INC.
By:
-----------------------------------
James R. Tennant
Chairman
Attest:
By:
---------------------------
Name:
-------------------------
Title:
------------------------
RIGHTS AGENT
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Attest:
By:
---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE> 36
EXHIBIT A
---------
FORM
OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
OF
HOME PRODUCTS INTERNATIONAL, INC.
---------------------------------
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
Home Products International, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that, pursuant to authority conferred
upon its Board of Directors by its Certificate of Incorporation, as
amended, and by the provisions of Section 151 of the General Corporation
Law of the State of Delaware, the following resolution was adopted by its
Board of Directors at a meeting duly called and held on ____________,
1997:
RESOLVED, that, pursuant to the authority conferred upon the Board of
Directors of the Corporation (the "Board") by the provisions of the
Certificate of Incorporation, as amended, of the Corporation and by the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, there is hereby created a series of Preferred Stock of the
Corporation, which series shall have the following powers, designations,
preferences and relative, participating, optional and other special rights,
and the qualifications, limitations or restrictions thereof, in addition to
those set forth in the Certificate of Incorporation, as amended, of the
Corporation:
Section 1. Designation of Series; Number of Shares. The series of
Preferred Stock established hereby shall be designated the "Series B Junior
Participating Preferred Stock" (the "Series B Preferred Stock"), par value
$.01 per share, and the authorized number of shares constituting the Series
B Preferred Stock shall be ________. Such number of authorized shares may
be increased or decreased, from time to time, by resolution of the Board;
provided, however, that no such decrease shall reduce the number of
authorized shares of the Series B Preferred Stock to a number less than the
number of shares of the Series B Preferred Stock then outstanding, plus the
number of shares of the Series B Preferred Stock then reserved for issuance
upon the exercise of any outstanding options, warrants or rights or the
exercise of any conversion or exchange privilege contained in any
A-1
<PAGE> 37
outstanding security issued by the Corporation.
Section 2. Dividends and Distributions. (A) Subject to the rights of
the holders of shares of any other series of the Preferred Stock (or shares
of any other class of capital stock of the Corporation) ranking senior to
the Series B Preferred Stock with respect to dividends, the holders of
shares of the Series B Preferred Stock, in preference to the holders of
shares of Common Stock and of any other class of capital stock of the
Corporation ranking junior to the Series B Preferred Stock with respect to
dividends, shall be entitled to receive, when, as and if declared by the
Board out of funds legally available therefor, quarterly dividends payable
in cash on the first day of July, October, January and April in each year
(each such date being a "Dividend Payment Date"), commencing on the first
Dividend Payment Date after the initial issuance of a share or fractional
share of the Series B Preferred Stock, in an amount per share (rounded to
the nearest whole cent) equal to the greater of (a) $1.00 and (b) 100 times
the aggregate per share amount of all cash dividends, plus 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions (other than a dividend payable in shares of Common Stock
or a distribution in connection with the subdivision of the outstanding
shares of Common Stock, by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Dividend Payment Date or, with
respect to the first Dividend Payment Date, since the initial issuance of a
share or fractional share of the Series B Preferred Stock. The multiple of
100 (the "Dividend Multiple") set forth in the preceding sentence shall be
adjusted from time to time as hereinafter provided in this paragraph (A).
In the event that the Corporation shall at any time after the effective date
of this Certificate of Designations (i) declare or pay any dividend on the
Common Stock payable in shares of Common Stock or (ii) effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then, in each such case, the Dividend Multiple thereafter applicable to the
determination of the amount of dividends per share which the holders of
shares of the Series B Preferred Stock shall be entitled to receive shall be
the Dividend Multiple in effect immediately prior to such event multiplied
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Board shall declare, out of funds legally available
therefor, a dividend or distribution on the Series B Preferred Stock, as
provided in paragraph (A) of this Section 2, immediately after it has
declared a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, however, that, in
the event that no dividend or distribution shall have been declared on
the Common Stock during the period between any Dividend Payment Date and
the next subsequent Dividend Payment Date, a dividend of $1.00 per share
on the Series B Preferred Stock less an amount equal to the dividends
already paid on the Series B Preferred Stock during such period shall
nevertheless be payable on such subsequent Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on the
outstanding shares of the Series B Preferred Stock from the Dividend
Payment Date next preceding the date of issuance of such shares, unless
such date of issuance shall be prior to the record date for the first
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue and be cumulative from the date of issuance of such shares, or
unless such date of issuance shall be after the close of business on the
record date with respect to any Dividend Payment Date and on or prior to
such Dividend
A-2
<PAGE> 38
Payment Date, in which case dividends on such shares shall begin to accrue
and be cumulative from such Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on shares of the Series B
Preferred Stock in an amount less than the total amount of dividends then
accrued shall be allocated pro rata among such shares. The Board may fix a
record date for the determination of the holders of shares of the Series B
Preferred Stock entitled to receive payment of any dividend or distribution
declared thereon, which record date shall be not more than the number of days
prior to the date fixed for such payment permitted by applicable law.
Section 3. Voting Rights. In addition to any other voting rights
required by applicable law, the holders of shares of the Series B
Preferred Stock shall have the following voting rights:
(A) Each share of the Series B Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. The multiple of 100 (the "Voting
Multiple") set forth in the preceding sentence shall be adjusted from
time to time as hereinafter provided in this paragraph (A). In the event
that the Corporation shall at any time after the effective date of this
Certificate of Designations (i) declare or pay any dividend on the Common
Stock payable in shares of Common Stock or (ii) effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then, in each such case, the Voting Multiple thereafter applicable
to the determination of the number of votes per share to which the
holders of shares of the Series B Preferred Stock shall be entitled shall
be the Voting Multiple in effect immediately prior to such event
multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided in this Certificate of
Designations, in any other Certificate of Designations establishing
another series of the Preferred Stock (or any series of any other class
of capital stock of the Corporation) or by applicable law, the holders of
the Series B Preferred Stock, the holders of the Common Stock and the
holders of any other class of capital stock of the Corporation having
general voting rights shall vote together as a single class on all
matters submitted to a vote of the stockholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends
payable on any share or shares of Series A Preferred Stock
shall be in arrears in an amount equal to at least six full
quarterly dividends (whether or not declared and whether or
not consecutive), the holders of record of the outstanding
Preferred Stock shall have the exclusive right, voting
separately as a single class, to elect two directors of the
Corporation at a special meeting of stockholders of the
Corporation or at the Corporation's next annual meeting of
stockholders, and at each subsequent annual meeting of
stockholders, as provided below. At elections for such
directors, the holders of shares of Series A Preferred Stock
shall be entitled to case one vote for each one
one-hundredth of a share of Series A Preferred Stock held.
(ii) Upon the vesting of such right of the holders of the
A-3
<PAGE> 39
Preferred Stock, the maximum authorized number of
members of the Board of Directors shall automatically be
increased by two and the two vacancies so created shall be
filled by vote of the holders of the outstanding Preferred
Stock as hereinafter set forth. A special meeting of the
stockholders of the Corporation then entitled to vote shall
be called by the Chairman or the President or the Secretary
of the Corporation, if requested in writing by the holders
of record of not less than 10% of the Preferred Stock then
outstanding. At such special meeting, or, if no such
special meeting shall have been called, then at the next
annual meeting of stockholders of the Corporation, the
holders of the shares of the Preferred Stock shall elect,
voting as above provided, two directors of the Corporation
to fill the aforesaid vacancies created by the automatic
increase in the number of members of the Board of Directors.
At any and all such meetings for such election, the holders
of a majority of the outstanding shares of the Preferred
Stock shall be necessary to constitute a quorum for such
election, whether present in person or by proxy, and such
two directors shall be elected by the vote of at least a
plurality of shares held by such stockholders present or
represented at the meeting. Any director elected by holders
of shares of the Preferred Stock pursuant to this Section
may be removed at any annual or special meeting, by vote of
a majority of the stockholders voting as a class who elected
such director, with or without cause. In case any vacancy
shall occur among the directors elected by the holders of
the Preferred Stock pursuant to this Section, such vacancy
may be filled by the remaining director so elected, or his
successor then in office, and the director so elected to
fill such vacancy shall serve until the next meeting of
stockholders for the election of directors. After the
holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during
the continuance of such period, the number of Directors
shall not be further increased or decreased except by vote
of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking
senior to or pari passu with the Series A Preferred Stock.
(iii) The right of the holders of the Preferred Stock,
voting separately as a class, to elect two members of the
Board of Directors of the Corporation as aforesaid shall
continue until, and only until, such time as all arrears in
dividends (whether or not declared) on the Preferred Stock
shall have been paid or declared and set apart for payment,
at which time such right shall terminate, except as herein
or by law expressly provided, subject to revesting in the
event of each and every subsequent default of the character
above-mentioned. Upon any termination of the right of the
holders of the shares of the Preferred Stock as a class to
vote for directors as herein provided, the term of office of
all directors then in office elected by the holders of
Preferred Stock pursuant to this Section shall terminate
immediately. Whenever the term of office of the directors
elected by the holders of the Preferred Stock pursuant to
this Section shall terminate and the special voting powers
vested in the holders of the Preferred Stock pursuant to
this Section shall have expired, the maximum number of
members of the Board of Directors of the Corporation shall
be such number as may be provided for in the By-laws of the
Corporation irrespective of any increase made pursuant to
the provisions of this Section.
A-4
<PAGE> 40
(D) Except as otherwise provided in this Certificate of Designations
or by applicable law, the holders of the Series B Preferred Stock shall
have no special voting rights and their consent shall not be required
(except to the extent provided in paragraph (B) of this Section 3) for
the taking of any corporate action.
Section 4. Certain Restrictions.
(A) Whenever dividends or other distributions payable on the Series
B Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding shares of the Series B Preferred Stock shall
have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of any class of capital stock of
the Corporation ranking junior (either as to dividends or
upon liquidation, dissolution or winding up of the
Corporation) to the Series B Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of any class of capital stock of
the Corporation ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up of the
Corporation) with the Series B Preferred Stock, except
dividends paid ratably on the Series B Preferred Stock and
all such parity stock on which dividends are accrued and
unpaid in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem, purchase or otherwise acquire for
consideration any shares of any class of capital stock of the
Corporation ranking junior (either as to dividends or upon
liquidation, dissolution or winding up of the Corporation) to
the Series B Preferred Stock, except that the Corporation may
at any time redeem, purchase or otherwise acquire any shares
of such junior stock in exchange for other shares of any
class of capital stock of the Corporation ranking junior
(both as to dividends and upon dissolution, liquidation or
winding up of the Corporation) to the Series B Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of the Series B Preferred Stock or any shares of any
class of capital stock of the Corporation ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up of the Corporation) with the Series B Preferred
Stock, or redeem any shares of such parity stock, except in
accordance with a purchase offer made in writing or by
publication (as determined by the Board) to the holders of
all such shares upon such terms and conditions as the Board,
after taking into consideration the respective annual
dividend rates and the other relative powers, preferences and
rights of the respective series and classes of such shares,
shall determine in good faith will result in fair and
equitable treatment among the respective holders of shares of
all such series and classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of any class of capital stock of the Corporation unless the Corporation
could, under paragraph (A) of this
A-5
<PAGE> 41
Section 4, purchase or otherwise acquire such shares at such time and in such
manner.
Section 5. Reacquired Shares. Any shares of the Series B Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after such purchase or
acquisition. All such canceled shares shall thereupon become authorized
and unissued shares of Preferred Stock and may be reissued as part of any
new series of the Preferred Stock, subject to the conditions and
restrictions on issuance set forth in the Certificate of Incorporation of
the Corporation, as amended from time to time, in any other Certificate
of Designations establishing another series of the Preferred Stock (or
any series of any other class of capital stock of the Corporation) or in
any applicable law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation
(whether voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made (a) to the holders of shares of any
class of capital stock of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or winding up of the Corporation)
to the Series B Preferred Stock unless, prior thereto, the holder of each
outstanding share of the Series B Preferred Stock shall have received an
amount equal to the accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, plus an amount equal to
the Dividend Multiple (the "Series B Liquidation Preference"). Following
payment in full of the Series B Liquidation Preference, no additional
distributions shall be made to the holders of the Series B Preferred Stock
unless, prior thereto, the holders of the Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series B Liquidation Preference by (ii) the Dividend
Multiple. Following payment in full of the Series B Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series B
Preferred Stock and Common Stock, respectively, holders of the Series B
Preferred Stock and holders of Common Stock shall receive their relative and
proportionate share of the remaining assets to be distributed to them in the
ratio of the Dividend Multiple to one with respect to such series B Preferred
Stock and Common Stock, on a per-share basis.
Section 7. Consolidation, Merger, etc. In the event that the
Corporation shall be a party to any consolidation, merger, combination or
other transaction in which the outstanding shares of Common Stock are
converted or changed into or exchanged for other capital stock, securities,
cash or other property, or any combination thereof, then, in each such case,
each share of the Series B Preferred Stock shall at the same time be similarly
converted or changed into or exchanged for an aggregate amount, subject to
adjustment as hereinafter provided in this Section 7, equal to 100 times the
aggregate amount of capital stock, securities, cash and/or other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is being converted or changed or exchanged. In the event that
the Corporation shall at any time after the effective date of this Certificate
of Designations (a) declare or pay any dividend on the Common Stock payable in
shares of Common Stock or (ii) effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then, in each such case,
the aggregate amount per share which the holders of shares of the Series B
Preferred Stock shall thereafter be entitled to receive pursuant to the
preceding sentence shall be the aggregate amount per share in effect pursuant
to such sentence immediately prior to such event multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately after such event and the denominator of which shall be the number
of shares of Common Stock that were outstanding immediately prior to such
event.
A-6
<PAGE> 42
Section 8. No Redemption. The shares of the Series B Preferred Stock
shall not be redeemable at any time.
Section 9. Rank. Unless otherwise provided in the Certificate of
Designations establishing another series of the Preferred Stock after the
effective date of this Certificate of Designations, the Series B Preferred
Stock shall rank, as to the payment of dividends and the making of any other
distribution of assets of the Corporation, senior to the Common Stock, but
junior to all other series of the Preferred Stock.
Section 10. Amendments. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences and rights of the Series B Preferred Stock so
as to adversely affect any thereof without the affirmative vote of the holders
of a majority of the outstanding shares of the Series B Preferred Stock,
voting separately as a single class.
Section 11. Fractional Shares. Fractional shares of the Series B
Preferred Stock may be issued, but, unless the Board shall otherwise
determine, only in multiples of one one-hundredth of a share. The holder of
any fractional share of the Series B Preferred Stock shall be entitled to
receive dividends, participate in distributions, exercise voting rights and
have the benefit of all other powers, preferences and rights relating to the
Series B Preferred Stock in the same proportion as such fractional share bears
to a whole share.
IN WITNESS WHEREOF, Home Products International, Inc. has caused this
Certificate of Designations to be executed and attested by its duly authorized
officers this __day of ____________, 1997.
HOME PRODUCTS INTERNATIONAL, INC.
By:_____________________________
James R. Tennant
Chairman
Attest:
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
A-7
<PAGE> 43
EXHIBIT B
---------
FORM
OF
RIGHTS CERTIFICATE
CERTIFICATE NO. R- ____RIGHTS
_______ Aggregate Number of
Shares of Series B Junior
Participated Preferred Stock
Initially
Purchasable
NOT EXERCISABLE AFTER _______________, 2007 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF HOME PRODUCTS INTERNATIONAL, INC.,
AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
STOCKHOLDERS RIGHTS AGREEMENT HEREINAFTER MENTIONED. UNDER
CERTAIN CIRCUMSTANCES DESCRIBED IN SUCH AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY A RESTRICTED PERSON (AS SUCH TERM IS
DEFINED IN SUCH AGREEMENT), OR BY SPECIFIED TRANSFEREES FROM A
RESTRICTED PERSON, SHALL BE OR BECOME VOID.
B-1
<PAGE> 44
RIGHTS CERTIFICATE
HOME PRODUCTS INTERNATIONAL, INC.
This certifies that _________________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner, subject to the terms, provisions and conditions of the
Stockholders Rights Agreement dated as of March ___, 1997 (the "Rights
Agreement") between Home Products International, Inc., a Delaware corporation
(the "Company"), and [Rights Agent], a national banking association (the
"Rights Agent"), to purchase from the Company at any time after the
Distribution Date and prior to the Close of Business on March ___, 2007, at the
principal office of the Rights Agent or its successor as Rights Agent, one
one-hundredth of a fully paid and nonassessable share of Series B Junior
Participating Preferred Stock, $.01 par value (the "Preferred Shares"), of the
Company at a price (the "Exercise Price") of $40,000 per one one-hundredth of a
Preferred Share, upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase and the related Form of Certification of
Status duly executed, together with such signature guarantees and other
documentation as the Rights Agent may reasonably request. The number of Rights
evidenced by this Rights Certificate (as well as the number of one
one-hundredths of a Preferred Share which may be purchased upon the exercise of
each Right) set forth above, and the Exercise Price set forth above, are the
numbers and the Exercise Price as of March, 1997, based on the Preferred Shares
as constituted on such date. As provided in the Rights Agreement, such number
of Rights (and/or such number of one one-hundredths of a Preferred Share) and
such Exercise Price are subject to change and adjustment upon the happening of
certain events specified in the Rights Agreement. Capitalized terms not
defined herein have the respective meanings specified in the Rights Agreement.
From and after the first occurrence of any Section 11(a)(ii) Event, if the
Rights evidenced by this Rights Certificate are Beneficially Owned by (i) a
Restricted Person, (ii) a transferee from a Restricted Person who becomes a
transferee after the Acquiring Person or Adverse Person becomes such or (iii)
under certain circumstances specified in the Rights Agreement, a transferee
from a Restricted Person who becomes a transferee prior to or concurrently with
the Acquiring Person or Adverse Person becoming such, such Rights shall be or
become void, and no holder hereof shall have any rights whatsoever with respect
to such Rights.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
incorporated herein by reference and made a part hereof, to which Rights
Agreement reference is hereby made for a full description of the rights,
powers, obligations, duties and immunities hereunder of the Company, the Rights
Agent and the holders of the Rights Certificates. Under the circumstances set
forth in the Rights Agreement, the exercisability of the Rights represented
hereby may be temporarily suspended. The Rights Agreement is on file at the
principal office of the Company and at the principal office of the Rights
Agent, and a copy will be provided upon written request to the Secretary of the
Company.
Upon surrender at the principal office of the Rights Agent, this Rights
Certificate, with or without other Rights Certificates, may be exchanged for
one or more Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase the same aggregate number of one
one-hundredths of a Preferred Share as the Rights evidenced by the Rights
Certificates so surrendered. If this Rights Certificate shall be exercised in
part, the holder hereof shall be entitled to receive, upon surrender hereof,
one or more Rights Certificates for the
B-2
<PAGE> 45
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Rights Certificate (i) may be redeemed, at the direction of the Board, at
a redemption price (subject to adjustment) of $.01 per Right (payable in cash,
shares of Common Stock of the Company or any other form of consideration deemed
appropriate by the Board) or (ii) under certain circumstances, may be
exchanged, in whole or in part, at the direction of the Board, for shares of
Common Stock of the Company or Preferred Shares at an exchange rate (subject to
adjustment) of one share of Common Stock or one one-hundredth of a Preferred
Share per Right.
No fractional Preferred Share will be issued upon the exercise of any
Rights represented hereby (other than fractions which are a multiple of one
one-hundredth of a Preferred Share), but in lieu thereof a cash payment will be
made as provided in the Rights Agreement.
No holder, as such, of this Rights Certificate shall be entitled to vote,
to receive dividends or other distributions on or to exercise any preemptive
rights with respect to, or shall be deemed for any other purpose to be the
holder of, the Preferred Shares or other shares of capital stock of any class
of the Company which may at any time be issuable upon exercise hereof; nor
shall anything contained herein or in the Rights Agreement be construed to
confer upon the holder hereof, as such, any of the rights of a stockholder of
the Company, or any right to vote for the election of directors or upon any
other matter submitted to stockholders at any meeting thereof, to give or
withhold consent to any corporate action, to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement) or to receive dividends, subscription rights or other distributions,
until the Rights evidenced by this Rights Certificate shall have been
exercised, in whole or in part, in accordance with the provisions of the Rights
Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
B-3
<PAGE> 46
IN WITNESS WHEREOF, this Rights Certificate has been executed by the
Company by the duly authorized facsimile signature of a proper officer of the
Company and a facsimile of its corporate seal has been imprinted hereon and
duly attested by the duly authorized facsimile signature of a proper officer of
the Company.
Dated as of _______________, ____.
HOME PRODUCTS INTERNATIONAL, INC.
By:______________________________
James R. Tennant
Chairman
Attest:
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Countersigned:
[Rights Agent], as Rights Agent:
By:___________________________________
Authorized Signature
B-4
<PAGE> 47
[REVERSE SIDE OF RIGHTS CERTIFICATE]
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the registered holder
if such holder desires to exercise Rights
represented by this Rights Certificate)
To HOME PRODUCTS INTERNATIONAL, INC.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the Preferred Shares (or
other securities, cash or property) issuable upon the exercise of such Rights
and requests that certificates for such Preferred Shares be issued in the name
of:
Please insert social security
or other identifying number: ____________________
________________________________________________________________
(Please print name and address)
________________________________________________________________
If such number of Rights shall not be all the Rights represented by this Rights
Certificate, a new Rights Certificate for the remaining unexercised Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number: _____________________________________
__________________________________________________________________
(Please print name and address)
__________________________________________________________________
Dated: _______________, 19__
___________________________________
Signature
Signature Guaranteed: ________________________________
Signatures must be guaranteed by a participant in a recognized Signature
Guaranty Medallion Program.
CERTIFICATION OF STATUS
B-5
<PAGE> 48
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate
[ ] is
[ ] is not
being exercised by or on behalf of a Person who is or was a Restricted
Person (as such term is defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did
[ ] did not
acquire, directly or indirectly, the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became a
Restricted Person.
___________________________________
Signature
Date: _______________, 19__
NOTICE
------
The signature(s) on the foregoing Form of Election to Purchase and
Certification of Status must correspond to the name written upon the face of
this Rights Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the Certification of Status set forth above is not completed,
the Company will deem the Beneficial Owner of the Rights represented by this
Rights Certificate to be a Restricted Person (as such term is defined in the
Rights Agreement), will not honor the Election to Purchase and will affix a
legend to such effect on this Rights Certificate and on any Rights Certificates
issued in exchange for this Rights Certificate.
B-6
<PAGE> 49
[Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer this Rights Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto ______________________________
________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _______________, 19__
___________________________________
Signature
Signature Guaranteed: ________________________________
Signatures must be guaranteed by a participant in a recognized Signature
Guaranty Medallion Program.
CERTIFICATION OF STATUS
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate
[ ] is
[ ] is not
being sold, assigned or transferred by or on behalf of a Person who is
or was a Restricted Person (as such term is defined in the Rights
Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did
[ ] did not
acquire, directly or indirectly the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became a
Restricted Person.
___________________________________
Signature
Date: _______________, 19__
B-7
<PAGE> 50
NOTICE
------
The signature(s) on the foregoing Form of Assignment and Certification of
Status must correspond to the name written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the Certification of Status set forth above is not completed,
the Company will deem the Beneficial Owner of the Rights represented by this
Rights Certificate to be a Restricted Person (as such term is defined in the
Rights Agreement), will not honor the Assignment and will affix a legend to
such effect on this Rights Certificate and any Rights Certificates issued in
exchange for this Rights Certificate.
B-8
<PAGE> 51
EXHIBIT C
---------
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
On March ___, 1997, the Board of Directors (the "Board") of Company, a
Delaware corporation (the "Company"), declared a dividend of one preferred
stock purchase right (a "Right") for each outstanding share of Common Stock,
$___ par value (the "Common Stock"), of the Company. The dividend is payable
on _______________, 1997 (the "Record Date") to the holders of record of the
Common Stock at the Close of Business on such date. Each Right entitles the
holder thereof (except as described below) to purchase from the Company one
one-hundredth of a share of the Series B Junior Participating Preferred Stock,
$.01 par value (the "Preferred Shares"), of the Company at a price (the
"Exercise Price") of $40,000 per one one-hundredth of a Preferred Share,
subject to adjustment. The terms of the Rights are set forth in the
Stockholders Rights Agreement dated as of March, 1997 (the "Rights Agreement")
between the Company and [Rights Agent], as Rights Agent (the "Rights Agent").
Capitalized terms not defined herein have the respective meanings specified in
the Rights Agreement.
Distribution Date; Transfer of Rights.
------------------ -------------------
Initially, the Rights associated with the Common Stock outstanding as of
the Record Date will be evidenced solely by the stock certificates for such
Common Stock, with a copy of this Summary of Rights attached thereto. The
Rights will separate from the Common Stock upon the earliest to occur of (i) 10
Business Days after the first public announcement that any Person (other than
an Exempt Person (as hereinafter defined)) has become an Acquiring Person (as
hereinafter defined), and (ii) 10 Business Days (or such other Business Day as
may be determined by action of the Board prior to the time that any Person
shall become an Acquiring Person after the commencement by any Person (other
than an Exempt Person) of, or the first public announcement of its intention to
commence, a tender or exchange offer if, upon the consummation thereof, such
Person would be the Beneficial Owner of 15% or more of the outstanding shares
of Common Stock (the earliest of the dates specified in clauses (i) and (ii)
being hereinafter called the "Distribution Date"). After the Distribution Date,
the Rights will be evidenced solely by separate certificates and will trade
independently from the Common Stock.
An "Acquiring Person" is any Person who or which, together with its
Affiliates and Associates, has acquired 15% or more of the shares of Common
Stock then outstanding, but does not include (i) the Company, (ii) any
Subsidiary of the Company, (iii) any employee benefit plan or other
compensation program or arrangement of the Company or of any such Subsidiary or
(iv) any Person holding shares of Common Stock for or pursuant to the terms of
any such plan, program or arrangement (the Persons specified in clauses (i)
through (iv) being herein collectively called "Exempt Persons"). A "Continuing
Director" is (i) any member of the Board who is not a Restricted Person (as
hereinafter defined), or a representative or nominee of a Restricted Person,
and was a member of the Board prior to the date of the Rights Agreement and
(ii) any individual who subsequently becomes a member of the Board and is not a
Restricted Person, or a representative or nominee of a Restricted Person, and
whose nomination for election to the Board is recommended or approved by a
majority of the Continuing Directors then in office. A "Restricted Person" is
an Acquiring Person, an Adverse Person or any Affiliate or Associate thereof.
C-1
<PAGE> 52
The Rights Agreement provides that, until the Distribution Date (or the
earlier redemption or expiration of the Rights), the Rights may be transferred
only with the associated shares of Common Stock. Until the Distribution Date
(or the earlier redemption or expiration of the Rights), stock certificates for
Common Stock issued after the Record Date, either upon transfer of outstanding
shares or original issuance of additional shares of Common Stock, will contain
a legend incorporating the Rights Agreement by reference. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), the
surrender for transfer of any stock certificate for shares of Common Stock,
with or without such legend and whether or not a copy of this Summary of Rights
is attached thereto, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such stock certificate.
As soon as practicable after the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to the holders of
record of the Common Stock as of the Close of Business on the Distribution
Date, which thereafter will constitute the sole evidence of the Rights. Each
share of Common Stock issued by the Company after the Record Date and prior to
the earlier redemption or expiration of the Rights, including any shares of
Common Stock issued by reason of the exercise of any option, warrant, right
(other than the Rights) or conversion or exchange privilege (however evidenced)
issued by the Company prior to the Distribution Date, will be accompanied by a
Right (unless the Board expressly provides to the contrary at the time of
issuance of any such option, warrant, right or privilege), and Rights
Certificates evidencing such Rights will be issued at the same time as the
stock certificates for the associated shares of Common Stock.
The Rights are not exercisable until the Distribution Date. Moreover, the
time when the Rights may be exercised is restricted as described in the next
paragraph. The Rights will expire on March ___, 2007 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by the Company, in each case as described below.
Exercise of Rights Under Certain Circumstances.
-----------------------------------------------
In the event that any Person becomes an Acquiring Person or is declared to
be an Adverse Person, proper provision will be made so that the registered
holder of each Right (other than Rights Beneficially Owned as described in the
next sentence) will thereafter have the right to receive, upon exercise
thereof, the number of shares of Common Stock which, at the time of the
occurrence of such event, will have a market value equal to two times the then
current Exercise Price. After the first occurrence of either of the events
described in the preceding sentence, all Rights which are, or (under certain
circumstances specified in the Rights Agreement) were, Beneficially Owned by a
Restricted Person or specified transferees therefrom will be or become void.
Under no circumstances may a Right be exercised after the occurrence of either
such event unless the Company's right to redeem the Rights (as described below)
has expired.
If, on or after the date on which any Person has become an Acquiring
Person or been declared to be an Adverse Person, any of the following
transactions occur: (i) the Company merges into or consolidates with an
Interested Stockholder (as hereinafter defined) or, unless all holders of the
Company's outstanding shares of Common Stock are treated the same, another
Person (with limited designated exceptions); (ii) an Interested Stockholder or,
unless all holders of the Company's outstanding shares of Common Stock are
treated the same, another Person (with limited designated exceptions) merges
into the Company and either (A) all or part of the outstanding shares of Common
Stock of the Company are converted into capital stock or other securities of
any other Person (or the Company), cash and/or other property or (B) such
C-2
<PAGE> 53
shares remain outstanding, unconverted and unchanged; or (iii) the Company
sells or transfers 50% or more of its consolidated assets or earning power to
an Interested Stockholder (as hereinafter defined) or, unless all holders of
the Company's outstanding shares of Common Stock are treated the same, another
Person (with limited designated exceptions); proper provision will be made so
that the registered holder of each Right (other than Rights which have become
void) will thereafter have the right (the "Flip-Over Right") to receive, upon
exercise thereof, the number of common shares of the acquiror (or of another
Person affiliated therewith) which, at the time of consummation of such
transaction, will have a market value equal to two times the then current
Exercise Price. An "Interested Stockholder" is any Restricted Person or any
Affiliate or Associate of any other Person in which such Restricted Person has
an interest, or any Person acting, directly or indirectly, on behalf of or in
concert with any such Restricted Person.
Adjustments to Exercise Price and Stock Purchasable Upon Exercise.
------------------------------------------------------------------
The Exercise Price payable, the number and kind of shares of capital stock
issuable upon exercise of the Rights and the number of Rights outstanding are
subject to adjustment from time to time to prevent dilution (i) in the event of
a dividend payable in Preferred Shares on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) upon the grant to the holders
of the Preferred Shares of certain options, warrants or rights to subscribe for
or purchase Preferred Shares at a price, or securities convertible into or
exchangeable for Preferred Shares with a conversion or exchange price, less
than the then Fair Market Value of the Preferred Shares or (iii) upon the
distribution to the holders of the Preferred Shares of cash, securities,
evidences of indebtedness or other property (other than a regular quarterly
cash dividend or a dividend payable in Preferred Shares) or options, warrants
or rights (other than those referred to in clause (ii) above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a dividend on the Common Stock payable in shares of
Common Stock or a subdivision, combination or reclassification of the Common
Stock occurring, in any such case, prior to the Distribution Date.
With certain specified exceptions, no adjustment in the Exercise Price
will be made until the cumulative adjustments required equal at least 1% of the
Exercise Price. The Company is not required to issue fractional Preferred
Shares (other than fractions which are multiples of one one-hundredth of a
Preferred Share), but in lieu thereof the Company would be required to make a
cash payment based on the Fair Market Value of the Preferred Shares on the
trading day immediately preceding the date of exercise.
Terms of Preferred Shares.
--------------------------
The Preferred Shares receivable upon exercise of the Rights will not be
redeemable. Each Preferred Share will entitle the holder thereof to receive a
preferential quarterly dividend equal to the greater of (i) $1.00 and (ii) 100
times the aggregate per share amount of all cash dividends, plus 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends and
other distributions (other than in shares of Common Stock), declared on the
Common Stock during such quarter, adjusted to give effect to any dividend on
the Common Stock payable in shares of Common Stock or any subdivision,
combination or reclassification of the Common Stock (a "Dilution Event"). Each
Preferred Share will entitle the holder thereof to 100 votes on all matters
submitted to a vote of the stockholders of the Company, voting together as a
single class with the holders of the Common Stock and the
C-3
<PAGE> 54
holders of any other class of capital stock having general voting rights,
adjusted to give effect to any Dilution Event. In the event of liquidation of
the Company, the holder of each Preferred Share will be entitled to receive a
preferential liquidation payment equal to the greater of (i) [$______] and (ii)
100 times the aggregate per share amount to be distributed to the holders of
the Common Stock, adjusted to give effect to any Dilution Event, plus an amount
equal to accrued and unpaid dividends and distributions on such Preferred
Share, whether or not declared, to the date of such payment. In the event of
any merger, consolidation or other transaction in which the outstanding shares
of Common Stock of the Company are exchanged for or converted into other
capital stock, securities, cash and/or other property, each Preferred Share
will be similarly exchanged or converted into 100 times the per share amount
applicable to the Common Stock, adjusted to give effect to any Dilution Event.
Because of the nature of the dividend, voting, liquidation and other
rights accorded to each Preferred Share, the value of the one one-hundredth of
a Preferred Share receivable upon the exercise of each Right should approximate
the value of one share of Common Stock.
Redemption of Rights.
---------------------
At any time prior to the earliest of (i) 10 Business Days after the first
public announcement that any Person (other than an Exempt Person) has become an
Acquiring Person, (ii) 10 Business Days after any Person has been declared to
be an Adverse Person, (iii) the occurrence of any transaction which permits the
exercise of the Flip-Over Right and (iv) the Final Expiration Date, the Board
may redeem the Rights in whole, but not in part, at the redemption price of
[$.01] per Right, adjusted to give effect to any Dilution Event (the
"Redemption Price"); provided, however, that, under certain circumstances
specified in the Rights Agreement, the Rights may not be redeemed unless there
are Continuing Directors in office and such redemption is approved by at least
a majority of such Continuing Directors. The redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the
Board, in its sole discretion, may establish. After the redemption period has
expired, the Company's right of redemption may be reinstated, under the
circumstances specified in the Rights Agreement, which include the concurrence
of at least a majority of the Continuing Directors, if either (i) the Person
who became an Acquiring Person or an Adverse Person shall reduce, in one or a
series of related transactions not involving the Company or any Subsidiary or
the occurrence of any transaction which permits the exercise of the Flip-Over
Right, its Beneficial Ownership of the outstanding shares of Common Stock to
less than [10%] of such outstanding shares or (ii) in connection with any
transaction which permits the exercise of the Flip-Over Right, which does not
involve an Interested Stockholder and in which all holders of the Common Stock
are treated the same. Immediately after action by the Board directing the
redemption of the Rights, the option to exercise the Rights will terminate, and
thereafter each registered holder of the Rights will only be entitled to
receive the Redemption Price therefor.
Exchange of Rights.
-------------------
At any time after any Person has become an Acquiring Person or been
declared to be an Adverse Person and prior to the time that any Person (other
than an Exempt Person), together with its Affiliates and Associates, has become
the Beneficial Owner of [50%] or more of the outstanding shares of Common
Stock, the Board may direct that all or any part of the outstanding Rights
(other than Rights which have become void) be exchanged for shares of Common
Stock at the exchange rate of one share of Common Stock (or one one-hundredth
of a Preferred Share or of another share of capital stock of the Company having
equivalent rights, preferences and privileges) per Right, adjusted to give
effect to any Dilution Event.
C-4
<PAGE> 55
Amendment of the Rights and the Rights Agreement.
-------------------------------------------------
Prior to the Distribution Date, the terms of the Rights and the Rights
Agreement may be supplemented or amended by the Board in any manner. From and
after the Distribution Date, the Rights may be supplemented or amended by the
Board, without the approval of the holders of the Rights, in certain respects
which do not adversely affect, as determined by the Board (with the concurrence
of at least a majority of the Continuing Directors), the interests of such
holders; provided, however, that the Rights Agreement cannot be amended to
lengthen (i) any time period unless (A) such lengthening is approved by at
least a majority of the Continuing Directors and (B) such lengthening is for
the benefit of the holders of the Rights or (ii) any time period relating to
when the Rights may be redeemed if at such time the Rights are not then
redeemable.
Miscellaneous.
--------------
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
________________, 1997. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
C-5
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 7, 1997, except with respect to the acquisition of Tamor
Corporation and the related financing obtained from General Electric Capital
Corporation, as to which the date is February 28, 1997, (and to all references
to our Firm) included in or made a part of this registration statement.
Arthur Andersen LLP
Chicago, Illinois
April 25, 1997
<PAGE> 1
Exhibit 23.2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Home Products International, Inc. (Formerly Selfix, Inc.)
We have issued our report dated February 9, 1996, accompanying the 1994 and
1995 financial statements of Home Products International, Inc. (formerly
Selfix, Inc.) contained in the Registration Statement and Prospectus on Form
S-2. We consent to the use of the aforementioned report in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "Experts".
GRANT THORNTON LLP
Chicago, Illinois
April 25, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Home Products International, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated January 24, 1997, relating to the
combined financial statements of Tamor Plastics Corporation and Houseware
Sales, Inc. as of December 31, 1996 and 1995 and for each of the three years in
the period ending December 31, 1996, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Gardner, Massachusetts
April 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 6,709
<SECURITIES> 1
<RECEIVABLES> 19,119
<ALLOWANCES> 1,705
<INVENTORY> 11,602
<CURRENT-ASSETS> 36,608
<PP&E> 56,338
<DEPRECIATION> 32,458
<TOTAL-ASSETS> 92,131
<CURRENT-LIABILITIES> 25,407
<BONDS> 51,141
0
0
<COMMON> 44
<OTHER-SE> 15,539
<TOTAL-LIABILITY-AND-EQUITY> 92,131
<SALES> 31,738
<TOTAL-REVENUES> 31,738
<CGS> 22,610
<TOTAL-COSTS> 22,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 1,532
<INCOME-PRETAX> 1,149
<INCOME-TAX> 117
<INCOME-CONTINUING> 1,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,032
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
