SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1944 Valley Avenue
PO Box 3510
Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
540-667-6666
(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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation 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 any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 9, 1998 (based on the last sale price on the American
Stock Exchange as of such date) was $141,686,478.
The number of shares of the registrant's Common Stock, Par Value $ 1,
outstanding as of March 9, 1998 was 15,742,942.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on April 29, 1998 are incorporated by reference into Part III.
1
PART I
Item 1. BUSINESS
O'Sullivan Corporation ("O'Sullivan" or the "Corporation") is a Virginia
corporation originally organized in 1896 as O'Sullivan Rubber Company. In
1932 the Corporation was moved to Winchester, Virginia. In 1970 the
corporate name was changed from O'Sullivan Rubber Corporation to O'Sullivan
Corporation to acknowledge the increasing importance of plastics
manufacturing to the Corporation's operations.
Subsequent to the Corporation's name change and through the early 1990's,
the Corporation concentrated on expansion of its plastics manufacturing
operations, both calendering and injection-molding. The expansion was
accomplished by adding additional capacity within the Corporation and the
acquisition or creation of several subsidiaries to gain facilities in other
regions of the United States. In 1986, the Corporation divested itself of
its rubber operations.
In 1994, the Corporation sold the injection-molding operations portion of
its plastics products segment. The sale involved primarily the inventories
and fixed assets of the Corporation associated with injection-molding
operations and the stock of a subsidiary corporation also involved in
injection-molding operations. The sale was for approximately $50 million
net of certain liabilities assumed by the purchaser.
In 1992, the Corporation created a subsidiary, Melnor Inc. ("Melnor"), to
acquire substantially all the assets of a corporation engaged in the water
sprinkler and lawn and garden business. In July, 1997, the Corporation sold
this business. The sale involved substantially all assets of the business,
including the stock of Melnor Inc.'s Canadian subsidiary. The sale was for
approximately $22.0 million which included $2.5 million designated for an
escrow account. Part or all of this escrow may be returned to the purchaser
of the business in the event future business operations do not meet certain
thresholds. The disposal of this business has been treated as a discontinued
operation in the accompanying financial statements.
The Corporation's activities are now conducted in a single business segment:
calendered plastics products which manufactures calendered plastics products
for the automotive and specialty plastics manufacturing industries.
PLASTICS PRODUCTS BUSINESS
The Corporation's Plastics Products business manufactures calendered plastics
products for the automotive and specialty plastics manufacturing industries.
Calendered plastics 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. The Plastics Products business 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. Major
competitors include; Borden, Inc., Canadian General Tower, Ellay, Gencorp
Inc., Haartz, Nanya Plastics Corporation and Uniroyal Engineered Products.
2
Distribution of the segment's products is by direct sales to other
manufacturers.
The normal production backlog of the Plastic Products business is
approximately thirty to forty-five days. The Corporation has various
long-term contracts totaling several million dollars applicable to this
segment, but such contracts are not considered as firm orders until
production releases are received from customers. The business of the segment
is not seasonal.
All essential raw materials are readily available to the Plastics Products
business. For critical raw materials, secondary sources of supply are
available if required. Major suppliers of raw materials to this segment
include the following companies; The Geon Company, General Electric Plastics,
Aristech Chemicals, Witco Corporation, Penn Colors and Toray Plastics.
The Corporation possesses significant technology in the compounding,
formulation and manufacture of its products.
A significant customer of the Corporation accounting for ten percent or more
of the 1997 sales of the business was Ford Motor Company.
GENERAL
The Corporation anticipates no material effects on the capital expenditures,
earnings or competitive position of the Corporation's businesses from the
enactment or adoption of federal, state or local environmental regulations.
The Corporation has several ongoing environmental programs, including
recycling, waste reduction and environmental audits. The Corporation also
has proactive dialogues with federal and state environmental agencies to
insure continuing compliance with environmental regulations.
The Corporation and its Subsidiaries currently have approximately 900
employees.
The Corporation and its Subsidiaries are not engaged in any material
transactions with customers or suppliers located outside North America.
Item 2. PROPERTIES
The Corporation owns approximately 623,000 square feet of manufacturing,
warehouse and office space on approximately 113 acres in Winchester,
Virginia; 76,000 square feet of manufacturing, warehouse and office space on
approximately six acres in Lebanon, Pennsylvania; 110,000 square feet of
manufacturing and warehouse space on approximately five acres in Newton
Upper Falls, Massachusetts; and 85,000 square feet of manufacturing and
warehouse space on approximately thirteen acres in Yerington, Nevada.
The Corporation leases 29,250 square feet of warehouse space in St. Louis,
Missouri and 10,000 square feet of warehouse space in Yerington, Nevada. The
Corporation also leases space for sales offices located in Chicago, Illinois
and Bloomfield Hills, Michigan.
Management of the Corporation believes that unused capacity existed in the
Corporation's operations during 1997. Percentage utilization of the
Corporation's facilities is difficult to accurately measure due to the
Corporation's policy of adding facilities as required by business conditions.
3
Item 3. LEGAL PROCEEDINGS
The Corporation and its Subsidiaries are involved in legal proceedings
incidental to their normal business activities. While the outcome of these
proceedings cannot be completely predicted, the Corporation does not believe
the ultimate resolution of any existing matters will have a material adverse
effect on its financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of 1997.
4
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The principal market in which the Corporation's common stock is traded is the
American Stock Exchange. The stock is traded under the symbol OSL.
The quarterly price range of common stock and the quarterly dividends per
share for 1997 and 1996 are included as part of Note 15 of "Notes to
Consolidated Financial Statements" included elsewhere in this Form 10-K.
At December 31, 1997 the number of owners of the Corporation's common stock
was 3,000.
The Corporation has paid quarterly dividends since 1958. There are no
restrictions on the payment of dividends at the current time. The payment
and amount of future dividends will depend on the existing conditions,
including such factors as the Corporation's earnings, financial condition
and working capital requirements.
Item 6. SELECTED FINANCIAL DATA (FROM CONTINUING OPERATIONS)
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Net sales $163,599,400 $171,218,487 $169,455,886 $149,438,108 $132,832,228
Net income 8,813,858 14,113,747 15,496,033 10,460,397 11,238,406
Net income
per common
share .56 .87 .94 .64 .68
Total
assets 138,031,696 140,822,440 149,996,525 144,528,888 144,365,419
Cash dividends
per common
share .32 .32 .31 .28 .28
Return on
equity 7.7% 12.2% 14.5% 9.6% 10.8%
5
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1997 VERSUS 1996
Net sales in 1997 were $163.6 million compared to $171.2 million in 1996, a
decline of $7.6 million or 4.4%. Net income from continuing operations was
$8.8 million, $.56 per share in 1997, compared to $14.1 million, $.87 per
share in 1996.
The sales decline in 1997 was due to lowered demand for products of the
industrial portion of the Corporation's business. The decline occurred
through the first nine months of 1997. In the fourth quarter, sales of the
industrial group returned to levels comparable to the final quarter of 1996.
Intense price competition continues to impact sales for this area of the
business. The automotive portion of the business had sales volumes similar
to 1996. Through aggressively pursuing business with new customers, the
Corporation has been able to counteract the softness in the U.S. automotive
business.
Gross profit decreased $5.4 million in 1997. As a percent of sales, gross
profit was 15.7% in 1997 and 18.1% in 1996. The decline in 1997 resulted
from a combination of increased material costs and higher unit costs for
certain labor and fixed manufacturing charges. The increased material costs
were caused by increased unit costs for raw materials along with a
significant expense associated with material consumed through sampling and
start-up of a new product line. The increased unit costs for certain labor
and fixed manufacturing charges were a direct result of the sales declines
experienced for 1997.
Selling expenses were $5.1 million in 1997, 3.1% of net sales, and $5.0
million in 1996, 2.9% of net sales. The increased costs resulted from
marginal increases in compensation and benefit charges. General and
administrative expenses were $5.7 million in both 1997 and 1996. As a
percent of net sales the expenses were 3.5% in 1997 and 3.3% in 1996.
In 1997, postemployment benefits and deferred compensation expenses in the
amount of $3.5 million were charged to operations in connection with staff
reductions and the early retirement of certain executive officers. This
expense had an effect of $.14 per share in 1997.
Operating income decreased by $9.1 million in 1997. The decline was a
combination of decreased gross margins as a result of decreased sales and
increased material costs coupled with the $3.5 million charged for
postemployment benefits and deferred compensation.
Net other income, primarily interest income, was $2.9 million in 1997 and
$3.0 million in 1996.
Income tax expense was $4.9 million in 1997 and $8.8 million in 1996. The
effective tax rate was 35.8% in 1997 and 38.4% in 1996. The reduction in
income tax expense was due to the reduced level of income in 1997 and
adjustments made to estimated effective federal and state tax rates.
Management believes that a renewed focus on the core vinyl calendering
business will return the Corporation to a healthier earnings outlook for
1998. New automotive and non-automotive business has been obtained and with
the disposal of the consumer products segment completed, Management and other
6
employees of the Corporation are in a position to concentrate on making the
core business more profitable through expansion and emphasis on improved
operating efficiencies. While Management is confident of the Corporation's
ability to develop and grow the core business based on its strong financial
and market positions, it faces many severe challenges in 1998. Higher raw
material costs are a continuing impediment to margins and constant pricing
pressures from competitors make it very unlikely that these increases can be
recovered by means of higher unit sales prices. Additional operating
efficiencies must be implemented to maintain operating margins.
Additionally, the U.S. auto industry is anticipating lower production levels
in the first half of 1998. These factors will continue to make it very
difficult to attain desired profitability levels in the short term.
RESULTS OF OPERATIONS 1996 VERSUS 1995
Net sales for 1996 were $171.2 million compared to $169.5 million for 1995.
Net income from continuing operations for 1996 was $14.1 million, $.87 per
share, compared to $15.5 million, $.94 per share for 1995.
The 1996 net sales represent an increase of $1.8 million or 1.0%. The
increase was entirely from sales of automotive-related products. Through
the end of the third quarter of 1996, sales for the segment had increased
approximately $6.4 million over 1995. However, substantial reductions in
requirements by major automotive customers in the fourth quarter reduced the
overall 1996 sales increase to the net $1.8 million increase. 1996 sales of
industrial products were virtually the same as 1995. The sales performance of
this group was negatively affected by extremely competitive pricing pressures
in markets serviced by the industrial products group. The pressures
continued throughout 1997.
The gross margin for this segment declined from 20.3% in 1995 to 18.1% in
1996. While the segment continued to succeed in obtaining numerous
productivity improvements through the efforts of its employees and suppliers,
the efforts for 1996 were mitigated due to problems incurred with the raw
material component of the segment's products. Raw materials are a very
substantial part of the unit cost for the segment's products and during the
third quarter of 1996 the contamination of a key raw material resulted in raw
material component costs far in excess of normal. Along with the increased
raw material costs, other manufacturing costs increased as a result of
inefficient production runs, scrapping of defective product and increased
control and review activities to ensure product quality. Along with the raw
material contamination problem the Corporation experienced continual
pressures from suppliers to accept raw material price increases.
Operating profit decreased by $3.8 million for the year from $23.7 million
for 1995 to $19.9 million for 1996. The decrease primarily resulted from
the operational problem created by the previously discussed raw material
contamination as well as customer resistance encountered in attempting to
recover higher material and operational costs through product price increases.
Selling expenses were $5.0 million in 1996 and $4.9 million in 1995, 2.9%
percent of net sales for both 1996 and 1995. Slight increases in
compensation and benefit costs in this area were offset by a reduction in
the charge for doubtful accounts for 1996. General and administrative
expenses, including postemployment benefits and deferred compensation, were
$6.1 million or 3.6% of net sales for 1996, compared to $5.7 million or 3.4%
of net sales for 1995. Increases in benefit costs were the main reason for
increased costs for this area in 1996.
7
Other income increased by approximately $850 thousand for 1996. The
increase was primarily a result of the gain from the sale of various assets
during 1996.
Income tax expense was $8.8 million in 1996 compared to $10.4 million in
1995. The decrease was due to a lower pre-tax income for 1996 and a decrease
in the Corporation's effective tax rate from 40.1% for 1995 to 38.4% for
1996. The decrease in the effective tax rate was primarily due to lower
charges for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $20.8 million in 1997, compared
to $16.7 in 1996 and $20.7 million in 1995. Cash and cash equivalents
increased by $29.3 million in 1997. The increase resulted primarily from
the net funds received from the sale of the consumer products business and
the reduction in the amount of funds committed to purchases of the
Corporation's common stock.
Capital expenditures for property, plant and equipment for 1997 were $4.9
million compared to $5.9 million in 1996 and $7.8 million in 1995. Capital
expenditures for 1998 are expected to be substantially greater due to the
construction of an additional coating facility, which is expected to require
an outlay of approximately $7.0 million. Other capital expenditures, in
amounts comparable to 1997, are planned by the Corporation to provide
additional capacity or modernize equipment to meet customer demands for new
or improved products or production processes.
The Corporation had no outstanding debt at December 31, 1997. There is in
place a $35 million line of credit which expires in June 1998. The
Corporation is currently in the process of renewing its line of credit into
a new two-year facility. At December 31, 1997, the line of credit was
uncommitted.
In 1997, the Corporation's Board of Directors authorized the repurchase of
an additional one million shares of the Corporation's common stock as market
conditions permit. This authorization adds to an existing 800,000 share
authorization against which 766,800 shares have been purchased.
Management of the Corporation believes that net cash flow from operating
activities, along with available financing capabilities will be adequate to
meet the Corporation's funding requirements for 1998.
8
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This page left blank intentionally. See following pages for financial
statements.
9
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
1997 1996
------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 35,444,138 $ 6,192,431
Receivables 25,658,216 23,788,028
Inventories 20,674,689 26,407,284
Deferred income tax assets 1,041,564 1,090,840
Other current assets 3,234,108 3,483,706
Assets of discontinued operations -- -- 29,648,824
------------- -------------
Total current assets $ 86,052,715 $ 90,611,113
------------- -------------
Property, Plant and Equipment $ 40,316,399 $ 41,426,522
------------- -------------
Other Assets $ 11,662,582 $ 8,784,805
------------- -------------
Total assets $ 138,031,696 $ 140,822,440
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,988,826 $ 10,269,685
Accrued expenses 5,968,248 5,633,599
Liabilities of discontinued operations -- -- 4,688,142
------------- -------------
Total current liabilities $ 15,957,074 $ 20,591,426
------------- -------------
Long-Term Liabilities $ 8,404,635 $ 3,098,165
------------- -------------
Deferred Income Tax Liabilities $ 954,921 $ 3,134,527
------------- -------------
Commitments and Contingencies $ -- -- $ -- --
------------- -------------
Stockholders' Equity
Common stock, par value $1.00 per share;
authorized 30,000,000 shares $ 15,743,062 $ 15,850,562
Additional paid-in capital 2,717,863 3,606,399
Retained earnings 94,254,141 94,778,803
Unrecognized pension costs, net of
deferred tax effect -- -- (237,442)
------------- -------------
Total stockholder's equity $ 112,715,066 $ 113,998,322
------------- -------------
Total liabilities and
stockholders' equity $ 138,031,696 $ 140,822,440
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
10
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------ ------------ ------------
Net sales $163,599,400 $171,218,487 $169,455,886
Cost of products sold 137,976,808 140,180,005 135,101,446
------------ ------------ ------------
Gross profit $ 25,622,592 $ 31,038,482 $ 34,354,440
------------ ------------ ------------
Operating expenses
Selling and warehousing $ 5,067,830 $ 5,000,111 $ 4,911,010
General and administrative 5,701,472 5,650,032 5,339,246
Postemployment benefits and
deferred compensation 4,033,375 493,773 397,798
------------ ------------ ------------
$ 14,802,677 $ 11,143,916 $ 10,648,054
------------ ------------ ------------
Income from operations $ 10,819,915 $ 19,894,566 $ 23,706,386
------------ ------------ ------------
Other income (expense)
Interest income $ 2,551,492 $ 2,590,080 $ 2,529,196
Other, net 360,388 422,008 (369,322)
------------ ------------ ------------
$ 2,911,880 $ 3,012,088 $ 2,159,874
------------ ------------ ------------
Income from continuing opera-
tions before income taxes $ 13,731,795 $ 22,906,654 $ 25,866,260
Income taxes 4,917,937 8,792,907 10,370,227
------------ ------------ ------------
Income from continuing
operations $ 8,813,858 $ 14,113,747 $ 15,496,033
------------ ------------ ------------
Discontinued operations:
Loss from discontinued
operations, net of taxes $ (593,593) $ (3,384,254) $ (1,463,970)
Loss on disposal of
discontinued operations,
net of taxes (3,674,046) -- -- -- --
------------ ------------ ------------
$ (4,267,639) $ (3,384,254) $ (1,463,970)
------------ ------------ ------------
Net income $ 4,546,219 $ 10,729,493 $ 14,032,063
============ ============ ============
Net income (loss) per common share, basic and diluted:
Net income per common share from
continuing operations $ .56 $ .87 $ .94
Net loss per common share from
discontinued operations (.04) (.21) (.09)
Net loss per common share from dis-
posal of discontinued operations (.23) -- -- -- --
------------ ------------ ------------
Net income per common share $ .29 $ .66 $ .85
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
11
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------ ------------ ------------
Cash Flows from Operating Activities
Net income from continuing
operations $ 8,813,858 $ 14,113,747 $ 15,496,033
Adjustments to reconcile net
income from continuing operations
to net cash provided by operating
activities of continuing operations:
Depreciation 5,464,100 5,177,727 4,861,351
Provision for doubtful accounts -- -- 77,000 275,000
Deferred income taxes (1,259,559) 975,985 386,964
Postemployment benefits and
deferred compensation 3,373,377 301,173 233,323
Other operating assets and
long-term liabilities (469,368) (208,772) (34,258)
(Gain)loss from disposal
of assets 345,533 (552,461) (35,090)
Unremitted (income) loss from
joint venture (186,989) (19,071) 209,825
Interest accrual on zero coupon
notes receivable -- -- (4,538) (196,025)
Changes in operating assets
and liabilities:
Receivables (1,870,188) (505,769) 8,902,287
Inventories 5,732,595 1,332,390 (6,639,796)
Other current assets 757,469 (206,833) 421,769
Accounts payable (280,859) (2,141,185) (781,628)
Accrued expenses 351,640 (1,688,406) (2,377,023)
------------ ------------ ------------
Net cash provided by operating
activities $ 20,771,609 $ 16,650,987 $ 20,722,732
------------ ------------ ------------
Cash Flows from Investing Activities
Purchase of property, plant and
equipment $ (4,885,185) $ (5,888,238) $ (7,790,574)
Proceeds from disposal of
fixed assets 205,037 1,306,488 134,627
Proceeds from disposal of
subsidiary 21,958,209 -- -- -- --
Funds (advance to) repayment from
discontinued operations 1,088,618 (5,628,416) (4,907,606)
Investment in and loan to
joint venture -- -- (441,000) (1,128,362)
Payments received from non-
operating notes receivable 207,289 2,417,883 180,917
Change in other assets (3,503,485) (626,447) (996,456)
Other (553,921) 341,192 (460,642
------------ ------------ ------------
Net cash provided by (used in)
investing activities $ 14,516,562 $ (8,518,538) $(14,968,096)
------------ ------------ ------------
12
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
------------ ------------ ------------
Cash Flows from Financing Activities
Cash dividends $ (5,040,428) $ (5,160,413) $ (5,117,607)
Purchase of common stock (996,036) (7,235,736) (2,635)
Issuance of common stock -- -- -- -- 246,985
------------ ------------ ------------
Net cash (used in)
financing activities $ (6,036,464) $(12,396,149) $ (4,873,257)
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents $ 29,251,707 $ (4,263,700) $ 881,379
Cash and cash equivalents at
beginning of period 6,192,431 10,456,131 9,574,752
------------ ------------ ------------
Cash and cash equivalents at
end of period $ 35,444,138 $ 6,192,431 $ 10,456,131
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
13
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
Common Additional Retained
Stock Paid-in Capital Earnings
------------ ------------ ------------
Balance at January 1, 1995 $ 16,484,831 $ 9,963,516 $ 80,539,058
Net income -- -- -- -- 14,032,063
Issuance of common stock 25,811 221,174 -- --
Purchase of common stock (240) (2,395) -- --
Dividends declared, $.31 per share -- -- -- -- (5,117,607)
Translation adjustments -- -- -- -- -- --
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1995 $ 16,510,402 $ 10,182,295 $ 89,453,514
Net income -- -- -- -- 10,729,493
Purchase of common stock (659,840) (6,575,896) -- --
Dividends declared, $.32 per share -- -- -- -- (5,160,413)
Translation adjustments -- -- -- -- (243,791)
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1996 $ 15,850,562 $ 3,606,399 $ 94,778,803
Net income -- -- -- -- 4,546,219
Purchase of common stock (107,500) (888,536) -- --
Dividends declared, $.32 per share -- -- -- -- (5,040,428)
Translation adjustments -- -- -- -- (30,453)
Unrecognized pension costs -- -- -- -- -- --
------------ ------------ ------------
Balance at December 31, 1997 $ 15,743,062 $ 2,717,863 $ 94,254,141
============ ============ ============
14
O'SULLIVAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
(Continued)
Cumulative Unrecognized
Translation Pension Stockholders'
Adjustments Costs Equity
------------ ------------ ------------
Balance at January 1, 1995 $ (345,102) $ -- -- $106,642,303
Net income -- -- -- -- 14,032,063
Issuance of common stock -- -- -- -- 246,985
Purchase of common stock -- -- -- -- (2,635)
Dividends declared, $.31 per share -- -- -- -- (5,117,607)
Translation adjustments 124,536 -- -- 124,536
Unrecognized pension costs -- -- (162,680) (162,680)
------------ ------------ ------------
Balance at December 31, 1995 $ (220,566) $ (162,680) $115,762,965
Net income -- -- -- -- 10,729,493
Purchase of common stock -- -- -- -- (7,235,736)
Dividends declared, $.32 per share -- -- -- -- (5,160,413)
Translation adjustments 220,566 -- -- (23,225)
Unrecognized pension costs -- -- (74,762) (74,762)
------------ ------------ ------------
Balance at December 31, 1996 $ -- -- $ (237,442) $113,998,322
Net income -- -- -- -- 4,546,219
Purchase of common stock -- -- -- -- (996,036)
Dividends declared, $.32 per share -- -- -- -- (5,040,428)
Translation adjustments -- -- -- -- (30,453)
Unrecognized pension costs -- -- 237,442 237,442
------------ ------------ ------------
Balance at December 31, 1997 $ -- -- $ -- -- $112,715,066
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
15
O'SULLIVAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Accounting Policies
Nature of Operations-O'Sullivan Corporation manufactures calendered plastics
products for the automotive and specialty manufacturing industries.
Substantially all of the Corporation's business is conducted in North
American markets.
Basis of Presentation and Principles of Consolidation-The consolidated
financial statements include the accounts of all Subsidiaries. Significant
intercompany accounts and transactions have been eliminated. Investments in
affiliates in which the Corporation has a 20% to 50% interest are carried at
cost, adjusted for the Corporation's proportionate share of the affiliate's
undistributed earnings or losses.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses.
Actual results could differ from those estimates.
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 conducts
periodic reviews of its major customers' financial condition and grants
trade credit based upon evaluations of the credit worthiness of each
customer. Management performs regular assessments of receivables and makes
estimates as to the adequacy of the allowance for doubtful accounts based on
historical data and knowledge of customers' financial condition. Credit losses
have been within the expectations of management.
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.
Investment Securities-Investment securities held principally for the purpose
of selling them in the near term are classified as trading securities.
Trading securities are recorded at fair value on the balance sheet as a
current asset, with the change in fair value during the period included in
earnings. At December 31, 1997 these securities had a fair value of $507,870.
Property, Plant and Equipment and Depreciation-Property, plant and equipment
are stated at historical cost. 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 ten 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. 16
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 or all of the
deferred tax 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.
Advertising Costs-Costs incurred for producing and communicating advertising
are expensed when incurred. Advertising costs were $89,090 for 1997, $76,122
for 1996 and $103,094 for 1995.
Research and Development-Product and process research and development are
charged to expense as incurred.
Earnings Per Share-In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share." Statement 128 replaced the
calculation of primary and diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effects
of options, warrants and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
Pension Plans-The Corporation and its Subsidiaries have retirement plans that
cover substantially all employees who meet certain eligibility requirements.
The Retirement Savings Plan (Plan) is a 401(K) plan under which the majority
of the Corporation's employees are covered. The Plan permits eligible
employees to contribute up to ten percent of before-tax compensation and up
to five percent of after-tax compensation subject to certain Internal Revenue
Service restrictions. The Corporation may, in its discretion, make an
Employer Basic Contribution of up to three percent of each participant's
compensation each year. The Corporation may also, in its discretion, make
an Employer Matching Contribution of up to two percent for participants who
have elected to make before-tax contributions to the Plan. After three years
of service participants become 100% vested in the Employer contributions for
each participant.
Current and former employees not covered under the Retirement Savings Plan
are participants in either multi-employer plans sponsored by other entities
or 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.
17
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.
Postemployment Benefits-The liability and expense for postemployment benefits
are accrued when the obligations vest and can be reasonably estimated.
Obligations that do not vest are recorded when payment of the benefits is
probable and can be reasonably estimated.
Reclassification of Amounts-Certain amounts for 1996 and 1995 have been
reclassified to reflect comparability with account classifications for 1997.
2. Supplementary Balance Sheet Detail
Balances at December 31, 1997 1996
------------ ------------
Receivables
Accounts receivable $ 26,228,366 $ 24,361,797
Less allowance for doubtful accounts 570,150 573,769
------------ ------------
$ 25,658,216 $ 23,788,028
============ ============
Receivable balances for automotive related business were $14,711,831 at
December 31, 1997 and $12,736,630 at December 31, 1996.
Inventories
Finished goods $ 4,505,483 $ 5,563,314
Work in process 3,385,687 7,080,058
Raw materials 9,380,683 10,551,277
Supplies 3,402,836 3,212,635
------------ ------------
$ 20,674,689 $ 26,407,284
============ ============
Property, Plant and Equipment
Land $ 1,414,776 $ 1,160,065
Buildings 27,762,932 25,959,282
Machinery and equipment 58,458,348 60,004,921
Transportation equipment 3,981,665 3,838,249
------------ ------------
$ 91,617,721 $ 90,962,517
Less accumulated depreciation 51,301,322 49,535,995
------------ ------------
$ 40,316,399 $ 41,426,522
============ ============
Depreciation expense totaled $5,464,100, $5,177,727 and $4,861,351 in
1997, 1996 and 1995, respectively.
18
Accrued Expenses
Accrued compensation $ 2,527,053 $ 2,362,895
Employee benefits 886,467 952,327
Dividends payable 1,257,623 1,274,621
Other accrued expenses 1,297,105 1,043,756
------------ ------------
$ 5,968,248 $ 5,633,599
============ ============
Long-Term Liabilities
Deferred compensation $ 3,978,100 $ 1,685,792
Employee benefits 845,466 1,412,373
Postemployment benefits 1,081,069 -- --
Contingency reserve for
discontinued operations 2,500,000 -- --
------------ ------------
$ 8,404,635 $ 3,098,165
============ ============
The contingency reserve for discontinued operations is an allowance for
potential adjustments relating to the sale of the Corporation's former
consumer products subsidiary.
3. Debt
The Corporation has a $35,000,000 unsecured line of credit through First
Union National Bank of Virginia to support general corporate activities.
Interest rates for the line of credit vary based on the Corporation's choice
of rate options provided by the lender. All available rates are at or below
prevailing prime interest rates. The line of credit matures June 30, 1998.
There was no outstanding balance at December 31, 1997.
Interest expense was $8,482 for 1997, $2,976 for 1996 and $5,202 for 1995.
19
4. Investment in Unconsolidated Joint Venture
The Corporation acquired a 49% equity interest in Keifel Technologies, Inc.
("Keifel") during 1995. Keifel designs, manufactures and distributes
thermoforming and radio frequency welding machines and related machinery and
tools. Financial information for Keifel is as follows:
Income Statement Data For The Years Ended December 31, 1997 and 1996
And For The Period August 9, 1995 Through December 31, 1995
Period Ended December 31,
1997 1996 1995
------------ ------------ ------------
Net sales $ 12,130,635 $ 5,986,996 $ 213,312
Gross profit (loss) $ 1,897,988 $ 1,174,687 $ (27,439)
Net income (loss) $ 381,610 $ 38,920 $ (428,214)
Corporation's share of net
income (loss) $ 186,989 $ 19,071 $ (209,825)
Balance Sheet Data at December 31, 1997 1996
- ---------------------------------- ------------ ------------
Assets
Current assets $ 7,039,272 $ 3,134,561
Property, plant and equipment, net 1,805,752 1,950,801
Other assets 9,500 9,500
------------ -------------
Total assets $ 8,854,524 $ 5,094,862
============ =============
Liabilities and Equity
Current liabilities $ 3,796,010 $ 2,384,526
Notes payable 2,496,000 2,496,000
Other long-term liabilities 2,070,191 103,623
Stockholders' equity 492,323 110,713
------------ -------------
Total liabilities and equity $ 8,854,524 $ 5,094,862
============ =============
Corporation's share of equity $ 241,238 $ 54,249
============ =============
5. Income Tax Matters
Pretax income for the years ended December 31, 1997, 1996 and 1995 was taxed
entirely by domestic jurisdictions.
1997 1996 1995
------------ ------------ ------------
$ 13,731,795 $ 22,906,654 $ 25,866,260
============ ============ ============
20
Net deferred tax benefits (liabilities) at December 31, 1997 and 1996
consisted of the following components:
1997 1996
------------ ------------
Deferred tax assets
Provision for doubtful accounts $ 224,709 $ 226,008
Employee benefits 2,970,246 1,707,436
Inventory basis differences 109,675 167,400
Contingency reserve for
discontinued operations 1,024,453 28,239
Operating loss carryforward 65,300 -- --
Other -- -- 40,818
------------ ------------
$ 4,394,383 $ 2,169,901
------------ ------------
Deferred tax liabilities
Investment securities $ 203,147 $ -- --
Property, plant and equipment 3,608,737 3,757,110
Like-kind exchange 254,856 254,856
Employee benefits 241,000 201,622
------------ ------------
$ 4,307,740 $ 4,213,588
------------ ------------
Net deferred tax
benefits (liabilities) $ 86,643 $ (2,043,687)
============ ============
The deferred tax amounts included above have been classified on the balance
sheets for December 31, 1997 and 1996 as follows:
1997 1996
------------ ------------
Current assets $ 1,041,564 $ 1,090,840
Noncurrent liabilities (954,921) (3,134,527)
------------ ------------
Net deferred tax
benefits (liabilities) $ 86,643 $ (2,043,687)
============ ============
The provision for income taxes charged to continuing operations for the years
ended December 31, 1997, 1996 and 1995 consists of the following:
1997 1996 1995
------------ ------------ ------------
Current
Federal $ 5,119,111 $ 6,681,713 $ 7,872,128
State 1,058,385 1,021,619 2,111,135
------------ ------------ ------------
$ 6,177,496 $ 7,703,332 $ 9,983,263
------------ ------------ ------------
Deferred
Federal $ (1,037,444) $ 951,017 $ 332,624
State (222,115) 138,558 54,340
------------ ------------ ------------
$ (1,259,559) $ 1,089,575 $ 386,964
------------ ------------ ------------
$ 4,917,937 $ 8,792,907 $ 10,370,227
============ ============ ============
21
The income tax provision differs from the amount of income tax determined by
applying the US federal income tax rate to pretax income (from continuing
operations) for the years ended December 31, 1997, 1996 and 1995 due to the
following:
1997 1996 1995
-------- -------- --------
Statutory federal tax rate 35.0% 35.0% 35.0%
Income taxed at lower federal tax rate (.7%) -- -- -- --
State taxes, net of federal benefit 4.0% 3.3% 5.4%
Business credits (.6%) (.4%) -- --
Other (1.9%) .5% (.3%)
-------- -------- --------
35.8% 38.4% 40.1%
======== ======== ========
6. Benefit Plans
Defined Benefit Plans
The net pension cost for defined benefit plans included the following
components:
1997 1996 1995
----------- ----------- -----------
Benefits earned during the year $ 77,867 $ 70,097 $ 56,714
Interest cost on projected
benefit obligation 579,703 569,327 549,922
Actual (return) on assets (1,534,219) (519,968) (1,027,919)
Net amortization and deferral 952,576 (25,142) 552,498
Settlement (gain) -- -- -- -- (81,954)
----------- ----------- -----------
Net pension cost $ 75,927 $ 94,314 $ 49,261
=========== =========== ===========
The funded status of the defined benefit pension plans as of December 31,
1997 was as follows:
Overfunded Underfunded
------------ ------------
Actuarial present value:
Vested benefit obligation $ 2,486,629 $ 6,121,430
Nonvested benefit obligation -- -- 131,430
------------ ------------
Accumulated benefit obligation $ 2,486,629 $ 6,252,860
Effect of projected compensation
increases -- -- -- --
------------ ------------
Projected benefit obligation $ 2,486,629 $ 6,252,860
Fair value of plan assets 3,535,605 5,684,394
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation $ 1,048,976 $ (568,466)
Unrecognized net (gain) (239,411) (330,240)
Unrecognized prior service costs -- -- 456,155
Unrecognized net (asset) liability
at initial adoption of FAS 87 (207,066) 16,826
Adjustment required to recognize
minimum liability -- -- (142,741)
------------ ------------
Prepaid (accrued) pension cost $ 602,499 $ (568,466)
============ ============
22
The funded status of the defined benefit pension plans as of December 31,
1996 was as follows:
Overfunded Underfunded
------------ ------------
Actuarial present value:
Vested benefit obligation $ 2,462,773 $ 5,940,487
Nonvested benefit obligation -- -- 101,829
------------ ------------
Accumulated benefit obligation $ 2,462,773 $ 6,042,316
Effect of projected compensation
increases -- -- -- --
------------ ------------
Projected benefit obligation $ 2,462,773 $ 6,042,316
Fair value of plan assets 3,029,968 4,961,943
------------ ------------
Plan assets in excess of (less than)
projected benefit obligation $ 567,195 $ (1,080,373)
Unrecognized net loss 166,934 158,338
Unrecognized prior service costs -- -- 525,489
Unrecognized net (asset) liability
at initial adoption of FAS 87 (230,073) 20,191
Adjustment required to recognize
minimum liability -- -- (704,018)
------------ ------------
Prepaid (accrued) pension cost $ 504,056 $ (1,080,373)
============ ============
Discount rates for the plans were 7%. The assumed long-term rates of return
on plan assets were 8%. 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.
Retirement Savings Plan
The expense associated with the Retirement Savings Plan was $1,406,655 for
1997, $1,360,993 for 1996 and $1,312,222 for 1995.
Deferred Compensation Plan
The Corporation has a deferred compensation program for key employees of the
Corporation. Under this program, the Corporation agrees 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. Full benefits are paid only if the employee completes 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
$2,503,375 for 1997, $493,773 for 1996 and $397,798 for 1995. The expense
for 1997 included an additional charge of $1,975,747 resulting from a change
in the estimated costs for deferred compensation payable to several employees
who prematurely separated from service with the Corporation.
23
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.
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, 1997, 1996 and 1995:
1997 1996 1995
---------- ---------- ----------
Interest expense on accumulated
postretirement benefit obligation $ 26,000 $ 28,000 $ 27,000
Other amortization and deferrals 5,000 2,000 (16,000)
---------- ---------- ----------
$ 31,000 $ 30,000 $ 11,000
========== ========== ==========
Postretirement benefit obligations at December 31, 1997 and 1996, none of which
are funded, are as follows:
1997 1996
------------ ------------
Accumulated postretirement
benefit obligation, retirees $ 277,000 $ 332,000
Plan assets -- -- -- --
------------ ------------
Accumulated postretirement benefit
obligation in excess of plan assets $ 277,000 $ 332,000
Unrecognized transition obligation -- -- -- --
Unrecognized net experience losses (gains) -- -- -- --
------------ ------------
Accrued postretirement benefit obligation $ 277,000 $ 332,000
============ ============
For measurement purposes, a 12% annual rate of increase in per capita health
care costs of covered benefits was assumed for 1997, with such annual rate
of increase gradually declining to 6% in 2003.
Postemployment Benefits
The Corporation provides certain compensation benefits to former employees.
For 1997 a provision for costs in the amount of $1,530,000 was charged to
operations.
7. Leases
The Corporation and its Subsidiaries lease various plant and warehouse
facilities along with various equipment. Leases for the plant and warehouse
facilities and leases for machinery and equipment generally require the
payment of appropriate taxes, insurance and maintenance costs. The leases
are cancelable within a limited period of time.
Rental expense was $508,890 for 1997, $670,496 for 1996 and $625,843 for 1995.
24
8. Research and Development
Research and development costs charges to expense were $2,739,388 for 1997,
$2,554,826 for 1996 and $2,983,552 for 1995.
9. Commitments and Contingencies
Legal Matters
The Corporation and its Subsidiaries are parties to various pending judicial
proceedings arising in the ordinary course of business, including a
proceeding involving the New Jersey facility formerly occupied by the
Corporation's discontinued consumer products subsidiary. Management and its
legal counsel have reviewed the possible outcome of pending proceedings and
have determined that any liabilities which may result from current
proceedings are not reasonably likely to have a material effect on the
Corporation's financial condition or results of operations.
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.
Facilities Addition
The Corporation has committed to the construction of an additional coating
facility at its Winchester, Virginia location. The total outlay for the
facility is expected to be approximately $7.0 million. The facility is
expected to be placed in service during the third quarter of 1998.
Year 2000 Readiness
Management has taken steps to examine the Corporation's potential exposure
to business interruption due to possible Year 2000 computer software
failures. Employees connected with the Management Information Services
department have reviewed the software being utilized for operation of the
Corporation's primary business operations system and the software used in
the operation of various LANs running throughout the Corporation. They have
determined that currently there are no apparent conflicts which will prevent
the present software from operating properly at Year 2000. Personnel
connected with the Maintenance Services area of the Corporation have made
similar reviews and inquiries concerning software used in the operation of
the Corporation's manufacturing equipment. At this time they are aware of
no material conflicts that would jeopardize the operation of the
Corporation's manufacturing operations.
25
10. Significant Customer
Net sales to divisions and subsidiaries of Ford Motor Company amounted to
$44,142,504 (27.0% of net sales) in 1997, $44,186,054 (25.8% of net sales)
in 1996 and $40,622,615 (24.0% of net sales) in 1995.
Receivables at December 31, 1997, 1996 and 1995 from Ford Motor Company were
$6,289,788, $5,006,569, and $6,275,579, respectively.
11. Stock Option Plans
1985 Stock Option Plan
The 1985 option plan expired January 28, 1995. Options previously granted
may be exercised by the participants until the options expire, which is ten
years after the date of the original option grant. The option price of
grants under this plan could not be less than the fair market value of the
common stock on the date of grant.
1995 Stock Option Plan
The Corporation has a 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 February 7, 1995 with an expiration date
of February 6, 2005. The Plan reserves for issuance an aggregate of 200,000
shares of the Corporation's common stock. The option price for options
granted cannot be less than 100% of fair market value of the common stock on
the date of the grant. The Plan contains an antidilutive provision providing
for adjustments to the options previously granted in the event of changes in
the Corporation's capital structure.
1995 Outside Directors Stock Option Plan
The Corporation has a stock option plan under which options may be granted to
members of the Corporation's Board of Directors for the purchase of the
Corporation's common stock. The effective date of the Plan was April 25,
1995 with an expiration date of April 24, 2005. The Plan reserves for
issuance an aggregate of 200,000 shares of the Corporation's common stock.
Each eligible director received an option for 10,000 shares common stock on
the effective date of the Plan. On each April 25 thereafter each eligible
director will receive an option for 1,000 shares of common stock. Directors
who become eligible after April 25, 1995 will receive an option for 10,000
shares as of the date they become eligible for the Plan and will receive an
option for 1,000 shares on each April 25 thereafter. The option price for
options granted cannot be less than 100% of fair market value of the common
stock on the date of the grant. The plan contains an antidilutive provision
providing for adjustments to the options previously granted in the event of
changes in the Corporation's capital structure.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model. For 1997, no options were granted
requiring measurement under this model. For 1996 weighted-average
assumptions were: Dividend rate of 2.9%, price volatility of 25%, a risk-free
interest rate of 5.31% and expected lives of 7.75 years.
26
The Corporation applies APB Opinion 25 in accounting for its stock option
plans. Accordingly, no compensation expense has been recognized for 1997,
1996 or 1995. If the fair value method of accounting for stock options
prescribed by FAS No. 123 had been applied, there would have been no expense
relating to the stock options for 1997. The expense would have been $41,437
in 1996 and $184,883 in 1995. Pro forma net income would have been
$10,688,056 in 1996 and $13,847,180 in 1995. Pro forma earnings per share
would have been $.66 in 1996 and $.84 in 1995.
The status of the stock option plans during 1997 and 1996 is as follows:
1995 Directors
1985 Option Plan 1995 Option Plan Option Plan
---------------- ---------------- --------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at
January 1, 1997 94,965 $ 11.01 125,000 $ 10.48 88,000 $ 10.39
Granted during 1997 -- -- -- -- -- -- -- -- 27,000 8.76
Exercised during 1997 -- -- -- -- -- -- -- -- -- -- -- --
Forfeited during 1997 (27,095) 11.67 (21,500) 10.48 (11,000) 10.39
--------- --------- ---------
Outstanding at
December 31, 1997 67,870 10.74 103,500 10.48 104,000 9.96
========= ========= =========
All outstanding options were exercisable at December 31, 1997
1995 Directors
1985 Option Plan 1995 Option Plan Option Plan
---------------- ---------------- --------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at
January 1, 1996 96,965 $ 10.99 102,000 $ 10.31 80,000 $ 10.31
Granted during 1996 -- -- -- -- 24,000 11.19 8,000 11.13
Exercised during 1996 -- -- -- -- -- -- -- -- -- -- -- --
Forfeited during 1996 (2,000) 10.10 (1,000) 10.31 -- -- -- --
--------- --------- ---------
Outstanding at
December 31, 1996 94,965 11.01 125,000 10.48 88,000 10.39
========= ========= =========
All outstanding options were exercisable at December 31, 1996
Weighted average fair
value of options
granted during 1996 N/A $ 11.19 $ 11.13
======== ======== ========
27
The status of the options outstanding at December 31, 1997 is as follows:
Remaining
Exercise Contractual
Price Number Life
-------- -------- -----------
$ 15.90 16,250 1.1 Years
10.88 16,000 2.1 Years
8.32 35,620 4.8 Years
10.31 153,500 7.3 Years
11.17 27,000 8.3 Years
8.16 17,000 9.3 Years
9.78 10,000 9.6 Years
12. 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, 1997 and 1996.
13. Discontinued Operations
On July 31, 1997 the Corporation sold substantially all of the former
consumer products business segment of the Corporation, identified as Melnor
Inc., including the stock of Melnor's wholly-owned subsidiary, Melnor Canada,
Ltd., to GH Acquisition Corp. The Corporation received approximately $22.0
million in cash for the sale. The cash received included funds in the amount
of $2.5 million designated for an escrow account. Part or all of this escrow
account may be returned to the purchaser in the event future business
operations of this business do not meet certain operating result thresholds.
The loss on disposal of the segment of $3,674,046 (net of income tax benefit
of $1,825,954) represented the loss from the disposal of substantially all
assets of the business along with expenses associated with the disposal
activities, including severance costs, professional fees and potential
variances in projected operations of the business during future fiscal periods.
Losses from the discontinued operations of this business are shown separately
in the accompanying income statements. Income tax benefits applicable to
the years ended December 31, 1997, 1996 and 1995 were $428,489, $1,907,254
and $741,687, respectively.
Net sales for this business were $21,646,807 for the seven months ended July
31, 1997 and $40,145,222 and $40,267,676 for the years ended December 31,
1997 and 1996. These amounts are excluded from net sales reported in the
accompanying income statements.
28
14. Supplemental Cash Flow Information
Supplemental Disclosure of Cash Flow Information
1997 1996 1995
------------ ------------ ------------
Cash payments for interest $ 8,482 $ 2,976 $ 5,202
============ ============ ============
Cash payments for income taxes $ 4,758,603 $ 5,310,200 $ 7,971,969
============ ============ ============
Supplemental Schedule of Noncash Investment Activities
In 1996, notes receivable of $654,794 were received as part of the proceeds
from the sale of property and equipment.
15. Supplemental Financial Data (Unaudited)
Quarter Ended
--------------------------------------------------- 1997
1997 March 31 June 30 September 30 December 31 Total
------------ ------------ ------------ ------------ ------------
Net sales $ 40,463,805 $ 44,706,832 $ 38,828,516 $ 39,600,247 $163,599,400
Gross
profit $ 6,092,585 $ 7,689,004 $ 5,934,913 $ 5,906,090 $ 25,622,592
Net income (loss)
from:
Continuing
operations $ 2,498,007 $ 3,417,321 $ 2,871,432 $ 27,098 $ 8,813,858
Discontinued
operations (274,030) (166,801) (3,467,762) (359,046) (4,267,639)
------------ ------------ ------------ ------------ ------------
Net income
(loss) $ 2,223,977 $ 3,250,520 $ (596,330)$ (331,948)$ 4,546,219
------------ ------------ ------------ ------------ ------------
Earnings (loss)
per share from:
Continuing
operations $ .16 $ .22 $ .18 $ -- -- $ .56
Discontinued
operations (.02) (.01) (.22) (.02) (.27)
------------ ------------ ------------ ------------ ------------
Earnings (loss)
per share $ .14 $ .21 $ (.04)$ (.02)$ .29
------------ ------------ ------------ ------------ ------------
Dividends
declared $ .08 $ .08 $ .08 $ .08 $ .32
Market price per
share:
High 10 3/4 9 11/16 11 11 11
Low 8 7 15/16 8 3/8 9 7/8 7 15/16
29
Quarter Ended
--------------------------------------------------- 1996
1996 March 31 June 30 September 30 December 31 Total
------------ ------------ ------------ ------------ ------------
Net sales $ 42,833,847 $ 47,846,657 $ 41,626,488 $ 38,911,495 $171,218,487
Gross
profit $ 9,359,678 $ 8,387,369 $ 6,692,264 $ 6,599,171 $ 31,038,482
Net income (loss)
from:
Continuing
operations $ 4,071,637 $ 4,103,862 $ 2,914,623 $ 3,023,625 $ 14,113,747
Discontinued
operations 162,564 126,743 (1,367,924) (2,305,637) (3,384,254)
------------ ------------ ------------ ------------ ------------
Net income $ 4,234,201 $ 4,230,605 $ 1,546,699 $ 717,988 $ 10,729,493
------------ ------------ ------------ ------------ ------------
Earnings (loss)
per share from:
Continuing
operations $ .25 $ .25 $ .18 $ .19 $ .87
Discontinued
operations .01 .01 (.08) (.15) (.21)
------------ ------------ ------------ ------------ ------------
Earnings
per share $ .26 $ .26 $ .10 $ .04 $ .66
------------ ------------ ------------ ------------ ------------
Dividends
declared $ .08 $ .08 $ .08 $ .08 $ .32
Market price per
share:
High 11 1/4 12 3/4 12 1/8 11 3/4 12 3/4
Low 9 3/4 10 5/8 10 5/8 10 9 3/4
16. Earnings Per Share
The following shows the weighted average number of shares used in computing
earnings per share and the effect on weighted average number of shares of
diluted potential common stock.
1997 1996 1995
------------ ------------ ------------
Weighted average number of common
shares used in earnings per
common share 15,758,205 16,169,162 16,503,877
Effect of dilutive securities:
Stock options 8,863 19,598 15,372
------------ ------------ ------------
Weighted average number of common
shares used in earnings per
common share - assuming dilution 15,767,068 16,188,760 16,519,249
============ ============ ============
Options on approximately 222,750, 72,345 and 57,345 shares were not included
in computing earnings per common share - assuming dilution for the years
ended December 31, 1997, 1996 and 1995, respectively, because their effects
were antidilutive.
30
17. New Accounting Pronouncements
During June, 1997 the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income". This pronouncement establishes
standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of general
purpose financial statements. Statement No. 130 is effective for financial
statements beginning after December 15, 1997.
Additionally during June of 1997, the Financial Accounting Standards Board
issued Statement No. 131, "Disclosure about Segments of an Enterprise and
Related Information." Statement No. 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement
becomes effective for financial statements for periods beginning after
December 31, 1997.
31
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, 1997 and 1996 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996 and
the results of their operations and their cash flows for the years ended
December 31, 1997, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
January 26, 1998
32
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
33
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 4 through 6 of the Corporation's definitive Proxy
Statement dated March 27, 1998 which pages are incorporated herein by
reference. For information concerning the compliance by directors, officers
and beneficial owners of more than 10% of the Corporation's stock with the
requirement of Section 16(a) of the Securities Exchange Act of 1934, see
page 6 of the Corporation's Definitive Proxy Statement dated March 27,
1998, which page in incorporated herein by reference.
Executive Officers of the Registrant
The names, ages and positions of the executive officers of O'Sullivan
Corporation at December 31, 1997 are listed below. All officers are elected
by the Board of Directors for a one year term. There are no family
relationships among officers or any other arrangement or understanding
between any officer and any other person pursuant to which the officer was
elected.
Served As
Name Age Office Officer Since
- --------------------- ---- --------------------- -------------
James T. Holland 57 President 1976
C. Bryant Nickerson 51 Secretary & Treasurer 1986
John S. Campbell 47 Vice President 1986
Mr. Holland has served in the following capacities for the Corporation;
Treasurer, 1976-1979, Vice President and Treasurer, 1979-1984, Executive Vice
President and Chief Operating Officer, 1984-1986, President and Chief
Operating Officer, 1986-1995, President and Chief Executive Officer, 1995 to
the Present.
Mr. Nickerson has been employed by the Corporation since 1973 serving in
various capacities within the corporate financial area. He has served as
Controller and Treasurer and Chief Accounting Officer before being elected
as Secretary, Treasurer and Chief Financial Officer in 1995.
Mr. John S. Campbell has served as a Vice President since 1986. He has been
employed by the Corporation since 1973 and has been involved in both the
sales and manufacturing operations of the calendered plastics products
business of the Corporation.
Other Officers of the Registrant
Served As
Name Age Office Officer Since
- --------------------- ---- --------------------- -------------
William O. Bauserman 54 Vice President 1987
Ewen A. Campbell 50 Vice President 1993
John P. Crowther 47 Vice President 1998
James L. Tremoulis 44 Vice President 1986
Robert C. Westfall 55 Vice President 1979
34
Mr. Bauserman has been employed by the Corporation since 1968 and has served
as a Vice President since 1987. Mr. Bauserman has been employed in various
capacities within the data processing and management information services
areas during his tenure with the Corporation.
Mr. Ewen A. Campbell has an extensive background in chemistry and plastics
compounding. He has been employed by the Corporation since 1991 in the areas
of compounding and research and development activities. He has served as a
Vice President since 1993. Mr. Ewen Campbell and Mr. John Campbell are not
related.
Mr. Crowther has been employed by the Corporation since 1995 as a sales
representative to automotive-related customers of the Corporation. Prior to
that time he was employed by a business that served as a manufacturer's
representative to the automotive industry for the Corporation. He was
elected as a Vice President in January, 1998.
Mr. Tremoulis has served in various capacities in the sales area for
calendered plastics products since his employment by the Corporation in 1980.
He was elected as a Vice President in 1986.
Mr. Westfall has been employed by the Corporation since 1965. He was a
chemist, the Quality Control Director and a Plant Manager for the Corporation
prior to being elected as a Vice President of Research and Development in
1979.
Item 11. EXECUTIVE COMPENSATION
See Pages 7 through 13 of the Corporation's Proxy Statement dated March 27,
1998, 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 March 27,
1998, which pages are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1997 that would be applicable for
disclosure under this item.
35
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 32
Consolidated Balance Sheets at December 31, 1997
and 1996 10
Consolidated Statements of Income for the Years
Ended December 31, 1997, 1996 and 1995 11
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 12-13
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 14-15
Notes to Consolidated Financial Statements 16-31
(a). (2) Financial Statement Schedules
Included in Part IV of this report:
Report of Independent Auditors on Financial
Statement Schedule 39
Schedule II - Valuation and Qualifying Accounts
and Reserves for the Years Ended December 31,
1997, 1996 and 1995 40
(a). (3) Exhibits
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
stockholders 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.)
3.2 O'Sullivan Corporation Bylaws as amended to
January 29, 1985. (Incorporated by reference
to the March 31, 1985, Quarterly Report on
Form 10-Q of the Corporation.)
36
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (continued)
Page
3.3 O'Sullivan Corporation Amended and Restated
Articles of Incorporation dated April 29, 1989,
filed with the State Corporation Commission
dated April 29, 1989, adopted by stockholders 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.)
3.4 O'Sullivan Corporation Bylaws as amended to
January 26, 1998. - filed herewith
10.1 Compensatory arrangement with executive officers
of the registrant. See Pages 7 through 13 of
the Corporation's Proxy Statement dated March 27,
1998 which pages are incorporated herein by
reference.
10.2 Form of Employment Continuity Agreement between the
Registrant and James T. Holland, John S. Campbell,
C. Bryant Nickerson, William O. Bauserman, Ewen A.
Campbell, Dee S. Johnston, Michael M. Meissner,
James L. Tremoulis and Robert C. Westfall.
(Incorporated by reference to the Annual Report on
Form 10-K for the Year Ended December 31, 1996.)
10.3 The O'Sullivan Corporation 1995 Stock Option Plan
filed as exhibit 99.1 to the Corporation's Form
S-8 registration statement (Registration Number
033-58895) filed with the Commission on April 28,
1995 and incorporated herein by reference.
10.4 The O'Sullivan Corporation 1995 Outside Directors
Stock Option Plan filed as exhibit 99.2 to the
Corporation's Form S-8 registration statement
(Registration Number 033-58895) filed with the
Commission on April 28, 1995 and incorporated
herein by reference.
10.5 1985 Incentive Stock Option Plan. Amended and
Restated as of July 27, 1993. (Incorporated by
reference to the Annual report on Form 10-K for
the Year Ended December 31, 1994.)
10.6 Severance Agreement between O'Sullivan Corporation
and James T. Holland, President and Chief Executive
Officer. - filed herewith
21. Subsidiaries of the Registrant - filed herewith
23. Consent of Independent Auditors - filed herewith
24. Powers of Attorney - filed herewith
37
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Continued)
Page
27. Financial Data Schedule - filed herewith
(b). Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter
ended December 31, 1997.
(c). Index to Exhibits 43
38
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors
of the O'Sullivan Corporation
The examination referred to in our opinion dated January 26, 1998 of the
consolidated financial statements as of December 31, 1997 and 1996 and for
the three years ended December 31, 1997, 1996 and 1995 included the related
supplemental financial schedule as listed in Item 14(a) 2, which, when
considered in relation to the basis financial statements, present fairly in
all material respects the information shown therein.
/s/ YOUNT, HYDE & BARBOUR, P.C.
39
O'SULLIVAN CORPORATION AND SUBSIDIARIES Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
Column A Column B Column C Column D Column E
- ---------- ---------- ------------------------ ----------- -----------
Additions
------------------------
(1) (2)
Balance Charged Charged Balance
at to Costs to at
Beginning and Other Recoveries End
Description of Year Expense Accounts (Deductions) of Year
- ---------- ---------- ---------- ------------ ------------ -----------
1997:
Allowance
for
Doubtful
Accounts $ 573,769 $ -- -- $ -- -- $ (3,619)(A)$ 570,150
========== ========== =========== =========== ===========
1996:
Allowance
for
Doubtful
Accounts $ 470,684 $ 77,000 $ -- -- $ 26,085 (A)$ 573,769
========== ========== =========== =========== ===========
1995:
Allowance
for
Doubtful
Accounts $ 402,713 $ 275,000 $ -- -- $ (207,029)(A)$ 470,684
========== ========== =========== =========== ===========
Note (A) - Write-offs of uncollectible accounts, net of recoveries.
40
SIGNATURES
Pursuant to the requirement 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 26, 1998 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 26, 1998
- ------------------------ --------------
Arthur H. Bryant, II Chairman and Director Date
/s/ James T. Holland March 26, 1998
- ------------------------ --------------
James T. Holland President, Chief Executive Date
Officer and Director
/s/ C. Bryant Nickerson March 26, 1998
- ------------------------ --------------
C. Bryant Nickerson Secretary, Treasurer and Date
Chief Financial Officer
C. Hugh Bloom * March 26, 1998
- ------------------------ --------------
C. Hugh Bloom Director Date
Magalen O. Bryant * March 26, 1998
- ------------------------ --------------
Magalen O. Bryant Director Date
Robert L. Burrus, Jr. * March 26, 1998
- ------------------------ --------------
Robert L. Burrus, Jr. Director Date
Max C. Chapman, Jr. * March 26, 1998
- ------------------------ --------------
Max C. Chapman, Jr. Director Date
R. Michael McCullough * March 26, 1998
- ------------------------ --------------
R. Michael McCullough Director Date
Stephen P. Munn * March 26, 1998
- ------------------------ --------------
Stephen P. Munn Director Date
41
Timothy J. Sandker * March 26, 1998
- ------------------------ --------------
Timothy J. Sandker Director Date
Leighton W. Smith * March 26, 1998
- ------------------------ --------------
Leighton W. Smith Director Date
* By: /s/ James T. Holland
---------------------
James T. Holland
Attorney-In-Fact
42
EXHIBIT INDEX
Page
3.4 O'Sullivan Corporation Bylaws Amended
to January 26, 1998 44-51
10.6 Severance Agreement between O'Sullivan
Corporation and James T. Holland,
President and Chief Executive Officer 52-55
21. Subsidiaries of the Registrant 56
23. Consent of Experts 57
24. Powers of Attorney 58-66
27. Financial Data Schedule 67
43
O'SULLIVAN CORPORATION
AMENDED AND RESTATED BYLAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. Meetings of stockholders shall
be held at the office of the Corporation in the City of Winchester, Virginia
or at such place, either within or without the Commonwealth of Virginia, as
may be provided in the notice of the meeting and approved by the President
or the Board of Directors.
Section 2. Annual Meeting. The annual meeting of stockholders shall be
held on the last Wednesday in April of each year, if not a legal holiday,
and if a legal holiday, then on the next succeeding business day, at eleven
(11:00) o'clock in the morning.
Section 3. Special Meetings. Special meetings of the stockholders may
be called by the Chairman of the Board of Directors, the President, the Board
of Directors or the holders of not less than one-tenth of all the shares
entitled to vote at the meeting.
Section 4. Closing of Transfer Books and Fixing Record Date. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of stockholders
for any other proper purpose, the Board of Directors of this Corporation may
provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, 50 days. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of stockholders, such date in any case to be not more
than 50 days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders,
or stockholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the
Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of stockholders. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this Article, such determination shall apply to
any adjournment thereof.
Section 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given not less than ten
nor more than 50 days before the date of the meeting (except as a different
time is specified by law) either personally or by mail, by or at the
44
direction of the Chairman of the Board of Directors, the President, the
Secretary or the officer or persons calling the meeting, to each stockholder
of record entitled to notice thereof as a matter of law, whether or not he is
entitled to vote at such meeting. If mailed, such notice shall be deemed to
be given when deposited in the United States mail addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation with postage thereon prepaid.
Notice of a stockholders' meeting to act on (i) an amendment of the Articles
of Incorporation, (ii) a reduction of stated capital, (iii) a plan of merger,
consolidation or exchange, or (iv) the sale, lease, exchange, mortgage,
pledge or other disposition of all or substantially all the property or
assets of the Corporation if not made in the usual and regular course of its
business, shall be given, in the manner provided above, not less than 25 nor
more than 50 days before the date of the meeting. Any such notice shall be
accompanied by (x) a copy of the proposed amendment, (y) a copy of the
proposed plan of reduction or merger, consolidation or exchange, or (z)
shall state that a purpose or one of the purposes of the meeting is to
consider a proposed sale, lease, exchange, mortgage, pledge or other
disposition of property and assets of the Corporation other than in the
usual and regular course of its business.
Section 6. Quorum; Required Vote. A majority of the shares entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders. Treasury shares shall not be counted to establish
a quorum. If a quorum is present the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, except (i) that when the vote of more
than a majority of those present is required by law; (ii) that in elections
of directors those receiving the greatest number of votes shall be deemed
elected even though not receiving a majority; and (iii) that a vote is
required on any of the matters set forth in the second paragraph of Section
5 of this Article I of these Bylaws in which event the affirmative vote of
more than two-thirds of the shares entitled to vote thereon or such other
number as may be required by the Articles of Incorporation of the Corporation
shall be the act of the stockholders. Less than a quorum may adjourn the
meeting to a fixed time and place and no further notice therof need be given
unless required by law.
Section 7. Shares Entitled to Vote; Proxies. The holders of each
outstanding share of stock entitled to vote on a matter at a meeting of
stockholders, as provided in the Articles of Incorporation or by law, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. Treasury share shall not be entitled to any vote. A
stockholder may vote either in person or by proxy executed by the
stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after three (3) years from its date, unless otherwise provided in the
proxy.
45
Section 8. Voting List. A complete list of the stockholders entitled
to vote at any meeting of the stockholders, or any adjournment thereof, with
the address of and number of shares held by each on the record date, shall,
for a period of ten days prior to such meeting, be kept on file at the
registered office or principal place of business of the Corporation, or at
the office of the transfer agent or registrar, and shall be subject to
inspection of any stockholder for any proper purpose at any time during usual
business hours. Such list shall also be produced and kept open at the time
and place of the meeting and shall be open to inspection of any stockholder
during the whole time of the meeting for the purpose thereof.
Section 9. Stockholder Proposals. Any stockholder entitled to vote at
a stockholders' meeting who wishes to make a proposal or a nomination for a
director from the floor at such stockholders' meeting, either regular or
special, shall advise the Secretary of the Corporation in writing, mailed at
least 10 days before the date of the meeting, of the nature of the proposal
or the name, address and business background of the nominee, as the case may
be.
ARTICLE II
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors subject to any requirement of
stockholder action contained in the Virginia Stock Corporation Act or in the
Articles of Incorporation.
Section 2. Election, Number and Term. The number of directors of the
Corporation shall be not less than nine (9) and not more than fifteen (15).
This number may be increased or decreased from time to time by amendment to
these Bylaws. No decrease in number shall have the effect of shortening the
term of any incumbent director. Each director shall hold office for the term
for which he is elected and until his successor shall have been elected.
Section 3. Removal; Vacancies. At a meeting called expressly for that
purpose, any director may be removed, with or without cause, by a vote of
stockholders holding a majority of the shares entitled to vote at an election
of directors. If any directors are so removed, new directors may be elected
at the same meeting. Any vacancy occurring in the Board of Directors,
including a vacancy resulting from an increase by not more than two in the
number of directors, may be filled by the affirmative vote of a majority of
the remaining directors though less than a quorum of the Board of Directors.
Section 4. Compensation. The Board of Directors may fix the
compensation of directors for their services as directors and may provide
for the payment of all expenses incurred by directors in attending meetings
of the Board of Directors.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held with or without notice, quarterly at eleven (11:00)
o'clock in the morning on the last Tuesday of January, July, October and,
immediately following each annual meeting of stockholders, for the purpose
of electing officers and carrying on such other business as may properly
come before such meeting. Any such meeting shall be held at the office of
the Corporation in Winchester, Virginia, or at such other times and places as
may be specified by the Chairman of the Board or the President of the
Corporation, on five (5) days' prior written notice.
46
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by the President, or by the Secretary on the written
request of any two (2) directors, and shall be held at the principal office
of the Corporation or at such other place, and at such time, as the
President shall designate.
Section 7. Notice of Meetings. No notice need be given of regular
meetings of the Board of Directors.
Notice of special meetings of the Board of Directors shall be given to each
director at his residence or business address by delivering such notice to
him or by telephoning or telegraphing it to him at least five (5) days
before the meeting. Any such notice shall set forth the time and place of
the meeting and state the purpose for which it is called.
Section 8. Quorum; Required Vote. A majority of the directors shall
constitute a quorum for the transaction of business at a meeting of the
Board of Directors. Except as is otherwise provided herein and in the
Articles of Incorporation, the act of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
ARTICLE III
COMMITTEES OF DIRECTORS
Section 1. Executive Committee. The Board of Directors may, by
resolution adopted by a majority of the number of Directors then in office,
designate two or more Directors as an Executive Committee. While the Board
of Directors is not in session, the Executive Committee shall have and may
exercise all of the authority of the Board of Directors except to approve
(i) an amendment of the Articles of Incorporation; (ii) a plan of merger or
consolidation; (iii) a plan of exchange under which the Corporation would be
acquired; (iv) the sale, lease or exchange, or the mortgage or pledge for a
consideration other than money, of all, or substantially all, of the property
of the Corporation other than in the usual and regular course of business;
(v) the voluntary dissolution of the Corporation; (vi) revocation of
voluntary dissolution proceedings; (vii) any employee benefit plan involving
the issuance of common stock; or (viii) the compensation paid to a member of
the Executive Committee.
Section 2. Other Committees. The Board of Directors may, from time to
time, designate such other committees, consisting of two or more Directors,
as it deems appropriate. Any such committee, to the extent provided in such
resolution, shall have and may exercise the powers of the Board of Directors
in the management of the business and affairs of the Corporation, except to
approve any act which the Executive Committee is not authorized to approve
pursuant to items (i) through (viii) of Section 1 of this Article.
47
ARTICLE IV
WAIVERS OF NOTICE; CONDUCT OF MEETINGS;
TELEPHONE MEETINGS; ACTION WITHOUT MEETINGS
Section 1. Waiver of Notice. Notwithstanding any other provisions of
law, the Articles of Incorporation or these Bylaws, whenever notice of any
meeting for any purpose is required to be given to any stockholder, director
or member of a committee appointed by the Board of Directors, a waiver
thereof in writing, signed by the persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent to the giving
of such notice.
A person who attends a meeting shall be deemed to have had timely and proper
notice of the meeting unless he attends for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully
called or convened.
Section 2. Conduct of Meetings. The Chairman of the Board of Directors
shall be the chairman of all meetings of the stockholders, directors and any
committee of which he is a member. If he is not present, the President or
any Vice-President shall serve in his place. If neither of these officers is
present, or if there is a disagreement as to which Vice-President shall
serve, a chairman shall be elected by the meeting. The Secretary shall act
as secretary of all meetings of the stockholders, directors and any committee
at which he is present. If he is not present, the chairman shall appoint a
secretary. The chairman of any meeting of stockholders may appoint one or
more tellers to determine the qualification of voters, the validity of
proxies and the results of ballots.
Section 3. Telephone Meetings. The Board of Directors or any committee
appointed by the Board of Directors may hold a meeting by means of conference
telephones or similar communications equipment whereby all persons
participating in the meeting can hear each other and participation by such
means shall constitute presence in person at such meeting. When such a
meeting is conducted by means of conference telephones or similar
communications equipment, a written record shall be made of the action taken
at such meeting.
Section 4. Action Without Meetings. Any action which may be taken at
a meeting of stockholders, directors or a committee appointed by the Board
of Directors may be taken without a meeting if a consent in writing setting
forth the action shall be signed either before or after such action by all
of the persons entitled to vote thereon.
ARTICLE V
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary and a Treasurer, and, in the
discretion of the Board of Directors, one or more Vice-Presidents and other
officers and assistant officers as may be deemed necessary or advisable to
carry on the business of the Corporation. Any two offices may be held by
the same person except the offices of President and Secretary.
48
Section 2. Election; Term. Officers shall be elected at the annual
meeting of the Board of Directors immediately following the annual meeting
of stockholders and may be elected at such other time or times as the Board
of Directors shall determine. They shall hold office, unless removed, until
the next annual meeting of the Board of Directors or until their successors
are elected. Any officer may resign at any time upon written notice to the
Board of Directors, and no acceptance of a resignation shall be necessary to
make it effective.
Section 3. Removal of Officers. Any officer may be removed, with or
without cause, at any time by the Board of Directors at any duly called
meeting whenever the Board of Directors in its absolute discretion shall
consider that the best interests of the Corporation would be served thereby.
Section 4. Duties of Officers. Except as specifically set forth in
these Bylaws, the officers of the Corporation shall have such powers and
duties as generally pertain to their respective offices as well as such
powers and duties as may be delegated to them from time to time by the Board
of Directors.
Section 5. Duties of the Chairman of the Board. The Chairman of the
Board shall be the chief executive officer and shall perform such duties as
shall be assigned to him by the Board of Directors, and when present shall
preside at all meetings of the Directors and call to order all meetings of
the stockholders.
Section 6. Duties of the President. The President shall be the chief
administrative officer of the Corporation. He shall perform all duties
incident to the office of President and such other duties as from time to
time may be assigned to him by the Chairman of the Board or the Board of
Directors and as may be prescribed in these Bylaws. He shall have power to
sign all contracts and agreements authorized by the Board of Directors unless
they otherwise direct. In addition he shall exercise all the powers and
discharge all the duties of the Chairman of the Board during the latter's
absence or inability to act.
Section 7. Duties of the Vice-Presidents. Each Vice-President of the
Corporation (including any Executive Vice-President or Senior Vice-President)
shall have such powers and duties as may, from time to time, be assigned to
him by the Board of Directors or the President, and as may be prescribed in
these Bylaws. When there shall be more than one Vice-President of the
Corporation, the Board of Directors may, from time to time, designate one of
them to perform the duties of the President in the absence of the President.
Section 8. Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Board of Directors, the Executive Committee
and other Committees appointed by the Board of Directors and the stockholders
of the Corporation in the proper book or books to be provided for that
purpose. He shall see that all notices required to be given by the
Corporation are duly given and served; shall have custody of the seal of the
Corporation and shall affix the seal or cause it to be affixed to all
certificates for stock of the Corporation and to all documents, the execution
of which on behalf of the Corporation under its corporate seal, is duly
authorized in accordance with the provisions of these Bylaws; shall have
custody of all deeds, leases, contracts and other important corporate
documents; shall have charge of the books, records and papers of the
Corporation relating to its organization and management as a Corporation;
shall see that the reports, statements and other documents required by law
49
(except tax returns) are properly filed; and shall, in general perform all the
duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board of Directors or the
President.
Section 9. Duties of the Treasurer. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of the Corporation,
and shall cause all such funds and securities to be deposited in such banks and
depositories as the Board of Directors from time to time may direct. He shall
maintain adequate accounts and records of all assets, liabilities and
transactions of the Corporation in accordance with generally accepted
accounting practices; shall exhibit his accounts and records to any of the
directors of the Corporation at any time upon request at the office of the
Corporation; shall render such statements of his accounts and records and such
other statements to the Board of Directors and officers as often and in such
manner as they shall require; and shall make and file (or supervise the
making and filing of) all tax returns required by law. He shall in general
perform all the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the Board of Directors
or the President.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Shares of the capital stock of the Corporation shall,
when fully paid, be evidenced by certificates in such form as may be approved
by the Board of Directors, numbered and with the seal of the Corporation
affixed, signed by the President or any Vice-President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer. The signatures
of the officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon a stock
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he
were such officer at the date of issue.
Section 2. Transfer. The Board of Directors shall have the power and
authority to make rules and regulations concerning the issue, registration
and transfer of certificates representing the stock of the Corporation.
Transfers of shares and of the certificates representing such shares of stock
shall be made upon the books of the Corporation by surrender of the
certificates for the shares transferred accompanied by assignments in
writing by the owners or their attorneys-in-fact.
Section 3. Lost or Destroyed Stock Certificates. The Corporation may
issue a new certificate of stock in the place of any certificate theretofore
issued by it which is alleged to have been lost or destroyed and may require
the owner of such certificate, or his legal representative, to give the
Corporation a bond, with or without surety, or such other agreement,
undertaking or security as the Board of Directors shall determine is
appropriate, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction or the issuance
of any such new certificate.
50
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Corporate Seal. The corporate seal of the Corporation
shall be circular and shall have inscribed thereon, the name of the
Corporation, the year of its creation and the words "CORPORATE SEAL VIRGINIA."
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
the calendar year.
Section 3. Voting of Stock Held. Unless otherwise provided by
resolution of the Board of Directors or of the Executive Committee, the
Chairman of the Board or such attorney or agent as he may appoint, may, in
the name and on behalf of this Corporation, cast, in person or by proxy, the
vote to which this Corporation may be entitled as a stockholder or otherwise
in any other corporation, any of whose stock or securities may be held by
this Corporation, at meetings of the holders of the stock or other securities
of such other corporation, or consent in writing to any action by any such
corporation.
Section 4. Amendments. These Bylaws may be amended or repealed, and
new Bylaws may be made at any regular or special meeting of the Board of
Directors. However, Bylaws made by the Board of Directors may be repealed
or changed and new Bylaws may be made by the stockholders, and the
stockholders may prescribe that any Bylaw made by them shall not be altered,
amended or repealed by the Board of Directors.
51
SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT (the "Agreement") is made this 16th day of October,
1997, between O'SULLIVAN CORPORATION, A Virginia corporation (the "Company"),
and JAMES T. HOLLAND ("Executive").
RECITALS
Executive serves as President and Chief Executive Officer of the Company.
The Company and Executive have agreed that Executive will resign his position
with the Company, and they desire to enter into this Agreement relating to
Executive's severance from the Company.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:
1. Definitions. As used herein, the following terms have the meanings
indicated:
"Employment Continuity Agreement" means the Employment Continuity Agreement
between the Company and Executive date March 3, 1997.
"Escrow Agreement" means the Escrow Agreement dated July 31, 1997 among the
Company, Melnor, Inc., Gardena Holding AG, GH acquisition Corporation and
Mellon Bank, N. A.
"Salary Continuation Agreement" means the Salary Continuation Agreement
between the Company and Executive dated December 28, 1984, as amended.
"Termination Date" means the date on which Executive's employment with the
Company terminates. Such date will be a date between the date hereof and
September 30, 1998, determined in the discretion of the Board of Directors
of the Company.
2. Resignation. Until the Termination Date, Executive shall continue as
President and Chief Executive Officer of the Company and shall devote his
full working time to the business and affairs of the Company. The Company
shall give Executive at least 30 days prior written notice of the Termination
Date; provided, however, that if no such notice is given, the Termination
Date shall be September 30, 1998. Effective as of the Termination Date,
Executive shall resign as an officer and employee of the Company and as a
director, officer and employee of any affiliate of the Company.
3. Severance Payments.
a. On or before the Termination Date, the Company shall purchase an annuity
(the "Annuity") at competitive rates from a recognized financial institution
selected by the Company in the principal amount of $974,724, which annuity
shall provide for 180 equal monthly payments to the Company, the first such
payment being due and payable on the first day of the first month following
the Termination Date, and the remaining 179 monthly payments being due and
payable on the first day of each month thereafter until all such payments have
been made. The amount of each monthly payment paid to the Company from the
Annuity is herein referred to as the "Annuity Amount." The Annuity and the
monthly payments therefrom shall be owned exclusively by the Company, shall
be subject to the Claims of the Company's general Creditors, and Executive
shall have no rights in or claim against the Annuity or the monthly payments
therefrom. 52
b. The Company shall pay to Executive as severance pay 180 equal monthly
payments in an amount equal to the Annuity Amount, the first such monthly
payment being due and payable on the first day of the first month following
the Termination Date, and the remaining 179 monthly payments being due and
payable on the first day of each month thereafter until all such payments
have been made.
4. Vacation Pay. Within 30 days following the Termination Date, the
Company shall pay to Executive in cash the sum of $31,730.75, which
represents five weeks of accrued and unused vacation time at the rate of
$1,269.23 per day.
5. Salary Continuation Agreement. The Company and Executive are parties
to the Salary Continuation Agreement. The parties agree that for purposes
of Section 5.02 of the Salary Continuation Agreement, Executive's employment
with the Company will terminate on the Termination Date for reasons other
than his voluntary action, his death or his discharge for actions inimical
to the corporate interest, and that consequently Executive will be entitled
to the monthly installment payments called for by the Salary Continuation
Agreement. The parties further agree that for purposes of computing the
amount of the monthly installment payments under the Salary Continuation
Agreement, Executive shall be deemed to have completed 25 years of service
with the Company, so that 100% of the full benefit will be payable on the
terms and conditions provided for in the Salary Continuation Agreement.
6. Consulting Agreement. For a period of one year following the
Termination Date, Executive agrees to hold himself available to provide
consulting services to the Company at such reasonable times and places as
the Company may request from time to time; provided, however, that Executive
shall not be required to provide consulting services except during normal
business hours or at locations other than Winchester and other locations
where the Company maintains a facility. In exchange for Executive's agreement
to hold himself available to provide such consulting services, the Company
shall pay Executive a retainer of $25,000 payable 30 days after the
Termination Date. The retainer shall be retained by Executive whether or
not he is requested to perform consulting services. If Executive is
requested to perform consulting services, he will be paid, through credits
against the retainer, a daily fee of $1,350 until the retainer is exhausted.
If executive is requested to perform consulting services after the retainer
is exhausted, he will be paid a daily fee of $1,350 payable within 30 days
of receipt of Executive's invoice for such services. In addition, the
Company shall reimburse Executive for all reasonable and documented
out-of-pocket expenses incurred in the performance of his consulting services.
7. Melnor Bonus. The Company is a party to the Escrow Agreement.
Pursuant to Section 6 of the Escrow Agreement, the Company may receive
payments from the Escrow Funds (as defined in the Escrow Agreement), each
such payment being herein referred to as a "Melnor Escrow Payment," on
December 31, 1999, July 31, 2000, and at such times as all Claims (as
defined in the Escrow Agreement) are resolved. Within 30 days following
receipt by the Company of each Melnor Escrow Payment, the Company shall pay
to Executive an amount equal to the product obtained by multiplying $100,000
by a fraction, the numerator of which shall be the amount of such Melnor
Escrow Payment and the denominator of which shall be $2,500,000; provided,
however, that the total amount that the Company shall be required to pay
Executive from all such Melnor Escrow Payments shall not exceed $100,000.
53
8. Board of Directors. Executive currently serves on the Board of
Directors of the Company. The Company will cause the Nominating Committee
of the Board of Directors to nominate Executive for reelection to the Board
of Directors at the 1998 annual meeting of stockholders. The Company expects
to, but shall not be required to, nominate Executive for reelection to the
Board of Directors at the 1999 annual meeting of stockholders and at
subsequent annual meetings, assuming that Executive is eligible for reelection
under the Company's standard policies relating to directors, and assuming that
the Company then determines that Executive's reelection as a director would be
in the best interests of the Company and its shareholders.
9. Employment Continuity Agreement. The Company and Executive are
parties to the Employment Continuity Agreement. This Agreement supersedes
the Employment Continuity Agreement, the Employment Continuity Agreement is
hereby terminated and canceled, and neither party shall have any further
obligation to the other under the Employment Continuity Agreement.
10. General Release of Company. In consideration of the payments and
other promises made by the Company hereunder, executive hereby releases and
forever discharges the Company and its affiliates from any and all claims,
known or unknown, at law and equity that he has or may have as of the date
hereof arising out of or relating to his employment or the termination of
his employment with the Company, including but not limited to any claims for
wrongful discharge, breach of express or implied contract, defamation,
liability in contract, liability in tort, any claims under Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the
Employee Retirement Income Security Act, the Fair Labor Standards Act, or any
other federal or state law relating to employment, employee benefits or the
termination of employment. Notwithstanding the preceding sentence, nothing
in this Agreement shall affect Executive's rights (as such rights are modified
by Section 5 hereof) under the Salary Continuation Agreement or under the
Company's Retirement Savings Plan.
11. Specific Release Under ADEA. Executive acknowledges that (i) the
release in Section 10 includes a release of all claims that Executive has or
may have as of the date hereof under the Age Discrimination in Employment
Act, (ii) that he has been advised in writing to consult with an attorney
before executing this release, (iii) that he has been given a period of at
least 21 days within which to consider this release, and (iv) that this
release is knowing and voluntary. The parties agree that this Agreement shall
not become effective and enforceable until seven days following the execution
of this Agreement, and that on or before the expiration of such seven-day
period, Executive may revoke this Agreement by delivering written notice to
the Chairman of the Board of Directors of the Company. If such notice is not
delivered before the expiration of such seven-day period, this Agreement shall
become effective and enforceable.
12. Release of Executive. In consideration of the promises made by
Executive hereunder, the Company, on behalf of itself and its affiliates,
hereby releases and forever discharges Executive from any and all claims,
known or unknown, at law or in equity, that the Company has, or may have as
of the date hereof, arising out of or relating to Executive's employment or
the termination of executive's employment with the Company or with any
affiliate of the Company.
13. Withholding Taxes. All payments that the Company is required to make
to Executive hereunder shall be subject to all required withholdings for
state and federal taxes.
54
14. Successors. This agreement shall be binding upon and inure to the
benefit of the Company, the Executive, and their respective heirs,
representatives and successors.
15. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement between the Company and Executive relating to the subject matter
hereof. This Agreement may not be amended or modified except by an
instrument in writing signed by the parties hereto.
16. Governing Law. This agreement shall be governed by and construed and
enforced in accordance with the laws of Virginia.
IN WITNESS WHEREOF, the parties have duly executed this agreement as of the
day and year first written above.
O'SULLIVAN CORPORATION
By: /s/ Arthur H. Bryant II
----------------------------
Title: Chairman
----------------------------
/s/ James T. Holland
----------------------------
James T. Holland (Executive)
55
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 Shawnee Holdings, Inc.
56
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 January 26, 1998
appearing on page 32 of this Annual Report on Form 10-K.
/s/ Yount, Hyde & Barbour, P. C.
Winchester, Virginia
March 26, 1998
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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/16/98 /s/ Arthur H. Bryant, II
- ------- ------------------------
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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/17/98 /s/ C. Hugh Bloom
- ------- ------------------
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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
2/3/98 /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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/23/98 /s/ Robert L. Burrus, 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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/26/98 /s/ Max C. Chapman, Jr.
- ------- -----------------------
Date Director
62
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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/26/98 /s/ R. Michael McCullough
- ------- -------------------------
Date Director
63
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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/26/98 /s/ Stephen P. Munn
- ------- -------------------
Date Director
64
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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/26/98 /s/ Timothy J. Sandker
- ------- ----------------------
Date Director
65
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, 1997 and any amendment which such attorney or
attorney-in-fact may deem appropriate or necessary.
1/15/98 /s/ Leighton W. Smith
- ------- ---------------------
Date Director
66
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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