UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 26, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-17237
HOME PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its Charter)
Delaware 36-4147027
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4501 West 47th Street
Chicago, Illinois 60632
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code (773) 890-1010.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Common shares, par value $0.01, outstanding as of October 31, 1998 -
7,961,760
<PAGE>
HOME PRODUCTS INTERNATIONAL, INC
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of
Operations and Retained Earnings 4
Condensed Consolidated Statements of
Cash Flows 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Part II. Other Information
Items 1 through 5 are not applicable
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
<TABLE>
PART I Financial Information
ITEM 1. Financial Statements
HOME PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
September 26, December 27,
1998 1997
(unaudited)
------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,271 $ 583
Accounts receivable, net 50,261 20,802
Inventories, net 33,435 12,797
Prepaid expenses and other current assets 2,570 508
------- -------
Total current assets 92,537 34,690
Property, plant and equipment - at cost 82,883 47,634
Less accumulated depreciation and amortization (25,157) (19,254)
------- -------
Property, plant and equipment, net 57,726 28,380
Intangible and other assets 192,200 36,273
------- -------
Total assets $342,463 $ 99,343
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 3,194 $ 3,850
Accounts payable 19,407 9,664
Accrued liabilities 33,548 12,913
------- -------
Total current liabilities 56,149 26,427
Long-term obligations - net of current 220,261 30,700
maturities
Other liabilities 7,058 -
Stockholders' equity:
Preferred Stock - authorized, 500,000
shares, $.01 par value; none issued - -
Common Stock - authorized 15,000,000 shares,
$.01 par value; 8,020,522 shares issued at
September 26, 1998 and 6,674,271 shares
issued at December 27, 1997 80 67
Additional paid-in capital 48,434 33,956
Retained earnings 10,898 8,616
Common Stock held in treasury - at cost
(58,762 shares) (264) (264)
Currency translation adjustments (153) (159)
------- -------
Total stockholders' equity 58,995 42,216
------- -------
Total liabilities and stockholders' equity $342,463 $ 99,343
======= =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
HOME PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations and Retained
Earnings
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Thirteen Weeks Thirty-nine Weeks
Ended Ended
Sept 26, Sept 27, Sept 26, Sept 27,
1998 1997 1998 1997
------ ------ ------- ------
<S> <C> <C> <C> <C>
Net sales $68,243 $32,875 $175,637 $97,636
Cost of goods sold 45,874 22,498 118,435 68,007
------ ------ ------- ------
Gross profit 22,369 10,377 57,202 29,629
Operating expenses
Selling 8,182 4,877 20,720 13,944
Administrative 3,817 1,695 10,713 5,486
Amortization of intangible assets 1,203 208 3,068 615
------ ------ ------- ------
13,202 6,780 34,501 20,045
------ ------ ------- ------
Operating profit 9,167 3,597 22,701 9,584
Other income (expense)
Interest income 41 1 96 49
Interest (expense) (3,872) (1,067) (10,260) (4,207)
Other income (expense), net 1 (42) 53 88
------ ------ ------- ------
(3,830) (1,108) (10,111) (4,070)
Earnings before income taxes and
extraordinary charge 5,337 2,489 12,590 5,514
Income tax (expense) (2,223) (68) (5,201) (271)
------ ------ ------- ------
Earnings before extraordinary charge 3,114 2,421 7,389 5,243
Extraordinary charge for early retirement
of debt, net of tax benefit of $3,698 - - (5,107) -
------ ------ ------- ------
Net earnings 3,114 2,421 2,282 5,243
Retained earnings at beginning of period 7,784 4,118 8,616 1,296
------ ------ ------- ------
Retaining earnings at end of period $10,898 $ 6,539 $ 10,898 $ 6,539
------ ------ ------- ------
<PAGE>
Earnings before extraordinary
charge, per common share - basic $ 0.39 $ 0.37 $ 0.93 $ 1.04
Extraordinary charge for early
retirement of debt, net of tax - - (0.64) -
------ ------ ------- ------
Net earnings per common share - basic $ 0.39 $ 0.37 $ 0.29 $ 1.04
====== ====== ======= ======
Earnings before extraordinary
charge, per common share - diluted $ 0.38 $ 0.36 $ 0.89 $ 0.99
Extraordinary charge for early
retirement of debt, net of tax - - (0.61) -
------ ------ ------- ------
Net earnings per common share-diluted $ 0.38 $ 0.36 $ 0.28 $ 0.99
====== ====== ======= ======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
HOME PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Thirty-nine Weeks Ended
Sept 26, Sept 27,
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,282 $ 5,243
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation and amortization 9,314 5,205
Changes in assets and liabilities:
(Increase) in accounts receivable (9,755) (2,809)
Decrease (increase) in inventories 1,854 (5,119)
Increase (decrease) in accounts payable 3,061 (6,477)
Increase in accrued liabilities 3,596 218
Other operating activities, net 3,581 (667)
------- -------
Net cash provided (used) by operating activities 13,933 (4,406)
------- -------
Cash flows from investing activities:
Seymour acquisition, net of cash acquired (14,882) -
Tenex acquisition, net of cash acquired (16,725) -
Prestige Plastics acquisition, net of cash acquired (78,321) -
Tamor acquisition, net of cash acquired - (27,876)
Capital expenditures, net (7,729) (5,168)
------- -------
Net cash (used) for investing activities (117,657) (33,044)
------- -------
Cash flows from financing activities:
Payments on borrowings (219,218) (33,497)
Net proceeds from borrowings and warrants 286,672 51,324
Net proceeds from borrowings under revolving
line of credit 41,931 -
Net proceeds from secondary stock offering - 20,171
Payment of capital lease obligation (184) (28)
Exercise of common stock options and issuance
of common stock under stock purchase plan 211 122
------- -------
Net cash provided by financing activities 109,412 38,092
------- -------
Net increase in cash and cash equivalents 5,688 642
Cash and cash equivalents at beginning of period 583 2,879
------- -------
Cash and cash equivalents at end of period $ 6,271 $ 3,521
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 359 $ 2,787
------- -------
Income taxes 817 1,255
------- -------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Home Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Unaudited)
(in thousands except per share amounts)
Note 1. Home Products International, Inc. (the "Company") and its
subsidiary companies design, manufacture and market products in one
industry segment, houseware products. Houseware products are marketed
principally through mass market trade channels throughout the
United States and internationally.
The condensed consolidated financial statements include the accounts
of the Company and its subsidiary companies. All significant
intercompany transactions and balances have been eliminated.
The unaudited condensed financial statements included herein as of
September 26, 1998 and for the thirteen weeks and thirty-nine weeks ended
September 26, 1998 and September 27, 1997 reflect, in the opinion of the
Company, all adjustments (which include only normal recurring
adjustments) 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 included in the Company's
1997 Annual Report on Form 10-K. 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):
September December
26, 1998 27, 1997
------ ------
Finished goods ................... $18,756 $ 7,335
Work-in-process .................. 6,556 2,225
Raw materials .................... 8,123 3,237
------ ------
$33,435 $12,797
====== ======
<PAGE>
Note 3. On August 14, 1998 the Company acquired certain assets
(inventory and molds) which comprised Tenex Corporation's consumer
product storage line for $16,400 in an all cash transaction, (the "Tenex
Asset Acquisition"). On September 8, 1998 the Company acquired from
Newell Co. certain assets and assumed certain liabilities comprising the
business of Anchor Hocking Plastics and Plastic, Inc. for $78,000 in an
all cash transaction (the "Newell Asset Acquisition").
Funding for the Tenex Asset Acquisition was obtained from the
Company's May 14, 1998 $100,000 revolving credit agreement (more fully
described in Note 4). Funding for the Newell Acquisition was partially
obtained from the Company's May 14, 1998 revolving credit agreement, as
amended on September 8, 1998, and a new $50,000 term loan (more fully
described in Note 4).
Both acquisitions were accounted for as a purchase, and as such
actual results of operations have been included in the Consolidated
Statement of Operations since the respective acquisition dates. The
Tenex Asset Acquisition and the Newell Asset Acquisition, combined,
has contributed $7,851 to net sales for the thirteen weeks ended
September 26, 1998.
For proforma information related to the Newell Asset Acquisition,
see Form 8-K/A filed by the Company on November 6, 1998. The Tenex
Asset Acquisition was not material, and thus proforma information was
not required.
<PAGE>
Note 4. On May 14, 1998, the Company issued $125,000 of Senior
Subordinated Notes due 2008 (the "Notes"). Interest on the Notes is
payable semi-annually at a rate of 9.625% per annum. Proceeds from the
offering were used (i) to repay approximately $122,000 of outstanding
indebtedness, including the payment of certain fees, prepayment penalties
and expenses related to such repayment, (ii) to pay certain other fees
and expenses incurred in connection with the issuance of the Notes and
the refinancing of the Company's primary revolving credit facility and
(iii) for working capital and general corporate purposes.
The Company is a holding company with no assets or operations other
than its investment in its subsidiaries. The Notes are guaranteed by all
direct and indirect subsidiaries of the Company other than
inconsequential subsidiaries (the "Subsidiary Guarantors"). The
guarantee obligations of the Subsidiary Guarantors (which are all wholly
owned subsidiaries of the Company) are full, unconditional and joint and
several. There are no restrictions on the ability of the Company's
subsidiaries to pay dividends or other distributions to the Company
(other than limitations imposed by law generally on the ability of a
corporation to declare and pay dividends and distributions to its
stockholders). Separate financial statements of the Subsidiary
Guarantors are not included in the accompanying financial statements
because management of the Company has determined that separate financial
statements of the Subsidiary Guarantors would not be material to
investors.
On May 14, 1998, concurrently with the offering of the Notes, the
Company entered into a new bank revolving credit agreement in a maximum
principal amount of $100,000 (the "$100,000 Credit Agreement") which
replaced the Company's prior $20,000 revolving credit agreement.
On September 8, 1998, in conjunction with the Newell Asset
Acquisition, the Company amended and restated the May 14, 1998 $100,000
Credit Agreement to add, among other items, a $50,000 term loan, (the
"Term Loan"). The combination of the $100,000 Credit Agreement and the
Term Loan are referred to herein as the "$150,000 Credit Agreement".
Remaining availability under the $150,000 Credit Agreement as of
September 26, 1998 was approximately $52,000.
<PAGE>
Note 5. During fiscal 1997 the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which established
standards for the computation and presentation of earnings per share
information. Prior period net earnings (loss) per share have been
restated. Net earnings (loss) per common share - basic, was calculated
by dividing net earnings (loss) applicable to common shares by the
weighted average number of common shares outstanding during each period.
Net earnings (loss) per common share - diluted, reflects the potential
dilution that could occur assuming exercise of all outstanding "in-the-
money" stock options. A reconciliation of the net earnings (loss) and
the number of shares used in computing basic and diluted earnings per
share was as follows:
<TABLE>
Thirteen Weeks Thirty-nine Weeks
Ended Ended
Sept 26, Sept 27, Sept 26, Sept 27,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net earnings per common share -
basic:
Net earnings applicable to
common shares ................ $ 3,114 $ 2,421 $ 2,282 $ 5,243
====== ====== ====== ======
Weighted average common shares
Outstanding for the period .. 7,961 6,490 7,946 5,042
====== ====== ====== ======
Net earnings per common share -
basic ........................ $ 0.39 $ 0.37 $ 0.29 $ 1.04
====== ====== ====== ======
Net earnings per common share-
diluted:
Net earnings applicable to
common shares ................ $ 3,114 $ 2,421 $ 2,282 $ 5,243
====== ====== ====== ======
Weighted average common shares
Outstanding for the period .. 7,961 6,490 7,946 5,042
Increase in shares which would
result From exercise of "in-
the-money" Stock options ..... 211 303 311 233
------ ------ ------ ------
Weighted average common shares
outstanding
Assuming conversion of the
above Securities ........... 8,172 6,793 8,257 5,275
====== ====== ====== ======
Net earnings per common share -
diluted ...................... $ 0.38 $ 0.36 $ 0.28 $ 0.99
====== ====== ====== ======
</TABLE>
Note 6. The provision for income taxes is determined by applying an
estimated annual effective tax rate (federal, state and foreign combined)
to income before taxes. The estimated annual effective income tax rate
is based upon the most recent annualized forecast of pretax income and
permanent book/tax differences.
<PAGE>
ITEM 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
This quarterly report on Form 10-Q, including "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 effects of the 1998 Acquisitions (as
defined below) on the Company's sales and earnings; (ii) the impact of
the level of the Company's indebtedness; (iii) restrictive covenants
contained in the Company's various debt documents; (iv) general economic
conditions and conditions in the retail environment; (v) the Company's
dependence on a few large customers; (vi) price fluctuations in the raw
materials used by the Company, particularly plastic resin; (vii)
competitive conditions in the Company's markets; (viii) the seasonal
nature of the Company's business; (ix) the Company's ability to execute
its acquisition strategy; (x) fluctuations in the stock market; (xi) the
extent to which the Company is able to retain and attract key personnel;
(xii) relationships with retailers; and (xiii) the impact of federal,
state and local environmental requirements (including the impact of
current or future environmental claims against the Company). As a
result, the Company's operating results may fluctuate, especially when
measured on a quarterly basis. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and
consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's
business, in this report, as well as the Company's periodic reports on
Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission.
1998 Acquisitions.
The Company made three acquisitions within its 1998 fiscal year (the
"1998 Acquisitions") and the actual results have been combined with the
Company's since the date of the respective acquisition.
Effective December 30, 1997 the Company acquired all of the
outstanding common stock of Seymour Housewares Corporation, ("Seymour") a
leading designer, manufacturer and marketer of consumer laundry care
products. Seymour manufactures and markets a full line of ironing
boards, ironing board covers and pads and numerous laundry related
accessories. Seymour was acquired for a total purchase price of $100.7
million, consisting of $16.4 million in cash, $14.3 million in common
stock (1,320,700 shares) and the assumption of $70.0 million of debt.
Effective August 14, 1998 the Company acquired certain assets,
(inventory and molds) which comprised Tenex Corporation's consumer
product storage line. This product line consists of plastic storage bins
and containers, rolling carts and stacking drawer systems. This product
line was acquired for $16.4 million in cash.
<PAGE>
Effective September 8, 1998 the Company acquired assets and assumed
certain liabilities from Newell Co. (consisting of the business of Anchor
Hocking Plastics ("AHP") and Plastics, Inc ("PI").) a leading supplier of
food storage containers and disposable plastic servingware. AHP and PI
are collectively referred to herein as Prestige Plastics, Inc.
("Prestige"). Prestige was acquired for $78.0 million in cash.
Thirteen weeks ended September 26, 1998 compared to the thirteen weeks
ended September 27, 1997
In the discussion and analysis that follows, all references to the
third quarter of 1998 are to the thirteen week period ended September 27,
1998 and all references to the third quarter of 1997 are to the thirteen
week period ended September 27, 1997. The following discussion and
analysis compares the actual results for the third quarter of 1998
to the actual results for the third quarter of 1997 with reference to the
following (in thousands, except per share amounts; unaudited):
<TABLE>
Thirteen weeks ended
September 26, 1998 September 27, 1997
<S> <C> <C> <C> <C>
Net sales..................... $ 68,243 100.0% $ 32,875 100.0%
Cost of goods sold............ 45,874 67.2 22,498 68.4
------- ---- ------- ----
Gross profit................ 22,369 32.8 10,377 31.6
Operating expenses............ 13,202 19.4 6,780 20.7
------- ---- ------- ----
Operating profit............ 9,167 13.4 3,597 10.9
Interest expense.............. (3,872) (5.7) (1,067) (3.2)
Other income (expense)........ 42 0.1 (41) (0.1)
------- ---- ------- ----
Earnings before income taxes 5,337 7.8 2,489 7.6
Income tax (expense).......... (2,223) (3.2) (68) (0.2)
------- ---- ------- ----
Net earnings ................. $ 3,114 4.6 % $ 2,421 7.4%
======= ==== ======= ====
Net earnings per share - basic $0.39 $0.37
Net earnings per share - diluted $0.38 $0.36
Weighted average common shares
Outstanding - basic......... 7,961 6,490
Weighted average common shares
Outstanding - diluted....... 8,172 6,793
</TABLE>
<PAGE>
Net sales. Net sales of $68.2 million in the third quarter of 1998
increased $35.3 million, or 107.3%, from net sales of $32.9 million in
the third quarter of 1997. The 1998 Acquisitions contributed $35.9
million to net sales in the quarter. The Company's remaining
subsidiaries experienced a slight decrease in the third quarter of 1998
totaling $0.6 million. Net sales were down as a result of the Company's
continuing effort to cutback or eliminate the sales of under performing
products. In addition, sales as compared to the prior period were
negatively impacted by the bankruptcy of several retailers during the
fourth quarter of 1997 and the first quarter of 1998. Sales to such
customers for the third quarter of 1997 totaled $0.9 million.
Gross profit. Gross profit increased from $10.4 million in the
third quarter of 1997 to $22.4 million in the third quarter of 1998 while
gross profit margins increased from 31.6% in the third quarter of 1997 to
32.8% in the third quarter of 1998. The 1998 Acquisitions contributed
$11.3 million to gross profit at a gross profit margin of 31.4%. Margins
on the acquired businesses are currently less than the Company's other
products due to existing levels of out sourced production, less than
optimal capacity utilization and too many products. During the fourth
quarter of 1998 and first half of 1999, management will be addressing
these issues. Margins on other product lines increased between years as
a result of the elimination of under performing products, new product
introductions and decreasing raw material costs. Offsetting some of
these margin improvements were competitive pricing pressures and
unfavorable overhead absorption. Various competitors have reduced
selling prices in an attempt to take market share. The Company has
responded appropriately and believes it has maintained its share of
market. However, maintaining market share has resulted in selected
selling price reductions and reduced gross profit margins. Overhead
absorption was lower than a year ago as a result of production cutbacks
to reduce inventories. While this action unfavorably impacted the
operating results, it had a very favorable impact on cash flow.
Operating expenses. Operating expenses of $13.2 million in the
third quarter of 1998 were up $6.4 million as compared to the third
quarter of 1997. Operating expenses as a percent of net sales improved
from 20.7% in the third quarter of 1997 to 19.4% in the third quarter of
1998. Excluding the impact of amortization, operating expenses as a
percent of net sales improved from 20.0% in 1997 to 17.6% in 1998.
Operating expense savings in the quarter were primarily obtained from
reduced selling and marketing expenses related to the successful
integration of the Selfix and Seymour selling and marketing functions.
Administrative expenses, as compared to the prior period, increased due
to the added expenses related to the 1998 Acquisitions.
Interest expense. Interest expense of $3.9 million in the third
quarter of 1998 increased $2.8 million from $1.1 million in the third
quarter of 1997. The issuance of approximately $180.8 million of debt in
connection with the 1998 Acquisitions caused the majority of the
increased interest expense between periods. In addition, the Company
issued $125.0 million of high yield notes in May, 1998 at a fixed
interest rate of 9.625%, which is slightly higher than the Company's
floating rate under its previous revolving credit agreement.
<PAGE>
Income tax expense. Income tax expense increased by $2.1 million to
$2.2 million for the third quarter of 1998 from $0.1 million in the third
quarter of 1997. Income tax expense increased because of a change in the
Company's tax position. In 1997, the Company was able to use net
operating loss carryforwards which effectively eliminated federal income
tax expense. By the end of fiscal year 1997, the tax loss carryforwards
had been fully utilized, as such, the Company is now in a tax paying
position. The provision for the third quarter of 1998 included a
provision for federal, state and foreign income taxes.
Net earnings. The Company had net earnings of $3.1 million in the
third quarter of 1998, or $0.38 per common share - diluted, based on
8,172,214 weighted average common shares outstanding. This compares to
net earnings of $2.4 million in the third quarter of 1997, or $0.36 per
common share - diluted, based on 6,792,850 weighted average common shares
outstanding. The primary increase in weighted average common shares
outstanding was the result of shares issued in connection with the
Seymour Acquisition (1,320,700).
As noted above, the Company's tax position has significantly changed
since 1997. If the Company had been in a full tax paying position a year
ago, diluted earnings per share would have been $0.22 as compared to the
fully taxed earnings per share in 1998 of $0.38.
<PAGE>
Thirty-nine weeks ended September 26, 1998 compared to the thirty-nine
weeks ended September 27, 1997
The following discussion and analysis compares the actual results
for the thirty-nine weeks ended September 26, 1998 to the actual results
for the thirty-nine weeks ended September 27, 1997 with reference to the
following (in thousands, except share and per share amounts; unaudited):
<TABLE>
Thirty-nine weeks ended
September 26, September 27,
1998 1997
------------ -------------
<S> <C> <C> <C> <C>
Net sales..................... $175,637 100.0% $97,636 100.0%
Cost of goods sold............ 118,435 67.4 68,007 69.7
------- ---- ------ ----
Gross profit................ 57,202 32.6 29,629 30.3
Operating expenses............ 34,501 19.7 20,045 20.5
------- ---- ------ ----
Operating profit............ 22,701 12.9 9,584 9.8
Interest expense.............. (10,260) (5.8) (4,207) (4.3)
Other income.................. 149 0.1 137 0.1
------- ---- ------ ----
Earnings before income taxes 12,590 7.2 5,514 5.6
Income tax (expense).......... (5,201) (3.0) (271) (0.2)
------- ---- ------ ----
Earnings before extraordinary 7,389 4.2 5,243 5.4
charge........................
Extraordinary charge.......... (5,107) (2.9) - -
------- ---- ------ ----
Net earnings.................. $ 2,282 1.3% $ 5,243 5.4%
======= ==== ====== ====
Earnings before extraordinary
charge per share - basic..... $ 0.93 $ 1.04
Earnings before extraordinary
charge per share - diluted .. $ 0.89 $ 0.99
Net earnings per share - basic $ 0.29 $ 1.04
Net earnings per share - diluted $ 0.28 $ 0.99
Weighted average common shares
Outstanding - basic......... 7,946 5,042
Weighted average common shares
Outstanding - diluted....... 8,257 5,275
</TABLE>
<PAGE>
Net sales. Net sales of $175.6 million in 1998 increased $78.0
million, or 79.9% from net sales of $97.6 million in 1997. The 1998
Acquisitions contributed $84.9 million to net sales in the period. The
Company's remaining subsidiaries experienced a decrease in 1998 totaling
$6.9 million. Net sales were down primarily as a result of the Company's
continuing effort to cutback or eliminate the sales of certain under
performing products. Further impacting 1998 was a decline in juvenile
products due to a $1.0 million one time promotional order in the second
quarter of 1997. In addition, sales as compared to the prior period were
negatively impacted by the bankruptcy of several retailers during the
fourth quarter of 1997 and the first quarter of 1998. Sales to such
customers for 1997 totaled $2.7 million as compared to $0.3 million in
1998.
Gross profit. Gross profit increased from $29.6 million in 1997 to
$57.2 million in 1998 while gross profit margins increased from 30.3% in
1997 to 32.6% in 1998. The 1998 Acquisitions contributed $26.8 million to
gross profit at a gross profit margin of 31.6%. Margins on the acquired
businesses are currently less than the Company's other products due to
existing levels of out sourced production, less than optimal capacity
utilization and too many products. During the fourth quarter of 1998 and
first half of 1998, management will be addressing these issues. Margins
on other product lines increased between years as a result of the
elimination of under performing products, new product introductions and
decreasing raw material costs. Offsetting some of these margin
improvements were competitive pricing pressures and unfavorable overhead
absorption. Various competitors have reduced selling prices in an
attempt to take market share. The Company has responded appropriately
and believes it has maintained its share of market. However, maintaining
market share has resulted in selected selling price reductions. Overhead
absorption was lower than a year ago as a result of production cutbacks
to reduce inventories. While this action unfavorably impacted the
operating results, it had a very favorable impact on cash flow.
Operating expenses. Operating expenses of $34.5 million in 1998
were up $14.4 million as compared to 1997. Operating expenses as a
percent of net sales improved from 20.5% in 1997 to 19.7% in 1998.
Excluding the impact of amortization, operating expenses as a percent of
net sales improved even more from 19.9% in 1997 to 17.9% in 1998.
Operating expense savings in the period were primarily obtained from
reduced selling and marketing expenses related to the successful
integration of the Selfix and Seymour selling and marketing functions.
Administrative expenses increased due to the added expenses related to
the 1998 Acquisitions.
Interest expense. Interest expense of $10.3 million in 1998
increased $6.1 million from $4.2 million in 1997. The issuance of $165
million of debt in connection with the 1998 acquisitions caused the
majority of the increased interest expense between periods. In addition,
the Company issued $125.0 million of high yield notes in May, 1998 at a
fixed interest rate of 9.625%, which is slightly higher than the
Company's floating rate under its previous revolving credit agreement.
<PAGE>
Income tax expense. Income taxes increased by $4.9 million to $5.2
million for 1998 from $0.3 million in 1997. Income tax expense increased
because of a change in the Company's tax position. In 1997, the Company
was able to use net operating loss carryforwards which effectively
eliminated federal income tax expense. By the end of fiscal year 1997,
the tax loss carryforwards had been fully utilized, as such, the Company
is now in a tax paying position. The provision for the third quarter of
1998 included a provision for federal, state and foreign income taxes.
Earnings before extraordinary charge. Earnings before extraordinary
charge increased to $12.6 million in 1998 from 1997 earnings of $5.5
million. Diluted earnings per share before extraordinary charge for the
thirty-nine weeks ended September 26, 1998 were $0.89 per common share
based on 8,257,320 weighted average common shares outstanding as compared
to diluted earnings per share before extraordinary charge for the thirty-
nine weeks ended September 27, 1997 of $0.99 per common share based on
5,275,436 weighted average common shares outstanding. The increase in
weighted average common shares outstanding was the result of a public
stock offering in July, 1997 (2,280,000 new shares issued) and shares
issued in connection with the Seymour Acquisition (1,320,700).
As noted the above, the Company's tax position has significantly
changed since 1997. If the Company had been in a full tax paying
position a year ago, diluted earnings per share before extraordinary
charge would have been $0.63 as compared to the fully taxed earnings per
share in 1998 of $0.89.
Extraordinary charge. An extraordinary charge, net of tax, for the
early retirement of debt of $5.1 million, or $0.61 per common share -
diluted was recorded in 1998. To fund the Seymour Acquisition, increased
financing facilities were obtained to replace and augment existing
facilities as of December 27, 1997, requiring the write-off of $1.7
million, net of tax, of capitalized costs incurred to obtain the replaced
credit facilities. In addition, in May, 1998 the Company refinanced its
existing debt and incurred an extraordinary charge of $3.4 million, net
of tax, for the write-off of previously capitalized costs relating to
the 12/30/97 Credit Agreement as well as penalties for early repayment of
debt.
Net earnings. The Company had net earnings in 1998 of $2.3
million, or $0.28 per common share - diluted, based on 8,257,320 weighted
average common shares outstanding. This compares to net earnings in 1997
of $5.2 million, or $0.99 per common share - diluted, based on 5,275,436
weighted average common shares outstanding.
Capital Resources and Liquidity
Cash and cash equivalents at September 26, 1998 were $6.3 million as
compared to $0.6 million at December 27, 1997. Working capital increased
$28.1 million, or 339%, to $36.4 million at September 26, 1998. The
increase in working capital is a result of the 1998 Acquisitions. Cash
provided by operating activities was $13.9 million for the thirty-nine
week period. During the thirteen-week period ended September 26, 1998,
the Company generated positive cash flow of $9.3 million (excluding the
additional debt required to fund third quarter acquisitions).
<PAGE>
In the third quarter of 1998 the Company added Term debt totaling
$50 million and increased their borrowings under the $100.0 million
senior revolving credit facility by $38.2 million. At September 26,
1998, the Company had total short and long term debt outstanding of
$223.5 million and unused availability under the revolving credit
facility of $52.0. During the fourth quarter of 1998, $1.6 million of
debt will come due.
The Company's capital spending needs in 1998 are expected to be
between $12.0 and $14.0 million. Most of the spending relates to new
injection molding presses to expand existing capacity and to replace old,
inefficient machines. The replacement machines are expected to reduce
manufacturing cycle times and ongoing maintenance costs. In addition,
the Company exercised an option in the first quarter of 1998 to purchase
the leased manufacturing and warehouse facility in Missouri at an
approximate cost of $1.4 million. The Company expects to spend between
$4.0 and $6.0 million in the fourth quarter primarily for the set up of
the Company's Tenex manufacturing facility in Chicago. Where possible,
management will pursue alternative means of financing such as capital
leases and other purchase money transactions. In addition, operating
leases will be pursued to the extent they represent attractive economic
alternatives.
The Company believes its financing facilities together with its cash
flow from operations will provide sufficient capital to fund operations,
make the required debt repayments and meet the anticipated capital
spending needs.
<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to only accept two-digit entries in the date code field and can not
distinguish 21st century dates from 20th century dates and, as a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements.
State of readiness. The Company is in the process of finalizing its
evaluation of the Year 2000 readiness (the "Project") of its information
technology systems ("IT") and its non IT Systems, ("Non IT") such as
building security, heating and cooling, telephones, voicemail, and other
similar items. The Company currently anticipates that the Project will
cover the following phases: (i) identification of all IT and non IT
systems, (ii) assessment of the repair or replacement requirements, (iii)
repair or replacement, (iv) testing, (v) implementation and (vi) creation
of contingency plans in the event of year 2000 failures. The Company
is scheduled to have reached Year 2000 compliance for all IT and non IT
Systems prior to December 1999.
The Company is also working with its major suppliers and customers
to determine whether the year 2000 problem will have an adverse effect on
the Company's relationships with them. The Company does not control
its suppliers or customers, and relies on a variety of utilities,
telecommunication companies, banks and other suppliers in order to
continue its business. There is no assurance that such parties will not
suffer a year 2000 business interruption, which, could have a material
adverse effect on the Company's financial condition and its results of
operations.
Costs. To date, the Company has not incurred significant
expenditures in connection with the identification and evaluation of the
Year 2000 compliance issues. Management estimates that the Year 2000
compliance costs will be approximately $.25 million to $.75 million.
Funds for the Year 2000 compliance will be obtained from current
operations or the Company's revolving credit facility.
Contingency plan. The Company has not yet finalized its Year 2000
contingency plan. The Company intends to finalize its contingency plan
prior to December 1999. In addition, if further year 2000 compliance
issues are discovered, the Company will evaluate the need for one or more
contingency plans relating to such issues.
<PAGE>
Outlook
The outlook section contains a number of forward-looking statements
which are based upon current expectations. Actual results may differ
materially. These statements do not take into account the potential
effects of future mergers or acquisitions.
Earnings in the fourth quarter are expected to be below the earnings
levels achieved in the second and third quarters. This is due to
seasonality factors particularly in the laundry care product lines. The
1998 Acquisitions will cause a change in the historical earnings patterns
of the company. As a result, the Company will be a strong performer in
the second and third quarters with reduced profit levels in the first and
fourth quarters. Management expects that 70-75% of its annual profits
will be earned in the second and third quarters as compared to the 58%
that was earned in the same quarters in 1997. As a result of the changes
in seasonality, earnings per share in the fourth quarter are expected to
be less than last year's fully taxed results of $0.18 per diluted share.
In addition, the acquisitions of Tenex and Prestige Plastics are not
expected to be accretive to earnings in 1998 although they will provide
additional sales and market penetration in the fourth quarter.
Fourth quarter 1998 margins are expected to decline from the third
quarter. This is due to seasonality issues as well as the impact of the
newly acquired Tenex and Prestige Plastics product lines. The acquired
product lines have lower margins than the Company's other storage and
laundry care products. The lower margins are a result of outsourcing
arrangements, excess productive capacity and market conditions. During
the fourth quarter of 1998 and first half of 1999, management will be
determining and implementing strategic initiatives to address these
issues. Such initiatives will include reconfiguring existing
manufacturing capacity to increase production, balancing production among
facilities to encourage better utilization, adding capacity and warehouse
space in Chicago and selected product line reductions. This will result
in a reduction of out sourced product as well as reduced manufacturing
costs. These actions are expected to favorably impact gross product
margins by the second half of 1999.
During the fourth quarter of 1998 and all of 1999, management
expects to see the continuation of competitive pricing pressures begun
during the third quarter. Management expects to vigorously contest such
pressures and to maintain its market position. Such competitive threats,
however, are expected to erode some of the margin gains the Company
expects to make through the cost reduction efforts discussed above.
Plastic resin costs are expected to remain at current levels through the
fourth quarter. Although this will help control costs, it will not
necessarily result in improved margins due to the competitive nature of
the current market place.
Management will continue to evaluate opportunities to reduce
operating expenses, particularly in regard to the most recent
acquisitions. Part of the Company's acquisition strategy is to combine
selling, marketing and administrative functions where appropriate. This
is an ongoing effort.
<PAGE>
In addition to the Company's goal of 10% annual growth from new
products and product line improvements, the Company will continue to
aggressively pursue acquisitions that are accretive to earnings.
Management anticipates that the fragmented nature of the housewares
industry will continue to provide significant opportunities for growth
through strategic acquisitions of complementary businesses. Management
intends to acquire businesses at attractive multiples of cash flow and
achieve operational and distribution efficiencies through integration of
complementary businesses.
The Company, consistent with its acquisition strategy, acquired
Prestige from Newell Co. and the certain assets (inventory and molds)
comprising Tenex Corporation's consumer product storage line in the third
quarter of 1998. Management estimates that both transactions will be
accretive to earnings in 1999 and that the addition of these businesses
to the Company's existing subsidiaries will result in combined revenues
of approximately $300 million in 1999. The addition of these entities
and their respected brands reaffirms the Company's commitment to leading
the consolidation in its industry by building a portfolio of companies
with established positions in the mass market channels.
<PAGE>
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
2.1 Asset Purchase and Sale Agreement among Plastics,
Inc and Home Products International, Inc. and Newell
Co. dated as of July 31, 1998. Incorporated by
Reference to Form 8-K/A filed on November 6, 1998.
2.2 Asset Purchase Agreement among Tenex Corporation,
and Home Products International, Inc., dated July
24, 1998.
10.1 $150,000,000 Amended and Restated Credit Agreement
among Home Products International, Inc. as Borrower,
the Several Lenders from time to time parties
hereto, and The Chase Manhattan Bank, as
Administrative Agent dated September 8, 1998.
Incorporated by Reference to Form 8-K/A filed on
November 6, 1998.
10.2 Assignment and Assumption Agreement by and between
Home Products International, Inc. and Prestige
Plastics, Inc. Incorporated by Reference to Form 8-
K/A filed on November 6, 1998.
27.1 Financial Data Schedule (only filed electronically
with the SEC).
(a) Reports on Form 8-K.
(1) On September 3, 1998 the Registrant filed a Form
8-K to report the acquisition of certain assets from Tenex
Corporation. No financial statements were included in the
filing.
(2) On September 23, 1998 the Registrant filed a Form
8-K to report the acquisition of assets from Newell Co.
No financial Statements were included in this filing, as
it was impractical to provide financial statements at that
time. Form 8-K/A was filed on November 6, 1998 so as to
include the required financial statements.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HOME PRODUCTS INTERNATIONAL, INC.
By: /s/ James E. Winslow
James E. Winslow
Executive Vice President
Chief Financial Officer
Dated: November 10, 1998
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), made and
entered into as of the 24th day of July, 1998, by and among
TENEX CORPORATION, an Illinois corporation ("Seller"), and HOME
PRODUCTS INTERNATIONAL, INC., a Delaware corporation ("Buyer");
WITNESSETH: THAT
WHEREAS, Seller owns and operates a manufacturing
business ("Seller's Business") that includes a product line
commonly known as the consumer plastic storage product line (the
"Product Line"); and
WHEREAS, Buyer desires to purchase, and Seller desires to
sell, certain of the assets and rights of Seller relating to the
Product Line, all on the terms and conditions as hereinafter set
forth;
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the respective meanings ascribed to them below.
"Authority" shall mean any governmental or regulatory body,
agency or authority.
"Base Price" shall have the meaning ascribed thereto in
Section 4.1 hereof.
"Buyer Indemnified Parties" shall have the meaning
ascribed thereto in Section 13.2 hereof.
"Closing" shall mean the consummation of the transactions
contemplated by this Agreement in accordance with Section 11
hereof.
"Closing Date" shall mean the date on which the Closing
occurs, as described in Section 11 hereof.
"Consents" shall mean notices to, consents or approvals of
or filings with any third party or any Authority.
"Damages" shall have the meaning ascribed thereto in Section
13.2 hereof.
"Design Patent" shall have the meaning ascribed
thereto in Section 2.1(iv) hereof.
"Effective Date" shall mean 11:59 p.m., on the date
immediately preceding the Closing Date.
<PAGE>
"Excluded Assets" shall mean all of the assets and
properties of Seller other than the Purchased Assets, and shall
include (i) the tools identified as M-730005-organizer (home
office top), M-730006-organizer (multipurpose top), M-730001-3-
crate and M-730002-2-bin (each a "Retained Tool"), and (ii) all
assets and properties of Seller that are not used or held for use
exclusively in connection with the Product Line.
"Future Products" shall mean the potential consumer plastic
storage products under consideration on the date hereof for
inclusion in the Product Line as identified on Schedule 1-B
attached hereto.
"GAAP" shall mean generally accepted accounting principles
in the United States of America as in effect from time to time
and applied consistently throughout the periods involved.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Intangible Rights" shall have the meaning ascribed thereto
in Section 2.1(iii) hereof.
"Inventory" shall mean Seller's inventory of Products,
including (i) finished goods, (ii) work in process used or held
for use exclusively in connection with the Product Line, (iii)
raw materials used or held for use exclusively in connection with
the Product Line (of the types listed on Schedule 1-C attached
hereto), and (iv) packaging and labels used or held for use
exclusively in connection with the Product Line; in the case of
each of clauses (i) through (iv) above, as such inventory exists
on the Effective Date.
"License" shall have the meaning ascribed thereto in Section
12.3 hereof.
"Liens" shall have the meaning ascribed thereto in
Section 6.3 hereof.
"Manufacturing Agreement" shall have the meaning ascribed
thereto in Section 12.3 hereof.
"Non-Competition Period" shall have the meaning ascribed
thereto in Section 12.2 hereof.
"Open Orders" shall have the meaning ascribed thereto in
Section 2.1(vi) hereof.
"Person" shall mean any individual, partnership, limited
liability company, firm, corporation, association, trust,
unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
"Product Line" shall have the meaning ascribed thereto
in the Recitals hereof.
<PAGE>
"Products" shall mean the consumer plastic storage products
included in the Product Line on the date hereof as identified on
Schedule 1-A attached hereto.
"Purchased Assets" shall have the meaning ascribed thereto
in Section 2.1 hereof.
"Purchase Price" shall have the meaning ascribed thereto in
Section 4.1 hereof.
"Representative Contracts" shall have the meaning ascribed
thereto in Section 3.2 hereof.
"Sales Excess" shall have the meaning ascribed
thereto in Section 4.2 hereof.
"Sales Threshold" shall have the meaning ascribed
thereto in Section 4.2 hereof
"Seller's Business" shall have the meaning ascribed thereto
in the Recitals hereof.
"Seller Indemnified Parties" shall have the meaning
ascribed thereto in Section 13.4 hereof.
"Sublease" shall have the meaning ascribed thereto in
Section 12.3 hereof.
"Survival Period" shall have the meaning ascribed thereto in
Section 13.6.2 hereof.
"Tooling" shall have the meaning ascribed thereto in
Section 2.1(vii) hereof.
2. SALE OF ASSETS.
2.1 Purchase and Sale of Assets. On the Closing Date, as
hereinafter specified, Seller shall sell, assign, transfer,
convey and deliver to Buyer, and Buyer shall purchase and acquire
from Seller, the following assets specifically related to the
Product Line (hereinafter collectively referred to as the
"Purchased Assets"):
(i) All of Seller's rights, title and interest on and
after the Effective Date in and to its supplier list and its
customer list for the Product Line, copies of which are
attached hereto as Schedule 2.1(i), reserving unto Seller,
however, the right to use said supplier list and customer
list in connection with product lines of Seller's Business
other than the Product Line and for any other purpose that
does not result in a violation of Section 12.2 hereof;
(ii) The Inventory;
<PAGE>
(iii) All patents, trademarks, service marks, logos,
trademark and service mark registrations, applications for
any of the foregoing, trade or business names and copyrights
owned by, registered to, licensed to, licensed by or used by
Seller on the date hereof or on the Effective Date, all to
the extent used exclusively in the manufacture or sale and
distribution of the Product Line, as listed on Schedule
2.1(iii) attached hereto, and all goodwill specifically
associated with the foregoing (collectively, together with
the Design Patent, the "Intangible Rights");
(iv) The designs and specifications for each of
the Products and the Future Products, including, without
limitation, the Design Patent described on Schedule 2.1
(iv) hereto; reserving unto Seller, however, a perpetual,
non-assignable, royalty free license of the Design Patent
for the limited purpose of manufacturing, marketing,
distributing and selling the product which is the subject
thereof for the office products market, including office
product superstores, office product and stationery
departments of membership warehouse clubs, and traditional
office channels of distribution. The license reserved to
Seller shall, except with respect to Buyer, be an exclusive
license for the 24 month period following the Closing and
shall thereafter be a non-exclusive license;
(v) All formulas, processes, technical information,
plans, drawings and know-how, all to the extent used by
Seller exclusively in the manufacture, distribution and sale
of the Products;
(vi) All open purchase orders with respect to any
Inventory that has not been shipped as of the Effective Date
(the "Open Orders");
(vii) The tooling identified on Schedule 2.1 (vi)
attached hereto (the "Tooling");
(viii) All rights of Seller on and after the Effective
Date under or pursuant to all warranties and guaranties, if
any, made to or for the benefit of Seller by suppliers,
service providers or contractors in respect of the other
Purchased Assets; and
(ix) All of Seller's books, records and files relating
directly and exclusively to the Purchased Assets.
2.2 Excluded Assets. Notwithstanding anything to the
contrary contained herein, the Purchased Assets shall not
include, and Buyer shall not purchase or otherwise acquire
pursuant to this Agreement, any right, title or interest in, any
of the Excluded Assets; provided, however, that, following
Closing, Buyer shall be entitled to make copies of any or all of
the Retained Tools at its own expense.
<PAGE>
3. ASSUMPTION OF CONTRACTS AND LIABILITIES.
3.1 Open Orders. On the Closing Date, Buyer shall assume
and agree to perform Seller's obligations with respect to the
Open Orders (using Seller as an independent contractor pursuant
to the Manufacturing Agreement during the term thereof),
including Seller's obligation to pay commissions to its sales
representatives pursuant to the Representative Contracts with
respect to such Open Orders.
3.2 Other Obligations. Except as set forth in Section 3.1
hereof, Buyer does not agree to assume, pay or perform, and Buyer
shall not be responsible for, any contract or other obligations
or liabilities of Seller, direct or indirect, known or unknown,
absolute or contingent.
3.2.1 Without limiting the generality of the foregoing,
Buyer shall not assume or be responsible for any of Seller's
contracts (the "Representative Contracts") with those sales
representatives for the Product Line, but Buyer may itself
contract with such sales representatives for sales representation
of the Product Line. A complete list of Seller's sales
representatives for the Product Line is attached hereto as
Schedule 3.2, and Seller has heretofore delivered to Buyer an
accurate copy of Seller's Representative Contract with each such
sales representative. Buyer shall use commercially reasonable
efforts to engage all of such sales representatives and Seller
shall cooperate with Buyer in all reasonable respects to enable
Buyer to do so; provided, however, that Buyer may terminate any
such engagement at anytime for cause, and otherwise at anytime
after ninety (90) days following the commencement of such
engagement, in each case without obligation to Seller.
3.2.2 Without limiting the generality of the foregoing,
Buyer shall not assume or be responsible for any rebates,
allowances or credits due to any customer under any volume
rebate, advertising allowance, promotional credit or similar
program sponsored by Seller with respect to Products shipped
prior to Closing (collectively, "Tenex Programs"). It is
understood that Buyer is not obligated to continue Tenex
Programs, and that Buyer may implement new customer incentive
programs or include the Product Line in its existing customer
incentive programs. Seller shall use commercially reasonable
efforts to settle, within thirty (30) days after Closing, all
amounts due under Tenex Programs as of Closing. In the event
that, after Closing, any claim is made against Buyer for any
amount due under Tenex Programs, whether by debit against an
invoice issued by Buyer (a "Customer Debit") or otherwise, Buyer
shall give Seller prompt written notice thereof in reasonable
detail, and Seller shall use commercially reasonable efforts to
resolve such claim with the customer within thirty (30) days
after receipt of such notice. In the event that any Customer
Debit is not resolved in such a manner that Buyer receives
payment from the customer of the debited amount within said
thirty (30) day period, Seller shall pay such debited amount (or
any unpaid portion thereof) to Buyer within five (5) days after
the expiration of said thirty (30) day period, and, upon Buyer's
<PAGE>
receipt of such payment by Buyer, Buyer shall be deemed
automatically to have assigned to Seller, without recourse or
warranty, any and all claims it may have against the customer
with respect to the Customer Debit (or any unpaid portion
thereof), without further act or documentation between the
parties.
4. PURCHASE PRICE .
4.1 Purchase Price. Subject to the satisfaction of the
terms and conditions of this Agreement, in payment for the
Purchased Assets and in consideration of Seller's covenants and
agreement hereunder, Buyer hereby agrees to pay to Seller, and
Seller agrees to accept, the aggregate sum of: (i) $17,000,000
(the "Base Price") payable at Closing by wire transfer of good
funds to Seller's order, plus or minus the amount, if any, by
which Seller's standard cost for the Inventory, as determined by
Seller and Buyer pursuant to a physical count of the Inventory
undertaken immediately prior to the Closing Date, exceeds or is
less than $3,411,625 plus (ii) the additional consideration
described in Section 4.2 hereof payable at the times and in the
manner hereinafter set forth (collectively, the "Purchase
Price").
4.2 Additional Consideration. For each of the calendar
years 1999 and 2000, if Buyer's gross sales of the Products and
any Future Products manufactured with any of the Tooling (or
duplicates of the Retained Tooling) during such calendar year
equal at least $20,000,000 (the "Sales Threshold"), Buyer shall
pay to Seller, by wire transfer of good funds to Seller's order
at the times hereinafter set forth, as additional consideration
for the Purchased Assets, an amount equal to the sum of: (i)
$500,000 in such calendar year; plus (ii) an amount not to exceed
$500,000 equal to 10 percent of the amount ("Sales Excess"), if
any, by which such gross sales in such calendar year exceed
$20,000,000. For purposes of this Agreement, "gross sales" of the
Products and any such Future Products for any period means the
gross dollar amount thereof (after all price discounts and
returns during such period) shipped or invoiced to customers
during such period. The amount specified in clause (i) above for
each such calendar year shall be due and payable in full on or
before the 30th day after the end of the calendar quarter during
which the Sales Threshold is achieved. The amount specified in
clause (ii) above for each such calendar year shall be due and
payable in installments on or before the 30th day after the end
of each calendar quarter during which a Sales Excess is first
achieved or is increased, with the first such installment being
in an amount equal to 10 percent of the amount of the Sales
Excess achieved in the first such calendar quarter, and with the
amount of each subsequent installment being in an amount equal to
10 percent of any increase in the Sales Excess achieved during
the calendar quarter to which such installment relates, all
subject to the $500,000 limit set forth in clause (ii) above for
each such calendar year. From and after Closing and until all
additional consideration provided for in this Section 4.2 shall
have been paid in full, Buyer shall deliver to Seller, on or
before the 30th day of each calendar quarter, a reasonably
detailed report of its gross sales of the Products and any such
<PAGE>
Future Products shipped or invoiced to customers during the
preceding calendar quarter and year to date, and of all price
discounts and returns deducted in the computation thereof, all in
form and content reasonably satisfactory to Seller. Seller and
its accountants shall have the right from time to time upon
reasonable prior notice to Buyer, at Seller's expense, to review
and audit Buyer's books, records, accounts and data bases
concerning such gross sales, orders, shipments and invoices to
confirm the accuracy of Buyer's reports thereof; provided,
however that, if any such review or audit discloses an
understatement of gross sales for any calendar year by more than
three percent, and such understatement causes there to have been
a shortfall in the payments of amounts due under this Section
4.2, then Buyer shall pay or reimburse Seller for the entire cost
thereof promptly upon demand.
4.3 Allocation. The Purchase Price shall be allocated among
the Purchased Assets in the manner set forth on Schedule 4.3
attached hereto.
5. COVENANTS PRIOR TO CLOSING.
5.1 Conduct of Business. Seller hereby covenants to Buyer
as follows from the date hereof through the Closing:
5.1.1 Seller shall conduct Seller's Business insofar as
it relates to the Product Line only in the usual and ordinary
course of business in accordance with past custom and practice
(including maintaining inventory (including raw materials and
work in process) at reasonable levels, placing purchase orders
only for reasonable quantities, at reasonable prices and terms
and accepting customer orders only for reasonable quantities at
reasonable prices and terms and maintaining good relations with
customers, suppliers and employees), and not enter into any
transactions or agreements (including any that would result in
the sale, lease, transfer, disposal of, or encumbrance of any
Purchased Asset) except in the ordinary course of business.
5.1.2 Seller shall continue to pay accounts payable
relating to the Purchased Assets in the ordinary course of
business and in accordance with present practice or as otherwise
required herein.
5.1.3 Seller shall keep in full force and effect its
corporate existence and all rights relating or pertaining to the
Purchased Assets.
5.1.4 Seller shall maintain the Purchased Assets in
good operating condition, ordinary wear and tear excepted, in
accordance with past practice and maintain insurance identical to
that in effect on the date of this Agreement.
5.1.5 Seller shall maintain Seller's books, accounts
and records relating to the Product Line in accordance with past
custom and practice.
<PAGE>
5.1.6 Seller shall promptly inform Buyer in writing of
any material adverse change (excluding changes in general market
or competitive conditions) relating to the Product Line and of
any material variances from the representations and warranties
contained in Section 6 hereof.
5.2 Confidentiality. Buyer and Seller mutually acknowledge
that each may have or may hereafter become privy to confidential
information of the other, and that unauthorized communication of
such confidential information to third parties could damage the
other's business. Buyer and Seller therefore mutually agree to
take reasonable steps to insure that such confidential
information about the other, obtained by Buyer or Seller,
respectively, or any of their respective employees, officers,
agents, attorneys or other representatives, shall remain
confidential and shall not be disclosed or revealed to outside
sources. "Confidential information" includes information not
ordinarily known by non-company personnel, and includes such
information as customer lists, supplier lists, trade secrets,
channels of distribution, pricing policy and records, inventory
records and other such information normally understood to be
confidential or otherwise designated as such by Seller or Buyer,
respectively. In addition to the foregoing, that certain letter
agreement between the parties regarding confidentiality dated
April 17, 1998 remains in full force and effect, is incorporated
herein by this reference, and, subject to the following sentence,
shall govern and control in the event of any conflict or
inconsistency between the terms of said letter agreement and the
terms of this Section 5.2. The foregoing confidentiality
provisions shall survive indefinitely the termination of this
Agreement or the closing of the transactions provided for herein.
Notwithstanding the foregoing: (a) neither Buyer nor Seller shall
be required to hold in confidence information that (i) is
required by law or court order to be disclosed, (ii) becomes
generally available to the public other than as a result of
disclosure by such party or (iii) becomes available to such party
from a third party who, insofar as is known to such party, is not
subject to a confidentiality obligation to another party; and (b)
following Closing, Buyer shall have the right to use and disclose
as it sees fit any confidential information obtained by Buyer
that constitutes or pertains exclusively to the Purchased Assets
or any of them.
5.3 Notice of Defaults. If, prior to Closing, either party
hereto acquires actual knowledge of any breach or default by the
other party hereto with respect to any representation, warranty
or covenant of such other party contained herein, the party
acquiring such actual knowledge shall give prompt written notice
to the other party of such breach or default in reasonable
detail.
<PAGE>
5.4 HSR Act Compliance. The parties hereto shall use their
respective best efforts and cooperate with one another (i) to
effect all filings required of them, respectively, under the HSR
Act in order to be permitted to consummate the transactions
provided for herein, (ii) to obtain the early termination of the
waiting period under the HSR Act, (iii) to furnish any non-
confidential information and documents requested by any Authority
in connection with such filings, and (iv) to resolve
expeditiously any objections that may be asserted with respect to
the transaction provided for herein by any Authority pursuant to
the HSR Act or otherwise. Each of the parties shall use best
efforts to make its respective filing referred to in clause (i)
above on or before July 24, 1998, and shall, as a condition to
the other party's performance hereunder, make such filing in all
events on or before July 29, 1998; provided, however, that,
subject to Section 10 hereof, neither party shall have any
liability to the other party for its failure to file by July 29,
1998.
6. REPRESENTATIONS OF SELLER. Seller hereby represents and
warrants to Buyer as of the date hereof and as of the Closing
Date, which representations and warranties are material, are
being relied upon by Buyer and shall survive the Closing, as
follows:
6.1 Seller's Organization and Authority. Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Illinois; has full corporate power
and authority to carry on Seller's Business as it is now being
conducted and to own, lease and operate its properties and assets
and has full corporate power and authority to enter into, execute
and deliver, and to perform its obligations under, this Agreement
and all other agreements, instruments and documents referred to
herein or contemplated hereby. Seller has delivered to Buyer
copies of Seller's Articles of Incorporation and Bylaws, as
currently in effect.
6.2 Authorization and Enforceability. The execution,
delivery and performance of this Agreement, and of all other
agreements, instruments and documents referred to herein or
contemplated hereby, by Seller have been duly authorized by all
requisite corporate action on the part of Seller and its
shareholders, and this Agreement and all other agreements,
instruments and documents referred to herein or contemplated
hereby and executed by Seller constitute valid, binding and
enforceable obligations of Seller in accordance with their
respective terms, subject to the enforcement of involuntary
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equitable principles.
<PAGE>
6.3 No Conflicts. Except as set forth on Schedule 6.3
attached hereto, the execution, delivery and performance of this
Agreement, and of all other agreements, instruments and documents
referred to herein or contemplated hereby, and the consummation
of the transactions contemplated hereby and thereby by Seller do
not and will not: (i) conflict with the Articles of
Incorporation or Bylaws of Seller, in each case as amended as of
the date hereof, or any corporate resolutions of Seller's Board
of Directors or shareholders; (ii) conflict with, or result in a
breach or termination of, or constitute a default (or an event
which, with the giving of due notice or lapse of time, or both,
would constitute a default) or cause or permit the acceleration
of the maturity of or give rise to any right to impose any fees
or penalties under, any agreement, commitment, or other
instrument, or any order, judgment or decree, to which Seller is
a party or by which Seller or any of the Purchased Assets is
bound; (iii) result in the creation or imposition of any
mortgage, pledge, lien, charge, security interest or encumbrance
of any kind (collectively, "Liens"), upon the Purchased Assets;
or (iv) subject to compliance with the HSR Act, constitute a
violation by Seller of any law, statute, judgment, injunction,
decree, order or other authoritative matter of any Authority
applicable to Seller, the enforcement of which would have an
adverse effect on Seller's ability to consummate the transactions
contemplated hereby or thereby.
6.4 Consents. Except pursuant to the HSR Act and except as
set forth in Schedule 6.4 attached hereto, no Consents are
necessary in connection with the execution and delivery by Seller
of this Agreement, or of any other agreements, instruments and
documents referred to herein or contemplated hereby, or the
consummation by Seller of the transactions contemplated herein or
therein.
6.5 Litigation. To Seller's actual knowledge, there is no
investigation, audit or review by any Authority pending or
threatened with respect to the Product Line or the Purchased
Assets or that would have an adverse effect on Seller's ability
to consummate the transactions and perform the obligations
contemplated under this Agreement or any of the other agreements,
instruments and documents referred to herein or contemplated
hereby. There are no claims, actions, suits or proceedings
pending, or to Seller's actual knowledge, threatened in
connection with the operation of the Product Line or the
Purchased Assets, at law or in equity, before or by any Authority
or any third party or that would have an adverse effect on
Seller's ability to consummate the transactions and perform the
obligations contemplated under this Agreement or any of the other
agreements, instruments and documents referred to herein or
contemplated hereby. To Seller's actual knowledge, no event has
occurred and no circumstance exists that could give rise to, or
serve as a basis for, the commencement of any such claim, action,
suit or proceeding. There is no outstanding judgment, order,
injunction or decree of any Authority or any third party against
or affecting the Product Line or the Purchased Assets, and Seller
has not been a party to, or bound by, any such judgment, order,
injunction or decree.
<PAGE>
6.6 The Purchased Assets. Except as set forth in Schedule
6.6 attached hereto, Seller is the owner of and has good and
marketable title to all of the Purchased Assets, free and clear
of all Liens.
6.7 Condition of Tooling and Inventory. The Tooling is in
good operating condition, ordinary wear and tear excepted, and
none of the Tooling is in need of maintenance or repairs except
for ordinary and routine maintenance that is not material in
nature or cost. The Inventory is in good condition and
merchantable in the ordinary course of business.
6.8 Patents, Trademarks, Etc.
6.8.1 Schedule 2.1(iii) sets forth a complete and
accurate list and summary description, including any royalties
paid to or received by Seller, of all contracts relating to the
Intangible Rights to which Seller is a party or by which Seller
is bound. To Seller's actual knowledge, there are no outstanding
and no threatened disputes or disagreements with respect to any
such agreement.
6.8.2 Seller is the owner of all right, title, and
interest in and to each of the Intangible Rights, free and clear
of all Liens, and, except as otherwise noted on Schedule
2.1(iii), has the right to use without payment to a third party
all of the Intangible Rights.
6.8.3 (i) Schedule 2.1(iii) and Schedule 2.1(iv) set
forth a complete and accurate list and summary description of all
the patents and patent applications for each of the Products and
the Future Products, including, without limitation, the Design
Patent (collectively the "Patents"). Seller is the owner of all
right, title, and interest in and to each of the Patents, free
and clear of all Liens.
(ii) All of the Patents are currently in
substantial compliance with formal legal requirements (including
payment of filing, examination, and maintenance fees), are, to
Seller's actual knowledge, valid and enforceable, and are not
subject to any maintenance fees or taxes falling due within
ninety days after the Closing.
(iii) No Patent has been and or is now
involved in any interference, reissue, reexamination, or
opposition proceeding, and, to Seller's actual knowledge, there
is no potentially interfering patent or patent application of any
third party.
(iv) No Patent is infringed or, to Seller's
actual knowledge, has been challenged or threatened in any way,
and, to the best of Seller's knowledge, none of the Products
infringes or is alleged to infringe any patent or other
proprietary right of any other Person.
(v) All products made, used, or sold under the
Patents have been marked with the proper patent notice.
<PAGE>
6.8.4 (i) Schedule 2.1(iii) sets forth a complete and
accurate list and summary description of all trademarks and
service marks, logos, trademark and service mark registrations
(and applications therefor), and trade or business names
exclusively used in the sale and distribution of the Products
("Marks"). Seller is the owner of all right, title, and interest
in and to each of the Marks, free and clear of all Liens.
(ii) To Seller's best knowledge, all Marks
that have been registered with the United States Patent and
Trademark Office are currently in substantial compliance with all
formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to
any maintenance fees or taxes falling due within ninety days
after the Closing.
(iii) No Mark has been or is now involved in
any opposition, invalidation, or cancellation proceeding and, to
Seller's actual knowledge, no such action is threatened with
respect to any of the Marks.
(iv) To Seller's actual knowledge, there is
no potentially interfering trademark or trademark application of
any third party.
(v) No Mark is infringed or, to Seller's actual
knowledge, has been challenged or threatened in any way and, to
the best of Seller's knowledge, none of the Marks used by Seller
infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(vi) All Products containing a Mark bear the
proper federal registration notice where permitted by law.
6.8.5 (i) Schedule 2.1(iii) sets forth a complete and
accurate list and summary description of all copyrights
exclusively used in the sale and distribution of the Products
("Copyrights"). Seller is the owner of all right, title, and
interest in and to each of the Copyrights, free and clear of all
Liens.
(ii) To Seller's actual knowledge, all the
Copyrights have been registered and are currently in compliance
with formal legal requirements, are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the date of Closing.
(iii) To the actual knowledge of Seller, no
Copyright is infringed or has been challenged or threatened in
any way and none of the subject matter of any of the Copyrights
infringes or is alleged to infringe any copyright of any third
party or is a derivative work based on the work of a third party.
(iv) All works encompassed by the Copyrights
have been marked with the proper copyright notice.
<PAGE>
6.9 Compliance with Laws. To Seller's actual knowledge,
Seller has complied in all material respects with all applicable
laws, rules and regulations relating to the Product Line and the
Purchased Assets. To Seller's actual knowledge, no event has
occurred or circumstance exists with respect to the Product Line
or the Purchased Assets that (with or without notice or lapse of
time) may constitute or result in a violation by Seller of, or a
failure on the part of Seller to comply with, any law, which
violation or failure has not been cured. Seller has not received
any notice or other communication (whether oral or written) from
any Authority or any other Person regarding any actual, alleged,
possible or potential violation of, or failure to comply with,
any law, or any actual, alleged, possible or potential obligation
on the part of Seller to undertake, or to bear all or any portion
of the cost of, any remedial action of any nature with respect to
the Product Line or the Purchased Assets.
6.10 Conduct of Business. Since May 4, 1998, the portion of
Seller's Business constituting the Product Line has been
conducted in the ordinary course and consistent with past
practice and there have been no material adverse changes in such
business or the Purchased Assets.
6.11 No Brokers. Seller has no agreement with any broker,
finder or intermediary in connection with this Agreement or the
transactions contemplated hereby.
6.12 Contracts. Schedule 3.1 sets forth a complete and
accurate list of all of the Representative Contracts. Except for
the Representative Contracts, Open Orders, open purchase orders
issued by Seller to its suppliers, the items listed on Schedule
6.12 attached hereto and contracts or agreements that may be
terminated by Tenex upon sixty (60) day's written notice or less,
Seller is not a party to (i) any contract or agreement relating
exclusively to the Product Line or the Purchased Assets, (ii) any
lease or license of any Purchased Asset, (iii) any license of
intellectual property (excluding any generally available software
licenses) used in connection with the manufacture or sale of the
Products, or (iv) any contract or agreement (x) that grants or
permits any third party to assert a Lien on any Purchased Asset,
(y) that permits any third party to use any Purchased Asset, or
(z) that restricts the use or transferability of any Purchased
Asset.
<PAGE>
6.13 Products. Seller has previously delivered to Buyer
copies of all past and present standard warranties extended by
Seller with respect to the Products. For a period of 90 days
following Closing, Seller shall be responsible for all costs and
expenses arising directly from any claims by customers received
by Seller within said 90 day period with respect to Products
(whether shipped before or after Closing) based on defective
Products, violation of product warranties with respect to
Products, violation of product packaging or labeling requirements
or similar claims; provided, however, that Buyer shall deliver
reasonably detailed notice of each such claim to Seller within
ten (10) days after Buyer receives written or oral notice of such
claim, Buyer shall deliver a copy of each written customer claim
to Seller within ten (10) days after receipt thereof, and Buyer
shall promptly refer all customers asserting such claims to
Seller. Thereafter, Buyer shall take sole responsibility for all
such claims and Seller shall have no liability or obligation
whatsoever with respect to any such claims.
6.14 Sales Volume. During the fiscal years of Seller ended
1996, 1997 and 1998 Seller's gross sales (after price discounts
and returns) of Products in the Product Line were $10,250,567,
$15,732,424 and $25,160,616, respectively.
6.15 Customers and Suppliers.
(a) Schedule 2.1(i) sets forth a complete and
accurate list of customers of the Product Line who have placed
firm orders within the last six (6) months.
(b) Schedule 2.1(i) sets forth a complete and
accurate list of suppliers of raw materials relating exclusively
to the Product Line with whom Tenex has placed firm orders within
the last six (6) months.
(c) (i) To Seller's actual knowledge, there exists no
actual or threatened termination, cancellation or any material
adverse change in the business relationship of Seller with any
customer or group of customers of the Product Line;
(ii) To Seller's actual knowledge, there is
no customer who accounted for more than three percent of sales of
the Products during the Seller's most recently completed fiscal
year who has filed (or has had a filing made on its behalf) for
protection under Chapter 7 or 11 of the Bankruptcy Code, and
Seller has not received written notice that any customers filed
for any such protection;
(iii) Seller has received no actual notice
from any supplier of an item material to the production, sale and
distribution of the Product Line of any material adverse change
in the price (excluding normal price fluctuations), quality and
delivery terms and conditions on which such supplier will
continue to make delivery of such item;
<PAGE>
(iv) As of July 20, 1998, except as noted on
Schedule 6.15 attached hereto, there are no unresolved claims
against Seller to return Products by reason of alleged
overshipments, defective merchandise or otherwise, in excess of
$10,000 per customer; and
(v) All sales of Products by Seller represent
bona fide transactions.
6.16 Product Liability. To Seller's actual knowledge,
Seller has no liability (and to Seller's actual knowledge there
is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand
against Seller giving rise to any liability) arising out of any
injury to individuals or property as a result of the ownership,
possession or use of any of the Products. Seller shall
indemnify, defend and hold harmless the Buyer Indemnified Parties
(as defined in Section 13.2 hereof) of, from and against any and
all Damages which may at any time be asserted or recovered
against or incurred or suffered by said Buyer Indemnified
Parties, or any of them, arising from, in connection with, on
account of or relating to any personal or other injury to
individuals or damage to property resulting from the ownership,
possession or use of any Products purchased by the ultimate
consumer within 90 days after the Closing. Buyer shall indemnify,
defend and hold harmless the Seller Indemnified Parties (as
defined in Section 13.4 hereof) of, from and against any and all
Damages which may at any time be asserted or recovered against or
incurred or suffered by said Seller Indemnified Parties, or any
of them, arising from, in connection with, on account of or
relating to any personal or other injury to individuals or damage
to property resulting from the ownership, possession or use of
any Products purchased by the ultimate consumer more than 90 days
after the Closing. Any party asserting a claim for indemnity
pursuant to this Section 6.16 shall promptly deliver a reasonably
detailed notice of such claim to the other party (but any delay
in giving such notice shall not limit the liability of the other
party hereunder, except to the extent of any prejudice to the
defense or settlement of such claim) and shall promptly refer all
consumer claimants to the other party.
7. REPRESENTATIONS OF BUYER. Buyer hereby represents and
warrants to Seller as of the date hereof and as of the Closing
Date, which representations and warranties are material, are
being relied upon by Seller and shall survive the Closing as
provided herein, as follows:
7.1 Buyer's Organization and Authority. Buyer is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with full power and
authority to enter into, execute and deliver, and to perform its
obligations under, this Agreement and all other agreements,
instruments and documents referred to herein or contemplated
hereby.
<PAGE>
7.2 Authorization and Enforceability. The execution,
delivery and performance of this Agreement and all other
agreements, instruments and documents referred to herein or
contemplated hereby, by Buyer have been duly authorized by all
requisite corporate action on the part of Buyer and its
shareholders, and this Agreement and all other agreements,
instruments and documents referred to herein or contemplated
hereby and executed by Buyer constitute valid, binding and
enforceable obligations of Buyer in accordance with their terms,
subject to the enforcement of involuntary bankruptcy, insolvency,
reorganization and other laws of general applicability relating
to or affecting creditors rights' and to general equitable
principles.
7.3 No Conflicts. The execution, delivery and performance
of this Agreement, and of all other agreements, instruments and
documents referred to herein or contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby
by Buyer do not and will not: (i) conflict with the Articles of
Incorporation or Bylaws of Buyer, in each case as amended to the
date hereof, or any corporate resolutions of Buyer's Board of
Directors or shareholders; (ii) conflict with, or result in a
breach or termination of, constitute a default (or an event
which, with the giving of due notice or lapse of time, or both,
would constitute a default) or cause or permit the acceleration
of the maturity of or give rise to any right to impose any fees
or penalties under, any agreement, commitment, or other
instrument, or any order, judgment or decree, to which Buyer is a
party or by which Buyer is bound; or (iii) subject to compliance
with the HSR Act, constitute a violation by Buyer of any law,
statute, judgment, injunction, decree, order or other
authoritative matter of any Authority applicable to Buyer, the
enforcement of which would have an adverse effect on Buyer's
ability to consummate the transactions contemplated hereby or
thereby.
7.4 Consents. Except pursuant to the HSR Act, no Consents
are necessary in connection with the execution and delivery by
Buyer of this Agreement, and of all other agreements, instruments
and documents referred to herein or contemplated hereby, or the
consummation by Buyer of the transactions contemplated herein or
therein.
<PAGE>
7.5 Litigation. To Buyer's actual knowledge, there is no
investigation or review by any Authority pending or threatened
with respect to Buyer which would have a material adverse effect
on Buyer's ability to consummate the transactions and perform the
obligations contemplated under this Agreement or any of the other
agreements, instruments and documents referred to herein or
contemplated hereby. There are no claims, actions, suits and
proceedings pending, or to Buyer's actual knowledge threatened
(and no notice has been given to Buyer), in connection with or
otherwise affecting Buyer, at law or in equity, before or by any
Authority or third party, which would have an adverse effect on
Buyer's ability to consummate the transactions and perform the
obligations contemplated under this Agreement or any of the other
agreements, instruments and documents referred to herein or
contemplated hereby. There is no outstanding judgment, order,
injunction or decree of any Authority or any third party against
or affecting Buyer, and Buyer has not been a party to, or bound
by, any such judgment, order, injunction or decree, which would
have an adverse effect on Buyer's ability to consummate the
transactions and perform the obligations contemplated under this
Agreement.
7.6 No Brokers. Buyer has dealt with no broker, finder or
intermediary in connection with this Agreement or the
transactions contemplated hereby, except for Chapman Partners
L.L.C., for whose commission Buyer shall be solely responsible.
8. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. The
obligations of Buyer to purchase the Purchased Assets and to
consummate the other transactions contemplated herein pursuant to
the terms of this Agreement are subject to the satisfaction, at
or prior to the Closing, of each of the conditions of this
Section 8. Buyer may waive any or all of these conditions in
whole or in part, but no such waiver shall constitute a waiver by
Buyer of any of its other rights or remedies at law or in equity
under this Agreement. No condition shall be deemed to have been
waived by Buyer unless such waiver is contained in a writing
specifically referring to this provision and signed by Buyer.
8.1 Representations and Warranties of Seller. The
representations and warranties of Seller contained in this
Agreement shall be true and correct in all respects at the
Closing with the same force and effect as if made at the Closing.
8.2 Compliance. Seller shall have performed, complied with
and fulfilled all of its covenants, agreements, obligations and
conditions required by this Agreement to be performed, complied
with or fulfilled at or prior to the Closing.
8.3 Litigation. No order, decree or ruling of any
governmental authority or court shall have been entered, and no
governmental action, suit, claim, investigation or proceeding
seeking to restrain or invalidate the transactions contemplated
by this Agreement or seeking damages from Buyer by reason of the
transactions contemplated by this Agreement shall be pending or
threatened.
<PAGE>
8.4 Consents. All Consents necessary for the consummation
of the transactions provided for herein (including pursuant to
the HSR Act) shall have been obtained.
8.5 Closing Deliveries. Buyer shall have received from
Seller all of the instruments, documents and considerations
described in Section 11.1, and the form and substance of all such
deliveries shall be reasonably satisfactory in all respects to
Buyer and its counsel.
9. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. The
obligations of Seller to sell the Purchased Assets and to
consummate the other transactions contemplated herein pursuant to
the terms of this Agreement are subject to the satisfaction, at
or prior to the Closing, of each of the conditions of this
Section 9. Seller may waive any or all of these conditions in
whole or in part, but no such waiver shall constitute a waiver by
Seller of any of its other rights or remedies at law or in equity
under this Agreement. No condition shall be deemed to have been
waived by Seller unless such waiver is contained in a writing
specifically referring to this provision and signed by Seller.
9.1 Representations and Warranties of Buyer. The
representations and warranties of Buyer contained in this
Agreement shall be true and correct in all respects at the
Closing with the same force and effect as if made at the Closing.
9.2 Compliance. Buyer shall have performed, complied with
and fulfilled in all respects all the covenants, agreements,
obligations and conditions required by this Agreement to be
performed, complied with or fulfilled by it at or prior to the
Closing.
9.3 Litigation. No order, decree or ruling of any
governmental authority or court shall have been entered, and no
governmental action, suit, claim, investigation or proceeding
seeking to restrain or invalidate the transactions contemplated
by this Agreement or seeking damages from Seller by reason of the
transactions contemplated by this Agreement shall be pending or
threatened.
9.4 Consents. All Consents necessary to be obtained for the
consummation of the transactions provided for herein (including
pursuant to the HSR Act) shall have been obtained.
9.5 Closing Deliveries. Seller shall have received from
Buyer all of the instruments, documents and considerations
described in Section 11.2, and the form and substance of all such
deliveries shall be reasonably satisfactory in all respects to
Seller and its counsel.
10. TERMINATION. In addition to the termination rights set
forth elsewhere in this Agreement or otherwise available, this
Agreement shall be subject to termination as set forth below. In
the event of any such termination, the parties shall have no
further obligations to each other, except as otherwise provided
herein.
<PAGE>
10.1 Termination by Mutual Agreement. This Agreement may be
terminated by the mutual agreement in writing of all of the
parties at any time prior to the Closing.
10.2 Termination by Buyer. This Agreement and any
obligations of Buyer hereunder (other than its obligations under
Section 5.2, Section 13.2 and Section 14.1 hereof) may be
terminated by Buyer upon written notice to Seller, if any
condition to Buyer's performance contained herein (i) has not
been satisfied by the Closing Date due to no fault of Buyer and
remains unsatisfied for a period following the Closing Date of
ten (10) days after written notice thereof from Buyer to Seller,
or (ii) in the case of a failure to make an HSR Act filing
pursuant to Section 5.4 hereof, has not been satisfied by July
29, 1998. If this Agreement is terminated by Buyer pursuant to
clause (i), but not clause (ii), of the preceding sentence due to
a breach by Seller, Buyer may pursue whatever rights or remedies
it may have against Seller arising out of any such breach of this
Agreement.
10.3 Termination by Seller. This Agreement and any
obligations of Seller hereunder (other than its obligations under
Section 5.2, Section 13.1 and Section 14.1 hereof) may be
terminated by Seller upon written notice to Buyer at any time
prior to or at the Closing, if any condition to Seller's
performance (i) has not been satisfied by the Closing Date due to
no fault of Seller and remains unsatisfied for a period following
the Closing Date of ten (10) days after written notice thereof
from Seller to Buyer, or (ii) in the case of a failure to make an
HSR Act filing pursuant to Section 5.4 hereof, has not been
satisfied by July 29, 1998. If this Agreement is terminated by
Seller pursuant to clause (i), but not clause (ii), of the
preceding sentence due to a breach by Buyer, then Seller may
pursue whatever rights or remedies it may have against Buyer
arising out of any such breach of this Agreement.
11. CLOSING. The Closing shall take place on the later of
August 14, 1998 or the next business day following the
termination of the waiting period under the HSR Act, or on such
other date as the parties may agree (the "Closing Date") at the
offices of Barack Ferrazzano Kirschbaum Perlman & Nagelberg
identified in Section 14 hereof, at 10:30 a.m.
11.1 Delivery of Documents by Seller. Seller shall deliver
the following agreements, documents and instruments to Buyer on
the Closing Date, in form and substance as required by the terms
of this Agreement and otherwise in form and substance reasonably
acceptable to Buyer's counsel:
11.1.1 Possession of the Purchased Assets (except to
the extent that the Manufacturing Agreement contemplates
retention thereof by Seller), free and clear of all Liens
(including those listed on Schedule 6.6), together with documents
and instruments of transfer for the Purchased Assets, including
bills of sale for all tangible Purchased Assets, and assignments
(in recordable or registerable form, if applicable) of intangible
Purchased Assets, subject, in the case of the Design Patent to
the reserved license referred to in Section 2.1(iv) hereof.
<PAGE>
11.1.2 A certificate, duly executed by an executive
officer of Seller, (i) certifying and reaffirming, as of such
date, the truth, completeness and accuracy of Seller's
representations and warranties set forth herein, and (ii)
certifying Seller's compliance as of such date with all terms and
conditions hereof.
11.1.3 A certified copy of (i) Seller's Articles of
Incorporation from the Illinois Secretary of State, (ii) Seller's
Bylaws from Seller's secretary, and (iii) resolutions of Seller's
Board of Directors authorizing the execution, delivery,
performance and consummation of the transactions described herein
from Seller's secretary; and a Certificate of Incumbency
identifying the then current officers of Seller and their
respective positions executed by the Seller's secretary; and
current Certificates of Good Standing of Seller issued by the
Illinois Secretary of State.
11.1.4 Letters to Seller's customers for the
Products, duly signed by Seller, apprising such Customers of the
sale of the Product Line to Buyer.
11.1.5 Original counterparts of the License, the
Sublease and the Manufacturing Agreement, duly executed by
Seller.
11.1.6 An opinion of Seller's counsel regarding
Seller's good standing, power and authority to enter into this
Agreement and the transactions provided for herein, and the
absence of conflicts with Seller's Articles of Incorporation, By-
laws and resolutions.
11.1.7 Such other documents, instruments, deliveries
and possession as are required by this Agreement, or are
otherwise necessary to effectuate fully the transactions provided
for herein.
11.2 Delivery of Documents and Payment by Buyer. Buyer
shall execute and deliver or cause to be delivered the following
agreements, documents, instruments and payments to Seller on the
Closing Date, in form and substance as required by the terms of
this Agreement or otherwise in form and substance reasonably
acceptable to Seller's counsel:
11.2.1 A written assumption of the Open Orders and
the Representative Contracts designated by Buyer.
11.2.2 The Base Price, by wire transfer of good
funds to Seller's order.
11.2.3 A certificate, duly executed by an officer of
Buyer, certifying and reaffirming as of the Closing Date, (i) the
truth, completeness and accuracy of Buyer's representations and
warranties contained herein, and (ii) certifying Buyer's
compliance as of the Closing Date with all terms and conditions
hereof.
<PAGE>
11.2.4 A certified copy of (i) Buyer's Articles of
Incorporation from the Delaware Secretary of State, (ii) Buyer's
Bylaws from Buyer's secretary, and (iii) resolutions of Buyer's
Board of Directors authorizing the execution, delivery,
performance and consummation of the transactions described herein
from Buyer's secretary; and a Certificate of Incumbency
identifying the then current officers of Buyer and their
respective positions executed by the Buyer's secretary; and
current Certificates of Good Standing of Buyer issued by the
Delaware Secretary of State.
11.2.5 Original counterparts of the License, the
Sublease and the Manufacturing Agreement, duly executed by Buyer.
11.2.6 An opinion of Buyer's counsel regarding
Buyer's good standing, power and authority to enter into this
Agreement and the transactions provided for herein and the
absence of conflicts with Buyer's Articles of Incorporation, By-
laws and resolutions.
11.2.7 Such other documents, instruments and
deliveries as are required by this Agreement, or are otherwise
necessary to effectuate fully the transactions provided for
herein.
12. POST-CLOSING COVENANTS.
12.1 Further Assurances. At any time, and from time to
time, without additional consideration, the parties agree to take
such actions, cause such proceedings to occur and prepare,
execute and deliver all such further documents, instruments and
agreements which may be reasonably requested by Buyer or its
counsel or by Seller or its counsel in order to more effectively
transfer title to the Purchased Assets to Buyer, or to evidence
Buyer's assumption of obligations, or to effectuate and carry out
any provision of this Agreement and the transactions provided for
herein.
12.2 Non-Compete.
12.2.1 As a significant inducement to Buyer to enter
into and to perform its obligations under this Agreement, Seller
and Albert B. Cheris ("Cheris") agree that, for a period of five
(5) years (which period shall be extended during any period of
noncompliance) after the Closing Date (the "Non-Competition
Period"), they shall not, directly or indirectly, for their own
benefit or for the benefit of any other Person, engage in, own,
manage, control or participate or maintain any interest in any
business or entity engaged in any way in the business of the
manufacture or distribution in North America of consumer plastic
storage products competitive with the Product Line or of plastic
storage products that are substantially similar to the Products
(whether such substantially similar plastic storage products are
sold through consumer or office channels of distribution);
provided, however, that, notwithstanding the foregoing, the
exploitation of the Retained Tools by Seller (limited, however,
to the manufacture of products for the office products market
<PAGE>
(including office product superstores, office product and
stationery departments of membership warehouse clubs, and
traditional office product channels of distribution) using the
Retained Tools and the marketing, distribution and sale thereof
to the office product market as part of Seller's Business) is not
prohibited by and shall not constitute a breach of this Section
12.2.1; and provided further that the parties mutually
acknowledge and agree that Seller's "MediaWorx" and "Desktop
Tools" product lines, as more specifically described in Schedule
12.2.1 attached hereto, including the media storage products and
the filing, accessory and sorting products (and any products
substantially similar thereto) now or hereafter included therein,
do not constitute consumer plastic storage products, are not
competitive with the Product Line and are not substantially
similar to the Products; and provided further that the parties
mutually acknowledge and agree that a sale of Seller's Business,
in whole or in part, or of any of the assets thereof to a third
party purchaser not directly or indirectly affiliated with
Cheris, and the ownership of such business or assets thereafter
by such third party purchaser, is not prohibited by and shall not
constitute a breach of this Section 12.2.1, regardless of the
identity or business of such purchaser. For purposes of this
Section 12.2.1, subject to the foregoing provisos, a product will
be deemed to be competitive with the Product Line if it is a
plastic storage product sold through traditional consumer or mass
merchandising channels of distribution (such as, without
limitation, K Mart, WalMart and Target).
12.2.2 Neither party to this Agreement shall, prior
to or during the Non-Competition Period: (i) directly or
indirectly (x) induce or assist any Person in any way to induce,
any current or future employee of the other party to leave its
employ or (y) hire or assist any Person in any way to hire any
current or future employee of the other party (provided, however,
that Buyer may offer employment following the date hereof for
employment after Closing to Eric Buresch, and Seller will not
attempt to dissuade him from accepting any such offer); or (ii)
interfere with or attempt to interfere with the relationship of
the other party with any current or future customer or supplier
of the other party.
12.2.3 If, at the time of enforcement of this
Section 12.2, a court shall hold that the duration, scope or area
restrictions stated herein are unreasonable, the parties agree
that the maximum reasonable duration, scope or area shall be
substituted by such court for the stated duration, scope or area.
The parties hereto and Cheris acknowledge the uncertainty of the
law in this respect and expressly stipulate that this Agreement
shall be given the construction which renders its provisions
valid and enforceable to the maximum extent possible under
applicable law.
<PAGE>
12.2.4 Buyer, Seller and Cheris each recognize and
affirm that in the event of breach by such party of any of the
provisions of this Section 12.2, money damages would be
inadequate and the other party would have no adequate remedy at
law. Accordingly, each party agrees that the non-breaching party
shall have the right, in addition to any other rights and
remedies existing in its favor, to enforce its rights and each of
the breaching party's obligations under this Section 12.2 not
only by an action or actions for damages, but also by an action
or actions for specific performance, injunction and/or other
equitable relief or order to enforce or prevent any violations
(whether anticipatory, continuing or future) of any of the
provisions of this Section 12.2, without the necessity of posting
bond.
12.3 Transition of Operations. Following the Closing Date
(i) Seller shall manufacture the Products for Buyer through March
31, 1999 pursuant to the terms of the Manufacturing Services
Agreement attached hereto as Exhibit A (the "Manufacturing
Agreement"), and (ii) Seller will sublease to Buyer Seller's
warehouse for the Products pursuant to the terms of the Sublease
attached hereto as Exhibit B (the "Sublease"), and (iii) Buyer
may use Seller's registered trademark "Tenex" solely in
connection with the Products and any Future Products pursuant to
the terms of the Trademark License Agreement attached hereto as
Exhibit C (the "License").
13. INDEMNIFICATION.
13.1 Survival; Right to Indemnification not Affected by
Investigation. Subject to Section 13.6.2 hereof, all
representations, warranties, covenants and obligations in this
Agreement, the schedules hereto and any certificate or document
delivered pursuant to this Agreement will survive the Closing.
The right to indemnification, payment of Damages (as defined in
Section 13.2) or other remedy based on such representations,
warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to the accuracy or
inaccuracy of or compliance with any such representation,
warranty, covenant, or obligation, except to the extent that the
party asserting any claim for indemnification, Damages or any
other remedy had actual knowledge on or before the Closing Date
of any breach of such representation, warranty, covenant or
obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the
right to indemnification, payment of Damages, or other remedy
based on such representations, warranties, covenants and
obligations, except to the extent that the party asserting any
claim for indemnification, Damages or any other remedy had actual
knowledge on or before the Closing Date of any breach of such
representation, warranty, covenant or obligation.
<PAGE>
13.2 Seller's Indemnification. Seller shall indemnify,
defend and hold harmless Buyer, and each of its shareholders,
affiliates, officers, directors, managers, agents, attorneys,
accountants and employees, and each of their respective
successors and assigns (all collectively, the "Buyer Indemnified
Parties"), of, from and against, any and all loss, claims,
damages, suits, actions, causes of action, liabilities,
penalties, judgments, decrees, costs and expenses, including
reasonable attorneys' fees and costs (collectively, "Damages"),
which may at any time be asserted or recovered against or
incurred or suffered by said Buyer Indemnified Parties, or any of
them, arising from, in connection with, on account of, or
relating to (i) the untruth, incompleteness or misleading
character of any representation or warranty of Seller set forth
herein (or in any document or certificate delivered by Seller
pursuant to this Agreement) in any material respect, and (ii)
Seller's breach or default of any covenant, agreement, term or
condition contained herein.
13.3 Shareholder's Indemnification. Cheris and Seller,
jointly and severally, shall indemnify, defend and hold harmless
the Buyer Indemnified Parties of, from and against any and all
Damages which may at any time be asserted or recovered against or
incurred or suffered by said Buyer Indemnified Parties, or any of
them, arising from, in connection with, on account of, or
relating to any breach or default by Cheris or Seller of any of
the covenants, terms or conditions contained in Section 12.2 of
this Agreement; provided, however, that Cheris shall have no
liability or obligation whatsoever under this Section 13.3 or
otherwise with respect to any such breach or default by Seller
that occurs at a point in time when neither Cheris nor members of
his immediate family nor any entity controlled by him owns or
controls, directly or indirectly, a majority of the voting
securities of Seller.
13.4 Buyer's Indemnification. Buyer agrees to indemnify,
defend and hold harmless Seller and each of its officers,
directors, shareholders, agents, attorneys, accountants and
employees, and each of their respective successors and assigns
(all collectively, the "Seller Indemnified Parties"), of, from
and against, any and all Damages which may at any time be
asserted or recovered against or incurred by said Seller
Indemnified Parties, or any of them, arising from, in connection
with, on account of, or relating to (i) the untruth,
incompleteness or misleading character of any representation or
warranty of Buyer set forth herein (or in any document or
certificate delivered by Buyer pursuant to this Agreement) in any
material respect, and (ii) Buyer's breach or default under any
covenant, agreement, term or condition contained herein.
<PAGE>
13.5 Procedure for Indemnification_Third Party Claims.
13.5.1 Subject to Section 13.6.2 hereof, promptly
after receipt by an indemnified party under Section 13.2 or 13.4,
of notice of the commencement of any proceeding against it, such
indemnified party will, if a claim is to be made against an
indemnifying party under such Section, promptly give notice to
the indemnifying party of the commencement of such claim, but the
failure promptly to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have
to any indemnified party, except to the extent that the defense
or settlement of such action is prejudiced by the indemnifying
party's failure to give such notice.
13.5.2 If any proceeding referred to in Section
13.5.1 is brought against an indemnified party and it gives
notice to the indemnifying party of the commencement of such
proceeding, the indemnifying party will be entitled to
participate in such proceeding and, to the extent that it wishes
(unless (i) the indemnifying party is also a party to such
proceeding and the indemnified party determines in good faith
that joint representation would be materially prejudicial to the
indemnified party or would be a prohibited conflict of interest,
or (ii) the indemnifying party fails to provide such reasonable
assurance as may be requested in writing by the indemnified party
of its financial capacity to defend such proceeding and provide
indemnification with respect to such proceeding), to assume the
defense of such proceeding with counsel reasonably satisfactory
to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the
defense of such proceeding, the indemnifying party will not, as
long as it diligently conducts such defense, be liable to the
indemnified party under this Section 13 for any fees of other
counsel or any other expenses with respect to the defense of such
proceeding, in each case subsequently incurred by the indemnified
party in connection with the defense of such proceeding. If the
indemnifying party assumes the defense of a proceeding, (i)
unless otherwise specified in writing by the indemnifying party,
it will be conclusively established for purposes of this
Agreement that the claims made in that proceeding are within the
scope of and subject to indemnification; (ii) no compromise or
settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is
no finding or admission of any violation of law or any violation
of the rights of any of the indemnified parties and no effect on
any other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (iii) the indemnified
party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of
any proceeding and the indemnifying party does not, within ten
(10) days after the indemnified party's notice is given, give
notice to the indemnified party of its election to assume the
defense of such proceeding, the indemnifying party will be bound
by any determination made in such proceeding or any compromise or
settlement effected by the indemnified party if the claims made
in such proceeding are within the scope of and subject to
indemnification.
<PAGE>
13.5.3 Notwithstanding the foregoing, if an
indemnified party determines in good faith that there is a
reasonable probability that a proceeding may adversely affect it
or its affiliates other than as a result of monetary damages for
which it would be entitled to indemnification under this
Agreement, the indemnified party may, at its own expense by
notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such proceeding, but the
indemnifying party will not be bound by any determination of a
proceeding so defended or any compromise or settlement effected.
13.6 Limitations.
13.6.1 Notwithstanding anything to the contrary
contained herein: the indemnifying party shall not be required
to indemnify the indemnified party pursuant to this Section 13
unless and until, and only to the extent that, the aggregate
Damages suffered by the indemnified party on account of all
breaches of representations, warranties, covenants and agreements
of the indemnifying party shall exceed $100,000.00; provided,
however, that the obligations set forth in Section 3.2.2, Section
6.16 and Section 12.2 shall not be subject to the limitation of
this Section 13.6.1.
13.6.2 If the Closing occurs, Seller will have no
liability (for indemnification or otherwise) with respect to (i)
any representation or warranty, or (ii) any covenant or
obligation to be performed and complied with prior to the Closing
Date, other than those in Sections 6.2, 6.3, 6.5, 6.6 and 6.11
unless, within five hundred and forty (540) days after the
Closing Date (the "Survival Period"), Buyer notifies Seller in
writing of a claim specifying the factual basis of that claim in
reasonable detail under the circumstances. A claim with respect
to Section 6.2, 6.3, 6.5, 6.6 or 6.11, or a claim for
indemnification or reimbursement based upon any covenant or
obligation to be performed and complied with after the Closing
Date, may be made without regard to the Survival Period (subject
to the applicable statute of limitation relating to breaches of
written contracts), and a claim for indemnification with respect
to any bona fide third party suit subject to indemnification
hereunder may be made at any time. If the Closing occurs, Buyer
will have no liability (for indemnification or otherwise) with
respect to (i) any representation or warranty, or (ii) any
covenant or obligation to be performed and complied with prior to
the Closing Date, other than those in Sections 7.2, 7.3, 7.5 and
7.6, unless, within the Survival Period, Seller notifies Buyer of
a claim specifying the factual basis of that claim in reasonable
detail under the circumstances. A claim with respect to Section
7.2, 7.3, 7.5 or 7.6, or a claim for indemnification or
reimbursement based upon any covenant or obligation to be
performed after the Closing Date, may be made without regard to
the Survival Period (subject to the applicable statute of
limitations relating to breaches of written contracts), and a
claim for indemnification with respect to any bona fide third
party suit subject to indemnification hereunder may be made at
any time. Nothing contained in this Section 13.6.2 is intended
to, nor shall it, modify or impair any limitation on liability
contained in this Section 13.
<PAGE>
14. GENERAL PROVISIONS.
14.1 Expenses. Buyer and Seller will each bear its own
respective costs and expenses relating to the transactions
contemplated hereby, including, without limitation, fees and
expenses of legal counsel, accountants, consultants or other
representatives for the services used, hired or connected with
the proposed transactions mentioned above.
14.2 Headings. The subject headings of the sections of this
Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its
provisions.
14.3 Entire Agreement; Severability. This Agreement
(together with the Sublease, the License, the Manufacturing
Agreement and that letter agreement referred to in Section 5.2
hereof) constitutes the entire agreement and understanding
between the parties with regard to the subject matter hereof, and
there are no other prior or contemporaneous written or oral
agreements, undertakings, promises, warranties, or covenants
respecting such subject matter not expressly set forth or
described herein. The invalidity, illegality or unenforceability
for any reason of any one or more provisions of this Agreement
shall not affect the validity, legality or enforceability of the
remainder of this Agreement. The representations, warranties and
indemnities of the parties contained herein, subject to the
limitations applicable thereto pursuant to the terms hereof, are
applicable to and are being relied upon by the parties in
connection with the Sublease, the License and the Manufacturing
Agreement.
<PAGE>
14.4 Notices. All notices, requests, demands, and other
communications required to be given under this Agreement shall be
in writing and shall be deemed to have been duly given (i) upon
delivery in person if the party to whom notice is given issues a
receipt therefor; (ii) three days after deposit in certified or
registered United States mail, postage prepaid; (iii) the next
business day after delivery to an overnight courier, shipping
prepaid; or (d) upon transmittal by facsimile if confirmed
telephonically, as follows:
If to Seller: Tenex Corporation
2400 Arthur Avenue
Elk Grove, Illinois 60007
Fax No.: (847)439-9577
Attention: Albert Cheris
With a copy to: Barack, Ferrazzano, Kirschbaum, Perlman
& Nagelberg
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Fax No.: (312) 984-3150
Attention: Peter J. Barack, Esq.
If to Buyer: Home Products International, Inc.
4501 West 47th Street
Chicago, Illinois 60632
Fax No.: (773) 890-0523
Attention: Mr. James R. Tennant
With a copy to: Much Shelist Freed Denenberg Ament
Bell & Rubenstein, P.C.
200 North LaSalle Street
Suite 2100
Chicago, Illinois 60601
Fax No.: (312) 621-1750
Attention: Jeffrey C. Rubenstein, Esq.
14.5 Modification and Waiver. No supplement, modification
or amendment of this Agreement shall be binding unless executed
in writing by all the parties. No waiver of any breach or waiver
of any of the provisions of this Agreement shall constitute or
shall be deemed to constitute a waiver of any other breach or
violation of any provision of this Agreement, whether or not
similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party
making the waiver.
14.6 Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
14.7 Exhibits and Schedules. All exhibits and schedules
attached to this Agreement are incorporated herein and made a
part hereof in the same manner as if such exhibits and schedules
were set forth at length in the text hereof.
<PAGE>
14.8 Successors. This Agreement shall be binding on, and
shall inure to the benefit of, the parties and their respective
successors and permitted assigns; provided, however, no party may
assign or transfer any of its rights or obligations hereunder
except with the prior written consent of the other party hereto;
provided, however, that Buyer may assign its rights and
obligations hereunder to any of its wholly-owned subsidiaries,
but no such assignment shall relieve Seller of any liability or
obligation hereunder. There are no third party beneficiaries of
this Agreement except for the indemnified parties referred to in
Section 13 hereof.
14.9 Nature of Representations and Warranties. No party
shall be deemed to have made any representations or warranties
with respect to the transactions contemplated by this Agreement,
unless the representation or warranty is set forth herein, or in
any other agreement or instrument executed and delivered pursuant
to this Agreement.
14.10 Time of Essence. Seller and Buyer hereby
acknowledge and agree that time is strictly of the essence with
respect to each and every term, condition, obligation and
provision hereof.
14.11 Remedies Cumulative. Except as otherwise
provided herein, all remedies of any party hereunder are
cumulative and not alternative, and are in addition to any other
remedies available at law, in equity or otherwise.
14.12 Construction. Any reference to the masculine
gender shall be deemed to include the feminine and neuter genders
unless the context otherwise requires. The singular shall include
the plural, and the plural the singular, as the context may
require. The term "actual knowledge" means: (i) as to Seller,
the actual conscious awareness of Albert Cheris, William
Muench, Eric Buresch and/or Mike Guluska, and (ii) as to Buyer,
the actual conscious awareness of James R. Tennant, Dave Limani,
Steve Brian and Tom Beamer; and excludes in each case any
constructive or imputed knowledge. The words "hereof," "herein,"
"hereto," "hereby," "hereunder" and other words of similar import
refer to this Agreement as a whole, including, without
limitation, all schedules and exhibits. The word "including"
shall mean "including, without limitation". Each party hereto
participated in the drafting of this Agreement, and no provision
of this Agreement shall be construed against any party hereto on
the grounds that such party was the draftsman thereof.
14.13 Applicable Law. This Agreement and all
transactions contemplated hereby shall be governed, construed and
enforced in accordance with the laws of the State of Illinois.
<PAGE>
14.14 Preclosing Contacts. Notwithstanding anything to
the contrary contained herein, Buyer shall not, prior to Closing,
directly or indirectly contact or communicate with any customer
or supplier of Seller in connection with the Product Line.
14.15 Confidentiality of Agreement. Neither of the
parties hereto shall disclose any of the business terms of this
transaction without the written consent of the other party,
except, on a need to know basis, to its professional advisors and
except insofar as such disclosure may be required by applicable
law. Promptly following the full execution and delivery of this
Agreement, the parties hereto shall issue a joint press release
in the form reasonably satisfactory to each of the parties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
SELLER:
TENEX CORPORATION,
an Illinois corporation
By:
Its:
___________________________________
BUYER:
HOME PRODUCTS INTERNATIONAL, INC., a
____________________________
By:
Its: ____________________________________
JOINDER
Albert Cheris hereby joins in only Sections 12.2 and 13.3 of
the foregoing Agreement.
Albert B. Cheris
<PAGE>
EXHIBIT B
FORM OF SUBLEASE
(Attached Hereto)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> SEP-26-1998
<CASH> 6,271
<SECURITIES> 0
<RECEIVABLES> 53,639
<ALLOWANCES> 3,377
<INVENTORY> 33,435
<CURRENT-ASSETS> 92,537
<PP&E> 82,883
<DEPRECIATION> 25,157
<TOTAL-ASSETS> 342,463
<CURRENT-LIABILITIES> 56,149
<BONDS> 220,261
0
0
<COMMON> 80
<OTHER-SE> 58,915
<TOTAL-LIABILITY-AND-EQUITY> 342,463
<SALES> 175,637
<TOTAL-REVENUES> 175,637
<CGS> 118,435
<TOTAL-COSTS> 34,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,260
<INCOME-PRETAX> 12,590
<INCOME-TAX> 5,201
<INCOME-CONTINUING> 7,389
<DISCONTINUED> 0
<EXTRAORDINARY> 5,107
<CHANGES> 0
<NET-INCOME> 2,282
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
