<PAGE> 1
As filed with the Securities and Exchange Commission on May 30, 1997
Registration No. 333-25871
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
HOME PRODUCTS INTERNATIONAL, INC.
(Name of Registrant as Specified in its Charter)
DELAWARE 36-4147027
(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>
================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED 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(3)
================================================================================================================
</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 MarketSM 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.
(3) Previously paid.
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 MAY ___, 1997
PROSPECTUS
[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 May 27, 1997, the last reported sale price of
the Common Stock as reported on The Nasdaq National Market(SM) was $8.625 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
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
- --------------------------------------------------------------------------
<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. MONTGOMERY SECURITIES
_____________, 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 quarterly 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 ................. $16.4 million
Use of proceeds ....................................... The Company will use all of the
net proceeds of the Offering (i)
to repay $9.4 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 170,570 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>
YEAR ENDED THIRTEEN WEEKS
----------------------------- ENDED
DECEMBER 30, DECEMBER 28, MARCH 29,
1995 1996 1997(n)
-----------------------------------------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $ 41,039 $ 38,200 $ 31,738
Cost of goods sold.................... 25,678 22,992 22,610
------------- ----------- ----------
Gross profit......................... 15,361 15,208 9,128
Operating expenses(c)................. 17,385 13,843 6,602
Restructuring charge(d)............... 2,051 --- ---
------------- ----------- ----------
Operating profit (loss).............. (4,075) 1,365 2,526
Interest expense(e)................... (896) (707) (1,532)
Other income - net.................... 688 148 155
------------- ----------- ----------
Earnings (loss) before income taxes.. (4,283) 806 1,149
Income tax (expense) benefit(f)....... 273 --- (117)
------------- ----------- ----------
Net earnings (loss)................... $ (4,010) $ 806 $ 1,032
============= =========== ==========
Net earnings (loss) per common and
common equivalent share.............. $ (1.11) $ 0.21 $ 0.23
============= =========== ==========
Number of weighted average shares
outstanding(g)....................... 3,616,924 3,853,502 4,513,683
OTHER DATA:
Net sales growth (decrease)(h)........ 0.1 % (6.9)% 15.9%
Gross profit margin................... 37.4 % 39.8 % 28.8%
Operating profit (loss) margin........ (9.9)% 3.6 % 8.0%
Net earnings (loss) margin............ (9.8)% 2.1 % 3.3%
EBITDA(i)............................. $ (280) $ 3,647 $ 4,371
<CAPTION>
PRO FORMA(a)
PRO FORMA(a) THIRTEEN WEEKS THIRTEEN WEEKS(b)
YEAR ENDED ENDED ENDED
DECEMBER 28, MARCH 30, MARCH 29,
1996 1996 1997
(AS ADJUSTED) (AS ADJUSTED) (AS ADJUSTED)
-----------------------------------------------------------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $ 113,914 $ 27,389 $ 31,738
Cost of goods sold.................... 80,810 19,154 22,610
------------- ---------- ----------
Gross profit......................... 33,104 8,235 9,128
Operating expenses(c)................. 24,864 6,707 6,602
Restructuring charge(d)............... --- --- ---
------------- ---------- ----------
Operating profit (loss).............. 8,240 1,528 2,526
Interest expense(e)................... (4,700) (1,149) (1,125)
Other income - net.................... 847 64 155
------------- ---------- ----------
Earnings (loss) before income taxes.. 4,387 443 1,556
Income tax (expense) benefit(f)....... (1,754) (177) (622)
------------- ---------- ----------
Net earnings (loss)................... $ 2,633 $ 266 $ 934
============= ========== ==========
Net earnings (loss) per common and
common equivalent share.............. $ 0.41 $ 0.04 $ 0.14
============= ========== ==========
Number of weighted average shares
outstanding(g)....................... 6,373,104 6,336,783 6,513,683
OTHER DATA:
Net sales growth (decrease)(h)........ 15.9%
Gross profit margin................... 29.1% 30.1% 28.8%
Operating profit (loss) margin........ 7.2% 5.6% 8.0%
Net earnings (loss) margin............ 2.3% 1.0% 2.9%
EBITDA(i)............................. $ 14,559 $ 2,934 $ 4,371
<CAPTION>
AS OF MARCH 29, 1997
--------------------------------
ACTUAL AS ADJUSTED(b)
--------------------------------
(dollars in thousands)
<S> <C> <C>
BALANCE SHEET DATA:
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 $ 6,097 $ (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, 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. EBITDA, as determined by the
Company, may differ from that of other companies.
(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, 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. Actual results
are combined since the date of effective control although the purchase
transaction did not close until February 28, 1997.
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<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,
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<PAGE> 12
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."
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
11
<PAGE> 13
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.
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
12
<PAGE> 14
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 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
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<PAGE> 15
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 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
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<PAGE> 16
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 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 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 956,300 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 170,570 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. See "Description of Credit Agreement and Other Debt." 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(SM) 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."
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<PAGE> 17
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."
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.
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<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 $16.4 million ($20.8 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 $9.4 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(SM)
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(SM). 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 May 27, 1997)..... $ 10.50 $ 8.625
</TABLE>
On May 27, 1997, the last reported sale price of the Common Stock on The
Nasdaq National Market(SM) was $8.625.
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 $16.4 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>
MARCH 29, 1997
------------------------
ACTUAL AS ADJUSTED
------ -----------
(dollars in thousands)
<S> <C> <C>
Total debt, including capital lease obligations(a)...... $ 53,951 $ 37,551
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: 4,381,684 shares issued; 6,381,684,
shares issued, as adjusted.......................... 44 64
Additional paid-in capital.............................. 13,669 30,049
Retained earnings....................................... 2,328 2,328
Currency translation adjustments........................ (194) (194)
Common Stock held in treasury -- at cost
(58,762 shares)....................................... (264) (264)
--------- ---------
Total stockholders' equity.............................. 15,583 31,983
--------- ---------
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 170,570 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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<PAGE> 22
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following 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 STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TAMOR PRO PRO
SELFIX HISTORICAL FORMA FORMA
HISTORICAL DECEMBER ACQUISITION OFFERING
DECEMBER 28, 1996 31, 1996 ADJUSTMENTS ADJUSTMENTS TOTAL
----------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
(dollars in thousands except per share amounts)
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 (a) --- 24,864
(3,145) (b)
--------- ---------- ---------- -------- ----------
Operating profit............................. 1,365 4,372 2,503 --- 8,240
Interest expense............................... (707) (1,191) (4,430) (c) 1,628 (g) (4,700)
Other income - net............................. 148 494 205 (d) --- 847
--------- ---------- ---------- -------- ----------
Earnings before income taxes................. 806 3,675 (1,722) 1,628 4,387
Income tax expense............................. --- (160) (943) (e) (651) (h) (1,754)
--------- ---------- ---------- -------- ----------
Net earnings (loss)............................ $ 806 $ 3,515 $ (2,665) $ 977 $ 2,633
========= ========== ========== ======== ==========
Net earnings per common and
common equivalent share...................... $ 0.21 --- --- --- $ 0.41
========= ========== ========== ======== ==========
Number of weighted average common
and common equivalent shares
outstanding.................................. 3,853,502 --- 519,602 (f) 2,000,000 (i) 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) 407 (g) (1,125)
Other income - net............................. 155 --- 155
---------- --------- ----------
Earnings before income taxes................. 1,149 407 1,556
Income tax expense............................. (117) (505)(h) (622)
---------- --------- ----------
Net earnings (loss)............................ $ 1,032 $ (98) $ 934
========== ========= ==========
Net earnings per common and
common equivalent share...................... $ 0.23 --- $ 0.14
========== ========= ==========
Number of weighted average common
and common equivalent shares
outstanding.................................. 4,513,683 2,000,000 (i) 6,513,683
========== ========= ==========
</TABLE>
22
<PAGE> 24
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Reflects the additional amortization expense resulting from
the recording of goodwill associated with the Tamor Acquisition.
Goodwill is amortized over 40 years.
(b) Reflects estimated cost savings as a result of the Tamor
Acquisition as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Commission payments to related parties of Housewares
under commission agreement terminated in connection
with the Tamor Acquisition............................... $ (1,194)
Former owners' compensation and other benefits, including
pension, life insurance, travel and auto allowances
paid during 1996, net of compensation expense
under new contracts to be paid subsequent to the
Tamor Acquisition......................................... (1,536)
Change in control agreement payment made to the former
president of Tamor in 1996 because of the Tamor
Acquisition.............................................. (330)
Change in Compensation Arrangements:
Special bonus payments discontinued under the
Company's compensation policies subsequent to the
Tamor Acquisition..................................... (265)
Additional costs associated with the Company's 401(k)
and profit sharing plans and certain other fees to
be incurred subsequent to the Tamor Acquisition........ 240
Non-recurring accounting and legal expenses incurred by
Housewares' former owners in 1996 in connection with the
Tamor Acquisition......................................... (60)
--------------
$ (3,145)
==============
</TABLE>
(c) Reflects the estimated net increase in interest expense as if
the Tamor Acquisition had occurred on December 31, 1995. The pro
forma adjustment to interest expense is comprised of the following:
<TABLE>
(in thousands)
--------------
<S> <C>
Interest expense on the estimated weighted
average amounts outstanding under Term Loan
A and Term Loan B in the principal amount of
$47.0 million with an effective interest rate of 9.4%..... $ 4,427
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......................................... $ 4,430
==============
</TABLE>
(d) 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%.
23
<PAGE> 25
(e) 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%.
(f) Reflects the assumed increase in the weighted average common
and common equivalent shares outstanding as a result of the Tamor
Acquisition (480,000 shares) and the Warrant.
(g) Reflects the estimated decrease in interest expense as if the
Offering and the application of the estimated $16.4 million of net
proceeds had occurred as of the beginning of the applicable fiscal
year. The proceeds are assumed to be used to repay a portion of the
outstanding principal amount of the Term Loans, as well as to repay
in full the Subordinated Note pursuant to the terms of the Credit
Agreement and Subordinated Note as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Repayment of Subordinated Note......................... $ 7,000
Partial repayment of Term Loan A....................... 4,700
Partial repayment of Term Loan B....................... 4,700
-----------------
Net proceeds from the Offering..................... $ 16,400
=================
</TABLE>
(h) 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%.
(i) Reflects the assumed increase in the weighted average common
and common equivalent shares as a result of the Offering.
24
<PAGE> 26
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,
1992 1993 1994
------------ ------------ ------------
(dollars in thousands except per share amounts)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................... $ 35,209 $ 39,711 $ 40,985
Cost of goods sold................................................. 22,297 22,504 25,587
---------- ---------- ----------
Gross profit................................................... 12,912 17,207 15,398
Operating expenses................................................. 13,501 14,214 18,185
Restructuring charges(a)........................................... --- --- 1,701
---------- ---------- ----------
Operating profit (loss)........................................ (589) 2,993 (4,488)
Interest expense................................................... (1,038) (1,066) (999)
Other income (expense)-net......................................... 192 126 (295)
---------- ---------- ----------
Earnings (loss) before income taxes............................ (1,435) 2,053 (5,782)
Income tax (expense) benefit(b).................................... 654 (574) (221)
---------- ---------- ----------
Earnings (loss) before the cumulative
effect of a change in accounting for
income taxes............................................... (781) 1,479 (6,003)
Cumulative effect of a change in income
tax accounting................................................. --- 36 ---
---------- ---------- ----------
Net earnings (loss)................................................ $ (781) $ 1,515 $ (6,003)
========== ========== ==========
Net earnings (loss) per common and
common equivalent share........................................ $ (0.23) $ 0.43 $ (1.70)
========== ========== ==========
Number of weighted average common and
common equivalent shares outstanding........................... 3,448,267 3,511,100 3,538,758
OTHER DATA:
Net sales growth (decrease)(c)(f).................................. (4.9) % 12.8 % 3.2 %
Gross profit margin................................................ 36.7 % 43.3 % 37.6 %
Operating profit (loss) margin..................................... (1.7) % 7.5 % (11.0) %
EBITDA(d).......................................................... $ 2,599 $ 6,097 $ (659)
<CAPTION>
AS OF AS OF AS OF
DECEMBER 26, DECEMBER 25, DECEMBER 31,
1992 1993 1994
------------ -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(e)................................................. $ 11,599 $ 12,752 $ 11,026
Property, plant and equipment, net................................. 10,154 11,524 10,466
Intangible assets, net............................................. 3,828 2,941 1,536
Total assets....................................................... 32,828 35,354 30,761
Total debt, including capital lease obligations.................... 11,884 12,033 10,413
Total stockholders' equity......................................... 17,715 19,326 13,623
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
(dollars in thousands except per share amounts)
STATEMENT OF OPERATIONS DATA:
Net sales.......................................................... $ 41,039 $ 38,200
Cost of goods sold................................................. 25,678 22,992
---------- ---------
Gross profit................................................... 15,361 15,208
Operating expenses................................................. 17,385 13,843
Restructuring charges(a)........................................... 2,051 ---
---------- ---------
Operating profit (loss)........................................ (4,075) 1,365
Interest expense................................................... (896) (707)
Other income (expense)-net......................................... 688 148
---------- ---------
Earnings (loss) before income taxes............................ (4,283) 806
Income tax (expense) benefit(b).................................... 273 ---
---------- ---------
Earnings (loss) before the cumulative
effect of a change in accounting for
income taxes............................................... (4,010) 806
Cumulative effect of a change in income
tax accounting................................................. --- ---
---------- ---------
Net earnings (loss)................................................ $ (4,010) $ 806
========== =========
Net earnings (loss) per common and
common equivalent share........................................ $ (1.11) $ 0.21
========== =========
Number of weighted average common and
common equivalent shares outstanding........................... 3,616,924 3,853,502
OTHER DATA:
Net sales growth (decrease)(c)(f).................................. 0.1 % (6.9) %
Gross profit margin................................................ 37.4 % 39.8 %
Operating profit (loss) margin..................................... (9.9) % 3.6 %
EBITDA(d).......................................................... $ (280) $ 3,647
<CAPTION>
AS OF AS OF
DECEMBER 30, DECEMBER 28,
1995 1996
--------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital(e)................................................. $ 6,712 $ 7,152
Property, plant and equipment, net................................. 8,453 7,934
Intangible assets, net............................................. 2,693 2,527
Total assets....................................................... 24,976 24,705
Total debt, including capital lease obligations.................... 7,914 7,022
Total stockholders' equity......................................... 10,847 11,709
</TABLE>
25
<PAGE> 27
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 Selfix's operating results and is not indicative of cash flow available
to fund all cash needs. EBITDA, as determined by Selfix, may differ from
that of other companies.
(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.
26
<PAGE> 28
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)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(a):
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)
<S> <C> <C>
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>
27
<PAGE> 29
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 Tamor's operating results and is not indicative of cash flow available
to fund all cash needs. EBITDA, as determined by Tamor, may differ from
that of other companies.
(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.
28
<PAGE> 30
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. 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, 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.
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 quarterly 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
29
<PAGE> 31
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.
30
<PAGE> 32
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 prepared on a basis consistent with 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)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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) $ 2,934 $ 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.
(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
31
<PAGE> 33
cash flow available to fund all cash flow needs. EBITDA, as determined
by the Company, may differ from that of other companies.
(g) 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. 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.
32
<PAGE> 34
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 $1.0 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 11.9% 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% 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 0.6% in the first quarter of fiscal 1997.
The decrease was the result of a higher sales base.
33
<PAGE> 35
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% of net sales as compared to 5.6% of net sales in the
first quarter of 1996.
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, the Company has not yet been able to
conclude that it is more likely than not that it will be able to realize its
deferred tax assets. The Company has based this determination on its
historical results of operations and the uncertainty of several other factors,
including the successful integration of Tamor's operations into the Company's
operations, the impact of the substantial indebtedness incurred in connection
with the Tamor Acquisition, the maintenance of the Company's existing customer
relationships at current levels of sales volume, the continued successful
implementation of cost control measures and various other factors beyond the
Company's control, such as plastic resin price increases and the effect of
general economic conditions. (See "Risk Factors"). However, if the results of
operations for the remainder of fiscal 1997 remain profitable and the Offering
is completed, the Company expects to be able to reduce or eliminate the
valuation allowance in the fourth quarter of fiscal 1997.
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.
34
<PAGE> 36
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 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.
35
<PAGE> 37
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 Selfix's operating results and is not indicative of cash flow available
to fund all cash flow needs. EBITDA, as determined by Selfix, may differ
from that of other companies.
(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.
36
<PAGE> 38
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.
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 37.4% of net sales. 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 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 decreased from 25.5% 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 15.7% in
1995. 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
in 1996 of approximately $0.2 million related to the Tamor Acquisition were
capitalized. In addition, 1995 included an increase in the allowance for
doubtful accounts of $0.4 million to address the uncertain financial condition
of several retailers. Further, management decided in 1995 to outsource its
management information department and incurred $0.4 million of charges for
related severance payments and equipment write-offs.
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.
37
<PAGE> 39
Restructuring charge. 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. The after
tax and per share impact of the write-off of depreciable assets in connection
with the 1995 restructuring charge was $0.8 million and $0.23, respectively.
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.
Other Income. 1996 other income of $0.1 million was significantly less
than the $0.5 million of other income in 1995. Other income in 1995 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 1995 earnings.
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 or $1.11 loss per share 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 the $2.1 million decrease in restructuring 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.
38
<PAGE> 40
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 as more fully
described below.
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 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. Net sales in 1994 were reduced by a
provision for returns and allowances of $0.8 million to reflect current market
pricing trends and potential product warranty claims.
Gross profit. Gross profit declined slightly from 37.6% of net sales in
1994 to 37.4% 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
profit 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.
Offsetting the year-to-year gross profit margin decline caused by plastic resin
cost increases and Canadian sales mix shifts, were actions taken in 1994 to
identify excess inventory items and non-performing fixed assets. Inventory
reserves were increased $1.0 million to address slow moving and obsolete
finished goods and packaging. In addition, fixed asset write-offs of $0.4
million were recorded for assets that were not used and obsolete.
Operating expenses. Selling expenses were 25.5% of net sales as compared
to 26.8% 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.
Administrative expenses increased from 14.1 % of net sales in 1994 to
15.7% in 1995. The increase is attributable to costs incurred related to
Selfix's search for strategic acquisitions, the decision to outsource the
management information department and the increased cost of management
incentive plans. 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. During 1995,
management decided to outsource its management information department to
improve overall responsiveness and reduce costs, and a $0.4 million charge was
incurred for the related severance payments and equipment write-offs.
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.
39
<PAGE> 41
Amortization of intangibles decreased from 3.4% of sales in 1994 to 1.2%
in 1995. 1994 results included a write-off of $0.6 million related to
intangible assets from previous acquisitions. The write-off recognized
projected sales declines on the related product lines acquired. The write-off
of 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.
Restructuring charge. 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 related 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 The after tax and per share impact of the
write-off of depreciable assets in connection with the 1994 restructuring
charge was $0.2 million and $0.07, respectively. 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.
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.
Other income (expense). Other expense in 1994 of $0.5 million was
significantly impacted by several items. 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 for the favorable settlement of a patent
infringement lawsuit. Other income in 1995 of $0.5 million 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 1995 earnings.
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 was the
40
<PAGE> 42
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.
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.
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 $4.9 million in 1995. The improvement resulted from higher gross
profit margins, reduced operating expenses and the $2.1 million decrease in
restructuring charges. 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 over 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, was $4.9 million as
compared to an operating loss of $3.9 million in 1994. The increased 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, the decision to outsource the
management information department, the additional costs of new management
incentive plans and increased restructuring charges.
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 $1.3 million as
compared to 1994's operating loss of $0.5 million. 1994's operating loss was
due to charges related to potential warranty claims, the write-off of
unutilized fixed assets and the bankruptcy of a significant customer. Such
charges totaled $0.8 million and did not recur in 1995. In addition, 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
41
<PAGE> 43
reduced as a result of the expiration of non-compete and consulting agreements
arising from the 1988 acquisition of Shutters by Selfix.
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 Tamor's operating results and is not indicative of cash flow available
to fund all cash flow needs. EBITDA, as determined by Tamor, may differ
from that of other companies.
(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.
42
<PAGE> 44
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.
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<PAGE> 45
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 $0.3 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.
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.
44
<PAGE> 46
<TABLE>
<CAPTION>
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).............. 266 771 1,316 280 934
Earnings per share(d)........ 0.04 0.12 0.21 0.04 0.14
</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, (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 fourth
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 $14.6 million. In the first
quarter of fiscal 1997, cash flow from operating activities was $0.3 million
and EBITDA was $4.4 million. See Note (i) of "Summary Historical and Pro Forma
Financial Data."
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<PAGE> 47
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 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 Company's ability
to execute its acquisition strategy; (ix) fluctuations in the stock market; (x)
the extent to which the Company is able to retain and attract key personnel;
(xi) relationships with retailers; and (xii) 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.
46
<PAGE> 48
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 quarterly
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 $40.0 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-
47
<PAGE> 49
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 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 Note (i) to "Summary Historical and
Pro Forma Financial Data." On a pro forma basis, Tamor's 1996 EBITDA would
have been $10.9 million (calculated based in $3.1 million net adjustment to
reflect cost savings resulting from the Tamor Acquisition). See Note (b) to
"Unaudited Pro Forma Condensed Combined Financial Statements."
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."
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<PAGE> 50
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 the $1.85 billion home
organization market. The plastic storage market grew 7.0% from 1995 to 1996
(versus 6.0% for 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, the Company believes 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
49
<PAGE> 51
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 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 Acquisition, 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 21% 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.
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<PAGE> 52
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.
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
51
<PAGE> 53
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.
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
52
<PAGE> 54
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 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 29, 1997
----------------- --------------
<S> <C> <C>
Storage Containers............................. 32% 35%
Home/Closet Organization Products.............. 33 35
Bath and Shower Products....................... 13 11
Hooks and Home Helpers......................... 5 5
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."
53
<PAGE> 55
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 Superstores 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 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.
Although the historical accounting records do not separately present research
and development expenses, the Company estimates that for 1994, 1995 and 1996,
expenses associated with research and development were $436,000, $501,000 and
$330,000, respectively.
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
54
<PAGE> 56
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
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.
55
<PAGE> 57
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:
<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.
56
<PAGE> 58
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 above, 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 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.
57
<PAGE> 59
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 was named Executive Vice President and Chief Financial
Officer of the Company in October, 1996. Mr. Winslow joined the Company as
Senior Vice President and Chief Financial Officer in November, 1994. In 1994,
Mr. Winslow was Executive Vice President and Chief
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<PAGE> 60
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.
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
59
<PAGE> 61
company. Mr. Ragir is a member of the Compensation Committee. Mr. Ragir is a
director of several charitable foundations and non-profit agencies.
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."
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<PAGE> 62
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
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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION AWARDS
------------------- -------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) UNDERLYING OPTIONS COMPENSATION(1)
- --------------------------- ----- ---------- ---------- ------------------ ---------------
<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).
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<PAGE> 63
(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> 64
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 ($8.625).
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<PAGE> 65
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1996
to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PERCENTAGE OF TOTAL PRICE APPRECIATION
NUMBER OF SECURITIES OPTIONS GRANTED TO FOR OPTION TERM(2)
UNDERLYING OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED (1) IN YEAR (3) ($/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 231,000 shares in 1996 to persons
named in the table above. The Company granted options representing 17,900
shares in 1996 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 dated as of January
1, 1997. Such employment agreement 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 $250,000, payable in twelve
monthly installments, and may exercise options which have vested prior to such
date. If Mr. Tennant's employment is terminated after a change in control of
the Company, Mr. Tennant is entitled to receive a $500,000 severance payment
and all of his stock options will immediately vest. 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. Mr. Tennant's employment agreement also
restated the terms of the 350,000 replacement stock options previously granted
by the Board of Directors. These replacement
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<PAGE> 66
options were granted at prices ranging from $6.00 to $8.00 and 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. During 1995, the Company's Board of
Directors cancelled options to purchase 350,000 shares of Common Stock held by
Mr. Tennant 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. He was also granted additional stock options for 200,000
shares at a price of $5.00 per share, which vest in equal increments over a
three year period. These options may be extended until April 30, 2005, under
the same conditions as the other options. The principal terms of Mr. Tennant's
employment agreement, including the grant of additional stock options at an
exercise price of $5.00 per share, were included in an agreement between the
Company and Mr. Tennant dated September 19, 1996. The last reported sale price
of the Company's Common Stock on The Nasdaq National Market(SM) on September 19,
1996 was $5.00 per share.
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. The principal terms of Mr. Tocci's employment agreement, including the
grant of stock options at an exercise price of $4.375 per share, were included
in the agreement between the Company and Tamor dated October 29, 1996. The
last reported sale price of the Company's Common Stock on The Nasdaq National
Market(SM) on October 29, 1996 was $4.375 per share. 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
65
<PAGE> 67
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.
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, 29,430 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 terminated earlier 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
66
<PAGE> 68
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 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,
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<PAGE> 69
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.
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<PAGE> 70
STOCKHOLDER RIGHTS PLAN
The Board of Directors has approved the implementation of a stockholders
rights plan (the "RIGHTS PLAN"). The Company currently anticipates that the
Rights Plan will become effective on or about June 6, 1997. To implement the
Rights Plan, the Board of Directors declared 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 "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 the Distribution Date (as defined below). Under the terms of the
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 business 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 not exercisable. Prior to the
Distribution Date, the Rights will be 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, the Company mailed 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 will evidence the Rights.
The Rights 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
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<PAGE> 71
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.
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 the Rights being redeemed or a substantial
number of Rights being acquired and under certain circumstances the Rights
beneficially owned by such a person or group may become void. 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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<PAGE> 72
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
$47,194 for fiscal 1996 payable to Mr. Ragir's estate (the "MEYER J. RAGIR
ESTATE") and paid $71,868 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> 73
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 OFFERING
----------------- --------------------- --------------------------
NUMBER OF
NUMBER OF SHARES BEING NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
--------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Estate of Norma L. Ragir(1)(8)....................... 1,489,001 34.4% 1,050,000 439,001 6.9%
200 North LaSalle Street
Suite 2100
Chicago, Illinois 60606
Leonard Tocci...................................... 379,200 8.8 -- 379,200 6.0
4501 West 47th Street
Chicago, Illinois 60632
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 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 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 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.
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<PAGE> 74
(4) Includes 188,150 shares of Common Stock subject to stock options
exercisable within 60 days of March 26, 1997.
(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.
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<PAGE> 75
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
74
<PAGE> 76
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 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, L.L.C.
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<PAGE> 77
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 6,322,922 shares of Common
Stock 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. 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> 78
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."
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<PAGE> 79
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:
<TABLE>
<CAPTION>
Years Ending (in thousands)
------------ ----------------
<S> <C>
1997 $ 1,500
1998 2,750
1999 3,375
2000 3,500
2001 4,625
Thereafter 4,250
</TABLE>
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<PAGE> 80
Aggregate principal repayments for Term Loan B are as follows:
<TABLE>
<CAPTION>
Years Ending (in thousands)
------------ ----------------
<S> <C>
1997 $ 150
1998 200
1999 200
2000 200
2001 200
Thereafter 19,050
</TABLE>
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. The repurchase price of the Warrant was determined
through negotiation with GECC and is based on the $10 per share market price of
the Common Stock on or about the date the Warrant was issued. If the
Subordinated Note is not paid in full by (i) July 31, 1997, the number of
shares issuable under the Warrant will increase by the difference between five
percent of the total number of fully diluted shares of Common Stock then
outstanding and 79,204 shares of Common Stock, (ii) February 27, 1998, the
number of shares issuable under the Warrant will increase by the number of
shares equal to two percent of the then outstanding fully diluted shares of
Common Stock and (iii) February 27, 1999 and on each subsequent February 27,
until and including February 27, 2005, the number of shares issuable under the
Warrant will be increased by the number of shares equal to one percent of the
total number of then outstanding fully diluted shares of Common Stock as of
each of such dates. Each tranche of warrant shares is exercisable at 50% of
the Market Price (determined based upon the average of the bid and asked
closing prices for the immediately preceding fifteen day period) as of the date
of any such warrant issuance. 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.
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.
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<PAGE> 81
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.
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, net worth, minimum EBITA and capital expenditures. The
minimum EBITA covenant requires the Company to have for a specified period
ending at the end of each fiscal quarter EBITA of not less than a specified
amount which ranges from $4.4 million for the two fiscal quarters ending in
June, 1997 up to $22.0 million for the four fiscal quarters ending in
September, 2002 and in each fiscal quarter thereafter. 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> 82
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. and Montgomery Securities are acting as
Representatives (the "REPRESENTATIVES"), 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:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES OF COMMON STOCK
---- ------------------------
<S> <C>
EVEREN Securities, Inc.........
Montgomery Securities..........
---------
Total....................... 3,500,000
=========
</TABLE>
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. After
the initial public offering, the price to the public, the concession and the
discount to dealers may be changed. The Representatives have 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
shares of 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> 83
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.
In October, 1996, the Company engaged EVEREN Securities, Inc. to assist
the Company in obtaining financing from institutional investors to refinance
its then existing senior debt and to finance the Tamor Acquisition, and, in
connection therewith, the Company obtained financing from GECC in February,
1997. See "Description of Credit Agreement and Other Debt" and "Use of
Proceeds."
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
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<PAGE> 84
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 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.
83
<PAGE> 85
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, (iv) the Company's Current Report on Form 8-K dated February 28,
1997, (v) the Company's Quarterly Report on Form10-Q for the thirteen weeks
ended March 29, 1997 and (vi) the Company's Current Report on Form 8-K/A-1
filed on May 12, 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.
84
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HOME PRODUCTS INTERNATIONAL, INC.
PAGE
----
<S> <C>
Report of Arthur Andersen LLP .......................................................... F-2
Report of Grant Thornton LLP ........................................................... F-3
Consolidated Balance Sheets at December 30, 1995 and
December 28, 1996 .................................................................. F-4
Consolidated Statements of Operations for the fiscal years 1994, 1995 and 1996 ......... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years 1994, 1995 and
1996 ............................................................................... F-6
Consolidated Statements of Cash Flows for the fiscal years 1994, 1995 and 1996 ......... F-7
Notes to Consolidated Financial Statements ............................................. F-8
Schedule of Valuation and Qualifying Accounts .......................................... F-27
Consolidated Balance Sheets at December 28, 1996 and March 29, 1997 (unaudited) ........ F-28
Consolidated Statements of Operations for the thirteen week
periods ended March 30, 1996 and March 27, 1997 (unaudited) .......................... F-29
Consolidated Statements of Cash Flows for the thirteen week periods
ended March 30, 1996 and March 29, 1997 (unaudited) .................................. F-30
Notes to Condensed Consolidated Financial Statements (unaudited) ....................... F-31
TAMOR PLASTICS CORPORATION AND HOUSEWARE SALES, INC.
Report of BDO Seidman, LLP ............................................................. F-33
Combined Balance Sheets as of December 31, 1995 and 1996 ............................... F-34
Combined Statements of Income for each of the three years in the period ended
December 31, 1996 .................................................................... F-36
Combined Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1996 ....................................................... F-37
Combined Statements of Cash Flows for each of the three years in the period
ended December 31, 1996 .............................................................. F-38
Notes to Combined Financial Statements ................................................. F-42
</TABLE>
F-1
<PAGE> 87
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> 88
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> 89
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-4
<PAGE> 90
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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-5
<PAGE> 91
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
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
========= ======== ========== ======== ======= ====== ====== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 92
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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 2,231 408 515
securities ..........................................
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> 93
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> 94
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.
Long-Lived Assets.
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The statement requires entities
to review long-lived assets and certain intangible assets in certain
circumstances, and if the value of the asset is impaired, an impairment loss
shall be recognized. The adoption of this policy had no material effect on the
Company's financial position or results of operations.
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
F-9
<PAGE> 95
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
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 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 and which was paid $137 for its
legal fees and disbursements during 1996.
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
F-10
<PAGE> 96
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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. 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 amorization.. (12,909) (14,581)
-------- --------
$8,453 $7,934
======== ========
</TABLE>
F-11
<PAGE> 97
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> 98
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>
<CAPTION>
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> 99
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>
<CAPTION>
<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> 100
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:
<TABLE>
<CAPTION>
Years ending:
<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> 101
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>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
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> 102
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>
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> 103
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>
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>
<S> <C> <C> <C>
Price range of options
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>
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> 104
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> 105
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> 106
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>
<CAPTION>
<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> 107
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:
1996
------
Net sales $75,714
Gross profit 17,896
Operating expenses 13,524
Operating profit 4,372
Net earnings 3,515
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.
1996
(unaudited)
-----------
Net sales $113,914
Operating profit 8,240
Net earnings 1,656
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 increased income tax expense computed at an estimated combined
statutory rate of 40% (gives no benefit to the net operating loss
carryforwards). 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 $41,900
consisting of approximately $27,800 in cash, $2,400 in common stock (480,000
shares) and the assumption of $11,700 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
Company
F-22
<PAGE> 108
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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>
<S> <C>
Years Ending
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>
<S> <C>
Years Ending
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> 109
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. The Warrant will be recorded by the Company at its
estimated fair value of $400. Such value has been determined by using an
option pricing model.
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> 110
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Home Products International Inc.
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of Home Products International, Inc.
(formerly Selfix, Inc.) as of and for the fifty-two week period ended December
28, 1996 included in this registration statement on Form S-2, and have issued
our report thereon dated February 7, 1997, except with respect to the
transactions discussed in Note 15, as to which the date is February 28, 1997.
Our audit was made for the purpose of forming an opinion on those statements
taken as a whole. The financial statement Schedule II is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule, for the fifty-two week period ended
December 28, 1996, has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
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-25
<PAGE> 111
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Home Products International, Inc. (Formerly Selfix, Inc.)
In connection with our audit of the consolidated financial statements of Home
Products International, Inc. (formerly Selfix, Inc.) and Subsidiaries referred
to in our report dated February 9, 1996, we have also audited Schedule II for
the 52-week and 53-week periods ended December 30, 1995 and December 31, 1994,
respectively. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Chicago, Illinois
February 9, 1996
F-26
<PAGE> 112
Schedule II
HOME PRODUCTS INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FIFTY-THREE WEEKS ENDED DECEMBER 31, 1994,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 30, 1995,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 28, 1996
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE AT CHARGED TO (NET BALANCE
BEGINNING COSTS AND WRITE-OFFS/ AT END
OF PERIOD EXPENSES RECOVERIES) OF PERIOD
----------- ---------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
- -------------------------------
December 31, 1994.............. $1,255 $ 565 $ (389) $1,431
December 30, 1995.............. $1,431 $ 524 $ (560) $1,395
December 28, 1996.............. $1,395 $ 211 $ (705) $ 901
Warranty Reserves
- -----------------
December 31, 1994.............. $ 12 $ 500 $ (1) $ 511
December 30, 1995.............. $ 511 $ - $ (16) $ 495
December 28, 1996.............. $ 495 $ - $ (42) $ 453
Inventory Reserves
- ------------------
December 31, 1994.............. $ 621 $2,018 $(1,079) $1,560
December 30, 1995.............. $1,560 $1,648 $ (797) $2,411
December 28, 1996.............. $2,411 $ 678 $(2,096) $ 993
</TABLE>
F-27
<PAGE> 113
HOME PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
MARCH 29
DECEMBER 28, 1997
1996 (UNAUDITED)
------------------------------------
ASSETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Current assets:
<S> <C> <C>
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
4,381,684 shares issued at March 29,1997................ 39 44
Additional paid-in capital................................... 10,839 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)
--------- ---------
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-28
<PAGE> 114
HOME PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------
MARCH 30, MARCH 29,
1996 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-29
<PAGE> 115
HOME PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
MARCH 30, MARCH 29,
1996 1997
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES: (IN THOUSANDS)
<S> <C> <C>
Net earnings (loss)........................................ $(1,116) $ 1,032
Adjustments to reconcile net earnings (loss) 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 (decrease) 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 FOR 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 PROVIDED BY 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 during the period for:
Interest and swap fees.................................... $ 140 $ 300
Income taxes, net......................................... 1 ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 116
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>
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 28, 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 aggregate purchase price was approximately $41.9 million, consisting
of approximately $27.8 million in cash, $2.4 million of Common Stock (480,000
shares) and the repayment of approximately $11.7 million of Tamor's long-term
debt, including long-term capital lease obligations. Certain direct
transaction costs and expenses totaled $1.2 million. $0.4 million of deferred
imputed interest expense was recorded as a result of 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. Goodwill recorded
in connection with the acquisition is being amortized over forty years. The
purchase price was allocated as follows (in thousand):
<TABLE>
<S> <C>
Assets acquired $ 32,755
Goodwill 25,700
Deferred imputed interest expense 445
-----------
58,900
Less:
Other liabilities assumed (15,800)
-----------
Purchase price and direct costs $ 43,100
===========
</TABLE>
F-31
<PAGE> 117
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.
F-32
<PAGE> 118
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, 1995 and 1996 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, 1995 and
1996, 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-33
<PAGE> 119
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED BALANCE SHEETS
<TABLE>
December 31, 1995 1996
- -----------------------------------------------------------------------------------------------------------
ASSETS (NOTE 6)
CURRENT:
<S> <C> <C>
Cash and cash equivalents $ 266,783 $ 1,187,858
Accounts receivable, less allowance of
$237,000 in 1995 and $659,000 in 1996 9,255,377 8,859,561
Inventories (Note 2)6,188,5656,427,148
Prepaid expenses and other 331,375 354,019
- -----------------------------------------------------------------------------------------------------------
Total current assets 16,042,100 16,828,586
- -----------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost
less accumulated depreciation and
amortization (Notes 3 and 4) 12,907,887 16,904,864
- -----------------------------------------------------------------------------------------------------------
CASH SURRENDER VALUE OF LIFE INSURANCE
($8,912,000 face amount) 347,300 362,088
- -----------------------------------------------------------------------------------------------------------
DEFERRED FINANCING COSTS 34,709 -
- -----------------------------------------------------------------------------------------------------------
DEFERRED STATE TAX ASSETS (NOTE 8) 45,000 -
- -----------------------------------------------------------------------------------------------------------
$ 29,376,996 $ 34,095,538
===========================================================================================================
</TABLE>
F-34
<PAGE> 120
<TABLE>
<CAPTION>
December 31, 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks issued against future deposits $ 2,222,518 $ 4,376,807
Notes payable 115,000 -
Accounts payable - trade (Note 7) 4,654,920 4,202,355
Accounts payable - other (Note 3) - 3,824,227
Accrued liabilities (Note 5) 1,471,879 1,730,076
Current maturities of long-term debt (Note 6) 909,476 1,099,000
Current maturities of capital lease obligations (Note 4) 589,470 634,000
- -------------------------------------------------------------------------------------------------------
Total current liabilities 9,963,263 15,866,465
LONG-TERM DEBT, less current maturities (Note 6) 7,434,253 6,031,963
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES (Note 4) 4,582,591 4,015,795
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 21,980,107 25,914,223
- -------------------------------------------------------------------------------------------------------
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 7,096,964 9,363,618
- -------------------------------------------------------------------------------------------------------
7,396,889 9,663,543
Less treasury stock, 11.23 shares at cost (Note 13) - 1,482,228
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 7,396,889 8,181,315
- -------------------------------------------------------------------------------------------------------
$29,376,996 $34,095,538
=======================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to combined
financial statements
F-35
<PAGE> 121
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (Note 10) $53,806,571 $60,300,801 $75,713,837
COST OF SALES (Note 7) 43,235,407 50,193,776 57,817,814
- --------------------------------------------------------------------------------
GROSS PROFIT 10,571,164 10,107,025 17,896,023
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling and warehousing (Note 7) 6,220,829 6,565,029 9,885,973
General and administrative 2,205,219 2,274,035 3,637,606
- --------------------------------------------------------------------------------
Total operating expenses 8,426,048 8,839,064 13,523,579
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS 2,145,116 1,267,961 4,372,444
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (530,901) (1,140,353) (1,190,764)
Other income, net 224,806 97,582 493,886
- --------------------------------------------------------------------------------
Total other expense, net (306,095) (1,042,771) (696,878)
- --------------------------------------------------------------------------------
INCOME BEFORE STATE TAXES ON
INCOME (BENEFIT) 1,839,021 225,190 3,675,566
STATE TAXES ON INCOME (BENEFIT) (Note 8) 93,000 (25,000) 160,000
- --------------------------------------------------------------------------------
NET INCOME 1,746,021 250,190 $ 3,515,566
================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to combined
financial statements.
F-36
<PAGE> 122
<TABLE>
<CAPTION>
Tamor Plastics Corporation
---------------------------------
Additional
Common Stock 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-37
<PAGE> 123
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Victory Button Company, Inc. Houseware Sales, Inc.
- --------------------------------- ---------------------
Additional
Common Stock Paid-In Common Stock Retained Treasury Stock
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
============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-38
<PAGE> 124
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
COMBINED STATEMENTS OF CASH FLOWS
(NOTE 11)
<TABLE>
Years ended December 31, 1994 1995 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $1,746,021 $250,190 $3,515,566
Adjustments to reconcile net income to net
cash provided (used) by operations:
Depreciation and amortization 2,206,048 2,559,819 2,900,809
(Gain)loss on sales of fixed assets (62,358) 4,901 31,025
Deferred state taxes - (45,000) 45,000
Changes in operating assets and liabilities:
Accounts receivable (2,233,842) (2,659,462) 395,816
Inventories (1,037,450) (841,399) (238,583)
Prepaid expenses and other assets 84,988 (280,132) (37,432)
Checks issued against future deposits 1,173,094 (1,208,451) 2,154,289
Accounts payable and accrued liabilities (423,147) 2,215,253 3,629,859
- -----------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 1,453,354 (4,281) 12,396,349
- -----------------------------------------------------------------------------------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Additions to property and equipment (3,047,867) (1,654,653) (6,889,402)
Proceeds from sales of fixed assets 106,000 6,500 32,000
- -----------------------------------------------------------------------------------------------
Net cash used for investing activities (2,941,867) (1,648,153) (6,857,402)
- -----------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving
lines of credit 2,780,005 1,816,189 (1,818,149)
Proceeds from vehicle loans 90,182 52,365 140,830
Proceeds from term loans - 1,300,000 306,000
Payments of capital lease obligations - (318,343) (558,966)
Principal repayment of term loans (514,213) (887,616) (1,009,256)
Distributions paid to stockholders (350,877) (693,865) (1,248,912)
Purchase of treasury stock - - (429,419)
- -----------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,005,097 1,268,730 (4,617,872)
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 516,584 (383,704) 921,075
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 133,903 650,487 266,783
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $650,487 $266,783 $1,187,858
===============================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements
F-39
<PAGE> 125
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF The Combined financial statements include the accounts
COMBINATION AND of Tamor Plastics Corporation ("Tamor") and Houseware Sales,
REPORTING Inc. ("Housewares") (collectively, the "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
EQUIPMENT AND is computed over the estimated useful lives of the related
DEPRECIATION assets using both straight-line and accelerated methods. The
estimated useful lives are as follows:
CATEGORY LIFE
--------------------------------------------------------------
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
F-40
<PAGE> 126
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
SUMMARY OF ACCOUNTING POLICIES
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
ASSUMPTIONS 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 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
OF FINANCIAL payable and accrued liabilities are reflected in the
INSTRUMENTS financial statements at fair value because of the short-term
maturity of those instruments.
Based upon borrowing rates currently available to the
Companies for 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
CREDIT RISK institutions nagement 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
RECOGNITION customer.
F-41
<PAGE> 127
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 nto 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>
1995 1996
-------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $3,464,297 $3,325,827
Work-in-process 870,517 1,175,432
Raw materials 1,853,751 1,925,889
-------------------------------------------------------------------------------------------
Total $6,188,565 $6,427,148
===========================================================================================
</TABLE>
F-42
<PAGE> 128
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
3. PROPERTY AND Property and equipment consist of the following:
EQUIPMENT
<TABLE>
<CAPTION>
1995 1996
-----------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $17,813,633 $21,544,567
Real estate and improvements 839,533 1,205,847
Leasehold improvements 563,393 627,147
Office furniture and equipment 751,246 951,248
Vehicles 671,691 639,393
Machinery and equipment deposits 330,579 2,693,848
-----------------------------------------------------------------------------------
Total 20,970,075 27,662,050
Less accumulated depreciation 13,068,850 15,045,366
-----------------------------------------------------------------------------------
Net property and equipment owned 7,901,225 12,616,684
Leased property under capital leases, net of
accumulated amortization (Note 4) 5,006,662 4,288,180
-----------------------------------------------------------------------------------
Net property and equipment $12,907,887 $16,904,864
===================================================================================
</TABLE>
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.
F-43
<PAGE> 129
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
4. LEASES The Companies lease warehouse and manufacturing facilities,
vehicles and factory and office equipment under capital and
operating leases. Assets held under capital leases include:
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------------------------------
<S> <C> <C>
Molding machines $4,008,600 $4,008,600
Molds 767,614 767,614
Equipment 791,254 791,254
Vehicles - 36,700
------------------------------------------------------------------------
Total 5,567,468 5,604,168
Less accumulated amortization 560,806 1,315,988
------------------------------------------------------------------------
Leased property, net $5,006,662 $4,288,180
========================================================================
</TABLE>
Lease amortization is included in depreciation expense.
Future minimum payments under capital leases and noncancellable
operating lease 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-44
<PAGE> 130
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 $591,300 in
1995 and $1,227,104 in 1996. 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 $345,000 in 1994,
$608,000 in 1995 and $729,000 in 1996. 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>
1995 1996
----------------------------------------------------------------------------
<S> <C> <C>
Customer rebates $ 583,645 $ 643,596
Materials 483,386 442,209
Bonus - 330,000
State taxes 3,662 90,836
Utilities 120,614 60,000
Payroll and retirement 176,062 103,600
Other 104,510 59,835
----------------------------------------------------------------------------
Total $1,471,879 $1,730,076
============================================================================
</TABLE>
6. LONG-TERM Long-term debt consists of the following:
DEBT
<TABLE>
<CAPTION>
1995 1996
----------------------------------------------------------------------------
<S> <C> <C>
Tamor
-----
Revolving line of credit with interest at
variable rates (7.6% at December 31, 1996
maturing May, 1988 $6,374,278 $4,671,129
Term note payable in monthly installments
of $35,983 plus interest at variable
rates (7.6% at December 31, 1996)
through May, 1998 1,004,501 572,700
</TABLE>
F-45
<PAGE> 131
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
6. LONG-TERM
DEBT
(CONTINUED)
<TABLE>
<CAPTION>
1995 1996
---------------------------------------------------------------------------------
<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 902,778 469,444
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% 62,172 127,326
---------------------------------------------------------------------------------
Total 8,343,729 7,130,963
Less scheduled current maturities 909,476 1,099,000
---------------------------------------------------------------------------------
Long-term portion $7,434,253 $6,031,963
=================================================================================
</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-46
<PAGE> 132
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
6. LONG-TERM The loan agreements contain, among other matters,
DEBT restrictive covenants relating to ownership control, payment
(CONTINUED) 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>
<CAPTION>
Year ended December 31,
<S> <C>
1997 $1,099,000
1998 5,095,000
1999 260,000
2000 274,000
2001 402,963
---------------------------------------
Total $7,130,963
=======================================
</TABLE>
7. RELATED PARTY Tamor purchases packaging materials from an entity which is
TRANSACTIONS partially owned by two stockholders of Tamor. Payments to
this entity for packaging materials were $1,096,713 in 1994,
$1,151,000 in 1995 and $1,313,000 in 1996. Accounts payable
trade includes $97,109 at December 31, 1995 and $40,304 at
December 31, 1996 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 $4,707,730 in 1994, $6,826,000 in 1995
and $14,270,000 in 1996. Accounts payable trade includes
$1,396,584 at December 31, 1995 and $1,679,826 at December 31,
1996 due to the related entities.
Housewares pays commissions to related parties. These
commissions amounted to $334,917 in 1994, $154,862 in 1995 and
$1,193,770 in 1996.
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 $52,588 in 1994, $48,591 in 1995
and $46,936 in 1996.
F-47
<PAGE> 133
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>
1994 1995 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Current $93,000 $ 20,000 $115,000
Deferred - (45,000) 45,000
-----------------------------------------------------------------------------
Total $93,000 $ (25,000) $160,000
=============================================================================
</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 at different 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 Employment Agreement
AND Tamor has an employment agreement with an officer who is
CONTINGENCIES also a stockholder of Tamor. The agreement provides
for compensation above a minimum amount determined by the
board of directors, inflationary increases, and additional
compensation equal to four percent of Tamor's income
before taxes. Minimum annual compensation under the
agreement is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C>
1997 $ 165,000
1998 165,000
1999 165,000
2000 165,000
2001 165,000
Thereafter 197,000
-----------------------------------
Total $1,022,000
===================================
</TABLE>
F-48
<PAGE> 134
TAMOR PLASTICS CORPORATION
AND HOUSEWARE SALES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
9. COMMITMENTS Retirement Plan
AND Housewares has a profit sharing retirement plan in which
CONTINGENCIES eligible employees may elect to contribute up to 15% of
(CONTINUED) 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 $50,358 in 1994, $45,575
in 1995 and $51,403 in 1996.
10. SIGNIFICANT The Companies have two significant customers that each
CUSTOMERS comprise more than 10% of total sales in 1994, 1995 and
1996. Sales to these customers represent approximately 31%
and 17% of total sales in 1994, 33% and 12% of total sales
in 1995, and 28% and 11% of total sales in 1996.
<TABLE>
<CAPTION>
11. SUPPLEMENTAL Cash paid for interest and state income taxes was as follows:
CASH FLOW
INFORMATION 1994 1995 1996
--------------------------------------------------------------
<S> <C> <C> <C>
Interest $508,918 $1,096,590 $1,204,106
State income taxes 30,476 93,401 14,364
</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 $5,243,529
in 1995 and $36,700 in 1996.
F-49
<PAGE> 135
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 requires
STOCK 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-50
<PAGE> 136
================================================================================
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
<TABLE>
<S> <C>
Prospectus Summary ...................................... 3
Risk Factors ............................................ 10
Use of Proceeds ......................................... 17
Price Range of Common Stock ............................. 18
Capitalization .......................................... 19
Dividend Policy ......................................... 20
Unaudited Pro Forma Condensed Combined Financial Statements 21
Selected Historical Financial Data ...................... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................................. 29
Business ................................................ 47
Management .............................................. 58
Certain Relationships and Related
Transactions ............................................ 71
Principal and Selling Shareholders ...................... 72
Description of Company's Securities ..................... 74
Shares Eligible for Future Sale ......................... 76
Description of the Credit Agreement and Other Debt ...... 78
Underwriting ............................................ 81
Legal Matters ........................................... 82
Experts ................................................. 82
Additional Information .................................. 83
Financial Statements .................................... F-1
</TABLE>
================================================================================
================================================================================
3,500,000 SHARES
HOME PRODUCTS INTERNATIONAL, INC.
COMMON STOCK
-------------
PROSPECTUS
-------------
EVEREN SECURITIES, INC.
MONTGOMERY SECURITIES
____________, 1997
================================================================================
<PAGE> 137
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> 138
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 17,500
Printing Costs................... 100,000
Accounting Fees and Expenses..... 180,000
Legal Fees and Expenses.......... 180,000
Transfer Agent Fees and Expenses. 10,000
Miscellaneous.................... 14,761
----------
Total............................ $ 520,000
==========
</TABLE>
All of the listed expenses of this Offering will be paid by the Company
except a portion of such expenses which will be paid by the Selling
Shareholders. The portion of the expenses of the Offering to be paid by the
Selling Shareholders has not yet been determined.
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.
II-2
<PAGE> 139
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 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> 140
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 Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of Illinois, on May
29, 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 Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the following capacities on May 29, 1997.
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
//Jeffrey C. Rubenstein//* Director
- ---------------------------
Jeffrey C. Rubenstein
//Joel D. Spungin//* Director
- ---------------------------
Joel D. Spungin
* By: //James R. Tennant//
----------------------
James R. Tennant
Attorney-in-Fact
May 29, 1997
II-4
<PAGE> 141
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.
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.
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.
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> 142
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> 143
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 were filed with or incorporated by
reference as part of the Form S-2 Registration Statement (File No.
333-25871) filed with the Securities and Exchange Commission on April 25,
1997.
* Filed herewith.
E-3
<PAGE> 1
Exhibit 1.1
Form of Underwriting Agreement
<PAGE> 2
EXHIBIT 1.1
3,500,000 Shares
HOME PRODUCTS INTERNATIONAL, INC.
Common Stock
____________, 1997
UNDERWRITING AGREEMENT
EVEREN Securities, Inc.
<PAGE> 3
3,500,000 Shares
HOME PRODUCTS INTERNATIONAL, INC.
Common Stock
($0.01 par value)
UNDERWRITING AGREEMENT
________, 1997
EVEREN Securities, Inc.
____________________
As Representatives of
the Several Underwriters
c/o EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1994
Ladies and Gentlemen:
Home Products International, Inc., a Delaware corporation (the "Company"),
and the shareholders of the Company listed on Schedule I hereto (collectively
referred to as the "Selling Shareholders"), confirm their agreement with each
other and the several underwriters listed in Schedule II hereto (the
"Underwriters"), for whom EVEREN Securities, Inc., and _____________________
(collectively, the "Representatives") have been duly authorized to act as
representatives, as follows:
1. THE SHARES. Subject to the terms and conditions set forth in this
agreement (the "Agreement"), the Company and the Selling Shareholders propose
to sell 3,500,000 shares of the Company's Common Stock, $0.01 par value (the
"Common Stock"), to the several Underwriters, of which 2,000,000 shares are to
be issued and sold by the Company and 1,500,000 shares are to be sold by the
Selling Shareholders. Such 3,500,000 shares of Common Stock proposed to be
sold by the Company and the Selling Shareholders are hereinafter referred to as
the "Firm Shares." The Company also proposes to grant to the Underwriters an
option to purchase up to 525,000 additional shares of Common Stock (the
"Additional Shares") if requested by the Underwriters as provided in Section 3
hereof. The Firm Shares and the Additional Shares are herein collectively
called the "Shares."
<PAGE> 4
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
2. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-2 (File No. 333-25871) including a
prospectus, relating to the Shares. The registration statement, as amended at
the time when it became or becomes effective, including all financial schedules
and exhibits thereto and all of the information (if any) deemed to be part of
the registration statement at the time of its effectiveness pursuant to Rule
430A under the Act ("Rule 430A"), is hereinafter referred to as the
"Registration Statement"; the prospectus in the form first provided to the
Underwriters by the Company in connection with the offering and sale of the
Shares (whether or not required to be filed pursuant to Rule 424(b) under the
Act ("Rule 424(b)")) is hereinafter referred to as the "Prospectus," except
that if any revised prospectus shall be provided to the Underwriters by the
Company for use in connection with the offering of the Shares that differs from
the Prospectus (whether or not any such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) under the Act), the term
"Prospectus" shall refer to the revised prospectus from and after the time it
is first provided to the Underwriters for such use; and each preliminary
prospectus included in the Registration Statement prior to the time it became
or becomes effective is herein referred to as a "Preliminary Prospectus."
3. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations
and warranties contained in this Agreement, and subject to the terms and
conditions hereof, (i) the Company agrees to issue and sell to the Underwriters
2,000,000 Firm Shares and the Selling Shareholders severally and not jointly
agree to sell to the Underwriters 1,500,000 Firm Shares, at a price of $_____
per Share (the "Purchase Price"); and (ii) each Underwriter agrees, severally
and not jointly, to purchase from the Company and the Selling Shareholders, at
the Purchase Price, the aggregate number of Firm Shares set forth opposite the
name of such Underwriter in Schedule II hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to the terms and conditions hereof, (i) the Company
agrees to sell to the Underwriters, at the Purchase Price, up to 525,000
Additional Shares; and (ii) the Underwriters shall have the right to purchase,
severally and not jointly, from time to time, up to an aggregate of 525,000
Additional Shares at the Purchase Price. Additional Shares may be purchased as
provided in Section 4 hereof solely for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Additional
Shares are to be purchased, each Underwriter, severally and not jointly, agrees
to purchase the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears
the same proportion to the total number of Additional Shares to be purchased as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II bears to the total number of Firm Shares.
The Company is advised by you that the Underwriters propose to make a
public offering of their prospective portions of the Shares as soon after the
Registration Statement and this
2
<PAGE> 5
Agreement become effective as in your judgment is advisable. The Company is
further advised that the Underwriters propose to offer the Shares to the public
initially at $____ per share and to certain dealers selected by you at a price
that represents a concession not in excess of $____ a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession not in excess of $____ a share, to any Underwriter or to
certain other dealers. The Company is further advised that after the initial
public offering, the price to the public, the concession and the discount to
dealers may be changed.
For a period of 180 days from the date this Agreement becomes effective,
the Company will not, without the prior written consent of EVEREN Securities,
Inc. on behalf of the Underwriters (1) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(other than 1,356,998 shares of Common Stock issuable pursuant to the 1987,
1991 and 1994 Stock Option Plans described in the Prospectus and 183,690 shares
of Common Stock issuable under the Stock Purchase Plan described in the
Prospectus), or (2) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise.
For a period of 180 days from the date this Agreement becomes effective,
the Company will not, without the prior written consent of EVEREN Securities,
Inc. on behalf of the Underwriters, file a registration statement relating to
shares of capital stock (including the Common Stock) or securities convertible
into or exercisable or exchangeable for, capital stock or warrants, options or
rights to purchase or acquire, capital stock.
For a period of 180 days from the date this Agreement becomes effective,
the Selling Shareholders will not, without the prior written consent of EVEREN
Securities, Inc. on behalf of the Underwriters (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise; provided, however, that this clause shall not apply to the
transactions expressly contemplated hereby involving the Firm Shares or to
transfers of Common Stock to partnerships, limited liability companies, trusts
or similar entities organized for the exclusive benefit of family members of
the grantors and beneficiaries of the Selling Shareholders for financial and
estate planning purposes so long as any transferee that receives Common Stock
as a result of such transfer shall agree upon such transfer to be bound by the
terms of this paragraph and shall be capable of being so bound.
4. AGREEMENTS OF THE COMPANY AND THE SELLING SHAREHOLDERS AS TO DELIVERY
AND PAYMENT. The Company and the Selling Shareholders agree with each
Underwriter that:
3
<PAGE> 6
(a) Delivery to the Underwriters of and payment for the Firm Shares
shall be made at 10:00 A.M., New York City time, on the third full
business day (such time and date being referred to as the "Closing Date")
following the date of the public offering of the Firm Shares as advised
to you by the Company, at such place as you shall designate.
(b) Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at such place as
the Representatives shall designate, at 10:00 A.M., New York City time,
on such date or dates (individually, an "Option Closing Date" and
collectively, the "Option Closing Dates"), which may be the same as the
Closing Date but shall in no event be earlier than the Closing Date, as
shall be specified in a written notice from the Representatives to the
Company of the Underwriters' determination to purchase a number,
specified in said notice, of Additional Shares. Any such notice may be
given at any time within 30 days after the date of this Agreement.
(c) Certificates for the Shares shall be registered in such names
and issued in such denominations as you shall request in writing not
later than two business days prior to the Closing Date or the applicable
Option Closing Date, as the case may be, and shall be made available for
inspection not later than 9:30 A.M., New York City time, on the business
day next preceding the Closing Date or the applicable Option Closing
Date, as the case may be, with any transfer taxes payable upon initial
issuance or the transfer thereof duly paid by the Company and the Selling
Shareholders, as the case may be, for the respective accounts of the
Underwriters against payment of the Purchase Price therefor to the order
of the Company or the Selling Shareholders, as the case may be, by wire
transfer in federal or same day funds.
5. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
The Company covenants and agrees with each Underwriter that:
(a) it will, if the Registration Statement has not heretofore become
effective under the Act, file an amendment to the Registration Statement
or, if necessary pursuant to Rule 430A under the Act, a post-effective
amendment to the Registration Statement, as soon as practicable after the
execution and delivery of this Agreement, and will use its best efforts
to cause the Registration Statement or such post-effective amendment to
become effective at the earliest possible time; and the Company will
comply fully and in a timely manner with the applicable provisions of
Rule 424(b) and Rule 430A under the Act;
(b) it will advise you promptly and, if requested by you, confirm
such advice in writing, (i) when the Registration Statement has become
effective, if and when the Prospectus is sent for filing pursuant to Rule
424 under the Act and when any post-effective amendment to the
Registration Statement becomes effective, (ii) of the receipt of any
comments from the Commission that relate to the Registration Statement or
requests by the Commission for amendments to the Registration Statement
or amendments or supplements to the Prospectus or for additional
information, (iii) of the issuance by the Commission of
4
<PAGE> 7
any stop order suspending the effectiveness of the Registration
Statement, or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction, or the initiation or, to the best
knowledge of the Company, threat of any proceedings for such purpose by
the Commission or any state securities commission or other regulatory
authority, and (iv) of the happening of any event or information becoming
known during the period referred to in paragraph (e) below that makes any
statement of a material fact made in the Registration Statement untrue or
that requires the making of any additions to or changes in the
Registration Statement (as amended or supplemented from time to time) in
order to make the statements therein not misleading or that makes any
statement of a material fact made in the Prospectus (as amended or
supplemented from time to time) untrue or that requires the making of any
additions to or changes in the Prospectus (as amended or supplemented
from time to time) in order to make the statements therein, not
misleading; if at any time the Commission shall issue or institute
proceedings (or threaten to institute any such proceedings) to issue any
stop order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall issue
or institute proceedings (or threaten to institute proceedings) to issue
an order suspending the qualification or exemption of the Shares under
any state securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
(c) it will furnish to you without charge one signed copy of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits filed therewith, and will furnish
to you and each Underwriter designated by you such number of conformed
copies of the Registration Statement as so filed and of each amendment to
it, without exhibits, as you may reasonably request;
(d) it will not file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
make any amendment or supplement to the Prospectus of which you shall not
previously have been advised and provided a copy a reasonable period of
time prior to the filing thereof or to which you or your counsel shall
reasonably object;
(e) promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as a prospectus is required
by the Act to be delivered in connection with the sales by an underwriter
or a dealer (in the opinion of your counsel), it will furnish to each
Underwriter and dealer without charge as many copies of the Prospectus
(and any amendment or supplement of the Prospectus) as such Underwriter
or dealer may reasonably request for the purposes contemplated by the
Act; the Company consents to the use of the Prospectus and any amendment
or supplement thereto by any Underwriter or any dealer, both in
connection with the offering or sale of the Shares and for such period of
time thereafter as the Prospectus is required by the Act to be delivered
in connection therewith;
(f) if during the period specified in paragraph (e) any event shall
occur or information become known as a result of which in the opinion of
your counsel it becomes
5
<PAGE> 8
necessary to amend or supplement the Prospectus in order to make the
statements therein, in light of the circumstances existing as of the date
the Prospectus is delivered to a purchaser, not misleading, or it is
necessary to amend or supplement the Prospectus to comply with any law,
it will forthwith prepare and, subject to paragraph 5(d) above, file with
the Commission at the sole expense of the Company an appropriate
amendment or supplement to the Prospectus so that the statements of any
material facts in the Prospectus, as so amended and supplemented, will
not in light of the circumstances when it is so delivered, be misleading,
or so that the Prospectus will comply with the Act and it will furnish to
the Underwriters and to such dealers as the Underwriters shall specify,
at the sole expense of the Company, such number of copies thereof as such
Underwriters or dealers may reasonably request;
(g) prior to any public offering of the Shares, it will cooperate
with you and counsel for the Underwriters in connection with the filing
of notices of the offer and sale of the Shares by the several
Underwriters and by dealers under the state securities or Blue Sky laws
of such jurisdictions as you may request (provided, that the Company
shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to take any action which
would subject it to general consent to service of process in any
jurisdiction in which it is not now so subject);
(h) it will not acquire any capital stock of the Company prior to
the exercise in full or termination or expiration of the option to
purchase the Additional Shares nor will the Company declare or pay any
dividend or make any other distribution upon the Common Stock payable to
shareholders of record on a date prior to the exercise in full or
termination or expiration of the option to purchase the Additional
Shares, except in either case as contemplated by the Prospectus;
(i) it will make generally available to its security holders and
furnish to the Underwriters as soon as reasonably practicable a
consolidated earnings statement covering a period of at least 12 months
beginning after the "effective date" (as defined in Rule 158 under the
Act) of the Registration Statement (but in no event commencing later than
90 days after such date) that will satisfy the provisions of Section
11(a) of the Act and Rule 158 thereunder;
(j) during the period of five years after the date of this
Agreement, it will furnish to you a copy (i) as soon as practicable after
the filing thereof, of each report filed by the Company with the
Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"); (ii) as soon as practicable after the
release thereof, of each material press release in respect of the
Company; (iii) as soon as available, of each report of the Company mailed
to shareholders; and (iv) as soon as available, such other publicly
available information concerning the Company as you may reasonably
request;
(k) it will use the net proceeds received by it from the sale of the
Shares being sold by it in the manner specified in the Prospectus;
6
<PAGE> 9
(l) it will cause the Shares to be listed, subject to notice of
issuance or sale, on The Nasdaq National Market (the "NASDAQ"); it will
comply with all registration, filing and reporting requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") and the
NASDAQ; and
(m) it will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or
after the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
Each Selling Shareholder covenants and agrees with each Underwriter
that:
(a) it will advise you promptly and, if requested by you, confirm
such advice in writing, of the happening of any event or information
becoming known during the period referred to in paragraph (e) above that
makes any statement of a material fact made in the Registration Statement
with respect to its ownership of Shares untrue or that requires the
making of any additions to or changes in the Registration Statement (as
amended or supplemented from time to time) with respect to its ownership
of Shares in order to make the statements therein with respect to its
ownership of Shares not misleading or that makes any statement of a
material fact made in the Prospectus (as amended or supplemented from
time to time) untrue or that requires the making of any additions to or
changes in the Prospectus (as amended or supplemented from time to time)
in order to make the statements therein with respect to its ownership of
Shares, not misleading;
(b) it will cooperate with you and counsel for the Underwriters in
connection with the filing of notices for offer and sale of the Shares by
the several Underwriters and by dealers under the state securities or
Blue Sky laws of such jurisdictions as you may request; and
(c) it will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or
after the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
6. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to each Underwriter as of
the date hereof, the Closing Date and each Option Closing Date that:
(i) the Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the
proposed offering of the Shares nor instituted or threatened any
proceedings for that purpose. The Registration Statement, on the
date it became or becomes effective, each Preliminary Prospectus,
on the date of the filing thereof with the Commission, and the
Prospectus and any amendment or supplement thereto, on the date of
filing thereof with the
7
<PAGE> 10
Commission (or if not filed, on the date provided by the Company to
the Underwriters in connection with the offering and sale of the
Shares) and at the Closing Date and each Option Closing Date
conformed or will conform with the requirements of the Act and the
rules and regulations promulgated thereunder ("Rules and
Regulations"); the Registration Statement, on the date it became or
becomes effective, did not or will not contain an untrue statement
of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; each Preliminary Prospectus, on the date of the filing
thereof with the Commission, and the Prospectus and any amendment
or supplement thereto, on the date of filing thereof with the
Commission (or if not filed, on the date provided by the Company to
the Underwriters in connection with the offering and sale of the
Shares) and at the Closing Date and each Option Closing Date did
not and will not include an untrue statement of material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; the
foregoing shall not apply to statements in or omissions from the
Registration Statement and the Prospectus made or omitted in
reliance upon, and in conformity with, information relating to the
Underwriters furnished in writing to the Company by or on behalf of
the Underwriters with your consent expressly for use therein; the
Company and the Selling Shareholders hereby acknowledge for all
purposes under this Agreement that (A) the statements set forth
under the caption "Underwriting" in the Prospectus, (B) the
stabilization legend on the gate-fold of the Prospectus and (C)
footnotes 1 and 4 and the last paragraph of text on the cover page
of the Prospectus constitute the only written information furnished
to the Company by or on behalf of the Underwriters for use in the
preparation of the Registration Statement or the Prospectus or any
amendment or supplement thereto;
(ii) the Company's subsidiaries are Selfix, Inc., a Delaware
corporation ("Selfix"), Shutters, Inc., an Illinois corporation
("Shutters"), Tamor Corporation, a Massachusetts corporation
("Tamor"), Selfix (Housewares) Ltd., a corporation organized under
the laws of the United Kingdom, Selfix of Canada, Ltd., a
corporation organized under the laws of Canada, Selfix
International, Ltd. (V.I.), a corporation organized under the laws
of the U.S. Virgin Islands, and Selfix Europe, L.L.C., an Illinois
limited liability company, (such subsidiaries being collectively
referred to herein as the "Subsidiaries" and individually a
"Subsidiary"); each of the Company and its Subsidiaries has been
duly incorporated and is a validly existing corporation in good
standing under the laws of the jurisdiction of its incorporation,
with full corporate power and authority to own or lease its
respective properties and assets and to conduct its respective
business as described in the Registration Statement and the
Prospectus and is duly qualified to do business in each
jurisdiction in which it owns or leases real property or in which
the conduct of its respective business or the ownership or leasing
of property requires such qualification, except where the failure
to be so qualified, either individually or in the aggregate, would
not have a material adverse effect on the condition (financial or
8
<PAGE> 11
otherwise), business, assets, prospects, net worth or results of
operations of the Company and its Subsidiaries taken as a whole (a
"Material Adverse Effect");
(iii) the capitalization of the Company is, and upon
consummation of the transactions contemplated hereby and by the
Prospectus will be, as set forth in the Registration Statement and
the Prospectus under the caption "Capitalization;" all of the
outstanding shares of capital stock of the Company have been duly
authorized and are validly issued, are fully paid and
non-assessable and conform to the description thereof in the
Registration Statement and the Prospectus and were not issued in
violation of any preemptive rights or other rights to subscribe for
or purchase securities; and, except as set forth in the
Registration Statement and the Prospectus with respect to the
Company's 1987, 1991 and 1994 Stock Option Plans and the Warrant
dated February 27, 1997 (the "Warrant") issued by the Company in
favor of General Electric Credit Corporation, no options, warrants
or other rights to purchase from the Company, agreements or other
obligations of the Company to issue or other rights to convert any
obligation into, or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding; the
description of the Company's 1987, 1991 and 1994 Stock Option Plans
and the Warrant, and the other options or rights granted and
exercised thereunder, as set forth in the Registration Statement
and the Prospectus, accurately presents the information required to
be shown under the Act with respect to such options and rights; and
all of the issued shares of capital stock of each Subsidiary have
been duly and validly authorized and issued and are fully paid and
non-assessable and are owned directly by the Company, free and
clear of all liens, encumbrances, security interests, equities or
claims (except as set forth in the Prospectus and the Registration
Statement);
(iv) subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
and except as described therein, (A) neither the Company nor any
Subsidiary has incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions not
in the ordinary course of business, (B) the Company has not
purchased any of its outstanding capital stock or declared, paid or
otherwise made any dividend or distribution of any kind on its
capital stock or otherwise, (C) there has not been any material
adverse change in the Company's or any Subsidiary's condition
(financial or otherwise), business, affairs, prospects or results
of operations and (D) there has not been any material change in the
capital stock or the long-term debt of the Company or any
Subsidiary;
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(v) the Shares to be sold by the Company pursuant to this
Agreement have been duly and validly authorized and, when issued,
delivered and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus; the Firm Shares to
be sold by the Selling Shareholders pursuant to this Agreement have
been duly and validly authorized and were validly issued,
fully-paid and non-assessable and conform to the description
thereof contained in the Prospectus;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable in accordance with its terms,
except as enforceability of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general equity
principles;
(vii) neither the Company nor any Subsidiary (i) is in
violation of its charter or by-laws, (ii) is in default in (nor has
any event occurred that with notice or lapse of time, or both,
would be a breach of or a default in) the performance of any
obligation, agreement or condition contained in any agreement,
lease, contract, permit, license, franchise agreement, mortgage,
loan agreement, debenture, note, deed of trust, bond, indenture or
other evidence of indebtedness or any other instrument or
obligation (collectively, "Obligations and Instruments") to which
it or any of its respective properties or assets is bound or
affected (except for such contravention or default as would not
have a Material Adverse Effect), (iii) is in violation of any
statute, judgment, decree, order, rule or regulation (collectively,
"Laws") applicable to it or any of its respective properties or
assets that, alone, or together with other violations of Laws would
result in a Material Adverse Effect except as set forth in the
Registration Statement and the Prospectus, and (iv) is charged with
or, to the Company's knowledge after due inquiry, under
investigation with respect to, any material violation of any such
Laws;
(viii) the execution, delivery and performance of this
Agreement and delivery of the Shares by the Company and compliance
by the Company with all the provisions hereof and the consummation
of the transactions contemplated hereby and as described in the
Prospectus under the caption "Use of Proceeds" will not, alone or
upon notice or the passage of time or both (A) require any consent,
approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body or third
party (except such as may be required under the Act and the
securities or Blue Sky laws of the various states or by the NASD),
(B) result in the creation or imposition of any lien, charge or
encumbrance upon any of the properties or assets of the Company or
any Subsidiary pursuant to the terms and provisions of any
Obligation or Instrument (except for such creation or imposition as
would not have a Material Adverse Effect), (C) conflict with or
constitute a breach or default under any Obligation or Instrument
to which the Company or any Subsidiary is a party or by which any
of their properties or assets is
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<PAGE> 13
bound, (except for such conflict, breach or default as would not
have a Material Adverse Effect), or (D) assuming compliance with
the Act and all applicable state securities or Blue Sky laws,
violate or conflict with any Laws applicable to the Company or any
of its properties or assets (except for such violation or conflict
as would not have a Material Adverse Effect);
(ix) except as set forth in the Prospectus, there is no
action, suit, proceeding, inquiry or investigation, governmental or
otherwise before any court, arbitrator or governmental agency or
body (collectively, "Proceedings") pending to which the Company or
any Subsidiary is a party or to which any of its respective
properties or assets are subject, that, if determined adversely,
could reasonably be expected to result in a Material Adverse
Effect, or that could reasonably be expected to materially and
adversely affect the properties or assets thereof, or that seeks to
restrain, enjoin, prevent the consummation of or otherwise
challenge the issuance or sale of any of the Shares to be sold
hereunder or the consummation of the transactions described in the
Prospectus under the caption "Use of Proceeds", and, to the best
knowledge of the Company after due inquiry, no such Proceedings are
threatened or contemplated; no action has been taken with respect
to the Company, and, to the best knowledge of the Company, no
statute, rule or regulation or order has been enacted, adopted or
issued by any governmental agency that suspends the effectiveness
of the Registration Statement, prevents or suspends the use of any
Preliminary Prospectus or the Prospectus or suspends the sale of
the Shares in any jurisdiction referred to in Section 5(g) hereof;
no injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction has been issued
with respect to the Company that might prevent the issuance of the
Shares, could reasonably be expected to in any manner invalidate
this Agreement, suspend the effectiveness of the Registration
Statement, prevent or suspend the use of any Preliminary Prospectus
or the Prospectus or suspend the sale of the Shares in any
jurisdiction referred to in Section 5(g) hereof; and every request
of the Commission, or any securities authority or agency of any
jurisdiction, for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) has been
complied with in all material respects;
(x) neither the Company nor any Subsidiary has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous
or toxic substances or wastes, pollutants or contaminants
("Environmental Laws") the violation of which in such case or in
the aggregate would have a Material Adverse Effect; no property
owned or leased by the Company or any Subsidiary is contaminated
with any waste or hazardous substances the presence of which would
result in a Material Adverse Effect, nor would the Company or any
Subsidiary be deemed an "owner or operator" of a "facility" or
"vessel" that owns, possesses, transports, generates, discharges or
disposes of a "hazardous substance" as those terms are defined in
Section 9601 of the Comprehensive Response Compensation and
Liability Act of 1980, U.S.C. Section 9601 et seq. (except that the
Company and its Subsidiaries dispose in the ordinary course of
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<PAGE> 14
its business certain materials that may be classified as or contain
"hazardous substances"; the disposal of such products (A) is in
material compliance with all applicable laws as of the date hereof
and (B) has not and will not result in a Material Adverse Effect);
(xi) neither the Company nor any Subsidiary is in violation of
any foreign, Federal, state or local law relating to discrimination
in the hiring, promotion or pay of employees nor any applicable
foreign, Federal or state wages and hours laws, nor any provisions
of the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations promulgated thereunder (ERISA") or
similar foreign laws, the violation of which in each case or in the
aggregate would result in a Material Adverse Effect; no "reportable
event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would
have any material liability; neither the Company nor any Subsidiary
has incurred and does not reasonably expect to incur material
liability under (i) Title IV of ERISA with respect to the
termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended;
(xii) each of the Company and its Subsidiaries has such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities or third parties ("Permits"), including,
without limitation, under any applicable Environmental Laws, as are
necessary to own, lease and operate its respective properties and
assets and to conduct its respective businesses, except where the
failure to have any such Permit would not have a Material Adverse
Effect; each of the Company and its Subsidiaries has fulfilled and
performed all of its respective material obligations with respect
to such Permits and, to the best knowledge of the Company, no event
has occurred that allows, or after notice or lapse of time, or both
would allow, revocation or termination thereof or result in any
other material impairment of the rights of the holder of any such
Permit;
(xiii) neither the Company nor any Subsidiary is, nor intends
to conduct its business in a manner in which it would become, an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended (the "Investment Company Act");
(xiv) except as otherwise set forth in the Prospectus, each of
the Company and its Subsidiaries has good and marketable title,
free and clear of all liens, claims, encumbrances and restrictions
(except liens for taxes not yet due and payable) to all property
and assets described in the Registration Statement as being owned
by it; all leases to which each of the Company and its Subsidiaries
is a party are subsisting, valid and binding and no default of the
Company or any Subsidiary has occurred or is continuing thereunder
that might result in a Material Adverse Effect; and each of the
Company and its Subsidiaries has possession under all such leases
to which it is
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<PAGE> 15
a party as lessee with such exceptions as do not materially
interfere with the use made thereof by it;
(xv) each of the Company and its Subsidiaries maintains
insurance in such amounts and covering such risks as is adequate
for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies
engaged in similar businesses in similar industries;
(xvi) Arthur Andersen LLP, Grant Thornton LLP and BDO Seidman,
LLP are each an independent public accounting firm with respect to
the Company and its Subsidiaries as required by the Act;
(xvii) the consolidated financial statements of the Company,
together with related notes and schedules of the Company, and the
combined financial statements of Tamor and Houseware Sales, Inc.,
together with the related notes and schedules, each included in the
Registration Statement and the Prospectus, are accurate and present
fairly the financial position, results of operations and cash flows
of the Company and its Subsidiaries and Tamor, as the case may be,
at the indicated dates and for the indicated periods; such
financial statements of have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently
applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such periods have
been made and any unaudited financial statements have been prepared
on the basis described in the Prospectus; and the summary and
selected financial and operating data included in the Registration
Statement and the Prospectus presents fairly the information shown
therein and have been compiled on the basis described in the
Prospectus; and the pro forma information included in the
Prospectus presents fairly the information shown therein, has been
prepared in accordance with GAAP and the Commission's rules and
guidelines with respect to pro forma financial statements and other
pro forma information and has been properly compiled on the pro
forma basis described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein
are appropriate under the circumstances;
(xviii) no holder of any security of the Company has any right
to require inclusion of any such security in the Registration
Statement; there are no preemptive rights with respect to the
offering being made by the Prospectus;
(xix) except as disclosed in the Registration Statement and
the Prospectus, no labor dispute with the employees of the Company
or any Subsidiary exists, or to the best knowledge of the Company
after due inquiry, is imminent, that could result in a Material
Adverse Effect; and neither the Company nor any Subsidiary has
received notice of any existing or imminent labor disturbance by
the employees of any of its principle suppliers, customers,
manufacturers or contractors that could result in any Material
Adverse Effect;
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(xx) the Company has filed or caused to be filed, or has
properly filed extensions for, all foreign, federal, state and
local income, value added and franchise tax returns and has paid
all taxes and assessments shown thereon as due, except for such
taxes and assessments as are disclosed or adequately reserved
against and that are being contested in good faith by appropriate
proceedings, promptly instituted and diligently conducted; all
material tax liabilities are adequately provided for on the books
of the Company and its Subsidiaries, and there is no material tax
deficiency that has been or could reasonably be expected to be
asserted against the Company or any Subsidiary that is not so
provided for;
(xxi) the Company and its Subsidiaries own or possess, or can
readily acquire on reasonable terms, the patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and or unpatentable proprietary or
confidential information, systems or procedures), trademarks,
service marks and trade names (collectively, "Patents and
Proprietary Rights") currently employed by them in connection with
the businesses they now operate except where the failure to so own,
possess or acquire such Patents and Proprietary Rights would not
have a Material Adverse Effect; and neither the Company nor any
Subsidiary has received any notice and is not otherwise aware of
any infringement of or conflict with asserted rights of others with
respect to any Patent or Proprietary Rights that, if the subject of
any unfavorable decision, ruling or finding, singly or in the
aggregate, could reasonably be expected to result in a Material
Adverse Effect;
(xxii) the Company has not taken and will not take, directly
or indirectly, any action designed to or which has constituted or
that might reasonably be expected to cause or result, under the
Exchange Act or otherwise, in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or
resale of the Shares;
(xxiii) each of the Company and its Subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in
accordance with management's authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements
in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's
authorization, and (iv) the recorded accountability for inventory
is compared with the existing inventory at reasonable intervals and
appropriate action is taken with respect to any differences;
(xxiv) there is no contract, document, agreement or
transaction to which the Company or any Subsidiary is a party, or
that involved or involves the Company or any Subsidiary or any of
its respective properties or assets that is required to be
described in or filed as an exhibit to the Registration Statement
or the Prospectus by the Act or the Rules and Regulations that have
not been so described or filed;
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<PAGE> 17
(xxv) other than as contemplated in this Agreement, the
Company has not incurred any liability for any finder's or broker's
fee or agent's commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby or engaged in any other transactions or entered
into any other agreement or understanding which might otherwise be
considered by the NASD in determining the reasonableness of the
compensation received by the Underwriters under this Agreement;
(xxvi) the Company has been subject to the requirements of
Section 12 or 15(d) of the Exchange Act and has filed all the
material required to be filed pursuant to Sections 13, 14 or 15(d)
for a period of at least thirty-six calendar months immediately
preceding the filing of the Registration Statement with the
Commission and has filed in a timely manner all reports required to
be filed during the twelve calendar months and any portion of the
month immediately preceding the filing of the Registration
Statement and, if the Company has used Rule 12b-25(b) under the
Exchange Act with respect to a report or a portion of a report,
that report or portion thereof has actually been filed within the
time period prescribed by that rule;
(xxvii) the Company has not, since the end of its last fiscal
year for which certified financial statements of the Company were
included in a report filed pursuant to Section 13(a) or 15(d) of
the Exchange Act: (a) failed to pay any dividend or sinking fund
installment on preferred stock; or (b) defaulted (i) on any
installment or installments of indebtedness for borrowed money, or
(ii) on any rental on one or more long term leases which defaults
in the aggregate are material to the financial position of the
Company;
(xxviii) Selfix was reorganized into wholly-owned subsidiary
of the Company in compliance with the provisions of Section 251(g)
of the Delaware General Corporation Law; all actions required to be
taken and all filings required to be filed by the Company under the
Securities Act and the Exchange Act for the Company to become the
successor registrant to Selfix have been taken or made; and the
Company has registered its shares of Common Stock under the
Exchange Act on Form 8-B as successor to Selfix; and
(xxix) the Company confirms that it is in compliance with all
provisions of Section 1 of Florida Statutes, Section 517.075, An
Act Relating to Disclosure of Doing Business with Cuba; the Company
further agrees that if it or any Subsidiary commences engaging in
business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement
becomes or has become effective with the Commission or with the
Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported in the
Prospectus, if any, concerning the Company's business with Cuba or
with any person or affiliate located in Cuba changes in any
material way, the
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<PAGE> 18
Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(b) Each Selling Shareholder jointly and severally represents and
warrants to, and agrees with, the Underwriters that:
(i) the Selling Shareholder, having full legal right, power
and authority to do so, has duly executed and delivered a power of
attorney in a form satisfactory to Representatives (the "Power of
Attorney") appointing _____________ and _____________, and each of
them acting independently, as such Selling Shareholder's
attorney-in-fact (the "Attorney-in-Fact"), and has delivered to the
Attorneys-in-Fact one or more stock certificates representing the
Firm Shares being offered and sold by such Selling Stockholder to
the Underwriters pursuant to this Agreement together with a duly
executed blank stock power with respect to such Shares;
collectively, such documents are referred to herein as the "Selling
Shareholder Documents";
(ii) each Selling Shareholder Document is a legal, valid and
binding agreement of such Selling Shareholder, as the case may be,
enforceable in accordance with its respective terms, except as
enforceability of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general equity
principles;
(iii) the Selling Shareholder, having full legal right, power
and authority to do so, has duly executed and delivered this
Agreement;
(iv) this Agreement has been duly authorized, executed and
delivered by such Selling Shareholder and is a legal, valid and
binding agreement of such Selling Shareholder enforceable in
accordance with its terms, except as enforceability of the same may
be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and by
general equity principles;
(v) the Selling Shareholder has good, valid and marketable
title to the Firm Shares being offered and sold by such Selling
Shareholder, free and clear of all liens, encumbrances, equities,
security interests and claims and has full right, power and
authority to sell, assign, transfer and deliver such Firm Shares
pursuant to this Agreement; when the Firm Shares being offered and
sold by such Selling Shareholder are paid for in accordance with
the terms of this Agreement, the Underwriters will have good, valid
and marketable title to such Firm Shares, free and clear of all
liens, encumbrances, security interests and claims;
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(vi) the Selling Shareholder acknowledges and agrees that the
Firm Shares represented by the certificates on deposit with the
Attorneys-in-Fact are to that extent irrevocable, and that the
obligations of the Selling Shareholder hereunder may not be
terminated, except as provided herein, by any act of the Selling
Shareholder, by operation of law or otherwise;
(vii) the execution, delivery and performance of this
Agreement by such Selling Stockholder and the sale of such Selling
Stockholder's Shares and the consummation of the transactions
contemplated by this Agreement will not conflict with or result in
a breach of such Selling Shareholder's organizational documents, or
any of the terms or provisions, or constitute a default or cause an
acceleration of any obligation under Obligation or Instrument to
which such Selling Shareholder is a party or by which such Selling
Shareholder is bound, or to which any of the property or assets of
such Selling Shareholder is subject, or any order of any court or
governmental agency or authority entered into in any proceeding to
which such Selling Shareholder was or is a party or by which such
Selling Shareholder is bound, or violate or conflict with any
applicable foreign, federal, state or local law, rule,
administrative regulation or ordinance of administrative or court
decree applicable to such Selling Shareholder or such Selling
Shareholder's property;
(viii) the Selling Shareholder has not taken, nor will it
take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares pursuant to the
distribution contemplated by this Agreement and, other than as
permitted by the Act, the Selling Shareholder has not distributed,
nor will it distribute, any prospectus or other offering material
in connection with the offering and sale of the Shares;
(ix) neither such Selling Shareholder nor any trustee or
beneficiary of such Selling Shareholder is affiliated as a
director, officer, partner, stockholder, or otherwise with any
securities broker or dealer which is a member of the NASD or any
other organization that owns or controls any member of the NASD;
(x) there are no Proceedings pending to which the Selling
Shareholder is a party that, if determined adversely, could
reasonably be expected to restrain, enjoin, prevent the
consummation of or otherwise challenge the sale of such Selling
Shareholder's Shares to be sold hereunder;
(xi) all information furnished to the Company by or on behalf
of the Selling Shareholder for use in connection with the
preparation of the Registration Statement does not contain an
untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and
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(xii) other than as contemplated in this Agreement, the
Selling Shareholder has not incurred any liability for any finder's
or broker's fee or agent's commission in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or engaged in any other
transactions or entered into any other agreement or understanding
which might otherwise be considered by the NASD in determining the
reasonableness of the compensation received by the Underwriters
under this Agreement.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty made by the Company or the Selling
Shareholders, as the case may be, to each Underwriter as to the matters
covered thereby and shall be deemed incorporated herein in its entirety
and shall be effective as if such representation and warranty were made
herein; and any certificate signed by the Company or any Selling
Shareholder, as the case may be, as such and delivered to you or to
counsel for the Underwriters shall also be deemed a representation and
warranty made by the Company or such Selling Shareholder, as the case may
be, to each Underwriter as to the matters covered thereby and shall also
be deemed incorporated herein in its entirety and shall be effective as
if such representation and warranty were made herein.
7. INDEMNIFICATION.
(a) The Company and the Selling Shareholders, jointly and severally,
agree to indemnify and hold harmless each of the Underwriters and each
person, if any, who controls each of the Underwriters within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act (the
"indemnified parties") from and against any and all losses, claims,
damages, liabilities and judgments caused by, arising out of, related to
or based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule
430A, if applicable, or the Prospectus or any Preliminary Prospectus or
caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, (a) that the Company and the
Selling Stockholders shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through EVEREN Securities, Inc. expressly for
use therein; and (b) that each of the Selling Stockholders' liability to
the Underwriters shall be limited to the proceeds received by such
Selling Stockholder from the sale of such Selling Stockholder's Shares as
contemplated hereunder.
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<PAGE> 21
(b) In case any action shall be brought against any of the
indemnified parties, based upon any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement
thereto and with respect to which indemnity may be sought against the
Company and the Selling Shareholders, such indemnified parties shall
promptly notify the Company (and the Selling Shareholders, care of the
Company) in writing (but the failure so to notify shall not relieve the
Company or the Selling Shareholders of any liability that they may
otherwise have to such indemnified parties under this Section 7 (although
the Company's and the Selling Shareholders' liability to an indemnified
party may be reduced on a monetary basis to the extent, but only to the
extent, they have been prejudiced by such failure on the part of such
indemnified party)) and the Company and the Selling Shareholders shall
promptly assume the defense thereof, including the employment of counsel
satisfactory to such indemnified party and payment of all fees and
expenses. The indemnified parties shall each have the right to employ
separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified parties unless (i) the employment of such
counsel shall have been specifically authorized by the Company, (ii) the
Company and the Selling Shareholders shall have failed to assume promptly
the defense or to employ counsel reasonably satisfactory to such
indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified parties
and the Company or the Selling Shareholders, and an indemnified party
shall have been advised by counsel that there may be one or more legal
defenses available to one or more of the indemnified parties that are
different from or additional to those available to the Company or the
Selling Shareholders (in which case the Company and the Selling
Shareholders shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however,
that the Company and the Selling Shareholders shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel)
for the indemnified parties, which firm shall be designated in writing by
EVEREN Securities, Inc., and that all such fees and expenses shall be
reimbursed promptly as they are incurred). The Company and the Selling
Shareholders shall not be liable for any settlement of any such action
effected without their written consent, which consent shall not be
unreasonably withheld, but if settled with the written consent of the
Company and the Selling Shareholders, the Company and the Selling
Shareholders agree to indemnify and hold harmless the indemnified parties
from and against any and all loss or liability by reason of such
settlement. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
the second sentence of this paragraph, the indemnifying party agrees that
it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 10
business days after delivery by registered or certified mail to the
proper address for notice to such indemnifying party of the aforesaid
request (whether or not such delivery is accepted) and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party
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<PAGE> 22
shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional and complete release in writing of
such indemnified party from any and all liability on claims that are the
subject matter of such proceeding, which such settlement shall be in form
and substance satisfactory to the indemnified party. The indemnification
provided in this Section 7 will be in addition to any liability which the
Company and the Selling Shareholders may otherwise have.
(c) The Underwriters agree, severally and not jointly, to indemnify
and hold harmless the Selling Shareholders, the Company, its directors,
its officers who sign the Registration Statement and any person
controlling the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, to the same extent as the foregoing
indemnity from the Company and the Selling Shareholders to the
Underwriters but only with reference to information stated in or omitted
from the Registration Statement, the Prospectus or any Preliminary
Prospectus in reliance upon, and in conformity with, information relating
to the Underwriters furnished in writing to the Company by or on behalf
of the Underwriters with your consent expressly for use therein. In case
any action shall be brought against the Company, any of the Selling
Shareholders, any of the Company's directors, any such officers or any
person controlling the Company based on the Registration Statement, the
Prospectus or any Preliminary Prospectus and in respect of which
indemnity may be sought against the Underwriters, the Underwriters shall
have the rights and duties given to the Company and the Selling
Shareholders by Section 7(b) hereof (except that if the Company and the
Selling Shareholders shall have assumed the defense thereof, such
Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Underwriter),
and the Selling Shareholders, the Company, its directors, any such
officers and any person controlling the Company shall have the rights and
duties given to the "indemnified parties" by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is for any
reason unavailable to an indemnified party or insufficient to hold such
indemnified party harmless in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute
to the amount paid or payable by such indemnified party as a result of
such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by
the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares or (ii) if the
allocation provided in clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company
and the Selling Shareholders on the one hand and the
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Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering and sale of the Shares (before
deducting expenses) received by the Company and the Selling Shareholders
on the one hand, and the total underwriting discounts and commissions
received by the Underwriters on the other, bears to the total price to
the public of the Shares, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company, the
Selling Shareholders and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or the alleged omission to
state a material fact relates to information supplied by the Company, the
Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 7(d) were determined by pro rata allocation (even if the
Underwriters or the Selling Shareholders were treated as one entity for
such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligation in this Section 7(d) to contribute are several
in proportion to the respective amount of Shares purchased hereunder by
each Underwriter and not joint.
8. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the several Underwriters to purchase and pay for the Firm Shares on the Closing
Date and the Additional Shares on any Option Closing Date are subject to the
fulfillment of each of the following conditions on or prior to the Closing Date
and each Option Closing Date:
(a) All the representations and warranties of the Company and the
Selling Shareholders contained in this Agreement and in any certificate
delivered hereunder shall be true and correct on the Closing Date and
each Option Closing Date with the same force and effect as if made on and
as of the Closing Date or Option Closing Date, as applicable. The
Company and the Selling Shareholders shall not have failed at or prior to
the Closing Date or Option Closing Date, as applicable, to perform or
comply in all respects with any of the agreements herein contained and
required to be performed or complied with by the Company at or prior to
the Closing Date.
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(b) If the Registration Statement is not effective at the time of
the execution and delivery of this Agreement, the Registration Statement
shall have become effective (or, if a post-effective amendment is
required to be filed pursuant to Rule 430A under the Act, such
post-effective amendment shall have become effective) not later than 9:30
A.M., New York City time, on the date of this Agreement or such later
time as you may approve in writing or, if the Registration Statement has
been declared effective prior to the execution and delivery hereof in
reliance on Rule 430A, the Prospectus shall have been filed as required
hereby, if necessary; and at the Closing Date and each applicable Option
Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or, to the
best knowledge of the Underwriters, the Company or the Selling
Shareholders, threatened by the Commission; every request for additional
information on the part of the Commission shall have been complied with
to the Underwriters' satisfaction;
(c) The legality and sufficiency of the authorization, issuance and
sale or transfer and sale of the Shares hereunder, the validity and form
of the certificates representing the Shares, the execution and delivery
of this Agreement and all corporate proceedings and other legal matters
incident thereto, and the form of the Registration Statement and the
Prospectus (except financial statements) shall have been approved by
counsel for the Underwriters exercising reasonable judgment, and no
Underwriter shall have advised the Company, based on information received
after the date hereof, that the Registration Statement or the Prospectus,
or any amendment or supplement thereto, contains an untrue statement of
material fact, or omits to state a fact that in your opinion is material
and is required to be stated therein or is necessary to make the
statements therein not misleading.
(d) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred any material change, or any material
development involving a prospective change, in or affecting particularly
the business or properties of the Company and its Subsidiaries that, in
the judgment of the Representatives, makes it impractical or inadvisable
to proceed with the public offering or purchase of the Shares as
contemplated hereby.
(f) You shall have received an agreement from all of the executive
officers and directors of the Company (collectively, the "Additional
Shareholders"), whereby each such officer or director agrees to be bound
by an agreement to the same effect as the covenants set forth in the last
paragraph of Section 3 of this Agreement (the "Lock-Up Agreements").
(g) You shall have received an opinion (satisfactory to you and your
counsel) dated the Closing Date or the Option Closing Date, as the case
may be, of Much Shelist Denenberg Ament Bell & Rubenstein, P.C., counsel
for the Company and the Selling Shareholders, to the effect that:
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<PAGE> 25
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under laws of the State
of Delaware with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
and the Company has been duly qualified to do business as a foreign
corporation under the corporation law of, and is in good standing
as such in, every jurisdiction where the ownership or leasing of
property, or the conduct of its business requires such
qualification except where the failure so to qualify would not have
a Material Adverse Effect;
(ii) each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under laws of the
jurisdiction of its incorporation with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus; and each Subsidiary has been duly
qualified to do business as a foreign corporation under the
corporation law of, and is in good standing as such in, every
jurisdiction where the ownership or leasing of property, or the
conduct of its business requires such qualification except where
the failure so to qualify would not have a Material Adverse Effect;
(iii) the Company has all necessary corporate power and
authority to enter into and perform this Agreement, and the
performance of the Company's obligations hereunder has been duly
authorized by all necessary corporate action; this Agreement has
been duly executed and delivered by and on behalf of the Company,
and, assuming due authorization, execution and delivery of this
Agreement by the Underwriters, constitutes a legal, valid and
binding agreement of the Company enforceable in accordance with its
terms, except as enforceability of the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general equity
principles; no approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body or, to the best of such
counsel's knowledge, after due inquiry, third party, is necessary
in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein or as
contemplated by the Prospectus (other than as may be required by
the NASD or as required by state securities or Blue Sky laws, as to
which such counsel need express no opinion) except such as have
been obtained or made, with counsel specifying the same;
(iv) all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized, validly issued and is fully
paid and nonassessable, and, except as disclosed in the
Registration Statement, the Company owns directly or indirectly all
of the outstanding capital stock of each Subsidiary; all of the
issued shares of each Subsidiary have been duly and validly
authorized and issued, and except as set forth in the Registration
Statement, such shares are owned free and clear of any claims,
liens, encumbrances, equities or security interests;
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<PAGE> 26
(v) the Company has an authorized capitalization as set forth
in the Prospectus (except for subsequent issuances, if any,
pursuant to stock options or other rights referred to in the
Prospectus), and all of the issued shares of capital stock of the
Company conform as to legal matters to the description thereof in
the Registration Statement and Prospectus; to the best of such
counsel's knowledge, no options, warrants or other rights to
convert any obligation into, or exchange any securities for, shares
of capital stock or ownership interests in the Company are
outstanding;
(vi) the issued and outstanding capital stock of the Company
has been duly authorized and validly issued and is fully paid and
nonassessable;
(vii) to the best of such counsel's knowledge, after due
inquiry, neither the filing of the Registration Statement or any
amendment thereto nor the offer and sale of the Shares to the
Underwriters as contemplated by this Agreement gives rise to any
rights, nor do any rights exist, for or relating to the
registration under the Act of any securities of the Company;
(viii) the Registration Statement has become effective under
the Act, the Prospectus has been filed as required by this
Agreement, if necessary, and to the best of such counsel's
knowledge, after telephonic inquiry of the Commission, no stop
order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose are pending or
have been initiated or threatened by the Commission; and the
Registration Statement (including the information deemed to be part
of the Registration Statement at the time of effectiveness pursuant
to Rule 430A, if applicable), the Prospectus and each amendment or
supplement thereto (except for the financial statements and other
statistical or financial data included therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations;
(ix) the statements made in the Registration Statement under
the captions "Capitalization," "Description of Capital Stock,"
"Business-Tamor Acquisition," "Business-Legal Proceedings,"
"Management-Employment Agreements," "Management-Stock Option
Plans," "Management-1995 Employee Stock Purchase Plan,"
"Management-Profit Sharing Plan," "Management-Limitations on
Directors' and Officers' Liability," "Management-Anti-Takeover
Provisions," "Management-Stockholder Rights Plan," "Certain
Relationships and Related Transactions," "Shares Eligible for
Future Sale" and "Description of Credit Agreement and Other Debt"
in so far as they constitute summaries of documents referred to
therein, proceedings or matters of law or legal conclusions, have
been reviewed by such counsel and constitute fair and accurate
summaries thereof;
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<PAGE> 27
(x) such counsel does not know of any Proceedings required to
be described in the Prospectus that are not described, or of any
contracts or documents of a character required to be described in
the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that were not described and
filed as required;
(xi) the certificates for the Shares to be delivered hereunder
are in due and proper form, and when duly countersigned by the
Company's transfer agent and delivered to you or upon your order
against payment of the agreed consideration therefor in accordance
with the provisions of this Agreement, the Shares sold by the
Company hereunder and represented thereby will be duly authorized
and validly issued, fully paid and non-assessable;
(xii) except as disclosed in the Prospectus, the execution and
performance of this Agreement will not result in the creation of
any lien, charge or encumbrance upon any of the properties or
assets of the Company or any Subsidiary pursuant to the terms and
provisions of, or conflict with, or contravene any of the
provisions of, or result in a default under, any agreement,
franchise, license, indenture, mortgage, deed of trust, or other
instrument known to such counsel, of the Company or any of its
Subsidiaries or by which the property of any of them is bound and
which contravention or default would have a Material Adverse
Effect; or violate any of the provisions of the charter or bylaws
of the Company or any of its Subsidiaries or, to the best of such
counsel's knowledge, violate any statute, order, rule or regulation
of any regulatory or governmental body having jurisdiction over the
Company and its Subsidiaries;
(xiii) to such counsel's knowledge, all offers and sales of
the Company's capital stock since June ____, 1994 were at all
relevant times exempt from the registration requirements of the Act
and were duly registered or the subject of an available exemption
from the registration requirements of the applicable state
securities or blue sky laws;
(xiv) neither the Company, any Subsidiary nor any Selling
Shareholder is an "investment company" subject to registration or
regulation under the Investment Company Act or a company controlled
by an "investment company" subject to such registration or
regulation;
(xv) the consummation of the transactions described in the
Prospectus under the caption "Use of Proceeds" will not result in
the creation of any lien, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to
the terms and provisions of, or conflict with, or contravene any of
the provisions of, or result in a default under, any agreement,
franchise, license, indenture, mortgage, deed of trust, or other
instrument known to such counsel, of the Company or any of its
Subsidiaries or by which the property of
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<PAGE> 28
any of them is bound and which contravention or default would have
a Material Adverse Effect; or violate any of the provisions of the
charter or bylaws of the Company or any of its Subsidiaries or, to
the best of such counsel's knowledge, violate any statute, order,
rule or regulation of any regulatory or governmental body having
jurisdiction over the Company and its Subsidiaries;
(xvi) with respect to each Selling Shareholder, this Agreement
and the Selling Shareholder Documents have been duly authorized,
executed and delivered by or on behalf of each Selling Shareholder;
the agents for each Selling Shareholder have been authorized to
carry out all transactions contemplated herein on behalf of each
such Selling Shareholder; and the performance of this Agreement and
the transactions contemplated herein by such Selling Shareholders
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under any statute, any
indenture, mortgage, deed of trust, note, or other agreement or
instrument known to such counsel to which any of such Selling
Shareholders is a party or by which any are bound or to which any
property of such Selling Shareholders is a party or by which any of
the property of such Selling Shareholders is subject, or any order,
rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over any of such
Selling Shareholders or any of their properties; and no consent,
approval authorization or order of any court or governmental agency
or body is required for the consummation of the transactions
contemplated by this Agreement in connection with the sale of
Shares to be sold by the Selling Shareholders, except as such as
have been obtained under the 1933 Act and such as may be required
under applicable blue sky laws in connection with the purchase and
distribution of such Shares by the Underwriters and the clearance
of such offering with the NASD;
(xvii) each Selling Shareholder has the full right, power and
authority to enter into this Agreement and to sell, transfer and
deliver the Shares to be sold on the Closing Date by such Selling
Shareholder hereunder and good and marketable title to such Shares
so sold, free and clear of all voting trust arrangements, liens,
encumbrances, equities, claims and community property rights
whatsoever, has been transferred to the Underwriters (who counsel
may assume to be bona fide purchasers) who have purchased such
Shares hereunder;
(xviii) each Lock-Up Agreement is a legal, valid and binding
agreement of each Additional Shareholder enforceable in accordance
with its terms, except as enforceability of the same may be limited
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by general
equity principles; and
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(xix) all actions required to be taken and all filings
required to be filed by the Company under the Securities Act and
the Exchange Act for the Company to become the successor registrant
to Selfix have been taken or made.
In addition, such counsel shall state that they have participated
in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of
the Company and representatives of the Underwriters and their
counsel, at which the contents of the Registration Statement and
the Prospectus and related matters were discussed and, on the basis
of the foregoing (relying as to materiality upon the statements of
officers and other representatives of the Company), no facts have
come to such counsel's attention that lead such counsel to believe
that either the Registration Statement or any amendment (including
any post-effective amendment) thereto at the time such Registration
Statement or amendment became effective, and as of the Closing Date
and any applicable Option Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus or
any amendment or supplement thereto as of their respective dates
and as of the Closing Date and any applicable Option Closing Date
contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading,
except that such counsel need express no opinion with respect to
the financial statements, schedules and other financial data
included in the Registration Statement or the Prospectus.
(h) You shall have received an opinion of Ungaretti & Harris,
counsel for the Underwriters, dated the Closing Date or the Option
Closing Date, as the case may be, in form and substance reasonably
satisfactory to you.
(i) You shall have received, in connection with the execution of
this Agreement and on the Closing Date and each Option Closing Date, a
"cold comfort" letter from Arthur Andersen LLP, Grant Thornton LLP and
BDO Seidman, LLP, dated as of each such date in form and substance
satisfactory to you with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.
(j) You shall have received from the Company a certificate, signed
by James Tennent and James Winslow in their capacities as Chief Executive
Officer and Chief Financial Officer of the Company, respectively,
addressed to the Underwriters and dated the Closing Date or Option
Closing Date, as applicable, to the effect that:
(i) such officer has carefully examined the Registration
Statement and the Prospectus and all amendments or supplements
thereto and, in such officer's opinion, such Registration Statement
or such amendment as of its effective date and as of the Closing
Date, and the Prospectus or such supplement as of its date and as
of the Closing Date, did not contain an untrue statement of
material fact or omit to
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<PAGE> 30
state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and, in such
officer's opinion, since the effective date of the Registration
Statement, no event has occurred or information become known that
should have been set forth in an amendment to the Registration
Statement or a supplement to the Prospectus which has not been so
set forth in such amendment or supplement;
(ii) the representations and warranties of the Company set
forth in Section 6(a) of this Agreement are true and correct as of
the date of this Agreement and as of the Closing Date or the Option
Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to such Closing Date; and
(iii) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and, to the best knowledge
of the respective signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the Act.
The delivery of the certificate provided for in this subparagraph
shall be and constitute a representation and warranty of the Company as
to the facts required in the immediately foregoing clauses (ii) and (iii)
of this subparagraph to be set forth in said certificate.
(k) You shall have received from each Selling Shareholder a
certificate, signed by such Selling Shareholder, addressed to the
Underwriters and dated the Closing Date or Option Closing Date, as
applicable, to the effect that:
(i) the Selling Shareholder has carefully examined the
Registration Statement and the Prospectus and all amendments or
supplements thereto and, in such Selling Shareholder's opinion,
such Registration Statement or such amendment as of its effective
date and as of the Closing Date, and the Prospectus or such
supplement as of its date and as of the Closing Date, did not
contain an untrue statement of material fact or omit to state a
material fact with respect to such Selling Shareholder's ownership
of the Shares required to be stated therein or necessary in order
to make such statements therein not misleading; and
(ii) the representations and warranties of the Selling
Shareholder set forth in Section 6(b) of this Agreement are true
and correct as of the date of this Agreement and as of the Closing
Date or the Option Closing Date, as the case may be, and the
Selling Shareholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date.
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(l) You and Ungaretti & Harris, counsel for the Underwriters, shall
have received on or before the Closing Date or the Option Closing Date,
as the case may be, such further documents, opinions, certificates and
schedules or instruments relating to the business, corporate, legal and
financial affairs of the Company and the Selling Shareholders as you and
they shall have reasonably requested from the Company.
9. EFFECTIVE DATE OF AGREEMENT, TERMINATION AND DEFAULTS. This Agreement
shall become effective upon, and shall not be deemed delivered until, the later
of (i) execution of this Agreement and (ii) when notification of the
effectiveness of the Registration Statement has been released by the
Commission.
This Agreement may be terminated at any time prior to the Closing Date and
any exercise of the option to purchase Additional Shares may be canceled at any
time prior to any Option Closing Date by the Underwriters by written notice to
the Company if any of the following has occurred: (i) since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or development involving a prospective
material adverse change in the condition, financial or otherwise, of the
Company or the earnings, affairs, management, or business of the Company,
whether or not arising in the ordinary course of business, that would, in the
Representatives' sole judgment, make it impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus, (ii) any outbreak
or escalation of hostilities or other national or international calamity or
crisis or change in economic conditions or in the financial markets of the
United States that, in the Representatives' judgment, is material and adverse
and would, in the Representatives' judgment, make it impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus, (iii)
the suspension or material limitation of trading in securities on the NASDAQ or
limitation on prices for securities on the NASDAQ, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, Rule or order of any court or other governmental authority that in
the Representatives' opinion materially and adversely affects, or will
materially and adversely affect, the business or operations of the Company, (v)
the declaration of a banking moratorium by either federal or California, New
York or Illinois state authorities, (vi) the taking of any action by any
Federal, state or local government or agency in respect of its monetary or
fiscal affairs that in the Representatives' opinion has a material adverse
effect on the financial markets in the United States or (vii) there shall be
any change in financial markets or in political, economic or financial
conditions which, in the opinion of the Representatives, either renders it
impracticable or inadvisable to proceed with the offering and sale of the
Shares on the terms set forth in the Prospectus or materially adversely affects
the market for the Shares.
If on the Closing Date or on any Option Closing Date, as the case may be,
any of the Underwriters shall fail or refuse to purchase the Firm Shares or
Additional Shares, as the case may be, which it has agreed to purchase
hereunder on such date, and the aggregate number of Firm Shares or Additional
Shares, as the case may be, that such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase does not exceed, in the aggregate, 10%
of the total number of Shares that all Underwriters are obligated to purchase
on such date, each non-defaulting Underwriter shall be obligated, in the
proportion which the number of Firm Shares set forth opposite its name in
Schedule II hereto bears to the total number of Firm Shares or Additional
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<PAGE> 32
Shares, as the case may be, that all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, that such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the Closing Date or on the Option Closing Date, as the case may
be, any of the Underwriters shall fail or refuse to purchase the Firm Shares or
Additional Shares, as the case may be, in an amount that exceeds, in the
aggregate, 10% of the total number of the Shares, and arrangements satisfactory
to you and the Company for the purchase of such Shares are not made within 48
hours after such default, this Agreement shall terminate without liability on
the part of the non-defaulting Underwriters, the Company and the Selling
Shareholders, except as otherwise provided in this Section 9. In any such case
that does not result in termination of this Agreement, either you or the
Company may postpone the Closing Date or the Option Closing Date, as the case
may be, for not longer than seven (7) days, in order that the required changes,
if any, in the Registration Statement and the Prospectus or any other documents
or arrangements may be effected. Any action taken under this paragraph shall
not relieve a defaulting Underwriter from liability in respect of any default
of any such Underwriter under this Agreement.
The indemnity and contribution provisions and other agreements,
representations and warranties of the Company, the Selling Shareholders and the
Company's officers and directors set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Shares, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of any of the
Underwriters or by or on behalf of the Company or any Selling Shareholder or
the officers or directors of the Company or any controlling person of the
Company, (ii) acceptance of the Shares and payment therefor hereunder or (iii)
termination of this Agreement.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of, and shall be binding upon, the Company, the Selling
Shareholders, the Underwriters, any indemnified person referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The terms "successors and assigns" shall not include
a purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
10. COSTS AND EXPENSES. Whether or not the transactions contemplated
hereby are consummated or this Agreement becomes effective or is terminated,
the Company shall pay all costs, fees, expenses and taxes incident to the
performance by the Company of its obligations hereunder, including (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary Prospectus and all amendments and supplements to any of them prior
to or during the period specified in paragraph (e) above of Section 5, (ii) the
word processing, reproduction and distribution of this Agreement and the
Selected Dealer Agreement and any supplements or amendments thereto in
connection with the offering of the Shares (including in each case any
disbursements of counsel for the Underwriters relating to such preparation and
delivery but not including any legal fees of counsel to the Underwriters),
(iii) the filing of notices for the offer and sale of the Shares under the
securities or Blue Sky laws of the several states, including in each case the
disbursements of counsel for the Underwriters but not including legal fees of
counsel to the Underwriters, relating to
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<PAGE> 33
filings, (iv) filings and clearance with the NASD in connection with the
offering and sale of the Shares, (v) the listing of the Shares on the NASDAQ
National Market ("NASDAQ"), (vi) furnishing such copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus and all amendments and
supplements thereto as may be requested for use in connection with the offering
or sale of the Shares by the Underwriters or by dealers to whom the Shares may
be sold, (vii) obtaining the opinion to be provided pursuant to Sections 8(g)
of this Agreement and (viii) the performance by the Company of all of its other
obligations under this Agreement. If the sale of the Shares provided for
herein is not consummated because the Underwriters exercise their right to
terminate this Agreement pursuant to Section 9 hereof and any of the following
have occurred during the term of this Agreement: (a) there has been any
material adverse change in the condition (financial or otherwise), earnings,
affairs, business or prospects of the Company, or (b) the Company or any of the
Selling Shareholders shall refuse or be unable to comply with any provision
hereof (except as the result of a breach of this Agreement by the
Underwriters), the Company will promptly reimburse the Underwriters upon demand
for all reasonable out-of-pocket expenses (including the fees and disbursements
of counsel for the Underwriters) that shall have been incurred by the
Underwriters in connection with the proposed purchase and sale of Shares. The
Selling Shareholders shall reimburse the Company for (i) all expenses and taxes
incident to the sale and delivery of the Firm Shares being offered and sold by
the Selling Shareholders to the Underwriters, (ii) any additional filing fees
and other expenses of notice filings under Blue Sky Laws, the Commission's
registration fee and the NASD's fee for the inclusion of the Firm Shares of the
Selling Shareholder and (iii) any other expenses which the Selling Shareholder
has agreed to pay or reimburse the Company.
11. EFFECTIVENESS OF REGISTRATION STATEMENT. You, the Company and the
Selling Shareholders will use your, its and their best efforts to cause the
Registration Statement to become effective, if it has not yet become effective,
and to prevent the issuance of any stop order suspending the effectiveness of
the Registration Statement and, if such stop order be issued, to obtain as soon
as possible the lifting thereof.
12. MISCELLANEOUS. All communications hereunder will be in writing and,
if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o EVEREN Securities, Inc., 77 West Wacker Drive, Chicago,
Illinois 60601-1994, Attention: Syndicate Department, with a copy to Ungaretti
& Harris, 3500 Three First National Plaza, Chicago, Illinois 60602, Attention:
Joseph A. Cari, Jr.; if sent to the Company will be mailed, delivered or
telegraphed and confirmed to the Company at its corporate headquarters with a
copy to Much Shelist Denenberg Ament Bell & Rubenstein P.C., 200 North LaSalle
Street, Suite 2100, Chicago, Illinois 60601, Attention: Michael J. Gamsky; and
if sent to the Selling Shareholders will be mailed, delivered or telegraphed
care of the Company, with a copy to Much Shelist Denenberg Ament Bell &
Rubenstein P.C, or in any case to such other address as the person to be
notified may have requested in writing.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF.
31
<PAGE> 34
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Shareholders and the several Underwriters, including
you.
Very truly yours,
HOME PRODUCTS INTERNATIONAL, INC.
a Delaware corporation
By:
--------------------------------------
Name: James R. Tennent
Title: Chief Executive Officer
SELLING SHAREHOLDERS:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
32
<PAGE> 35
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
EVEREN Securities, Inc.
Acting as Representatives of the
several Underwriters named in Schedule II.
By: EVEREN Securities, Inc.
By:
------------
Todd Jadwin
33
<PAGE> 36
SCHEDULE I
NUMBER OF
FIRM SHARES
SELLING SHAREHOLDER TO BE SOLD
- ------------------- -----------
TOTAL -----------
<PAGE> 37
SCHEDULE II
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE SOLD
- ------------------- -----------
EVEREN Securities, Inc.
TOTAL -----------
<PAGE> 1
Exhibit 5.1
Form of Opinion of Much Shelist
Freed Denenberg Ament Bell &
Rubenstein, P.C.
<PAGE> 2
EXHIBIT 5.1
May 29, 1997
Home Products International, Inc.
4501 West 47th Street
Chicago, IL 60632
Ladies and Gentlemen:
We have acted as counsel for Home Products International, Inc., a Delaware
corporation (the "Company"), and certain shareholders of the Company (the
"Selling Shareholders") in connection with its registration of 3,500,000 shares
(the "Shares") of Common Stock, par value $0.01 per share, proposed to be sold
by the Company and the Selling Shareholders. Of the total amount of Shares
registered, the Company will issue and sell up to 2,525,000 Shares, including
an over-allotment option of 525,000 shares (the "Company Shares"), and the
Selling Shareholders will sell up to 1,500,000 Shares (the "Selling
Shareholders' Shares"). The Shares are to be sold pursuant to an Underwriting
Agreement to be entered into among the Company, the Selling Shareholders and
EVEREN Securities, Inc. and Montgomery Securities, as representatives of the
several underwriters named in such Underwriting Agreement (the "Underwriting
Agreement").
As such counsel, we have examined such corporate records, certificates and
other documents and have made such other factual and legal investigations as we
have deemed relevant and necessary as the basis for the opinions hereinafter
expressed. In such examinations, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all documents submitted to us as
conformed or photostatic copies.
<PAGE> 3
Home Products International, Inc.
Page 2
Based on the foregoing, we are of the opinion that (i) the Company
Shares have been duly authorized and, when sold and paid for in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully paid and
non-assessable and (ii) the Selling Shareholders' Shares have been duly and
validly issued and are outstanding, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus.
Very truly yours,
/s/ Much Shelist Freed Denenberg
Ament Bell & Rubenstein, P.C.
MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.
MJG/
<PAGE> 1
Exhibit 23.1
Consent of Arthur Andersen LLP.
<PAGE> 2
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
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
May 29, 1997
<PAGE> 1
Exhibit 23.2
Consent of Grant Thornton LLP.
<PAGE> 2
Exhibit 23.2
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Home Products International, Inc. (Formerly Selfix, Inc.)
We have issued our reports 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 reports 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
May 29, 1997
<PAGE> 1
Exhibit 23.3
Consent of BDO Seidman, LLP.
<PAGE> 2
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
May 29, 1997
