5/24/2010
HEADLINES
B&B Hardware Files Multi-Million Dollar Lawsuit Against Fastenal Over Exclusivity Contract; Fastenal Responds

Fastenal Responds
Fastenal addressed the issue in recent SEC filings. The following was taken from form 10-Q filed at the end of April:

In early February 2010, we received a letter from a fastener supplier dated January 26, 2010. This letter threatened to sue us for our alleged violation of an exclusive distribution arrangement this supplier believes exists between our organizations.

In addition, this supplier provided a press release and a video regarding the claim that they threatened to make public unless we agree to mediation of the claim. Shortly after receipt of this letter, we performed a preliminary internal review to understand (1) who this supplier was and (2) the nature of our relationship with this supplier.

Based on that review, we determined that this supplier manufacturers a niche type of fastener and that the total volume of purchases by us, from all suppliers, over the purported term of the alleged exclusivity arrangement of this niche type of fastener does not exceed $1 million.

Following completion of our preliminary internal review, we requested additional information and documentation from the supplier.

The supplier’s response failed to provide the requested information and documentation. By letter dated February 26, 2010, we quantified for the supplier our total volume of purchases as discussed above and informed the supplier that we believed their claim was grossly exaggerated and completely unsupported.

We have not received any response to our February 26 letter.

Based on this information, we believe that the prospect that we will incur a material liability as a result of this claim is remote.

While we are not required to disclose this matter under the rules of the SEC, we believe that disclosure is prudent due to the alleged amount of the claim and the threat to make these allegations public.

In October 2009, a Canadian Fastenal store requested a quote for 3,000 self-sealing fasteners from B&B Hardware Inc. leading to a lawsuit filed May 3, 2010, over a 1999 exclusivity contract.

“That same day, B&B responded to the Fastenal store by email with a quote for the requested order,” the suit charges.

“After approximately one week passed without a reply from Fastenal, B&B inquired of Fastenal concerning the order. On October 28, 2009, in direct response to the B&B inquiry, Fastenal responded to B&B, ‘We issued a PO to another vendor, we will give you an opportunity to quote next time we require this part.'”

“We contend Fastenal agreed to be B&B’s exclusive partner in marketing self-sealing fasteners and then later ignored the partnership agreement,” B&B attorney Barry Snyder wrote.

The lawsuit states that in April 1999, B&B and Fastenal signed an agreement making B&B the exclusive supplier and manufacturer of self-sealing fasteners sold by Fastenal.

“During relevant times, Fastenal marketed and sold lower quality and lower cost self-sealing fasteners, not manufactured or provided by B&B.”
The suit charges “Fastenal is itself, or in connection with other companies, manufacturing and selling self-sealing fasteners, using B&B technology, trade secrets and other proprietary information, in direct competition with the Sealtight line of self-sealing fasteners.”

B&B’s patented self-sealing patent allows screws, rivets and other fasteners to form fluid and gas-tight seals.

B&B’s suit charges Fastenal also “diverted customer leads for self-sealing fasteners generated by B&B to other self-sealing fastener manufacturers”; failed to provide sales reports to B&B as required; placed the name of B&B’s primary competitor – APM Hexseal – on the Fastenal website as a “Diamond Marketing Partner.”

Since 1999, “Fastenal has requested more than 560 quotes from B&B, to which B&B has responded. Fastenal has made only 250 orders. B&B is informed and believes that Fastenal placed those orders with vendors other than B&B in direct and material violation of The Agreement”

50% Margins

B&B estimated “Fastenal has sold well more than $300 million self-sealing fasteners through the end of 2008. Based on a profit margin for Fastenal of about 50%, Fastenal should have paid to B&B for products under The Agreement an amount in the millions of dollars through the end of 2008 and additional sums from 2009 to present.”

The lawsuit, filed in U.S. District Court of Arkansas, seeks a jury trial for compensatory, punitive and exemplary damages and attorneys fees.

A copy of the suit and videotape of the case are available on the Snyder Law firm website: snyderlaw.com/bb_hardware.php

B&B holds multiple patents on its products. B&B is located at 5370 Hollister Ave., Santa Barbara, CA 93111-2399. Tel: 805 683-6700 Web: sealtightfastener.com

According to the 2010 FIN Stock Report, Winona, MN-based Fastenal had 2,369 stores at the end of 2009 and annual revenue exceeding $1.93 billion. ©2010 GlobalFastenerNews.com

Related Links:

• B&B Hardware

• Fastenal Co.