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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21728
BARNETT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-1380437
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3333 LENOX AVENUE, JACKSONVILLE, FLORIDA 32254
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (904) 384-6530
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(TITLE OF EACH CLASS)
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 ninety (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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
Aggregate market value of voting stock held by non-affiliates of the
Registrant based on the closing price at which such stock was sold on the NASDAQ
National Market on September 24, 1996: $152,181,875
Number of shares of Common Stock outstanding as of September 24, 1996:
14,398,000
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement in connection with its 1996 Annual Meeting of
Stockholders is incorporated by reference in Part III of this Annual Report on
Form 10-K from the date such document is filed.
PART I
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Annual Report on Form 10-K under the caption "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including, but not limited to, the
risk that the Company may not be able to implement its growth strategy in the
intended manner, risks associated with currently unforeseen competitive
pressures and risks affecting the Company's industry such as increased
distribution costs and the effects of general economic conditions. In addition,
the Company's business, operations and financial condition are subject to the
risks which are described in the Company's reports and statements filed from
time to time with the Securities and Exchange Commission, including this Report.
ITEM 1. BUSINESS
On April 3, 1996, Barnett Inc., (the "Company") consummated an initial
public offering, (the "Initial Public Offering") whereby 7,207,000 shares of
common stock, $.01 par value (the "Common Stock"), of the Company representing
approximately 55.1% of the outstanding shares of Common Stock, were sold by the
Company and its former parent, Waxman USA Inc ("Waxman USA").
OVERVIEW
The Company is a direct marketer and distributor of an extensive line
of plumbing, electrical and hardware products to approximately 42,000 active
customers throughout the United States. The Company offers approximately 8,500
name brand and private label products through its industry-recognized
Barnett(R) catalogs and telesales operations. The Company markets its products
through three distinct, comprehensive catalogs that target professional
contractors, independent hardware stores and maintenance managers. The
Company's staff of over 85 knowledgeable telesales, customer service and
technical support personnel work together to serve customers by assisting in
product selection and offering technical advice. To provide rapid delivery and
a strong local presence, the Company has established a network of 28
distribution centers strategically located in 28 major metropolitan areas
throughout the United States. Through these local distribution centers,
approximately 70% of the Company's orders are shipped directly to the customer,
and in almost all cases, within the same day of receipt of the order. The
remaining 30% of the orders are picked up by the customer at one of the
Company's local distribution centers. The Company's strategy of being a
low-cost, competitively priced supplier is facilitated by its volume of
purchases and offshore sourcing of a significant portion of its private label
products. Products are purchased from over 400 domestic and foreign suppliers.
The Company believes that its distinctive business model has enabled it
to become a high-volume, cost-efficient direct marketer of competitively priced
plumbing,
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electrical and hardware products. The Company's approximately 600-page catalogs
offer an extensive selection of products in an easy to use format enabling
customers to consolidate purchases with a single vendor. The Company provides an
updated version of its catalogs to its customers on average four times a year.
To attract new customers and offer special promotions to existing customers, the
Company supplements its catalogs with monthly promotional flyers. The Company's
experienced and knowledgeable inbound telesales staff, located at the Company's
centralized headquarters in Jacksonville, Florida, uses the Company's
proprietary information systems to take customer orders as well as offer
technical advice. The Company's highly trained outbound telesales staff
maintains frequent customer contact, makes telesales presentations, encourages
additional purchases and solicits new customers. Targeted customer accounts are
typically assigned an outbound telesalesperson in order to enhance customer
relationships and improve customer satisfaction. The Company's high in-stock
position and extensive network of local distribution centers enable it to
fulfill approximately 94% of the items included in each customer order and
provide rapid delivery.
The Company has actively pursued increased sales of its private label
products sourced primarily from foreign suppliers. During the fiscal year ended
June 30, 1996, approximately 27.6% of the Company's net sales were attributable
to sales of private label products. Many of the Company's private label products
provide the customer with lower cost, high quality alternatives to brand name
products, as well as providing the Company with higher profit margins. The
Company's private label products are sold under brand names such as Premier(R),
ProPlus(TM), Barnett(R) and Legend(TM).
INDUSTRY OVERVIEW
The Company competes in a large and highly fragmented industry. The
Company broadly defines its industry as the sale of plumbing, electrical and
hardware products to primarily plumbing and electrical repair and remodeling
contractors, maintenance managers and independent hardware stores. Plumbing and
electrical contractors are primarily responsible for making repairs on a daily
basis and generally do not have time to shop with multiple vendors. Plumbing and
electrical contractors, therefore, value extensive product selection, convenient
ordering, reliable, rapid delivery and other value-added services. In addition,
such contractors typically operate with limited working capital, making
competitive pricing important. Plumbing, electrical and hardware contractors
have traditionally purchased supplies through a variety of distribution channels
including:
Local or Regional Broad-Line Suppliers. There are numerous broad-line
suppliers offering product categories similar to those found in the Company's
catalogs. Most of these suppliers are local or regional in scope. Although these
competitors typically use a direct sales force, often supported by a
manufacturer's catalog, they are smaller and therefore tend to offer brand name
products only, and fewer services than offered by the Company. However, many of
these suppliers offer a greater breadth of products than the Company.
Specialty Suppliers. Specialty suppliers focus on a single product
category, such as plumbing or electrical supplies and often offer a greater
number of products within their product categories. Specialty suppliers are
typically local or regional in scope and cannot provide the one-stop shopping
sought by many of the Company's customers.
Industrial Suppliers. There are a few industrial suppliers that include
a limited selection of products in their merchandise mix but do not focus on the
Company's target markets.
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Mail Order Distributors. There are several mail order catalog
distributors that offer a broad selection of repair and maintenance products,
have multiple distribution centers and offer rapid delivery services. However,
these companies generally do not have a significant telesales staff or the
Company's geographic scope and typically focus on fewer customer segments.
BUSINESS STRENGTHS
The Company's strategy is to continue to be a high-volume, cost
efficient direct marketer of competitively priced plumbing, electrical and
hardware products, providing superior customer service. The Company believes
that the following business strengths are the key elements of this strategy:
Direct Marketing Sales Approach. The Company displays and promotes its
products through three comprehensive professional contractor, hardware and
maintenance catalogs targeted, respectively, to such major customer groups as
professional plumbing and electrical repair and remodeling contractors, hardware
stores and maintenance managers. The Company mailed its first catalog in 1958
and currently mails its principal catalog to the 42,000 active customers on its
proprietary mailing list. These mailings are supplemented with direct mail
promotional flyers to existing and potential customers on a monthly basis.
Typical catalogs mailed by the Company contain over 8,500 items and are
approximately 600 pages in length. The Company's objective is to leverage its
direct sales experience to sell a broader array of products to a larger number
of customers. The Company's comprehensive catalogs provide its customers with
the opportunity to purchase a substantial portion of their plumbing, electrical
and hardware supplies from a single vendor.
Sophisticated Data Based Telesales. During fiscal 1996, approximately
75.7% of the Company's net sales were generated through the Company's 85
outbound and inbound telesalespersons. Outbound telesalespersons are assigned
account management responsibilities for existing customers with an emphasis on
customer service, new product introductions and new product lines. Inbound
telesalespersons are trained to quickly process orders from existing customers.
All telesalespersons are highly knowledgeable and are required to go through
extensive product and sales training before they begin to work with customers.
The Company's proprietary telesales software provides the telesales staff with
detailed customer profiles and information about products, pricing, promotions
and competition. This data enables the Company to segment its customer base,
analyze mailing effectiveness on a weekly basis, closely track and manage
inventory on a real-time basis and quickly react to and capitalize on business
opportunities.
National Network of Distribution Centers. To provide more rapid
delivery and a strong local presence, the Company has established a network of
28 distribution centers strategically located in 28 major metropolitan areas
throughout the United States. The distribution centers enable the Company to be
closer to many of its customers for faster product delivery and to generate
incremental over-the-counter sales. The Company's experience indicates that many
of its customers prefer to purchase from local suppliers and often choose to
pick up their orders in person. Approximately 30% of the Company's orders are
picked up by the customer at one of the Company's local distribution centers.
Superior Customer Service. As a result of its large in-stock inventory,
the Company is typically able to fulfill approximately 94% of the items included
in each customer order, and, in almost all cases, ships the order within the
same day of receipt of the order. In addition, as a result of its large number
of distribution centers, the Company is able to provide its customers with more
rapid delivery to markets in the continental United States. In an effort to
maximize sales and increase customer retention, the Company has structured its
telesales staff to create regular contact
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between the Company's telesales personnel and each active customer. The
Company's customer retention rate (i.e., customers who place orders in the
following year) has grown from an average of 74% during fiscal 1992 through
fiscal 1995 to approximately 85% in fiscal 1996.
Competitive Pricing and Private Label Products. Due to the Company's
size, volume of purchases, substantial vendor base and offshore sourcing
capabilities, the Company is frequently able to obtain purchase terms that the
Company believes are more favorable than those available to its competition.
This enables the Company to offer prices that are generally lower than those
available from its competitors. Many of the Company's private label products
provide the customer with lower-cost, high quality alternatives to name brand
products, as well as providing the Company with higher profit margins. During
fiscal 1996, approximately 27.6% of the Company's net sales were attributable to
sales of private label products.
Centralized Management Information Systems. The Company's proprietary
integrated centralized management information systems provide the Company with
real-time information for managing telesales, distribution, customer service,
inventory control and financial controls. The management information systems
also enable the Company to effectively coordinate its purchasing, marketing,
outbound telesales, order entry, shipping and billing. The current system has
enabled the Company to enhance its levels of customer service and increase the
productivity and profitability of its telesales operations, as well as enabling
management to make well informed business decisions. The system can be easily
and cost-effectively upgraded as the Company grows.
GROWTH STRATEGY
Since the Company was acquired in 1984, its annual net sales have grown
from $32.8 million to $127.4 million, its products have increased from
approximately 2,000 to 8,500 and the number of active accounts serviced by the
Company has increased from approximately 6,000 to approximately 42,000. The
Company has shown consistent annual net sales and operating income growth since
its acquisition even though in the last several years, the Company's ability to
fully implement its growth strategy has been significantly constrained due to
the limited availability of working capital resulting from the highly leveraged
capital structure of Waxman Industries, Inc. ("Waxman Industries"), the
Company's former indirect parent. Despite these constraints, from fiscal 1992 to
fiscal 1996, the Company's net sales have grown at a compound annual growth rate
of approximately 15%. As a consequence of the Initial Public Offering, the
Company has significantly more working capital, which the Company believes will
enable it to implement its growth strategy. Key elements of the Company's growth
strategy include:
Increase penetration of existing target markets through telesales. The
Company has over 600,000 prospective domestic customers in its current target
markets, only 42,000 of which are active customers. The Company believes that
increasing the number of its outbound telesales employees is the most cost
effective method to access these potential customers and intends to add 20 to 25
telesalespersons annually over the next several years. To that end, the
Company's telesales staff has increased from 29 to 85 persons over the last
three years, most of which increase was attributable to the addition of outbound
telesalespersons. In addition, the Company believes that many opportunities for
direct marketing to the Company's existing target markets exist in foreign
locations including South America and Europe. Although the Company does not
intend to commit material capital resources to international expansion during
the next few years, it does plan to access these markets during such period
through its existing telesales operations. The Company believes that customers
in these international areas are receptive to mail order purchasing and that its
potential customers would be attracted to the breadth of the Company's product
lines and its competitive pricing.
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Increase geographic coverage. Over the next few years, the Company
plans to add two to four new distribution centers in major metropolitan areas
and has identified 10 to 12 potential locations. The company currently plans to
open a new distribution center in Kansas City, Kansas in November, 1996. The
addition of new distribution centers in new geographic areas, as well as in
geographic areas in which the Company has existing distribution centers, has
increased, and is expected to continue to increase, the Company's overall level
of business. New distribution centers enhance marketing efforts, heighten the
Company's name recognition, generate new over-the-counter business and allow for
faster product deliveries.
Add new target customer segments. The Company's current targeted
customer segments are contractors, independent hardware stores, and maintenance
managers. The Company believes that it has the opportunity to market its
products to new segments of customers currently underserviced, such as school
systems, hospitals and healthcare facilities, HVAC contractors, lighting
showrooms and hotel/motel operators, primarily through new specialized targeted
catalogs. This strategy has been successfully implemented with the introduction
in January 1993 of the Company's specialized Maintenance USA(TM) catalog of
maintenance products that is directed primarily to property managers at
apartment complexes. Since the introduction of the maintenance catalog, the
Company has added approximately 9,100 new maintenance accounts.
Expand product offerings. The Company currently markets approximately
8,500 plumbing, electrical and hardware products. The Company plans to increase
its net new product offerings by 1,000 to 1,300 items per year over the next
three years, which will deepen the Company's existing product lines and
establish new product categories. A significant portion of these product
additions will be private label products. The Company believes that the
introduction of new product lines will expand the Company's total potential
target market. Examples of new product lines introduced in the July 1996
catalogs include lighting fixtures, HVAC parts and commercial faucets.
MARKETING AND DISTRIBUTION
The Company markets its products nationwide principally through regular
catalog and promotional mailings to existing and potential customers, supported
by a telesales operation, and products are shipped from a network of 28
distribution centers allowing for shipment to and pick up by customers generally
within one day of the receipt of an order. The outbound telesales operation is
utilized to make telephonic sales presentations to potential customers that have
received written promotional materials and to existing customers. The Company's
inbound telesalespersons provide customer assistance and take orders. The
Company's outbound and inbound telesales operations are centralized in
Jacksonville, Florida.
Catalogs
The Company's three approximately 600-page catalogs containing 8,500
plumbing, electrical and hardware products are mailed to its 42,000 active
customers. These quarterly catalogs are supplemented by monthly promotional
flyers, 2.2 million of which were mailed in fiscal 1996. The Company's targeted
customers include professional contractors, independent hardware stores and
maintenance managers. The Company has been distributing its principal catalog
since 1958 and believes that the Barnett(R) name has achieved a very high degree
of recognition among the Company's customers and suppliers.
The Company makes its initial contact with potential customers
primarily through promotional flyers. The Company obtains the names of
prospective customers through the rental of mailing lists from outside marketing
information services and other sources. The Company uses sophisticated
proprietary information systems to analyze the results of individual catalog and
promotional flyer mailings and uses the information derived from
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these mailings, as well as information obtained from the Company's telesales
operations, to create and/or supplement individual customer profiles and to
target future mailings. The Company updates its mailing lists frequently to
delete inactive customers.
The Company's in-house art department produces the design and layout
for its catalogs and promotional mailings. The Company's catalogs are indexed
and illustrated, provide simplified pricing and highlight new product offerings.
Telesales
During fiscal 1996, approximately 75.7% of the Company's net sales were
generated through the Company's telesales operation. The Company's telesales
operation has been designed to make ordering its products as convenient and
efficient as possible thereby enabling the Company to provide superior customer
service. The Company offers its customers a nationwide toll-free telephone
number that currently is staffed by 85 telesales, customer service and technical
support personnel who utilize the Company's proprietary, on-line order
processing system. This sophisticated software provides the telesales staff with
detailed customer profiles and information about products, pricing, promotions
and competition. This data enables the Company to segment its customer base,
analyze mailing effectiveness on a weekly basis, closely track and manage
inventory on a real time basis and quickly react to and capitalize on market
opportunities.
The Company divides its telesales staff into outbound and inbound
groups. The Company's experience indicates that customer loyalty is bolstered by
the ability of the telesales staff to develop an ongoing personal relationship
with their customers. The Company's highly trained outbound telesales staff
maintains frequent customer contact, makes telesales presentations and
encourages additional purchases. Inbound telesalespersons are trained to quickly
process orders from existing customers. They increase sales by informing
customers of price breaks for larger orders, companion items and replacement
items with higher margins. Outbound telesales persons are also utilized to make
telephonic sales presentations to both potential and existing customers. Also,
for several months prior to the opening of new distribution centers, the Company
utilizes its telesales operation to generate awareness of the Company, its
product offerings and the upcoming opening of new distribution centers located
near the target customers.
The Company conducts a customized, in-depth six week training course
for new telesales employees. Training includes the use of role playing and
videotape analysis. Upon satisfactory completion of their training, new
telesales personnel are provided with a dedicated experienced telesales employee
who serves as a "coach" for the next year. In order to better assure high
telesales service levels, telesales supervisors regularly monitor telesales
calls.
The Company's current focus has been on expanding its telesales staff.
The Company plans to expand its telesales operations by 20 to 25
telesalespersons annually over the next several years. The Company has over
600,000 prospective customers within its current industry segments and believes
that by increasing the number of telesalespersons it will be able to access
these potential customers in a cost effective manner.
Distribution Center Network
The Company has established a network of 28 local distribution centers
strategically located in 28 major metropolitan areas throughout the United
States. This network enables the Company to provide rapid and complete product
delivery and provides a strong local presence.
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The Company's distribution centers range in size from approximately
12,000 square feet to 34,000 square feet and average approximately 20,000 square
feet. Distribution centers are typically maintained under operating leases in
commercial or industrial centers. Distribution centers primarily consist of
warehouse and shipping facilities, but also include "city sales counters,"
typically occupying approximately 600 square feet, where customers can pick up
orders or browse through a limited selection of promotional items. The Company
is often able to generate incremental sales from customers who pick up their
orders. The Company has initiated a program to enlarge product displays in the
counter area to better promote the breadth of its product lines.
Many of the Company's customers do not keep high inventory levels and
tend to place orders rather frequently. The Company's experience indicates that
customers prefer to order from local suppliers and that many local tradespeople
prefer to pick up their orders in person rather than to have them delivered.
Therefore, the Company intends to continue the expansion of its distribution
center network in order to position itself closer to potential new customers.
During fiscal 1996, approximately 30% of the Company's orders were picked up by
the Company's customers.
The factors considered in site selection include the number of
prospective customers in the local target area, the existing sales volume in
such area and the availability and cost of warehouse space, as well as other
demographic information. The Company has substantial expertise in distribution
center site selection, negotiating leases, reconfiguring space to suit its
needs, and stocking and opening new distribution centers. The average investment
required to open a distribution center is approximately $600,000, including
approximately $300,000 for inventory.
PRODUCTS
The Company markets an extensive line of over 8,500 plumbing,
electrical and hardware products, many of which are sold under its proprietary
trade names and trademarks. This extensive line of products allows the Company
to serve as a single source supplier for many of its customers. Many of these
products are higher margin products bearing the Company's proprietary trade
names and trademarks. In addition, proprietary products are often the customers
higher margin product offerings.
The Company tracks sales of new products the first year they are
offered and new products that fail to meet specified sales criteria are
discontinued. To help manage the risk of new product introductions,
substantially all new domestically sourced products are governed by a "12-point
agreement" which allows the Company to return all slow and non-moving
merchandise to its vendor within the first six months of its offering, without
any cost to the Company. The Company believes that its customers respond
favorably to the introduction of new product lines in areas that allow the
customers to realize additional cost savings and to utilize the Company's
catalogs as a means of one-stop shopping for many of their needs.
The Company's strategy is to significantly increase the number of
product offerings, as well as its higher margin product offerings. Private label
products offer customers high quality, lower-cost alternatives to the brand name
products the Company sells. The Company's catalogs and monthly promotional
flyers emphasize the comparative value of the Company's private label products.
During fiscal 1996, approximately 27.6% of the Company's net sales were
generated by the sale of the Company's private label products. The Company's
products are generally covered by a one year warranty, and returns (which
require prior authorization from the Company) have historically been immaterial
in amount.
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The following is a discussion of the Company's principal product
groups:
Plumbing Products. The Company sells branded products of leading
plumbing supply manufacturers including Delta(R), Moen(R) and Price Pfister(R).
The Company's private label plumbing products are also sold under its
Barnett(R), Premier(R) and ProPlus(TM) trademarks. In fiscal 1996, plumbing
products accounted for 76.6% of net sales.
Electrical Products. The Company sells branded products of leading
electrical supply manufacturers including Philips(R), Westinghouse(R),
Honeywell(R) and General Electric(R). Certain of the Company's private label
electrical products are sold under its own proprietary trademarks including
Barnett(R) and Premier(R). In fiscal 1996, electrical products accounted for
15.2% of net sales.
Hardware Products. The Company sells hardware products of leading
hardware product manufacturers including Kwikset(R) security hardware products
and Milwaukee(R) power tools. Certain of the Company's hardware products are
also sold under its own proprietary Legend(TM) trademark. In fiscal 1996,
hardware products accounted for 8.2% of net sales.
SOURCING
The products sold by the Company are purchased from approximately 370
domestic and 30 foreign suppliers. Domestically manufactured products are
shipped directly to the Company's 28 distribution centers. Products manufactured
abroad are initially shipped to the Company's 5 regional distribution centers
and subsequently redistributed to each of the remaining local distribution
centers. The Company is not dependent on any single supplier for any of its
requirements. Due to the volume of the Company's purchases and its utilization
of over 400 vendors, it is able to obtain purchase terms it believes to be more
favorable than those available to most local suppliers of plumbing, electrical
and hardware products. Approximately 74% of the Company's purchases for the year
ended June 30, 1996 were from domestic manufacturers and 26% were from foreign
manufacturers, primarily located in Asia. During fiscal 1996, the Company
purchased approximately 13% of its products through Waxman Industries entities,
both domestic and foreign. Although the Company intends to continue to purchase
products through Waxman Industries entities in the future, the Company is not
committed to purchase any products from Waxman Industries.
MANAGEMENT INFORMATION SYSTEMS
The Company has integrated all of its operating units into its
state-of-the-art management information system. This system encompasses all of
the Company's major business functions and was designed to enable the Company to
receive and process orders, manage inventory, verify credit and payment history,
invoice customers, receive payments and manage the Company's proprietary mail
order customer lists. In addition, all of the Company's local distribution
centers are linked to the Company's computer system to permit them access to all
necessary information, including inventory availability, order tracking, and
customer credit rating on a real-time basis. The system can be easily and
cost-effectively upgraded as the Company grows. The Company has adopted
procedures to protect the data in its computer systems and to provide for
recovery in the event of equipment failures. All data systems are backed up to
tape daily with backup tapes stored off-site. End of month tapes, tape archives
and production software kept on-site are stored in a fire-proof safe.
The Company's customers can place orders directly via mail, facsimile,
telephone or through an EDI transmission. Utilizing EDI, the Company's customers
can send electronic purchase orders directly to the Company's order entry
systems. The Company makes this ordering process simple for its customer by
providing well-developed computer
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media containing the Company's product information including item number,
product description, price, package quantity and UPC codes to be loaded directly
into the customer's purchasing system. The Company automatically edits and
processes EDI orders and sends the majority of EDI orders received directly to
shipping. The few EDI orders that need editing are sent immediately to a sales
representative for review. Through EDI, the Company can provide faster order
turnaround, thereby further fostering customer satisfaction.
The Company recently introduced its Barnett Ordering System Service or
BOSS(TM). BOSS(TM) is the Company's proprietary software program, which is
provided free to all Company customers and allows customers to browse through
the Company's electronic catalog to create and transmit orders. BOSS(TM) is
simple, easy to use and provides customers with their purchasing history to
assist the customer in projecting future supply requirements.
COMPETITION
The market in which the Company competes is highly fragmented
consisting of many regional and local distributors of plumbing, electrical and
hardware products. The Company believes that competition is primarily based on
price, product quality and selection, as well as service, which includes rapid
order turnaround. The Company believes that its operating strategy positions it
to be an effective competitor in its markets. The Company's major competitors
include local and regional broad line suppliers, specialty suppliers, industrial
suppliers, direct mail distributors and warehouse home centers.
SEASONALITY
The Company's sales are generally consistent throughout the year.
ENVIRONMENTAL REGULATIONS
The Company's facilities are subject to certain federal, state and
local environmental laws and regulations. The Company believes that it is in
material compliance with all environmental laws and regulations applicable to
it.
EMPLOYEES
As of June 30, 1996, the Company employed 448 individuals, 103 of whom
were clerical and administrative personnel, 105 of whom were telesales and sales
representatives and 240 of whom were either production or warehouse personnel.
The Company's employees are not unionized. The Company considers its relations
with its employees to be good.
ITEM 2. PROPERTIES
The Company's headquarters and largest distribution center are located at
3333 Lenox Avenue, Jacksonville, Florida. The building in which the headquarters
are located is leased by the Company through October 31, 2003, and contains
approximately 34,000 square feet of warehouse space and 26,000 square feet of
offices. The Company's telesales center, also located in Jacksonville, Florida,
contains approximately 10,000 square feet and is leased by the Company through
August 31, 1999.
The Company's 28 distribution centers utilize leased space ranging from
12,000 to 34,000 square feet and are all located in the United States. The
leases expire at various dates from December 1996 to October 2003. The Company
believes that its
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facilities are adequate for its current needs and does not anticipate that it
will have any problem leasing additional space when needed. The Company shares
three of its facilities with U.S. Lock, an operating division of WOC
Inc. ("WOC"), which is a wholly owned subsidiary of Waxman Industries. U.S. Lock
is charged for the portion of the rent relating to the space occupied by it. The
Company also shares one facility with LeRan Copper and Brass ("LeRan"), an
operating division of WOC. Because LeRan does not occupy a distinct portion of
such facility, it is charged rent based upon a percent of the net sales
generated by it from such facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the amount of
any ultimate liability with respect to these actions will not have a material
impact on the liquidity or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names, ages, positions and offices with the
Company held by the present executive officers of the Company.
NAME AGE POSITION AND OFFICE PRESENTLY HELD
---- --- ----------------------------------
William R. Pray 49 President, Chief Executive Officer and
Director
Andrea M. Luiga 39 Vice President--Finance, Chief Financial
Officer
Alfred C. Poindexter 44 Vice President--Operations
Andrew S. Fournie 42 Vice President--Purchasing and Marketing
Melvin Waxman 62 Chairman of the Board and Director
Armond Waxman 57 Vice-Chairman of the Board and Director
Mr. William R. Pray was elected President, Chief Executive Officer and
a director of the Company in February 1993. Mr. Pray was elected President and
Chief Operating Officer of Waxman Industries in June 1995, and resigned these
positions in April 1996, upon consummation of the Initial Public Offering. From
February 1991 to February 1993, Mr. Pray was Senior Vice President--President of
Waxman Industries' U.S. Operations, after serving as President of the Mail
Order/Telesales Group (which included the Company) since 1989. He joined the
Company in 1978 as Regional Sales Manager, became Vice President of Sales and
Marketing in 1984 and was promoted to President in 1987.
Mr. Pray is a Director of Waxman Industries.
Ms. Andrea M. Luiga was elected Vice President--Finance, Chief
Financial Officer of the Company in February 1993. Ms. Luiga was elected Vice
President and Chief Financial Officer of Waxman Industries in August 1995, and
resigned these positions in April 1996 upon consummation of the Initial Public
Offering. From September 1991 to February 1993, Ms. Luiga was Vice
President--Group Controller of the Mail Order Group of Waxman Industries (which
included the Company) after serving as Group Controller of the Mail Order Group
since October 1989. Ms. Luiga joined the Company in March 1988 as Controller.
10
<PAGE> 12
Mr. Alfred C. Poindexter was elected Vice President--Operations of the
Company in February 1993. From September 1988 to February 1993, Mr. Poindexter
served as Vice President--Operations of the Company after serving as Director of
Operations of the Company since 1987. He joined the Company in 1983 as
Purchasing Manager.
Mr. Andrew S. Fournie was elected Vice President--Marketing of the
Company in February 1993. Mr. Fournie served as Vice President--Marketing of the
Company since January 1988. He joined the Company in 1985 as Product Development
Manager.
Mr. Melvin Waxman was elected Chairman of the Board and Director of the
Company in December 1995. Mr. Waxman was elected Co-Chief Executive Officer of
Waxman Industries in May 1988, Co-Chairman of the Board of Waxman Industries in
June 1995 and Chairman of the Board of Waxman Industries in April 1996. Mr.
Waxman has been the Chief Executive Officer of Waxman Industries for over 20
years and has been a director of Waxman Industries since 1962. Mr. Waxman has
been either Chairman or Co-Chairman of the Board of Waxman Industries since
August 1976. Mr. Waxman has been a director of the Company since its acquisition
by Waxman Industries in 1984. Mr. Waxman was a director of Ideal Plumbing Group
Inc., a Canadian subsidiary of Waxman Industries, that was involuntarily
liquidated in 1994.
Mr. Armond Waxman was elected Vice-Chairman of the Board and Director
in December 1995. Mr. Waxman was elected Co-Chief Executive Officer of Waxman
Industries in May 1988 and was Co-Chairman of the Board of Waxman Industries
from June 1995 until April 1996. Mr. Waxman had been the President of Waxman
Industries from August 1976 until June 1995, and was re-appointed to the
position in April 1996. Mr. Waxman has been a director of Waxman Industries
since 1962 and was Chief Operating Officer of Waxman Industries from August 1976
to May 1988. Mr. Waxman has been a director of the Company since its acquisition
by Waxman Industries in 1984. Mr. Waxman was a director of Ideal Plumbing Group
Inc., a Canadian subsidiary of Waxman Industries, that was involuntarily
liquidated in 1994.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
PRICE RANGE OF COMMON STOCK
On March 29, 1996 (the date the Company's registration statement with
respect to its Initial Public Offering was declared effective), the Common Stock
commenced trading on the NASDAQ National Market under the symbol "BNTT". Prior
to March 29, 1996, there was no established public trading market for the Common
Stock.
The following table sets forth the high and low sales prices for the
Common Stock for each quarter during the past fiscal year and since the Common
Stock commenced trading on the NASDAQ National Market, as reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1996
Third Quarter ( March 29, 1996) $23.25 $ 19.00
Fourth Quarter 29.50 22.25
</TABLE>
HOLDERS OF RECORD
As of September 24, 1996, there were approximately 16 holders of record
of the Common Stock.
DIVIDENDS
Since the Initial Public Offering, no cash dividends have been declared
on the Common Stock. The Company anticipates that in the foreseeable future it
will retain its earnings for the operation and expansion of its business and
that it will not pay cash dividends. In addition, the Company's current credit
facility limits the amount of cash dividends payable on the Common Stock in any
one year to the Company's net income for such year.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information for the fiscal years 1993 through
1996 has been derived from the financial statements of the Company for such
years, which have been audited by Arthur Andersen LLP, independent certified
public accountants, whose report is included elsewhere herein. The selected
historical financial data for the year ended June 30, 1992 has been derived from
the internal unaudited financial statements of the Company. All such information
is qualified by reference to the Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
( AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS )
1992 1993 (1) 1994 1995 1996
----- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(2) $ 72,106 $ 82,875 $ 95,225 $109,107 $127,395
Cost of Sales 47,327 54,841 62,623 71,815 84,748
-------- -------- -------- -------- --------
Gross profit 24,779 28,034 32,602 37,292 42,647
Selling, general and
administrative expenses 15,690 19,022 21,048 23,772 26,877
Corporate charge 1,378 1,673 1,918 1,862 1,342
-------- -------- -------- -------- --------
Operating income 7,711 7,339 9,636 11,658 14,428
Interest expense 1,794 1,449 1,518 2,139 1,921
-------- -------- -------- -------- --------
Income before income taxes,
cumulative effect of
accounting change and
extraordinary item 5,917 5,890 8,118 9,519 12,507
Provision for income taxes 2,400 2,200 2,900 3,500 4,625
-------- -------- -------- -------- --------
Income before cumulative
effect of accounting change
and extraordinary item 3,517 3,690 5,218 6,019 7,882
Cumulative effect of change
in accounting for distribution
center start-up and catalog
development costs, net of
tax benefit -- 621 -- -- --
Extraordinary loss on early
retirement of debt, net of
tax benefit(3) -- -- -- -- 724
-------- -------- -------- -------- --------
Net income $ 3,517 $ 3,069 $ 5,218 $ 6,019 $ 7,158
======== ======== ======== ======== ========
Weighted average shares
outstanding 12,914
Primary and Fully Diluted
Earnings per share:
Before extraordinary item $0.61
Extraordinary item (0.06)
-----
Total $ 0.55
======
Pro forma net income (4) $ 7,154 $ 8,392 $ 9,841
Proforma earnings per share $ 0.45 $ 0.53 $ 0.62
Pro forma weighted average shares outstanding 15,929 15,929 15,929
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
( AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS )
1992 1993 1994 1995 1996
---- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $19,733 25,515 31,253 29,171 30,744
Total assets 42,889 45,043 50,885 52,413 58,300
Total long-term debt
excluding push-down bank debt 0 0 16,215 18,126 0
Push-down bank debt(5) 23,000 23,000 6,785 4,874 0
Stockholders' equity 7,854 12,068 19,131 17,428 41,324
</TABLE>
(1) During 1993, the Company accelerated its amortization of certain
distribution center start-up and catalog development costs. The effect
of this change in 1993 was to decrease operating income by $1.2
million. In 1993, net income was decreased by $1.4 million due to the
foregoing decrease in operating income, as well as cumulative effect of
this change on prior years of $621,000 (net of applicable income tax of
$415,000). The cumulative effect has been reported separately in the
Company's statement of income.
(2) Prior to July 1, 1995, the Company recorded shipments delivered
directly to the customer from certain suppliers as contributed margin
(net reduction of cost of goods sold). Beginning on July 1, 1995, the
Company began to record these shipments as net sales resulting in an
increase in net sales of $2,979,000 for the fiscal year ended June 30,
1996.
(3) The Company incurred a one-time, non-cash extraordinary charge of $0.7
million (net of applicable tax benefit of $0.4 million) which was a
result of the write-off of unamortized debt issuance costs incurred in
connection with the Company prepaying its borrowings under a secured
revolving credit facility, which indebtedness included push-down bank
indebtedness from Waxman USA as discussed in Note 5 to the Financial
Statements. This charge was recorded in the quarter ended June 30,
1996.
(4) Unaudited pro forma net income reflects the elimination of interest
expense resulting from the application of net proceeds from the Initial
Public Offering as discussed in Note 2 to the Financial Statements, and
the elimination of corporate charge, as discussed in Note 10 to the
Financial Statements, net of additional costs to be incurred as a
public company.
(5) Pursuant to certain Securities and Exchange Commission rules, the
Company's historic financial statements for periods prior to the
Initial Public Offering have been adjusted to reflect the push-down of
certain bank indebtedness from Waxman USA secured by the accounts
receivable, inventory, certain general intangibles and unencumbered
fixed assets of WOC, Waxman Consumer Products Group Inc. ("Consumer
Products"), a wholly owned indirect subsidiary of Waxman Industries.
The push-down bank debt was retired upon the consummation of the
Initial Public Offering and the application of the net proceeds
therefrom as described in Note 2 to the Financial Statements.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company, and Waxman USA as a selling shareholder, successfully
completed the Initial Public Offering on April 3, 1996 resulting in net proceeds
of approximately $47.7 million to the Company. The proceeds were used to repay
approximately $23.0 million of outstanding indebtedness borrowed by it under a
secured credit facility (the "Operating Companies Revolving Credit Facility"),
among Citicorp USA, as agent, the Company, Consumer Products and WOC, to pay a
$22.0 million dividend evidenced by a note payable to Waxman USA and
approximately $2.7 million was used to fund working capital. See Note 2 to the
Financial Statements for a further discussion of the Initial Public Offering.
The Company's ability to fully effectuate its growth strategy was
significantly constrained during the past three years as a result of Waxman
Industries' highly leveraged capital structure. As a consequence of these
liquidity constraints, the Company pursued its growth strategy by utilizing the
limited working capital available to it to support and expand its telesales
operations.
The financial statements have been adjusted to reflect push-down
adjustments from Waxman USA. See Note 5 to the Financial Statements for a
further discussion of the push-down adjustments. The push-down bank indebtedness
consisted of $4.9 million and $6.8 million for the years ended June 30, 1995 and
1994, respectively, and creates the appearance of greater indebtedness than was
actually borrowed directly by the Company. Related interest expense and debt
issue costs have also been pushed down having the effect of creating higher
interest expense than was actually paid by the Company during those periods.
Interest expense, including amortization of debt issue costs totaled $1.9
million, $2.1 million and $1.5 million for the years ended June 30, 1996, 1995
and 1994, respectively.
The Company's net income for fiscal 1996 includes the effect of a
one-time, non-cash extraordinary charge of $0.7 million (net of applicable tax
benefit of $0.4 million), or $.06 per share, which was incurred as a result of
the write-off of unamortized debt issuance costs incurred in connection with the
Company prepaying its borrowings under the Operating Companies Revolving Credit
Facility, which indebtedness included push-down bank indebtedness from Waxman
USA. The Company recorded this charge in the quarter ended June 30, 1996.
Management fees charged to the Company by Waxman Industries are
included as "corporate charge" in the Financial Statements. Since July 1, 1994,
in accordance with the prior Intercorporate Agreement among the Company, Waxman
Industries and certain of its subsidiaries (the "Intercorporate Agreement"), the
management fees charged to the Company were the lesser of 2% of net sales or the
cost of providing services to the Company. In connection with the Initial Public
Offering, the prior Intercorporate Agreement was, with respect to the Company,
replaced by a new Intercorporate Agreement (the "New Intercorporate Agreement")
under which Waxman Industries provides certain managerial, administrative and
financial services to the Company, for which the Company pays Waxman Industries
the allocable costs of the salaries and expenses of Waxman Industries' employees
rendering such services. The Company also reimburses Waxman Industries for
actual out-of-pocket disbursements to third parties by Waxman Industries
required for the provision of such services. Subsequent to March 31, 1996, such
payments to Waxman Industries are included in the Financial Statements as a
component of selling, general and administrative expenses.
Pursuant to the New Intercorporate Agreement, the Company will continue to
provide certain services to the operating divisions of WOC. Waxman Industries
will pay to the Company the allocable costs of the salaries and expenses of the
Company's employees rendering such services. Waxman Industries will also
reimburse the Company for all actual out-of-pocket disbursements to
15
<PAGE> 17
third parties by the Company required for the provision of such services. For a
full-year period, the Company expects that the net effect of the payments to be
made and/or received pursuant to the New Intercorporate Agreement and the
additional expenses of being an independent public company to be an incremental
$200,000 of expenses.
RESULTS OF OPERATIONS
The following table shows the percentage relationship to net sales of items
derived from the Statements of Income.
<TABLE>
<CAPTION>
Percentage of
Net Sales
Fiscal years ended June 30,
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 66.5 65.8 65.8
----- ----- -----
Gross Profit 33.5 34.2 34.2
Selling, general and
administrative expense 21.1 21.8 22.1
Corporate Charge 1.1 1.7 2.0
----- ----- -----
Operating income 11.3 10.7 10.1
Interest expense 1.5 2.0 1.6
----- ----- -----
Income before income taxes
and extraordinary item 9.8 8.7 8.5
Provision for income taxes 3.6 3.2 3.0
----- ----- -----
Income before extraordinary
item 6.2 5.5 5.5
Extraordinary item - net of
income tax 0.6 -- --
----- ----- -----
Net income 5.6% 5.5% 5.5%
===== ===== =====
</TABLE>
FISCAL 1996 VERSUS FISCAL 1995
NET SALES
The Company's net sales for fiscal 1996 totaled $127.4 million compared with
$109.1 million in fiscal 1995, an increase of 16.8%. Approximately 78.1% of the
increase in the Company's net sales is attributable to the Company's telesales
operations, primarily resulting from increased sales by existing
telesalespersons and the addition of 25 telesalespersons compared to the prior
year. The remaining portion of the net sales increase was evenly contributed by
the outside sales force and the Company's key account programs. Contributing to
the overall increase in net sales was a net increase of 400 in the total number
of products offered by the Company, which generated approximately $6.6 million
of the net sales increase, as well as an increase of active customers to 42,000
from 38,000 which accounted for approximately $4.6 million of the net sales
increase during the year.
Approximately $3.0 million of the Company's net sales increase is
attributable to the Company's inclusion of direct sales in net sales commencing
July 1, 1995. While these products are shipped directly to the customer from the
original equipment manufacturer, the Company provides services to the customer
and supplier including marketing, technical
16
<PAGE> 18
assistance and credit and collection activities. Prior to July 1, 1995, direct
sales were included in the financial statements as a net reduction to cost of
goods sold. The Company has intensified its focus on its direct sales programs
during the current year and consequently, direct sales for fiscal 1996 increased
66.5% over the corresponding prior year.
GROSS PROFIT
Gross profit margins decreased to 33.5% in fiscal 1996 compared to 34.2% in
fiscal 1995 as a result of the increased revenues of the above mentioned direct
ship programs. Restating the prior year to include revenues from the direct
sales programs, gross profit margins remained basically unchanged between years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased by $3.1
million, or 13.1%, to $26.9 million for fiscal 1996 from $23.8 million for
fiscal 1995. The increase was primarily due to increased fixed costs, comprised
mostly of occupancy costs and depreciation relating to the expansion of several
distribution centers in both the current and prior years. Higher variable
selling expenses associated with the increase in the number of telesalespersons
mentioned above, together with an expansion of the marketing staff, also
contributed to the increase in SG&A expenses. As a percentage of net sales,
fiscal 1996 SG&A expenses were 21.1% of net sales as compared to 21.8% for the
prior fiscal year. This is primarily the result of the inclusion of direct sales
in net sales commencing July 1, 1995 and the leveraging of fixed costs,
primarily administrative expenses, over a larger sales base.
CORPORATE CHARGE
Management fees charged to the Company by Waxman Industries are included in
"corporate charge" in the Company's financial statements. Corporate charges are
allocations of expenses to the Company that Waxman Industries incurs to support
its corporate activities. Corporate charges decreased 27.9% to $1.3 million for
fiscal 1996 from $1.9 million for fiscal 1995. These fees were eliminated in the
fourth quarter of fiscal year 1996 and subsequent expenses under the New
Intercorporate Agreement are included in the Financial Statements as a component
of selling, general and administrative expenses. See Note 10 to the Financial
Statements.
INTEREST EXPENSE
Interest expense decreased to $1.9 million for fiscal 1996 from $2.1 million
for fiscal 1995, a decrease of 10.2%. This was a result of the Company using a
portion of the net proceeds of the Initial Public Offering to retire the
borrowings under the Operating Companies Revolving Credit Facility and, as a
result, eliminating the related interest expense.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $1.1 million or 32.1% to $4.6
million for fiscal year 1996 from $3.5 million for fiscal 1995. The provision
for income taxes for both periods represented approximately 37% of income before
provision for income taxes.
EXTRAORDINARY CHARGE
The year end results ended June 30, 1996 include the effect of a one-time,
non-cash extraordinary charge of $ 0.7 million (net of applicable tax benefit of
$ 0.4 million), or $.06 per share, which was incurred as a result of the
write-off of unamortized debt issuance costs incurred in connection with the
Company prepaying its borrowings under the Operating Companies Revolving Credit
Facility with proceeds of its Initial Public Offering, which indebtedness
included push-down debt from the Company's former parent company.
17
<PAGE> 19
FISCAL 1995 VERSUS FISCAL 1994
NET SALES
The Company's net sales increased $13.9 million, or 14.6%, to $109.1
million in fiscal 1995 from $95.2 million in fiscal 1994. Approximately 91.8% of
the increase in the Company's net sales was attributed to the Company's
telesales operations, primarily resulting from the increased sales of existing
telesalespersons and the addition of 13 telesalespersons in fiscal 1995.
Contributing to the overall increase in net sales were a net increase of 200 in
the total number of products offered by the Company which generated
approximately $6.9 million of additional net sales and an increase of active
customers to 38,000 from 36,000 which accounted for approximately $3.8 million
of the net sales increase. The increased net sales can also be partially
attributed to the Company's other successful marketing programs, including the
introduction of a new catalog in January 1995 directed to its hardware store
customers, coupled with new merchandising strategies which offer comprehensive
customer services.
GROSS PROFIT
Gross profit increased by $4.7 million, or 14.4%, to $37.3 million for
fiscal 1995, from $32.6 million for fiscal 1994, while the gross profit margin
remained constant at 34.2%. The Company's gross profit margin was favorably
effected by the increased sales of private label products, which generally carry
a higher gross profit margin, and which increased to 26.6% of net sales in
fiscal 1995 compared to 26.4% in the prior fiscal year. The favorable effect of
increased sales of private label products was offset by increased costs of
branded products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased by $2.7 million, or 12.9%, to $23.8 million for
fiscal 1995 from $21.0 million for fiscal 1994. The decrease in SG&A expenses as
a percentage of net sales to 21.8% in fiscal 1995 compared to 22.1% in fiscal
1994 was principally due to no distribution center start-up costs as compared to
fiscal 1994 when two new distribution centers were opened, and the leveraging of
fixed costs, primarily administrative expenses, over a larger sales base. These
factors more than offset increases in selling and occupancy costs. Contributing
to the expense increase were the Company's August 1995 relocation of its
telesales operations into a new 10,000 square foot "call center" and the
expansion or relocation of several of the Company's distribution centers.
CORPORATE CHARGE
Corporate charges remained constant at $1.9 million for both fiscal
1994 and fiscal 1995 and decreased by 2.9% as a percentage of net sales in
fiscal 1995 as compared to fiscal 1994. Corporate charges are allocations of
expenses to the Company that Waxman Industries incurs to support its corporate
activities. These allocations are no longer charged to the Company as of the
consummation of the Initial Public Offering. At the time that the Initial Public
Offering became effective, Waxman Industries and the Company entered into a New
Intercorporate Agreement for services. See Note 10 to the Financial Statements.
INTEREST EXPENSE
Interest expense increased to $2.1 million in fiscal 1995 from $1.5
million in fiscal 1994, an increase of 40.9% as a result of an increased
weighted average interest rate of 9.3% in fiscal 1995 from 6.6% in fiscal 1994
on the Company's outstanding indebtedness under the Operating Companies
Revolving Credit Facility and push-down bank debt. The increase in the
18
<PAGE> 20
weighted average interest rate was primarily due to the increased amortization
of debt issue costs and other financing fees in fiscal 1994 compared to the
prior year.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $600,000 or 20.7% to $3.5
million for fiscal 1995 from $2.9 million for fiscal 1994. This increase is
primarily related to the increase in income before provision for income taxes
and an increase in the Company's effective tax rate to 36.8% in fiscal 1995 from
35.7% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Initial Public Offering, the Company declared a dividend
to Waxman USA evidenced by a $22.0 million note payable that required mandatory
prepayment in the event of the Company's sale of its equity securities. The
Company used its portion of net proceeds from the Initial Public offering
(approximately $47.7 million) (i) to repay its borrowings (approximately $23.0
million) under the Operating Companies Revolving Credit Facility, (ii) to pay
the $22.0 million note payable to Waxman USA and (iii) for working capital,
approximately $2.7 million.
At June 30, 1996, the Company had working capital of $30.7 million and
a current ratio of 2.8 to 1.
Net cash provided by operating activities totaled $8.8 million for the
year ended June 30,1996 compared to $10.6 million for the year ended June 30,
1995.
Net cash used in investing activities totaled $2.0 million during the
year ended June 30, 1996 compared to $2.4 million for the year ended June 30,
1995. These investments related primarily to capital expenditures for improved
management information systems and expansion and/or relocation of several of the
Company's distribution centers to accommodate new product offerings.
Net cash used in financing activities was $6.3 million for the year
ended June 30, 1996 compared to $7.9 million for the year ended June 30, 1995.
These amounts primarily represent advances to Waxman Industries to satisfy its
debt service obligations.
In connection with the Initial Public Offering, the Company entered
into a revolving credit agreement with First Union National Bank of Florida for
an unsecured three-year credit facility providing for borrowings of up to $15.0
million including a letter of credit subfacility of $4.0 million. Borrowings
under this facility bear interest, at the Company's option, at the prime rate
minus 75 basis points or LIBOR plus 100 basis points. The credit facility
provides funds for working capital and general corporate purposes. At June 30,
1996, there were no borrowings under the credit agreement and there were $3.5
million of letters of credit outstanding. The credit facility contains customary
affirmative and negative covenants, including certain covenants requiring the
Company to maintain debt to net worth, interest coverage and current ratios, as
well as a minimum net worth test. The credit facility also restricts the amount
of dividends payable by the Company. The Company was in compliance with all
covenants at June 30, 1996.
Historically, cash flow from operations has been sufficient to fund the
Company's growth. The Company believes that funds generated from operations,
together with funds available under the credit facility discussed above, will be
sufficient to fund the Company's current operational needs and growth strategy.
The Company has budgeted capital expenditures in fiscal 1997 of approximately
$6.0 million, which the Company expects to fund out of cash from operations.
These capital expenditures are primarily for (i) expansion and reprofiling of
several of the Company's existing distribution centers and (ii) enhancements to
management information systems.
19
<PAGE> 21
The Company does not believe inflation has had a material impact on
earnings during the past several years. Although substantial increases in
product costs, labor, and other operating expenses could adversely affect the
operations of the Company and the home repair and remodeling supply market,
management believes it can recover such increases by increasing prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are listed in Item 14(a) and are included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEMS 10, 11, 12 AND 13
Except for the information included in Item 4A of this Form 10-K, the
information required for by Items 10, 11, 12 and 13 of this Form 10-K is
incorporated herein by reference to those portions of the Company's 1996 Proxy
Statement which contain such information.
20
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The following financial statements and schedules of the Company are
included as Part II, Item 8 of this Form 10-K:
- --------------------------------------------------------------------------------
(1) Financial Statements Page
-------------------- ----
- --------------------------------------------------------------------------------
Report of Independent Accountants F-1
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
Balance Sheets - June 30, 1996 and F-2
June 30, 1995
- --------------------------------------------------------------------------------
Statements of Income for the years F-4
ended June 30, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
Statements of Stockholders' Equity F-5
for the years ended June 30, 1996,
1995 and 1994
- --------------------------------------------------------------------------------
Statements of Cash Flows for the F-6
years ended June 30, 1996, 1995 and
1994
- --------------------------------------------------------------------------------
Notes to Financial Statements F-7 to F-13
- --------------------------------------------------------------------------------
(2) Supplementary Financial F-14
Information
- --------------------------------------------------------------------------------
All schedules have been omitted because they are inapplicable or not
required, or the information is included in the Financial Statements or notes
thereto.
(b) Exhibits:
Exhibit
Number Exhibits
- ------ --------
3.1* Certificate of Incorporation of Barnett Inc.
3.2+ Amended and Restated Certificate of Incorporation of Barnett
Inc.
3.3* By-laws of Barnett Inc.
3.4+ Amended and Restated By-Laws of Barnett Inc.
4.1* Credit Agreement dated May 20, 1994 among Waxman USA Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto and Citicorp USA, Inc.,
as Agent, and certain exhibits thereto.
4.2* Term Loan Credit Agreement dated May 20, 1994 among Waxman USA
Inc., Barnett Inc., Waxman Consumer Products Group Inc. and WOC
Inc., the Lenders and Issuers party thereto and Citibank, N.A.,
as Agent.
4.3* Amendment No. 2 to the Term Loan Agreement and Amendment No. 1
to the Revolving Credit Agreement among Waxman USA Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto, Citibank, N.A., and
Citicorp USA, Inc., as Agents.
10.1* Tax Sharing Agreement dated May 20, 1994 among Barnett Inc.,
Waxman USA Inc., Waxman Industries, Inc., each member of the
Waxman Group (as defined therein) and each member of the Waxman
USA Group (as defined therein).
10.2* Intercorporate Agreement dated May 20, 1994 by and among
Barnett Inc., Waxman Industries Inc., Waxman USA Inc., Waxman
Consumer Products Group Inc. and WOC Inc.
10.3 Intercorporate Agreement dated March 28, 1996 among Barnett
Inc., Waxman Industries Inc., Waxman Consumer Products Group
Inc., WOC Inc. and TWI, International, Inc.
10.4 Registration Rights Agreement dated March 28, 1996 by and
between Barnett Inc. and Waxman Industries, Inc.
10.5* Trademark License Agreement dated May 20, 1994 by and between
Barnett Inc. and Waxman Consumer Products Group Inc.
10.6* Employment Agreement dated June 18, 1990 between Barnett Inc.
and William R. Pray.
10.7** Amended and Restated Employment Agreement dated March 8, 1996
between Barnett Inc. and William R. Pray.
10.8+ Omnibus Incentive Plan of Barnett Inc.
10.9+ Stock Purchase Plan of Barnett Inc.
10.10 Revolving Credit Agreement dated April 3, 1996 between Barnett
Inc. and First Union National Bank of Florida.
10.11 [Reserved]
10.12 Standstill Agreement dated March 28, 1996, between Waxman
Industries, Inc., and Barnett Inc.
27.1 Financial Data Schedule
- -------
* Incorporated by referenced to the exhibit of the same number contained
in the Company's Registration Statement on Form S-1 (the "Registration
Statement"), filed with Securities and Exchange Commission (the "SEC")
on February 1, 1996.
+ Incorporated by referenced to the exhibit of the same number contained
in Amendment No. 1 to the Company's Registration Statement filed with
SEC on March 5, 1996.
** Incorporated by reference to the exhibit of the same number contained
in Amendment No. 3 to the Company's Registration Statement filed with
the SEC on March 25, 1996.
(C) Reports on Form 8-K
None
21
<PAGE> 23
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.
BARNETT INC.
By /s/ William R. Pray
------------------------------------------
William R. Pray
Dated: September 27, 1996 President and Chief Executive Officer
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>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ William R. Pray President, Chief Executive Officer and Director September 27, 1996
- --------------------------------- (Principal Executive Officer)
William R. Pray
/s/ Andrea M. Luiga Vice President - Finance and Chief Financial September 27, 1996
- --------------------------------- Officer (Principal Financial and Accounting
Andrea M. Luiga Officer)
/s/ Melvin Waxman Chairman of the Board and Director September 27, 1996
- ---------------------------------
Melvin Waxman
/s/ Armond Waxman Vice-Chairman of the Board and Director September 27, 1996
- ---------------------------------
Armond Waxman
/s/ Sheldon Adelman Director September 27, 1996
- ---------------------------------
Sheldon Adelman
/s/ Morry Weiss Director September 27, 1996
- ---------------------------------
Morry Weiss
</TABLE>
22
<PAGE> 24
Exhibit
Number Exhibits
- ------ --------
3.1* Certificate of Incorporation of Barnett Inc.
3.2+ Amended and Restated Certificate of Incorporation of Barnett
Inc.
3.3* By-laws of Barnett Inc.
3.4+ Amended and Restated By-Laws of Barnett Inc.
4.1* Credit Agreement dated May 20, 1994 among Waxman USA Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto and Citicorp USA, Inc.,
as Agent, and certain exhibits thereto.
4.2* Term Loan Credit Agreement dated May 20, 1994 among Waxman USA
Inc., Barnett Inc., Waxman Consumer Products Group Inc. and WOC
Inc., the Lenders and Issuers party thereto and Citibank, N.A.,
as Agent.
4.3* Amendment No. 2 to the Term Loan Agreement and Amendment No. 1
to the Revolving Credit Agreement among Waxman USA Inc.,
Barnett Inc., Waxman Consumer Products Group Inc. and WOC Inc.,
the Lenders and Issuers party thereto, Citibank, N.A., and
Citicorp USA, Inc., as Agents.
10.1* Tax Sharing Agreement dated May 20, 1994 among Barnett Inc.,
Waxman USA Inc., Waxman Industries, Inc., each member of the
Waxman Group (as defined therein) and each member of the Waxman
USA Group (as defined therein).
10.2* Intercorporate Agreement dated May 20, 1994 by and among
Barnett Inc., Waxman Industries Inc., Waxman USA Inc., Waxman
Consumer Products Group Inc. and WOC Inc.
10.3 Intercorporate Agreement dated March 28, 1996 among Barnett
Inc., Waxman Industries Inc., Waxman Consumer Products Group
Inc., WOC Inc. and TWI, International, Inc.
10.4 Registration Rights Agreement dated March 28, 1996 by and
between Barnett Inc. and Waxman Industries, Inc.
10.5* Trademark License Agreement dated May 20, 1994 by and between
Barnett Inc. and Waxman Consumer Products Group Inc.
10.6* Employment Agreement dated June 18, 1990 between Barnett Inc.
and William R. Pray.
10.7** Amended and Restated Employment Agreement dated March 8, 1996
between Barnett Inc. and William R. Pray.
10.8+ Omnibus Incentive Plan of Barnett Inc.
10.9+ Stock Purchase Plan of Barnett Inc.
10.10 Revolving Credit Agreement dated April 3, 1996 between Barnett
Inc. and First Union National Bank of Florida.
10.11 [Reserved]
10.12 Standstill Agreement dated March 28, 1996, between Waxman
Industries, Inc., and Barnett Inc.
27.1 Financial Data Schedule
- -------
* Incorporated by referenced to the exhibit of the same number contained
in the Company's Registration Statement on Form S-1 (the "Registration
Statement"), filed with Securities and Exchange Commission (the "SEC")
on February 1, 1996.
+ Incorporated by referenced to the exhibit of the same number contained
in Amendment No. 1 to the Company's Registration Statement filed with
SEC on March 5, 1996.
** Incorporated by reference to the exhibit of the same number contained
in Amendment No. 3 to the Company's Registration Statement filed with
the SEC on March 25, 1996.
23
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Barnett Inc.:
We have audited the accompanying balance sheets of Barnett Inc. (the
"Company"), as of June 30, 1996 and 1995, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
August 2, 1996.
F - 1
<PAGE> 26
BARNETT INC.
BALANCE SHEETS
JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------
1996 1995
--------- ------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,707 $ 1,155
Accounts receivable, net 17,577 14,481
Inventories 27,362 24,515
Prepaid expenses 1,074 1,005
------- -------
Total current assets 47,720 41,156
------- -------
Property and Equipment:
Machinery and equipment 8,778 7,271
Furniture and fixtures 1,841 1,447
Leasehold improvements 3,999 3,889
------- -------
14,618 12,607
Less accumulated depreciation
and amortization (8,301) (6,575)
------- -------
6,317 6,032
------- -------
Cost of Business in Excess of Net
Assets Acquired, net 3,580 3,708
Unamortized Debt Issue Costs -- 1,348
Deferred Tax Assets, net 500 --
Other Assets 183 169
------- -------
$58,300 $52,413
======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F - 2
<PAGE> 27
BARNETT INC.
BALANCE SHEETS
JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
--------
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14,131 $ 10,765
Accrued liabilities 1,780 1,220
Accrued income taxes 1,065 --
-------- --------
Total current liabilities 16,976 11,985
-------- --------
Long-Term Debt -- 18,126
Push-Down Bank Debt -- 4,874
Commitments and Contingencies
Stockholders' Equity:
Serial preferred stock; $0.10 par
value, Authorized 10,000 shares,
1,271 and 2,591 issued and
outstanding at June 30, 1996
and 1995, respectively 127 259
Common stock, $0.01 par value,
40,000 shares authorized; 14,398
and 9,318 issued and outstanding
at June 30, 1996 and 1995, respectively 143 93
Paid-in capital 39,109 8,068
Retained earnings 1,945 20,054
Advances to Waxman Industries -- (11,046)
-------- --------
41,324 17,428
-------- --------
$ 58,300 $ 52,413
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F - 3
<PAGE> 28
BARNETT INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 127,395 $ 109,107 $ 95,225
Cost of sales 84,748 71,815 62,623
--------- --------- ---------
Gross profit 42,647 37,292 32,602
Selling, general and administrative
expenses 26,877 23,772 21,048
Corporate charge 1,342 1,862 1,918
--------- --------- ---------
Operating income 14,428 11,658 9,636
Interest expense 1,921 2,139 1,518
--------- --------- ---------
Income before provision for income
taxes and extraordinary item 12,507 9,519 8,118
Provision for income taxes 4,625 3,500 2,900
--------- --------- ---------
Income before extraordinary item 7,882 6,019 5,218
Extraordinary item- loss on early
retirement of debt (net of income tax
benefit of $426) 724 -- --
--------- --------- ---------
Net income $ 7,158 $ 6,019 $ 5,218
========= ========= =========
Primary and fully diluted
earnings per share:
Before extraordinary item $ 0.61
Extraordinary item (.06)
---------
Total $ 0.55
Weighted average shares outstanding 12,914
Pro forma adjustments for Initial
Public Offering (Unaudited):
Income before income taxes
and extraordinary item $ 12,507 $ 9,519 $ 8,118
Add: Corporate charge 1,342 1,862 1,918
Interest expense 1,921 2,139 1,518
Less: Public company costs 150 200 200
--------- --------- ---------
Pro forma pretax income 15,620 13,320 11,354
Income taxes 5,779 4,928 4,200
--------- --------- ---------
Pro forma net income $ 9,841 $ 8,392 $ 7,154
========= ========= =========
Pro forma earnings per share $ 0.62 $ 0.53 $ 0.45
Assumed shares outstanding 15,929 15,929 15,929
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F - 4
<PAGE> 29
BARNETT INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SERIAL ADVANCES TO STOCK-
PREFERRED COMMON PAID-IN RETAINED WAXMAN HOLDERS'
STOCK STOCK CAPITAL EARNINGS INDUSTRIES EQUITY
----- ----- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $ 259 $ 93 $ 8,068 $ 2,431 $ 1,217 $ 12,068
Net income 5,218 5,218
Capital contribution from
Waxman Industries, net 18,410 18,410
Dividend to Waxman
Industries (13,465) (13,465)
Net advances to Waxman
Industries (3,100) (3,100)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1994 259 93 8,068 12,594 (1,883) 19,131
Net income 6,019 6,019
Capital contribution
from Waxman
Industries, net 1,441 1,441
Net advances to Waxman
Industries (9,163) (9,163)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1995 259 93 8,068 20,054 (11,046) 17,428
Net income 7,158 7,158
Capital contribution from
Waxman Industries, net 3,572 3,572
Dividend to Waxman
USA
Net advances to Waxman
Industries (12,587) (12,587)
Elimination of advances to
Waxman Industries (16,794) (6,839) 23,633 --
Net proceeds from issuance
of common stock 37 47,716 47,753
Conversion of 1,320 shares
of preferred stock to
common stock (132) 13 119 --
-------- -------- -------- -------- -------- --------
Balance June 30, 1996 $ 127 $ 143 $ 39,109 $ 1,945 $ -- $ 41,324
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F - 5
<PAGE> 30
BARNETT INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FROM (USED FOR):
OPERATIONS:
Net income $ 7,158 $ 6,019 $ 5,218
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 2,053 2,177 1,787
Extraordinary item 1,150 -- --
Deferred tax assets (500) -- --
Changes in assets and liabilities:
Accounts receivable, net (3,096) (973) (639)
Inventories (2,847) 559 (3,125)
Prepaid expenses (69) (414) 81
Accounts payable 3,366 2,972 (843)
Accrued liabilities 1,625 259 (378)
--------- --------- ---------
Net cash provided by operations 8,840 10,599 2,101
--------- --------- ---------
INVESTMENTS:
Capital expenditures, net (2,011) (2,334) (1,625)
Changes in other assets (15) (90) 340
--------- --------- ---------
Net cash used for investments (2,026) (2,424) (1,285)
--------- --------- ---------
FINANCING:
Net proceeds from sale of Common Stock 47,753 -- --
Borrowings under credit agreement 97,682 115,678 19,821
Payments under credit agreement (115,808) (113,767) (3,606)
Push-down debt (4,874) (1,911) (16,215)
Debt issue costs -- (132) (1,827)
Advances to Waxman Industries (12,587) (9,163) (3,100)
Capital contribution from
Waxman Industries, net 3,572 1,441 18,410
Dividend to Waxman Industries (22,000) -- (13,465)
--------- --------- ---------
Net cash provided by (used for)
financing (6,262) (7,854) 18
--------- --------- ---------
Net increase in cash 552 321 834
Balance, beginning of period 1,155 834 --
--------- --------- ---------
Balance, end of period $ 1,707 $ 1,155 $ 834
========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F - 6
<PAGE> 31
BARNETT INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Business
Barnett Inc.( the "Company"), operates in a single business segment --
the distribution of plumbing, electrical and hardware products,
utilizing mail order catalogs and a telesales program. Certain fiscal
1995 and 1994 amounts have been reclassified to conform with the fiscal
1996 presentation, including the proforma effects of the Company's
initial public offering (the "Initial Public Offering") consummated on
April 3, 1996 discussed in Note 2 below.
B. Accounts Receivable
Accounts receivable are presented net of allowances for doubtful
accounts of $722 and $1,121 for June 30, 1996 and 1995, respectively.
Bad debt expense totaled $375 in 1996, $330 in 1995 and $588 in 1994.
C. Inventories
At June 30, 1996 and 1995, inventories are stated at the lower of
first-in, first-out (FIFO) cost or market. The Company regularly
evaluates its inventory carrying value, with appropriate consideration
given to any excess and or slow-moving inventories.
D. Property and Equipment
Property and equipment is stated at cost. For financial reporting
purposes, machinery and equipment and furniture and fixtures are
depreciated on a straight-line basis over their estimated useful lives
of 5 to 7 years. Leasehold improvements are amortized over the life of
the improvement or remaining period of the lease, whichever is shorter.
Expenditures for maintenance and repairs are charged against income as
incurred. Betterments which increase the value or materially extend the
life of the assets are capitalized. For income tax purposes,
accelerated methods are used. Depreciation expense totaled $1,726 in
fiscal 1996, $1,379 in fiscal 1995 and $1,130 in fiscal 1994.
E. Cost of Business in Excess of Net Assets Acquired
Cost of business in excess of net assets acquired is being amortized
over 40 years, using the straight-line method. Management has evaluated
its accounting for goodwill, considering such factors as historical
profitability and future undiscounted operating cash flows, and
believes that the asset is realizable and the amortization period is
appropriate. Goodwill amortization expense totaled $127 in fiscal 1996,
fiscal 1995 and fiscal 1994. The accumulated amortization of goodwill
at June 30, 1996 and 1995 was $3,708 and $3,580, respectively.
F. Unamortized Debt Issue Costs
Unamortized debt issue costs relate to the long-term and push-down debt
and are amortized over the life of the related debt. The remaining
unamortized debt issue costs of $1,150 were written off as an
extraordinary charge in the fourth quarter
F - 7
<PAGE> 32
of fiscal 1996 as a result of the prepayment of the indebtedness with a
portion of the proceeds of the Initial Public Offering. See Notes 3 and
5.
G. Revenue Recognition
The Company records sales as orders are shipped or picked up by the
customer.
H. Earnings Per Share
The computation of both primary and fully diluted earnings per share is
based on the weighted average number of outstanding shares of common
stock during the period plus common stock equivalents consisting of
certain shares subject to stock options. The earnings per share
calculations additionally assumes the conversion of the outstanding
convertible preferred stock.
Unaudited pro forma earnings per share presents the historical data
adjusted for the sale of 3,760 shares of Common Stock to the public
pursuant to the Initial Public Offering as discussed in Note 2. For pro
forma purposes, the assumed shares outstanding totals 15,929.
I. Financial Statement 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
J. Impact of New Accounting Standards
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". Management does not anticipate the adoption
of SFAS No. 121 to have a material impact on the financial statements.
Management expects to adopt SFAS No. 121 during the first quarter of
fiscal 1997.
In November 1995, the Financial Accounting Standards Board also issued
SFAS No. 123, "Accounting for Stock-Based Compensation", which
establishes new accounting standards for the measurement and
recognition of stock-based awards. SFAS No. 123 permits entities to
continue to use the traditional accounting for stock-based awards
prescribed by APB Opinion No. 25, "Accounting for Stock issued to
Employees": however, under this option, the Company will be required to
disclose the pro forma effect of stock-based awards on net income and
earnings per share as if SFAS No. 123 had been adopted. SFAS No. 123 is
effective for fiscal 1997. The Company intends to continue using the
provisions of APB Opinion No. 25 in accounting for stock-based awards.
2. SALE OF COMMON STOCK
On April 3, 1996 the Company consummated an initial public offering
whereby 7,207.2 shares, representing approximately 55.1% of the
Company's common stock, were sold by the Company and its former parent,
Waxman USA Inc., ("Waxman"), at an initial public offering price of
$14.00 per share. The Company sold 3,760 shares resulting in net
proceeds to the Company of approximately $47.7 million. The Company
used approximately $23.0 million to repay all of the outstanding
indebtedness borrowed by it under a secured credit facility, $22.0
million to pay a dividend to Waxman and the remaining $2.7 million was
used for working capital. The proceeds from the sale of 3,447.2 shares
of Common Stock by Waxman were not received by the Company. As a result
of Waxman's conversion of Non-Voting Preferred Stock of the Company,
Waxman owns 49.9% of the Company's common stock and approximately a 54%
economic interest in the Company as of June 30, 1996.
3. EXTRAORDINARY ITEM
The Company incurred a one-time, non-cash extraordinary charge of $0.7
million (net of applicable tax benefit of $0.4 million) which was a
result of the write-off of unamortized debt issuance costs incurred in
connection with the Company prepaying its borrowings under a secured
revolving credit facility, which
F - 8
<PAGE> 33
indebtedness included push-down bank indebtedness from Waxman as
discussed in Note 5. This charge was recorded in the quarter ended June
30, 1996.
4. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 utilizes
an asset and liability approach and deferred taxes are determined based
on the estimated future tax effects of differences between the
financial and tax bases of assets and liabilities given the provisions
of the enacted tax laws.
Commencing July 1, 1994, the Company began participating in a tax
sharing agreement with Waxman Industries. Under this agreement, the
Company's federal tax liability was equal to the lesser of the federal
tax liability calculated on a stand alone basis or Waxman Industries'
federal tax liability. As Waxman Industries had $75.0 million of
available domestic net operating loss carry forwards at June 30, 1995
for income tax purposes the Company had no liability for federal taxes
at June 30, 1995. The Company files separate income tax returns in
certain states based on the result of operations within the applicable
states. As a result of the Initial Public Offering, as explained in
Note 2, the Company is no longer included in Waxman Industries'
consolidated tax return. Therefore, Waxman Industries' remaining net
operating loss carry forwards are not available to offset the Company's
taxable income after April 3, 1996, the consummation date of the
Initial Public Offering.
The components of the provision for income taxes, calculated on a
stand-alone basis, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal $ 3,952 $ 3,346 $ 2,992
State 658 180 160
------- ------- -------
4,610 3,526 3,152
Deferred 15 (26) (252)
------- ------- -------
$ 4,625 $ 3,500 $ 2,900
======= ======= =======
</TABLE>
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. The deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------
1996 1995
---- ----
<S> <C> <C>
Inventories $ 470 $ 433
Accounts receivable 393 385
Other 11 15
----- -----
Deferred tax assets 874 833
Property (374) (318)
----- -----
$ 500 $ 515
===== =====
</TABLE>
At June 30, 1995, deferred taxes and amounts payable to Waxman are
included in Advances to Waxman Industries in the accompanying balance sheets.
F - 9
<PAGE> 34
The following table reconciles the U.S. statutory rate applied to
pretax income to the Company's provision for income taxes:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Statutory Rate applied
to pretax income $ 4,252 $ 3,332 $ 2,760
State taxes, net 434 117 106
Goodwill amortization 45 45 44
Other (106) 6 (10)
------- ------- -------
Provision for income taxes $ 4,625 $ 3,500 $ 2,900
======= ======= =======
</TABLE>
The Company made state income tax payments of $372 in fiscal year 1996,
$483 in fiscal year 1995 and $277 in fiscal year 1994.
5. LONG TERM DEBT
In April 1996 the Company entered into a revolving credit agreement
with First Union National Bank of Florida ("First Union") for an
unsecured three-year credit facility providing borrowings of up to
$15.0 million, including a letter of credit subfacility of $4.0
million. Borrowings under this facility bear interest, at the Company's
option, at the prime rate minus 75 basis points or LIBOR plus 100 basis
points. The Company is required to pay a commitment fee of 0.1% per
annum on the unused commitment. The credit agreement contains customary
affirmative and negative covenants, including certain covenants
requiring the Company to maintain debt to net worth, interest coverage
and current ratios, as well as a minimum net worth test. The Company
was in compliance with all covenants at June 30, 1996. At June 30, 1996
there were no borrowings under the credit agreement and there were $3.5
million of letters of credit outstanding.
At June 30, 1995 borrowings under a secured credit facility totaled
$18.1 million. This debt was retired in connection with the Initial
Public Offering, as explained in Note 2.
As discussed in Note 2, the Company and Waxman consummated an Initial
Public Offering on April 3, 1996. In accordance with certain Securities
and Exchange Commission rules, the financial statements have been
adjusted to reflect push down adjustments from Waxman, comprising
certain bank indebtedness, ("push down debt"), which was repaid by the
Company with the net proceeds of the Initial Public Offering and which
was secured by the inventories, accounts receivable, general
intangibles and other unencumbered assets of the Company. Related
interest expense and debt issue costs were also pushed down. The push
down adjustments were made for all periods presented in the Financial
Statements prior to the Initial Public Offering.
The Company made interest payments of $1,525 in fiscal 1996, $1,654 in
fiscal 1995 and $126 in fiscal 1994.
6. STOCKHOLDERS' EQUITY
In connection with the Initial Public Offering, as explained in Note 2,
the Company (i) filed an Amended and Restated Certificate of
Incorporation which increased the authorized number of shares of common
stock to 40,000, (ii) effected a 238,180 for 1 stock split and (iii)
authorized 10,000 shares of preferred stock
F - 10
<PAGE> 35
and issued to Waxman 2,591 shares of Series A Preferred Stock in
exchange for 2,591 shares of common stock held by Waxman. These changes
have been retroactively reflected in the accompanying balance sheets.
Additionally, the Company declared a dividend to Waxman evidenced by a
$22.0 million note payable to Waxman, which was paid with the proceeds
of the Initial Public Offering.
In connection with the consummation of the Initial Public Offering, as
explained in Note 2, all advances from Waxman were eliminated and
charged against retained earnings. The elimination of advances in
excess of retained earnings was charged to paid-in capital.
Each share of Series A Preferred Stock, which is owned by Waxman,
generally is not entitled to vote; has a liquidation preference of
$1.00 per share and is convertible into one share of Common Stock,
subject to certain limitations, at the option of Waxman. On June 24,
1996, Waxman converted 1,320 shares of its Series A Preferred Stock of
the Company to a like amount of common stock of the Company; Waxman
owns 49.9% of the Company's common stock at June 30, 1996.
7. LEASE COMMITMENTS
The Company leases its warehouse and office facilities as well as
certain equipment under operating lease agreements, which expire at
various dates through 2003 with, in some cases, options to extend the
terms of the leases.
Future minimum payments, by year and in the aggregate, consist of the
following at June 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,903
1998 1,603
1999 1,342
2000 930
2001 598
Thereafter 1,033
------
Total future minimum lease payments $7,409
------
</TABLE>
Total rent expense charged to operations was $ 2,217 in fiscal 1996,
$ 2,036 in fiscal 1995 and $ 1,722 in fiscal 1994.
8. PROFIT SHARING PLAN
The Company participates in Waxman Industries' trusteed, profit sharing
and 401(k) retirement plan for employees. Employees are able to
contribute up to 15% of pretax compensation and control the investment
options for their entire account. Employees vest in Company
contributions ratably over 5 years of service.
Company contributions to both the profit sharing and 401(k) plan are
discretionary and may be changed each year as determined by the Board
of Directors. There were no profit sharing contributions made in 1996,
1995 or 1994. In fiscal years 1996 and 1995, the Company contributed $0
and $80, respectively, in matching contributions to the 401(k) plan
which began in 1995. The Board of Directors has approved a 50% match of
up to 4% of employee contributions for fiscal 1997.
The Company offers no other post-retirement or post-employment benefit
to its employees.
F - 11
<PAGE> 36
9. EMPLOYEE STOCK OPTION PLAN
In connection with the Initial Public Offering discussed in Note 2, the
Board Of Directors of the Company adopted and approved the 1996 Omnibus
Incentive Plan (the "Omnibus Plan") which provides for compensatory
awards representing or corresponding to up to 1,500 shares of Common
Stock. Awards may be granted for no consideration and consist of stock
options and other stock based awards. The Omnibus Plan was designed to
provide an incentive to the officers and other key employees of the
Company by making available to them an opportunity to acquire a
proprietary interest in the Company. At June 30, 1996, there were 507.5
stock options outstanding at an exercise price of $ 14.00 per share
which expire in 2006. No options were exercisable as of June 30, 1996.
10. RELATED PARTY TRANSACTIONS
The Company engages in business transactions with Waxman Industries and
its subsidiaries. Products purchased for resale from Waxman Industries
and its subsidiaries totaled $12,183 in fiscal 1996, $11,318 in fiscal
1995 and $8,303 in fiscal 1994. Sales to these entities totaled $172 in
fiscal 1996, $195 in fiscal 1995 and $229 in fiscal 1994.
Management fees charged to the Company by Waxman Industries are
included in "corporate charge" in the financial statements. Corporate
charges are allocations of expenses to the Company that Waxman
Industries incurs to support its corporate activities. These fees were
eliminated in the fourth quarter of fiscal 1996.
The Company and Waxman Industries provide to and receive from each
other certain selling, general and administrative services and
reimburse each other for out-of-pocket disbursements related to those
services. In connection with the Initial Public Offering, the Company
and Waxman Industries, among others, entered into a New Intercorporate
Agreement. Pursuant to the New Intercorporate Agreement, Waxman
Industries provides certain managerial, administrative and financial
services to the Company and the Company pays Waxman Industries the
allocable cost of the salaries and expenses of Waxman Industries'
employees while they are rendering such services. The Company also
reimburses Waxman Industries for actual out of pocket disbursements to
third parties by Waxman Industries required for the provision of such
services by Waxman Industries. In addition to the services provided by
Waxman Industries to the Company pursuant to the New Intercorporate
Agreement, the Company also continues to provide certain services to
the operating divisions of WOC Inc., including LeRan Copper & Brass,
U.S. Lock and Madison Equipment Company. These services include the
utilization of the Company's management information systems, financial
accounting, order processing and billing and collection services.
Waxman Industries pays to the Company the allocable cost of the
salaries and expenses of the Company's employees while they are
performing such services. Waxman Industries also reimburses the Company
for all actual out-of-pocket disbursements to third parties by the
Company required for the provision of such services. The net effect of
these charges is not material. The arrangements provided in the New
Intercorporate Agreement may be modified and additional arrangements
may be entered into pursuant to a written agreement between the Company
and Waxman Industries.
All amounts incurred by the Company on behalf of Waxman Industries have
been reimbursed by Waxman Industries. All amounts incurred by Waxman
Industries on behalf of the Company have been reimbursed by the Company
and are reflected in selling, general and administrative expense in the
accompanying statements of income. In management's opinion, the
Company's selling, general and administrative expenses include all
costs of an independent stand-alone company.
F - 12
<PAGE> 37
The following is a reconciliation of the activity contributed to
capital related to the push-down bank debt described in Note 5:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
1996 1995 1994
-------------------------------
Push-down interest expense,
including amortization of
<S> <C> <C> <C>
debt issue costs $ 355 $ 464 $ 1,385
Change in push-down bank debt 3,791 1,911 16,215
Income taxes (391) (493) (901)
Change in push-down interest
accrual 15 21 107
Change in push-down of
unamortized debt issue costs (198) (462) 1,604
------ ------ -------
Capital contribution from
Waxman Industries, net $3,572 $1,441 $18,410
====== ====== =======
</TABLE>
11. CONTINGENCIES
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management,
the amount of any ultimate liability with respect to these actions will
not materially affect the Company's financial statements.
F - 13
<PAGE> 38
SUPPLEMENTARY FINANCIAL INFORMATION
Quarterly Results of Operations:
The following is a summary of the unaudited quarterly results of
operations for the fiscal years ended June 30, 1996 and 1995 ( in thousands,
except per share amounts)
<TABLE>
<CAPTION>
Net Income
Before Earnings Earnings
Net Gross Extraordinary Per Net Per
Sales Profit Item Share Income Share
-------------------------------------------------------------------------------------
(in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C>
1996
FOURTH $ 33,996 $ 11,538 $ 2,670 $ 0.17 $ 1,945 $ 0.12
THIRD 32,884 10,852 1,838 0.15 1,838 0.15
SECOND 31,089 10,654 1,988 1,988
FIRST 29,426 9,603 1,386 1,387
- ---------------------------------------------------------------------------------------
TOTAL $127,395 $ 42,647 $ 7,882 $ 0.61 $ 7,158 $ 0.55
- ---------------------------------------------------------------------------------------
1995
Fourth $ 28,016 $ 9,667 $ 1,415 $ 1,415
Third 28,852 9,853 1,519 1,519
Second 26,791 9,164 1,634 1,634
First 25,448 8,608 1,451 1,451
- ---------------------------------------------------------------------------------------
Total $109,107 $ 37,292 $ 6,019 $ 6,019
- ---------------------------------------------------------------------------------------
</TABLE>
F - 14
<PAGE> 1
EXHIBIT 10.3
INTERCORPORATE AGREEMENT
This Intercorporate Agreement ("Agreement"), dated as of March 28,
1996, by and among Waxman Industries, Inc., a Delaware corporation ("Waxman"),
Waxman USA Inc., a Delaware corporation ("WUSA"), Waxman Consumer Products Group
Inc., a Delaware corporation ("CPG"), WOC Inc., a Delaware corporation ("WOC"),
TWI, International, Inc., a Delaware corporation ("TWI"), and Barnett Inc., a
Delaware corporation ("Barnett").
WHEREAS, pursuant to an initial public offering (the "Public
Offering"), Barnett and WUSA are offering for sale to the public an aggregate of
up to approximately 50.1% (55.1% if the underwriters' overallotment option is
exercised in full) of Barnett's common stock, $.01 par value per share (the
"Common Stock");
WHEREAS, Waxman, prior to the Public Offering, owned 100% of the issued
and outstanding shares of Common Stock;
WHEREAS, after the Public Offering, Waxman and Barnett will be separate
publicly held corporations and Waxman will continue to beneficially own
approximately 49.9% (44.9% if the underwriters' over-allotment option is
exercised in full) of the issued and outstanding Common Stock;
WHEREAS, Waxman currently provides, and desires to continue to provide,
certain general, administrative and financial services to Barnett and/or its
future subsidiaries, if any (collectively, the "Barnett Group"), including,
among other things, certain treasury and financial functions, tax services, and
insurance and risk management services under an Intercorporate Agreement, dated
as of May 20, 1994, by and among Waxman, WUSA, CPG, Barnett and WOC (the
"Existing Intercorporate Agreement");
WHEREAS, Barnett currently provides certain services to WUSA, CPG, WOC
and/or their other subsidiaries and their divisions (collectively, the "Waxman
Group") under the Existing Intercorporate Agreement;
<PAGE> 2
WHEREAS, Barnett currently shares certain warehouse space with U.S.
Lock, a division of WOC, and LeRan Copper and Brass, a division of U.S. Lock;
WHEREAS, upon the Effective Date (as hereinafter defined), Barnett will
no longer be an indirect wholly-owned subsidiary of Waxman and, pursuant to this
Agreement, will cease to be a party to the Existing Intercorporate Agreement;
and
WHEREAS, to facilitate Waxman's and Barnett's separate ongoing
businesses and to reduce unnecessary additional overhead and personnel costs,
Waxman and Barnett desire to enter into this Agreement to set forth the terms
upon which (x) Waxman will continue to provide services to the Barnett Group and
(y) Barnett will continue to provide services to and share facilities with the
Waxman Group.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the adequacy and receipt
of which are hereby acknowledged, the parties agree as follows:
1. Services.
(a) Barnett hereby engages Waxman to provide, and Waxman agrees to
provide, to the Barnett Group, such administrative services as Barnett may
reasonably require with respect to (i) securing and monitoring the insurance
needs of the Barnett Group and securing the appropriate insurance coverage
therefor, (ii) the preparation and filing of federal and certain state and local
tax returns, (iii) accounting, treasury and other financial services, including,
without limitation, assistance with the preparation of all required filings
under federal and state securities laws and any securities exchange or the
National Association of Securities Dealers, Inc. (iv) assistance in financing
matters and (v) relations with lending, banking and underwriting institutions
and organizations and for shareholder, investor and public relations, as well as
such other services as Barnett may reasonably request (collectively, the "Waxman
Services"). The Waxman Services will be provided at such times and with respect
to such matters within the above described categories as Barnett may reasonably
request from time to time
- 2 -
<PAGE> 3
and will be of the same type and quality that Waxman has historically provided
to itself or Barnett. Notwithstanding the foregoing, on or prior to May 15th of
each fiscal year during the term of this Agreement, commencing with May 15,
1996, Barnett shall advise Waxman in writing of the scope and level of Waxman
Services it reasonably expects to require to be provided to the Barnett Group
during the ensuing fiscal year. The estimate of the scope and level of services
shall not limit the services required to be provided hereunder, but is intended
to be used for labor and capital planning purposes. The parties hereto agree
that services to be provided by Waxman for the Barnett Group hereunder are to be
performed by such persons as shall be designated by Waxman from time to time
(all of such persons are hereafter collectively referred to as the "Waxman
Providers"). The parties hereto further acknowledge that it is their mutual
expectation that certain of the Waxman Providers shall continue to serve as, or
be elected as, officers of Barnett or the other members of the Barnett Group, if
any, and that the services rendered by such persons in such capacity from this
date forward shall be deemed to have been rendered pursuant to the terms of this
Agreement, unless other arrangements have been agreed to among such Waxman
Provider, Waxman and Barnett. The Waxman Providers shall devote to the providing
of Waxman Services that amount of time which is reasonably necessary in order
for Waxman to fulfill its obligations hereunder. In addition, to the extent that
any employee of Barnett or any member of the Barnett Group participates in any
employee benefit programs maintained by Waxman, Barnett shall determine, to the
extent legally permissible, whether and to what extent such employees will
participate in such programs.
(b) Waxman hereby engages Barnett to provide, and Barnett agrees to
provide, to the Waxman Group, such administrative services as Waxman may
reasonably require with respect to (i) the utilization of Barnett's management
information systems, (ii) the utilization of Barnett management's direct
marketing expertise and (iii) the provision of financial accounting, order
processing, billing and collection services, as well as such other services as
Waxman may reasonably request (collectively, the "Barnett Services"). The
Barnett Services will be provided at such times and with respect to such matters
as Waxman may reasonably request from time to time and will be of the same type
and quality that Barnett has historically provided to itself or
- 3 -
<PAGE> 4
the Waxman Group. The Barnett Providers shall devote to the providing of Barnett
Services that amount of time which is reasonably necessary in order for Barnett
to fulfill its obligations hereunder. Notwithstanding the foregoing, on or prior
to May 15th of each fiscal year during the term of this Agreement, commencing
with May 15, 1996, Barnett shall advise Waxman in writing of the scope and level
of Barnett Services it reasonably expects to require to be provided to the
Waxman Group during the ensuing fiscal year. The estimate of the scope and level
of services shall not limit the services required to be provided hereunder, but
is intended to be used for labor and capital planning purposes. The parties
hereto agree that services to be provided by Barnett for the Waxman Group
hereunder are to be performed by such persons as shall be designated by Barnett
from time to time (all of such persons are hereafter collectively referred to as
the "Barnett Providers"). The parties hereto further acknowledge that it is
their mutual expectation that certain of the Barnett Providers shall continue to
serve as, or be elected as, officers of Waxman or the other members of the
Waxman Group, if any, and that the services rendered by such persons in such
capacity from this date forward shall be deemed to have been rendered pursuant
to the terms of this Agreement, unless other arrangements have been agreed to
among such Barnett Provider, Waxman and Barnett. The Barnett Providers shall
devote to the providing of Barnett Services that amount of time which is
reasonably necessary in order for Barnett to fulfill its obligations hereunder.
(c) Neither Waxman nor Barnett shall take any action or enter into any
agreement which would render it unable to fully perform its obligations under
this Agreement.
(d) In order to coordinate the provisions of the Barnett Services and
the Waxman Services hereunder, the parties agree to aprise the respective Chief
Financial Officer of each of Waxman and Barnett for all requests for and all
fees, costs and expenses incurred with respect to the provision of services
hereunder.
- 4 -
<PAGE> 5
2. Fees.
(a) As compensation for the Waxman Services rendered under this
Agreement, Barnett will pay to Waxman quarterly in arrears, upon the receipt of
an invoice therefor, the allocable cost of the compensation of the Waxman
Providers (including all employee benefits and prerequisites of the Waxman
Providers) while they are rendering the Waxman Services. Waxman shall also be
reimbursed for actual out-of-pocket disbursements to third parties by Waxman
required for the provision of the Waxman Services. Such fee shall be paid by
Barnett to Waxman within 10 days after Waxman has provided an invoice to Barnett
setting forth the total amount of the fee and the data supporting such
calculation. Waxman shall render such invoice to Barnett within 15 days of the
end of each fiscal quarter during the term hereof. To the extent that Barnett
does not agree with Waxman's determination of Barnett's allocable costs of the
compensation of the Waxman Providers, the respective Audit Committees of Waxman
and Barnett shall resolve such dispute, and, if such committees are unable to
resolve such dispute, they shall seek the assistance of Arthur Andersen LLP (or
such other firm(s) of certified independent public accountants that may be
regularly engaged by Waxman and Barnett) to resolve such dispute, and, if such
accounting firm(s) is unable to resolve such dispute, they shall mutually select
an independent arbitrator to resolve such dispute, whose determination shall be
conclusive and binding.
(b) As compensation for the Barnett Services rendered under this
Agreement, Waxman will pay to Barnett, quarterly in arrears, upon the receipt of
an invoice therefor, the allocable costs of the compensation of the Barnett
Providers (including all employee benefits and perquisites of the Barnett
Providers) while they are rendering the Barnett Services. Barnett shall also be
reimbursed for all actual out-of-pocket disbursements to third parties by
Barnett required for the provision of the Barnett Services. Such fee shall be
paid by Waxman to Barnett within 10 days after Barnett has provided an invoice
to Waxman setting forth the total amount of the fee and the data supporting such
calculation. Barnett shall render such invoice to Waxman within 15 days of the
end of each fiscal quarter during the term hereof. To the extent that Waxman
does not agree with Barnett's determination of Waxman's allocable costs of the
compensation of the Barnett Providers, the respective Audit Committees of Waxman
and Barnett
- 5 -
<PAGE> 6
shall resolve such dispute, and, if such committees are unable to resolve such
dispute, they shall seek the assistance of Arthur Andersen LLP (or such other
firm(s) of certified independent public accountants that may be regularly
engaged by Waxman and Barnett) to resolve such dispute, and, if such accounting
firm(s) is unable to resolve such dispute, they shall mutually select an
independent arbitrator to resolve such dispute, whose determination shall be
conclusive and binding.
3. Insurance. Except as otherwise agreed by the parties, all policies
of liability, fire, workers' compensation, directors and officers, and other
forms of insurance covering the Barnett Group's businesses, their properties and
assets and their directors and officers that are part of Waxman's coverage will
continue to be maintained by Waxman until Barnett obtains appropriate
replacement coverage. Barnett will reimburse Waxman for the actual premium costs
associated with providing such insurance coverage within 15 days after Waxman's
receipt of invoices for such insurance coverage. Waxman agrees to consult with
Barnett prior to incurring any obligations for insurance coverage on behalf of
any member of the Barnett Group. Barnett agrees to continue be included in
Waxman's insurance coverage to the extent that it is financially reasonable to
do so.
4. Indemnification. (a) Barnett agrees to indemnify the Waxman Group
and the Waxman Providers (individually, a "Waxman Indemnitee," and,
collectively, the "Waxman Indemnitees"), if a Waxman Indemnitee is made, or
threatened to be made, a party to any action, claim or proceeding, whether civil
or criminal, including any action by or in the right of Barnett or any member of
the Barnett Group, by reason of the provision of services by Waxman and/or the
Waxman Providers to the Barnett Group or any member of the Barnett Group
pursuant to the terms of this Agreement (other than any action by Barnett
against Waxman by reason of a breach of this Agreement by Waxman) against
judgments, fines, amounts paid in settlement and reasonable expenses, including
reasonable attorneys' fees (collectively, "Losses"); provided, however, that the
foregoing indemnity shall not apply to any Losses to the extent such Losses
resulted primarily from the willful misconduct, bad faith or gross negligence of
a Waxman Indemnitee.
- 6 -
<PAGE> 7
(b) Waxman agrees to indemnify the Barnett Group and the
Barnett Providers (individually, a "Barnett Indemnitee," and, collectively, the
"Barnett Indemnitees"), if a Barnett Indemnitee is made, or threatened to be
made, a party to any action, claim or proceeding, whether civil or criminal,
including any action by or in the right of Waxman or any member of the Waxman
Group, by reason of the provision of services by Barnett and/or the Barnett
Providers to the Waxman Group or any member of the Waxman Group pursuant to the
terms of this Agreement (other than any action by Waxman against Barnett by
reason of a breach of this Agreement by Barnett) against Losses; provided,
however, that the foregoing indemnity shall not apply to any Losses to the
extent such Losses resulted primarily from the willful misconduct, bad faith or
gross negligence of a Barnett Indemnitee.
5. Responsibility for Providing Compensation and Fringe Benefits to
Service Providers. Barnett and Waxman, respectively, shall bear all of the costs
and expenses of the personal compensation and fringe benefits and perquisites,
including, without limitation, pension, life insurance, health insurance,
hospitalization and other forms of insurance, of the Barnett Providers and the
Waxman Providers, respectively, and such persons shall not, except as approved
by Barnett and Waxman, be entitled to any compensation or benefit from Barnett
or Waxman, as the case may be, for services performed for the Waxman Group or
the Barnett Group, respectively, in any capacity, including, but not limited to,
services as an officer of any member of the Barnett Group and any member of the
Waxman Group, as the case may be.
6. Warehouse Facilities; Product Purchases. Certain members of the
Waxman Group may occupy space leased by Barnett. With respect to any such
occupancy, the duration of such occupancy arrangement and portion of the
premises to be occupied shall be mutually agreed between the parties to such
arrangement and the cost of such occupancy shall be equal to the rent paid by
Barnett allocable to the space occupied by such member of the Waxman Group;
provided, however, that if the specific space such member of the Waxman Group
may occupy is not readily subject to physical apportionment, then the charges
shall be based upon an agreed percentage of the net sales of such member of the
Waxman Group allocable to such facility. Each of the Waxman Group and the
Barnett Group may purchase products from each other at prices
- 7 -
<PAGE> 8
and upon terms and conditions as may be agreed among the parties from time to
time.
7. Status as Independent Contractor. It is expressly understood between
the parties hereto that Waxman, with respect to services provided by it to the
Barnett Group hereunder, and Barnett, with respect to services provided by it to
the Waxman Group hereunder, shall be independent contractors. It is also
expressly agreed that each of Waxman and Barnett, as the case may be, shall be
solely responsible for the withholding and payment of any and all taxes and
other sums required to be withheld or paid by an employer pursuant to any and
all state, federal or other laws in connection with the rendering of services
hereunder.
8. Work Product; Confidentiality. (a) Waxman agrees, on behalf of
itself, the other members of the Waxman Group and their employees,
representatives and agents, including without limitation the Waxman Providers,
that all memoranda, notes, records or other documents made or compiled by
Waxman, the other members of the Waxman Group and their employees,
representatives and agents, including, without limitation, the Waxman Providers,
in the fulfillment of Waxman's obligations under this Agreement or otherwise, or
made available to any of them concerning any Barnett Information (as defined
below) shall be Barnett's property and shall be delivered to Barnett on
Barnett's request on the termination of this Agreement or at any other time.
None of Waxman or any member of the Waxman Group, or their employees,
representatives and agents shall, directly or indirectly, knowingly use, for
themselves or others, or divulge to others, other than in the ordinary course
and in furtherance of the Barnett Group's businesses, any secret or confidential
information, non-public information, knowledge, or data of the Barnett Group
(including, without limitation, names of customers of the Barnett Group
(collectively, "Barnett Information")) obtained by any of them as a result of
Waxman's performance of this Agreement, unless authorized by Barnett. The
provisions of this Section do not extend to any portion of such Barnett
Information which becomes generally available to the public other than as a
result of a disclosure by the recipient or its representatives, subsidiaries or
affiliates, and will not be deemed to restrict the recipient from complying with
any order, request or decree of any court, government or other regulatory
- 8 -
<PAGE> 9
body to produce any such information, but upon receiving notice that any such
order, request or decree is being sought, the recipient will promptly give the
party furnishing such information notice thereof and agree to cooperate with the
furnishing parties' efforts, if any, to contest the issuance of such order,
request or decree.
(b) Barnett agrees, on behalf of itself, the other members of
the Barnett Group and their employees, representatives and agents, including
without limitation the Barnett Providers, that all memoranda, notes, records or
other documents made or compiled by Barnett, the other members of the Barnett
Group, their employees, representatives and agents, including, without
limitation, the Barnett Providers, in the fulfillment of Barnett's obligations
under this Agreement or otherwise, made available to any of them concerning any
Waxman Information (as defined below) shall be Waxman's property and shall be
delivered to Waxman on the termination of this Agreement or at any other time on
Waxman's request. None of Barnett, any other member of the Barnett Group or
their employees, representatives and agents shall, directly or indirectly,
knowingly use, for themselves or others, or divulge to others, other than in the
ordinary course and in furtherance of the Waxman Group's businesses, any secret
or confidential information, non-public information, knowledge, or data of the
Waxman Group (including, without limitation, names of customers of the Waxman
Group (collectively, "Waxman Information")) obtained by any of them as a result
of Barnett's performance of this Agreement, unless authorized by Waxman. The
provisions of this Section do not extend to any portion of such Waxman
Information which becomes generally available to the public other than as a
result of a disclosure by the recipient or its representatives, subsidiaries or
affiliates, and will not be deemed to restrict the recipient from complying with
any order, request or decree of any court, government or other regulatory body
to produce such information, but upon receiving notice that any such order,
request or decree is being sought, the recipient will promptly give the party
furnishing such information notice thereof and agree to cooperate with the
furnishing parties' efforts, if any, to contest the issuance of such order,
request or decree.
9. Term. Subject to the last sentence of this Section 9, this Agreement
will become effective upon the consummation of the
- 9 -
<PAGE> 10
Public Offering (the "Effective Date") and may be terminated by Waxman upon 360
days prior written notice given as provided herein to the other parties hereto
or by Barnett upon 360 days prior written notice given as provided herein to the
other parties hereto. Notwithstanding the preceding sentence, the provision of
Section 4 hereof shall survive until the second anniversary of the Effective
Date. At the Effective Date, the Existing Intercorporate Agreement will cease to
be binding upon Barnett and all one of its rights and obligations with respect
to the subject matter thereof shall, on and after the Effective Date, be
governed by this Agreement.
10. Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given when delivered by
hand, upon receipt of a telephonic facsimile transmission or sent by registered
or certified mail, return receipt requested, postage prepaid and addressed as
follows:
To Waxman: Waxman Industries, Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
Attention: Chief Executive Officer
Telecopy No. (216) 439-8678
To Barnett: Barnett Inc.
3333 Lenox Avenue
Jacksonville, Florida 32205
Attention: President
Telecopy No. (909) 388-4566
To WUSA: Waxman USA Inc.
c/o Waxman Industries, Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
Attention: Chief Executive Officer
Telecopy No. (216) 439-8678
To CPG: Consumer Products Group Inc.
24455 Aurora Road
Bedford Heights, Ohio 44146
Attention: President
Telecopy No. (216) 439-1262
- 10 -
<PAGE> 11
To WOC: WOC Inc.
c/o Waxman Industries, Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
Attention: Chief Executive Officer
Telecopy No. (216) 439-8678
To TWI: TWI
c/o Waxman Industries, Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
Attention: Chief Executive Officer
Telecopy No. (216) 439-8678
11. Complete Agreement. This Agreement, together with the Existing
Intercorporate Agreement, constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all previous negotiations,
commitments and writings with respect to such subject matter.
12. Amendments. This Agreement may not be modified or amended except by
an agreement in writing signed by each of the parties hereto.
13. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof.
14. Assignment. None of the parties hereto may assign any of its rights
or benefits under this Agreement without the prior written consent of the other
parties hereto, which consent will not be unreasonably withheld or delayed. This
Agreement is binding on and will inure to the benefit of the parties and their
respective successors and permitted assigns.
15. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
- 11 -
<PAGE> 12
16. Captions. Captions and section headings are used for convenience of
reference only and are not part of this Agreement and may not be used in
construing it.
17. Enforceability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction will not invalidate or render unenforceable
such provision or remedies otherwise available to any party hereto.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together constitute one and the same instrument.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
WAXMAN INDUSTRIES, INC.
By: /s/ Armond Waxman
-----------------------------------
Armond Waxman
Co-Chief Executive Officer and
Co-Chairman of the Board
BARNETT INC.
By: /s/ William R. Pray
-----------------------------------
William R. Pray
President, Chief Executive Officer
and Director
WAXMAN USA INC.
By:/s/ Michael J. Vantusko
-----------------------------------
WAXMAN CONSUMER PRODUCTS GROUP INC.
By:/s/ Michael J. Vantusko
-----------------------------------
WOC INC.
By:/s/ Michael J. Vantusko
-----------------------------------
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<PAGE> 14
TWI, INTERNATIONAL, INC.
By:/s/ Michael J. Vantusko
----------------------------------
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<PAGE> 1
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is
entered as of this day of March 28, 1996 by and among Barnett Inc., a Delaware
corporation (the "Company"), and Waxman USA Inc., a Delaware corporation
("Waxman USA").
WHEREAS, Waxman USA owns all of the issued and outstanding
shares of common stock, par value $.01 per share (the "Common Stock"), of the
Company;
WHEREAS, in connection with the initial public offering (the
"Offering") of shares of Common Stock of the Company pursuant to a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), the Company and Waxman USA will sell to
the underwriter of the Offering for resale to the public, an aggregate of
approximately 6,552,000 shares (approximately 7,207,200 shares if the
underwriters' over-allotment option is exercised in full) of the issued and
outstanding Common Stock of the Company;
WHEREAS, the Company and Waxman USA desire to set forth
certain of their rights and obligations with respect to the shares of Common
Stock beneficially owned by Waxman USA upon consummation of the Offering;
NOW, THEREFORE, in consideration of the covenants and
agreements set forth herein, and for other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the Company and Waxman
USA hereby agree as follows:
1. Effective Date. This Agreement shall become effective (the
"Effective Date") on the date the Offering is consummated.
2. Registration Rights.
2.1. Demand and Incidental Registration.
(a) Demand Registration. From and after six
months subsequent to the Effective Date, Waxman USA shall have the right to
request that the Company file a registration statement with the Securities and
Exchange Commission (the "SEC") (a "Demand Registration") for the purpose of
registering not less than 1,000,000 shares of the Registrable Securities (as
hereinafter defined) under the Securities Act beneficially owned by Waxman USA.
Each request for registration under this Section 2.1(a) shall be effected by
Waxman USA by delivering a written notice (an "Investor Registration Notice") to
the Company. The Investor Registration Notice will specify the aggregate number
of Registrable Securities proposed to be sold and the intended method of
disposition thereof and will contain the
<PAGE> 2
undertaking of Waxman USA to provide all such information regarding its holdings
of securities of the Company, and such other information pertaining to Waxman
USA, as may be required to permit the Company to comply with all applicable laws
and regulations and all requirements of the SEC or any other applicable
regulatory or self-regulatory body. Upon receipt of an Investor Registration
Notice, the Company shall file and shall use all reasonable efforts to have
declared effective a registration statement under the Securities Act with
respect to the offer and sale of the Registrable Securities requested to be
registered by Waxman USA; provided that, the Company may delay the registration
of the offer and sale of the Registrable Securities following the receipt of an
Investor Registration Notice pursuant to this Section 2.1(a), for the time
periods described in Section 2.1(d), if:
(i) the Company is in possession of material
nonpublic information that the Company would be
required to disclose in the registration statement
and that is not, but for the registration, otherwise
required to be disclosed at the time of such
registration, the disclosure of which, in its good
faith judgment, would have a material adverse effect
on the business, operations, prospects or competitive
position of the Company or its subsidiaries;
(ii) at the time of receipt of an Investor
Registration Notice, the Company is engaged, or its
board of directors has adopted by resolution a plan
to engage in, any program for the purchase of shares
of Common Stock or securities convertible into,
exchangeable or exercisable for shares of Common
Stock and, in the opinion of counsel, reasonably
satisfactory to Waxman USA, the distribution of the
Common Stock to be registered would cause such
purchase of shares to be in violation of Rule 10b-6
under Section 10 of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
All of the Registration Expenses (as defined below) of
registering the Registrable Securities pursuant to this Section 2.1(a) shall be
borne by the Company. The Company shall have the right to select the underwriter
for any offering pursuant to this Section 2.1(a), which underwriter shall be
reasonably satisfactory to Waxman USA. For the purposes of this Agreement,
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with Section 2 including, without limitation, all
registration and filing fees, all listing fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses and the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of "cold comfort" letters and expenses of
any special audits required by or incident to such performance and compliance,
premiums and other costs of policies of insurance against liabilities arising
out of the public offering of the Registrable Securities being registered and
any fees and disbursements of underwriters customarily paid by issuers and
sellers of securities, but excluding fees and disbursements of counsel to Waxman
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<PAGE> 3
USA and its affiliates, underwriting fees, discounts and commissions and any
payment to underwriters in the form of shares of Common Stock or warrants, and
applicable transfer taxes, if any. Notwithstanding anything to the contrary
contained herein, Waxman USA shall pay or cause to be paid all Registration
Expenses in the event any registration statement is withdrawn at Waxman USA's
request or as a result of (x) Waxman USA's failure to deliver the information
reasonably requested by the Company for inclusion in the registration statement,
or (y) Waxman USA's failure to approve of the filing of any registration
statement or any amendment or supplement thereto. For purposes of this
Agreement, "Registrable Securities" shall mean (i) the shares of Common Stock
owned beneficially and of record by Waxman USA on the Effective Date (the
"Original Shares"); (ii) any Common Stock or other equity securities of the
Company issued or issuable in respect of the Original Shares on account of any
stock split, stock dividend, dilution event, recapitalization or similar event,
provided, however, that shares of Common Stock or other securities shall no
longer be treated as Registrable Securities if such securities are eligible for
sale (or such portion of such securities as Waxman USA has requested be
registered), in the opinion of counsel to the Company (such counsel to be
reasonably satisfactory to Waxman USA), in a single transaction exempt from the
registration and prospectus delivery requirements of the Act so that all
transfer restrictions and restrictive legends with respect thereto may be
removed from the certificates representing such securities upon the consummation
of such sale.
(b) Incidental Registration. If the Company
at any time proposes to register any of its securities under the Securities Act
(other than the registration of shares of Common Stock in the Offering), whether
or not for sale for its own account, on a form and in a manner which would
permit registration of the Registrable Securities for sale to the public under
the Securities Act, the Company will give prompt written notice to Waxman USA of
its intention to do so, in no event later than 30 days prior to the proposed
filing date of the registration statement covering such securities, describing
such securities and specifying the form and manner of such proposed
registration. Upon the written request of Waxman USA delivered to the Company at
least 10 days prior to the actual date of filing (which request shall specify
the Registrable Securities intended to be disposed of and the intended method of
disposition thereof and will contain the undertaking of Waxman USA to provide
all such information regarding its holdings of securities of the Company, and
such other information pertaining to Waxman USA, as may be required to permit
the Company to comply with all applicable laws and regulations and all
requirements of the SEC or any other applicable regulatory or self-regulatory
body), the Company shall use all reasonable efforts to effect the registration
under the Securities Act of the offer and sale of all Registrable Securities
which the Company has been so requested to register by Waxman USA; provided,
that the Company may delay the registration of the offer and sale of the
Registrable Securities following a written request pursuant to this Section
2.1(b), for the time periods described in Section 2.1(d) if:
(i) at any time after giving such written
notice of its intention to register any of the
Registrable Securities and prior to the effective
date
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<PAGE> 4
of the registration statement filed in connection
with such registration, the Company shall determine
in good faith not to register any of its securities,
the Company may, at its election, give written notice
of its determination to Waxman USA and thereupon
shall be relieved of its obligation to register any
Registrable Securities in connection with such
registration, without prejudice, however, to the
rights of Waxman USA to request that such
registration be effected as a registration under and
pursuant to the provisions of Section 2.1(a);
(ii) (A) the registration so proposed by the
Company involves an underwritten offering of the
securities so being registered, whether or not for
sale for the account of the Company, to be
distributed (on a firm commitment basis) by or
through one or more underwriters of recognized
standing under underwriting terms appropriate for
such a transaction, (B) the Registrable Securities so
requested to be registered for sale for the account
of Waxman USA are not also to be included in such
underwritten offering (either because the Company has
not been requested so to include such Registrable
Securities pursuant to Section 2.1(b) or, if
requested to do so, has been unable so to include
such Registrable Securities after using all
reasonable efforts to do so as provided in Section
2.2) and (C) the managing underwriter of such
underwritten offering shall advise the Company in
writing that, in its opinion, the distribution of all
Registrable Securities or a specified portion of such
Registrable Securities concurrently with the
securities being distributed by such underwriters
will materially and adversely affect the distribution
of such securities by such underwriters (such opinion
to state the reasons therefor), then the Company will
promptly furnish Waxman USA with a copy of such
opinion and may require, by written notice to Waxman
USA accompanying such opinion, that the distribution
of all or such specified portion of such Registrable
Securities be deferred until the completion of the
distribution of such securities by such underwriters,
but in no event for a period of more than 120 days
after the effective date of such registration; and
(iii) the Company shall not be obligated to
effect any registration of Registrable Securities
under Section 2.1(b) incidental to the registration
of any of its Registrable Securities in connection
with mergers, acquisitions, exchange offers, dividend
reinvestment plans or stock option or other employee
benefit plans.
All Registration Expenses pursuant to this Section 2.1(b)
shall be borne by the Company.
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<PAGE> 5
Waxman USA acknowledges that any notification received by or
from the Company regarding a proposal of the Company to register any of its
securities under the Securities Act may constitute "material inside information"
under the federal securities laws.
(c) Number and Timing of Requests. Waxman
USA shall be entitled to an aggregate of two Demand Registrations; provided,
however, that no Demand Registration shall be or be deemed to have been utilized
under Section 2.1(a) unless and until the registration statement relating to the
Registrable Securities which are the subject of the Demand Registration is
declared effective by the SEC and no stop order suspending the effectiveness of
such registration statement shall have been issued. Such Demand Registration
rights may not be exercised more than once every six months. Waxman USA shall
have unlimited incidental registration rights; provided such incidental rights
are exercised by Waxman USA with respect to the lesser of (x) the total number
of Registrable Securities owned by Waxman USA or (y) 1,000,000 Registrable
Securities.
(d) Period of Delay. If an event described
in clause (i) of Section 2.1(a) or clause (i) or (iii) of Section 2.1(b) shall
occur, the Company may, by written notice to Waxman USA, delay the filing of a
registration statement with respect to the Registrable Securities for a period
of time ending on the earlier to occur of (x) the date upon which the basis for
the delay is no longer a cause for delay or (ii) the date which is 60 days after
the date upon which the filing of the registration statement, absent the delay,
was required to have been made.
If an event described in clause (ii) of Section 2.1(a) shall occur, the
filing of a registration statement with respect to the Registrable Securities
shall be delayed until the first date that the Registrable Securities can be
sold without violation of Rule 10b-6 under Section 10 of the Exchange Act.
(e) Withdrawal of Registration. If the
Company gives a written notice of extension as set forth in Section 2.1(d),
Waxman USA may withdraw its registration request pursuant to Section 2.1(a) by
written notice delivered to the Company no later than the expiration of the
extension period set forth in the Company's notice of extension.
(f) Cutbacks. In connection with a
registration pursuant to Section 2.1(a) or (b) hereof, if the underwriter
advises the Company in writing that the amount of Registrable Securities
proposed to be sold by Waxman USA is greater than the amount of securities which
the underwriter reasonably believes feasible to sell at that time, at the price
and upon the terms approved by Waxman USA, then the amount of securities which
the underwriter in its sole discretion believes may be sold shall be limited to
such amount of Registrable Securities as is feasible to sell at that time.
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<PAGE> 6
2.2. Registration Procedures.
(a) If and whenever the Company is required
to file and to use all reasonable efforts to have declared effective a
registration statement with respect to any Registrable Securities under the
Securities Act as provided in Section 2.1, the Company will expeditiously:
(i) prepare and, as soon as practicable, but
in no event later than 45 days after a request for
registration has been delivered to the Company by
Waxman USA, file with the SEC a registration
statement with respect to such Registrable Securities
and use all reasonable efforts to cause such
registration statement to become effective on the
appropriate form for an offering to be made on a
continuous basis pursuant to Rule 415 under the
Securities Act;
(ii) prepare and file with the SEC such
amendments and supplements to such registration
statement and the prospectus used in connection
therewith as may be necessary to keep such
registration statement effective and to comply with
the provisions of the Securities Act with respect to
the disposition of all Registrable Securities and
other securities covered by such registration
statement until the earlier of (a) such time as all
of such Registrable Securities and securities have
been disposed of in accordance with the intended
methods of disposition by the seller or sellers
thereof set forth in such registration statement or
(b) the expiration of two years after such
registration statement becomes effective;
(iii) furnish to Waxman USA such number of
conformed copies of such registration statement and
of each such amendment and supplement thereto (in
each case including all exhibits), such number of
copies of the prospectus included in such
registration statement (including each preliminary
prospectus and any summary prospectus), in conformity
with the requirements of the Securities Act, such
documents incorporated by reference in such
registration statement or prospectus, and such other
documents, as Waxman USA may reasonably request;
(iv) use all reasonable efforts to register
or qualify all Registrable Securities and other
securities covered by such registration statement
under the blue sky laws of such jurisdictions as
Waxman USA shall reasonably request, and do any and
all other acts and things which may be necessary or
advisable to enable Waxman USA to consummate the
disposition in such jurisdictions of its Registrable
Securities covered by such registration statement;
provided that the Company will not be
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<PAGE> 7
required to register or qualify the Registrable
Securities in any jurisdiction where such
registration or qualification would (w) require it to
qualify generally to do business in such jurisdiction
and where it would not otherwise be required to
qualify but for this subparagraph (iv), (x) subject
it to taxation in such jurisdiction and where it
would not otherwise be subject to taxation, (y)
require it to consent to service of process in any
such jurisdiction where it would not otherwise be
generally available for service of process, or (z)
require it to amend the terms of the securities being
registered or of any other class of its securities;
(v) furnish to Waxman USA a signed
counterpart, addressed to Waxman USA, of (A) an
opinion of counsel for the Company dated the
effective date of such registration statement (and,
if such registration includes an underwritten public
offering, dated the date of the closing of such
underwritten public offering), and (B) a "cold
comfort" letter signed by the independent public
accountants who have certified the Company's
financial statements included in such registration
statement, covering substantially the same matters
with respect to such registration statement (and the
prospectus included therein) and, in the case of such
accountants' letter, with respect to events
subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of
securities and, in the case of the accountants'
letter, such other financial matters, as Waxman USA
may reasonably request;
(vi) promptly notify Waxman USA in writing
at any time when a prospectus relating thereto is
required to be delivered under the Securities Act,
(u) when the registration statement or any amendment
thereto has been filed with the SEC and when the
registration statement or any post-effective
amendment thereto has become effective, (v) of any
request by the SEC for amendments or supplements to
the registration statement or the prospectus included
therein or for additional information (including the
particulars thereof), (w) of the issuance by the SEC
of any stop order suspending the effectiveness of the
registration statement or the initiation or
threatening of any proceedings for that purpose, (x)
of the receipt by the Company or its legal counsel of
any notification with respect to the suspension of
the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation of
proceedings for the same, (y) of the happening of any
event that would require the Company to make changes
in the registration statements or in the prospectus
included therein in order to make the statements
therein not misleading (which
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<PAGE> 8
notice shall be accompanied by an instruction to
suspend the use of the prospectus until the requisite
changes have been made) or (z) when the prospectus
relating thereto shall not contain the current
information required by the Securities Act, and upon
the occurrence of any event specified in clause (y)
or (z), prepare and furnish to Waxman USA such number
of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state
a material fact required to be stated therein or
necessary to make the statements therein not
misleading in the light of the circumstances under
which they were made;
(vii) otherwise use all of its reasonable
efforts to comply with all applicable rules and
regulations of the SEC and make available to its
securities holders, as soon as reasonably practicable
an earnings statement covering the period of at least
twelve months beginning after the effective date of
such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(viii) provide and cause to be maintained a
transfer agent and registrar for such Registrable
Securities from and after a date not later than the
effective date of such registration statement.
(b) If requested by the underwriter for any underwritten
offering of Registrable Securities on behalf of Waxman USA pursuant to a
registration requested under Section 2.1(a), the Company and Waxman USA will
enter into an underwriting agreement with such underwriter for such offering,
which shall be reasonably satisfactory in substance and form to the Company,
Waxman USA and the underwriter, and such agreement shall contain such
representations and warranties by the Company and Waxman USA and such other
terms and provisions as are customarily contained in underwriting agreements
with respect to secondary distributions, including, without limitation,
indemnities substantially to the effect and to the extent provided in Section
2.3. If the Company at any time proposes to register any of its securities under
the Securities Act (other than pursuant to a request made under Section 2.1(a)),
whether or not for sale for its own account, and such securities are to be
distributed by or through one or more underwriters, the Company will use all
reasonable efforts, if requested by Waxman USA in connection therewith pursuant
to Section 2.1(b), to arrange for such underwriters to include such Registrable
Securities among those securities to be distributed by or through such
underwriters.
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<PAGE> 9
2.3 Indemnification and Contribution.
(a) In the event of any registration of any Registrable
Securities of the Company under the Securities Act on behalf of Waxman USA
pursuant to Section 2.1(a) or (b) hereof, the Company will indemnify and hold
harmless Waxman USA and its directors and officers and each other person, if
any, who controls Waxman USA within the meaning of the Securities Act (the
"Controlling Person"), against any losses, claims, damages, liabilities and
reasonable legal and other expenses to which Waxman USA or any such director or
officer or Controlling Person becomes subject under the Securities Act or
otherwise insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of or are based upon (x)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereto, or any
document incorporated by reference therein, or (y) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement, in reliance upon and in conformity with information furnished in
writing by Waxman USA to the Company for use in the preparation thereof; and
provided, further, that the Company shall not be liable under this Section
2.3(a) with respect to any preliminary prospectus to the extent that any such
loss, claim, damage or liability results from the fact that Waxman USA or its
representative sold securities to a person to whom there was not sent or given,
at or prior to the written confirmation of such sale, a copy of a prospectus as
then amended or supplemented.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
2.1, that the Company shall have received an undertaking satisfactory to it from
Waxman USA, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 2.3(a)), the Company, each director of the
Company, and each officer of the Company who shall sign such registration
statement and each other person, if any, who controls the Company within the
meaning of the Securities Act, with respect to (i) any statement in or omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus included therein, or any amendment or supplement thereto,
if such statement or omission was made in reliance upon and in conformity with
information furnished to the Company in writing by Waxman USA for use in such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; or (ii) a failure to deliver a prospectus
as set forth in the last proviso to Section 2.3(a).
(c) Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 2.3,
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<PAGE> 10
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give the indemnifying party notice of the commencement of
such action or proceeding. In case any such action is brought against an
indemnified party, and the indemnified party notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to appoint
counsel reasonably satisfactory to such indemnified party to represent the
indemnified party in such action; provided, however, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 2.3 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed separate counsel in connection
with the assertion of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying party
has expressly authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party; and except that, if clause (i) or (iii)
is applicable, such liability shall be only in respect of the counsel referred
to in such clause (i) or (iii).
(d) Contribution. If the indemnification provided for
in this Section 2.3 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages or liabilities
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of such
indemnifying party and indemnified parties in connection with the actions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
however, that Waxman USA shall not be required to contribute in an amount
greater than the dollar amount of the proceeds received by Waxman USA with
respect to the sale of any securities. The amount paid or payable by a party as
a result of the losses, claims, damages and liabilities referred to above shall
be deemed to include, subject to the
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<PAGE> 11
limitations set forth in this Section 2.3(d), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 2.3(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
3. Termination. This Agreement and the rights of all parties
hereto shall terminate and be of no further force and effect ten years from the
Effective Date unless terminated earlier by the written consent of each of the
parties hereto.
4. Miscellaneous.
4.1. Severability. If any term, provision, covenant,
restriction, part or portion of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, or is otherwise legally
impossible to perform, the remainder of the terms, provisions, covenants,
restrictions, parts and portions of this Agreement shall remain in full force
and effect.
4.2 Specific Enforcement. The parties hereto
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement, this being in addition to any
other remedy to which they may be entitled by law or equity.
4.3 Entire Agreement. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and this Agreement may be amended only by an agreement in writing executed by
Waxman USA and the Company.
4.4 Counterparts. This Agreement may be executed by
the parties hereto in counterparts, each of which shall be deemed an original,
but all of which together constitute one and the same instrument.
4.5 Notices. Any notice pursuant to this Agreement to
be given by any party hereto shall be sufficiently given for purposes of this
Agreement if sent by first-class mail, postage pre-paid, delivered by hand or
overnight courier or sent by facsimile, addressed as follows:
- 11 -
<PAGE> 12
If to the Company to:
Barnett Inc.
3333 Lenox Avenue
Jacksonville, Florida 32254
Attention: William R. Pray, President and Chief
Executive Officer
Facsimile No.: (904) 388-4566
If to Waxman USA:
Waxman USA Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
Attention: Armond Waxman, Co-Chairman of the Board
and Co-Chief Executive Officer
Facsimile No.: (216)439-8678
4.6 Waivers. Each party may waive in whole or in part
any benefit or right provided to it under this Agreement. No waiver by any party
of any default with respect to any provision, condition, requirement, or of any
benefit or right hereof shall be deemed to be a waiver of any other provision,
condition, requirement, benefit or right hereof; nor shall any delay or omission
of either party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
4.7 Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
4.8 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Company and Waxman USA, and their
successors and legal representatives. The rights and obligations of each party
hereunder may not be assigned.
4.9 Governing Law; Consent to Jurisdiction. This
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
entirely within such state.
- 12 -
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date set forth
above.
BARNETT INC.
By:/s/ William R. Pray
-------------------------------------
Name: William R. Pray
Title: President and Chief Executive
Officer
WAXMAN USA INC.
By: /s/ Armond Waxmond
-------------------------------------
Name: Armond Waxman
Title: Co-Chairman of the Board and
Co-Chief Executive Officer
- 13 -
<PAGE> 1
EXHIBIT 10.10
REVOLVING CREDIT AGREEMENT
between
BARNETT INC.
"Borrower"
and
FIRST UNION NATIONAL BANK OF FLORIDA
"Bank"
Dated: April 3, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. DEFINITIONS................................................ 1
1.1. Defined Terms..................................... 1
1.2. Financial Terms................................... 6
2. REPRESENTATIONS AND WARRANTIES............................. 6
2.1. Valid Existence and Power......................... 6
2.2. Authority......................................... 6
2.3. Financial Condition............................... 6
2.4. Litigation........................................ 7
2.5. Agreements, Etc................................... 7
2.6. Authorizations.................................... 7
2.7. Title............................................. 8
2.8. Federal Reserve Regulations....................... 8
2.9. Location.......................................... 8
2.10. Taxes............................................. 8
2.11. Withholding Taxes................................. 8
2.12. Labor Law Matters................................. 9
2.13. Judgment Liens.................................... 9
2.14. Intent and Effect of Transactions................. 9
2.15. Subsidiaries...................................... 9
2.16. Environmental Matters............................. 9
2.17. Employee Benefit Plans............................ 9
2.18. Certain Regulated Industries...................... 10
2.19. No Material Misstatements......................... 10
3. THE LOAN................................................... 10
3.1. Loan.............................................. 10
3.2. Limitations on Advances........................... 11
3.3. Notice and Manner of Borrowing.................... 11
3.4. Calculation of Interest........................... 12
3.5. Special Loan Account.............................. 12
3.6. Overdue Amounts................................... 12
3.7. Letters of Credit; Banker's Acceptances........... 12
3.8. Fees.............................................. 13
4. CONDITIONS PRECEDENT TO BORROWING.......................... 14
4.1. Conditions Precedent to Initial Advance........... 14
4.2. Conditions Precedent to Each Advance.............. 16
i
<PAGE> 3
5. COVENANTS OF THE BORROWER....................................... 16
5.1. Use of Loan Proceeds................................... 16
5.2. Maintenance of Business and Properties................. 16
5.3. Insurance.............................................. 17
5.4. Notices................................................ 17
5.5. Inspections............................................ 17
5.6. Financial Information.................................. 17
5.7. Debt................................................... 18
5.8. Liens.................................................. 18
5.9. Dividends.............................................. 18
5.10. Merger, Sale, Etc...................................... 19
5.11. Loans and Other Investments............................ 19
5.12. Change in Business..................................... 19
5.13. Transactions with Affiliates........................... 19
5.14. No Sale, Leaseback..................................... 19
5.15. Margin Stock........................................... 19
5.16. Payment of Taxes, Etc.................................. 19
5.17. Subordination.......................................... 20
5.18. Compliance; Hazardous Substances....................... 20
5.19. Subsidiaries........................................... 20
5.20. Withholding Taxes...................................... 20
5.21. Deposit Accounts....................................... 20
5.22. ERISA.................................................. 20
5.23. Financial Covenants.................................... 21
5.24. Management; Control.................................... 21
5.25. Further Assurances..................................... 22
6. DEFAULT......................................................... 22
6.1. Events of Default...................................... 22
6.2. Remedies............................................... 23
7. MISCELLANEOUS................................................... 24
7.1. No Waiver, Remedies Cumulative......................... 24
7.2. Survival............................................... 24
7.3. Expenses............................................... 24
7.4. Notices................................................ 25
7.5. Governing Law.......................................... 25
7.6. Successors and Assigns................................. 25
7.7. Counterparts........................................... 25
7.8. No Usury............................................... 25
7.9. Approvals.............................................. 26
7.10. Jurisdiction, Service of Process....................... 26
7.11. Multiple Borrowers..................................... 26
7.12. Waiver of Jury Trial................................... 26
ii
<PAGE> 4
REVOLVING CREDIT AGREEMENT
THIS AGREEMENT (the "AGREEMENT"), dated as of April 3, 1996 between
BARNETT INC., a Delaware corporation (the "BORROWER"), and FIRST UNION NATIONAL
BANK OF FLORIDA, a national banking association (the "BANK");
W I T N E S S E T H :
In consideration of the premises and of the mutual covenants herein
contained and to induce the Bank to extend credit to the Borrower, the parties
agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
1.1. Defined Terms.
"ADVANCE" shall mean an advance of proceeds of the
Loan to the Borrower pursuant to this Agreement, on any given Advance Date.
"ADVANCE DATE" shall mean the date as of which an
Advance is made.
"ADVANCE REQUEST" shall mean the written request for
an Advance under the Loan as defined in Section ("Notice and Manner of
Borrowing") hereof.
"AFFILIATE" of a named Person shall mean (a) any
Person directly or indirectly owning 5% or more of the voting stock or rights of
such named Person or of which the named Person owns 5% or more of such voting
stock or rights; (b) any Person controlling, controlled by or under common
control with such named Person; (c) any officer or director of such named
Person; and (d) any family member of the named Person or any Affiliate of such
named Person.
"BUSINESS DAY" shall mean a weekday on which
commercial banks are open for business in Jacksonville, Florida.
"COMMITMENT FEE" shall have the meaning ascribed to
that term in Section 3.8 ("Fees").
"DEBT" shall mean all liabilities of a Person as
determined under GAAP and all obligations which such Person has guaranteed or
endorsed or is otherwise secondarily or jointly liable, and shall include,
without limitation (a) all obligations for borrowed money or purchased assets,
(b) obligations secured by assets whether or not any personal liability exists,
(c) the capitalized amount of any capital or finance lease obligations, (d) the
unfunded portion of pension or benefit plans or other similar liabilities, (e)
obligations as a general partner,
<PAGE> 5
(f) contingent obligations pursuant to guaranties, endorsements, letters of
credit and other secondary liabilities, and (g) obligations for deposits.
"DEFAULT RATE" shall mean the highest lawful rate of
interest per annum specified in any Note to apply after a default under such
Note or, if no such rate is specified, a rate equal to the lesser of (a) five
(5) percentage points above the rate or rates on the Loan otherwise in effect
from time to time, or (b) the highest rate of interest allowed by law.
"EFFECTIVE DATE" shall mean the date that the Bank
delivers to the Borrower a written notice that all conditions set forth in
Section 4.1 ("Conditions Precedent to Initial Advance") have been satisfied or
waived.
"ENVIRONMENTAL AND SAFETY LAWS" shall have the
meaning set forth in Section 2.16 ("Environmental Matters").
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean any trade or business
(whether or not incorporated) that is a member of a group of which the Borrower
is a member and which is treated as a single employer under Section 414 of the
Internal Revenue Code.
"EVENT OF DEFAULT" shall mean any event specified as
such in Section 6.1 hereof ("Events of Default"), provided that there shall have
been satisfied any requirement in connection with such event for the giving of
notice or the lapse of time, or both; "DEFAULT" or "DEFAULT" shall mean any of
such events, whether or not any such requirement for the giving of notice or the
lapse of time or the happening of any further condition, event or act shall have
been satisfied.
"GAAP" shall mean generally accepted accounting
principles in the United States of America as in effect from time to time.
"HAZARDOUS SUBSTANCES" shall have the meaning
ascribed to that term in Section 2.16 ("Environmental Matters").
"INDEBTEDNESS" shall mean all obligations now or
hereafter owed to the Bank by the Borrower under the terms of the Loan
Documents, or arising out of the transactions described therein, including,
without limitation, the Loans, sums advanced to pay overdrafts on any account
maintained by the Borrower with the Bank, reimbursement obligations for
outstanding letters of credit or banker's acceptances issued for the account of
the Borrower or its Subsidiaries, amounts paid by the Bank under letters of
credit or drafts accepted by the Bank for the account of the Borrower or its
Subsidiaries, together with all interest accruing thereon, all fees, all costs
of collection, attorneys' fees and expenses of or advances by the Bank which the
Bank pays or incurs in discharge of obligations of the Borrower, whether such
amounts are now
2
<PAGE> 6
due or hereafter become due, direct or indirect, and whether such amounts due
are from time to time reduced or entirely extinguished and thereafter
re-incurred.
"INVESTMENTS" shall have the meaning ascribed to that
term in Section 5.11 ("Loans and Other Investments").
"LIEN" (collectively "LIENS") shall mean any
mortgage, pledge, statutory lien or other lien arising by operation of law,
security interest, trust arrangement, financing lease, collateral assignment or
other encumbrance, or any segregation of assets or revenues (whether or not
constituting a security interest) with respect to any present or future assets,
revenues or rights to the receipt of income of the Person referred to in the
context in which the term is used.
"LOAN" shall mean the Loan identified in Section
3.1 hereof ("Loan").
"LOAN DOCUMENTS" shall mean this Agreement, the
Note, the Advance Requests, letter of credit applications, and all other
documents and instruments now or hereafter evidencing, describing, guaranteeing
or securing any obligations contemplated hereby or delivered in connection
herewith, as they may be modified.
"MARGIN STOCK" shall have the meaning set forth in
Regulation U of the Board of Governors of the Federal Reserve System.
"MATURITY DATE" shall have the meaning ascribed to
that term in Section 3.1 ("Loan").
"MAXIMUM LOAN COMMITMENT" shall mean $15,000,000 or
such greater amount as the Bank may consent to in writing from time to time.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan
as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Section 414 of the Internal Revenue Code) is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.
"NOTE" shall mean the Revolving Note, as defined in
Section 3.1 ("Loan"), and any other promissory note now or hereafter evidencing
any Indebtedness, and all modifications, extensions and renewals thereof.
"PBGC" shall mean the Pension Benefit Guarantee
Corporation referred to and defined in ERISA.
"PERMITTED DEBT" shall mean (a) the Indebtedness; and
(b) any other Debt listed on Exhibit 1.1A hereto (if any) and any extensions,
renewals, replacements, modifications and refundings of any such Debt if, and to
the extent, permitted by Exhibit 1.1A; provided,
3
<PAGE> 7
however, that the principal amount of such Debt may not be increased from the
amount permitted by such exhibit; and (c) such other Debt as the Bank may
consent to in writing from time to time.
"PERMITTED INVESTMENTS" shall mean:
(a) Purchases of direct obligations of the
federal government or obligations unconditionally guaranteed by the
federal government;
(b) Deposits in federally insured commercial
banks having capital and surplus exceeding $250 million;
(c) Commercial paper of any U.S. corporation
having the highest ratings then given by Moody's Investors Service,
Inc. or Standard & Poor's Corporation;
(d) Endorsement of negotiable instruments
for collection in the ordinary course of business;
(e) Investments in bona fide interest rate
and currency hedging agreements to the extent reasonably necessary to
eliminate or reduce interest rate and/or foreign exchange risk;
(f) Reputable money market funds; and
(g) Other investments described on Exhibit
1.1C (if any);
"PERMITTED LIENS" shall mean:
(a) Liens for taxes and other statutory
Liens, Liens of carriers, warehousemen, landlords, mechanics,
materialmen, laborers, employees or suppliers, and similar Liens
arising out of operation of law so long as the obligations secured
thereby are not past due or are being contested as permitted herein;
(b) Liens described on Exhibit 1.1B hereto (if any); (c) liens arising
in the ordinary course of business in favor of custom and revenue
authorities to secure payment of custom duties; (d) security for
payment of workers compensation or other insurance or social security
obligations; (e) security for performance of tenders, contracts (other
than contracts for the payment of money) or leases entered into in the
ordinary course of business; (f) deposits for sewer, public or
statutory obligations, or in lieu of surety, performance or appeal
bonds entered into the ordinary course of business; and (g) such other
Liens as the Bank may consent to in writing from time to time.
"PERSON" shall mean any natural person, corporation,
unincorporated organization, trust, joint-stock company, joint venture,
association, company, limited or general partnership, any government, or any
agency or political subdivision of any government.
4
<PAGE> 8
"PLAN" shall mean any pension plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Internal Revenue Code which is maintained for employees of the
Borrower or any ERISA Affiliate.
"PRIME RATE" shall mean that index rate of interest
per annum announced from time to time by the Bank (or its successor) as its
"prime rate" or "prime lending rate" (which rate shall not necessarily be the
best or lowest rate for any particular type of loan or for loans to any
particular class or category of customer). A change in the Prime Rate shall
become effective from the beginning of the day on which such change is announced
by the Bank. If the Bank ceases to publish a prime rate index, it shall
substitute a comparable index rate by written designation to the Borrower.
"REGISTRATION STATEMENT" means the Registration
Statement of the Borrower on Form S-1 which was filed with the Securities and
Exchange Commission on March 5, 1996.
"REPORTABLE EVENT" shall mean any reportable event as
defined in Section 4043(b) of ERISA or the regulations issued thereunder with
respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Internal Revenue Code).
"SPECIAL LOAN ACCOUNT" shall mean the demand deposit
account established pursuant to Section 3.5 hereof ("Special Loan Account").
"SUBSIDIARY" shall mean any corporation, partnership
or other Person in which the Borrower (or other Person as the context may
require), directly or indirectly, through ownership of other entities or
otherwise, owns more than fifty percent (50%) of any class of stock, capital or
income interests, equity interests or other beneficial interests, or which is
effectively controlled by the Borrower.
"TAX SHARING AGREEMENT" shall mean the Tax Sharing
Agreement by and among Waxman, the Borrower and others dated May 20, 1994.
"WAXMAN" means Waxman USA Inc. and/or Waxman
Industries, Inc.
"WITHDRAWAL LIABILITY" shall mean liability to a
Multiemployer plan as a result of a complete or partial withdrawal from such
Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title
IV of ERISA.
1.2. Financial Terms. All financial terms used herein shall
have the meanings assigned to them under GAAP unless another meanings shall be
specified.
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this Agreement and to make the Loans provided for herein, the Borrower
makes the following representations and warranties, all of which shall survive
the execution and delivery of the Loan
5
<PAGE> 9
Documents. Unless otherwise specified, such representations and warranties shall
be deemed made as of the Effective Date hereof and as of the Advance Date of any
Advance by the Bank to the Borrower:
2.1. Valid Existence and Power. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization, is duly qualified or licensed to transact
business in all places where the failure to be so qualified would have a
material adverse effect on it, including those jurisdictions described in
Section 2.9 ("Location"). The Borrower and each other Person which is a party
to any Loan Document (other than the Bank) has the power and authority to own
its property, carry on its business and make and perform the Loan Documents
executed by it and all such instruments will constitute the legal, valid and
binding obligations of such Person, enforceable in accordance with their
respective terms, subject only to bankruptcy and similar laws affecting
creditors' rights generally and to the discretion of a court in enforcing
equitable remedies.
2.2. Authority. The execution, delivery and performance
thereof by the Borrower and each other Person (other than the Bank) executing
any Loan Document have been duly authorized by all necessary action of such
Person, and do not and will not violate any provision of law or regulation, or
any writ, order or decree of any court or governmental or regulatory authority
or agency or any provision of the governing instruments of such Person, and do
not and will not, with the passage of time or the giving of notice, result in a
breach of, or constitute a default or require any consent under, or result in
the creation of any Lien upon any property or assets of such Person pursuant to,
any law, regulation, instrument or agreement to which any such Person is a party
or by which any such Person or its respective properties may be subject, bound
or affected if the result thereof would be a material adverse effect on the
Borrower.
2.3. Financial Condition. The financial statements and
schedules of the Borrower included in the Registration Statement present fairly
the financial position of the Borrower as of the respective dates of such
financial statements, and the results of operations and cash flows of the
Borrower for the respective periods covered thereby, all in conformity with GAAP
consistently applied throughout the periods involved, except as disclosed in the
Registration Statement's Prospectus; and the supporting schedules included in
the Registration Statement present fairly the information required to be stated
therein. The financial information set forth in the Prospectus under the caption
"Summary Financial Data" and "Selected Financial Information and Operating Data"
presents fairly on the basis stated in the Prospectus, the information set forth
therein; and the pro forma financial statements and other pro forma information
included in the Prospectus present fairly the information shown therein, have
been prepared in accordance with GAAP and the Security and Exchange Commission's
rules and guidelines with respect to pro forma financial statements and other
pro forma information, have been properly compiled on the pro forma basis
described therein, and, in the opinion of the Borrower, the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate under the circumstances. The Borrower is not aware of any material
adverse fact (other than facts which are generally available to the public and
not particular to the
6
<PAGE> 10
Borrower, such as general economic or industry trends) concerning the conditions
or future prospects of the Borrower or any Subsidiary which has not been fully
disclosed to the Bank, including any material adverse change in the operations
or financial condition of such Person since the date of the most recent
financial statements delivered to the Bank.
2.4. Litigation. Except as disclosed on Exhibit 2.4 (if any),
there are no suits or proceedings pending, or to the knowledge of the Borrower,
threatened, before any court or by or before any governmental or regulatory
authority, commission, bureau of agency or public regulatory body against or
affecting the Borrower or any Subsidiary, or their assets, which if adversely
determined would have a material adverse effect on the financial condition or
business of the Borrower.
2.5. Agreements, Etc. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any court order,
governmental decree or any charter or other corporate restriction, adversely
affecting its business, properties or assets, operations or condition (financial
or otherwise) nor is any such Person in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in
any material agreement or instrument to which it is a party, or any law,
regulation, decree, order or the like which default is likely to have a material
adverse effect on the Borrower.
2.6. Authorizations. All authorizations, consents, approvals
and licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by the Borrower or any Subsidiary or
for the conduct of any business in which it is engaged have been duly issued and
are in full force and effect, and it is not in default, nor has any event
occurred which with the passage of time or the giving of notice, or both, would
constitute a default, under any of the terms or provisions of any part thereof,
or under any order, decree, ruling, regulation, or other decision or instrument
of any governmental commission, bureau or other administrative agency or public
regulatory body having jurisdiction over such Person, where the failure to
obtain any such authorization, consent, approval or license or which default
would likely have a material adverse effect on the Borrower. Except as noted
herein, no approval, consent or authorization of, or filing or registration
with, any governmental commission, bureau or other regulatory authority or
agency is required with respect to the execution, delivery or performance of any
Loan Document.
2.7. Title. The Borrower and each Subsidiary has good title
to, or a valid leasehold interest in, all of the assets shown in its financial
statements to be owned or leased by it, free and clear of all Liens, except
Permitted Liens. Each of the Borrower and the Subsidiaries has complied in all
material respects with all obligations under all material leases to which it is
a party and all such leases are in full force and effect. Each of the Borrower
and the Subsidiaries enjoys peaceful and undisturbed possession under all such
material leases.
2.8. Federal Reserve Regulations.
7
<PAGE> 11
(a) Neither the Borrower nor any of the Subsidiaries
is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying
Margin Stock.
(b) No part of the proceeds of any Loan will be used,
whether directly or indirectly, and whether immediately, incidentally
or ultimately, (i) to purchase or carry Margin Stock or to extend
credit to others for the purpose of purchasing or carrying Margin Stock
or to refund indebtedness originally incurred for such purpose, or (ii)
for any purpose which entails a violation of, or which is inconsistent
with, the provisions of the Regulations of the Board of Governors of
the Federal Reserve System, including Regulation G, U or X.
2.9. Location. Exhibit 2.9 is a true and complete listing of
all places where the Borrower and its Subsidiaries have places of business.
2.10. Taxes. The Borrower and each Subsidiary has filed all
federal and state income and other tax returns which, to the best knowledge of
the Borrower, are required to be filed, and has paid all taxes as shown on said
returns and all taxes, including ad valorem taxes, shown on all assessments
received by it to the extent that such taxes have become due. Neither the
Borrower nor any Subsidiary is subject to any federal, state or local tax Liens
nor has such Person received any notice of deficiency or other official notice
to pay any taxes which is likely to have an adverse material effect on the
financial condition of the Borrower. The Borrower and each Subsidiary has paid
all sales and excise taxes payable by it. Federal income tax returns for the
Borrower and its Subsidiaries have been examined by the taxing authorities or
closed by applicable statutes and satisfied for all fiscal years prior to and
including June 30, 1993. The Borrower's liability for taxes accrued as a member
of a consolidated group with Waxman is as described in the Registration
Statement. To the best knowledge of the Borrower, the net operating loss
carryforwards available to Waxman as of the date hereof are approximately $42
million. The Tax Sharing Agreement is in full force and effect and is a binding
obligation of Waxman and the other parties thereto, subject to laws relating to
creditors' rights generally.
2.11. Withholding Taxes. The Borrower and each Subsidiary has
paid all material withholding, FICA and other payments required by federal,
state or local governments with respect to any wages paid to employees.
2.12. Labor Law Matters. No goods or services have been or
will be produced by the Borrower or any Subsidiary in violation of any
applicable labor laws or regulations or any collective bargaining agreement or
other labor agreements or in violation of any minimum wage, wage-and-hour or
other similar laws or regulations.
2.13. Judgment Liens. Neither the Borrower nor any Subsidiary,
nor any of their assets, are subject to any unpaid judgments (whether or not
stayed) or any judgment Liens in any jurisdiction.
8
<PAGE> 12
2.14. Intent and Effect of Transactions. This Agreement and
the transactions contemplated herein (a) are not made or incurred with intent to
hinder, delay or defraud any person to whom the Borrower has been, is now, or
may hereafter become indebted; (b) do not render the Borrower insolvent nor is
the Borrower insolvent on the date of this Agreement; (c) do not leave the
Borrower with an unreasonably small capital with which to engage in its business
or in any business or transaction in which it intends to engage; and (d) are not
entered into with the intent to incur, or with the belief that the Borrower
would incur, debts that would be beyond its ability to pay as such debts mature.
2.15. Subsidiaries. The Borrower has no Subsidiaries on the
date of this Agreement.
2.16. Environmental Matters. The Borrower and each Subsidiary
has complied in all material respects with all federal, state, local and other
statutes, ordinances, orders, judgments, rulings and regulations relating to
environmental pollution or to environmental regulation or control or to employee
health and safety, including those listed in this Section ("ENVIRONMENTAL AND
SAFETY LAWS"), the violation of which would likely have a material adverse
effect on the Borrower. Neither the Borrower nor any Subsidiary has received
notice of any failure so to comply which alone or together with any other such
failure could result in a material adverse effect on the Borrower or any
Subsidiary. Neither the Borrower nor any Subsidiary is engaged in manufacturing
distributing, processing, transporting, storing or disposing of hazardous
wastes, hazardous substances, hazardous materials, toxic substances or toxic
pollutants (collectively, "HAZARDOUS SUBSTANCES"), as those terms are used in
the federal Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Air Act or the
Clean Water Act, as they may have been amended, or any regulations promulgated
pursuant thereto or in any other applicable federal, state or local law,
regulation or ordinance, except as may be described on Exhibit 2.16 hereof (if
any) which is likely to have a material adverse effect on the Borrower.
2.17. Employee Benefit Plans. Each of the Borrower and its
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published interpretations
thereunder, except as heretofore disclosed in writing to the Bank, and will
promptly take all action necessary to effect compliance. No Reportable Event has
occurred as to which the Borrower or any ERISA Affiliate was required to file a
report with the PBGC, and the present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable thereto, exceed the value of the assets of
such Plan. Neither the Borrower nor any ERISA Affiliate has incurred any
Withdrawal Liability that could result in a material adverse effect on the
Borrower. Neither the Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated where such
reorganization or termination has resulted or could reasonably be
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expected to result, through increases in the contributions required to be made
to such Plan or otherwise, in a material adverse effect on the Borrower.
2.18. Certain Regulated Industries. Neither the Borrower nor
any Subsidiary is an "investment company" as defined in the Investment Company
Act of 1940, as amended or a "holding company" as defined in the Public Utility
Holding Company Act of 1935, as amended.
2.19. No Material Misstatements. No information, report,
financial statement, exhibit or schedule furnished by or on behalf of the
Borrower to the Bank in connection with the negotiation of any Loan Document or
included therein or delivered pursuant thereto (including the Registration
Statement) contained, contains or will contain any material misstatement of fact
or omitted, omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were, are
or will be made, not misleading. The Bank shall be entitled to rely on the
information contained in the Registration Statement relating to the Borrower, or
its business, condition, prospects or obligations to the same extent as if such
information were contained in a representation herein.
3. THE LOAN.
3.1. Loan. So long as no Default or Event of Default has
occurred and is continuing, and subject to the limitations set forth herein, the
Bank agrees to lend to the Borrower a total principal amount not to exceed the
Maximum Loan Commitment (the "LOAN") for working capital to be used in the
operation of the Borrower's business. The Loan shall be evidenced by and payable
in accordance with the terms of a promissory note in the face amount of the
Maximum Loan Commitment (the "REVOLVING NOTE"). The Revolving Note shall
evidence the outstanding principal balance of the Loan, as it may change from
time to time. Advances under the Loan shall be subject to the following terms:
(a) Advances of proceeds of the Loan shall be limited
to the Maximum Loan Commitment at any time outstanding;
(b) Should there occur any overdraft of any deposit
account maintained by the Borrower or any Subsidiary with the Bank, the
Bank may, at its option, disburse funds (whether or not in excess of
the Maximum Loan Commitment) to eliminate such overdraft and such
disbursement shall be deemed an Advance of Loan proceeds hereunder
entitled to all of the benefits of the Loan Documents. Nothing herein
shall be deemed an authorization of or consent to the creation of an
overdraft in any account or create any obligations on the part of the
Bank;
(c) All Advances by the Bank to or for the account of
the Borrower, whether or not in excess of the Maximum Loan Commitment,
shall be considered part of the Indebtedness under the Note, shall bear
interest as provided in the Note, and shall be entitled to all rights
and benefits hereunder and under all other Loan Documents; and
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<PAGE> 14
(d) The Borrower shall not request and the Bank will
not be required to consider requests for Advances after the third
anniversary of the date hereof (the "MATURITY DATE" ); provided that
the Bank may in its discretion extend such date in writing and further
provided that the repayment obligations of the Borrower for Advances
made by the Bank after such date (as it may be extended) shall be
binding on the Borrower or other persons liable for any Indebtedness to
the same extent as obligations with respect to Advances made prior to
such date.
3.2. Limitations on Advances. The outstanding balance of the
Loan may increase and decrease from time to time, and Advances thereunder may be
repaid and reborrowed, but the total of Advances outstanding at any one time
under the Loan shall never exceed the Maximum Loan Commitment. The Borrower
shall immediately pay to the Bank any amount by which the Loan exceeds the
Maximum Loan Commitment. The Bank may, in its discretion, make, or permit to
remain outstanding, Advances to the Borrower in excess of the Maximum Loan
Commitment and all such amounts shall be part of the Loan and Indebtedness,
shall bear interest as provided in the Note, shall be payable on demand and
shall be entitled to all rights and security provided for herein and all other
Loan Documents.
3.3. Notice and Manner of Borrowing. Unless another
satisfactory procedure for disbursements is agreed upon in writing by the
parties, the following procedure will be used for disbursement of proceeds of
the Loan. The Borrower shall deliver a written and signed Advance Request (the
"ADVANCE REQUEST") (which may be by facsimile) to the Bank not later than 12:00
noon, Jacksonville time, on the Business Day of the proposed Advance Date, in
the form attached hereto as Exhibit 3.3 (or such other form as the Bank may
require), setting forth the amount of the requested Advance, the proposed
Advance Date (which shall be a Business Day), and providing such other
information as the Bank may require. The Bank may, but shall not be required to,
accept oral requests for Advances, in which event the Borrower agrees to deliver
a written Advance Request by facsimile within one Business Day from the time of
such oral request.
3.4. Calculation of Interest. All interest under the Note or
hereunder shall be calculated on the basis of a 360-day year for the actual
number of days elapsed in an interest period (actual/360 method).
3.5. Special Loan Account. The Borrower shall establish and
maintain with the Bank, during the term of the Loan, a demand deposit account
(the "SPECIAL LOAN ACCOUNT") into which the Bank shall deposit all proceeds of
the Loan.
3.6. Overdue Amounts. Any payments not made as and when due
shall bear interest from the date due until paid at the Default Rate.
3.7. Letters of Credit; Banker's Acceptances.
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(a) So long as no Default or Event of Default occurs
and is continuing and subject to the limitations set forth herein, the
Bank will from time to time issue, extend or renew documentary letters
of credit and/or banker's acceptances for the account of the Borrower
or its Subsidiaries to facilitate the purchase of inventory by the
Borrower and/or its Subsidiaries; provided that the maximum aggregate
obligations of the Bank under all letters of credit and banker's
acceptances shall not exceed $4,000,000 and, in any event, the sum of
such aggregate obligations plus the outstanding principal amount of the
Loan shall not exceed the Maximum Loan Commitment. The availability of
Advances under the Loan shall be reduced by outstanding obligations of
the Bank under any letters of credit and banker's acceptances. All
payments made by the Bank under any such letters of credit and banker's
acceptances (whether or not the Borrower is the account party) and all
fees, commissions, discounts and other amounts owed to the Bank in
connection therewith, shall be deemed to be Advances under the
Revolving Note. The Borrower shall complete and sign such applications
and supplemental agreements and provide such other documentation as the
Bank may require. The form and substance of all letters of credit and
banker's acceptances, including expiration dates, shall be subject to
the Bank's approval. The Bank may charge a fee or commission for
issuance, transfer, renewal or extension of a letter of credit and
banker's acceptance. The Borrower unconditionally guarantees all
obligations of any Subsidiary with respect to letters of credit and
banker's acceptances issued by the Bank for the account of such
Subsidiary. If the Loan shall mature, including maturity upon
acceleration, the Borrower shall, on demand, deliver to the Bank good
funds equal to 100% of the Bank's maximum liability under all
outstanding letters of credit and banker's acceptances, to be held as
cash collateral for the Borrower's reimbursement obligations and other
Indebtedness.
(b) In order to induce Bank to issue letters of
credit and banker's acceptances, the Borrower agrees that neither Bank
nor its correspondents or agents shall be liable or responsible for,
and the Borrower's unconditional obligation to reimburse Bank for the
obligations shall not be affected by, any event or circumstance,
including without limitation: (i) the validity, enforceability,
genuineness or sufficiency of documents or of any endorsement thereon
existing in connection with any letter of credit or banker's
acceptance, even if such documents should in fact prove in any or all
respects to be invalid, unenforceable, insufficient, fraudulent or
forged; (ii) any breach of contract or other dispute between the
Borrower or its Subsidiary and any beneficiary of a letter of credit or
holder of a draft accepted by the Bank; (iii) payment by the Bank upon
presentation of a draft or documents which do not comply in any respect
with the terms of such letter of credit or draft; (iv) loss of or
damage to any collateral; (v) the invalidity or insufficiency of any
endorsements; (vi) delay in giving or failure to give notice of arrival
or any other notice; (vii) failure of any instrument to bear any
reference or adequate reference to the letter of credit or draft or to
documents to accompany any instrument at negotiation; or (viii) failure
of any person to note the amount of any payment on the reverse of the
letter of credit or to surrender or take up the letter of credit or to
forward documents in the manner required by the letter of credit; or
(ix) any other matter whatsoever excepting only with respect to each of
the foregoing items the gross
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<PAGE> 16
negligence (or negligence as to (iii) above), bad faith or willful
misconduct of the Bank or its agent. The Borrower agrees that any
action taken or permitted to be taken by the Bank or its agent under or
in connection with any letter of credit or banker's acceptance,
including related drafts, documents, or property, unless constituting
gross negligence (or negligence as to (iii) above), bad faith or
willful misconduct on the part of the Bank or its agent, shall be
binding on the Borrower and shall not create any resulting liability to
the Borrower on the part of the Bank or its agent. The Borrower will
immediately examine (a) a copy of the letter of credit (and of any
amendments thereof) sent to it by the Bank or its agent, and (b) all
drafts, instruments and documents delivered to it from time to time by
the Bank or its agents, and the Borrower will immediately notify the
Bank in writing of any claim or irregularity.
(c) Any letter of credit issued hereunder shall be
governed by the Uniform Customs of Practice for Documentary Credit
(1993 Rev.), International Chamber of Commerce Publication No. 500, as
revised from time to time, except to the extent that the terms of such
publication would limit or diminish rights granted to the Bank
hereunder or in any other Loan Document.
3.8. Fees.
(a) The Borrower shall pay to the Bank an initial
loan fee of $10,000 payable upon execution of this Agreement, which fee
shall be a credit against any Commitment Fees payable under Subsection
(b) below during the 12-month period following the Effective Date.
(b) The Borrower agrees to pay to the Bank, on the
last day of March, June, September and December in each year, and on
the date on which the commitment of such Bank to make Loans shall be
terminated as provided herein, a commitment fee (a "COMMITMENT FEE") of
1/10 of 1% (0.001) per annum on the average daily unused amount of the
Maximum Loan Commitment during the preceding quarter (or shorter period
commencing with the date hereof or ending with the maturity date or the
date on which the commitment of the Bank shall be terminated). All
Commitment Fees shall be computed on the basis of the actual number of
days elapsed in a year of 360 days. The Commitment Fees shall commence
to accrue on the date of this Agreement and shall cease to accrue on
the date on which the Commitment of the Bank shall be terminated as
provided herein. The "unused" amount shall mean the Maximum Loan
Commitment less (i) the outstanding principal balance of the Loan and
(ii) the aggregate obligations of the Bank under letters of credit
issued pursuant to this Agreement for the account of the Borrowers and
its Subsidiaries.
4. CONDITIONS PRECEDENT TO BORROWING. Prior to any Advance of the
proceeds of any Loan, the following conditions shall have been satisfied, in the
sole opinion of the Bank and its counsel:
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<PAGE> 17
4.1. Conditions Precedent to Initial Advance. In addition to
any other requirement set forth in this Agreement, the Bank will not be required
make the initial Advance under the Loan or issue any letter of credit unless and
until the following conditions shall have been satisfied:
(a) Loan Documents. The Borrower and each other party
to any Loan Documents, as applicable, shall have executed and delivered
this Agreement, the Note, and other required Loan Documents, all in
form and substance satisfactory to the Bank.
(b) Supporting Documents. The Borrower shall cause to
be delivered to the Bank the following documents:
(i) A copy of the governing instruments of
the Borrower and each Subsidiary, and a good standing
certificate of the Borrower and each Subsidiary, certified by
the appropriate official of its state of incorporation and
each jurisdiction where qualification to do business is
required;
(ii) Incumbency certificate and certified
resolutions of the board of directors of the Borrower and each
other Person executing any Loan Documents authorizing the
execution, delivery and performance of the Loan Documents;
(iii) At the Bank's request, UCC-11 searches
and other Lien searches showing no existing security interests
in or Liens on the property of the Borrower and its
Subsidiaries other than Permitted Liens and those Liens to be
terminated pursuant to subparagraph (iv) below;
(iv) UCC-3 termination statements evidencing
satisfaction of liens securing the debt referred to in
Section 4.1(i) herein and other liens other than Permitted
Liens; and
(v) An opinion of counsel to the Borrower
and its Subsidiaries as to such matters as the Bank or its
counsel may reasonably require, which opinion shall be
satisfactory in form and substance to the Bank and its
counsel.
(c) Insurance. At the Bank's request, the Borrower
shall have delivered to the Bank satisfactory evidence of insurance
meeting the requirements of Section 5.3 ("Insurance").
(d) Issuance of Stock. The Registration Statement
shall have become effective and the Borrower shall have received net
proceeds from the sale of stock thereunder of not less than
$42,000,000, resulting in a Tangible Net Worth of the Borrower of not
less than $36,500,000.
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<PAGE> 18
(e) Subsidiary Status. Waxman shall not own, directly
or indirectly, more than 49.9% of any class of voting securities of the
Borrower and the Borrower shall no longer be a "Subsidiary" of Waxman
or any of its Subsidiaries within the meaning of any indenture of trust
or other agreements or instruments governing indebtedness of Waxman or
any of its Subsidiaries, with the result that no covenants or
restrictions under such indentures, agreements or instruments which
apply to such "Subsidiaries" shall apply to the Borrower or its
Subsidiaries.
(f) Tax Sharing Agreement. The Tax Sharing Agreement
shall have been executed and delivered and shall be in full force and
effect.
(g) Registration Statement. The Registration
Statement shall be substantially in the form it was delivered to the
Bank.
(h) Financial Statements. There shall not have
occurred any material adverse change in the condition, financial or
otherwise, or pro forma condition, of the Borrower from that contained
in the Registration Statement.
(i) Satisfaction of Debt. The Bank shall have
received evidence satisfactory to it that (A) all direct or contingent
obligations of the Borrower or any of its Subsidiaries to (or for the
benefit of) Waxman or its Subsidiaries (other than trade payables
generated in the ordinary course of business) have been paid in full
and canceled and all security therefor released, and (B) all direct or
contingent obligations of the Borrower or its Subsidiaries to (or for
the benefit of) Citibank, N.A. have been paid in full and canceled and
all security therefor released, except for unsecured reimbursement
obligations relating to documentary letters of credit expiring not
later than __________, 1996 and in an aggregate face amount not
exceeding $_______________.
(j) Agreements. The only Agreements between the
Borrower and Waxman and/or its Affiliates (other than the Borrower)
shall be those disclosed in and filed as exhibits to the Registration
Statements.
(k) Additional Documents. The Borrower shall have
delivered to the Bank all additional opinions, documents, certificates
and other assurances that the Bank or its counsel may reasonably
require.
4.2. Conditions Precedent to Each Advance. The following
conditions, in addition to any other requirements set forth in this Agreement,
shall have been met or performed by the Advance Date with respect to any Advance
Request:
(a) Advance Request. The Borrower shall have
delivered to the bank an Advance Request and other information, as
required under Section 3.3 ("Notice and Manner of Borrowing").
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<PAGE> 19
(b) No Default. No Default or Event of Default shall
have occurred and be continuing or will occur upon the making of the
Advance in question and the Borrower shall have delivered to the Bank
an officer's certificate to such effect, which may be incorporated in
the Advance Request.
(c) Correctness of Representations. All
representations and warranties made or deemed to be made by the
Borrower herein or otherwise in writing in connection herewith shall be
true and correct with the same effect as though the representations and
warranties had been made on and as of the proposed Advance and the
Borrower shall have delivered to the Bank an officer's certificate to
such effect, which may be incorporated in the Advance Request.
(d) Further Assurances. The Borrower shall have
delivered such further documentation or assurances as the Bank may
reasonably require.
5. COVENANTS OF THE BORROWER. The Borrower covenants and agrees that
from and after the Effective Date and until payment in full of the Indebtedness
and the formal termination of this Agreement, unless the Bank shall otherwise
consent in writing, the Borrower and each Subsidiary:
5.1. Use of Loan Proceeds. Shall use the proceeds of the Loan
only for the commercial purposes permitted herein or otherwise permitted by the
Bank and furnish the Bank all evidence that it may reasonably require with
respect to such use.
5.2. Maintenance of Business and Properties. Shall at all
times maintain, preserve and protect all of its material property used or useful
in the conduct of its business, and keep the same in good repair, working order
and condition (ordinary wear and tear excepted), and from time to time make, or
cause to be made, all material necessary repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may continue to be conducted properly and in accordance
with standards generally accepted in businesses of a similar type and size at
all times, and maintain and keep in full force and effect all licenses and
permits necessary to the proper conduct of its business.
5.3. Insurance. Shall maintain such liability insurance,
workers' compensation insurance, business interruption insurance and casualty
insurance as may be required by law, as may be customary and usual for prudent
businesses in its industry or as may be reasonably required by the Bank and
shall insure and keep insured all such properties with good and reputable
insurance companies satisfactory to the Bank. All hazard insurance shall be in
amounts and shall contain co-insurance and deductible provisions approved by the
Bank, and shall not be terminable except upon 30 days' written notice to the
Bank.
5.4. Notices. Shall provide to the Bank immediate written
notice of (a) the occurrence of a Default; (b) any litigation or material
changes in existing litigation which, if determined adversely to such Person,
would likely result in a loss of $500,000 or more (in excess
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<PAGE> 20
of insurance proceeds available with respect thereof, if any) or $1,000,000
regardless of insurance coverage; (c) any damage or loss to property involving a
loss of $500,000 or more (in excess of insurance proceeds available with respect
thereto, if any) or $1,000,000 regardless of insurance coverage or any judgment
against the Borrower or any Subsidiary of $500,000 or more (in excess of
insurance proceeds available with respect thereto, if any) or $1,000,000
regardless of insurance coverage; (d) any notice from taxing authorities as to
claimed deficiencies or any tax Lien or any notice relating to alleged ERISA
violations which, if determined adversely to such Person, would likely result in
a loss of $500,000 or more; (e) any Reportable Event, as defined in ERISA; (f)
any loss or threatened loss of licenses or permits if the result would be a loss
of $500,000 or more; (g) any change of or decision to change the Borrower's
independent accountants and (h) any notice or claim of violation or suspected
violation of any laws, regulations or ordinances relating to hazardous or toxic
materials, which, if determined adversely to such Person, would likely result in
a loss of $500,000 or more.
5.5. Inspections. Shall permit inspections, reviews and audits
of its properties and records at such times and in such manner as may be
reasonably required by the Bank; provided that such inspections shall be limited
to no more than two per year unless a Default should exist. The cost of such
audits, reviews and inspections shall be borne by the Borrower if a Default
exists or if they reveal the existence of a Default.
5.6. Financial Information. Shall maintain books and records
in accordance with GAAP and shall furnish to the Bank the following periodic
financial information:
(a) Quarterly Reports. Within 45 days after the end
of each fiscal quarter, income statement, balance sheet and cash flow
statement prepared in accordance with GAAP, as at the end of and for
such quarter and year-to-date, each certified by the chief financial
officer or president of the Borrower as being true and accurate;
(b) Annual Reports. Within 120 days after the end of
each fiscal year, income statement and statements of cash flows of the
Borrower for such year, and a balance sheet and statement of
stockholder equity as of the end of such year, prepared in accordance
with GAAP, certified by Arthur Anderson LLP or other independent
certified public accountants of national standing selected by the
Borrower and reasonably satisfactory to the Bank, which statements
shall not be qualified in any material respect; and
(c) Certificates. Together with each report required
by Subsection (a) and (b), shall submit a certificate of its president
or chief financial officer showing the calculations necessary to
evidence compliance with the financial covenants of the Borrower
contained herein and stating that no Default or Event of Default then
exists (or if a Default or Event of Default exists, the nature and
duration thereof and the Borrower's intention with respect thereto),
and in addition, shall cause the Borrower's independent auditors to
submit to the Bank, together with its audit report, a statement that,
in the course of such audit, it discovered no circumstances which it
believes would result in a
17
<PAGE> 21
Default or Event of Default or if it discovered any such circumstances,
the nature and duration thereof;
(d) Management Letter. Within ten (10) days after
delivery to the Borrower, any management letter or similar report from
the Borrower's independent auditors.
(e) SEC Reports. Promptly after they become publicly
available, copies of all periodic reports and proxy or information
statements filed by the Borrower with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended,
or distributed to its stockholders.
If the Borrower has Subsidiaries, the financial statements required above shall
be in consolidated and, if required by the Bank, consolidating form for the
Borrower and all Subsidiaries required by GAAP to be consolidated for financial
reporting purposes. In addition to the financial statements required herein, the
Bank reserves the right to require other or additional financial or other
information concerning the Borrower and/or its Subsidiaries that does not
produce an undue cost or burden to the Borrower to produce such information.
5.7. Debt. Shall not create or permit to exist any Debt,
including any guaranties or other contingent obligations, except Permitted Debt.
5.8. Liens. Shall not create or permit to exist any Liens on
any of its property except Permitted Liens.
5.9. Dividends. Shall not pay or declare any dividends (other
than stock dividends) or other distributions or purchase, redeem or otherwise
acquire any stock or other equity interests (collectively, "DISTRIBUTION")
unless (a) after giving effect thereto, there shall be no Default hereunder; (b)
after giving effect thereto, the Borrower's Tangible Net Worth (as defined in
Section 5.23 ("Financial Covenants")) would not be less than that required by
this Agreement; and (c) the aggregate Distributions with respect to any four
consecutive fiscal quarters would not exceed the Borrower's net income for such
period or the Borrower's net income after March 31, 1996, whichever is less;
provided, however, that any Subsidiary may pay dividends to the Borrower or
another Subsidiary wholly-owned by the Borrower.
5.10. Merger, Sale, Etc. Shall maintain its corporate
existence, good standing and necessary qualifications to do business and shall
not merge or consolidate with any Person or acquire all or substantially all of
the assets of, or 50% or more of any class of equity interest of, any Person
except for Permitted Investments, or sell, lease, assign or otherwise dispose of
any Subsidiaries or any substantial portion of its assets (other than sales of
obsolete or worn-out equipment, sales of inventory in the ordinary course of
business and sales of assets (including stock of Subsidiaries) which constitute
Permitted Investments and which do not, in the aggregate, have a book value of
more than 5% of the Tangible Net Worth of the Borrower measured at the time of
each sale or disposition).
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<PAGE> 22
5.11. Loans and Other Investments. Shall not make or permit to
exist any advances or loans to, or guarantee or become contingently liable,
directly or indirectly, in connection with the obligations, leases, stock or
dividends of, or own, purchase or make any commitment to purchase any stock,
bonds, notes, debentures or other securities of, or any interest in, or make any
capital contributions to (all of which are sometimes collectively referred to
herein as "INVESTMENTS") any Person except for Permitted Investments.
5.12. Change in Business. Shall not enter into any business
which is substantially different from the business or businesses in which it is
presently engaged.
5.13. Transactions with Affiliates. Shall not directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or become partners or joint venturers with, or otherwise
deal with, in the ordinary course of business or otherwise, any Affiliate (other
than a Subsidiary); provided, however, that the transactions described on
Exhibit 5.13 are approved as described in such Exhibit; and further provided
that additional transactions that do not involve liability, Investments or
obligations of the Borrower and its Subsidiaries in excess of $250,000 at any
time outstanding or payments by the Borrower or its Subsidiaries in excess of
$250,000 in any 12-month period shall be permitted after written notice to the
Bank if such transactions are not materially less advantageous to the Borrower
or such Subsidiaries than would be the case if no such affiliation existed.
5.14. No Sale, Leaseback. Shall not enter into any
sale-and-leaseback or similar transaction.
5.15. Margin Stock. Shall not use any proceeds of the Loan to
purchase or carry any margin stock (within the meaning of Regulation U of the
Board of Governors of Federal Reserve System) or extend credit to others for the
purpose of purchasing or carrying any margin stock.
5.16. Payment of Taxes, Etc. Shall pay before delinquent all
of its material obligations, debts and taxes, except payment of taxes may, after
written notice to the Bank, be contested in good faith by appropriate
proceedings provided adequate reserves are established as required by GAAP and
further provided that neither the Borrower nor any Subsidiary nor their
respective assets are subject to any Liens for the nonpayment of such taxes or
other onerous condition.
5.17. Subordination. Shall cause all debt and other
obligations now or hereafter owed to any Affiliate to be subordinated in right
of payment and security to the Indebtedness in accordance with subordination
agreements satisfactory to the Bank.
5.18. Compliance; Hazardous Substances. Shall strictly comply
with all laws, regulations, ordinances and other legal requirements,
specifically including, without limitation, ERISA, all securities laws and all
Environmental and Safety Laws. Unless approved in writing by the Bank, neither
the Borrower nor any Subsidiary shall engage in the storage, manufacture,
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<PAGE> 23
disposition, processing, handling, use or transportation of any Hazardous
Substances, whether or not in compliance with applicable laws and regulations
except for ordinary and necessary amounts of solvents, paints, cleaning material
and similar substances used, stored or sold by the Borrower or its Subsidiaries
in the ordinary course of business and in strict compliance with all applicable
laws and regulations.
5.19. Subsidiaries. Shall not acquire or form any Subsidiaries
(except Subsidiaries which are Permitted Investments) or permit any Subsidiary
to issue capital stock except to its parent. Any Subsidiary acquired or formed
by the Borrower shall join in this Agreement as co-borrower and shall be
released from obligations hereunder if all of the Borrower's interest in such
Subsidiary is sold or otherwise disposed of in accordance with this Agreement
and no Default exists or would exist after such transaction.
5.20. Withholding Taxes. Pay as and when due all employee
withholding, FICA and other payments required by federal, state and local
governments with respect to wages paid to employees, except payment of taxes
may, after written notice to the Bank, be contested in good faith by appropriate
proceedings provided adequate reserves are established as required by GAAP and
further provided that neither the Borrower nor any Subsidiary nor their
respective assets are subject to any Liens for the nonpayment of such taxes or
other onerous condition.
5.21. Deposit Accounts. Maintain their primary operating
accounts with the Bank.
5.22. ERISA. Comply in all material respects with the
applicable provisions of ERISA and furnish directly to the Bank (i) as soon as
possible, and in any event within 30 days after any executive officer of the
Borrower or any ERISA Affiliate either knows or has reason to know that any
Reportable Event has occurred that alone or together with any other Reportable
Event could reasonably be expected to result in liability of the Borrower to the
PBGC in an aggregate amount exceeding $250,000, a statement of the president or
chief financial officer setting forth details as to such Reportable Event and
the action proposed to be taken with respect thereto, together with a copy of
the notice, if any, of such Reportable Event given to the PBGC, (ii) promptly
after receipt thereof, a copy of any notice the Borrower or any ERISA Affiliate
may receive from the PBGC relating to the intention of the PBGC to terminate any
Plan or Plans (other than a Plan maintained by an ERISA Affiliate which is
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
412 of the Internal Revenue Code) or to appoint a trustee to administer any Plan
or Plans, (iii) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Internal Revenue Code of a notice of failure
to make a required installment or other payment with respect to a Plan, a
statement of the president or chief financial officer setting forth details as
to such failure and the action proposed to be taken with respect thereto,
together with a copy of such notice given to the PBGC and (iv) promptly and in
any event within 30 days after receipt thereof by the Borrower or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, a copy of notice received by
the Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal
Liability or (B) a determination
20
<PAGE> 24
that a Multiemployer Plan is, or is expected to be, terminated or in
reorganization, in each case within the meaning of Title IV of ERISA.
5.23. Financial Covenants. Comply with the following financial
covenants on a consolidated basis:
(a) The Tangible Net Worth of the Borrower shall not
be less than $36,500,000 as at the end of any fiscal quarter,
increasing as of the end of each fiscal quarter commencing with the
fiscal quarter ending June 30, 1996, by an amount equal to 50% of net
income (but not reduced by any loss) for such fiscal quarter;
(b) The ratio of total liabilities of the Borrower to
Tangible Net Worth of the Borrower shall not be more than 1:1 as at the
end of any fiscal quarter;
(c) The ratio of current assets of the Borrower to
its current liabilities shall not be less than 2.25:1.0 as at the end
of any fiscal quarter;
(d) The ratio of the Borrower's earnings before
interest expense and income taxes to its interest expense shall not be
less than 5.0:1 for the four consecutive fiscal quarters last ended (or
for the fiscal quarters ended after March 31, 1996 if fewer).
For purposes of this Section, the term "TANGIBLE NET WORTH" shall be
the consolidated net worth of a Person according to GAAP less any write-up of
assets subsequent to the Effective Date; deferred assets other than prepaid
insurance and prepaid taxes; patents, copyrights, trademarks, trade names,
noncompete agreements, franchises and other intangibles; goodwill or other
amounts representing the excess of the purchase price of assets or stock over
the value assigned thereto on the books of such Person; unamortized debt
discount and expense; and any accounts, notes or other amounts due from
Affiliates; and any other amounts categorized as intangibles under GAAP.
5.24. Management; Control. Any change in the chief executive
officer of the Borrower shall be subject to the Bank's approval, not to be
unreasonably withheld. The Borrower shall not issue stock or options to Waxman
or its Subsidiaries or take any action which would cause or allow the Borrower
or any Subsidiary to become a direct or indirect Subsidiary of Waxman or to
become subject to any covenants or restrictions in any trust indentures or other
agreements to which Waxman or its Subsidiaries are parties or by which their
assets are bound.
5.25. Further Assurances. Shall take such further action and
provide to the Bank such further assurances as may be reasonably requested to
ensure compliance with the intent of this Agreement and the other Loan
Documents.
6. DEFAULT.
21
<PAGE> 25
6.1. Events of Default. Each of the following shall constitute
an Event of Default:
(a) Any representation or warranty made by the
Borrower or any other party to any Loan Document (other than the Bank)
herein or therein or in any certificate or report furnished in
connection herewith or therewith shall prove to have been untrue or
incorrect in any material respect when made; or
(b) There shall occur any default by the Borrower in
the payment, when due, or within 5 days thereafter, of any principal of
or interest on the Note, any amounts due hereunder or any other Loan
Document or any other Indebtedness (not cured within any grace period
provided in the document or instrument evidencing such Indebtedness);
or
(c) There shall occur any default by the Borrower or
any other party to any Loan Document (other than the Bank) in the
performance of any agreement, covenant or obligation contained in this
Agreement or such Loan Document not provided for elsewhere in this
Section 6.1 and (i) with respect to any default under this Agreement,
such default is not cured within 30 days following delivery of written
notice of Default to the Borrower and (ii) with respect to any default
under the other Loan Documents, such default is not cured within any
permitted grace period; provided, however, that no notice shall be
required or grace period provided with respect to defaults under
Sections 5.3, 5.4, 5.5 and 5.6; or
(d) Any other obligation now or hereafter owed by the
Borrower or any Subsidiary to the Bank or its Affiliate (including,
without limitation, any ISDA Master Agreement relating to interest rate
swaps) shall be in default and not cured within any period of grace
provided therein or any such Person shall be in default under any
obligation in excess of $250,000 ($500,000 with respect to disputed
amounts owed to vendors outside the United States) owed to any other
obligee (except taxes being contested as permitted by this Agreement),
which default entitles the obligee to accelerate any such obligations
or exercise other remedies with respect thereto; or
(e) The Borrower or any Subsidiary shall (i)
voluntarily liquidate or terminate operations or apply for or consent
to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of such Person or of all or of a
substantial part of its assets, (ii) admit in writing its inability, or
be generally unable, to pay its debts as the debts become due, (iii)
make a general assignment for the benefit of its creditors, (iv)
commence a voluntary case under the federal Bankruptcy Code (as now or
hereafter in effect), (v) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, (vi) fail to
controvert in a timely and appropriate manner, or acquiesce in writing
to, any petition filed against it in an involuntary case under the
22
<PAGE> 26
Bankruptcy Code, or (vii) take any corporate action for the purpose of
effecting any of the foregoing; or
(f) Without its application, approval or consent, a
proceeding shall be commenced, in any court of competent jurisdiction,
seeking in respect of the Borrower or any Subsidiary any remedy under
the federal Bankruptcy Code, the liquidation, reorganization,
dissolution, winding-up, or composition or readjustment of debt, the
appointment of a trustee, receiver, liquidator or the like of such
Person, or of all or any substantial part of the assets of such Person,
or other like relief under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts and
such proceeding is not dismissed or stayed within 60 days or any stay
is lifted; or
(g) There shall occur any material loss, theft,
damage or destruction of any of the properties of the Borrower or any
Subsidiary, which loss amounts to more than $500,000 (after applying
proceeds of insurance); or
(h) A judgment in excess of $500,000 shall be
rendered against the Borrower or any Subsidiary and shall remain
undischarged, undismissed and unstayed for more than 30 days (except
judgments validly covered by insurance with deductible and/or
co-insurance amounts of not more than $500,000) or there shall occur
any levy upon, or attachment, garnishment or other seizure of, any
material portion of the assets of the Borrower (on a consolidated
basis) by reason of the issuance of any tax levy, judicial attachment
or garnishment or levy of execution; or
(i) Waxman should acquire, directly or through
intermediaries, more than 49.9% of any class of voting securities of
the Borrower or any Subsidiary of the Borrower or the Borrower or any
Subsidiary should become subject to any covenant or restriction
contained in any trust indenture or other agreement to which Waxman or
any of its Subsidiaries is a party or by which its assets are bound.
6.2. Remedies. If any Default shall occur, the Bank may,
without notice to the Borrower, at its option, withhold further Advances to the
Borrower of proceeds of the Loans. Should any Event of Default occur and be
continuing, the Bank may declare any or all Indebtedness to be immediately due
and payable, bring suit against the Borrower to collect the Indebtedness,
exercise any remedy available to the Bank hereunder and take any action or
exercise any remedy provided herein or in any other Loan Document or under
applicable law. No remedy shall be exclusive of other remedies or impair the
right of the Bank to exercise any other remedies.
7. MISCELLANEOUS.
7.1. No Waiver, Remedies Cumulative. No failure on the part of
the Bank to exercise, and no delay in exercising, any right hereunder or under
any other Loan Document shall
23
<PAGE> 27
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and are in
addition to any other remedies provided by law, any Loan Document or otherwise.
7.2. Survival. All representations and warranties made herein
shall survive the making of the Loans hereunder and the delivery of the Note,
and shall continue in full force and effect so long as any Indebtedness is
outstanding or there exists any commitment by the Bank to the Borrower. All
indemnities and all obligations or rights accruing during the term of this
Agreement shall survive payment in full of the Loan and termination of this
Agreement.
7.3. Expenses. Whether or not the Loans herein provided for
shall be made, the Borrower shall pay all reasonable costs and expenses in
connection with the preparation, execution, delivery, amendment and enforcement
of this Agreement and any Loan Document, including the reasonable fees and
disbursements of counsel for the Bank in connection therewith, whether suit be
brought or not and whether incurred at trial or on appeal. If the Borrower
should fail to pay any tax or other amount required by this Agreement to be paid
or which may be reasonably necessary to protect or preserve any material
property of the Borrower or any Subsidiary, the Bank may make such payment and
the amount thereof shall be payable on demand, shall bear interest at the
Default Rate from the date of demand until paid and shall be deemed to be
Indebtedness entitled to the benefit of the Loan Documents. In addition, the
Borrower agrees to pay and indemnify and save the Bank harmless against any
liability for payment of any state documentary stamp taxes, intangible taxes or
similar taxes (including interest or penalties, if any) which may now or
hereafter be determined to be payable in respect to the execution or delivery of
any Loan Document or the making of any Advance, whether originally thought to be
due or not, and regardless of any mistake of fact or law on the part of the Bank
or the Borrower with respect to the applicability of such tax. The provisions of
this section shall survive payment in full of the Loans and termination of this
Agreement. The Borrower acknowledges that it is not relying upon the Bank or the
Bank's counsel in determining the applicability of any such taxes.
7.4. Notices. Any notice or other communication hereunder to
any party hereto shall be by hand delivery, overnight delivery, facsimile,
telegram, telex or registered or certified mail and unless otherwise provided
herein shall be deemed to have been given or made when delivered, telegraphed,
telexed, faxed or deposited in the mails, postage prepaid, addressed to the
party at its address specified below (or at any other address that the party may
hereafter specify to the other parties in writing):
The Bank: First Union National Bank of Florida
225 Water Street
P.O. Box 2080
Jacksonville, Florida 32231-0010]
Attention: Michael J. Carlin
24
<PAGE> 28
The Borrower: Barnett Inc.
P.O. Box 2317
3333 Lenox Avenue
Jacksonville, FL
P.O. Box Zip Code: 32203
Street Address Zip Code: 32254
Attention: Andrea Luiga
7.5. Governing Law. This Agreement and the Loan Documents
shall be deemed contracts made under the laws of the State of Florida and shall
be governed by and construed in accordance with the substantive laws of said
state.
7.6. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the Borrower and the Bank, and their
respective successors and assigns; provided, that the Borrower may not assign
any of its rights hereunder without the prior written consent of the Bank, and
any such assignment made without such consent will be void.
7.7. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which when taken together shall constitute but one and the same instrument.
7.8. No Usury. Notwithstanding anything contained in this
Agreement, the Note, or in any other Loan Document to the contrary, in no event
will interest or other charges deemed to be interest be chargeable against the
Borrower if such amount (combined with any other amounts considered to be in the
nature of interest) would exceed the maximum amount permitted by law from time
to time while any of the Indebtedness is outstanding, and in the event any
amount in excess of the lawful maximum is charged or collected by the Bank or
paid by the Borrower, the Borrower shall be entitled to the reimbursement of
such excess together with interest thereon at the highest lawful rate at the
time of such overcharge.
7.9. Approvals. If this Agreement calls for the approval or
consent of the Bank, such approval or consent may be given or withheld in the
discretion of the Bank unless otherwise specified herein.
7.10. Jurisdiction, Service of Process.
(a) Any suit, action or proceeding against the
Borrower with respect to this Agreement or any Loan Document or any
judgment entered by any court in respect thereof may be brought in the
courts of Duval County, Florida or in the U.S. District court for the
Middle District of Florida as the Bank (in its sole discretion) may
elect, and the Borrower hereby accepts the nonexclusive jurisdiction of
those courts for the purpose of any suit, action or proceeding. Service
of process in any such case may be had against the Borrower by delivery
in accordance with the notice provisions herein or as otherwise
25
<PAGE> 29
permitted by law, and the Borrower agrees that such service shall be
valid in all respects for establishing personal jurisdiction over it.
(b) In addition, the Borrower hereby irrevocably
waives, to the fullest extent permitted by law, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement, the Loan
Documents or any judgment entered by any court in respect thereof
brought in Duval County, Florida or the U.S. District Court for the
Middle District of Florida, as selected by the Bank, and hereby further
irrevocably waives any claim that any suit, action or proceedings
brought in Duval County, Florida or in such District Court has been
brought in an inconvenient forum.
7.11. Multiple Borrowers. If more than one Person is named
herein as the Borrower or hereafter joins in this Agreement, all obligations,
representations and covenants herein and in other Loan Documents to which the
Borrower is a party shall be joint and several.
7.12. Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED UPON THIS AGREEMENT OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER LOAN
DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
FIRST UNION NATIONAL BANK OF FLORIDA
By /s/ Jeffrey E. Noble
-----------------------------------------
Its Vice President
BARNETT INC.
By /s/ Andrea M. Luiga
-----------------------------------------
Its Vice President
26
<PAGE> 30
SCHEDULE OF EXHIBITS
(If any exhibit is omitted, the information called for therein
shall be considered "None" or "Not Applicable")
<TABLE>
<CAPTION>
Exhibit Section Reference Title
- ------- ----------------- -----
<S> <C> <C>
1.1A 1.1 ("Permitted Debt") Permitted Debt
1.1B 1.1 ("Permitted Liens") Permitted Liens
1.1C 1.1 ("Permitted Investments") Permitted Investments
2.4 2.4 ("Litigation") Litigation
2.9 2.9 ("Location") Offices of Borrower
2.15 2.15 ("Subsidiaries") List of Subsidiaries
2.16 2.16 ("Environmental Matters") Environmental Matters
3.3 3.3 ("Notice and Manner of Borrowing") Form of Advance Request
5.13 5.13 ("Transactions with Affiliates") Approved Transactions with Affiliates
</TABLE>
<PAGE> 31
EXHIBIT 1.1A
PERMITTED DEBT
The following shall be additional Permitted Debt:
1. Debt in the outstanding amount not to exceed $2,000,000 incurred to
purchase tangible assets to be used in the Borrower's business, provided that
the principal amount of such debt shall not at any time exceed the purchase
price of the assets purchased.
2. Debt subordinated in right of payment and security to the
Indebtedness in accordance with subordination agreements approved in writing by
the Bank.
3. Debt payable to suppliers and other trade creditors in the ordinary
course of business on ordinary and customary trade terms.
4. Debt of any Subsidiary to the Borrower or another Subsidiary.
<PAGE> 32
EXHIBIT 1.1B
PERMITTED LIENS
The following shall be additional Permitted Liens:
1. Deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance, social security and similar laws.
2. Attachment, judgment and other similar non-tax Liens not exceeding
$250,000 at any one time outstanding arising in connection with court
proceedings but only if and for so long as (a) the execution or enforcement of
such Liens is and continues to be effectively stayed and bonded on appeal, (b)
the validity and/or amount of the claims secured thereby are being actively
contested in good faith by appropriate legal proceedings and (c) such Liens do
not, in the aggregate, materially detract from the value of the assets of the
Person whose assets are subject to such Lien or materially impair the use
thereof in the operation of such Person's business.
3. Liens securing Permitted Debt incurred solely for the purpose of
financing the acquisition of tangible assets provided that such Lien does not
secure more than the purchase price of such assets and does not encumber
property other than the purchased assets.
4. Liens reflected in UCC filings existing on the date of this
Agreement securing the Borrower's obligations under operating leases of such
equipment, which filings are shown on Annex A hereto.
<PAGE> 33
EXHIBIT 1.1C
PERMITTED INVESTMENTS
1. Loans and advances to employees for relocation expenses and other
needs not to exceed $150,000 at any time outstanding in the aggregate.
2. Investments in entities (including Subsidiaries and joint ventures)
not exceeding, in aggregate book value, five percent of the Tangible Net Worth
of the Borrower measured at the time of each such Investment.
<PAGE> 34
EXHIBIT 2.4
LITIGATION
-- None --
<PAGE> 35
EXHIBIT 2.9
LOCATION
<PAGE> 36
EXHIBIT 2.15
SUBSIDIARIES
-- None --
<PAGE> 37
EXHIBIT 2.16
ENVIRONMENTAL MATTERS
-- None --
<PAGE> 38
EXHIBIT 3.3
[Form of Advance Request]
<PAGE> 39
EXHIBIT 5.13
APPROVED TRANSACTIONS WITH AFFILIATES
3. Tax Sharing Agreement.
4. Intercorporate Agreement in substantially the form appended to the
Registration Statement.
5. Trade payables/receivables generated in the ordinary course of
business of the Borrower and its Subsidiaries.
6. Registration rights agreement in favor of Waxman in substantially
the form appended to the Registration Statement.
7. Trademark License Agreement in substantially the form appended to
the Registration Statement.
<PAGE> 1
EXHIBIT 10.12
Waxman Industries, Inc.
24460 Aurora Road
Bedford Heights, Ohio 44146
March 28, 1996
Barnett Inc.
3333 Lenox Avenue
Jacksonville, Florida 32254
Dear Sirs:
Waxman Industries, Inc., a Delaware corporation ("Waxman") and Barnett
Inc., a Delaware corporation, hereby agree as follows:
1. For purposes of this Agreement the term (a) "Subsidiary" means, with
respect to any person, (i) a corporation a majority of whose Capital Stock with
voting power, under ordinary circumstances, to elect directors ("Voting
Securities") is at the time, directly or indirectly, owned by such person, by
one or more Subsidiaries of such person or by such person and one or more
Subsidiaries of such person or (ii) any other person (other than a corporation)
in which such person, one or more Subsidiaries of such person or such person and
one or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof, has at least a majority ownership interest and (b)
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of such person's capital stock and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
2. During the term of this Agreement, Waxman will not, and will cause
each of its Subsidiaries not to, acquire, offer to acquire, or agree to acquire,
directly or indirectly, by purchase or otherwise, any Voting Securities
(including shares of common stock, par value $.01 per share) of Barnett or
direct or indirect rights or options to acquire (through purchase, exchange,
conversion or otherwise) any Voting Securities of Barnett if such acquisition,
at the time it is made, together with the Voting Securities of Barnett otherwise
owned collectively by Waxman and its Subsidiaries, would result in Waxman's
aggregate beneficial (as defined below) or record ownership of Voting Securities
of Barnett during the term of this Agreement equalling or exceeding a majority
of the Voting Securities of Barnett as most recently publicly reported on or
prior to the date of such acquisition, it being understood that no subsequent
reduction in the outstanding Voting Securities of Barnett shall result in a
violation of this paragraph.
<PAGE> 2
3. During the term of this Agreement, Waxman and any of its
Subsidiaries shall have the right, directly or indirectly, to offer, sell,
transfer, pledge, assign, hypothecate or otherwise dispose of any Voting
Securities of Barnett beneficially owned by Waxman or any of its Subsidiaries.
4. The parties to this Agreement shall take all actions and execute all
instruments, documents, stipulations and agreements reasonably necessary to
implement or carry out the terms hereof.
5. This Agreement shall become effective upon the execution hereof and
shall remain effective for a period of four years.
6. Each of the parties hereto represents and warrants that it is duly
authorized to execute and deliver this Agreement and that this Agreement is a
valid and binding obligation of such party enforceable against such party in
accordance with it terms. This Agreement shall be binding upon, and shall inure
to the benefit of and be enforceable by, the respective successors and, assigns
of the parties hereto.
7. The parties agree that the provisions of this Agreement shall be
severable in the event that any of the provisions hereof are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and that
the remaining provisions shall remain enforceable to the fullest extent
permitted by law.
8. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware (without giving effect to the principles of
conflict of laws thereof).
9. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
Very truly yours,
Waxman Industries, Inc.
By: /s/ Michael J. Vantusko
----------------------------
Accepted and Agreed:
Barnett Inc.
By: /s/ William R. Pray
------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,707
<SECURITIES> 0
<RECEIVABLES> 18,299
<ALLOWANCES> (722)
<INVENTORY> 27,362
<CURRENT-ASSETS> 47,720
<PP&E> 14,618
<DEPRECIATION> (8,301)
<TOTAL-ASSETS> 58,300
<CURRENT-LIABILITIES> 16,976
<BONDS> 0
0
127
<COMMON> 143
<OTHER-SE> 41,054
<TOTAL-LIABILITY-AND-EQUITY> 58,300
<SALES> 127,395
<TOTAL-REVENUES> 127,395
<CGS> 84,748
<TOTAL-COSTS> 84,748
<OTHER-EXPENSES> 27,844
<LOSS-PROVISION> 375
<INTEREST-EXPENSE> 1,921
<INCOME-PRETAX> 12,507
<INCOME-TAX> 4,625
<INCOME-CONTINUING> 7,882
<DISCONTINUED> 0
<EXTRAORDINARY> 724
<CHANGES> 0
<NET-INCOME> 7,158
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
