10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-10177 WINDMERE CORPORATION (Exact name of Registrant as specified in its charter) Florida 59-1028301 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 5980 Miami Lakes Drive, Miami Lakes, Florida 33014 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (305) 362-2611 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock $.10 Par Value New York Stock Exchange Special Preferred Stock Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 20, 1995, the aggregate market value of the voting stock (based on the closing price as reported by NYSE of $9.125) held by non-affiliates of the Registrant was approximately $118,312,000. APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. 16,735,545 Shares of Common Stock (as of the close of business on March 20, 1995) DOCUMENTS INCORPORATED BY REFERENCE 1. Windmere Corporation's 1994 Annual Report to Shareholders (for the fiscal year ended December 31, 1994). Information contained in this document has been incorporated by reference in PARTS I and II. 2. Windmere Corporation Proxy Statement for its 1995 Annual Meeting of Shareholders (dated April 10, 1995). Information contained in this document has been incorporated by reference in PART III. PART I ITEM 1. DESCRIPTION OF BUSINESS General Windmere Corporation (the "Company") is engaged principally in manufacturing and distributing a wide variety of personal care products and household appliances. The Company designs and manufactures its products for sale to retail stores, distributors and professional beauty supply customers located primarily in the United States, Canada and Europe, with additional distribution in Latin America and the Far East. The Company's products are sold largely under its Windmere trade name, as well as under other trade names, trademarks and private labels. The Company also manufactures products on a contract basis for others. The Company's products are primarily manufactured by Durable Electrical Metal Factory, Ltd. ("Durable"), its wholly-owned Hong Kong subsidiary, in Bao An County, Guandong Province of the People's Republic of China ("People's Republic"), which is approximately 60 miles northwest of central Hong Kong. The Company has a significant amount of its assets in the People's Republic, primarily consisting of inventory, equipment and molds. Substantially all of the Company's products are manufactured by Durable and unrelated factories in the People's Republic. Approximately 85% to 90% of the Company's products are manufactured by Durable. The supply and cost of these products can be adversely affected, among other reasons, by changes in foreign currency exchange rates, increased import duties, imposition of tariffs, imposition of import quotas, interruptions in sea or air transportation and political or economic changes. From time to time, the Company explores opportunities to diversify its sourcing and/or production of certain products to other low-cost locations or with other third parties or joint venture partners in order to reduce its dependence on production in the People's Republic and/or reduce Durable's dependence on the Company's existing distribution base. However, at the present time, the Company intends to continue its production in the People's Republic. In June 1989, the People's Republic experienced civil disturbances and, although such disturbances have dissipated since that time, there continues to be pressure for political reform. No assurance can be given, however, that civil disturbances will not recur. If it becomes necessary to relocate the Company's manufacturing facilities from the People's Republic as a result of civil disturbances in that country or otherwise, the Company believes the production currently conducted in the People's Republic could be relocated to other Far East locations, including Hong Kong, or other low-cost manufacturing locations, with only temporary disruption and delay in such production and possible short-term operating and capital losses, provided that the Company is able to move substantially all of its manufacturing equipment and other assets currently in the People's Republic to another location. If the Company is unable to remove such assets, due to confiscation, expropriation, nationalization, embargoes or governmental restrictions, it would incur substantial operating and capital losses, including losses resulting from business disruption and delays in production. In addition, as a result of a relocation of its manufacturing equipment and certain other assets, the Company would likely incur relatively higher manufacturing costs. A relocation could also adversely affect the Company's revenues if the demand for the Company's products currently manufactured in the People's Republic decreases due to a disruption in the production and delivery of such products or due to higher prices which might result from increased manufacturing costs. Furthermore, earnings could be adversely affected due to reduced sales and/or the Company's inability to maintain its current margins on the products currently manufactured in the People's Republic. In May 1994, President Clinton extended the People's Republic's most- favored-nation (MFN) trading status for an additional year, beginning July 3, 1994. In making the decision to renew the People's Republic's MFN status, the President announced that the United States would, in the future, permanently de-link MFN renewal from human rights issues, other than freedom of emigration provisions. Under U.S. law, MFN status means that products are subject to the relatively low duty rates set forth in Column 1 of the Harmonized Tariff Schedules of the United States (HTSUS), that have resulted from several rounds of reciprocal tariff negotiations conducted under the auspices of the General Agreement on Tariffs and Trade (GATT) since 1945. Products from countries not eligible for MFN treatment are subject to much higher rates of duty, averaging 30 percent ad valorem, as set forth in Column 2 of the HTSUS. If MFN status for goods produced in the People's Republic were removed, there would be a substantial increase in tariffs imposed on goods of Chinese origin entering the United States, including those manufactured by the Company, which could have a material adverse impact on the Company's revenues and earnings. In June 1994, in accordance with the Trade Act of 1974, as amended, the Office of the United States Trade Representative (USTR) listed the People's Republic as a "priority foreign country" based on its alleged failure to provide adequate and effective protection of intellectual property rights. On February 4, 1995, the USTR announced that the United States would take retaliatory trade action against the People's Republic if the Chinese government did not agree to immediately address its intellectual property rights concerns. The USTR also published a list of products comprising $1.0 billion worth of Chinese exports to the United States which would be subject to increased duties. Products currently manufactured by and for the Company in the People's Republic were excluded from the USTR's retaliation list. On February 26, 1995, the United States and the People's Republic signed an agreement resolving this dispute, thereby averting the implementation of the proposed trade sanctions. The Company was incorporated under the laws of the State of Florida in 1963. As used herein, the term "Company" refers to Windmere Corporation and its subsidiaries, unless the context indicates otherwise. The Company's executive offices are located at 5980 Miami Lakes Drive, Miami Lakes, Florida 33014, (see Item 2. Properties), and its telephone number is (305) 362-2611. Products The major portion of the Company's revenues are generated by the sale of personal care products. The Company's personal care products include hair dryers, curling irons, curling brushes, hairsetters, combs and brushes, shears, mirrors and electric shavers. The Company's appliances include toasters, toaster ovens, can openers, blenders, hand mixers, waffle irons, steam irons, electronic air cleaners, fans and air fresheners. In 1994, 1993 and 1992, net sales of personal care products and appliances represented approximately 70% and 30%, 74% and 26%, and 67% and 33%, respectively, of the Company's total net sales. Marketing and Distribution Distribution: The Company's products are sold principally by independent sales representatives. The Company utilizes media advertising, cooperative advertising and collateral materials to promote its products. The Company's products are sold under various federal trademarks and registrations, some of which include: Windmere, Jumbo Curl, Belson Pro, Curlmaster, Design Pro, First Class Gourmet, Solid Gold, Hot 'n Steamy, Windmere Salon, Steam Express, Air Moves, ESP, Electric Shock Protection, VIP Pro, Setting Pretty, Skinni Mini, Clothes Shaver, Easy Styler, Four Way Curls, Set Up, All Curl Trio, Mirror Go Lightly, Jerdon, First Class, Plak Trac, Plak Pro, Hands Free, Smoke Catcher, Curly Top, Prelude, High Fashion, Belson, Pro Touch, Pro Star, Hot Silver, Golden Touch, Profiles, Comare, Salon Designs, Premiere, Espree, Gold'N-Hot and Gentle Air. The Company believes that its business has not been materially dependent on any one such trademark. The Company's distribution businesses include the sale of consumer products and professional salon products primarily in the United States, Canada and Europe. Consumer products are primarily sold under the Windmere brand and professional salon products are sold under the Belson Products and Comare brands. In addition, private label and controlled label sales are made by the Company. In the United States, the Company wholesales its line of consumer products nationwide to retailers, including department stores, drug chains, catalog stores and discount and variety stores. The Company also markets its consumer and professional salon appliances, hair pieces and a wide variety of brushes and other hair care accessories to beauticians, barbers and stylists through distributors. In addition, certain items, including the Company's hair dryers, curling irons and other personal care appliances, are sold through professional beauty and barber retail store outlets. The Company owns a 50% interest in a joint venture, Paragon Industries, which distributes electric fans and other seasonal products manufactured by Durable and unaffiliated third parties. At December 31, 1994, this investment had a negative book value of $.4 million and there were no significant contingent liabilities arising from such investment. Manufacturing: The Company's manufacturing business is conducted by Durable. Durable, through its twenty-three year relationship with the Company, has produced an extensive product line, which includes not only the appliances sold to the Company and its customers and a substantial amount of oscillating fans for a joint venture, but it has also become a contract manufacturer for a range of products, such as toasters, toaster ovens, can openers, blenders, hand mixers, waffle irons, electric plug-in fragrance units and contact lens cleaners, which it sells primarily to customers in the United States, Canada and Europe. Some of its customers are Rival, Reckitt and Colman (Airwick), Salton- Maxim and Bausch & Lomb. Manufacturing and Supplies The Company's foreign sales and operations are subject to the usual risks incident to operating abroad, including currency fluctuations, political conditions and changes in foreign laws. A weakening or strengthening of the United States dollar may result in higher or lower cost of goods for the Company from suppliers in countries whose exchange rate does not parallel the United States dollar, unlike Hong Kong the currency of which fluctuates substantially parallel to the United States dollar. The Company generates approximately 85% to 90% of its revenues from products manufactured by Durable in the People's Republic. Such products utilize raw materials available from at least two and as many as nine or more independent suppliers. The Company has no material dependence on any single foreign source for such materials. Seasonality The Company's business is generally seasonal. The Company has historically experienced higher revenues in the third and fourth quarters of each fiscal year primarily due to increased demand by customers for the Company's products in the late summer for "back to school" sales and in the fall for Christmas sales. In typical years, the Company begins to accumulate inventory for its major selling season in June and July and it continues to purchase products at accelerated rates until November. The Company's major sales occur during August through November. Sales are generally made on 60 to 90 day terms. Heaviest collections on its open accounts receivable are received from November through March, at which time the Company is in its most liquid state. Backlog The Company's backlog of orders as of December 31, 1994, 1993 and 1992 was approximately $20.1 million, $17.7 million and $18.4 million, respectively, which orders are generally shipped within the next succeeding year. Competition The Company encounters significant competition with respect to all of its products. Although the Company's prices for products distributed under its labels are in general below or competitive with those of many nationally advertised brands, the Company also competes through quality of product, attractive packaging, breadth of product lines, speed of delivery and maintenance of good customer relations. Many of the Company's major competitors are substantially larger, have greater financial and other resources and spend more for national advertising. Some of the Company's competitors include Conair, Helen of Troy and Remington. Regulation In the United States, Canada and Europe, most federal, state, provincial and local authorities require Underwriters Laboratory, Inc. ("UL") or other safety regulation certification prior to marketing electrical appliances in those jurisdictions. All of the non-professional salon appliances marketed by the Company have such certifications. The Company endeavors to have most of its products designed to meet those requirements and to be so certified, although there can be no assurance that those products, or additional electrical appliances which may be developed by the Company, will meet such specifications. Certain of the products sold by the Company in the United States are subject to the cosmetic purity and labelling provisions of the Fair Packaging and Labelling Act. The Company believes that in addition to complying with the Fair Packaging and Labelling Act, it complies with the applicable rules and regulations of the Federal Trade Commission and other municipal agencies with respect to, among other things, the content of advertising and other trade practices. Patents Although the Company does not believe that its business is materially dependent upon patents and patent protection, from time to time, new products have been introduced with unique features for which the Company has filed or obtained licenses for patents and design registrations in the United States and in several foreign countries. Employees At March 1, 1995, the Company's distribution businesses in the United States, Canada, Europe and Hong Kong employed approximately 260 persons. Durable's operations in Hong Kong and the People's Republic of China employed approximately 11,800 persons. The Company enjoys satisfactory working relations with these employees. The Company is not a party to any collective bargaining agreement. Geographic Area Financial Information Incorporated by reference to the Company's 1994 Annual Report to Shareholders, under the caption, "Note M to Consolidated Financial Statements, Geographic Area Information". Included as part of Exhibit 13. Item 2. PROPERTIES The executive offices of the Company, from which a significant amount of its business activities are conducted, are currently located at 5980 Miami Lakes Drive, Miami Lakes, Florida. All of the space in this two- story office and warehouse facility is owned and occupied by the Company. The Company also utilizes the services of public warehouses located in Reno, Nevada and Memphis, Tennessee pursuant to short-term contracts. Durable owns approximately 50,000 sq. ft. of office space in Hong Kong, of which 30,000 sq. ft. is used for its and the Company's trading companies' headquarters. Durable also utilizes facilities of 1,800,000 sq. ft. in the People's Republic which it operates under contracts with the local government. The contracts require such periodic adjustments that terms of between one and five years exist at all times. Certain facilities have contract terms extending beyond five years. ITEM 3. LEGAL PROCEEDINGS In 1990, Lasko Metal Products, Inc. ("Lasko") of West Chester, Pennsylvania, filed a petition with the U.S. Department of Commerce ("Commerce") and the U.S. International Trade Commission alleging that oscillating fans and ceiling fans from the People's Republic of China ("PRC") are being sold at less than fair value and are causing material injury to an industry in the United States. The Company manufactures oscillating fans in the PRC which are distributed in the United States. The Company also has a 50% interest in a joint venture which imports such fans into the United States. In 1991, Commerce announced its final less-than-fair value sales determination, finding a de minimis dumping margin on oscillating fans manufactured and imported by the Company. Based on this result, Commerce published an antidumping duty order, excluding all oscillating fans manufactured by the Company from the duties imposed. In January 1992, the final determination and antidumping duty order was appealed to the U.S. Court of International Trade ("Court") by Lasko. In December 1992, the Court affirmed Commerce's determination with respect to all of the challenges raised by Lasko. Lasko's appeal of the Court's decision to the Court of Appeals for the Federal Circuit was denied in December 1994. Lasko has indicated that it does not plan to appeal further, therefore the matter is closed with no adverse impact on the Company. In April 1994, Kabushiki Kaisha Izumi Seiki Seisakusho, a Japanese corporation ("Izumi"), filed an action against the Company, David M. Friedson, the President and Chief Executive Officer of the Company, U.S. Philips Corporation, North American Philips Corporation and N.V. Philips Gloellampenfabrieken (together, "Philips"). This action concerns the 1992 settlement (the "Philips Settlement") of certain claims, primarily a Federal antitrust claim, made by the Company against Philips, which resulted in an $89,644,257 judgment in favor of the Company. Pursuant to the Philips Settlement, Philips paid the Company $57,000,000 in May 1992. As part of the Philips Settlement, the Company and Philips agreed that the Company's money judgment against Philips in connection with such antitrust litigation would be vacated. Izumi is claiming, among other things, that the Philips Settlement, including the agreement with Philips to cooperate to vacate the related judgment in favor of the Company, constitutes a breach by the Company of a customary indemnification agreement between Izumi (as seller of goods) and the Company (as buyer of goods) dated February 20, 1984. This indemnification agreement covered certain claims against the Company and was entered into more than eight months prior to the commencement of the Philips litigation in connection with the routine purchase by the Company of goods from Izumi. Izumi advanced certain legal fees and costs to the Company in connection with the Philips litigation. Izumi is further claiming that it is entitled to recover from the Company an unspecified portion of the Philips Settlement, punitive damages and reimbursement of litigation and other related costs and expenses. The Company disagrees with Izumi's position and believes that it has meritorious defenses and counterclaims to these claims by Izumi. The Company has filed a pre-answer motion to dismiss Izumi's complaint in full, decision on which is pending, and it intends to defend this action fully and vigorously. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the New York Stock Exchange under the symbol WND. High and low market prices and dividends paid per share in 1994 and 1993, by quarters, are as follows: Market Price Cash High Low Dividends 1994 Fourth quarter 11 1/8 7 5/8 $.05 Third quarter 12 9 3/8 .05 Second quarter 11 7/8 7 3/4 .05 First quarter 8 1/2 6 3/4 .00 $.15 1993 Fourth quarter 8 3/4 7 5/8 $.00 Third quarter 8 7/8 7 .00 Second quarter 8 3/8 6 3/8 .00 First quarter 7 3/4 5 7/8 .00 $.00 The approximate number of holders of common stock of the Company, as of December 31, 1994, was 1,700. This number does not include any adjustment for shareholders owning common stock in the Depository Trust name or otherwise in "Street" name, which the Company believes represents an additional 8,000 shareholders. ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per share data) 1994 1993 1992 Net sales $181,112 $170,661 $175,450 Gross profit $ 53,269 $ 51,693 $ 52,405 Equity in earnings (loss) of joint ventures $ 91 $ (504) $ (848) Earnings (loss) before taxes and minority interest $ 23,131 $ 12,305 $ 6,531 Provision for taxes (benefits) $ 2,595 $ 1,365 $ 805 Effective tax rate 11.3% 10.7% 10.9% Net earnings (loss) $ 20,537* $ 11,469** $ 34,335*** Working capital $129,281 $117,961 $104,139 Current ratio 7.0 to 1 5.8 to 1 4.8 to 1 Property, plant and equipment, net $ 28,449 $ 25,022 $ 24,546 Total assets $197,124 $180,479 $172,974 Long-term debt, deferred liabilities and minority interest $ 4,932 $ 9,492 $ 12,291 Common stock in treasury - at cost $ - $ - $ - Stockholders' equity $170,625 $146,587 $132,922 Per share data: Net earnings (loss) $ 1.17* $ .71** $ 2.09*** Cash dividends paid $ .15 $ - $ - Book value at year end $ 10.20 $ 9.29 $ 8.65 Return on average equity 12.9% 8.2% 29.4% *Includes a non-recurring gain on the sale of Hong Kong office space of $7,810,500, or $.45 per share. **Includes cumulative effect of accounting change benefit of $1,731,100, or $.11 per share. ***Includes extraordinary credit from litigation settlement of $29,648,800, or $1.82 per share. 1991 1990 Net sales $141,608 $154,859 Gross profit $ 37,658 $ 45,730 Equity in earnings (loss) of joint ventures $ (1,020) $ 731 Earnings (loss) before taxes and minority interest $(11,947) $ (2,511) Provision for taxes (benefits) $ (813) $ 1,874 Effective tax rate (7.4)% - Net earnings (loss) $ (9,488) $ (3,729) Working capital $ 96,705 $ 65,376 Current ratio 4.8 to 1 1.6 to 1 Property, plant and equipment, net $ 25,751 $ 27,353 Total assets $175,836 $237,581 Long-term debt, deferred liabilities and minority interest $ 49,999 $ 12,723 Common stock in treasury - at cost $ 7,344 $ 10,777 Stockholders' equity $100,216 $110,698 Per share data: Net earnings (loss) $ (.59) $ (.23) Cash dividends paid $ - $ - Book value at year end $ 6.19 $ 7.25 Return on average equity - - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year Ended December 31, 1994 compared with Year Ended December 31, 1993 Net Sales Net sales were $181.1 million and $170.7 million for the years ended December 31, 1994 and 1993, respectively. The higher sales volume was produced by the Company's distribution businesses on increased unit shipments of core products. The sales increase was almost evenly divided between shipments to retailers and professional beauty supply customers. Manufacturing sales by Durable were relatively unchanged, as 1994's growth in sales of kitchen electric appliances offset a $6.5 million decline in sales of electric fragrance units. Wal-Mart Stores, Inc. accounted for 17.8% of the Company's 1994 sales. Set forth below is a table indicating the revenues that the Company derived from its distribution and manufacturing operations for the periods indicated: Year Ended December 31, 1994 1993 Distribution $155,320,600 86% $144,609,600 85% Manufacturing 25,791,600 14 26,051,800 15 Total Sales $181,112,200 100% $170,661,400 100% Gross Profit Margin The Company's gross profit margin declined in 1994 to 29.4% of sales from the 30.3% level in the prior year. The lower gross margin resulted primarily from three factors. The Company experienced the effects of higher raw materials prices in its third and fourth quarters of 1994. In addition, growth in kitchen electric appliance sales was achieved at lower than normal margins in order to establish a market presence. Finally, while manufacturing sales were level for both years, electric fragrance unit sales, which had higher margins, were significantly lower in 1994. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of sales were 22.0% and 23.6% in 1994 and 1993, respectively. The Company's lower aggregate operating expenses were primarily a result of reduced advertising costs and legal expenses. Unusual or Non-Recurring Items In 1994, the Company recorded an unusual and non-recurring gain of $7.8 million on the sale of 60,000 square feet of office space in Hong Kong. No taxes were provided as the gain is not taxable. Equity in Net Earnings (Loss) of Joint Ventures The Company's equity in net earnings (loss) of joint ventures, excluding the results of a joint venture sold in August 1993, was $.1 million and $(.3) million in 1994 and 1993, respectively. Higher sales and gross margins this year produced the improved earnings. Taxes The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. Offshore earnings generally are taxed at rates lower than in the United States. Non- recurring transactions in 1994 and 1993 lowered the Company's effective tax rate by 5.9 percentage points in each year. Earnings Per Share The average number of common shares and common equivalent shares used in computing per share results was 8.5% higher in 1994 primarily as a result of the 1,000,000 shares issued to acquire the additional 20% interest in Durable, the exercise of stock options and warrants, as well as a higher dilutive effect from unexercised stock options and warrants due to increases in the quoted market price of the Company's common stock during most of 1994. The purchase and retirement of 397,400 common shares produced only a small reduction in the annual weighted average shares total because these purchases occurred late in 1994. Year Ended December 31, 1993 compared with Year Ended December 31, 1992 Net Sales Net sales were $170.7 million and $175.5 million for the years ended De- cember 31, 1993 and 1992, respectively. The Company's distribution businesses had a sales increase of $11.8 million primarily resulting from higher unit shipments of its core products. Durable's manufacturing sales were $16.6 million lower primarily due to reduced shipments of electric fragrance unit and fan products. Wal-Mart Stores, Inc. accounted for 19.3% of the Company's 1993 sales. Set forth below is a table indicating the revenues that the Company derived from its distribution and manufacturing operations for the periods indicated: Year Ended December 31, 1993 1992 Distribution $144,609,600 85% $132,836,000 76% Manufacturing 26,051,800 15 42,614,000 24 Total Sales $170,661,400 100% $175,450,000 100% Gross Profit Margin The Company's gross profit margin rose in 1993 to 30.3% of sales from the 29.9% level in the prior year. Durable's manufacturing margins primarily increased as a result of improved purchasing practices, which led to lower material costs. Partially offsetting these increased manufacturing margins were lower gross margins earned by the Company's distribution businesses in the generation of their higher sales volume. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of sales were 23.6% in 1993 and 1992. The Company's aggregate expenses decreased by $1.1 million primarily due to Durable incurring lower shipping and royalty costs relative to the reduced electric fragrance unit shipments. Interest Expense/Interest and Other Income The Company's interest expense declined by approximately $1.5 million or 64% primarily due to reduced debt levels. The Company's interest and other income was $2.2 million and $4.0 million for 1993 and 1992, respectively. The 1992 balance includes a $2.2 million gain from the disposition of Catalina Lighting, Inc. ("Catalina") common stock. Equity in Net Earnings (Loss) of Joint Ventures The Company's equity in net earnings (loss) of joint ventures, excluding the results of a joint venture sold in August 1993, was $(.3) million and $(.2) million in 1993 and 1992, respectively. Taxes The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. Offshore earnings generally are taxed at rates lower than in the United States. Cumulative Effect of Accounting Change The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", on January 1, 1993, which changed the Company's method of accounting for income taxes to an asset and liability approach. The cumulative effect of this change in the method of accounting for income taxes, after minority interest in the portion relating to Durable, was a benefit of $1,731,100 or $.11 per share. Earnings Per Share The average number of common shares and common equivalent shares used in computing per share results was slightly lower in 1993 primarily as a result of the purchase and retirement of 858,575 shares from Catalina in October 1992, which was partially offset by the higher dilutive effect from unexercised stock options due to increases in the quoted market price of the Company's common stock and the additional shares issued pursuant to the exercise of stock options and warrants. Liquidity & Capital Resources At December 31, 1994, the Company's working capital was $129.3 million, an increase of $11.3 million since the end of 1993. At the end of 1994, 1993 and 1992, the Company's current ratio was 7.0 to 1, 5.8 to 1 and 4.8 to 1, respectively, and its quick ratio was 3.6 to 1, 3.1 to 1 and 2.3 to 1, respectively. Cash and cash equivalents decreased by $11.8 million during 1994. Cash of $.5 million was provided from operating activities, which was net of $14.5 million used in a seasonal buildup of accounts receivable and inventories. The Company received $9.5 million from the sale of office space in Hong Kong in April 1994, and spent approximately $10.4 million during the year for additions to its fixed assets. In 1994, the Company purchased and retired 397,400 shares of its common stock at a cost of $3.9 million. Quarterly cash dividend payments were resumed in June 1994, and for the year, $2.5 million was paid to shareholders. A foreign bank provides a $3.9 million line of credit, payable on demand, to certain of the Company's foreign subsidiaries (the "subsidiaries"), secured primarily by the subsidiaries' tangible and intangible property located in Hong Kong and in the People's Republic of China. In addition, should the subsidiaries default in their obligations, the Company has guaranteed the payment of this debt. At December 31, 1994, the sub- sidiaries were utilizing, including letters of credit, approximately $1.5 million of this credit line, leaving an additional funding capacity of $2.4 million. The Company has a $10.0 million demand line of credit from a domestic bank, which is secured by domestic accounts receivable. The Company has had no borrowings under this facility. No provision for U.S. taxes has been made on undistributed earnings of the Company's foreign subsidiaries and joint ventures because management plans to reinvest such earnings in their respective operations or in other foreign operations. Repatriating those earnings or using them in some other manner which would give rise to a U.S. tax liability would reduce after tax earnings and available working capital. The Company believes that its cash on hand and internally generated funds, together with its credit lines, will provide sufficient funding to meet the Company's capital requirements and its operating needs for the foreseeable future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to the Company's 1994 Annual Report to Shareholders (Exhibit 13). See also PART IV, ITEM 14(a)2 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders under the captions "Election of Directors" and "Executive Officers". ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders under the captions "Executive Compensation" and "Certain Transactions". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders under the caption "Security Ownership". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by Reference to the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders under the captions "Executive Compensation" and "Certain Transactions". PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. FINANCIAL STATEMENTS The following consolidated financial statements of Windmere Corporation and subsidiaries are incorporated by reference in PART II, ITEM 8: AUDITOR'S REPORT Exhibit 13 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1993 Exhibit 13 CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 Exhibit 13 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - THREE YEARS ENDED DECEMBER 31, 1994 Exhibit 13 CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 Exhibit 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Exhibit 13 2. FINANCIAL STATEMENT SCHEDULES AUDITOR'S REPORT Filed herewith SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 Filed herewith Individual financial statements of the Company have been omitted since consolidated financial statements have been presented, the parent is primarily an operating company and all subsidiaries included in the consolidated financial statements are wholly-owned. All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or the notes thereto. 3. EXHIBITS (3) Articles of Incorporation and By-Laws. 3.1 Amended and Restated Articles of Incorporation of the Company filed with the Florida Secretary of State on May 17, 1984. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1984. 3.2 Articles of Amendment to the Articles of Incorporation of the Company filed with the Florida Secretary of State on May 16, 1986. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. 3.3 Articles of Amendment to the Articles of Incorporation of the Company filed with the Florida Secretary of State on June 23, 1986. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 3.4 By-Laws as amended through October 11, 1991. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 3.5 Amendment to October 11, 1991 By-Laws. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. (10) Material Contracts Executive Compensation Plans and Arrangements 10.1 Employment Agreement dated as of January 27, 1983, between Belvin Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1982. 10.2 Employment Agreement, First Amendment, dated as of February 27, 1987, between Belvin Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. 10.3 Employment Agreement, Second Amendment, dated as of December 16, 1992, between Belvin Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.4 Employment Agreements dated as of July 18, 1983, between David M. Friedson, Barbara Friedson Garrett and Arnold Thaler, respectively, and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1983. 10.5 Employment Agreement, First Amendment, dated as of January 17, 1985, between David M. Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1984. 10.6 Employment Agreement, Second Amendment and Nonqualified Stock Option, dated as of September 30, 1985, between David M. Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1985. 10.7 Employment Agreement (Third Amendment) and Nonqualified Stock Option (First Amendment) dated as of October 28, 1987, between David M. Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.8 Employment Agreement (Fourth Amendment) and Nonqualified Stock Option (Second Amendment) dated as of October 26, 1987, between David M. Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.9 Employment Agreement (Fifth Amendment) dated as of December 16, 1992, between David M. Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.10 Nonqualified Stock Option dated as of January 5, 1987, granted by the Company to Barbara Friedson Garrett. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. 10.11 Employment Agreement (First Amendment) and Nonqualified Stock Option (First Amendment) dated as of October 26, 1987, between Barbara Friedson Garrett and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.12 Employment Agreement (Second Amendment) and Nonqualified Stock Option (Second Amendment) dated as of October 26, 1987 between Barbara Friedson Garrett and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.13 Employment Agreement (Third Amendment) dated as of December 16, 1992, between Barbara Friedson Garrett and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.14 Nonqualified Stock Option dated as of January 5, 1987, granted by the Company to Arnold Thaler. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. 10.15 Employment Agreement (First Amendment) and Nonqualified Stock Option (First Amendment) dated as of October 26, 1987 between Arnold Thaler and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.16 Employment Agreement (Second Amendment) and Nonqualified Stock Option (Second Amendment) dated as of October 26, 1987 between Arnold Thaler and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.17 Employment Agreement (Third Amendment) dated as of December 16, 1992, between Arnold Thaler and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.18 Employment Agreement dated May 31, 1987, between Robert Gorman and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.19 Employment Agreement (First Amendment) dated as of December 16, 1992, between Robert Gorman and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.20 1982 Employees Incentive Stock Option Plan. Incorporated by reference to Exhibit 4 to Post-Effective Amendment No. 1 to the Company's Form S-8 Registration Statement No. 2-92540. 10.21 Amendment to 1982 Employees Incentive Stock Option Plan. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.22 1992 Employees Incentive Stock Option Plan. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.23 Employment Agreement dated as of October 26, 1987 between Burton A. Honig and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.24 Employment Agreement (First Amendment) dated as of December 16, 1992, between Burton A. Honig and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.25 Consulting Agreement dated January 1, 1989 between Mr. Lai Kin, Chairman of Durable, and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10.26 Employment Agreement dated January 3, 1989, between Harry Schulman and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10.27 Employment Agreement (First Amendment) dated as of June 4, 1990, between Harry Schulman and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.28 Employment Agreement (Second Amendment) dated as of December 16, 1992, between Harry Schulman and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.29 1988 Director Stock Option Plan. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10.30 1989 Employees 401(k) Profit Sharing Plan and Trust. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10.31 Consulting Agreement, dated March 30, 1987, between Paragon Industries, Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.32 Amendment to Consulting Agreement, dated May 29, 1990, between Paragon Industries, Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.33 Second Amended and Restated Employment Agreement dated January 1, 1991, between David O'Neill and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.34 Second Amended and Restated Employment Agreement (First Amendment) dated December 16, 1992, between David O'Neill and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. Other Material Contracts 10.35 Installment Purchase Contract dated as of May 1, 1985, between the Dade County Industrial Development Authority and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1985. 10.36 Asset Purchase Agreement dated September 30, 1988 between Sally Beauty Company, Alberto-Culver Company, the Company and certain of the Company's affiliates. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10.37 Joint Venture Agreement, dated March 30, 1987, between Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.38 Amendment to Joint Venture Agreement, dated May 29, 1990, between Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.39 Exclusive Sales Agreement dated May 29, 1992 among the Company, American International Industries and Zvi and Betty Ryzman. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33-51776. 10.40 Settlement Agreement dated May 6, 1992 between North American Philips Corporation and the Company. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33-51776. 10.41 Letter of Credit Agreement dated July 31, 1992 between NationsBank and the Company. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33-51776. 10.42 Agreement dated May 28, 1991, between Xingiao Economic Development Corporation and Durable. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.43 Agreement dated May 28, 1991, between Bogang Economic Development Company and Durable. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.44 Agreement dated May 28, 1991, between Wanfeng Economic Development Corporation and Durable. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.45 Warrant Agreement dated October 1, 1992, between American Stock Transfer and Trust Company and the Company. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33- 51776. 10.46 Stock Purchase Agreement dated May 29, 1992 between Glamour Industries, Inc. and the Company. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33-51776. 10.47 Trademark Licensing Agreement dated January 11, 1994, between Helene Curtis, Inc. and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.48 Letter Agreement dated December 28, 1993, between NationsBank and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.49 1995 Common Stock Purchase Rights Agreement dated March 6, 1995 between American Stock Transfer and Trust Company and the Company. Incorporated by reference to the Company's Form 8-A Registration Statement filed March 7, 1995. 10.50 Facility Letter dated June 28, 1994, from the Bank of East Asia, Limited to Durable and Durable Electric Limited. Exhibit 1. 10.51 Stock Acquisition Agreement dated April 1, 1994 between Durable, PPC Industries 1980 Limited, Ourimbah Investment, Limited and the Company. Exhibit 2. (13) Annual Report to Security Holders for the year ended December 31, 1994. Exhibit 13. (22) Subsidiaries of the Registrant. Filed herewith. (24) Consents of experts and counsel. Filed herewith. (b) REPORTS ON FORM 8-K The Company's periodic report on Form 8-K, dated March 6, 1995. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Windmere Corporation We have audited the accompanying consolidated balance sheets of Windmere Corporation and Subsidiaries (the "Company") as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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 consolidated financial position of Windmere Corporation and Subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. We have also audited Schedule II of Windmere Corporation and Subsidiaries for each of the three years in the period ended December 31, 1994. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Miami, Florida February 7, 1995 WINDMERE CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Changes in allowance for possible losses on accounts receivable: Years Ended December 31, 1994 1993 1992 Balance at beginning of period $1,424,600 $1,635,600 $1,329,300 Addition - Charged to costs and expenses 231,400 212,100 507,700 Addition - Charged to other accounts (a) 31,300 157,300 38,400 Deductions (b) (349,200) (580,400) (239,800) Balance at end of period $1,338,100 $1,424,600 $1,635,600 (a) Recoveries of amounts previously written off against the reserve. (b) Write-off of accounts receivable against the reserve. Part IV. Item 3. (22). SUBSIDIARIES OF THE REGISTRANT Name Incorporated In Consumer Products Americas, Inc. Florida EDI Masters, Inc. Florida Fortune Products, Inc. Florida Jerdon Products, Inc. Florida Windmere Fan Products, Inc. Florida Windmere Holdings Corporation Delaware Goal Making Company Limited British Virgin Islands Remdale Investments Limited British Virgin Islands Windmere Consumer Products, Inc. Canada Windmere France, S.A.R.L. France Durable Electric, Ltd. Hong Kong Durable Electrical Metal Factory, Ltd. Hong Kong Durable Europe, Ltd. Hong Kong PPC Industries (1980) Ltd. Hong Kong Sandgate Services, Ltd. Hong Kong Windmere Europe, B.V. Netherlands Each of the above subsidiaries is wholly-owned and is included in the consolidated financial statements as of December 31, 1994. AUDITOR'S CONSENT We have issued our report dated February 7, 1995, accompanying the consolidated financial statements and schedules incorporated by reference in the Annual Report of Windmere Corporation on Form 10-K for the year ended December 31, 1994. We hereby consent to the incorporation by reference of the aforementioned report in the Registration Statements of Windmere Corporation on Form S-8 (File No. 33-7681, effective September 30, 1986), Form S-8 (File No. 33-36424, effective August 17, 1990), Form S-2 (File No. 33-51776, effective January 19, 1993), and on Form S-8 (File No. 33-58574, effective February 22, 1993). GRANT THORNTON LLP Miami, Florida March 27, 1995 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WINDMERE CORPORATION (Registrant) BY: /s/ DATE: 3-27-95 David M. Friedson, President Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. BY: /s/ DATE: 3-27-95 David M. Friedson, Director and President (Principal Executive Officer) BY: /s/ DATE: 3-27-95 Harry D. Schulman, Executive Vice President - Finance and Administration (Principal Financial Officer) BY: /s/ DATE: 3-27-95 Burton A. Honig, Vice President - Finance (Principal Accounting Officer) BY: /s/ DATE: 3-27-95 Belvin Friedson, Chairman of the Board of Directors BY: /s/ DATE: 3-28-95 Bertley Sager, Director BY: /s/ DATE: 3-28-95 Jerald I. Rosen, Director BY: /s/ DATE: 3-28-95 Harold Strauss, Director BY: /s/ DATE: 3-28-95 Lai Kin, Director BY: /s/ DATE: 3-28-95 Leonard Glazer, Director BY: /s/ DATE: 3-28-95 Barbara Friedson Garrett, Director BY: /s/ DATE: 3-28-95 Felix S. Sabates, Director BY: /s/ DATE: 3-28-95 R. Erwin Fischer, Director EX-1 2 THE BANK OF EAST ASIA, LIMITED PRIVATE AND CONFIDENTIAL Our Ref.: Credit/H7/62501 28 June 1994 Durable Electrical Metal Factory Ltd. 4/F., Shing King Industrial Building, 206-208 Choi Hung Road, San Po Kong Kowloon Attn: Mr. Raymond So Dear Sirs, Re: Banking Facilities granted to Durable Electrical Metal Factory Ltd. Durable Electric Ltd. We are pleased to inform you that the banking facilities available to both of your companies have been revised, subject to the following terms/conditions and to be reviewed in June, 1995. a) L/C + T/R + Shipping Guarantee (S/G) + Foreign Currency HK$25,000,000 Loan (F/L) Limit (Within which T/R not to exceed HK$12,000,000 - S/G not to exceed HK$500,000 - and F/L not to exceed HK$5,000,000) - for opening of your sight or usance Letter of Credit. - for refinancing of your import bills. Tenor: 120 days Interest Rate: At Prime - for countersigning of your shipping guarantee not under our Letter of Credit. - for foreign currency loan subject to availability of funds. Tenor: up to 60 days Interest Rate: SIBOR + 0.5% b) Discrepancies Guarantee 5,000,000 - for negotiating of your export Letter of Credit with discrepancies. __________ Total banking facilities: HK$30,000,000 to be con't..... THE BANK OF EAST ASIA, LIMITED Durable Electrical Metal Factory Ltd. 28 June, 1994 (Page No. 2) Securities: a) All monies legal charge on the following properties: i) 1/F, Efficiency House, 35 Tai Yau Street, San Po Kong, Kowloon. ii) 3/F, Efficiency House, 35 Tai Yau Street, San Po Kong, Kowloon. iii) G/F, Wah Mow Factory Building, 202-4 Choi Hung Road, San Po Kong, Kowloon. b) Corporate Guarantee signed by Windmere Corporation, U.S.A. for US$3,850,000 in covering credit facilities extended to Durable Electrical Metal Factory Ltd. and Durable Electric Ltd. c) Debenture by way of floating charge covering all undertakings, properties and assets in Hong Kong and People's Republic of China both present and future including uncalled capital for the time being on Durable Electrical Metal Factory Ltd. and Durable Electric Ltd. d) Corporate Guarantee signed by Durable Electric Ltd. for HK$30,000,000 in covering credit facilities extended to Durable Electrical Metal Factory Ltd. e) Corporate Guarantee signed by Durable Electrical Metal Factory Ltd. for HK$30,000,000 in covering credit facilities extended to Durable lectric Ltd. Availability: The Facilities detailed above will not become operative unless and until a) all the necessary formalities specified by our Bank are completed; and b) all the required legal documents are executed to the satisfaction of the Bank. Condition: The pledged time deposit for HK$23,844,145.70 to be released subject to all outstanding principals are reduced to within the revised proposed limit. This offer must be accepted within one month from the date hereof, after which, it shall automatically lapse unless extended. Please indicate your acceptance of the aforementioned terms by signing individually on the duplicate copy of this letter by both of your companies and returning it to us on or before 27th July, 1994 by using the enclosed envelope and arranging for your board of directors to pass a board resolution accepting the above facilities with a certified copy being forwarded to us for our records. EX-2 3 STOCK ACQUISITION AGREEMENT AGREEMENT dated as of this 1st day of April, 1994, by and among Windmere Corporation, a Florida corporation with its offices at 5980 Miami Lakes Drive, Miami Lakes, Florida 33014-9867 ("Windmere"), Durable Electrical Metal Factory, Ltd., a Hong Kong corporation with its offices at 206-208 Choi Hung Road, 4th Floor, San Po Kong, Kowloon, Hong Kong ("Durable"), Ourimbah Investment, Limited, a Hong Kong corporation with its address at 4/F Shing King Industrial Building, 206-208 Choi Hung Road, San Po Kong, Kowloon, Hong Kong ("Holdings"), and PPC Industries 1980 Limited, a Hong Kong corporation with its offices at 6/F Shing King Industrial Building, 206-208 Choi Hung Road, San Po Kong, Kowloon, Hong Kong ("PPC"). RECITALS A. Windmere is engaged in the sale and distribution of a variety of personal care products throughout the world. Windmere and its affiliates purchase many such products manufactured by Durable. B. Windmere directly and indirectly (through PPC and Goal Making Company, Ltd.) owns an aggregate of 24,624 "B" Ordinary Shares of Durable, constituting 80% of the issued and outstanding shares of capital stock of Durable, and Holdings owns 6,156 "A" Ordinary Shares of Durable (the "Class A Shares"), constituting the remaining 20% of the issued and outstanding shares of capital stock of Durable. C. Windmere desires to acquire the Class A Shares and Holdings desires to sell the Class A Shares to Windmere upon the terms and subject to the conditions hereof. D. As a result of the acquisition of the Class A Shares and the consummation of the transactions contemplated by this Agreement, Windmere shall directly or indirectly own 100% of the issued and outstanding shares of capital stock of Durable. E. Windmere, PPC and Holdings have entered into a Share Option Agreement dated as of January 2, 1989 (the "Share Option Agreement") pursuant to which, inter alia, PPC is required to purchase the Class A Shares from Holdings under certain circumstances and Windmere and PPC, on the one hand, and Holdings, on the other hand, each granted a right of first refusal to the other party with respect to the sale or transfer of shares of the capital stock of Durable owned by each of them. The parties desire to terminate the Share Option Agreement and to provide for the purchase and sale of the Class A Shares as provided herein and free from any restrictions set forth in the Share Option Agreement. Accordingly, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I REPRESENTATIONS AND WARRANTIES OF HOLDINGS Holdings represents and warrants to Windmere as follows: 1.1 ORGANIZATION AND GOOD STANDING. Holdings is a corporation duly organized, validly existing and in good standing under the laws of Hong Kong. Holdings also has the corporate power and authority to carry on its business as and where now conducted, and has the power to own, operate and lease its properties at and in the places where such properties are now owned, operated and leased by it, and is duly qualified to do business in Hong Kong. 1.2 THE SHARES. The Class A Shares represent 20% of the total issued and outstanding shares of capital stock of Durable. All of the Class A Shares are fully paid and nonassessable and are not subject to any preemptive rights with respect thereto, other than as set forth in the Share Option Agreement. Holdings is both the record and beneficial owner of the Class A Shares. Holdings has the full right, power and authority to sell, transfer and deliver to Windmere the Class A Shares which are to be transferred to Windmere pursuant to the terms of this Agreement, free and clear of any liens, claims, charges, debentures, options, pledges, trust arrangements, restrictions or other encumbrances whatsoever, other than as set forth in the Share Option Agreement. There are no options, warrants or other rights outstanding with respect to or for the purchase of, nor any outstanding securities convertible into, any of the Class A Shares, other than as set forth in the Share Option Agreement. 1.3 AUTHORITY OF HOLDINGS. All corporate action necessary to authorize the negotiation, execution, delivery, recordation and performance of this Agreement by Holdings has been taken and no further action by any director, shareholder, shareholder group, board, committee or by any governmental agency is required to permit Holdings to comply fully with its obligations under this Agreement. The execution of this Agreement and the delivery of the Class A Shares to Windmere by Holdings is not contrary to the Memorandum and Articles of Association (howsoever denominated) of Durable or of Holdings. Neither the execution, delivery nor consummation of this Agreement by Holdings will, with the passage of time, the giving of notice or otherwise, result in a violation or a breach of, or constitute a default under, any term or provision of any indenture, mortgage, deed of trust, lease, instrument, order, judgment, decree, rule, regulation, law, contract, agreement or any other restriction to which Durable or Holdings is a party to or by which either of them may be bound, nor will it result in an acceleration or termination of any loan or security interest agreement to which Durable or Holdings is a party or to which any of Durable's and/or Holdings' assets are subject. 1.4 POWERS OF ATTORNEY OR OTHER AUTHORITY TO ACT FOR HOLDINGS. (a) Mr. Lai Kin ("Lai") holds a valid power of attorney duly executed by Holdings in favor of Lai which complies with all applicable requirements, rules and laws, a copy of which power is attached hereto as Annex A. Under such power of attorney, Lai has the irrevocable right and authority to act on behalf of Holdings with respect to all matters necessary and convenient to effectuate this transaction and to deal in any manner with the Class A Shares and the Windmere Shares (as defined in Section 2.2 hereof) as provided herein. (b) There is no other power of attorney, representation/ nominee agreement or similar power or agreement given by, or entered into by, Holdings to any other person with respect to the handling, possession, sale and other disposition of the Class A Shares to be transferred to Windmere hereunder. 1.5 CONSENTS. No approval or consent of any person, firm, agency or other entity or body (public and/or private) is required to be obtained by Holdings for the authorization of this Agreement and for the execution, delivery and performance of the transactions contemplated herein except for those approvals or consents which have been obtained as of the date hereof. 1.6 ADEQUATE DISCLOSURE. Holdings is familiar with the business of Windmere. Holdings has received Windmere's 1993 Annual Report to Shareholders, Form 10-K for the year ended December 31, 1993, Proxy Statement for the 1994 Annual Shareholders' Meeting and Form 10-Q for the quarter ended March 31, 1994 (collectively, the "Disclosure Documents"). Holdings also has carefully reviewed the Disclosure Documents and has relied only on the information contained therein or information otherwise provided to Holdings in writing by Windmere for purposes of deciding whether to enter into this Agreement. Holdings acknowledges that all requested information relating to this Agreement, Windmere and the Windmere Shares has been made available for inspection by Holdings and its financial advisors. Holdings and its financial advisors have had a reasonable opportunity to ask questions of and receive answers from Windmere concerning the terms and conditions of the Windmere Shares, and to obtain all other additional information necessary or desirable to verify the accuracy of the information set forth in the Disclosure Documents. All such questions have been answered to the full satisfaction of Holdings. No oral representations have been made or oral information furnished to Holdings or its financial advisors in connection with the transactions contemplated by this Agreement, including the receipt by Holdings of the Windmere Shares, which were in any way inconsistent with the Disclosure Documents. 1.7 HOLDINGS' FINANCIAL CONDITION. Holdings (i) has no need for liquidity for the Windmere Shares, (ii) is able to bear the economic risks of an investment in the Windmere Shares for an indefinite period, (iii) can afford a complete loss of such investment and (iv) does not have an overall commitment to investments which are not readily marketable that is disproportionate to its net worth, and its investment in the Windmere Shares will not cause such commitment to become excessive. 1.8 NO REGISTRATION OF SECURITIES. Holdings understands that the offering and sale of the Windmere Shares has not, as of the date hereof, been registered under the U.S. Securities Act of 1933 (the "Securities Act") or any other applicable state's securities laws in reliance upon applicable exemptions from such registrations. Holdings understands that the Windmere Shares must be held by Holdings for an extended period of time unless the sale or other transfer thereof is subsequently registered under the Securities Act and any applicable state's securities laws or an exemption from such registration is available. Holdings further understands that, except as provided in Section 5.3 hereof, Windmere is under no obligation to register the Windmere Shares or to assist Holdings in complying with any exemption from registration. 1.9 INVESTMENT INTENT. The Windmere Shares are being received and acquired solely for Holdings' own account for investment purposes only and not for the account of any other person and not for distribution, assignment or resale to others. 1.10 RESTRICTIONS ON TRANSFER. Holdings understands that it may not be able to sell or dispose of the Windmere Shares unless the Windmere Shares are registered under the Securities Act and any applicable state securities laws, or unless an exemption therefrom is available to Holdings. In addition, Holdings understands that Holdings will be subject to the conditions set forth in Section 4.3 hereof. 1.11 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of Holdings are correct and complete as of the date set forth in the Agreement, and if there should be any change in such representations and warranties prior to Holdings' acquisition of the Windmere Shares, Holdings will immediately advise Windmere in writing of such change. ARTICLE II REPRESENTATIONS AND WARRANTIES OF WINDMERE Windmere represents and warrants to the Holdings as follows: 2.1 ORGANIZATION AND GOOD STANDING. Windmere is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. Windmere also has the corporate power and authority to carry on its business as and where now conducted, and has the power to own, operate and lease its properties at and in the places where such properties are now owned operated and leased by it, and is duly qualified to do business wherever it is required to be so qualified. 2.2 THE WINDMERE SHARES. The Windmere Shares constitute 1,000,000 shares of the common stock, par value $.10 per share, of Windmere (the "Windmere Shares"). All of the Windmere Shares have been duly authorized, and upon consummation of the transactions contemplated by this Agreement, will be validly issued, fully paid and nonassessable and will not be subject to any preemptive rights with respect thereto. Windmere has the full right, power and authority to issue, sell, transfer and deliver to Holdings the Windmere Shares, free and clear in each case of any liens, claims, charges, debentures, options, pledges or other encumbrances whatsoever. 2.3 AUTHORITY OF WINDMERE. All corporate action necessary to authorize the negotiation, execution, delivery, recordation and performance of this Agreement by Windmere has been taken and no further action by any director, shareholder group, board, committee or by any governmental agency is required to permit Windmere to comply fully with its obligations under this Agreement. The execution of this Agreement by Windmere and the delivery of the Windmere Shares to Holdings is not contrary to the Articles of Incorporation and Bylaws of Windmere. Neither the execution, delivery nor consummation of this Agreement by Windmere will, with the passage of time, the giving of notice or otherwise, result in a violation or a breach of, or constitute a default under, any term or provision of any material indenture, mortgage, deed of trust, lease, instrument, order judgment, decree, rule, regulation, law, contract, agreement or any other restriction to which Windmere is a party or by which it is bound; nor will it result in an acceleration or termination of any material loan or security interest agreement to which Windmere is a party or to which its material assets are subject. 2.4 CONSENTS. No approval or consent of any person, firm, agency or other (public and/or private) entity or body is required to be obtained by Windmere for the authorization of this Agreement and for the execution, delivery and performance of the transactions contemplated herein. ARTICLE III PURCHASE OF THE SHARES 3.1 DELIVERY OF SHARES BY HOLDINGS. Upon the terms and subject to the conditions set forth herein, Holdings shall convey, transfer, assign and deliver to Windmere on or before the Closing Date (as defined in Section 8.1 below) good, marketable and unencumbered title to the Class A Shares owned by it as set forth in Annex B hereto, constituting all of the issued and outstanding Class A Shares, duly endorsed and in proper form for transfer to Windmere. 3.2 DELIVERY OF WINDMERE SHARES AND CASH BY WINDMERE. (a) Upon the terms and subject to the conditions set forth herein, Windmere shall convey, transfer, assign and deliver to Holdings, on or before the Closing Date, good, marketable and unencumbered title to the Windmere Shares, duly endorsed and in proper form for transfer to Holdings. (b) Contemporaneously with the transfer of the Windmere Shares to Holdings, Windmere shall also pay to Holdings the sum of ten thousand United States dollars (U.S. $10,000). 3.3 ADDITIONAL PAYMENT UPON A CHANGE OF CONTROL OF WINDMERE. If at any time from the date hereof through July 1, 1999 there shall occur a "Change of Control" of Windmere (as hereinafter defined), then, in addition to the delivery of shares and payment set forth in Section 3.2, above, Windmere shall pay Holdings in cash within ten days following such Change of Control, an amount with respect to each Class A Share of Durable being purchased hereunder equal to the greater of (i) the same multiple of earnings per share of Durable as the highest multiple of earnings per share paid for the shares of common stock of Windmere received in connection with such Change of Control or (ii) the same multiple of net asset value per share of Durable as the highest multiple of price per net asset value per share paid for the shares of common stock of Windmere received in connection with such Change of Control. For purposes of this Agreement, a "Change of Control" shall mean: (i) The acquisition (other than by or from Windmere), at any time after the date hereof, by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either the then outstanding shares of common stock or the combined voting power of Windmere then outstanding voting securities entitled to vote generally in the election of directors; or (ii) The individuals who, as of the date hereof, constitute the board of directors of Windmere (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the board of directors of Windmere, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by Windmere's share- holders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Windmere, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) Approval by the shareholders of Windmere of (A) a reorganization, merger or consolidation with respect to which persons who were the shareholders of Windmere immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securi- ties, (B) a liquidation or dissolution of Windmere, or (C) the sale of all or substantially all of the assets of Windmere, unless the approved reorganization, merger, consolidation, liquidation, dissolution or sale is subsequently abandoned. Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred, and no additional payment to Holdings under this Section 3.3 shall be required, in connection with a transaction or series of transactions approved by a majority of the members of the Incumbent Board. ARTICLE IV COVENANTS OF HOLDINGS Holdings agrees that: 4.1 RESTRICTION ON SALE OF WINDMERE SHARES. (a) Holdings acknowledges that the Windmere Shares that it will receive in connection with this Agreement constitute "restricted stock" within the meaning of U.S. securities laws including, without limitation, the Securities Act, and that the Certificate(s) representing the Windmere Shares will bear an appropriate legend substantially as follows: The Shares represented by this certificate have not been registered under the Securities Act of 1933 or under any other applicable securities laws; consequently, these Shares may not be sold, transferred, pledged, hypothecated or encumbered in any way or disposed of except pursuant to (i) the Securities Act of 1933 and the laws of any applicable jurisdiction and the rules and regulations promulgated thereunder or (ii) an opinion of counsel satisfactory to the issuer that such registration is not required. (b) Holdings agrees that it will not sell, pledge, transfer, assign, hypothecate or otherwise dispose of any portion of the Windmere Shares (or any rights thereto) to any person unless an exception is available under the Securities Act, any applicable state's securities laws and the regulations thereunder. 4.2 DUTY OF CONFIDENTIALITY. Holdings shall not use, disclose, confirm, furnish or make accessible to anyone, other than in the regular course of business of Windmere and its affiliates, any knowledge or information of a confidential or secret nature with respect to the business affairs, assets, operations, plans or know-how of Windmere, Durable or their respective affiliates. 4.3 HOLDINGS' OBLIGATIONS WITH RESPECT TO THE WINDMERE SHARES. Holdings shall be required to furnish to Windmere and its counsel, all relevant information concerning itself, and such other information as Windmere and its counsel request to prepare and file all reports required to be filed by Windmere under the U.S. Securities laws and the rules and regulations promulgated thereunder by the United States Securities and Exchange Commission. If requested by Windmere, such information shall be furnished in writing and Holdings shall enter into such further agreements or undertakings with Windmere, including agreements respecting indemnification with respect to the accuracy and completeness of such information, as Windmere and its counsel deems necessary or appropriate to assure full compliance with the applicable provisions of the U.S. Securities laws and the rules and regulations promulgated thereunder by the United States Securities and Exchange Commission. ARTICLE V COVENANTS OF WINDMERE Windmere agrees that: 5.1 REPRESENTATION ON WINDMERE BOARD. Windmere shall undertake its best efforts to recommend to the shareholders and directors of Windmere that Lai and two other individuals nominated by Lai and deemed suitable by Windmere be appointed as members of the Windmere Board of Directors. 5.2 COMPOSITION OF DURABLE BOARD. It is contemplated that, immediately subsequent to the transfer of the Class A Shares provided for in this Agreement, that the day-to-day management of Durable will remain in the hands of the existing Board of Directors and managers of Durable (the "Durable Board"), and that the Durable Board shall initially remain equally divided (50/50) between each of the present designees of Holdings and those persons selected by Windmere from time to time for so long as each such designee shall remain a shareholder of Holdings. Accordingly, for so long as such designee of Holdings who is a present member of the Durable Board: (i) remains a shareholder of Holdings, and (ii) Holdings remains a shareholder of Windmere, Windmere shall agree to vote its shares of Durable to appoint such designee of Holdings to the Durable Board. At such time as any present designee of Holdings to the Durable Board ceases to be a shareholder of Holdings, such designee shall no longer be entitled to serve on the Durable Board, and Windmere shall have the right to designate a replacement member to the Durable Board in its sole discretion. Windmere shall retain the right to approve the appointment of any other person to the Durable Board. 5.3 REGISTRATION OF WINDMERE SHARES UPON CHANGE OF CONTROL. Within sixty (60) days following a Change of Control of Windmere (as defined in Section 3.3), Windmere shall at its expense cause to be registered under the Securities Act and all applicable state securities laws such portions of the Windmere Shares that cannot be sold by Holdings at the end of such sixty (60) day period pursuant to an exemption from such registrations. Windmere shall use its best efforts to cause such registration statement to remain effective and current until the sale by Holdings of such registered Windmere Shares. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF WINDMERE The obligations of Windmere under this Agreement are, at its option, subject to the satisfaction of the following conditions at or prior to the Closing Date: 6.1 REPRESENTATIONS OF HOLDINGS. The representations and warranties of Holdings set forth in this Agreement shall be true, complete and accurate in all respects on and as of the Closing Date to the same extent and with the same force and effect as if made on such date, except as affected by the transactions contemplated by this Agreement. 6.2 CONSENTS. All necessary approvals or consents shall have been obtained from any and all federal departments and agencies and from all other commissions, boards, agencies and from any other person or persons whose approval or consent is necessary to consummate the transactions contemplated by this Agreement. 6.3 PERFORMANCE BY DURABLE AND HOLDINGS. Durable and Holdings shall have duly performed all obligations, covenants and agreements undertaken by them herein and complied with all terms and conditions applicable to them hereunder to be performed and complied with prior to the Closing Date. 6.4 SUITS. No suit, action or other proceeding shall be threatened or pending before any court or governmental agency seeking to restrain, prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby or which is likely to materially and adversely affect the value of the Durable's properties or business as a whole. ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDINGS The obligations of the Holdings under this Agreement are, at its option, subject to satisfaction of the following conditions at or prior to the Closing Date: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Windmere set forth herein shall be true, complete and accurate in all material respects on and as of the Closing Date to the same extent and with the same force and effect as if made on such date, except as affected by the transactions contemplated hereby. 7.2 OBLIGATIONS, COVENANTS AND AGREEMENTS. Windmere shall have duly performed all obligations, covenants and agreements undertaken by it herein and shall have complied with all the terms and conditions applicable to it hereunder to be performed and complied with prior to the Closing Date. 7.3 SUITS. No suit, action or other proceeding shall be threatened or pending before any court or governmental agency seeking to restrain or prohibit Windmere, or to obtain damages or other relief against Windmere in connection with this Agreement or the consummation of the transactions contemplated hereby, or which is likely to materially and adversely affect the value of Windmere's properties or business as a whole. ARTICLE VIII CLOSING 8.1 CLOSING DATE. The Closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the law firm of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami, Florida, U.S.A., or at such other place in Miami, Florida, U.S.A. as the parties may otherwise agree, effective as of April 1, 1994 (the "Closing Date"). ARTICLE IX SURVIVAL OF REPRESENTATIONS AND COVENANTS 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. All statements contained in any Annex or other writing delivered by or on behalf of Holdings pursuant to this Agreement shall be deemed representations and warranties hereunder. All representations and warranties made by Holdings hereunder, including those set forth herein or in any other document required to be executed by the terms of this Agreement, shall survive (and shall not be affected by) the Closing. 9.2 SURVIVAL OF COVENANTS. All covenants of the parties shall survive the Closing. ARTICLE X ASSIGNMENT; THIRD PARTIES; BINDING EFFECT The rights of the parties hereto under this Agreement shall not be assignable nor the duties delegable by any party without first obtaining the written consent of all parties hereto. Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity, other than the parties hereto and their successors in interest, any rights or remedies under or by reason of this Agreement unless so stated expressly hereunder. All covenants, agreements, representations and warranties of the parties contained herein shall be binding upon and inure to the benefit of Windmere and Holdings and their respective successors and permitted assigns. ARTICLE XI TERMINATION OF SHARE OPTION AGREEMENT The Share Option Agreement shall be terminated effective immediately prior to the Closing hereunder, and no party thereto shall have any rights or obligations thereunder upon such termination. ARTICLE XII ARBITRATION Any claim, dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Miami, Florida in accordance with the rules of the American Arbitration Association then in effect (except to the extent that the procedures outlined below differ from such rules). Within 7 days after receipt of written notice from either party that a dispute exists and that arbitration is required, both parties must within 7 business days agree on an acceptable arbitrator. If the parties are unable to agree on an arbitrator, then each party shall choose its own arbitrator and the two arbitrators shall then choose a third neutral arbitrator within seven (7) days of their selection. The parties agree to act as expeditiously as possible to select an arbitrator and conclude the dispute. The arbitrator must render his decision in writing within 30 days of its or their appointment. The cost and expenses of the arbitration and of legal counsel to the prevailing party shall be borne by the non-prevailing party. Each party will advance one- half of the estimated fees and expenses of the arbitrator(s). Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of Section 4.2 hereof. ARTICLE XIII NOTICES All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when personally delivered or deposited in the mail, certified or registered, return receipt requested, postage prepaid, addressed to the parties or their permitted assignees, at the addresses set forth in the beginning of this Agreement, attention: President (or such other address as shall be given in writing by any party to the other). ARTICLE XIV REMEDIES NOT EXCLUSIVE No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every remedy given hereunder or now or hereafter existing, at law or in equity, by statute or otherwise. The election of any one or more remedies by Windmere or Holdings shall not constitute a waiver of the right to pursue other available remedies. ARTICLE XV COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. ARTICLE XVI CAPTIONS AND SECTION HEADINGS Captions and section headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing this Agreement. ARTICLE XVII WAIVERS Any failure by any of the parties hereto to comply with any of the obligations, agreements or conditions set forth herein may be waived by the other party or parties as provided herein; provided, however, such waiver must be in writing signed by the party waiving its rights and that any such waiver shall not be deemed to be a waiver of any other obligation, agreement or condition contained herein. ARTICLE XVIII FURTHER ASSURANCES Each of the parties hereto agrees to cooperate in the effectuation of the transactions contemplated hereby and to execute any and all additional documents and to take such additional action as shall be reasonably necessary or appropriate for such purpose. ARTICLE XIX AMENDMENTS This Agreement may not be amended except in writing signed by the parties hereto. ARTICLE XX GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, United States of America, applicable to agreements made and to be performed entirely within such State, without regard to any conflict of law rule or principle that would refer to the laws of another jurisdiction. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of April 1, 1994. WITNESSES: WINDMERE CORPORATION By: Authorized Representative DURABLE ELECTRICAL METAL FACTORY, LTD. By: Managing Director OURIMBAH INVESTMENT LIMITED By: Attorney-in-Fact and Director Lai Kin PPC INDUSTRIES 1980 LIMITED (as to Article XI) By: EX-13 4 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS WINDMERE CORPORATION AND SUBSIDIARIES December 31, 1994 and 1993 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Windmere Corporation We have audited the accompanying consolidated balance sheets of Windmere Corporation and Subsidiaries (the "Company") as of December 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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 consolidated financial position of Windmere Corporation and Subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Miami, Florida February 7, 1995 CONSOLIDATED BALANCE SHEETS December 31, ASSETS 1994 1993 CURRENT ASSETS Cash and cash equivalents (Note A) $ 12,988,300 $ 24,794,700 Short-term investments (Note A) 2,500,000 - Accounts and notes receivable, less allowances of $1,338,100 in 1994 and $1,424,600 in 1993 (Notes C and E) 38,733,300 31,268,600 Receivables from affiliates (Notes A and C) 12,444,300 9,166,600 Inventories (Note A) 74,278,400 67,157,500 Prepaid expenses (Note I) 8,020,500 6,990,900 Future income tax benefits (Notes A and I) 1,883,400 2,982,800 Total current assets 150,848,200 142,361,100 INVESTMENTS (Notes A and C) - - PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation (Notes A and D) 28,449,100 25,022,200 OTHER ASSETS (Notes A and J) 17,826,700 13,096,000 $197,124,000 $180,479,300 LIABILITIES CURRENT LIABILITIES Notes and acceptances payable (Note E) $ 740,100 $ 2,995,800 Current maturities of long-term debt (Note G) 814,800 814,800 Accounts payable 8,120,000 9,287,300 Accrued expenses (Note F) 8,981,700 9,660,000 Income taxes (Notes A and I) 2,312,600 1,044,600 Deferred income, current portion (Note A) 598,100 598,100 Total current liabilities 21,567,300 24,400,600 LONG-TERM DEBT, less current maturities (Note G) 3,666,700 4,503,200 DEFERRED INCOME, less current portion (Note A) 1,265,000 1,863,100 DEFERRED INCOME TAXES (Notes A and I) - - COMMITMENTS AND CONTINGENCIES (Note J) - - MINORITY INTEREST - 3,125,200 STOCKHOLDERS' EQUITY (Notes A, K and L) Special preferred stock - authorized 40,000,000 shares of $.01 par value; none issued - - Common stock - authorized 40,000,000 shares of $.10 par value; issued 16,734,172 in 1994 and 15,780,447 in 1993 1,673,400 1,578,100 Paid-in capital 30,648,700 24,633,300 Retained earnings 139,088,800 121,086,500 Unrealized foreign currency translation adjustment (785,900) (710,700) Total stockholders' equity 170,625,000 146,587,200 $197,124,000 $180,479,300 The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF EARNINGS Years ended December 31, 1994 1993 1992 Net sales $181,112,200 $170,661,400 $175,450,000 Cost of goods sold 127,843,600 118,968,500 123,045,200 Gross profit 53,268,600 51,692,900 52,404,800 Selling, general and administrative expenses 39,873,700 40,251,700 41,340,500 Unusual or non-recurring items (Note B) (7,810,500) - 5,428,600 Operating profit 21,205,400 11,441,200 5,635,700 Other (income) expense Interest expense 551,900 819,800 2,286,800 Interest and other income (2,385,800) (2,187,700) (4,030,300) (1,833,900) (1,367,900) (1,743,500) Earnings before equity in net earnings (loss) of joint ventures, income taxes, minority interest, cumulative effect of accounting change and extraordinary item 23,039,300 12,809,100 7,379,200 Equity in net earnings (loss) of joint ventures (Notes A and C) 91,400 (503,900) (848,300) Earnings before income taxes, minority interest, cumulative effect of accounting change and extraordinary item 23,130,700 12,305,200 6,530,900 Income taxes (benefit) (Notes A and I) Current 2,375,700 1,468,000 819,100 Deferred 218,800 (103,500) (13,700) 2,594,500 1,364,500 805,400 Earnings before minority interest, cumulative effect of accounting change and extraordinary item 20,536,200 10,940,700 5,725,500 Minority interest in net (profit) loss of subsidiary 1,200 (1,202,600) (1,039,200) Earnings before cumulative effect of accounting change and extraordinary item 20,537,400 9,738,100 4,686,300 Cumulative effect of accounting change (Note I) - 1,731,100 - Extraordinary item (Note O) - - 29,648,800 Net Earnings $20,537,400 $11,469,200 $34,335,100 Per share data (Note A) Earnings per common share and common equivalent shares Earnings before cumulative effect of accounting change and extraordinary item $1.17 $ .60 $ .27 Cumulative effect of accounting change - .11 - Extraordinary item - - 1.82 Net earnings $1.17 $ .71 $ 2.09 Dividends per common share $ .15 $ - $ - The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Three years ended December 31, 1994 Unrealized foreign currency Common Paid-in Retained translation Treasury stock capital earnings adjustment stock Balance at January 1, 1992 $1,653,000 $31,357,600 $75,282,200 $(733,100) $(7,343,600) Net earnings - - 34,335,100 - - Exercise of stock options 2,900 119,200 - - - Purchase and retirement of 858,575 shares of common stock (85,900) (4,850,900) - - 1,044,000 Retirement of treasury stock (34,300) (6,265,300) - - 6,299,600 Tax benefit resulting from exercise of non-qualified stock options (Note I) - 2,185,800 - - - Unrealized foreign currency translation adjustment - - - (43,900) - Balance at December 31, 1992 1,535,700 22,546,400 109,617,300 (777,000) - Net earnings - - 11,469,200 - - Exercise of stock options and warrants 42,400 1,829,800 - - - Tax benefit resulting from exercise of non-qualified stock options (Note I) - 257,100 - - - Unrealized foreign currency translation adjustment - - - 66,300 - Balance at December 31, 1993 1,578,100 24,633,300 121,086,500 (710,700) - Net earnings - - 20,537,400 - - Cash dividends - $.15 per share - - (2,535,100) - - Acquisition of additional 20% interest in Durable Electrical Metal Factory, Ltd. ("Durable") 100,000 7,900,000 - - - Purchase and retirement of 397,400 shares of common stock (39,700) (3,858,900) - - - Exercise of stock options and warrants 35,000 1,645,800 - - - Tax benefit resulting from exercise of non-qualified stock options (Note I) - 328,500 - - - Unrealized foreign currency translation adjustment - - - (75,200) - Balance at December 31, 1994 $1,673,400 $30,648,700 $139,088,800 $(785,900) $ - The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1994 1993 1992 Cash flows from operating activities Net earnings $20,537,400 $11,469,200 $ 34,335,100 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation of property, plant and equipment 5,378,500 5,151,800 4,977,000 Amortization of intangible assets 440,100 553,600 925,100 Write-off of other asset - - 4,322,000 Net change in allowance for losses on accounts receivable (86,500) (211,000) 306,300 Gain on sale of fixed asset (7,810,500) - - Amortization of deferred income (598,100) (598,200) (508,700) Equity in (earnings) losses of affiliates (91,400) 503,900 848,300 Increase (decrease) in minority interest (1,200) 1,493,600 1,039,200 Changes in assets and liabilities Decrease (increase) in accounts and notes receivable (7,378,200) 4,834,800 (3,872,700) Decrease (increase) in inventories (7,120,900) 1,383,600 485,200 Decrease (increase) in prepaid expenses (1,029,600) (4,328,200) 1,760,700 Increase (decrease) in accounts payable and accrued expenses (1,845,600) (1,340,500) 1,096,200 Increase (decrease) in current and deferred income taxes 2,695,900 (1,738,600) 1,675,600 Decrease in notes and acceptances payable (2,255,700) (2,816,000) (287,600) Increase in deferred income - - 1,340,600 Decrease (increase) in other assets (294,800) 569,000 627,900 Increase in current maturities of long-term debt - 814,800 - Decrease (increase) in other accounts (75,200) 66,300 (43,900) Net cash provided by operating activities 464,200 15,808,100 49,026,300 Cash flows from investing activities Proceeds from fixed asset sales $9,442,000 $ 262,900 $ 89,800 Additions to property, plant and equipment (10,436,900) (5,891,000) (3,861,400) Increase in short-term investments (2,500,000) - - Other changes in investments in affiliates - (437,200) - Sale of investments - 242,600 1,615,600 Decrease (increase) in receivables from affiliates (3,186,300) 2,449,900 (367,400) Decrease (increase) in restricted cash - 6,212,000 (1,191,600) Net cash provided by (used in) investing activities (6,681,200) 2,839,200 (3,715,000) Cash flows from financing activities Increase in long-term debt - - 30,473,600 Payments of long-term debt (836,500) (3,019,300) (69,892,800) Exercises of stock options and warrants 1,680,800 1,872,200 122,100 Cash dividends paid (2,535,100) - - Purchases of common stock (3,898,600) - - Net cash used in financing activities (5,589,400) (1,147,100) (39,297,100) Increase (decrease) in cash and cash equivalents (11,806,400) 17,500,200 6,014,200 Cash and cash equivalents at beginning of year 24,794,700 7,294,500 1,280,300 Cash and cash equivalents at end of year $12,988,300 $24,794,700 $ 7,294,500 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 502,200 $ 593,900 $ 1,996,000 Income taxes $1,927,300 $ 2,353,500 $ 11,996,100 Non-cash investing and financing activities: Common stock issued for additional investment in Durable (Note A) $8,000,000 $ - $ - Retirement of treasury stock $ - $ - $ 6,299,600 Purchase and retirement of 858,575 shares of common stock $ - $ - $ 5,980,800 Tax benefit resulting from exercise of non-qualified stock options (Note I) $ 328,500 $ 257,100 $ 2,185,800 The accompanying notes are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE A - SUMMARY OF ACCOUNTING POLICIES Windmere Corporation and Subsidiaries (the "Company") is principally engaged in the manufacture and sale of personal care products. A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions are eliminated in consolidation. The Company reflects its investment in its 50%-owned joint venture at cost plus its equity in undistributed net earnings. Foreign Currency Translation Balance sheet accounts of the Company's foreign operations are translated at the exchange rate in effect at each year end and income statement accounts are translated at the average exchange rates prevailing during the year. Adjustments resulting from this translation process are accumulated in a separate component of stockholders' equity and are not included in the determination of net earnings. The Company's foreign manufacturing subsidiary utilizes the local currency as its functional currency, and the other foreign subsidiaries primarily utilize the U.S. dollar as their functional currency. Cash and Cash Equivalents Short-Term Investments The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Similar investments with maturities between three months and one year at the time of purchase are classified as short-term investments. Inventories Inventories are stated at the lower of cost or market; cost is determined by the first-in, first-out method. Inventories are comprised of the following: 1994 1993 Raw materials $18,993,200 $14,981,700 Work in process 15,155,900 14,153,000 Finished goods 40,129,300 38,022,800 $74,278,400 $67,157,500 Receivables from Affiliates Receivables from affiliates arise primarily in the ordinary course of business, are both interest and non-interest bearing, and are settled as trade obligations. Property, Plant and Equipment Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to their estimated operating service lives using accelerated and straight-line methods. Intangible Assets Intangible assets, consisting primarily of goodwill, are being amortized on a straight-line basis over twenty years. Intangible assets were $10,169,300 and $4,960,100 at December 31, 1994 and 1993, respectively, and the related accumulated amortization was $1,660,900 and $1,262,100, respectively. In 1994, the Company acquired the 20% interest in Durable that it did not already own. The purchase price consisted of the delivery of one million shares of the Company's common stock, valued at $8,000,000, and a cash payment of $10,000. This acquisition was accounted for as a purchase. Goodwill of $5,211,000 was recognized on the transaction. On an ongoing basis, management reviews the valuation and amortization of goodwill. As part of this review, the Company estimates the value and future benefits of the net income generated by the related subsidiaries to determine that no impairment has occurred. Fair Value of Financial Instruments The carrying values of cash and cash equivalents, short-term investments, trade receivables and accounts payable approximate fair value due to the short-term maturities of these instruments. Income Taxes No provision has been made for U.S. taxes on undistributed earnings of foreign subsidiaries and joint ventures of approximately $102,300,000 at December 31, 1994, as it is anticipated that such earnings will be reinvested in their respective operations or in other foreign operations. Deferred taxes have been provided on temporary differences in reporting certain transactions for financial accounting and tax purposes. Deferred Income In 1992, the Company granted an exclusive license for the distribution of a product. Deferred income of $1,340,600 resulted from this transaction, which will be reported as other income on a straight-line basis over the five year license term. In 1988, the Company sold its Save-Way Beauty Supply stores for a gain of approximately $6,980,000, $3,300,000 of which was allocated to a ten- year covenant not to compete that is being amortized to other income on a straight-line basis. Earnings Per Share Earnings per share are based upon the weighted average number of common shares and common equivalent shares outstanding during each year. The total number of such weighted average shares was 17,589,000 in 1994, 16,212,000 in 1993, and 16,395,000 in 1992. Stock options and warrants are considered common stock equivalents unless their inclusion would be antidilutive. NOTE B - UNUSUAL OR NON-RECURRING ITEMS In 1994, Durable sold 60,000 square feet of office space in Hong Kong, for $9,500,000. This transaction generated a non-recurring profit of $7,810,500, or approximately $.45 per share. No taxes were provided as the gain is not taxable. Following this sale, Durable continues to own approximately 50,000 square feet of space in Hong Kong, of which 30,000 square feet is used for its administrative headquarters. Durable's manufacturing facilities in the People's Republic of China were not affected by the sale. In 1992, the Company recorded a $4,322,000 loss on the write-off of a specific contract, due to its non-realizability, under which it had the right to acquire products and/or services such as advertising, which contractual rights had been classified primarily as an other asset. The Company sold its rights under this contract for a nominal amount. The Company sold its nail and skincare products subsidiary in 1992 at a loss of $1,106,600. The former subsidiary had an insignificant impact on the Company's revenues and earnings. NOTE C - INVESTMENTS Investments are comprised of the following: 1994 1993 Joint venture - at cost plus equity in undistributed earnings $ - $ - The Company's joint venture investment at each of the above dates had a negative value of approximately $400,000, which deficits have been classified as a reduction in receivables from affiliates. The following table provides financial data for the joint venture, which is accounted for on the equity method: 1994 1993 Current assets $150,100 $(66,400) Non-current assets 17,900 14,300 Total assets $168,000 $(52,100) Current liabilities $955,700 $ 920,700 Non-current liabilities - - Total liabilities $955,700 $ 920,700 Sales $30,184,500 $24,507,400 Gross profit $3,572,500 $2,131,300 Net earnings (loss) $185,000 $(542,400) All sales made by the joint venture were to entities other than members of the consolidated group. Included in the Company's sales are sales made to the joint venture of approximately $8,621,000 and $7,866,000 in 1994 and 1993, respectively. NOTE D - PROPERTY, PLANT AND EQUIPMENT The following is a summary of property, plant and equipment: 1994 1993 Building $4,493,100 $4,493,100 Building improvements 389,000 200,300 Computer equipment 4,959,000 4,097,600 Furniture and equipment 49,470,700 40,354,600 Leasehold improvements 1,890,800 4,650,000 Land and land improvements 2,650,600 2,632,900 63,853,200 56,428,500 Less accumulated depreciation and amortization 35,404,100 31,406,300 $28,449,100 $25,022,200 NOTE E - NOTES AND ACCEPTANCES PAYABLE A foreign bank provides a $3,900,000 line of credit, payable on demand, to certain of the Company's foreign subsidiaries (the "subsidiaries"), secured primarily by the subsidiaries' tangible and intangible property located in Hong Kong and in the People's Republic of China. In addition, should the subsidiaries default in their obligations, the Company has guaranteed the payment of this debt. At December 31, 1994 and 1993, the subsidiaries were utilizing, including letters of credit, approximately $1,500,000 and $3,300,000, respectively, of this credit line. The Company has a $10,000,000 demand line of credit from a domestic bank, which is secured by domestic accounts receivable. The Company has had no borrowings under this facility. NOTE F - ACCRUED EXPENSES Accrued expenses are summarized as follows: 1994 1993 Advertising allowances $1,896,800 $2,448,100 Salaries and bonuses 1,128,100 2,170,200 Volume rebates 1,081,200 845,600 Other 4,875,600 4,196,100 $8,981,700 $9,660,000 NOTE G - LONG-TERM DEBT Long-term debt is summarized as follows: 1994 1993 Industrial development revenue bonds $4,481,500 $5,296,300 Other - 21,700 4,481,500 5,318,000 Less current maturities 814,800 814,800 Total long-term debt $3,666,700 $4,503,200 In 1985, the Company received proceeds of $7,500,000 from the issuance of tax-exempt industrial development revenue bonds. The bonds are being paid off in equal quarterly principal payments of $203,700 through May 2000. At December 31, 1994, the interest rate on the bonds was 6.70%. The bonds include certain covenants which provide, among other things, restrictions relating to the maintenance of minimum levels of working capital, net worth and other financial ratios. NOTE H - EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan for its employees to which the Company makes discretionary contributions at rates dependent on the level of each employee's contributions. Contributions made by the Company are limited to the maximum allowable for federal income tax purposes. The amounts charged to earnings for this plan during the three years ended December 31, 1994 were not significant. The Company does not provide any health or other benefits to retirees. NOTE I - INCOME TAXES Income tax expense (including the income tax expense related to the extraordinary item in 1992) consists of the following: 1994 1993 1992 Income tax expense before extraordinary item $2,594,500 $1,364,500 $ 805,400 Income tax expense relating to extraordinary item - - 13,039,900 $2,594,500 $1,364,500 $13,845,300 Current Federal $2,156,000 $1,286,400 $15,448,200 Foreign 72,900 125,500 (80,300) State 146,800 56,100 49,500 2,375,700 1,468,000 15,417,400 Deferred 218,800 (103,500) (1,572,100) $2,594,500 $1,364,500 $13,845,300 The analysis of the deferred income tax provision (benefit) representing the tax effects of temporary differences between tax and financial reporting is as follows: 1994 1993 1992 Deferred taxes reinstated through utilization of net operating losses $ - $ - $(1,380,400) Differences in timing between financial and tax reporting 15,000 (302,600) - Utilization of contribution carryforward - - 154,100 Utilization of net operating loss carryforward 413,500 477,700 - Deferred income 55,300 68,300 123,750 Depreciation (248,900) (204,400) - Other (16,100) (142,500) (469,550) $ 218,800 $(103,500) $(1,572,100) The United States and foreign components of earnings (loss) before income taxes are as follows: 1994 1993 1992 United States $7,449,500 $3,979,420 $(2,345,600) Foreign 15,681,200 8,325,780 8,876,500 $23,130,700 $12,305,200 $ 6,530,900 The differences between the statutory rates and the tax rates computed on pre-tax profits are as follows: 1994 1993 1992 % % % Tax expense at statutory rates 34.0% 34.0% 34.0% State taxes, net of federal tax benefit.4 .5 .8 Foreign taxable income offset by loss carryforwards - - (7.0) Foreign income not subject to tax (15.9) (5.1) (7.0) Reduction of reserves for prior years' Hong Kong income taxes (5.9) - - Taxable loss on certain foreign operations - (5.9) - Net tax rate differential on undistributed foreign earnings (2.0) (14.5) (5.6) Equity in joint venture earnings not subject to U.S. tax or already taxed .1 1.4 4.4 Other .5 .6 (7.3) 11.2% 11.0% 12.3% The Hong Kong Inland Revenue Department is auditing the tax returns of most of the Company's consolidated Hong Kong subsidiaries through 1991, and has proposed increases in income taxes aggregating approximately $5,600,000, which proposed amount, or any of it which is ultimately determined to be due, may be reduced by U.S. foreign tax credits. Inland Revenue has required that cash deposits of approximately $4,800,000 be made pending the resolution of the issues, which amounts are included in prepaid expenses. The Company has been advised it has defensible positions in connection with the issues under discussion and intends to vigorously contest the proposed tax increases. The Internal Revenue Service is currently examining the Company's 1992 tax return. To date, no material adjustments have been proposed. Management believes that adequate provision for taxes has been made for the years under examination and those not yet examined. The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", on January 1, 1993, which changed the Company's method of accounting for income taxes to an asset and liability approach. The cumulative effect of this change in the method of accounting for income taxes, after minority interest in the portion relating to Durable, was a benefit of $1,731,100 or $.11 per share. The cumulative effect adjustment primarily consists of the tax benefit associated with Durable's net operating loss carryforward. A valuation allowance has not been recorded due to Durable's current and anticipated profitable operations. A valuation allowance for the entire tax benefit of the net operating losses accumulated by the Company's European subsidiary has been provided as the realizability of the benefits of such net operating losses is not assured. The primary components of future income tax benefits at December 31, 1994 are as follows: Net operating loss carryforwards (net of valuation allowances of $952,500) $ 620,000 Depreciation and amortization (1,104,200) Deferred income 737,700 Differences in timing between financial and tax reporting 2,100,900 Other 297,400 2,651,800 Less amount included in other assets 768,400 $1,883,400 The tax benefits resulting from the exercise of non-qualified stock options have been recorded as additions to paid-in capital in the amounts of $328,500 and $257,100 in 1994 and 1993, respectively. NOTE J - COMMITMENTS AND CONTINGENCIES Litigation In April 1994, Kabushiki Kaisha Izumi Seiki Seisakusho, a Japanese corporation ("Izumi"), filed an action against the Company, David M. Friedson, the President and Chief Executive Officer of the Company, U.S. Philips Corporation, North American Philips Corporation and N.V. Philips Gloellampenfabrieken (together, "Philips"). This action concerns the 1992 settlement (the "Philips Settlement") of certain claims, primarily a Federal antitrust claim, made by the Company against Philips, which resulted in an $89,644,257 judgment in favor of the Company. Pursuant to the Philips Settlement, Philips paid the Company $57,000,000 in May 1992. As part of the Philips Settlement, the Company and Philips agreed that the Company's money judgment against Philips in connection with such antitrust litigation would be vacated. Izumi is claiming, among other things, that the Philips Settlement, including the agreement with Philips to cooperate to vacate the related judgment in favor of the Company, constitutes a breach by the Company of a customary indemnification agreement between Izumi (as seller of goods) and the Company (as buyer of goods) dated February 20, 1984. This indemnification agreement covered certain claims against the Company and was entered into more than eight months prior to the commencement of the Philips litigation in connection with the routine purchase by the Company of goods from Izumi. Izumi advanced certain legal fees and costs to the Company in connection with the Philips litigation. Izumi is further claiming that it is entitled to recover from the Company an unspecified portion of the Philips Settlement, punitive damages and reimbursement of litigation and other related costs and expenses. The Company disagrees with Izumi's position and believes that it has meritorious defenses and counterclaims to these claims by Izumi. The Company has filed a pre-answer motion to dismiss Izumi's complaint in full, decision on which is pending, and it intends to defend this action fully and vigorously. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position of the Company. Investigations In 1990, Lasko Metal Products, Inc. ("Lasko") of West Chester, Pennsylvania, filed a petition with the U.S. Department of Commerce ("Commerce") and the U.S. International Trade Commission alleging that oscillating fans and ceiling fans from the People's Republic of China ("PRC") are being sold at less than fair value and are causing material injury to an industry in the United States. The Company manufactures oscillating fans in the PRC which are distributed in the United States. The Company also has a 50% interest in a joint venture which imports such fans into the United States. In 1991, Commerce announced its final less-than-fair value sales determination, finding a de minimis dumping margin on oscillating fans manufactured and imported by the Company. Based on this result, Commerce published an antidumping duty order, excluding all oscillating fans manufactured by the Company from the duties imposed. In January 1992, the final determination and antidumping duty order was appealed to the U.S. Court of International Trade ("Court") by Lasko. In December 1992, the Court affirmed Commerce's determination with respect to all of the challenges raised by Lasko. Lasko's appeal of the Court's decision to the Court of Appeals for the Federal Circuit was denied in December 1994. Lasko has indicated that it does not plan to appeal further, therefore the matter is closed with no adverse impact on the Company. Employment Agreements The Company has entered into employment agreements with several of its executive officers for periods ranging from two to five years. The agreements provide the employees with an option to terminate their agreements and receive lump sum payments of up to five years compensation if there is a change in control of the Company. Other As of December 31, 1994, the Company is committed to purchase approximately $14,800,000 of media advertising over the next 4 years. The commitment is to be fulfilled by cash payments of $6,700,000 and usage of $8,100,000 of prepaid advertising credits, which credits are primarily reflected in other assets. The Company's need for television media advertising is primarily related to the introduction and promotion of new consumer products and to support the out-of-stock sales segment of its consumer products business. If these advertising needs are reduced, it may impact the ability of the Company to use the balance of the prepaid advertising credits. The Company regularly reviews the extent to which it will advertise its products and utilize the prepaid advertising credits. In April 1994, the Company purchased from Ourimbah Investment, Limited ("Ourimbah") the remaining 20% of the issued and outstanding capital stock of Durable (the "Purchased Shares") which had not, prior to such purchase, been owned, directly or indirectly, by the Company. In connection with such purchase, the Company agreed to make an additional payment to Ourimbah for the Purchased Shares upon the occurrence of a change of control of the Company on or before July 1, 1999. Any such additional payment will be in an amount with respect to each Purchased Share equal to the greater of (i) the same multiple of earnings per share of Durable as the highest multiple of earnings per share paid for the shares of common stock of the Company received in connection with such change of control or (ii) the same multiple of net asset value per share of Durable as the highest multiple of price per net asset value per share paid for the shares of common stock of the Company received in connection with such change of control. For purposes of determining whether any such additional payment is required, a change of control will be deemed to have occurred upon (i) the acquisition by any person of 50% or more of the then outstanding shares of common stock of the Company, (ii) a change in the majority of the members of the Company's board of directors who are serving as of the date of the purchase agreement or (iii) the approval by the Company's shareholders of (A) a reorganization, merger or consolidation in which the shareholders of the Company prior to such transaction do not, immediately thereafter, own more than 50% of the combined voting power of the Company following such transaction, (B) a liquidation of dissolution of the Company or (C) a sale of all or substantially all of the Company's assets. No change of control will be deemed to have occurred in connection with any transaction approved by a majority of the members of the board of directors. NOTE K - STOCKHOLDERS' EQUITY Stock Options The 1982 and 1992 Employees' Incentive Stock Option Plans provide for granting of options of not more than 1,200,000 shares and 500,000 shares, respectively, of common stock at a price based upon the fair market value at the date the options are granted. Options granted under the plans are exercisable in equal annual installments during a five or six year period beginning one year after the date the option is granted. Qualified incentive stock option activity is summarized as follows: Option price Shares per share Options outstanding January 1, 1993 726,750 $3.25 - $6.38 Granted 35,000 $6.00 - $6.38 Exercised (223,450) $3.25 - $5.46 Expired or cancelled (50,900) $3.25 - $6.38 Options outstanding December 31, 1993 487,400 $3.25 - $6.38 Granted 147,500 $7.13 - $9.75 Exercised (161,695) $3.25 - $6.38 Expired or cancelled (8,000) $5.13 Options outstanding December 31, 1994 465,205 $3.25 - $9.75 Options exercisable December 31, 1994 154,905 As of December 31, 1994, the options outstanding pursuant to the 1982 and 1992 plans were 240,705 and 224,500, respectively, of which 143,905 shares were exercisable under the 1982 plan and 11,000 shares were exercisable under the 1992 plan. Non-qualified stock options have also been granted by the Company. Their activity is summarized as follows: Option price Shares per share Options outstanding January 1, 1993 907,540 $2.88 - $17.38 Granted 37,500 $6.00 - $ 8.00 Exercised (139,000) $2.88 - $ 5.75 Expired or cancelled (64,073) $2.88 - $ 5.75 Options outstanding December 31, 1993 741,967 $2.88 - $17.38 Granted 901,200 $7.00 - $10.88 Exercised (80,500) $2.88 - $ 8.00 Expired or cancelled (61,190) $3.25 - $16.63 Options outstanding December 31, 1994 1,501,477 $2.88 - $17.38 Options exercisable December 31, 1994 985,477 No amount has been charged to income under the above plans. Warrants As part of a lawsuit settlement, warrants to purchase 750,423 shares of the Company's common stock have been issued. The warrants have an exercise price of $7.50 per share and are exercisable through January 19, 1998. At December 31, 1994, 192,722 warrants have been exercised. Common Stock Purchase Rights Plan On March 6, 1995, the Company implemented a Common Stock Purchase Rights Plan and distributed one Right for each share of the Company's common stock outstanding at the close of business on March 1, 1995. The Rights are not exercisable or transferable, apart from the Company's common stock, until after a person or group acquires, or has the right to acquire, beneficial ownership of 15 percent or more of the Company's common stock (which threshold may, under certain circumstances, be reduced to 10 percent) or announces a tender or exchange offer to acquire such percentage of the Company's common stock. Each Right entitles the holder to purchase one quarter of one share of common stock at an exercise price of $25.00 per full share and contains provisions that entitle the holder in the event of specific transactions, to purchase common stock of the Company or any acquiring or surviving entity at one-half of market price as determined under the terms of the Rights Agreement. The Rights will expire on March 6, 2005, unless previously exercised or redeemed at the option of the Company for $.00001 per Right. NOTE L - SPECIAL PREFERRED STOCK During 1986, the Company was authorized to issue 40,000,000 shares of $.01 par value special preferred stock purchase rights for each share of common stock, par value $.10 per share. These rights entitled the holder to purchase one share of special preferred stock at a price of $.01 under certain conditions in connection with preserving for the Company and its stockholders the benefits of any recovery in the Company's lawsuit with North American Philips Corporation, et al. In 1992, these conditions ceased to apply, therefore, the special preferred stock rights remain outstanding but have no continuing application. NOTE M - GEOGRAPHIC AREA INFORMATION 1994 1993 1992 Revenues United States operations $136,500,000 $126,114,200 $111,703,800 International operations Sales to unaffiliated customers 44,612,200 44,547,200 63,746,200 Transfers between geographical areas 85,070,700 72,783,100 76,240,200 Eliminations (85,070,700) (72,783,100) (76,240,200) $181,112,200 $170,661,400 $175,450,000 Operating profit United States operations $5,799,000 $3,133,900 $(5,424,000) International operations 15,853,400 9,141,100 9,531,900 Eliminations (447,000) (833,800) 1,527,800 Operating profit 21,205,400 11,441,200 5,635,700 Equity in net earnings (loss) of joint ventures 91,400 (503,900) (848,300) Interest expense (551,900) (819,800) (2,286,800) Interest and other income 2,385,800 2,187,700 4,030,300 Consolidated earnings before income taxes, minority interest, cumulative effect of accounting change and extraordinary item $23,130,700 $12,305,200 $6,530,900 Identifiable assets United States operations $112,339,500 $92,237,200 $88,968,500 International operations 123,670,900 110,311,200 108,695,500 Eliminations (38,886,400) (22,069,100) (24,998,900) Investments - - 309,300 Consolidated assets $197,124,000 $180,479,300 $172,974,400 Transfers between geographic areas are billed at negotiated prices. Operating profit is total revenues less operating expenses and excludes interest expense and equity in net earnings of foreign joint ventures. In 1994, the international operations' operating profit also includes a $7,810,500 gain on the sale of Hong Kong office space. All United States revenues are derived from sales to unaffiliated customers. Included in domestic revenues and operating profit are certain sales derived from direct product shipments from Hong Kong to customers located in the United States. International operations are conducted in Canada, Hong Kong, Europe and the People's Republic of China. NOTE N - CONCENTRATION OF CREDIT RISK The Company sells on credit terms to a majority of its customers, most of which are U.S. and Canadian retailers and distributors located throughout those countries. Wal-Mart Stores, Inc. accounted for 17.8% and 19.3% of the Company's sales in 1994 and 1993, respectively. In 1992, one customer accounted for 10.6% of the Company's sales. NOTE O - EXTRAORDINARY ITEM In 1992, the Company accepted a settlement offer (the "Philips Settlement") from North American Philips Corporation ("Philips") with respect to certain claims the Company made against Philips under, among other statutes, the Federal antitrust laws. Pursuant to the Philips Settlement, Philips paid the Company $57,000,000 in May 1992. The Company's net gain from the Philips Settlement, after legal fees, taxes, costs and other expenses, was $29,648,800. NOTE P - RELATED PARTY TRANSACTION The Company has used the services of Top Sales Company, Inc. ("Top Sales"), an independent sales representative, since 1978. A member of the Company's Board of Directors is the sole shareholder and Chief Executive Officer of Top Sales. The Company made commission payments to Top Sales of $719,600, $575,500 and $575,000 in 1994, 1993 and 1992, respectively. SUPPLEMENTAL FINANCIAL DATA Quarterly Financial Data (Unaudited) The quarterly results for the years 1994 and 1993 are set forth in the following tabulation. Gross Net Earnings Sales Profit Earnings Per Share 1994 First quarter $31,191,600 $9,081,200 $ 447,400 $.03 Second quarter 41,962,000 12,240,000 9,940,800 * .57 Third quarter 55,885,000 17,520,200 5,837,900 .33 Fourth quarter 52,073,600 14,427,200 4,311,300 .24 Total $181,112,200 $53,268,600 $20,537,400 $1.17 1993 First quarter $35,226,800 $9,016,700 $2,094,900 ** $.13 Second quarter 40,061,600 11,407,500 1,246,400 .08 Third quarter 53,403,400 17,216,000 4,201,500 .26 Fourth quarter 41,969,600 14,052,700 3,926,400 .24 Total $170,661,400 $51,692,900 $11,469,200 $.71 * Includes a non-recurring gain on the sale of Hong Kong office space of $7,810,500, or $.45 per share. ** Includes a cumulative effect of accounting change benefit of $1,731,100, or $.11 per share. Quarterly Stock Quotations and Dividends Per Share The Company's common stock is traded on the New York Stock Exchange under the symbol WND. High and low market prices and dividends paid per share in 1994 and 1993, by quarters, are as follows: Market Price Cash High Low Dividends 1994 Fourth quarter 11-1/8 7-5/8 $ .05 Third quarter 12 9-3/8 .05 Second quarter 11-7/8 7-3/4 .05 First quarter 8-1/2 6-3/4 .00 $ .15 1993 Fourth quarter 8-3/4 7-5/8 .00 Third quarter 8-7/8 7 .00 Second quarter 8-3/8 6-3/8 .00 First quarter 7-3/4 5-7/8 .00 $ .00 The approximate number of holders of common stock of the Company, as of December 31, 1994, was 1,700. This number does not include any adjustment for shareholders owning common stock in the Depository Trust name or otherwise in "Street" name, which the Company believes represents an additional 8,000 shareholders. EX-27 5
5 12-MOS DEC-31-1994 DEC-31-1994 12,988,300 0 40,071,400 1,338,100 74,278,400 150,848,200 63,853,200 35,404,100 197,124,000 21,567,300 3,666,700 1,673,400 0 0 168,951,600 197,124,000 181,112,200 181,112,200 127,843,600 127,843,600 0 231,400 551,900 23,039,300 2,594,500 20,537,400 0 0 0 20,537,400 1.17 0 INCLUDES A $7,810,500 GAIN ON THE SALE OF PROPERTY.