<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FIFTY TWO WEEKS ENDED DECEMBER 25, 1999
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)
--------------------------
<TABLE>
<S> <C>
DELAWARE 36-4147027
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)
4501 WEST 47TH STREET
CHICAGO, ILLINOIS 60632
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code (773) 890-1010.
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
ON WHICH REGISTERED TITLE OF EACH CLASS
--------------------- -------------------
<S> <C>
None Common Stock, Par Value $0.01 Per Share
</TABLE>
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Shares of common stock, par value $0.01 outstanding at February 25,
2000 -- 7,260,860. Aggregate market value of such shares held by non-affiliates
as of that date -- $41,795,644.
DOCUMENTS INCORPORATED BY REFERENCE.
Home Products International, Inc. definitive proxy statement dated April
12, 2000 for the 2000 Annual Meeting ("Proxy Statement") -- Part III
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Home Products International, Inc. (the "Company" or "HPI") through its
wholly owned subsidiaries designs, manufactures and markets a broad range of
quality consumer houseware products. The Company is a leading supplier to large
national retailers of value-priced laundry management products, general storage
products, disposable servingware products, closet storage products, bathware
products, kitchen storage products and juvenile products. The Company holds a
significant market share in the United States in each of its key product
categories. The Company's products are sold in the United States through most of
the large national retailers, including Wal-Mart, Sam's Club, Target, Kmart,
Home Depot, Toys 'R Us, Walgreens and Bed Bath & Beyond. The Company generated
$294.0 million in net sales for 1999, which makes HPI one of the largest
companies in the fragmented U.S. consumer housewares industry.
On February 18, 1997, the Company became the holding company for, and
successor registrant under the Securities Exchange Act of 1934 (the "Exchange
Act") to Selfix, Inc. ("Selfix") and Selfix became a wholly owned subsidiary of
the Company through a holding company reorganization under the General
Corporation Law of Delaware.
The Company was originally founded as Selfix in 1952 as a privately held
manufacturer of plastic hooks. Selfix became a public company following an
initial public offering of its Common Stock in fiscal 1988.
Currently, the Company is the parent to one operating subsidiary - Home
Products International -- North America, Inc. ("HPNA"). Effective December 26,
1999, all of the Company's operating subsidiaries were merged into HPNA.
The following table presents significant acquisitions within fiscal 1997,
1998 and 1999:
<TABLE>
<CAPTION>
ENTITY DATE ACQUIRED
------ ------------------
<S> <C>
Tamor Plastics Corporation and its affiliated product
distribution company Houseware Sales, Inc................. January 1, 1997
Seymour Sales Corporation and its wholly owned subsidiary
Seymour Housewares Corporation............................ December 30, 1997
Tenex Corporation's consumer product storage line........... August 14, 1998
Prestige Plastics, Inc. (AHP and PI)........................ September 8, 1998
Epic product lines.......................................... May 12, 1999
</TABLE>
TAMOR ACQUISITION
Effective January 1, 1997, the Company acquired Tamor Plastics Corporation,
a privately held company founded in 1947, and its affiliated product
distribution company, Houseware Sales, Inc. (the "Tamor Acquisition"). Tamor
Plastics Corporation and Houseware Sales, Inc. were merged to form Tamor
Corporation, a Massachusetts corporation and are collectively referred to herein
as "Tamor". Tamor designs, manufactures and markets quality plastic housewares
products within the general storage, closet storage and juvenile product
categories. Tamor was merged into HPNA effective December 26, 1999.
SEYMOUR ACQUISITION
Effective December 30, 1997, the Company acquired Seymour Sales Corporation
and its wholly owned subsidiary, Seymour Housewares Corporation, (collectively,
"Seymour"), a privately held company originally founded in 1942 (the "Seymour
Acquisition"). Seymour is a leading designer, manufacturer, and marketer of
consumer laundry care products. Seymour produces a full line of
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ironing boards, ironing board covers and pads and numerous laundry related
accessories. Seymour was merged into HPNA effective December 26, 1999.
TENEX ASSET ACQUISITION
Effective August 14, 1998 the Company acquired certain assets (inventory
and molds) which comprised Tenex Corporation's consumer product storage line
(the "Tenex Asset Acquisition"). This product line consisted of plastic storage
bins and containers, rolling carts and stacking drawer systems.
NEWELL ASSET ACQUISITION
Effective September 8, 1998 the Company acquired the assets and assumed
certain liabilities comprising the businesses of Anchor Hocking Plastics ("AHP")
and Plastics, Inc. ("PI"), and is referred to herein as the "Newell Asset
Acquisition". AHP is a leading supplier of food storage containers and PI is a
leading supplier of disposable plastic servingware. Prestige Plastics, Inc. (the
company created to facilitate the acquisition of AHP and PI) was merged into
HPNA effective December 26, 1999.
1999 ACQUISITION
Effective May 12, 1999 the Company acquired certain assets (primarily
inventory and molds) from Austin Products, Inc. which were sold under the Epic
brand name (the "1999 Acquisition"). The product lines obtained included the
following plastic housewares products: laundry baskets, tote caddys, crates,
bins and utility buckets.
(b) Financial information about segments.
Based upon the requirements of Statement of Financial Accounting Standards
("SFAS") No. 131, management of the Company has determined that HPI operates
within in a single segment -- Housewares. As such, the required information for
this section is contained in the Consolidated Financial Statements as included
in Part II, Item 8 of this Form 10-K.
(c) Narrative description of business.
HOUSEWARES SEGMENT PRODUCTS -- HISTORICAL GROSS SALES BY PRODUCT CATEGORY
The following table sets forth the amounts and percentages of the Company's
historical gross sales by product categories within the housewares segment for
the periods indicated. As a result of realignment of the Company's product
categories in 1998, certain prior year amounts have been reclassified,(in
thousands, except percentages).
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
SALES % SALES % SALES %
-------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Laundry management.................. $ 98,274 30% $100,671 37% $ -- --%
General storage..................... 89,122 28% 58,837 21% 47,275 34%
Servingware......................... 35,277 11% 12,584 4% -- --%
Closet storage...................... 34,431 11% 38,109 14% 46,390 34%
Bathware............................ 28,515 9% 26,686 10% 24,428 18%
Kitchen storage..................... 27,108 8% 13,053 5% -- --%
Juvenile............................ 9,711 3% 15,780 6% 11,652 8%
Shutters............................ -- --% 8,252 3% 8,385 6%
-------- --- -------- --- -------- ---
Total Gross Sales......... $322,438 100% $273,972 100% $138,130 100%
Allowances.......................... (28,437) (21,543) (8,806)
-------- -------- --------
Total Net Sales........... $294,001 $252,429 $129,324
======== ======== ========
</TABLE>
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Laundry Management products. The Company offers a significant variety of
ironing boards (approximately 185 individual SKU's) and management believes that
the Company commands a majority of the U.S. market share. Key products in this
category include the EasyBoard (perforated board), SureFoot (vented, four-leg
board), ReadyPress (over-the-door) and IP2000 (vented, four-leg with hanger
rack). The Company is also the leading manufacturer of ironing board covers and
pads, and also holds a majority of the U.S. market share. The Company offers a
variety of different types of covers and pads in a multitude of different
designs that fit not only its own ironing boards, but all regular size boards.
The Company's covers are known for their scorch resistance and it is the only
company that sells form fitting ironing board covers with 3M Scotchguard
coating, Elasticord(TM) drawstrings and Cordlock(TM)fasteners. Additionally, the
Company is a leading U.S. producer of laundry accessories. Key products within
this category include: wood and metal drying racks, laundry bags, hampers and
sorters, clotheslines, and clothes pins.
General storage. The Company offers a variety of plastic storage
containers, rolling carts and stacking drawer systems. The storage containers
range in size from shoe boxes to jumbo (50 gallon) totes, and include specialty
containers sold during the winter holiday season. Storage containers contain a
variety of product attributes, including removable wheels and dome-top lids,
which increase storage capacity. The rolling carts and stacking drawer systems
come in a wide range of sizes and number of shelving units. In response to
demand for larger storage units, the Company recently introduced The Workspace
Rolling Storage line, a versatile drawer system for the home or office.
Servingware products. This is a new product category which was acquired in
1998. Products in this category include a wide range of upscale, plastic
disposable beverage and food servingware product lines. The primary products are
Scrollware(R), Prestige(R) and Beverageware(TM). Scrollware(R) consists of clear
plastic plates, bowls, trays and mugs. The products are clear to resemble
crystal and are etched with a baroque design. Prestige(R) products include
plates, bowls, tray and drinkware in three colors; white, black and clear.
Beverageware(TM) products are offered in a variety of shapes and sizes, and come
in three colors; clear, red and green. Each of the products are targeted at
price points above paper, foam and thermofoam plastic alternatives, but below
glass and china options.
Closet storage products. This category is comprised primarily of plastic
clothes hangers. Due to the commodity nature of the hanger segment, margins in
this category are inherently lower, while unit volumes are substantially higher.
Management believes that the Company has a leading U.S. market share in plastic
clothes hangers, and that its broad product offering gives it a competitive
advantage over other hanger manufacturers. Also included in this category are
other plastic organizers, closet and clothing organization products.
Bathware products. The Company markets a broad line of value-priced
plastic bath accessories and organizers. These include shower organizers,
etageres, plastic towel bars, shelves, soap dishes, portable shower sprays, and
fog-free shower mirrors. The Company believes it is a leading producer of
opening price-point plastic bath accessories. In addition, the Company recently
introduced its Dura Chrome Steel Bath Hardware(TM) line of metal accessories
ranging from towel bars to toothbrush tumblers.
Kitchen storage products. With the 1998 acquisition of AHP, the Company
established a strong position in the food storage arena. Food storage products
are the backbone of the kitchen storage product line. The primary food storage
products sold within this group are StowAways(R), Pop-Top Storables(R), and
Klear Stor(R) and Klear Por(R). All products are approved for use in contact
with food by the United States Food & Drug Administration. The StowAway(R) line
includes 34 individual food storage products each consisting of a clear base and
a colored lid. StowAways(R) are primarily sold in value packs ranging in size
from two to thirty-six piece sets. Pop-Top-Storables(R) products consist of a
clear rigid base and a color lid with a patented "pop top" button to the side.
The unique look of the base and the patented lid differentiate the line from the
competition. Pop-Top-Storables(R) are sold in value packs ranging from two to
sixty piece sets. Klear Stor(R) and Klear Por(R) are plastic storage products
that are clear like glass. There are over 30 variations of these products within
the Company's
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catalog ranging in sizes from eight ounces to one gallon. Also included in this
product line are sinkware and wire organization products.
Juvenile products. The Company markets a line of quality children's
organization products, under the brand names Tidy Kids(R), Kidtivity(R) and Lil'
Helpers(TM). These products include closet extenders, hook racks, storage cubes,
clothes hangers, and under-the-bed storage trolleys. These products are sold in
the juvenile or housewares departments of its core customers, and also through
specialty juvenile retailers like Toys R Us and Babies R Us. The Company
believes it created a market niche of children's organization products in the
development and successful sales of its Tidy Kids(R) and Lil Helpers(TM)
products, and that it offers the premier children's organization program in the
industry.
DEPENDENCE UPON A SINGLE CUSTOMER OR FEW CUSTOMERS
The Company is dependent upon a few customers for a large portion of its
revenues. In 1999 three customers each accounted for more than 10% of
consolidated net sales. The company's top three customers, Wal-Mart, Kmart, and
Target accounted for 18.2%, 15.0% and 11.4% of net sales respectively in 1999.
These same three customers accounted for 18.5%, 12.1% and 8.7% respectively in
1998. The loss of one of these customers could have a material effect on the
Company. No other customer accounted for more than 10% of consolidated net sales
in 1999 or 1998.
MARKETING AND DISTRIBUTION
The Company's products are sold through national and regional discounters,
hardware/home centers, food/drug stores, juvenile stores, specialty stores and
to hotels. The Company sells directly to major retail customers through its
sales management personnel and through manufacturers' representatives.
Management believes that one of its greatest opportunities is to fully
leverage the Company's long-standing relationships with these customers to gain
additional market share in its core product lines and to successfully introduce
new and enhanced product lines.
The Company's primary marketing strategy is to design innovative products
with consumer features and benefits, and focus on marketing the product to its
retail selling partners. Management believes that one of its competitive
advantages is prompt and reliable product delivery of value-priced high-volume
products, allowing its retail partners to maintain minimal inventories. The
Company believes that the customer specific merchandising programs it offers
enable retailers to achieve a higher return on its products than the products of
many of its competitors. To that end, the Company provides its customers with a
variety of retail support services, including customized merchandise
planogramming, small shipping packs, point-of-purchase displays,
Electronic-Data-Interchange (EDI) order transmission, and just-in-time (JIT)
product delivery.
The Company's marketing efforts also include advertising, promotional and
differentiated packaging programs. Promotions include cooperative advertising,
customer rebates targeted at the Company's value added feature products and
point-of-purchase displays.
PRODUCT RESEARCH AND DEVELOPMENT
The Company's Product Research and Development department uses
computer-aided design (CAD) systems to enhance its product development efforts.
Although the Company's historical accounting records do not separately present
research and development expenses, the Company estimates that for 1999, 1998 and
1997, expenses associated with research and development were $0.5 million, $0.7
million and $0.4 million respectively.
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FOREIGN AND EXPORT SALES INFORMATION
The Company's 1999 sales outside the United States accounted for
approximately 5% of its total net sales. The Company uses a sales representative
to sell its products in Canada. Total sales to this representative for 1999
accounted for approximately 2% of total net sales.
SEASONALITY
Sales of the Company's houseware products are generally higher in the
second and third quarter of the calendar year. This seasonality is primarily
attributable to the spring and summer wedding season, increased home buying
during the spring and summer months, and the back to school season. Laundry
management products, general and kitchen storage products are gifts typically
given at bridal showers which are held during spring -- fall wedding season. The
surge in home buying during the spring and summer months increases the demand
for new houseware products. The back-to-school season, including college
students moving out of the house for the first time also contributes to an
increase in demand. Finally, sales of servingware products tend to be higher in
the third and fourth quarters due to holiday events in November and December.
COMPETITION
The housewares industry is highly fragmented and management believes that
no single supplier accounts for more than 10% of total market sales. The Company
competes with a significant number of companies, some which have greater
name-brand recognition, larger customer bases and/or significantly greater
resources than the Company. The Company's key competitors include Newell
Rubbermaid and Sterilite. There are no regulatory or other barriers to entry of
new competitors into the Company's markets.
The Company believes that large national retailers are continuing to reduce
the number of suppliers of housewares products with which they do business to
improve margins and operating efficiencies. These retailers are forming key
relationships with suppliers that can provide complete product lines within
product categories, profitable fast-turning products, timely delivery and
merchandising support. With its numerous product lines and strong relationships
with these retailers, the Company believes that it is well positioned to
continue to meet their needs.
PATENTS, TRADEMARKS AND LICENSES
Subsidiaries of the Company own a number of trademarks and patents relating
to various products and manufacturing processes. The Company believes that in
the aggregate its patents enhance its business, in part by discouraging
competitors from adopting patented features of its products. The Company
believes; however, that there are no patents, trademarks or licenses material to
its business.
RAW MATERIALS AND PRODUCTION
The Company manufactures the majority of its products at its various
manufacturing facilities in the United States and Mexico. In certain instances
the Company has contracted with outside custom molders to produce various
plastic products due to capacity and or time constraints.
The primary raw material used in the Company's plastic injection molding
operations is plastic resin, primarily polypropylene. The Company expects to use
in excess of 150 million pounds of resin in 2000. Resin is a spot commodity with
pricing parameters tied to supply and demand characteristics beyond the
Company's control. The Company is able to purchase some of its resin through
brokers in a secondary market. This enables the Company to buy significant
quantities at a discount. Plastic resin is utilized by a number of different
industries, many of which are quite different from the Company's housewares
business. For example, the automobile and housing industries are very large
users of plastic resin. As such, demand changes in the automobile industry or
the number of new housing starts can have an impact on plastic resin pricing.
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There is no efficient futures market for plastic resin. As such, the
Company cannot lock in its costs without purchasing significant quantities
beyond its immediate manufacturing needs. Management has determined that it will
purchase resin in quantities that best fit its manufacturing needs and ability
to store such purchases.
The primary raw materials used in the Company's laundry management
operations are cold rolled steel and greige fabric. The Company purchases
approximately 22,000 tons of cold rolled steel annually, typically at spot
prices. Greige fabric, purchased from brokers, is a cotton based product with
pricing tied to the world cotton markets. Purchases of greige fabric approximate
7 million yards annually.
The Company's production processes utilize automated machinery and systems
where appropriate. Certain laundry management facilities employ the use of an
automated manufacturing production line to produce ironing boards. Additionally,
automated cutting and layout machines are used to maximize the usage of greige
fabric. The Company also performs all printing and coating of the ironing board
covers and pads in-house.
ENVIRONMENT
An environmental report obtained in connection with the Tamor Acquisition
indicated that certain remedial work relating to ground contamination of Tamor's
Leominster, Massachusetts facility was required. The former shareholders of
Tamor placed $1.1 million in escrow to pay for, among other things, any required
remediation at the Leominster facility. The Company completed certain
remediation projects at the Leominster facility in 1998. Although there can be
no assurances, the Company believes that the costs that may be required in the
future plus the amount incurred already will not exceed the amount in escrow.
Except as described above, the Company believes that compliance with
federal, state or local provisions relating to protection of the environment is
not expected to have a material effect on the Company's capital expenditures,
earnings or competitive position.
EMPLOYEES
As of December 25, 1999 the Company employed approximately 1,576 persons in
the United States and Mexico. Approximately 87 are hourly employees at its
Leominster, Massachusetts facility, covered by a collective bargaining agreement
which expires in April, 2002; 101 are hourly employees at its Chicago, Illinois
facilities, covered by a collective bargaining agreement which expires in
January, 2001; 251 are hourly employees at its Reynosa, Mexico facility covered
by a collective bargaining agreement which expires in December, 2000; and 173
are hourly employees at its Eagan, Minnesota facility covered by a collective
bargaining agreement which expires in November, 2000.
The Company utilizes the services of approximately 392 temporary workers in
its injection molding operations for assembly and in certain warehouses.
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ITEM 2. PROPERTIES
The Company currently owns/leases a total of 11 manufacturing facilities
and considers all of its facilities to be in good operating condition.
Currently, all of the Company's manufacturing facilities, with the exception of
the El Paso, TX facility (it opened in March 2000) are operating at or near full
capacity. The Company uses public warehouse space for storage and distribution
of certain servingware products. These warehouses are located in California,
Illinois, Minnesota and New Jersey. The amount of square footage used at the
public warehouses varies from month to month.
The following table summarizes the principal physical properties, both
owned and leased, used by the Company in its operations:
<TABLE>
<CAPTION>
SIZE
FACILITY USE (SQUARE FEET) OWNED/LEASED
-------- --- ------------- ------------
<S> <C> <C> <C>
Manufacturing/Distribution
Thomasville, GA................. Storage 45,000 Owned
Thomasville, GA................. Distribution/Storage 31,000 Leased
Bollingbrook, IL................ Distribution/Storage 220,000 Leased
Manufacturing/Distribution
Chicago, IL..................... Storage 286,000 Leased
Chicago, IL..................... Distribution/Storage 113,500 Leased
Seymour, IN
East Plant.................... Manufacturing 70,000 Owned
Manufacturing/Distribution
West Plant.................... Storage 142,000 Owned
Logistics Center.............. Distribution/Storage 105,000 Owned
Logistics Center.............. Distribution/Storage 100,000 Leased
Fitchburg, MA................... Distribution/Storage 320,000 Leased
Leominster, MA.................. Manufacturing 100,000 Owned
Leominster, MA.................. Administration 17,000 Leased
Leominster, MA.................. Storage 38,000 Leased
Leominster, MA.................. Distribution/Storage 120,000 Leased
Louisiana, MO................... Manufacturing/Distribution 340,000 Owned
Manufacturing/Distribution
Eagan, MN....................... Storage 312,000 Leased
Manufacturing/Distribution
Coon Rapids, MN................. Storage 75,000 Owned
Shakopee, MN.................... Distribution/Storage 127,000 Leased
Mooresville, NC................. Manufacturing/Distribution 72,500 Leased
Manufacturing/Distribution
El Paso, TX..................... Storage 400,000 Leased
Reynosa, Mexico................. Manufacturing/Storage 80,000 Owned
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material legal proceedings against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and their respective ages and
principal positions as of February 25, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James R. Tennant........................... 46 Chairman of the Board and Chief Executive
Officer
James E. Winslow........................... 45 Executive Vice President, Chief Financial
Officer and Secretary
Jeffrey R. Dolan........................... 43 President and General Manager, HPI North
America, Inc.
</TABLE>
James R. Tennant joined the Company as Chairman of the Board and Chief
Executive Officer in April, 1994. Mr. Tennant was elected a Director of the
Company in December, 1992 and was a member of the Company's Compensation
Committee until April, 1994. From 1982 to 1994, Mr. Tennant was Division
President of True North Communications, an international marketing services
company.
James E. Winslow was named Executive Vice President in October, 1996. Mr.
Winslow joined the Company as Chief Financial Officer and Senior Vice President
in November, 1994. In 1994, Mr. Winslow was Executive Vice President and Chief
Financial Officer of Stella Foods, Inc. From 1983 to 1994, Mr. Winslow was
employed by Wilson Sporting Goods Co. in various capacities, his final position
being Vice President and Chief Financial Officer.
Jeffrey R. Dolan joined the Company in 1995 as Senior Vice President of
Sales for Selfix, Inc. In 1996 he was appointed Senior Vice President Sales and
Marketing for Selfix, a position he held until January 1998, when he assumed the
same position for the newly created Selfix-Seymour Housewares Corporation. In
June 1998, Mr. Dolan was promoted to President and General Manager of Selfix-
Seymour and held that position until June 1999 when he was named President and
General Manager of HPI - North America. Prior to joining Selfix in 1995, Mr.
Dolan spent 17 years with Rubbermaid, with his final position being Vice
President, National Accounts in the Home Products Division.
Officers serve at the discretion of the Board of Directors, except as
provided in the employment agreement of Mr. Tennant.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The NASDAQ National Markets(SM)
under the symbol "HPII". The Company believes that as of February 25, 2000 there
were approximately 275 holders of record and in excess of 1,000 beneficial
holders of the Company's common stock.
The Company has never paid a cash dividend on its common stock and
currently anticipates that all of its earnings will be retained for use in the
operation and expansion of its business.
The following table sets forth for the periods indicated the high and low
sales prices for the Common Stock as reported on The NASDAQ National Market(SM).
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fifty-two weeks ended December 25, 1999:
First Quarter............................................. $11.75 $ 8.63
Second Quarter............................................ $ 9.56 $ 8.19
Third Quarter............................................. $11.88 $ 7.50
Fourth Quarter............................................ $11.00 $ 8.38
Fifty-two weeks ended December 26, 1998:
First Quarter............................................. $16.50 $10.75
Second Quarter............................................ $16.63 $10.00
Third Quarter............................................. $11.69 $ 8.00
Fourth Quarter............................................ $10.75 $ 6.88
</TABLE>
WARRANTS
On February 27, 1997, the Company issued to General Electric Capital
Corporation ("GECC") a warrant to purchase 79,204 shares of HPII Common Stock at
a purchase price of $5.80 per share. The warrant became exercisable on August 1,
1997, and terminates on February 27, 2007. The warrant was issued in connection
with a prior credit agreement between the Company and GECC. This transaction was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $294,001 $252,429 $129,324 $38,200 $41,039
Cost of goods sold.................... 195,301 169,213 88,888 22,992 25,678
Special charges....................... 8,589 -- -- -- --
-------- -------- -------- ------- -------
Gross profit................ 90,111 83,216 40,436 15,208 15,361
Operating expenses.................... 59,889 52,566 27,688 13,843 17,385
Restructuring and other expenses...... 5,966 -- -- -- --
Other nonrecurring expenses........... 445 -- -- -- --
Restructuring charge.................. -- -- -- -- 2,051
-------- -------- -------- ------- -------
Operating profit (loss)..... 23,811 30,650 12,748 1,365 (4,075)
Interest expense...................... 20,271 15,568 5,152 707 896
Other income, net..................... 542 269 70 148 688
-------- -------- -------- ------- -------
Earnings (loss) before income taxes
and extraordinary charge............ 4,082 15,351 7,666 806 (4,283)
Income tax expense (benefit).......... 2,072 6,601 346 -- (273)
-------- -------- -------- ------- -------
Net earnings (loss) before
extraordinary charge................ $ 2,010 $ 8,750 $ 7,320 $ 806 $(4,010)
======== ======== ======== ======= =======
Net earnings (loss) before
extraordinary charge per common
share -- basic...................... $ 0.27 $ 1.11 $ 1.35 $ 0.21 $ (1.11)
======== ======== ======== ======= =======
Net earnings (loss) before
Extraordinary charge per common
share -- diluted.................... $ 0.26 $ 1.07 $ 1.29 $ 0.21 $ (1.11)
======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND CASH FLOW DATA:
Working capital....................... $ 33,012 $ 27,677 $ 8,263 $ 7,152 $ 6,712
Property, plant and equipment, net.... 67,258 60,200 28,380 7,934 8,453
Intangible assets..................... 172,177 181,952 29,391 2,527 2,693
Total assets.......................... 343,906 340,043 99,343 24,705 24,976
Long-term obligations (less current
maturities)......................... 221,334 219,536 30,700 6,184 7,022
Stockholders' equity.................. 56,622 58,001 42,216 11,709 10,847
Cash provided by operating
activities.......................... 14,615 20,693 878 1,823 2,575
</TABLE>
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company reports on a 52-53 week year. References to the fiscal years
1999, 1998 and 1997 are for the fifty-two weeks ended December 25, 1999,
December 26, 1998 and December 27, 1997.
1999 SPECIAL, RESTRUCTURING AND OTHER NON RECURRING CHARGES
In July 1999, the Company began implementation of a restructuring plan
which was undertaken to further maximize the Company's marketing and operational
productivity and to strengthen relationships with its key retail partners. The
major elements of the restructuring focus on a newly created national branding
strategy, elimination of low volume stock keeping units (sku's) and the
consolidation of sales, marketing and administrative departments. These steps
will help solidify the Company's commitment to become a "one brand , one
Company" supplier to its customers.
As disclosed in Note 2 to the Consolidated Financial Statements, the
Company recorded charges (pre tax) totaling $15.0 million during the third and
fourth quarters. The charges were comprised of (i) inventory reserves related to
discontinued products and packaging, (ii) write off of molds that were used to
make these products, (iii) employee related costs such as severance and
relocation, (iv) reserves for assets and computer systems made obsolete due to
the consolidation of departments and (v) transaction costs related to the
implementation of the national branding strategy and the consolidation of
departments. The result of the departmental consolidation will be annual pre tax
cash savings in excess of $2.0 million. Excluding these charges the gross margin
would have been 33.6%, earnings before interest and taxes (EBIT) would have been
$39.2 million, earnings before interest, taxes, depreciation and amortization
(EBITDA) would have been $55.4 million and earnings before taxes (EBT) would
have been $19.1 million. Diluted EPS would have been $1.45 for 1999 as compared
to 1998 (before extraordinary charge) of $1.07.
1999 ACQUISITION
The Company made one acquisition in its 1999 fiscal year. In May 1999 the
Company acquired certain assets (primarily inventory and molds) from Austin
Products, Inc. (the "1999 Acquisition"). Operating results from the 1999
Acquisition have been combined with the Company's since the acquisition date.
The product lines obtained included the following plastic housewares products:
laundry baskets, tote caddys, crates, bins and utility buckets. The 1999
Acquisition was completed for approximately $6.0 million in cash. 1999 sales of
the acquired product line were approximately $8.5 million.
1998 ACQUISITIONS
The Company made three acquisitions in its 1998 fiscal year (all three
combined are referred to herein as the "1998 Acquisitions") and the actual
operating results from each acquisition have been combined with the Company's
since their respective acquisition date.
Effective December 30, 1997 the Company acquired all of the outstanding
common stock of Seymour Sales Corporation and its wholly owned subsidiary,
Seymour Housewares Corporation (collectively, "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 (1,320,000 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
(the "Tenex Asset Acquisition"). This product line consisted of plastic storage
bins and containers, rolling carts and stacking drawer systems. The Tenex Asset
Acquisition was completed for $16.4 million in cash.
12
<PAGE> 13
Effective September 8, 1998 the Company acquired assets and assumed certain
liabilities from Newell Co. (consisting of the businesses of Anchor Hocking
Plastics ("AHP") and Plastics, Inc ("PI") and are referred to herein as the
"Newell Asset Acquisition"). AHP is a leading supplier of food storage
containers and PI is a leading supplier of disposable plastic servingware. The
Newell Asset Acquisition was completed for $78.0 million in cash.
FISCAL YEAR 1999 AS COMPARED TO FISCAL YEAR 1998
The following discussion and analysis compares the actual historical
results of 1999 and 1998:
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS FIFTY-TWO WEEKS
ENDED ENDED
DECEMBER 25, 1999 DECEMBER 26, 1998
----------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales............................................. $294,001 100.0% $252,429 100.0%
Cost of goods sold.................................... 195,301 66.4% 169,213 67.0%
Special charges....................................... 8,589 2.9% -- --
-------- ----- -------- -----
Gross profit........................................ 90,111 30.7% 83,216 33.0%
Operating expenses.................................... 59,889 20.4% 52,566 20.8%
Restructuring and other charges....................... 5,966 2.0% -- --
Other nonrecurring charges............................ 445 0.2% -- --
-------- ----- -------- -----
Operating profit.................................... 23,811 8.1% 30,650 12.2%
Interest expense...................................... 20,271 6.9% 15,568 6.1%
Other income.......................................... 542 0.2% 269 --
-------- ----- -------- -----
Earnings before income taxes and extraordinary
charge.............................................. 4,082 1.4% 15,351 6.1%
Income tax expense.................................... 2,072 0.7% 6,601 2.6%
-------- ----- -------- -----
Net earnings before extraordinary charge.............. $ 2,010 0.7% $ 8,750 3.5%
Extraordinary charge, net of tax...................... -- --% 5,107 2.0%
-------- ----- -------- -----
Net earnings.......................................... $ 2,010 0.7% $ 3,643 1.5%
======== ========
Net earnings per common share-basic................... $ 0.27 $ 0.46
======== ========
Net earnings per common share-diluted................. $ 0.26 $ 0.45
======== ========
</TABLE>
Net Sales. Net sales of $294.0 million were up $41.6 million or 16.5% from
the prior year. The 1999 Acquisition contributed $8.5 million to the increase
and a full year of sales from the 1998 Acquisitions contributed an additional
$43.0 million as compared to 1998. Sales from new products and or product line
extensions contributed $18.5 million to the increase over 1998. Negatively
impacting 1999 net sales was the divestiture of Shutters, Inc. in early 1999 and
the loss of sales to Caldor, a regional retailer in the northeast, due to their
bankruptcy liquidation. The combination of these two events generated a decrease
in net sales of $18.4 million. Also negatively impacting sales was management's
elimination in 1998 and prior years of numerous low margin stock keeping units
(sku's). The sku's eliminated had the effect of reducing 1999 sales by
approximately $10.0 million.
Laundry Management Products. Net sales in the laundry management category
of $89.6 million in 1999 decreased $3.6 million or 3.9% from 1998. The primary
contributor to the decrease was the elimination of approximately $2.0 million in
low margin sku's and the loss of sales to Caldor which had contributed
approximately $3.0 million to 1998 sales. Off setting these items was an
increase in sales volume as the product line grew at the retail level.
General Storage Products. Net sales in the general storage category of
$81.3 million in 1999 increased $27.4 million or 50.8% from 1998. The primary
contributor to the increase was a full year of sales from the Tenex Asset
Acquisition, the 1999 Asset Acquisition and new product development.
13
<PAGE> 14
Servingware Products. Net sales in the servingware category of $32.2
million in 1999 increased $20.9 million or 184.7% from 1998. The increase is the
result of a full year of sales, as this product category was added through the
September 1998 acquisition of PI.
Closet Storage Products. Net sales in this product category of $31.4
million experienced a $3.6 million decline, or 10.3% as compared to 1998. The
decline was primarily the result of management's continued elimination of low
margin sku's and management's selective exit of certain unprofitable customer
relationships.
Bathware Products. Net sales in this product category of $26.0 million,
increased $1.6 million or 6.6% from 1998. The primary contributor to the
increase was additional shelf space secured for the Company's Spaceworks
products. Negatively impacting 1999 sales were the elimination of certain under
performing sku's.
Food Storage Products. Net sales in the food storage category of $24.7
million in 1999 increased $12.7 million or 106.0% from 1998. The increase is the
result of a full year of sales, as this product category was added through the
September 1998 acquisition of AHP.
Juvenile Storage Products. Net sales in this product category of $8.9
million decreased $5.7 million, or 39.4% as compared to 1998. The primary factor
for the decrease was the discontinuance of the child safety and safety gate
product lines. These product lines were sold in mid 1999.
Shutters Products. The Company disposed of this product line on December
27, 1998. Sales in 1998 were $8.0 million.
Gross Profit. As indicated in Note 2 to the Consolidated Financial
Statements, the Company recorded a Special Charge in the amount of $8.6 million
in connection with the consolidation of two wholly-owned subsidiaries (the
"Consolidation") and the implementation of a national branding strategy. The
primary components of the $8.6 million Special Charge include inventory reserves
for discontinued products and packaging and the write off of molds that were
used to make these products. In connection with the Consolidation the Company
has performed an extensive product line review resulting in the decision to
eliminate approximately one-third of the Company's total sku's. The sku's
scheduled to be eliminated represent approximately 1% of consolidated 1999
sales.
Gross Profit before Special Charge. The Company's gross profit of $98.7
million, before the Special Charge, represents an increase of $15.5 million, or
18.6% from the prior year. Gross profit margin experienced an increase to 33.6%
in 1999 from 33.0% in 1998. The improvement in gross margin was generated from
several sources. First, the Company experienced favorable purchase price
variances on steel and fabric, the primary raw materials in the laundry
management product lines. Secondly improved factory utilization (added capacity
in Chicago and Georgia) generated favorable absorption for the year. Third, a
full year of margin on the PI products which typically have higher margins than
other product lines. Finally, margin improvement was generated through the
elimination of under performing and low margin product lines, including the
divestiture of Shutters in early fiscal 1999. Negatively impacting margins in
1999 were price fluctuations in plastic resin. In the first half of 1999 resin
prices were falling as compared to 1998. As a result of competitive pressures
the Company was forced to reduce its selling prices. However, as the price of
resin began to climb in the second half of 1999, the Company was unable to
increase its selling prices. The inability to increase selling prices on plastic
resin based products in the second half of 1999 negatively impacted margins.
Operating Expenses. As indicated in Note 2 to the Consolidated Financial
Statements, the Company recorded a Restructuring and Other Charge in the amount
of $6.0 million and an Other Nonrecurring Charge of $0.4 million in 1999 in
connection with the Consolidation and the implementation of a national branding
strategy. The primary components of these charges are for employee related costs
such as severance and relocation, reserves established for assets made obsolete
due to the Consolidation, transaction costs to implement the Consolidation, the
cost of the national branding strategy and the write off of intangibles related
to discontinued product lines.
14
<PAGE> 15
Operating Expenses before Restructuring and Other Nonrecurring Charges.
Operating expenses, including selling, administrative and amortization of
intangibles decreased from 20.8% to 20.4% as a percentage of net sales from 1998
to 1999. Selling expenses increased from 12.4% of net sales in 1998 to 13.3% in
1999. The major contributor to the increase was the 1998 Acquisitions which were
included for a full 52 weeks in 1999. This resulted in an increase in variable
expenses such as commissions, freight and warehousing costs. Slightly offsetting
these increases was the positive impact from the Consolidation. Administrative
expenses decreased from 6.3% of net sales in 1998 to 5.2% in 1999 and actual
spending decreased from $15.8 million in 1998 to $15.4 million in 1999. The
decline is primarily the result of the Consolidation which generated workforce
reductions across all departments. Amortization of intangibles decreased from
2.1% in 1998 to 1.8% in 1999.
Interest Expense. Interest expense increased to $20.3 million in 1999 from
$15.6 million in 1998. The increase is directly attributable to the increased
debt incurred from the Tenex Asset Acquisition and the Newell Asset Acquisition.
Additionally, debt associated with the 1999 Acquisition and the Company's
repurchase of 763,632 shares of its common stock (between October 1998 and
December 1999) both contributed to the increase in interest expense from 1998 to
1999.
Income Taxes. The effective tax rate for 1999 was 42.3% (before the
Special, Restructuring and Other Nonrecurring Charges) as compared to 43% for
1998 (before impact of the extraordinary item). The largest component of the
variance from statutory rates in each year was non deductible goodwill
associated with certain prior year acquisitions.
Earnings per share - diluted. Diluted earnings per share for 1999 before
the Special, Restructuring and Other Nonrecurring Charges was $1.45 as compared
to 1998 of $1.07 before effects of the 1998 extraordinary item. Diluted earnings
per share for 1999 after impact of the Special, Restructuring and Other
Nonrecurring Charges was $0.26 as compared to 1998 of $0.45 after effects of the
extraordinary item. The weighted shares outstanding decreased from 8,176,000 in
1998 to 7,610,000 in 1999. The decrease in weighted shares outstanding was the
result of 445,932 shares repurchased by the Company in 1999.
Diluted earnings per share excluding amortization expense and the impact of
the Special, Restructuring and Other Nonrecurring Charges for 1999 was $1.93
(assumes a tax rate of 40%). Diluted earnings per share excluding amortization
expense and the impact of the extraordinary item for 1998 was $1.53 (assumes a
tax rate of 40%).
15
<PAGE> 16
FISCAL YEAR 1998 AS COMPARED TO FISCAL YEAR 1997
The following discussion and analysis compares the actual historical
results of 1998 and 1997:
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED FIFTY-TWO WEEKS ENDED
DECEMBER 26, 1998 DECEMBER 27, 1997
---------------------- ----------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.......................................... $252,429 100.0% $129,324 100.0%
Cost of goods sold................................. 169,213 67.0% 88,888 68.7%
-------- ------ -------- ------
Gross profit..................................... 83,216 33.0% 40,436 31.3%
Operating expenses................................. 52,566 20.8% 27,688 21.5%
-------- ------ -------- ------
Operating profit................................. 30,650 12.2% 12,748 9.8%
Interest expense................................... 15,568 6.1% 5,152 4.0%
Other income....................................... 269 -- 70 0.1%
-------- ------ -------- ------
Earnings before income taxes and extraordinary
charge........................................... 15,351 6.1% 7,666 5.9%
Income tax expense................................. 6,601 2.6% 346 0.2%
-------- ------ -------- ------
Net earnings before extraordinary charge........... $ 8,750 3.5% $ 7,320 5.7%
Extraordinary charge, net of tax................... 5,107 2.0% -- --
-------- ------ -------- ------
Net earnings....................................... $ 3,643 1.5% $ 7,320 5.7%
======== ========
Net earnings before extraordinary charge per common
share-basic...................................... $ 1.11 $ 1.35
======== ========
Net earnings before extraordinary charge per common
share-diluted.................................... $ 1.07 $ 1.29
======== ========
</TABLE>
Net Sales. Net sales of $252.4 million were up $123.1 million or 95.2%
from the prior year. The increase was primarily driven by the 1998 Acquisitions,
which combined to generate $129.8 million of net sales in 1998. The elimination
of low margin and under performing products along with management's continued
sku rationalization efforts negatively impacted 1998 net sales.
Laundry Management Products. This is a new product category for the
Company in 1998, which was added through the 1998 acquisition of Seymour.
Laundry management products contributed $93.2 million, or 36.9% of 1998 net
sales.
General Storage Products. Net sales in the general storage category of
$53.9 million in 1998 increased $10.4 million or 23.9% from 1997. The primary
contributor to the increase was the Tenex Asset Acquisition coupled with new
product development. New product introductions, including drawer systems (which
include the Tenex Asset Acquisition) contributed $17.4 million to 1998 net
sales. 1998 net sales of storage totes experienced a $7.0 million decline as
retailers more heavily promoted the new drawer systems.
Servingware Products. This is a new product category for the Company,
which was added through the 1998 acquisition of PI. Net sales in this category
since the acquisition were $11.3 million, or 4.5% of 1998 net sales.
Closet Storage Products. Net sales in this product category of $35.0
million experienced a $9.2 million decline, or 20.8% as compared to 1997. The
decline was the result of management's continued elimination of under performing
and low margin sku's. Also included within this category are plastic hangers
which experienced a slight decrease as compared to 1997 due to the elimination
of several low margin customers.
Bathware Products. Net sales in this product category of $24.4 million,
increased $1.1 million or 4.7% from 1997. The primary contributor to the
increase was additional shelf space for the Company's Suction Lock products.
This increase was slightly off set by the continued elimination of low margin
and under performing sku's.
16
<PAGE> 17
Food Storage Products. This is a new product category for the Company,
which was added through the 1998 acquisition of AHP. Net sales in this category
since the acquisition were $12.0 million, or 4.7% of total 1998 net sales.
Juvenile Storage Products. Net sales in this product category of $14.6
million increased $4.4 million, or 43.1% as compared to 1997. The primary factor
for the increase was the 1998 acquisition of Seymour which contributed $4.0
million to 1998 net sales.
Shutters Products. Net sales for 1998 of $8.0 million were flat as
compared to 1997.
Gross Profit. Gross profit of $83.2 million, increased $42.8 million, or
105.8% from the prior year. Gross profit margin experienced an increase from
31.3% in 1997 to 33.0% in 1998. A contributor to the margin improvement from the
prior year was the decline in prices for one of the Company's primary raw
materials, plastic resin. The average cost per pound of plastic resin dropped
from 1997 to 1998; however, much of the savings from the decline in resin prices
were passed along to customers. This was done to maintain shelf space in
response to competitive pressures. Also contributing to the margin improvement
was the introduction of higher margin products, primarily within the general
storage category and the favorable impact generated from the elimination of
under performing and low margin sku's across all of the Company's product lines.
Offsetting some of the margin improvement was a change in the Company's product
mix. In general, product lines acquired as a result of the 1998 Acquisitions had
lower margins than the Company's mix of products in 1997. This was particularly
true of the products acquired in the Tenex Asset Acquisition and AHP products.
Capacity constraints forced the Company to outsource production of the products
acquired in the Tenex Asset Acquisition at a higher cost as compared to in-house
manufacturing. The AHP products have a lower margin due to excess manufacturing
capacity and too much emphasis on deal pricing. Management intends to address
the capacity issue in 1999 and will also focus on new product development within
the food storage category.
Operating Expenses. Operating expenses, including selling, administrative
and amortization of intangibles decreased from 21.5% to 20.8% as a percentage of
net sales from 1997 to 1998. Selling expenses decreased from 14.3% of net sales
in 1997 to 12.4% in 1998. Administrative expenses decreased from 6.5% of net
sales in 1997 to 6.3% in 1998. The Company's acquisition integration strategy
focuses on combining acquired entities into existing operating platforms. In
this way, fixed expenses are effectively leveraged and minimized. The decline in
selling, marketing and administration expenses as a percentage of net sales is a
direct result of this effort. Amortization of intangibles increased from .7% in
1997 to 2.1% in 1998. The increase in amortization expense is the result of
goodwill created from the 1998 Acquisitions.
Interest Expense. Interest expense in 1998 was $15.6 million, as compared
to $5.2 million for 1997. The primary contributor to the increase over 1997 was
the result of $180.8 million of debt added related to the 1998 Acquisitions.
Also contributing to the increase was a slightly higher effective interest rate
on the high yield bonds, which was partially offset by a lower incremental
borrowing rate due to the May 1998 refinancing of the Company's senior debt
agreements.
Income Taxes. Income tax expense increased from $0.3 million in 1997 to
$6.6 million in 1998 (before benefit from extraordinary charges). Income tax
expense increased because of a change in the Company's tax paying position. In
1997, the Company was able to use net operating loss carryforwards and the
elimination of a valuation allowance against deferred tax assets to eliminate
the federal tax expense. By the end of fiscal 1997, the net operating losses had
been fully utilized. As such, the Company was in a tax paying position in 1998.
Extraordinary Charge, net of tax. An extraordinary charge in the amount of
$5.1 million, net of tax, for the early retirement of debt, or $0.62 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. The financing change required 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
17
<PAGE> 18
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 previous credit agreement as well as penalties for early
repayment of debt.
Earnings per share before extraordinary charge -- diluted. Diluted earnings
per share, before extraordinary charge, for 1998 was $1.07 as compared to $1.29
in 1997. The weighted shares outstanding increased from 5,682,000 in 1997 to
8,176,000 in 1998. The increase in weighted average shares outstanding was the
result of 1,320,000 shares issued in the Seymour Acquisition, the June 1997
secondary stock offering of 2,280,000 shares outstanding for the entire period,
stock options exercised during the year and shares issued under the Company's
employee stock purchase plan. Offsetting some of the increase in shares were
treasury stock purchases made in 1998.
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 $0.77 as
compared to the fully taxed earnings per share in 1998 of $1.07.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents at December 25, 1999 were $5.0 million, unchanged
from a year ago. The Company's total debt increased from $223.1 million a year
ago to $226.9 million at December 25, 1999. The increase in debt is attributable
to several factors, including increased working capital, capital spending and
the Company's stock buyback program.
The Company's working capital, excluding cash and short term debt,
increased from $26.2 million in 1998 to $33.7 million at year end 1999. The
increase was largely due to higher accounts receivable from customers. Customers
slowed down payments in the fourth quarter to meet their own purposes. The
increase in receivables is not the result of collection issues.
Capital spending of $14.7 million in 1999 primarily consisted of $5.3
million to expand existing facilities in Chicago and Mexico, $3.6 million
related to new computer systems (including the cost of installation) and $2.4
million to support new product development. The Company's capital spending needs
in 2000 are expected to be $12-18 million. Capital projects expected for 2000
include molds to support new product development and sales growth, outfitting of
the El Paso facility and new injection molding machines to improve productivity.
As in the past, management will pursue alternative means of financing including
leasing. During 1999, off balance sheet financing totaling $6.6 million was
obtained through operating leases of machinery and equipment. The Company has
entered into a 10 year lease for the El Paso facility. The lease includes a
purchase option prior to the end of the lease term.
During 1999, the Company spent $3.9 million to buy back 446,000 shares of
its publicly issued stock. The shares were purchased at an average price of
$8.71 per share.
Management believes its existing financing facilities together with its
cash flow from operations will provide sufficient capital to fund operations,
make required debt repayments and meet anticipated capital spending needs.
YEAR 2000 COMPLIANCE
The Company did not experience any system problems due to the Y2K
situation. All significant systems were converted and or upgraded prior to
December 31, 1999. Total costs incurred related to the Y2K situation were
approximately $0.5 million. The Company will continue to monitor Y2K issues
during the year. Contingency plans are in place to cover any issues that may
arise at a later date.
18
<PAGE> 19
MANAGEMENT OUTLOOK AND COMMENTARY
In 1999, management took many steps to ensure continued growth in earnings
and shareholder value. The most significant actions taken were the following:
- Completed the integration of the various brands the company had acquired
over the past few years into one brand: HOMZ. Under this brand, the
company presents one consistent appearance in its retail offerings.
- With the decision to move to a "one brand, one Company" philosophy,
management quickly began the process of consolidating all operating
functions and eliminating duplicative processes. The result of the
consolidation will be annual pre tax cash savings of over $2.0 million.
- The Company broke ground on a new 400,000 square foot facility in El
Paso, Texas. This facility will manufacture both ironing board and
storage products as well as provide a launching point for improved
western distribution. The facility opened for production and distribution
in March 2000.
- With the consolidation of the retail product lines under the HOMZ brand,
management took the opportunity to eliminate over 1600 stock keeping
units (SKU's). Most of the products eliminated were duplicative or in
unpopular colors. While this step will result in the elimination of about
1% of the Company's 1999 sales, it will provide opportunities for
improved operating efficiencies and margin improvement. Higher margin new
products will replace the eliminated sales.
- A uniform computer platform was installed for the HOMZ product lines and
facilities resulting in the consolidation of three separate computer
systems.
- The Company acquired molds and inventory from a storage products company,
significantly expanding the Company's product offering in general storage
items.
- 18 new injection molding machines were added to the Company's Chicago
facility. This provided additional capacity and improved productivity
through reduced cycle times and energy use.
- During 1999, the Company executed its plans to balance production levels
between manufacturing facilities. The Chicago facility was expanded to a
24/7 operation from a 5-day, 2-shift operation. Additionally, the
Minnesota molding facility acquired in 1998 was better utilized by adding
general storage and closet items to its existing kitchen storage
production.
- The Company added over 300,000 square feet of warehousing for its storage
product lines. The additional warehousing is needed to accommodate the
Company's growing presence with the Company's big 3 retailers: Kmart,
Wal-Mart and Target.
During 2000, the Company will concentrate on revenue growth from existing
product lines. The Company will also continue to seek every opportunity to
maintain its position as a low cost producer. Some of these plans, together with
assorted factors that may influence the performance of the Company in 2000 and
beyond are as follows:
- The Company will aggressively seek sales growth from existing product
lines:
- The El Paso facility provides an opportunity to expand distribution with
customers in the western half of the United States. Previously, the
Company was hampered in its western distribution by the higher freight
costs incurred to reach western customers from the Company's eastern and
midwestern facilities. The proximity of the El Paso facility will
provide distribution improvements and sales opportunities for both
existing and new customers. The facility began production in March 2000.
19
<PAGE> 20
- The 1999 introduction of the HOMZ brand will provide sales growth
opportunities. Several retailers have already committed to HOMZ ad
events that will provide increased sales as well as increased awareness
of the brand.
- A major retailer has announced its intention to consolidate its general
storage vendor base from 35 vendors to less than 10. The Company has
been selected to participate in the smaller vendor base. Management
expects this development will result in 3-5% sales growth with the
customer.
- The opening of the El Paso facility will not only enhance the Company's
sales growth, it should favorably impact margins. This facility will have
new, highly efficient manufacturing equipment which will result in lower
production costs as compared to the Company's other manufacturing
locations. In addition, El Paso is a very favorable labor market that can
provide needed manpower at a reasonable rate.
- The Company's primary raw materials are plastic resin, steel, fabric and
corrugated packaging. Fluctuations in the cost of these materials can
have a significant impact on reported results. Other than plastic resin
(see discussion below), management does not expect to see a significant
change in the cost of these materials as compared to 1999. However the
cost of these items is affected by many variables outside the control of
the company and changes to the current perceived trends are possible.
- Plastic resin represents about 20-25% of the Company's cost of goods
sold. During 1999, the cost of plastic resin increased significantly.
This occurred after a several year period of declining plastic resin
costs during which selling prices also declined in response to
competitive pressures. In the last 6 months of 1999, resin returned to
cost levels of 2 years ago. Now that plastic resin costs have increased,
the Company's ability to pass along this increase to its customers is
hampered by both the nature of the retail customer environment and other
competitive factors. As a result of the plastic resin cost increase and
the inability to raise selling prices, management expects gross margins
in the first half of 2000 to be below the gross margins achieved in 1999.
The future cost of plastic resin is difficult to predict. Plastic resin
costs are impacted by several factors outside the control of the Company
including supply and demand characteristics, oil prices and the overall
health of the economy. Any of these factors could have a positive or
negative impact on plastic resin costs.
- Management's 1999 decision to consolidate its operating functions will
save money for the Company. Operating expense reductions as compared to
1999 will be achieved in the first half of 2000 but will decline as the
year proceeds. Operating expenses as a percent of sales are expected to
be lower in 2000 than in 1999.
- The full utilization of computer systems installed in 2000 will provide
opportunities for productivity and earnings improvements. The new systems
will allow management to better monitor product and customer
profitability, manufacturing performance and customer service levels.
Forecasting tools expected to be implemented in 2000 will provide for
better visibility to customer trends and will enhance inventory
management.
- The Company has financed previous acquisitions primarily with debt. As a
result, the Company is highly leveraged with total debt representing
about 80% of the Company's book capitalization, or a 4:1 debt to capital
ratio. As a result, earnings could be materially impacted by changes in
interest rates. Furthermore, the financial and operating covenants
related to the debt agreements place some restrictions on the operations
of the Company. During 1999, the Company was well within its financial
and operating covenants and expects to operate safely within the
covenants in 2000.
- HPI has been a successful consolidator within the housewares industry.
Most of the Company's growth since 1996 has come from its acquisition
activity. Management had believed that the continued profitable growth of
the Company would provide momentum for an increasing stock
20
<PAGE> 21
price. Management's strategy was to use the higher stock price to raise
additional capital, pay down debt and acquire additional businesses.
Unfortunately, the market has not recognized the increased value of the
Company. Further, management does not believe it would be prudent to
pursue additional acquisitions of a significant size financed solely with
more debt. Accordingly, the Board of Directors has retained investment
bankers to assist management in addressing its capital needs including
ways to raise additional capital to fund further acquisitions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks from changes in interest rates and
commodity based raw materials (resin, steel and fabric).
Interest Rate Risk. The Company's Revolver and Term Loan are LIBOR-based
and are subject to interest rate movements. A 10% increase or decrease in the
average cost of the Company's variable rate debt would result in a change in
pretax interest expense of approximately $762, based upon borrowings outstanding
at December 25, 1999.
Commodity Risk. The Company is subject to fluctuations in commodity type
raw materials such as plastic resin, steel and griege fabric. See Item 1 -- Raw
Materials, which is incorporated by reference to this section, for further
details.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, including "General Development of
Business," "Properties," "Legal Proceedings" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains
forward-looking statements within the meaning of the "safe-harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Such factors and uncertainties
include, but are not limited to: (i) the anticipated effect of the 1999
Acquisition and the 1998 Acquisitions 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 consolidation 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.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Listed below are the financial statements and supplementary data included
in this part of the Annual Report on Form 10-K:
(a) Financial Statements
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Independent Public Accountants................... F-1
Consolidated Balance Sheets at December 25, 1999 and
December 26, 1998........................................ F-2
Consolidated Statements of Operations For 1999, 1998 and
1997..................................................... F-3
Consolidated Statements of Stockholders' Equity for 1999,
1998 and 1997............................................ F-4
Consolidated Statements of Cash Flows for 1999, 1998 and
1997..................................................... F-5
Notes to Consolidated Financial Statements................. F-6
</TABLE>
(b) Supplementary Data
<TABLE>
<S> <C>
Summary of Quarterly Financial Information................. F-19
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
22
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's executive officers is included under
Part I of this Form 10-K.
Information set forth under "Election of Directors" in the Proxy Statement
is incorporated herein by reference. The information set forth under "Executive
Officers of the Registrant" in Part I of this Annual Report on Form 10-K is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Compensation of Executive Officers" and
"Employment Agreements" in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the "Security Ownership of Principal
Stockholders and Management" in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Listed below are the financial statements, additional financial
information, reports and exhibits included in this part of the Annual Report on
Form 10-K:
(a) 1. Financial Statements
The financial statements and notes to the consolidated financial statements
are referred to in Item 8.
2. Additional Financial Information
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Reports of Independent Public Accountants on Schedule II... S-1
Schedule II -- Valuation and Qualifying Accounts........... S-2
</TABLE>
(b) Reports Filed on Form 8-K
There were no Reports filed on Form 8-K in the fourth quarter of 1999.
(c) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of February 13, 1997,
by and among Selfix, Inc., HPI Merger, Inc. and Home
Products International, Inc. Incorporated by reference from
Exhibit 2.1 to Form 8-B Registration Statement filed on
February 20, 1997.
2.2 -- Stock Purchase Agreement, made as of January 1, 1997,
between the Company, Leonard J. Tocci, Richard M. Tocci,
Lawrence J. Tata, Michael P. Tata and Barbara L. Tata.
Incorporated by reference from Exhibit 2.2 to Form 8-K dated
February 28, 1997.
2.3 -- Agreement and Plan of Merger, dated as of January 1, 1997,
by and among the Company, Houseware Sales, Inc. and the
individual shareholders of Houseware Sales, Inc.
Incorporated by reference from Exhibit 2.1 to Form 8-K dated
February 28, 1997.
2.4 -- Amended and Restated Agreement, dated December 30, 1997, by
and among the Company, Seymour Sales Corporation, Seymour
Housewares Corporation, and Chase Venture Capital Associates
(majority shareholder of Seymour Sales Corporation).
Incorporated by reference from Exhibit 2.1 to Form 8-K dated
January 13, 1998, which was subsequently modified as stated
in Item 2 to Form 8-K/A dated March 16, 1998.
2.5 -- Form of Escrow Agreement (Exhibit 2.8 from Amended and
Restated Agreement, dated December 30, 1997 by and among the
Company, Seymour Sales Corporation, Seymour Housewares
Corporation, and Chase Venture Capital Associates (majority
shareholder of Seymour Sales Corporation)) by and among
HPII, the security holders of Sales, Majority Shareholder,
and LaSalle. Incorporated by reference from Form 10-K filed
on March 27, 1998, Exhibit No. 2.6.
2.6 -- 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.
2.7 -- Asset Purchase Agreement among Tenex Corporation, and Home
Products International, Inc., dated July 24, 1998.
Incorporated by reference to Form 10-Q filed on November 10,
1998.
*2.8 -- Asset Purchase Agreement among Austin Products, Inc. d/b/a
Epic, and Tamor Corporation, dated May 12, 1999.
*2.9 -- Stock Purchase Agreement between Recore Industries
Corporation and Home Products International, Inc. for the
sale of Shutter, Inc., effective December 27, 1998.
3.1 -- Certificate of Incorporation of the Company filed with the
Delaware Secretary of State on February 7, 1997.
Incorporated by reference from Exhibit 3.1 to Form 8-B
Registration Statement filed on February 20, 1997.
3.2 -- By-laws of the Company. Incorporated by reference from
Exhibit 3.2 to Form 8-B Registration Statement filed on
February 20, 1997.
4.1 -- Form of Rights Agreement dated as of May 21, 1997, between
Home Products International, Inc. and ChaseMellon
Shareholder Services L.L.C., as Rights Agent, which includes
as Exhibit B thereto the Form of Right Certificate.
Incorporated by reference from Exhibit 4.2 to Form S-2
Registration Statement (File No. 333-25871) filed on April
25, 1997.
10.1 -- The Company's 1994 Stock Option Plan. Incorporated by
reference from Exhibit A of the Company's Proxy Statement
for its 1994 Annual Meeting.**
10.2 -- The Company's 1991 Stock Option Plan. Incorporated by
reference from Exhibit A of the Company's Proxy Statement
for its 1991 Annual Meeting.**
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <C> <S>
10.3 -- The Company's 1987 Stock Option Plan Incorporated by
reference from Exhibit 10.8 to Form S-1 Registration
Statement No. 33-23881.**
10.4 -- Lease, dated July 24, 1980, among Selfix as Tenant and NLR
Gift Trust and MJR Gift Trust as Landlord concerning
Selfix's facility in Chicago, Illinois. Incorporated by
reference from Exhibit 10.9 to Form S-1 Registration
Statement No. 33-23881.
10.5 -- $150,000,000 Amended and Restated Credit Agreement among
Home Products International, Inc, as Borrower, the Several
Lenders from time to time parties thereto, 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.
10.6 -- 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.
10.7 -- Loan Agreement dated September, 1990 between Selfix and
Illinois Development Finance Authority in connection with
Selfix's Industrial Revenue Bond. Incorporated by reference
from the Company's Form 10-K for the fifty-two weeks ended
December 28, 1991.
10.8 -- Credit Agreement dated as of December 30, 1997 among Selfix,
Inc., Tamor Corporation, Seymour Housewares Corporation, and
Shutters, Inc., as Borrowers, the Company, General Electric
Capital Corporation, as Agent and Lender, and other Lenders
signatory hereto from time to time. Incorporated by
reference from Form 10-K filed on March 27, 1998, Exhibit
No. 10.10.
10.9 -- Note Purchase Agreement dated as of December 30, 1997, among
Selfix, Inc., Tamor Corporation, Shutters, Inc., and Seymour
Housewares Corporation, Home Products International, Inc.,
(referred to herein as Joint Issuers) and General Electric
Capital Corporation individually, and as Agent for itself
and other Note Purchasers signatory hereto. Incorporated by
reference from Form 10-K filed on March 27, 1998, Exhibit
No. 10.11.
10.10 -- $5,000,000 Senior Subordinated Note -- General Electric
Capital Corporation, due December 30, 2006. Incorporated by
reference from Form 10-K filed on March 27, 1998, Exhibit
No. 10.12.
10.11 -- $5,000,000 Senior Subordinated Note -- Archimedes Funding,
L.L.C. due December 30, 2006. Incorporated by reference from
Form 10-K filed on March 27, 1998, Exhibit No. 10.13.
10.12 -- Subordinated Note Security Agreement dated December 30, 1997
among Selfix, Inc., Tamor Corporation, Shutters, Inc., and
Seymour Housewares Corporation, Home Products International,
Inc., (collectively referred to herein as Grantors) in favor
of General Electric Capital Corporation. Incorporated by
reference from Form 10-K filed on March 27, 1998, Exhibit
No. 10.14.
10.13 -- Employment Agreement dated January 1, 1997 between the
Company and James R. Tennant, Chairman of the Board and
Chief Executive Officer. Incorporated by reference from
Exhibit 10.10 to Form 8-B Registration Statement filed on
February 20, 1997.**
10.14 -- Employment Agreement dated January 5, 1998 between the
Company and Stephen R. Brian, President and Chief Operating
Officer. Incorporated by reference from Form 10-K filed on
March 27, 1998, Exhibit No. 10.16.**
10.15 -- Reimbursement Agreement by and among Selfix, Shutters, Inc.
and LaSalle National Bank dated as of April 12, 1996
relating to letter of credit issued in connection with the
Series 1990 Bonds. Incorporated by reference from Exhibit
10.11 to Form 8-B Registration Statement filed on February
20, 1997.
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <C> <S>
10.16 -- Description of the 1998 Executive Incentive Bonus Plan.
Incorporated by reference to the Compensation Committee
Report contained in Form Pre 14A dated April 13, 1998.**
10.17 -- Description of the 1998 Management Incentive Bonus Plan.
Incorporated by reference to the Compensation Committee
Report contained in Form Pre 14A dated April 13, 1998.**
10.18 -- The Company's 1999 Performance Incentive Plan. Incorporated
by reference from the Company's Proxy Statement for its 1999
Annual Meeting.**
10.19 -- The Company's 1999 Directors Restricted Stock Plan.
Incorporated by reference from the Company's Proxy Statement
for its 1999 Annual Meeting.**
11.1 -- Statement Regarding Computation of Earnings Per Share is
included in the Notes to the Consolidated Financial
Statements referred to in Item 8 hereof.
*21.1 -- List of Subsidiaries
*23.1 -- Consent of Arthur Andersen LLP.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith, exhibits not marked with an asterisk are incorporated by
reference.
** Indicates an employee benefit plan, management contract or compensatory plan
or arrangement in which a named executive officer and/or a director
participates.
26
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Home Products International, Inc.:
We have audited the accompanying consolidated balance sheets of Home
Products International, Inc. (a Delaware corporation) and subsidiaries as of
December 25, 1999 and December 26, 1998, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three
fifty-two week periods ended December 25, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Home Products International,
Inc. and subsidiaries as of December 25, 1999 and December 26, 1998, and the
results of their operations and their cash flows for each of the three fifty-two
week periods ended December 25, 1999 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 18, 2000
F-1
<PAGE> 28
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END
----------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,861 $ 4,986
Accounts receivable, net of allowance for doubtful
accounts of $10,158 at December 25, 1999 and $7,196 at
December 26, 1998...................................... 59,571 50,238
Inventories, net.......................................... 24,064 25,296
Prepaid expenses and other current assets................. 7,558 6,880
-------- --------
Total current assets.............................. 96,054 87,400
-------- --------
Property, plant and equipment -- at cost.................... 98,678 87,854
Less accumulated depreciation and amortization.............. (31,420) (27,654)
-------- --------
Property, plant and equipment, net.......................... 67,258 60,200
-------- --------
Deferred income taxes....................................... 8,417 10,491
Intangible and other assets................................. 172,177 181,952
-------- --------
Total assets...................................... $343,906 $340,043
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............... $ 5,571 $ 3,549
Accounts payable.......................................... 23,820 20,510
Accrued liabilities....................................... 33,651 35,664
-------- --------
Total current liabilities......................... 63,042 59,723
-------- --------
Other long term liabilities................................. 2,908 2,783
Long-term obligations -- net of current maturities.......... 221,334 219,536
Stockholders' equity:
Preferred stock -- authorized, 500,000 shares, $.01 par
value; none issued..................................... -- --
Common stock -- authorized 15,000,000 shares, $.01 par
value; 8,068,863 shares issued at December 25, 1999 and
8,024,123 shares issued at December 26,1998............ 81 80
Additional paid-in capital................................ 48,800 48,455
Retained earnings......................................... 14,269 12,259
Common stock held in treasury -- at cost (822,394 shares
at December 25, 1999 and 376,462 at December 26,
1998).................................................. (6,528) (2,642)
Currency translation adjustments.......................... -- (151)
-------- --------
Total stockholders' equity........................ 56,622 58,001
-------- --------
Total liabilities and stockholders' equity........ $343,906 $340,043
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 29
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales.................................................. $294,001 $252,429 $129,324
Cost of goods sold......................................... 195,301 169,213 88,888
Special charges............................................ 8,589 -- --
-------- -------- --------
Gross profit............................................. 90,111 83,216 40,436
Operating expenses
Selling.................................................. 39,036 31,262 18,332
Administrative........................................... 15,428 15,796 8,474
Amortization of intangible assets........................ 5,425 5,508 882
Restructuring and other charges.......................... 5,966 -- --
Other nonrecurring charges............................... 445 -- --
-------- -------- --------
66,300 52,566 27,688
-------- -------- --------
Operating profit......................................... 23,811 30,650 12,748
-------- -------- --------
Other income (expense)
Interest income.......................................... 170 236 50
Interest (expense)....................................... (20,271) (15,568) (5,152)
Other income............................................. 372 33 20
-------- -------- --------
(19,729) (15,299) (5,082)
-------- -------- --------
Earnings before income taxes and extraordinary charge...... 4,082 15,351 7,666
Income tax (expense)....................................... (2,072) (6,601) (346)
-------- -------- --------
Earnings before extraordinary charge....................... $ 2,010 $ 8,750 $ 7,320
Extraordinary charge for early retirement of debt, net of
tax benefits of $3,633................................... -- (5,107) --
-------- -------- --------
Net earnings............................................... $ 2,010 $ 3,643 $ 7,320
======== ======== ========
Earnings before extraordinary charge, per common share --
basic.................................................... $ 0.27 $ 1.11 $ 1.35
Extraordinary charge for early retirement of debt, net of
tax...................................................... -- (0.65) --
-------- -------- --------
Net earnings per common share -- basic..................... $ 0.27 $ 0.46 $ 1.35
======== ======== ========
Earnings before extraordinary charge, per common share --
diluted.................................................. $ 0.26 $ 1.07 $ 1.29
Extraordinary charge for early retirement of debt, net of
tax...................................................... -- (0.62) --
-------- -------- --------
Net earnings per common share -- diluted................... $ 0.26 $ 0.45 $ 1.29
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 30
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
CURRENCY STOCK
ADDITIONAL TRANSLATION HELD IN
PREFERRED COMMON PAID-IN RETAINED ADJUSTMENTS TREASURY
STOCK STOCK CAPITAL EARNINGS AND OTHER AT COST TOTAL
--------- ------ ---------- -------- ----------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1996............ -- 39 10,839 1,296 (201) (264) 11,709
Net earnings.......................... -- -- -- 7,320 -- -- 7,320
Issuance of 19,560 shares in
connection with employee stock
purchase plan....................... -- -- 107 -- -- -- 107
Issuance of 480,000 shares of common
stock in connection with Tamor
Acquisition......................... -- 5 2,395 -- -- -- 2,400
Issuance of 2,280,000 shares of common
stock in connection with secondary
public offering..................... -- 23 20,148 -- -- -- 20,171
Issuance of Warrant................... -- -- 400 -- -- -- 400
Stock options exercised............... -- -- 67 -- -- -- 67
Translation adjustments............... -- -- -- -- 42 -- 42
---- --- ------- ------- ----- ------- -------
Balance at December 27, 1997............ $ -- $67 $33,956 $ 8,616 $(159) (264) $42,216
==== === ======= ======= ===== ======= =======
Net earnings.......................... -- -- -- 3,643 -- -- 3,643
Issuance of 20,695 shares in
connection with employee stock
purchase plan....................... -- -- 196 -- -- -- 196
Issuance of 1,320,000 shares of common
stock in connection with acquisition
of Seymour Housewares Corporation... -- 13 14,254 -- -- -- 14,267
Stock options exercised............... -- -- 49 -- -- -- 49
Treasury stock purchased at cost...... -- -- -- -- -- (2,378) (2,378)
Translation adjustment................ $ -- -- -- -- 8 -- 8
---- --- ------- ------- ----- ------- -------
Balance at December 26, 1998............ $ -- $80 $48,455 $12,259 $(151) $(2,642) $58,001
==== === ======= ======= ===== ======= =======
Net earnings.......................... -- -- -- 2,010 -- -- 2,010
Issuance of 41,238 shares in
connection with exercise of stock
options and various stock plans..... -- 1 345 -- -- -- 346
Treasury stock purchased at cost...... -- -- -- -- -- (3,886) (3,886)
Translation adjustment................ -- -- -- -- 151 -- 151
---- --- ------- ------- ----- ------- -------
Balance at December 25, 1999............ $ -- $81 $48,800 $14,269 $ -- $(6,528) $56,622
==== === ======= ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 31
HOME PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1999 1998 1997
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings................................................ $ 2,010 $ 3,643 $ 7,320
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Write off of fixed and other assets included in the
Special and Restructuring Charges....................... 3,940 -- --
Depreciation and amortization............................. 16,241 14,731 5,687
Extraordinary charge on early retirement of debt.......... -- 8,739 --
Changes in assets and liabilities:
Increase in accounts receivable......................... (10,302) (11,933) (5,428)
Decrease (increase) in inventories...................... 1,119 6,644 (2,280)
Decrease (increase) in prepaids and other current
assets................................................ (713) (6,452) (328)
Decrease (increase) in net deferred tax asset........... 2,074 2,096 (3,466)
Increase (decrease) in accounts payable................. 3,716 4,163 (4,695)
(Decrease) increase in accrued liabilities.............. (1,836) (1,315) 5,060
Other, net................................................ (1,634) 377 (992)
-------- --------- --------
Net cash provided by operating activities................... 14,615 20,693 878
-------- --------- --------
INVESTING ACTIVITIES:
Proceeds on sale of business, net........................... 4,092 -- --
Proceeds on sale of building................................ 977 -- --
1999 Acquisition............................................ (5,962) -- --
Tamor Acquisition, net of cash acquired..................... -- -- (27,876)
Seymour Acquisition, net of cash acquired................... -- (84,882) --
Tenex Asset Acquisition..................................... -- (16,725) --
Newell Asset Acquisition, net of cash acquired.............. 571 (78,321) --
Capital expenditures, net................................... (14,698) (11,933) (8,382)
-------- --------- --------
Net cash used by investing activities....................... (15,020) (191,861) (36,258)
-------- --------- --------
FINANCING ACTIVITIES:
Borrowings under revolving line of credit, net.............. 4,250 44,000 3,355
Additions to capital lease obligation....................... 3,137 -- --
Borrowings, net -- Senior Subordinated Notes................ -- 120,809 --
Borrowings, net -- $50,000 Term Loan........................ -- 49,460 --
Borrowings, net -- 12/30/97 Facility........................ -- 117,538 --
Borrowings, net -- term loans and warrant................... -- -- 44,158
Payments -- $50,000 Term Loan............................... (3,000) -- --
Payments on Industrial Revenue Bonds........................ (400) (2,400) (800)
Payment of capital lease obligation......................... (167) (335) (164)
Payments on borrowings...................................... -- (148,076) (33,809)
Prepayment penalty on early retirement of debt.............. -- (3,282) --
Purchase of treasury stock.................................. (3,886) (2,378) --
Net proceeds from secondary stock offering.................. -- -- 20,171
Exercise of common stock options and issuance of common
stock under various stock plans........................... 346 235 174
-------- --------- --------
Net cash provided by financing activities................... 280 175,571 33,085
-------- --------- --------
Net increase (decrease) in cash and cash equivalents........ (125) 4,403 (2,295)
Cash and cash equivalents at beginning of year.............. 4,986 583 2,878
-------- --------- --------
Cash and cash equivalents at end of year.................... 4,861 4,986 $ 583
======== ========= ========
Supplemental disclosures:
Cash paid during the year for:
Interest.................................................... $ 19,864 $ 11,436 $ 3,568
-------- --------- --------
Income taxes, net........................................... $ 3,485 $ 3,458 $ 1,255
-------- --------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 32
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999, DECEMBER 26, 1998, AND DECEMBER 27, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Home Products International, Inc. (the "Company"), based in Chicago, is a
leading designer, manufacturer and marketer of a broad range of value-priced,
quality consumer houseware products. The Company's products are marketed
principally through mass market trade channels in the United States and
internationally.
PRINCIPLES OF CONSOLIDATION.
The consolidated financial statements include the accounts of the Company
and its subsidiary companies. All significant intercompany transactions and
balances have been eliminated.
USE OF ESTIMATES.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES.
Inventories are stated at the lower of cost or net realizable value with
cost determined on a first in, first out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment are stated at cost. Depreciation is charged
against results of operations over the estimated service lives of the related
assets.
Improvements to leased property are amortized over the life of the lease or
the life of the improvement, whichever is shorter. For financial reporting
purposes, the Company uses the straight-line method of depreciation. For tax
purposes, the Company uses accelerated methods where permitted.
The Company periodically re-evaluates carrying values and estimated useful
lives of long lived assets to determine whether current facts and circumstances
warrant adjustment.
The Company capitalized certain costs related to the purchase and
development of software used in the business. Such assets are amortized over
their estimated useful lives, ranging from 2 to 5 years.
The estimated service lives of the fixed assets are as follows:
<TABLE>
<S> <C>
Buildings................................................... 30 years
Land and building under capital lease....................... lease term
Machinery, equipment and vehicles........................... 3-8 years
Tools, dies and molds....................................... 5 years
Furniture, fixtures and office equipment.................... 2-8 years
Leasehold improvements...................................... lease term
</TABLE>
F-6
<PAGE> 33
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION.
The Company recognizes revenue as products are shipped to customers.
INTANGIBLE ASSETS.
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight-line over a period not
to exceed forty years. Covenants not to compete are amortized on a straight-line
basis over the terms of the respective agreements. Patents, royalty rights,
trademarks acquired and licensing agreements are amortized over their estimated
useful lives ranging from five to ten years. The Company reviews goodwill and
other intangibles for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. As part of an sku
rationalization in 1999, (described further in Note 2) the Company wrote off
$537 of intangibles associated with a discontinued product line.
INCOME TAXES.
Deferred tax assets and liabilities are determined at the end of each
fiscal period, based on differences between the financial statement bases of
assets and liabilities and the tax bases of those same assets and liabilities,
using the currently enacted statutory tax rates.
NET EARNINGS PER COMMON SHARE.
The following reconciles earnings per share from continuing operations for
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income from continuing operations....................... $2,010 $8,750 $7,320
====== ====== ======
Weighted average common shares outstanding -- basic......... 7,389 7,898 5,436
Stock options and warrants.................................. 221 278 246
------ ------ ------
Weighted average common shares outstanding -- diluted....... 7,610 8,176 5,682
====== ====== ======
Earnings per common share -- basic.......................... $ 0.27 $ 1.11 $ 1.35
====== ====== ======
Earnings per common share -- diluted........................ $ 0.26 $ 1.07 $ 1.29
====== ====== ======
</TABLE>
BENEFIT PLANS.
The Company provides a profit sharing and savings plan (including a 401(k)
plan) to which both the Company and eligible employees may contribute. Company
contributions to the savings plan are voluntary and at the discretion of the
Board of Directors. The Company matches the employee 401(k) plan contributions
with certain limitations. The total Company contributions to both plans are
limited to the maximum deductible amount under the Federal income tax law.
The Company provides retirement plans for its employees covered under
collective bargaining agreements. The amount of the Company contribution is
determined by the respective collective bargaining agreement.
The contributions to all the profit sharing, savings, and retirement plans
for 1999, 1998 and 1997, were $1,597, $725, and $414, respectively.
F-7
<PAGE> 34
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS.
The Company considers all highly liquid, short-term investments with an
original maturity of three months or less, to be cash equivalents.
CONCENTRATION OF CREDIT RISK.
The Company is dependent upon a few customers for a large portion of its
revenues. In 1999 three customers each accounted for more than 10% of
consolidated net sales. The company's top three customers, Wal-Mart, Kmart, and
Target accounted for 18.2%, 15.0% and 11.4% of net sales respectively in 1999.
These same three customers accounted for 18.5%, 12.1% and 8.7% respectively in
1998. The loss of one of these customers could have a material effect on the
Company. No other customer accounted for more than 10% of consolidated net sales
in 1999 or 1998.
FISCAL YEAR.
The Company reports on a 52-53 week year. References to the fiscal years
1999, 1998 and 1997 are for the fifty-two weeks ended December 25, 1999,
December 26, 1998 and December 27, 1997.
RELATED PARTIES.
A director of the Company is the executor and co-trustee of certain estates
and trusts (the "Trusts") which lease facilities to the Company as discussed in
Note 10. In addition, this director is a partner in a law firm which is the
Company's general counsel.
RECLASSIFICATIONS.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
NEW ACCOUNTING STANDARDS.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company had no derivative instruments or hedging transactions in 1999 or 1998.
The Company will be required to adopt this standard in 2000, and the adoption is
not anticipated to have a material impact on the financial statements.
F-8
<PAGE> 35
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SPECIAL, RESTRUCTURING AND OTHER NONRECURRING CHARGES
<TABLE>
<CAPTION>
EXPECTED NON-CASH
CASH CHARGE CHARGE TOTALS
----------- -------- -------
<S> <C> <C> <C>
COST OF GOODS SOLD:
Special charge:
SKU reduction and inventory adjustments................ $2,782 $4,909 $ 7,691
Discontinued molds..................................... -- 898 898
------ ------ -------
Total charge to cost of goods sold................ 2,782 5,807 8,589
OPERATING EXPENSES:
Restructuring and other charges:
Employee related costs................................. 1,417 -- 1,417
Elimination of obsolete assets......................... 115 3,753 3,868
Transaction costs...................................... 576 105 681
------ ------ -------
Subtotal............................................. 2,108 3,858 5,966
Other nonrecurring charges:
Employee related costs................................. 293 -- 293
HOMZ branding strategy................................. 152 -- 152
------ ------ -------
Subtotal............................................. 445 -- 445
------ ------ -------
Total charge to operating expense................. 2,553 3,858 6,411
------ ------ -------
Total charges............................................... $5,335 $9,665 $15,000
Tax benefit -- 40%.......................................... (6,000)
-------
Net charge.................................................. $ 9,000
=======
</TABLE>
In 1999, the Company recorded a $15,000 pretax charge, comprised of an
$8,589 Special Charge and a $6,411 Restructuring and Other Nonrecurring Charge,
(the two together are referred to herein as the "Charges"). The Charges were
incurred in accordance with a plan adopted in July 1999 to consolidate two of
the Company's wholly-owned subsidiaries and to implement a national branding
strategy.
The primary components of the $8,589 Special Charge include $7,691 for
inventory reserves for discontinued products and packaging and $898 for reserves
for molds that were used to make these products. The Company has performed an
extensive product line review which has resulted in the decision to eliminate
approximately one-third of the Company's total stock keeping units (sku's). The
eliminated sku's represent approximately 1% of consolidated 1999 sales.
The primary components of the $6,411 Restructuring and Other Nonrecurring
Charges include $1,710 for employee related costs such as severance and
relocation costs due to consolidation of the selling, marketing and
administrative functions of two of the Company's wholly-owned subsidiaries,
$3,868 for reserves relating to assets made obsolete by the consolidation and
$152 for the implementation of the Company's national branding strategy.
The Company has identified 49 selling, marketing or administrative
employees that will be terminated in accordance with the consolidation plan. As
of December 25, 1999 approximately 40 of these employees have been terminated.
The Company began to implement the restructuring plan in the third quarter
of 1999 and accordingly the Charges were originally recorded at that time. Due
to additional information which became available in the fourth quarter of 1999,
the Company revised certain components of the
F-9
<PAGE> 36
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Charges. The additional charges and the reversal of reserves no longer required
are listed in the table below (before tax benefit):
<TABLE>
<CAPTION>
AS
ORIGINALLY
RECORDED IN ADDITIONAL REVERSAL OF ADJUSTED
Q3 - 1999 CHARGE RESERVES TOTALS
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
COST OF GOODS SOLD:
Special Charge:
SKU reduction and inventory adjustments............ $ 7,070 $2,004 $(1,383) $ 7,691
Production and distribution facilities............. 979 -- (979) --
Discontinued molds................................. 898 -- -- 898
------- ------ ------- -------
Total charge to cost of goods sold......... 8,947 2,004 (2,362) 8,589
OPERATING EXPENSES:
Restructuring and Other Charges:
Employee related costs............................. 1,369 48 -- 1,417
Elimination of obsolete assets..................... 3,723 145 -- 3,868
Transaction costs.................................. 518 163 -- 681
------- ------ ------- -------
Subtotal........................................ 5,610 356 -- 5,966
Other nonrecurring charges
Employee related costs............................. 293 -- -- 293
HOMZ branding strategy............................. 150 2 -- 152
------- ------ ------- -------
Subtotal........................................ 443 2 -- 445
------- ------ ------- -------
Total charge to operating expense.......... 6,053 358 -- 6,411
------- ------ ------- -------
Total charge......................................... $15,000 $2,362 $(2,362) $15,000
======= ====== ======= =======
</TABLE>
The Company recorded an additional charge in the fourth quarter of 1999 in
the amount of $2,362 and reversed $2,362 of reserves which were no longer
needed. Of the total new charge, $2,004 was recorded as a Special Charge and
$358 was recorded as a Restructuring and Other Nonrecurring Charge.
The $2,004 increase to the Special Charge includes modifications to certain
original reserve calculations as well as additional reserves established for
carrying costs such as warehouse and logistics expenses related to certain
discontinued inventory. The $2,362 decrease to the original reserve is primarily
related to Management's decision to keep open a manufacturing and distribution
facility which was scheduled for closure as well as modifications to certain
original reserve calculations.
The $358 increase to the Restructuring and Other Nonrecurring Charges was
the result of modifications to certain original reserve calculations.
F-10
<PAGE> 37
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1999 utilization of the reserve established in connection with the
Charges was as follows:
<TABLE>
<CAPTION>
ADJUSTED RESERVE
BEGINNING ACTIVITY IN ACTIVITY IN BALANCE AT
BALANCE Q3 1999 Q4 1999 12/25/99
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Inventory.............................................. $ 7,691 $ 806 $1,892 $4,993
Molds.................................................. 898 402 -- 496
Plant and facilities................................... -- -- -- --
Elimination of obsolete assets......................... 3,868 3,150 383 335
Employee costs......................................... 1,710 631 164 915
Other.................................................. 833 224 209 400
------- ------ ------ ------
$15,000 $5,213 $2,648 $7,139
======= ====== ====== ======
</TABLE>
The total activity charged against the accrual in 1999 was $7,861. The
total non cash cost of these charges was $4,463.
NOTE 3. 1999 ACQUISITION
On May 12, 1999 the Company acquired certain assets (inventory and molds)
from Austin Products, Inc. which were sold under the Epic brand name , (the
"1999 Acquisition"). The assets were acquired for $5,962 in cash. This product
line consists of plastic laundry baskets, tote caddys, crates, bins and utility
buckets. The acquisition was accounted for as a purchase. The purchase price was
equal to the fair value of the assets acquired. Results of operations have been
included in the Consolidated Statement of Operations since the date of
acquisition.
NOTE 4. 1998 ACQUISITIONS
Effective December 30, 1997, the Company acquired all of the outstanding
common stock of Seymour Sales Corporation and its wholly owned subsidiary,
Seymour Housewares Corporation, (collectively, "Seymour" and the acquisition is
referred to herein as the "Seymour Acquisition"). Seymour, headquartered in
Seymour, Indiana, is an industry leading manufacturer and marketer of consumer
laundry care products, including a full line of ironing boards, ironing board
covers and pads, and numerous laundry related accessories. The acquisition was
accounted for as a purchase and as such, the excess of the purchase price over
the estimated fair value of the acquired net assets, which approximated $27,000,
was recorded as goodwill and is being amortized over forty years. Total
consideration for the acquisition was $100,700, consisting of approximately
$16,400 in cash, $14,300 in common stock (1,320,700 shares) and the assumption
of $70,000 of debt. Results of Seymour's operations have been included in the
Consolidated Statement of Operations since the date of acquisition.
On September 8, 1998 the Company acquired from Newell Co. certain assets
and assumed certain liabilities comprising the businesses of Anchor Hocking
Plastics, a leading supplier of food storage containers, and Plastics, Inc., a
leading supplier of disposable plastic servingware, for $78,000 in an all cash
transaction (the "Newell Asset Acquisition"). Based upon provisions in the
purchase agreement, the Company received $571 from Newell in 1999 as an
adjustment to the purchase price. Results of operations have been included in
the Consolidated Statement of Operations since the date of acquisition. The
acquisition was accounted for as a purchase, and as such, the excess of the
purchase price over the estimated fair value of the acquired net assets, which
approximated $57,200, was recorded as goodwill and is being amortized over forty
years.
F-11
<PAGE> 38
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited proforma information presents a summary of
consolidated results of operations as if the Seymour Acquisition and the Newell
Asset Acquisition each occurred on December 29, 1996:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net sales................................................... $294,219 $291,143
Net income before extraordinary charge...................... 9,207 4,652
Net income before extraordinary charge per
share -- diluted.......................................... $ 1.13 $ 0.66
</TABLE>
These unaudited proforma results have been presented for comparative
purposes only and include certain adjustments, such as additional goodwill
amortization expense and increased interest expense on acquisition debt. The
proforma results do not purport to be indicative of the results of operations
that actually would have resulted had the combination occurred on December 29,
1996, or of future results of operations of the consolidated entities.
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"). Based upon
an earn out provision in the contract, the Company must pay Tenex Corporation an
additional amount based upon 1999 sales of the products acquired. This amounted
to $705 for 1999. A similar provision is in place for 2000 sales, with a minimum
due of zero and a maximum amount due of $1,000 if certain predetermined sales
targets are met. This product line consists of plastic storage bins and
containers, rolling carts and stacking drawer systems. The acquisition was
accounted for as a purchase, and as such, the excess of the purchase price over
the estimated fair value of the acquired net assets, which approximated,
$14,200, was recorded as goodwill and is being amortized over a period of twenty
years. Results of operations have been included in the Consolidated Statement of
Operations since the date of acquisition.
The Seymour Acquisition, the Tenex Asset Acquisition and the Newell Asset
Acquisition are collectively referred to herein as the "1998 Acquisitions".
NOTE 5. SHUTTERS, INC. DIVESTITURE
Effective December 27, 1998 (fiscal 1999) the Company sold Shutters, Inc.
("Shutters") its home improvement products division for approximately $5,000 in
cash and notes receivable. The Company recorded a gain in the amount of $196
(pre tax) on the sale. Shutters' 1998 net sales were approximately 3% of 1998
consolidated net sales.
NOTE 6. INVENTORIES
The components of the Company's inventory were as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Finished goods.............................................. $15,890 $15,771
Work-in-process............................................. 2,168 3,487
Raw materials and supplies.................................. 6,006 6,038
------- -------
Inventory................................................. $24,064 $25,296
======= =======
</TABLE>
F-12
<PAGE> 39
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Buildings and land.......................................... $ 14,881 $ 15,364
Land and building under capital lease....................... 6,011 2,535
Machinery, equipment and vehicles........................... 37,944 37,354
Tools and dies.............................................. 30,606 25,519
Furniture, fixtures and office equipment.................... 5,070 5,447
Leasehold improvements...................................... 4,166 1,635
-------- --------
98,678 87,854
Less accumulated depreciation and amortization.............. (31,420) (27,654)
-------- --------
$ 67,258 $ 60,200
======== ========
</TABLE>
NOTE 8. INTANGIBLES AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Goodwill, net of accumulated amortization of $10,815 on
December 25, 1999, and $6,016 on December 26, 1998........ $164,503 $172,651
Covenants not to compete, net of accumulated amortization of
$868 on December 25, 1999, and $452 on December 26,
1998...................................................... 2,094 2,511
Industrial Revenue Bond fees, net of accumulated
amortization of $331 on December 25, 1999, and $315 on
December 26, 1998......................................... 72 88
Patents, net of accumulated amortization of $1,646 on
December 25, 1999, and $1,626 on December 26, 1998........ 723 910
Licensing agreement, net of accumulated amortization of $61
on December 26, 1998...................................... -- 134
Deferred financing fees, net of accumulated amortization of
$1,253 on December 25, 1999 and $507 on December 26,
1998...................................................... 4,675 5,421
Other assets................................................ 110 237
-------- --------
$172,177 $181,952
======== ========
</TABLE>
NOTE 9. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Compensation and other benefits............................. $ 8,616 $ 6,540
Sales incentives and commissions............................ 13,244 11,288
Plant relocation and consolidation.......................... -- 4,863
Income taxes payable........................................ 1,890 1,075
Restructuring............................................... 2,263 --
Interest payable............................................ 1,892 2,659
Other....................................................... 5,746 9,239
------- -------
$33,651 $35,664
======= =======
</TABLE>
F-13
<PAGE> 40
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revolving credit facility, variable rate, due September 8,
2003...................................................... $ 48,250 $ 44,000
Term Loan, variable rate, due September 8, 2004............. 47,000 50,000
Senior Subordinated Notes, 9.625%, due 2008................. 125,000 125,000
Illinois Development Finance Authority (IDFA) variable rate
demand Industrial Development Revenue Bonds (Selfix, Inc.
Project) Series 1990, due September 1, 2005............... 1,600 2,000
Capital lease obligations................................... 5,055 2,085
-------- --------
226,905 223,085
Less current maturities..................................... (5,571) (3,549)
-------- --------
$221,334 $219,536
======== ========
</TABLE>
In June 1999 the Company expanded its Chicago manufacturing and
distribution facility by adding 100,000 square feet of warehouse space. The
building addition was recorded as a capital lease obligation as the construction
was financed by the Trusts. See below for additional information on capital
lease obligations.
On May 14, 1998, the Company issued $125,000 of 9.625% Senior Subordinated
Notes due 2008 (the "Notes") in a public offering. Interest on the Notes is
payable semi-annually on May 15, and November 15. The Notes are guaranteed by
the Company's subsidiaries (see Note 14). The Notes may not be redeemed prior to
May 15, 2003. Subsequent to such date, at the option of the Company, the Notes
may be redeemed at various amounts as set forth in the Notes, but not at a price
less than 100% of par value. Upon the occurrence of a Change in Control, as
defined in the Notes, the holders of the Notes have the right to require the
Company to repurchase their Notes at a price equal to 101% of par value plus
accrued interest. The Notes contain certain restrictions that, among other
things, will limit the Company's ability to (i) incur additional indebtedness
unless certain financial ratios are met, (ii) pay dividends, (iii) make certain
asset dispositions, or (iv) merge with another corporation. The Company was in
compliance with all covenants related to the Notes as of December 25, 1999. The
Notes are due in a single payment on May 14, 2008.
In conjunction with the offering of the Notes, on May 14, 1998 the Company
entered into a five year $100,000 revolving credit agreement (the "Revolver")
with Chase Manhattan Bank, as administrative agent, and several lenders as
parties thereto. The Revolver also contains sub-limits of up to $15,000 for
letters of credit. Borrowings under the Revolver will bear interest at an annual
rate, at the option of the Company, of either (i) prime plus .75%, or (ii) LIBOR
plus a floating rate which is determined based upon certain financial ratios.
This floating rate is adjusted quarterly, and was 1.75% as of December 25, 1999
and December 26, 1998. The Revolver contains certain affirmative and negative
covenants and will require the Company to maintain certain financial covenants
including interest coverage ratios and maximum leverage ratios. The Company was
in compliance with all covenants related to the Revolver as of December 25, 1999
and December 26, 1998. The Company must pay a quarterly fee ranging from .0375%
to .05%, based upon the unused portion of the revolving commitments.
Availability under the Revolver at December 25, 1999 was approximately $48,000.
On September 8, 1998, in connection with the Newell Asset Acquisition, the
Company amended and restated the Revolver to add among other items, a $50,000
term loan, (the "Term Loan"). The terms and conditions of the amended and
restated Revolver were substantially the same as those established on May 14,
1998. The Term Loan is payable in twenty-four quarterly installments
F-14
<PAGE> 41
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increasing from $750 to $2,250 per quarter and a final payment due in the amount
of $13,250 on September 8, 2004. In 2000, a total of $5,000 will become due. The
Term Loan bears interest at the same optional rates as the Revolver.
The IDFA variable rate demand Industrial Development Bonds (Selfix Project)
Series 1990, were issued in September 1990, and mature on September 1, 2005.
Interest is calculated based upon a weekly variable rate, and is paid monthly.
Principal is payable in annual installments, due on December 1. The variable
rate at December 25, 1999 was 5.13%, and at December 26, 1998 was 4.2%.
Capital lease obligations include; (i) a lease agreement between one of the
Company's subsidiaries and the Trusts for a manufacturing and warehouse facility
as well as the Company's corporate offices; and (ii) various equipment lease
agreements. Lease payments to the Trusts for buildings were $578, $533 and $519,
in 1999, 1998 and 1997, respectively, and lease payments for machinery and
equipment in 1999, 1998 and 1997 were $67, $160 and $140 respectively.
The following schedule shows future minimum lease payments together with
the present value of the payments for all capital lease obligations.
<TABLE>
<S> <C>
Years ending:
2000................................................... $ 992
2001................................................... 978
2002................................................... 944
2003................................................... 923
2004................................................... 923
Thereafter............................................. 12,106
--------
16,866
Less amount representing interest...................... (11,811)
--------
Present value of minimum lease payments................ $ 5,055
========
Long-term portion...................................... $ 4,884
Current portion........................................ 171
--------
$ 5,055
========
</TABLE>
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company leases certain manufacturing, warehouse and office space as
well as manufacturing equipment under non cancelable operating leases, expiring
at various dates through 2009.
Future annual minimum lease payments under all non cancelable operating
leases as of December 25, 1999, are as follows:
<TABLE>
<S> <C>
Years ending:
2000................................................... $ 5,517
2001................................................... 4,866
2002................................................... 4,180
2003................................................... 3,832
2004................................................... 2,961
Thereafter............................................. 8,077
--------
Total minimum lease payments........................... $ 29,433
========
</TABLE>
Rent expense totaled $5,974, $1,985 and $1,184 for 1999, 1998 and 1997,
respectively.
F-15
<PAGE> 42
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. INCOME TAXES
As of December 25, 1999 the Company had $1,537 of income tax refunds
receivable. In addition, the Company had $2,500 of 1999 overpayments applied
towards its 2000 tax liability. These two items are classified in the prepaid
expenses and other current assets caption in the December 25, 1999 Consolidated
Balance Sheet. The tax refund receivable and overpayments are a result of
changes during 1999 in the Company's full year estimated tax liability. The
changes in estimated tax liabilities were largely the result of the third
quarter Special, Restructuring and Other Nonrecurring changes (see Note 2).
Significant components of the Company's deferred tax items as of December 25,
1999 and December 26, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Inventory reserves and overhead capitalized for tax
purposes............................................... $ 5,543 $ 4,160
Employee benefit expenses and other accruals.............. 3,662 2,319
Accounts receivable reserve............................... 4,926 3,194
Capitalized lease treated as operating lease for tax
purposes............................................... 341 358
Accrued advertising, volume rebates and reserves for
returns................................................ 3,144 2,700
Other accrued liabilities................................. 1,392 3,929
Net operating loss carryforward........................... 4,628 4,568
------- -------
Gross deferred tax assets................................... 23,636 21,228
------- -------
DEFERRED TAX LIABILITIES
Depreciation and amortization............................. 10,430 6,450
Other..................................................... 532 30
------- -------
Gross deferred tax liabilities.............................. 10,962 6,480
------- -------
Deferred tax assets net of deferred liabilities............. 12,674 14,748
Valuation allowance......................................... (4,257) (4,257)
------- -------
Net deferred tax asset...................................... $ 8,417 $10,491
------- -------
</TABLE>
In connection with the various acquisitions in 1998 deferred tax assets and
liabilities were recorded through purchase accounting. Additionally, a valuation
allowance in the amount of $4,257 was recorded through purchase accounting
against a majority of the net operating loss obtained in the Seymour
Acquisition. The valuation allowance is necessary due to the limited amount of
the net operating loss carryforward that can be utilized each year.
F-16
<PAGE> 43
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current -- before benefit from extraordinary charge
U.S. federal............................................ $ 691 $ 3,998 $ 1,721
State................................................... 286 1,075 346
------- ------- -------
977 5,073 2,067
------- ------- -------
Deferred
U.S. federal............................................ 1,095 1,528 1,422
Increase (decrease) in valuation allowance.............. -- -- (3,143)
------- ------- -------
1,095 1,528 (1,721)
------- ------- -------
Income tax expense before benefit from extraordinary
charge.................................................. $ 2,072 $ 6,601 $ 346
======= ======= =======
Current benefit from extraordinary charge for the early
retirement of debt...................................... -- (3,633) --
------- ------- -------
Total income tax expense........................ $ 2,072 $ 2,968 $ 346
======= ======= =======
</TABLE>
Income tax expense before benefit from extraordinary charge differs from
amounts computed based on the U.S. federal statutory tax rate applied to
earnings before tax as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ -------
<S> <C> <C> <C>
Computed at statutory U.S. federal income tax rate........ $ 1,428 $5,219 $ 2,683
State income taxes, net of U.S. federal tax benefit....... 188 709 383
Foreign sales corporation benefit......................... (167) (100) --
Non deductible goodwill................................... 388 678 62
Other..................................................... 235 95 361
Change in valuation allowance............................. -- -- (3,143)
-------- ------ -------
$ 2,072 $6,601 $ 346
======== ====== =======
</TABLE>
NOTE 13. STOCK OPTIONS
On May 19, 1999 the shareholders of the Company approved the 1999
Performance Incentive Plan (the "1999 Plan"). In addition to allowing the grant
of stock options the 1999 Plan has provisions for granting key employees and
certain key nonemployees stock appreciation rights, restricted stock,
performance grants and other stock based grants. Only stock options were granted
pursuant to the 1999 Plan in 1999. The 1999 Plan provides for the issuance of a
maximum of 1,000,000 shares of the Company's Common Stock.
Under the 1987, 1991, and 1994 stock option plans as amended, and the 1999
Plan, (collectively, the "Stock Option Plan") key employees and certain key
nonemployees were granted options to purchase shares of the Company's common
stock. All stock option grants are authorized by the Compensation Committee of
the Board of Directors, which is comprised of outside directors.
All options granted subsequent to December 1997, with the exception of
those granted to the Chief Executive Officer and a specific grant to Senior
Executives, vest within a four year period. Options granted prior to December
1997 vest over a five year period. The options granted to the Chief Executive
Officer vest on an accelerated schedule in accordance with his employment
contract. A certain option grant to Senior executive officers in 1999, including
the Chief Executive Officer, vested immediately upon grant. All options granted
expire ten years from the date of grant.
F-17
<PAGE> 44
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
With shareholder approval of the 1999 Plan, the maximum number of shares of
common stock which may be granted under the Stock Option Plan increased by
1,000,000 to a maximum of 2,475,000. Shares available for future grant amounted
to 711,455, 11,612 and 132,681 in 1999, 1998 and 1997, respectively.
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages
companies to adopt a fair value approach to valuing stock-based compensation
that would require compensation cost to be recognized based upon the fair value
of the stock-based instrument issued. The Company has elected, as permitted by
SFAS No. 123, to apply the provisions of APB Opinion 25 "Accounting for Stock
Based Compensation" and the related interpretations in accounting for stock
option awards under the Stock Option Plan. Under APB Opinion 25, compensation
expense is recognized if the market price on the date of grant exceeds the grant
price. All options granted by the Company have been granted at market price on
the date of grant, accordingly, no compensation cost has been recognized in the
Company's financial statements. As required by SFAS 123, the Company has
computed, for pro forma disclosure purposes, the value of options granted during
fiscal years 1999 and 1998 using an option pricing model.
Had compensation cost for the Company's 1999, 1998 and 1997 grants been
determined using the fair values and considering the applicable vesting periods,
the Company's reported results would have been reduced by $330 or $0.04 diluted
earnings per share in 1999, by $138 or $0.01 diluted earnings per share in 1998
and by $600 or $0.11 diluted earnings per share in 1997. The average fair value
of options granted in 1999 was $4.61, in 1998 was $2.85 and in 1997 was $3.95.
The fair value of the options granted was determined using the Black-Scholes
option pricing model based upon the weighted average assumptions of: (i) a
dividend yield of 0% for 1999, 1998 and 1997; (ii) expected volatility of the
market price of the Company's common stock of 46% for 1999, 44% for 1998 and 43%
for 1997; (iii) a weighted-average expected life of the options of approximately
five years, and (iv) weighted average risk free interest rates of 5.2% for
fiscal 1999, 6.0% for fiscal 1998 and 6.3% for 1997.
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its employee stock based compensation plan.
A summary of the transactions in the option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- --------
<S> <C> <C>
BALANCE AT DECEMBER 28, 1996................................ 781,987 $ 6.21
Options granted........................................... 497,900 10.17
Options exercised......................................... (13,288) 4.58
Options cancelled/forfeited............................... (45,100) 10.38
--------- ------
BALANCE AT DECEMBER 27, 1997................................ 1,221,499 7.70
Options granted........................................... 193,000 9.99
Options exercised......................................... (8,457) 6.28
Options cancelled/forfeited............................... (71,931) 5.58
--------- ------
BALANCE AT DECEMBER 26, 1998................................ 1,334,111 8.15
Options granted........................................... 554,850 8.70
Options exercised......................................... (3,535) 5.98
Options cancelled/forfeited............................... (254,693) 9.39
--------- ------
BALANCE AT DECEMBER 25, 1999................................ 1,630,733 $ 8.09
========= ======
</TABLE>
F-18
<PAGE> 45
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. SUBSIDIARY GUARANTEES OF SENIOR SUBORDINATED NOTES
The Company is a holding company with no assets or operations other than
its investment in its subsidiaries. The $125,000 9.625% Senior Subordinated
Notes due 2008 (the "Notes") are guaranteed by all subsidiaries other than
inconsequential subsidiaries (the "Subsidiary Guarantors"). The guarantee
obligations of the Subsidiary Guarantors are full, unconditional and joint and
several. There are no restrictions on the ability of the Company's subsidiaries
to declare and pay dividends or other distributions to the Company.
ITEM 8(b). QUARTERLY FINANCIAL INFORMATION -- UNAUDITED (IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN THIRTEEN THIRTEEN
WEEKS WEEKS WEEKS WEEKS
ENDED ENDED ENDED ENDED
1999 MARCH 27 JUNE 26 SEPTEMBER 25 DECEMBER 25
- ---- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.......................................... $67,799 $72,567 $79,737 $73,898
Gross profit....................................... 22,622 26,517 17,873 23,099
Net earnings (loss)................................ $ 1,059 $ 3,659 $(5,413) $ 2,705
Net earnings per common share -- basic............. $ 0.14 $ 0.49 $ (0.74) $ 0.37
Net earnings per common share -- diluted........... $ 0.13 $ 0.48 $ (0.74) $ 0.36
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN THIRTEEN THIRTEEN
WEEKS WEEKS WEEKS WEEKS
ENDED ENDED ENDED ENDED
1998 MARCH 28 JUNE 27 SEPTEMBER 26 DECEMBER 26
- ---- -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.......................................... $52,408 $54,985 $68,243 $76,793
Gross profit....................................... 15,953 18,879 22,369 26,015
Earnings before extraordinary charge............... $ 1,246 $ 3,029 $ 3,114 $ 1,361
Net earnings (loss)................................ $ (491) $ (341) $ 3,114 $ 1,361
Net earnings before extraordinary charge per common
share -- basic................................... $ 0.16 $ 0.38 $ 0.39 $ 0.18
Net earnings before extraordinary charge per common
share -- diluted................................. $ 0.15 $ 0.37 $ 0.38 $ 0.17
Net earnings (loss) per common share -- basic...... $ (0.06) $ (0.04) $ 0.39 $ 0.18
Net earnings (loss) per common share -- diluted.... $ (0.06) $ (0.04) $ 0.38 $ 0.17
------- ------- ------- -------
</TABLE>
F-19
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE II
To the Board of Directors and Shareholders of,
Home Products International Inc.
We have audited in accordance with auditing standards generally accepted in
the United States the consolidated financial statements of Home Products
International, Inc. as of and for the fifty-two week periods ended December 25,
1999 and December 26, 1998 included in this Form 10-K, and have issued our
report thereon dated February 18, 2000. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The financial statement
schedule listed in Item 14(b) is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 18, 2000
S-1
<PAGE> 47
SCHEDULE II
HOME PRODUCTS INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 25, 1999,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 26, 1998,
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 27, 1997
<TABLE>
<CAPTION>
ADDITIONS
----------------------- DEDUCTIONS
BALANCE AT CHARGED TO (NET BALANCE
BEGINNING BALANCES COSTS AND WRITE-OFFS/ AT END
OF PERIOD ACQUIRED EXPENSES RECOVERIES) OF PERIOD
---------- ---------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
December 25, 1999........................... $7,196 $ -- $ 4,734 $(1,772) $10,158
December 26, 1998........................... 1,716 4,104 2,169 (793) 7,196
December 27, 1997........................... 901 659 499 (343) 1,716
</TABLE>
S-2
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 R. TENNANT
------------------------------------
James R. Tennant, Chief Executive
Officer
Date March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES R. TENNANT
- -----------------------------------------------------
James R. Tennant Chairman of the Board and March 24, 2000
Director
/s/ JAMES E. WINSLOW
- -----------------------------------------------------
James E. Winslow Executive Vice President, March 24, 2000
Chief Financial Officer and
Secretary
/s/ CHARLES R. CAMPBELL
- -----------------------------------------------------
Charles R. Campbell Director March 24, 2000
/s/ JOSEPH GANTZ
- -----------------------------------------------------
Joseph Gantz Director March 24, 2000
/s/ STEPHEN P. MURRAY
- -----------------------------------------------------
Stephen P. Murray Director March 24, 2000
/s/ MARSHALL RAGIR
- -----------------------------------------------------
Marshall Ragir Director March 24, 2000
/s/ JEFFREY C. RUBENSTEIN
- -----------------------------------------------------
Jeffrey C. Rubenstein Director March 24, 2000
/s/ DANIEL B. SHURE
- -----------------------------------------------------
Daniel B. Shure Director March 24, 2000
/s/ JOEL D. SPUNGIN
- -----------------------------------------------------
Joel D. Spungin Director March 24, 2000
</TABLE>
II-1
<PAGE> 1
EXHIBIT 2.8
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "AGREEMENT"), is made and entered into
as of the day of May, 1999, by and among AUSTIN PRODUCTS, INC. d/b/a
EPIC, a Texas corporation ("SELLER"), TAMOR CORPORATION, a Massachusetts
corporation ("BUYER"), MINERVA PLASTICS, INC., a Texas corporation ("MINERVA")
and ALPHA HOLDINGS, INC., a Texas corporation ("ALPHA").
RECITALS
A. Seller is engaged in the business ("SELLER'S BUSINESS") of
manufacturing, developing and distributing plastic and other housewares for the
retail trade;
B. Buyer desires to purchase, and Seller desires to sell, certain of the
assets and rights of Seller relating to Seller's Business, all on the terms and
conditions as hereinafter set forth;
C. Minerva owns 100% of the outstanding stock of Seller, and Alpha owns
100% of the outstanding stock of Minerva. In order to induce Buyer to enter into
this transaction, Minerva and Alpha are willing to make certain representations
and warranties to Buyer.
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.
"EFFECTIVE DATE" shall mean 11:59 p.m., on the date immediately preceding
the Closing Date.
"EXCLUDED ASSETS" shall mean all of the assets and properties of Seller
other than the Purchased Assets, including, without limitation, all injection
molding equipment.
"FUTURE PRODUCTS" shall mean the potential consumer plastic products under
consideration on the date hereof for inclusion in Seller's Business.
"INTANGIBLE RIGHTS" shall have the meaning ascribed thereto in Section 2.
l(iii) hereof.
"INTERIM PERIOD" shall mean the period of time beginning May 3, 1999 and
ending on the Closing Date.
"INVENTORY" shall mean Seller's inventory of Products, including (i)
finished goods, (ii) work in process used or held for use in connection with
Seller's Business, (iii) raw materials used or held for
<PAGE> 2
use in connection with Seller's Business, and (iv) packaging and labels used or
held for use exclusively in connection with the Seller's Business; in the case
of each of clauses (i) through (iv) above, as such inventory exists on the
Effective Date.
"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.
l(v)hereof.
"PENDING TOOLING" shall have the meaning ascribed thereto in Section 2.3
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.
"PRODUCTS" shall mean the consumer plastic products included in Seller's
Business including Future Products.
"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.
"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 13.3 hereof.
"SURVIVAL PERIOD" shall have the meaning ascribed thereto in Section
13.5 hereof.
"TOOLING" shall have the meaning ascribed thereto in Section 2.
l(vi)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 (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;
(ii) The Inventory;
(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 in the manufacture or sale and distribution of the
Products, as listed on Schedule 2.1(iii) attached hereto. and all goodwill
specifically associated with Seller's Business (collectively, the
"INTANGIBLE RIGHTS");
(iv) All formulas, including raw material mixing formulas, processes,
technical information, tool-kits, plans, drawings and know-how, procedure
manuals, maintenance manuals, schematics, blueprints, Future Product plans,
sales literature, pamphlets and brochures, all to the extent used by Seller
in the manufacture, distribution and sale of the Products;
(v) open purchase orders with respect to Inventory that has not been
shipped as of the Effective Date and which are described on Schedule 2.1(v)
(the "OPEN ORDERS");
2
<PAGE> 3
(vi) All tooling used in connection with Seller's Business including,
without limitation, the tooling identified on Schedule 2.1 (vi) attached
hereto (the "TOOLING");
(vii) All auxiliary equipment for secondary operations and other
equipment specified on Schedule 2.1(vii) attached hereto;
(vii) Seller's booth and right to a space at the International
Hardware Show in Chicago, Illinois;
(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) Copies of such of Seller's books, records and files relating
directly to Seller's Business as Buyer shall require.
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.
2.3. Pending Tooling. Seller presently has tools under construction (the
"PENDING TOOLING") as follows:
<TABLE>
<CAPTION>
TOOLMAKER PRODUCT
- ----------------------------------- -----------------------------------
<S> <C>
Mueller Clear Plastic Storage Boxes
TSA Totes
LG International Totes
</TABLE>
On or prior to the Closing Date, Buyer shall notify Seller as to whether or
not it desires to acquire the tools being constructed by Mueller or TSA. If
Buyer fails to notify Seller of its desire to acquire such Tooling within such
time, then such Tooling shall be an Excluded Asset and Seller shall be free to
sell or otherwise dispose of such Pending Tooling; provided, however, that
Seller shall not have the right to utilize such Pending Tooling in violation of
the restrictive covenants contained in this Agreement. On or before May 15,
1999, Buyer shall notify Seller whether or not it desires to acquire the Pending
Tooling being constructed by LG International. If Buyer fails to notify Seller
of its desire to acquire such Pending Tooling by such date, then such Pending
Tooling shall be an Excluded Asset and Seller shall be free to sell such Pending
Tooling; provided, however, that Seller shall not have the right to utilize such
Pending Tooling in violation of the restrictive covenants contained in this
Agreement.
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.
3.2. Obligations with Respect to Pending Tooling. If Seller elects to
acquire any of the Pending Tooling described in Section 2.3, then Buyer shall
assume Seller's obligation to the tool manufacturer in connection with the
manufacturer of such Pending Tooling.
3.3. Other Obligations. Except as set forth in Section 3.3 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.
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) Four
3
<PAGE> 4
Million Seven Hundred Thousand Dollars ($4,700,000), less any reduction required
pursuant to Section 5.1.1 below, and plus or minus the "Inventory Adjustment"
described in Section 4.4 below (the "BASE PRICE"), payable at Closing by wire
transfer of good funds to Seller's order; and (ii) the additional consideration
described in Sections 4.2 and 4.3 hereof payable at the times and in the manner
hereinafter set forth (collectively, the "PURCHASE PRICE").
4.2. Additional Consideration Based Upon No Adjustments. Buyer shall pay to
Seller additional consideration equal to Five Hundred Thousand Dollars
($500,000), less the total amount of the "Adjustments" (defined below) assessed
against Buyer at any time during the six-month period following the Closing
Date. For purposes hereof, the "Adjustments" shall mean any adjustments, setoffs
or fines assessed against Buyer by customers of the Products which relate to
sales of Products by Seller prior to the Closing Date. In addition, 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, "INCENTIVE PROGRAMS"). In the event that, after Closing,
any claim is made against Buyer for any amount due under Incentive Programs,
whether by debit against an invoice issued by Buyer (a "CUSTOMER DEBIT") or
otherwise, such Customer Debit shall also be an Adjustment for purposes hereof.
This additional consideration shall be paid by Buyer within forty-five (45) days
of the end of such six-month period.
4.3. Additional Consideration Based Upon Sales. If during the twelve-month
period beginning on May 1, 1999, Buyer's gross sales of the Products
manufactured with any of the Tooling and any Pending Tooling acquired by Buyer
during such period equal at least $30,000,000 (the "SALES THRESHOLD"), Buyer
shall pay to Seller, by wire transfer of good funds to Seller's order, as
additional consideration for the Purchased Assets, an amount equal to Six
Hundred Fifty Thousand Dollars ($650,000). Such amount shall be due and payable
in full on or before the 45th day after the expiration of the twelve-month
period. Buyer shall deliver to Seller, on or before the 30th day after
expiration of such twelve-month period, a reasonably detailed report of its
gross sales of the Products shipped or invoiced to customers during such period.
4.4. Inventory Adjustment. The Base Price shall be increased or decreased
by the increase or decrease in the finished goods inventory of Seller from May
3, 1999 to the Closing Date (the "INVENTORY ADJUSTMENT"). The parties shall
determine the Inventory Adjustment by reference to Products produced and shipped
during the Interim Period, valued at standard cost.
5. COVENANTS PRIOR TO CLOSING.
5.1. Conduct of Business. Seller hereby covenants to Buyer that during the
Interim Period:
5.1.1. Epic shall not manufacture nor ship any products without
Buyer's consent and shall manufacture and deliver Products to such
Customers of Seller as Buyer shall direct. Buyer agrees to sell to Seller
sufficient raw materials, at its standard cost, to enable Seller to
manufacture such Products. The Purchase Price for such raw materials shall
be payable on the Closing Date. In addition, Buyer may, but shall not be
obligated to, advance to Seller during the Interim Period amounts necessary
to continue the operations of Seller's Business for purposes of
manufacturing the Products as provided in this Section. In addition, if
Seller incurs payroll or obligations during the Interim Period which are
necessary to manufacture Products pursuant to this Section 5.1.1 and which
remain unpaid as of the Closing Date, then a portion of the Purchase Price
shall be used to pay such payroll and other obligations, if the Closing
occurs. To secure its payment obligations to Buyer, Seller will grant to
Buyer a purchase money security interest in the raw materials and a
security interest in work-in-process, finished goods inventory and accounts
receivable generated during the Interim Period. Buyer's obligation to sell
raw materials to Seller and to provide advances to Seller during the
Interim Period shall be contingent upon:
(i) receipt of approval by Comerica Bank of this transaction and
its Agreement to release its lien on the Purchased Assets at Closing;
and
4
<PAGE> 5
(ii) Comerica Bank subordinates its liens to the liens being
granted by Seller to Buyer pursuant to this Section with respect to the
Interim Period.
5.1.2. Seller shall keep in full force and effect its corporate
existence and all rights relating or pertaining to the Purchased Assets.
5.1.3. 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.
5.1.4. Seller shall maintain Seller's books, accounts and records
relating to Seller's Business in accordance with past custom and practice.
5.1.5. Seller shall promptly inform Buyer orally or in writing of any
material adverse change (excluding changes in general market or competitive
conditions) relating to Seller's Business and of any material variances
from the representations and warranties contained in Section 6 hereof.
5.2. Cooperation With Lender. Seller agrees to cooperate with Buyer in
obtaining the consent and agreement of Comerica Bank to permit the subordination
of Comerica's lien on Seller's assets to Buyer's lien pursuant to Section 5.1.1
of this Agreement.
5.3. 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.
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.
6. REPRESENTATIONS OF SELLER.
Seller, Minerva and Alpha, jointly and severally, hereby represent and
warrant 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
Texas; 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
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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.
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) 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 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. Except as set forth in Schedule 6.5 attached hereto, there
is no investigation, audit or review by any Authority pending or to Seller's
actual knowledge threatened with respect to Seller's Business 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
Seller's Business 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 Products or the Purchased Assets and
Seller has not been a party to, or bound by, any such judgment, order,
injunction or decree.
6.6. The Purchased Assets. 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
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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.l(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) sets 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 (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) To Seller's actual knowledge, 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) To Seller's actual knowledge, no Patent has been and or is
now involved in any interference, reissue, reexamination, or opposition
proceeding, there is no potentially interfering patent or patent
application of any third party.
(iv) To Seller's actual knowledge, no Patent is infringed, has
been challenged or threatened in any way, and none of the Products
infringes or is alleged to infringe any patent or other proprietary
right of any other Person.
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) To Seller's actual knowledge, no Mark is infringed or has been
challenged or threatened in any way and 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
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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.
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 Seller's Business and the Purchased Assets. To Seller's
actual knowledge, no event has occurred or circumstance exists with respect to
Seller's Business 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 Seller's Business or the Purchased Assets.
6.10. Conduct of Business. Except as set forth on Schedule 6.10 attached
hereto, since March 31, 1999, 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. Except for the 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 Seller upon sixty (60) day's
written notice or less, Seller is not a party to (i) any contract or agreement
relating exclusively to the Products 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.
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.
Seller shall be responsible for all costs and expenses arising directly from any
claims by customers with respect to Products shipped before Closing based on
defective Products, violation of product warranties with respect to Products,
violation of product packaging or labeling requirements or similar claims.
6.14. Customers and Suppliers.
(a) Schedule 2.1(i) sets forth a complete and accurate list of
Seller's customers 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 with whom Seller 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;
(ii) Seller has received no actual notice from any supplier of an
item material to the production, sale and distribution of the Products
of any material adverse change in the price
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(excluding normal price fluctuations), quality and delivery terms and
conditions on which such supplier will continue to make delivery of such
item;
(iii) As of the date hereof, except as noted on Schedule
6.14 attached hereto, there are no unresolved claims against Seller to
return Products by reason of alleged overshipments, defective
merchandise or otherwise, in excess of $2,000 per customer; and
(iv) All sales of Products by Seller represent bona fide
transactions.
6.15. 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
which were sold by Seller prior to the Closing or which were acquired by Buyer
pursuant to this Agreement.
Buyer shall indemnify, defend and hold harmless the Seller Indemnified Parties
(as defined in Section 13.3 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 which were manufactured by Buyer
after the Closing. Any party asserting a claim for indemnity pursuant to this
Section 6.15 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
Massachusetts 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.
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
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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 decree, to which Buyer is a party or by which
Buyer is bound; or (iii) to Buyer's actual knowledge, 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. 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.
7.5. Litigation. 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.
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.
8.4. Consents. All Consents necessary for the consummation of the
transactions provided for herein shall have been obtained.
8.5. Notice. Prior to the Closing, Seller shall comply with the notice
requirements of the Worker Adjustment and Retraining Notification Act of 1988
("WARN") with respect to the Worcester facility, and Seller shall comply with
all of the other provisions of WARN.
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8.6. 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. Consents. All Consents necessary to be obtained by Buyer for the
consummation of the transactions provided for herein shall have been obtained.
9.4. 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.
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 has not been satisfied
by the Closing Date due to no fault of Buyer. If this Agreement is terminated by
Buyer 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
has not been satisfied by the Closing Date due to no fault of Seller. If this
Agreement is terminated by Seller 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 May 10, 1999 or on such other date as the
parties may agree (the "Closing Date") at the offices of Ed Dobroski at 10:00
a.m. or such other place or time as the parties may agree.
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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, 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;
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 Texas Secretary of State, (ii) Seller's Bylaws from Seller's
secretary, and (iii) resolutions of Seller's Board of Directors, and
Minerva authorizing the execution, delivery, performance and consummation
of the transactions described herein; resolution of Alpha authorizing
Minerva to approve the sale; 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, Alpha and Minerva issued by the Texas Secretary of State;
11.1.4. Letters to Seller's customers, duly signed by Seller,
apprising such customers of the sale of Seller's Business to Buyer;
11.1.5. Original counterparts of 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, in the form
provided as Exhibit A attached hereto;
11.1.7. Non-Compete Agreement from Jay Rigby, and all then
officer-shareholders of Alpha in the form provided as Exhibit B attached
hereto;
11.1.8. 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. The Base Price, by wire transfer of good funds to Seller's
order;
11.2.2. 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;
11.2.3. Original counterparts of the Manufacturing Agreement, duly
executed by Buyer;
11.2.4. 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
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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, Minerva and Alpha
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 products. Seller shall be entitled to
sell any of the Pending Tooling rejected by Buyer.
12.2.2. Seller, Mineva and Alpha shall not, 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 Buyer to
leave its employ or (y) hire or assist any Person in any way to hire any
current or future employee of Buyer; or (ii) interfere with or attempt to
interfere with the relationship of Buyer with any current or future
customer or supplier of Buyer.
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 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.
12.2.4. Seller, Minerva and Alpha 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 Buyer would have no adequate
remedy at law. Accordingly, each such party agrees that Buyer 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 pursuant to the terms of the Manufacturing
Services Agreement attached hereto as Exhibit C (the "MANUFACTURING AGREEMENT").
12.4. Warehouse Leases. After the Closing, Buyer may wish to assume
Seller's leases with respect to warehouses in Seattle and Texas. Seller agrees
to cooperate and assist Buyer in negotiating with the landlords of the
warehouses.
13. INDEMNIFICATION.
13.1. Survival; Right to Indemnification not Affected by Investigation. 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 representa-
13
<PAGE> 14
tion. 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.
13.2. Seller's Indemnification. Seller, Minerva and Alpha shall jointly and
severally 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. 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.
13.4. Procedure for Indemnification--Third Party Claims.
13.4.1. Subject to Section 13 hereof, promptly after receipt by an
indemnified party under Section 13.2 or 13.3, 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.
13.4.2. If any proceeding referred to in Section 13.4.1 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
14
<PAGE> 15
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 indemmfying 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.
13.4.3. 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.
13.5. Limitations. 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, or 6.6 unless,
within two years 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,
or 6.6, 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, unless, within the
Survival Period, Seller notifies Buyer of a claim specifying the factual basis
of that claim in reasonable detail under the circumstances. Nothing contained in
this Section 13.5 is intended to, nor shall it, modify or impair any limitation
on liability contained in this Section 13.
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
Manufacturing Agreement and the Non-Compete Agreements) 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
15
<PAGE> 16
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
Manufacturing Agreement.
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:
<TABLE>
<S> <C>
If to Seller: With a copy to:
Austin Products, Inc. Ed Dobroski
AUSTIN PRODUCTS, INC. d/b/a EPIC 3211 Beverly Drive
60 Webster Place Dallas, TX 75205
Worcester, MA 01603
If to Buyer: With a copy to:
Home Products International, Inc. Much Shelist Freed Denenberg Ament
4501 West 47th Street & Rubenstein, P.C.
Chicago, Illinois 60632 200 North LaSalle Street
Fax No.: (773) 890-0523 Suite 2100
Attention: Mr. James R. Tennant Chicago, Illinois 60601
Fax No.: (312) 621-1750
Attention: Jeffrey C. Rubenstein, Esq.
</TABLE>
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.
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.
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<PAGE> 17
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 Jay Rigby, John Wilson and (insert plant
managers, general manager, financial officers), and (ii) as to Buyer, the actual
conscious awareness of James R. Tennant, and James Winslow; 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.
14.14. 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.
SELLER:
AUSTIN PRODUCTS, INC. d/b/a EPIC,
a Texas corporation
By:
----------------------------------------
Jay Rigby, President and CEO
MINERVA PLASTICS, INC.
By:
----------------------------------------
ALPHA HOLDINGS, INC.
By:
----------------------------------------
BUYER:
TAMOR CORPORATION
By:
----------------------------------------
17
<PAGE> 1
EXHIBIT 2.9
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 11, 1998
BETWEEN
RECORE INDUSTRIES CORPORATION
AND
HOME PRODUCTS INTERNATIONAL, INC.
<PAGE> 2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "AGREEMENT") dated as of December 11,
1998, is made and entered into by and between Recore Industries Corporation, an
Illinois corporation ("BUYER") and Home Products International, Inc., a Delaware
corporation ("SELLER"). As used herein the term "SHUTTERS" means Shutters, Inc.,
an Illinois corporation, a subsidiary of Seller.
R E C I T A L S
A. Seller owns of record and beneficially all the issued and outstanding
shares of Common Stock (the "COMMON STOCK") of Shutters (collectively the
"SHARES"); and
B. Seller desires to sell to Buyer, and Buyer desires to purchase from the
Seller, all the Shares on the terms and subject to the conditions set forth in
this Agreement (the "TRANSACTION").
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth in this Agreement, the parties hereto agree
as follows:
ARTICLE 1
TRANSFER OF SHARES AND PURCHASE PRICE
SECTION 1.1 AGREEMENT TO BUY AND SELL. On the terms and subject to the
conditions herein expressed, Seller agrees to sell, transfer, assign and deliver
the Shares to Buyer and Buyer agrees to purchase the Shares from Seller at the
Closing (as hereinafter defined).
SECTION 1.2 EXCLUDED ASSETS. Certain equipment of Shutters not located at
Shutters' facilities in Hebron, Illinois (except for certain tools of Shutters
located in Winchester, Kentucky) shall be excluded from the Transaction and will
be distributed by Shutters to Seller prior to Closing.
SECTION 1.3 PURCHASE PRICE. The purchase price for the Shares will be Five
Million Dollars ($5,000,000) (the "PURCHASE PRICE"). The Purchase Price shall be
paid as follows:
(a) Four Million Four Hundred Thousand Dollars ($4,400,000) shall be
payable by Buyer at the Closing by wire transfer of immediately available
funds to such account as Seller may reasonably direct by written notice
delivered to Buyer at least one (1) day before the Closing Date (as
hereinafter defined);
(b) Six Hundred Thousand Dollars ($600,000) shall be payable by Buyer
at the Closing pursuant to a negotiable promissory note maturing five (5)
years from the Closing Date and bearing interest at the rate of 8.5% per
annum (the "PROMISSORY NOTE"), with interest payments only for the first
twenty-four months, and the balance amortized and payable thereafter in
equal monthly installments of principal and interest until the maturity
date thereof.
(c) Seller shall pay off Shutters' industrial revenue bonds prior to
or on the Closing Date. Seller shall forgive intercompany debt owing to
Seller by Shutters on the Closing Date in an amount, which, when added to
the amount of outstanding industrial revenue bonds, shall be Three Million
Dollars ($3,000,000). If, on the Closing Date, the amount of the
intercompany debt, which, when added to the amount of outstanding
industrial revenue bonds, exceeds Three Million Dollars ($3,000,000), the
Buyer shall pay such excess amount in cash to Seller, such amount to be
paid by Buyer as soon as such excess amount is determined, but in no event
later than thirty (30) days after the Closing Date. If, on the Closing
Date, the amount of intercompany debt, which, when added to the amount of
outstanding industrial revenue bonds, is less than Three Million Dollars
($3,000,000), the Seller shall pay the amount of such deficiency to Buyer
in cash, such amount to be paid by Seller as soon as such deficiency is
determined, but in no event later than thirty (30) days after the Closing
Date.
2
<PAGE> 3
ARTICLE 2
THE CLOSING
SECTION 2.1 CLOSING. The closing of the Transaction (the "CLOSING") shall
occur at the offices of Much Shelist Freed Denenberg Ament & Rubenstein, P.C.,
200 North LaSalle Street, Suite 2100, Chicago, Illinois at 10:00 a.m. on or
about January 11, 1999 or on such other date as agreed to by Buyer and Seller,
but, subject to Section 9.1 hereof, in no event after January 31, 1999, unless
otherwise agreed to by Buyer and Seller; and provided, however, that the Closing
shall be deemed to have occurred as of 12:01 a.m. on December 27, 1998, and
Buyer shall have all rights to the profits and risk of loss beginning at such
time. The time and date on which the Closing hereunder occurs is herein called
the "CLOSING DATE."
SECTION 2.2 ACTIONS TO OCCUR AT CLOSING. At the Closing, Seller will
deliver to Buyer stock certificates duly endorsed in blank, or accompanied by
stock powers duly endorsed in blank, representing the Shares, and Seller will
deliver to Buyer (all in form and substance reasonably satisfactory to Buyer's
counsel) all documents required herein to be delivered by Seller to Buyer at
Closing. Simultaneously, Buyer shall deliver the Purchase Price and the
Promissory Note to Seller, and the other documents (all in form and substance
reasonably satisfactory to the counsel for Seller) required herein to be
delivered by Buyer to Seller at Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that except as set forth on the
Disclosure Schedule of even date herewith delivered by Seller to Buyer (the
"SELLER DISCLOSURE SCHEDULE"):
SECTION 3.1 ORGANIZATION AND GOOD STANDING. Seller and Shutters are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation. Shutters is duly
qualified in all foreign jurisdictions in which it is required to so qualify,
except for where such failures to be so qualified, individually or in the
aggregate, could not be reasonably expected to have a material adverse effect on
the business, operations or financial condition of Shutters. Shutters has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is currently being conducted by it. True and correct
copies of the certificate of incorporation and bylaws of Shutters are attached
as Section 3.1 of the Seller Disclosure Schedule.
SECTION 3.2 AUTHORIZATION AND VALIDITY. Seller has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the Transaction contemplated hereby. This Agreement
has been duly and validly authorized, executed and delivered by Seller and is
the valid and binding obligation of Seller enforceable against Seller in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent transfer or conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
SECTION 3.3 CAPITALIZATION OF SHUTTERS. As of the date hereof, the
capitalization of Shutters consists of 10,000 authorized shares of common stock,
par value $.01, of which 1,000 shares are issued and outstanding. All of the
issued and outstanding shares of capital stock of Shutters are validly issued,
fully paid and nonassessable. There are no outstanding options, warrants, calls,
commitments or other rights obligating Shutters to issue or sell any shares of
its capital stock, and all of the issued and outstanding shares of common stock
of Shutters are owned beneficially and of record by Seller, and on the Closing
Date, will be free from all liens, claims or encumbrances of any kind.
SECTION 3.4 FINANCIAL STATEMENTS. The financial statements of Shutters as
of and for the fiscal years ended December 28, 1996, and December 27, 1997, all
of which have been delivered to Buyer (the
3
<PAGE> 4
balance sheet at December 27, 1997, is sometimes hereinafter referred to as the
"LATEST BALANCE SHEET") present fairly, in all material respects, the financial
position of Shutters and the results of its operations as of the respective
dates thereof and for the respective periods indicated, in accordance with
generally accepted accounting principles consistently applied during the periods
involved (except as may be otherwise indicated therein or in the notes thereto).
The inventories reflected in the Latest Balance Sheet are stated at cost and are
not in excess of market value. All inventories reflected in the Latest Balance
Sheet generally reflect appropriate adjustment for items obsolete or otherwise
not readily marketable. All accounts receivable set forth on the Latest Balance
Sheet arose in the ordinary course of business and, except as reserved for, were
expected to be collected in the ordinary course of business, less their reserve.
All accounts payable set forth on the Latest Balance Sheet arose in the ordinary
course of business. The financial statements of Shutters as of and for the
fiscal years ended December 28, 1996, and December 27, 1997 have been
incorporated in the audited financial statements of Seller prepared by Arthur
Andersen, LLP, independent certified public accountants. Except for matters
reflected or reserved against in the Latest Balance Sheet or in the notes
thereto, as of December 27, 1997, Shutters had no liabilities, contingent or
otherwise, whether due or to become due, that would be required by generally
accepted accounting principles to be reflected on a balance sheet of Shutters
(including the notes thereto).
SECTION 3.4A ACCOUNTS RECEIVABLE. As of October 31, 1998, Shutters'
accounts receivable were $ , inclusive of the accounts receivable from
Custom Shutters, Inc. (the "CUSTOM SHUTTERS RECEIVABLE"), and minus any
applicable reserves. As of October 31, 1998, Shutters had a reserve for such
accounts receivable in the amount of $ (the "RESERVE"). All such
accounts receivable arose in the ordinary course of business and, except for the
Custom Shutters Receivable and less the amount of the Reserve, shall be
collected in the ordinary course of business.
SECTION 3.5 NO MATERIAL ADVERSE CHANGE. Since the date of the Latest
Balance Sheet there has not been any change, event or development having, or
which would reasonably be expected to have, a material adverse effect on the
business, operations or financial condition of Shutters, other than those
occurring as a result of general economic or financial conditions or other
developments which are not unique to Shutters but also generally affect other
persons who participate or are engaged in the line of business in which Shutters
participates or is engaged.
SECTION 3.6 TAXES. All Tax Returns (as hereinafter defined) required to be
filed by Shutters have been filed. Shutters has paid or made adequate provision
for the payment of all Taxes (as hereinafter defined) that are shown to be due
on such Tax Returns. There are no outstanding agreements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from Shutters for any taxable period. No
audit or other proceeding by any court, governmental or regulatory authority is
pending with respect to any Taxes due from Shutters. Copies of all Tax Returns
reasonably requested by Buyer prior to or after the Closing shall be provided by
Seller. Shutters has not paid Taxes to any state other than the State of
Illinois. After the Closing Date, Seller shall prepare and file Shutters' Form
5500 and federal and Illinois corporate income tax returns on form 1120 with
respect to all periods up to the Closing Date and shall satisfy all tax
liability with respect thereto. "TAXES" shall mean all taxes, including income,
gross receipts, ad valorem, excise, sales, use, withholding, payroll and
franchise taxes imposed by the United States of America, or by any state or
local government. "TAX RETURNS" shall mean any report, return or statement
required to be supplied to a taxing authority in connection with Taxes.
SECTION 3.7 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Set forth on Section 3.7(a) to the Seller Disclosure Schedule is a
true, correct and complete list of each Employee Benefit Plan and Benefits
Arrangement (each as hereinafter defined) which Shutters maintains or to
which Shutters contributes. Except as set forth in Section 3.7(b) to the
Seller Disclosure Schedule, to the knowledge of the Seller:
(i) no event has occurred for which no condition or set of
circumstances exist under which, Shutters or any Pension Plan (as
hereinafter defined) could be subject to any liability under
4
<PAGE> 5
Section 502(i) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Internal Revenue Code (the
"CODE");
(ii) each Employee Benefit Plan and Benefit Arrangement together with
any related trust, and each trustee or administrator of any Employee
Benefit Plan or Benefit Arrangement is in compliance in all material
respects with the requirements prescribed by all applicable statutes,
orders or governmental rules or regulations including, without limitation,
ERISA and the Code;
(iii) each Pension Plan intended to qualify under Section 401(a) of
the Code has received a favorable determination letter from the Internal
Revenue Service with respect to such qualification;
(iv) there are no actions or proceedings (other than routine claims
for benefits) pending or threatened, with respect to any Employee Benefit
Plan or Benefit Arrangement;
(v) no event has occurred under Sections 4040, 4043, 4062, 4063 and
4064 of ERISA during the current or any of the preceding five (5) plan
years that could subject Shutters or any officer or director of any of them
or any Employee Benefit Plan to any liability; and
(vi) any Employee Benefit Plan or Benefit Arrangement which
constitutes a "MULTIEMPLOYER PLAN" as defined in Section 3(37) of ERISA
would not subject Buyer to any liability. Shutters has made all
contributions prescribed by law for the Pension Plans (as hereinafter
defined) for all plan years ending on or prior to December 28, 1997.
(b) As used herein:
(i) the term "EMPLOYEES" shall mean all current employees, former
employees and retired employees of Shutters.
(ii) the term "EMPLOYEE BENEFIT PLANS" shall mean each and all
"EMPLOYEE BENEFIT PLANS" as defined in Section 3(3) of ERISA, maintained or
contributed to by Shutters or in which Shutters participates or
participated and which in any such case provide benefits to Employees,
including (1) any such plans that are "EMPLOYEE WELFARE BENEFIT PLANS" as
defined in Section 3(1) of ERISA, including retiree medical and life
insurance plans and (2) any such plans that are "EMPLOYEE PENSION BENEFIT
PLANS" as defined in Section 3(2) of ERISA ("PENSION PLANS"),
(iii) The term "BENEFIT ARRANGEMENTS" shall mean any life and health
insurance, hospitalization, savings, bonus, deferred compensation,
incentive compensation, holiday, vacation, severance pay, sick pay, sick
leave, disability, tuition refund, service award, Shutters car,
scholarship, relocation, patent award, fringe benefit, contracts,
collective bargaining agreements, individual employment, consulting or
severance contracts and other policies or practices of Shutters providing
employee or executive compensation or benefits to Employees, other than
Employee Benefit Plans.
SECTION 3.8 LITIGATION. (a) Except as disclosed in Section 3.8 of the
Seller Disclosure Schedule, there are no material outstanding judgments or
material lawsuits or material administrative proceedings pending, or to the
knowledge of Seller threatened, against Shutters, which would reasonably be
expected to have a material adverse effect on the business, operations or
financial condition of Shutters. Shutters is not subject to any currently
existing order, writ, injunction or decree relating to its operations or any of
its assets.
(b) If a lawsuit is filed against Shutters with respect to Item 1 of
Section 3.8 of the Seller Disclosure Schedule on or before eighteen (18) months
after the Closing Date, then Seller and Buyer shall each bear fifty percent
(50%) of any and all Damages (as defined in Section 10.4, plus reasonable legal
fees) arising or resulting therefrom. This subsection 3.8(b) shall not be
subject to any limitations set forth in Section 10.4(a) hereof.
SECTION 3.9 NO VIOLATION. Except as set forth on Section 3.9 to the Seller
Disclosure Schedule, neither the execution of this Agreement nor the
consummation of the Transaction contemplated
5
<PAGE> 6
hereby will result in the breach or violation of any term or provision of, or
constitute a default under, any charter provision or bylaw of Shutters or any
agreement, mortgage, note, bond, license, indenture, instrument, order, decree,
law or regulation to which it is a party or which is otherwise applicable to it.
SECTION 3.10 LABOR RELATIONS. Except as set forth on Section 3.10 to the
Seller Disclosure Schedule, Shutters is not the subject of any union activity or
labor dispute which would reasonably be expected to have a material adverse
effect on the business, operations or financial condition of Shutters. To the
knowledge of Seller, Shutters has not violated any applicable federal or state
law or regulation relating to labor or labor practices, the violation of which
would have a material effect on the business, operations or financial condition
of Shutters.
SECTION 3.11 NO CONSENTS. Other than as set forth on Section 3.11 of the
Seller Disclosure Schedule, no consent, declaration, filing or approval or
authorization of, or registration with, any federal, state, municipal or local
government or regulatory authority or any other person or entity is required in
connection with the execution and delivery of this Agreement by Seller or the
consummation of the Transaction contemplated hereby.
SECTION 3.12 INSURANCE. Set forth on Section 3.12 of the Seller Disclosure
Schedule is a true, correct and complete listing of each insurance policy
maintained by Shutters with respect to the assets, properties and operations of
Shutters. All insurance policies are currently in effect and shall continue in
effect through the Closing Date.
SECTION 3.13 CONTRACTS. Set forth on Section 3.13 of the Seller Disclosure
Schedule is a true, correct and complete list setting forth each agreement
(whether written or oral), commitment, arrangement or instrument involving
consideration of over $25,000 to which Shutters is a party or by which its
assets, businesses or operations are bound or affected, other than contracts for
the purchase of raw materials or contracts for the sale of inventory in the
ordinary course of business. Seller shall deliver a copy of each agreement,
commitment, arrangement or instrument, whether or not listed on Section 3.13 of
the Seller Disclosure Schedule, reasonably requested by Buyer before or
following the Closing Date if any such agreement, commitment, arrangement or
instrument is in Seller's possession and not in the possession of Buyer.
SECTION 3.14 TITLE TO PROPERTIES. Shutters has good and indefeasible title
to all of the assets and properties as reflected on the Latest Balance Sheet
(except for assets and properties sold, consumed or otherwise disposed of in the
ordinary course of business since the date of the Latest Balance Sheet, or
excluded pursuant to Section 1.2 herein), which, at Closing, will be free and
clear of all liens, claims and encumbrances, except for (i) liens for current
taxes not yet due and payable or for taxes the validity of which is being
contested in good faith by appropriate proceedings and (ii) as set forth on
Section 3.14 of the Seller Disclosure Schedule. Shutters is the record owner of
the real estate commonly known as 12213 Highway 173, Hebron, Illinois (the "REAL
ESTATE"), which is described in the Lender's Title Insurance Policy dated May
18, 1998 attached to Section 3.14 of the Seller Disclosure Schedule. At the
Closing, the Real Estate shall be subject only to real estate taxes accruing on
or after the Closing Date and those exceptions to title which are listed in
Section 3.14 of the Seller Disclosure Schedule.
SECTION 3.15 INTELLECTUAL PROPERTY RIGHTS. Shutters owns or possesses valid
license or other valid rights to use all Intellectual Property (as defined
below) used in the conduct of its business. Shutters is not in default (or with
the giving of notice or lapse of time or both, would not be in default) in any
material respect under any license to use such Intellectual Property. To the
knowledge of Seller, such Intellectual Property is not being infringed by any
third party, and Shutters is not infringing any Intellectual Property of any
third party, except for such defaults and infringements which, individually or
in the aggregate would not be reasonably expected to have a material adverse
effect on the business operations or financial condition of Shutters. Section
3.15 of the Seller Disclosure Schedule sets forth all of Shutters' material
Intellectual Property. For purposes of this Agreement, "INTELLECTUAL PROPERTY"
means patent and patent rights, patent applications, trademarks and trademark
rights, trade names and trade name rights, service marks and service mark
rights, service names and service name rights,
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copyright and copyright rights and other proprietary intellectual property
rights and all pending applications for and registrations of any of the
foregoing.
SECTION 3.16 COMPLIANCE WITH LAWS. Shutters is in all material respects in
compliance with all applicable laws, regulations and administrative orders of
each country, state or municipality or subdivision thereof to which its business
and its employment of labor or its use or occupancy of properties or any part
thereof are subject.
SECTION 3.17 ENVIRONMENTAL. To Seller's knowledge, Shutters has not (i)
placed, held, located, released, transported or disposed of any Hazardous Waste
(as hereinafter defined) on, under, at or from any of their respective
properties, or (ii) received any written notice (x) of any material violation of
any applicable federal, state, or local law, statute, ordinance, judgment,
order, ruling or regulation, relating to pollution or environmental regulation
or control or protection of the environment (collectively, "ENVIRONMENTAL LAWS")
or any other law, statute, rule or regulation regarding Hazardous Waste on or
under any of their respective properties, (y) of the institution or pendency of
any suit, action, claim, proceeding or investigation by any governmental entity
or any third party of any such violation or (z) requiring the removal of
Hazardous Waste from any of their respective properties. For purposes of this
Agreement, the term "HAZARDOUS WASTE" shall mean any toxic or hazardous
materials or substances, including asbestos, buried contaminants, chemicals,
flammable explosives, radioactive materials end any substances defined as, or
included in the definition of, "HAZARDOUS SUBSTANCES," "HAZARDOUS WASTES,"
"HAZARDOUS MATERIALS" or "TOXIC SUBSTANCES" under any Environmental Laws.
SECTION 3.18 FINDER'S FEES. Neither Seller nor Shutters has incurred any
obligation for any finder's, broker's or agent's fee in connection with the
Transaction contemplated hereby.
SECTION 3.19 GOVERNMENT LICENSES, PERMITS AND RELATED APPROVALS. Section
3.19 of the Seller Disclosure Schedule lists each material license, permit,
consent, approval, authorization, qualification and order of any governmental
authority (each, a "PERMIT") required to permit Seller to conduct its business
as presently conducted. Each such Permit is valid and in full force and effect.
To Seller's knowledge, no violation relating to any Permit exists that could
cause a revocation or suspension of such Permit.
SECTION 3.20 ABSENCE OF CHANGES. Except as set forth in Section 3.20 of the
Seller Disclosure Schedule, since the Latest Balance Sheet date, there has not
been any event or circumstance that, individually or in the aggregate, has had
or would have a material adverse effect on the business, properties or financial
transactions of Shutters.
SECTION 3.21 LEASES. Section 3.21 of the Seller Disclosure Schedule lists
each lease of personal property of Shutters involving annual lease payments in
excess of $10,000.
SECTION 3.22 CONDUCT OF BUSINESS. Since the date of the Latest Balance
Sheet, Shutters has conducted its business only in the usual and customary
matter, and has not (a) disposed of any of its properties or assets (including
without limitation machinery, equipment and other fixed assets) except in the
ordinary course of business; (b) declared or paid, directly or indirectly, any
dividends or made any other distributions of any kind to its shareholder; (c)
purchased or redeemed, in whole or in part, any shares of its stock; (d) changed
or amended its charter or by-laws; or (e) discharged, satisfied, or paid, in
whole or in part, any obligation or liability, contingent or absolute (including
tax liabilities, but excluding any estimated income tax payment made by Shutters
in the ordinary course of business) prior to the time such liability became due.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that, except as set forth in the
Disclosure Schedule of even date herewith delivered by Buyer to Seller (the
"BUYER DISCLOSURE SCHEDULE"):
SECTION 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and Buyer has all requisite power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted.
SECTION 4.2 AUTHORIZATION AND VALIDITY. Buyer has the requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the Transaction contemplated hereby. This Agreement
has been duly and validly authorized, executed and delivered by Buyer and is a
valid and binding obligation of Buyer enforceable against Buyer in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
transfer or conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 4.3 TAXES. All Tax Returns (as hereinafter defined) required to be
filed by Buyer have been filed. Buyer has paid all Taxes that are shown to be
due on such Tax Returns. There are no outstanding agreements extending the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment of, Taxes due from Buyer for any taxable period. No
audit or other proceeding by any court, governmental or regulatory authority is
pending with respect to any Taxes due from Buyer.
SECTION 4.4 INVESTMENT INTENT. Buyer represents that it is and will be
acquiring the Shares for investment only and for its own account and not with a
view to the distribution or resale of the Shares within the meaning of the
Securities Act of 1933, as amended (the "ACT"). Buyer will refrain from
transferring or otherwise disposing of any of the Shares, or any interest
therein, in such manner as to cause Seller to be in violation of the
registration requirements of the Act or applicable state securities or blue sky
laws.
SECTION 4.5 NO VIOLATION. Neither the execution of this Agreement nor the
consummation of the Transaction contemplated hereby will result in the breach or
violation of any term or provision of, or constitute a default under, the
certificate of incorporation or bylaws (or other comparable corporate charter
documents) of Buyer, or any agreement, mortgage, note, bond, license, indenture,
instrument, judgment, order, decree, law, rule or regulation to which Buyer is a
party or which is otherwise applicable to Buyer.
SECTION 4.6 NO CONSENTS. No consent, declaration, filing or approval or
authorization of, or registration with, any federal, state, municipal or local
governmental or regulatory authority or any other person or entity is required
in connection with the execution and delivery of this Agreement by Buyer, or the
consummation by Buyer of the Transaction contemplated hereby.
SECTION 4.7 LITIGATION. There are no material outstanding judgments, or
material lawsuits or material administrative proceedings pending, or to the
knowledge of Buyer. Buyer is not subject to any currently existing order, writ,
injunction or decree relating to its operations or any of its assets.
SECTION 4.8 FINANCING. At Closing Buyer will have sufficient funds to pay
the Purchase Price and to make all other necessary payment of fees and expenses
in connection with the Transaction contemplated by this Agreement. Buyer has
obtained commitment letters from lenders and pursuant to which such lenders have
agreed to provide Buyer with the funds necessary to finance the Transaction
contemplated by this Agreement. Buyer has delivered to Seller true, correct and
complete copies of all
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such commitment letters. Buyer will deliver to Shutters true, correct and
complete copies of any amendments to or replacements of any such commitment
letters promptly upon receipt thereof.
SECTION 4.9 FINDER'S FEE. Buyer has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
ARTICLE 5
COVENANTS OF SELLER
Seller covenants and agrees that between the date hereof and the Closing,
except to the extent Buyer may otherwise consent in writing (which consent shall
not be unreasonably withheld):
SECTION 5.1 OBSTRUCTION OF PURPOSE. Seller shall not take, and shall not
permit Shutters to take, any action which would cause the conditions upon the
obligations of the parties hereto to effect the Transaction contemplated hereby
not to be fulfilled, including, without limitation, any action which would cause
the representations and warranties made by Seller herein not to be true, correct
and accurate in all material respects as of the Closing.
SECTION 5.2 REQUESTS FOR APPROVAL. Seller shall, and shall cause Shutters
to, (a) promptly file or submit and diligently prosecute any and all
applications or notices with public authorities, federal, state or local,
domestic or foreign, and all other requests for approvals to any private
persons, the filing or granting of which is necessary for the consummation by
Seller of the Transaction contemplated hereby, (b) provide such other
information and communications to such parties as they may reasonably request in
connection therewith and (c) provide reasonable cooperation to Buyer, in
obtaining all consents, approvals or actions of, making all filings with, and
giving all notices to, the parties referred to in clause (a) above required of
Buyer to consummate the Transaction contemplated hereby. Seller will provide
prompt notification to Buyer when any such consent, approval, action, filing or
notice referred to in clause (a) above is obtained, taken, made or given, as
applicable, and will advise Buyer of any communications (and, unless precluded
by law, provide copies of any such communications that are in writing) with any
of such parties regarding the Transaction contemplated by this Agreement.
SECTION 5.3 REASONABLE EFFORTS. Seller shall take, and shall cause Shutters
to take, all commercially reasonable steps which are within its power to cause
to be fulfilled including those of the conditions precedent to Buyer's
obligations to consummate the Transaction contemplated hereby which are
dependent upon the actions of any of them.
SECTION 5.4 CURRENT INFORMATION. Prior to Closing, Seller will advise Buyer
in writing as soon as practicable after it becomes known to Seller and consult
with Buyer regarding:
(i) the occurrence of any event that renders any of the
representations or warranties of Seller set forth herein inaccurate in any
material respect;
(ii) that any representation or warranty of Seller set forth herein
was not accurate in all material respects when made; and
(iii) the failure of Seller to comply with or accomplish any of the
covenants or agreements set forth herein in any material respect.
SECTION 5.5 BUSINESS OPERATIONS. Seller will use, and will use its best
efforts to cause Shutters to use, its commercially reasonable efforts to
preserve the goodwill of employees, suppliers, customers and others having
significant business dealings with it. Without limiting the generality of the
foregoing, prior to the Closing, Seller will not, and shall use its best efforts
to cause Shutters not to:
(i) change its articles of incorporation or bylaws or merge or
consolidate with or into any entity or obligate itself to do so;
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(ii) issue, sell or pledge, or authorize or propose the issuance, sale
or pledge of additional shares of capital stock of any class (including
shares of Common Stock), or securities convertible into any such shares, or
any rights, warrants or options to acquire any such shares or other
convertible securities or declare, set aside or pay any dividend or other
distribution on or in respect of shares of its capital stock, or redeem,
retire or purchase any of such shares;
(iii) other than in the ordinary course of its business, discharge or
satisfy any lien, charge, encumbrance or indebtedness (other than to
Seller) which is individually or in the aggregate material to the business,
operations or financial condition of Shutters, except those required to be
discharged or satisfied in accordance with their terms during such period
(excluding those required to be discharged or satisfied as a result of any
acceleration or default);
(iv) other than in the ordinary course of its business, institute,
settle or agree to settle any litigation, action or proceeding before any
court or governmental body which is individually or in the aggregate
material to the business, operations or financial condition of Shutters;
(v) other than in the ordinary of its business, mortgage, pledge or
subject to any other encumbrance, any of its property or assets, tangible
or intangible, which is individually or in the aggregate material to the
business, operations, financial condition, properties or assets of
Shutters;
(vi) authorize any compensation increases for any employee, except for
normal increases in the ordinary course of business; or
(vii) other than in the ordinary course of its business, enter into,
cancel or terminate any contracts; or any policies of insurance with
respect to any of its insurable properties which are individually or in the
aggregate material to the business, operation or financial condition of
Shutters.
SECTION 5.6 COMPETING PROPOSAL. From and after the date hereof, Seller will
not, directly or indirectly, encourage or solicit any inquiries or proposals by,
or furnish any confidential information to, any person concerning a transaction
involving a merger, acquisition or purchase of Shutters or any portion of their
respective capital stock or assets (an "ALTERNATIVE TRANSACTION").
SECTION 5.7 ACCESS. Prior to the Closing, Shutters shall permit the
authorized representatives of Buyer to meet with the management of Shutters and
their representatives and to have access (upon reasonable prior notice) during
normal business hours to all the properties, financial, accounting and business
records and documents of Shutters, but only to the extent that such access does
not unreasonably interfere with the business and operation, of Shutters.
Shutters shall furnish to Buyer and its representatives such financial records
and other documents, or, at Buyer's reasonable request, copies thereof as Buyer
shall reasonably request in order that Buyer may conduct, among other things, a
commercial, accounting and legal investigation of the business and affairs of
Shutters, except that the furnishing of any such records or documents or other
information to Buyer hereunder shall be limited and reasonable procedures shall
be implemented, to the extent necessary to avoid any potential violation of law
or legitimate anti-competitive concerns.
SECTION 5.8 FINANCIAL STATEMENTS. Seller will provide Buyer, as soon as
practicable, copies of all financial statements and Tax Returns of Shutters that
are prepared in the ordinary course of its business prior to the Closing.
ARTICLE 6
COVENANTS OF BUYER
Buyer covenants and agrees that between the date hereof and the Closing,
except to the extent Seller may otherwise consent in writing (which consent
shall not be unreasonably withheld):
SECTION 6.1 OBSTRUCTION OF PURPOSE. Buyer shall not take any action which
would cause the conditions upon the obligations of the parties hereto to effect
the Transaction contemplated hereby
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not to be fulfilled, including, without limitation, taking any action which
would cause the representations and warranties made by Buyer herein not to be
true, correct and accurate in all material respects as of the Closing.
SECTION 6.2 REQUESTS FOR APPROVALS. Buyer shall (a) promptly file or submit
and diligently prosecute any and all applications or notices with public
authorities, federal, state or local, domestic or foreign, and all other
requests for approvals to any private persons, the filing or granting of which
is necessary for the consummation by Buyer of the Transaction contemplated
hereby, (b) provide such other information and communications to such parties as
they may reasonably request in connection therewith and (c) provide reasonable
cooperation to Seller and Shutters, in obtaining all consents, approvals or
actions of, making all filings with and giving all notices to the parties
referred to in clause (a) above required of Seller or Shutters, as the case may
be, to consummate the Transaction contemplated hereby. Buyer will provide prompt
notification to Seller when any such consent, approval, action, filing or notice
referred to in clause (a) above is obtained, taken, made or given, as
applicable, and will advise Seller and of any communications (and, unless
precluded by law, provide copies of any such communications that are in writing)
with any of such parties regarding the Transaction contemplated by this
Agreement.
SECTION 6.3 REASONABLE EFFORTS. Buyer shall take all commercially
reasonable steps which are within its power to cause to be fulfilled those of
the conditions precedent to Seller's obligations to consummate the Transaction
contemplated hereby which are dependent upon the actions of Buyer.
SECTION 6.4 CURRENT INFORMATION. Buyer will advise Seller in writing as
soon as practicable after it becomes known to Buyer and consult with Seller
prior to the Closing:
(i) of the occurrence of any event that renders any of the
representations or warranties of Buyer set forth herein inaccurate in any
material respect;
(ii) that any representation or warranty of Buyer set forth herein was
not accurate in all material respects when made; and
(iii) of the failure of Buyer to comply or accomplish any of the
covenants or agreements set forth herein in any material respect.
SECTION 6.5 CONFIDENTIALITY. Buyer acknowledges and agrees that any
information provided to Buyer pursuant to Section 5.7(a) above, or otherwise in
connection with this Agreement and the Transaction contemplated hereby, shall be
maintained in confidence, and Buyer will cause the directors, officers,
employees, agents, and advisors of Buyer to maintain in confidence, any written,
oral, or other information obtained in confidence from Seller or Shutters in
connection with this Agreement or the Transaction, unless (a) such information
is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the contemplated Transaction, or (c) the furnishing or use of
such information as required in connection with legal proceedings. If the
contemplated Transaction is not consummated, Buyer will return (without
retaining copies thereof) such written information obtained from Seller and
covenants not to make use of, apply indirectly, in the course of its future
operations or conduct of its business.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLER
The obligation of Seller under this Agreement to close the Transaction is
subject to the satisfaction at or prior to the Closing of each of the following
conditions:
SECTION 7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement shall be true and correct at and
as of the Closing Date with the same effect as
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though such representations and warranties were made at and as of the Closing
Date, except in the case of representations and warranties made as of a
specified date earlier than the Closing Date.
SECTION 7.2 PERFORMANCE. Buyer shall have performed and complied within all
material respects all the covenants and agreements required by this Agreement to
be performed or complied with by Buyer at or prior to the Closing.
SECTION 7.3 NO LEGAL BAR. There shall not be in effect on the Closing Date
any litigation, law, order, writ, injunction or decree of any governmental body
of competent jurisdiction prohibiting or seeking to prohibit or making illegal
the consummation of the Transaction contemplated by this Agreement.
SECTION 7.4 GOVERNMENT APPROVALS. All required governmental or regulatory
filings, permits and approvals, shall have been made or received, as the case
may be.
SECTION 7.5 CERTIFICATE. Seller shall have received a certificate
certifying the matters set forth in Sections 7.1, 7.2, 7.3, and 7.4 hereof
signed by an executive officer of Buyer and dated the Closing Date.
SECTION 7.6 OPINION OF COUNSEL. The Buyer shall have furnished Seller with
the opinion of Buyer's Counsel, in form and substance reasonably satisfactory to
Seller to the effect set forth in Exhibit 7.6.
SECTION 7.7 OTHER DOCUMENTS. Buyer shall have furnished to Seller such
other documents as Seller may reasonably request for the purpose of (i) enabling
its counsel to provide the opinion in Section 8.7, (ii) evidencing the accuracy
of any representation or warranty of Seller, (iii) evidencing the performance by
Buyer of, or the compliance by Buyer with, any covenant or obligation required
to be performed or complied with by Seller, (iv) evidencing the satisfaction of
any condition referred to in this Article 7, or (v) otherwise facilitating the
consummation of the Transaction.
SECTION 7.8 OTHER DELIVERIES. In addition to other documents required to be
delivered by Buyer to Seller at Closing, Buyer shall deliver the following in
form reasonably satisfactory to Seller:
(a) The executed Promissory Note in the form set forth as Exhibit
7.8(a) hereto; and
(b) Appropriate corporate minutes and other actions by Buyer approving
Buyer entering into and consummating the Transaction.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer under this Agreement to close the Transaction is
subject to the satisfaction at or prior to the Closing of each of the following
conditions:
SECTION 8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Seller contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date with the same effect as
though such representations and warranties were made at and as of the Closing
Date, except in the case of representations and warranties made as of a
specified date earlier than the Closing Date.
SECTION 8.2 PERFORMANCE. Shutters and Seller shall have performed and
complied with in all material respects all the covenants and agreements required
by this Agreement to be performed or complied with by them at or prior to the
Closing.
SECTION 8 3 NO LEGAL BAR. There shall not be in effect on the Closing Date
any law, litigation, order, writ, injunction or decree of any governmental body
of competent jurisdiction prohibiting or seeking to prohibit or making illegal
the consummation of the Transaction contemplated by this Agreement.
SECTION 8.4 GOVERNMENT APPROVALS. All required governmental or regulatory
filings, permits and approvals shall have been made or received, as the case may
be.
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SECTION 8.5 DELIVERY OF SHARES. Seller shall have delivered the Shares to
Buyer at the Closing.
SECTION 8.6 CERTIFICATES. Buyer shall have received a certificate signed by
an executive officer of Seller certifying with respect to itself, the matters
set forth in Sections 8.1, 8.2, 8.3, and 8.4 hereof, dated the Closing Date.
SECTION 8.7 OPINION OF COUNSEL. Seller shall have furnished Buyer with the
opinion of Seller's Counsel, in form and substance reasonably satisfactory to
Buyer to the effect set forth in Exhibit 8.7.
SECTION 8.8 OTHER DOCUMENTS. Seller has furnished to Buyer such other
documents as Buyer may reasonably request for the purpose of (i) enabling its
counsel to provide the opinion in Section 7.6, (ii) evidencing the accuracy of
any representation or warranty of Seller, (iii) evidencing the performance by
Seller of, or the compliance by Seller with, any covenant or obligation required
to be performed or complied with by Buyer. (iv) evidencing the satisfaction of
any condition referred to in this Article 8, or (v) otherwise facilitating the
consummation of the Transaction.
SECTION 8.9 OTHER DELIVERIES. In additional to other documents required to
be delivered by Seller to Buyer at Closing, Seller shall deliver the following
in form reasonably satisfactory to Buyer:
(a) Affidavit of Title in standard form, executed by Seller;
(b) Appropriate corporate minutes and other actions by Seller
approving Seller entering into and consummating the Transaction;
(c) Any and all keys to Shutters' real property that were previously
issued to Seller of any of Seller's personnel;
(d) Survey of the Real Estate dated June 26, 1998;
(e) Lender's Title Insurance Policy dated May 18, 1998;
(f) An executed Covenant Agreement substantially in the form set forth
on Exhibit 8.9(f) hereto;
(g) Minute books of Shutters;
(h) Resignations of current officers and directors of Shutters; and
(i) Executed form authorizing a change in Shutters' registered agent.
ARTICLE 9
TERMINATION
SECTION 9.1 TERMINATION. This Agreement may be terminated and the
Transaction contemplated hereby may be abandoned at any time prior to the
Closing:
(a) By mutual written consent of Buyer and Seller.
(b) By Seller or Buyer, if the Closing shall not have occurred on or before
January 31, 1999 (the "TERMINATION DATE"); provided, however, that the right to
terminate this Agreement pursuant to this Section 9.1(b) shall not be available
to any party whose breach of this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur by the Termination Date.
(c) By Seller, if there has been a material breach by Buyer of any of its
representations, warranties, covenants, obligations or agreements set forth in
this Agreement or in any writing delivered pursuant hereto by Buyer, which
breach has not been cured by the earlier of the Termination Date or within ten
(10) business days following receipt by Buyer of notice of such breach from
Seller or assurances of such cure reasonably satisfactory to Seller shall not
have been given by or on behalf of Buyer, as the case may be, within such
period.
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(d) By Seller, if any condition precedent to Seller's obligations to effect
the Closing as set forth herein is not satisfied and shall have become incapable
of being satisfied, and is not waived, if waivable, by Seller on or prior to the
Termination Date.
(e) By Buyer, if there has been a material breach by any Seller of any of
its representations, warranties, covenants, obligations or agreements set forth
in this Agreement or in any writing delivered pursuant hereto by Seller, which
breach has not been cured by the earlier of the Termination Date or within ten
(10) business days following receipt by Seller of notice of such breach from
Buyer or assurance of such cure reasonably satisfactory to Buyer shall not have
been given by or on behalf of Seller, as the case may be, within such period.
(f) By Buyer, if any condition precedent to Buyer's obligation to effect
the Closing as set forth herein is not satisfied and shall have become incapable
of being satisfied, and is not waived, if waivable, by Buyer on or prior to the
Termination Date.
(g) Notwithstanding anything contained herein to the contrary, Buyer and
Seller acknowledge and agree that at the time this Agreement is signed, it is
expected that all of the Exhibits and Seller's Disclosure Schedule may not be
completed or attached, and that the matters set forth on the Exhibits and
Seller's Disclosure Schedule are material to this transaction. Therefore, Buyer
shall the right to terminate this Agreement prior to the Closing Date if it
reasonably disapproves of any Exhibit or Seller's Disclosure Schedule delivered
after the execution of this Agreement but prior to the Closing Date. Buyer shall
notify Seller of any objections to any matters set forth in any Exhibit or the
Seller's Disclosure Schedule within five (5) business days after receipt of same
from Seller.
SECTION 9.2 EFFECT OF TERMINATION. If this Agreement is validly terminated
by either Seller or Buyer pursuant to Section 9.1 hereof, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of Seller or Buyer (or any of their respective officers, directors,
partners, employees, agents or other representatives or affiliates), except that
(i) the provisions of this Section 9.1 and Sections 10.3 and 10.7 will continue
to apply following any such termination and nothing contained herein shall
relieve any party hereto from liability for any willful breach of its
representations, warranties, covenants or agreements contained in this
Agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 NOTICES. Any notice, request, instruction, document or other
communication to be given under this Agreement must be in writing and shall be
deemed to have been duly given only if delivered personally or sent by
registered or certified mail, postage prepaid, at the addresses shown below, or
to such other address or person as any party may designate by written notice to
the others or sent via facsimile to the facsimile number shown below or to such
other facsimile number as any party may designate by written notice of the
others.
To Seller: Home Products International, Inc.
4501 West 47th Street
Chicago, IL 60632
Attn: James R. Tennant
Facsimile: 773/890-8916
With a copy to: Much Shelist Freed Denenberg
Ament & Rubenstein, P.C.
200 North LaSalle, Suite 2100 Chicago,
IL 60601
Attn: Jeffrey C. Rubenstein
Facsimile: 312/621-1750
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<PAGE> 15
To Buyer: Recore Industries Corporation
12213 Highway 173
Hebron, IL 60034-0407
Attn: Michael Ricard
Facsimile: 815/648-2518
With a copy to: Engelberg & Smith
135 South LaSalle, Suite 2300
Chicago, IL 60603-4115
Attn: Burt Engelberg
Facsimile: 312/580-1245
All such notices, requests, instructions, documents and other
communications will (i) if delivered personally to the address as provided in
this Section 10.1, be deemed given upon delivery, (ii) if delivered by facsimile
transmission to the facsimile number provided in this Section, be deemed given
upon receipt, and (iii) if delivered by mail in the manner described above to
the address as provided in this Section, be deemed given upon receipt (in each
case regardless of whether such notice is received by any other person to whom a
copy of such communication is to be delivered pursuant to this Section).
SECTION 10.2 EXTENSIONS AND WAIVERS. (a) Buyer may, by written instrument,
extend the time for the performance of any of the obligations or other acts of
Shutters or Seller, and (i) waive any inaccuracies of Seller in the
representations and warranties contained herein or in any document delivered
pursuant to this Agreement, (ii) waive compliance with any of the covenants of
Seller contained in this Agreement, (iii) waive performance by any Seller of any
of the obligations set out in this Agreement and (iv) waive any term or
condition in this Agreement that it is entitled to the benefits thereof.
(b) Seller may, by written instrument, extend the time for the performance
of any of the obligations or other acts of Buyer, and (i) waive any inaccuracies
of Buyer in the representations and warranties contained herein or in any
document delivered pursuant to this Agreement, (ii) waive compliance with any of
Buyer's covenants contained in this Agreement, (iii) waive performance by Buyer
of any of the obligations set out in this Agreement and (iv) waive any term or
condition in this Agreement that they are entitled to the benefits thereof.
SECTION 10.3 COSTS AND EXPENSES. Whether or not the Transaction is
consummated, Buyer and Seller shall each bear their respective costs and
expenses in connection with the negotiation and consummation of the Transaction.
SECTION 10.4 INDEMNIFICATION BY SELLER. (a) From and after the Closing,
Seller hereby agrees to indemnify, defend and hold Buyer harmless from, against
and in respect of any and all losses resulting from or arising out of or in
connection with any breach of any representation, warranty or covenant of Seller
set forth in this Agreement subject to the following limitations:
(a) Seller shall be responsible only for damages suffered or incurred by
Buyer ("BUYER DAMAGES") which exceed in the aggregate, a total of $62,500 but in
no case more than an aggregate total Buyer Damages of $5,000,000.
(b) From and after the Closing, Buyer hereby agrees to indemnify, defend
and hold Seller harmless from, against and in respect of any and all losses
resulting from or arising out of or in connection with any breach of any
representation or warranty of Buyer set forth in this Agreement (collectively,
"SELLER DAMAGES") (Buyer Damages and Seller Damages are collectively referred to
as "DAMAGES").
(c) All claims for Damages pursuant to this Section 10.4 must be asserted,
promptly upon the claiming party's discovery thereof, in reasonable detail and
in writing. No claim with respect to Sections 3.4, 3.4A, 3.5, and 3.12 not so
asserted by notice in writing to Seller on or before the first
15
<PAGE> 16
anniversary of the Closing Date shall be prosecuted after such date. No claim
with respect to Sections 3.1, 3.2, 3.3, 3.9, 3.11, 3.14, 3.15, 3.17 and 3.18 not
so asserted by notice in writing to Seller on or before the third anniversary of
the Closing Date shall be prosecuted after such date. No claim with respect to
Sections 3.8, 3.10, 3.13, 3.16, 3.19, 3.20, 3.21 and 3.22 not so asserted by
notice in writing to Seller on or before eighteen (18) months of the Closing
Date shall be prosecuted after such date. No claim with respect to Sections 3.6
and 3.7 not so asserted within the applicable statute of limitations shall be
prosecuted after such date. No claim (other than those claims specifically
described above) not so asserted by notice in writing to the other party on or
before the first anniversary of the Closing Date shall be prosecuted after such
date. Any party seeking indemnification (an "INDEMNIFIED PARTY") shall provide
to the party from whom it is seeking indemnification (an 'Indemnifying Party')
as promptly as practicable after such notice all information and documentation
necessary to support and verify the claim asserted and the Indemnifying Party
shall be given reasonable access to the books and records in the possession or
control of the Indemnified Party or any of its affiliates which any Indemnifying
Party reasonably determines to be related to such claim. Damages shall, in each
case, be computed net of any actual insurance proceeds paid or payable to the
Indemnified Party or any affiliate in respect thereof and net of twenty-five
percent (25%) of the amount of Damages that would be eligible to be taken as a
deduction or credit for income tax purposes by the Indemnified Party or any
affiliate of the Indemnified Party in respect thereof. If the facts giving rise
to a claim under this Section 10.4 arise out of the claim of any third party, or
if there is any claim against a third party, the Indemnifying Party may, at its
option, assume the defense or the prosecution thereof, including the employment
of counsel, at its cost and expense. The Indemnified Party shall have the right
to employ counsel separate from counsel employed by the Indemnifying Party in
any such action and to participate therein, but the fees and expenses of such
counsel employed by the Indemnified Party shall be at its expense. No
Indemnified Party shall be liable for any settlement of any such claim effected
without its prior written consent which consent shall not be unreasonably
withheld. Whether or not an Indemnifying Party chooses to so defend or prosecute
a claim, all the parties hereto shall cooperate in the defense or prosecution
thereof and shall furnish such records, information and testimony, and attend
such conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith. An Indemnifying Party shall be
subrogated to all rights and remedies of any Indemnified Party to the extent of
any damages paid by such Indemnifying Party to or on behalf of such Indemnified
Party.
(d) From and after the Closing, this Section 10.4 and Section 10.14 shall
constitute the only responsibility or liability of Seller or Buyer with respect
to any claim for any damages arising out of or related to the Transaction
contemplated by this Agreement.
SECTION 10.5 AGREEMENTS OF PARTIES. This Agreement and the documents
referred to herein set forth all the covenants, promises, agreements, conditions
and understandings among the parties hereto, and there are no other covenants,
promises, agreements, conditions or understandings, whether oral or written,
among the parties hereto relating to the subject matter hereof.
SECTION 10.6 GOVERNING. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois (without giving effect to
the conflicts of laws principles thereof). The parties agree that the Circuit
Court of Cook County shall be the sole venue and proper jurisdiction for all
disputes between the parties in connection with this Agreement, other than those
reserved to arbitration pursuant to Section 10.7 hereof.
SECTION 10.7 ARBITRATION. In the event a dispute arises between the parties
in connection with this Agreement, which dispute the parties reasonably agree
involves less than one hundred thousand dollars ($100,000), the parties shall
cause such dispute to be submitted for determination by arbitration in
accordance with the commercial rules of the American Arbitration Association
then in effect. Such arbitration proceeding shall be conducted in Chicago,
Illinois. The arbitrator shall have the right to award or include in any award
such relief which the arbitrator deems proper in the circumstances included,
without limitations, money damages, specific performance, injunctive relief and
legal fees and costs. The award and decision of the arbitrator shall be
conclusive and binding upon all the parties,
16
<PAGE> 17
and judgment upon the award may be entered in any court of competent
jurisdiction. Each of the parties reserves the right in a proper case to obtain
temporary restraining orders and temporary or preliminary injunctive relief from
a court of competent jurisdiction, provided such party promptly submits the
dispute for arbitration on the merits as provided by this Section.
SECTION 10.8 FURTHER ASSURANCES. Each party hereto agrees to execute any
all documents, and to perform such other acts, to the extent permitted by law,
whether before or after Closing, that may be reasonably necessary or expedient
to further the purposes of this Agreement or to further assure the benefits
intended to be conferred hereby.
SECTION 10.9 SUCCESSORS AND ASSIGNS. All covenants and agreements contained
in this Agreement by or on behalf of the parties hereto will bind or inure to
the benefit of the respective personal representatives, successors and assigns
of such parties.
SECTION 10.10 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
SECTION 10.11 INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
SECTION 10.12 AMENDMENT. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of Buyer and
Seller.
SECTION 10.13 PUBLIC ANNOUNCEMENTS. Neither Seller, Shutters nor Buyer will
issue or make any reports, statements or releases to the public with respect to
this Agreement or the Transaction contemplated hereby without the consent of the
others, which consent shall not be unreasonably withheld. If any of the parties
is unable to obtain the approval of its public report, statement or release from
the other parties and such report, statement or release is, in the opinion of
legal counsel to such party, required by law in order to discharge such party's
disclosure obligations, then such party may make or issue the legally required
report, statement or release and promptly furnish the other parties with a copy
thereof.
SECTION 10.14 AGREEMENT WITH RESPECT TO PRODUCT WARRANTIES. (a) Beginning
on the Closing Date and continuing for a period of two (2) years thereafter,
Seller agrees to reimburse Buyer an amount to a total cumulative amount of
$100,000 for any product warranty claims which Buyer receives and pays during
such period and arising solely out of products produced by Shutters prior to
December 27, 1998 ("WARRANTY CLAIMS"). Buyer shall submit a request in writing
to Seller for reimbursement for any such Warranty Claims (accompanied by a
reasonably detailed description and itemization of any such Warranty Claims,
including payment thereof) on a quarterly basis, beginning on April 1, 1999 for
the period ending March 31, 1999. This Section 10.14 shall be Buyer's sole
recourse against Seller with respect to any Warranty Claims and shall not be
subject to the limitations set forth in Section 10.4(a) hereof.
(b) All payments to be due from Seller to Buyer under subsection (a) above
may, at Seller's election, be offset dollar for dollar against the amount of the
quarterly interest payment due to Seller by Buyer under the Promissory Note,
until such time as Buyer has Warranty Claims totaling $80,000. Thereafter,
Seller may elect to offset the amount due to Buyer for any Warranty Claims (but
not to exceed $20,000) dollar for dollar against principal and/or interest due
to Seller from Buyer under the Promissory Note.
17
<PAGE> 18
(c) Until the Promissory Note is paid in full, Buyer shall, (i) within 45
days after the close of each of Buyer's fiscal quarters, provide Seller with
Buyer's internally prepared quarterly financial statements, including Buyer's
balance sheet and statements of income, cash flow, and shareholder's equity
(certified as correct by Buyer's chief financial officer); and (ii) within 90
days after the close of each of Buyer's fiscal years, provide Seller with
Buyer's annual financial statements, including Buyer's balance sheet and
statements of income, cash flow, and shareholder's equity (prepared by Buyer's
independent accountants and certified as correct by Buyer's chief financial
officer).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in one
or more counterparts, each of which shall be deemed one and the same instrument,
as of the date first above written.
BUYER
RECORE INDUSTRIES CORPORATION
By:
----------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
SELLER
HOME PRODUCTS INTERNATIONAL, INC.
By:
----------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
18
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Registrant
Home Products International - North America, Inc.
Chicago, IL, U.S.A.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (33-65041 and 33-67622).
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1999
<PERIOD-END> DEC-25-1999
<CASH> 4,861
<SECURITIES> 0
<RECEIVABLES> 69,729
<ALLOWANCES> 10,158
<INVENTORY> 24,064
<CURRENT-ASSETS> 96,054
<PP&E> 98,678
<DEPRECIATION> 31,420
<TOTAL-ASSETS> 343,906
<CURRENT-LIABILITIES> 61,042
<BONDS> 221,334
0
0
<COMMON> 81
<OTHER-SE> 56,541
<TOTAL-LIABILITY-AND-EQUITY> 343,906
<SALES> 294,001
<TOTAL-REVENUES> 294,001
<CGS> 203,890
<TOTAL-COSTS> 203,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,271
<INCOME-PRETAX> 4,082
<INCOME-TAX> 2,072
<INCOME-CONTINUING> 2,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
</TABLE>
