<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
OR
[ ] 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: 0-19450
OAKHURST COMPANY, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
- - --------------------------- -------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS
75050
------------------------------------------
(Address of principal executive offices)
(Zip Code)
(214) 660-4499
----------------------------------------------------
(Registrant's telephone number, including area code)
OAKHURST CAPITAL, INC.
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(Former name, former address, and former fiscal year,
if changed since last report)
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 No X
----- -----
<PAGE> 2
As of October 1, 1995, 3,195,235 shares of the Registrant's Common
Stock, $0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Balance sheets at August 31, 1995 (unaudited)
and February 28, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of operations for the three months ended August 31, 1995
and the thirteen weeks ended August 27, 1994 (unaudited) . . . . . . . . . . . . 5
Statements of operations for the six months ended August 31, 1995
and the twenty-six weeks ended August 27, 1994 (unaudited) . . . . . . . . . . . 6
Statement of stockholders' equity for the six months
ended August 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 7
Statements of cash flows for the six months ended August 31, 1995
and the twenty-six weeks ended August 27, 1994 (unaudited) . . . . . . . . . . . 8
Notes to financial statements (unaudited) . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS August 31, February 28,
1995 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 302 $ 314
Trade accounts receivable, less allowance of $487 and
$282, respectively................................... 5,231 5,760
Commissions receivable................................. 224 226
Other receivables...................................... 209 498
Inventories............................................ 9,423 10,400
Deferred tax asset..................................... - 620
Other.................................................. 500 280
------------ ------------
Total current assets......................... 15,889 18,098
------------ ------------
Property and equipment, at cost.......................... 3,034 2,993
Less accumulated depreciation.......................... (876) (921)
------------ ------------
2,158 2,072
------------ ------------
Deferred tax asset....................................... 6,086 5,466
Excess of cost over net assets acquired, net............. 7,401 7,399
Other assets............................................. 268 266
------------ ------------
13,755 13,131
------------ ------------
$ 31,802 $ 33,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of revolving credit agreement....... $ 2,800 $ -
Note payable, related party............................ 287 532
Accounts payable....................................... 6,843 8,066
Accrued compensation................................... 475 757
Income taxes payable................................... - 109
Current maturities of long-term obligations............ 656 617
Current maturities of long-term obligations, related
parties.............................................. 740 800
Net obligation of discontinued business segment-
current portion...................................... 536 505
Other.................................................. 584 468
------------ ------------
Total current liabilities.................... 12,921 11,854
------------ ------------
Long-term obligations:
Net obligation of discontinued business segment........ 681 985
Long-term debt......................................... 1,391 3,237
Long-term debt, related parties........................ 1,960 1,800
Convertible debt, related parties...................... 532 517
Other long-term obligations............................ 111 73
------------ ------------
4,675 6,612
------------ ------------
Commitments and contingencies............................
Stockholders' equity:
Preferred stock, par value $0.01; authorized 1,000,000
shares, none issued.................................. - -
Common stock, par value $0.01 per share; authorized
14,000,000 shares; issued 3,195,235 and 3,189,326
shares, respectively................................ 32 32
Additional paid-in capital............................. 46,515 46,480
Deficit (Reorganized on August 26, 1989)............... (32,340) (31,676)
Treasury stock, at cost, 207 common shares............. (1) (1)
------------ ------------
Total stockholders' equity................... 14,206 14,835
------------ ------------
$ 31,802 $ 33,301
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Thirteen Weeks
Ended Ended
August 31, August 27,
1995 1994
------------ --------------
<S> <C> <C>
Sales......................................... $ 13,517 $ 9,891
Other income.................................. 151 217
------------ ------------
13,668 10,108
------------ ------------
Cost of goods sold, including occupancy and
buying expenses............................. 10,690 7,424
Operating, selling and administrative
expenses.................................... 2,945 1,991
Provision for doubtful accounts............... 205 -
Amortization of excess of costs over net asset
acquired.................................... 125 35
Interest expense.............................. 182 54
------------ ------------
14,147 9,504
------------ ------------
Income (loss) from continuing operations
before income taxes......................... (479) 604
Income taxes (benefit)........................ (30) 201
------------ ------------
Income (loss) from continuing operations...... (449) 403
Income from discontinued operations (net of
$34 income tax expense)..................... - 66
------------ ------------
Net income (loss) ............................ $ (449) $ 469
============ ============
Per share amounts:
Income (loss) from continuing operations.... $ (0.14) $ 0.13
Income from discontinued operations......... - 0.02
------------ ------------
Net income (loss) .......................... $ (0.14) $ 0.15
============ ============
Weighted average number of common shares
outstanding used in computing per share
amounts..................................... 3,195,235 3,034,650
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Twenty-six Weeks
Ended Ended
August 31, August 27,
1995 1994
------------ ----------------
<S> <C> <C>
Sales.............................................. $ 26,542 $ 19,760
Other income....................................... 197 228
------------ ------------
26,739 19,988
------------ ------------
Cost of goods sold, including occupancy and
buying expenses.................................. 20,828 14,876
Operating, selling and administrative expenses..... 5,660 3,883
Provision for doubtful accounts.................... 267 -
Amortization of excess of costs over net assets
acquired......................................... 262 50
Interest expense................................... 377 85
------------ ------------
27,394 18,894
------------ ------------
Income (loss) from continuing operations
before income taxes.............................. (655) 1,094
Income taxes....................................... 9 397
------------ ------------
Income (loss) from continuing operations........... (664) 697
Income from discontinued operations (net of
$34 income tax expense).......................... - 66
------------ ------------
Net income (loss).................................. $ (664) $ 763
============ ============
Per share amounts:
Income (loss) from continuing operations......... $ (0.21) $ 0.24
Income from discontinued operations.............. - 0.02
------------ ------------
Net income (loss)................................ $ (0.21) $ 0.26
============ ============
Weighted average number of common shares
outstanding used in computing per share amounts.. 3,192,832 2,949,777
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
-------------------- Paid-in Earnings -----------------
shares par value Capital (Deficit) shares cost
--------- --------- ---------- --------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1995.......... 3,189,326 $32 $46,480 ($31,676) 207 ($1)
Net loss for the period.............. (664)
Employee stock awards................ 5,909 * 19
Other................................ 16
--------- --- ------- -------- --- ---
Balances, August 31, 1995............ 3,195,235 $32 $46,515 ($32,340) 207 ($1)
========= === ======= ======== === ===
</TABLE>
* Rounds to less than $1,000
The accompanying notes are an integral part of these
consolidated financial statements
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OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Twenty-six Weeks
Ended Ended
August 31, August 27,
1995 1994
---------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations.............. $ (664) $ 294
Adjustments to reconcile income (loss) from continuing
operations to net cash (used in) provided by
operating activities:
Depreciation and amortization.................... 444 50
Deferred tax expense............................. - 152
Loss on retirement of asset...................... 10 -
Employee stock award............................. 19 -
Other changes in operating assets and liabilities:
Accounts receivable.............................. 529 (660)
Inventories...................................... 977 143
Accounts payable................................. (1,223) 1,692
Commissions receivable........................... 2 (26)
Other............................................ (177) 201
--------- ---------
Net cash (used in) provided by operating activities of:
Continuing operations................................. (83) 1,846
Discontinued operations............................... (273) 26
--------- ---------
Net cash (used in) provided by operating activities..... (356) 1,872
--------- ---------
Cash flows from investing activities:
Additions to property and equipment................... (216) (47)
Net change in the excess of cost over net assets
acquired............................................ (151) -
--------- ---------
Net cash used in investing activities................... (367) (47)
--------- ---------
Cash flows from financing activities:
Net borrowings under revolving credit agreement....... 1,275 -
Repayment of note payable............................. (258) -
Principal payments on long-term obligations........... (306) (14)
--------- ---------
Net cash provided by (used in) financing activities..... 711 (14)
--------- ---------
Net (decrease) increase in cash and cash equivalents.... (12) 1,811
Cash and cash equivalents at beginning of period........ 314 1,071
--------- ---------
Cash and cash equivalents at end of period.............. $ 302 $ 2,882
========= =========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations of $62 were incurred when the Company entered
into three leases for new computer and warehouse equipment.
Additional long-term debt of $100 was issued with a reduction of $13 to a
current note payable upon finalization of an acquisition in the prior
year.
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 9
OAKHURST COMPANY, INC. AND SUBSIDIARIES
SIX MONTHS ENDED AUGUST 31, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or "the Company") (formerly
Oakhurst Capital, Inc.) was formed as a result of a merger transaction (the
"merger") in fiscal 1992 between Steel City Products, Inc. ("SCPI") and an
Oakhurst subsidiary. The merger resulted in a restructuring of SCPI such that
it became a majority-owned subsidiary of Oakhurst. In accordance with the
merger, Oakhurst owns 10% of the outstanding common stock of SCPI and all of
SCPI's Series A Preferred Stock. The merger was structured such that the
aggregate fair market value of SCPI's common stock and Series A Preferred Stock
owned by Oakhurst would be approximately 90% of the aggregate fair market value
of SCPI. Accordingly, Oakhurst controls approximately 90% of the voting power
of SCPI. The accompanying financial statements reflect this control and
include the accounts of SCPI.
Oakhurst acquired all of the outstanding capital stock of H&H
Distributors d/b/a Harry Survis, ("H&H") in January 1994; accordingly, the
accompanying financial statements include the accounts of H&H.
Oakhurst acquired all of the outstanding capital stock of Dowling's
Fleet Service Co., Inc. ("Dowling's") and of Puma Products, Inc. ("Puma") in
August 1994 and October 1994, respectively; accordingly, the accompanying
consolidated financial statements include the accounts of these subsidiaries
for the respective periods of ownership.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position, results of operations and cash flows for the interim
periods presented. All adjustments made are of a normal, recurring nature.
While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is suggested that these
unaudited consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the fiscal year ended February
28, 1995 ("fiscal 1995") as filed in the Company's Annual Report on Form 10-K.
2. LONG-TERM DEBT AND LINE OF CREDIT
In August 1994, Oakhurst entered into a two year revolving credit
agreement (the "Credit Agreement") that carried a floating interest rate of
prime plus 1% and provided for maximum borrowings of $3 million. Borrowings
may be limited by the borrowing base, as defined in the Credit Agreement, which
is calculated according to the level of Oakhurst's subsidiaries' accounts
receivable.
In August 1994, SCPI obtained a term loan in the amount of $2,560,000
(the "Term Loan"), in connection with Oakhurst's acquisition of Dowling's. The
Term Loan is secured by a mortgage on SCPI's real estate, is guaranteed by
Oakhurst and its subsidiaries, supported by a pledge of the capital stock of
Oakhurst's subsidiaries. The Term Loan is repayable over 48 months through
August 1998 and bears interest at a fixed rate of 9.25%.
The Term Loan and the Credit Agreement are cross-collateralized, and
contain various financial covenants. Following Oakhurst's acquisition of Puma
in the latter part of fiscal 1995, SCPI and Oakhurst negotiated amendments to
the Credit Agreement with the Bank; such amendments were finalized subsequent
to August 31, 1995 and provide for an increase in the line to $4 million, the
elimination of most of the financial covenants,
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<PAGE> 10
and an increase in the interest rate from prime plus 1% to prime plus 1.5%.
The amended Credit Agreement will be secured by the accounts receivable,
inventory and capital stock of Oakhurst's subsidiaries.
3. ARBITRATION
On July 26, 1995 the Company initiated an arbitration proceeding with
the American Arbitration Association in connection with the August 1994
acquisition by the Company of Dowling's. The Company is seeking rescission of
the acquisition, or in the alternative, damages and indemnification in excess
of $1.6 million. The proceeding is based, among other things, on the Company's
belief that the seller breached certain provisions of the purchase and sale
agreement covering the acquisition by furnishing to the Company financial
information that was materially inaccurate. If the Company is successful in
obtaining a rescission of the purchase, the Company would receive back the
portion of the purchase price paid and other consideration given at the
closing, and would be relieved of the obligation to pay the balance of the
purchase price (approximately $1 million) over the three-year period following
the closing. In the event of a rescission of the acquisition, the Company
believes that in the near term it might earn less as a result of the repayment
of the debt that was incurred to make the acquisition and the investment of any
cash re-paid that is in excess of that debt than it might otherwise have
earned from the continued ownership of the Dowling's business.
Pending resolution of the arbitration, Oakhurst has exercised its
right of set-off, as defined in the Dowling's purchase agreement, against a
principal payment due of $350,000 on a related-party note payable issued in
connection with the Dowling's acquisition.
4. SUBSEQUENT EVENTS
During the second quarter of the current fiscal year, management
curtailed the level of credit allowed to Jamesway Corporation ("Jamesway"), one
of SCPI's largest customers, after becoming aware that Jamesway was
experiencing new financial difficulties. Although Jamesway had emerged from
bankruptcy as recently as January 1995, on October 6, 1995 it announced that it
is again considering filing for bankruptcy protection. Pending a further
announcement by Jamesway, SCPI suspended shipments to this customer in October
1995, and Oakhurst's consolidated second quarter results included a provision
of $150,000 in relation to the balances due from Jamesway.
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<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's analysis of the significant factors that
have influenced the Company's financial position and results of operations
during the periods included in the accompanying consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's corporate structure permits Oakhurst Company, Inc.
("Oakhurst" or "the Company") (formerly Oakhurst Capital, Inc.) to file a
consolidated tax return so that both Oakhurst and Steel City Products, Inc.
("SCPI") may utilize the tax benefits (including approximately $148 million of
net operating loss carryforwards at December 31, 1994) attributable to SCPI.
SCPI is to concentrate on its historical line of business, while future growth
and expansion opportunities are to be pursued by Oakhurst or its other
subsidiaries. Through Oakhurst's ownership of SCPI, primarily in the form of
preferred stock, Oakhurst will retain substantially all the value of SCPI, and
will receive substantially all of the benefit of SCPI's operations through
dividends on such preferred stock. Oakhurst's ownership of SCPI is designed to
facilitate the preservation and utilization of the tax benefits.
In fiscal 1995, following Oakhurst's adoption of a program of
diversification and expansion, it acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's"), a New York-headquartered
distributor of automotive radiators and related products, and of Puma Products,
Inc. ("Puma"), a Texas-based distributor of after- market products to the light
truck and van conversion industry. In connection with these acquisitions,
Oakhurst paid approximately $5.2 million in cash, and issued stock, convertible
debt, and notes and earn-outs payable of approximately $5 million in the
aggregate.
The notes payable outstanding include a two-year Dowling's note
payable of $700,000 that bears interest at prime and is due in two annual
installments beginning in August 1995, a two-year Puma note payable of $600,000
that bears interest at prime plus 1% and is due in two annual installments
beginning in October 1995 and a short-term Puma note payable with a current
balance of approximately $287,000 that bears interest at prime plus 1% and is
due in monthly installments of $100,000 through November 1995. Oakhurst has
exercised its right of set-off, as defined in the Dowling's purchase agreement,
against the first principal payment of $350,000 on the Dowling's note that was
due in August 1995, pending resolution of an arbitration proceeding (see
"Liquidity and Capital Resources - Significant Events - Arbitration").
The earn-out payments are due beginning in fiscal 1996, over two to
three years for Dowling's and over three to five years for Puma, and are
currently estimated at approximately $1.4 million, the current portion of which
is estimated at $90,000.
The convertible debt of $500,000 was issued to certain executives of
Dowling's, accrues interest at 6% and is convertible at the executives' option
into 120,346 shares of Oakhurst common stock on August 1, 1997.
These acquisitions, together with the acquisition of H&H Distributors,
d/b/a Harry Survis Auto Center ("H&H") that was completed in fiscal 1994, were
designed to enlarge Oakhurst's profit potential without over-leveraging the
Company or diluting the equity position of its shareholders. H&H, Dowling's
and Puma have been historically profitable and, despite a loss by Dowling's in
the first half of the current year (see "Results of Operations - Significant
Trends" below) are expected to continue to be so in the future. Although the
acquisitions resulted in a significant use of available cash and in the
issuance of long-term and short-term debt, the earnings potential of these new
subsidiaries is expected to enhance Oakhurst's liquidity and financial position
in the future.
Further acquisitions may be limited by the Company's available cash,
by its borrowing ability and by limitations on the amount of stock which the
Company may issue without jeopardizing the tax loss benefits.
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<PAGE> 12
In August 1994, SCPI closed on a new term loan that was issued in
connection with Oakhurst's acquisition of Dowling's, in the amount of
$2,560,000 (the "Term Loan"), that is secured by a mortgage on SCPI's real
estate, guaranteed by Oakhurst and its subsidiaries, and supported by a pledge
of the capital stock of Oakhurst's subsidiaries. The Term Loan is repayable
over 48 months through August 1998 and bears interest at a fixed rate of 9.25%.
The Term Loan and the Oakhurst revolving credit agreement (the "Credit
Agreement") (see below) are cross- collateralized, and contain various
financial covenants. Subsequent to August 31, 1995, SCPI and Oakhurst
negotiated amendments to the Credit Agreement with the Bank (see "Liquidity and
Capital Resources - Line of Credit").
LINE OF CREDIT
In August 1994, Oakhurst entered into a two year revolving credit
agreement (the "Credit Agreement") that provided for maximum borrowings of $3
million and carried an interest rate of prime plus 1%. Borrowings may be
limited by the borrowing base, as defined in the Credit Agreement, which is
calculated according to the level of Oakhurst's subsidiaries' accounts
receivable. At current and expected levels of accounts receivable, any such
limitation is not expected to reduce the borrowing base below the maximum. The
Credit Agreement permits Oakhurst to make advances from time to time to each of
its subsidiaries.
The Term Loan and the Credit Agreement are cross-collateralized, and
contain various financial covenants. Because of the Puma acquisition that was
completed in the latter part of fiscal 1995, SCPI and Oakhurst negotiated
amendments to the Credit Agreement with the Bank; such amendments were
finalized subsequent to August 31, 1995 and provide for an increase in the line
from $3 million to $4 million, the elimination of most of the financial
covenants, and an increase in the interest rate from prime plus 1% to prime
plus 1.5%. The Credit Agreement, as amended, will be secured by the accounts
receivable, inventory and capital stock of Oakhurst's subsidiaries, including
SCPI.
Each of Oakhurst's subsidiaries encounters periodic fluctuations in
its working capital requirements, resulting principally from the need to
increase inventory to anticipate seasonal changes in demand, and also from
changes in the levels of accounts receivable and accounts payable. Management
believes that the Credit Agreement is adequate for the seasonal needs of its
businesses and will help facilitate the growth of those businesses.
At August 31, 1995, the amount outstanding under the Credit Agreement
was $2,800,000.
SIGNIFICANT EVENTS
Arbitration
On July 26, 1995 the Company initiated an arbitration proceeding with
the American Arbitration Association in connection with the August 1994
acquisition by the Company of Dowling's. The Company is seeking rescission of
the acquisition, or in the alternative, damages and indemnification in excess
of $1.6 million. The proceeding is based, among other things, on the Company's
belief that the seller breached certain provisions of the purchase and sale
agreement covering the acquisition by furnishing to the Company financial
information that was materially inaccurate. If the Company is successful in
obtaining a rescission of the purchase, the Company would receive back the
portion of the purchase price paid and other consideration given at the
closing, and would be relieved of the obligation to pay the balance of the
purchase price (approximately $1 million) over the three-year period following
the closing. In the event of a rescission of the acquisition, the Company
believes that in the near term it might earn less as a result of the repayment
of the debt that was incurred to make the acquisition and the investment of any
cash re-paid that is in excess of that debt than it might otherwise have
earned from the continued ownership of the Dowling's business.
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<PAGE> 13
Major Customers
During the second quarter of the current fiscal year, management
curtailed the level of credit allowed to Jamesway Corporation ("Jamesway"), one
of SCPI's largest customers, after becoming aware that Jamesway was
experiencing new financial difficulties. Although Jamesway had emerged from
bankruptcy as recently as January 1995, on October 6, 1995 it announced that it
is again considering filing for bankruptcy protection. Pending a further
announcement by Jamesway, SCPI suspended shipments to this customer in October
1995, and included a provision of $150,000 in its second quarter results, in
relation to the balance due from Jamesway. The non-collection of this
receivable will not have a significant immediate effect on SCPI's working
capital, but if, as expected, Jamesway closes all its stores, SCPI would suffer
a significant reduction in its sales levels until replacement business could be
developed. In the seven-month period of March through September 1995, SCPI's
sales to Jamesway were about $4 million. Although SCPI recently added two new
large customers (NHD and Ames), the level of sales to such customers is
currently not sufficient to offset the loss of the Jamesway business.
In expectation of the loss of Jamesway's business, in October 1995
SCPI took steps to reduce its inventory levels and to eliminate certain
operating costs and overheads.
THE CREDITOR NOTES
The creditor notes that were issued by SCPI in connection with the
Retail Acquisition Corp. bankruptcy, (the "Creditor Notes") are payable in six
equal annual installments through July 1998, subject to a prepayment provision
whereby if defined cash flow exceeds $900,000, $1,000,000 and $1,100,000 in
each of fiscal 1995, 1996 and 1997, respectively, holders of the Creditor Notes
may tender for prepayment a portion thereof in the amount of the excess defined
cash flow, but not to exceed approximately $400,000 per annum. SCPI did not
meet the prepayment threshold in fiscal 1995. The Creditor Notes have been
discounted using an imputed interest rate of 7.5% and are included in the net
obligation of the discontinued business segment.
TAX LOSS CARRYFORWARDS
At December 31, 1994, SCPI had net operating loss carryforwards (the
"Tax Benefits") of approximately $148 million, which expire in the years 2001
through 2005. A change in control of SCPI or Oakhurst exceeding 50% in any
consecutive three-year testing period may lead to the loss of the majority of
the Tax Benefits. In order to reduce the likelihood of such a change of
control occurring, SCPI's and Oakhurst's Certificates of Incorporation include
restrictions on the registration of transfers of stock resulting in, or
increasing, individual holdings exceeding 4.5% of each company's common stock.
Since the regulations governing the Tax Benefits are highly complex
and may be changed from time to time, and since SCPI's and Oakhurst's attempts
to reduce the likelihood of a change of control occurring may not be
successful, management is unable to determine the likelihood of the continued
availability of the Tax Benefits. However, management believes that the Tax
Benefits are currently available in full and intends to take all appropriate
steps to help ensure that they remain available. Should the Tax Benefits
become unavailable to SCPI or Oakhurst, most future income of SCPI and any
consolidated affiliate would not be shielded from federal taxation, thus
reducing funds otherwise available for corporate purposes. In these
circumstances, Oakhurst would be required to record a significant reduction in
the book value of its deferred tax asset.
The operations of SCPI, while historically profitable, have not
enabled SCPI to take full advantage of the Tax Benefits. Managements of SCPI
and Oakhurst have been actively exploring growth and acquisition opportunities
in order to increase its profit base and during fiscal 1994 and 1995, Oakhurst
made three such acquisitions. Pursuant to a tax sharing agreement with SCPI,
Oakhurst will pay SCPI 20% of any tax savings realized as a result of the use
by Oakhurst of SCPI's tax loss carryforwards.
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<PAGE> 14
RESULTS OF OPERATIONS
Operations in fiscal 1996 include the results of SCPI, H&H, Dowling's,
Puma, and the administrative costs of Oakhurst; operations in fiscal 1995
include SCPI and H&H, together with the results of Dowling's for the one-month
period of ownership, and the administrative costs of Oakhurst. In the current
year three-month and six-month periods, there were one and two fewer days than
in the prior year periods, respectively; the effect of this on results of
operations was not material.
SIGNIFICANT TRENDS
SCPI Subsidiary
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive ressures facing regional mass
merchandisers and the growing influence of automotive specialty chains. These
have led to fluctuations in the level of business that Steel City Products
enjoys with individual customers. In recent years, SCPI has lost some
significant customers and has suffered reductions in business as certain
customers have closed stores in the face of competition, have been forced into
bankruptcy, or have reduced their automotive merchandise selection.
Furthermore, some customers have changed their buying practices to acquire
certain merchandise direct from manufacturers rather than through distributors
such as SCPI.
In July 1993, SCPI's two then-largest customers filed for bankruptcy
protection. One of these customers closed all its stores in December 1993; the
other, Jamesway Corporation ("Jamesway") reorganized and emerged from Chapter
11 in January 1995. Jamesway continued to be one of SCPI's largest customers
throughout this period, but in October 1995, Jamesway announced that it is
again considering filing for bankruptcy protection. If, as expected, Jamesway
closes all its stores, SCPI will suffer a significant reduction in its sales
levels until replacement business can be developed. In the seven-month period
of March through September 1995, SCPI's sales to Jamesway were about $4
million.
In its efforts to offset these trends, SCPI strengthened its sales
team to help identify new customers and better serve existing customers,
expanded its product offerings to certain customers and enlarged the territory
that it serves. In the current year, SCPI has begun offering "hard parts" such
as brake rotors. During the second quarter of fiscal 1996, SCPI added two new
large customers (NHD and Ames), but the level of sales to such customers is
currently not sufficient to offset the loss of the Jamesway business.
Dowling's Subsidiary
During the first half of the current year, Dowling's was faced with
intense competitive pressures in one of its markets. Management's efforts to
overcome this competition succeeded in returning sales levels in the second
quarter to within 7% of prior year levels that Dowling's had achieved before
its acquisition by Oakhurst, and sales for August and September exceeded prior
year levels. This situation also placed pressure on Dowling's gross margins
through the first half, but management expects an improvement in gross margins
in the second half, although it does not expect that Dowling's will realize its
full profit potential in fiscal 1996 as a result of the first half situation.
Puma Subsidiary
Beginning in the first quarter of fiscal 1996, the strong retail
demand for light trucks and sport utility vehicles had an adverse impact on
sales by Puma, because vehicle manufacturers sought to satisfy dealer demand at
the expense of converters, which represent an important segment of Puma's
customers. During the second quarter, Puma's sales continued at slightly lower
levels than in the prior year. In reaction to this situation, and in
furtherance of Oakhurst's plans to develop the long-term potential of Puma,
management opened a second facility (in Elkhart, Indiana, center of the vehicle
conversion industry) during the second quarter of fiscal 1996, continued to
strengthen its management team, especially its sales department, and has
enlarged its product offering and introduced an extensive catalog. However, it
is too soon to say when Puma's
- 14 -
<PAGE> 15
sales trends will return to their historical growth patterns, and management
expects that Puma's profits in fiscal 1996 will be significantly lower than its
long-term potential.
THREE MONTHS ENDED AUGUST 31, 1995 COMPARED WITH THIRTEEN WEEKS ENDED AUGUST
27, 1994
Compared with the prior year, sales increased by $3.6 million, or
36.7%. Increased sales of $4.1 million resulted from the acquisitions by
Oakhurst during fiscal 1995 of Dowling's ($2.3 million) and of Puma ($1.8
million). Sales by existing businesses decreased by $440,000.
Sales attributable to SCPI decreased by about $250,000. There were
decreases in sales aggregating $1.8 million; $1.5 million of the decrease
resulted from lower sales to customers that are facing increasing competitive
pressures, have downsized or eliminated their automotive departments, or have
filed bankruptcy, and $350,000 of the sales decrease was attributable to two
customers that have changed their source of supply. These decreases were
largely offset by increases in sales of $1.6 million, of which new customers
added since the prior year accounted for $1 million. Sales to Jamesway
represented an increase of $220,000 over the prior year second quarter, but
sales to this customer were suspended in October 1995.
Notwithstanding the opening of a second location in September 1994,
sales attributable to H&H decreased by about $190,000. About one-half of the
decrease is attributed to reduced equipment sales and commission revenues
associated with H&H's cellular phone business as a result of aggressive
competition combined with a slightly reduced commission structure related to
cellular activations. The balance of the reduction results from lower sales
of car accessories.
Consolidated gross profits were $2.8 million (20.9% of sales),
compared with $2.5 million (25% of sales) last year. The increase in gross
profits resulted from the acquisitions, partially offset by gross profit
reductions from the existing business as a result of the decrease in sales,
combined with a slightly lower gross margin earned by SCPI and H&H of
approximately 1% and 0.5%, respectively. The reduction in consolidated gross
margin percentage is attributable primarily to Dowling's; its margins were
lower than those it achieved in the prior year due to aggressive competition.
Additionally, both Dowling's and Puma's gross margins were lower than those
earned by the Company's existing businesses in the prior year second quarter.
Operating, selling and administrative expenses increased by $954,000.
Approximately $735,000 is attributable to the two businesses acquired since the
first quarter last year; the remaining increase primarily reflects corporate
overheads necessitated by the larger company, together with higher selling
costs attributable to SCPI.
There was an increase in the provision for doubtful accounts of
$205,000 when compared with the prior year second quarter. The increase was
primarily related to the announcement in October 1995 by Jamesway (a large SCPI
customer) that it may file for bankruptcy protection.
Compared with the second quarter of the prior year, amortization of
the excess of costs over net assets acquired ("goodwill") increased by $90,000,
as a result of the acquisitions of Dowling's and Puma.
Interest expense increased by $128,000 principally as a result of the
debt incurred in connection with the acquisitions and higher working capital
borrowings.
In summary, there was a loss before taxes of $479,000 in the second
quarter this year, compared with income before taxes of $604,000 in the prior
year. Operating profits contributed by SCPI and H&H were $605,000 lower than
last year, due to the effect of reduced sales together with the large addition
by SCPI to its provision for doubtful accounts. Dowling's operating profit was
lower by $130,000 than in the prior year second quarter. Accordingly, despite
an additional Puma profit contribution, the results of the newly-acquired
companies were not sufficient to offset the increases in goodwill, interest and
overhead expenses which resulted from the acquisitions, combined with the
significant reduction in profit contribution by existing businesses.
- 15 -
<PAGE> 16
SIX MONTHS ENDED AUGUST 31, 1995 COMPARED WITH TWENTY-SIX WEEKS ENDED AUGUST
27, 1994
Compared with the prior year, sales increased by $6.8 million, or
34.3%. Increased sales of about $8 million resulted from the acquisitions by
Oakhurst during fiscal 1995 of Dowling's ($4.4 million) and of Puma ($3.6
million); sales by existing businesses decreased by $1.2 million.
Sales attributable to SCPI decreased by about $900,000. Sales
increases aggregating $2.1 resulted primarily from the addition of several new
customers, together with higher sales to several customers (including Jamesway,
but sales to this customer, which represented 12.6% of consolidated sales in
the first half of the current year, were suspended in October 1995). These
sales increases were offset by decreases of $3 million, with over half of the
reduction attributed to SCPI's small customer base and to reduced sales in the
Northeast market, resulting from intense competitive pressures being faced by
those customers, along with reduced sales of spring product lines due a rainy
spring season in the Northeast. The remainder of the decrease resulted from
lower sales to customers that have downsized or eliminated their automotive
departments, have filed bankruptcy, or that have changed their source of
supply.
Sales attributable to H&H decreased by about $380,000, despite the
opening of a second location in September 1994. Approximately $215,000 of the
decrease is attributed to reduced equipment sales and commission revenues
associated with H&H's cellular phone business as a result of aggressive
competition in the current year, combined with a slightly reduced commission
structure related to cellular activations. The balance of the reduction is
largely due to lower sales of car accessories.
Consolidated gross profits were $5.7 million (21.5% of sales),
compared with $4.9 million (24.7% of sales) last year. The increase in gross
profits resulted from the acquisitions. The reduction in gross margin
percentage is principally attributable to Dowling's, which was affected by
increased competition this year, so that its gross margins were lower than
those rates earned by the Company in the prior year.
Excluding the two acquisitions, gross profits on existing businesses
decreased by about $472,000, due to lower sales combined with a slight decrease
in gross margins.
Operating, selling and administrative expenses increased by $1.8
million. Approximately $1.5 million is attributable to the two businesses
acquired in the prior year; the balance of the increase primarily reflects
corporate overheads necessitated by the larger company.
There was an increase in the provision for doubtful accounts of
$267,000 when compared with the prior year, primarily attributable to SCPI; the
provision was increased by $150,000 in connection with the balances due from
Jamesway (one of SCPI's largest customers) at the end of the second quarter,
and by $107,000 for the bankruptcies of three of SCPI's small customers that
occurred during the current year.
Amortization of the excess of costs over net assets acquired
("goodwill") increased by $212,000 compared with the prior year, as a result of
the acquisitions of Dowling's and Puma.
Interest expense increased by $292,000 principally as a result of the
debt incurred in connection with the acquisitions and higher levels of working
capital borrowings.
In summary, there was a loss before taxes of $655,000 this year
compared with income before taxes of $1.1 million in the prior year. Operating
profits contributed by SCPI and H&H were about $975,000 lower than last year,
due primarily to the effect of reduced sales together with the large addition
by SCPI to its provision for doubtful accounts. Dowling's incurred a loss in
the current year, due to increased competition, adding approximately $255,000
to the profit variance. Accordingly, despite a profit contribution by Puma,
the results of the newly-acquired companies were not sufficient to offset the
increases in goodwill, interest and in overhead expense which resulted from the
acquisitions, combined with the significant reduction in profit contribution by
existing businesses.
- 16 -
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 26, 1995 the Company initiated an arbitration proceeding with
the American Arbitration Association in connection with the August 1994
acquisition by the Company of Dowling's. The Company is seeking rescission of
the acquisition, or in the alternative, damages and indemnification in excess
of $1.6 million. The proceeding is based, among other things, on the Company's
belief that the seller breached certain provisions of the purchase and sale
agreement covering the acquisition by furnishing to the Company financial
information that was materially inaccurate. If the Company is successful in
obtaining a rescission of the purchase, the Company would receive back the
portion of the purchase price paid and other consideration given at the
closing, and would be relieved of the obligation to pay the balance of the
purchase price (approximately $1 million) over the three-year period following
the closing. In the event of a rescission of the acquisition, the Company
believes that in the near term it might earn less as a result of the repayment
of the debt that was incurred to make the acquisition and the investment of any
cash re-paid that is in excess of that debt than it might otherwise have
earned from the continued ownership of the Dowling's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 10, 1995 the Company held its Annual Meeting of
Stockholders. The matters considered at the meeting consisted of the
following:
The election of three Class III directors to serve for a term of three
years and until their successors are elected and qualified. The
results of the voting were as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
---------------------------- --------- --------------
<S> <C> <C>
Maarten D. Hemsley 1,885,045 121,495
Joel S. Lever 2,000,026 6,514
Anthony N. Puma 2,006,042 6,498
</TABLE>
To consider the approval of an amendment to the Company's certificate
of incorporation to change its name to "Oakhurst Company, Inc."
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
1,996,175 5,088 5,277
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Restated and Amended Certificate of Incorporation, filed
on August 23, 1995
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
- 17 -
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: October 13, 1995 By: /s/ Maarten D. Hemsley
---------------------------------
Maarten D. Hemsley
Chief Executive Officer
Chief Financial Officer
- 18 -
<PAGE> 19
Exhibit Index
Exhibit
Number Description
3. Restated and Amended Certificate of Incorporation, filed on
August 23, 1995
27. Financial Data Schedule
<PAGE> 1
EXHIBIT 3
OAKHURST COMPANY, INC.
RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
Introductory Statement
The Original Certificate of Incorporation of Oakhurst Company, Inc. (formerly
known as Oakhurst Capital, Inc. and prior to that as Hallwood Holdings
Incorporated) (the "Corporation") was filed with the Secretary of State on
April 1, 1991. Pursuant to Section 245 of the General Corporation Law, this
restated certificate of incorporation was duly auhtorized by the unanimous
written consent of the Board of Directors of the Corporation on April 28, 1995.
This restatement does not amend the Corporation's Certificate of Incorporation;
it only integrates and restates in a single document the original Certificate
of Incorporation and amendments made thereto since the original filing date
through and including the amendments approved by stockholders on August 10,
1995, as follows:
FIRST: The name of the Corporation is Oakhurst Company, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, County of
New Castle, Delaware 19801. The name of the registered agent
at that address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be transacted,
conducted or promoted by the Corporation is exclusively --
(a) purchasing, acquiring, owning, holding, investing in,
selling, trading and exchanging Required Assets (as
may be defined from time to time by the Board of
Directors) in accordance with the provisions of this
Certificate of Incorporation;
(b) purchasing, acquiring, owning, holding, investing in,
selling, trading and exchanging securities and other
ownership interests in any corporation or other
entity, other than a general partnership interest in
any partnership or joint venture;
(c) incurring any secured or unsecured indebtedness, and
guaranteeing or assuming any obligation or debt of
any person or entity, provided that each rating
agency, if any, that has assigned a rating to the
Company's outstanding securities shall advise the
Company in writing that its then current rating
assigned to such securities will not be adversely
affected thereby; and
(d) engaging in any other lawful act or activity which is
necessary or desirable in connection with any of the
foregoing for which a corporation may be organized
under the General Corporation Law of Delaware. The
Company shall operate in such a manner so as not to
be an investment company within the meaning of the
Investment Company Act of 1940, as amended.
FOURTH: SECTION 1. CAPITALIZATION. The total number of shares of all
classes of stock which the Corporation has authority to issue
is 15,000,000, consisting of:
(a) One million (1,000,000) shares of Preferred Stock,
par value one cent ($0.01) per share (the "Preferred
Stock"); and
Page 1 of 10
<PAGE> 2
(b) Fourteen million (14,000,000) shares of Common Stock,
par value one cent ($0.01) per share (the "Common
Stock").
SECTION 2. SERIES OF PREFERRED STOCK. The Board of Directors
is authorized, subject to any limitations prescribed by law,
to provide for the issuance from time to time of the shares of
Preferred Stock in one or more series, and by adopting
resolutions to establish from time to time the number of
shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of
each such series and any qualifications, limitations or
restrictions thereof. Upon adopting such resolution or
resolutions the Board of Directors shall cause a certificate
of designation setting forth such resolution or resolutions
and the number of shares of stock of such class or series as
to which such resolution or resolutions shall apply to be
executed and filed in accordance with applicable Delaware law.
The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof,
unless a vote of any such holders is required pursuant to the
certificate or certificates establishing the series of
Preferred Stock.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the
Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and of its
directors and stockholders:
SECTION 1. POWERS OF DIRECTORS. The business and affairs of
the Corporation shall be managed by or under the direction of
the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation,
the directors are hereby empowered to exercise all such powers
and do all such acts and things which are not by statute or by
this Certificate of Incorporation to be exercised or done by
the stockholders of the Corporation.
SECTION 2. WRITTEN BALLOT. All elections of directors shall
be by vote of stockholders entitled to vote thereon made by
written ballot at a meeting called for such purpose pursuant
to Delaware law. In no case shall a director be elected or
removed by written consent of stockholders without a meeting.
Notwithstanding the preceding, vacancies and newly created
directorships may be filled by directors then in office
pursuant to the provisions of Delaware law and Section 3 of
Article SEVENTH below.
SECTION 3. STOCKHOLDERS MUST MEET TO ACT. Any action
required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not
be effected by any written consent by such stockholders
without a meeting.
SECTION 4. CALL OF SPECIAL MEETING OF STOCKHOLDERS. Special
meetings of stockholders of the Corporation may be called only
by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is
presented to the Board for adoption).
SECTION 5. ARRANGEMENT BETWEEN CORPORATION AND ITS CREDITORS.
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of
Delaware may, on the application in
Page 2 of 10
<PAGE> 3
a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation under the provisions
of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions
of Section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall,
if sanctioned by the court to which the said application has
been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders, of this
Corporation, as the case may be, and also on this Corporation.
SIXTH: SECTION 1. CERTAIN RESTRICTIONS ON THE TRANSFER OF STOCK. In
order to preserve the net operating loss carryovers, capital
loss carryovers, and business credit carryovers (the "Tax
Benefits") to which the Corporation is entitled pursuant to
the Internal Revenue Code of 1986, as amended, or any
successor statute (collectively, the "Code") and the
regulations thereunder, the following restrictions shall apply
until June 30, 1999, unless the Board of Directors shall fix
an earlier or later date in accordance with Section 6 of this
Article SIXTH (such date is sometimes referred to herein as
the "Expiration Date"):
(a) From and after the date of the adoption of this
Article SIXTH, no person other than the Corporation
shall transfer any shares of stock of the Corporation
(other than stock described in Section 1504(a)(4) of
the Code or any successor statute, or stock that is
not so described solely because it is entitled to
vote as a result of dividend arrearages) to any
person to the extent that such transfer, if
effective, would cause (x) the Ownership Interest
Percentage of the transferee or any other person to
exceed four and one-half (4.5%) percent, or (y) any
increase in the Ownership Interest Percentage of the
transferee or any other person if the Ownership
Interest Percentage of such transferee or of such
other person exceeded four and one-half (4.5%)
percent before such transfer. For purposes of this
Article SIXTH, (i) "person" shall mean any
individual, corporation, estate, trust, association,
company, partnership, joint venture, or similar
organization; (ii) a person's Ownership Interest
Percentage shall be the sum of such person's direct
ownership interest in the Corporation and/or in Steel
City Products, Inc. (formerly known as Hallwood
Industries Incorporated), a Delaware corporation
("SCPI"), as determined under Treasury Regulation
Section 1.382-2T(f)(8) or any successor regulation
and such person's indirect ownership interest in the
Corporation and/or in SCPI as determined under
Treasury Regulation Section 1.382-2T(f)(15) or any
successor regulation, except that, for purposes of
determining a person's direct ownership interest in
the Corporation or in SCPI any ownership interest
held by such person inthe Corporation or in SCPI
respectively, described in Treasury Regulation
Section 1.382-2T(f)(18)(iii)(A) or any successor
regulation shall be treated as stock of the
Corporation or of SCPI as the case may be, and for
purposes of determining
Page 3 of 10
<PAGE> 4
ARTICLE SIXTH, SECTION 1. - continued
a person's indirect ownership interest in the
Corporation or in SCPI Treasury Regulations Sections
1.382-2T(g)(2), 1.382-2T(g)(3), 1.3822T(h)(2)(iii)
and 1.382-2T(h)(6)(iii) or any successor regulations
shall not apply and any stock that would be
attributed to such person pursuant to the option
attribution rule of Treasury Regulation Section
1.382-2T(h)(4) or any successor regulation, if to do
so would result in an ownership change, shall be
attributed to such person without regard to whether
such attribution results in an ownership change;
(iii) "transfer" shall mean any means of conveying
legal or beneficial ownership of shares of stock of
the Corporation, whether such means is direct or
indirect, voluntary or involuntary, including,
without limitation, the granting of options with
respect to shares of stock or the transfer of
ownership of any entity that owns shares of stock of
the Corporation, and "transferee" shall mean any
person to whom stock of the Corporation is
transferred.
(b) Any transfer of shares of stock of the Corporation
that would otherwise be prohibited pursuant to the
preceding subparagraph shall nonetheless be permitted
if information relating to a specific proposed
transaction is presented to the Board of Directors of
the Corporation and the Board determines that such
transaction will not jeopardize the Tax Benefits,
based upon an opinion to that effect of legal counsel
selected by the Board of Directors of the
Corporation. Nothing in this subparagraph shall be
construed to limit or restrict the Board of Directors
in the exercise of its fiduciary duties under
applicable law.
SECTION 2. ATTEMPTED TRANSFER IN VIOLATION OF TRANSFER
RESTRICTIONS.
(a) Unless approval of the Board of Directors is obtained
as provided in Section l(b) of this Article SIXTH,
any attempted or purported transfer of shares of
stock of the Corporation in excess of the shares that
could be transferred to the transferee without
restriction under Section 1(a) of this Article SIXTH
is not and shall not be effective to transfer
ownership of such excess shares (the "Prohibited
Shares") to the purported acquiror thereof (the
"Purported Acquiror"), who shall not be entitled to
any rights as a shareholder of the Corporation with
respect to the Prohibited Shares (including, without
limitation, the right to vote or to receive dividends
with respect thereto). All rights with respect to
the Prohibited Shares shall remain the property of
the person who initially purported to transfer the
Prohibited Shares (the "Initial Transferor") to the
Purported Acquiror until such time as the Prohibited
Shares are resold as set forth in Section 2(a) or
Section 2(b) of this Article SIXTH. The Purported
Acquiror, by acquiring ownership of any shares of
stock of the Corporation whether or not they are
Prohibited Shares, shall be deemed to have consented
to all the provisions of this Article SIXTH, and to
have agreed to act as provided in the following
Section 2(b).
(b) Upon demand by the Corporation, the Purported
Acquiror shall transfer any certificate or other
evidence of purported ownership of the Prohibited
Shares within the Purported Acquiror's possession or
control, along with any dividends or other
distributions paid by the Corporation with respect to
the Prohibited Shares that were received by the
Purported Acquiror (the "Prohibited Distributions"),
to an agent designated by the Corporation (the
"Agent"). If the Purported Acquiror has sold the
Prohibited Shares to a bona fide purchaser (as
Page 4 of 10
<PAGE> 5
ARTICLE SIXTH, SECTION 2. - continued
such term is defined in Section 8-302 of the Uniform
Commercial Code as adopted by the State of Delaware)
in an arm's-length transaction after purportedly
acquiring them, the Purported Acquiror shall be
deemed to have sold the Prohibited Shares as agent
for the Initial Transferor, and in lieu of
transferring the Prohibited Shares and Prohibited
Distributions to the Agent, shall transfer to the
Agent the Prohibited Distributions and the proceeds
of such sale (the "Resale Proceeds") except to the
extent that the Agent grants written permission to
the Purported Acquiror to retain a portion of the
Resale Proceeds not exceeding the amount that would
have been payable by the Agent to the Purported
Acquiror pursuant to the following Section 2(c) if
the Prohibited Shares had been sold by the Agent
rather than by the Purported Acquiror. Any purported
transfer of the Prohibited Shares by the Purported
Acquiror other than a transfer described in one of
the two preceding sentences shall not be effective to
transfer any ownership of the Prohibited Shares.
(c) The Agent shall sell in an arm's length transaction
(to the extent possible, on the principal national
securities exchange, if any, on which the
Corporation's stock is listed) any Prohibited Shares
transferred to the Agent by the Purported Acquiror,
and the proceeds of such sale (the "Sales Proceeds"),
or the Resale Proceeds, if applicable, shall be
allocated to the Purported Acquiror up to the
following amount: (i) where applicable, the
purported purchase price paid or value of
consideration surrendered by the Purported Acquiror
for the Prohibited Shares, or (ii) where the
purported transfer of the Prohibited Shares to the
Purported Acquiror was by gift, inheritance, or any
similar purported transfer, the fair market value of
the Prohibited Shares at the time of such purported
transfer. Subject to the succeeding provisions of
this subparagraph, any Resale Proceeds or Sales
Proceeds in excess of the amount allocable to the
Purported Acquiror pursuant to the preceding
sentence, together with any Prohibited Distributions,
shall be the property of the Initial Transferor. If
the identity of the Initial Transferor cannot be
determined by the Agent through inquiry made to the
Purported Acquiror, the Agent shall publish
appropriate notice (in the Wall Street Journal, if
possible) for seven (7) consecutive business days in
an attempt to identify the Initial Transferor in
order to transmit any Resale Proceeds or Sales
Proceeds or Prohibited Distributions due to the
Initial Transferor pursuant to this subparagraph.
The Agent may also take, but is not required to take,
other reasonable actions to attempt to identify the
Initial Transferor. If after ninety (90) days
following the final publication of such notice the
initial Transferor has not been identified, any
amounts due to the Initial Transferor pursuant to
this subparagraph may be paid over to a court or
governmental agency, if applicable law permits, or
otherwise shall be transferred to any entity
designated by the Corporation that is described in
Section 501(c)(3) of the Code. In no event shall any
such amounts due to the Initial Transferor inure to
the benefit of the Corporation or the Agent, but such
amounts may be used to cover expenses (including but
not limited to the expenses of publication) incurred
by the Agent in attempting to identify the Initial
Transferor.
SECTION 3. PROMPT ENFORCEMENT AGAINST PURPORTED ACQUIROR.
Within forty-five (45) days of learning of a purported
transfer of Prohibited Shares to a Purported Acquiror, the
Corporation through its Secretary shall demand that the
Purported Acquiror surrender to the Agent the certificates
representing the Prohibited Shares, or any Resale
Page 5 of 10
<PAGE> 6
ARTICLE SIXTH, SECTION 3. - continued
Proceeds, and any Prohibited Distributions, and if such
surrender is not made by the Purported Acquiror within
forty-five (45) days from the date of such demand the
Corporation shall (unless otherwise directed by the Board of
Directors) institute legal proceedings to compel such
transfer; provided, however, that nothing in this Section 3
shall preclude the Corporation in its discretion from
immediately bringing legal proceedings without a prior demand,
and also provided that failure of the Corporation to act
within the time periods set out in this Section 3 shall not
constitute a waiver of any right of the Corporation to compel
any transfer required by Section 2(a) of this Article SIXTH.
SECTION 4. ADDITIONAL ACTIONS TO PREVENT VIOLATION OR
ATTEMPTED VIOLATION. Upon a determination by the Board of
Directors that there has been or is threatened a purported
transfer of Prohibited Shares to a Purported Acquiror, the
Board of Directors may take such action in addition to any
action required or permitted by the preceding Section as it
deems advisable to give effect to the provisions of this
Article SIXTH, including, without limitation, refusing to give
effect on the books of this Corporation to such purported
transfer or instituting proceedings to enjoin such purported
transfer.
SECTION 5. OBLIGATION TO PROVIDE INFORMATION. The
Corporation may require as a condition to the registration of
the transfer of any shares of its stock that the proposed
transferee furnish to the Corporation all information
reasonably requested by the Corporation with respect to all
the proposed transferee's direct or indirect ownership
interests in, or options to acquire, stock of the Corporation.
SECTION 6. FURTHER ACTIONS.
(a) Nothing contained in this Article SIXTH shall limit
the authority of the Board of Directors to take such
other action to the extent permitted by law as it
deems necessary or advisable to protect the
Corporation and the interests of the holders of its
securities in preserving the Tax Benefits. The Board
of Directors may, to the extent permitted by law,
from time to time establish, modify, amend or
rescind, by Bylaw, resolution or otherwise,
regulations and procedures not inconsistent with the
provisions of this Article SIXTH for determining
whether any acquisition of the Corporation's stock
would jeopardize the Corporation's ability to
preserve and use the Tax Benefits, and for the
orderly application, administration and
implementation of the provisions of this Article
SIXTH. Such procedures and regulations shall be kept
on file with the Secretary of the Corporation and,
upon request, shall be made available for inspection
and mailed to any holder of the Corporation's stock.
(b) Without limiting the generality of the foregoing, the
Board of Directors may (i) accelerate or extend the
Expiration Date, (ii) modify the Ownership Interest
Percentage in the Corporation specified in the first
sentence of Section 1(a) of this Article SIXTH, or
(iii) modify the definitions of any terms set forth
in this Article SIXTH; provided that the Board of
Directors shall determine in writing that such
acceleration, extension, change or modification is in
the best interests of the Corporation and its
stockholders and, based upon an opinion of counsel of
the Corporation, that such acceleration, extension,
change or modification is reasonably necessary or
desirable to preserve the Tax Benefits under the Code
and the regulations thereunder or that the
continuation of these restrictions is no
Page 6 of 10
<PAGE> 7
ARTICLE SIXTH, SECTION 6. - continued
longer reasonably necessary for the preservation of
the Tax Benefits, which determination shall be filed
with the Secretary of the Corporation and mailed by
the Secretary to all stockholders of this Corporation
within ten (10) days after the date of any such
determination.
SECTION 7. SEVERABILITY. Any provision in this Article SIXTH
which is prohibited or unenforceable under Delaware law shall
be ineffective to the extent of such prohibition or
un-enforceability without invalidating the remaining
provisions of this Article SIXTH and of this Certificate of
Incorporation.
SEVENTH: SECTION 1. NUMBER OF DIRECTOR. The number of directors of
the Corporation which shall constitute the entire Board of
Directors shall be such number as is initially fixed by the
Incorporator and thereafter as fixed from time to time
exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such
resolution is presented to the Board for adoption).
SECTION 2. CLASSIFICATION OF DIRECTORS. At the first annual
meeting of stockholders of the Corporation, the directors
shall be divided into three classes, as nearly equal in number
as reasonably possible, with the initial term of office of
directors of the first class to expire at the second annual
meeting of stockholders of the Corporation, the initial term
of office of directors of the second class to expire at the
third annual meeting of stockholders of the Corporation, and
the initial term of office of directors of the third class to
expire at the fourth annual meeting of stockholders of the
Corporation. At each annual meeting of stockholders following
such initial classification and election, directors shall be
chosen for a full term of three years, to succeed those
directors whose terms expire. All directors shall hold office
until the expiration of their respective terms and until their
respective successors are elected, except in the case of
death, resignation or removal of any director.
SECTION 3. FILLING VACANCIES ON THE BOARD. Subject to the
rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death,
resignation, retirement, removal from office, disqualification
or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at
the annual meeting of stockholders at which the term of office
of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION 4. REMOVAL OF DIRECTORS. Subject to the rights of
the holders of any series of Preferred Stock then outstanding,
any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause, and only
by the affirmative vote of the holders of at least
three-quarters of the voting power of all of the then
outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors,
voting together as a single class by ballot at a meeting of
stockholders duly called for such purpose.
EIGHTH: POWER TO AMEND BYLAWS. The Board of Directors is expressly
empowered to adopt, amend or repeal Bylaws of the Corporation.
Any adoption, amendment or repeal of the Bylaws of the
Corporation by the Board of Directors shall require the
approval of a
Page 7 of 10
<PAGE> 8
majority of the total number of authorized directors (whether
or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). The
stockholders shall also have power to adopt, amend or repeal
the Bylaws of the Corporation. In addition to any vote of the
holders of any class or series of stock of this Corporation
required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least seventy-five (75)
percent of the combined voting power of the outstanding shares
of stock of all classes and series of the Corporation entitled
to vote generally in the election of directors, voting
together as a single class, shall be required to adopt, amend
or repeal any provisions of the Bylaws of the Corporation.
NINTH: The Corporation shall maintain a separate office and separate
corporate records and books of accounts. The Corporation
shall not commingle its assets or funds with those of any
other corporations or other entities.
TENTH: SECTION 1. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. A
director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
SECTION 2. INDEMNIFICATION AND INSURANCE.
(a) Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to
or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason
of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director
or officer, of the Corporation or is or was serving
at the request of the Corporation as a director,
officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other
enterprise, including service with respect to
employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any
other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent
that such amendment permits the Corporation to
provide broader indemnification rights than said law
permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered
by such person in connection therewith and such
indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent
and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however,
that, except as provided in subparagraph (b) hereof,
the Corporation shall indemnify any such person
seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person
only if such proceeding (or part thereof) was
authorized by the Board of Directors of the
Corporation. The right to indemnification conferred
Page 8 of 10
<PAGE> 9
ARTICLE TENTH, SECTION 2. - continued
in this Section shall be a contract right and shall
include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however
that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a
director or officer (and not in any other capacity in
which service was or is rendered by such person while
a director or officer, including, without limitation,
service to an employee benefit plan) in advance of
the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or
officer is not entitled to be indemnified under this
Section or otherwise. The Corporation may, by action
of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of
directors and officers
(b) Right of Claimant to Bring Suit. If a claim under
subparagraph (a) of this Section is not paid in full
by the Corporation within thirty (30) days after a
written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the
expense of prosecuting such claim. It shall be a
defense to any such action (other than an action
brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final
disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct
which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to
the commencement of such action that indemnification
of the claimant is proper in the circumstances
because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has
not met such applicable standard or conduct, shall be
a defense to the action or create a presumption that
the claimant has no met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The right to
indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final
disposition conferred in this Section shall not be
exclusive of any other right which any person may
have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested
directors or otherwise.
(d) Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or
another corporation, partnership, joint venture,
trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation
would have the power
Page 9 of 10
<PAGE> 10
ARTICLE TENTH, SECTION 2. - continued
to indemnify such person against such expense,
liability or loss under the Delaware General
Corporation Law.
ELEVENTH: FUTURE AMENDMENTS. The Corporation reserves the right to
amend or repeal any provision contained in this Certificate of
Incorporation in the manner prescribed by the laws of the
State of Delaware and all rights conferred upon stockholders
are granted subject to this reservation; provided, however,
that, notwithstanding any other provisions of this Certificate
of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any vote
of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least
seventy-five (75%) percent of the combined voting power of the
outstanding shares of stock of all classes and series of the
Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent
with Article FIFTH, SIXTH, SEVENTH, EIGHTH, TENTH, or this
Article ELEVENTH.
IN WITNESS WHEREOF, the undersigned, have executed this Restated Certificate of
Incorporation hereby declaring and certifying that this is the act and deed of
the Corporation and that the facts herein stated are true, and accordingly, we
have hereunto set our hands this day 25th day of September 1995.
/s/ Maarten D. Hemsley Attest: /s/ Roger M. Barzun
- - ------------------------------------- ----------------------------
Maarten D. Hemsley Roger M. Barzun
Chairman Secretary
Page 10 of 10
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