BARNETT INC, S-1/A, 1997-03-21

BARNETT INC
S-1/A, 1997-03-21
CATALOG & MAIL-ORDER HOUSES

Previous: TIG HOLDINGS INC, DEF 14A, 1997-03-21

Next: INTERCAPITAL QUALITY MUNICIPAL SECURITIES, DEF 14A, 1997-03-21

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997

REGISTRATION NO. 333-22453

================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------

PRE-EFFECTIVE AMENDMENT NO. 1

REGISTRATION STATEMENT

FORM S-1
UNDER

THE SECURITIES ACT OF 1933
------------------------

BARNETT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

5074, 5063
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)

3333 LENOX AVENUE
JACKSONVILLE, FLORIDA 32254
(904) 384-6530
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL OFFICES)

------------------------

WILLIAM R. PRAY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3333 LENOX AVENUE
JACKSONVILLE, FLORIDA 32254
(904) 384-6530
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENTS FOR SERVICE)

------------------------

COPIES TO:

<TABLE>
<S> <C>
SCOTT M. ZIMMERMAN, ESQ. ROBERT F. WALL, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP WINSTON & STRAWN
919 THIRD AVENUE 35 WEST WACKER DRIVE
NEW YORK, NEW YORK 10022 CHICAGO, ILLINOIS 60601
(212) 758-9500 (312) 558-5600
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------

<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
DELAWARE 59-1380437
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MARCH 20, 1997

PROSPECTUS

1,800,000 SHARES

BARNETT LOGO

COMMON STOCK

Of the 1,800,000 shares of Common Stock of Barnett Inc. (the "Company")
offered hereby, 500,000 shares of Common Stock are being sold by the Company and
1,300,000 shares of Common Stock are being sold by Waxman USA Inc., an affiliate
of the Company ("Waxman USA" or the "Selling Stockholder"). The Selling
Stockholder is a wholly-owned subsidiary of Waxman Industries, Inc. ("Waxman
Industries"). Following the consummation of the sale of the Common Stock offered
hereby (the "Offering"), Waxman USA will beneficially own 44.3% of the
outstanding Common Stock and effectively will have the ability to control the
election of the Company's directors and other actions requiring stockholder
approval. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Stockholder. See "Principal and Selling
Stockholder."

The Common Stock is quoted on the Nasdaq National Market under the symbol
"BNTT." On March 18, 1997, the last sale price of the Common Stock as reported
by the Nasdaq National Market was $21.25. See "Price Range of Common Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
=======================================================================================================
</TABLE>

(1) The Company, the Selling Stockholder and Waxman Industries have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting estimated expenses of $84,000 and $216,000 payable by the
Company and the Selling Stockholder, respectively.

(3) The Selling Stockholder has granted to the Underwriters a 30-day option to
purchase up to an additional 150,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholder will be $ , $ and
$ , respectively.

The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by them and subject to their right to reject
any orders in whole or in part and certain other conditions. It is expected that
delivery of the certificates for the shares of Common Stock will be made on or
about , 1997.

WILLIAM BLAIR & COMPANY

ALEX. BROWN & SONS

INCORPORATED
DONALDSON, LUFKIN & JENRETTE

SECURITIES CORPORATION

THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
NATIONAL ADVANTAGE

[MAP TO DISTRIBUTION CENTERS]

------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."

<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, references in this Prospectus to a particular year
refer to the 12-month period ended on June 30 in that year. Unless otherwise
indicated, all information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised.

THE COMPANY

The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to over 46,000 active customers
throughout the United States. The Company offers approximately 9,700 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 90 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 29 distribution centers
strategically located in 29 major metropolitan areas throughout the United
States. Through these local distribution centers, approximately 70% of the
Company's orders are shipped to the customer on the same day the order is
received. 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, electrical and hardware products. The Company's approximately 650-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 three
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 mailed approximately 1.8 million promotional flyers during the first
six months of fiscal 1997 compared to approximately 800,000 promotional flyers
during the comparable period in fiscal 1996. 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 national network
of local distribution centers enable it to fulfill approximately 94% of the
items included in each customer order and provide rapid delivery. As a result of
its emphasis on customer service, the Company's customer retention rate (i.e.,
customers who place orders in the following year) has grown from approximately
74.0% during each of the three years from fiscal 1992 through fiscal 1995 to
approximately 83.8% in fiscal 1996.

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(R), Barnett(R), Legend(TM), Electracraft(R) and Lumina(TM).

Since the Company was acquired by Waxman Industries in 1984, its annual net
sales have grown from $32.8 million to $127.4 million, its product offerings
have increased from approximately 2,000 to 9,700 items and the number of active
accounts serviced by the Company has increased from approximately 6,000 to over
46,000. The Company had consistent annual net sales and operating income growth
since its acquisition in 1984. However, prior to the Company's initial public
offering (the "Initial Public Offering") in April 1996, the Company's ability to
fully implement its growth strategy had been significantly constrained due to
the limited

3
<PAGE> 5

availability of working capital resulting from the highly leveraged capital
structure of Waxman Industries. Despite these capital constraints, from fiscal
1992 to fiscal 1996, the Company's net sales grew at a compound annual growth
rate of approximately 15.3%. As a result of the Initial Public Offering, the
Company has had more working capital available to pursue its growth strategy,
which includes:

- Expand net product offerings with the addition of approximately
1,500 to 2,000 new items per year that will deepen the Company's
existing product lines, including certain recently introduced
product categories such as lighting fixtures, residential irrigation
equipment, industrial faucets and heating, ventilation, air
conditioning and refrigeration ("HVAC/R") equipment, and establish
new product categories.

- Increase penetration of existing customer target markets, primarily
through the addition of outbound telesales personnel, increased
circulation of its catalogs and a substantial expansion of its
promotional flyer mailing program.

- Increase geographic coverage and local presence by adding two to
four distribution centers per year in major metropolitan areas.

- Add new customer segments through expanded promotional flyer
mailings targeted toward complementary customer segments such as
HVAC/R contractors, lighting showrooms and healthcare facilities.

- Expand export business by increasing international flyer mailings
and creating a dedicated international telesales staff.

THE OFFERING

<TABLE>
<S> <C>
Shares Offered by the Company............. 500,000
Shares Offered by the Selling 1,300,000
Stockholder.............................
Shares of Common Stock to be Outstanding
Immediately after the Offering(1)....... 14,898,000
Use of Proceeds to the Company............ Repayment of indebtedness and general corporate
purposes, which may include the acquisition and/or
development of complementary product categories and
the expansion and/or relocation of the Company's
telesales facilities. See "Use of Proceeds."
Use of Proceeds to the Selling Repayment of indebtedness. See "Use of Proceeds."
Stockholder.............................
Certain Relationships..................... All or a substantial portion of the net proceeds to
the Selling Stockholder of this Offering will be
used to repay indebtedness of Waxman USA. See "Use
of Proceeds." In addition, following consummation
of the sale of the Shares offered hereby, Waxman
USA will beneficially own 44.3% of the outstanding
Common Stock, assuming the conversion of all of the
Company's Series A Preferred Stock owned by Waxman
USA, and effectively will have the ability to
control the election of the Company's directors and
other actions requiring stockholder approval. In
addition, the Company is a party to certain
arrangements with Waxman Industries and its other
subsidiaries. See "Risk Factors -- Control by
Waxman Industries," "-- Potential Conflicts to
which Certain Directors and Officers May Be
Subject" and "-- Potential Conflicting
Relationships with Waxman Industries."
Nasdaq National Market Symbol............. BNTT
</TABLE>

- ---------------

(1) Excludes (i) 1,271,000 shares of the Company's Series A Preferred Stock (as
hereinafter defined) which the Company has been advised by Waxman USA will
be converted into a like number of shares of Common Stock after this
Offering and (ii) 1,900,000 shares of Common Stock reserved for issuance
upon the exercise of stock options under the Company's 1996 Omnibus
Incentive Plan, 1996 Employee Stock Purchase Plan and 1996 Stock Option Plan
for Non-Employee Directors (collectively, the "Stock Incentive Plans"), of
which options exercisable to purchase 791,000 shares of Common Stock have
been granted as of the date of this Prospectus. See
"Management -- Compensation Plans" and "Description of Capital Stock."

4
<PAGE> 6

The Company, which was initially incorporated in Florida in 1972, was
reincorporated in Delaware in February 1993. The Company's principal executive
offices are located at 3333 Lenox Avenue, Jacksonville, Florida 32254, telephone
(904) 384-6530. Unless the context otherwise indicates, the term the "Company"
refers to Barnett Inc.

CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Statements in this Prospectus 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 (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Any statements contained herein which
are not historical facts or which contain the words expect, believe or
anticipate, shall be deemed to be forward-looking statements. 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
decreased consumer spending 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 under "Risk Factors" as well as in the
Company's reports and statements filed from time to time with the Securities and
Exchange Commission.

5
<PAGE> 7

SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS
----------------------------------------------------------- ENDED
PRO DECEMBER 31,
FORMA -----------------
1992 1993(1) 1994 1995 1996 1996(2) 1995 1996
------- ------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(3)................................. $72,106 $82,875 $95,225 $109,107 $127,395 $127,395 $60,515 $76,362
Gross profit................................. 24,779 28,034 32,602 37,292 42,647 42,647 20,257 25,990
Corporate charge............................. 1,378 1,673 1,918 1,862 1,342 -- 892 --
Operating income............................. 7,711 7,339 9,636 11,658 14,428 15,620 6,609 9,300
Interest expense............................. 1,794 1,449 1,518 2,139 1,921 -- 1,235 35
Income before income taxes, cumulative effect
of accounting change and extraordinary
item....................................... 5,917 5,890 8,118 9,519 12,507 15,620 5,374 9,265
Income before cumulative effect of accounting
change and extraordinary item.............. 3,517 3,690 5,218 6,019 7,882 9,841 3,374 5,703
Net income(4)................................ 3,517 3,069 5,218 6,019 7,158 9,841 3,374 5,703
Primary and fully diluted earnings per share:
Before extraordinary item.................. $ 0.61 $ 0.36
Net income(4).............................. 0.55 0.36
Pro forma earnings per share................. $ 0.62
Weighted average shares outstanding (5)...... 12,914 15,929 15,944
OPERATING DATA (AT PERIOD END):
Distribution centers......................... 23 26 28 28 28 28 29
Products offered............................. * 7,100 7,900 8,100 8,500 8,200 9,200
Active customers(6).......................... 27,000 33,000 36,000 38,000 42,000 40,000 46,000
Telesalespersons............................. 29 37 47 60 85 70 92
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED(7)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................... $33,030 $43,049
Total assets............................................................................ 68,161 75,261
Total debt.............................................................................. 2,919 --
Stockholders' equity.................................................................... 47,027 57,046
</TABLE>

- ---------------
* Not available.

(1) During fiscal 1993, the Company accelerated its amortization of certain
distribution center start-up and catalog development costs. The effect of
this change in fiscal 1993 was to decrease operating income by $1.2 million.
In fiscal 1993, net income was decreased by $1.4 million due to the
foregoing decrease in operating income, as well as the 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) The pro forma income statement data presents the results of the Company for
fiscal 1996 after giving effect to the following, in each case as if it had
occurred as of July 1, 1995: (i) the sale by the Company of 3,760,000 shares
of Common Stock offered in the Initial Public Offering resulting in net
proceeds of $47.7 million, which were used primarily to repay indebtedness
of the Company, including a $22.0 million note payable to Waxman USA,
thereby resulting in the elimination of $1.9 million of interest expense;
(ii) the elimination of the corporate charge paid to Waxman Industries; and
(iii) the inclusion of approximately $150,000 for public company costs. The
pro forma income statement data does not include the one-time, non-cash
extraordinary charge referred to in footnote (4) below.

(3) 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 $3.0
million for the fiscal year ended June 30, 1996.

6
<PAGE> 8

(4) In the fourth quarter of fiscal 1996, the Company incurred a one-time,
non-cash extraordinary charge in the amount of $724,000 (net of applicable
income tax of $426,000), or $0.06 per share, as a result of the write-off of
unamortized debt issuance costs incurred in connection with the Company's
prepayment of its borrowings under the secured credit facility (the
"Operating Companies Revolving Credit Facility") among Citicorp USA, Inc.,
as agent, the Company, Waxman Consumer Products Group Inc. (as hereinafter
defined) and WOC Inc. (as hereinafter defined), which indebtedness included
push-down bank indebtedness from Waxman USA.

(5) Prior to the Offering, 14,398,000 shares of Common Stock and 1,271,000
shares of Series A Preferred Stock were outstanding. The number of shares
used to calculate pro forma earnings per share assumes that all shares of
Series A Preferred Stock have been converted into a like number of shares of
Common Stock and that the 3,760,000 shares of Common Stock sold by the
Company in the Initial Public Offering were outstanding as of July 1, 1995.
See "Description of Capital Stock."

(6) Active customers are customers that have purchased products from the Company
within the preceding twelve months.

(7) The as adjusted balance sheet data presents the historical data adjusted to
give effect to the sale by the Company of 500,000 shares of Common Stock
offered hereby resulting in estimated net proceeds of $10.0 million of which
$2.9 million is assumed to be used to reduce the short-term indebtedness of
the Company outstanding at December 31, 1996 and $7.1 million is assumed to
be used for general corporate purposes, as described in "Use of Proceeds."

7
<PAGE> 9

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby.

CONTROL BY WAXMAN INDUSTRIES

Upon completion of this Offering, Waxman USA, which is a wholly-owned
direct subsidiary of Waxman Industries, will beneficially own approximately
44.3% of the outstanding shares of Common Stock of the Company, assuming the
conversion of all of the Company's Series A Non-Voting Convertible Preferred
Stock (the "Series A Preferred Stock") owned by Waxman USA. Accordingly, Waxman
Industries effectively will have the ability to control the election of the
Company's directors and other actions requiring stockholder approval, including
certain fundamental corporate transactions such as a merger or sale of all or
substantially all of the assets of the Company. Melvin Waxman, Chairman of the
Board of the Company, and Armond Waxman, Vice-Chairman of the Board of the
Company, together with members of their respective families, own securities
representing approximately two-thirds of the aggregate voting power of Waxman
Industries.

Waxman Industries has entered into a standstill agreement with the Company
(the "Standstill Agreement"), which expires in January 2000, pursuant to which
Waxman Industries agreed not to acquire any securities of the Company which
would result in the ownership by Waxman Industries or its subsidiaries of a
majority of the Common Stock. The Standstill Agreement may only be amended,
modified or terminated with the approval of a majority of the independent
directors of each of Waxman Industries and the Company. Neither Waxman
Industries nor the Company has any current intention of seeking, nor is
currently contemplating any transaction that would require, the amendment,
modification or termination of the Standstill Agreement. Any proposed
modification, amendment or termination of the Standstill Agreement would be
considered in light of the circumstances existing at the time such modification,
amendment or termination is sought. If Waxman Industries were to acquire
additional shares of Common Stock such that a majority of the outstanding Common
Stock were beneficially owned by it, the Company would likely become subject to
the instruments then governing Waxman Industries' and Waxman USA's debt
obligations, which, if applicable, could effectively limit, among other things,
the Company's borrowing capacity. See "Principal and Selling Stockholder,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."

POTENTIAL CONFLICTS TO WHICH CERTAIN DIRECTORS AND OFFICERS MAY BE SUBJECT

Certain of the Company's directors and officers are also directors and
officers of Waxman Industries, and may be subject to various conflicts of
interest, including, among others, the negotiation of agreements between the two
companies for the purchase of products, the provision of services and the
performance by the two companies under their existing agreements. The Chairman
of the Board of Directors of the Company (the "Board") and the Vice Chairman of
the Board are also directors and executive officers of Waxman Industries and are
not based in cities where the Company currently has its executive offices or
significant operations. Each of these directors will devote such time to the
business and affairs of the Company as is appropriate under the circumstances.
Each such person, however, has other duties and responsibilities with Waxman
Industries that may conflict with the time which might otherwise be devoted to
his duties with the Company. In addition, William R. Pray, the President and
Chief Executive Officer of the Company, is currently a director of Waxman
Industries. See "Management" and "Relationship Between the Company and Waxman
Industries."

POTENTIAL CONFLICTING RELATIONSHIPS WITH WAXMAN INDUSTRIES

The Company may be subject to various conflicts of interest arising out of
the relationships among it and Waxman Industries and their respective
affiliates. The Company's Audit Committee is responsible for the review and
approval of all future agreements between the Company and Waxman Industries and
its affiliates, including amendments to an Intercorporate Agreement between
Waxman Industries and the Company (the "New Intercorporate Agreement"). The
Audit Committee periodically reviews the Company's purchase of products from
Waxman Industries and its affiliates to ensure that such purchases are on terms
that are

8
<PAGE> 10

commercially reasonable. The Audit Committee is comprised solely of directors
who are not affiliated with the Company or Waxman Industries. See "Relationship
Between the Company and Waxman Industries" and "Management -- Audit Committee."

Pursuant to the New Intercorporate Agreement, Waxman Industries will
provide, if, and to the extent, the Company so requests, certain administrative
and financial services to the Company, including, among other things, assistance
with public company reporting and certain financial functions, tax planning and
compliance and insurance and risk management. In addition, pursuant to the New
Intercorporate Agreement, the Company will continue to provide certain services
to the operating divisions of WOC Inc. ("WOC"), an indirect wholly-owned
subsidiary of Waxman Industries, including LeRan Gas Products ("LeRan"), U.S.
Lock Corporation ("U.S. Lock") and Madison Equipment Company ("Madison"). These
services include the utilization of the Company's management information
systems, financial accounting, order processing and billing and collection
services. The terms upon which these services are provided to and by the Company
and the compensation therefor were not determined in arms' length negotiations.
However, the Company believes that the charges for these services are
commensurate with those that would be available from non-affiliated entities.
During the six months ended December 31, 1996, the Company was charged an
aggregate of approximately $286,000 by Waxman Industries, U.S. Lock, LeRan and
Madison for services rendered to it and for reimbursement of expenses incurred
on its behalf by Waxman Industries and such operating units, and charged an
aggregate of approximately $746,000 to Waxman Industries, U.S. Lock, LeRan and
Madison for services rendered to them and for reimbursement of expenses incurred
on their behalf by the Company pursuant to the New Intercorporate Agreement. In
addition, the Company and Waxman Industries are parties to a Registration Rights
Agreement (the "Registration Rights Agreement") and the Company and Consumer
Products are parties to a Trademark License Agreement (the "Trademark License
Agreement"). See "Relationship Between the Company and Waxman
Industries -- Intercompany Arrangements."

The Company has in the past, and will in the future, purchase certain
products from Waxman Industries and certain of Waxman Industries' other
subsidiaries. During fiscal 1996 and the six months ended December 31, 1996, the
Company purchased approximately $12.2 million and $7.0 million or 14.4% and
13.8%, respectively, of total cost of products from Waxman Industries and its
related entities. The Company believes that purchases of products from Waxman
Industries have been made on terms that are not materially different than the
Company could have obtained from unaffiliated third parties. The Company intends
in the future to engage in transactions with Waxman Industries if the terms are
comparable to those that are available from unaffiliated third parties.

Prior to the Initial Public Offering, the Company was included in the
consolidated group of domestic corporations of which Waxman Industries was the
common parent for federal income tax purposes. Under federal law, the Company is
deemed to be jointly and severally liable for the consolidated federal income
tax liabilities (including any amounts determined to be due as a result of
redeterminations of the tax liability of Waxman Industries arising from an audit
or otherwise) of the consolidated group of which Waxman Industries was the
common parent, for all taxable periods during which the Company was a member of
that consolidated group. As of June 30, 1996, Waxman Industries had available to
it approximately $54.3 million of net operating loss carryforwards for federal
income tax purposes. After the Offering and after taking into account the
estimated net gain to Waxman Industries from the Offering, Waxman Industries
expects to have available to it approximately $28.3 million of net operating
loss carryforwards. Waxman Industries agreed to indemnify the Company for any
federal income tax liability (and certain state and local tax liabilities
including any amounts determined to be due as a result of redeterminations of
the tax liability of Waxman Industries arising from an audit or otherwise) of
Waxman Industries or any of its other subsidiaries that the Company is actually
required to pay. However, the viability of this indemnity is dependent upon the
financial condition of Waxman Industries. Neither the Company nor any of its
affiliates is aware of any potential federal income tax liability of Waxman
Industries or its subsidiaries (other than the Company's own tax liability) for
which the Company would be liable. See "Relationship Between the Company and
Waxman Industries -- Intercompany Arrangements -- Tax Sharing Agreement."

9
<PAGE> 11

POSSIBLE FUTURE SALES OF COMMON STOCK BY WAXMAN USA

Subject to the restrictions described under "Shares Eligible for Future
Sale" and subject to the terms of Waxman Industries' and Waxman USA's debt
instruments and applicable law, Waxman Industries could cause the sale of any or
all the Common Stock owned by Waxman USA after completion of this Offering. See
"Relationship Between the Company and Waxman Industries" and "Principal and
Selling Stockholder." Subject to restrictions contained in the documents
governing Waxman Industries' and Waxman USA's indebtedness, Waxman Industries
may determine to sell shares of Common Stock from time to time for any reason.
Although Waxman Industries has no current plans to sell shares of Common Stock
owned by it after the consummation of this Offering, and is contractually
prevented from doing so for a period of 180 days after the Offering pursuant to
the terms of a lock-up agreement, circumstances may arise under which Waxman
Industries will find it necessary or desirable to sell shares of Common Stock
owned by it after the consummation of this Offering. Although the Company can
make no prediction as to the effect, if any, that sales of shares of Common
Stock owned by Waxman USA would have on the market price prevailing from time to
time, sales of substantial amounts of Common Stock or the availability of such
shares for sale could adversely affect prevailing market prices. In addition,
any sale or transfer of the Common Stock of the Company owned by Waxman USA
could result in another person or entity becoming the controlling stockholder of
the Company. See "Shares Eligible for Future Sale."

Waxman Industries has a high degree of leverage which may, under certain
circumstances, cause it to sell shares of Common Stock. At December 31, 1996,
Waxman Industries had outstanding approximately $131.9 million of consolidated
indebtedness (excluding trade payables, accrued liabilities and debt of the
Company). Waxman Industries' debt obligations include the following: (i) $67.0
million accreted value (as of December 31, 1996) of 12 3/4% Senior Deferred
Coupon Notes due June 1, 2004 (the "Waxman Deferred Coupon Notes"), (ii) $5.7
million principal amount of 13 3/4% Senior Subordinated Notes due June 1, 1999
(the "Waxman Senior Subordinated Notes") and (iii) $43.0 million principal
amount of Waxman USA's 11 1/8% of Senior Notes due 2001 (the "Waxman USA Senior
Notes"). During January 1997, approximately $4.8 million of Waxman USA Senior
Notes were exchanged for a like principal amount of Senior Subordinated Notes.
Cash interest on the Waxman Deferred Coupon Notes is payable semi-annually
commencing December 1999. At December 31, 1996, Waxman Industries had
outstanding $14.6 million of bank indebtedness, a portion of which may be repaid
with the proceeds of the Offering, and $28.7 million in trade payables that will
remain outstanding after the consummation of the Offering. After giving effect
to this Offering and the application of the net proceeds as described in "Use of
Proceeds," at December 31, 1996, Waxman Industries would have had outstanding
approximately $105.9 million of consolidated indebtedness, excluding the
borrowings of the Company.

SOURCES OF SUPPLY

As is customary in its industry, the Company does not have long-term
contracts with any of its vendors. Although the Company believes it has access
to similar products from competing vendors, any disruption in the Company's
sources of supply, particularly of the most commonly sold items, could have a
material adverse effect upon the Company's operations and profitability. In
addition, the Company is subject to the risks of obtaining products abroad,
including adverse fluctuations in currency exchange rates, increases in import
duties, decreases in quotas, increased customs regulations and political
turmoil. The occurrence of any one or more of the foregoing could adversely
affect the Company's results of operations. In fiscal 1994, 1995, 1996 and the
six months ended December 31, 1996, 26.4%, 26.6%, 27.6% and 27.0%, respectively,
of the Company's net sales were from products manufactured by vendors outside
the United States. See "Business -- Products."

DEPENDENCE ON CENTRALIZED SYSTEMS; RISKS OF RELOCATION

The Company's operations in each of its distribution centers and its
customer service and telesales operations in its headquarters are dependent on a
single integrated computer system located at the Company's headquarters in
Jacksonville, Florida. Each distribution center has a continuous on-line
connection to the Company's main computer in order to fill and ship customer
orders on a same-day basis. Any significant disruption or unavailability of the
system for any prolonged period of time would have a material adverse effect

10
<PAGE> 12

on the Company's business and results of operations. Because the Company has a
centralized center for taking orders directed to its telesales operations, any
disruptions in telephone service to the Jacksonville, Florida telesales center
would adversely effect the ability of the Company to accept orders. Although the
Company has taken certain precautions to protect itself from events that could
interrupt its operations, including off-site storage of back-up data, fire
protections, physical security systems, certain electrical back-up systems and
an early warning fire detection system, there can be no assurance that a
substantial electrical or communications link outage, fire, flood, hurricane or
other natural disaster would not disable the system or prevent the system from
communicating with the Company's distribution centers. However, the Company will
soon complete the installation of a geographically remote "hot site" computer
system that will be able to communicate with all of the Company's distribution
centers in the event of a failure of the Company's primary system.

The Company's ability to manage its inventory and accounts receivable
collections, to purchase, sell and ship its products efficiently and on a timely
basis, and to maintain its cost-efficient operation is dependent upon the
quality and utilization of the information generated by its management
information systems. The Company recognizes the need to continually upgrade its
management information systems to most effectively manage its operations and
customer data base. In that regard, the Company anticipates that it will, from
time to time, require software and hardware upgrades for its present management
information systems. The Company believes that its management information
systems, coupled with these ongoing enhancements, are sufficient to sustain its
present operations and its anticipated growth for the foreseeable future. There
can be no assurance that these enhancements will be implemented without
disrupting the management information systems.

The Company will be relocating its telesales operations to expanded
facilities within the next twelve to eighteen months. Although the Company has
relocated all or portions of its telesales operations several times during the
past five years with no disruption in sales or service, there can be no
assurance that any such relocation will not cause a disruption in the
availability of such telesales system.

IMPACT OF INCREASED SHIPPING, POSTAGE AND PAPER COSTS

Shipping, postage and paper costs are significant expenses in the operation
of the Company's business. The Company ships its products to customers generally
by United Parcel Service, third party common carriers, and other delivery and
surface services. For sales below certain prescribed levels, the Company
invoices the costs of delivery and parcel shipments directly to customers as
separate shipping and handling charges. Historically, increases in the cost of
postage, paper and commercial delivery services have been passed on to the
Company's customers. There can be no assurance that the Company will be able to
pass on any significant future cost increases to its customers. Additionally,
strikes or other service interruptions by such shippers could adversely affect
the Company's ability to market or deliver product on a timely basis. Any
additional increases in shipping, postal or paper costs could have an adverse
effect on the Company's operating results.

COMPETITION

The market in which the Company competes is highly fragmented, consisting
of many regional and local competitors including local and regional broad line
suppliers, specialty suppliers, industrial suppliers, other mail order
distributors and warehouse home centers. Certain of the Company's competitors
have greater financial resources than the Company. Increased competition by
existing and future competitors could result in reductions in sales and pricing
of Company products that could materially adversely affect the Company's
profitability. Further, as the Company seeks to increase market penetration, its
success will depend, in part, on its ability to gain market share from
established competitors. See "Business -- Competition."

11
<PAGE> 13

RELIANCE ON KEY MANAGEMENT

The Company's success is dependent upon the experience and ability of
William R. Pray, the President and Chief Executive Officer of the Company. The
loss of Mr. Pray could have an adverse effect on the Company's business. The
Company is party to an employment agreement with Mr. Pray. See
"Management -- Executive Compensation Arrangements."

CERTAIN ANTITAKEOVER PROVISIONS

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Company Charter") and Amended and Restated By-Laws (the
"Company By-Laws") contain provisions that, among other things, establish
staggered terms for members of the Company's Board of Directors, place certain
restrictions on the removal of directors, authorize the Board of Directors to
issue preferred stock in one or more series without stockholder approval,
prohibit action by written consent of stockholders, authorize only the Chairman
of the Board of Directors, Chief Executive Officer or a majority of the Board of
Directors to call special meetings of stockholders, require advance notice for
director nominations and certain other matters to be considered at meetings of
stockholders, impose supermajority voting requirements on amendments to the
By-laws and impose supermajority voting and "fair price" requirements on certain
transactions. These provisions and the prohibition against certain business
combinations contained in Section 203 of the Delaware General Corporation Law
could have the effect of delaying, deferring or preventing a change in control
or the removal of existing management of the Company. See "Description of
Capital Stock."

In addition, after completion of the Offering, Waxman USA will beneficially
own approximately 44.3% of the outstanding shares of Common Stock, assuming the
conversion of all the Series A Preferred Stock owned by Waxman USA into Common
Stock, and effectively will have the ability to elect all of the members of the
Board of Directors. Accordingly, a takeover of the Company would be difficult
without the consent of Waxman USA. See "Relationship Between the Company and
Waxman Industries" and "Description of Capital Stock."

GENERAL ECONOMIC CONDITIONS

Although the Company has experienced average compounded annual revenue
growth of approximately 15.7% during the fiscal years 1994 through 1996, there
can be no assurance that periods of sustained slow economic growth or future
economic recessions would not have a material adverse effect on the Company. The
Company's customers include smaller home repair and improvement contractors and
hardware and building supply stores and the Company may be affected by prolonged
economic downturns or significant declines in consumer spending.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, 14,898,000 shares of Common Stock will be
outstanding (excluding the shares of Common Stock which are issuable upon the
conversion of the Series A Preferred Stock), and only the shares of Common Stock
sold in this Offering and the 7,207,200 shares sold in the Initial Public
Offering will be freely tradeable by persons other than "affiliates" of the
Company, without restriction under the Securities Act. Waxman USA has advised
the Company that it currently intends to convert all of the outstanding shares
of Series A Preferred Stock owned by it into Common Stock subsequent to the
Offering. The remaining shares of Common Stock and outstanding shares of Series
A Preferred Stock convertible into Common Stock will be "restricted" securities
(the "Restricted Shares") within the meaning of Rule 144 promulgated under the
Securities Act ("Rule 144") and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemptions contained in Rule 144. All of the Restricted Shares
will be held by Waxman USA upon completion of this Offering.

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to be received by the Company from this Offering, after
deducting the estimated underwriting discounts and expenses of this Offering
payable by the Company, are approximately $10.0 million, assuming an offering
price of $21.25 per share. The Company intends to use all of the net proceeds to
be received by it in this Offering for the (i) repayment of the outstanding
borrowings ($1.8 million at March 18, 1997) under the Company's revolving credit
facility; and/or (ii) general corporate purposes, which may include the
acquisition and/or development of product categories complementary to the
Company's existing product offerings and the expansion and/or relocation of the
Company's telesales facilities. The Company's $15.0 million unsecured revolving
credit facility with First Union National Bank of Florida bears interest, at the
Company's option, at the lower of prime rate minus 75 basis points or LIBOR plus
100 basis points and expires in April 1999.

The net proceeds to be received by Waxman USA from this Offering, after
deducting the estimated underwriting discounts and expenses of this Offering
payable by Waxman USA, are estimated to be approximately $26.0 million ($29.0
million if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $21.25 per share. Waxman USA intends to use
all or a substantial portion of the net proceeds received by it to repay
indebtedness including the (i) repayment of a portion of the outstanding
principal amount of the Waxman USA Senior Notes (including accrued interest and
redemption premiums) and/or (ii) repayment of a portion of the Waxman Deferred
Coupon Notes. Any net proceeds received by Waxman USA not used to repay
indebtedness will be reinvested in the businesses of Waxman USA's wholly-owned
subsidiaries. The Waxman USA Senior Notes bear interest at 11 1/8 per annum and
mature on September 1, 2001. The Waxman Deferred Coupon Notes accrete until June
1, 1999, and thereafter accrue interest, at the rate of 12 3/4% per annum and
mature on June 1, 2004.

PRICE RANGE OF COMMON STOCK

The Common Stock was initially offered to the public on March 29, 1996 at
$14.00 per share and is quoted 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 the periods indicated on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1996:
Third Quarter (from March 29, 1996).......................... $23.25 $19.00
Fourth Quarter............................................... 29.50 20.25
Fiscal 1997:
First Quarter................................................ $27.75 $19.00
Second Quarter............................................... 27.25 21.00
Third Quarter (through March 18, 1997)....................... 27.25 20.25
</TABLE>

On March 18, 1997, the last sales price of the Common Stock was $21.25 per
share as reported on the Nasdaq National Market. At March 18, 1997, the Company
believes there were approximately 15 stockholders of record of the Common Stock.

DIVIDEND POLICY

The Company has not paid any dividends on its Common Stock since the
Initial Public Offering. The Company currently intends to retain substantially
all of its earnings, if any, to support the development of its business and has
no present intention of paying any dividends on its Common Stock in the
foreseeable future. Any future determination as to the payment of dividends will
be at the discretion of the Board, and will depend on the Company's financial
condition, results of operations and capital requirements, and such other
factors as the Board deems relevant. 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.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the short-term debt and total capitalization
of the Company at December 31, 1996, and as adjusted to give effect to the sale
of 500,000 shares of Common Stock offered by the Company hereby and the
application of the estimated net proceeds of such sale as described under "Use
of Proceeds." This table should be read in conjunction with the Company's
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus. See "Use of Proceeds" and "Selected Financial Information and
Operating Data."

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving Credit Facility............................. $ 2,919 $ --
======= =======
Stockholders' equity:
Serial preferred stock, $0.10 par value, 10,000,000
shares authorized, 1,271,000 issued and outstanding
at December 31, 1996 and no shares issued and
outstanding
as adjusted:
Series A Preferred Stock, $0.10 par value,
1,271,000 shares issued and outstanding at
December 31, 1996 and no shares issued and
outstanding as adjusted:......................... $ 127 $ --
Common Stock, $0.01 par value, 40,000,000 shares
authorized; 14,398,000 shares issued and
outstanding at December 31, 1996; 16,169,000 shares
issued and outstanding as adjusted(2):............. 143 162
Paid-in capital......................................... 39,109 49,236
Retained earnings....................................... 7,648 7,648
------- -------
Total stockholders' equity............................ 47,027 57,046
------- -------
Total capitalization............................... $47,027 $ 57,046
======= =======
</TABLE>

- ---------------

(1) The as adjusted information presents the sale by the Company of 500,000
shares of Common Stock offered hereby, the application of the net proceeds
therefrom to repay the outstanding bank indebtedness as described in "Use of
Proceeds," and the conversion of 1,271,000 shares of Series A Preferred
Stock by Waxman USA into a like number of shares of Common Stock.

(2) Excludes 1,900,000 shares of Common Stock reserved for issuance upon the
exercise of stock options under the Company's Stock Incentive Plans, of
which options exercisable to purchase 786,500 shares of Common Stock were
outstanding as of December 31, 1996. See "Management -- Compensation Plans"
and "Description of Capital Stock."

14
<PAGE> 16

SELECTED FINANCIAL INFORMATION AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

The selected historical financial data for the years ended June 30, 1994,
1995 and 1996 has been derived from the audited financial statements of the
Company included elsewhere in this Prospectus. The selected historical financial
data for the years ended June 30, 1992 and 1993 have been derived from the
financial statements of the Company, which are not included in the Prospectus.
The historical information as of and for the six month periods ended December
31, 1995 and 1996 is unaudited, but in the Company's opinion reflects all
adjustments (consisting only of normal and recurring adjustments) which are
necessary to present fairly the financial position and results of operations of
the Company as of such dates and for such periods. The results for the six
months ended December 31, 1996 are not necessarily indicative of the results to
be expected for the year ending June 30, 1997 or any other period. The selected
financial data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company and the notes thereto included elsewhere
in this Prospectus.

The pro forma financial data has been prepared on the basis of certain
assumptions and estimates and may not be indicative of the results that would
have been achieved if the recapitalization and the Offering had been effected on
the dates indicated or that may be achieved in the future.

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS
------------------------------------------------------------------ ENDED
PRO DECEMBER 31,
FORMA ------------------
1992 1993(1) 1994 1995 1996 1996(2) 1995 1996
------- ------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(3)...................... $72,106 $82,875 $95,225 $109,107 $127,395 $127,395 $60,515 $76,362
Cost of sales..................... 47,327 54,841 62,623 71,815 84,748 84,748 40,258 50,372
------- ------- ------- -------- -------- -------- ------- -------
Gross profit...................... 24,779 28,034 32,602 37,292 42,647 42,647 20,257 25,990
Selling, general and
administrative expenses......... 15,690 19,022 21,048 23,772 26,877 27,027 12,756 16,690
Corporate charge.................. 1,378 1,673 1,918 1,862 1,342 -- 892 --
------- ------- ------- -------- -------- -------- ------- -------
Operating income.................. 7,711 7,339 9,636 11,658 14,428 15,620 6,609 9,300
Interest expense.................. 1,794 1,449 1,518 2,139 1,921 -- 1,235 35
------- ------- ------- -------- -------- -------- ------- -------
Income before income taxes,
cumulative effect of accounting
change and extraordinary item... 5,917 5,890 8,118 9,519 12,507 15,620 5,374 9,265
Provision for income taxes........ 2,400 2,200 2,900 3,500 4,625 5,779 2,000 3,562
------- ------- ------- -------- -------- -------- ------- -------
Income before cumulative effect of
accounting change and
extraordinary item.............. 3,517 3,690 5,218 6,019 7,882 9,841 3,374 5,703
Cumulative effect of accounting
change.......................... -- 621 -- -- -- -- -- --
Extraordinary item(4)............. -- -- -- -- 724 -- -- --
------- ------- ------- -------- -------- -------- ------- -------
Net income........................ $ 3,517 $ 3,069 $ 5,218 $ 6,019 $ 7,158 $ 9,841 $ 3,374 $ 5,703
======= ======= ======= ======== ======== ======== ======= =======
Primary and fully diluted earnings
per share:
Before extraordinary item....... $ 0.61 $ 0.36
Net income...................... 0.55 0.36
Pro forma earnings per share...... $ 0.62
Weighted average shares
outstanding (5)................. 12,914 15,929 15,944
OPERATING DATA (AT PERIOD END):
Distribution centers.............. 23 26 28 28 28 28 29
Products offered.................. * 7,100 7,900 8,100 8,500 8,200 9,200
Active customers(6)............... 27,000 33,000 36,000 38,000 42,000 40,000 46,000
Telesalespersons.................. 29 37 47 60 85 70 92
</TABLE>

15
<PAGE> 17

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $19,733 $25,515 $31,253 $29,171 $30,774 $29,566 $33,030
Total assets........................... 42,889 45,043 50,885 52,413 58,300 53,479 68,161
Total long-term debt, excluding
push-down bank debt.................. -- -- 16,215 18,126 -- 20,590 --
Push-down bank debt.................... 23,000 23,000 6,785 4,874 -- 2,410 --
Stockholders' equity................... 7,854 12,068 19,131 17,428 41,324 (3,618) 47,027
</TABLE>

- ---------------

* Not available.

(2) The pro forma income statement data presents the results of the Company for
fiscal 1996 after giving effect to the following, in each case as if each
had occurred as of July 1, 1995: (i) the sale by the Company of 3,760,000
shares of Common Stock offered in the Initial Public Offering resulting in
net proceeds of $47.7 million, which primarily were used to repay
indebtedness of the Company, including a $22.0 million note payable to
Waxman USA, thereby resulting in the elimination of $1.9 million of interest
expense; (ii) the elimination of the corporate charge paid to Waxman
Industries; and (iii) the inclusion of approximately $150,000 for public
company costs and does not include the one-time, non-cash extraordinary item
referred to in footnote (4) below.

(4) In the fourth quarter of fiscal 1996, the Company incurred a one-time,
non-cash extraordinary charge in the amount of $724,000 (net of applicable
income tax of $426,000), or $0.06 per share, 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.

(5) Prior to the Offering, 14,398,000 shares of Common Stock and 1,271,000
shares of Series A Preferred Stock were outstanding. The number of shares
used to calculate pro forma earnings per share assumes that all shares of
Series A Preferred Stock will be converted into a like number of shares of
Common Stock and that the 3,760,000 shares of Common Stock sold by the
Company in the Initial Public Offering were outstanding as of July 1, 1995.
See "Description of Capital Stock."

(6) Active customers are customers that have purchased products from the Company
within the preceding twelve months.

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements including the Notes thereto, appearing elsewhere in this Prospectus.

For several years prior to the Initial Public Offering, the Company's
ability to fully effectuate its growth strategy had been significantly
constrained as a result of Waxman Industries' highly leveraged capital
structure. As a consequence of these liquidity constraints, the Company had
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 for periods prior to the Initial Public Offering.
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 created
the appearance of greater indebtedness than was actually borrowed directly by
the Company. Related interest expense and debt issue costs were also pushed-down
which created higher interest expense than was actually paid by the Company
during those periods.

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 were charged to the Company while it was a wholly-owned
subsidiary of Waxman Industries and are included as "corporate charge" in the
Company's Financial Statements. From July 1, 1994 to March 31, 1996, in
accordance with the prior intercorporate agreement, the management fees charged
to the Company were the lesser of (i) 2% of net sales or (ii) the cost of
providing services to the Company. Prior to July 1, 1994, management fees
charged to the Company represented 2% of net sales. In connection with the
Initial Public Offering, the prior intercorporate agreement was, with respect to
the Company, replaced by the New Intercorporate Agreement under which Waxman
Industries will provide, if, and to the extent, the Company so requests, certain
managerial, administrative and financial services to the Company, for which the
Company will pay 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 Company's Financial Statements as a component of selling, general and
administrative expenses. See "Relationship Between the Company and Waxman
Industries -- Intercompany Arrangements -- New Intercorporate Agreement."

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 third
parties by the Company required for the provision of such services. During the
six months ended December 31, 1996, the Company was charged an aggregate of
approximately $286,000 by Waxman Industries, U.S. Lock, LeRan and Madison for
services rendered to it and for reimbursement of expenses incurred on its behalf
by Waxman Industries and such operating units, and charged an aggregate of
approximately $746,000 to Waxman Industries, U.S. Lock, LeRan and Madison for
services rendered to them and for reimbursement of expenses incurred on their
behalf by the Company pursuant to the New Intercorporate Agreement. See
"Relationship Between the Company and Waxman Industries -- Intercompany
Arrangements -- New Intercorporate Agreement."

17
<PAGE> 19

RESULTS OF OPERATIONS

The following table sets forth certain items reflected in the statements of
income contained in the financial statements of the Company, expressed as a
percentage of net sales and the percentage change in such items for fiscal 1994,
1995 and 1996 and the six months ended December 31, 1996 compared to the prior
year periods.

<TABLE>
<CAPTION>
PERCENTAGE INCREASE (DECREASE)
-------------------------------
SIX MONTHS
PERCENTAGE OF NET SALES ENDED
--------------------------------------------- DECEMBER 31,
SIX MONTHS 1995 TO
YEARS ENDED ENDED SIX MONTHS
JUNE 30, DECEMBER 31, 1994 1995 ENDED
------------------------- --------------- TO TO DECEMBER 31,
1994 1995 1996 1995 1996 1995 1996 1996
----- ----- ----- ----- ----- ---- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0% 14.6% 16.8% 26.2%
Cost of Sales............................. 65.8 65.8 66.5 66.5 66.0 14.7 18.0 25.1
----- ----- ----- ----- -----
Gross profit.............................. 34.2 34.2 33.5 33.5 34.0 14.4 14.4 28.3
Selling, general and administrative
expenses................................ 22.1 21.8 21.1 21.1 21.8 12.9 13.1 30.8
Corporate charge.......................... 2.0 1.7 1.1 1.5 -- (2.9) (27.9) (100.0)
----- ----- ----- ----- -----
Operating income.......................... 10.1 10.7 11.3 10.9 12.2 21.0 23.8 40.7
Interest expense.......................... 1.6 2.0 1.5 2.0 -- 40.9 (10.2) (97.2)
----- ----- ----- ----- -----
Income before income taxes and
extraordinary item...................... 8.5 8.7 9.8 8.9 12.2 17.3 31.4 72.4
Provision for income taxes................ 3.0 3.2 3.6 3.3 4.7 20.7 32.1 78.1
----- ----- ----- ----- -----
Income before extraordinary item.......... 5.5 5.5 6.2 5.6 7.5 15.4 31.0 --
Extraordinary item, net of tax benefit.... -- -- 0.6 -- -- -- -- --
----- ----- ----- ----- -----
Net income................................ 5.5% 5.5% 5.6% 5.6% 7.5% 15.4% 18.9% 69.0%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED DECEMBER 31, 1996 VS. SIX MONTHS ENDED DECEMBER 31, 1995

Net Sales

The Company's net sales increased $15.8 million, or 26.2%, to $76.4 million
in the six months ended December 31, 1996 from $60.5 million in the
corresponding prior year period. Approximately 81.5% 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 22 telesalespersons compared to the prior year period. Also
contributing to the overall increase in net sales was a net increase of 1,053 in
the total number of products offered by the Company over the past twelve months,
which contributed approximately $7.2 million to the net sales increase during
the period. Additionally, as a result of an expanded promotional flyer campaign,
active customers grew to 46,000 from 40,000 in the comparable year period and
contributed approximately $3.0 million to the net sales increase during the six
month period.

Gross Profit

Gross profit increased by 28.3% to $26.0 million in the six months ended
December 31, 1996 from $20.3 million in the corresponding prior year period.
Gross profit margin increased to 34.0% for the six months ended December 31,
1996 from 33.5% for the same period in the prior year, primarily as a result of
improved vendor terms and other favorable vendor program changes implemented as
a result of the Company's improved financial condition during the six months
ended December 31, 1996.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased 30.8% to
$16.7 million for the six months ended December 31, 1996 from $12.8 million for
the comparable prior year period. The increase is primarily due to increased
variable selling expenses, primarily attributable to personnel costs related to
the

18
<PAGE> 20

addition of 22 telesalespersons, together with the expansion of the marketing
staff and increased promotional flyer mailings. Also contributing to increased
variable selling expenses were increased freight and delivery costs resulting
from the Company's determination to reduce its customers' prepaid freight
minimums and the establishment of a same day shipping policy. Furthermore, in
addition to expenses incurred as a result of becoming an independent public
company, the Company instituted new, and enhanced existing, employee benefit
programs to allow it to become more competitive in its compensation and benefit
programs. SG&A expenses represented 21.9% of net sales in the six months ended
December 31, 1996, compared to 21.1% of net sales in the comparable period of
fiscal 1995.

Corporate Charge

Corporate charges were allocations of expenses to the Company by the
Company's former parent to support its corporate activities. These allocations
were eliminated upon the completion of the Initial Public Offering, whereupon
Waxman USA and the Company entered into the New Intercorporate Agreement for
services pursuant to which charges allocated to the Company only include those
expenses incurred by Waxman Industries with respect to the Company. See
"Relationship Between the Company and Waxman Industries -- Intercompany
Arrangements -- New Intercorporate Agreement."

Provision for Income Taxes

The provision for income taxes increased $1.6 million or 78.1% to $3.6
million for the six months ended December 31, 1996 from $2.0 million for the six
months ended December 31, 1995, primarily as a result of increased pre-tax
income. The Company previously participated 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 carryforwards at December
31, 1995 for income tax purposes, the Company had no liability for federal taxes
at December 31, 1995. The Company files separate income tax returns in certain
states based on the results of operations within the applicable states. As a
result of the Initial Public Offering, the Company is no longer included in
Waxman Industries' consolidated tax return. Therefore, Waxman Industries'
remaining net operating loss carryforwards are not available to offset the
Company's taxable income after April 3, 1996, the consummation date of the
Initial Public Offering.

YEAR ENDED JUNE 30, 1996 VS. YEAR ENDED JUNE 30, 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 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.

19
<PAGE> 21

Gross Profit

Gross profit margins decreased to 33.5% in fiscal 1996 compared to 34.2% in
fiscal 1995, principally as a result of the increased revenues of the 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

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, 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 1996 and subsequent expenses under the New
Intercorporate Agreement are included in the Financial Statements as a component
of SG&A expenses.

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 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 June 30, 1996 year end results 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 the Initial Public Offering, which indebtedness
included push-down debt from Waxman USA.

YEAR ENDED JUNE 30, 1995 VS. YEAR ENDED JUNE 30, 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

20
<PAGE> 22

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 1995
compared to 26.4% in the prior year period. 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 9,000 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 were eliminated upon the completion 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 "Relationship Between the Company and Waxman
Industries -- Intercompany Arrangements -- New Intercorporate Agreement."

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 weighted average
interest rate was primarily due to the increased amortization of debt issue
costs and other financing fees in fiscal 1995 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.

QUARTERLY RESULTS

The following table sets forth summary unaudited quarterly financial
information for the last two quarters in fiscal 1995, each quarter in fiscal
1996 and the first two quarters of fiscal 1997. In the opinion of management,
such information has been prepared on the same basis as the Financial Statements
appearing elsewhere in this Prospectus and reflects all necessary adjustments
(consisting of only normal recurring adjustments) for a fair presentation of
such unaudited quarterly results when read in conjunction with the

21
<PAGE> 23

Financial Statements and the Notes thereto. The operating results for any
quarter are not necessarily indicative of results for any future period and
there can be no assurance that any trends reflected in such results will
continue in the future.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996 FISCAL 1997
-------------------- ------------------------------------------- --------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $28,852 $28,016 $29,426 $31,089 $32,884 $33,996 $36,491 $39,871
Gross profit......................... 9,853 9,667 9,603 10,654 10,852 11,538 12,364 13,626
Operating income..................... 2,963 2,786 2,833 3,777 3,571 4,247 4,372 4,928
Net income........................... 1,519 1,415 1,387 1,988 1,838 1,945 2,697 3,006
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1996 the Company had working capital of $33.0 million and a
current ratio of 2.6 to 1.

Net cash provided by operating activities totaled $1.1 million for the six
months ended December 31, 1996 compared to $3.7 million for the six months ended
December 31, 1995. The decrease for the six months ended December 31, 1996 was
attributed to an increase in inventory and accounts receivable caused by the
growth of the Company.

Net cash used in investing activities totaled $4.5 million during the six
months ended December 31, 1996 compared to $1.1 million for the six months ended
December 31, 1995. These investments related primarily to capital expenditures
for improved management information systems, including the buy-out of an
operating lease and expansion and/or relocation of several of the Company's
distribution centers to accommodate increased product offerings. The Company
budgeted approximately $6.0 million of capital expenditures for fiscal 1997.
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.

Net cash provided by financing activities was $2.9 million for the six
months ended December 31, 1996 and represents amounts borrowed under the
Company's revolving credit facility to fund working capital fluctuations,
principally, increases in inventory due to new product introductions. Net cash
used in financing activities of $2.9 million for the six months ended December
31, 1995 primarily represents advances to Waxman Industries to satisfy its debt
service obligations in the prior year period.

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 credit 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 December
31, 1996, there was $2.9 million outstanding under the credit agreement and
there were $4.1 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 December 31, 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 provided by this Offering and available under the bank
credit facility discussed above, will be sufficient to fund the Company's
current operation needs and growth strategy.

22
<PAGE> 24

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." The Company adopted SFAS No. 121 during the first quarter of
fiscal 1997 with no impact on the financial statements. 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 in footnotes to its
audited annual financial statements the pro forma effect of stock-based awards
on net income and earnings per share as if SFAS No. 123 has been adopted. SFAS
No. 123 is effective for fiscal 1997. The Company intends to continue using the
provision of APB Opinion No. 25 in accounting for stock-based awards.

IMPACT OF INFLATION

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.

23
<PAGE> 25

BUSINESS

COMPANY OVERVIEW

The Company is a direct marketer and distributor of an extensive line of
plumbing, electrical and hardware products to over 46,000 active customers
throughout the United States. The Company offers approximately 9,700 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, hardware
stores and maintenance managers. The Company's staff of over 90 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 29 distribution centers strategically located in 29
major metropolitan areas throughout the United States. Through these local
distribution centers, approximately 70% of the Company's orders are shipped to
the customer on the same day the order is received. 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 the offshore sourcing of
a significant portion of its private label products. Products are purchased from
over 400 domestic and foreign suppliers.

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 that do not focus on
the Company's target markets.

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.

24
<PAGE> 26

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 46,000 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 9,700 items and are up to
approximately 650 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 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 29
distribution centers strategically located in 29 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 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 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 approximately
74.0% during each of the three years from fiscal 1992 through fiscal 1995 to
approximately 83.8% 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 brand name
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.

25
<PAGE> 27

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 Company has added
approximately $4.0 million of enhancements to its management information system
over the last three years, and has added, or is in the process of adding, an
additional $2.5 million of enhancements during fiscal 1997. 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

Net sales for the six months ended December 31, 1996 increased by $15.8
million, or 26.2%, over the net sales for the comparable period last year, and
the Company's active customers increased from 40,000 to 46,000 during such
period. Prior to the Initial Public Offering, the Company's ability to fully
implement its growth strategy had been significantly constrained due to the
limited availability of working capital resulting from the highly leveraged
capital structure of Waxman Industries. Despite these constraints, from fiscal
1992 to fiscal 1996, the Company's net sales have grown at a compound annual
growth rate of approximately 15.3%. 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:

Expand product offerings. The Company currently markets approximately
9,700 plumbing, electrical and hardware products. The Company plans to increase
its new product offerings by 1,500 to 2,000 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 recently introduced include lighting fixtures, HVAC/R
parts, commercial faucets and vinyl floor tiles.

Increase penetration of existing target markets. The Company has over
600,000 prospective domestic customers in its current target markets, only
46,000 of which are active customers. The Company believes that increasing the
number of its outbound telesales employees, together with the promotional flyer
campaign, is the most cost effective method to access these potential customers.
To that end, the Company intends to add 20 to 25 telesalespersons annually over
the next several years and to significantly increase its mailings of promotional
flyers. The Company's telesales staff has increased from 29 to approximately 95
persons over the last four and a half years, with the majority of the increase
being attributable to the addition of outbound telesalespersons.

Increase geographic coverage. Over the next few years, the Company plans
to add two to four new distribution centers per year in major metropolitan areas
and has identified 10 to 12 potential locations. The Company opened a new
distribution center in Kansas City, Kansas in November 1996 and plans to open a
distribution center in Milwaukee, Wisconsin during the fourth quarter of fiscal
1997. 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 due, in part, to the continuing expansion of its
product offerings in conjunction with its expanded promotional flyer campaign,
it has the opportunity to market its products to new segments of customers
currently underserviced, such as

26
<PAGE> 28

school systems, hospitals and healthcare facilities, HVAC/R contractors,
lighting showrooms and hotel/motel operators.

Expand export business. 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, the Company has begun to, and intends to continue to, access
these markets through its existing telesales operations and increased mailings
of its promotional flyers. 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.

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 29
distribution centers allowing customers to pick up or receive their orders,
generally within one day of when the order is received. 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 650-page catalogs containing 9,700
plumbing, electrical and hardware products are mailed to its 46,000 active
customers. These 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 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 is currently staffed by approximately 95 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

27
<PAGE> 29

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, provide technical
support, expedite and process new customer applications as well as handle all
customer service. 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 the training program, 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
domestic 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 29 local distribution centers
strategically located in 29 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.

The Company's distribution centers range in size from approximately 11,000
square feet to 47,000 square feet and average approximately 22,000 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 $900,000, including approximately
$600,000 for inventory.

28
<PAGE> 30

The following table sets forth a list of the 29 metropolitan areas served
by the Company's distribution centers, as well as the square footage and year
opened of each distribution center.

<TABLE>
<CAPTION>
METROPOLITAN AREA SERVED SQUARE FOOTAGE FISCAL YEAR OPENED
- ------------------------------------ -------------- ------------------
<S> <C> <C>
REGIONAL HUB DISTRIBUTION
CENTERS
Jacksonville 47,370 1956
Dallas 27,907 1977
Louisville 33,040 1981
Philadelphia 33,852 1987
Sacramento 28,800 1988

LOCAL DISTRIBUTION CENTERS
Denver 22,800 1985
Chicago 23,040 1987
Miami 45,000 1988
Detroit 21,497 1988
Houston 31,924 1989
Richmond 19,694 1989
Seattle 22,300 1990
Boston 20,036 1990
Charlotte 20,000 1990
Los Angeles 21,000 1990
Oklahoma City 20,250 1990
Memphis 17,580 1991
New Orleans 12,059 1991
Atlanta 30,261 1991
El Paso 20,363 1992
New York City 11,300 1992
Pittsburgh 16,000 1992
Buffalo 17,236 1992
Fort Worth 20,000 1993
Tampa 16,800 1993
St. Louis 16,930 1993
Baltimore 16,200 1994
Cincinnati 23,611 1994
Kansas City 22,482 1997
Milwaukee 27,800 1997*
</TABLE>

- ---------------

* Expected to be opened during the fourth quarter of fiscal 1997.

PRODUCTS

The Company markets an extensive line of over 9,700 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

29
<PAGE> 31

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 and the six months ended December 31, 1996, approximately
27.6% and 27.0%, respectively, 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.

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(R) 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), Premier(R), Electracraft(R) and Lumina(TM). 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.

HVAC/R Products. The Company began selling a limited number of name brand
HVAC/R products in July 1996.

The following sets forth a listing of the types of products sold by the
Company in each of its principal product categories:

PLUMBING

Ballcocks and flush valves
Bath hardware
Compression fittings
Copper fittings, DWV and sweat fittings
Copper tubing
CPVC pipe and fittings
Faucet and sink repair parts
Gas valves and gas connectors (AGA approved)
Kitchen cabinets
Lavatory and kitchen faucets
Liquid drain opening products
Malleable fittings and pipe -- galvanized and black
Plumbing tools -- hand and power
Pumps and sewage ejectors
Regulators -- gas and water
Shower and bath tub wall kits
Stems and seats, washers and "O" rings

Stainless steel kitchen sinks

Toilet seats and accessories
Toilet tank flush valves and repair parts
Tubular products -- metal, polypropylene and PVC
Valves -- bronze, brass and non-metallic
Vanities and medicine cabinets
Wall hung lavatories
Water closets, drop-in bowls and pedestal sinks
Water heater elements, thermostats and accessories
Water filters and accessories
Whirlpool tubs

30
<PAGE> 32

ELECTRICAL

Appliance repair parts
Batteries and flashlights
Building wire and lamp cord
Circuit breakers and panels
Conduits and raceways -- metallic and non-metallic
Door bells, buzzers, and chimes
Electrical tools and testers
Fans -- kitchen and bath exhaust
Fluorescent ballasts
Fuses
Light bulbs
Light fixtures
Power cords -- indoor and outdoor, dryer, range, professional, appliance,
extension and power block
Telephone accessories
Two-way radios
Wiring boxes -- metallic and non-metallic
Wiring devices

HARDWARE
Bolts and hasps, door viewers knockers and door accessories
Brooms, mops and dustpans
Caulks, adhesives and weather stripping
Cleaning aids
Door lock sets, dead bolts and accessories
Drywall tools
Fasteners -- drywall, sheet metal, toggle and machine rivets
Fire extinguishers
Keying machines, key blanks and cabinets
Mini blinds and accessories
Padlocks
Paint sundries
Painting accessories -- spackling, glazing, wall patch, joint compound, grout,
mastic, adhesives
Plastic sheeting
Safety equipment and rainwear
Thresholds, tarps and rubber tie-down straps
Windows and screen door accessories, security, door and striker, hinges, braces
and mending plates
Work gloves

HVAC/R
Pumps -- circulating
Thermostats

HVAC/R tools
HVAC/R chemicals
Register/ducting products
Motors/capilators
Refrigeration supplies
Relays
Contactors
Hydronic specialties

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 29 distribution centers. Products manufactured
abroad are initially shipped to the Company's 5 regional distribution centers
and subsequently redistributed to each of the 29 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 provide real-time access
to all necessary information, including inventory availability, order tracking,
and customer creditworthiness. 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

31
<PAGE> 33

month tapes, tape archives and production software kept on-site are stored in a
fire-proof safe. The Company will soon complete the installation of a
geographically remote "hot site" computer system that will be able to
communicate with all of the Company's distribution centers in the event of a
failure of the Company's primary system.

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 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 Barnett Ordering System Service or BOSS(TM) is the Company's
proprietary software ordering 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.

EMPLOYEES

As of December 31, 1996, the Company employed 550 individuals, 141 of whom
were clerical and administrative personnel, 117 of whom were telesales and sales
representatives and 292 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.

PROPERTIES

The Company's principal executive offices, as well as its administrative
offices, are located in a 60,000 square feet leased facility in Jacksonville,
Florida, which also serves as a regional hub distribution center. The lease for
this facility expires in October 2003. The Company's principal telesales
operations as well as other sales support functions are located in leased
facilities aggregating approximately 15,000 square feet located in Jacksonville,
Florida. These leases expire at various times over the next five years. All of
the Company's distribution centers are leased, with leases expiring from March
1997 to October 2003. Typically, the Company's distribution centers range in
size from approximately 11,000 to approximately 47,000 square feet and are
leased for a period of five years, with an option to renew. The Company shares
three of its facilities with U.S. Lock, and 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. However, because LeRan does not occupy a distinct portion
of such facility, it is charged rent based upon a percentage of net sales
generated by it from such facility.

LITIGATION

The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management of the Company,
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.

32
<PAGE> 34

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the executive officers, members of the Board
and certain key employees of the Company and their respective positions.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -------------------------------------------------
<S> <C> <C>
Melvin Waxman 63 Chairman of the Board and Director
Armond Waxman 58 Vice-Chairman of the Board and Director
Sheldon Adelman 55 Director
Morry Weiss 56 Director
William R. Pray 49 President, Chief Executive Officer and Director
Andrea M. Luiga 40 Vice President -- Finance, Chief Financial
Officer
Andrew S. Fournie 42 Vice President -- Marketing
Alfred C. Poindexter 44 Vice President -- Operations
Bruce Dougherty 44 Vice President -- Management Information Systems
Paul R. Janke 48 Vice President -- Human Resources
Robert K. Simon 40 Vice President -- Purchasing
</TABLE>

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. Waxman is the brother of Mr. Armond Waxman.

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 in
June 1995 until April 1996. Mr. Waxman had been the President of Waxman
Industries from August 1976 until June 1995, and was reappointed 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. Mr. Waxman is the brother of Mr. Melvin Waxman.

Mr. Sheldon Adelman is the principal of Adelman Capital, a private
investment firm. From 1974 to 1997, Mr. Adelman was the Chairman of the Board
and Chief Executive Officer of Blue Coral, Inc., a multi-divisional, commercial
and consumer products manufacturer with worldwide sales to the automotive
appearance aftermarket. Mr. Adelman serves on the Board of Directors of Phoenix
Dye Works in Cleveland, Ohio and is active in many civic organizations.

Mr. Morry Weiss is the Chairman of the Board and Chief Executive Officer of
American Greetings Corporation. Mr. Weiss joined American Greetings Corporation
in 1961. He was appointed President and Chief Operating Officer in June 1978,
Chief Executive Officer in February 1992 and Chairman of the Board in February
1992. Mr. Weiss is a director of Syratech Corp., National City Corporation and
Artistic Greetings Corporation. Mr. Weiss is also active in various community
affairs.

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
position in April 1996 upon the 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

33
<PAGE> 35

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 the 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.

Mr. Andrew S. Fournie was elected Vice President -- Marketing of the
Company in January 1988. He joined the Company in 1985 as Product Development
Manager.

Mr. Alfred C. Poindexter was elected Vice President -- Operations of the
Company in September 1988 after serving as Director of Operations of the Company
since 1987. He joined the Company in 1983 as Purchasing Manager.

Mr. Bruce Dougherty was appointed Vice-President -- Management Information
Systems in December 1992. He joined the Company in December 1983 as Data
Processing Manager.

Mr. Paul R. Janke joined the Company in February 1994 as
Vice-President -- Human Resources. Prior to joining the Company, Mr. Janke
served as Director of Human Resources for Farm Stores, Inc., a national retail
food chain. From May 1991 to February 1992, Mr. Janke served as Vice
President -- Human Resources of Scotty's Inc., a regional hardware retailer.

Mr. Robert K. Simon was appointed Vice-President -- Purchasing of the
Company in April 1996. He joined the Company in March 1993 as Director of
Purchasing. From 1988 to December 1992, Mr. Simon served as the Director of
Materials for Curtis Industries, Inc., a worldwide distributor of durable
consumer goods.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth the cash compensation paid by the Company to
the Chief Executive Officer of the Company and the three other most highly
compensated executive officers of the Company (the "Named Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL BONUS OPTIONS/SARS COMPENSATION
POSITION YEAR SALARY ($)(2) (#) ($)(3)
- --------------------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William R. Pray........................ 1996 $244,423 $129,760 170,000 $ 58,870
President and Chief Executive 1995 229,738 57,607 -- --
Officer 1994 206,250 75,000 -- --
Andrea M. Luiga........................ 1996 92,885 60,080 50,000 --
Vice President -- Finance 1995 79,469 17,050 -- --
and Chief Financial Officer 1994 71,735 13,205 -- --
Andrew S. Fournie...................... 1996 96,923 12,000 25,000 --
Vice President -- Marketing 1995 94,677 20,163 -- --
1994 83,812 17,600 -- --
Alfred C. Poindexter................... 1996 92,077 10,872 25,000 --
Vice President -- Operations 1995 90,062 19,089 -- --
1994 86,408 15,694 -- --
</TABLE>

34
<PAGE> 36

- ---------------

(1) Certain executive officers received compensation in fiscal 1994, 1995 and
1996 in the form of perquisites, the amount of which does not exceed
reporting thresholds.

(2) All bonuses were paid under the Company's Profit Incentive Plan, except
$100,000 received by Mr. Pray and $50,000 received by Ms. Luiga as
discretionary bonuses in fiscal 1996.

(3) All other compensation represents premiums on split-dollar life insurance
policies.

EXECUTIVE COMPENSATION ARRANGEMENTS

The terms of the employment arrangement between the Company and its Chief
Executive Officer are described below.

Mr. Pray entered into an employment agreement with the Company which became
effective as of July 1, 1990, and was amended as of January 1, 1996 and
terminates on January 1, 2006. Pursuant to such employment agreement, Mr. Pray
is to serve as President and Chief Executive Officer of the Company and will
provide services to the Company in such managerial areas as Mr. Pray served in
the past and such additional duties as shall be assigned to Mr. Pray by the
Chairman and Vice-Chairman of the Board. Effective January 1, 1997, Mr. Pray's
salary was set at $300,000 per annum. Mr. Pray is eligible to receive
discretionary bonuses as may from time to time be determined in the sole
discretion of the Board. In addition, pursuant to the terms of the employment
agreement, Mr. Pray will continue to be provided with certain benefits and
perquisites currently provided to him, as well as a $2,000,000 split dollar life
insurance policy and has also entered into a money purchase deferred
compensation agreement pursuant to which the Company established an account into
which it deposits approximately $59,000 annually. The balance remaining in the
account upon the termination of employment of Mr. Pray shall be paid to him or
his beneficiaries, as the case may be.

In the event that Mr. Pray's employment is terminated without Cause (as
defined in the employment agreement) or in the event he terminates his
employment for Good Reason (as defined in the employment agreement), he will be
entitled to receive, in one lump sum, an amount equal to the present value of
the product of (i) the sum of (x) the base salary (as such base salary would
have been adjusted for the remainder of the term) and (y) the average of the
bonus compensation paid to Mr. Pray with respect to the three years preceding
the termination of the employment agreement and (ii) the greater of (a) the
remaining number of years (or portions thereof) in the term of the employment
agreement and (b) two; provided, however, that if any portion of such
compensation would constitute an "excess parachute payment" under Section 280G
of the Internal Revenue Code of 1986, as amended, the amount of such
compensation would be reduced to the highest amount that would not constitute an
excess parachute payment. The employment agreement also contains provisions
which restrict Mr. Pray from competing with the Company during the term of the
agreement and for two years following termination thereof.

35
<PAGE> 37

STOCK OPTION AND SAR GRANTS

The following table sets forth the information noted for all grants of
stock options made by the Company during fiscal 1996 to each of the executive
officers named in the Summary Compensation Table:

OPTION/SAR(1) GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OPTION TERM
GRANTED FISCAL YEAR PRICE EXPIRATION -----------------------
NAME (#) 1996 ($/SH) DATE 5%($) 10%($)
- ------------------------- ------- ------------ -------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William R. Pray.......... 170,000 33.5% $14.00 April 2, 2006 $1,496,769 $3,793,107
Andrea M. Luiga.......... 50,000 9.9% 14.00 April 2, 2006 440,226 1,115,620
Andrew C. Fournie........ 25,000 4.9% 14.00 April 2, 2006 220,113 557,810
Alfred C. Poindexter..... 25,000 4.9% 14.00 April 2, 2006 220,113 557,810
</TABLE>

- ---------------

(1) There were no SARs granted to any of the executive officers named in this
table in fiscal 1996.

(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1996 dollars. The dollar amounts included
in these columns are the result of calculation at assumed rates set by the
Securities and Exchange Commission for illustration purposes, and these
rates are not intended to be a forecast of the Common Stock price and are
not necessarily indicative of the values that may be realized by the named
executive officer.

STOCK OPTION AND SAR EXERCISES

The following table sets forth information with respect to (i) the numbers
of unexercised options held by each of the executive officers named in the
Summary Compensation Table who held options as of June 30, 1996 and (ii) the
value of unexercised in-the-money options as of June 30, 1996. None of the
executive officers exercised any options in fiscal 1996.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL YEAR IN-THE-MONEY OPTIONS
(#) AT FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE ($)(2)
- ----------------------------------------------------- ------------------------- --------------------
<S> <C> <C>
William R. Pray...................................... 0/170,000 $2,507,500
Andrea M. Luiga...................................... 0/ 50,000 737,500
Andrew C. Fournie.................................... 0/ 25,000 368,750
Alfred C. Poindexter................................. 0/ 25,000 368,750
</TABLE>

- ---------------

(1) The options vest, subject to acceleration in certain limited circumstances,
in 25% increments on each annual anniversary date of the grant of such
options. The options will be fully vested on April 2, 2000.

(2) Calculated on the basis of the closing share price ($28.75) of the Common
Stock as of June 30, 1996, as reported by the Nasdaq National Market, less
the exercise price.

36
<PAGE> 38

BOARD OF DIRECTORS

The Board of Directors currently consists of five members and is divided
into three classes of directors serving staggered terms. Directors of each class
will be elected at the annual meeting of stockholders held in the year in which
the term for such class expires and will serve thereafter for three years.
Melvin Waxman and Sheldon Adelman serve as Class 1 Directors with their terms
expiring at the 1999 Annual Meeting of Stockholders, Armond Waxman and Morry
Weiss serve as Class 2 Directors with their terms expiring at the 1997 Annual
Meeting of Stockholders and William R. Pray serves as Class 3 Director with his
term expiring at the 1998 Annual Meeting of Stockholders. For further
information on the effect of the classified Board, see "Description of Capital
Stock."

The Company has an Executive Committee, Audit Committee and Compensation
and Stock Option Committee. During fiscal 1996, only during three months of
which was the Company operated as an independent public company, no meetings of
the Board were held, but the Board acted numerous times by written consent.
During fiscal 1997, the Company has held, and expects to continue to hold,
quarterly meetings of the Board.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company receive no compensation, as
such, for service as members of the Board. Directors who are not employees of
the Company receive quarterly compensation of $4,000 and $1,000 for each meeting
of the Board of any committee of the Board attended by them (other than with
respect to any meetings of any committee on a day on which the Board also
meets). All Directors are reimbursed for expenses incurred in connection with
attendance at meetings.

In addition to the foregoing compensation, the stockholders of the Company
recently approved the 1996 Stock Option Plan for Non-Employee Directors (the
"Non-Employee Directors Plan"), pursuant to which each of the Chairman and Vice
Chairman of the Board was granted an option exercisable to purchase 100,000
shares of Common Stock and each current non-employee director of the Company was
granted an option exercisable to purchase 25,000 shares of Common Stock, in each
case at the fair market value of the Common Stock on the grant date ($21.00).
The Non-Employee Directors Plan also provides that each non-employee director
may elect to receive, in lieu of their annual director compensation, an option
exercisable to purchase 5,000 shares of Common Stock, at the fair market value
thereof on the date of grant.

AUDIT COMMITTEE

The Audit Committee currently consists of Messrs. Adelman and Weiss. The
Audit Committee acts as a liaison between the Company's independent auditors and
the Board, reviews the scope of the annual audit and the management letter
associated therewith, reviews the Company's annual and quarterly financial
statements and reviews the sufficiency of the Company's internal accounting
controls. The Audit Committee held no meetings during fiscal 1996.

COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation and Stock Option Committee currently consists of Messrs.
Adelman and Weiss. The general functions of the Compensation and Stock Option
Committee include approval (or recommendation to the Board of Directors) of the
compensation arrangements for senior management, directors and other key
employees, review of benefit plans in which officers and directors are eligible
to participate, and periodic review of the equity compensation plans of the
Company and the grants under such plans. The Compensation and Stock Option
Committee administers both the 1996 Omnibus Incentive Plan of the Company and
the Employee Stock Purchase Plan of the Company. Although the Compensation and
Stock Option Committee held no meetings during fiscal 1996, on several occasions
it took action by written consent.

37
<PAGE> 39

COMPENSATION PLANS

OMNIBUS INCENTIVE PLAN

GENERAL INFORMATION. The Omnibus Incentive Plan of the Company (the
"Omnibus Plan") provides for compensatory awards (each an "Award") representing
or corresponding to up to 1,500,000 shares of Common Stock. Awards may be
granted for no consideration and consist of stock options, stock awards, stock
appreciation rights ("SARs"), dividend equivalents, other stock based awards
(such as phantom stock) and performance awards consisting of any combination of
the foregoing. The Omnibus Plan is designed to provide an incentive to the
officers and certain other key employees of the Company by making available to
them an opportunity to acquire a proprietary interest or to increase their
proprietary interest in the Company. Any Award issued under the Omnibus Plan
which is forfeited, expires or terminates prior to vesting or exercise will
again be available for Award under the Omnibus Plan.

The Compensation and Stock Option Committee of the Board of Directors
administers the Omnibus Plan and has the full power and authority, subject to
the provisions of the Omnibus Plan, to designate participants, grant Awards and
determine the terms of all Awards. Members of the Compensation and Stock Option
Committee are not eligible to receive Awards under the Omnibus Plan.

STOCK AWARDS. The Compensation and Stock Option Committee have the right
to grant Awards of shares of Common Stock which are subject to such restrictions
(including restrictions on transferability and limitations on the right to vote
or receive dividends with respect to the restricted shares) and such terms
regarding the lapse of restrictions as the Compensation and Stock Option
Committee deems appropriate. Generally, upon termination of employment for any
reason during the restriction period, restricted shares will be forfeited to the
Company.

SARS. An Award may consist of SARs. Upon exercising a SAR, the holder will
be paid by the Company the difference between the fair market value of the
Common Stock on the date of exercise and the fair market value of the Common
Stock on the date of the grant of the SAR, less applicable withholding of
Federal and State taxes. The Company may, at its election, pay such difference
in cash or in shares of Common Stock valued at the fair market value of the
Common Stock on the day preceding the date of payment. In no event may (i) an
aggregate payment by the Company during any fiscal year upon the exercise of
SARs exceed $500,000 without board approval, or (ii) a holder of a SAR, who is
also an employee of the Company or its subsidiaries, exercise a SAR if the
aggregate amount to be received as a result of his or her exercise of SARs in
the preceding twelve month period exceeds such employee's current base salary.

OPTIONS ISSUED UNDER OMNIBUS PLAN. The terms of specific options are
determined by the Compensation and Stock Option Committee. Generally, options
will be granted at an exercise price equal to the lower of (i) 100% of fair
market value of the Common Stock on the date of grant or (ii) 85% of the fair
market value of the Common Stock on the date of exercise. Each option will be
exercisable after the period or periods specified in the option agreement, which
will generally not exceed 10 years from the date of grant. Options may be issued
in tandem with SARs ("Tandem Options") as a performance award.

In the event the employment of an optionee is terminated during such period
(other than in the case of death or disability), the Company shall have the
right to repurchase shares during such six month period in exchange for the
payment of the exercise price. Upon the exercise of an option, the option holder
will pay to the Company the exercise price plus the amount of the required
Federal and State withholding taxes, if any. The unexercised portion of any
option granted under the Omnibus Plan will generally be terminated (a) thirty
(30) days after the date on which the optionee's employment is terminated for
any reason other than (i) Cause (as defined in the Omnibus Plan), (ii) mental or
physical disability, or (iii) death; (b) immediately upon the termination of the
optionee's employment for Cause; (c) three months after the date on which the
optionee's employment is terminated by reason of retirement or mental or
physical disability; or (d)(i) 12 months after the date on which the optionee's
employment is terminated by reason of the death of the employee, or (ii) three
months after the date on which the optionee dies if such death occurs during the
three-month period following the termination of the optionee's employment by
reason of retirement or mental or physical disability.

38
<PAGE> 40

The Company has granted options exercisable to purchase 791,000 shares of
Common Stock at exercise prices ranging from the Initial Public Offering price
per share ($14.00) to $27.25 per share.

PERFORMANCE AWARDS CONSISTING OF OPTIONS AND SARS ISSUED IN TANDEM UNDER
OMNIBUS PLAN. Upon exercise of a Tandem Option, the optionee will be entitled
to a credit toward the exercise price equal to the value of the SARs issued in
tandem with the option exercised, but not to exceed the amount of the Federal
income tax deduction allowed to the Company in respect of such SAR and not in an
amount which would reduce the amount of payment by the optionee below the par
value of the shares being purchased. Upon exercise of a Tandem Option, the
related SAR will terminate, the value being limited to the credit which can be
applied only toward the purchase price of Common Stock. In all cases, full
payment of the net purchase price of the shares must be made in cash or its
equivalent at the time the Tandem Option is exercised, together with the amount
of the required Federal and State withholding taxes, if any. When a SAR issued
as part of a Tandem Option is exercised, the option to which it relates will
cease to be exercisable to the extent of the number of shares with respect to
which the SAR was exercised, and that number of shares will thereafter be
available for issuance as an Award under the Omnibus Plan.

OTHER PERFORMANCE AWARDS ISSUED UNDER THE OMNIBUS PLAN. The Omnibus Plan
authorizes the Committee to grant, to the extent permitted under Rule 16b-3
promulgated by the Securities and Exchange Commission under the Exchange Act,
and applicable law, other Awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to shares of Common Stock.
Furthermore, the amount or terms of an Award may be related to the performance
of the Company or to such other criteria or measure of performance as the
Compensation and Stock Option Committee may determine.

STOCK PURCHASE PLAN

The Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") is
intended to encourage ownership of Common Stock by eligible employees of the
Company, to encourage their continued employment with the Company and to provide
them with additional incentives to promote the success of the Company. Except as
discussed below, eligible employees are employees who have been employed by the
Company or any of its subsidiaries for at least six months and who customarily
work more than 20 hours per week and 5 months per calendar year. However,
eligible employees who hold options under the Company's Omnibus Plan may not
additionally hold options under the Company's Stock Purchase Plan until the
options under the Omnibus Plan are exercised in full or are otherwise
terminated.

The Stock Purchase Plan authorizes the Compensation and Stock Option
Committee to grant options to purchase shares of Common Stock to eligible
employees pursuant to one or more offerings to be made under the Stock Purchase
Plan. The Compensation and Stock Option Committee administers the Stock Purchase
Plan and has sole discretion to determine when offerings will be made under the
Stock Purchase Plan, the number of shares of Common Stock to be made available
in any such offering, the length of the period pursuant to which employees can
elect to participate in any offering (the "Subscription Period") and the period
pursuant to which installment obligations of the option price must be paid (the
"Purchase Period"). The Subscription Period and Purchase Period of any offering
made under the Stock Purchase Plan may not together exceed 27 months.

The Compensation and Stock Option Committee may exclude the employees of
any specific subsidiary from any offering made under the Stock Purchase Plan and
may determine not to include certain highly compensated employees and any person
who holds options under the Omnibus Plan from any particular offering. In
addition, no option may be granted to an employee who, immediately after the
option is granted, owns 5% or more of the value or voting power of all classes
of stock of the Company or its parent, if any, or subsidiary corporations, after
taking into account certain attribution rules. Subject to these provisions, all
eligible employees must be given the right to participate in any offering made
under the Stock Purchase Plan. There are 1,500,000 shares of Common Stock
subject to the Omnibus Plan, and the Compensation and Stock Option Committee
shall have the right to designate how many of such shares shall be allocable to
the Stock Purchase Plan.

39
<PAGE> 41

Prior to any offering made under the Stock Purchase Plan, the Company will
grant to each employee eligible to participate in the offering the right to
subscribe for an option to purchase on the last business day of the Purchase
Period applicable to such offering at a price determined by the Compensation and
Stock Option Committee, the number of full shares of Common Stock which such
employee's accumulated payroll deductions will purchase as of the last business
day of the Purchase Period. Unless the Compensation and Stock Option Committee
determines otherwise, the option price will equal 85% of the fair market value
of the Common Stock on the first day of the Purchase Period. Employees may elect
to subscribe for options to purchase shares of Common Stock for an aggregate
purchase price up to a specified percentage of their annual compensation as
determined by the Compensation and Stock Option Committee for a particular
offering.

On the first day of the Purchase Period, eligible employees who elect to
participate in an offering will receive, subject to certain limitations set
forth in the Stock Purchase Plan, an option to purchase the number of shares for
which such employee has subscribed. These options will be automatically
exercised as of the last business day of the Purchase Period.

Subject to certain limitations set forth in the Stock Purchase Plan, an
employee is permitted, at any time prior to the end of the Purchase Period
applicable to such offering, to terminate or reduce his or her payroll
deductions, to reduce his or her options to purchase or to withdraw all or part
of the amount in his or her account, without interest. Upon the termination of
the employee's employment with the Company prior to the last day of the Purchase
Period for any reason other than death or retirement, the employee's only right
will be to receive the amount of cash then in such employee's account, without
interest.

Options granted under the Stock Purchase Plan will be subject to adjustment
upon a recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend or other similar event affecting the Common
Stock. Options will not be transferable, other than by will or the laws of
descent and the distribution, or if permitted pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"), and the Regulations thereunder without
affecting the option's qualification under Section 423 of the Code, pursuant to
a qualified domestic relations order, and an option may be exercised, during the
lifetime of the holder of the option, only by such option holder, or his or her
personal representative in the event of disability.

In the case of an unusual corporate event such as liquidation, merger,
reorganization (other than a reorganization as defined by Section 368(a)(1)(F)
of the Code), or other business combination, acquisition or change in control of
the Company through a tender offer or otherwise, the Board may, in its sole
discretion, determine to terminate the Purchase Period of any offering made
under the Stock Purchase Plan as of the last day of the month during which such
unusual corporate event occurs, but in the event of any such termination, an
option holder will have the right, commencing at least five days prior to the
unusual corporate event, to either make a lump sum payment equal to the
remaining portion of the purchase price payable under his or her option or to
cancel his or her election to purchase shares pursuant to such option.

The Stock Purchase Plan will terminate ten years from the date of adoption,
and an option shall not be granted under the plan after such date. Any options
outstanding at the time of termination of the Stock Purchase Plan will continue
in full force and effect according to the terms and conditions of the Stock
Purchase Plan.

The Stock Purchase Plan may be amended at any time and from time to time by
the Board of Directors, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Section
423 of the Code or Rule 16b-3 of the Exchange Act would be required.

PROFIT INCENTIVE PLAN

The Company's Profit Incentive Plan (the "PI Plan") provides for annual
cash incentive payments to certain officers and employees, as determined by the
Company's Chief Executive Officer, based upon their contribution to the
Company's profit performance and the Company's achievement of its profit goal.
Payments made under the PI Plan will be based upon a percentage of the
employee's base salary and the percentage of the employee's division's pre-tax
profit goal which has been achieved during the fiscal year.

40
<PAGE> 42

401(K) SAVINGS PLAN

The Company's retirement plan (the "401(k) Plan") is qualified under
Section 401(a) and 401(k) of the Code and the applicable provisions of the
Employee Retirement Income Security Act of 1974. All nonunion employees over age
21 who have been employed by the Company for at least one year are eligible to
participate in the 401(k) Plan. Employees may contribute to the 401(k) Plan on a
tax deferred basis up to 15% of their annual salary, but in no event more than
the maximum permitted by the Code ($9,500 in calendar 1996). Company
contributions are discretionary. The Company may make matching contributions in
cash or Common Stock. The Company has not made a determination as to whether, or
to what extent, matching contributions will be made for the current year. The
Company contributions will vest in the employee at the cumulative rate of 20%
per year of service starting one year after commencement of service and,
accordingly, after five years of an employee's service with the Company,
matching contributions by the Company will be fully vested. The Company has made
no contributions to date under the 401(k) Plan.

RELATIONSHIP BETWEEN THE COMPANY AND WAXMAN INDUSTRIES

Waxman USA currently owns 49.9% of the outstanding Common Stock of the
Company and all of the outstanding shares of Series A Preferred Stock. As a
result of this Offering, Waxman Industries' beneficial ownership of the shares
of Common Stock will be reduced from 49.9% to approximately 44.3%, assuming the
conversion to Common Stock of all of the outstanding Series A Preferred Stock.
Three of the current directors of the Company are directors or officers of
Waxman Industries and its subsidiaries. See "Management -- Directors and
Executive Officers." The terms of the intercompany arrangements described below
were not determined on an arms' length basis.

The Company has been provided certain general and administrative services
by Waxman Industries, such as tax, legal, administrative and treasury services.
In addition, the Company has purchased products from other subsidiaries of
Waxman Industries. Products purchased for resale from Waxman Industries and its
subsidiaries totaled $8.3 million in fiscal 1994, $11.3 million in fiscal 1995,
$12.1 million in fiscal 1996 and $7.0 million for the six months ended December
31, 1996. Sales of products to Waxman Industries and its subsidiaries totaled
$229,000 in fiscal 1994, $195,000 in fiscal 1995, $172,000 in fiscal 1996 and
$56,000 for the six months ended December 31, 1996.

The Company believes that the potential termination of Waxman Industries'
stock ownership in the Company, or the termination of any one or all of the
agreements described below, would not have an adverse effect on the operations
or financial position of the Company.

INTERCOMPANY ARRANGEMENTS

Registration Rights

The Company and Waxman USA entered into the Registration Rights Agreement
pursuant to which the Company will, upon the request of Waxman USA, file up to
two registration statements under the Securities Act in order to permit Waxman
USA to offer and sell all or a portion of the shares of Common Stock that Waxman
USA or its affiliates may beneficially own. Waxman Industries has utilized one
of its demand registration rights in connection with this Offering. Pursuant to
the Registration Rights Agreement, the Company has agreed to pay all expenses in
connection with any requested registration, except that Waxman USA will pay any
underwriting discounts, fees and commissions relating to the shares being sold
by Waxman USA, as well as the fees of its counsel. However, in connection with
this Offering, Waxman USA has agreed to pay fees and expenses of this Offering
in proportion to the net proceeds received by it. The Company will also grant
Waxman USA the right to include its shares of Common Stock in certain
registration statements covering offerings by the Company, and the Company will
pay all costs of such offerings other than underwriting discounts, fees and
commissions attributable to the shares of Common Stock offered to be sold by
Waxman USA and the fees of Waxman USA's counsel. The Company and Waxman USA will
indemnify each other and their respective officers, directors and controlling
persons against certain liabilities in respect of any registration or other
offering covered by the Registration Rights Agreement. The Company has the
right, in certain events, to require Waxman USA to delay any exercise by Waxman
USA of its rights to require registration and other actions for a period of up
to 60 days. The rights of Waxman USA under the Registration Rights Agreement are
not transferable.

41
<PAGE> 43

New Intercorporate Agreement

The Company, Waxman Industries and the other Operating Companies are
parties to the New Intercorporate Agreement. Pursuant to the New Intercorporate
Agreement, Waxman Industries will provide, if, and to the extent, the Company so
requests, certain administrative and financial services to the Company
including, among other things, assistance with public company reporting and
certain financial functions, tax planning and compliance and insurance and risk
management. The Company and Waxman Industries have agreed that the Company will
pay Waxman Industries the allocable cost of the salaries and expenses of Waxman
Industries' employees while they are rendering such services. The Company will
also reimburse 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 to be provided by Waxman
Industries to the Company pursuant to the New Intercorporate Agreement, the
Company also currently provides, and will continue to provide pursuant to the
New Intercorporate Agreement, certain services to the operating divisions of
WOC, including LeRan, U.S. Lock and Madison. These services include the
utilization of the Company's management information systems, financial
accounting, order processing and billing and collection services. Waxman
Industries shall pay to the Company the allocable cost of the salaries and
expenses of the Company's employees while they are performing such services.
Waxman Industries shall also reimburse the Company for all actual out-of-pocket
disbursements to third parties by the Company required for the provision of such
services. 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. The New Intercorporate
Agreement will be terminable at any time at the election of the Company upon 360
days prior notice. During the six months ended December 31, 1996, the Company
was charged an aggregate of approximately $286,000 by Waxman Industries, U.S.
Lock, LeRan and Madison for services rendered to it and for reimbursement of
expenses incurred on its behalf by Waxman Industries and such operating units,
and charged an aggregate of approximately $746,000 to Waxman Industries, U.S.
Lock, LeRan and Madison for services rendered to them and for reimbursement of
expenses incurred on their behalf by the Company pursuant to the New
Intercorporate Agreement.

Trademark License Agreement

The Company and Consumer Products are parties to the Trademark License
Agreement pursuant to which the Company licenses, without the payment of any
consideration, the use of certain of its trademarks for use in the business of
Consumer Products. The Trademark License Agreement is terminable by either party
upon the giving of six months prior notice.

If any or all of the foregoing agreements were terminated, the Company does
not believe it would have a material effect on its operations or financial
condition.

42
<PAGE> 44

PRINCIPAL AND SELLING STOCKHOLDER

CAPITAL STOCK OF THE COMPANY

The following table and notes set forth information as of March 5, 1997,
and as adjusted to reflect the sale of the shares of Common Stock offered
hereby, with respect to the voting securities of the Company beneficially owned
by (i) all person(s) known by the Company to be the beneficial owner of more
than 5% of the shares of Common Stock, (ii) each director of the Company, (iii)
the Named Officers, individually, (iv) all executive officers and directors as a
group and (v) the Selling Stockholder.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP AMOUNT AND NATURE OF
NAMES AND PRIOR TO PERCENT OF BENEFICIAL OWNERSHIP PERCENT OF
OF BENEFICIAL OWNER THE OFFERING COMMON STOCK AFTER THE OFFERING COMMON STOCK
- ------------------------------- -------------------- ------------ -------------------- ------------
<S> <C> <C> <C> <C>
Waxman USA(1).................. 7,190,800 49.9% 7,161,800(1) 44.3%
Melvin Waxman(2)............... 7,213,800 50.1% 7,184,800(1) 44.4%
Armond Waxman(2)............... 7,213,500 50.1% 7,184,500(1) 44.4%
Putnam Investments Inc.(3)..... 1,726,289 12.0% 1,726,289 11.6%
Janus Capital Corporation(4)... 1,594,625 11.1% 1,594,625 10.7%
Sheldon Adelman................ 10,000 * 10,000 *
Morry Weiss.................... 15,000 * 15,000 *
William R. Pray(5)............. 42,500 * 42,500 *
Andrea M. Luiga(5)............. 12,500 * 12,500 *
Andrew S. Fournie(5)........... 6,950 * 6,950 *
Alfred C. Poindexter(5)........ 8,250 * 8,250 *
Directors and officers as a
group (8 individuals)........ 7,331,700 50.9% 7,302,700 45.0%
</TABLE>

- ---------------

* less than 1%

(1) Waxman Industries may be deemed to be the beneficial owner of the shares of
Common Stock owned by Waxman USA. Does not include, as of December 31, 1996,
but does include after the Offering, an aggregate of 1,271,000 shares of
Common Stock issuable upon conversion of the Series A Preferred Stock of the
Company. Pursuant to its terms, the Series A Preferred Stock may only be
converted if the aggregate number of shares of Common Stock issuable upon
conversion, when added to the number of shares of Common Stock held, would
not cause Waxman Industries' direct or indirect ownership of Common Stock to
equal or exceed a majority of the outstanding of Common Stock.

(2) Includes all of the shares of Common Stock owned by Waxman USA. Each of
Messrs. Armond and Melvin Waxman may be deemed to be the beneficial owners
of such shares by virtue of their respective positions as Co-Chief Executive
Officers and Chairman of the Board of Waxman.

(3) The information set forth in the table with respect to Putnam Investments
Inc. was obtained from a Schedule 13G, dated January 27, 1997, filed with
the Securities and Exchange Commission. Such Schedule 13G reflects Putnam
Investments Inc.'s beneficial ownership as of December 31, 1996.

(4) The information set forth in the table with respect to Janus Capital
Corporation was obtained from Amendment No. 1 to Schedule 13G, dated
February 10, 1997, filed with the Securities and Exchange Commission. Such
Schedule 13G reflects Janus Capital Corporation's beneficial ownership as of
December 31, 1996.

(5) Includes for each of Mr. Pray, Ms. Luiga, Mr. Fournie and Mr. Poindexter an
aggregate of 42,500, 12,500, 6,250 and 6,250 shares of Common Stock,
respectively, which may be acquired within 60 days of the date hereof by
each of such individuals upon the exercise of employee stock options.

43
<PAGE> 45

CAPITAL STOCK OF WAXMAN INDUSTRIES

The following table and notes set forth information as of March 5, 1997
with respect to the voting securities of Waxman Industries, the indirect owner
of a majority of the economic interest in the Company, beneficially owned by
each director of the Company, by each Named Officer of the Company and by all
directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE AMOUNT PERCENT OF
AND NATURE OF COMMON STOCK
BENEFICIAL OWNERSHIP ----------------
---------------------- CLASS PERCENT OF
CLASS B B AGGREGATE
NAMES COMMON COMMON COMMON COMMON VOTING
OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK POWER
- ------------------------------------------ --------- --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Melvin Waxman(1).......................... 980,300 1,011,932 9.8% 47.0% 35.2%
Armond Waxman(2).......................... 880,882 770,282 8.8 35.8 27.2
William R. Pray(3)........................ 66,875 -- * -- *
Directors and officers as a group (8
individuals)............................ 1,928,057 1,782,214 18.9% 82.8% 62.3%
</TABLE>

- ---------------

* less than 1%

(1) Includes 150,000 shares of common stock subject to options granted to Mr.
Waxman pursuant to the Waxman Industries 1992 Non-Qualified and Incentive
Option Plan (the "1992 Plan") and 100 shares of common stock owned by a
member of Mr. Melvin Waxman's immediate family, as to which shares Mr.
Waxman disclaims beneficial interest. Does not include 200,000 shares of
Common Stock subject to stock appreciation rights.

(2) Includes 150,000 shares of common stock subject to options granted to Mr.
Waxman pursuant to the 1992 Plan and 100 shares of Common Stock owned by a
member of Mr. Armond Waxman's immediate family, as to which shares Mr.
Waxman disclaims beneficial interest. Does not include 200,000 shares of
common stock subject to stock appreciation rights.

(3) Includes 41,875 shares of common stock subject to options granted to Mr.
Pray pursuant to the 1992 Plan.

44
<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40.0 million shares of
Common Stock having a par value of $0.01 per share and 10.0 million shares of
Preferred Stock having a par value of $0.10 per share.

COMMON STOCK

Upon completion of the Offering, there will be an aggregate of 14,898,000
shares of Common Stock outstanding (excluding the conversion of 1,271,000 shares
of Series A Preferred Stock). All of the issued and outstanding shares of Common
Stock are fully paid and non-assessable and the shares of Common Stock offered
hereby will be fully paid and non-assessable. The holders of shares of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to vote of stockholders, including the election of directors. All
voting is noncumulative, which means that the holders of 50% of the shares
voting for the election of the directors can elect all of the directors. See
"Relationship between the Company and Waxman" and "Principal and Selling
Stockholder." The Board of Directors may issue previously authorized but
unissued shares of Common Stock without further stockholder action. Holders of
shares of Common Stock are not entitled to preemptive rights. The holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor, at such times and in such amounts as the
Board of Directors of the Company may from time to time determine. See "Dividend
Policy." Upon liquidation, the holders of shares of Common Stock are entitled to
receive pro rata all of the assets of the Company available for distribution to
such holders.

NON-VOTING CONVERTIBLE PREFERRED STOCK

Immediately prior to this Offering, there were an aggregate of 1,271,000
shares of Series A Preferred Stock outstanding, all of which were owned by
Waxman USA. Each share of Series A Preferred Stock generally is not entitled to
vote or to dividends; has a liquidation preference of $1.00 per share; and is
convertible into one share of Common Stock, subject to certain limitations
described below, at the option of the holder thereof. The Series A Preferred
Stock may only be converted to the extent that the aggregate number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock, when
added to the number of shares of Common Stock then held by such holder, would
not cause Waxman Industries' direct or indirect ownership of Common Stock to
equal or exceed a majority of the outstanding shares of Common Stock. The Series
A Preferred Stock does not have any right to vote, except (i) pursuant to
applicable law or (ii) with respect to amendments to the Company's Certificate
of Incorporation which would materially adversely effect the rights of holders
of Series A Preferred Stock. Waxman USA has advised the Company that it intends
to convert all of the Series A Preferred Stock owned by it into Common Stock
subsequent to the Offering.

Additional Preferred Stock may be issued from time to time in one or more
series, and the Board of Directors is authorized to fix the dividend rights and
terms, any conversion rights, any voting rights, any redemption rights and terms
(including sinking fund provisions), the rights in the event of liquidation and
any other rights, preferences, privileges and restrictions of any series of
Preferred Stock, as well as the number of shares constituting such series and
the designation thereof. The Series A Preferred Stock and any additional
Preferred Stock issued in the future will rank senior to the Common Stock as to
dividends and as to liquidation preference. Holders of Preferred Stock will have
no preemptive rights. The issuance of shares of Preferred Stock could have an
anti-takeover effect under certain circumstances. The issuance of shares of
Preferred Stock could enable the Board of Directors to render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer or other business combination transaction directed at the Company
by, among other things, placing shares of Preferred Stock with investors who
might align themselves with the Board of Directors, issuing new shares to dilute
stock ownership of a person or entity seeking control of the Company or creating
a class or series of Preferred Stock with class voting rights. The issuance of
shares of the Preferred Stock as an anti-takeover device might preclude
stockholders from taking advantage of a situation which they believed could be
favorable to their interests.

45
<PAGE> 47

CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BY-LAWS

The Company Charter and Company By-Laws contain several provisions that may
be deemed to have the effect of making more difficult the acquisition of control
of the Company by means of a hostile tender offer, open market purchases, a
proxy contest or otherwise.

The provisions of the Company Charter and the Company By-Laws discussed
below are designed to help to ensure that holders of the Common Stock are
treated fairly and equally in a multistep acquisition. In addition, they are
intended to encourage persons seeking to acquire control of the Company to
initiate such an acquisition through arm's-length negotiations with the Board.
The Company Charter and the Company By-Laws may have the effect of discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be economically
beneficial to the Company and its stockholders. In addition, because the Company
Charter and the Company By-Laws are designed to discourage the accumulation of
large blocks of the voting shares of the Company by purchasers whose objective
is to have such stock repurchased by the Company at a premium, the antitakeover
provisions of the Company Charter and the Company By-Laws could tend to reduce
the price of the voting shares of the Company caused by such accumulations. In
addition, these provisions may also have the effect of precluding a contest for
the election of directors. However, since Waxman Industries will beneficially
own approximately 44.3% of the outstanding shares of Common Stock after giving
effect to this Offering, assuming the conversion, subsequent to the Offering, of
all of the Series A Preferred Stock issued to Waxman USA to Common Stock, Waxman
Industries will have the effective power to control the election of the Board
and thus, subject to its fiduciary duties, to direct the future operations of
the Company without the supporting vote of any other stockholders of the
Company, including decisions regarding acquisitions and other business
opportunities, the declaration of dividends and the issuance of additional
Common Shares and other securities. See "Risk Factors -- Relationship with
Waxman Industries" and "Relationship Between the Company and Waxman Industries."

Classified Board of Directors.

The Board is divided into three classes of directors serving staggered
terms. One class of directors will be elected at each annual meeting of
stockholders for a three-year term. See "Management -- Board of Directors." At
least two annual meetings of stockholders, instead of one, generally will be
required to change a majority of the Board. This may have the effect of making
it more difficult to acquire control of the Company by means of a hostile tender
offer, open market purchases, a proxy contest or otherwise.

Stockholders' Meetings.

Subject only to the rights of holders of Preferred Stock, only a majority
of the Board, the Chairman, the Vice-Chairman, the President or Chief Executive
Officer will be able to call an annual meeting of stockholders and only the
entire Board, by majority vote, or the Chairman, the Vice-Chairman, the
President or the Chief Executive Officer, will be able to call a special meeting
of stockholders. In addition, subject only to the rights of holders of Preferred
Stock, stockholders may not take any action by written consent.

Restrictions on Certain Business Combinations.

The Company Charter provides that certain business combinations, such as
mergers and stock and asset sales, with an interested stockholder (typically a
beneficial owner of more than 15% of the outstanding voting shares of the
Company's capital stock, excluding certain persons, including Waxman Industries)
be approved by (i) the holders of 80% of the voting power of the then
outstanding voting shares, voting together as a single class, and (ii) at least
a majority of the voting power of the then outstanding voting shares, voting as
a single class, which are not owned beneficially, directly or indirectly, by the
interested stockholder, unless the transaction is approved by a majority of
certain directors or meets certain fair price provisions. The "fair price"
provisions generally require that the consideration to be received by the
Company's stockholders in such transaction shall be not less than the higher of
(a) if applicable, the highest per share price paid by such interested
stockholder to acquire Common Stock (i) within the two year period immediately
preceding

46
<PAGE> 48

(x) the date of the announcement of such transaction (the "Announcement Date")
or (y) the date such person became an interested stockholder (the "Determination
Date") or (ii) in the transaction in which such person became an interested
stockholder and (b) the fair market value per share of Common Stock on the
Announcement Date or the Determination Date, whichever is higher.

Requirements for Advance Notification of Stockholder Nomination and
Proposals.

The Company Charter and Company By-Laws establish advance notice procedures
with regard to stockholder proposals and the nomination, other than by or at the
direction of the Board of Directors or a committee thereof, of candidates for
election as directors.

Vote Required to Amend or Repeal Certain Provisions of the Company Charter
and the Company By-Laws.

The Company Charter establishes certain super majority voting requirements
to amend or repeal certain provisions of the Company Charter or Company By-Laws.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate or associate of such person who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding certain employee stock ownership
plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. An "interested stockholder" is defined as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.

DIRECTORS' LIABILITY

The Company Charter contains provisions to (i) eliminate the personal
liability of its directors for monetary damages resulting from breaches of their
fiduciary duty (other than breaches of the duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, violations under Section 174 of the Delaware General Corporation Law or
for any transaction from which the director derived an improper personal
benefit) and (ii) indemnify its directors and officers to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary. The Company
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is the American Stock
Transfer & Trust Company.

47
<PAGE> 49

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, 14,898,000 shares of Common Stock will be
outstanding (excluding the conversion of 1,271,000 shares of Series A Preferred
Stock), and only the 7,207,200 shares of Common Stock sold in the Initial Public
Offering and the shares of Common Stock sold in the Offering will be freely
tradeable by persons other than "affiliates" of the Company, without restriction
under the Securities Act. The remaining shares of Common Stock outstanding, as
well as the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, will be "restricted" securities within the meaning of Rule 144
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemptions
contained in Rule 144.

In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated) who has owned Restricted
Shares beneficially for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class or, if the Common Stock
is quoted on the Nasdaq National Market, the average weekly trading volume
during the four calendar weeks preceding the sale. A person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and who has beneficially owned shares of Common Stock for at least three
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above. Rule 144 was recently amended to shorten the
respective two and three year holding periods discussed above to one and two
years, respectively. This amendment becomes effective on April 29, 1997.

Waxman USA, which holds all of the outstanding Restricted Shares, has
agreed in writing with the Company and the Underwriters not to offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock beneficially owned by it, or any securities convertible into, or
exchangeable for, shares of Common Stock, without the written consent of the
Representatives (as hereinafter defined) for a period of 180 days after the date
of this Prospectus (the "Lock-Up Period"), other than by gift to donees who
agree to be bound by the same restriction. Consent to an earlier disposition of
Restricted Shares may be granted by the Representatives in their discretion.
Upon expiration of the Lock-Up Period, there will be no Restricted Shares held
by non-affiliates eligible for sale in the public market without restriction
pursuant to Rule 144(k) and all of the Restricted Shares held by Waxman USA will
be so eligible subject to compliance with the volume limitations of Rule 144
described above.

Waxman Industries entered into a standstill agreement with the Company,
pursuant to which Waxman Industries agreed not to acquire any securities of the
Company which would result in the ownership by Waxman Industries or its
subsidiaries of a majority of the outstanding shares of Common Stock.

48
<PAGE> 50

UNDERWRITING

William Blair & Company, L.L.C., Alex. Brown & Sons Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement by
and among the Company, the Selling Stockholder, Waxman Industries and the
Underwriters, to purchase from the Company and the Selling Stockholder, and the
Company and the Selling Stockholder have agreed to sell to the Underwriters, the
respective number of shares of Common Stock set forth opposite each
Underwriter's name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
William Blair & Company, L.L.C ...........................................
Alex. Brown & Sons Incorporated ..........................................
Donaldson, Lufkin & Jenrette Securities Corporation ......................
---------
Total........................................................... 1,800,000
=========
</TABLE>

The nature of the Underwriters' obligations under the Underwriting
Agreement is such that all shares of Common Stock offered hereby, excluding
shares covered by the over-allotment option granted to the Underwriters, must be
purchased if any are purchased.

The Underwriters have advised the Company and the Selling Stockholder that
the Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to select dealers at such price less a concession of not more
than $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the public offering contemplated hereby, the public offering and other selling
terms may be changed by the Underwriters.

The Selling Stockholder has granted to the Underwriters an option
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 150,000 shares of Common Stock to cover overallotments, at the
same price per share to be paid by the Underwriters for the other shares offered
hereby. If the Underwriters purchase any such additional shares pursuant to this
option, each of the Underwriters will be committed to purchase such additional
shares in approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the shares
of Common Stock offered hereby.

The Company and its directors, executive officers, the Selling Stockholder
and Waxman Industries have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into shares of Common Stock or register for sale under the Securities Act any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the William Blair & Company,
L.L.C., other than pursuant to the exercise of the over-allotment option granted
to the Underwriters. See "Shares Eligible for Future Sale."

The Underwriters have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the Offering may engage
in transactions that may stabilize, maintain or otherwise affect the market
price of the Common Stock, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids. A "stabilizing bid" is a bid for
or the purchase of the Common Stock on behalf of the Underwriters for the
purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for, or the purchase of, the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the managing underwriter to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Underwriters in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate

49
<PAGE> 51

member. The Underwriters have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

One or more of the Underwriters currently act as market makers for the
Common Stock and may engage in "passive market making" in such securities on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act. Rule 103 permits, upon the satisfaction of certain conditions,
underwriters participating in a distribution that are also Nasdaq market makers
in the security being distributed to engage in limited market making
transactions during the period when Rule 103 would otherwise prohibit such
activity. Rule 103 prohibits underwriters engaged in passive market making
generally from entering a bid or effecting a purchase price that exceeds the
highest bid for those securities displayed on the Nasdaq National Market by a
market maker that is not participating in the distribution. Under Rule 103, each
underwriter engaged in passive market making is subject to a daily net purchase
limitation equal to the greater of (i) 30% of such entity's average daily
trading volume during the two full calendar months immediately preceding, or any
60 consecutive calendar days ending within the ten calendar days preceding, the
date of the filing of the registration statement under the Securities Act
pertaining to the security to be distributed or (ii) 200 shares of common stock.

The Company, the Selling Stockholder and Waxman Industries have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.

LEGAL MATTERS

The legality of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholder by Shereff, Friedman, Hoffman &
Goodman, LLP, New York, New York. Certain legal matters will be passed upon for
the Underwriters by Winston & Strawn, Chicago, Illinois.

EXPERTS

The financial statements as of June 30, 1995 and 1996 and for each of the
three fiscal years in the period ended June 30, 1996 included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports, proxy statements and
other information with the Securities and Exchange Commission. The Registration
Statement, as well as such periodic reports, proxy statements and other
information, can be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; Suite 1400, Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and 7 World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Securities and
Exchange Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission and the address of
such site is http://www.sec.gov.

The Company has filed with the Securities and Exchange Commission a
Registration Statement (the "Registration Statement") on Form S-1 and schedules
and exhibits thereto under the Securities Act, with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and schedules and exhibits thereto, certain parts of which are omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission. Statements made in this Prospectus as to the contents of any
contract,

50
<PAGE> 52

agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to such Registration Statement,
including the exhibits filed as part hereof.

The Company's Common Stock is traded on the NASDAQ National Market.
Reports, proxy statements and other information concerning the Company can also
be inspected at the offices of the NASDAQ National Market, 1735 K Street,
Washington, D.C. 20006.

51
<PAGE> 53

BARNETT INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Financial Statements:
Balance Sheets...................................................................... F-3
Statements of Income................................................................ F-4
Statements of Stockholders' Equity.................................................. F-5
Statements of Cash Flows............................................................ F-6
Notes to Financial Statements....................................................... F-7
</TABLE>

F-1
<PAGE> 54

BARNETT INC.

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-2
<PAGE> 55

BARNETT INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30,
------------------ DECEMBER 31,
1995 1996 1996
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS

Current Assets:
Cash....................................................... $ 1,155 $ 1,707 $ 1,211
Accounts receivable, net................................... 14,481 17,577 20,617
Inventories................................................ 24,515 27,362 30,955
Prepaid expenses........................................... 1,005 1,074 1,381
------- ------- -------
Total current assets............................... 41,156 47,720 54,164
------- ------- -------
Property and Equipment:
Machinery and equipment.................................... 7,271 8,778 12,168
Furniture and fixtures..................................... 1,447 1,841 2,297
Leasehold improvements..................................... 3,889 3,999 4,537
------- ------- -------
12,607 14,618 19,002
Less accumulated depreciation and amortization............. (6,575) (8,301) (9,431)
------- ------- -------
6,032 6,317 9,571
------- ------- -------
Cost of Business in Excess of Net Assets Acquired, net....... 3,708 3,580 3,516
Unamortized Debt Issue Costs................................. 1,348 -- --
Deferred Tax Assets, net..................................... -- 500 500
Other Assets................................................. 169 183 410
------- ------- -------
$52,413 $58,300 $ 68,161
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $10,765 $14,131 $ 16,144
Accrued liabilities........................................ 1,220 1,780 1,702
Accrued income taxes....................................... -- 1,065 369
Short-term debt............................................ -- -- 2,919
------- ------- -------
Total current liabilities.......................... 11,985 16,976 21,134
------- ------- -------
Long-Term Debt............................................... 18,126 -- --
Push-Down Bank Debt.......................................... 4,874 -- --
Commitments and Contingencies................................
Stockholders' Equity:
Serial preferred stock; $0.10 par value, 10,000 shares
authorized; 2,591, 1,271 and 1,271 issued and
outstanding at June 30, 1995 and 1996 and December 31,
1996 respectively....................................... 259 127 127
Common stock, $0.01 par value, 40,000 shares authorized;
9,318, 14,398 and 14,398 issued and outstanding at June
30, 1995 and 1996 and December 31, 1996, respectively... 93 143 143
Paid-in Capital............................................ 8,068 39,109 39,109
Retained Earnings.......................................... 20,054 1,945 7,648
Advances to Waxman Industries.............................. (11,046) -- --
------- ------- -------
17,428 41,324 47,027
------- ------- -------
$52,413 $58,300 $ 68,161
======= ======= =======
</TABLE>

The accompanying notes to financial statements are an integral part of these
balance sheets.

F-3
<PAGE> 56

BARNETT INC.

STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- ------------------
1994 1995 1996 1995 1996
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $95,225 $109,107 $127,395 $60,515 $76,362
Cost of sales.............................. 62,623 71,815 84,748 40,258 50,372
------- -------- -------- ------- -------
Gross profit............................. 32,602 37,292 42,647 20,257 25,990
Selling, general and administrative
expenses................................. 21,048 23,772 26,877 12,756 16,690
Corporate charge........................... 1,918 1,862 1,342 892 --
------- -------- -------- ------- -------
Operating income........................... 9,636 11,658 14,428 6,609 9,300
Interest expense........................... 1,518 2,139 1,921 1,235 35
------- -------- -------- ------- -------
Income before provision for income taxes
and extraordinary item................ 8,118 9,519 12,507 $ 5,374 9,265
Provision for income taxes................. 2,900 3,500 4,625 2,000 3,562
------- -------- -------- ------- -------
Income before extraordinary item......... 5,218 6,019 7,882 3,374 5,703
Extraordinary item -- loss on early
retirement of debt (net of income tax
benefit of $426)......................... -- -- 724 -- --
------- -------- -------- ------- -------
Net income............................... $ 5,218 $ 6,019 $ 7,158 $ 3,374 $ 5,703
======= ======== ======== ======= =======
Primary and fully diluted earnings per
share:
Before extraordinary item.................. $ 0.61 $ 0.36
Extraordinary item......................... (.06)
-------- -------
Total............................ $ 0.55 $ 0.36
Weighted average shares outstanding........ 12,914 15,944
Pro forma adjustments for Initial Public
Offering (Unaudited):
Income before income taxes and
extraordinary item.................... $ 8,118 $ 9,519 $ 12,507 $ 5,374
Add: Corporate charge.................... 1,918 1,862 1,342 892
Interest expense................... 1,518 2,139 1,921 1,235
Less: Public company costs............... 200 200 150 100
------- -------- -------- -------
Pro forma pretax income.................. 11,354 13,320 15,620 7,401
Income taxes............................. 4,200 4,928 5,779 2,760
------- -------- -------- -------
Pro forma net income..................... $ 7,154 $ 8,392 $ 9,841 $ 4,641
======= ======== ======== =======
Pro forma earnings per share............. $ 0.45 $ 0.53 $ 0.62 $ 0.29
Assumed shares outstanding............... 15,929 15,929 15,929 15,929
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-4
<PAGE> 57

BARNETT INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

<TABLE>
<CAPTION>
SERIAL ADVANCES TO TOTAL
PREFERRED COMMON PAID-IN RETAINED WAXMAN STOCKHOLDERS'
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........... (22,000) (22,000)
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 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
Net income (unaudited)........... 5,703 5,703
----- ---- -------- -------- -------- --------
Balance, December 31, 1996
(unaudited)...................... $ 127 $143 $ 39,109 $ 7,648 $ -- $ 47,027
===== ==== ======== ======== ======== ========
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-5
<PAGE> 58

BARNETT INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------- -------------------
1994 1995 1996 1995 1996
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FROM (USED FOR):
Operations:
Net income.............................. $ 5,218 $ 6,019 $ 7,158 $ 3,374 $ 5,703
Adjustment to reconcile net income to
net cash provided by operations:
Depreciation and amortization........ 1,787 2,177 2,053 1,047 1,130
Extraordinary item................... -- -- 1,150 -- --
Deferred tax assets.................. -- -- (500) -- --
Changes in assets and liabilities:
Accounts receivable, net............. (639) (973) (3,096) (1,181) (3,040)
Inventories.......................... (3,125) 559 (2,847) (279) (3,593)
Prepaid expenses..................... 81 (414) (69) 102 (307)
Accounts payable..................... (843) 2,972 3,366 630 2,013
Accrued liabilities.................. (378) 259 1,625 (18) (774)
-------- --------- --------- -------- --------
Net cash provided by
operations.................... 2,101 10,599 8,840 3,675 1,132
-------- --------- --------- -------- --------
Investments:
Capital expenditures, net............... (1,625) (2,334) (2,011) (1,090) (4,384)
Changes in other assets................. 340 (90) (15) (16) (163)
-------- --------- --------- -------- --------
Net cash used for investments... (1,285) (2,424) (2,026) (1,106) (4,547)
-------- --------- --------- -------- --------
Financing:
Net proceeds from sales of Common
Stock................................ -- -- 47,753 -- --
Borrowings under credit agreement....... 19,821 115,678 97,682 64,116 15,161
Payments under credit agreement......... (3,606) (113,767) (115,808) (61,652) (12,242)
Push-down debt.......................... (16,215) (1,911) (4,874) (2,464) --
Debt issue costs........................ (1,827) (132) -- -- --
Advances to Waxman Industries........... (3,100) (9,163) (12,587) (5,191) --
Capital contribution from Waxman
Industries, net...................... 18,410 1,441 3,572 2,271 --
Dividend to Waxman Industries........... (13,465) -- (22,000) -- --
-------- --------- --------- -------- --------
Net cash provided by (used for)
financing..................... 18 (7,854) (6,262) (2,920) 2,919
-------- --------- --------- -------- --------
Net increase (decrease) in cash......... 834 321 552 (351) (496)
Balance, beginning of period............ -- 834 1,155 1,155 1,707
-------- --------- --------- -------- --------
Balance, end of period.................. $ 834 $ 1,155 $ 1,707 $ 804 $ 1,211
======== ========= ========= ======== ========
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-6
<PAGE> 59

BARNETT INC.

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

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 1994 and 1995 amounts have been
reclassified to conform with the 1996 presentation, including the pro forma
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 $1,121 and $722 for June 30, 1995 and 1996, respectively. Bad debt expense
totaled $588 in 1994, $330 in 1995 and $375 in 1996.

C. Inventories

At June 30, 1995 and 1996, 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 $1,130 in
1994, $1,379 in 1995 and $1,726 in 1996.

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 1994, 1995 and 1996. The accumulated amortization of
goodwill at June 30, 1995 and 1996 was $3,580 and $3,708, 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 of 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.

F-7
<PAGE> 60

BARNETT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

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." The Company adopted SFAS No. 121 during the first quarter of
1997 with no impact on the financial statements.

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 in the footnotes to its audited annual financial statements 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 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
certain of its shares 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 and December 31, 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

F-8
<PAGE> 61

BARNETT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

connection with the Company prepaying its borrowings under a secured revolving
credit facility, which 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, Inc. ("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 SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
-------------------------- ----------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Current:
U.S. Federal............................. $2,992 $3,346 $3,952 $1,885 $3,162
State.................................... 160 180 658 100 400
------ ------ ------ ------ ------
3,152 3,526 4,610 1,985 3,562
Deferred................................. (252) (26) 15 15 --
------ ------ ------ ------ ------
$2,900 $3,500 $4,625 $2,000 $3,562
====== ====== ====== ====== ======
</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,
--------------
1995 1996
----- -----
<S> <C> <C>
Inventories.......................................................... $ 433 $ 470
Accounts receivable.................................................. 385 393
Other................................................................ 15 11
----- -----
Deferred tax assets.................................................. 833 874
Property............................................................. (318) (374)
----- -----
$ 515 $ 500
===== =====
</TABLE>

F-9
<PAGE> 62

BARNETT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

At June 30, 1995, deferred taxes and amounts payable to Waxman Industries
are included in Advances to Waxman Industries in the accompanying balance
sheets.

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 SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
-------------------------- ----------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
U.S. Statutory Rate applied to pretax
income.................................. $2,760 $3,332 $4,252 $1,881 $3,243
State taxes, net.......................... 106 117 434 65 260
Goodwill amortization..................... 44 45 45 22 22
Other..................................... (10) 6 (106) 32 37
------ ------ ------ ------ ------
Provision for income taxes.............. $2,900 $3,500 $4,625 $2,000 $3,562
====== ====== ====== ====== ======
</TABLE>

The Company made income tax payments of $277 in 1994, $483 in 1995, $372 in
1996 and $186 and $4,200 for the six months ended December 31, 1995 and 1996,
respectively.

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 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 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 and December 31, 1996. At June
30, 1996 there were no borrowings under the credit agreement and there were $3.5
million of letters of credit outstanding. As December 31, 1996, there was $2.9
million outstanding under the credit agreement and there were $4.1 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 the 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 $126 in 1994, $1,654 in 1995, $1,525
in 1996 and $968 and $32 for the six months ended December 31, 1995 and 1996,
respectively.

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

F-10
<PAGE> 63

BARNETT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

common stock to 40,000, (ii) effected a 238,180 for 1 stock split and (iii)
authorized 10,000 shares of preferred stock 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 a
portion of 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 and 1,271 shares of
Series A Preferred Stock at June 30, 1996 and December 31, 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>
<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 $1,722 in 1994, $2,036 in 1995
and $2,217 in 1996.

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 1994, 1995 or
1996. In 1995 and 1996, the Company contributed $80 and $0, 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
1997.

The Company offers no other post-retirement or post-employment benefit to
its employees.

F-11
<PAGE> 64

BARNETT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

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 $8,303 in 1994, $11,318 in 1995 and $12,183 in 1996. Sales
to these entities totaled $229 in 1994, $195 in 1995 and $172 in 1996.

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 Gas
Products, 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. During the six months ended December 31, 1996,
the Company charged an aggregate of approximately $48,000 to Waxman Industries
for services rendered to it and for reimbursement of expenses incurred on behalf
of Waxman Industries, and charged an aggregate of approximately $698,000 to U.S.
Lock, LeRan and Madison for services rendered to them and for reimbursement of
expenses incurred on their behalf by the Company pursuant to the New
Intercorporate Agreement.

During the same six month period, the Company was charged an aggregate of
approximately $35,000 by Waxman Industries for services rendered to the Company
and for reimbursement of expenses incurred on its behalf by Waxman Industries,
and was charged an aggregate of approximately $251,000 by U.S. Lock, LeRan

F-12
<PAGE> 65

BARNETT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(AMOUNTS AND DISCLOSURES AS OF DECEMBER 31, 1995 AND 1996
AND FOR THE SIX MONTHS THEN ENDED ARE UNAUDITED)

and Madison for services rendered to it and for reimbursement of expenses
incurred on its behalf pursuant to the New Intercorporate Agreement.

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.

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
------------------------------
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Push-down interest expense, including amortization of
debt issue costs..................................... $ 1,385 $ 464 $ 355
Change in push-down bank debt.......................... 16,215 1,911 3,791
Income taxes........................................... (901) (493) (391)
Change in push-down interest accrual................... 107 21 15
Change in push-down of unamortized debt issue costs.... 1,604 (462) (198)
------- ------- ------
Capital contribution from Waxman Industries, net....... $18,410 $ 1,441 $3,572
======= ======= ======
</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.

12. SUBSEQUENT EVENT

In March 1997, the Company filed an Amendment to a Registration Statement
on Form S-1 with the Securities and Exchange Commission for the offering of
1,800 shares of common stock (excluding an over-allotment option for 150
shares), 500 shares of which are being sold by the Company and 1,300 shares of
which are being sold by Waxman. Net proceeds received by the Company will be
used for repayment of indebtedness and general corporate purposes, which may
include the acquisition and/or development of complementary product categories
and the expansion and/or relocation of the telesales facilities. The Company
will not receive any proceeds from the sale of shares of common stock by Waxman.

F-13
<PAGE> 66

================================================================================

NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
The Offering.......................... 4
Risk Factors.......................... 8
Use of Proceeds....................... 13
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Capitalization........................ 14
Selected Financial Information and
Operating Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 24
Management............................ 33
Relationship Between the Company and
Waxman Industries................... 41
Principal and Selling Stockholder..... 43
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 48
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 50
Index to Financial Statements......... F-1
</TABLE>

- --------------------------------------------------------------------------------

================================================================================

1,800,000 SHARES

BARNETT LOGO

COMMON STOCK

---------------------------

PROSPECTUS

, 1997

---------------------------

WILLIAM BLAIR & COMPANY

ALEX. BROWN & SONS

INCORPORATED

DONALDSON, LUFKIN & JENRETTE

SECURITIES CORPORATION

================================================================================
<PAGE> 67

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following expenses incurred in connection with this Registration
Statement will be paid by the Company and the Selling Stockholder.

<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 16,370
NASD Fee.......................................................................... $ 5,930
NASDAQ Listing Fee................................................................ $ 17,500*
Accounting Fees and Expenses...................................................... $ 50,000*
Legal Fees and Expenses........................................................... $125,000*
Printing Fees and Expenses........................................................ $ 75,000*
Blue Sky Fees and Expenses........................................................ $ 3,000*
Transfer Agent's Fees............................................................. N/A
Miscellaneous Expenses............................................................ $ 7,200*
--------
Total................................................................... $300,000*
========
</TABLE>

- ---------------

* Estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The indemnification of officers and directors of the Company is governed by
Section 145 of the General Corporation Law of the State of Delaware (the "DGCL")
and the Certificate of Incorporation and By-laws of the Company. Among other
things, the DGCL permits indemnification of a director, officer, employee or
agent in civil, criminal, administrative or investigative actions, suits or
proceedings (other than an action by or in the right of the corporation) to
which such person is a party or is threatened to be made a party by reason of
the fact of such relationship with the corporation or the fact that such person
is or was serving in a similar capacity with another entity at the request of
the corporation against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he had no reasonable cause to believe his
conduct was unlawful. No indemnification may be made in any such suit to any
person adjudged to be liable to the corporation unless and only to the extent
that the Delaware Court of Chancery or the court in which the action was brought
determines that, despite the adjudication of liability, such person is under all
circumstances, fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper. Under the DGCL, to the extent that a
director, officer, employee or agent is successful, on the merits or otherwise,
in the defense of any action, suit or proceeding or any claim, issue or matter
therein (whether or not the suit is brought by or in the right of the
corporation), he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him. In all cases in which
indemnification is permitted (unless ordered by a court), it may be made by the
corporation only as authorized in the specific case upon a determination that
the applicable standard of conduct has been met by the party to be indemnified.
The determination must be made by a majority vote of a quorum consisting of the
directors who were not parties to the action or, if such a quorum is not
obtainable, or even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or by the
shareholders. The statute authorizes the corporation to pay expenses incurred by
an officer or director in advance of a final disposition of a proceeding upon
receipt of an undertaking by or on behalf of the person to whom the advance will
be made, to repay the advances if it shall ultimately be determined that he was
not entitled to indemnification. The DGCL provides that indemnification and
advances of expenses permitted thereunder are not to be exclusive of any rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, vote of stockholders or disinterested
directors, or otherwise. The DGCL also authorizes the

II-1
<PAGE> 68

corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have the statutory power to indemnify such persons against the liabilities
insured.

The Certificate of Incorporation of the Company (the "Certificate"),
provides that no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for paying a dividend or approving a stock repurchase in violation of
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.

The By-laws of the Company (the "By-laws"), provide that directors,
officers and others shall be indemnified to the fullest extent authorized by the
DGCL, as in effect (or, to the extent indemnification is broadened, as it may be
amended), against any and all judgments, fines and amounts paid in settling or
otherwise disposing of threatened, pending or completed actions, suits or
proceedings, whether civil, criminal, administrative or investigative and
expenses incurred by such person in connection therewith. The By-laws further
provide that, to the extent permitted by law, expenses so incurred by any such
person in defending a civil or criminal action or proceeding shall, at his
request, be paid by the Company in advance of the final disposition of such
action or proceeding.

The By-laws provide that the right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
shall not be exclusive of any other right which any person may have or acquire
under any statute, provision of the Certificate or By-laws or otherwise.

The Company maintains directors and officers liability and company
reimbursement insurance which, among other things (i) provides for payment on
behalf of its officers and directors against loss as defined in the policy
stemming from acts committed by directors and officers in their capacity such
and (ii) provides for payment on behalf of the Company against such loss but
only when the Company shall be required or permitted to indemnify directors or
officers for such loss pursuant to statutory or common law or pursuant to duly
effective Certificate or By-law provisions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following exhibits are filed as part of the Registration Statement:

<TABLE>
<S> <C>
1.1(2) -- Form of Underwriting Agreement.
3.1(1) -- Certificate of Incorporation of Barnett Inc. (Exhibit 3.1 to Barnett Inc.'s
Registration Statement on Form S-1, Registration Number 333-830, incorporated by
reference herein).
3.2(1) -- Amended and Restated Certificate of Incorporation of Barnett Inc. (Exhibit 3.2 to
Barnett Inc.'s Registration Statement on Form S-1, Registration Number 333-830,
incorporated by reference herein).
3.3(1) -- By-laws of Barnett Inc. (Exhibit 3.3 to Barnett Inc.'s Registration Statement on
Form S-1, Registration Number 333-830, incorporated by reference herein).
3.4(1) -- Amended and Restated By-Laws of Barnett Inc. (Exhibit 3.4 to Barnett Inc.'s
Registration Statement on Form S-1, Registration Number 333-830, incorporated by
reference herein).
4.1(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 (Exhibit 4.1 to
Barnett Inc.'s Registration Statement on Form S-1, Registration Number 333-830,
incorporated by reference herein).
</TABLE>

II-2
<PAGE> 69

<TABLE>
<S> <C>
4.2(1) -- 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 (Exhibit 4.2 to Barnett Inc.'s Registration
Statement on Form S-1, Registration Number 333-830, incorporated by reference
herein).
4.3(1) -- 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 (Exhibit 4.3 to Barnett Inc.'s Registration Statement
on Form S-1, Registration Number 333-830, incorporated by reference herein).
5.1 -- Legal Opinion of Shereff, Friedman, Hoffman & Goodman, LLP with respect to legality
of securities to be registered.
10.1(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) (Exhibit 10.1 to Barnett
Inc.'s Registration Statement on Form S-1, Registration Number 333-830,
incorporated by reference herein).
10.2(1) -- 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.
(Exhibit 10.2 to Barnett Inc.'s Registration Statement on Form S-1, Registration
Number 333-830, incorporated by reference herein).
10.3(1) -- Intercorporate Agreement dated March 28, 1996 among Barnett Inc., Waxman
Industries, Inc., Waxman USA Inc., Waxman Consumer Products Group Inc., WOC Inc.
and TWI, International, Inc. (Exhibit 10.3 to Barnett Inc.'s Annual Report on Form
10-K, Commission File No. 0-21728, incorporated by reference herein).
10.4(1) -- Registration Rights Agreement dated March 28, 1996 by and between Barnett Inc. and
Waxman Industries, Inc. (Exhibit 10.4 to Barnett Inc.'s Annual Report on Form 10-K,
Commission File No. 0-21728, incorporated by reference herein).
10.5(1) -- Trademark License Agreement dated May 20, 1994 by and between Barnett Inc. and
Waxman Consumer Products Group Inc. (Exhibit 10.5 to Barnett Inc.'s Registration
Statement on Form S-1, Registration Number 333-830, incorporated by reference
herein).
10.6(1) -- Employment Agreement dated June 18, 1990 between Barnett Inc. and William R. Pray
(Exhibit 10.6 to Barnett Inc.'s Registration Statement on Form S-1, Registration
Number 333-830, incorporated by reference herein).
10.7(1) -- Amended and Restated Employment Agreement dated March 8, 1996 between Barnett Inc.
and William R. Pray (Exhibit 10.7 to Barnett Inc.'s Registration Statement on Form
S-1, Registration Number 333-830, incorporated by reference herein).
10.8(1) -- Omnibus Incentive Plan of Barnett Inc. (Exhibit 10.8 to Barnett Inc.'s Registration
Statement on Form S-1, Registration Number 333-830, incorporated by reference
herein).
10.9(1) -- Stock Purchase Plan of Barnett Inc. (Exhibit 10.9 to Barnett Inc.'s Registration
Statement on Form S-1, Registration Number 333-830, incorporated by reference
herein).
10.10(1) -- Revolving Credit Agreement dated April 3, 1996 between Barnett Inc. and First Union
National Bank of Florida (Exhibit 10.10 to Barnett Inc.'s Annual Report on Form
10-K, Commission File No. 0-21728, incorporated by reference herein).
10.11(2) -- 1996 Stock Option Plan for Non-Employee Directors.
10.12(1) -- Standstill Agreement dated March 28, 1996 between Waxman Industries, Inc. and
Barnett Inc. (Exhibit 10.12 to Barnett Inc.'s Annual Report on Form 10-K,
Commission File No. 0-21728, incorporated by reference herein).
</TABLE>

II-3
<PAGE> 70

<TABLE>
<S> <C>
23.1 -- Consent of Arthur Andersen LLP.
23.2(1) -- Consent of Shereff, Friedman, Hoffman & Goodman, LLP dated March 20, 1997 (included
in its opinion which appears as Exhibit 5.1).
24.1(2) -- Power of Attorney.
</TABLE>

- ---------------

(1) Incorporated by reference as indicated.

(2) Filed on February 27, 1997.

(b) Financial Statement Schedules.

All schedules have been omitted because the required information is not
present or not present in amounts sufficient to require submission of the
schedule.

ITEM 17. UNDERTAKINGS

(a) Indemnification

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

(b) The Registrant hereby undertakes:

(i) that for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective; and

(ii) that for the purpose of determining liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
the time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 71

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Jacksonville, State of Florida on the 20th day of March, 1997.

BARNETT INC.

By /s/ WILLIAM R. PRAY
------------------------------------
William R. Pray
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in their
capacities as indicated.

<TABLE>
<CAPTION>
NAME TITLE
- ----------------------------------- --------------------------------------
<C> <S> <C>

* Chairman of the Board and Director March 20, 1997
- -----------------------------------
Melvin Waxman

* Vice-Chairman of the Board and March 20, 1997
- ----------------------------------- Director
Armond Waxman

/s/ WILLIAM R. PRAY President, Chief Executive Officer and March 20, 1997
- ----------------------------------- Director (Principal Executive
William R. Pray Officer)

* Vice President -- Finance and Chief March 20, 1997
- ----------------------------------- Financial Officer (Principal
Andrea M. Luiga Financial and Accounting Officer)

* Director March 20, 1997
- -----------------------------------
Sheldon Adelman

* Director March 20, 1997
- -----------------------------------
Morry Weiss
</TABLE>

By /s/ WILLIAM R. PRAY
-----------------------------------
William R. Pray as Attorney-in-fact

II-5
<PAGE> 72

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
- ------ ---------------------------------------------------------------------------- ------
<S> <C> <C>
1.1(2) -- Form of Underwriting Agreement.
3.1(1) -- Certificate of Incorporation of Barnett Inc. (Exhibit 3.1 to Barnett Inc.'s
Registration Statement on Form S-1, Registration Number 333-830,
incorporated by reference herein).
3.2(1) -- Amended and Restated Certificate of Incorporation of Barnett Inc. (Exhibit
3.2 to Barnett Inc.,s Registration Statement on Form S-1, Registration
Number 333-830, incorporated by reference herein).
3.3(1) -- By-laws of Barnett Inc. (Exhibit 3.3 to Barnett Inc.'s Registration
Statement on Form S-1, Registration Number 333-830, incorporated by
reference herein).
3.4(1) -- Amended and Restated By-Laws of Barnett Inc. (Exhibit 3.4 to Barnett Inc.'s
Registration Statement on Form S-1, Registration Number 333-830,
incorporated by reference herein).
4.1(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
(Exhibit 4.1 to Barnett Inc.'s Registration Statement on Form S-1,
Registration Number 333-830, incorporated by reference herein).
4.2(1) -- 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 (Exhibit 4.2 to Barnett
Inc.'s Registration Statement on Form S-1, Registration Number 333-830,
incorporated by reference herein).
4.3(1) -- 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 (Exhibit 4.3 to
Barnett Inc.'s Registration Statement on Form S-1, Registration Number
333-830, incorporated by reference herein).
5.1 -- Legal Opinion of Shereff, Friedman, Hoffman & Goodman,LLP with respect to
legality of securities to be registered
10.1(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)
(Exhibit 10.1 to Barnett Inc.'s Registration Statement on Form S-1,
Registration Number 333-830, incorporated by reference herein).
10.2(1) -- Intercorporate Agreement dated May 20, 1994 by and among Barnett Inc.,
Waxman Industries, Inc., Waxman USA Inc., Consumer Products Group Inc. and
WOC Inc. (Exhibit 10.2 to Barnett Inc.'s Registration Statement on Form S-1,
Registration Number 333-830, incorporated by reference herein).
10.3(1) -- Intercorporate Agreement dated March 28, 1996 among Barnett Inc., Waxman
Industries, Inc., Waxman USA Inc., Waxman Consumer Products Group Inc., WOC
Inc. and TWI, International, Inc. (Exhibit 10.3 to Barnett Inc.'s Annual
Report on Form 10-K, Commission File No. 0-21728, incorporated by reference
herein).
10.4(1) -- Registration Rights Agreement dated March 28, 1996 by and between Barnett
Inc. and Waxman Industries, Inc. (Exhibit 10-4 to Barnett Inc.'s Annual
Report on Form 10-K, Commission File No. 0-21728, incorporated by reference
herein).
10.5(1) -- Trademark License Agreement dated May 20, 1994 by and between Barnett Inc.
and Waxman Consumer Products Group Inc. (Exhibit 10.5 to Barnett Inc.'s
Registration Statement on Form S-1, Registration Number 333-830,
incorporated by reference herein).
</TABLE>

<PAGE> 73

- ---------------

(1) Incorporated by reference as indicated.

(2) Filed on February 27, 1997.

<PAGE> 1

SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022-9998

----------
TELEPHONE (212) 758-9500
FACSIMILE (212) 758-9526
TELEX 237328

March 20, 1997

Barnett Inc.
3333 Lenox Avenue
Jacksonville, FL 32254

Dear Ladies and Gentlemen:

On the date hereof, Barnett Inc., a Delaware corporation (the
"Company"), intends to transmit for filing with the Securities and Exchange
Commission Amendment No. 1 to a Registration Statement on Form S-1 (the
"Registration Statement") relating to the offer and sale of up to 1,950,000
shares (the "Shares") of common stock, par value $0.01 per share ("Common
Stock"), of the Company, including 500,000 shares to be sold by the Company,
1,300,000 shares to be sold by Waxman USA Inc. (the "Selling Stockholder") and
an additional 150,000 shares to be sold by the Selling Stockholder pursuant to
the underwriters' over-allotment option. This opinion is an exhibit to the
Registration Statement.

We note that we are members of the Bar of the State of New
York and do not represent ourselves to be expert in the laws of any other state
or jurisdiction. Insofar as this opinion may involve the laws of the State of
Delaware, our opinion is based solely upon our reading of the Delaware General
Corporation Law, except that our opinion as to the due incorporation and valid
existence of the Company is based solely upon a Certificate of Good Standing
obtained from the Secretary of State of the State of Delaware. We have acted as
special securities counsel to the Company with respect to certain corporate and
securities matters, and in such capacity we have participated in various
corporate and other proceedings taken by or on behalf of the Company in
connection with the proposed offer and sale by the Company and the Selling
Stockholder of the Common Stock as contemplated by the Registration Statement.
We have examined copies (in each case signed, certified or otherwise proven to
our satisfaction to be genuine) of the Company's Certificate of Incorporation
and all amendments thereto, its By-Laws as presently in effect, minutes and
other instruments evidencing actions taken by its directors and stockholders,
the Registration Statement and exhibits thereto and such other documents and
instruments relating to the Company and the proposed offering as we have deemed
necessary under the circumstances.

<PAGE> 2

Barnett Inc.
March 20, 1997
Page 2

Based on and subject to the foregoing, it is our opinion that:

1. The Company has been duly incorporated and is validly
existing under the laws of the State of Delaware and has authorized capital
stock consisting of 40,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock, par value $0.10 per share.

2. The maximum of 500,000 shares of Common Stock to be sold by
the Company have been duly authorized and, subject to the effectiveness of the
Registration Statement, when issued and delivered against payment therefor in
accordance with the terms set forth in the Registration Statement, will be
legally issued, fully paid and nonassessable.

3. The maximum of 1,450,000 shares of Common Stock to be sold
by the Selling Stockholder have been duly authorized and legally issued and are
fully paid and nonassessable.

We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and as an exhibit to any application under the
securities or other laws of any state of the United States, which relates to the
offering which is the subject of this opinion, and to the reference to this firm
appearing under the heading "Legal Matters" in the prospectus which is contained
in the Registration Statement.

This opinion is furnished to you in connection with the filing
of the Registration Statement, and is not to be used, circulated, quoted or
otherwise relied upon for any other purpose, except as expressly provided in the
preceding paragraph. This opinion is as of the date hereof and we disclaim any
undertaking to update this opinion after the date hereof.

Very truly yours,

/s/ SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP

SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP

SMZ;GA;KLL

<PAGE> 1

ARTHUR
ANDERSEN

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement (File No. 333-22453).

/s/ Arthur Andersen LLP

Cleveland, Ohio
March 20, 1997