UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
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 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number 1-4438
O'SULLIVAN CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0463029
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
1944 Valley Avenue, PO Box 3510
Winchester, Virginia 22601
(Address of principal executive (Zip Code)
offices)
703-667-6666
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock-par value $1 American 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 and (2) has been
subject to such filing requirement for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or by amendments to this Form 10-K. [ ]
The aggregate market value of Common Stock, Par Value $1 held by
nonaffiliates (based upon the closing sales price on the American
Stock Exchange) on March 10, 1995 was approximately $162,964,814.
As of March 10, 1995 there were 16,502,766 shares of Common Stock, Par
Value $1, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders on April 25, 1995 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
O'Sullivan Corporation began business in 1896 as O'Sullivan Rubber
Company in Lowell, Massachusetts as a manufacturer of rubber heels for
the shoe industry. In 1932 the business was moved to Winchester,
Virginia. In September, 1945 a corporation named O'Sullivan Rubber
Corporation was formed to acquire O'Sullivan Rubber Company, Inc. In
1970, the Corporation changed its name to O'Sullivan Corporation to
reflect the increasing importance of plastics in the business mix.
During the 1970's and 1980's the Corporation added significant
capacity in the plastic calendering part of its business operations by
the addition of a calender in Lebanon, Pennsylvania and by the
creation of two subsidiary corporations (Regalite Plastics Corporation
located in Newton Upper Falls, Massachusetts and O'Sullivan Plastics
Corporation located in Yerington, Nevada) to acquire calendering
facilities at those locations. During 1988 the Corporation began
construction of an additional calendering facility in Winchester,
Virginia. The facility began operation during 1991. Due to several
market related factors, this facility operated at production levels
significantly below its projected capacity during 1992. In 1993 and
1994 the facility operated at profitable levels due to improved market
conditions and overall improvements in manufacturing processes and
capacity utilization. Other calendering facilities of the Corporation
have continued to operate at profitable levels. Management is
confident that this portion of the Corporation's operations will
continue to operate at profitable levels based on available capacity
and business.
In 1986, in response to foreign competitive pressures and decisions to
concentrate on other areas of the business, the Corporation sold its
rubber manufacturing operations to the Vulcan Corporation and exited
the rubber heel and sole business.
In 1989 the Corporation purchased seventy acres of land in Huron, Ohio
and subsequently constructed a 175,000 square foot facility to house
an injection-molding operation to complement those then in operation
in Virginia. The facility began operations during the third quarter
of 1990. Due primarily to customer driven program delays this
facility operated well below optimum capacity levels during 1991 and
1992. In 1993 the Huron facility continued to perform far below
management expectations and predetermined production standards. This
plant was the most complex of all O'Sullivan Corporation injection
molding operations because of "In Line Vehicle Sequencing", a highly
advanced stage of the "Just In Time" concept of delivering parts to
the customer. The impact of this system created unexpected
inefficiencies due to volatile swings in scheduling driven by
significant changes in customer demand. Coupled with sales volumes
significantly lower than expected, the inefficiencies resulted in
markedly higher production costs. To address these problems, the
Corporation added additional machinery and warehouse space to enhance
efficiency by operating equipment for longer production runs at more
efficient rates and aggressively pursued incremental business for the
Huron operation.
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ITEM 1. BUSINESS (Continued)
In 1992 the Corporation made a significant departure from its
traditional line of business activity by entering into a consumer
products oriented business through the acquisition of substantially
all the assets of Melnor Industries, Inc., including its wholly-owned
Canadian subsidiary, Melnor Manufacturing, Ltd. The resulting
corporation, known as Melnor Inc., includes the Canadian subsidiary,
and operates as a wholly-owned subsidiary of O'Sullivan Corporation.
With the formation of Melnor Inc., the Corporation acquired a well
known brand name in water sprinkler systems and other lawn and garden
products. This business acquisition will not only provide for
diversification of the Corporation's business, but will also provide a
means to develop, manufacture and market non-automotive related
products through an established distribution system. During 1992,
Melnor Inc. did not materially impact total operating results since it
was in operation for only a short part of the year having been formed
on November 24, 1992. During 1993 profit objectives were not
achieved, although management believes significant improvements were
made in materials management and in controlling other operating costs.
Sales for 1993 were negatively impacted by extremely unfavorable
weather conditions in the Eastern and Mid-West United States. Sales
and earnings for 1994 showed significant improvement compared to 1993.
Currently, the outlook for the consumer products business segment is
promising for 1995 and management expects increased sales volumes and
profits to continue.
On April 1, 1993, the Corporation acquired Capitol Plastics of Ohio,
Inc. The acquired entity is a custom injection molding manufacturing
operation with one plant located in Bowling Green, Ohio. Capitol
Plastics operated as a wholly-owned subsidiary of the Corporation and
became part of the Plastics Products business segment. During 1993,
Capitol Plastics experienced depressed sales and earnings due to lower
than expected sales of 1993 model year vehicles and difficulties with
the launch of new programs with its major customer, Honda. Results
for 1994 were greatly improved due to improved sales volumes and the
resolution of costs involved with the launch of new programs.
In December, 1994 the Corporation sold its injection molding
operations (the Gulfstream Division including Capitol Plastics of
Ohio, Inc.) to Automotive Industries Holdings, Inc. The sale involved
primarily the property, plant and equipment and inventories associated
with the injection molding operations located in Winchester and Luray,
Virginia and Huron, Ohio as well as the capital stock of Capitol
Plastics of Ohio, Inc., also an injection molding facility. Supplier
pressures and the prohibitive costs involved with achieving the size
necessary to become a major supplier in the injection molding trim
business led management to believe it would be in the long-term
interest of the Corporation to divest itself of its involvement in the
injection molding business and concentrate its resources on
calendering operations and the growing opportunities in the consumer
products business. The divestiture of the injection molding
operations involved the sale of assets with a book value of
approximately $50 million net of certain liabilities assumed by the
purchaser.
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ITEM 1. BUSINESS (Continued)
The Corporation's operations are classified principally in two
business segments: Calendered Plastics Products ("Plastics Products")
and Lawn and Garden Consumer Products ("Consumer Products"). The
Plastics Products segment is involved primarily with the manufacture
of calendered plastics products for the automotive and specialty
plastics manufacturing industries. The Consumer Products segment
primarily involves the manufacture and distribution of a wide range of
lawn and garden products. Operating profits for each segment
represent net sales for the segment less operating expenses specific
to each segment and exclude general corporate expenses and non-
operating income and expenses. Identifiable assets for each segment
represent those assets used in the segment's operations and exclude
general corporate assets. General corporate assets are identified as
cash and cash equivalents, investments and other non-operating assets.
Net sales for the Plastics Products segment (from continuing
operations) to the divisions and subsidiaries of Ford Motor Company
amounted to $24,385,299 (12.5% of net sales) in 1994, $13,374,601
(7.7% of net sales) in 1993 and $9,123,228 (7.3% of net sales) in
1992.
Business Segment Information
Net Sales By Class of 1994 1993 1992
Similar Products ------------ ------------ ------------
Plastics Products $149,438,108 $132,832,228 $123,374,078
Consumer Products 45,536,156 40,513,273 2,402,836 (a)
------------ ------------ ------------
$194,974,264 $173,345,501 $125,776,914
============ ============ ============
Operating Profit (Loss)
Plastics Products $ 21,630,468 $ 23,085,147 $ 17,630,963
Consumer Products 4,282,552 2,057,052 (279,775)(a)
------------ ------------ ------------
Total Operating Profit $ 25,913,020 $ 25,142,199 $ 17,351,188
General Corporate Expenses 7,289,802 7,184,538 4,173,799
Non-operating Revenue(Expense) (512,739) (628,511) 533,988
------------ ------------ ------------
Income From Continuing
Operations Before Income
Taxes and Cumulative Effect
of Accounting Changes $ 18,110,479 $ 17,329,150 $ 13,711,377
============ ============ ============
Identifiable Assets
Plastics Products $ 92,203,867 $ 99,706,260 $ 81,522,707
Consumer Products 27,318,222 25,394,702 23,560,028
------------ ------------ ------------
Total Identifiable Assets $119,522,089 $125,100,962 $105,082,735
General Corporate Assets 25,006,799 19,264,457 16,913,921
------------ ------------ ------------
Total Assets-Continuing
Operations $144,528,888 $144,365,419 $121,996,656
============ ============ ============
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ITEM 1. BUSINESS (Continued)
1994 1993 1992
Capital Expenditures(b) ------------ ------------ ------------
Plastics Products $ 7,477,833 $ 15,193,167 $ 6,384,938
Consumer Products 1,205,377 1,351,516 32,502 (a)
General Corporate 67,986 86,531 299,654
------------ ------------ ------------
Total Capital Expenditures $ 8,751,196 $ 16,631,214 $ 6,717,094
============ ============ ============
Depreciation and Amortization (b)
Plastics Products $ 8,644,205 $ 9,651,506 $ 9,164,057
Consumer Products 1,719,307 1,402,596 104,520 (a)
General Corporate 503,763 384,268 354,635
------------ ------------ ------------
Total Depreciation and
Amortization $ 10,867,275 $ 11,438,370 $ 9,623,212
============ ============ ============
(a) Includes activity only from acquisition of business at November
24, 1992 through December 31, 1992.
(b) Includes activity from discontinued operations.
The Corporation's Plastics Products segment manufactures calendered
plastics products for the automotive and specialty plastics
manufacturing industries. Distribution is by direct sales to
manufacturers and distributors. Calendered plastic products
manufactured include vinyl sheeting for vehicular dashboard pads,
swimming pool liners and covers, notebook binders, luggage,
upholstered furniture, golf bags, floor tile, pond liners, protective
clothing, mine curtains, boat and automobile windows and medical grade
materials.
All essential raw materials are readily available to the Plastics
Products segment of the Corporation. For the most critical raw
materials, the Corporation has secondary sources of supply if required.
Major suppliers of raw materials to this segment include the
following: Geon Company, Occidental Chemical, Aristech Chemicals,
Witco Corporation, Goodyear Tire & Rubber Company, Penn Colors, Toray
and Emery Group.
The Plastics Products segment of the Corporation possesses significant
technology in the compounding, formulation and manufacture of its
products.
The business of the Plastics Products segment of the Corporation is
not seasonal.
A significant customer of the Plastics Products segment accounting for
ten percent or more of the segment's 1994 sales was Ford Motor
Company.
- 5 -
ITEM 1. BUSINESS (Continued)
The normal production backlog of the Plastics Products segment is
approximately thirty to forty five days. The Corporation has long-
term contracts totaling several million dollars for this segment, but
orders are not considered firm until specific production releases are
received from customers.
The Plastics Products segment products are sold in markets in which
there is competition from many plastic manufacturers, both domestic
and foreign. While no single competitor offers all of the products
produced by this segment, there are many competitors for any single
product. Some of the segment's major competitors are Canadian General
Tower, Gencorp Inc., Achilles USA Inc., Nanya Plastics Corporation,
Intex Plastics Corporation, Borden, Inc. and HPG International, Inc.
The Corporation's Consumer Products segment began with the formation
of Melnor Inc. in November, 1992. The primary activity of the segment
is the manufacture, assembly, sale and distribution of home lawn and
garden products. The products produced and sold by the segment
include: Oscillating, rotary and traveling sprinklers, hose storage
units, watering timers, aqua guns and air spray tanks and snow
shovels. Secondary product lines representing less than ten percent
of sales volumes include humidification systems and buy-sell
distribution of ceiling fans and thermostats. Distribution of the
segment's products is by direct sale to distributors and direct retail
outlets.
All essential raw materials are readily available to this segment.
Some raw materials are supplied by foreign sources, but they are not
of significant volume and can be obtained from alternative sources if
necessary. Purchased components are generally designs that are
readily available from several markets. Major suppliers to this
segment include: Diehl PTE, Stax Ltd., Landen Enterprises, Armada
Tool Works, CPC of Vermont, Himont Canada and Alvera Manufacturing.
The Consumer Products segment of the Corporation holds many patents
and trademarks for products produced and sold by the segment. Due to
the nature of the segment's business activity, the Corporation does
not believe that the nature of these patents and trademarks is
significant to the long-term success of the segment's operations.
The business of the Consumer Products segment is seasonal in nature.
Lawn and garden products are traditionally shipped to distribution and
retail outlets commencing in late December and early January through
the following May.
Home Depot, Inc. was the only customer of this segment accounting for
ten percent or more of the segment's sales for 1994.
The products of this segment are sold in markets in which there is
competition from many lawn and garden products suppliers. While no
one competitor offers the product lines offered by this segment, there
are a significant number of competitors for specific products. Major
competitors include: Rain Bird Corporation, Suncast Company, Gilmour
Corporation and Nelson Company.
- 6 -
ITEM 1. BUSINESS (Continued)
No material effects upon the capital expenditures, earnings and
competitive position of the Corporation are anticipated to result from
the enactment or adoption of federal, state or local environmental
regulations. During 1994 the Corporation completed the construction
of a regenerative thermal oxidizer at its Winchester, Virginia location,
at a cost of approximately $3.5 million. The equipment is designed to
control certain emissions in compliance with various regulations. No
major capital expenditures for environmental control facilities are
anticipated for the immediate future.
The Corporation currently employs approximately 1,100 full-time
employees.
The Corporation is not engaged in any material transactions with
customers or suppliers located in foreign countries.
ITEM 2. PROPERTIES
O'Sullivan Corporation owns approximately 663,000 square feet of
manufacturing, warehouse and office space on approximately 123 acres
in Winchester, Virginia; 76,000 square feet of manufacturing,
warehouse and office space on six acres in Lebanon, Pennsylvania;
110,000 square feet of manufacturing and warehouse space on
approximately five acres in Newton Upper Falls, Massachusetts; 85,000
square feet of manufacturing and warehouse space on thirteen acres in
Yerington, Nevada; 82,000 square feet of manufacturing, warehouse and
office space on approximately seven acres in Brantford, Ontario, Canada.
The Corporation currently leases 29,250 square feet of warehouse space
in St Louis, Missouri; 15,600 of warehouse space in Bell (Los
Angeles), California; 10,000 square feet of warehouse space in
Yerington, Nevada and 347,000 square feet of manufacturing, warehouse
and office space in Moonachie, New Jersey. The Corporation also has a
sales office located in Chicago, Illinois.
The percentage utilization of the Corporation's manufacturing
facilities is difficult to measure due primarily to the Corporation's
system of adding property, plant and equipment as required by business
conditions. Management believes that unused capacity existed in both
segments of the Corporation's operations during 1994.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1994, O'Sullivan Corporation and its Subsidiaries
had no material proceedings pending to which the Corporations were a
party or of which any of their property was the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
See information provided under Part III, Item 10, included in this
Form 10-K.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The principal market on which the Corporation's common stock is traded
is the American Stock Exchange.
The table below presents the high and low market prices and dividend
information for the Corporation's common shares for 1994 and 1993.
Price Range Cash
High Low Dividend
1994 First Quarter 10 5/8 8 7/8 .07
Second Quarter 10 5/8 8 7/8 .07
Third Quarter 10 5/8 8 7/8 .07
Fourth Quarter 10 3/8 8 7/8 .07
1993 First Quarter 11 7/8 9 1/4 .07
Second Quarter 12 5/8 9 5/8 .07
Third Quarter 12 10 .07
Fourth Quarter 11 3/8 8 1/2 .07
The approximate number of shareholders as of December 31, 1994 was 3,000.
No change is anticipated regarding the Corporation's dividend policy.
There are no restrictions on the payment of dividends at the current time.
ITEM 6. SELECTED FINANCIAL DATA (FROM CONTINUING OPERATIONS)
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
Net sales $194,974,264 $173,345,501 $125,776,914 $114,368,326 $104,590,821
Net income 10,974,970 10,382,400 8,407,638 8,498,059 7,465,850
Net income
per common
share 0.67 0.63 0.51 0.52 0.45
Total
assets 144,528,888 144,365,419 121,996,656 101,144,600 104,596,655
Long-term
debt 1,652,995 1,501,834 4,871,664 19,719 214,100
Total debt 1,705,069 13,518,543 12,132,365 248,197 462,297
Cash dividends
per common
share 0.28 0.28 0.28 0.28 0.28
Return on
Equity 10.1% 10.0% 8.6% 8.5% 8.3%
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
O'Sullivan Corporation's consolidated financial statements represent
the combination of two principal manufacturing business segments. The
primary segment of the Company is the plastics products business
segment. This segment manufactures calendered and molded plastics
products for the automotive and specialty plastics manufacturing
industries. On November 24, 1992 O'Sullivan Corporation acquired
substantially all of the assets of Melnor Industries, Inc. and its
wholly-owned subsidiary Melnor Manufacturing, LTD. With this
acquisition, O'Sullivan Corporation entered the consumer products
manufacturing, marketing and distribution business which represents
its second business segment. The new Company, which is a wholly-owned
subsidiary of O'Sullivan Corporation, is now called Melnor Inc. and
has as its wholly-owned subsidiary Melnor Canada, LTD. The principal
source of income for the Company is from sales of those products
produced by each business segment to manufacturers, distributors and
retail outlets.
On October 3, 1994 the Company announced that it had signed a letter
of intent with Automotive Industries, Inc. concerning the sale of the
Company's Gulfstream Division. On December 2, 1994 the Company closed
the transaction and as a result of this activity exited the injection
molding business. The assets sold as a result of this transaction
consisted primarily of property, plant and equipment, inventories and
the capital stock of Capitol Plastics of Ohio, Inc. The accompanying
consolidated financial statements have been adjusted and comparable
periods restated to reflect the sale of the Gulfstream Division's
assets. Additional information on discontinued operations is
disclosed in footnote 16. The discussion that follows focuses on
continuing operations.
Consolidated net sales on continuing operations for the year ended
December 31, 1994 were $195.0 million, compared to $173.3 million in
1993, up 12.5%. Sales increases were primarily volume related.
Although non automotive price increases were implemented, continued
downward pricing pressure was prevalent throughout the industries
supplied by the Company's operating business segments. This was
particularly true in the plastics products business segment which
supplies products for the domestic automobile industry. Overall sales
growth on continuing operations was evenly distributed between
business operating segments.
Consolidated net income from continuing operations for the year ended
December 31, 1994 increased 5.7% from $10.4 million in 1993 to $11.0
million in 1994. Although the Company experienced modest earnings
increases on continuing operations for the year ended December 31,
1994, earnings expectations for the year were not realized. The
primary negative effect on earnings was the Company's inability to
pass increased raw material costs through to its customer base in a
timely manner. In some instances this was the result of competitive
pressures. However, contractual restrictions also prohibited the
Company from matching necessary price increases with the associated
cost increases. These restrictions permit price changes reflecting
raw material market conditions once per year on January 1st. Under
certain circumstances where unusually severe fluctuations in raw
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material costs cause economic hardship, prices may be adjusted more
frequently. As a result of these issues operating profits were
negatively affected during the third and fourth quarters of 1994. The
Company has subsequently implemented price increases to its customer
base in the month of January, 1995 and expects earnings to improve as
a result.
O'Sullivan Corporation's plastic products business segment accounted
for 76.6% of the consolidated net sales from continuing operations for
the year ended December 31, 1994. Sales increased 12.5% on continuing
operations from $132.8 million in 1993 to $149.4 million in 1994.
Sales increases experienced by the plastics products business segment
were primarily volume related as competitive and contractual
restrictions prohibited significant price increases during 1994. For
the year ended December 31, 1994, the plastics product business
segment contributed $17.2 million in pre-tax net income on continuing
operations compared to $18.8 million for the same period last year,
down 8.7% . The primary reason for the decline in pre-tax net income
for the plastics products business segment was the decline in gross
profits experienced during the third and fourth quarters of 1994.
Gross profits for the year ended December 31, 1994 on continuing
operations were $27.8 million, compared to $28.2 million in 1993. The
plastics products business segment's cost of goods sold increased
16.1% on sales increases of 12.5% which resulted in reduced gross
profit of $3.7 million when compared to last year. Costs of goods
sold for the plastics products segment represented 81.4% of each sales
dollar for the year ended December 31, 1994 compared to 78.8% for the
same period last year. The increase in costs of goods sold was
negatively influenced by raw material costs and mixed compound costs
increasing substantially faster than the Company's ability to pass
price increases through to its customer base and the start up costs
associated with new and improved flexible vinyl sheeting compounds
necessary to launch new programs in 1995. The Company has introduced
price increases to its customer base during the month of January, 1995
and is confident that the start up problems which negatively affected
profits have been addressed. Selling and warehousing expenses
associated with the plastics products business segment increased 23.3%
during 1994 when compared to the same period last year. During 1994,
selling and warehousing expenses represented 4.2% of each sales dollar
compared to 3.8% during 1993. The primary reason for the increase was
the result of increased bad debt expense associated with the financial
failure of two long standing bookbinding customers during the last
half of 1994. Currently the Company expects 1995 sales revenue in the
plastics products business segment to exceed the rate of growth
recorded during 1994. The greatest potential for increased sales
volume will come from those products produced by the Company for the
domestic automobile industry, with modest growth in other product
lines within this business segment.
The Company's consumer products segment was established with the
acquisition of Melnor Inc., in November 1992. The primary activity of
the consumer products segment is the manufacture, sale and
distribution of home lawn and garden watering products to distributors
and retail outlets. Net sales for the consumer products segment
accounted for 23.4% of consolidated net sales from continuing
operations for the year ended December 31, 1994. Net sales increased
12.4% from $40.5 million in 1993 to $45.5 million in 1994. The
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increase in net sales revenue was due primarily to volume related
market penetration rather than to increased sales prices. For the
year ended December 31, 1994, the consumer products segment
contributed $916 thousand in pre-tax profits, compared to a pre-tax
loss of $1.5 million for the same period last year, up 161%. The
major contributing factor to this increase was the overall reduction
of overhead expenses, primarily salaries and benefits and the more
efficient utilization of the resources available to the Company.
Selling and warehousing expenses inclusive of bad debt expense
represented 12.9% and 14.1% of each sales dollar for the years ended
December 31,1994 and 1993 respectively. Currently, the outlook for the
consumer products business segment is promising for the fiscal year
1995, and management expects increased sales volumes and profits to
continue.
Consolidated corporate administration expenses from continuing
operations increased 1.5% for the period ended December 31, 1994
compared to the same period last year. As a percent of net sales,
general corporate administrative expenses represented 3.7% of each
sales dollar in 1994 compared to 4.1% for the same period last year.
Due to the sale of the Company's Gulfstream injection molding business
in December,1994 the Company has and is currently evaluating the
structure of the Company's administrative functions in order to
maximize utilization of its resources.
Consolidated non-operating net expense on continuing operations
decreased 18.4% during the year ended December 31, 1994 when compared
to the same period last year, primarily due to lower amounts of
external debt necessary to finance the companies associated with the
consumer products business segment.
Consolidated capital spending decreased 47.3% during 1994. For the
year ended December 31, 1994 the Company invested $8.8 million in new
property, plant and equipment compared to $16.6 million during 1993.
Planned capital expenditures for 1995 in both the plastics products
business segment and the consumer products business segment are
expected to be equal to or slightly greater than the amounts spent
during 1994. Currently the Company has additional capacity in both
the plastics products and consumer products business segment
operations. As has been the Company's practice, additions to
property, plant and equipment are implemented when additional business
cannot be absorbed into existing facilities or product specifications
require new and improved technology.
Total consolidated debt for the Company decreased $49.8 million for
the period ended December 31, 1994, when compared to the same period
last year. With the proceeds from the sale of the Gulfstream Division
the Company was able to retire all of its short and long-term debt
obligations for O'Sullivan Corporation and its wholly owned subsidiary
Melnor Inc., with the exception of two zero-coupon notes and capital
lease obligations of Melnor Inc., totaling $1.7 million, which by
definition will not be paid until their respective due dates. During
the month of June 1994 the Company renegotiated its $25.0 million
unsecured line of credit with its principal bank, First Union National
Bank of Virginia. The new unsecured line of credit is now $35.0
million and has a maturity date of June 30, 1997. The purpose of
increasing this line of credit was to insure adequate capital for
- 11 -
corporate liquidity, finance growth of trading assets, and to finance
capital expenditures and acquisitions. With the current cash
investments and lines of credit that are available, the Company
believes that working capital requirements for the short and long-term
are currently adequately provided for.
At the close of 1994, even with the loss recorded on the sale from
discontinued operations, the Company's financial condition and
liquidity remained strong, with shareholder's equity at 73.8% of total
assets. Current assets compared to current liabilities were 2.9 to 1.
Total debt to equity of the Company was 1.6%. Equity, although down
$2.1 million from December 31, 1993, due to the loss recorded on the
sale from discontinued operations, was still at $106.6 million.
- 12 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This page left blank intentionally. See following pages for financial
statements.
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INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
of O'Sullivan Corporation
We have audited the accompanying consolidated balance sheets of
O'Sullivan Corporation and Subsidiaries as of December 31, 1994 and
1993 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31,
1994, 1993 and 1992. These financial statements are the
responsibility of the Corporation'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 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of O'Sullivan Corporation and Subsidiaries as of December 31, 1994 and
1993 and the results of their operations and their cash flows for the
years ended December 31, 1994, 1993 and 1992.
/s/ YOUNT, HYDE & BARBOUR, P. C.
Winchester, Virginia
February 3, 1995
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O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
ASSETS 1994 1993
Current Assets ------------ ------------
Cash and cash equivalents $ 9,701,801 $ 2,830,015
Receivables 40,367,968 50,178,989
Inventories 32,475,205 29,931,709
Deferred income tax assets 2,642,523 1,492,746
Other current assets 3,485,292 2,562,069
------------ ------------
Total current assets $ 88,672,789 $ 86,995,528
------------ ------------
Property, Plant and Equipment $ 44,605,639 $ 44,627,362
------------ ------------
Intangibles $ 751,609 $ 1,017,266
------------ ------------
Other assets
Net assets of discontinued operations $ -- -- $ 52,994,219
Other 10,498,851 11,725,263
------------ ------------
Total other assets $ 10,498,851 $ 64,719,482
------------ ------------
Total assets $144,528,888 $197,359,638
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ -- -- $ 8,483,977
Current portion of long-term debt 52,073 3,532,732
Accounts payable 16,729,891 21,547,304
Accrued expenses 13,941,121 10,452,305
------------ ------------
Total current liabilities $ 30,723,085 $ 44,016,318
------------ ------------
Long-Term Debt $ 1,652,996 $ 39,501,834
------------ ------------
Other Long-Term Liabilities $ 2,006,974 $ 1,691,753
------------ ------------
Deferred Income Tax Liabilities $ 3,503,530 $ 3,396,370
------------ ------------
Commitments and Contingencies $ -- -- $ -- --
------------ ------------
Shareholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 16,484,831 $ 16,484,948
Additional paid-in capital 9,963,516 9,964,574
Retained earnings 80,539,058 82,524,869
Cumulative translation adjustments (345,102) (101,732)
Unrecognized pension costs, net of
deferred tax effect -- -- (119,296)
------------ ------------
Total shareholders' equity $106,642,303 $108,753,363
------------ ------------
Total liabilities and
shareholders' equity $144,528,888 $197,359,638
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
- 15 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------ ------------ ------------
Net sales $194,974,264 $173,345,501 $125,776,914
Cost of products sold 156,984,225 137,453,119 102,918,575
------------ ------------ ------------
Gross profit $ 37,990,039 $ 35,892,382 $ 22,858,339
------------ ------------ ------------
Operating expenses
Selling and warehousing $ 12,077,019 $ 10,750,183 $ 5,507,151
General and administrative 7,289,802 7,184,538 4,173,799
------------ ------------ ------------
$ 19,366,821 $ 17,934,721 $ 9,680,950
------------ ------------ ------------
Income from operations $ 18,623,218 $ 17,957,661 $ 13,177,389
------------ ------------ ------------
Other income (expense)
Interest expense $ (811,676) $ (877,834) $ (75,555)
Other, net 298,937 249,323 609,543
------------ ------------ ------------
$ (512,739) $ (628,511) $ 533,988
------------ ------------ ------------
Income from continuing
operations before income
taxes and cumulative
effect of accounting changes $ 18,110,479 $ 17,329,150 $ 13,711,377
Income taxes 7,135,509 6,946,750 5,303,739
------------ ------------ ------------
Income from continuing
operations before cumulative
effect of accounting changes $ 10,974,970 $ 10,382,400 $ 8,407,638
------------ ------------ ------------
Discontinued operations:
Income (loss) from
discontinued operations,
net of taxes $ (125,126) $ (673,282) $ 2,394,774
Loss on disposal of
discontinued operations,
net of taxes (8,220,000) -- -- -- --
------------ ------------ ------------
$ (8,345,126) $ (673,282) $ 2,394,774
------------ ------------ ------------
Income before cumulative
effect of accounting changes $ 2,629,844 $ 9,709,118 $ 10,802,412
Cumulative effect of
accounting changes -- -- 305,338 -- --
------------ ------------ ------------
Net income $ 2,629,844 $ 10,014,456 $ 10,802,412
============ ============ ============
- 16 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
(Continued)
1994 1993 1992
Net income per common share: ------------ ------------ ------------
Income from continuing
operations $ 0.67 $ 0.63 $ 0.51
Income (loss) from
discontinued operations (0.01) (0.04) 0.15
(Loss) on disposal of
discontinued operations (0.50) -- -- -- --
Cumulative effect of
accounting changes -- -- 0.02 -- --
------------ ------------ ------------
Net income per
common share $ 0.16 $ 0.61 $ 0.66
============ ============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
- 17 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
------------ ------------ ------------
Cash Flows from Operating Activities
Net income $ 2,629,844 $ 10,014,456 $ 10,802,412
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 10,867,275 11,438,370 9,623,212
Provision for doubtful accounts 1,138,617 209,719 710,443
Deferred income taxes (6,064,033) 938,091 410,313
Loss on disposal of assets 10,964,763 210,128 72,906
Interest accrual on zero
coupon notes 138,864 116,657 6,121
Cumulative effect of accounting
changes -- -- (305,338) -- --
Provision for restructuring and
withdrawal of non-productive
assets -- -- (969,251) -- --
Changes in operating assets and
liabilities net of effect of
acquisition of business:
Receivables 8,340,071 (14,970,510) 1,638,544
Inventories (2,702,071) (4,192,871) (5,139,325)
Other current assets (1,169,491) (967,404) 419,735
Accounts payable (4,791,149) 3,601,697 (2,080,612)
Accrued expenses 4,023,149 (545,949) 1,159,646
------------ ------------ ------------
Net cash provided by
operating activities $ 23,375,839 $ 4,577,795 $ 17,623,395
------------ ------------ ------------
Cash Flows from Investing Activities
Purchase of property, plant
and equipment $ (8,751,196) $(16,631,214) $ (6,717,094)
Purchase of intangible assets (211,275) (249,723) -- --
Acquisition of business, less
cash acquired -- -- (1,153,643) (5,708,695)
Disbursements on non-operating
notes receivable (150,000) -- -- -- --
Payments received from non-
operating notes receivable 250,894 729,176 624,119
Proceeds from disposal of assets 46,655,229 127,917 354,123
Other, net 425,293 (244,613) (374,377)
------------ ------------ ------------
Net cash provided by (used
in) investing activities $ 38,218,945 $(17,422,100) $(11,821,924)
------------ ------------ ------------
- 18 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
(Continued)
1994 1993 1992
------------ ------------ ------------
Cash Flows from Financing Activities
Changes in short-term debt $ (8,483,977) $ 1,734,995 $ 4,300,558
Cash overdraft reduction -- -- -- -- (413,615)
Net change in line of credit
borrowings (13,000,000) (7,500,000) 7,000,000
Proceeds from long-term debt -- -- 25,000,000 -- --
Repayment of long-term debt (28,546,368) (2,152,412) (500,000)
Principal payments under capital
lease obligations (75,939) (65,338) (270,256)
Cash dividends paid (4,615,539) (4,615,743) (4,615,791)
Purchase of common stock (1,175) (3,504) (550)
Advance payments (repayments)
from customers -- -- -- -- (9,729,529)
------------ ------------ ------------
Net cash provided by (used
in) financing activities $(54,722,998) $ 12,397,998 $ (4,229,183)
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents $ 6,871,786 $ (446,307) $ 1,572,288
------------ ------------ ------------
Cash and cash equivalents at
beginning of year $ 2,830,015 $ 3,545,943 $ 1,973,655
Less cash and cash equivalents
of discontinued operations -- -- (269,621) -- --
------------ ------------ ------------
Cash and cash equivalents of
continuing operations at
beginning of year $ 2,830,015 $ 3,276,322 $ 1,973,655
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 9,701,801 $ 2,830,015 $ 3,545,943
============ ============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
- 19 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
Additional
Common Paid-in Retained
Stock Capital Earnings
------------ ------------ ------------
Balance at January 1, 1992 $ 16,485,328 $ 9,968,248 $ 70,939,503
Net income -- -- -- -- 10,802,412
Purchase of common stock (60) (490) -- --
Dividends declared, $.28 per share -- -- -- -- (4,615,784)
Translation adjustments -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1992 $ 16,485,268 $ 9,967,758 $ 77,126,131
Net income -- -- -- -- 10,014,456
Purchase of common stock (320) (3,184) -- --
Dividends declared, $.28 per share -- -- -- -- (4,615,718)
Translation adjustments -- -- -- -- -- --
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1993 $ 16,484,948 $ 9,964,574 $ 82,524,869
Net income -- -- -- -- 2,629,844
Purchase of common stock (117) (1,058) -- --
Dividends declared, $.28 per share -- -- -- -- (4,615,655)
Translation adjustments -- -- -- -- -- --
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1994 $ 16,484,831 $ 9,963,516 $ 80,539,058
============ ============ ============
Cumulative Unrecognized
Translation Pension Shareholders'
Adjustments Costs Equity
------------ ------------ ------------
Balance at January 1, 1992 $ -- -- $ -- -- $ 97,393,079
Net income -- -- -- -- 10,802,412
Purchase of common stock -- -- -- -- (550)
Dividends declared, $.28 per share -- -- -- -- (4,615,784)
Translation adjustments 34,085 -- -- 34,085
------------ ------------ ------------
Balance at December 31, 1992 $ 34,085 $ -- -- $103,613,242
Net income -- -- -- -- 10,014,456
Purchase of common stock -- -- -- -- (3,504)
Dividends declared, $.28 per share -- -- -- -- (4,615,718)
Translation adjustments (135,817) -- -- (135,817)
Unrecognized pension costs -- -- (119,296) (119,296)
------------ ------------ ------------
Balance at December 31, 1993 $ (101,732) $ (119,296) $108,753,363
Net income -- -- -- -- 2,629,844
Purchase of common stock -- -- -- -- (1,175)
Dividends declared, $.28 per share -- -- -- -- (4,615,655)
Translation adjustments (243,370) -- -- (243,370)
Unrecognized pension costs -- -- 119,296 119,296
------------ ------------ ------------
Balance at December 31, 1994 $ (345,102) $ -- -- $106,642,303
============ ============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
- 20 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
Principles of Consolidation-The consolidated financial statements
include the accounts and transactions of the Corporation and all of
its subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents-The Corporation considers all highly liquid
investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
Receivables and Concentration of Credit Risk-Receivables from trade
customers are generally due within thirty to sixty days. The
Corporation performs periodic reviews of its major customers'
financial condition and grants trade credit based upon evaluations of
the credit worthiness of each customer. Credit losses have been
within the expectations of management. Receivables are presented net
of an allowance for doubtful accounts of $884,467 at December 31, 1994
and $1,133,793 at December 31, 1993. Accounts receivable balances for
automotive related business at December 31, 1994 and 1993 were
$9,507,357 and $8,688,543, respectively.
Inventories-Inventories are valued at the lower of cost or market,
with cost being determined substantially by the first-in, first-out or
average cost method.
Property, Plant and Equipment and Depreciation-Property, plant and
equipment are stated at historical cost, adjusted to current exchange
rates where applicable. Depreciation is computed primarily by the
straight-line method over the estimated useful lives of assets. The
estimated useful lives are twenty to forty years for buildings and
three to fourteen years for machinery and other equipment.
Accelerated methods of depreciation are utilized for tax purposes.
Expenditures for repairs and maintenance are charged to operations as
incurred. Betterments and improvements that extend the useful life of
an asset are capitalized. Upon sale and other dispositions of assets,
the cost and related accumulated depreciation is removed from the
accounts and the resulting gain or loss is reflected in operations.
Intangibles-Intangible assets are stated at cost less accumulated
amortization. Amortization is determined on a straight-line basis
over the estimated useful lives of the assets that have been
determined to range from two to seven years. Amortization expense for
1994, 1993 and 1992 was $447,770, $197,224 and $13,047, respectively.
Income Taxes-Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences and tax credit carryforwards and deferred tax liabilities
are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion of all of the deferred tax
- 21 -
assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date
of enactment. Reference should also be made to Note 7 regarding a
change in the method in accounting for income taxes.
Research and Development-Product and process research and development
are charged to expense as incurred.
Per Share Information-Net income and dividends per share were
calculated on the weighted average common shares outstanding for 1994,
1993 and 1992 which were 16,484,879, 16,485,103 and 16,485,323,
respectively. Stock options were not dilutive for 1994, 1993 or 1992.
Foreign Currency Translation-Financial statements for the
Corporation's foreign subsidiary are translated into U.S. dollars at
year-end exchange rates as to assets and liabilities and weighted
average exchange rates as to revenues and expenses. The resulting
translation adjustments are recorded in shareholders' equity.
Transaction gains and losses are reflected in net income.
Pension Plans-The Corporation and its subsidiaries have retirement
plans that cover substantially all employees who meet certain
eligibility requirements. Employees not covered under a retirement
plan maintained by the Corporation and its subsidiaries are generally
participants in multiemployer plans sponsored by other entities. The
plans include non-contributory defined benefit plans providing
benefits to certain salaried employees based on years of service and
final years' average earnings and to certain hourly employees based on
a dollar unit multiplied by years of eligible service. The
Corporation's policy is to fund at least the minimum amounts required
by the applicable governing bodies.
The Corporation also maintains a Retirement Savings Plan ("Plan") to
provide retirement benefits to employees not covered by a defined
benefit plan. The Plan provides that the Corporation will make a
basic contribution of three percent of eligible compensation for
participants. The Plan also provides that the Corporation will make
an additional contribution of up to two percent of eligible
compensation if the participant is making voluntary contributions to
the Plan. Participants may generally contribute up to five percent of
their eligible compensation. The Corporation is not required to make
any contributions during a plan year if it elects to not do so.
Postretirement Benefits-The Corporation provided health care benefits
to certain of its retired employees under a plan which was terminated
January 1, 1993. Upon termination of the plan this group of retired
employees was allowed to continue to be covered by the Corporation's
group insurance plan. Effective January 1, 1993 the Corporation
adopted Financial Accounting Standards Board Statement No. 106 to
account for its share of the costs of benefits provided to this group.
To effect adoption of Statement No. 106, the Corporation accrued as of
January 1, 1993 its share of the estimated costs to insure this group
of retirees. Prior to January 1, 1993, the Corporation expensed its
share of these expenses as they were incurred.
Reclassification of Amounts-Certain amounts for 1993 and 1992 have
been reclassified to reflect comparability with account
classifications for 1994.
- 22 -
Note 2. Inventories
Inventories at December 31 were composed of the following:
1994 1993
------------ ------------
Finished goods $ 8,848,411 $ 9,453,982
Work in process 7,581,465 4,947,924
Raw materials 13,163,840 13,024,695
Supplies 2,881,489 2,505,108
------------ ------------
$ 32,475,205 $ 29,931,709
============ ============
Slow-moving inventories at December 31, 1994 amounted to $1,044,138
less a reserve of $329,906. At December 31, 1993 slow-moving
inventories amounted to $640,539 less a reserve of $306,320. Slow-
moving inventories is an estimate of inventory held in excess of one
year's requirements, based on historical sales volumes.
Note 3. Property, Plant and Equipment
Property, plant and equipment at December 31 were composed of the
following:
1994 1993
------------ ------------
Land $ 1,243,761 $ 1,226,403
Buildings 23,980,895 23,279,956
Machinery and equipment 61,457,280 57,751,673
Transportation equipment 3,533,039 3,468,575
------------ ------------
$ 90,214,975 $ 85,726,607
Less accumulated depreciation 45,609,336 41,099,245
------------ ------------
$ 44,605,639 $ 44,627,362
============ ============
Depreciation expense totaled $10,419,505, $11,241,146 and $9,610,165
in 1994, 1993 and 1992, respectively.
Note 4. Accrued Expenses
Accrued expenses at December 31 were composed of the following:
1994 1993
------------ ------------
Accrued compensation $ 2,184,055 $ 3,358,883
Dividends payable 1,153,614 1,153,497
Contingency reserve for
discontinued operations 5,543,042 -- --
Employee benefits 1,989,047 2,827,832
Other accrued expenses 3,071,363 3,112,093
------------ ------------
$ 13,941,121 $ 10,452,305
============ ============
- 23 -
The contingency reserve for discontinued operations is an allowance
for potential adjustments relating to the ultimate outcome of the
Corporation's sale of the Gulfstream Division.
Note 5. Debt
Short-Term Debt
Melnor Inc., a subsidiary of the Corporation, had short-term debt at
December 31, 1994 consisting of a revolving credit facility
("revolving loan") with a financial institution in an aggregate amount
not to exceed $15,000,000 that expires March 3, 1996, and shall be
automatically renewed for one year periods thereafter, unless
terminated by either party. Termination will occur (180) days after
notification. The loan is collateralized by substantially all assets
of Melnor Inc. and the maximum principal amount outstanding at any one
time is based on a formula using the carrying values of eligible
accounts receivable and inventory. Interest is payable monthly at a
fluctuating rate equal to prime plus 1.25%, but at no time shall the
rate be less than 6%. The rate at December 31, 1994 was 9.75%. The
loan agreement also provides for certain financial covenants all of
which have been waived by the lender. In December, 1994, the
Corporation paid off the loan and gave notice of its intent to
terminate the loan.
Short-term debt at December 31, 1993, consisted of a revolving credit
facility ("revolving loan") with a finance company in an aggregate
amount not to exceed $20,000,000 which expired November 24, 1994.
The aggregate amount of the revolving loan cannot exceed the lesser of
(i) the Current Asset Base minus the Letter of Credit Reserve and (ii)
the Total Seasonal Revolving Loan Facility of $20,000,000 during the
period of February 1 through July 31 of each year and the Total
Permanent Revolving Loan Facility of $11,000,000 during the period of
August 1 through January 31 of the succeeding calendar year. The
Current Asset Base equals 85% of the face amount of eligible accounts
receivable plus 55% of eligible inventory for Melnor Inc. and its
subsidiary. Interest is payable monthly at a fluctuating rate equal to
prime plus 1.5%. The rate at and December 31, 1993, was 7.5% In
addition, underutilization and letter of credit fees are payable
monthly. Total loan availability at December 31, 1993, amounted to
$9,000,000. At December 31, 1993, $8,483,977 was borrowed. This
revolving loan was refinanced with a financial institution in March of
1994.
The weighted average interest rate for short-term borrowings was 8.33%
for 1994 and 7.50% for both 1993 and 1992.
- 24 -
Long-Term Debt 1994 1993
------------ ------------
7.05% Senior Notes dated May 27,
1993, payable to various insurance
companies. The notes bear an
interest rate of 7.05% payable
semiannually on the first day of
May and November commencing November
1, 1993. Interest is due on any
overdue principal, premium amount and
interest installment at the rate of
8.05% per annum until paid. Principal
payments of the lesser of (a)
$5,000,000 or (b) the principal
amounts of the notes then outstanding
are due on May 1 of each year,
commencing May 1, 1996 and ending
May 1, 1999. The notes were paid in
full in December, 1994. $ -- -- $ 25,000,000
Line of credit notes payable to
First Union National Bank of
Virginia. The Corporation has a
$35,000,000 unsecured line of credit
to support general corporate
activities. Borrowings against the
line of credit are at or below
prevailing prime interest rates.
Interest rates vary under this
revolver based on the Corporation's
choice of options provided to the
Company by First Union National Bank
of Virginia. (6.0% at December 31,
1993). The line of credit matures
June 30, 1997. -- -- 13,000,000
Promissory note payable from Melnor
Inc. to a finance company due in
monthly payments of $41,000 plus
interest at a fluctuating rate equal
to 1.5% per annum in excess of the
prime rate (7.5% at December 31,
1993) with the outstanding balance
payable in full on November 24,
1994, collateralized by all assets
of Melnor Inc. and its subsidiary.
The loan is provided under the same
security agreement as the revolving
credit facility described in the
Short-Term Debt section. The note
was paid in full in March of 1994. -- -- 508,000
Senior subordinated note payable
from Melnor Inc. to an insurance
company due November 24, 1994 with
interest payable at the prime rate
plus 1.0% (7.0% at December 31,
1993) on November 24, 1993, May 24,
- 25 -
1994 1993
------------ ------------
1994 and November 24, 1994.
Interest payments are guaranteed by
O'Sullivan Corporation. The note
was paid in full in March of 1994. -- -- 2,695,000
7.0% senior subordinated note payable
from Melnor Inc. to an affiliate of Melnor
Industries, Inc. due December 24, 1994 with
interest payable at the prime rate plus 1.0%
(7.0% at December 31, 1993) on December 24,
1993. Interest payments are guaranteed by
O'Sullivan Corporation. The note was
paid in full in March of 1994. -- -- 305,000
Unsecured non-interest bearing
promissory note payable to Melnor
Industries, Inc. discounted at 9.0%
due on November 24, 1996. The
principal amount of the note is
$1,622,791. 1,360,945 1,243,747
Non-interest bearing obligation
payable to Melnor Industries, Inc.
discounted at 9.0%. Payment is
contingent upon Melnor Industries,
Inc. satisfying its obligation under
the New Jersey Environmental Cleanup
Responsibility Act and the release
by the State of the escrow fund of
$300,000 established to fund
environmental cleanup activities. 252,632 230,966
Notes payable from Melnor Inc. to
equipment finance companies due in
monthly payments totaling $906
including interest at rates from
11.7% to 15.5%. The notes are
secured by equipment with a book
value of $13,441. 7,754 17,052
Capital lease obligations 83,738 34,801
------------ ------------
$ 1,705,069 $ 43,034,566
Less current maturities 52,073 3,532,732
------------ ------------
$ 1,652,996 $ 39,501,834
============ ============
Long-term debt matures as follows:
1995 $ 52,073
1996 1,388,309
1997 12,055
1998 -- --
1999 -- --
Later years 252,632
------------
$ 1,705,069
============
- 26 -
Interest incurred and capitalized are as follows:
1994 1993 1992
------------ ------------ ------------
Interest incurred $ 914,211 $ 959,226 $ 99,660
Less interest capitalized 102,535 81,392 24,105
------------ ------------ ------------
$ 811,676 $ 877,834 $ 75,555
============ ============ ============
Note 6. Business Combinations
On April 1, 1993 the Corporation acquired all of the outstanding stock
of Capitol Plastics of Ohio, Inc., a company engaged in the business
of custom injection molding, at an acquisition cost of $1,153,643.
The acquisition was accounted for as a purchase and the accounts and
transactions of the acquired business have been included in the
consolidated financial statements from the date of acquisition. On
December 2, 1994, Capitol Plastics of Ohio, Inc. was sold as part of
the Gulfstream Division, see Note 16 for additional information.
On November 24, 1992 the Corporation acquired substantially all of the
assets of Melnor Industries, Inc., including the outstanding stock of
Melnor Manufacturing, Ltd., a Canadian corporation owned 100% by
Melnor Industries, Inc. The businesses are engaged in the manufacture
and distribution of lawn and garden consumer products. The total
acquisition cost was $13,655,967 adjusted for the assumption of
certain liabilities. The acquisition was accounted for as a purchase
and the accounts and transactions of the acquired businesses have been
included in the consolidated financial statements from the date of
acquisition.
Unaudited pro forma consolidated net sales, net income and net income
per common share, assuming the acquisition had occurred as of the
beginning of 1992 would have been approximately as follows:
Pro forma net sales $ 167,200,000
Pro forma net income from continuing
operations $ 7,400,000
Pro forma net income from continuing
operations per common share $ 0.45
Note 7. Income Tax Matters
Pretax income from continuing operations for the years ended December
31, 1994, 1993 and 1992 was taxed by the following jurisdictions:
1994 1993 1992
------------ ------------ ------------
Domestic $ 16,934,578 $ 15,741,703 $ 13,574,919
Foreign 1,175,901 1,587,447 136,458
------------ ------------ ------------
$ 18,110,479 $ 17,329,150 $ 13,711,377
============ ============ ============
- 27 -
Effective January 1, 1993, the Corporation adopted Statement of
Financial Standards No. 109, "Accounting for Income Taxes." The
adoption of Statement No. 109 changes the Corporation's method of
accounting for income taxes from the deferred method to a liability
method. Under the deferred method the Corporation deferred the past
tax effects of a timing difference between financial reporting and tax
reporting. The liability method requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of
temporary differences between the reported amounts of assets and
liabilities and their tax bases.
The cumulative effect of the adoption of Statement No. 109 was to
increase net income determined for 1993 by $680,488. Financial
statements for prior years have not been restated.
Net deferred tax liabilities at December 31, 1994 and 1993 consisted
of the following components:
1994 1993
------------ ------------
Deferred tax assets:
Provision for doubtful accounts $ 277,708 $ 302,800
Employee benefits 1,394 150 1,272,080
Inventory basis differences 189,615 290,512
Contingency reserve for
discontinued operations 1,330,621 -- --
Other 402,184 438,406
------------ ------------
$ 3,594,278 $ 2,303,798
------------ ------------
Deferred tax liabilities:
Property, plant and equipment $ 4,093,935 $ 3,872,744
Like-kind exchange 254,856 254,856
Other 106,494 79,822
------------ ------------
$ 4,455,285 $ 4,207,422
------------ ------------
$ (861,007) $ (1,903,624)
============ ============
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of December 31, 1994 and 1993 as
follows:
Noncurrent (liabilities) $ (3,503,530) $ (3,396,370)
Current assets 2,642,523 1,492,746
------------ ------------
$ (861,007) $ (1,903,624)
============ ============
The provision for income taxes charged to continuing operations for
the years ended December 31, 1994 and 1993 consists of the following:
Current:
Federal $ 5,478,787 $ 4,807,962
Foreign 472,492 611,451
State 960,462 1,449,583
------------ ------------
$ 6,911,741 $ 6,868,996
------------ ------------
- 28 -
1994 1993
Deferred: ------------ ------------
Federal $ 190,369 $ 29,886
Foreign 21,387 -- --
State 12,012 47,868
------------ ------------
$ 223,768 $ 77,754
------------ ------------
$ 7,135,509 $ 6,946,750
============ ============
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax
income for the years ended December 31, 1994 and 1993 due to the
following:
1994 1993
% Income % Income
Before Before
Taxes Taxes
------- -------
Computed "expected" tax expense 35.0% 35.0%
Increases (reductions) in taxes
resulting from:
Income taxed at lower US federal rate (0.6%) (0.6%)
State taxes, net of federal benefit 3.5% 5.6%
Higher rate on earnings of foreign 0.5% 0.3%
operations
Federal tax credits (0.4%) (0.4%)
Other 1.4% 0.2%
------ ------
39.4% 40.1%
====== ======
As discussed above, the Corporation accounted for income taxes using
the deferred method as prescribed by APB 11 for the year ended
December 31, 1992. The provision for income taxes charged to
continuing operations for the year ended December 31, 1992 consists of
the following:
1992
------------
Current:
Federal $ 4,649,377
Foreign 58,014
State 826,048
------------
$ 5,533,439
------------
Deferred:
Federal (benefit) $ (204,278)
Foreign -- --
State (benefit) (25,422)
------------
$ (229,700)
------------
$ 5,303,739
============
- 29 -
The components of deferred income taxes (benefits) are as follows:
1992
------------
Depreciation $ 237,596
Provision for doubtful
accounts (114,439)
Employee benefits (125,539)
Inventory basis difference (121,116)
Other (106,202)
------------
$ (229,700)
============
A comparison of the federal statutory tax rate for 1992 to the
Corporation's effective tax rate is as follows:
1992
-----
US federal income tax rate 34.0%
Increases (reductions) in taxes
resulting from:
State taxes, net of federal benefit 3.9%
Federal tax credits (0.2%)
Other 1.0%
-----
Effective tax rate 38.7%
=====
Note 8. Benefit Plans
Defined Benefit Plans
The net pension cost for defined benefit plans included the following
components:
1994 1993 1992
---------- ---------- ----------
Benefits earned during the year $ 228,417 $ 242,837 $ 332,385
Interest cost on projected
benefit obligation 678,236 654,682 376,887
Actual (return) on assets (222,158) (592,401) (238,740)
Net amortization and deferral (312,142) 94,403 (76,955)
Curtailment (gain) (92,961) -- -- -- --
---------- ---------- ----------
Net pension cost $ 279,392 $ 399,521 $ 393,577
========== ========== ==========
- 30 -
The funded status of the defined benefit pension plans as of December
31, 1994 was as follows:
Overfunded Underfunded
Actuarial present value: ----------- -----------
Vested benefit obligation $ 2,792,538 $ 4,968,242
Nonvested benefit obligation -- -- 196,544
----------- -----------
Accumulated benefit obligation $ 2,792,538 $ 5,164,786
Effect of projected compensation increases -- -- 312,964
----------- -----------
Projected benefit obligation $ 2,792,538 $ 5,477,750
Fair value of plan assets 3,572,189 4,553,633
----------- -----------
Plan assets in excess of (less than)
projected benefit obligation $ 779,651 $ (924,117)
Unrecognized net (gain) (141,839) (363,643)
Unrecognized prior service costs -- -- 567,526
Unrecognized net (asset) obligation
at initial adoption of FAS 87 (371,578) 26,921
Adjustment required to recognize
minimum liability -- -- (142,333)
----------- -----------
Prepaid (accrued) pension cost $ 266,234 $ (835,646)
=========== ===========
The funded status of the defined benefit pension plans as of December
31, 1993 was as follows:
Overfunded Underfunded
Actuarial present value: ----------- -----------
Vested benefit obligation $ 3,621,125 $ 4,872,868
Nonvested benefit obligation 33,993 135,445
----------- -----------
Accumulated benefit obligation $ 3,655,118 $ 5,008,313
Effect of projected compensation increases 245,505 835,731
----------- -----------
Projected benefit obligation $ 3,900,623 $ 5,844,044
Fair value of plan assets 4,515,461 3,559,672
----------- -----------
Plan assets in excess of (less than)
projected benefit obligation $ 614,838 $(2,284,372)
Unrecognized net loss 26,088 681,322
Unrecognized prior service costs -- -- 629,931
Unrecognized net (asset) obligation
at initial adoption of FAS 87 (436,385) 30,286
Adjustment required to recognize
minimum liability -- -- (505,808)
----------- -----------
Prepaid (accrued) pension cost $ 204,541 $(1,448,641)
=========== ===========
Discount rates for the plans ranged from 7% to 8%. The assumed long-
term rates of return on plan assets were also 7% to 8%. The assumed
rate of increase in future compensation levels ranged from 5% to 7%.
The unrecognized asset (liability) at the initial adoption of FAS 87
is being amortized on a straight-line basis over the average remaining
service period of plan participants. Plan assets consist of listed
common stocks, corporate and government bonds and short-term
investments.
- 31 -
Retirement Savings Plan
The expense associated with the Retirement Savings Plan was $1,268,087
for 1994, $1,152,278 for 1993 and $961,869 for 1992.
Deferred Compensation Plan
During 1985, the Corporation initiated a deferred compensation program
for key employees of the Corporation. Under this program, the
Corporation has agreed to pay each covered employee a certain sum
annually for fifteen years upon their retirement or, in the event of
their death, to their designated beneficiary. A benefit is also paid
if the employee terminates employment (other than by his voluntary
action or discharge for cause) before they attain age 65. In that
event, the amount of the benefit depends on the employee's years of
service with the Corporation (with full benefit paid only if the
employee has completed 25 years of service). The Corporation has
purchased individual life insurance contracts with respect to each
employee covered by this program. The Corporation is the owner and
beneficiary of the insurance contracts. The employees are general
creditors of the Corporation with respect to these benefits. The
expense associated with the Deferred Compensation plan was $295,299
for 1994, $196,064 for 1993 and $91,213 for 1992.
Postretirement Benefit Plan
At January 1, 1993 the Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement requires
the Corporation to recognize the estimated costs of providing certain
postretirement benefits to former employees of the Corporation. The
Corporation elected to recognize the transition obligation immediately
as the effect of an accounting change. This change resulted in a one-
time charge to income in 1993 of $375,150, net of deferred income
taxes of $239,850.
Annual net postretirement benefit costs are determined on an actuarial
basis. Net periodic postretirement benefit cost included the
following components for the years ended December 31, 1994 and 1993:
1994 1993
Interest expense on accumulated ---------- ----------
postretirement benefit obligation $ 29,000 $ 40,000
Other amortization and deferrals (12,000) (95,000)
---------- ----------
$ 17,000 $ (55,000)
========== ==========
- 32 -
Postretirement benefit obligations at December 31, 1994 and 1993, none
of which are funded, are summarized as follows:
1994 1993
Accumulated postretirement benefit ---------- ----------
obligation, retirees $ 387,000 $ 460,000
Plan assets -- -- -- --
---------- ----------
Accumulated postretirement benefit
obligation in excess of plan assets $ 387,000 $ 460,000
Unrecognized transition obligation -- -- -- --
Unrecognized net experience losses
(gains) -- -- -- --
---------- ----------
Accrued postretirement benefit
obligation $ 387,000 $ 460,000
========== ==========
For measurement purposes, a 16% annual rate of increase in per capita
health care costs of covered benefits was assumed for 1994, with such
annual rate of increase gradually declining to 6% in 2003.
Note 9. Leases
The Corporation and its subsidiaries lease various plant and warehouse
facilities along with various equipment. Leases for the plant and
warehouse facilities and capitalized leases for machinery and
equipment generally require the payment of appropriate taxes,
insurance and maintenance costs. Most noncapitalized leases, except
for the lease of facilities in New Jersey by a subsidiary, are
cancelable within a limited period of time. The facility in New
Jersey is leased under a noncancelable agreement that expires June 30,
1998.
Minimum
Rental Capitalized
Commitments Leases
----------- -----------
1995 $ 186,329 $ 50,938
1996 310,567 29,881
1997 435,672 12,356
1998 216,735 -- --
----------- -----------
$ 1,149,303 $ 93,175
===========
Less amount representing interest 9,437
-----------
Present value of net minimum lease payments $ 83,738
===========
Net rental expense for all non-capitalized leases for the years ended
1994, 1993, and 1992 was $858,213, $849,963 and $315,931, respectively.
Note 10. Research and Development
Research and development costs charged to expense were $1,897,111 in
1994, $1,971,274 in 1993 and $1,440,716 in 1992.
- 33 -
Note 11. Restructuring of Operations
In 1991, in response to economic pressures, the Corporation
implemented a business strategy designed to improve operating
efficiency. Activities associated with the restructuring included the
abandonment and disposal of non-productive assets, consolidation of
operations including rigging and relocation of molding machines and
related support facilities and severance costs associated with
terminated employees. During 1993, the Corporation reduced operating
expenses $969,251 due to a change in accounting estimate for
restructuring charges that the Corporation recorded against operations
in 1991. The effect of the change in accounting estimate was to
increase net income $591,243, net of related income tax effect of
$378,008. Net income per common share increased by $0.04 due to the
change.
Note 12. Commitments and Contingencies
Environmental Matters
The Corporation continues to modify, on an ongoing, regular basis,
certain of its processes which may have an environmental impact. The
Corporation's efforts in this regard include the removal of many of
its underground storage tanks and the reduction or elimination of
certain chemicals and wastes in its operations. Although it is very
difficult to quantify the potential impact of compliance with
environmental protection laws, the Corporation's financial statements
reflect the cost of these ongoing modifications. Management believes
that the continuing costs to the Corporation of environmental
compliance will not result in a material adverse effect on its future
financial condition or results of operations.
Note 13. Business Segment Information
The Corporation's operations are classified principally into two
business segments; Calendered Plastics Products ("Plastics Products")
and Lawn and Garden Consumer Products ("Consumer Products"). The
Plastics Products segment primarily involves the manufacture of
calendered plastics products for the automotive and specialty plastics
manufacturing industries. The Consumer Products segment primarily
involves the manufacture and distribution of a wide range of lawn and
garden products. Operating profit represents net sales less operating
expenses for each segment and excludes general corporate expenses and
non-operating revenues and expenses. Identifiable assets for each
segment represent those assets used in the Corporation's operations
and exclude general corporate assets. General corporate assets
include cash, investments and other non-operating assets.
Net sales for the Plastics Products segment to the divisions and
subsidiaries of Ford Motor Company amounted to $24,385,299 (12.5% of
net sales) in 1994, $13,374,601 (7.7% of net sales) in 1993 and
$9,123,228 (7.3% of net sales) in 1992.
Receivables at December 31, 1994, 1993 and 1992 from Ford Motor
Company were $3,396,054, $2,085,303 and $1,298,451, respectively.
- 34 -
Business Segment Information
1994 1993 1992
Net Sales By Classes of ------------ ------------ ------------
Similar Products
Plastics Products $149,438,108 $132,832,228 $123,374,078
Consumer Products 45,536,156 40,513,273 2,402,836 (a)
------------ ------------ ------------
Total Net Sales $194,974,264 $173,345,501 $125,776,914
============ ============ ============
Operating Profit (Loss)
Plastics Products $ 21,630,468 $ 23,085,147 $ 17,630,963
Consumer Products 4,282,552 2,057,052 (279,775)(a)
------------ ------------ ------------
Total Operating Profit $ 25,913,020 $ 25,142,199 $ 17,351,188
General Corporate Expenses 7,289,802 7,184,538 4,173,799
Non-Operating Revenue
(Expense) (512,739) (628,511) 533,988
------------ ------------ ------------
Income From Continuing
Operations Before Income
Taxes and Cumulative
Effect of Accounting
Changes $ 18,110,479 $ 17,329,150 $ 13,711,377
============ ============ ============
Identifiable Assets
Plastics Products $ 92,203,867 $ 99,706,260 $ 81,522,707
Consumer Products 27,318,222 25,394,702 23,560,028
------------ ------------ ------------
Total Identifiable Assets $119,522,089 $125,100,962 $105,082,735
General Corporate Assets 25,006,799 19,264,457 16,913,921
------------ ------------ ------------
Total Assets-
Continuing Operations $144,528,888 $144,365,419 $121,996,656
============ ============ ============
Capital Expenditures (b)
Plastics Products $ 7,477,833 $ 15,193,167 $ 6,384,938
Consumer Products 1,205,377 1,351,516 32,502 (a)
General Corporate 67,986 86,531 299,654
------------ ------------ ------------
Total Capital
Expenditures $ 8,751,196 $ 16,631,214 $ 6,717,094
============ ============ ============
Depreciation and
Amortization (b)
Plastics Products $ 8,644,205 $ 9,651,506 $ 9,164,057
Consumer Products 1,719,307 1,402,596 104,520 (a)
General Corporate 503,763 384,268 354,635
------------ ------------ ------------
Total Depreciation and
Amortization $ 10,867,275 $ 11,438,370 $ 9,623,212
============ ============ ============
(a) Includes activity only from acquisition of business at November
24, 1992 through December 31, 1992.
(b) Includes activity from discontinued operations.
- 35 -
Note 14. Incentive Stock Option Plan
The Corporation has an incentive stock option plan under which options
may be granted to certain key employees for the purchase of the
Corporation's common stock. The effective date of the plan was
January 29, 1985. The plan will expire on January 28, 1995. The original
number of shares authorized under the plan totaled 50,000 shares.
Antidilutive provisions in the plan required an increase in authorized
shares to 165,886 shares for stock dividends and distributions that
occurred during 1989, 1988, 1987, 1986 and 1985. The option price
covered by an option cannot be less than 100% of fair market value of
the common stock on the date of grant.
As of December 31, 1994, options for 153,062 shares remain unexercised
and 12,824 shares are reserved for the grant of future options. No
options were granted in 1994. Options for 1,000 shares at an exercise
price of $10.50 per share were granted during 1993. Options for
55,820 shares at an exercise price of $8.42 per share were granted
during 1992. Options for 7,956 shares during 1994, 2,000 shares
during 1993 and 41,831 shares during 1992 were forfeited. No options
were exercised during 1994, 1993, or 1992. Since the plan expired on
January 28, 1995 all shares reserved for future option grants were
canceled. Although the 1985 incentive stock option plan has expired,
those options previously granted may be exercised by the individual
recipients until the options expire, normally ten years after the date
of the original grant.
Note 15. Fair Value of Financial Instruments
The Corporation estimates that each category of financial instruments;
including cash, trade receivables and payables, investments and debt
instruments, approximate current value at December 31, 1994 and 1993.
Note 16. Discontinued Operations
On December 2, 1994 the Corporation sold certain specified assets of
the Corporation's Gulfstream Division, which was part of the
Corporation's plastics products business segment, to Automotive
Industries Holding, Inc. The assets sold consisted primarily of
property, plant and equipment, inventories and the capital stock of
Capitol Plastics of Ohio, Inc., a subsidiary of O'Sullivan
Corporation. In addition, certain specified liabilities, consisting
primarily of employee compensation payables were assumed by Automotive
Industries Holding, Inc. The Corporation received $46,537,017 in cash
and $4,000,000 in an unsecured promissory note.
The loss on disposal of the division of $8,220,000 (net of income tax
benefit of $5,480,000) represents the loss on disposal of the assets
of the division, along with expenses associated with disposal
activities, including severance costs, environmental clean-up costs,
professional fees and various other costs associated with the
disposal, net of the operating income of $1,400,000, during the phase-
out period.
- 36 -
Income (loss) from the discontinued operations of the Gulfstream
Division is shown separately in the accompanying income statements.
Income statements for the years ended December 31, 1993 and 1992 have
been restated to show the results of the Gulfstream Division
separately from continuing operations. Income taxes (benefit)
applicable to the years ended December 31, 1994, 1993 and 1992 were
$(86,439), $141,614 and $1,438,817, respectively.
Net sales of the Gulfstream Division were $149,595,597, $118,910,213
and $92,681,331 for the years ended December 31, 1994, 1993 and 1992,
respectively. These amounts are not included in net sales in the
accompanying income statements.
Note 17. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
1994 1993 1992
Cash payments for interest, ------------ ------------ ------------
net of interest capitalized $ 3,199,018 $ 2,028,606 $ 777,636
============ ============ ============
Cash payments for income taxes $ 8,797,775 $ 7,964,853 $ 5,356,385
============ ============ ============
Supplemental Schedule of Noncash Investment Activities
The Corporation's 1993 business acquisition involved the following:
Fair value of assets acquired, other than
cash and cash equivalents $ 8,173,416
Liabilities assumed (7,019,773)
------------
Cash payments made $ 1,153,643
============
The Corporation's 1992 business acquisition involved the following:
Fair value of assets acquired, other than
cash and cash equivalents $ 20,803,464
Liabilities assumed (7,288,802)
Notes issued to others (6,143,424)
Notes issued to sellers (1,662,543)
------------
Cash payments made $ 5,708,695
============
In 1994, the Corporation received a note receivable of $4,000,000 as
part of the proceeds from the sale of assets of discontinued
operations.
- 37 -
Note 18. Supplemental Financial Data (Unaudited)
QUARTER ENDED
--------------------------------------------------
1994 March 31 June 30 September 30 December 31
----------- ----------- ----------- -----------
Net sales $47,405,015 $57,027,493 $44,696,455 $45,845,301
Gross profit $ 9,664,206 $11,506,661 $ 8,552,102 $ 8,267,070
Income (loss) from:
Continuing operations $ 2,837,888 $ 3,826,222 $ 2,408,003 $ 1,902,857
Discontinued operations (226,823) 1,072,996 (9,191,299) -- --
----------- ----------- ----------- -----------
Net income $ 2,611,065 $ 4,899,218 $(6,783,296) $ 1,902,857
=========== =========== =========== ===========
Earnings (loss) per share:
Continuing operations $ .17 $ .23 $ .15 $ .12
Discontinued operations (.01) .07 (.57) -- --
----------- ----------- ----------- -----------
Earnings (loss)
per share $ .16 $ .30 $ (.42) $ .12
=========== =========== =========== ===========
Dividends declared $ .07 $ .07 $ .07 $ .07
=========== =========== =========== ===========
Market price per share:
High 10 5/8 10 5/8 10 5/8 10 3/8
Low 8 7/8 8 7/8 8 7/8 8 7/8
QUARTER ENDED
--------------------------------------------------
1993 March 31 June 30 September 30 December 31
----------- ----------- ----------- -----------
Net sales $45,600,934 $48,304,022 $39,173,305 $40,267,240
Gross profit $ 7,615,739 $10,716,467 $ 8,186,857 $ 9,373,319
Income (loss) from:
Continuing operations $ 1,697,166 $ 3,478,446 $ 2,641,890 $ 2,564,898
Discontinued operations 593,120 803,585 (680,212) (1,389,775)
Cumulative effect of
accounting changes -- -- -- -- -- -- 305,338
----------- ----------- ----------- -----------
Net income $ 2,290,286 $ 4,282,031 $ 1,961,678 $ 1,480,461
=========== =========== =========== ===========
Earnings (loss) per share:
Continuing operations $ .10 $ .22 $ .16 $ .15
Discontinued operations .04 .04 (.04) (.08)
Cumulative effect of
accounting changes -- -- -- -- -- -- .02
----------- ----------- ----------- -----------
Earnings (loss)
per share $ .14 $ .26 $ .12 $ .09
=========== =========== =========== ===========
Dividends declared $ .07 $ .07 $ .07 $ .07
=========== =========== =========== ===========
Market price per share:
High 11 7/8 12 5/8 12 11 3/8
Low 9 1/4 9 5/8 10 8 1/2
- 38 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 39 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Corporation's Directors and
Director nominees, see pages 3 through 6 of the Corporation's
definitive Proxy Statement dated April 1, 1995 which pages are
incorporated herein by reference.
Executive Officers of the Registrant
The names, ages and positions of the executive officers of O'Sullivan
Corporation as of January 31, 1995 are listed below. All officers are
elected by the board for a one year term. There are no family relation-
ships among officers or any other arrangement or understanding between
any officer and any other person pursuant to which the officer was
elected.
Served as
Officer
Name Age Office Since
Arthur H. Bryant, II 52 Chairman of the Board 1975
James T. Holland 54 President 1976
C. Bryant Nickerson 48 Secretary & Treasurer 1986
Phillip S. Griffin 56 Vice President 1975
John S. Campbell 44 Vice President 1986
Mr. Bryant held the office of Executive Vice President from April,
1975 until his election as President in April, 1976. He was elected
Chairman of the Board and Chief Executive Officer in April, 1984. Mr.
Bryant will be retiring from his position as Chief Executive Officer
on April 25, 1995. He will continue to serve as Chairman of the Board.
Mr. Holland was elected Treasurer in July, 1976, Vice President and
Treasurer in April, 1979, Executive Vice President and Chief Operating
Officer in April, 1984 and President and Chief Operating Officer in
April, 1986. He was also elected to the Board of Directors in
October, 1984. Mr. Holland will assume the position of Chief
Executive Officer on April 25, 1995.
Mr. Nickerson has been employed by the Corporation since 1973. He has
held various responsibilities within the corporate financial area
including general accountant, Controller and Treasurer and Chief
Accounting Officer. He was elected as Secretary, Treasurer and Chief
Financial Officer in January, 1995.
Mr. Griffin has been employed by the Corporation since 1968. He has
served the Corporation in various capacities in sales, manufacturing
and management related areas. Mr. Griffin has served as a Vice
President of the Corporation since 1975 and also serves as President
of Melnor Inc., a subsidiary of O'Sullivan Corporation.
Mr. John S. Campbell has been employed by the Corporation since 1973.
He has served the Corporation both in the sales area and in the manage-
ment of manufacturing operations for the calendered plastics products
area of the Corporation. He has served as Vice President since 1986.
- 40 -
Other Officers of the Registrant
Served As
Officer
Name Age Office Since
William O. Bauserman 51 Vice President 1987
Ewen A. Campbell 47 Vice President 1993
Dee S. Johnston 58 Vice President 1992
Michael J. Meissner 55 Vice President 1995
James L. Tremoulis 41 Vice President 1986
Robert C. Westfall 52 Vice President 1979
Mr. Bauserman has been employed by the Corporation since 1968. During
his employment he has served in various capacities within the data
processing and management information services department. He has
served as Vice President of Management Information Services since
April, 1987.
Mr. Ewen A. Campbell has been employed by the Corporation since 1991
as Director of Technical Services. Mr. Campbell received his BSC.
degree in Chemistry and His PhD. degree in Organic Chemistry from the
University of Edinburgh, Scotland. Prior to his employment with
O'Sullivan Corporation he was employed by Duraplex Industries in
Scotland and by Tenneco Chemicals and Haygro Sales, Inc. in the United
States. Mr. Campbell's technical background in chemistry has allowed
him to work in various areas of the Corporation's compounding and
research and development activities. Mr. Campbell has served as Vice
President since July, 1993.
Mrs. Johnston has been employed by the Corporation since 1976. Since
that time she has served in various capacities within the corporate
purchasing department, most recently as Director of Purchasing for the
Corporation. Mrs. Johnston has served as Vice President since
January, 1992.
Mr. Meissner was employed by the Corporation in January, 1995. Prior
to his employment by the Corporation he was employed by and was a
principal in businesses that served as a manufacturers' representative
to the automotive industry for the Corporation.
Mr. Tremoulis has been employed by the Corporation since 1980. He has
served the Corporation in various capacities in the sales area for the
calendered plastics products area. He has served as Vice President
since 1986.
Mr. Westfall has been employed by the Corporation since 1965. He has
served the Corporation in various capacities including Chemist,
Quality Control Manager and Plant Manager. He was elected as Vice
President of Research and Development in April, 1979.
- 41 -
ITEM 11. EXECUTIVE COMPENSATION
See Pages 7 through 12 of the Corporation's Proxy Statement dated
April 1, 1995, which pages are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See Pages 3 through 6 of the Corporation's Proxy Statement dated April
1, 1995, which pages are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1994 that would be applicable for
disclosure under this item.
- 42 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) Financial Statements Page
Included in Part II, Item 8, of this report:
Report of Independent Auditors 14
Consolidated Balance Sheets at December 31, 1994
and 1993 15
Consolidated Statements of Income for the Years
Ended December 31, 1994, 1993 and 1992 16-17
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992 18-19
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992 20
Consolidated Notes to Financial Statements 21-38
(a) (2) Financial Statement Schedule
Included in Part IV of this report:
Report of Independent Auditors on Financial
Statement Schedule 45
Schedule II - Valuation and Qualifying
Accounts and Reserves for the years ended
December 31, 1994, 1993 and 1992 46
(a) (3) Exhibits
2.1 Asset Purchase Agreement between O'Sullivan
Corporation and Automotive Industries, Inc.-
filed herewith.
2.2 Amendment to Asset Purchase Agreement between
O'Sullivan Corporation and Automotive Industries,
Inc. - filed herewith.
3.1 O'Sullivan Corporation Amended and Restated
Articles of Incorporation, including the
Articles of Amendment, dated April 30, 1985,
filed with the State Corporation Commission
of Virginia on May 6, 1985, adopted by
shareholders of O'Sullivan Corporation at
the annual meeting held April 30, 1985.
(Incorporated by reference to the March 31,
1985, Quarterly Report on Form 10-Q of the
Corporation.)
- 43 -
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Continued)
3.2 O'Sullivan Corporation Bylaws as amended to Page
January 29, 1985. (Incorporated by reference
to the March 31, 1985, Quarterly Report
on From 10-Q of the Corporation.)
3.3 O'Sullivan Corporation Amended and Restated
Articles of Incorporation dated April 29, 1989,
filed with the State Corporation Commission of
Virginia on May 5, 1989, adopted by shareholders of
O'Sullivan Corporation at the annual meeting held
April 25, 1989. (Incorporated by reference to the
March 31, 1989 Quarterly Report on Form 10-Q of
the Corporation.)
10. Compensatory arrangement with executive officer of
the registrant. See Page 8 of the Corporation's
Proxy Statement dated April 1, 1995 which page is
incorporated herein by reference.
21. Subsidiaries of the Registrant - filed herewith.
23. Consent of Independent Auditors - filed herewith.
24. Powers of Attorney - filed herewith.
27. Financial Data Schedule - filed herewith.
99.2 Form 11-K for 1985 Incentive Stock Option Plan -
filed herewith.
99.3 1985 Incentive Stock Option Plan. Amended and
Restated as of July 27, 1993 - filed herewith.
(b). Reports on Form 8-K and 8-K/A
Reports dated December 2, 1994 describing the sale of
certain assets of the Corporation's Gulfstream Division
to Automotive Industries, Inc. - filed herewith.
(c). Index to Exhibits 49
- 44 -
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
of the O'Sullivan Corporation
The examination referred to in our opinion dated February 3, 1995 of
the consolidated financial statements as of December 31, 1994 and 1993
and for the three years ended December 31, 1994, 1993 and 1992
included the related supplemental financial schedule as listed in Item
14(a)2, which, when considered in relation to the basic financial
statements, present fairly in all material respects the information
shown therein.
/s/ YOUNT, HYDE & BARBOUR, P.C.
- 45 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1994, 1993 and 1992
Column A Column B Column C Column D Column E
---------- ---------- ------------------------------ ----------- ----------
Additions
------------------------------
(1) (2) (3)
Balance Charged Charged Additions Balance
at to Costs to From at
Beginning and Other Business End
Description of Year Expense Accounts Acquisition Deductions of Year
---------- ---------- ---------- ------- ------- ----------- ----------
1994:
Allowance
for
Doubtful
Accounts $1,133,793 $1,138,617 $ -- -- $ -- -- $1,387,943(B)$ 884,467
========== ========== ======= ======== ========== ==========
1993:
Allowance
for
Doubtful
Accounts $1,804,676 $ 209,719 $ -- -- $ 27,013(A)$ 907,615(B)$1,133,793
========== ========== ======= ======== ========== ==========
1992:
Allowance
for
Doubtful
Accounts $ 683,601 $ 710,443 $ -- -- $871,056(A)$ 460,424(B)$1,804,676
========== ========== ======= ======== ========== ==========
Note (A) - Allowance for doubtful accounts established at acquisition date
for businesses acquired in 1993 and 1992.
Note (B) - Write-offs of uncollectible accounts, net of recoveries.
Column D for 1994 also includes a reduction of $27,013 for a
bad debt allowance pertaining to a subsidiary disposed of
during 1994.
- 46 -
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.
March 29, 1995 O'SULLIVAN CORPORATION
-------------- By: /s/ C. Bryant Nickerson
Date ---------------------------
C.Bryant Nickerson
Secretary, Treasurer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on the dates given.
Arthur H. Bryant, II* March 29, 1995
--------------------- --------------
Arthur H. Bryant, II Chairman, Chief Executive Date
Officer and Director
/s/ James T. Holland March 29, 1995
--------------------- --------------
James T. Holland President, Chief Operating Date
Officer and Director
/s/ C. Bryant Nickerson March 29, 1995
----------------------- --------------
C. Bryant Nickerson Secretary, Treasurer and Date
Chief Financial Officer
John J. Armstrong* March 29, 1995
------------------ --------------
John J. Armstrong Director Date
Harry F. Byrd, Jr.* March 29, 1995
------------------- --------------
Harry F. Byrd, Jr. Director Date
Max C. Chapman, Jr.* March 29, 1995
-------------------- --------------
Max C. Chapman, Jr. Director Date
James P. Jamieson* March 29, 1995
------------------ --------------
James P. Jamieson Director Date
Paul Terretta* March 29, 1995
-------------- --------------
Paul Terretta Director Date
Alexander W. Neal, Jr.* March 29, 1995
----------------------- --------------
Alexander W. Neal, Jr. Director Date
- 47 -
Magalen O. Bryant* March 29, 1995
------------------ --------------
Magalen O. Bryant Director Date
C. Hugh Bloom, Jr.* March 29, 1995
------------------- --------------
C. Hugh Bloom, Jr. Director Date
C. Ridgely White* March 29, 1995
----------------- --------------
C. Ridgely White Director Date
* By: /s/ James T. Holland
---------------------
James T. Holland
Attorney-In-Fact
- 48 -
EXHIBIT INDEX
Page
2.1. Asset Purchase Agreement between O'Sullivan
Corporation and Automotive Industries, Inc. 80-124
2.2. Amendment to Asset Purchase Agreement between
O'Sullivan Corporation and Automotive
Industries, Inc. 125-131
21. Subsidiaries of the Registrant 50
23. Consent of Experts 51
24. Powers of Attorney 52-62
27. Financial Data Schedule 137
99.2 Form 11-K for 1985 Incentive Stock Option Plan 63-65
99.3 1985 Incentive Stock Option Plan, Amended
and Restated as of July 27, 1993 66-70
99.4 Form 8-K dated December 2, 1994 71-79
99.5 Form 8-K/A dated December 2, 1994 132-136
- 49 -
SUBSIDIARIES OF THE REGISTRANT
STATE OR
JURISDICTION NAME UNDER WHICH
NAME OF INCORPORATION SUBSIDIARY DOES BUSINESS
------------------------------ ---------------- ------------------------------
Regalite Plastics Corporation Massachusetts Regalite Plastics Corporation
O'Sullivan Plastics Corporation Nevada O'Sullivan Plastics Corporation
O'Sullivan Engineering, Inc. Michigan O'Sullivan Engineering, Inc.
Melnor Inc. Virginia Melnor Inc.
- 50 -
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of Registration Statement on Form S-
8 filed December 29, 1987 of O'Sullivan Corporation of our report
dated February 3, 1995, appearing on page 14 of this Annual
Report on Form 10-K.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
March 29, 1995
- 51 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ Arthur H. Bryant, II
------------- ------------------------------
DATE DIRECTOR
- 52 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ John J. Armstrong
------------- ------------------------------
DATE DIRECTOR
- 53 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ Harry F. Byrd, Jr.
------------- ------------------------------
DATE DIRECTOR
- 54 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ Max C. Chapman, Jr.
------------- ------------------------------
DATE DIRECTOR
- 55 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ James J. Jamieson
------------- ------------------------------
DATE DIRECTOR
- 56 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ James T. Holland
------------- ------------------------------
DATE DIRECTOR
- 57 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/8/95 /s/ Paul Terretta
------------- ------------------------------
DATE DIRECTOR
- 58 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ Alexander W. Neal, Jr.
------------- ------------------------------
DATE DIRECTOR
- 59 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
1/31/95 /s/ Magalen O. Bryant
------------- ------------------------------
DATE DIRECTOR
- 60 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/10/95 /s/ C. Hugh Bloom, Jr.
------------- ------------------------------
DATE DIRECTOR
- 61 -
POWER OF ATTORNEY
I hereby appoint James T. Holland my true and lawful attorney-in-
fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of O'Sullivan
Corporation for its fiscal year ended December 31, 1994 and any
amendment which such attorney or attorney-in-fact may deem
appropriate or necessary.
2/7/95 /s/ C. Ridgely White
------------- ------------------------------
DATE DIRECTOR
- 62 -
Exhibit 99.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 11-K
ANNUAL REPORT
Pursuant to Section 15 (d) of the
Securities and Exchange Act of 1934
For The Fiscal Year Ended December 31, 1994
O'Sullivan Corporation
1985 Incentive Stock Option Plan
--------------------------------
(Full Title of the Plan)
O'Sullivan Corporation
----------------------------------------------------------------
(Name of the Issuer of the Securities Held Pursuant to the Plan)
1944 Valley Avenue
Winchester, Virginia 22601
---------------------------------------
(Address of Principal Executive Office)
- 63 -
Item 1. Changes in the Plan.
The plan was amended April 28, 1987, to conform the Plan to
changes contained in the 1986 Tax Reform Act. The Plan was
amended October 27, 1987, to reflect housekeeping amendments that
clarified that options granted under the Plan are exercisable in
accordance with the terms set forth in the optionee's Stock
Option Agreement. No amendments to the plan were made during
1988, 1989, 1990, 1991, 1992,1993 and 1994.
Item 2. Changes in Investment Policy.
Not applicable.
Item 3. Contributions Under the Plan.
Not applicable.
Item 4. Participating Employees.
There were nineteen employees who were participants in the
Plan as of December 31, 1994.
Item 5. Administration of the Plan.
(a) The following is a list of names and addresses and
positions or officers held with the Employer-Issuer of all
persons who are members of the Committee which administers the
Plan:
John J. Armstrong
6371 SW Thistle Terrace Outside Director
Palm City, FL 33490
Harry F. Byrd, Jr.
2 North Kent Street Outside Director
Winchester, VA 22601
Max C. Chapman, Jr.
P. O. Box 194 Outside Director
Scarborough, NY 10510
Alexander W. Neal, Jr.
McGuire, Woods, Battle & Boothe Outside Director
One James Center
Richmond, VA 23219
(b) None of the members of the Committee received any
compensation for services by the Plan during 1993.
Item 6. Custodian of Investments.
Not applicable.
- 64 -
Item 7. Reports to Participating Employees.
O'Sullivan will furnish without charge, upon written of oral
request, a copy of its Annual Report to Stockholders for its last
fiscal year to each option holder who has not otherwise received
such report. Additionally, O'Sullivan will furnish to each
participant all information and material that is sent to
stockholders of the Company.
Item 8. Investment of Funds.
Not applicable.
Item 9. Financial Statements and Exhibits.
(a) Not applicable.
(b) 4. The Plan (Incorporated by reference to Post-
Effective Amendment No. 1 to Registration Statement
No. 33-00411 on Form S-8 filed December 29, 1987).
5. Opinion of Counsel (Incorporated by reference to
Registration Statement No. 33-00411 on Form S-8
filed September 20, 1985).
23. (a) Consent of Certified Public Accounts filed as
exhibit to Form 10-K for December 31, 1994; to
which this Form 11-K is filed as an exhibit.
23. (b) Consent of Counsel (Incorporated by reference to
Registration Statement No. 33-00411 on Form S-8
filed September 20, 1985).
24. Powers of Attorney (Incorporated by reference to
Registration Statement No. 33-00411 on Form S-8
filed September 20, 1985, and Post-Effective
Amendment No. 1 to Registration Statement No.
33-00411 on Form S-8 filed December 29, 1987).
99. Additional Exhibit - Companies whose employees
are eligible to participate in the O'Sullivan
Corporation 1985 Incentive Stock Option Plan
(Incorporated by reference to the Registration
Statement on form S-8 filed September 20, 1985).
- 65 -
O'SULLIVAN CORPORATION
1985 INCENTIVE STOCK OPTION PLAN
Amended and Restated as of July 27, 1993
Section 1. Purpose. The O'Sullivan Corporation 1985
Incentive Stock Option Plan (the "Plan") is intended to provide
key employees of O'Sullivan Corporation (the "Company") and its
subsidiaries an opportunity to acquire common stock of the
Company. The Plan is expected to help the Company attract,
retain, and motivate key employees to work for the success of the
Company. Options granted under this Plan are intended to be
incentive stock options within the meaning of section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
Section 2. Administration.
(a) Committee. The Plan will be administered by a
committee (the "Committee") appointed by the Board of Directors
of the Company. Unless the Board of Directors directs otherwise,
the Company's Compensation and Stock Option Committee will serve
as the Committee for the Plan. The Committee will consist of at
least three members of the Board of Directors who are
"disinterested persons" for purposes of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended ("Rule 16b-3").
Under Rule 16b-3, a "disinterested person" is a Director who has
not been granted or awarded equity securities pursuant to the
Plan or any other plan of the Company or any affiliate of the
Company during the one-year period prior to his appointment as a
member of the Committee. The Committee members may be removed or
replaced at any time by the Board of Directors. Members of the
Committee may resign at any time upon thirty days' written notice
to the Board of Directors.
(b) Authority. The Committee will have authority to
interpret the provisions of the Plan. When appropriate, the
Committee may prescribe rules and regulations under the Plan.
The Committee will also determine the form of each Stock Option
Agreement.
(c) Grant of Options. The Committee will determine the key
employees of the Company and its subsidiaries to whom options
shall be granted under the Plan. The Committee will determine
the time at which options shall be granted, the number of shares
for which options shall be granted, and any terms and conditions
of options granted under the Plan. The Committee shall have the
- 66 -
exclusive and final authority to determine which employees shall
receive options, the number of shares subject to the options, and
the terms of the options. Actions taken by the Committee in
interpreting the Plan and carrying out its terms will be
conclusive. No member of the Committee may be held accountable
for any action taken in good faith.
(d) No Options for Committee. Options may not be granted
under this Plan to members of the Committee.
Section 3. Eligibility.
(a) In General. Options may be granted to key employees of
the Company, or any of its subsidiaries, within the meaning of
Section 424(f) of the Code, exclusive of any employee who at the
time an option is granted owns directly or indirectly stock
possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or any parent or
subsidiary corporation. Indirect ownership of stock will be
determined in accordance with Section 424(d) of the Code.
(b) Directors. Options may not be granted to any director
of the Company or its subsidiaries unless the director is also a
key employee of the Company or one of its subsidiaries.
Section 4. Stock.
(a) Common Stock. Options may be granted under this Plan
for shares of the $1.00 par value common stock of the Company
(the "Stock"). Stock issued under this Plan may be authorized
but unissued shares. It may also be treasury shares held by the
Company.
(b) Aggregate Share Limitation. The aggregate number of
shares which may be issued upon the exercise of options under
this Plan may not exceed [165,886] shares (which number reflects
the Company's May 31, 1985, May 30, 1986, December 1, 1987, May
31, 1988, and May 31, 1989 stock distributions). Upon the
expiration or termination of any unexercised options, the Stock
subject to these options will be available for the grant of other
options under this Plan.
(c) Recapitalization of the Company. The limitations
established by this section may be adjusted in accordance with
Section 6 (relating to recapitalization of the Company).
Section 5. Terms and Conditions of Options. Each option
granted under the Plan will be evidenced by a Stock Option
Agreement (the "Agreement") between the Company and the
individual to whom the option is granted (the "Optionee"). Each
option will comply with the following conditions:
(a) Option Price. The option purchase price of the shares
of the Company Stock covered by a Stock Option Agreement will not
be less than 100% of the fair market value of such shares on the
date of the grant. Fair market value of the Stock will be the
- 67 -
mean between the highest and lowest quoted selling prices of the
Stock on the American Stock Exchange on the day the option is
granted or, if no sale of the Stock shall have been made on such
stock exchange on that day, on the next preceding day on which
there was a sale of such stock.
(b) Dollar Limitation. An option granted on or after
January 1, 1987, by its terms, shall be exercisable in a calendar
year only to the extent that the aggregate fair market value
(determined at the time the option is granted) of the stock with
respect to which incentive stock options under Section 422 of the
Code are exercisable for the first time during the calendar year
by the Optionee does not exceed $100,000 (the "Limitation
Amount"). Incentive stock options granted after 1986 under this
Plan and all other plans of the Company and any parent and
subsidiary corporations shall be aggregated for purposes of the
Limitation Amount. The Committee may impose such limitations as
it deems appropriate on an option in order to ensure that the
foregoing limitation is met. The Committee may determine that if
any incentive stock options exceed the Limitation Amount, the
excess options may be treated as non-qualified stock options to
the extent permitted by law.
(c) Ten-Year Limitation. No option may be exercised more
than ten years after it is granted. Each Agreement must contain
this limitation. However, the Committee may grant options which
may only be exercised during a period of less than ten years. In
the case of any options which may only be exercised during a
period of less than ten years, each Agreement must contain this
shorter limitation.
(d) Exercise of Options. Options may be exercised in whole
or in part. Options shall become exercisable according to the
terms set forth in the optionee's Stock Option Agreement and may
only be exercised in accordance with the Agreement. Subject to
the terms of the Agreement, an exercisable option may be
exercised on any business day until it expires. However, no
option may be exercised for less than ten shares unless the
option is exhausted upon its exercise. The option price must be
paid in cash or check when an option is exercised and before
shares are issued under the option. An Optionee will not have
any of the rights of a shareholder by reason of an option until
it is exercised.
(e) Seriatim Exercise. An option granted before January 1,
1987 may not be exercised by an Optionee if there is an
outstanding incentive stock option granted to the Optionee at an
earlier time under this Plan (or another plan of the Company or
any of its parent or subsidiary corporations). The term
"outstanding" shall have the meaning described in section 422A of
the Internal Revenue Code, as in effect before January 1, 1987.
(f) Employment Requirement. Except as otherwise provided
in subsections 5(g) and 5(h), no option granted under this Plan
may be exercised unless the Optionee is employed by the Company
or a parent or subsidiary corporation at the time of exercise and
has been employed by the Company or a parent or subsidiary
corporation at all times since the grant of the option.
- 68 -
(g) Termination of Employment. Except in the case of the
death or disability of an Optionee, an option may not be
exercised after the employment relationship between the Optionee
and the Company and its parent and subsidiary corporations
terminates.
(h) Death or Disability of Optionee. If an Optionee's
employment is terminated by reason of death, an option may be
exercised within three months after the Optionee's death by the
person to whom the Optionee's rights under the option shall have
passed by will or by the laws of descent and distribution. If an
Optionee's employment is terminated by reason of the Optionee's
disability, the option may be exercised within one year of the
Optionee's termination of employment. However, neither death nor
disability shall act to extend the period during which an option
is to be exercised as measured from the date of grant and as
contained in the Agreement. The Committee will determine whether
an Optionee is disabled, in accordance with Internal Revenue Code
requirements.
(i) Transferability of Option. Options shall not be
transferable by the Optionee except by will or by the laws of
descent and distribution and shall be exercised during the
Optionee's lifetime only by the Optionee.
Section 6. Recapitalization of Company. The number of
shares of common Stock covered by each outstanding option, and
the price per share thereof in each such option, shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of common Stock of the Company resulting
from a subdivision or consolidation of shares or the payment of a
stock dividend (but only on the common Stock) or any other
increase or decrease in the number of such shares effected
without receipt of consideration by the Company.
If the Company shall be the surviving corporation in any
merger or consolidation, each outstanding option shall pertain to
and apply to the securities to which a holder of the number of
shares of common Stock subject to the option would have been
entitled.
A dissolution or liquidation of the Company, or a merger or
consolidation in which the Company is not the surviving
corporation, shall cause each outstanding option to terminate.
Suspension of the option privilege will occur at the earlier of
the public announcement of any potential dissolution,
termination, liquidation, merger or consolidation in which the
Company would not be the surviving corporation or upon receipt by
the Optionee of written notice of such possible occurrence from
the Committee chairman. Termination of the option will occur on
the day actual ratification of the event by stockholders of the
Company occurs. If the stockholders fail to approve such event,
the suspension of option privileges will be lifted on the day
such ratification fails.
- 69 -
In the event of a change in the common Stock of the Company
as presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be the
common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by
the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each option granted
pursuant to this Plan shall not be adjusted in a manner that
causes the option to fail to continue to qualify as an incentive
stock option within the meaning of section 422 of the Code, if
applicable.
Section 7. Effective Date of Plan. The original Plan was
effective as of January 29, 1985, which is the date on which the
Board of Directors of the Company adopted the Plan, subject to
approval of the Plan by the stockholders of the Company. The
amended and restated Plan is effective as of July 27, 1993.
Section 8. Termination, Modification. If not sooner
terminated by the Board of Directors, this Plan shall terminate
on January 28, 1995. No option shall be granted under this Plan
after termination. The Board of Directors may terminate this
Plan or may amend the Plan in such respects as it shall deem
advisable; provided, however, that the stockholders of the
Company must approve any amendment that would (i) materially
increase the benefits accruing to participants under the Plan,
(ii) materially increase the number of securities that may be
issued under the Plan or (iii) materially modify the requirements
as to eligibility for participation in the Plan.
A termination or amendment of the Plan shall not, without
the consent of the Optionee, affect an Optionee's rights under an
option previously granted to him. Notwithstanding the foregoing,
the Board of Directors may amend the Plan, without stockholder
approval, to the extent necessary to cause incentive stock
options granted under the Plan to meet the requirements of the
Code and regulations thereunder.
- 70 -
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest
event reported) December 2, 1994
----------------------------
O'SULLIVAN CORPORATION
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA
----------------------------------------------------------------
(State or other jurisdiction of incorporation)
1-4438 54-0463029
----------------------- -----------------------------------
(Commission File Number) (IRS Employer Identification Number)
1944 Valley Avenue, P.O.Box 3510, Winchester, Virginia 22601
----------------------------------------------------------------
(Address of principal executive offices, including zip code)
(703) 667-6666
----------------------------------------------------------------
(Registrant's telephone number, including area code)
- 71 -
Item 2. Acquisition or Disposition of Assets.
On December 2, 1994, the Corporation sold certain assets of the
Corporation's Gulfstream Division to Automotive Industries, Inc.
The assets sold consisted primarily of property, plant and
equipment, inventories, tooling work in process and the capital
stock of Capitol Plastics of Ohio, Inc. Capitol Plastics of
Ohio, Inc. was a subsidiary of O'Sullivan Corporation operating
as a part of the Gulfstream Division. Consideration received
included cash of $46.5 million and a note receivable of $4.0
million.
Item 7. Pro Forma Financial Information and Exhibits.
(b). Pro Forma Financial Information.
(1). Pro Forma Balance Sheet at September 30, 1994.
Pro Forma Statements of Income for the Year Ended
December 31, 1993 and for the Nine Months Ended
September 30, 1994.
Notes to Pro Forma Financial Statements.
(c). Exhibits.
2.1 Asset Purchase Agreement between O'Sullivan Corporation
and Automotive Industries, Inc.
2.2 Amendment to Asset Purchase Agreement between O'Sullivan
Corporation and Automotive Industries, Inc.
- 72 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited pro forma financial statements for O'Sullivan
Corporation and Subsidiaries (OSL) have been prepared based upon certain
pro forma adjustments to what would have been the historical financial
statements of (OSL) for the periods presented. The financial statements
should be read in conjunction with the historical financial statements of
(OSL) presented in the Corporation's 1993 Annual Report to Stockholders
and the Form 10-Q submitted for the period ended September 30, 1994.
- 73 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1994
(Unaudited)
O'Sullivan O'Sullivan
Corporation Pro Forma Corporation
ASSETS Historical Adjustments Pro Forma
------------ ------------ ------------
Current Assets
Cash and cash equivalents $ 1,493,955 $ 6,520,619 (a)$ 8,014,574
Trade receivables 56,924,915 (4,081,437)(b) 52,843,478
Note receivable - - 4,000,000 (b) 4,000,000
Inventories 29,927,144 - - 29,927,144
Net receivable from
disposition of discontinued
operations 46,000,088 (46,000,088) - -
Deferred income tax assets 1,492,746 - - 1,492,746
Other current assets 1,153,113 - - 1,153,113
------------ ------------ ------------
Total current assets $136,991,961 $(39,560,906) $ 97,431,055
------------ ------------ ------------
Property, Plant and Equipment $ 44,729,342 $ - - $ 44,729,342
------------ ------------ ------------
Intangibles $ 996,264 $ - - $ 996,264
------------ ------------ ------------
Other Assets $ 11,498,241 $ - - $ 11,498,241
------------ ------------ ------------
Total assets $194,215,808 $(39,560,906) $154,654,902
============ ============ ============
See accompanying notes to pro forma consolidated financial statements.
- 74 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1994
(Unaudited)
O'Sullivan O'Sullivan
Corporation Pro Forma Corporation
Historical Adjustments Pro Forma
------------ ------------ ------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 3,783,026 $ - - $ 3,783,026
Current portion of
long-term debt 63,437 - - 63,437
Accounts payable 26,069,239 (3,322,774)(b) 22,746,465
Accrued expenses 16,139,739 (738,132)(c) 15,401,607
------------ ------------ ------------
Total current liabilities $ 46,055,441 $ (4,060,906) $ 41,994,535
------------ ------------ ------------
Long-Term Debt $ 37,118,158 $(35,500,000)(c)$ 1,618,158
------------ ------------ ------------
Other Long-Term Liabilities $ 1,684,191 $ - - $ 1,684,191
------------ ------------ ------------
Deferred Income Taxes $ 3,394,580 $ - - $ 3,394,580
------------ ------------ ------------
Commitments and Contingencies $ - - $ - - $ - -
------------ ------------ ------------
Shareholders' Equity
Common stock, par value
$1.00 per share; authorized
30,000,000 shares $ 16,484,871 $ - - $ 16,484,871
Additional paid-in capital 9,963,876 - - 9,963,876
Retained earnings 79,790,110 - - 79,790,110
Cumulative translation
adjustments (156,123) - - (156,123)
Unrecognized pension costs,
net of deferred tax effect (119,296) - - (119,296)
------------ ------------ ------------
Total shareholders'
equity $105,963,438 $ - - $105,963,438
------------ ------------ ------------
Total liabilities and
shareholders' equity $194,215,808 $(39,560,906) $154,654,902
============ ============ ============
See accompanying notes to pro forma consolidated financial statements.
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O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1993
(Unaudited)
O'Sullivan O'Sullivan
Corporation Pro Forma Corporation
Historical Adjustments (d) Pro Forma
------------- ------------- -------------
Net sales $ 292,255,714 $(118,428,772) $ 173,826,942
Cost of products sold 251,803,879 (112,729,128) 139,074,751
------------- ------------- -------------
Gross profit $ 40,451,835 $ (5,699,644) $ 34,752,191
------------- ------------- -------------
Operating expenses
Selling and warehousing $ 12,962,527 $ (2,212,344) $ 10,750,183
General and administrative 9,485,791 (1,696,782) 7,789,009
Recovery of restructuring
charge (969,251) 969,251 - -
------------- ------------- -------------
$ 21,479,067 $ (2,939,875) $ 18,539,192
------------- ------------- -------------
Income from operations $ 18,972,768 $ (2,759,769) $ 16,212,999
------------- ------------- -------------
Other income (expense)
Interest expense $ (2,471,269) $ 1,336,514 $ (1,134,755)
Other, net 295,983 (46,783) 249,200
------------- ------------- -------------
$ (2,175,286) $ 1,289,731 $ (885,555)
------------- ------------- -------------
Income before income taxes
and cumulative effect of
accounting changes $ 16,797,482 $ (1,470,038) $ 15,327,444
Income taxes 7,088,364 (676,057) 6,412,307
------------- ------------- -------------
Income before cumulative
effect of accounting
changes $ 9,709,118 $ (793,981) $ 8,915,137
Cumulative effect of
accounting changes 305,338 (281,221) 24,117
------------- ------------- -------------
Net income $ 10,014,456 $ (1,075,202) $ 8,939,254
============= ============= =============
See accompanying notes to pro forma consolidated financial statements.
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O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1994
(Unaudited)
O'Sullivan O'Sullivan
Corporation Pro Forma Corporation
Historical (e) Adjustments Pro Forma
------------- ------------- -------------
Net sales $ 269,732,967 $(120,604,004) $ 149,128,963
Cost of products sold 234,570,981 (115,164,987) 119,405,994
------------- ------------- -------------
Gross profit $ 35,161,986 $ (5,439,017) $ 29,722,969
------------- ------------- -------------
Operating expenses
Selling and warehousing $ 11,147,770 $ (2,230,526) $ 8,917,244
General and administrative 6,950,859 (1,743,982) 5,206,877
------------- ------------- -------------
$ 18,098,629 $ (3,974,508) $ 14,124,121
------------- ------------- -------------
Income from operations $ 17,063,357 $ (1,464,509) $ 15,598,848
------------- ------------- -------------
Other income (expense)
Interest expense $ (2,374,533) $ 1,685,691 $ (688,842)
Other, net 113,839 (9,617) 104,222
------------- ------------- -------------
$ (2,260,694) $ 1,676,074 $ (584,620)
------------- ------------- -------------
Income before income taxes $ 14,802,663 $ 211,565 $ 15,014,228
Income taxes 5,855,676 86,439 5,942,115
------------- ------------- -------------
Net income $ 8,946,987 $ 125,126 $ 9,072,113
============= ============= =============
See accompanying notes to pro forma consolidated financial statements.
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O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(a) The increase in cash and cash equivalents represents the cash
consideration received from the sale of the Gulfstream Division
assets after giving effect to the retirement of the Corporation's
7.05% Senior Notes and line of credit notes payable which were
attributable to the Gulfstream Division.
(b) The decrease in trade receivables represents the value of tooling
work in process included in the assets of the Gulfstream Division to
be sold subsequent to the preparation of the September 30, 1994,
financial statements. The consideration paid for these assets is
represented by the $4.0 million note receivable shown on the
accompanying pro forma balance sheet. Automotive Industries, Inc.
assumed the accounts payable liability for the purchased tooling
work in process. The assumed amount is shown as a pro forma
adjustment to the "Historical" accounts payable.
(c) The reduction in accrued expenses and long-term debt reflects the
pro forma repayment of the long-term debt attributable to the
Gulfstream Division.
(d) This designation represents the activity of the Gulfstream Division
for the period(s) presented including interest expense associated
with the debt attributable to the division. Operating expenses and
other income (expense) attributed to the division are reported in a
manner consistent with presentations for prior periods.
(e) Amounts reported as "O'Sullivan Corporation Historical" at
September 30, 1994, represent total consolidated corporate activity
without the effect of the disposal of the Gulfstream Division.
Amounts reported in the Form 10-Q for September 30, 1994, for
continuing operations have previously given effect for the disposal
of the division and correspond to the amounts reported as
"O'Sullivan Corporation Pro Forma" in the accompanying Statement
of Income for the Nine Months Ended September 30, 1994.
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S I G N A T U R E S
Pursuant to the requirements 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.
O'SULLIVAN CORPORATION
/s/ Anthony A. Barone
---------------------------
Anthony A. Barone
Vice President, Secretary
and Chief Financial Officer
/s/ C. Bryant Nickerson
---------------------------
C. Bryant Nickerson
Treasurer and
Chief Accounting Officer
December 19, 1994
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ASSET PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as
of November 21, 1994, among Automotive Industries, Inc., a Virginia
corporation ("Buyer"), and O'Sullivan Corporation, a Virginia corporation
("Seller"). Buyer and Seller are referred to individually herein as a
"Party" and collectively herein as the "Parties." Capitalized terms used
herein and not otherwise defined are defined in Section 9 below.
Subject to the terms and conditions set forth in this Agreement,
Seller desires to sell to Buyer, and Buyer desires to acquire from Seller
certain assets and properties, operating as a going concern of Seller's
Gulfstream division (the "Business"), including, but not limited to, all
of the outstanding capital stock of Seller's wholly owned subsidiary,
Capitol Plastics of Ohio, Inc., an Ohio corporation ("Capitol").
NOW, THEREFORE, in consideration of the mutual promises herein
made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
Section 1. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms
and conditions of this Agreement, at the Closing (as hereinafter defined),
Buyer agrees to purchase from Seller, and Seller agrees to sell, transfer,
convey, and deliver to Buyer, all right, title and interest in and to all
of the assets (other than Excluded Assets) of Seller relating to the
Business (collectively, the "Acquired Assets"), including:
(i) all raw materials, packing supplies, maintenance and repair
supplies, manufactured and purchased parts, work-in-process and finished
goods inventory used or held for use in the Business;
(ii) all fee, leasehold and other interests in real property
described on Schedule 1(a)(ii) attached hereto, including all leasehold
improvements, buildings, structures and other improvements thereon (the
"Real Estate");
(iii) all machinery, equipment, furniture, fixtures, vehicles,
tooling, molds, dies and other tangible personal property;
(iv) all Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto, and
rights thereunder, remedies against infringements thereof, and rights to
protection of interests therein under the laws of all jurisdictions (other
than the Excluded Intellectual Property (defined in Section 1(a)(p)
below));
(v) all agreements, contracts, purchase orders and other
similar arrangements (A) set forth on Schedule 4(p) attached hereto and
denoted by a pound sign (#), and (B) not set forth on Schedule 4(p) due
solely to the specific dollar threshold or cancellation provision
contained in Section 4(p) below or any open purchase orders entered into
in the ordinary course of business for the purchase of Inventories, but
relating primarily to the Business, in each case to the extent Buyer
assumes such agreements, contracts, purchase orders or similar
arrangements;
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(vi) all prepayments and deposits to the extent any benefit
therefrom inures to Buyer after the Closing and to the extent set forth
on the Closing Balance Sheets;
(vii) all claims, refunds, rights of recovery, rights of set off,
and rights of recoupment of any kind (except to the extent such items
relate to an Excluded Asset or Excluded Liability);
(viii) all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies to the extent assignable and related
primarily to the Business;
(ix) the Gulfstream name and any goodwill associated therewith;
(x) all of the issued and outstanding capital stock of Capitol;
(xi) all books, records (other than accounting records), ledgers,
files, documents, correspondence, lists, drawings, and specifications,
advertising and promotional materials, studies, reports, and other printed
or written materials related primarily to the Business;
(xii) all SPECS Credits (as defined in Section 4(w) below);
(xiii) all Seller's tooling-in-process with respect to the (A)
production tooling for the DN-101 platform, (B) production tooling for the
WN-97 platform and (C) design and engineering (with respect to the post-
engineering release), prototype and production tooling for the VN-127
platform (the "Transition Tooling"); and
(xiv) all of Seller's rights and opportunities to future income
for each item of the Transition Tooling.
Notwithstanding the foregoing, the Acquired Assets shall not
include the following assets (the "Excluded Assets"):
(j) Any fee, leasehold or other interests in real property
other than the Real Estate;
(k) Seller's Unix and Unisys computer system (including but
not limited to hardware, software and peripheral equipment) and those
personal computers and related software used primarily by Seller's
management information systems department;
(l) those agreements, contracts, purchase orders and other
similar arrangements described in Section 1(a)(v) above, in each case to
the extent Buyer does not assume any such agreement, contract, purchase
order or similar arrangement;
(m) any of Seller's prepayments or deposits to the extent
not set forth on the Closing Balance Sheets;
(n) any of Seller's claims, refunds, rights of recovery,
rights of set off, rights of recoupment of any kind to the extent the facts
giving rise thereto existed before the Closing Date and to the extent
related to (A) an Excluded Asset, (B) an Excluded Liability, (C) the
- 81 -
Completed Tooling (as defined in Section 1(h)(i) below), or (D) any matter
in respect of which Buyer may have a claim for indemnification by Seller
hereunder, provided Seller has elected pursuant to Section 7(b)(x) to
assume the defense of such matter.
(o) Seller's telephone switching equipment other than the
upgraded equipment installed at the Harris Facility after July 1, 1994;
(p) Intellectual Property relating solely to (i) personal
computer software used by Seller pursuant to a "shrinkwrap" or "off-the-
shelf" license or (ii) any item set forth on Schedule 4(m) attached hereto
and denoted with an asterisk, to the extent Seller is unable, after
performing its obligations set forth in Section 7(f) hereof, to obtain
third party consent thereto (collectively, the "Excluded Intellectual
Property");
(q) the accounting records of Seller related to the
Business and any other books, records, ledgers, files, documents,
correspondence, lists, drawings, and specifications, advertising and
promotional materials, studies, reports, and other printed or written
materials not related primarily to the Business;
(r) Seller's tractor trailer vehicles (commonly referred to
as its "shuttle fleet") relating to the Business;
(s) Seller's equipment, furniture and fixtures located at
the Harris Facility relating to employees to be retained by Seller in the
human resource, accounting, and management information system functions as
set forth on Schedule 1(a)(s) attached hereto;
(t) the Gulfstream Main Facility and the machinery,
equipment, furniture and fixtures customarily located therein;
(u) any franchise, approval, permit, license, order,
registration, certificate, variance and any similar right obtained from
government or governmental agencies to the extent such item is unassignable
or does not relate primarily to the Business;
(v) all of Seller's cash and cash equivalents and
marketable securities;
(w) all of Seller's accounts, notes and other receivables;
(x) Seller's insurance policies;
(y) Seller's qualifications to conduct business as a
foreign corporation and arrangements with registered agents relating to
foreign qualifications; and
(z) any of the rights of Seller under this Agreement.
(b) Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, Buyer agrees to assume the obligations in
respect of the following liabilities of Seller, in respect of the Business
(collectively, the "Assumed Liabilities"):
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(i) those certain trade payables and accrued expenses of Seller
identified on Schedule 1(b)(i) attached hereto, to the extent set forth on
the Closing Balance Sheets (the "Dollar Liabilities");
(ii) all liabilities of Seller, with respect to the Business, to
the extent arising out of any action or inaction occurring after the
Closing Date or to be performed after the Closing Date under the
agreements, contracts, leases, licenses and other arrangements (A) set
forth on Schedule 4(p) and denoted by a pound sign (#), and (B) not set
forth on Schedule 4(p) due to the specific dollar threshold or cancel-
lation provision contained in Section 4(p) below or any open purchase
orders entered into in the ordinary course of business for the purchase
of Inventories but relating primarily to the Business, but excluding any
such liability to the extent arising out of a breach, or any event
occurring or state of fact existing which with notice or lapse of time
would constitute a breach, of contract, agreement, lease, license or
other arrangement by Seller on or prior to the Closing Date (other than
a breach of contract, agreement, lease, license or other arrangement
resulting from the failure of Seller to obtain a consent referred to in
Section 4(p) below for which Buyer has agreed to waive as a condition
pursuant to Section 3(a)(vi) below);
(iii) all liabilities of Seller, with respect to the Business,
for vacation pay and bonuses of those employees who accept employment with
Buyer or any of its Affiliates, to the extent, with respect to hourly
employee's vacation pay and all such bonuses, set forth on the Closing
Balance Sheets;
(iv) all liabilities of Seller, with respect to the Business, to
the extent related to workers' compensation claims or obligations relating
to insurance programs or arrangements existing under the laws of the State
of Ohio arising and payable under the Seller's retrospective insurance
program with the State of Ohio for the period beginning July 1, 1994 and
ending on the Closing Date to the extent set forth on the Closing Balance
Sheets (the "Retrospective Workers' Compensation");
(v) all liabilities of Seller relating to each item of the
Transition Tooling (the "Seller Tooling Costs"); and
(vi) all of Seller's obligations to complete the Transition
Tooling programs in accordance with the requirements and specifications
of the respective customers.
(c) Excluded Liabilities. Notwithstanding anything to the
contrary in this Agreement or any of the Schedules attached hereto, Buyer
will not assume or be liable for any obligation or liability of Seller of
any kind or nature, known or unknown, contingent or otherwise, including,
without limitation, any obligation or liability relating to any Excluded
Asset or any (I) Tax, (II) indebtedness for borrowed money, (III) breach
of contract, (IV) breach of warranty, (V) tort, (VI) infringement, (VII)
violation of law, (VIII) action, suit or proceeding (including, without
limitation, any obligation or liability arising under any Environmental,
Health and Safety Laws or product liability laws), (IX) health insurance
or other medical benefit, (X) liability or obligation arising out of or
related to the Sales Agreement between Seller and Armstrong & Meissner,
- 83 -
Inc., dated January 1, 1990 or the relationship pursuant thereto or (XI)
workers' compensation claim or obligation relating to any workers'
compensation insurance program or arrangement (other than the Retrospective
Workers' Compensation), except those expressly assumed by Buyer in Section
1(b) above (collectively, the "Excluded Liabilities").
(d) Purchase Price. The purchase price (the "Purchase Price")
for the Acquired Assets shall be equal to (i) the sum of (A) $41.0 mil-
lion, (B) Estimated Inventory Value, (C) Net Estimated PP&E Additions and
(D) Estimated Transition Tooling minus (ii) the sum of (A) Estimated
Assumed Liabilities and (B) Estimated Excess Capitol Liabilities minus
(iii) $4.0 million minus (iv) $950,741.16, as set forth on Schedule 1(d)
attached hereto (the "Ohio Payoff Amount"), as adjusted pursuant to
Sections 1(e), 1(f) and 1(h) below.
(e) Determination of Certain Purchase Price Adjustments.
(i) Within one (1) business day prior to the Closing Date,
Buyer and Seller shall in good faith jointly prepare an estimate of the
Closing Balance Sheets (as defined in Section 1(e)(ii) below) (the
"Estimated Closing Balance Sheets") based on Seller's (with respect to the
Business) and Capitol's books and records and other information then
available, in an attempt to determine Estimated Inventory Value, Net
Estimated PP&E Additions, Estimated Transition Tooling, Estimated Assumed
Liabilities and Estimated Excess Capitol Liabilities. For purposes
hereof, (A) "Estimated Inventory Value" means the book value of all raw
materials, packing supplies, maintenance and repair supplies, manufactured
and purchased parts, work-in-process and finished goods inventory used or
held for use by Seller, with respect to the Business, and by Capitol (the
"Inventory"), (B) "Net Estimated PP&E Additions" means the amount of
capital expenditures made by Seller, with respect to the Business, and by
Capitol in respect of property, plant and equipment plus, without duplic-
ation, those items relating to approved training expenses and deposits and
prepayments to the extent that Buyer obtains any benefit therefrom after
the Closing Date, as set forth on Schedule 1(e)(i) attached hereto minus
the greater of (y) the book value of, or (z) the proceeds received from,
any sales, retirements or other dispositions made by Seller, with respect
to the Business, and by Capitol in respect of property, plant and equip-
ment, in each case, made during the period beginning after June 30, 1994
and ending on the Closing Date, (C) "Estimated Transition Tooling" means
the book value of the Transition Tooling, (D) "Estimated Assumed
Liabilities" means the book value of the Dollar Liabilities (which shall
include an accrual of $40,000 for 1994 vacation pay liability for Seller's
salaried employees and an accrual for a pro rata portion of the annual
bonus paid by Seller to its employees involved in the Business), the book
value of the Seller Tooling Costs, and the book value of the Retrospective
Workers' Compensation and (E) "Estimated Excess Capitol Liabilities" means
the excess, if any, of the book value of the liabilities of Capitol
(including, without limitation, intercompany liabilities due to Seller
(the "Intercompany Debt"), the book value of the liabilities of Capitol
with respect to the Honda Accord and the Honda Civic programs (the
"Capitol Tooling Costs") and the book value of Capitol's accrued
liabilities and reserves relating to workers' compensation including,
without limitation, with respect to Capitol's retrospective insurance
program with the State of Ohio for the period beginning July 1, 1994 and
ending on the Closing Date and accrued vacation liabilities and
obligations) over the net book value of Capitol's assets (other than
- 84 -
Capitol's Inventory and Capitol's property, plant and equipment
and goodwill (or similar intangible assets), but including, without
limitation, the book value of Capitol's tooling-in-process), in each case
as determined from the Estimated Closing Balance Sheets; provided, however,
that if Buyer and Seller are unable to agree on any of the Estimated
Inventory Value, Net Estimated PP&E Additions, Estimated Transition
Tooling, Estimated Assumed Liabilities and Estimated Excess Capitol
Liabilities, such disputed amounts shall be determined based on the amounts
set forth on Seller's and Capitol's unconsolidated balance sheets as of the
month-ending immediately prior to the Closing Date.
(ii) As promptly as practicable after the Closing Date, Buyer's
accountants will prepare unconsolidated balance sheets of Seller, with
respect to the Business, and Capitol as at the close of business on the
Closing Date (the "Closing Balance Sheets") for the purpose of establi-
shing the Closing Inventory Value, Net Closing PP&E Additions, Closing
Transition Tooling, Closing Assumed Liabilities and Closing Excess Capitol
Liabilities. For purposes hereof, (A) "Closing Inventory Value" means the
book value of the Inventory, (B) "Net Closing PP&E Additions" means the
amount of capital expenditures made by Seller, with respect to the
Business, and by Capitol in respect of property, plant and equipment plus,
without duplication, those items relating to approved training and
expenses and deposits and prepayments to the extent that Buyer obtains
benefit therefrom after the Closing Date set forth on Schedule 1(e)(i)
attached hereto minus the greater of (y) the book value of, or (z) the
proceeds received from, any sales, retirements or other dispositions made
by Seller, with respect to the Business, and by Capitol in respect of
property, plant and equipment, in each case, made during the period
beginning after June 30, 1994 and ending on the Closing Date, (C) "Closing
Transition Tooling" means the book value of the Transition Tooling, (D)
"Closing Assumed Liabilities" means the book value of the Dollar
Liabilities (which shall include an accrual of $40,000 for 1994 vacation
pay liability for Seller's salaried employees and an accrual for a pro
rata portion of the annual bonus paid by Seller to its employees involved
in the Business), the book value of the Seller Tooling Costs, and the
book value of the Retrospective Workers' Compensation ("Seller's
Retrospective WC Accrual") and (E) "Closing Excess Capitol Liabilities"
means the excess, if any, of the book value of the liabilities of Capitol
(including, without limitation, the intercompany liabilities due
to Seller, the Capitol Tooling Costs and the book value of Capitol's
accrued liabilities and reserves relating to workers' compensation,
including, without limitation, with respect to Capitol's retrospective
insurance program with the State of Ohio for the period beginning July 1,
1994 and ending on the Closing Date ("Capitol's Retrospective WC Accrual")
and accrued vacation liabilities and obligations) over the net book value
of Capitol's assets (other than Capitol's Inventory and Capitol's property,
plant and equipment and goodwill (or similar intangible assets), but
including, without limitation, the book value of Capitol's tooling-in-
process), in each case as determined from the Closing Balance Sheets. In
order for Buyer to properly prepare the Closing Balance Sheets, Seller
shall conduct a physical inventory on the Closing Date (or such other date
promptly thereafter as the parties may agree) and shall permit Buyer and
its accountants to observe such inventory. The Closing Balance Sheets and
the Estimated Closing Balance Sheets shall (a) reflect all Acquired Assets
and Assumed Liabilities and all assets and liabilities of Capitol as at the
- 85 -
close of business on the Closing Date, (b) be prepared in accordance with
GAAP (regardless of whether GAAP was applied in prior periods) and (c)
reflect all items and adjustments regardless of materiality. Within sixty
(60) days after the Closing Date, Buyer shall deliver to Seller the Closing
Balance Sheets.
(iii) If the sum of (A) Closing Inventory Value, (B) Net Closing
PP&E Additions (it being understood that Net Closing PP&E Additions may be
a negative number) and (C) Closing Transition Tooling, minus the sum of (Y)
Closing Assumed Liabilities and (Z) Closing Excess Capitol Liabilities (the
"Net Closing Amount") exceeds the sum of (A) Estimated Inventory Value, (B)
Net Estimated PP&E Additions and (C) Estimated Transition Tooling minus the
sum of (Y) Estimated Assumed Liabilities and (Z) Estimated Excess Capitol
Liabilities (the "Net Estimated Amount"), Buyer shall, subject to Section
7(b)(xi) hereof, within three (3) business days pay to Seller the amount of
such excess. If the Net Closing Amount is less than the Net Estimated
Amount, Seller shall within three (3) business days pay to Buyer the amount
of such shortfall. All amounts owed pursuant to this Section 1(e)(iii)
shall include interest, from the Closing Date to the date of payment, at
the Applicable Rate, calculated on the basis of a 365-day year.
(iv) If Seller disagrees with any item on the Closing Balance
Sheets, Seller shall notify Buyer in writing of such disagreement within
thirty (30) business days after Seller's receipt thereof (such notice set-
ting forth the basis for such disagreement in reasonable detail). Buyer
shall permit Seller access to such personnel and work papers involved with
or relating to the preparation of the Closing Balance Sheets as may be
reasonably necessary to permit Seller to review in detail the manner in
which the Closing Balance Sheets were prepared. Buyer and Seller shall
thereafter negotiate in good faith to resolve any such disagreements;
provided, however, that Seller or Buyer, as the case may be, shall within
three (3) business days pay to Buyer or Seller, as the case may be, the
amount determined pursuant to Section 1(e)(iii) above which is not subject
to dispute, if any. If Buyer and Seller are unable to resolve any such
disagreements in (A) respect of non-inventory items within thirty (30)
business days and (B) in respect of inventory items within six (6) months
after the Closing Date, Buyer and Seller shall engage the Auditor (as
defined in Section 1(e)(v) below) to resolve the disagreements in
accordance with Section 1(e)(v) below.
(v) The "Auditor" shall be KPMG Peat Marwick and shall be
retained solely to resolve the individual disputed line items. Buyer and
Seller shall use their best efforts to cause the Auditor to resolve all
disagreements over individual line items as soon as practicable. The
resolution of such disagreements by the Auditor shall be final and
binding on Buyer and Seller. The fees and expenses of the Auditor shall
be shared equally by Buyer and Seller.
(f) Determination of FN-116 Adjustment. If Buyer receives a
notification from Ford Motor Company ("Ford") confirming to the reasonable
satisfaction of Buyer that the FN-116 program or its successor program will
remain with the Business for the normal life of the program (the "Ford
Notification"), Buyer will, subject to Section 7(b)(xi) hereof, within
thirty (30) business days after determination of such amount in accordance
with the following terms, pay to Seller an amount equal to (i) $1.5 million
multiplied by (ii) the percentage obtained by dividing (a) the aggregate of
- 86 -
the annual gross profit (as determined below) associated with each
component awarded pursuant to the Ford Notification by (b) the aggregate of
the annual gross profit associated with each component relating to the
existing FN-116 program for the 12-month period ended September 30, 1994,
as set forth on Schedule 1(f) attached hereto; provided that in no event
shall Buyer be obligated to pay more than $1.5 million. For purposes
hereof, "annual gross profit," with respect to the new business, will be
determined by multiplying (y) the sales price of each component set forth
in the written notice from Ford containing such information for each such
component minus the production cost for each such component (determined in
good faith by Buyer in accordance with Buyer's estimated standard costs to
produce such parts and consistent with Buyer's past estimating practices)
by (z) the annual financial planning volume for each such component set
forth in the written notice from Ford containing such information.
(g) Allocation of the Purchase Price. A preliminary allocation
of the Purchase Price (plus the Assumed Liabilities) among the Acquired
Assets will be prepared by Buyer and delivered to Seller on or prior to
the Closing Date (the "Preliminary Allocation Schedule"). A final alloca-
tion based substantially on the allocations set forth on the Preliminary
Allocation Schedule will be prepared by Buyer as promptly as practicable
after the Closing Date and, subject to approval by Seller (which approval
will not be unreasonably withheld), shall be the allocation used by the
Parties in preparing (a) Form 8594, Asset Acquisition Statement, for each
of Buyer and Seller, and (b) all Tax Returns. Buyer and Seller shall each
file Form 8594, prepared in accordance with this Section 1(g), with its
federal income Tax Return for its tax period including the Closing Date.
The Parties hereto agree that all allocations made pursuant to this Section
1(g) are binding upon them and upon each of their successors and assigns,
and that they will report the transaction herein in accordance with such
allocations.
(h) Tooling.
(i) With respect to all tooling completed and billed by Seller
including, without limitation, the design and engineering (with respect to
the pre-engineering release) tooling for the VN-127 platform and the
design, engineering and prototype tooling for the DN-101 platform (the
"Completed Tooling")), with respect to the Business, or Capitol on or
prior to the Closing Date, Seller shall be liable for all costs, expenses
and liabilities of any audit of such tooling and Seller shall indemnify
Buyer for any Losses (as defined in Section 7(b)(i)) Buyer may incur or
become subject to as a result of such audit.
(ii) With respect to tooling commenced and billed by Buyer,
with respect to the Business, or Capitol after the Closing Date, Buyer
shall be liable for all costs, expenses and liabilities of any audit of
such tooling and Buyer shall indemnify Seller for any Losses Seller may
incur or become subject to as a result of such audit.
(iii) As soon as practicable after the full program
approval by the customer of the DN-101 platform, Buyer will prepare an
accounting (the "DN-101 Accounting") for the purposes of determining the
Total Revenues, with respect to such platform (the "DN-101 Revenues") and
the Total Costs, with respect to such platform (the "DN-101 Costs").
Within 90 days following such program approval (the "DN-101 Date"), Buyer
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will deliver to Seller the DN-101 Accounting. If the DN-101 Revenues equal
or exceed the DN-101 Costs (such excess, the "DN-101 Reserve"), Buyer will,
subject to Section 7(b)(xi) hereof, within three business days following
the DN-101 Date, pay to Seller $2.5 million. If the DN-101 Costs exceed
the DN-101 Revenues (such excess, the "DN-101 Shortfall"), Buyer will,
subject to Section 7(b)(xi) hereof, within three business days following
the DN-101 Date, pay to Seller an amount equal to $2.5 million less the DN-
101 Shortfall. If the DN-101 Shortfall exceeds $2.5 million, Seller will,
subject to Section 7(b)(xi) hereof, within three business days following
the DN-101 Date, pay to Buyer the amount of such excess. If there exists a
DN-101 Shortfall and Buyer receives additional DN-101 Revenues after the
DN-101 Date, then Buyer shall promptly pay, subject to Section 7(b)(xi)
hereof, such additional DN-101 Revenues to Seller up to an amount equal to
the DN-101 Shortfall.
(iv) On or prior to June 1, 1997, Buyer will, subject to
Section 7(b)(xi) hereof, pay to Seller the lesser of (A) $0.5 million
(plus interest accruing at the Applicable Rate from the Closing Date) plus
any DN-101 Reserve, minus any Seller Responsible Costs (not otherwise
included in the calculation of the DN-101 Costs above), with respect to
such platform, arising (whether by audit or otherwise) after the DN-101
Date or (B) $0.5 million (plus interest accruing at the Applicable Rate
from the Closing Date). If the computation set forth in clause (A) above
results in the negative amount ("Net Audit Cost"), Seller will, subject to
Section 7(b)(xi) hereof, promptly pay to Buyer an amount equal to the Net
Audit Cost.
(v) With respect to each of the WN-97 platform, the Honda
Civic platform and the Honda Accord platform, as soon as practicable after
the full program approval by the customer of each such platform, Buyer will
prepare an accounting (each, a "Tooling Accounting") for the purposes of
determining the Total Revenues and Total Costs, with respect to each
platform. Within 90 days following each such program approval (each, an
"Approval Date"), Buyer will deliver to Seller the relevant Tooling
Accounting. If the Total Costs set forth on any Tooling Accounting exceed
the Total Revenues set forth on such Tooling Accounting (each, a
"Shortfall"), the Seller will, subject to Section 7(b)(xi) hereof, within
three business days following the relevant Approval Date, pay to Buyer the
amount of any such Shortfall. Seller will, subject to Section 7(b)(xi)
hereof, promptly pay to Buyer any Seller Responsible Costs, with respect to
any such program, arising (whether by audit or otherwise) after the
relevant Approval Date. If, with respect to each such program, there
exists a Shortfall and Buyer receives additional revenues not reflected on
the applicable Tooling Accounting, then Buyer shall promptly pay, subject
to Section 7(b)(xi) hereof, such additional revenues to Seller up to an
amount equal to such Shortfall. If, with respect to each such program,
there exists a Shortfall, then 180 days after the relevant Approval Date,
Buyer will assign, at Seller's request, any claim, refund, right of
recovery, right of setoff or right of recoupment against its customer with
respect to any uncollected revenues relating to such program, to the extent
Buyer is not then pursuing any such claim, refund or right.
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(vi) As soon as practicable after the full program approval
by the customer of the VN-127 platform, Buyer shall prepare an accounting
(the "VN-127 Accounting") for the purposes of determining the Total
Revenues, with respect to such platform (the "VN-127 Revenues"), and the
Total Costs, with respect to such platform (the "VN-127 Costs"). Within 90
days following such program approval (the "VN-127 Date"), Buyer will
deliver to Seller the VN-127 Accounting. If the VN-127 Revenues equal or
exceed the VN-127 Costs, Buyer will, subject to Section 7(b)(xi) hereof,
within three business days following the VN-127 Date, pay to Seller $1.0
million. If the VN-127 Costs exceed the VN-127 Revenues (such excess, the
"VN-127 Shortfall") Buyer will, subject to Section 7(b)(xi) hereof, within
three business days following the VN-127 Date, pay to Seller the excess of
$1.0 million over the VN-127 Shortfall. If the VN-127 Shortfall exceeds
$1.0 million, Seller will, subject to Section 7(b)(xi) hereof, within three
business days following the VN-127 Date, pay to Buyer the amount of such
excess. Seller will, subject to Section 7(b)(xi) hereof, promptly pay to
Buyer any Seller Responsible Costs, with respect to such platform, arising
(whether by audit or otherwise) after the VN-127 Date. If there exists a
VN-127 Shortfall and Buyer receives additional VN-127 Revenues after the
VN-127 Date, then Buyer shall, subject to Section 7(b)(xi) hereof, promptly
pay such additional VN-127 Revenues to Seller up to an amount of the VN-127
Shortfall.
(vii) On or prior to the Closing Date, Seller will deliver
to Buyer Schedule 1(h)(vii) (the "Tooling Projection Schedule") which sets
forth a projection of Total Revenues and Total Costs with respect to each
item of tooling described above. Seller represents to Buyer that the
projections set forth on the Tooling Projection Schedule contains no
intentional misstatement or intentional misrepresentation of the projected
revenues of any item of tooling. If, 180 days after the DN-101 Date,
Seller has not received $2.5 million pursuant to Section 1(h)(iii) above,
Buyer will assign, at Seller's request, any claim refund, right of
recovery, right of setoff or right of recoupment against its customer with
respect to any uncollected revenues relating to the DN-101 platform, to the
extent Buyer is not then pursuing any such claim. If, 180 days after the
VN-127 Date, Seller has not received $1.0 million pursuant to Section
1(h)(vi) above, Buyer will assign, at Seller's request, any claim, refund,
right of recovery, right of setoff or right of recoupment against its
customer with respect to any uncollected revenues relating to the VN-127
platform, to the extent Buyer is not then pursuing any such claim, refund
or right. If, with respect to any claim, refund or right that is not
assigned to Seller under this Section or Section 1(h)(v) because Buyer is
pursuing it, Buyer is no longer pursuing such claim, refund or right in
good faith, then Buyer shall assign promptly, at Seller's request, such
claim, refund or right.
(viii) If Seller disagrees with any item on the DN-101
Accounting, the VN-127 Accounting or any Tooling Accounting, or the items
constituting any Net Audit Costs, Seller shall notify Buyer in writing of
such disagreement within thirty (30) business days after Seller's receipt
thereof (such notice setting forth the basis for such disagreement in
reasonable detail). Buyer shall permit Seller access to such personnel and
work papers involved with or relating to the preparation of DN-101
Accounting, the VN-127 Accounting or any Tooling Accounting, or the items
constituting any Net Audit Costs, as the case may be, as may be reasonably
necessary to permit Seller to review in detail the manner in which the DN-
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101 Accounting, the VN-127 Accounting or any Tooling Accounting, or the
items constituting any Net Audit Costs, as the case may be, were prepared.
Buyer and Seller shall thereafter negotiate in good faith to resolve any
such disagreements; provided, however, that Seller or Buyer, as the case
may be, shall within three (3) business days pay to Buyer or Seller, as the
case may be, the amount determined pursuant to Section 1(h)(iii), (iv), (v)
or (vi) above, as the case may be, which is not subject to dispute, if any.
If Buyer and Seller are unable to resolve any such disagreements within
thirty (30) business days, Buyer and Seller shall engage the Auditor to
resolve the disagreements in accordance with Section 1(e)(v) above. Buyer
agrees to manage the Transition Tooling in a manner consistent with Buyer's
and its Affiliate's other similar tooling arrangements. The Parties also
agree to advise and consult with one another in respect of the management
of the Transition Tooling.
(ix) All amounts actually paid or setoff pursuant to this
Section 1(h) shall (A) be made in immediately available funds by wire
transfer and (B) (other than payments made to Seller pursuant to Section
1(h)(iv) above) include interest at the Applicable Rate, calculated on the
basis of a 365-day year, accruing from the Closing Date; provided, however,
that any such amounts paid to, or setoff by, Buyer shall accrue interest
from the date on which such amount became due until such amount is paid or
setoff.
(x) For purposes hereof, "Total Costs" means, with respect
to any item of tooling, the actual costs incurred by Buyer plus any Seller
Tooling Cost or Capitol Tooling Costs in respect of such item, except to
the extent any such cost is a Buyer Responsible Cost; "Total Revenues"
means, with respect to any item of tooling, actual revenues received by
Buyer (including, without duplication or limitation, the Closing Transition
Tooling) in respect of such item, except to the extent any such revenue is
received as a result of a Buyer Responsible Cost; "Seller Responsible
Costs" means, with respect to any item of tooling, any cost relating to (A)
a design or engineering mistake or inadequacy during the Seller's
management of the program causing failure in the production of a quality
part (B) excessive normal supplier costs in areas, such as testing,
resulting from Seller's or Capitol's (prior to the Closing Date) mistake or
inadequacy of design and engineering activity requiring re-testing (C)
check fixtures not constructed in accordance with customer specifications
calling for Gauge R & R with a 30% error factor, (D) modifications or
additional tooling necessary to produce a part within the cycle time and
process parameters anticipated in the determination by Seller of the target
piece price for the part, (E) prototype costs to the extent such costs are
not recoverable from the customers as a separate component of the piece
price on the purchase order received from the customer or (F) one-half of
costs incurred because of inconsistent customer specifications such as
CMM/test fixture upgrades; "Buyer Responsible Costs" means, with respect to
any item of tooling, any cost (A) associated with a change caused by the
customer regarding the original requirements of the part concerning fit,
form and function, (B) customarily expected to be absorbed by a supplier
and recovered through the piece price such as initial product testing, (C)
expected to produce a pay-back or return to the Buyer because of
manufacturing efficiency gains over and above what is necessary to produce
a part within the cycle time and process parameters anticipated in the
determination by Seller of target piece price for the part, (D) resulting
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from the Buyer's preference for production methods or quality controls in
excess of what is specified by the customer, (E) one-half of costs incurred
because of inconsistent customer specifications such as CMM/test fixture
upgrades or (F) resulting from an error or mistake during Buyer's
management of the program.
(i) Intercompany Indebtedness. Immediately following the
acquisition of the Acquired Assets, Buyer will cause Capitol to pay to
Seller an amount equal to the Intercompany Debt, as reflected in the Esti-
mated Closing Balance Sheets. Upon final determination of the Closing
Balance Sheets, Buyer and Capitol will settle on the intercompany
liabilities due to the Seller as reflected in the Closing Balance Sheets
in a manner consistent with Section 1(e) and upon such settlement it will
represent the discharge in full of all intercompany indebtedness owed by
Capitol to Seller.
(j) Workers' Compensation.
(i) On or prior to December 1 of each year commencing
December 1, 1995 until the final settlement of the Seller's and Capitol's
retrospective workers' compensation insurance program for the period
beginning July 1, 1994 and ending on the Closing Date (the "Retrospective
Program") with the State of Ohio, Buyer will prepare an annual accounting
(each, a "WC Accounting") for the purposes of determining Buyer's and
Capitol's actual costs incurred in connection with the Retrospective
Program based on the information and statements delivered to Buyer from the
State of Ohio for such preceding year (the "Actual Retrospective WC Costs")
and deliver to Seller the WC Accounting. If the Actual Retrospective WC
Costs exceed the sum of Seller's Retrospective WC Accrual and Capitol's
Retrospective WC Accrual (the "Total Retrospective WC Accruals"), Seller
will pay, subject to Section 7(b)(xi) hereof, to Buyer in immediately
available funds the amount of such excess. If the Total Retrospective WC
Accruals exceed the Actual Retrospective WC Costs, Buyer will pay, subject
to Section 7(b)(xi) hereof, to Seller in immediately available funds the
amount of such excess. Buyer shall permit Seller access to Buyer's files,
work papers (including, without limitation, all applicable correspondence
from the State of Ohio) and personnel involved in the preparation of each
WC Accounting. Buyer and Seller shall negotiate in good faith to resolve
any disputes with respect to any calculation or determination made pursuant
to this Section 1(j). If Buyer and Seller are unable to resolve any such
disputes within thirty (30) days, Buyer and Seller shall engage the Auditor
to resolve the disagreements in accordance with Section 1(e)(v) above.
(ii) If, after January 1, 1996, Buyer elects self-insurance
with respect to Buyer's and Capitol's workers' compensation insurance
program in the State of Ohio (the "Self-Insurance Election"), Buyer will
pay, subject to Section 7(b)(xi) hereof, to Seller in immediately available
funds by wire transfer an amount equal to the Ohio Payoff Amount minus the
amount actually paid by Buyer and Capitol to the State of Ohio in
connection with the Self-Insurance Election.
Section 2. Closing of the Transaction.
(a) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of
Kirkland & Ellis in Chicago, effective at 11:59 p.m. local time on
December 2, 1994, or such other date and place as the Parties may mutually
determine (the "Closing Date").
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(b) Deliveries at the Closing. At the Closing:
(i) Seller will deliver to Buyer (A) the various certificates,
instruments, and documents referred to in Section 3(a) below, (B) a bill of
sale and assignment, in form and substance reasonably acceptable to Buyer,
(C) real property and Intellectual Property transfer documents in form and
substance reasonably acceptable to Buyer (it being understood that a
special warranty deed for the Real Estate in form acceptable for recording
will be acceptable), (D) stock certificate representing all of the
outstanding capital stock of Capitol, duly endorsed for transfer and (E)
such other instruments of sale, transfer, conveyance, and assignment as
Buyer reasonably may request; and
(ii) Buyer will deliver to Seller (A) the Purchase Price,
determined as of the Closing Date, in immediately available funds by wire
transfer, (B) the various certificates, instruments, and documents refer-
red to in Section 3(b) below, (C) an assumption agreement in form and
substance reasonably acceptable to Seller and (D) such other instruments
of assumption as Seller reasonably may request.
(iii) Buyer will cause Capitol to deliver to Seller an amount
equal to the Intercompany Debt in immediately available funds by wire
transfer.
Section 3. Conditions to Obligation to Close.
(a) Conditions to Obligation of Buyer. The obligation of Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 4
below shall be true and correct in all material respects at and as of the
Closing Date (without taking into account any disclosure made pursuant to
Section 4(x) below and disregarding the last sentence of Section 4(g)
below); provided that to the extent any such representation or warranty
relates solely to an Excluded Liability, such representation or warranty
need not be true and correct so long as Seller acknowledges in writing to
Buyer that any such breach relates solely to an Excluded Liability (which
acknowledgment shall not be unreasonably withheld);
(ii) Seller shall have performed and complied in all material
respects with all of its covenants hereunder through the Closing;
(iii) Buyer shall have received all of the title insurance
commitments, policies, and riders specified in Section 6(h) below (other
than with respect to item 5 of Schedule 6(h)), and all of the surveys
specified in Section 6(i) below;
(iv) No action, suit, or proceeding shall be pending before any
court, arbitrator or other body or administrative agency of any federal,
state, local, or foreign jurisdiction seeking specifically to prevent
consummation of any of the transactions contemplated by this Agreement
(and no such injunction, judgment, order, decree, ruling, or charge shall
be in effect);
(v) Seller shall have delivered to Buyer a certificate to the
effect that each of the conditions specified above in Section 3(a)(i)-(ii)
is satisfied in all respects;
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(vi) Seller shall have received all third party consents which
are denoted with an asterisk (*) and underlined on either Schedule 4(m) or
Schedule 4(p) attached hereto and Seller and Buyer shall have received all
other authorizations, consents, and approvals of governments and govern-
mental agencies referred to in Section 4(c) and Section 5(c) below;
(vii) Buyer shall have received from counsel to Seller an opinion
in the form of Exhibit A attached hereto, addressed to Buyer, and dated as
of the Closing Date;
(viii) Buyer shall have obtained on terms and conditions reasonably
satisfactory to it all of the financing it needs in order to consummate the
transactions contemplated hereby and to finance the Business' continuing
operations after the Closing;
(ix) Seller shall have entered into the Main Facility Lease and
Agreement (the "Main Lease") with Buyer in the form set forth on Exhibit B
attached hereto pursuant to which Buyer shall lease a portion of the
Gulfstream main facility (the "Gulfstream Main Facility") and the Main
Lease shall be in full force and effect and shall not have been amended or
modified;
(x) Seller shall have entered into the Harris Facility Lease and
Agreement (the "Harris Lease") with Buyer in the form set forth on Exhibit
C attached hereto pursuant to which Seller shall lease a portion of the
Harris facility (the "Harris Facility"), and the Harris Lease shall be in
full force and effect and shall not have been amended or modified;
(xi) Seller shall have entered into the Transition Services
Agreement (the "Transition Agreement") with Buyer in the form set forth on
Exhibit D attached hereto, and the Transition Agreement shall be in full
force and effect and shall not have been amended or modified; and
(xii) Seller shall have delivered to Buyer a certificate issued by
Seller in form and substance reasonably satisfactory to Buyer, duly execu-
ted and acknowledged, certifying that the sale of the Acquired Assets is
exempt from the provisions of the Foreign Investment in Real Property Act
of 1980.
Buyer may waive any condition specified in this Section 3(a) if it
executes a writing so stating at or prior to the Closing and such waiver
will also operate as a waiver of any rights or remedies Buyer may have
hereunder as a result of such nonsatisfaction.
(b) Conditions to Obligation of Seller. The obligation of
Seller to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 5
below shall be true and correct in all material respects at and as of the
Closing Date (without taking into account any disclosure made pursuant to
Section 5(e) below);
(ii) Buyer shall have performed and complied in all material
respects with all of its covenants hereunder through the Closing;
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(iii) No action, suit, or proceeding shall be pending before any
court, arbitrator or other body or administrative agency of any federal,
state, local, or foreign jurisdiction seeking specifically to prevent
consummation of any of the transactions contemplated by this Agreement
(and no such injunction, judgment, order, decree, ruling, or charge shall
be in effect);
(iv) Buyer shall have delivered to Seller a certificate to the
effect that each of the conditions specified above in Section 3(b)(i)-(ii)
is satisfied in all respects;
(v) Seller and Buyer shall have received all authorizations,
consents, and approvals of governments and governmental agencies referred
to in Section 4(c) and Section 5(c) below;
(vi) Seller shall have received from counsel to Buyer an opinion
in the form of Exhibit E attached hereto, addressed to Seller, and dated
as of the Closing Date;
(vii) Buyer shall have entered into the Main Lease with Seller in
the form set forth on Exhibit B attached hereto, and the Main Lease shall
be in full force and effect and shall not have been amended or modified;
and
(viii) Buyer shall have entered into the Harris Lease with Seller
in the form set forth on Exhibit C attached hereto, and the Harris Lease
shall be in full force and effect and shall not have been amended or
modified; and
(ix) Buyer shall have entered into the Transition Agreement with
Seller in the form set forth on Exhibit D attached hereto, and the
Transition Agreement shall be in full force and effect and shall not have
been amended.
Seller may waive any condition specified in this Section 3(b) if it
executes a writing so stating at or prior to the Closing and such waiver
will also operate as a waiver of any rights or remedies Seller may have as
a result of such nonsatisfaction.
Section 4. Representations and Warranties of Seller. Seller
represents and warrants to Buyer as follows:
(a) Organization of Seller. Each of Seller and Capitol is a
corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. Schedule 4(a) attached
hereto lists all of the jurisdictions in which Seller, with respect to the
Business, and Capitol are required to qualify to do business as foreign
corporations.
(b) Authorization of Transaction. Seller has full corporate
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Seller, enforceable in accordance with its
terms and conditions, subject to the effect of bankruptcy, insolvency,
reorganization or other similar laws and to general principles of equity
(whether considered in proceedings at law or in equity).
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(c) Noncontravention. Except as set forth on Schedule 4(c)
attached hereto, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i)
violate any constitution, statute (other than any so-called bulk transfer
laws), regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which Seller or Capitol is subject or any provision of the
charter or bylaws of Seller or Capitol or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which Seller, with respect to the Business, or
Capitol is a party or by which either of them is bound or to which any of
their respective assets is subject or (iii) result in the imposition of
any security interest upon any of Capitol's assets or the Acquired Assets.
Except as set forth on Schedule 4(c) attached hereto, neither Seller nor
Capitol is required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contempla-
ted by this Agreement.
(d) Brokers' Fees. Except for Nomura Securities International,
Inc., neither Seller nor Capitol has any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. Seller is solely responsible
for the fees and expenses of Nomura Securities International, Inc.
(e) Subsidiaries, Investments and Capital Stock.
(i) Other than Capitol or as set forth on Schedule 4(e) attached
hereto, Seller, with respect to the Business, has no Subsidiaries or
investment in any Person.
(ii) The authorized capital stock of Capitol consists of 10,000
shares of common stock, no par value (the "Common Stock"), 1,000 shares of
which are issued and outstanding. Capitol has no outstanding stock or
securities convertible or exchangeable for any shares of its capital stock
or containing any profit participation features, and Capitol does not have
outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable
for its capital stock or any stock appreciation rights or phantom stock
plans. Capitol is not subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital
stock or any warrants, options or other rights to acquire its capital
stock. All of the outstanding shares of Capitol's capital stock are
validly issued, fully paid and nonassessable. Seller owns 100% of the
issued and outstanding capital stock of Capitol, free and clear of any
liens, charges, encumbrances and other claims.
(iii) There are no statutory or contractual stockholders preemp-
tive rights or rights of refusal with respect to the sale of the Common
Stock hereunder. Capitol has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer and sale of the Common Stock hereunder do
not and will not require registration under the Securities Act of 1933, as
amended, or any applicable state securities laws. There are no agreements
among Capitol's stockholders with respect to the voting or transfer of
Capitol's capital stock or with respect to any other aspect of Capitol's
affairs.
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(f) Financial Statements. Schedule 4(f) attached hereto
contains the following financial statements (collectively the "Financial
Statements"): (i) the unaudited statements of income for the fiscal years
ended December 31, 1991, December 31, 1992, for Seller, with respect to
the Business; (ii) the consolidated unaudited statements of income for the
fiscal year ended December 31, 1993 (the "Most Recent Fiscal Year End") for
Seller, with respect to the Business, and Capitol; (iii) the unaudited
statements of income for the fiscal years ended November 30, 1991,
November 30, 1992 and for the period commencing December 1, 1992 and
continuing through March 31, 1993 for Capitol; and (iv) the consolidated
unaudited statements of income for the eight-months ended August 31, 1994
for Seller, with respect to the Business, and Capitol. The Financial
Statements (other than the notes thereto) have been prepared in accordance
with GAAP throughout the periods covered thereby and present fairly the
results of operations of Seller, with respect to the Business, and Capitol
for such periods. Schedule 4(f) attached hereto contains (i) an unaudited
schedule of certain assets and liabilities related to the Business
(including Capitol) as of June 30, 1994 (the "Most Recent Balance Sheet")
and (ii) an unaudited balance sheet as of June 30, 1994 for Capitol (the
"Most Recent Capitol Balance Sheet." The valuation of the assets and
liabilities set forth in the Most Recent Balance Sheet has been determined
in accordance with GAAP, and the Most Recent Balance Sheet fairly presents
the categories of assets and liabilities reflected therein as of such date
for the Business (including Capitol), except that required footnote
disclosure has not been provided. The Most Recent Capitol Balance Sheet
has been prepared in accordance with GAAP and presents fairly the financial
position of Capitol as of such date, except that required footnote
disclosure has not been provided.
(g) Events Subsequent to June 30, 1994. Since June 30, 1994,
there has not been any material adverse change in the business, financial
condition, results of operations, assets, employees, employee relations,
customer or supplier relations of the Business, except as set forth on
Schedule 4(g) attached hereto. Since June 30, 1994, except as set forth on
Schedule 4(g) attached hereto:
(i) Neither Seller nor Capitol has sold, leased, transferred,
or assigned any of the assets having a value in excess of $50,000 of the
Business or Capitol, respectively, tangible or intangible, other than
inventory in the ordinary course of business;
(ii) Neither Seller, with respect to the Business, nor Capitol
has entered into any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, or licenses) involving more than
$50,000, other than in the ordinary course of business or other than any
such item which is terminable without penalty upon sixty days' notice;
(iii) Neither Seller, with respect to the Business, nor Capitol
has accelerated, terminated, modified, or cancelled any agreement, con-
tract, lease, or license (or series of related agreements, contracts,
leases, or licenses) involving more than $50,000 to which Capitol is a
party or by which Capitol is bound;
(iv) Capitol has not delayed or postponed the payment of accounts
payable and other obligations and liabilities outside the ordinary course
of business;
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(v) Neither Seller, with respect to the Business, nor Capitol
has experienced any damage, destruction, or loss (whether or not covered
by insurance) to its property in excess of $50,000;
(vi) Neither Seller, with respect to the Business, nor Capitol
has entered into any employment contract or collective bargaining
agreement, written or oral, or modified the terms of any existing such
contract or agreement;
(vii) Neither Seller, with respect to the Business, nor Capitol
has granted any increase in the base compensation of any of their
respective directors, officers, and employees other than as consistent
with past custom and practice;
(viii) Neither Seller, with respect to the Business, nor Capitol
has adopted, amended, modified, or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or agreement for the benefit
of any of their respective directors, officers, and employees (or taken any
such action with respect to any other Employee Benefit Plan);
(ix) Neither Seller, with respect to the Business, nor Capitol
has entered into any transaction with any of its directors, officers,
employees or Affiliates, other than ordinary course employment arrange-
ments entered into in accordance with past custom and practice;
(x) Capitol has not entered into any agreement, contract or
other arrangement with respect to the incurrence of borrowed money; and
(xi) Neither Seller, with respect to the Business, nor Capitol,
as applicable, has committed to any of the foregoing.
Buyer acknowledges that there exists a labor organizing campaign at
Seller's Huron, Ohio facility and such activity, regardless of its outcome,
shall not represent a breach of this Section 4(g).
(h) Undisclosed Liabilities. Neither Seller, with respect to
the Business, nor Capitol has any liability or obligation (whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated) arising out of transactions entered
into on or prior to the Closing Date, or any action or inaction on or prior
to the Closing Date, or any state of facts existing on or prior to the
Closing Date, except for (i) liabilities or obligations set forth on the
face of the Most Recent Balance Sheet or the Most Recent Capitol Balance
Sheet (rather than in any notes thereto), (ii) liabilities or obligations
which have arisen after June 30, 1994 in the ordinary course of business
(none of which relates to (A) breach of contract, (B) breach of warranty,
(C) tort, (D) infringement, (E) violation of law, or (F) any action, suit
or proceeding (including, without limitation, any clean-up obligation or
liability for personal injury or property damage under any Environmental,
Health and Safety Laws)), (iii) liabilities or obligations arising under
agreements, contracts and purchase orders set forth on Schedule 4(p)
attached hereto (or under those not set forth on Schedule 4(p) due to the
specific dollar threshold or cancellation provision contained in Section
4(p) below) and (iv) liabilities or obligations reflected on the Schedules
attached hereto.
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(i) Legal Compliance. Seller, with respect to the Business,
Capitol and their predecessors and Affiliates have complied with all
applicable laws, rules and regulations (other than ERISA and
Environmental, Health, and Safety Laws which matters are addressed in
Sections 4(u) and 4(v) below) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any failure to so
comply.
(j) Tax Matters. Capitol has timely filed all Tax Returns it is
required to file. Each such Tax Return has been prepared in compliance
with all applicable laws and regulations. All Taxes owed by Capitol have
been paid (or are accrued on the Most Recent Capitol Balance Sheet or will
be accrued on the Closing Balance Sheets). Seller, with respect to the
Business, and Capitol have properly withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party. All
Taxes for which Capitol may be liable under Treasury Regulation 1.1502-6
(or analogous state or foreign provisions) by virtue of having been a
member of any "affiliated group" (or other group filing on a consolidated
basis) at any time prior to the Closing Date have been paid or, if such
Taxes are not yet due and payable, will be paid by Seller when due and
payable. Seller is not a "foreign person" within the meaning of Section
1445 of the Code. Capitol has not filed any agreement or consent under
Section 341(f) of the Code (or analogous state or foreign provisions).
Except as set forth on Schedule 4(j) attached hereto:
(i) During the past five (5) years, there has been no action,
suit, proceeding or audit or any notice of inquiry of any of the foregoing
against or with respect to Capitol regarding Taxes, and, to the best of
Seller's knowledge, no action, suit, proceeding or audit has been
threatened against or with respect to Capitol regarding Taxes;
(ii) Capitol is neither a party to or bound by any Tax alloca-
tion or Tax sharing agreement nor does it have any current or potential
contractual obligation to indemnify any other Person with respect to Taxes;
(iii) No claim has ever been made by a taxing authority in a
jurisdiction where Capitol does not file income Tax Returns that Capitol
is or may be subject to income Taxes assessed by such jurisdiction;
(iv) None of the Assumed Liabilities or any liabilities of
Capitol consists of an obligation to make any payments, that will be non-
deductible under Section 280G of the Code (or any corresponding provision
of state, local or foreign income Tax law);
(v) Schedule 4(j) contains a list of states, territories and
jurisdictions (whether foreign or domestic) in which Capitol is required
to file Tax Returns relating to federal, state or local Taxes or other
Taxes imposed upon or measured by net income or receipts of Capitol; and
(vi) Capitol will not be required as a result of a change in
method of accounting for a taxable period ending on or prior to the
Closing Date, to include any adjustment in taxable income for any taxable
period (or portion thereof) ending after the Closing Date.
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As of December 31, 1993, Capitol had general business tax credits
equal to at least $509,600 and the use of such credits (i) is not subject
to any limitations set forth in any section of the Code other than those
limitations set forth in Section 383 of the Code and (ii) is currently
available to Capitol on an annual basis in an amount not less than $20,650.
(k) Title to Personal Property. Seller has good and marketable
title to, or a valid leasehold interest in, the tangible Acquired Assets
and Capitol has good and marketable title to, or a valid leasehold
interest in, its tangible personal property (other than the real property
described in Section 4(l) below), free and clear of any security interest
or restriction on transfer.
(l) Real Property. Schedule 4(l)(i) attached hereto lists and
describes briefly all real property owned by Capitol or related to the
Business and owned by Seller. Except as set forth on Schedule 4(l)(ii),
with respect to each such parcel of real property, (i) the identified owner
has good and marketable title, free and clear of any security interest,
easement, covenant, or other restriction, except for installments of
special assessments not yet delinquent and recorded easements, covenants,
and other restrictions which do not impair the current use or occupancy of
the property subject thereto, (ii) there are no leases, subleases, licens
es, concessions, or other agreements, written or oral, granting to any
party or parties the right of use or occupancy of any portion thereof; and
(iii) there are no outstanding options or rights of first refusal to
purchase such parcel or any portion thereof or interest therein.
Schedule 4(l)(iii) attached hereto sets forth all of the real property
leased by Seller, with respect to the Business, or Capitol (the "Leased
Property"). The leases under which Seller or Capitol leases the Leased
Property are in full force and effect. With respect to the Leased
Property, neither Seller nor Capitol and, to the best of Seller's
knowledge, no third party, is in breach or default, and no event has
occurred (including the consummation of the transactions contemplated
hereby) which, with or without the lapse of time or the giving of notice,
would constitute such a breach or default or permit termination,
modification, or acceleration under such lease or sublease.
(m) Intellectual Property.
(i) Schedule 4(m) attached hereto identifies (A) each patent or
registration which has been issued to Seller or Capitol with respect to any
Intellectual Property used in connection with the Business or by Capitol,
(B) each pending patent application or application for registration which
Seller or Capitol has made with respect to any Intellectual Property used
in connection with the Business or by Capitol, (C) each license, agreement,
or other permission which Seller or Capitol has granted to any third party
with respect to any Intellectual Property used in connection with the
Business or by Capitol (together with any exceptions), and (D) each item of
Intellectual Property that any third party owns and that Seller or Capitol
uses in connection with the Business or that Capitol uses pursuant to
license, sublicense, agreement, or permission, and denotes with an asterisk
(*) whether the consent of any third party thereto is required as a result
of the consummation of the transactions contemplated by this Agreement
(other than any "shrinkwrap" or "off-the-shelf" software). Seller has
delivered to Buyer a complete and accurate list of all corporate or trade
names used by Seller in connection with the Business or by Capitol (other
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than "Gulfstream" and "Capitol"), and correct and complete copies of all
such patent, trademark or copyright registrations, applications, licenses,
sublicenses, agreements, and permissions (as amended to date) and have made
available to Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of the
Intellectual Property used by Seller, with respect to the Business, or
Capitol (other than any "shrinkwrap" or "off-the-shelf" software). The
Intellectual Property (other than the Excluded Intellectual Property) owned
or used by Seller or Capitol in connection with the Business immediately
prior to the Closing will be owned or available for use by Buyer
immediately subsequent to the Closing.
(ii) Except as set forth on Schedule 4(m), (A) neither Seller nor
Capitol has interfered with, infringed upon or misappropriated any Intel-
lectual Property rights of third parties, (B) neither Seller nor Capitol
has received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation, (C) Sel-
ler has no knowledge that any third party has interfered with, infringed
upon or misappropriated any Intellectual Property used by Capitol or by
Seller in connection with the Business, (D) no action is pending, or to
Seller's knowledge threatened, which challenges the use or ownership of the
Intellectual Property used by Capitol or by Seller in connection with the
Business, (E) Seller or Capitol possesses all right, title, and interest in
and to, or has a valid license, sublicense, agreement or permission to use,
all of the Intellectual Property necessary for the operation of the
Business or Capitol as presently conducted or as currently proposed to be
conducted; and (F) the license, sublicense, agreement, or permission
covering any such used Intellectual Property (including any such
"shrinkwrap" or "off-the-shelf" software) is in full force and effect.
(n) Tangible Assets. The Acquired Assets and the assets owned
by Capitol include all buildings, machinery, equipment, and other tangible
assets necessary for the conduct of the Business and the business of
Capitol as presently conducted except for the Excluded Assets. Each
Acquired Asset used in the Business and each tangible asset owned and used
by Capitol is free from defects, is in good operating condition and repair
(subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
(o) Inventory. The inventory relating to the Business and owned
by Capitol consists of raw materials and packing supplies, maintenance and
repair supplies, manufactured and purchased parts, work-in-process, and
finished goods, all of which is merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is slow-moving,
obsolete, damaged, or defective, subject only to the reserve for inventory
writedown reflected on the Most Recent Balance Sheet, the Most Recent
Capitol Balance Sheet, as adjusted in connection with the preparation of,
and set forth on, the Closing Balance Sheets.
(p) Contracts. Schedule 4(p) lists the following contracts,
agreements and other arrangements to which Capitol is a party or related to
the Business to which Seller is a party and denotes with an asterisk (*)
whether the consent of any third party thereto is required as a result of
the consummation of the transactions contemplated by this Agreement:
(i) any agreement concerning a partnership or joint venture;
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(ii) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for bor-
rowed money or any capitalized lease obligation under which it has imposed
a security interest on any of its assets, tangible or intangible;
(iii) any agreement concerning confidentiality or noncompetition;
(iv) any arrangement, understanding, or agreement (other than at
will oral employment agreements), involving any of its Affiliates or
shareholders (including any shareholder's family members by blood,
marriage, adoption or otherwise);
(v) any profit sharing, stock option, stock purchase, stock
appreciation, bonus, deferred compensation, severance, welfare benefit
plan or other plan or arrangement (whether formal or informal) for the
benefit of its current or former directors, officers, and employees other
than those set forth on Schedule 4(u) attached hereto;
(vi) any agreement (whether formal or informal) with its
directors, officers, employees (other than oral at will employment
agreements) and consultants, including any collective bargaining agreement
other than those set forth on Schedule 4(u) attached hereto;
(vii) any agreement (or group of related agreements) for the
lease or sublease of personal property to or from any Person providing for
payments in excess of $50,000 per annum;
(viii) any open purchase orders related to the purchase of Inven-
tories other than those entered into in the ordinary course of business
prior to the Closing Date;
(ix) any power of attorney;
(x) any agreement which may not be cancelled by Seller or
Capitol with less than sixty (60) days' notice without premium or penalty
payable by Seller or Capitol and pursuant to which the remaining
obligations are greater than $50,000;
(xi) any agreement (other than covered in clause (viii) above)
under which the consequences of a default or termination could reasonably
be expected to have a material adverse effect on the business, financial
condition, results of operations of Seller, with respect to the Business,
or Capitol; or
(xii) any other agreement not covered in clauses (i) through (xi)
above (or group of related agreements) the performance of which involves
consideration in excess of $50,000, including but not limited to any
distribution and supply agreements, but not including any open purchase
order related to the purchase of Inventories entered into in the ordinary
course of business prior to the Closing Date.
Seller has delivered or made available to Buyer a correct and complete
copy of each written agreement listed in Schedule 4(p). Seller has also
delivered to Buyer a brief description of all oral contracts, agreements
and other arrangements required to be disclosed on Schedule 4(p). With
respect to each of Seller's, with respect to the Business, or Capitol's
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agreements, contracts or arrangements disclosed on Schedule 4(p): (A) such
agreement, contract or arrangement is in full force and effect; (B) neither
Seller nor Capitol is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default by Seller
or Capitol or permit any third party to terminate, modify, or accelerate,
such agreement; (C) neither Seller nor Capitol has repudiated any provision
of such agreement, contract or arrangement; (D) to the best of Seller's
knowledge, no third party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default by such third party or permit Seller or Capitol to terminate,
modify, or accelerate, such agreement, contract or arrangement; and (E)
neither Seller nor Capitol has any actual knowledge of any breach or
anticipated breach by any other party to any contract set forth on Schedule
4(p).
(q) Notes and Accounts Receivable. All notes and accounts
receivable of Capitol are reflected properly on the Most Recent Capitol
Balance Sheet and in the books and records of Capitol, are valid receiva-
bles subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded
amounts, subject only to the reserve for bad debts reflected thereon and
to be used in the preparation of, and set forth on, the Closing Balance
Sheets.
(r) Insurance. Schedule 4(r) attached hereto sets forth the
following information with respect to each insurance policy to which
Capitol has been a party, a named insured, or otherwise the beneficiary of
coverage at any time since April 1, 1993.
(i) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(ii) the scope, period and amount of coverage; and
(iii) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
(s) Litigation. Schedule 4(s) attached hereto sets forth each
instance in which Seller, with respect to the Business, or Capitol (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or, to Seller's knowledge, is threatened to be
made a party to any action, suit, proceeding, hearing, or investigation of,
in, or before any court, arbitrator or other body or administrative agency
of any federal, state, local, or foreign jurisdiction.
(t) Employees. To the actual knowledge of Anthony Barone or
James Holland, without a duty to inquire, none of the key employees of
Seller or Capitol set forth on Schedule 4(t) attached hereto has any plans
to terminate employment with Seller or Capitol (except in order to accept
employment with Buyer). Except as set forth on Schedule 4(t) attached
hereto, Seller has no knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
the employees of Seller, with respect to the Business, or of Capitol.
Seller, with respect to the Business, and Capitol have complied with all
applicable laws relating to the employment of labor and within the last
three (3) years neither Seller, with respect to the Business, nor Capitol
has experienced any strikes, unresolved grievances, unfair labor practice
claims or unresolved disputes with former employees regarding termination
and/or severance pay.
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(u) Employee Benefits.
(i) Pension Plans. Except as set forth in Schedule 4(u)
attached hereto, with respect to all employees and former employees of
Seller, with respect to the Business, or of Capitol, neither Seller nor
Capitol maintains, contributes to or has any liability under (or with
respect to) any Employee Pension Benefit Plan, whether or not terminated.
(ii) Welfare Plans. Except as set forth in Schedule 4(u), with
respect to all employees and former employees of Seller, with respect to
the Business, and Capitol, neither Seller nor Capitol maintains or has any
obligation to contribute to (or any other liability with respect to) any
Employee Welfare Benefit Plan, whether or not terminated, which provides
medical, health, life insurance or other welfare-type benefits for current
or future retirees or current or future former employees or their spouses
or dependents (other than in accordance with Section 4980B(f) of the Code).
(iii) Multiemployer Plans. With respect to all employees and
former employees of Seller, with respect to the Business, and Capitol,
neither Seller nor Capitol has any obligation to contribute to (or any
other liability with respect to) any (i) Multiemployer Plan or (ii) plan
of the type described in Sections 4063 and 4064 of ERISA or Section 413(c)
of the Code, and neither Seller nor Capitol has incurred any current or
potential withdrawal liability as a result of a complete or partial
withdrawal (or potential partial withdrawal) from any Multiemployer Plan.
(iv) Other Benefit Plans. Except as set forth in Schedule 4(u),
neither Seller nor Capitol maintains, contributes to or has any liability
under (or with respect to) any deferred compensation or retirement plans or
arrangements, employee welfare, fringe benefit or bonus plan, program,
policy or other arrangement for employees or any other arrangement for
employees or former employees of Seller, with respect to the Business, or
Capitol, their spouses or dependents, whether or not terminated. The
plans, programs, policies and other arrangements set forth on Schedule 4(u)
are hereinafter referred to collectively as the "Plans."
(v) Administration and Compliance of the Plans. With respect to
each of the Plans sponsored or maintained for employees of Capitol:
(A) all required or discretionary (in accordance with
historical practices) payments, premiums, contributions or reimbursements
that are presently due for all periods ending prior to or as of the
Closing Date shall have been made, and all accruals, in accordance with
GAAP, shall have been made on the Closing Balance Sheets;
(B) there is no unfunded liability which is not reflected
on the Most Recent Capitol Balance Sheet or will not be reflected on the
Closing Balance Sheets, to the extent required to be reflected in
accordance with GAAP;
(C) there have been no violations of ERISA with respect
thereto (including, without limitation, any Prohibited Transactions) for
which Capitol is, or could be, liable; no Fiduciary (as defined in Section
3(21) of ERISA) has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets thereof for which Capitol is, or could be, liable;
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no action, suit, proceeding, hearing or investigation with respect to the
administration or the investment of the assets thereof (other than routine
claims for benefits) is pending or, to the best of Seller's knowledge,
threatened; and Seller has no knowledge of any basis for any such action,
suit, proceeding, hearing, or investigation; and
(D) Seller has provided Buyer with true and complete copies
of all documents pursuant to which such Plan is maintained and admini-
stered and the most recent annual reports (Form 5500 and attachments) and
financial statements therefor.
(vi) Neither Seller nor Capitol has incurred any liability to the
Pension Benefit Guaranty Corporation ("PBGC"), the Internal Revenue
Service, or any multiemployer plan with respect to any employee pension
benefit plan currently or previously maintained by members of the control-
led group of companies (as determined in Sections 414(b) and (c) of the
Code (the "Controlled Group")) that has not been satisfied in full, and no
condition exists that presents a risk to Seller or any member of the Con-
trolled Group of incurring such a liability, other than liability for
premiums due the PBGC.
(v) Environment, Health, and Safety. Each of Seller, Capitol
and their predecessors and Affiliates has obtained all material permits,
licenses, and other authorizations which are required for the ownership and
operation of the Business and the business of Capitol under all applicable
Environmental, Health, and Safety Laws. Except as set forth on Schedule
4(v), none of Seller, Capitol or their predecessors has, with respect to
the ownership and operation of the Business and Capitol, handled, released
or disposed of any substance, arranged for the disposal of any substance,
exposed any employee or other individual to any substance or condition, or
owned or operated the Business and Capitol or any property or facility so
as to give rise to any material liability or corrective or remedial
obligation under any Environmental, Health, and Safety Laws. Except as set
forth on Schedule 4(v), Seller, Capitol and their predecessors have, with
respect to the ownership and operation of the Business, complied with, and
are in compliance in all material respects with, all Environmental, Health,
and Safety Laws, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed, commenced or,
to Seller's knowledge, threatened against any of them alleging any failure
to so comply or alleging any material liability or corrective or remedial
obligations under any Environmental, Health and Safety Laws. Except as set
forth on Schedule 4(v), none of Seller, Capitol or their predecessors has,
with respect to the ownership and operation of the Business and the
business of Capitol, either expressly or by operation of law, assumed or
undertaken any material liability of any other Person under any
Environmental, Health, and Safety Laws. Except as set forth on Schedule
4(v), no underground storage tanks, asbestos-containing materials, or pcb-
containing equipment or fluids have been or are present on any real
property listed on Schedule 4(l)(i) or Schedule 4(l)(iii). The
transactions contemplated by this Agreement do not impose any obligations
under any Environmental, Health, and Safety Laws for site investigation or
cleanup, or notification to any government agencies or third parties.
Except as set forth on Schedule 4(v), without limiting the foregoing, no
facts, events or conditions relating to the past or present facilities,
properties or operations of Seller, Capitol or the Business will prevent,
hinder or limit continued compliance in all material respects with
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Environmental, Health and Safety Laws by the Business or Capitol or give
rise to any material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or any material investigatory, remedial or
corrective obligations pursuant to Environmental, Health and Safety Laws,
including without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes, personal
injury, property damage or natural resource damage.
(w) Business.
(i) SPECS Credits. Seller has at least $2,462,000 in PTPD SPECS
credits (the "PTPD Credits") and at least $1,849,000 in NAAO SPECS credits
(the "NAAO Credits" and collectively, with the PTPD credits, the "SPECS
Credits") from Ford Motor Company. Seller may, and after the Closing Buyer
may, use the excess PTPD Credits to offset NAAO SPECS credit requirements
set forth under the Ford Motor Company long term contract with Seller (the
"Ford LTA"). The PTPD SPECS saves required pursuant to the Ford LTA are
covered for each of fiscal 1994, 1995 and 1996 and the NAAO SPECS saves
required pursuant to the Ford LTA (after giving effect to the application
of excess PTPD SPECS saves) are covered for each of fiscal 1994 and 1995.
(ii) Pricing. Attached on Schedule 4(w) are (A) copies of let-
ters that Seller has received from Ford Motor Company with respect to the
pricing of the MN12, VN58 and VN127 platforms indicating for the MN12
platform an increase in annual sales revenues by not less than $1.65
million and for the VN58 and VN127 platforms an across-the-board 6% price
increase and with respect to the elimination of the 3.5% productivity
requirement set forth in Ford LTA for fiscal year 1996 and the decrease
of the current commodity price increase absorption rate set forth in the
Ford LTA from 4% to 2% for fiscal 1995 and 1996 in each case for that
portion of the Business located in Huron, Ohio and (B) a list of existing
prices for the MN12 platform and a list of the modified prices for such
platform as disclosed in such letters.
(x) Closing Date. The representations and warranties contained
in this Section 4 and elsewhere in this Agreement will be true and correct
on the Closing Date as though then made, except for written disclosures
made by Seller to Buyer prior to the Closing.
Section 5. Representations and Warranties of Buyer. Buyer
represents and warrants to Seller as follows:
(a) Organization of Buyer. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. Buyer has full corporate
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Buyer, enforceable in accordance with its
terms and conditions, subject to the effect of bankruptcy, insolvency,
reorganization or other similar laws and to general principles of equity
(whether considered in proceedings at law or in equity).
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(c) Noncontravention. Except as set forth on Schedule 5(c)
attached hereto, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i)
violate any constitution, statute (other than any so-called bulk transfer
laws), regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which Buyer is subject or any provision of its charter or bylaws
or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which Buyer is a party or by which it is bound or to which any of its
assets is subject. Except as set forth on Schedule 5(c) attached hereto,
Buyer does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. Except with respect to Robert W. Baird &
Co., Buyer has no liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Seller could become liable or
obligated. Buyer is solely responsible for the fees and expenses of
Robert W. Baird & Co.
(e) Closing Date. The representations and warranties contained
in this Section 5 and elsewhere in this Agreement will be true and correct
on the Closing Date as though then made, except for written disclosures
made by Buyer to Seller prior to the Closing.
(f) Investment Purposes. Buyer is acquiring the Common Stock
for its own account and not with a view to sale or distribution thereof in
violation of any securities laws, and it has no present intention of
selling or distributing all or any portion of the Common Stock in violation
of any securities laws.
Section 6. Pre-Closing Covenants. The Parties agree as follows
with respect to the period between the execution of this Agreement and the
Closing.
(a) General. Each of the Parties will use reasonable efforts
to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement.
(b) Notices and Consents. Each Party will give any notice to
third parties, and such Party will use reasonable efforts to obtain any
third-party consents, that the other Party reasonably may request inclu-
ding, without limitation, those consents indicated as necessary pursuant
to Sections 4(m) and 4(p) and those notices as necessary pursuant to
Sections 4(c) and 5(c). Each of the Parties will give any notices to,
make any filings with, and use reasonable efforts to obtain any authori-
zations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 4(c) and Section
5(c) above.
(c) Operation of the Business.
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(i) Seller will not engage in any practice, take any action, or
enter into any transaction relating to the Business or to Capitol outside
the ordinary course of business, including the management of its working
capital other than in accordance with past custom and practice. Without
limiting the generality of the foregoing, Seller will not, and will cause
Capitol to not, engage in any practice, take any action, or enter into any
transaction which would be required to be disclosed under Section 4(g)
above. Seller and Capitol may not make without Buyer's prior approval
capital expenditures in excess of $10,000 per item; provided that Seller or
Capitol may make capital expenditures on an emergency basis of up to
$20,000 per item.
(ii) Neither Capitol nor Seller will make any payments to any
of their respective tooling vendors, other than in accordance with its
past custom and practice.
(d) Preservation of the Business. Seller will, and will cause
Capitol to, make all commercially reasonable efforts to conduct their
respective businesses and maintain their respective properties in
accordance with past custom and practice, including their present
operations, physical facilities, equipment, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
Without limiting the generality of the foregoing, Seller will, and will
cause Capitol to, make all commercially reasonable efforts to pay expenses
and payables, purchase inventory, perform all maintenance and repairs and
collect receivables in the ordinary course of business in accordance with
past custom and practice. Seller will not be deemed to be in breach under
this section if Buyer does not approve an expenditure pursuant to Section
6(c).
(e) Full Access. Seller will permit representatives of Buyer
(including its accountants, attorneys, consultants, lenders and other
agents) to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of Seller to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to the Business and the business
of Capitol.
(f) Notice of Developments. Seller will give prompt written
notice to Buyer of any development causing, or reasonably likely to cause,
a breach in any material respect of any of the representations and warran-
ties in Section 4 above. Buyer will give prompt written notice to Seller
of any development causing, or reasonably likely to cause, a breach in any
material respect of any of its representations and warranties in Section 5
above. No disclosure by any Party pursuant to this Section 6(f), however,
shall be deemed to cure any breach of any representation or warranty
contained herein.
(g) Exclusivity. Seller will not, and will cause Capitol and
their respective officers, directors, agents and Affiliates to not, dis-
cuss a possible sale or other disposition of all or any part of the assets
of the Business or the stock or assets of Capitol, other than inventory in
the ordinary course of business (whether by merger, reorganization,
recapitalization or otherwise) with any party other than Buyer (an
"Acquisition Proposal") or provide any information to any other party
regarding the Business or Capitol other than information which is
traditionally provided in the regular course of its business operations to
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third parties where Seller and its officers, directors, agents and
Affiliates have no reason to believe that such information may be utilized
to evaluate a possible sale or other disposition of the Business or
Capitol. Seller and its officers, directors and Affiliates (i) do not have
any agreement, arrangement or understanding with respect to any Acquisition
Proposal, (ii) will cease and cause to be terminated any and all
discussions with third parties regarding any Acquisition Proposal and (iii)
will promptly notify Buyer if any Acquisition Proposal, or any inquiry or
contact with any person or entity with respect thereto, is made.
(h) Title Insurance. Seller will assist Buyer in obtaining an
Owner's Policy of Title Insurance reasonably acceptable to Buyer for each
parcel of real property set forth on Schedule 4(l)(i), in an amount equal
to the fair market value of such real property (including all improvements
located thereon), insuring title to such real property to be in Buyer as of
the Closing (subject only to the title exceptions described in
Schedule 4(l)(i) and Schedule 4(l)(ii)) and containing the special
endorsements set forth on Schedule 6(h) attached hereto; provided, however,
to the extent not obtained prior to the Closing Date, Seller will continue
to assist Buyer in obtaining any such special endorsement after the Closing
Date. Buyer and Seller will share equally the fees and expenses related to
obtaining such title insurance.
(i) Surveys. With respect to each parcel of real property as to
which a title insurance policy is to be procured pursuant to Section 6(h)
above, Seller will assist Buyer in procuring a current survey of such real
property certified to Buyer, prepared by a licensed surveyor and conforming
to current ALTA Minimum Detail Requirements for Land Title Surveys (the
"Survey"). The Survey shall not disclose any material survey defect or
encroachment from or onto the real property (other than those set forth on
Schedule 4(l)(ii)) which has not been cured or insured over prior to the
Closing. Seller and Buyer will share equally the fees and expenses related
to procuring the Surveys.
Section 7. Additional Agreements.
(a) Survival. Subject to Section 7(b) below, the
representations, warranties, covenants and agreements set forth in this
Agreement or in any certificate or other writing delivered in connection
with this Agreemen will survive the Closing Date and the consummation of
the transactions contemplated hereby notwithstanding any examination made
for or on behalf of Buyer or Seller or the knowledge of any of Buyer's or
Seller's officers, directors, shareholders, employees, Affiliates or
agents. Notwithstanding the foregoing, the representations and warranties
set forth in Section 4(v) (Environment, Health, and Safety) shall not
survive the Closing Date.
(b) Indemnification.
(i) Subject to the limitations set forth in Sections 7(b)(ii),
7(b)(iii), 7(b)(v), and 7(b)(vi) below, Seller agrees to indemnify and hold
Buyer, its officers, directors, shareholders, employees and Affiliates
(collectively, the "Buyer Group") harmless against any loss, liability,
damage or expense, including reasonable legal expenses and costs
("Losses"), which they may suffer, sustain, or become subject to, as the
result of:
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(A) the breach of any representation or warranty contained
in this Agreement (other than a representation or warranty set forth in
Sectio 4(v) above);
(B) the breach of any covenant or agreement contained in
this Agreement;
(C) any Excluded Liability;
(D) any claim by any shareholder, or class or group of
shareholders, of Seller in respect of the transactions contemplated hereby;
(E) any Known Environmental Conditions; or
(F) any Unknown Environmental Conditions.
(ii) With respect to claims for breaches of representations and
warranties referred to in Section 7(b)(i)(A) above (other than representa-
tions and warranties set forth in Section 4(w) (Business), in Section 4(j)
(Tax Matters) (to the extent relating to Capitol's obligations) above or
Section 1(h)), (w) Seller will not be liable to the Buyer Group for any
Loss relating to any particular breach if such Loss is less than $10,000,
(x) Seller will be liable to the Buyer Group for Losses only if the ag-
gregate amount of all such Losses relating to all such breaches plus Losses
relating to Section 7(b)(i)(F) above, subject to the limitations set forth
in Section 7(b)(v) below, exceeds $500,000, in which case Seller will be
liable only for such excess, (y) Seller will not be liable for any Losses
arising therefrom unless written notice of such breach is given by the
Buyer Group to Seller within fifteen (15) months after the Closing Date,
except for: (A) Losses arising from the representations and warranties
contained in Sections 4(a) (Organization), 4(b) (Authority), 4(c)
(Noncontravention), 4(h) (Undisclosed Liabilities), 4(i) (Legal
Compliance), 4(m) (Intellectual Property), 4(s) (Litigation), 4(u)
(Employee Benefits), and 4(w) (Business) in which case written notice of
such breach may be given by the Buyer Group to Seller within three (3)
years after the Closing Date; (B) Losses arising from a breach of the
representation and warranty contained in Section 4(j) (Tax Matters) above
in which case written notice of such breach may be given by the Buyer Group
to Seller prior to the expiration of the applicable statute of limitations;
and (C) Losses arising from a breach of the representation and warranty
contained in Sections 4(k) (Title to Personal Property) and 4(e)
(Subsidiaries, Investments and Capital Stock) above in which case Seller
shall remain liable forever; provided that in the case of a breach of any
representation or warranty set forth in Section 4(x) (Closing Date) where
the subject matter of such breach is addressed by one of the
representations and warranties referred to in the previous exceptions, the
time limitation set forth in such exceptions shall control when written
notice of such breach must be given and (z) Seller will be liable to the
Buyer Group for Losses relating to any breach of Section 4(n), 4(o) or 4(q)
only to the extent such Loss has not previously been collected by Buyer
pursuant to the preparation of the Closing Balance Sheets. If any Loss
arising from a breach of representation or warranty referred to in Section
7(b)(i)(A) above also constitutes a Loss arising out of or relating to an
Excluded Liability, such Loss will be deemed to be an Excluded Liability
for purposes of Section 7(b)(i), and, thus, not subject to the limitations
set forth in the first sentence of this Section 7(b)(ii).
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(iii) With respect to any matter for which indemnification is
provided pursuant to Section 7(b)(i)(E) or (F) hereof, Seller shall have
sixty (60) days after receipt of written notice thereof (with such notice
stating with reasonable specificity the nature and basis of the assertion
and the amount thereof to the extent known) from Buyer (such notice being
deemed given for any Known Environmental Conditions) (or such shorter
period as exigent circumstances may dictate in Buyer's sole but reasonable
judgment) to either (A) acknowledge in writing that it will indemnify (such
acknowledgement being deemed given for any Known Environmental Condition)
Buyer with respect to such matter, in which case Seller shall undertake,
conduct and control, through counsel, consultants and contractors of
Seller's own choosing (and reasonably satisfactory to Buyer) and expense,
the defense, investigation, remediation, and settlement thereof or (B) fail
to acknowledge in writing that it will indemnify Buyer with respect to such
matter, in which case Seller shall permit Buyer to assume the conduct and
control of the defense, investigation, remediation, and settlement thereof
through counsel, consultants and contractors of Buyer's own choosing (and
reasonably satisfactory to Seller); provided that if it is ultimately
determined that Seller is liable to Buyer with respect to such matter, the
fees and expenses of Buyer's counsel, consultants and contractors shall be
indemnified hereunder. If Seller does not notify Buyer within sixty (60)
days after the receipt of Buyer's notice of a claim of indemnity hereunder
(or such shorter period as exigent circumstances may dictate in Buyer's
sole but reasonable judgment) of its election pursuant to this Section
7(b)(iii), Buyer shall have the right to assume the defense, investigation,
remediation, and settlement thereof, and to contest, settle or compromise
any claim relating thereto, and shall not waive any right to indemnity
thereby. Upon acknowledging its indemnification obligations hereunder,
Seller shall have the right to conduct all Remedial Actions and other
activities necessary to comply with its obligations hereunder and Seller
shall have principal decision-making authority and control as to such
matters; provided that in exercising its rights and obligations, Seller
shall not take actions that would prevent or hinder Buyer from complying in
all material respects with Environmental, Health and Safety Laws, or
unreasonably interfere with any of Buyer's operations (taking into account
the scope of the Remedial Actions). Buyer shall have the right to review
all nonprivileged documents and other information relating to Seller's
investigations, studies, actions and activities in the performance of any
obligations hereunder and Buyer shall be afforded a reasonable opportunity
to attend all nonprivileged material meetings and conferences relating
thereto. Seller shall consult in good faith with Buyer with respect to
such matters. Seller will not, without the written consent of Buyer (which
consent shall not unreasonably be withheld) consent to the entry of any
judgment or enter into any settlement with respect to any matter
indemnified hereunder. A Remedial Action shall be deemed adequate for
purposes of satisfying Seller's obligations hereunder to the extent such
Remedial Action:
(Y) attains compliance in a reasonably cost effective
manner with Environmental, Health and Safety Laws and applicable or
relevant and appropriate action levels or cleanup standards promulgated
thereunder, and reasonably mitigates any substantial risk to human health
and the environment; and
(Z) complies with any lawful order or directive of an
appropriate governmental authority.
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(iv) Notwithstanding anything in this Agreement to the contrary,
with respect to Item 2 of Schedule 7(b) for which indemnification is
provided pursuant to Section 7(b)(i)(E) hereof, the following shall apply.
Seller shall draft a detailed plan to repair and/or replace the inadequate
floor and hydraulic oil collection system at the Harris facility in
Winchester, Virginia ("Floor and Oil Collection System Plan" or "System
Plan"). The Floor and Oil Collection System Plan shall be based on the
Floor and Oil Collection System Outline set forth in Schedule 7(b)(iv)
hereto. The Floor and Oil Collection System Plan shall: (i) describe how
the floor and the hydraulic oil collection system shall be repaired and/or
replaced to prevent hydraulic oil releases to soil or groundwater; (ii)
identify the personnel and/or contractors that will be used; (iii)
describe how all activities shall be carried out so as not to prevent or
hinder Buyer from complying in all material respects with all applicable
laws, rules and regulations or unreasonably interfere with any of Buyer's
operations; (iv) contain a schedule for implementation; (v) comply with
all applicable laws, rules and regulations; and (vi) be consistent with
good engineering practice. Seller shall promptly, and in any case within
sixty (60) days after the Closing Date, present the Floor and Oil
Collection System Plan to Buyer for approval by Buyer. Buyer shall
promptly, and in any case within twenty (20) days of receipt of the
System Plan, indicate in writing whether it approves the System Plan,
with such approval not to be unreasonably withheld by Buyer. If Buyer
does not approve the System Plan, Buyer shall provide Seller with the
reasons for its disapproval and Buyer and Seller shall cooperate in good
faith to promptly resolve the reasons for such disapproval. Promptly
after Buyer approves the Floor and Oil Collection System Plan, and in any
case within one year after such approval, Seller shall conduct and
implement the Floor and Oil Collection System Plan. The
implementation of the System Plan shall be carried out pursuant to the
terms of the System Plan and shall not prevent or hinder Buyer from
complying in all material respects with all applicable laws, rules and
regulations nor shall it unreasonably interfere with any of Buyer's
operations. Upon completion of the actions called for in the System Plan,
Seller shall so notify Buyer in writing and Buyer shall be permitted to
inspect the completed work. Buyer shall promptly, and in any case within
twenty (20) days of receipt of a notice of completion, indicate in writing
whether it approves of the work, with such approval not to be unreasonably
withheld by Buyer. If Buyer does not approve of the work, Buyer shall
provide Seller with the reasons for its disapproval and Buyer and Seller
shall cooperate in good faith to promptly resolve the reasons for such
disapproval. Once Buyer approves of the work (the "Buyer Approval"), Item
2 shall be deemed to have been removed from Schedule 7(b).
(v) With respect to claims for Unknown Environmental Conditions
referred to in Section 7(b)(i)(F) above, (y) Seller will not be liable to
Buyer Group for any Loss arising therefrom unless written notice of an
Environmental Condition is given by the Buyer Group to Seller within five
(5) years after the Closing Date (with such notice stating with reasonable
specificity the nature and basis of the assertion and the amount thereof to
the extent known) and (z) Seller will be liable to the Buyer Group for
Losses only if the aggregate amount of all such Losses relating to all such
Unknown Environmental Conditions plus Losses relating to Section 7(b)(i)(A)
above, subject to the limitations set forth in Section 7(b)(ii) and Section
7(b)(vi), exceeds $500,000. If any Loss arising from a claim for an
Unknown Environmental Condition referred to in Section 7(b)(i)(F) above
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also constitutes a Loss arising out of an Excluded Liability such Loss will
be deemed to be an Unknown Environmental Condition for purposes of Section
7(b)(i), and, thus, will be subject to the limitations set forth in this
Section 7(b)(v).
(vi) Seller's obligations under this Agreement in respect of
Unknown Environmental Conditions shall be reduced to the extent that any
actual knowing (without imputing knowledge) act or failures to act by, or
gross negligence of, Buyer or its Affiliates, successors or assigns after
the Closing substantially and adversely affect such obligations. Seller's
obligations under this Agreement in respect of Item 3 of Schedule 7(b)
shall be reduced to the extent that any act or failures to act by Buyer or
its Affiliates, successors or assigns occurring after the date of the Buyer
Approval adversely affects such obligations. Buyer agrees to act in a
reasonably prudent manner in respect of monitoring the existing pumping
facilities located at the Harris Facility and maintaining the hydraulic oil
collection system for the equipment located therein.
(vii) Notwithstanding any other provision herein, Seller's obli-
gations under this Agreement in respect to Item 6 of Schedule 7(b) shall
be limited to the following: (x) Seller shall be responsible for Losses
arising from exceedance of air permit limitations by Seller, at the
Harris Facility before the Closing Date, and (y) if the Permit Amendment
(as defined below) is not issued by the Virginia Department of Environmen-
tal Quality ("DEQ"), Seller shall indemnify Buyer for its reasonable costs
incurred during the one-year period following the Closing Date (a) in
moving such portion of its painting operations from the Harris Facility to
another of Buyer's locations and (b) of outsourcing any such operations
in the event Buyer is unable to move such operations to its other loca-
tions, each as is sufficient to allow Buyer to conduct business at the
Harris Facility under the air permit limitations for the Harris Facility
in existence on the Closing Date. Buyer's obligations under clause (y)
above shall be reduced to the extent that changes in operations at the
Harris Facility following the Closing Date contribute to the exceedance
of applicable air permit limitations. The Parties agree to cooperate and
work in good faith to minimize the costs referred to in clause (y) if the
Permit Amendment is not obtained. "Permit Amendment" shall mean a
revision of the current air permit issued to Seller by the DEQ to provide
for increases in permitted emissions as requested by Seller in an
application that has been submitted to the DEQ and provided to the Buyer.
The Parties agree to use their reasonable efforts to obtain Ford's
consent to accept parts painted with water based paint to help avoid
having to relocate the painting operations at the Harris Facility.
(viii) Subject to Section 7(b)(xi) below, Buyer agrees to indemnify
and hold Seller, its officers, directors, shareholders, employees and
Affiliates (the "Seller Group") harmless against any Losses which they may
suffer, sustain or become subject to, as the result of:
(A) a breach of any representation, warranty, covenant, or
agreement by Buyer contained in this Agreement;
(B) any Assumed Liability; or
(C) Buyer's failure to cause Capitol after the Closing Date
to honor any collective bargaining agreement to which Capitol is a party.
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(ix) With respect to claims for breaches of representations and
warranties referred to in Section 7(b)(viii)(A) above, (w) Buyer will not
be liable to the Seller Group for any Loss relating to a particular breach
if such Loss is less than $10,000, (x) Buyer will be liable to Seller Group
for Losses arising therefrom only if the aggregate amount of all such
Losses resulting to the Seller Group from all such breaches or claims
exceeds $500,000, in which case Buyer will be liable only for such excess,
and (y) Buyer will not be liable for any Losses arising therefrom unless
written notice thereof is given by Seller to Buyer within three years after
the Closing Date.
(x) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter which may give rise to a claim for
indemnification against any other Party (the "Indemnifying Party") under
this Section 7(b), then the Indemnified Party shall promptly notify each
Indemnifying Party thereof, stating the nature and basis of the assertion
and the amount thereof to the extent known. Failure of the Indemnified
Party to give such prompt notice shall not relieve the Indemnifying Party
from any liability which it may have on account of this indemnification or
otherwise, except to the extent that the Indemnifying Party is prejudiced
thereby. Once the Indemnified Party has given notice of the matter to all
of the Indemnifying Parties, the Indemnified Party may defend against the
matter in any manner it reasonably may deem appropriate. Within thirty
(30) days after receipt of notice of a particular matter, the Indemnifying
Party may assume the defense of such matter if the Indemnifying Party
admits responsibility and reaffirms its obligation for indemnification with
respect to such matter; provided, however, that (x) the Indemnifying Party
will retain counsel reasonably acceptable to the Indemnified Party, (y) the
Indemnified Party may participate at its own expense in the defense of such
claim with co-counsel of its choice to the extent that the Indemnified
Party believes in its sole discretion that such matter will materially and
adversely affect its ongoing business and (z) the Indemnifying Party will
not consent without written consent of the Indemnified Party (which consent
shall not be unreasonably withheld) to the entry of any judgment with
respect to the matter or enter into any settlement with respect to the
matter which does not include a provision whereby the plaintiff or claimant
in the matter releases the Indemnified Party from all liability with
respect thereto. If, within such 30-day period, the Indemnifying Party
does not assume the defense of such matter, the Indemnified Party may
consent to the entry of any judgment with respect to the matter or enter
into any settlement with respect to matter without the consent of the
Indemnifying Party.
(xi) Subject to the terms and conditions set forth in this
Section 7(b), in the event that Seller or Buyer breaches any representa-
tion, warranty, covenant or agreement contained in this Agreement, Buyer
or Seller, as the case may be, may, at its option, setoff all or any
portion of the Losses which the Buyer Group or the Seller Group, as the
case may be, suffers, sustains or becomes subject to as a result of such
breach against any amounts due or to become due to Seller, or Buyer, as
the case may be,including, without limitation, any amounts due or to
become due to Seller under Sections 1(e), 1(f), 1(h) and 1(j) hereof.
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(c) Press Release and Announcements. No Party shall issue any
press release or make any public announcement relating to the subject
matter of this Agreement (including announcements to customers, suppliers,
etc.) prior to the Closing without the prior written approval of each of
the other Parties, except that any Party may make any announcement
required by law after notice to the other Party and consultation with such
Party.
(d) Expenses. Except as otherwise provided herein, each of
Buyer and Seller will bear its own costs and expenses (including, without
limitation, all legal, accounting, consulting, investment banking,
brokerage and other fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby; provided, however,
that Buyer and Seller shall share equally the filing fee relating to the
filing required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
(e) Tax Covenants.
(i) Seller shall prepare and file, or cause to be prepared and
filed, with appropriate federal, state, local and foreign governmental
agencies all Tax Returns required to be filed relating to Capitol for
periods ending on or prior to the Closing Date and all Tax Returns
required to be filed for which Seller and Capitol are members of an
"affiliated group" (or other group filing on a consolidated basis)
(a "Pre-Closing Return"). Seller shall deliver a copy of any Pre-Closing
Return filed after the Closing Date to Buyer promptly after filing if
and to the extent such return relates to Capitol. Seller shall be liable
for, and indemnify Buyer for, all Taxes due and payable (whether by audit,
amended Tax Return or any other action) by Seller, with respect to the
Business, or Capitol for any period ending on or prior to the Closing
Date. Buyer shall prepare and file, or cause to be prepared and filed,
all Tax Returns required to be filed by Capitol covering a tax year
commencing prior to the Closing Date and ending after the Closing Date
(a "Straddle Tax Return"). Buyer shall have the right to receive from
Seller that portion of the Taxes which relates to the portion
of such taxable period ending on the Closing Date to the extent such Taxes
are not accrued, with respect to Capitol, on the Closing Balance Sheets.
For purposes of this Section 7(e), in the case of any Taxes that are
imposed on a periodic basis and are payable for a taxable period that
includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such taxable period ending on the Closing
Date shall be deemed equal to the amount which would be payable if the
relevant taxable period ended on the Closing Date. If an audit, amended
Tax Return or other action results in a refund of Taxes with respect to any
period ending on or prior to the Closing Date, such refund (including any
interest paid thereon) shall be paid to Seller if and when received by
Capitol or Buyer. Seller will furnish to Buyer all information and records
reasonably requested by Buyer for use in preparation of any Straddle Tax
Returns. Buyer shall allow Seller to review, comment upon and reasonably
approve without undue delay any Straddle Tax Return at any time during the
forty-five (45) days immediately preceding the filing of such Straddle Tax
Return.
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(ii) All transfer (including real estate transfer taxes),
documentary, sales, use, stamp, registration taxes and fees (including any
penalties and interest) incurred in connection with the consummation of the
transactions contemplated by this Agreement, shall be shared equally by
Buyer and Seller when due, and each Party will, at its own expense, file
all necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration taxes and fees,
and, if required by applicable law, each Party will, and will cause its
Affiliates to, join in the execution of any such Tax Returns and other
documentation.
(f) Further Assurances. Each Party will execute and deliver
such further instruments of conveyance and transfer and take such
additional action as the other Party may reasonably request to effect,
consummate, confirm or evidence the transfer to each Party of the Acquired
Assets and/or Assumed Liabilities, as applicable, and Seller will execute
such documents as may be necessary to assist Buyer in preserving or
perfecting its rights in the Acquired Assets. For one year following the
Closing Date, Seller shall use its reasonable efforts to obtain all third
party consents which Seller was unable to obtain prior to the Closing Date
and will use its reasonable efforts to obtain for Buyer the benefit of any
Excluded Intellectual Property.
(g) Confidentiality. Whether or not the transactions
contemplated hereby are consummated, Buyer and Seller will keep confiden-
tial all information and materials regarding the other Party, except that
Buyer may disclose such information and materials to its accountants,
attorneys, lenders and agents and each Party may disclose information or
material which was or becomes generally available to the public other than
as a result of a disclosure by such Party or which was or becomes availa-
ble to such Party on a nonconfidential basis from a third party. If the
transactions contemplated hereby are consummated, Seller will maintain
confidential and will not use or disclose, directly or indirectly (except
as required by law or as authorized in writing by Buyer prior to such
disclosure), any confidential or proprietary information or materials
regarding the Business or Capitol.
(h) Noncompetition and Nonsolicitation. Seller agrees as
follows:
(i) During the period from the date hereof to and including the
fifth anniversary of the date hereof (the "Noncompete Period"), it shall
not have any affiliation with any corporation, partnership or other
business entity or enterprise (wherever located) with respect to injection
molding for any original equipment manufacturer of automotive component
parts (a "Competitor"); provided, however, Seller may enter into a
transaction (whether in the form of a sale, merger, share exchange or
otherwise) in which Seller's stock or all or substantially all of its
assets are acquired by a Competitor. For purposes of this Section 7(h),
the term "affiliation" shall mean any direct or indirect interest in such
entity or enterprise, whether as an investor, partner, stockholder, sole
proprietor, trustee, consultant, agent, representative, broker, finder or
promoter; and
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(ii) During the Noncompete Period, it shall not, and shall not
permit any of its officers, directors, shareholders, employees or Affili-
ates to, (i) induce or attempt to induce any employee of Buyer (in respect
of the Business) or Capitol to leave the employ of Buyer (in respect of the
Business) or Capitol, respectively, or in any way interfere with the
relationship between Buyer (in respect of the Business) or Capitol and any
employee thereof, (ii) hire directly or through another entity any person
who was an employee at the manager level or above of Buyer (in respect of
the Business) or Capitol at any time prior to or during the Noncompete
Period until six months after such employee's employment terminates with
Buyer or Capitol, or (iii) induce or attempt to induce any customer,
supplier, licensee or other business relation of Buyer (in respect of the
Business) or Capitol to cease doing business with Buyer (in respect of the
Business), or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and Buyer (in respect of
the Business) or Capitol.
Notwithstanding anything in this Section 7(h) to the contrary, if at
any time a court holds that the restrictions stated in Section 7(h)(i) or
Section 7(h)(ii) are unreasonable or otherwise unenforceable under
circumstances then existing, the Parties hereto agree that the maximum
period, scope or geographical area deter- mined to be reasonable under such
circumstances by such court will be substituted for the stated period,
scope or area. Seller acknowledges and agrees that money damages may not
be an adequate remedy for any breach or threatened breach of the provisions
of subparagraph (i) or (ii) and that, in such event, Buyer or its
successors or assigns may, in addition to any other rights and remedies
existing in its or their favor, apply to any court of competent
jurisdiction for specific performance, injunctive and/or other relief in
order to enforce or prevent any violations of the provisions of this
Section 7(h) (including the extension of the Noncompete Period by a period
equal to the length of court proceedings necessary to stop such violation
but not beyond the seventh anniversary of the Closing). Any injunction
shall be available without the posting of any bond or other security. In
the event of an alleged breach or violation by Seller of any of the
provisions of this Section 7(h), the Noncompete Period will be tolled until
such alleged breach or violation is resolved but not beyond the seventh
anniversary of the Closing. Seller agrees that the restrictions contained
in this Section 7(h) are reasonable in all respects.
(i) Use of Gulfstream Name. As of the Closing, Seller will not
use any corporate name or trade name similar in any way to its former
division name. Notwithstanding the foregoing, Seller shall not in any way
be prohibited from using the name "O'Sullivan" or any of its derivatives.
Without limiting the generality of the foregoing, Seller shall not directly
or indirectly use any corporate name or trade name containing "Gulfstream."
(j) Gulfstream Employees. At the Closing, either Buyer or one
of its Affiliates (including Capitol) will offer equivalent employment to
each employee of Seller, with respect to the Business, and of Capitol who
is employed by Seller or Capitol on the Closing Date; provided, however,
that with respect to members of senior management Buyer will only be obli-
gated to offer employment to such persons if each such person has been
employed by Seller or Capitol throughout the period commencing April 30,
1994 and ending on the Closing Date. Notwithstanding the foregoing,
nothing set forth herein shall limit Buyer or Capitol in any way from
terminating, or modifying the terms of employment of, any such employee
- 116 -
after the Closing Date, except as otherwise required by any applicable
collective bargaining agreement. Buyer shall extend employee benefits to
each employee of the Business which are consistent with those extended to
other similarly situated employees of Buyer, except as otherwise required
by any applicable collective bargaining agreement. If, prior to the first
anniversary of the Closing Date, Buyer or Capitol elects to terminate the
employment of Thom Bee and/or Bruce Tallmadge and Buyer is obligated to
make any severance payments pursuant to their employment letter agreements
dated June 27, 1994 and June 22, 1994, respectively, then Seller will
promptly reimburse Buyer the amount of any such severance payment.
(k) Capitol Plastics Employees' Money Purchase Plan. Before the
Closing, Seller shall submit on Capitol's behalf the Capitol Plastics
Employees' Money Purchase Plan (the "Money Purchase Plan") to the Internal
Revenue Service for a determination letter. Seller will prepare any
amendments required by the Internal Revenue Service to cause a favorable
determination letter to be issued. After the Closing, Buyer will cause
Capitol to cooperate with Seller with respect to the Internal Revenue
Service submission and to have any Money Purchase Plan amendments required
by the Internal Revenue Service adopted and executed. Seller shall pay all
expenses related to the amendment and submission of the Money Purchase Plan
to the Internal Revenue Service. Prior to the Closing, Seller shall cause
Capitol to make a contribution to the Money Purchase Plan, in accordance
with the terms of the Money Purchase Plan, for the period before the
Closing Date.
(l) O'Sullivan Corporation Employees' Retirement Savings Plan.
With respect to the O'Sullivan Corporation Employees' Retirement Savings
Plan ("Seller's Plan"), Seller shall fully vest the account balance of each
employee of the Business who is employed by the Buyer as of the Closing
Date and participates in Seller's Plan as of the Closing Date and shall
make a monthly contribution to Seller's Plan, on behalf of each such
participant based on the participant's compensation and elective deferrals
for the period ending on the Closing Date.
(m) Savings Plan.
(i) Seller shall cause Capitol to freeze all contributions
under the Capitol Plastics of Ohio, Inc. Tax-Deferred Savings Plan (the
"Capitol Savings Plan") as of the earlier of (i) November 30, 1994 or
(ii) the Closing Date. Seller shall cause Capitol to make all contribu-
tions required to be made to the Capitol Savings Plan for the period
ending on the date as of which the Capitol Savings Plan is frozen.
(ii) Effective immediately before the Closing, Seller shall
assume all of Capitol's rights and obligations as plan sponsor, plan
administrator and named fiduciary with respect to the Capitol Savings
Plan, and Capitol shall transfer responsibility as plan sponsor, plan
administrator and named fiduciary of the Capitol Savings Plan to Seller.
Capitol shall no longer maintain or be plan sponsor, plan administrator
or named fiduciary of the Capitol Savings Plan on or after the Closing.
Seller and Capitol shall take all actions necessary in order for Seller
to be substituted for Capitol as plan sponsor, plan administrator and
named fiduciary for the Capitol Savings Plan before the Closing.
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(iii) After the Closing, Seller intends to terminate the Capitol
Savings Plan and distribute the Capitol Savings Plan accounts to Capitol
Savings Plan participants, subject, however, to and conditioned on receipt
of a favorable determination letter from the Internal Revenue Service with
respect to the Capitol Savings Plan termination and distribution. Seller
shall submit the Capitol Savings Plan to the Internal Revenue Service for a
favorable determination letter. Seller shall pay the expenses of freezing
and terminating the Capitol Savings Plan and the submission of the Capitol
Savings Plan to the Internal Revenue Service.
(n) Retention of documents. Buyer and Seller agree (i) to
retain, and permit each Party access to, all books and records with
respect to Tax matters reasonably pertinent to the Business or Capitol
relating to any taxable period beginning before the Closing Date until
the expiration of the statute of limitations (and, to the extent notified
by Buyer or Seller, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreement entered into with
any taxing authority, (ii) to retain, and permit each Party reasonable
access to, all other corporate books, records, ledgers, files and
documents relating to the Business or Capitol until the seventh
anniversary of the Closing Date and (iii) to give the other party
reasonable notice prior to transferring, destroying or discarding any
such books and records and, if the other Party so requests, Buyer or
Seller, as the case may be, shall allow the other Party to take
possession of such books and records.
(o) Financing. If Buyer does not consummate the transactions
set forth herein solely as a result of the failure of the condition set
forth in Section 3(a)(viii), Buyer shall promptly pay to Seller $750,000 in
immediately available funds by wire transfer.
(p) Vacation Pay. Buyer will assume liability for accrued
vacation pay for calendar year 1993, determined in a manner consistent with
Seller's past practices (the "Accrued Vacation Pay"), with respect to each
of Seller's salaried employees who are employed by Buyer or its Affiliate
immediately after the Closing (the "Salaried Employees"). If any Salaried
Employee's employment with Buyer and each of its Affiliates is terminated
by Buyer and its Affiliates for any reason within twelve (12) months
following the Closing Date and if Buyer is required to pay such employee
any Accrued Vacation Pay, Seller will reimburse Buyer for any such Accrued
Vacation Pay paid to such employee.
(q) Financial Information. Seller shall, and shall cause its
accountants to, assist Buyer and take all actions reasonably necessary to
enable the Buyer to prepare the pro forma financial information required to
be disclosed pursuant to Buyer's reporting obligations under the Securities
Exchange Act of 1934, as amended.
Section 8. Termination. This Agreement may be terminated as
provided below:
(a) Buyer and Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
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(b) Buyer may terminate this Agreement by giving written notice
to Seller at any time prior to the Closing (A) in the event Seller has
breached any representation, warranty, or covenant contained in this Agree
ment in any material respect, or (B) if the Closing shall not have occurred
on or before December 31, 1994, by reason of the failure of any condition
precedent under Section 3(a) above; and
(c) Seller may terminate this Agreement by giving written notice
to Buyer at any time prior to the Closing (A) in the event Buyer has
breached any representation, warranty, or covenant contained in this
Agreement in any material respect or (B) if the Closing shall not have
occurred on or before December 31, 1994, by reason of the failure of any
condition precedent under Section 3(b) above.
Notwithstanding anything in this Section 8 to the contrary,
no Party may terminate this Agreement if the circumstance giving rise to
such Party's right to terminate results primarily from such Party itself
breaching any representation, warranty, or covenant contained in this
Agreement. If any Party terminates this Agreement pursuant to this Section
8, all rights and obligations of the Parties hereunder shall terminate
without any liability of any Party to any other Party, except for any
liability of any Party then in breach.
Section 9. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as
amended.
"Applicable Rate" means the corporate base rate of interest
announced from time to time by The Bank of Nova Scotia.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or
arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan, fringe benefit, bonus plan or other plan or program.
"Employee Pension Benefit Plan" shall have the meaning set
forth in Section 3(2) of ERISA.
"Employee Welfare Benefit Plan" shall have the meaning set
forth in Section 3(1) of ERISA.
"Environmental Condition" means (i) any violation of, or
noncompliance with, any Environmental, Health and Safety Laws by or with
respect to the operations or facilities of the Business or Capitol on or
prior to the Closing Date; (ii) the offsite treatment, storage, disposal or
other disposition, or the arrangement for such treatment, storage, disposal
or disposition of Hazardous Substances generated in connection with the
operation of the Business or the business of Capitol on or prior to the
Closing Date; or (iii) any other facts, events or conditions occurring or
- 119 -
in existence on or prior to the Closing Date, including without limitation
any discharge, release, or threatened release of any Hazardous Substances,
which thereafter give rise to any liability or investigatory, corrective or
remedial obligation pursuant to Environmental, Health and Safety Laws,
including without limitation responsibility for cleanup, liability for
cleanup costs, or liability for personal injury, property damage, or
natural resource damage.
"Environmental, Health, and Safety Laws" means the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Resource Conservation and Recovery Act of 1976, the Occupational
Safety and Health Act of 1970, each as amended, together with all other
laws, rules and regulations of federal, state, local, and foreign
governments (and all agencies thereof) and other requirements having the
force or effect of law relating to or imposing liability or standards of
conduct concerning pollution or protection of the environment, public
health and safety, or employee health and safety, and all judgments, orders
and decrees of federal, state, local and foreign governments (and all
agencies thereof) issued or promulgated thereunder, and all related common
law theories.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means United States generally accepted accounting
principles, applied on a consistent basis by Seller or Capitol, as
applicable.
"Hazardous Substance" means any waste, pollutant, hazardous
or toxic material, substance or waste, chemical, petroleum, petroleum-based
substance or waste, asbestos-containing material, special waste, or any
other material, substance or waste with respect to which liability or
standards of conduct are imposed pursuant to any Environmental, Health and
Safety Laws.
"Intellectual Property" means (a) all inventions, all
improvements thereto, and all patents, patent applications, and patent
disclosures, and all other documents relating to the prosecution of such
patents, together with all reissuances, continuations, continuations-in-
part, revisions, extensions, and reexaminations thereof; (b) all
trademarks, service marks, trade dress, logos, trade names, and corporate
names (other than "O'Sullivan" and any derivative thereof), including all
goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith and all other documents relating to the
prosecution of such trademarks; (c) all copyrightable works, all
copyrights, and all applications, registrations, and renewals in connection
therewith and all other documents relating to the registration of such
copyrights; (d) all trade secrets, know-how, manufacturing and production
processes and techniques and other confidential business information;
(e) all computer software; (f) all other proprietary rights; and (g) all
copies and tangible embodiments thereof.
"Known Environmental Condition" means any of the matters
disclosed in Schedule 7(b)."
"Multiemployer Plan" shall have the meaning set forth in
Section 3(37) of ERISA.
- 120 -
"Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Prohibited Transaction" has the meaning set forth in
Section 406 of ERISA and Section 4975 of the Code.
"Release" shall have the meaning set forth in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980.
"Remedial Actions" means actions to clean up, contain or
otherwise ameliorate or remedy any Release or threatened Release of a
Hazardous Substance or performing studies, investigations or monitoring
with respect thereto.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) has the power to vote or direct
the voting of sufficient securities to elect a majority of the directors.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, social security, unem-
ployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not, and including any
obligation to indemnify or otherwise assume or succeed to the Tax liability
of any other Person.
"Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Unaffiliated Person" means any Person that is not an
Affiliate of Seller.
"Unknown Environmental Condition" means any Environmental
Condition not disclosed in Schedule 7(b)."
Section 10. Miscellaneous.
(a) No Third Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and
their respective successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties
and supersedes any prior understandings, agreements, or representations by
or between the Parties, written or oral, that may have related in any way
to the subject matter hereof.
- 121 -
(c) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Party; provided, however,
that Buyer may (x) assign any or all of its rights and interests hereunder
to one or more of its direct or indirect wholly owned Subsidiaries and
(y) designate one or more of its direct or indirect wholly owned
Subsidiaries to perform its obligations hereunder (in any or all of which
cases Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder).
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two (2) business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to Seller:
O'Sullivan Corporation
P.O. Box 3510
Winchester, VA 22601
Attention: Anthony A. Barone
with a copy to:
McGuire, Woods, Battle & Boothe
One James Center
Richmond, VA 23219
Attention: J. Christopher Wiltshire
If to Buyer:
Automotive Industries, Inc.
4508 IDS Center
Minneapolis, MN 55402
Attention: President
Scott Rued
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Jeffrey C. Hammes, Esq.
John A. Schoenfeld, Esq.
- 122 -
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means, but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and
until it is actually received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Virginia
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Virginia or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State
of Virginia.
(h) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and
signed by Buyer and Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(i) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(j) Construction. Where specific language is used to clarify by
example a general statement contained herein, such specific language shall
not be deemed to modify, limit or restrict in any manner the construction
of the general statement to which it relates. Nothing in any Schedule
attached hereto shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless such Schedule identifies the
exception with reasonable particularity.
(k) Remedies. The Parties shall each have and retain all other
rights and remedies existing in their favor at law or equity, including,
without limitation, any actions for specific performance and/or injunctive
or other equitable relief (including, without limitation, the remedy of
rescission) to enforce or prevent any violations of the provisions of this
Agreement. Without limiting the generality of the foregoing, Seller hereby
agrees that in the event Seller fails to convey the Acquired Assets to
Buyer in accordance with the provisions of this Agreement, Buyer's remedy
at law may be inadequate. In such event, Buyer shall have the right, in
addition to all other rights and remedies it may have, to specific
performance of the obligations of Seller to convey the Acquired Assets.
(l) Bulk Sales. The Parties do not contemplate complying
with the provisions of any so-called bulk transfer laws of any jurisdic-
tion in connection with the sale of Acquired Assets. Notwithstanding
anything to the contrary in Section 7(b) hereof, Seller agrees to
indemnify Buyer against all liability, damage or expense which Buyer may
suffer due to the failure to so comply.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
AUTOMOTIVE INDUSTRIES, INC.
By:/s/ Scott Rued
-------------------------
Title: /s/ Vice President
-------------------------
O'SULLIVAN CORPORATION
By:/s/ Anthony A. Barone
------------------------
Anthony A. Barone
Title: Vice President,
Secretary and Chief
Financial Officer
- 124 -
AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT (the "Amendment") is made and entered into as of
December 2, 1994 by and between Automotive Industries, Inc., a Virginia
corporation ("Buyer"), and O'Sullivan Corp., a Virginia corporation
("Seller").
Buyer and Seller are parties to that certain Asset Purchase
Agreement dated as of November 21, 1994 (the "Purchase Agreement").
Capitalized terms used and not defined herein are used as defined in the
Purchase Agreement.
The parties hereto are entering into this Amendment to amend the
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, the
parties hereby agree as follows:
1. Amendments.
(1) Section 1(a)(xiii). Section 1(a)(xiii) shall be
amended as follows: The word "and" shall be deleted immediately preceding
clause (C), a comma shall be inserted immediately preceding clause (C) and
the words ", (D) production tooling for the 97GM W-CAR platform and (E)
production tooling for the 1995 Honda Accord platform" shall be inserted
before the words "(the `Transition Tooling')".
(2) Section 1(h)(v). Section 1(h)(v) shall be amended as
follows: In the first and second lines, the words "the WN-97 platform, the
Honda Civic platform and the Honda Accord platform," shall be replaced by
the words "the WN-97 platform, the 97GM W-CAR platform, the Honda Civic
platform, the 1995 Honda Accord platform and the 1997 Honda Accord
platform,".
(3) Schedule 4(c). Schedule 4(c) of the Purchase
Agreement shall be amended as follows:
(1) Under the "Capitol Plastics of Ohio, Inc." section
of "Agreements Requiring Consent, Waiver or Notification", item 3 shall be
amended by deleting the words ", no signature by Honda".
(2) Under the "Capitol Plastics of Ohio, Inc." section
of "Agreements Requiring Consent, Waiver or Notification", item 6 shall be
amended by deleting the words "signed and dated December 19, 1989 by
Capitol, no date or signature by Honda" and inserting in the place thereof
the words "dated January 2, 1990".
(3) The "Capitol Plastics of Ohio, Inc." section of
"Agreements Requiring Consent, Waiver or Notification", shall be amended by
adding thereto items 11 and 12 as shown on Schedule A attached hereto.
- 125 -
(4) Under the "O'Sullivan Corporation (Gulfstream
Division)" section, item 1 (Confidentiality Agreement between General
Motors Corporation and O'Sullivan Corporation, dated May 6, 1993) and item
19 (Confidentiality Agreement between the Dexter Automotive Materials
Division of the Dexter Corporation and O'Sullivan Corporation, dated May
17, 1994) shall be deleted in their entirety.
(5) Under the "O'Sullivan Corporation (Gulfstream
Division)" section of "Agreements Requiring Consent, Waiver or Notifica-
tion", item 4 shall be amended by deleting the words "no date or signature
by Honda" and inserting in the place thereof the words "dated May 14,
1991".
(6) The "O'Sullivan Corporation (Gulfstream Division)"
section of "Agreements Requiring Consent, Waiver or Notification", shall be
amended by adding thereto item 28 as shown on Schedule A attached hereto.
(4) Schedule 4(g). Schedule 4(g) of the Purchase Agreement
shall be amended to include the following items:
(1) Proposed Fourth Amendment to the O'Sullivan
Corporation Pension Plan for Hourly-Paid Employees.
(2) O'Sullivan Corporation Severance Policy for Salaried
Employees (effective as of November 1, 1994).
(5) Schedule 4(m). Schedule 4(m) of the Purchase Agreement
shall be amended as follows:
(1) Under the "Capitol Plastics of Ohio, Inc." section of
"Licenses, Contracts and Other Agreements", item 3 shall be amended by
deleting the words ", no signature by Honda".
(2) Under the "Capitol Plastics of Ohio, Inc." section
of "Licenses, Contracts and Other Agreements", item 6 shall be amended by
deleting the words "signed and dated December 19, 1989 by Capitol, no date
or signature by Honda" and inserting in the place thereof the words "dated
January 2, 1990".
(3) The "Capitol Plastics of Ohio, Inc." section of
"Licenses, Contracts and Other Agreements", shall be amended by adding
thereto items 11 and 12 as shown on Schedule B attached hereto.
(4) Under the "O'Sullivan Corporation" section, item
1 (Confidentiality Agreement between General Motors Corporation and
O'Sullivan Corporation, dated May 6, 1993) and item 10 (Confidentiality
Agreement between the Dexter Automotive Materials Division of the Dexter
Corporation and O'Sullivan Corporation, dated May 17, 1994) shall be
deleted in their entirety.
(5) Under the "O'Sullivan Corporation" section of
"Licenses, Contracts and Other Agreements", item 4 shall be amended by
deleting the words "no date or signature by HONDA" and inserting in the
place thereof the words "dated May 14, 1991".
(6) The "O'Sullivan Corporation" section of "Licenses,
Contracts and Other Agreements", shall be amended by adding thereto item
17 as shown on Schedule B attached hereto.
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(6) Schedule 4(p). Schedule 4(p) of the Purchase Agreement
shall be amended as follows:
(1) Under the "Capitol Plastics of Ohio, Inc." section,
item 3 shall be amended by deleting the words ", no signature by Honda".
(2) Under the "Capitol Plastics of Ohio, Inc." section,
item 6 shall be amended by deleting the words "signed and dated December
19, 1989 by Capitol, no date or signature by Honda" and inserting in the
place thereof the words "dated January 2, 1990".
(3) The "Capitol Plastics of Ohio, Inc." section shall be
amended by adding thereto items 11 and 12 as shown on Schedule C attached
hereto.
(4) Under the "O'Sullivan Corporation" section,
item 4 (Confidentiality Agreement between General Motors Corporation and
O'Sullivan Corporation, dated May 6, 1993) and item 28 (Confidentiality
Agreement between the Dexter Automotive Materials Division of the Dexter
Corporation and O'Sullivan Corporation, dated May 17, 1994) shall be
deleted in their entirety.
(5) Under the "O'Sullivan Corporation" section, item 7
shall be amended by deleting the words "no date or signature by HONDA" and
inserting in the place thereof the words "dated May 14, 1991".
(6) The "O'Sullivan Corporation" section shall be amended
by adding thereto item 37 as shown on Schedule C attached hereto.
(7) Schedule 4(s). Schedule 4(s) of the Purchase Agreement
shall be amended by deleting the item which reads "Cheryl Kline - Huron:
An unasserted claim of wrongful termination.".
(8) Schedule 4(t). Schedule 4(t) of the Purchase Agreement
shall be amended by deleting the item which reads "Cheryl Kline - Huron:
An unasserted claim of wrongful termination.".
(9) Schedule 4(u). Schedule 4(u) of the Purchase Agreement
shall be amended to include the following item:
(1) O'Sullivan Corporation Severance Policy for Salaried
Employees.
2. Effect. Except as amended by this Amendment, the Purchase
Agreement shall remain in full force and effect. All references to the
"Agreement" in the Purchase Agreement shall hereafter be deemed to refer to
the Purchase Agreement as amended hereby.
3. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
4. Governing Law. This Amendment shall be governed by and
construed in accordance with the domestic laws of the State of Virginia
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Virginia or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State
of Virginia.
* * * * *
- 127 -
IN WITNESS WHEREOF, the Parties hereto have executed this
Amendment as of the date first above written.
AUTOMOTIVE INDUSTRIES, INC.
By:/s/ Carl E. Nelson
------------------
Title:/s/ V.P.
---------------
O'SULLIVAN CORPORATION
By: /s/ Anthony A. Barone
-----------------------------
Anthony A. Barone
Title: Vice President, Secretary and
Chief Financial Officer
- 128 -
Schedule A
AMENDMENTS TO SCHEDULE 4(c)
Capitol Plastics of Ohio, Inc.:
11. Confidentiality Agreement between Honda of Canada Mfg., Inc.
and Capitol Plastics of Ohio, Inc., dated January 1, 1989.
12. Amendment to Agreement for Purchase and Sale of Goods
between American Honda Motor Co., Inc. and Capitol Plastic
of Ohio, Inc., dated July 15, 1994.
O'Sullivan Corporation (Gulfstream Division):
28. Confidentiality Agreement among Honda Research of America,
Inc., Ohio Division, and Honda of America Mfg., Inc. and
O'Sullivan Corporation-Gulfstream Div., dated April 9, 1990.
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Schedule B
AMENDMENTS TO SCHEDULE 4(m)
Capitol Plastics of Ohio, Inc.
* 11. Confidentiality Agreement between Honda of Canada Mfg.,
Inc. and Capitol Plastics of Ohio, Inc., dated January
1, 1989.
* 12. Amendment to Agreement for Purchase and Sale of Goods
between American Honda Motor Co., Inc. and Capitol
Plastics of Ohio, Inc., dated July 15, 1994.
O'Sullivan Corporation
* 17. Confidentiality Agreement among Honda Research of
America, Inc., Ohio Division, and Honda of America Mfg.,
Inc. and O'Sullivan Corporation-Gulfstream Div., dated
April 9, 1990.
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Schedule C
AMENDMENTS TO SCHEDULE 4(p)
Capitol Plastics of Ohio, Inc.
* 11. Confidentiality Agreement between Honda of Canada Mfg.,
Inc. and Capitol Plastics of Ohio, Inc., dated January
1, 1989.
* 12. Amendment to Agreement for Purchase and Sale of Goods
between American Honda Motor Co., Inc. and Capitol
Plastics of Ohio, Inc., dated July 15, 1994.
O'Sullivan Corporation
* # 37. Confidentiality Agreement among Honda Research of
America, Inc., Ohio Division, and Honda of America
Mfg., Inc. and O'Sullivan Corporation-Gulfstream
Div., dated April 9, 1990.
- 131 -
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest
event reported) December 2, 1994
----------------------------
O'SULLIVAN CORPORATION
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA
----------------------------------------------------------------
(State or other jurisdiction of incorporation)
1-4438 54-0463029
----------------------- -----------------------------------
(Commission File Number) (IRS Employer Identification Number)
1944 Valley Avenue, P.O.Box 3510, Winchester, Virginia 22601
----------------------------------------------------------------
(Address of principal executive offices, including zip code)
(703) 667-6666
----------------------------------------------------------------
(Registrant's telephone number, including area code)
- 132 -
Item 7. Financial Statements and Exhibits.
(b). Pro Forma Financial Information.
The Pro Forma Statements of Income for the Year Ended December
31, 1993 and for the Nine Months Ended September 30, 1994, have
been restated.
- 133 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1993
(Unaudited)
O'Sullivan O'Sullivan
Corporation Pro Forma Corporation
Historical Adjustments (d) Pro Forma
------------- ------------- -------------
Net sales $ 292,255,714 $(118,910,213) $ 173,345,501
Cost of products sold 251,803,879 (114,350,760) 137,453,119
------------- ------------- -------------
Gross profit $ 40,451,835 $ (4,559,453) $ 35,892,382
------------- ------------- -------------
Operating expenses
Selling and warehousing $ 12,962,527 $ (2,212,344) $ 10,750,183
General and administrative 9,485,791 (2,301,253) 7,184,538
Recovery of restructuring
charge (969,251) 969,251 - -
------------- ------------- -------------
$ 21,479,067 $ (3,544,346) $ 17,934,721
------------- ------------- -------------
Income from operations $ 18,972,768 $ (1,015,107) $ 17,957,661
------------- ------------- -------------
Other income (expense)
Interest expense $ (2,471,269) $ 1,593,435 $ (877,834)
Other, net 295,983 (46,660) 249,323
------------- ------------- -------------
$ (2,175,286) $ 1,546,775 $ (628,511)
------------- ------------- -------------
Income before income taxes
and cumulative effect of
accounting changes $ 16,797,482 $ 531,668 $ 17,329,150
Income taxes 7,088,364 (141,614) 6,946,750
------------- ------------- -------------
Income before cumulative
effect of accounting
changes $ 9,709,118 $ 673,282 $ 10,382,400
Cumulative effect of
accounting changes 305,338 (281,221) 24,117
------------- ------------- -------------
Net income $ 10,014,456 $ 392,061 $ 10,406,517
============= ============= =============
Net income per common share:
Income before cumulative
effect of accounting
changes $ 0.59 $ 0.04 $ 0.63
Cumulative effect of
accounting changes 0.02 (0.02) - -
------------- ------------- -------------
Net income per common share $ 0.61 $ 0.02 $ 0.63
============= ============= =============
See accompanying notes to pro forma consolidated financial statements.
- 134 -
O'SULLIVAN CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1994
(Unaudited)
O'Sullivan O'Sullivan
Corporation Pro Forma Corporation
Historical (e) Adjustments Pro Forma
------------- ------------- -------------
Net sales $ 269,732,967 $(120,604,004) $ 149,128,963
Cost of products sold 234,570,981 (115,164,987) 119,405,994
------------- ------------- -------------
Gross profit $ 35,161,986 $ (5,439,017) $ 29,722,969
------------- ------------- -------------
Operating expenses
Selling and warehousing $ 11,147,770 $ (2,230,526) $ 8,917,244
General and administrative 6,950,859 (1,743,982) 5,206,877
------------- ------------- -------------
$ 18,098,629 $ (3,974,508) $ 14,124,121
------------- ------------- -------------
Income from operations $ 17,063,357 $ (1,464,509) $ 15,598,848
------------- ------------- -------------
Other income (expense)
Interest expense $ (2,374,533) $ 1,685,691 $ (688,842)
Other, net 113,839 (9,617) 104,222
------------- ------------- -------------
$ (2,260,694) $ 1,676,074 $ (584,620)
------------- ------------- -------------
Income before income taxes $ 14,802,663 $ 211,565 $ 15,014,228
Income taxes 5,855,676 86,439 5,942,115
------------- ------------- -------------
Net income $ 8,946,987 $ 125,126 $ 9,072,113
============= ============= =============
Net income per common share $ 0.54 $ 0.01 $ 0.55
============= ============= =============
See accompanying notes to pro forma consolidated financial statements.
- 135 -
S I G N A T U R E S
Pursuant to the requirements 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.
O'SULLIVAN CORPORATION
/s/ Anthony A. Barone
---------------------------
Anthony A. Barone
Vice President, Secretary
and Chief Financial Officer
/s/ C. Bryant Nickerson
---------------------------
C. Bryant Nickerson
Treasurer and
Chief Accounting Officer
December 19, 1994
- 136 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,701,801
<SECURITIES> 0
<RECEIVABLES> 41,252,435
<ALLOWANCES> 884,467
<INVENTORY> 32,475,205
<CURRENT-ASSETS> 88,672,789
<PP&E> 90,214,975
<DEPRECIATION> 45,609,336
<TOTAL-ASSETS> 144,528,888
<CURRENT-LIABILITIES> 30,723,085
<BONDS> 1,705,069
<COMMON> 16,484,831
0
0
<OTHER-SE> 90,157,472
<TOTAL-LIABILITY-AND-EQUITY> 144,528,888
<SALES> 194,974,264
<TOTAL-REVENUES> 195,273,201
<CGS> 156,984,225
<TOTAL-COSTS> 156,984,225
<OTHER-EXPENSES> 18,228,204
<LOSS-PROVISION> 1,138,617
<INTEREST-EXPENSE> 811,676
<INCOME-PRETAX> 18,110,479
<INCOME-TAX> 7,135,509
<INCOME-CONTINUING> 10,974,970
<DISCONTINUED> (8,345,126)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,629,844
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
