<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
--------------------
REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
----------------------
BARNETT INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5074,5063 59-1380437
(State or other jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer Identification Number)
incorporation or organization) Code Number)
</TABLE>
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 agent for service)
COPIES TO:
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
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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed
Title of Class of Securities Amount Offering Price Maximum Amount of
to be Registered to be Per Share(2) Aggregate Registration Fee
Registered(1) Offering Price(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,150,000 $25-1/8 $54,018,750 $16,370
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
______________
(1) Includes 150,000 shares of Common Stock which the Underwriters have an option to purchase to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of
1933, as amended, on the basis of the high and low prices of the Common Stock as reported on the Nasdaq National Market
on February 24, 1997.
</TABLE>
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.
<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 FEBRUARY 27, 1997
PROSPECTUS
2,000,000 SHARES
BARNETT INC.
COMMON STOCK
Of the 2,000,000 shares of Common Stock of Barnett Inc. (the "Company")
offered hereby, 500,000 shares of Common Stock are being sold by the Company and
1,500,000 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 43.1% 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 February 25, 1997, the last sale price of the Common Stock as
reported by the Nasdaq National Market was $25.50. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 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(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
Total(3)................. $ $ $ $
===================================================================================================================================
<FN>
(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 $ and $ 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.
</TABLE>
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
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
[PHOTOGRAPHS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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 NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
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 100 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 an average of
74.0% during fiscal 1992 through fiscal 1995 to 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 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:
o 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.
o 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.
o Increase geographic coverage and local presence by adding two
to four distribution centers per year in major metropolitan
areas.
o Add new customer segments through expanded promotional
flyer mailings targeted toward complementary customer segments
such as HVAC/R contractors, lighting showrooms and healthcare
facilities.
o Expand export business by increasing international flyer
mailings and creating a dedicated international telesales
staff.
3
<PAGE> 5
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Shares Offered by the Company.............500,000
Shares Offered by the Selling
Stockholder.............................1,500,000
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
Stockholder.............................Repayment of indebtedness. See "Use of Proceeds."
Certain Relationships.....................All 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 43.1% 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
- ----------
<FN>
(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 783,000
shares of Common Stock have been granted as of the date of this
Prospectus. See "Management--Compensation Plans" and "Description of
Capital Stock."
</TABLE>
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.
4
<PAGE> 6
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
Six Months
Ended
Years Ended June 30, December 31,
----------------------------------------------------------------- ------------
Pro
Forma
1992 1993(1) 1994 1995 1996 1996(2) 1995 1996
---- ------- ---- ---- ---- ------- ---- ----
INCOME STATEMENT
DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
------ --------------
BALANCE SHEET DATA:
<S> <C> <C>
Working capital............................................................................ $33,030 $45,067
Total assets............................................................................... 68,161 77,279
Total debt................................................................................. 2,919 --
Stockholders' equity....................................................................... 47,027 59,064
</TABLE>
- ----------
* Not available.
(1) During 1993, the Company accelerated its amortization of certain
distribution center start-up and catalog development costs. The effect of
this change in 1993 was to decrease operating income by $1.2 million. In
1993, net income was decreased by $1.4 million due to the foregoing
decrease in operating income, as well as 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.
5
<PAGE> 7
(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.
(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 Operating Companies
Revolving Credit Facility (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 $12.0 million of
which $2.9 million will be used to reduce short-term indebtedness of the
Company and $9.1 million will be used for general corporate purposes, as
described in "Use of Proceeds."
6
<PAGE> 8
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
43.1% 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 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
7
<PAGE> 9
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. Historically, sales to and purchases from Waxman Industries
and its related entities have been made on a cost plus handling fee basis, and,
as a result, have had no material impact on the Company's results of operations.
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 $18.2 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."
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 $95.8 million of consolidated indebtedness,
excluding the borrowings of the Company.
8
<PAGE> 10
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 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."
9
<PAGE> 11
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 43.1% of the outstanding shares of Common Stock,
assuming the conversion of all the Series A Preferred Stock issued to Waxman USA
to 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 to 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.
10
<PAGE> 12
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 $12.0 million, assuming an
offering price of $25.50 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 ($2.6 million at February 20, 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 $36.1 million
($39.7 million if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $26.00 per share. Waxman USA intends to use
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. See "Risk
Factors--Impact on the Company of Financial Condition of Waxman Industries." 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
---- ---
Fiscal 1996:
<S> <C> <C>
Third Quarter (from March 29, 1996).............. $23.25 $19.00
Fourth Quarter................................... 29.50 20.25
<CAPTION>
Fiscal 1997:
<S> <C> <C>
First Quarter ................................... $27.75 $19.00
Second Quarter................................... 27.25 21.00
Third Quarter (through February 25, 1997)........ 27.25 23.75
</TABLE>
On February 25, 1997, the last sales price of the Common Stock was $25.50
per share as reported on the Nasdaq National Market. At February 25, 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.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the 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>
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 51,254
Retained earnings............................................. 7,648 7,648
----- -----
Total stockholders' equity............... 47,027 59,064
------ ------
Total capitalization................. $47,027 $59,064
<FN>
- ----------
(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 783,000 shares of Common Stock have
been granted as of the date of this Prospectus. See
"Management--Compensation Plans" and "Description of Capital Stock."
</TABLE>
12
<PAGE> 14
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>
Six Months Ended
Years Ended June 30, December 31,
------------------------------------------------------------------ ----------------
Pro
Forma
1992 1993(1) 1994 1995 1996 1996(2) 1995 1996
---- ------- ---- ---- ---- ------- ---- ----
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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>
13
<PAGE> 15
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------------------------------------------- ------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ----------
<FN>
* Not available.
</TABLE>
(1) During 1993, the Company accelerated its amortization of certain
distribution center start-up and catalog development costs. The effect of
this change in 1993 was to decrease operating income by $1.2 million. In
1993, net income was decreased by $1.4 million due to the foregoing
decrease in operating income, as well as 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 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.
(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.
(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 (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 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.
14
<PAGE> 16
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."
15
<PAGE> 17
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 1994, 1995
and 1996 and the six months ended December 31, 1996 compared to the prior year
periods.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE INCREASE (DECREASE)
----------------------------------------------- ------------------------------
SIX MONTHS
ENDED
DECEMBER 31,
1995 TO
YEARS ENDED SIX MONTHS 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.
16
<PAGE> 18
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 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.
Gross Profit
Gross profit margins decreased to 33.5% in fiscal year 1996 compared to
34.2% in fiscal year 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.
17
<PAGE> 19
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 year 1996 from $1.9 million for fiscal year 1995. These fees were
eliminated in the fourth quarter of fiscal year 1996 and subsequent expenses
under the New Intercorporate Agreement are included in the Financial Statements
as a component of SG&A expenses.
Interest Expense
Interest expense decreased to $1.9 million for fiscal year 1996 from $2.1
million for fiscal year 1995, a decrease of 10.2%. This was a result of the
Company using a portion of the net proceeds of the Initial Public Offering to
retire the borrowings under the Operating Companies Revolving Credit Facility
and, as a result, eliminating the related interest expense.
Provision for Income Taxes
The provision for income taxes increased $1.1 million or 32.1% to $4.6
million for fiscal year 1996 from $3.5 million for fiscal year 1995. The
provision for income taxes for both periods represented approximately 37% of
income before provision for income taxes.
Extraordinary Charge
The year end results ended June 30, 1996 include the effect of a one-time,
non-cash extraordinary charge of $0.7 million (net of applicable tax benefit of
$0.4 million), or $.06 per share, which was incurred as a result of the
write-off of unamortized debt issuance costs incurred in connection with the
Company prepaying its borrowings under the Operating Companies Revolving Credit
Facility with proceeds of its Initial Public Offering, which indebtedness
included push-down debt from the Company's former parent company.
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 1995 from $95.2 million in 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 1995. Contributing to the overall
increase in net sales were a net increase of 200 in the total number of products
offered by the Company which generated approximately $6.9 million of additional
net sales and an increase of active customers to 38,000 from 36,000 which
accounted for approximately $3.8 million of the net sales increase. The
increased net sales can also be partially attributed to the Company's other
successful marketing programs, including the introduction of a new catalog in
January 1995 directed to its hardware store customers, coupled with new
merchandising strategies which offer comprehensive customer services.
Gross Profit
Gross profit increased by $4.7 million, or 14.4%, to $37.3 million for
fiscal 1995, from $32.6 million for fiscal 1994, while the gross profit margin
remained constant at 34.2%. The Company's gross profit margin was favorably
effected by the increased sales of private label products, which generally carry
a higher gross profit margin, and which increased to 26.6% of net sales in 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 1995
from $21.0 million for the 1994 year. The decrease in SG&A expenses as a
percentage of net sales to 21.8% in 1995 compared to 22.1% in 1994 was
principally due to no distribution center
18
<PAGE> 20
start-up costs as compared to 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 1994 and 1995
and decreased by 2.9% as a percentage of net sales in 1995 as compared to 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 1995 from $1.5 million in
1994, an increase of 40.9% as a result of an increased weighted average interest
rate of 9.3% in 1995 from 6.6% in 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 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 1995 from $2.9 million for 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 1995 from 35.7% in 1994.
QUARTERLY RESULTS
The following table sets forth summary unaudited quarterly financial
information for the last two quarters in 1995, each quarter in 1996 and the
first two quarters of 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 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.
19
<PAGE> 21
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.
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.
20
<PAGE> 22
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 100 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.
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
21
<PAGE> 23
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.
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 100
persons over the last four and a half years, with the majority of the increase
being attributable to the addition of outbound telesalespersons.
22
<PAGE> 24
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 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 100 telesales, customer service and
technical support personnel who utilize the Company's proprietary, on-line order
processing system. This sophisticated software provides the telesales staff with
detailed customer profiles and information about products, pricing, promotions
and competition. This data enables the Company to segment its customer base,
analyze mailing effectiveness on a weekly basis, closely track and manage
inventory on a real time basis and quickly react to and capitalize on market
opportunities.
The Company divides its telesales staff into outbound and inbound groups.
The Company's experience indicates that customer loyalty is bolstered by the
ability of the telesales staff to develop an ongoing personal relationship with
their customers. The Company's highly trained outbound telesales staff maintains
frequent customer contact, makes telesales presentations and encourages
additional purchases. Inbound telesalespersons are trained to quickly process
orders from existing customers, 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.
23
<PAGE> 25
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.
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>
SQUARE FISCAL
METROPOLITAN AREA SERVED FOOTAGE YEAR OPENED
- ------------------------ ------- -----------
REGIONAL HUB DISTRIBUTION CENTERS
<S> <C> <C>
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
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C> <C>
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 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) and LuminaTM. 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 LegendTM 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:
[To be updated]
<TABLE>
<CAPTION>
PLUMBING
<S> <C>
Ballcocks and flush valves Shower and bath tub wall kits
Bath hardware Stems and seats, washers and "O" rings
Compression fittings Stainless stell kitchen sinks
Copper fittings, DWV and sweat fittings Toilet seats and accessories
Copper tubing Toilet tank flush valves and repair parts
CPVC pipe and fittings Tubular products--metal, polypropylene and
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C>
Faucet and sink repair parts PVC
Gas valves and gas connectors (AGA approved) Valves--bronze, brass and non-metallic
Kitchen cabinets Vanities and medicine cabinets
Lavatory and kitchen faucets Wall hung lavatories
Liquid drain opening products Water closets, drop-in bowls and pedestal sinks
Malleable fittings and pipe--galvanized and Water heater elements, thermostats and accessories
black Water filters and accessories
Plumbing tools--hand and power Whirlpool tubs
Pumps and sewage ejectors
Regulators--gas and water
<CAPTION>
ELECTRICAL
<S> <C>
Appliance repair parts Light bulbs
Batteries and flashlights Light fixtures
Building wire and lamp cord Power cords--indoor and outdoor, dryer,
Circuit breakers and panels range, professional, appliance, extension and
Conduits and raceways--metallic and power block
non-metallic Telephone accessories
Door bells, buzzers, and chimes Two-way radios
Electrical tools and testers Wiring boxes--metallic and non-metallic
Fans--kitchen and bath exhaust Wiring devices
Fluorescent ballasts
Fuses
<CAPTION>
HARDWARE
<S> <C>
Bolts and hasps, door viewers Padlocks
knockers and door accessories Paint sundries
Brooms, mops and dustpans Painting accessories--spackling, glazing, wall
Caulks, adhesives and weather stripping patch, joint compound, grout, mastic,
Cleaning aids adhesives
Door lock sets, dead bolts and accessories Plastic sheeting
Drywall tools Safety equipment and rainwear
Fasteners--drywall, sheet metal, toggle Thresholds, tarps and rubber tie-down straps
and machine rivets Windows and screen door accessories, security,
Fire extinguishers door and striker, hinges, braces and mending plates
Keying machines, key blanks and cabinets Work gloves
Mini blinds and accessories
<CAPTION>
HVAC/R
<S> <C>
Pumps -- circulating Motors/capilators
Thermostats Refrigeration supplies
HVAC/R tools Relays
HVAC/R chemicals Contactors
Register/ducting products Hydronic specialties
</TABLE>
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
26
<PAGE> 28
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 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 BOSSTM 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. BOSSTM 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.
27
<PAGE> 29
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.
28
<PAGE> 30
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 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
29
<PAGE> 31
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"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
------
Annual Compensation (1) Securities
-----------------------
Underlying All Other
Fiscal Bonus ($) Options/ Compensation
Name and Principal Position Year Salary (2) SARs (#) ($) (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 -- --
<FN>
- -------------
(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.
</TABLE>
30
<PAGE> 32
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 $59,000 annually. The balance remaining in the
account upon the termination of employment of Mr. Pray shall be paid to him or
his beneficiaries, as the case may be.
In the event that Mr. Pray's employment is terminated without Cause (as
defined in the employment agreement) or in the event he terminates his
employment for Good Reason (as defined in the employment agreement), he will be
entitled to receive, in one lump sum, an amount equal to the present value of
the product of (i) the sum of (x) the base salary (as such base salary would
have been adjusted for the remainder of the term) and (y) the average of the
bonus compensation paid to Mr. Pray with respect to the three years preceding
the termination of the employment agreement and (ii) the greater of (a) the
remaining number of years (or portions thereof) in the term of the employment
agreement and (b) two; provided, however, that if any portion of such
compensation would constitute an "excess parachute payment" under Section 280G
of the Internal Revenue Code of 1986, as amended, the amount of such
compensation would be reduced to the highest amount that would not constitute an
excess parachute payment. The employment agreement also contains provisions
which restrict Mr. Pray from competing with the Company during the term of the
agreement and for two years following termination thereof.
STOCK OPTION AND SAR GRANTS
The following table sets forth the information noted for all grants of
stock options made by the Company during fiscal 1996 to each of the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION/SAR(1) GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of Stock
Options Granted to Exercise Price Appreciation for
Granted Employees in Price Expiration Option Term
Name (#) Fiscal Year 1996 ($/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 $3,793,107
Andrea M. Luiga................ 50,000 9.9% 14.00 April 2, 2006 440,226 1,115,620
Andrew C. Fournie.............. 25,000 4.9% 14.00 April 2, 2006 220,113 557,810
Alfred C. Poindexter........... 25,000 4.9% 14.00 April 2, 2006 220,113 557,810
- -----------
<FN>
(1) There were no SARs granted to any of the executive officers named in this
table in fiscal 1996.
(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1996 dollars. The dollar amounts included
in these columns are the result of calculation at assumed rates set by the
Securities and Exchange Commission for illustration purposes, and these
rates are not intended to be a forecast of the Common Stock price and are
not necessarily indicative of the values that may be realized by the named
executive officer.
</TABLE>
31
<PAGE> 33
STOCK OPTION AND SAR EXERCISES
The following table sets forth information with respect to (i) the
numbers of unexercised options held by each of the executive officers named in
the Summary Compensation Table who held options as of June 30, 1996 and (ii) the
value of unexercised in-the-money options as of June 30, 1996. None of the
executive officers exercised any options in fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Unexercised Options Value of Unexercised
At Fiscal Year (#) In-the-Money Options
Name Exercisable/Unexercisable At Fiscal Year End ($)(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
- ---------------------
<FN>
(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.
</TABLE>
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,
32
<PAGE> 34
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.
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.
33
<PAGE> 35
The Company has granted options exercisable to purchase 783,000 shares
of Common Stock at exercise prices equal to the Initial Public Offering price
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.
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
34
<PAGE> 36
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.
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.
35
<PAGE> 37
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 43.1%, 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 1994, $11.3 million in
1995, $12.1 million in 1996 and $7.0 million for the six months ended December
31, 1996. Sales to these entities totaled $229,000 in 1994, $195,000 in 1995,
$172,000 in 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.
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.
36
<PAGE> 38
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.
PRINCIPAL AND SELLING STOCKHOLDER
CAPITAL STOCK OF THE COMPANY
The following table and notes set forth information as of December 31,
1996, 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 AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT BENEFICIAL
OWNERSHIP OF OWNERSHIP PERCENT OF
NAMES AND PRIOR TO COMMON AFTER THE COMMON
OF BENEFICIAL OWNER THE OFFERING STOCK OFFERING STOCK
------------------- -------------- ------- -------- ------
<S> <C> <C> <C> <C>
Waxman USA (1).................... 7,190,800 49.9% 6,961,800(1) 43.1%
Melvin Waxman (2)................. 7,213,800 50.1% 6,984,800(1) 43.2%
Armond Waxman (2)................. 7,213,500 50.1% 6,984,500(1) 43.2%
Sheldon Adelman................... 10,000 * 10,000 *
Morry Weiss....................... 15,000 * 15,000 *
William R. Pray(3)................ 42,500 * 42,500 *
Andrea M. Luiga(3)................ 12,500 * 12,500 *
Andrew S. Fournie(3).............. 6,950 * 6,950 *
Alfred C. Poindexter(3)........... 8,250 * 8,250 *
Directors and officers as a
group (8 individuals)............. 7,331,700 50.9% 7,102,700 43.9%
</TABLE>
- --------------------
[FN]
* 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.
37
<PAGE> 39
(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) 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.
CAPITAL STOCK OF WAXMAN INDUSTRIES
The following table and notes set forth information as of December 31,
1996 with respect to the voting securities of Waxman Industries, the indirect
parent of 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 AND PERCENT
NATURE OF OF
BENEFICIAL COMMON
OWNERSHIP STOCK PERCENT
------------------------ ----------------------- OF
CLASS B CLASS 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 1,928,057 1,782,214 18.9% 82.8% 62.3%
group (8 individuals)...........
- ----------------
<FN>
* 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.
</TABLE>
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
38
<PAGE> 40
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.
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 43.1% 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.
39
<PAGE> 41
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 (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.
40
<PAGE> 42
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.
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.
UNDERWRITING
William Blair & Company, L.L.C. and Alex. Brown & Sons Incorporated
have 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 ........................
---------
Total..................................... 2,000,000
=========
</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
41
<PAGE> 43
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."
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 10b-6A under the Exchange Act.
Rule 10b-6A 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 10b-6 under the Exchange Act would otherwise
prohibit such activity. Rule 10b-6A 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 10b-6A each underwriter engaged in passive market making is subject to a
daily net purchase limitation equal to 30% of such entity's average daily
trading volume during the two full consecutive calendar months immediately
preceding the date of the filing of the registration statement under the
Securities Act pertaining to the security to be distributed.
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, 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.
42
<PAGE> 44
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.
43
<PAGE> 45
<TABLE>
<CAPTION>
BARNETT INC.
INDEX TO FINANCIAL STATEMENTS
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> 46
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> 47
<TABLE>
<CAPTION>
BARNETT INC.
BALANCE SHEETS
(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)
JUNE 30, DECEMBER 31, 1996
-------- -----------------
1995 1996 (UNAUDITED)
------ ------
ASSETS
Current Assets:
<S> <C> <C> <C>
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> 48
BARNETT INC.
STATEMENTS OF INCOME
(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)
<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> 49
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>
ADVANCES
SERIAL 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> 50
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>
FISCAL YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
---------------------------------- -----------------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
CASH FROM (USED FOR):
Operations:
<S> <C> <C> <C> <C> <C>
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> 51
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> 52
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 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.
F - 8
<PAGE> 53
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)
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 JUNE 30, SIX MONTHS ENDED DECEMBER 31,
----------------------------------------- -----------------------------
1994 1995 1996 1995 1996
------ ------ ------ ------ -----
Current:
<S> <C> <C> <C> <C> <C>
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>
At June 30, 1995, deferred taxes and amounts payable to Waxman
Industries are included in Advances to Waxman Industries in the accompanying
balance sheets.
F - 9
<PAGE> 54
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)
The following table reconciles the U.S. statutory rate applied to
pretax income to the Company's provision for income taxes:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------- ------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
U.S. Statutory Rate
<S> <C> <C> <C> <C> <C>
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.
F - 10
<PAGE> 55
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)
6. STOCKHOLDERS' EQUITY
In connection with the Initial Public Offering, as explained in Note 2,
the Company (i) filed an Amended and Restated Certificate of Incorporation which
increased the authorized number of shares of common stock to 40,000, (ii)
effected a 238,180 for 1 stock split and (iii) authorized 10,000 shares of
preferred stock 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> 56
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 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.
F - 12
<PAGE> 57
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)
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
------ ------ ------
Push-down interest expense, including
<S> <C> <C> <C>
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 February 1997, the Company filed a Registration Statement on Form
S-1 with the Securities and Exchange Commission for the offering of 2,000 shares
of common stock (excluding an over-allotment option for 150 shares), 500 shares
of which are being sold by the Company and 1,500 shares of which are being sold
by Waxman (the "Offering"). 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> 58
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>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Prospectus Summary..............................................3
The Company.....................................................3
The Offering....................................................4
Risk Factors....................................................7
Use of Proceeds................................................11
Price Range of Common Stock....................................11
Dividend Policy................................................11
Capitalization.................................................12
Selected Financial
Information and Operating Data.................................13
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....................................15
Business.......................................................21
Management.....................................................28
Relationship Between the
Company and Waxman Industries................................35
Principal and Selling Stockholders.............................36
Description of Capital Stock...................................37
Shares Eligible for Future Sale................................40
Underwriting...................................................40
Legal Matters..................................................41
Experts........................................................41
Additional Information.........................................41
Index to Financial Statements..................................F-1
</TABLE>
2,000,000 Shares
Barnett Inc.
Common Stock
-----------------
PROSPECTUS
_______________, 1997
-----------------
WILLIAM BLAIR & COMPANY
ALEX. BROWN & SONS
INCORPORATED
<PAGE> 59
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>
<CAPTION>
<S> <C>
SEC Registration Fee $ 16,370
NASD Fee $ 5,930
NASDAQ Listing Fee $ *
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 $ 24,700
---------
Total $300,000*
=========
<FN>
* Estimated.
</TABLE>
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 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.
II-1
<PAGE> 60
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>
<CAPTION>
<S> <C>
1.1 -- 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 33-58966, 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 33-58966,
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
33-58966, 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 33-58966, 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 33- 58966, 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 33-58966, 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 33-58966, incorporated by reference
herein).
5.1(2) -- 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 33- 58966, 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 33-58966, 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 33-58966, 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
33-58966, 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 33-58966, incorporated by reference
herein).
</TABLE>
II-2
<PAGE> 61
<TABLE>
<CAPTION>
<S> <C>
10.8(1) -- Omnibus Incentive Plan of Barnett Inc. (Exhibit 10.8 to
Barnett Inc.'s Registration Statement on Form S-1,
Registration Number 33-58966, 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 33-58966, 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 -- 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).
23.1 -- Consent of Arthur Andersen LLP.
23.2(1) -- Consent of Shereff, Friedman, Hoffman & Goodman, LLP
dated , 1997 (included in its opinion which appears as
Exhibit 5.1).
24.1(1) -- Power of Attorney (appears on the signature page to this
Registration Statement).
- ---------------------------
<FN>
(1) Incorporated by reference as indicated.
(2) To be filed by amendment.
</TABLE>
(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-3
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Jacksonville, State of Florida on the 27th day of February, 1997.
BARNETT INC.
By: /s/ William R. Pray
----------------------------------
William R. Pray
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints William R. Pray and Andrea M.
Luiga and each of them (with full power of each of them to act alone), his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and on his behalf, and in his name, place and stead, in
any all capacities to execute and sign any and all amendments or post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact or any of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof and the Registrant hereby confers like authority on its behalf.
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
- ---- -----
<S> <C> <C>
/s/ Melvin Waxman
- ------------------------
Melvin Waxman Chairman of the Board and Director February 27, 1997
/s/ Armond Waxman
- ------------------------
Armond Waxman Vice-Chairman of the Board and Director February 27, 1997
/s/ William R. Pray
- ------------------------
William R. Pray President, Chief Executive Officer and
Director (Principal Executive Officer) February 27, 1997
/s/ Andrea M. Luiga
- ------------------------
Andrea M. Luiga Vice President--Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer) February 27, 1997
/s/ Sheldon Adelman
- -----------------------
Sheldon Adelman Director February 27, 1997
/s/ Morry Weiss
- -----------------------
Morry Weiss Director February 27, 1997
</TABLE>
II-4
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
- ------ ---------------------- ------
<S> <C> <C>
1.1 -- 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 33-58966, 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 33-58966,
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 33-
58966, 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 33-58966, 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 33- 58966, 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 33-58966, 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 33-58966, incorporated by reference
herein).
5.1(2) -- 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 33- 58966, 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 33-58966, 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 33-58966, incorporated by
reference herein).
</TABLE>
II-5
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
- ------ ---------------------- ------
<S> <C> <C>
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
33-58966, 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 33-58966, 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 33-58966, 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 33-58966, 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 -- 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 herein by reference).
23.1 -- Consent of Arthur Andersen LLP.
23.2(1) -- Consent of Shereff, Friedman, Hoffman & Goodman, LLP
dated , 1997 (included in its opinion which appears as
Exhibit 5.1).
24.1(1) -- Power of Attorney (appears on the signature page to this
Registration Statement).
- ---------------------------
<FN>
(1) Incorporated by reference as indicated.
(2) To be filed by amendment.
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1.1
BARNETT INC.
2,000,000 Shares Common Stock*
UNDERWRITING AGREEMENT
----------------------
_____, 1997
William Blair & Company, L.L.C.
Alex. Brown & Sons Incorporated
As Representatives of the
Several Underwriters Named
in Schedule A
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SECTION 1. INTRODUCTORY. Barnett Inc., a Delaware corporation
(the "Company"), has an authorized capital stock consisting of 10,000,000 shares
of Preferred Stock, $0.10 par value, of which immediately prior to the closing
of the offering of the shares contemplated by this Agreement 1,271,000 shares of
Series A Non-Voting Convertible Preferred Stock (the "Series A Preferred Stock")
will be outstanding, and 40,000,000 shares of Common Stock, $0.01 par value (the
"Common Stock"), of which immediately prior to the closing of the offering of
shares contemplated by this Agreement 14,398,000 shares will be outstanding. The
Company proposes to issue and sell 500,000 shares of its authorized but unissued
Common Stock, and Waxman USA Inc., a Delaware corporation and a stockholder of
the Company (the "Selling Stockholder"), which is a direct wholly-owned
subsidiary of Waxman Industries, Inc., a Delaware corporation ("Waxman
Industries"), proposes to sell 1,500,000 shares of the Company's issued and
outstanding Common Stock, to the several underwriters named in Schedule A as it
may be amended by the Pricing Agreement hereinafter defined (the
"Underwriters"), who are acting severally and not jointly. Collectively, such
total of 2,000,000 shares of Common Stock proposed to be sold by the Company and
the Selling Stockholder are hereinafter referred to as the "Firm Shares." In
addition, the Selling Stockholder proposes to grant to the Underwriters an
option to purchase up to 150,000 additional shares of Common Stock (the "Option
Shares") as provided in Section 5 hereof. The Firm Shares and, to the extent
such option is exercised, the Option Shares, are hereinafter collectively
referred to as the "Shares."
You have advised the Company and the Selling Stockholder
- ----------------------------
* Plus an option to acquire up to 150,000 additional shares
from the Selling Stockholder to cover overallotments.
-1-
<PAGE> 2
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon as you deem advisable after the registration
statement hereinafter referred to becomes effective, if it has not yet become
effective, and the Pricing Agreement hereinafter defined has been executed and
delivered.
Prior to the purchase and public offering of the Shares by the
several Underwriters, the Company, the Selling Stockholder, Waxman Industries
and the Representatives, acting on behalf of the several Underwriters, shall
enter into an agreement substantially in the form of Exhibit A hereto (the
"Pricing Agreement"). The Pricing Agreement may take the form of an exchange of
any standard form of written telecommunication between the Company, the Selling
Stockholder, Waxman Industries and the Representatives and shall specify such
applicable information as is indicated in Exhibit A hereto. The offering of the
Shares will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
The Company, the Selling Stockholder and Waxman Industries
hereby confirm their agreements with the Underwriters as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE
SELLING STOCKHOLDER AND WAXMAN INDUSTRIES. The Company, the Selling Stockholder
and Waxman Industries, jointly and severally, represent and warrant to the
several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333- ____)
and a related preliminary prospectus with respect to the Shares have
been prepared and filed with the Securities and Exchange Commission
(the "Commission") by the Company in conformity with the requirements
of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "1933 Act;"
unless indicated to the contrary, all references herein to specific
rules are rules promulgated under the 1933 Act); and the Company has so
prepared and has filed such amendments thereto, if any, and such
amended preliminary prospectuses as may have been required to the date
hereof and will file such additional amendments thereto and such
amended prospectuses as may hereafter be required. There have been or
will promptly be delivered to you three signed copies of such
registration statement and amendments, three copies of each exhibit
filed therewith, and conformed copies of such registration statement
and amendments (but without exhibits) and of the related preliminary
prospectus or prospectuses and final forms of prospectus for each of
the Underwriters.
Such registration statement (as amended, if applicable) at the
time it becomes effective and the prospectus constituting a part
thereof (including the information, if any, deemed to be part thereof
pursuant to Rule 430A(b) and/or Rule 434), as from time to time amended
or supplemented, are hereinafter referred to as the "Registration
Statement," and the "Prospectus," respectively, except that if any
revised
-2-
<PAGE> 3
prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares which differs from
the Prospectus on file at the Commission at the time the
Registration Statement became or becomes effective (whether or not
such revised prospectus is required to be filed by the Company
pursuant to Rule 424(b)), the term Prospectus shall refer to such
revised prospectus from and after the time it was provided to the
Underwriters for such use. If the Company elects to rely on Rule 434
of the 1933 Act, all references to "Prospectus" shall be deemed to
include, without limitation, the form of prospectus and the term
sheet, taken together, provided to the Underwriters by the Company in
accordance with Rule 434 of the 1933 Act (the "Rule 434 Prospectus").
Any registration statement (including any amendment or supplement
thereto or information which is deemed part thereof) filed by the
Company under Rule 462(b) (the "Rule 462(b) Registration Statement")
shall be deemed to be part of the "Registration Statement" as defined
herein, and any prospectus (including any amendment or supplement
thereto or information which is deemed part thereof) included in such
registration statement shall be deemed to be part of the "Prospectus,"
as defined herein, as appropriate. The Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
thereunder are hereinafter collectively referred to as the "Exchange
Act."
(b) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus, and when the
Registration Statement became or becomes effective, and at all times
subsequent thereto, up to the First Closing Date or the Second Closing
Date hereinafter defined, as the case may be, the Registration
Statement, including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule
430A(b), if applicable, and the Prospectus and any amendments or
supplements thereto, contained or will contain all statements that are
required to be stated therein in accordance with the 1933 Act and in
all material respects conformed or will in all material respects
conform to the requirements of the 1933 Act, and neither the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, included or will include any untrue statement of a
material fact or omitted or will omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that none of the Company, the Selling
Stockholder or Waxman Industries makes any representation or warranty
as to information contained in or omitted from any preliminary
prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
through the Representatives specifically for use in the preparation
thereof.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with the corporate power and authority to own its
properties and conduct its business as described in the Prospectus; the
Company is duly qualified to
-3-
<PAGE> 4
do business as a foreign corporation under the corporation law of, and
is in good standing as such in, each jurisdiction in which it owns or
leases properties, has an office, or in which it conducts business and
such qualification is required except in any such case where the
failure to so qualify or be in good standing would not have a material
adverse effect upon the Company; and no proceeding of which the
Company has knowledge has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.
(d) As of the date of this Agreement, the Company has an
authorized and outstanding capitalization as set forth under the
heading "Actual" beneath the caption "Capitalization" in the Prospectus
and immediately following the purchase of the Firm Shares hereunder,
the Company will have an authorized and outstanding capitalization as
set forth under the heading "As Adjusted" beneath the caption
"Capitalization" in the Prospectus; the issued and outstanding shares
of capital stock of the Company as set forth in the Prospectus have
been duly authorized and validly issued, are fully paid and
nonassessable, and conform to the description thereof contained in the
Prospectus; and there is no commitment, plan or arrangement to issue,
and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company, or any security
or other instrument which by its terms is convertible into or
exchangeable for capital stock of the Company, except as described in
the Prospectus. Except as described in the Prospectus, there is
outstanding no security or other instrument that by its terms is
convertible into or exchangeable for capital stock of the Company.
(e) The Shares to be sold by the Company have been duly
authorized and when issued, delivered and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, and
will conform to the description thereof contained in the Prospectus.
(f) The making and performance by the Company of this
Agreement and the Pricing Agreement have been duly authorized by all
necessary corporate action and will not violate any provision of the
Company's charter or bylaws and will not result in the breach, or be in
contravention, of any provision of any agreement, franchise, license,
indenture, mortgage, deed of trust, or other instrument to which the
Company is a party or by which the Company or its property may be bound
or affected, except where such breach or contravention would have no
effect on the Company, or any order, rule or regulation applicable to
the Company of any court or regulatory body, administrative agency or
other governmental body having jurisdiction over the Company or any of
its properties, or any order of any court or governmental agency or
authority entered in any proceeding to which the Company was or is now
a party or by which it is bound. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or
other governmental body is required for the execution and delivery of
this Agreement or the Pricing
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<PAGE> 5
Agreement or the consummation of the transactions contemplated herein
or therein, except for compliance with the 1933 Act and blue sky laws
applicable to the public offering of the Shares by the several
Underwriters and clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD"). This Agreement
has been duly executed and delivered by the Company.
(g) Arthur Andersen LLP, who have expressed their opinion with
respect to certain of the financial statements and schedules included
in the Registration Statement, are independent accountants as required
by the 1933 Act.
(h) The financial statements and schedules of the Company
included in the Registration Statement present fairly the financial
position of the Company as of the respective dates of such financial
statements, and the results of operations and cash flows of the Company
for the respective periods covered thereby, all in conformity with
generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed in the Prospectus;
and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. The
financial information set forth in the Prospectus under the captions
"Summary Financial and Operating Data" and "Selected Financial
Information and Operating Data" presents fairly on the basis stated in
the Prospectus, the information set forth therein; and the pro forma
financial statements and other pro forma information included in the
Prospectus present fairly the information shown therein, have been
prepared in accordance with generally accepted accounting principles
and the Commission's rules and guidelines with respect to pro forma
financial statements and other pro forma information, have been
properly compiled on the pro forma basis described therein, and, in the
opinion of the Company, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate under
the circumstances.
(i) The Company is not in violation of its charter or in
default under any consent decree, or in default with respect to any
material provision of any lease, loan agreement, franchise, license,
permit or other contract obligation to which it is a party; and there
does not exist any state of facts that constitutes an event of default
as defined in such documents or which, with notice or lapse of time or
both, would constitute such an event of default, in each case, except
for defaults that, neither singly nor in the aggregate, would not have
a material adverse effect on the Company.
(j) There are no material legal or governmental proceedings
pending, or to the Company's knowledge, threatened to which the Company
is or may be a party or of which material property owned or leased by
the Company is or may be the subject, or related to environmental or
discrimination matters that are not disclosed in the Prospectus, or
which question the validity of this Agreement or the Pricing Agreement
or any action taken or to be taken pursuant hereto or thereto.
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<PAGE> 6
(k) Except as described in the Prospectus, there are no
holders of securities of the Company having rights to registration
thereof, preemptive rights or rights of first refusal to purchase
Common Stock.
(l) The Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those,
if any, reflected in such financial statements, including the notes
thereto, (or elsewhere in the Prospectus) or which are not material to
the Company. The Company holds its leased properties that are material
to the Company under valid and binding leases.
(m) The Company has not taken and will not take, directly or
indirectly, any action designed to or that has constituted or that
might reasonably be expected to cause or result, under the Exchange Act
or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
set forth or contemplated by the Prospectus, the Company has not
incurred any material liabilities or obligations, direct or contingent,
nor entered into any material transactions not in the ordinary course
of business and there has not been any material adverse change in its
condition (financial or otherwise), business, assets, operations or
prospects, nor any change in its capital stock, short-term debt or
long-term debt.
(o) The Company agrees not to sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible into
Common Stock (except the future grant to Company officers or employees
of options to purchase up to an aggregate of 1,117,000 shares of Common
Stock under the Company's 1996 Omnibus Incentive Plan, the Company's
1996 Employee Stock Purchase Plan and the Company's 1996 Stock Option
Plan for Non-Employee Directors) for a period of 180 days after this
Agreement becomes effective without the prior written consent of the
Representatives. The Company has obtained similar agreements from the
Selling Stockholder, Waxman Industries and each director and executive
officer of the Company with respect to such sales, copies of which have
been delivered to you.
(p) There is no material document of a character required to
be described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement which is not
described or filed as required.
(q) The Company owns and possesses all right, title and
interest in and to, or has duly licensed from third parties, all
trademarks, copyrights and other proprietary rights ("Trade Rights")
material to the business of the Company, and, except for liens to be
released concurrently with the Closing,
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<PAGE> 7
the Company has not granted any lien or encumbrance on, or granted any
right of license(other than in the ordinary course of its business)
with respect to, any such Trade Rights. The Company has not received
any notice of infringement, misappropriation or conflict from any
third party as to such material Trade Rights that has not been
resolved or disposed of, and, to its knowledge, the Company has not
infringed, misappropriated or otherwise conflicted with material Trade
Rights of any third parties, which infringement, misappropriation or
conflict would have a material adverse effect upon the condition
(financial or otherwise), business, assets, operations or prospects of
the Company.
(r) The conduct of the business of the Company is in
compliance in all respects with applicable federal, state, local and
foreign laws and regulations, except where the failure to be in
compliance would not have a material adverse effect upon the condition
(financial or otherwise), business, assets, operations or prospects of
the Company.
(s) The Company has filed all necessary federal and state
income and franchise tax returns and has paid all taxes shown as due
thereon, and there is no tax deficiency that has been, or to the
knowledge of the Company might be, asserted against the Company or any
of its properties or assets that would or could be expected to
adversely affect the condition (financial or otherwise), business,
assets, operations or prospects of the Company.
(t) The Shares have been authorized for trading on the Nasdaq
National Market.
(u) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company"
as defined in Section 3(a) of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(v) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and
that it is not doing business with the government of Cuba or with any
person or affiliate located in Cuba. The Company further agrees that if
it commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba after the date the Registration
Statement becomes or has become effective with the Commission or with
the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported in the
Prospectus, if any, concerning the Company's business with Cuba or with
any person or affiliate located in Cuba changes in any material way,
the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS
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<PAGE> 8
OF THE SELLING STOCKHOLDER AND WAXMAN INDUSTRIES.
(a) The Selling Stockholder and Waxman Industries,
jointly and severally, represent and warrant to, and agree
with, the Underwriters that:
(i) The Selling Stockholder has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware, with the
corporate power and authority to own its properties and
conduct its business; the Selling Stockholder is duly
qualified to do business as a foreign corporation under the
corporation law of, and is in good standing as such in, each
jurisdiction in which it owns or leases properties, has an
office, or in which it conducts business and such
qualification is required except in any such case where the
failure to so qualify or be in good standing would not have a
material adverse effect upon the Selling Stockholder; and no
proceeding of which the Selling Stockholder has knowledge has
been instituted in any such jurisdiction, revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(ii) The making and performance by the Selling
Stockholder of this Agreement and the Pricing Agreement have
been duly authorized by all necessary corporate action and
will not violate any provision of the Selling Stockholder's
charter or bylaws and will not result in the breach, or be in
contravention, of any provision of any agreement, franchise,
license, indenture, mortgage, deed of trust, or other
instrument to which the Selling Stockholder is a party or by
which the Selling Stockholder or its property may be bound or
affected, except where such breach or contravention would have
no effect on the Selling Stockholder, or any order, rule or
regulation applicable to the Selling Stockholder of any court
or regulatory body, administrative agency or other
governmental body having jurisdiction over the Selling
Stockholder or any of its properties, or any order of any
court or governmental agency or authority entered in any
proceeding to which the Selling Stockholder was or is now a
party or by which it is bound. This Agreement has been duly
executed and delivered by the Selling Stockholder.
(iii) The Selling Stockholder has, and on the First
Closing Date or the Second Closing Date hereinafter defined,
as the case may be, will have, valid marketable title to the
Shares proposed to be sold by the Selling Stockholder
hereunder on such date and full right, power and authority to
enter into this Agreement and the Pricing Agreement and to
sell, assign, transfer and deliver such Shares hereunder, free
and clear of all voting trust arrangements, liens,
encumbrances, equities, claims and community property rights;
and upon delivery of and payment for such Shares hereunder,
the Underwriters will acquire valid marketable title thereto,
free and clear of all voting trust arrangements, liens,
-8-
<PAGE> 9
encumbrances, equities, claims and community property
rights whatsoever.
(iv) The Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or
which might be reasonably expected to cause or result, under
the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(v) The Selling Stockholder agrees with the
Underwriters not to sell, contract to sell or otherwise
dispose of any Common Stock for a period of 180 days after
this Agreement becomes effective without the prior written
consent of the Representatives.
(b) Waxman Industries represents and warrants to, and agrees
with, the Underwriters that:
(i) Waxman Industries has been duly incorporated and
is validly existing as a corporation in good standing under
the laws of the State of Delaware, with the corporate power
and authority to own its properties and conduct its business;
Waxman Industries is duly qualified to do business as a
foreign corporation under the corporation law of, and is in
good standing as such in, each jurisdiction in which it owns
or leases properties, has an office, or in which it conducts
business and such qualification is required except in any such
case where the failure to so qualify or be in good standing
would not have a material adverse effect upon Waxman
Industries; and no proceeding of which Waxman Industries has
knowledge has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.
(ii) The making and performance by Waxman Industries
of this Agreement and the Pricing Agreement have been duly
authorized by all necessary corporate action and will not
violate any provision of Waxman Industries' charter or bylaws
and will not result in the breach, or be in contravention, of
any provision of any agreement, franchise, license, indenture,
mortgage, deed of trust, or other instrument to which Waxman
Industries is a party or by which Waxman Industries or its
property may be bound or affected, except where such breach or
contravention would have no effect on Waxman Industries, or
any order, rule or regulation applicable to Waxman Industries
of any court or regulatory body, administrative agency or
other governmental body having jurisdiction over Waxman
Industries or any of its properties, or any order of any court
or governmental agency or authority entered in any proceeding
to which Waxman Industries was or is now a party or by which
it is bound. This Agreement has been duly executed and
delivered by Waxman Industries.
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<PAGE> 10
(iii) Waxman Industries agrees with the Underwriters
not to sell, contract to sell or otherwise dispose of any
Common Stock for a period of 180 days after this Agreement
becomes effective without the prior written consent of the
Representatives.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Internal Revenue Code of 1986, as amended,
with respect to the transactions herein contemplated, the Selling Stockholder
agrees to deliver to you prior to or on the First Closing Date, as hereinafter
defined, a properly completed and executed United States Treasury Department
Form W-8 or W-9 (or other applicable form of statement specified by Treasury
Department regulations in lieu thereof).
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS.
The Representatives, on behalf of the several Underwriters, represent and
warrant to the Company and the Selling Stockholder that the information set
forth (a) on the cover page of the Prospectus with respect to price,
underwriting discount and terms of the offering and (b) under "Underwriting" in
the Prospectus was furnished to the Company by and on behalf of the Underwriters
for use in connection with the preparation of the Registration Statement and is
correct and complete in all material respects.
SECTION 5. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company and the Selling
Stockholder, severally and not jointly, agree to sell to the Underwriters named
in Schedule A hereto, and the Underwriters agree, severally and not jointly, to
purchase from the Company and the Selling Stockholder, respectively, 500,000
Firm Shares from the Company and 1,500,000 Firm Shares from the Selling
Stockholder at the price per share set forth in the Pricing Agreement. The
obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full shares which (as nearly as practicable, as
determined by you) bears to the number of Firm Shares to be sold by the Company,
the same proportion as the number of Shares set forth opposite the name of such
Underwriter in Schedule A hereto bears to the total number of Firm Shares to be
purchased by all Underwriters under this Agreement. The obligation of each
Underwriter to the Selling Stockholder shall be to purchase from the Selling
Stockholder that number of full shares which (as nearly as practicable, as
determined by you) bears to the number of Firm Shares to be sold by the Selling
Stockholder, the same proportion as the number of Shares set forth opposite the
name of such Underwriter in Schedule A hereto bears to the total number of Firm
Shares to be purchased by all Underwriters under this Agreement. The public
offering price and the purchase price shall be set forth in the Pricing
Agreement.
At 9:00 A.M., Chicago time, on the fourth business day, if
permitted under Rule 15c6-1 under the Exchange Act (or the third business day if
required under Rule 15c6-1 under the Exchange Act or unless postponed in
accordance with the provisions of Section 12), following the date the
Registration Statement becomes
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<PAGE> 11
effective (or, if the Company has elected to rely upon Rule 430A, the fourth
business day, if permitted under Rule 15c6-1 under the Exchange Act (or the
third business day if required under Rule 15c6-1 under the Exchange Act) after
execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives and
the Company, the Company and the Selling Stockholder will deliver to you at the
offices of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New
York, New York, or through the facilities of The Depository Trust Company for
the accounts of the several Underwriters, certificates representing the Firm
Shares to be sold by them, respectively, against payment of the purchase price
therefor by Federal or other funds immediately available to an account or
accounts designated by the Company and the Selling Stockholder, respectively.
Such time of delivery and payment is herein referred to as the "First Closing
Date." The certificates for the Firm Shares so to be delivered will be in such
denominations and registered in such names as you request by notice to the
Company and the Selling Stockholder prior to 10:00 A.M., Chicago Time, on the
second full business day preceding the First Closing Date, and will be made
available at the Company's expense for checking and packaging by the
Representatives at 10:00 A.M., Chicago Time, on the first full business day
preceding the First Closing Date. Payment for the Firm Shares so to be delivered
shall be made at the time and in the manner described above at the offices of
Shereff, Friedman, Hoffman & Goodman, LLP.
In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Selling Stockholder hereby grants an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
150,000 Option Shares, at the same purchase price per share to be paid for the
Firm Shares, for use solely in covering any overallotments made by the
Underwriters in the sale and distribution of the Firm Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the date of the public offering upon notice by you to the Selling
Stockholder setting forth the aggregate number of Option Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date, shall not be earlier than three nor later than 10 full
business days after delivery of such notice of exercise. The number of Option
Shares to be purchased by each Underwriter shall be determined by multiplying
the number of Option Shares to be sold by the Selling Stockholder pursuant to
such notice of exercise by a fraction, the numerator of which is the number of
Firm Shares to be purchased by such Underwriter as set forth opposite its name
in Schedule A and the denominator of which is the total number of Firm Shares
(subject to such adjustments to eliminate any fractional share purchases as you
in your absolute discretion may make). Certificates for the Option Shares will
be made available at the Company's expense for checking and packaging at 10:00
A.M., Chicago Time, on the first full business day
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<PAGE> 12
preceding the Second Closing Date. The manner of payment for and delivery of
the Option Shares shall be the same as for the Firm Shares as specified in the
preceding paragraph.
You have advised the Company and the Selling Stockholder that
each Underwriter has authorized you to accept delivery of its Shares, to make
payment and to give receipt therefor. You, individually and not as the
Representatives of the Underwriters, may make payment for any Shares to be
purchased by any Underwriter whose funds shall not have been received by you by
the First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any obligation hereunder.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants
and agrees that:
(a) The Company will advise you and the Selling Stockholder
promptly of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose, or of any notification of the
suspension of qualification of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceedings for that purpose,
and will also advise you and the Selling Stockholder promptly of any
request of the Commission for amendment or supplement of the
Registration Statement, of any preliminary prospectus or of the
Prospectus, or for additional information.
(b) The Company will give you and the Selling Stockholder
notice of its intention to file or prepare any amendment to the
Registration Statement (including any post-effective amendment) or any
Rule 462(b) Registration Statement or any amendment or supplement to
the Prospectus (including any revised prospectus which the Company
proposes for use by the Underwriters in connection with the offering of
the Shares which differs from the prospectus on file at the Commission
at the time the Registration Statement became or becomes effective,
whether or not such revised prospectus is required to be filed pursuant
to Rule 424(b) and any term sheet as contemplated by Rule 434) and will
furnish you and the Selling Stockholder with copies of any such
amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file any such
amendment or supplement or use any such prospectus to which you or
counsel for the Underwriters shall reasonably object in writing.
(c) If the Company elects to rely on Rule 434 of the 1933 Act,
the Company will prepare a term sheet that complies with the
requirements of Rule 434. If the Company elects not to rely on Rule
434, the Company will provide the Underwriters with copies of the form
of prospectus, in such numbers as the Underwriters may reasonably
request, and file with the Commission such prospectus in accordance
with Rule 424(b) of the 1933 Act by the close of business in New York
City on the second business day immediately succeeding the date of the
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<PAGE> 13
Pricing Agreement. If the Company elects to rely on Rule 434, the
Company will provide the Underwriters with copies of the form of Rule
434 Prospectus, in such numbers as the Underwriters may reasonably
request, by the close of business in New York City on the business day
immediately succeeding the date of the Pricing Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act any event occurs as a
result of which the Prospectus, including any amendments or
supplements, would include an untrue statement of a material fact, or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus, including any amendments
or supplements thereto and including any revised prospectus which the
Company proposes for use by the Underwriters in connection with the
offering of the Shares which differs from the prospectus on file with
the Commission at the time of effectiveness of the Registration
Statement, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b), to comply with the 1933 Act, the Company
promptly will advise you thereof and will promptly prepare and file
with the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance; and, in case any Underwriter is required to deliver a
prospectus nine months or more after the effective date of the
Registration Statement, the Company upon request, but at the expense of
such Underwriter, will prepare promptly such prospectus or prospectuses
as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the 1933 Act.
(e) The Company will not, prior to the earlier of the Second
Closing Date or termination or expiration of the option relating to the
Option Shares, incur any liability or obligation, direct or contingent,
or enter into any material transaction, other than in the ordinary
course of business, except as contemplated by the Prospectus.
(f) The Company will not acquire any capital stock of the
Company prior to the earlier of the Second Closing Date or termination
or expiration of the option relating to the Option Shares nor will the
Company declare or pay any dividend or make any other distribution upon
the Common Stock payable to stockholders of record on a date prior to
the earlier of the Second Closing Date or termination or expiration of
the option relating to the Option Shares, except in either case as
contemplated by the Prospectus.
(g) As soon as practicable, but in any event not later than
November 15, 1998, the Company will make generally available to its
security holders and the Representatives an earnings statement (which
need not be audited) covering a period of at least 12 months beginning
after the effective date of the Registration Statement, which will
satisfy the provisions of the last paragraph of Section 11(a) of the
1933
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<PAGE> 14
Act and Rule 158 under the 1933 Act.
(h) During such period as a prospectus is required by law to
be delivered in connection with offers and sales of the Shares by an
Underwriter or dealer, the Company will furnish to the Representatives
and counsel for the Underwriters at its expense, subject to the
provisions of subsection (d) hereof, signed copies of the Registration
Statement (including exhibits thereto), and to each Underwriter copies
of the Registration Statement (without exhibits thereto) and the
Prospectus, each preliminary prospectus and all amendments and
supplements to any such documents in each case as soon as available and
in such quantities as you may reasonably request, for the purposes
contemplated by the 1933 Act.
(i) The Company will cooperate with the Underwriters in
qualifying the Shares for sale under the blue sky laws of such
jurisdictions as you designate, and will continue such qualifications
in effect so long as reasonably required for the distribution of the
Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
such jurisdiction where it is not currently qualified or where it would
be subject to taxation as a foreign corporation.
(j) During the period of two years hereafter, the Company will
furnish you and each of the other Underwriters with a copy (i) as soon
as practicable after the filing thereof, of each periodic report filed
by the Company with the Commission pursuant to the Exchange Act; (ii)
as soon as practicable after the release thereof, of each material
press release in respect of the Company; and (iii) as soon as
available, of each report of the Company mailed to its stockholders.
(k) The Company will use the net proceeds received by it
from the sale of the Shares being sold by it in the manner
specified in the Prospectus.
(l) If, at the time of effectiveness of the Registration
Statement, any information shall have been omitted therefrom in
reliance upon Rule 430A and/or Rule 434, then immediately following the
execution of the Pricing Agreement, the Company will prepare, and file
or transmit for filing with the Commission in accordance with such Rule
430A, Rule 424(b) and/or Rule 434, copies of an amended Prospectus, or,
if required by such Rule 430A and/or Rule 434, a post-effective
amendment to the Registration Statement (including an amended
Prospectus), containing all information so omitted. If required, the
Company will prepare and file, or transmit for filing, a Rule 462(b)
Registration Statement not later than the date of the execution of the
Pricing Agreement. If a Rule 462(b) Registration Statement is filed,
the Company shall make payment of, or arrange for payment of, the
additional registration fee owing to the Commission required by Rule
111.
(m) The Company will use its best efforts to maintain the
designation of the Shares to be sold hereunder on the
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<PAGE> 15
Nasdaq National Market, unless the Company's board of directors
determines otherwise. The Company will pay the fee of the NASD in
connection with the review of the offering.
(n) The Company will promptly deliver to the Representatives
copies of all correspondence to and from, and all documents issued to
and by, the Commission in connection with the registration of the
Shares under the 1933 Act.
(o) Prior to the First Closing Date, the Company will issue no
press release or other public communication directly or indirectly and
hold no press conference with respect to the Company or with respect to
the financial condition, results of operations, business, properties,
assets or liabilities of any of them, or the offering of the Shares,
without your prior written consent, which consent shall not be
unreasonably withheld.
SECTION 7. PAYMENT OF EXPENSES. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective as to all of its provisions or is terminated, the Company, the Selling
Stockholder and Waxman Industries, jointly and severally, agree to pay (i) all
costs, fees and expenses (other than legal fees and disbursements of counsel for
the Underwriters and the expenses incurred by the Underwriters) incurred in
connection with the performance of the Company's obligations hereunder,
including, without limiting the generality of the foregoing, all fees and
expenses of legal counsel for the Company and of the Company's independent
accountants, all costs and expenses incurred in connection with the preparation,
printing, filing and distribution of the Registration Statement, each
preliminary prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Pricing Agreement and any blue sky memorandum, (ii) all costs,
fees and expenses (including legal fees not to exceed $5,000 and disbursements
of counsel for the Underwriters) incurred by the Underwriters in connection with
qualifying all or any part of the Shares for offer and sale under blue sky laws,
including the preparation of a blue sky memorandum relating to the Shares and
clearance of such offering with the NASD; and (iii) all fees and expenses of the
Company's transfer agent, printing of the certificates for the Shares and all
transfer taxes, if any, with respect to the sale and delivery of the Shares to
the several Underwriters.
The provisions of this Section 7 shall not affect any
agreement which the Company, the Selling Stockholder and Waxman Industries may
make for the allocation or sharing of such expenses and costs.
SECTION 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the Firm
Shares on the First Closing Date and the Option Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties on
the part of the Company, the Selling Stockholder and Waxman Industries herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the
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statements of officers of the Company, the Selling Stockholder and Waxman
Industries made pursuant to the provisions hereof, to the performance by the
Company, the Selling Stockholder and Waxman Industries of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective
either prior to the execution of this Agreement or not later than 1:00
P.M., Chicago Time, on the first full business day after the date of
this Agreement, or such later time as shall have been consented to by
you but in no event later than 1:00 P.M., Chicago Time, on the third
full business day following the date hereof; and prior to the First
Closing Date or the Second Closing Date, as the case may be, no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company, the
Selling Stockholder, Waxman Industries or you, shall be contemplated by
the Commission. If the Company has elected to rely upon Rule 430A
and/or Rule 434, the information concerning the public offering price
of the Shares and price-related information shall have been transmitted
to the Commission for filing pursuant to Rule 424(b) within the
prescribed period and the Company will provide evidence satisfactory to
the Representatives of such timely filing (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rules 430A and
424(b)). If a Rule 462(b) Registration Statement is required, such
Registration Statement shall have been transmitted to the Commission
for filing and become effective within the prescribed time period and,
prior to the First Closing Date, the Company shall have provided
evidence of such filing and effectiveness in accordance with Rule
462(b).
(b) The Shares shall have been qualified for sale under the
blue sky laws of such states as shall have been specified by the
Representatives.
(c) The legality and sufficiency of the authorization,
issuance and sale or transfer and sale of the Shares hereunder, the
validity and form of the certificates representing the Shares, the
execution and delivery of this Agreement and the Pricing Agreement, and
all corporate proceedings and other legal matters incident thereto, and
the form of the Registration Statement and the Prospectus (except
financial statements) shall have been approved by counsel for the
Underwriters exercising reasonable judgment.
(d) You shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment or supplement
thereto, contains an untrue statement of fact, which, in the opinion of
counsel for the Underwriters, is material or omits to state a fact
which, in the opinion of such counsel, is material and is required to
be stated therein or necessary to make the statements therein not
misleading.
(e) Subsequent to the execution and delivery of this
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Agreement, there shall not have occurred any change, or any development
involving a prospective change, in or affecting particularly the
business or properties of the Company, whether or not arising in the
ordinary course of business, which, in the judgment of the
Representatives, makes it impractical or inadvisable to proceed with
the public offering or purchase of the Shares as contemplated hereby.
(f) There shall have been furnished to you, as Representatives
of the Underwriters, on the First Closing Date or the Second Closing
Date, as the case may be, except as otherwise expressly provided below:
(i) An opinion of Shereff, Friedman, Hoffman &
Goodman, LLP, counsel for the Company, the Selling Stockholder
and Waxman Industries, addressed to the Underwriters and dated
the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) the Company has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the State of Delaware with
corporate power and authority to own its properties
and conduct its business as described in the
Prospectus; and, based solely upon a review of good
standing certificates of the appropriate state
officials, the Company is duly qualified to do
business as a foreign corporation under the
corporation law of, and is in good standing as such
in, each jurisdiction that has been certified by an
officer of the Company as a state where the Company
owns or leases property or where the conduct of its
business requires such qualification;
(2) the authorized capital stock of the
Company conforms as to legal matters in all
material respects to the description thereof in the
Registration Statement and Prospectus;
(3) the issued and outstanding capital
stock of the Company has been duly authorized and
validly issued and is fully paid and nonassessable
and free of statutory preemptive rights;
(4) the certificates for the Shares to be
sold hereunder by the Company are in due and proper
form, and when duly countersigned by the Company's
transfer agent and delivered to you or upon your
order against payment of the agreed consideration
therefor in accordance with the provisions of this
Agreement and the Pricing Agreement, the Shares
represented thereby will be duly authorized and
validly issued, fully paid and nonassessable and, to
our knowledge, will be free of any pledge, lien,
encumbrance, claim or right of first refusal; the
Shares to be sold hereunder have been duly and
validly authorized and qualified for trading on the
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<PAGE> 18
Nasdaq National Market, subject to notice of
listing of additional shares;
(5) counsel has been orally advised by a
member of the staff of the Commission that the
Registration Statement has become effective under the
1933 Act, and, to the best knowledge of such counsel,
no stop order suspending the effectiveness of the
Registration Statement has been issued and no
proceedings for that purpose have been instituted or,
to our knowledge, are pending or contemplated under
the 1933 Act, and the Registration Statement
(including the information deemed to be part of the
Registration Statement at the time of effectiveness
pursuant to Rule 430A(b) and/or Rule 434, if
applicable), the Prospectus and each amendment or
supplement thereto (except for the financial
statements and other statistical or financial data
included therein as to which such counsel need
express no view) comply as to form in all material
respects with the requirements of the 1933 Act; such
counsel have no reason to believe that either the
Registration Statement (including the information
deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A(b)
and/or Rule 434, if applicable) or the Prospectus, or
the Registration Statement or the Prospectus as
amended or supplemented (except as aforesaid), as of
their respective effective or issue dates, contained
any untrue statement of a material fact or omitted to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading in light of the circumstances under which
they were made or that the Prospectus as amended or
supplemented, if applicable, as of the First Closing
Date or the Second Closing Date, as the case may be,
contained any untrue statement of a material fact or
omitted to state any material fact necessary to make
the statements therein not misleading in light of the
circumstances under which they were made; the
statements in the Registration Statement and the
Prospectus summarizing statutes, rules and
regulations are accurate and fairly and correctly
present the information required to be presented by
the 1933 Act or the rules and regulations thereunder,
in all material respects and such counsel does not
know of any statutes, rules and regulations required
to be described or referred to in the Registration
Statement or the Prospectus that are not described or
referred to therein as required; and such counsel
does not know of any legal or governmental
proceedings pending or threatened required to be
described in the Prospectus which are not described
as required, nor of any contracts or documents of a
character required to be described in the
Registration Statement or Prospectus or to be filed
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<PAGE> 19
as exhibits to the Registration Statement which are
not described or filed, as required;
(6) this Agreement and the Pricing
Agreement and the performance of the Company's
obligations hereunder have been duly authorized by
all necessary corporate action and this Agreement and
the Pricing Agreement have been duly executed and
delivered by and on behalf of the Company, and are
legal, valid and binding agreements of the Company,
except as enforceability of the same may be limited
by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights and
by the exercise of judicial discretion in accordance
with general principles applicable to equitable and
similar remedies and except as to those provisions
relating to indemnities for liabilities arising under
the 1933 Act as to which no opinion need be
expressed; and no approval, order, authorization or
consent of any public board, agency, or
instrumentality of the United States or of any state
or other jurisdiction is necessary in connection with
the issue or sale of the Shares to be sold by the
Company pursuant to this Agreement (other than under
the 1933 Act, applicable blue sky laws and the rules
of the NASD);
(7) to the best of such counsel's
knowledge, the Company is not in breach of, or in
default under (nor has any event occurred which with
notice, lapse of time, or both would constitute a
breach of, or default under), any indenture,
mortgage, deed of trust, credit agreement or other
agreement or instrument to which the Company is
a party or by which the Company or its properties may
be bound or affected, where such breach or default
would have a material adverse effect on the condition
(financial or otherwise), business, assets or
operations of the Company;
(8) the execution, delivery and
performance of this Agreement and the issue or sale
of the Firm Shares will not contravene any of the
provisions of, or result in a default under, any
agreement, franchise, license, indenture, mortgage,
deed of trust, or other instrument known to such
counsel, of the Company or by which its property may
be bound and which contravention or default would
have a material adverse effect on the condition
(financial or otherwise), business, assets or
operations of the Company; or violate any of the
provisions of the charter or bylaws of the Company
or, so far as is known to such counsel, violate any
statute, order, rule or regulation of any regulatory
or governmental body having jurisdiction over the
Company;
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<PAGE> 20
(9) the descriptions in the Registration
Statement under the headings "Management --
Compensation Plans," "Relationship between the
Company and Waxman Industries," "Description of
Capital Stock" and "Shares Eligible for Future Sale,"
insofar as such statements constitute a summary of
documents referred to therein or matters of law,
fairly present, in all material respects, the
information called for with respect to such documents
and matters;
(10) except as disclosed in the Prospectus
and to our knowledge, no person has the right,
contractual or otherwise, to cause the Company to
issue, or register pursuant to the 1933 Act, any
shares of capital stock of the Company, or any
security or other instrument which by its terms is
convertible into or exchangeable for capital stock of
the Company, upon the issue and sale of the Shares to
be sold by the Company and the Selling Stockholder to
the Underwriters pursuant to this Agreement, nor does
any person have rights of first refusal, or other
rights to purchase any capital stock of the Company,
or any security or other instrument which by its
terms is convertible into or exchangeable for capital
stock of the Company;
(11) the Company is not an "investment
company" or a person "controlled by" an "investment
company" within the meaning of the Investment
Company Act;
(12) the Selling Stockholder has been
duly incorporated and is validly existing as a
corporation in good standing under the laws of the
State of Delaware with corporate power and authority
to own its properties and conduct its business; and,
based solely upon a review of good standing
certificates of the appropriate state officials, the
Selling Stockholder is duly qualified to do business
as a foreign corporation under the corporation law
of, and is in good standing as such in, each
jurisdiction that has been certified by an officer of
the Selling Stockholder as a state where the Selling
Stockholder owns or leases property or where the
conduct of its business requires such qualification;
(13) this Agreement and the Pricing
Agreement and the performance of the Selling
Stockholder's obligations hereunder have been duly
authorized by all necessary corporate action and this
Agreement and the Pricing Agreement have been duly
executed and delivered by and on behalf of the
Selling Stockholder, and are legal, valid and binding
agreements of the Selling Stockholder, except as
enforceability of the same may be limited by
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bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights and
by the exercise of judicial discretion in accordance
with general principles applicable to equitable and
similar remedies and except as to those provisions
relating to indemnities for liabilities arising under
the 1933 Act as to which no opinion need be
expressed; and no approval, order, authorization or
consent of any public board, agency, or
instrumentality of the United States or of any state
or other jurisdiction is necessary in connection with
the issue or sale of the Shares to be sold by the
Selling Stockholder pursuant to this Agreement (other
than under the 1933 Act, applicable blue sky laws and
the rules of the NASD);
(14) the execution, delivery and
performance of this Agreement and the issue or sale
of the Firm Shares will not contravene any of the
provisions of, or result in a default under, any
material agreement franchise, license, indenture,
mortgage, deed of trust, or other instrument known to
such counsel, of the Selling Stockholder or by which
its property may be bound and which contravention or
default would have a material adverse effect on the
condition (financial or otherwise), business, assets
or operations of the Selling Stockholder; or violate
any of the provisions of the charter or bylaws of the
Selling Stockholder or, so far as is known to such
counsel, violate any statute, order, rule or
regulation of any regulatory or governmental body
having jurisdiction over the Selling Stockholder;
(15) the Selling Stockholder is the sole
record holder of the Shares to be sold by it under
this Agreement and, to such counsel's knowledge,
possesses full right, power and authority to sell,
assign, transfer and deliver such Shares hereunder.
Immediately prior to the consummation of the
transactions described in this Agreement, the Selling
Stockholder was the sole registered owner of the
Shares to be sold hereunder by it. Upon registration
of such Shares in the Underwriters' name(s) in the
stock records of the Company and assuming the
Underwriters have purchased such Shares in good faith
and without notice of any adverse claim, the
Underwriters will have acquired good and marketable
title to such Shares;
(16) Waxman Industries has been duly
incorporated and is validly existing as a corporation
in good standing under the laws of the State of
Delaware with corporate power and authority to own
its properties and conduct its business; and Waxman
Industries has been duly qualified to do business as
a foreign corporation
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<PAGE> 22
under the corporation law of, and is in good
standing as such in the State of Ohio;
(17) this Agreement and the Pricing
Agreement and the performance of Waxman Industries'
obligations hereunder have been duly authorized by
all necessary corporate action and this Agreement and
the Pricing Agreement have been duly executed and
delivered by and on behalf of Waxman Industries, and
are legal, valid and binding agreements of Waxman
Industries, except as enforceability of the same may
be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors'
rights and by the exercise of judicial discretion in
accordance with general principles applicable to
equitable and similar remedies and except as to those
provisions relating to indemnities for liabilities
arising under the 1933 Act as to which no opinion
need be expressed; and no approval, order,
authorization or consent of any public board, agency,
or instrumentality of the United States or of any
state or other jurisdiction is necessary in
connection with the consummation by Waxman Industries
of any of the transactions contemplated by this
Agreement; and
(18) the execution, delivery and
performance of this Agreement will not contravene
any of the provisions of, or result in a default
under, any material agreement, franchise, license,
indenture, mortgage, deed of trust, or other
instrument known to such counsel, of Waxman
Industries or by which its property may be bound and
which contravention or default would have a material
adverse effect on the condition (financial or
otherwise), business, assets or operations of Waxman
Industries; or violate any of the provisions of the
charter or bylaws of Waxman Industries or, so far as
is known to such counsel, violate any statute, order,
rule or regulation of any regulatory or governmental
body having jurisdiction over Waxman Industries.
In rendering such opinion, such counsel may state
that they are relying upon the certificate of American Stock
Transfer & Trust Company, the transfer agent for the Common
Stock, as to the number of shares of Common Stock at any time
or times outstanding, and that insofar as their opinion under
clause (5) above relates to the accuracy and completeness of
the Prospectus and Registration Statement, it is based upon a
general review with the Company's representatives and
independent accountants of the information contained therein,
without independent verification by such counsel of the
accuracy or completeness of such information. Such counsel may
also rely upon the opinions of other competent counsel and, as
to factual matters, on certificates of officers of the
Company, the Selling Stockholder or Waxman
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<PAGE> 23
Industries and of state officials, in which case their opinion
is to state that they are so doing and copies of said opinions
or certificates are to be attached to the opinion unless said
opinions or certificates (or, in the case of certificates,
the information therein) have been furnished to the
Representatives in other form.
(ii) Such opinion or opinions of Winston & Strawn,
counsel for the Underwriters, dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to
the incorporation of the Company, the validity of the Shares
to be sold by the Company, the Registration Statement and the
Prospectus and other related matters as you may reasonably
require, and the Company shall have furnished to such counsel
such documents and shall have exhibited to them such papers
and records as they request for the purpose of enabling them
to pass upon such matters.
(iii) A certificate of the Chief Executive Officer
and the Chief Financial Officer of the Company, dated the
First Closing Date or the Second Closing Date, as the case may
be, to the effect that:
(1) the representations and warranties of
the Company set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all
the conditions on its part to be performed or
satisfied at or prior to such Closing Date;
(2) the Commission has not issued an order
preventing or suspending the use of the Prospectus or
any preliminary prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued; and no
proceedings for that purpose have been instituted or,
to the best knowledge of the respective signers, are
pending or contemplated under the 1933 Act; and
(3) subsequent to the date of the most
recent financial statements included in the
Registration Statement and the Prospectus (exclusive
of any supplement thereto), and except as set forth
or contemplated in the Prospectus (exclusive of any
supplement thereto), (A) the Company has not incurred
any material liabilities or obligations, direct or
contingent, nor entered into any material
transactions not in the ordinary course of business,
and (B) there has not been any material adverse
change in the condition (financial or otherwise),
business, assets, operations or prospects of the
Company, or any change in the
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<PAGE> 24
capital stock or short-term indebtedness for
borrowed money or long-term debt of the Company.
The delivery of the certificate provided for in this
subparagraph shall be and constitute a representation and
warranty of the Company as to the facts required in the
immediately foregoing clauses (1), (2) and (3) of this
subparagraph to be set forth in said certificate.
(iv) A certificate of the Chief Executive Officer and
Vice President-Finance of the Selling Stockholder dated the
First Closing Date or the Second Closing Date, as the case may
be, to the effect that the representations and warranties of
the Selling Stockholder set forth in Sections 2 and 3(a) of
this Agreement are true and correct as of such date and the
Selling Stockholder has complied with all the agreements and
satisfied all the conditions on the part of the Selling
Stockholder to be performed or satisfied at or prior to such
date.
(v) A certificate of the Chief Executive Officer and
Vice President-Finance of Waxman Industries dated the First
Closing Date or the Second Closing Date, as the case may be,
to the effect that the representations and warranties of
Waxman Industries set forth in Sections 2, 3(a) and 3(b) of
this Agreement are true and correct as of such date and Waxman
Industries has complied with all the agreements and satisfied
all the conditions on the part of Waxman Industries to be
performed or satisfied at or prior to such date.
(vi) At the time the Pricing Agreement is executed
and also on the First Closing Date or the Second Closing Date,
as the case may be, there shall be delivered to you a letter
addressed to you, as Representatives of the Underwriters, from
Arthur Andersen LLP, independent accountants, the first one to
be dated the date of the Pricing Agreement, the second one to
be dated the First Closing Date and the third one (in the
event of a second closing) to be dated the Second Closing
Date, to the effect set forth in Schedule B. There shall not
have been any change or decrease specified in the letters
referred to in this subparagraph which makes it impractical or
inadvisable in the judgment of the Representatives to proceed
with the public offering or purchase of the Shares as
contemplated hereby.
(vii) At the time the Pricing Agreement is executed,
there shall be delivered to you a letter substantially in the
form of Exhibit B hereto from each director and executive
officer of the Company, in which each such person agrees not
to sell, contract to sell or otherwise dispose of any Common
Stock or securities convertible into Common Stock for a period
of 180 days after the date of such letter without the prior
written consent of the Representatives.
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<PAGE> 25
(viii) Payment for all legal fees and disbursements
of counsel for the Underwriters pursuant to and in accordance
with clause (ii) of Section 7 hereof.
(ix) Such further information, certificates and
documents as you may reasonably request.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory to you
and to counsel for the Underwriters, which approval shall not be unreasonably
withheld. The Company shall furnish you with such manually signed or conformed
copies of such opinions, certificates, letters and documents as you request.
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification to the Company, the
Selling Stockholder and Waxman Industries without liability on the part of any
Underwriter or the Company, the Selling Stockholder or Waxman Industries, except
for the expenses to be paid or reimbursed pursuant to Sections 7 and 9 hereof
and except to the extent provided in Section 11 hereof.
SECTION 9. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale
to the underwriters of the Shares on the First Closing Date is not consummated
because any condition of the Underwriters' obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company, the Selling Stockholder or Waxman Industries to perform any
agreement herein or to comply with any provision hereof, unless such failure to
satisfy such condition or to comply with any provision hereof is due to the
default or omission of any Underwriter, the Company, the Selling Stockholder and
Waxman Industries, jointly and severally, agree to reimburse you and the other
Underwriters upon demand for all out-of-pocket expenses (including reasonable
fees and disbursements of counsel) that shall have been reasonably incurred by
you and them in connection with the proposed purchase and the sale of the
Shares. Any such termination shall be without liability of any party to any
other party except that the provisions of this Section 9, Section 7 and Section
11 shall at all times be effective and shall apply.
The provisions of this Section 9 shall not affect any
agreement which the Company, the Selling Stockholder and Waxman Industries may
make for the allocation or sharing of such reimbursement expenses.
SECTION 10. EFFECTIVENESS OF REGISTRATION STATEMENT. You, the
Company, the Selling Stockholder and Waxman Industries will use your, its and
their best efforts to cause the Registration Statement to become effective, if
it has not yet become effective, and to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if such stop
order be issued, to obtain as soon as possible the lifting thereof.
SECTION 11. INDEMNIFICATION. (a) The Company, the Selling
Stockholder and Waxman Industries, jointly and severally,
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<PAGE> 26
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the 1933 Act or the
Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become
subject under the 1933 Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise (including in
settlement of any litigation if such settlement is effected with the written
consent of the Company, the Selling Stockholder and/or Waxman Industries, as
the case may be), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A
and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus,
or any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action or pursuing its
rights to indemnification provided by this Section 11; provided, however,
that none of the Company, the Selling Stockholder or Waxman Industries will
be liable in any such case, and the foregoing indemnity shall not apply, to
the extent that (i) any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Underwriter through the Representatives,
specifically for use therein; or (ii) if such statement or omission was
contained or made in any preliminary prospectus and corrected in the
Prospectus and (1) any such loss, claim, damage or liability suffered or
incurred by any Underwriter (or any person who controls any Underwriter)
resulted from an action, claim or suit by any person who purchased Shares
that are the subject thereof from such Underwriter in the offering and (2)
such Underwriter failed to deliver or provide a copy of the Prospectus to
such person at or prior to the confirmation of the sale of such Shares in
any case where such delivery is required by the 1933 Act. In addition to
their other obligations under this Section 11(a), the Company, the Selling
Stockholder and Waxman Industries agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 11(a), they will
reimburse the Underwriters on a monthly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Company's, the Selling Stockholder's and Waxman
Industries' obligation to reimburse the Underwriters for such expenses and
the possibility that such
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<PAGE> 27
payments might later be held to have been improper by a court of competent
jurisdiction. This indemnity agreement will be in addition to any liability
that the Company, the Selling Stockholder and Waxman Industries may otherwise
have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company, the Selling Stockholder, Waxman Industries, each of their
respective directors, each of their respective officers who signed the
Registration Statement and each person, if any, who controls the Company, the
Selling Stockholder or Waxman Industries within the meaning of the 1933 Act or
the Exchange Act, against any losses, claims, damages or liabilities to which
the Company, the Selling Stockholder, Waxman Industries, or any such director,
officer or controlling person, may become subject under the 1933 Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of such Underwriter), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto in reliance upon and in conformity with Section
4 of this Agreement or any other written information furnished to the Company by
such Underwriter through the Representatives specifically for use in the
preparation thereof; and will reimburse any legal or other expenses reasonably
incurred by the Company, the Selling Stockholder, Waxman Industries, or any such
director, officer or controlling person, in connection with investigating or
defending any such loss, claim, damage, liability or action. In addition to
their other obligations under this Section 11(b), the Underwriters agree that,
as an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(b),
they will reimburse the Company, the Selling Stockholder and Waxman Industries
on a monthly basis for all reasonable legal and other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company, the Selling Stockholder and
Waxman Industries for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 11 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made
-27-
<PAGE> 28
against an indemnifying party under this Section 11, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party except to the extent that the indemnifying party
was prejudiced by such failure to notify. In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with all other indemnifying
parties similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the defendants
in any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that there
may be legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying
party, or the indemnified and indemnifying parties may have conflicting
interests which would make it inappropriate for the same counsel to
represent both of them, the indemnified party or parties shall have the
right to select separate counsel to assume such legal defense and otherwise
to participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 11 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall
have employed such counsel in connection with the assumption of legal
defense in accordance with the proviso to the next preceding sentence (it
being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel, approved by the
Representatives in the case of paragraph (a) representing all indemnified
parties not having different or additional defenses or potential conflicting
interest among themselves who are parties to such action), (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at
the expense of the indemnifying party. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability arising
out of such proceeding.
(d) If the indemnification provided for in this Section 11 is
unavailable to an indemnified party under paragraph (a) or (b) hereof in respect
of any losses, claims, damages or liabilities referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the
-28-
<PAGE> 29
Company, the Selling Stockholder, Waxman Industries and the Underwriters from
the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company, the Selling
Stockholder, Waxman Industries and the Underwriters in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
respective relative benefits received by the Company, the Selling
Stockholder, Waxman Industries and the Underwriters shall be deemed to be in
the same proportion in the case of the Company, the Selling Stockholder and
Waxman Industries, as the total price paid to the Company and the Selling
Stockholder for the Shares by the Underwriters (net of underwriting discount
but before deducting expenses), and in the case of the Underwriters as the
underwriting discount received by them bears to the total of such amounts
paid to the Company and the Selling Stockholder and received by the
Underwriters as underwriting discount in each case as contemplated by the
Prospectus. The relative fault of the Company, the Selling Stockholder,
Waxman Industries and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the Company, the Selling Stockholder, Waxman
Industries or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company, the Selling Stockholder, Waxman Industries and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
underwriting discount applicable to the Shares underwritten by it and
distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.
(e) The provisions of this Section 11 shall survive any
termination of this Agreement.
SECTION 12. DEFAULT OF UNDERWRITERS. It shall be a
condition to the agreement and obligation of the Company and the
Selling Stockholder to sell and deliver the Shares hereunder, and
-29-
<PAGE> 30
of each Underwriter to purchase the Shares hereunder, that, except as
hereinafter in this paragraph provided, each of the Underwriters shall
purchase and pay for all Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Representatives of all such Shares in
accordance with the terms hereof. If any Underwriter or Underwriters default
in their obligations to purchase Shares hereunder on the First Closing Date
or the Second Closing Date, as the case may be, and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed
to purchase does not exceed 10 percent of the total number of Shares which
the Underwriters are obligated to purchase on the First Closing Date or the
Second Closing Date, as the case may be, the Representatives may make
arrangements satisfactory to the Company and the Selling Stockholder for the
purchase of such Shares by other persons, including any of the Underwriters,
but if no such arrangements are made by such date the nondefaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Shares which such defaulting
Underwriters agreed but failed to purchase on such date. If any Underwriter
or Underwriters so default and the aggregate number of Shares with respect
to which such default or defaults occur is more than the above percentage
and arrangements satisfactory to the Representatives and the Company and the
Selling Stockholder for the purchase of such Shares by other persons are not
made within 36 hours after such default, this Agreement will terminate
without liability on the part of any nondefaulting Underwriter or the
Company, the Selling Stockholder or Waxman Industries, except for the
expenses to be paid pursuant to Section 7 hereof and except to the extent
provided in Section 11 hereof.
In the event that Shares to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Representatives, the Company or the Selling Stockholder shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
for not more than seven business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 12.
Nothing herein will relieve a defaulting Underwriter from liability for its
default.
SECTION 13. EFFECTIVE DATE. This Agreement shall become
effective immediately as to Sections 7, 9, 11 and 14 and as to all other
provisions at 10:00 A.M., Chicago Time, on the day following the date upon which
the Pricing Agreement is executed and delivered, unless such a day is a
Saturday, Sunday or holiday (and in that event this Agreement shall become
effective at such hour on the business day next succeeding such Saturday, Sunday
or holiday); but this Agreement shall nevertheless become effective at such
earlier time after the Pricing Agreement is executed and delivered as you may
determine on and by notice to the Company, the Selling Stockholder and Waxman
Industries or by release of any Shares for sale to the public. For the purposes
of this Section 13, the Shares shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Shares or
upon the release by you of telegrams (i) advising Underwriters that the Shares
are released for public offering, or (ii) offering
-30-
<PAGE> 31
the Shares for sale to securities dealers, whichever may occur first.
SECTION 14. TERMINATION. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to you, the Selling Stockholder and Waxman Industries or by you by notice to the
Company, the Selling Stockholder and Waxman Industries at any time prior to the
time this Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company, the
Selling Stockholder or Waxman Industries to any Underwriter (except for the
expenses to be paid or reimbursed pursuant to Section 7 hereof and except to the
extent provided in Section 11 hereof) or of any Underwriter to the Company, the
Selling Stockholder or Waxman Industries.
(b) This Agreement may also be terminated by you prior to the
First Closing Date, and the option referred to in Section 5, if exercised, may
be cancelled at any time prior to the Second Closing Date, if (i) trading in
securities on the New York Stock Exchange shall have been suspended or minimum
prices shall have been established on such exchange, or (ii) a banking
moratorium shall have been declared by Illinois, New York, or United States
authorities, or (iii) there shall have been any change in financial markets or
in political, economic or financial conditions which, in the opinion of the
Representatives, either renders it impracticable or inadvisable to proceed with
the offering and sale of the Shares on the terms set forth in the Prospectus or
materially and adversely affects the market for the Shares, or (iv) there shall
have been an outbreak of major armed hostilities between the United States and
any foreign power which in the opinion of the Representatives makes it
impractical or inadvisable to offer or sell the Shares. Any termination pursuant
to this paragraph (b) shall be without liability on the part of any Underwriter
to the Company, the Selling Stockholder or Waxman Industries or on the part of
the Company to any Underwriter, the Selling Stockholder or Waxman Industries
(except for expenses to be paid or reimbursed pursuant to Sections 7 and 9
hereof and except to the extent provided in Section 11 hereof).
SECTION 15. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholder and
Waxman Industries, of any of their respective officers, and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter, the Company, the Selling Stockholder or Waxman Industries, or any
of its or their partners, officers or directors or any controlling person, as
the case may be, and will survive delivery of and payment for the Shares sold
hereunder.
SECTION 16. NOTICES. All communications hereunder will be in
writing and, if sent to the Underwriters will be mailed, delivered or telecopied
and confirmed to you, c/o William Blair & Company, L.L.C., 222 West Adams
Street, Chicago, Illinois 60606,
-31-
<PAGE> 32
Fax (312) 368-9418, with a copy to Robert F. Wall, Esq., Winston & Strawn, 35
West Wacker Drive, Chicago, Illinois 60601, Fax (312) 558-5700; if sent to
the Company will be mailed, delivered or telecopied and confirmed to Barnett
Inc., 3333 Lenox Avenue, Jacksonville, Florida 32254, Attention: William R.
Pray, President and Chief Executive Officer, Fax (904) 388-4566, with a copy
to Scott M. Zimmerman, Esq., Shereff, Friedman, Hoffman & Goodman, LLP, 919
Third Avenue, New York, New York 10022, Fax (212) 308- 4519; and if sent to
the Selling Stockholder or Waxman Industries will be mailed, delivered or
telecopied and confirmed to c/o Waxman Industries, 24460 Aurora Road,
Bedford Heights, Ohio 44146, Attention: Chief Executive Officer, Fax (216)
439-8678, with a copy to Scott M. Zimmerman, Esq., Shereff, Friedman,
Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York 10022, Fax
(212) 308-4519.
SECTION 17. SUCCESSORS. This Agreement and the Pricing
Agreement will inure to the benefit of and be binding upon the parties hereto
and their respective successors, personal representatives and assigns, and to
the benefit of the officers and directors and controlling persons referred to in
Section 11, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
SECTION 18. REPRESENTATION OF UNDERWRITERS. You will act as
Representatives for the several Underwriters in connection with this financing,
and any action under or in respect of this Agreement taken by you will be
binding upon all the Underwriters.
SECTION 19. PARTIAL UNENFORCEABILITy. If any section,
paragraph or provision of this Agreement is for any reason determined to be
invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 20. APPLICABLE LAW. This Agreement and the Pricing
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois, without giving effect to principles of conflicts of laws.
-32-
<PAGE> 33
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholder, Waxman Industries and the several Underwriters including you, all
in accordance with its terms.
Very truly yours,
BARNETT INC.,
a Delaware corporation
By:
-----------------------
Name: ________________
Title:________________
WAXMAN USA INC.,
a Delaware corporation
By:
-----------------------
Name: _______________
Title:_______________
WAXMAN INDUSTRIES, INC.,
a Delaware corporation
By:
------------------------
Name:________________
Title:_______________
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
WILLIAM BLAIR & COMPANY, L.L.C.
ALEX. BROWN & SONS INCORPORATED
Acting as Representatives of the
several Underwriters named in
Schedule A.
By: William Blair & Company, L.L.C.
By:
------------------------
Partner
-33-
<PAGE> 34
EXHIBIT A
---------
BARNETT INC.
2,000,000 Shares Common Stock*
PRICING AGREEMENT
-----------------
______, 1997
William Blair & Company, L.L.C.
Alex. Brown & Sons Incorporated
As Representatives of the
Several Underwriters
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated ______, 1997
(the "Underwriting Agreement") by and among Barnett Inc, a Delaware
corporation (the "Company"), Waxman USA Inc., a Delaware corporation (the
"Selling Stockholder"), Waxman Industries, Inc., a Delaware corporation ("Waxman
Industries"), and you, as representatives (the "Representatives") of a group of
Underwriters named therein (the "Underwriters"), relating to the sale by the
Company and the Selling Stockholder and the purchase by the Underwriters of the
above Shares. All terms herein shall have the definitions contained in the
Underwriting Agreement except as otherwise defined herein.
Pursuant to Section 5 of the Underwriting Agreement, the
Company, the Selling Stockholder and Waxman Industries agree with the
Representatives as follows:
1. The public offering price per share for the Shares
shall be $_____.
2. The purchase price per share for the Shares to be paid by
the several Underwriters shall be $_____, being an amount equal to the public
offering price set forth above less $_____ per share.
- --------
* Plus an option to acquire up to 150,000 additional shares
from the Selling Stockholder to cover overallotments.
<PAGE> 35
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholder, Waxman Industries and the several Underwriters, including you, all
in accordance with its terms.
Very truly yours,
BARNETT INC.,
a Delaware corporation
By:
-----------------------
Name:__________________
Title:_________________
WAXMAN USA INC.,
a Delaware corporation
By:
-----------------------
Name:__________________
Title:_________________
WAXMAN INDUSTRIES, INC.,
a Delaware corporation
By:
-----------------------
Name:__________________
Title:_________________
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
WILLIAM BLAIR & COMPANY, L.L.C.
ALEX. BROWN & SONS INCORPORATED
Acting as Representatives of the
several Underwriters named in
Schedule A to the Underwriting Agreement.
By: William Blair & Company, L.L.C.
By:
--------------------------
Partner
<PAGE> 36
EXHIBIT B
---------
[Letterhead of each director and executive officer of Barnett Inc.]
Barnett Inc.
Public Offering of Common Stock
_______ __, 1997
William Blair & Company, L.L.C.
Alex. Brown & Sons Incorporated
As Representatives of the
Several Underwriters
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement") by and among Barnett Inc,
a Delaware corporation (the "Company"), Waxman USA Inc., a Delaware corporation,
Waxman Industries, Inc., a Delaware corporation, and you, as representatives of
a group of Underwriters named therein, relating to an underwritten public
offering of Common Stock, $.01 par value (the "Common Stock"), of the Company.
Each capitalized term used, but not otherwise defined, herein shall have the
meaning ascribed to such term in the Underwriting Agreement.
In order to induce the Underwriters to enter into the Underwriting
Agreement, the undersigned agrees that he, she or it, as the case may be, will
not during the period of 180 days following the date of the Prospectus issued
pursuant to this offering, without the prior written consent of William Blair &
Company, L.L.C., on behalf of the Representatives, offer, sell or contract to
sell, or otherwise dispose of, directly or indirectly, or announce the offering
of, any shares of Common Stock beneficially owned by such person, or any
securities convertible into, or exchangeable for, shares of Common Stock, other
than shares of Common Stock disposed of as bona fide gifts; provided, however,
that any shares of Common Stock sold, converted, disposed of or otherwise
transferred pursuant to this letter shall be subject to the same 180 day
restriction set forth in this letter and prior to such transfer the transferor
thereof shall deliver to the Representatives the written acknowledgment of the
transferee that it has received such shares of Common Stock subject to such
restrictions.
<PAGE> 37
If for any reason the Underwriting Agreement shall be terminated prior
to the First Closing Date, the agreement set forth above shall likewise be
terminated.
Very truly yours,
[Signature of each director and
executive officer of Barnett
Inc.]
[Name and address of each
director and executive officer
of Barnett Inc.]
<PAGE> 38
SCHEDULE A
----------
Number of
Firm Shares
to be
Purchased
---------
Underwriter
- -----------
William Blair & Company, L.L.C..................... _________
Alex. Brown & Sons Incorporated.................... _________
_________
----------
Total ......................... 2,000,000
<PAGE> 39
SCHEDULE B
----------
Comfort Letter of Arthur Andersen LLP
(1) They are independent public accountants with respect to
the Company within the meaning of the 1933 Act and the answer to Item 10 of the
Registration Statement, insofar as it relates to them, is correct.
(2) In their opinion the financial statements and schedules of
Barnett Inc. included in the Registration Statement and the financial statements
of the Company from which the information presented under the captions "Summary
Financial and Operating Data" and "Selected Financial Information and Operating
Data" has been derived, which are stated therein to have been examined by them,
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act.
(3) On the basis of specified procedures (but not an
examination in accordance with generally accepted auditing standards), including
inquiries of certain officers of the Company responsible for financial and
accounting matters as to transactions and events subsequent to June 30, 1996, a
reading of minutes of meetings of the stockholders and directors of the Company
since June 30, 1996, a reading of the latest available interim unaudited
financial statements of the Company (with an indication of the date thereof) and
other procedures as specified in such letter, nothing came to their attention
which caused them to believe that (i) the unaudited financial statements of the
Company included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act or
that such unaudited financial statements are not fairly presented in accordance
with generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement, and (ii) at a specified date not more than five days
prior to the date thereof in the case of the first letter and not more than two
business days prior to the date thereof in the case of the second and third
letters, there was any change in the capital stock or long-term debt or
short-term debt (other than normal payments) of the Company or any decrease in
net current assets or stockholders' equity as compared with amounts shown on the
latest unaudited balance sheet of the Company included in the Registration
Statement or for the period from the date of such balance sheet to a date not
more than five days prior to the date thereof in the case of the first letter
and not more than two business days prior to the date thereof in the case of the
second and third letters, there were any decreases, as compared with the
corresponding period of the prior year, in net sales, income before income taxes
or in the total or per share amounts of net income except, in all instances, for
changes or decreases which the Prospectus discloses have occurred or may occur
or which are set forth in such letter.
(4) On the basis of reading the unaudited pro forma financial
statement data included in the Registration Statement and the Prospectus,
carrying out specified procedures, inquiries of certain officials of the Company
who have responsibility for
<PAGE> 40
financial and accounting matters, and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in the pro
forma financial statement data, nothing came to their attention that caused them
to believe that the pro forma financial statement data does not comply in form
in all material respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X of or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of such
statements.
(5) They have carried out specified procedures, which have
been agreed to by the Representatives, with respect to certain information in
the Prospectus specified by the Representatives, and on the basis of such
procedures, they have found such information to be in agreement with the general
accounting records of the Company.
<PAGE> 1
EXHIBIT 10.11
BARNETT INC.
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. NAME.
The name of this Plan is the Barnett Inc. 1996 Stock Option Plan for
Non-Employee Directors.
2. PURPOSE.
The purpose of the Plan is to enable the Company to secure non-employee
persons of requisite experience and ability to serve on the Board and to
motivate Non-Employee Directors to exert their best efforts on behalf of the
Company, thus enhancing the value of the Company for the benefit of the
Company's stockholders.
3. DEFINITIONS.
For the purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Award" means a grant of options to a Participant pursuant to
Section 8 of the Plan.
(b) "Award Agreement" means the written agreement between the Company
and the Participant that contains the terms and conditions pertaining to
the grant of options.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act (as in
effect on the date the Plan is adopted by the Board), whether or not the
Company is then subject to such reporting requirement; provided, that,
without limitation, such a Change in Control shall be deemed to have
occurred if:
(i) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities; provided,
however, that no Change of Control shall be deemed to have occurred if
prior to the acquisition of such thirty percent (30%) of the combined
voting power of the Company's then outstanding securities, a majority of
the Continuing Directors approves such acquisition; or
(ii) if there shall cease to be a majority of the Board comprised
of Continuing Directors; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least eighty percent (80%)
of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets.
Notwithstanding anything in this definition to the contrary, an event or
occurrence (or a series of events or occurrences) which would otherwise
constitute a Change in Control under the foregoing shall not constitute a Change
in Control for purposes of this Plan if the Board, by majority vote, determines
that a Change in Control does not result therefrom; but only if Continuing
Directors constitute a majority of the directors voting in favor of such
determination. Further, an event or occurrence (or a series of events or
occurrences) which
1
<PAGE> 2
would not otherwise constitute a Change in Control under the foregoing shall be
deemed to constitute a Change in Control for purposes of this Plan if the Board,
by majority vote, determines that a Change in Control does result therefrom; but
only if Continuing Directors constitute a majority of the directors voting in
favor of such determination. A determination by the Board under the provisions
of this paragraph shall be made solely for purposes of this Plan and shall not
directly or indirectly affect any determination or analysis of whether a change
in control results for any other purpose. Any determination made with respect to
whether a change in control results for purposes of any other plan or agreement
of the Company shall have no effect for purposes of this Plan.
(e) "Chairman" means the individual appointed by the Committee to
serve as the chairman of the Committee.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the Committee established pursuant to Section 4
of the Plan.
(h) "Common Stock" means the common stock, par value $0.01 per share,
of the Company or any security of the Company identified by the Committee
as having been issued in substitution or exchange therefor or in lieu
thereof.
(i) "Company" means Barnett Inc.
(j) "Continuing Directors" means individuals who at the end of any
period of two (2) consecutive years constitute the Board and any new
director(s) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds ( 2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously approved.
(k) "Directors" means the members of the Board.
(l) "Effective Date" means the date on which the Plan becomes
effective, as provided in Section 5(a) hereof.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute.
(n) "Fair Market Value" means, with respect to the Shares, (a) if the
Common Stock is listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap
Market, the last reported sales price as reported on such exchange; (b) if
the Common Stock is not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market, the average of the last reported closing bid and asked
quotation for the Common Stock as reported on the Automated Quotation
System of NASDAQ or a similar service if NASDAQ is not reporting such
information; (c) if the Common Stock is not listed or admitted for trading
on any national securities exchange or included in The Nasdaq National
Market or Nasdaq SmallCap Market or quoted by NASDAQ or a similar service,
the average of the last reported bid and asked quotation for the Common
Stock as quoted by a market maker in the Common Stock (or if there is more
than one market maker, the bid and asked quotation shall be obtained from
two market makers and the average of the lowest bid and highest asked
quotation shall be the "Fair Market Value"); or (d) if the Common Stock is
not listed or admitted for trading on any national securities exchange or
included in The Nasdaq National Market or Nasdaq SmallCap Market or quoted
by NASDAQ and there is no market maker in the Common Stock, the fair market
value of the Shares as determined by the Committee in good faith.
(o) "Non-Employee Director" means an individual who: (i) is now, or
hereafter becomes, a member of the Board and (ii) is not an employee of the
Company on the date of the grant of an option.
(p) "NSO" means an option that does not meet the requirements of
Section 422(b) of the Code, which provides the right to purchase a Share at
a price and for a Term fixed in accordance with the Plan, and subject to
such other limitations and restrictions imposed by the Plan.
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(q) "Participant" means a Non-Employee Director who has been granted
an NSO under the Plan (or in the event of the death or disability of a
Non-Employee Director, the estate or personal representative of the
Non-Employee Director).
(r) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(s) "Plan" means this Barnett Inc. 1996 Stock Option Plan for
NonEmployee Directors.
(t) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor or replacement
rule or regulation thereto. Accordingly, all references in the Plan to a
specific paragraph of Rule 16b-3 shall be deemed to be references to such
paragraph or to the applicable successor or replacement paragraph thereto.
(u) "Share" or "Shares" means a share or shares of Common Stock,
adjusted in accordance with Section 9 hereof, as applicable.
(v) "Term" means the period during which a particular Award may be
exercised.
4. ADMINISTRATION.
(a) Generally.
The Plan shall be administered by the Committee. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any NSO shall be within the
sole and absolute discretion of the Committee, may be made at any time, and
shall be final, conclusive and binding upon the Company, any Participant, any
holder or beneficiary of any NSO and any stockholder of the Company.
(b) Composition of the Committee.
The members of the Committee shall be appointed by the Board and shall
consist of no less than two members of the Board who are "disinterested persons"
as such term is used in Rule 16b-3. The Committee may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee,
however caused, shall be filled by the Board.
(c) Actions by the Committee.
The Committee shall hold meetings at such times and places as it may
determine. The Committee shall appoint one of its members as Chairman. Acts
approved by a majority of the members of the Committee present at a meeting at
which a quorum is present, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
(d) Powers of the Committee.
Subject to the terms of the Plan and applicable law, the Committee shall
have full power and authority to administer the Plan in its sole and absolute
discretion. To this end, the Committee is authorized to construe and interpret
the Plan and to make all other determinations necessary or advisable for the
administration of the Plan. Subject to the foregoing, any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration, or application of the Plan shall be final,
conclusive and binding upon all Participants and any person claiming under or
through a Participant.
(e) Reliance and Indemnification of Committee Members.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons. No
member of the Committee or the Board shall be personally liable for any action,
determination or interpretation taken or made in good faith by the Committee or
the Board with respect to the
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Plan or any NSO granted thereunder, and all members of the Committee and the
Board shall be fully indemnified and protected by the Company in respect of any
such action, determination or interpretation.
(f) NSO Accounts.
The Committee shall maintain or cause to be maintained a journal or other
record in which a separate account for each Participant shall be established.
Whenever NSOs are granted to, or exercised by, a Participant, the Participant's
account shall reflect such grant or exercise and the Participant's account shall
be appropriately adjusted in the event of any change in capitalization or
transaction pursuant to Section 9 hereof.
(g) Administrator.
An Administrator of the Plan may from time to time be appointed by the
Committee. If appointed, such Administrator shall be responsible for the general
administration of the Plan under the policy guidance of the Committee. The
Administrator shall be in the employ of the Company, and shall be compensated
for services and expenses by the Company according to its normal employment
policies without special or additional compensation, other than reimbursement of
expenses, if any, for his or her services as the Administrator.
5. APPROVAL OF THE PLAN; TERM OF THE PLAN.
(a) Approval of the Plan by Stockholders; Effective Date of the Plan.
The Plan was adopted by the Board effective as of September 27, 1996 (the
"Effective Date"). If, and to the extent, required by applicable law or the
rules and regulations of any stock exchange or similar body to which the Company
is subject, the Plan will be submitted for the approval of the Company's
stockholders within 12 months after such date. The date of stockholder approval
of the Plan, if so required, is the "Approval Date." Awards may be granted prior
to such stockholder approval; provided, however, that, to the extent such
stockholder approval is required, such Awards shall not be exercisable prior to
the Approval Date; provided, further, that if such required approval has not
been obtained at the end of said 12 month period, all Awards previously granted
under the Plan shall thereupon be cancelled and become null and void.
(b) Term of Plan.
No NSO shall be granted pursuant to the Plan on or after the tenth (10th)
anniversary of the Effective Date, but NSOs theretofore granted may be extended
beyond that date and the Committee shall have the authority to amend, alter,
adjust, suspend, discontinue, or terminate any such NSO or to waive any
conditions or rights under any such NSO, and to amend the Plan, beyond that
date.
6. SHARES SUBJECT TO THE PLAN.
(a) Limitation on Number of Shares.
The maximum aggregate number of Shares which may be subject to NSOs granted
to Participants pursuant to the Plan shall be 400,000. The limitation on the
number of Shares which may be subject to NSOs under the Plan shall be subject to
adjustment as provided in Section 9 hereof. If any NSO granted under the Plan
expires or is terminated for any reason without having been exercised in full,
the Shares allocable to the unexercised portion of such NSO shall again become
available for grant pursuant to the Plan. At all times during the term of the
Plan, the Company shall reserve and keep available for issuance such number of
Shares as the Company is obligated to issue upon the exercise of all then
outstanding NSOs.
(b) Accounting for NSOs.
For purposes of this Section 6, the number of Shares covered by an NSO, or
to which an NSO relates, shall be counted on the date of grant of such NSO
against the aggregate number of Shares available for granting NSOs under the
Plan. Any Shares that are delivered by the Company pursuant to any NSO, and any
NSOs that are granted by, or become obligations of, the Company, shall be
counted against the Shares available for granting NSOs under the Plan.
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7. SOURCE OF SHARES ISSUED UNDER THE PLAN.
Common Stock issued under the Plan may consist, in whole or in part, of
authorized and unissued Shares or treasury Shares, as determined in the sole and
absolute discretion of the Committee. No fractional Shares shall be issued under
the Plan.
8. NON-QUALIFIED STOCK OPTIONS.
(a) One Time Grant of NSOs.
(i) Each Non-Employee Director who occupies the office of either
Chairman of the Board or Vice-Chairman of the Board on the Effective
Date shall automatically be granted on such date NSOs exercisable to
purchase one hundred thousand (100,000) shares of Common Stock,
subject to all of the provisions of the Plan.
(ii) Each person who was a Non-Employee Director on the Effective Date
shall automatically be granted on such date NSOs exercisable to
purchase twenty-five thousand (25,000) shares of Common Stock,
subject to all the provisions of the Plan.
(iii) Each person who is either elected or appointed a Non-Employee
Director, and who has not previously received a grant of NSOs
pursuant to clause (ii) above, shall automatically be granted NSOs
exercisable to purchase twenty-five thousand (25,000) shares of
Common Stock on the date of their appointment or election, subject
to the provisions of the Plan.
(b) Annual Cash Compensation Grant of NSOs.
In addition to the grant of NSOs pursuant to Section 8(a) above, NSOs
exercisable to purchase five thousand (5,000) shares of Common Stock shall be
granted as of the date of the annual organizational meeting of the Board which
is held following the Company's annual meeting of stockholders, to any Non-
Employee Director who, no later than the date of such annual organizational
meeting of the Board (and subject to such other rules as the Committee may adopt
from time to time), has filed with the Company an irrevocable election to
receive an NSO in lieu of all, but not less that all, of the Annual Director
Compensation (as defined below) expected to be earned by such Non-Employee
Director for a twelve-month period beginning on the first day of the third
fiscal quarter of the Company ("Plan Year"). A separate election must be made
for each Plan Year, although a Non-Employee Director may specify that a
particular election shall apply to future Plan Years unless amended or revoked;
provided, however, that no amendment or revocation may be made during a Plan
Year with respect to such Plan Year.
"Annual Director Compensation" shall mean the amount of fees which the
Non-Employee Director will be entitled to receive during a Plan Year for serving
as a Non-Employee Director or as a member of any committee of the Board pursuant
to the policy in effect for each Plan Year, including retainers paid
periodically and fees paid for attendance at or participation in meetings of the
Board or any committee thereof.
(b) Exercise Price.
The price at which each Share covered by a NSO may be purchased pursuant to
this Plan shall be the Fair Market Value of a Share on the date of the NSO
grant.
(c) Terms and Conditions.
All NSOs granted pursuant to the Plan shall be evidenced by an Award
Agreement, approved as to form by the Committee, which shall be subject to the
following express terms and conditions and to the other terms and conditions
specified in this Section 8, and to such other terms and conditions as shall be
determined by the Committee in its sole and absolute discretion which are not
inconsistent with the Plan:
(i) after one (1) year from the date of the Award, it may be exercised
as to not more than 25% of the NSOs granted under the Award;
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(ii) after two (2) years from the date of the Award, it may be exercised as
to not more than 50% of the NSOs granted under the Award;
(iii) after three (3) years from the date of the Award, it may be exercised
as to not more than 75% of the NSOs granted under the Award;
(iv) after four (4) years after the date of the Award, it may be exercised
as to any part or all of the NSOs granted under the Award;
(v) the failure of a NSO to vest for any reason whatsoever shall cause the
NSO to expire and be of no further force or effect;
(vi) unless terminated earlier pursuant to Section 8(e) hereof, the term of
each NSO shall in no event be more than ten (10) years from the date
of the grant; and
(vii) no NSO or interest therein may be transferred, assigned, pledged or
hypothecated by a Participant during his lifetime or be made subject
to execution, attachment or similar process, in each case except by
will or by the laws of descent and distribution. NSOs shall be
exercised during the lifetime of the Participant only by the
Participant; provided, however, that if so determined by the
Committee, a Participant, in the manner established by the Committee,
may designate a beneficiary or beneficiaries to exercise the rights
of the Participant and to receive any property distributable with
respect to any NSO upon the death or permanent disability of the
Participant; and provided further that a Participant may transfer or
assign an NSO to, and in the event of any such assignment or transfer
such NSO may be exercised by, (x) such Participant's spouse or any
lineal ancestor or descendant of such Participant or (y) any trust,
the sole beneficiaries of which are any one or all of such
Participant or the spouse or any lineal ancestor or descendant of
such Participant.
(d) Exercise.
(i) Notice of Exercise. A Participant entitled to exercise a NSO may do so
by delivery of a written notice to that effect specifying the number of Shares
with respect to which the NSO is being exercised. Except as provided in Section
8(d)(ii) below, the notice shall be accompanied by payment in full of the
purchase price of any Shares to be purchased, which payment may be made in cash
or, with the Committee's approval (and subject to the requirements of Rule
16b-3), in Shares valued at Fair Market Value at the time of exercise or, with
the Committee's approval, a combination thereof. No Shares shall be issued upon
exercise of a NSO until full payment has been made therefor. All notices,
payments or requests provided for herein shall be delivered to the Chief
Financial Officer of the Company.
(ii) Cashless Exercise Procedures. The Company, in its sole discretion, may
establish procedures whereby a Participant, subject to the requirements of Rule
16b-3, Regulation T, federal income tax laws and other federal, state and local
tax and securities laws, can exercise a NSO or a portion thereof without making
a direct payment of the option price to the Company. If the Company so elects to
establish a cashless exercise program, the Company shall determine, in its sole
discretion, and from time to time, such administrative procedures and policies
as it deems appropriate, and such procedures and policies shall be binding on
any Participant wishing to utilize the cashless exercise program.
(e) Termination of NSOs.
NSOs granted under the Plan shall be subject to the following events of
termination:
(i) in the event a Participant is removed from the Board (other than
removal due to the death of a Participant or a Participant being
unable to perform his duties for the Company because of a disability
(as determined by the Board)), all unexercised NSOs held by such
Participant on the date of such removal (whether or not vested) will
expire immediately; and
(ii) in the event a Participant is no longer a member of the Board other
than by reason of removal, or is removed due to his death or his
being unable to perform his duties for the Company
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because of a disability (as determined by the Board), all
unexercised NSOs held by such Participant that shall have not
vested as of the date such Participant is no longer a member of the
Board (as determined in accordance with clauses (i), (ii) and (iii)
of Section 8(c)) shall terminate, and all NSOs vested as of such
date may be exercised by the Participant at any time within two (2)
years after such Participant ceased to be a Director, but not
beyond the original term thereof; provided, however, that an NSO
that is not exercised prior to the second anniversary of the
Non-Employee Director's death shall be deemed exercised on the
second anniversary of the date of death to the extent the then
aggregate Fair Market Value of the shares subject to the NSO
exceeds the aggregate exercise price of the NSOs and payment of
such exercise price shall be effected by withholding a number of
shares of Common Stock otherwise issuable pursuant to the option
the Fair Market Value of which on such anniversary is equal to the
exercise price. If the Fair Market Value of the Common Stock on the
second anniversary of the Non-Employee Director's death equals or
is less than the option exercise price, then the NSOs shall be
deemed to have expired unexercised.
(f) Share Certificates.
All certificates for Shares delivered under the Plan pursuant to any NSO or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other restrictions of the Securities and Exchange Commission,
any stock exchange upon which such Shares or other securities are then listed,
and any applicable Federal or state securities laws, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(g) Stockholder Approval.
Notwithstanding anything to the contrary contained herein (i) no Award
shall be exercisable prior to the Approval Date, to the extent stockholder
approval is required as provided in Section 5(a) hereof, and (ii) if the
approval is not obtained as provided for in Section 5(a) hereof, all Awards
previously granted under the Plan shall thereupon be cancelled and become null
and void.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of changes in all of the outstanding Shares by reason of stock
dividends, stock splits, recapitalizations, mergers, consolidations,
combinations, exchanges of shares, separations, reorganizations or liquidations
or similar events or in the event of extraordinary cash or noncash dividends
being declared with respect to outstanding Shares or other similar transactions,
the number and class of Shares available under the Plan in the aggregate, the
number and class of Shares subject to Awards theretofore granted, applicable
purchase prices and all other applicable provisions, shall, subject to the
provisions of the Plan, be equitably adjusted by the Committee, which adjustment
may, but need not, include payment to the holder of a NSO, in cash or in Shares,
in an amount equal to the difference between the then current Fair Market Value
of the Shares subject to such Award, as equitably determined by the Committee,
and the option price of such NSO, as the case may be. The foregoing adjustment
and the manner of application of the foregoing provisions shall be determined by
the Committee in its sole discretion. Any such adjustment may provide for the
elimination of any fractional Share which might otherwise become subject to an
Award.
10. TERMINATION OF AWARDS UPON CHANGE IN CONTROL.
Notwithstanding anything to the contrary, in the case of a Change in
Control, each Award granted under the Plan shall terminate ninety (90) days
after the occurrence of such Change in Control, but, in the event of any such
termination the Award holder shall have the right, commencing at least five (5)
days prior to the Change in Control and subject to any other limitation on the
exercise of such Award in effect on the date of exercise to immediately exercise
any NSOs in full, without regard to any vesting limitations, to the extent they
shall not have been theretofore exercised.
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11. AMENDMENT AND TERMINATION.
(a) Modifications to the Plan.
The Committee, insofar as permitted by law, may from time to time, with
respect to any Shares at the time not subject to NSOs, suspend, discontinue or
terminate the Plan or revise, alter or amend the Plan in any respect whatsoever;
provided, however, that no amendment of the Plan shall cause the Plan to be in
violation of Rule 16b-3 (including Section (c)(2)(ii)(B) thereunder).
(b) Rights of Participant.
No amendment, suspension or termination of the Plan that would adversely
affect the right of any Participant with respect to a NSO previously granted
under the Plan will be effective without the written consent of the affected
Participant.
(c) Correction of Defects, Omissions and Inconsistencies.
The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any NSO in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
12. MISCELLANEOUS.
(a) Rights of Stockholder.
No Participant and no beneficiary or other person claiming under or through
such Participant shall acquire any rights as a stockholder of the Company by
virtue of such Participant's having been granted a NSO under the Plan. No
Participant and no beneficiary or other person claiming under or through such
Participant will have any right, title or interest in or to any Shares allocated
or reserved under the Plan or subject to any NSO except as to Shares, if any,
that have been issued or transferred to such Participant. No adjustment shall be
made for dividends or distributions or other rights for which the record date is
prior to the date of exercise.
(b) Other Compensation Arrangements.
Nothing contained in the Plan shall prevent the Committee from adopting
other compensation arrangements for Non-Employee Directors, subject to
stockholder approval if such approval is required. Such other arrangements may
be either generally applicable or applicable only in specific cases.
(c) Treatment of Proceeds.
Proceeds realized from the exercise of NSOs under the Plan constitute
general funds of the Company.
(d) Withholding.
The Company shall be authorized to withhold from any NSO granted or any
payment due or transfer made under any NSO or under the Plan the amount of
withholding taxes due in respect of a NSO, its exercise, or any payment or
transfer under such NSO or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. Upon the exercise of a NSO, the Participant receiving
Shares pursuant thereto may be required to pay the Company the amount of any
such withholding taxes which is required to be withheld with respect to such
Shares.
(e) Cost of the Plan.
The costs and expenses of administering the Plan shall be borne by the
Company.
(f) No Right to Continue as Director.
Nothing contained in the Plan or in any instrument executed pursuant to the
Plan will confer upon any Participant any right to continue as a member of the
Board or affect the right of the Company, the Committee or the stockholders of
the Company to terminate the directorship of any Participant at any time with or
without cause.
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(g) No Right to Participate as an Employee Director.
Subject to the other provisions of the Plan, including the succeeding
sentence, a Director's right to participate in the Plan shall automatically
terminate if and when a NonEmployee Director becomes an employee of the Company.
That portion of an NSO that is not vested as of the date that the Director
becomes an employee of the Company shall automatically abate and be cancelled,
and that portion of an NSO that is vested as of such date may be exercised in
accordance with the terms of the Plan.
(h) Severability.
The provisions of the Plan shall be deemed severable and the validity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
(i) Binding Effect of Plan.
The Plan shall inure to the benefit of the Company, its successors and
assigns.
(j) Governing Law.
The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the
internal laws of the State of Delaware, without regard to any principles of
conflicts of law, and applicable Federal law.
(k) No Waiver of Breach.
No waiver by any Person at any time or any breach by another Person of, or
compliance with, any condition or provision of the Plan to be performed by such
other Person shall be deemed a waiver of the same, any similar or any dissimilar
provisions or conditions at the same or at any prior or subsequent time.
(l) No Trust or Fund Created.
Neither the Plan nor any NSO shall create or be construed to create a trust
or separate fund of any kind or a fiduciary relationship between the Company and
a Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company pursuant to an NSO, such right shall
be no greater than the right of any unsecured general creditor of the Company.
(m) Headings.
The headings contained herein are for references purposes only and shall
not affect in any way the meaning or interpretation of this Plan.
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[ARTHUR ANDERSEN LOGO]
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.
/s/ Arthur Andersen LLP
Cleveland, Ohio
February 26, 1997.
