<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number: 0-19450
OAKHURST COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3513 CONCORD PIKE, SUITE 3527
WILMINGTON, DELAWARE 19803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 478-9170
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
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COMMON STOCK, $0.01 PAR VALUE PER SHARE NONE
PREFERRED SHARES PURCHASE RIGHTS 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. [X]
Aggregate market value at May 1, 1998 of the voting stock held by non-affiliates
of the registrant: $2,195,910
At May 1, 1998, the registrant had 3,207,053 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
GENERAL
Oakhurst Company, Inc. ("Oakhurst" or "the Company") was formed as part
of a merger transaction in July 1991, in which Steel City Products, Inc.
("SCPI") became a majority-owned subsidiary of Oakhurst. In accordance with the
merger agreement, Oakhurst owns 10% of the outstanding common stock of SCPI and
all of the SCPI Series A Preferred Stock, with the result that the aggregate
fair market value of SCPI's common stock and Series A Preferred Stock owned by
Oakhurst is equal to approximately 90% of the aggregate fair market value of all
the issued and outstanding capital stock of SCPI; and represents 90% of the
voting stock of SCPI.
Pursuant to the merger, SCPI became a special, limited purpose
subsidiary that concentrates on its historical distribution business, while any
growth and expansion opportunities are expected to be pursued by Oakhurst or its
subsidiaries. Because Oakhurst's ownership of SCPI is primarily in the form of
preferred stock, Oakhurst retains the value of SCPI, and Oakhurst's income from
SCPI is determined by the Series A Preferred stock dividend. This form of
ownership is designed to facilitate the preservation and utilization of SCPI's
net operating loss carry-forwards, which amount to approximately $154 million.
Oakhurst, through SCPI and Dowling's Fleet Service Co., Inc.
("Dowling's"), is primarily a distributor of products to the automotive
after-market. Its largest business, which is conducted by SCPI under the trade
name "Steel City Products", is the distribution of automotive parts and
accessories and non-food pet supplies from a facility in McKeesport,
Pennsylvania.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's"), a distributor of automotive
radiators based in Mt. Vernon, New York that now operates seven facilities in
New York, Connecticut, New Jersey and Pennsylvania.
In March 1995, Oakhurst formed a wholly-owned subsidiary, Oakhurst
Management Corporation ("OMC"), to coordinate the provision of corporate
administrative services to the Company and its subsidiaries. Certain officers of
the Company and its subsidiaries are paid and are provided benefits by Oakhurst
Management Corporation.
In January 1994, Oakhurst acquired all the outstanding capital stock of
H&H Distributors, Inc., d/b/a Harry Survis ("H&H"), a Pittsburgh-based company
involved in the distribution and installation of automotive accessories,
including stereos, alarms and cellular phones, and in October 1994, Oakhurst
acquired all the outstanding capital stock of Puma Products, Inc., ("Puma"), a
distributor of after-market products to the light truck and van conversion
industry from facilities in Grand Prairie, Texas and Elkhart, Indiana. Oakhurst
sold Puma and H&H effective as of May 31, 1997 and July 14, 1997, respectively.
STEEL CITY PRODUCTS, INC.
BACKGROUND
SCPI was incorporated in West Virginia in 1959, and in 1963 became
known as Heck's, Inc. In 1969, the "Steel City Products" automotive distribution
business was acquired. SCPI was reincorporated in Delaware under the name
Hallwood Industries Incorporated in fiscal 1991. The name was changed to Steel
City Products, Inc. in January 1993.
For many years prior to 1990, Heck's, Inc. operated a Retail Division
consisting of a chain of discount department stores. In September 1990, all of
the assets of the Retail Division were sold to Retail Acquisition Corp.
("RAC"), an unrelated company.
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OPERATIONS
SCPI primarily distributes automotive accessories. These products
include functional and decorative car and truck accessories (such as floor mats,
seat covers, mirrors, running boards and lights), car care products (including
waxes and paints), chemicals (such as antifreeze, windshield washer fluid and
motor oil) and car repair and maintenance items (including spark plugs,
windshield wipers, and air and oil filters). In fiscal 1996, the product
selection was expanded to include selected "hard parts" such as brake rotors,
and in fiscal 1997, SCPI introduced non-food pet supplies to its merchandise
selection, and opened a new Wing-Tech division ("Wing-Tech") that distributes
automotive "wings" or spoilers. Although the pet supplies are not typical of
SCPI's historical merchandise mix, management determined that the availability
of existing customers which sell both pet supplies and automotive accessories,
combined with SCPI's distribution expertise and infrastructure, offered an
opportunity for increased sales. In May 1997, the Wing-Tech division was sold to
the buyer of Puma. For about twenty-seven years, SCPI's operations were
conducted from a facility in Pittsburgh until December 1997, when the building
was sold, and SCPI's operations were moved to a newer, leased facility in
McKeesport, Pennsylvania.
Certain of SCPI's business is performed on a service basis, which
involves visits by its sales personnel to customers' stores to count and
re-order merchandise; generally, these re-orders are transmitted electronically
to SCPI's offices in McKeesport and shipments are either made directly to each
of the customers' stores or pre-packed for onward shipment to stores by the
retailers' own distribution centers. Certain customers electronically transmit
their orders to SCPI's headquarters. Because many orders are generated
electronically and are shipped within a few days of receipt, the size of SCPI's
order backlog is not relevant to an understanding of the business. SCPI also
provides price ticketing and associated services to those of its customers who
request such services.
SOURCES OF SUPPLY
SCPI acquires its merchandise from a large number of suppliers, none of
which accounts for more than 15% of its revenues. Many of the products sold by
SCPI carry nationally-advertised brand names, but because of the diversity and
number of suppliers and products carried, the business is not generally
dependent on the continued availability of individual products or continued
dealings with existing supply sources. From time to time, market or seasonal
conditions may affect the availability of certain merchandise, but not to the
extent that the Company believes would materially impact its business.
Steel City generally carries in inventory only those products that its
customers have identified as necessary for their own merchandising needs, and
does not acquire significant quantities of other merchandise.
SEASONALITY
SCPI's automotive business is seasonal, being slower in the early
winter months than at other times of the year. In anticipation of higher sales
volume in the spring and summer, SCPI carries higher automotive inventories,
beginning in February. As is customary in the automotive aftermarket, many
suppliers allow extended payment terms for such inventory build-ups and in turn,
SCPI grants extended payment terms to many of its customers to facilitate their
inventory build-ups.
SCPI's non-food pet supply business is expected to experience somewhat
different seasonal trends from its automotive business, but the effect of this
is not expected to be material until this business more fully develops.
SCPI's needs for working capital are affected by these seasonal
fluctuations (see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
CUSTOMER BASE
SCPI's customers include general merchandise retail chains, automotive
specialty stores, supermarket chains, drug stores, hardware stores, variety
stores and other automotive accessory distributors. Most customers are based in
the northeastern United States, although stores operated by some customers are
located outside the northeastern states. There are no foreign sales.
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SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of national automotive specialty chains.
These have led to fluctuations in the level of business that SCPI enjoys with
individual customers. In fiscal 1996, SCPI lost two significant customers and
since, 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 Steel City Products.
In its efforts to offset these trends, SCPI has added new customers,
expanded its product offerings to certain customers, enlarged the territory that
it serves and introduced new categories of products. These efforts have helped
to stabilize the erosion of SCPI's customer base so that sales in fiscal 1998
were substantially the same as those in fiscal 1997, however, they have not
returned SCPI's sales to the revenue levels of fiscal 1996. SCPI continues to
pursue new customer relationships that, if concluded, could increase sales in
fiscal 1999; however, there can be no assurance that new business can be
secured.
Sales attributable to SCPI were approximately $18 million, or 55% of
Oakhurst's consolidated sales, in fiscal 1998. The following table shows sales
to customers that individually have accounted for more than 10% of consolidated
sales during the latest three fiscal years (all of these customers being
attributable to SCPI) (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 28, 1998 February 28, 1997 February 29, 1996
------------------- ------------------- ---------------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
----- ----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Forest City -- -- -- -- $4,641 10%
Jamesway -- -- -- -- $3,975 8%
</TABLE>
Jamesway Corporation ("Jamesway") filed for Chapter 11 bankruptcy
protection in July 1993, emerged in January 1995, and continued to be one of
SCPI's largest customers until the second quarter of fiscal 1996, when Jamesway
began experiencing new financial difficulties. In October 1995 Jamesway again
filed for bankruptcy protection and announced that it would close all of its
stores.
During the third quarter of fiscal 1996, Forest City Auto Parts, Inc.
("Forest City") informed SCPI that it had decided to change its source of
supply, and sales to Forest City ended in January 1996.
None of SCPI's business is based on government contracts, and there are
no long-term sales contracts with any customers.
COMPETITION
Both the automotive parts and accessories distribution industry and the
non-food pet supply industry are highly competitive, with several similar
companies operating in SCPI's market place, and many of SCPI's suppliers also
offer their products directly to retailers. Management is unable to quantify
SCPI's relative size in the distribution industry or in relation to its
competitors. SCPI competes on the basis of the breadth of merchandise offered,
price, level of service, order fill rates and order turnaround times. Management
believes that SCPI's long history, good reputation, experienced management,
product variety, pricing, service levels and high order fill rates enable it to
compete favorably with other distributors.
REGULATION
SCPI's management does not anticipate that existing or known pending
environmental legislation or other regulations will require major capital
expenditures or will affect its operations.
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EMPLOYEES
SCPI employs approximately 55 persons, of whom about 45 are employed in
the headquarters office and distribution facility in McKeesport. Most of the
others are field personnel. Senior executives, including Bernard Frank (a
founder of Steel City Products in 1947), have many years of service with SCPI
and some are employed under long-term contracts.
The warehouse and certain office employees of SCPI are represented by
Local 636 of the International Brotherhood of Teamsters. SCPI believes that it
has experienced generally good labor relations, and no significant labor
disputes have affected its business in recent years. Renewal negotiations
related to the union agreement have continued beyond its expiration in November
1995.
DOWLING'S FLEET SERVICE CO., INC.
BACKGROUND AND CUSTOMER BASE
Dowling's was established in 1933 and is one of the largest
distributors of automotive radiators and related products in the northeastern
United States. It operates two facilities in each of New York, Connecticut and
New Jersey, and in fiscal 1997 expanded to a seventh facility by the acquisition
of all of the capital stock of G&O Sales Company, a radiator distributor serving
the greater Philadelphia market. Oakhurst acquired all the capital stock of
Dowling's in August 1994 from James Dowling, who owned and managed the business
for many years and who is the son of the founder. Two long-time employees now
manage the business as President and Vice President under long-term employment
agreements.
Most of Dowling's customers are radiator repair shops, which perform
repairs for car dealers, service stations and retail customers. Dowling's has
avoided a multi-level approach, so as to build strong allegiance from its
radiator repair shop customers, and has achieved a high market share in its
markets. There are no foreign sales. Dowling's has a broad customer base, with
no one customer representing a material proportion of consolidated sales.
The radiator replacement market has undergone important changes in
recent years. As manufacturers sought to reduce automobile weight,
aluminum/plastic radiators tended to replace the traditional copper/brass models
as original equipment. Initially, this product changeover extended radiator
lives, so that the replacement market experienced a decrease in replacement
demand. This trend is now reversing, as the aluminum/plastic products are
beginning to reach replacement age. Furthermore, these new radiators are more
difficult to repair than copper/brass, so that the proportion of replacement to
repair has increased. In addition, the number of radiator models has increased
in recent years. For these reasons, management believes that repair shops have
become more dependent on distributors for both selection and service.
Sales attributable to Dowling's were approximately $14.4 million, or
45% of Oakhurst's consolidated revenues, in fiscal 1998.
SOURCES OF SUPPLY
Dowling's acquires its products from several well-known manufacturers,
and carries both name-brand and generic products. Because of its buying position
and storage facilities, Dowling's is able to obtain competitive pricing from its
suppliers. Dowling's concentrates on offering high quality products and it
purchases the majority of the product it sells from a major U.S. radiator
manufacturer, Modine Manufacturing Company ("Modine"); Dowling's is believed to
be one of Modine's largest U.S. after-market customers.
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SEASONALITY
Dowling's business is seasonal, with higher revenues in the hot summer
months and very cold winter months when automobile radiators are most affected
by extreme temperatures. Changes in weather patterns in Dowling's market area
may therefore affect its sales levels significantly.
COMPETITION
Dowling's competes with many other radiator distributors. Dowling's
reputation is based on its competitive pricing, quality products, and service
consisting of twice daily delivery to customers. Because of this, Oakhurst
believes that Dowling's is positioned to withstand the competition in its
markets and to build upon its historic sales and profits. However, there can be
no assurance that past levels of revenues and profitability can be maintained.
In fiscal 1998, Dowling's began to experience increased demand and competition
for lower priced, generic product, and in response, established its own value
priced "house" generic brand of radiators, which carry a limited lifetime
warranty that is supported by the manufacturer. Because many other generic
brands do not carry such a warranty, management believes that this new line will
compete favorably with other distributors that offer primarily generic product.
REGULATION
Dowling's management does not anticipate that any major capital
expenditures will be required by existing or known pending environmental
legislation or other regulations.
EMPLOYEES
Dowling's employs approximately 55 persons, none of whom are
represented by a union. Dowling's believes that its employee relations are
generally good.
SUBSIDIARY DISPOSALS - H&H DISTRIBUTORS, INC. AND PUMA PRODUCTS, INC.
Operations in fiscal 1997 and 1996 included those of H&H and Puma. H&H
and Puma were acquired by Oakhurst in fiscal 1995 and fiscal 1996, respectively.
In fiscal 1997, H&H and Puma experienced operating losses of
approximately $500,000 in the aggregate on sales of approximately $9.4 million.
Effective as of May 31, 1997, and July 14, 1997, Oakhurst sold Puma and H&H,
respectively, reflecting management's determination to return the Company to
profitability.
ITEM 2. PROPERTIES
Since December 1997, SCPI operates its business from a leased, 67,000
square-foot building located in a new industrial park in McKeesport,
Pennsylvania.
Dowling's conducts it business from seven leased facilities aggregating
92,000 square feet, which are located in Mt. Vernon and Hempstead, New York, in
Bridgeport and East Hartford, Connecticut, in Hillside and Lodi, New Jersey and
in Philadelphia, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended February 28, 1998,
the 1997 Annual Stockholder's Meeting was held at which the only matter to be
voted upon was the election of directors, which was effected through the
solicitation of proxies pursuant to applicable proxy rules.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was listed and traded on the Nasdaq
Small-Cap Market under the symbol OAKC until February 10, 1998, when the Common
Stock was delisted from trading. The delisting was a result of the Company's
stock price falling below the Nasdaq minimum closing bid price of $1.00 per
share, and the Company's net tangible assets falling below Nasdaq's minimum
maintenance requirements. Commencing February 11, 1998, the Company's Common
Stock was eligible to trade on the OTC Bulletin Board under its existing symbol.
The following table sets forth, for the periods indicated prior to the
delisting, the high and low bid prices for the Company's Common Stock as
reported by Nasdaq:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, 1998 FISCAL YEAR ENDED FEBRUARY 28, 1997
----------------------------------- -----------------------------------
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $1.44 $0.81 $1.38 $1.00
Second $1.50 $0.50 $1.38 $1.00
Third $1.25 $0.63 $1.31 $1.00
Fourth $1.13 $0.69 $1.31 $1.13
</TABLE>
The stock price ranges reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
There were approximately 3,600 holders of record of Oakhurst's common
stock on May 1, 1998.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and other data of
Oakhurst Company, Inc. and subsidiaries and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which follows, and with the Consolidated Financial Statements and
related Notes.
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1998 (A) 1997 (B) 1996 1995 1994
----------- ------------ ----------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales ....................................... $ 32,307 $ 41,928 $ 47,339 $ 43,142 $ 32,386
======== ======== ======== ======== ========
Income (loss) from continuing operations
before income taxes .................... $ 608 $ (5,663) $ (2,158) $ 1,442 $ 786
Current income tax (expense) benefit ........ (16) (12) 115 (155) (112)
Deferred income tax expense (c) ............. (1,000) (3,086) (2,000) (468) (235)
-------- -------- -------- -------- --------
(Loss) income from continuing operations .... (408) (8,761) (4,043) 819 439
Income from discontinued
retail operations (d) .................. -- -- 65 90 --
-------- -------- -------- -------- --------
Net (loss) income ........................... $ (408) $ (8,761) $ (3,978) $ 909 $ 439
======== ======== ======== ======== ========
BASIC AND DILUTED PER SHARE AMOUNTS:
(Loss) income from continuing operations .... $ (0.13) $ (2.74) $ (1.27) $ 0.27 $ 0.16
Income from discontinued
retail operations ...................... -- -- 0.02 0.03 --
-------- -------- -------- -------- --------
Net (loss) income ........................... $ (0.13) $ (2.74) $ (1.25) $ 0.30 $ 0.16
======== ======== ======== ======== ========
BALANCE SHEET STATISTICS:
Total assets ................................ $ 14,031 $ 15,907 $ 26,117 $ 33,301 $ 18,767
Long-term obligations ....................... $ 4,318 $ 5,716 $ 7,569 $ 6,612 $ 1,429
Book value per share of common stock ........ $ 0.54 $ 0.67 $ 3.41 $ 4.65 $ 4.39
</TABLE>
(a) In fiscal 1998, SCPI sold its warehouse in Pittsburgh, Pennsylvania for a
gross sale price of approximately $2.8 million in cash. SCPI recognized a
pre-tax gain of approximately $1.8 million in connection with the sale (see
Note 3 to the Consolidated Financial Statements).
(b) Results for fiscal 1997 include an aggregate charge of approximately $3.5
million related to the sale of Puma and H&H, two of the Company's
subsidiaries. The charge primarily consisted of the write-off of the
goodwill associated with the acquisition of such subsidiaries (see Note 2
to the Consolidated Financial Statements).
(c) Results for fiscal 1998, fiscal 1997 and fiscal 1996 include net non-cash
deferred tax charges of approximately $1 million, $3.1 million and $2
million, respectively, primarily relating to increases in the Company's
valuation allowance of its deferred tax asset (see Note 6 to the
Consolidated Financial Statements).
(d) In fiscal 1991, SCPI sold its Retail Division to RAC as discussed in Note 7
to the Consolidated Financial Statements. SCPI remained contingently liable
for most mortgage debt, and for many lease obligations of the Retail
Division following the sale. RAC was forced into bankruptcy in March 1991.
RAC's Reorganization Plan (the "RAC Plan") contained provisions for
releases in favor of SCPI together with an injunction against further
actions by contingent creditors against SCPI. Accordingly, SCPI was
released from further liability except for payment of the Creditor Notes,
as further described in Note 7 of the Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Management believes that the corporate structure resulting from the
merger transaction, whereby Steel City Products Inc. ("SCPI") became a special,
limited purpose, majority-owned subsidiary of Oakhurst Company, Inc.
("Oakhurst"), will facilitate capital formation by Oakhurst while permitting
Oakhurst and SCPI to file consolidated tax returns so that both may utilize
existing tax benefits, including approximately $154 million of net operating
loss carry-forwards. Through Oakhurst's ownership of SCPI, primarily in the form
of preferred stock, Oakhurst retains the value of SCPI, and receives
substantially all of the benefit of SCPI's operations through dividends on such
preferred stock. Oakhurst's ownership of SCPI facilitates the preservation and
utilization of SCPI's net operating loss carry-forwards.
Until 1994, Oakhurst's principal business, which is conducted by SCPI
under the trade name "Steel City Products", was the distribution of automotive
parts and accessories from a facility in Pittsburgh, Pennsylvania.
In August 1994, Oakhurst 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, for an aggregate
purchase price of approximately $4.7 million, all of which has been paid except
for two notes payable to certain executives of Dowling's with a remaining
balance of $286,000. In March 1996, Dowling's acquired all of the outstanding
capital stock of G&O, a radiator distributor based in Philadelphia,
Pennsylvania.
In connection with the acquisition of G&O, Dowling's entered into a
non-competition agreement with the seller that provides for aggregate payments
of $315,000 over a three year period that began in March 1996, and for payments
of 7.5% of the defined profits of G&O for the first four years of ownership. The
value of the non-competition agreement has been discounted using an imputed
interest rate of 9.75%, and the related asset is being amortized over the life
of the agreement, which is ten years.
In January 1994, Oakhurst acquired all the outstanding capital stock of
H&H Distributors, d/b/a Harry Survis ("H&H"), a Pittsburgh-based company that
distributes and installs automotive accessories, including stereos, alarms and
cellular phones, and in October 1994, Oakhurst acquired all of the outstanding
capital stock of Puma Products, Inc. ("Puma"), a Texas-based distributor of
after-market products to the light truck and van conversion industry. In fiscal
1997, these two subsidiaries experienced aggregate losses of approximately
$500,000, and as a result, Oakhurst sold Puma and H&H in May 1997 and July 1997,
respectively (see "Management's Discussion and Analysis - Significant Events and
Trends").
SIGNIFICANT EVENTS AND TRENDS
SCPI SUBSIDIARY
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of national automotive specialty chains.
These have led to fluctuations in the level of business that SCPI enjoys with
individual customers. In fiscal 1996, SCPI lost two significant customers and
has since suffered reductions in business as certain customers have closed
stores in the face of competition, have been forced into bankruptcy, have
reduced their automotive merchandise selection, or have changed their buying
practices to acquire certain merchandise direct from manufacturers rather than
through distributors such as SCPI.
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 fiscal 1996, SCPI began offering certain "hard parts" such as brake
rotors, and in fiscal 1997, SCPI introduced a new merchandise category of
non-food pet supplies, and began a new division ("Wing-Tech") to distribute
automotive wings (or spoilers). Although the pet supplies are not typical of
SCPI's historical merchandise mix, management determined that the availability
of existing customers which sell both pet supplies and automotive
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<PAGE> 11
accessories, combined with SCPI's distribution expertise and infrastructure,
offered an opportunity for increased sales. In June 1997, SCPI sold the
Wing-Tech business to the buyer of Oakhurst's Puma Products subsidiary.
Since fiscal 1996, SCPI has added new customers and expanded sales to
certain other customers, and during the latter part of fiscal 1997, SCPI began
to ship pet supplies to an existing significant automotive customer, Giant
Eagle, and added a supermarket chain, Kroger, as an automotive customer. These
efforts have helped to stabilize the erosion of SCPI's customer base so that
sales in fiscal 1998 were substantially the same as fiscal 1997, however, they
have not returned SCPI's sales to the revenue levels of fiscal 1996. SCPI
continues to pursue new customer relationships that, if concluded, could
increase sales in fiscal 1999, however, there can be no assurance that these
efforts will be successful.
DOWLING'S SUBSIDIARY
During the first half of fiscal 1996, Dowling's was faced with intense
competitive pressures in one of its markets due to the nearby opening of a
competitor. Management's efforts to overcome this competition succeeded, and in
fiscal 1997 Dowling's experienced an improved competitive situation and a
strengthening of demand in its existing markets, with a return to historical
levels of sales and gross margins. To further expand its sales, in the first
quarter of fiscal 1997, Dowling's acquired an existing radiator distributor in
Philadelphia, Pennsylvania for approximately $210,000, that was paid half in
cash and half in the form of a one year note payable.
In fiscal 1998, Dowling's began to experience increased demand and
competition for lower priced, generic product, and in response, established its
own value priced "house" generic brand of radiators, which carry a limited
lifetime warranty that is supported by the manufacturer. Because many other
generic brands do not carry such a warranty, management believes that this new
line will compete favorably with other distributors that offer primarily generic
product.
JOINT VENTURE AGREEMENT
In February 1998, Oakhurst along with two co-venturers, entered into an
agreement with a major New York investment bank relating to tax efficient lease
securitization structures which Oakhurst has been developing for some time.
Under the agreement, the venturers may participate in the structuring and
marketing of securities relating to equipment leasing transactions. The
agreement provides for a sharing of any fees generated by the agreement and
commits Oakhurst to an investment in some of the securities created by the
structure. The agreement has an initial term of six months, which is
automatically renewed for additional six-month periods following the closing of
one or more transactions. There can be no assurance that any transaction can be
successfully marketed or closed.
SUBSIDIARIES DISPOSALS - H&H AND PUMA
Despite the opening of new facilities, the introduction of new product
lines, a restructuring of the sales force and increased advertising, sales at
H&H continued on a downward trend, due principally to reduced demand for certain
categories of car accessories and increased competition in the cellular phone
business, combined with a decrease in the commission rate earned on each phone
activation. Because of management's belief that these trends could not be
reversed, and to end the cash drain on Oakhurst's resources, in July 1997, H&H
was sold to James Stein, a Vice-President of H&H, in exchange for the
cancellation of the intercompany debts to H&H and the retention by Oakhurst of
certain insurance claims related to H&H. The sale eliminated substantial
contingent obligations related to lease and employment agreements with the
former owner of H&H and with Mr. Stein.
At Puma, 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, because vehicle manufacturers sought to satisfy dealer demand at the
expense of converters, which represented an important segment of Puma's
customers. This situation led to an intensification of competition among
suppliers to the converter market and certain converter customers were lost, and
for the remainder of fiscal 1996 and through 1997 resulted in a downward sales
trend. In response to this
-10-
<PAGE> 12
situation, management during fiscal 1996 opened a second facility in Elkhart,
Indiana, center of the vehicle conversion industry; continued to strengthen its
management and sales team; enlarged its product offering, including the addition
of van products to its wood accessories line; and introduced an extensive
catalog targeted at the restyler and accessories retailer market. Although sales
of certain non-wood accessories increased, sales of wood accessories continued
to reflect a downward trend, and Puma had operating losses of approximately
$270,000 in fiscal 1997. To end the cash drain on Oakhurst, effective May 1997
the Company sold Puma to its former owner, Anthony N. Puma, a director of
Oakhurst, in return for the cancellation of $600,000 in acquisition debt due to
him by Oakhurst, the cancellation of future earn-out obligations to Mr. Puma,
the repayment by Mr. Puma of $400,000 in revolving debt owed by Puma under a
credit agreement, the cancellation of Oakhurst's intercompany debts to Puma, and
the payment of $50,000 by Oakhurst to Mr. Puma. The agreement also provides for
Mr. Puma to make a payment to Oakhurst in the event he re-sells the business,
under certain circumstances. The sale eliminated substantial contingent
obligations related to lease and employment agreements with Mr. Puma.
As a result of the disposition of these two businesses, Oakhurst's
results for fiscal 1997 include a charge of approximately $3.5 million, of which
about $3.1 million represented the write-off of the excess of costs over net
assets acquired (goodwill) relating to their original acquisition. Results for
fiscal 1998 include other income from these two businesses of $72,000, including
the recovery of the insurance claims related to H&H.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING AND LINE OF CREDIT
In addition to cash derived from the operation of its subsidiaries,
Oakhurst's liquidity and financing requirements have been determined principally
by the working capital needed to support each subsidiary's level of business,
together with the need for capital expenditures and the cash required to repay
debt. Each subsidiary's level of working capital needs varies primarily with the
amounts of inventory carried, which can change seasonally, the size and
timeliness of payment of receivables from customers, especially at SCPI which
from time to time grants extended payment terms for seasonal inventory
build-ups; and the amount of credit extended by suppliers.
At February 28, 1998, Oakhurst's debt primarily consisted of (i)
revolving debt under a credit agreement with a balance of approximately $4
million; (ii) notes payable of $286,000 that were issued in connection with the
fiscal 1995 acquisition of Dowling's (the "DFS Notes"), and a non-competition
agreement of $114,000 issued in connection with Dowling's acquisition of G&O;
and (iii) the SCPI Creditor Notes (see below).
Historically, SCPI's operations have been more profitable than in the
past three years and its cash flow used to be sufficient to fund its own working
capital needs, to repay the scheduled principal reductions and to pay dividends
to and make loans to Oakhurst. Prior to fiscal 1996, accumulated cash, along
with the addition of debt under a term loan and credit agreement, was used for
acquisitions. In fiscal 1996 and fiscal 1997, there was positive cash flow from
operations, but not in amounts sufficient to satisfy all of the Company's debt
service obligations. As a result, revolving debt increased in those two years.
In March 1996, Oakhurst obtained financing from an institutional
lender, replacing its then existing credit arrangement, that provided a two-year
total facility of $9.5 million, comprising a SCPI term loan of $1.5 million (the
"Fixed Asset Loan") and a maximum revolving credit facility of $8 million (the
"Revolver") (collectively, the "Credit Facility").
Borrowings under the Credit Facility bear interest at the higher of the
Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings under the
Revolver are subject to a borrowing base that is calculated according to defined
levels of Oakhurst's subsidiaries' accounts receivable and inventories. The
Credit Facility contains certain customary restrictive financial and
non-financial covenants, including the maintenance of defined subsidiary and
consolidated tangible net worth levels and consolidated current ratio, and
limitations on cash dividends. The Credit Facility is secured by the accounts
receivable, inventories, and fixed assets of Oakhurst's subsidiaries.
-11-
<PAGE> 13
In June 1997, Oakhurst entered into an agreement with the lender to
amend the Credit Facility to reflect the disposals of H&H and Puma. The
agreement principally reduced the maximum amount available under the Revolver to
$7 million, subject to a borrowing base, and amended certain financial
covenants, including the elimination of a covenant related to the Company's
consolidated tangible net worth. In September 1997, Oakhurst reached an
agreement to extend the Revolver beyond its initial two year term to April 1999,
and paid a fee of $35,000 in connection with the renewal. The Credit Facility
provides for subsequent automatic renewal terms of one year each upon payment of
a renewal fee of 0.5% of the entire line, unless earlier terminated as provided
for in the Agreement.
In part to reduce its overall debt level, in December 1997 SCPI sold
its warehouse in Pittsburgh, Pennsylvania to an unrelated third party for a
gross purchase price of approximately $2.8 million in cash. Accordingly, the
results for the fourth quarter of fiscal 1998 include a pre-tax gain of
approximately $1.8 million in connection with the sale. After repayment of the
Fixed Asset Loan secured by the property, the net proceeds of approximately $1.6
million were used to cover the expenses of moving to newer, leased premises, to
make certain improvements to such premises, to increase levels of working
capital and to reduce the Revolver, which had increased during fiscal 1998 as a
result of shortfalls in cash from operations.
The DFS notes bear interest at 6%, and provide for repayment in
quarterly installments of $22,000 each, together with accrued interest thereon,
which commenced in June 1996.
The G&O note payable of $105,000 carried interest at 7%, and was paid
in full in March 1997. In connection with the G&O acquisition, Dowling's entered
into a non-competition agreement with the seller that provides for aggregate
payments of $315,000 over a three year period, and for payments of 7.5% of the
defined profits of G&O for the first four years of ownership. The value of the
non-competition agreement has been discounted using an imputed interest rate of
9.75%, and the related asset is being amortized over the life of the agreement,
which is ten years.
The creditor notes that were issued by SCPI in connection with the
bankruptcy of Retail Acquisition Corp., (the "Creditor Notes") (see Note 7 to
the consolidated financial statements) are payable in six equal annual
installments through July 1998. The Creditor Notes have been discounted using an
imputed interest rate of 7.5%.
Management believes that the availability of financing pursuant to the
Credit Facility, together with the steps taken in response to recent operating
losses, including the sale of the SCPI warehouse, will provide adequate funding
for the Company's working capital, debt service and capital expenditure
requirements, including seasonal fluctuations, for at least the next twelve
months.
CAPITAL EXPENDITURES AND YEAR 2000
The Company has no significant outstanding commitments for capital
expenditures. In fiscal 1998, management undertook an extensive review and
evaluation of the Company's critical operating systems to determine compliance
with the year 2000 issue. It was determined that certain of SCPI's and Dowling's
current software programs are not year 2000 compliant, and accordingly,
management has developed a year 2000 plan (the "Year 2000 Plan") that addresses
this issue. The Year 2000 Plan includes the complete replacement of SCPI's
current operating system with an integrated system that is year 2000 compliant,
and for Dowling's provides for the re-writing of the computer code of its
customized system. The Year 2000 Plan schedules these events to be completed in
mid fiscal 1999, with total costs anticipated between $175,000 to $225,000.
Management is currently on schedule with the timetable set forth in the Year
2000 Plan. The Company is also contacting its suppliers to obtain their
assurance of year 2000 compliance.
TAX LOSS CARRY-FORWARDS
At February 28, 1998, SCPI and Oakhurst had net operating tax loss
carry-forwards (the "Tax Benefits") of approximately $154 million, which expire
in the years 2001 through 2012, and which shelter most of SCPI's and Oakhurst's
income from federal income taxes. A change in control of SCPI or Oakhurst in any
three-year period
-12-
<PAGE> 14
exceeding 50% 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 any consolidated affiliate would not be
shielded from federal taxation, thus reducing funds otherwise available for
corporate purposes (see Note 6 to the consolidated financial statements).
FORWARD LOOKING STATEMENTS
From time to time the information provided by the Company or statements
made by its directors or employees may contain so-called "forward looking"
information that involves risks and uncertainties. In particular, statements
contained in Item 1 - "Business" and in this Item 7 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations," which are not
historical facts (including, but not limited to statements concerning
anticipated sales, profit levels, customers and cash flows) but are forward
looking statements. The Company's actual future results may differ significantly
from those stated in any forward looking statements. Factors that may cause such
differences include, but are not limited to the factors discussed above as well
as the accuracy of the Company's internal estimates of revenue and operating
expense levels. Each of these factors and others are discussed from time to time
in the Company's Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
Operations for the year ended February 28, 1998 include the
consolidated results for Steel City Products and Dowling's, together with
administrative costs of SCPI and Oakhurst. As previously discussed, Puma was
sold effective May 31, 1997, and H&H was sold effective July 14, 1997.
Accordingly, only the net proceeds from these two subsidiaries, together with
recoveries on certain insurance claims related to H&H, have been included in
results of operations for the period ended February 28, 1998. Operations for the
period ended February 28, 1997 include the consolidated results for Steel City
Products, Dowling's, Puma and H&H, the administrative costs of SCPI and
Oakhurst, and a charge of approximately $3.5 million related to the disposals of
Puma and H&H.
FISCAL YEAR ENDED FEBRUARY 28, 1998 COMPARED WITH FISCAL YEAR ENDED FEBRUARY 28,
1997
Consolidated sales for fiscal 1998 decreased by approximately $9.6
million, or by 22.9% when compared with the prior year, caused primarily by the
sale of Puma and H&H, which together produced sales in the prior year of $9.4
million. Sales at Dowling's reflected a decrease of approximately $165,000 when
compared to the prior year, due to a comparatively mild winter experienced in
Dowling's markets in fiscal 1998. Sales at SCPI decreased by $98,000. Sales to
existing automotive customers decreased by $2.8 million, primarily as a result
of bankruptcies, downsizing and competitive pressures faced by certain of SCPI's
customers. Partially offsetting this decline were sales by SCPI to new
automotive customers of approximately $1.5 million. Sales of non-food pet
supplies by SCPI were $1.4 million in the current year, compared with $157,000
last year. Sales of pet supplies first began in the second quarter of the prior
year, and new customers have been added in the current year.
Gross profits were approximately $6.2 million, or 19.2% of sales, in
the current year compared with approximately $9.5 million, or 22.6% of sales, in
the prior year. The lower gross profits were caused by the sale of Puma and H&H,
which contributed gross profits in the prior year of $3.4 million. The decrease
in gross margin was also attributable to Puma and H&H; gross margins for the
continuing businesses were consistent with the prior year. Despite slightly
lower levels of sales at SCPI, gross profits increased by approximately
$158,000, due primarily to a slight improvement in gross margin, together with
reductions in buying and occupancy expenses.
-13-
<PAGE> 15
Gross profits at Dowling's decreased by approximately $15,000, due to lower
levels of sales in the fourth quarter of fiscal 1998.
Operating, selling and administrative expenses decreased by
approximately $3.9 million when compared with the prior year, of which $3.8
million reflected the sale of Puma and H&H. The remaining reductions were
principally attributable to savings in corporate overhead expenses.
There was an increase in the provision for doubtful accounts of $63,000
related to the bankruptcies and liquidations of certain of SCPI's and Dowling's
customers.
The amortization of the excess of cost over net assets acquired
decreased by $254,000 in the current year, due to the write-off of goodwill in
fiscal 1997 as a result of the sale of Puma and H&H.
Interest expense decreased by $209,000 compared to the prior year due
to the sale of Puma and H&H and repayment of the Fixed Asset Loan in December
1997, as well as lower average borrowing levels by Dowling's and SCPI.
In fiscal 1998, SCPI sold its warehouse for a cash sale price of
approximately $2.8 million. The net gain resulting from the sale was
approximately $1.8 million.
Income tax expense decreased by approximately $2.1 million in the
current year, due primarily to a lower charge to deferred tax expense
attributable to adjustments in the valuation allowance of the deferred tax
asset.
FISCAL YEAR ENDED FEBRUARY 28, 1997 COMPARED WITH FISCAL YEAR ENDED FEBRUARY 29,
1996
In fiscal 1997, consolidated sales decreased by approximately $5.4
million, or by 11.4%, when compared with fiscal 1996. The decrease was primarily
caused by the loss of two of SCPI's largest customers during fiscal 1996. These
two customers accounted for a decrease in sales in fiscal 1997 of approximately
$8.5 million. Sales to SCPI's existing customers also decreased by approximately
$780,000. Sales of car alarms, stereo accessories and cruise control equipment
decreased by approximately $285,000 due to the lower retail and wholesale
demand, and cellular phone revenues also decreased by approximately $770,000
because of a lower average commission rate this year combined with fewer
activations due to increased competition in this market. Sales of light truck
and van aftermarket accessories decreased by $915,000, due primarily to the loss
by Puma of two large converter customers in fiscal 1996.
The addition of new customers by SCPI and of new product lines by SCPI
and H&H together accounted for $2.9 million in new sales, partially offsetting
the sales decreases. Sales of radiators and related products by Dowling's
increased over fiscal 1996 by over $3 million, representing an increase of 26%,
attributed to an improved competitive situation in fiscal 1997 in Dowling's
markets, combined with favorable weather in the first quarter of fiscal 1997, an
increase in market share, and the addition of the Philadelphia G&O facility.
Other income decreased by $144,000, due to lower commission income
earned by Puma in fiscal 1997, lower auto show revenues earned by SCPI, due to a
smaller show in fiscal 1997, and because of interest on a tax refund from
Kentucky in fiscal 1996.
Gross profits were approximately $9.5 million, or 22.6% of sales, in
fiscal 1997 compared with $10 million, or 21.2% of sales, in fiscal 1996,
reflecting a decrease of $549,000. Lower levels of sales by all of the
subsidiaries except Dowling's contributed to gross lower profits of
approximately $1.9 million, but this was partially offset by improved gross
margins earned by all of the subsidiaries. The improved gross margin performance
was due to lower costs on certain product lines, and to the improved competitive
situation in certain of Dowling's markets.
-14-
<PAGE> 16
Operating, selling and administrative expenses decreased by $379,000 in
fiscal 1997 when compared with fiscal 1996, which primarily reflected
management's efforts to reduce its work force and other expenses in reaction to
lower levels of sales.
There was a decrease of $508,000 in the provision for doubtful accounts
compared with fiscal 1996, when the Company recorded provisions for the
bankruptcies of several customers, including one of SCPI's largest customers.
Interest expense increased by $197,000 in fiscal 1997, due primarily to
higher average borrowings.
Income tax expense increased by approximately $1.2 million in fiscal
1997, due primarily to a higher charge to deferred tax expense in fiscal 1997
that resulted from an increase in the valuation allowance of the deferred tax
asset.
-15-
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Independent Auditors' Report....................................................... F-1
Consolidated Balance Sheets: February 28, 1998 and February 28, 1997............... F-2
Consolidated Statements of Operations for the fiscal years ended
February 28, 1998, February 28, 1997 and February 29, 1996....................... F-3
Consolidated Statements of Stockholders' Equity for the fiscal years ended
February 28, 1998, February 28, 1997 and February 29, 1996....................... F-4
Consolidated Statements of Cash Flows for the fiscal years ended
February 28, 1998, February 28, 1997 and February 29, 1996........................ F-5
Notes to Consolidated Financial Statements......................................... F-6
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal years ended
February 28, 1998 and February 28, 1997......................................... F-16
Financial Statement Schedules for the fiscal years ended February 28,
1998, February 28, 1997 and February 29, 1996:
Schedule II - Valuation and Qualifying Accounts................................ F-18
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
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<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS.
The by-laws of the Company provide for such number of directors as is determined
from time to time by the Board of Directors. There are currently six directors
divided into three classes, each class having a term of three years.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE CURRENT TERM EXPIRES SINCE CLASS
- -------------------- --- -------------------- ----- -----
<S> <C> <C> <C> <C>
John D. Abernathy 61 1999 1994 I
Robert M. Davies 47 1999 1991 I
Mark Auerbach 60 2000 1991 II
Bernard H. Frank 77 2000 1995 II
Joel S. Lever 46 1998 1994 III
Anthony N. Puma 34 1998 1995 III
</TABLE>
John D. Abernathy. Mr. Abernathy has been Executive Director of Patton Boggs,
L.L.P., a Washington DC law firm, since January 1995. From March 1991 to
February 1994 he was the Managing Director of Summit, Solomon & Feldesman, a New
York City law firm, and from July 1983 until June 1990, Mr. Abernathy was
Chairman and Chief Executive Partner of BDO Seidman, a public accounting firm.
Mr. Abernathy is a director of Barringer Technologies, Inc., a manufacturer of
high sensitivity analytical instruments for chemical sensing, and is also a
director of the Company's majority-owned subsidiary, Steel City Products, Inc.
Robert M. Davies. Mr. Davies was elected Chairman, President and Chief Executive
Officer of the Company in May 1997. Mr. Davies was a Vice President of Wexford
Capital Corporation, which acts as the investment manager to several private
investment funds from 1994 to March 1997. From November 1995 to March 1997 Mr.
Davies also served as Executive Vice President of Wexford Management LLC, a
private investment management company. From September 1993 to May 1994 he was a
Managing Director of Steinhardt Enterprises, Inc., an investment banking
company, and from 1987 to August 1993, he was Executive Vice President of The
Hallwood Group Incorporated, a merchant banking firm. Mr. Davies is a director
of the Company's majority owned, publicly traded subsidiary, Steel City
Products, Inc. Mr. Davies also serves as a director of Industrial Acoustics
Company, Inc., a New York based engineered products group specializing in noise
control products and systems, and of Maxicare Health Plans, Inc., a health
maintenance organization based in California.
Mark Auerbach. Mr. Auerbach was Chairman, President and Chief Executive Officer
of the Company from December 1995 to May 1997. He has been Chief Financial
Officer of the Company and its majority owned subsidiary, Steel City Products,
Inc., since December 1995. He has also been Senior Vice President and Chief
Financial Officer since April 1993 of Central Lewmar, L.P., a fine paper
merchant. From September 1992 until April 1993, he was a partner of Marron
Capital, L.P., an investment banking company. Prior to that, he was President,
Chief Executive Officer and Chairman of the Board of Implant Technology, Inc., a
manufacturer of artificial hip systems, from 1990 to 1992. He is a director of
Pharmaceutical Resources, Inc., a generic drug manufacturer, and of the
Company's majority owned subsidiary, Steel City Products, Inc. Mr. Auerbach is a
certified public accountant.
Bernard H. Frank. Mr. Frank has been Executive Vice President and Chief
Operating Officer of the Company since May 1994 and is a founder of the
Company's majority owned, publicly traded subsidiary, Steel City Products, Inc.,
of which he has been Chief Executive Officer and a director since 1993, Chairman
since 1994 and an executive officer for more than the last five years.
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<PAGE> 19
Joel S. Lever. Mr. Lever is a senior member of the law firm of Kurzman &
Eisenberg, LLP and has been a partner since 1984. Mr. Lever serves as Chairman
of the firm's Corporate Department, where he specializes in transactional
business matters, mergers and acquisitions, art and entertainment law and the
sale and acquisition of commercial assets. Mr. Lever is a director of the
Company's majority-owned subsidiary, Steel City Products, Inc., as well as a
director of several private companies.
Anthony N. Puma. Mr. Puma is Chairman and founder (in 1988) of Puma Products,
Inc., which was acquired by the Company in October 1994. Before that, Mr. Puma
held various positions with SDI Corporation, a distributor of accessories to the
small truck and van conversion markets. In May 1997, the Company sold Puma
Products back to Mr. Puma.
EXECUTIVE OFFICERS.
The following are the names, ages, positions and a brief description of the
business experience during the last five years of the executive officers of the
Company and its subsidiaries who are not also directors of the Company, all of
whom serve until they resign or are removed by the Board of Directors that
appointed them. The business histories of executive officers who are also
directors (Messrs. Auerbach, Davies and Frank) are set forth above under the
heading "Directors."
Roger M. Barzun (56): Senior Vice President, Secretary and General Counsel. Mr.
Barzun has been Secretary and General Counsel of the Company since August 1991
and a Senior Vice President since May 1994. He is also Secretary and General
Counsel of SCPI. Mr. Barzun has been a lawyer since 1968 and is a member of the
New York and Massachusetts bars.
Terrance W. Allan (44) : Executive Vice President, Steel City Products, Inc. Mr.
Allan has been an officer of the Company's publicly traded subsidiary, Steel
City Products, Inc. ("SCPI"), for more than the last five years. He was elected
Executive Vice President in January 1993.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities ("Insiders") to file reports of ownership and
certain changes in ownership with the Securities and Exchange Commission and to
furnish the Company with copies of those reports.
Based solely on a review of those reports and amendments thereto furnished to
the Company during its most recent fiscal year or written representations by
Insiders that no Forms 5 were required to be filed, the Company believes that
during the fiscal year ended February 28, 1998, all Section 16(a) filing
requirements applicable to the Company's Insiders were satisfied.
ITEM 11. EXECUTIVE COMPENSATION.
This item contains information about compensation, stock options and awards,
employment arrangements and other information concerning the executive officers
of the Company and of its largest subsidiary, Steel City Products, Inc.
("SCPI").
SUMMARY COMPENSATION TABLE.
The following table sets forth all compensation for the 1998, 1997 and 1996
fiscal years allocated or paid on or before February 28,1998 to those who served
as the Company's Chief Executive Officer during fiscal 1998 and to the only
other executive officers of the Company who were serving at the end of the 1998
fiscal year for services rendered in all capacities to the Company and its
subsidiaries. Neither of such other executive officer had
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<PAGE> 20
compensation exceeding $100,000 in 1998. Also included is the compensation paid
to an executive officer of SCPI who is not, however, an executive officer of the
Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ---------------------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSA-
FISCAL SALARY BONUS COMPENSATION OPTIONS/SARS TION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)* (#) ($)
- -------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Mark Auerbach (1) 1998 10,000 -- -- 3,000 --
Chairman President & 1997 100,000 -- -- -- --
Chief Executive Officer 1996 24,000 -- -- 100,000 --
Robert M. Davies (1) 1998 50,000 -- -- 203,000 --
Chairman President &
Chief Executive Officer
Bernard H. Frank (2) 1998 50,050 7,364 -- -- 13,908 (3)
Executive Vice President & 1997 50,243 16,000 -- 68,327 13,908
Chief Operating Officer 1996 82,775 -- -- -- 19,151
Roger M. Barzun 1998 53,750 -- 6,312 20,000 --
Senior Vice President and 1997 53,750 -- 6,312 -- --
General Counsel, Secretary 1996 54,135 10,000 6,312 -- --
Terrance W. Allan (4) 1998 115,001 15,000 -- -- --
Executive Vice President SCPI 1997 126,490 14,000 -- 24,333 --
1996 106,160 -- -- 5,000 4,797
</TABLE>
- ---------------
* Excludes perquisites and other personal benefits if the aggregate amount of
such items of compensation was less than the lesser of either $50,000 or
10% of the total annual salary and bonus of the named executive officer. In
the case of Mr. Barzun, the amount listed represents the cost to the
Company of providing for his use a company-leased vehicle.
1. Mr. Auerbach became Chief Executive Officer of the Company in December 1995
and served in that capacity as a consultant to the Company until May 1997,
when Mr. Davies was elected Chief Executive Officer as his successor.
2. Mr. Frank, who is also Chairman and Chief Executive Officer of SCPI, is
compensated only by SCPI, except with respect to stock options and stock
awards.
3. This amount consists of $6,504, $5,508 and $1,896 that Mr. Frank received
under three substantially identical agreements amended in 1987 in
consideration of the waiver by Mr. Frank of his bankruptcy claims for
annuity rights in SCPI's predecessor's bankruptcy.
4. Mr. Allan is compensated only by SCPI, except with respect to stock options
and stock awards.
----------------------
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<PAGE> 21
OPTION GRANTS IN THE LAST FISCAL YEAR.
The following table sets forth certain information with respect to stock options
granted to the individuals named in the Summary Compensation Table, above,
during the fiscal year ended February 28, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
-------------------------------------------------------- -------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO
SECURITIES EMPLOYEES IN EXERCISE EXPI-
UNDERLYING FISCAL YEAR PRICE RATION 5% 10%
NAME OPTIONS (%) ($)(2) DATE ($) ($)
- ------------------- ------------ ------------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
MARK AUERBACH 3,000(1) 2.15 1.219 05/01/07 1,886 4,781
ROBERT M. DAVIES 3,000(1) 2.15 1.00 05/01/07 1,866 4,781
50,000(4) 35.8 1.00 05/27/07 31,444 79,687
100,000(5) 71.6 0.875 01/13/08 34,667 107,030
50,000(6) 35.8 0.875 01/13/08 17,333 53,515
BERNARD H. FRANK -- -- -- -- -- --
ROGER M. BARZUN 20,000(7) 14.3 0.875 02/04/08 11,005 27,890
TERRANCE W. ALLAN -- -- -- -- -- --
</TABLE>
- --------------
1. This option became exercisable at the date of grant.
2. The original exercise price per share of each option was equal to the
market value on the date of grant.
3. The "potential realizable value" is calculated based on the term of the
option (ten years) at its date of grant. It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option. However, the
optionee will not actually be able to realize any benefit from the option
unless the market value of the common stock in fact increases over the
option price.
4. This option becomes exercisable on May 27, 1998.
5. This option becomes exercisable at the earlier to occur of (i) a change in
control of the company; (ii) the achievement of a substantial realization
of the value of the company's net operating loss carryforwards; or (iii)
the ninth anniversary of the grant date.
6. This option becomes exercisable in full from and after May 29, 1998, but
immediately terminates if Mr. Davies' consulting agreement with the
corporation dated May 27, 1997, is terminated by the company for cause.
7. This option becomes exercisable in four equal installments, on the grant
date and the first three anniversaries of the grant date.
----------------------
-20-
<PAGE> 22
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES.
The following table sets forth certain information based upon the fair market
value per share of the Common Stock at February 27, 1998 ($1.125), the day
closest to the Company's February 28, 1998 fiscal year end on which trades were
made, with respect to stock options held at that date by each of the individuals
named in the Summary Compensation Table, above. The "value" of unexercised
in-the-money options is the difference between the market value of the Common
Stock subject to the options at February 28, 1998 and the exercise (purchase)
price of the option shares. During fiscal 1998, there were no option exercises
by any of these individuals.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
NUMBER OF SECURITIES UNDERLYING MONEY OPTIONS AT FISCAL YEAR
UNEXERCISED OPTIONS AT FISCAL YEAR END END
(#) ($)
--------------------------------------- --------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Mark Auerbach 126,996 -- 375 --
Robert M. Davies 26,996 200,000 375 43,750
Bernard H. Frank 68,327 -- -- --
Roger M. Barzun 21,000 15,000 1,250 3,750
Terrance W. Allan 28,081 1,250 -- --
</TABLE>
COMPENSATION OF DIRECTORS.
All non-employee directors receive annual stock option grants on May 1 each year
under the Non-Employee Director Stock Option Plan covering 3,000 shares of
Common Stock, which are immediately exercisable at an option price equal to the
market value on the date of grant. During fiscal 1998, each non-employee who did
not otherwise receive compensation from the Company received an annual fee of
$10,000, but no meeting fees. Commencing March 1, 1998, the Company will pay to
each such non-employee director an annual director's fee of $12,500 and, if he
serves as chairman of at least one committee of the Board of Directors, an
additional annual director's fee of $2,500. All fees are paid quarterly in
arrears. All directors are entitled to reimbursement for out-of-pocket expenses
incurred in attending meetings
On January 13, 1998 the Board of Directors granted ten-year stock options to
Messrs. Abernathy (65,000 shares), Davies (100,000 shares) and Lever (65,000
shares). The vesting of these options is dependent upon the Company achieving
certain financial objectives; however, in any event, they vest on the ninth
anniversary of the grant date. See also "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements," following, for a description of
compensation arrangements during fiscal 1998 between the Company and Messrs.
Auerbach and Davies.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
Mr. Auerbach. In fiscal 1998, Mr. Auerbach was compensated as Chairman,
President and Chief Executive Officer of the Company under an amended 1995
consulting agreement with the Company at the rate of $2,500 per month for the
period March through June 1997, when the agreement terminated. On May 27, 1997
Mr. Auerbach resigned as President and Chief Executive Officer, but remained
Chief Financial Officer of the Company at his then current rate of compensation.
Mr. Auerbach was also entitled under the agreement to reimbursement of his
Company-related business expenses. The agreement also provided for the grant to
him of a ten-year stock option to purchase 100,000 shares of Common Stock
exercisable in two equal installments at $1.25 and $2.50 per share,
respectively, on the December 19, 1995 grant date and the first anniversary of
the grant date.
Mr. Davies. Mr. Davies was elected Chairman, President and Chief Executive
Officer of the Company in May 1997 to succeed Mr. Auerbach. He is compensated at
the rate of $5,000 per month under a one-year consulting agreement and receives
reimbursement of expenses incurred by him in carrying out his duties and
responsibilities. Pursuant to the agreement, the Company has granted to Mr.
Davies ten-year stock options at market to purchase
-21-
<PAGE> 23
100,000 shares of Common Stock, in the aggregate, under the Company's 1994
Omnibus Stock Plan. The options become exercisable in full at the end of May
1998.
Mr. Frank and Mr. Allan. SCPI has three-year employment agreements with each of
Messrs. Frank and Allan (sometimes hereinafter referred to as the "executive")
commencing September 1, 1993 that provide for base salaries of $100,000 (Mr.
Frank) and $96,200 increasing to $115,050 (Mr. Allan). The agreements provide
for the payment of annual management bonuses based upon the defined profits of
SCPI's operating division, with Mr. Frank entitled to a minimum bonus of fifteen
percent of base salary. The aggregate amount of such management bonuses payable
each year to the executives and to all other SCPI executives is not to exceed 8%
of such defined profits and the allocation thereof is made by the Compensation
Committee of SCPI based on recommendations of Mr. Frank as Chief Executive
Officer of SCPI. Mr. Allan is also entitled to an executive bonus calculated as
a percentage of defined annual profits of SCPI that exceed $2,000,000. The
Agreements were extended in September 1996.
In the event of non-renewal of the agreements, the executive is entitled to an
aliquot portion of the bonuses he would have earned during the year of
non-renewal, since the contract year does not coincide with the fiscal year of
SCPI. The agreements also provide that if the executive's employment terminates
by reason of his death or disability, he is entitled to the greater of two
years' salary (one year for Mr. Allan) or the salary for the balance of the term
of the agreement and the minimum bonus for such period in the case of Mr. Frank
and the management bonus that would otherwise have been paid in the case of Mr.
Allan. If the executive's employment is otherwise terminated without cause, he
is entitled to his salary and bonuses for the greater of one year or the balance
of the term of the agreement.
The agreements provide for car allowances, and the executives are eligible to
participate in all defined contribution plans, survivor and supplemental
benefits, short and long-term disability benefits, and all other benefit plans
and perquisites available now or in the future to the senior executives of SCPI.
The agreements also provide for certain termination rights in the event of a
change in control of SCPI. Change in control is defined to include certain
changes in the make-up of the SCPI board of directors or a sale of SCPI's assets
or business. Each executive has the right to terminate his employment within a
defined period (ranging up to one year) following a change in control and (i) to
be paid his base salary for a period of up to 24 months following such
termination; (ii) to continue to receive for a like period the benefits that he
is entitled to receive under his agreement and (iii) to be paid 25% of base
salary in lieu of all bonus entitlement. The agreements also provide for
substantially the same payments and benefits in the event the executive's
employment is terminated by SCPI without cause as a result of a change in
control. In the event of any termination other than for cause, or voluntary
resignation in the absence of a change in control, the executive's options
become fully exercisable for a period of seven months following termination. If
a change in control had occurred on May 1, 1998, and if each of Messrs. Frank
and Allan had exercised his rights of termination, payments by SCPI would have
been approximately $535,000 in the aggregate.
Mr. Frank. In fiscal 1997, in light of SCPI's financial performance, Mr. Frank
voluntarily reduced his annual salary by 50%. In February 1998, Mr. Frank's
annual base salary was set by agreement at $50,000; he granted participation in
a deferred compensation program commencing March 1, 1998 providing for the
payment to him of $5,000 per month for twenty-four months to compensate him for
the portion of his salary voluntarily foregone by him; and commencing March 1,
1998, Mr. Frank was made eligible to participate in a bonus program pursuant to
which the Compensation Committee of the Board of Directors in its discretion and
after reviewing the Corporation's performance and cash position may grant to him
on a quarterly basis a bonus not to exceed $25,000 in the aggregate in any one
fiscal year.
Mr. Frank also receives compensation of $13,908 per year, in the aggregate,
under three substantially identical agreements amended in 1987 in consideration
of the waiver by Mr. Frank of his bankruptcy claims for annuity rights in SCPI's
predecessor's bankruptcy. The amended agreements provide for payments to be made
for a period of fifteen years subsequent to January 1988 of $6,504, $5,508 and
$1,896 per year for the three agreements, respectively.
Mr. Barzun. Mr. Barzun is compensated pursuant to a December 1992 employment
agreement, as amended, under which he provides general counsel services to the
Company on a part-time basis. Under the agreement, Mr. Barzun is entitled to a
minimum salary of $56,250; participation in benefit plans made available to
other executives; the use of a Company-leased automobile; reimbursement of
Company-related business expenses; and
-22-
<PAGE> 24
payment in a lump sum of six months' salary in the event his employment is
terminated without cause. In January 1996 Mr. Barzun agreed to a 4% pay
reduction in view of the Company's financial condition.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During fiscal 1998, no member of the Compensation Committee or Stock Plans
Committee was an employee of the Company or any or its subsidiaries. Mr. Frank
serves on the Compensation Committee of Steel City Products, Inc. ("SCPI") and
is a director of SCPI and of the Company.
In October 1994 the Company acquired the capital stock of Puma Products from its
founder, Anthony N. Puma, who is currently a director of the Company. In May
1997 the Company sold the capital stock of Puma Products back to Mr. Puma.
The Board of Directors intends that any transactions with officers, directors
and affiliates will be entered into on terms no less favorable to the Company
than could be obtained from unrelated third parties and that they will be
approved by a majority of the directors of the Company who are independent and
disinterested with respect to the proposed transaction. No such transactions
occurred in fiscal 1997. See also "Compensation of Directors" and "Employment
Contracts and Termination of Employment and Change-in-Control Arrangements,"
above.
REPORT ON EXECUTIVE COMPENSATION IN THE 1998 FISCAL YEAR.
This report has been prepared by the Compensation Committee and the Stock Plans
Committee of the Board of Directors and addresses the Company's compensation
policies with respect to the Chief Executive Officer and executive officers of
the Company in general for the fiscal year ended February 28, 1998. All members
of the Committees are non-employee directors. The Company has no operating
business of its own, but is a holding company of operating businesses. The
Company has elected to include in the Summary Compensation Table, above, certain
information concerning an executive officer of the Company's largest subsidiary,
Steel City Products, Inc.,("SCPI") who is not, however, an executive officer of
the Company and accordingly, a discussion of his compensation is included here.
Reference is made generally to the information under the heading "Employment
Contracts and Termination of Employment and Change-in-Control Arrangements,"
above.
Compensation Policy. The overall intent in respect of executive officers is to
establish levels of compensation that provide appropriate incentives in order to
command high levels of individual performance and thereby increase the value of
the Company to its stockholders, and that are sufficiently competitive to
attract and retain the skills required for the success and profitability of the
Company. The principal components of executive compensation are salary, bonus
and stock options.
Chief Executive Officer's Compensation. The consulting fees paid and the stock
options granted to the Company's Chief Executive Officers in 1998 are the result
of written consulting agreements that were negotiated between Messrs. Auerbach
and Davies (who succeeded Mr. Auerbach as Chief Executive Officer in May 1997)
and the Company and that are described above under the heading "Employment
Contracts and Termination of Employment and Change-in-Control Arrangements."
Compensation was determined to be appropriate by the members of the Committees
serving at the time based on the non-full-time nature of the position; the
expertise and responsibility that the position requires; the Chief Executive
Officer's prior financial and accounting experience in former employments; and
the subjective judgement of the members of a reasonable level of compensation.
Other Executive Officers. Mr. Frank is an Executive Officer of the Company, but
receives all of his compensation in his capacity of Chairman and Chief Executive
Officer of SCPI. Mr. Barzun is compensated under his employment agreement with
the Company described above. Mr. Allan is included in the Company's disclosures
relating to compensation because of his importance to the success of the Company
on a consolidated basis. Each of their written employment agreements was
reviewed and approved by the Company's Compensation Committee and in the case of
Mr. Allan, by the SCPI Compensation Committee.
Salary. Since all of the executive officers named in the Summary Compensation
Table are long-term employees of the Company and/or SCPI and one of them is a
founder of the original business, their salaries in 1998 were based on the level
of their prior salaries and the subjective judgement of the members of the
Company's and SCPI's Compensation Committees as to the value of the executive's
past contribution and potential future contribution to the business.
-23-
<PAGE> 25
Bonuses. Bonuses payable to Messrs. Frank and Allan under their employment
agreements consist of an Annual Management Bonus, and in the case of Mr. Allan,
an additional Annual Executive Bonus. The Annual Management Bonus is paid from a
pool of funds equal to 8% of SCPI's consolidated net income before interest,
taxes, depreciation, LIFO adjustments and amortization, prepared in accordance
with generally accepted accounting principles consistently applied. The amount
of the bonus pool allocation is based on Mr. Frank's recommendations to SCPI's
Compensation Committee. Mr. Frank's recommendations, in turn, are based on his
subjective judgement, formed by over forty years experience with the business,
of the performance of each officer during the preceding year. Mr. Frank is
entitled to a minimum Annual Management Bonus of 15% of salary provided that
SCPI has earnings for the year in question. Bonuses paid in fiscal 1998 related
to earnings in the prior year.
The Annual Executive Bonus for Mr. Allan is equal to 1% of the amount by which
SCPI's consolidated net income (defined in the same manner as for the Annual
Management Bonus) exceeds $2,000,000. SCPI's defined net income did not exceed
the $2,000,000 threshold in fiscal 1998 and accordingly no Annual Executive
Bonuses were paid.
The bonus percentages and amounts contained in the executive's employment
agreements are based on the executive's years of service, his perceived
importance to the profitability of SCPI, and the subjective judgement of members
of the SCPI Compensation Committee as to the best balance between salary and
bonus, and what is fair and reasonable. No bonuses were paid to any other
executive officers of the Company during fiscal 1998.
Stock Options. The Committees believe that stock ownership by executive officers
is important in aligning management's and stockholders' interests in the
enhancement of stockholder value over the long term. The 1998 grant to an
executive officer (other than the Chief Executive Officer) was based on the
subjective judgement of the Stock Plans Committee as to what constituted an
appropriate option grant in light of the executive's performance since the last
option granted to him. The exercise price of stock option grants to date is
equal to the market price of the Common Stock on the date of grant.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code (enacted in 1993) generally disallows a tax deduction to
public companies for compensation over $1 million paid to its chief executive
officer and its four other most highly compensated executives. The Company's
compensation payable to any one executive officer (including potential income
from outstanding stock options) is currently and for the foreseeable future
unlikely to reach that threshold. In addition, because of the significant net
operating loss carryforwards of SCPI, the deductibility of compensation payments
is not currently an issue. However, should circumstances change, the
Compensation Committee will study the matter and make recommendations to the
Board.
The Compensation Committee The Stock Plans Committee
Joel S. Lever John D. Abernathy
John D. Abernathy Joel S. Lever
----------------------
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<PAGE> 26
The following Performance Graph and the foregoing Report of the Compensation
Committee on Executive Compensation in this Item 11 are not and shall not be
deemed incorporated by reference into any filings of the Company with the
Securities and Exchange Commission by implication or by any reference in any
such filings to this Annual Report on Form 10-K.
PERFORMANCE GRAPH.
The following graph compares the percentage change in the Company's cumulative
total stockholder return on Common Stock for the last five years with (i) the
Dow Jones Global US Market Index (a broad market index), and (ii) the Dow Jones
Retailers - Other Specialty Index, a group of companies whose marketing strategy
is focused on a limited product line, such as automotive parts, over the same
period. Both indices are published in the Wall Street Journal.
The returns are calculated assuming the value of an investment in the Company's
stock and each index of $100 on the Company's February 28, 1993 fiscal year end
and that all dividends were reinvested; however, the Company paid no dividends
during the periods shown. The graph lines merely connect the beginning and end
of the measuring periods and do not reflect fluctuations between those dates.
The historical stock performance shown on the graph is not intended to, and may
not be indicative of, future stock performance.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Oakhurst Company, Inc. 100.00 125.00 168.75 59.35 56.25 56.25
DJ Global US 100.00 107.88 115.76 155.97 195.99 265.75
Dow Jones Other Speciality 100.00 97.87 94.23 93.12 110.77 169.42
</TABLE>
-25-
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT.
This item sets forth certain information regarding ownership of the Company's
common stock at May 1, 1998. Except as otherwise indicated in the footnotes, the
Company believes that the beneficial owners of the Common Stock listed in the
tables, based on information furnished by such owners, have sole investment and
voting power with respect to the shares of common stock shown as beneficially
owned by them. The numbers and percentages assume for each person or group
listed the exercise of all stock options held by such person or group that are
exercisable within 60 days of May 1, 1998, in accordance with Rule 13d-3(d)(1)
of the Securities Exchange Act of 1934, but not the exercise of such stock
options owned by any other person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth each person known by the Company (other than
management) to own beneficially more than 5% of the outstanding common stock of
the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OF
OF BENEFICIAL OWNER COMMON STOCK PERCENTAGE OF CLASS
- ------------------- ------------ -------------------
<S> <C> <C>
Fidelity Capital Appreciation Fund(1) 289,000 9.0%
82 Devonshire Street
Boston, Massachusetts 02109
Special Situations Fund, L.P.(2) 289,000 9.0%
153 East 53rd Street
New York, NY 10022
</TABLE>
- --------------
(1) Fidelity Capital Appreciation Fund is a portfolio of the Fidelity Capital
Trust, an investment company registered under the Investment Company Act of
1940.
(2) By agreement with the Company dated June 25, 1990, as amended, Special
Situations Fund, L.P. (formerly Prudential-Bache Special Situations Fund,
L.P.) agreed not to increase its beneficial ownership of the Common Stock
of the Company or Steel City Products, Inc. ("SCPI") above 8.2% of the then
outstanding shares, except in transactions to which the Company or SCPI, as
the case may be, is a party or under certain other circumstances.
SECURITY OWNERSHIP OF MANAGEMENT.
The following table sets forth information regarding beneficial ownership of the
Common Stock by each director, each individual named in the Summary Compensation
Table in Item 11, above, and by all directors, all such named individuals, and
all executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK PERCENTAGE OF CLASS
- ------------------------ ---------------------- -------------------
<S> <C> <C>
John D. Abernathy 41,996(1) 1.3%
Mark Auerbach 126,996(2) 3.8%
Robert M. Davies 209,992(3) 6.3%
Bernard H. Frank 85,134(4) 2.7%
Joel S. Lever 72,815(5) 2.3%
Anthony N. Puma 266,667 8.3%
Roger M. Barzun 27,160(6) *
Terrance W. Allan 28,581(7) *
</TABLE>
-26-
<PAGE> 28
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK PERCENTAGE OF CLASS
- ------------------------ ---------------------- -------------------
<S> <C> <C>
All directors and executive
officers as a group (8 persons): 859,341 (8) 22.6%
</TABLE>
- --------------
* Less than 1%
1. This number includes 26,996 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $1.00 to
$3.375 per share.
2. These shares are issuable under outstanding stock options that are
presently exercisable at prices ranging from $1.00 to $3.375 per share.
3. This number includes 144,992 shares issuable under outstanding stock
options that are exercisable within 60 days of May 1, 1998 at prices
ranging from $1.00 to $3.37 per share.
4. This number includes 68,327 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $1.25 to
$2.00 per share.
5. This number includes 26,996 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $1.00 to
$3.375 per share.
6. This number includes 21,000 shares issuable under outstanding stock
options that are exercisable within 60 days of May 1, 1998 at prices
ranging from $0.875 to $2.00 per share.
7. This number includes 28,081 shares issuable under outstanding stock
options that are exercisable within 60 days of May 1, 1998 at prices
ranging from $1.25 to $2.00 per share. Mr. Allan is an executive
officer of the Company's subsidiary, Steel City Products, Inc.
8. This number includes 443,388 shares issuable under outstanding stock
options that are exercisable within 60 days of May 1, 1998 at prices
ranging from $0.875 to $3.375 per share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to information contained under the headings "Compensation of
Directors," "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements," and "Compensation Committee Interlocks and
Insider Participation," in Item 11, above.
----------------------
-27-
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets: February 28, 1998 and February 28,
1997
Consolidated Statements of Operations for the fiscal years
ended February 28, 1998, February 28, 1997 and
February 29, 1996
Consolidated Statements of Stockholders' Equity for the fiscal
years ended February 28, 1998, February 28, 1997 and
February 29, 1996
Consolidated Statements of Cash Flows for the fiscal years
ended February 28, 1998, February 28, 1997 and
February 29, 1996
Notes to Consolidated Financial Statements
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the
fiscal years ended February 28, 1998 and February 28,
1997
2. The following Financial Statement Schedules for the fiscal years
ended February 28, 1998, February 28, 1997 and February 29, 1996 are
submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed as
Appendix A to the Proxy Statement/Prospectus dated April 16, 1991
of the Company and Steel City Products, Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-K for the
fiscal quarter ended August 31, 1996).
3.2 By-laws - as amended through January 13, 1998 - filed herewith.
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see
Exhibit 2, above).
-28-
<PAGE> 30
4.2 Certificate of Designations of Series A Junior Participating
Preferred Stock dated as of February 10, 1998 - filed herewith.
*10.1 Form of Option Agreement dated August 29, 1991 with directors
and executive officers (filed as Exhibit 10(b) to the Company's
Annual report on Form 10-K for the fiscal year ended February 29,
1992).
10.2 Agreement dated June 11, 1991 with Prudential-Bache Special
Situations Fund (filed as Exhibit 10(q) to the Annual Report on
Form 10-K of Steel City Products, Inc. for the fiscal year ended
March 3, 1990).
10.3 Purchase and Sale Agreement relating to the acquisition of
Dowling's Fleet Service Company, Inc. by Oakhurst Capital, Inc.,
also containing employment agreements with Robert Keane and
Joseph Quattrochi (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the period ended August 27,
1994).
10.4 Lease agreements by and between James Dowling and Dowling's Fleet
Service Company, Inc. (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1995).
*10.5 The 1994 Omnibus Stock Plan with form of option agreement (filed
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1995).
*10.6 The 1994 Non-Employee director Stock Option Plan with form of
option agreement (filed as Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1995).
10.7 Loan and Security Agreement; Schedule to Loan and Security
Agreement; Secured Promissory Note with FINOVA Capital
Corporation all dated March 28, 1996 (filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 29, 1996).
10.8 Open-End Mortgage between Steel City Products, Inc. and FINOVA
Capital Corporation dated March 28, 1996 (filed as Exhibit 10.18
to the Company's Annual Report on Form 10-K for the fiscal year
ended February 29, 1996).
10.9 Consulting Agreement with Bryanston Management, Ltd, dated as of
December 19, 1995 (filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 29, 1996).
*10.10 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Joseph B. Quattrochi dated
as of March 1, 1996 (filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1997).
*10.11 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Robert M. Keane dated as
of March 1, 1996 (filed as Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1997).
*10.12 Employment Agreement between Laurence D. Finman and Oakhurst
Management Co., dated as of March 1, 1996 (filed as Exhibit 10.24
to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997).
-29-
<PAGE> 31
10.13 Non-Competition Agreement between G&O Sales Company and Arthur
Gruber dated as of March 12, 1996 (filed as Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997).
10.14 Amendment to Consulting Agreement and Amended Non-Qualified Stock
Option Agreement between Mark Auerbach and Oakhurst Company, Inc.
dated as of October 1, 1996 (filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997).
10.15 Stock Purchase and Sale Agreement between Anthony N. Puma, Puma
Products, Inc. and Oakhurst Company, Inc., dated as of June 10,
1997 (filed as Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1997).
10.16 Stock Purchase and Sale Agreement between James Stein, H&H
Distributors, Inc. and Oakhurst Company, Inc., dated as of July
14, 1997 (filed as Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the first quarter ended May 31, 1997).
10.17 Agreement of Sale and Purchase by and between Steel City
Products, Inc. and Bearing Service Company of Pennsylvania dated
as of August 18, 1997 (filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the second quarter ended August
31, 1997).
10.18 Second and Third Amendments to the Loan and Security Agreement
between Oakhurst and its subsidiaries and FINOVA Capital
Corporation, dated effective June 1, 1997 and October 31, 1997,
respectively - filed herewith.
10.19 Lease agreement between Regional Industrial Development
Corporation and Steel City Products, Inc. dated as of - filed
herewith.
11 Statement of re-computation of per-share earnings - filed
herewith.
21 Subsidiaries at February 28, 1998:
Steel City Products, Inc. - Delaware
Dowling's Fleet Service Company, Inc. - New York
Oakhurst Management Corporation - Texas
23 Consent of Deloitte & Touche LLP - filed herewith.
27 Financial Data Schedule (EDGAR transmission only) - filed
herewith.
- -----------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the Company's fourth
fiscal quarter ended February 28, 1997.
-30-
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: May 27, 1998 By: /s/ Robert M. Davies
------------------------
Robert M. Davies
President and Chief Executive
Officer
(duly authorized officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints each of Robert M. Davies, Bernard H. Frank and
Roger M. Barzun jointly and severally his true and lawful attorneys-in-fact and
agent with full powers of substitution for him and in his name, place and stead
in any and all capacities to sign on his behalf, individually and in each
capacity stated below and to file any and all amendments to this Annual Report
on Form 10-K with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
---------- ------ ----
<S> <C> <C>
/s/ Robert M. Davies Chairman of the Board, May 27, 1998
- ---------------------------------------- President and Chief Executive
Robert M. Davies Officer
/s/ Mark Auerbach Chief Financial Officer May 27, 1998
- ---------------------------------------- and Director (principal financial
Mark Auerbach and accounting officer)
/s/ Bernard H. Frank Chief Operating Officer May 27, 1998
- ---------------------------------------- Director
Bernard H. Frank
/s/ John D. Abernathy Director May 27, 1998
- ----------------------------------------
John D. Abernathy
/s/ Joel S. Lever Director May 27, 1998
- ----------------------------------------
Joel S. Lever
/s/ Anthony N. Puma Director May 27, 1998
- ----------------------------------------
Anthony N. Puma
</TABLE>
-31-
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Oakhurst Company, Inc.:
We have audited the accompanying consolidated balance sheets of Oakhurst
Company, Inc. and subsidiaries as of February 28, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended February 28, 1998, February 28, 1997 and February 29, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Oakhurst Company, Inc. and
subsidiaries as of February 28, 1998 and 1997, and the results of their
operations and their cash flows for the years ended February 28, 1998, February
28, 1997, and February 29, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
- ------------------------------
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 22, 1998
-F1-
<PAGE> 34
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash .......................................................................... $ 47 $ 39
Trade accounts receivable, less allowance of $461 and $555, respectively ...... 4,026 3,882
Other receivables ............................................................. 223 483
Inventories ................................................................... 6,167 5,687
Other ......................................................................... 226 370
-------- --------
Total current assets ......................................... 10,689 10,461
-------- --------
Property and equipment, at cost ................................................... 1,782 2,839
Less accumulated depreciation ................................................. (1,098) (1,311)
-------- --------
684 1,528
-------- --------
Deferred tax asset, less valuation allowance of $52,360
and $51,300, respectively ..................................................... -- 1,000
Excess of cost over net assets acquired, net ...................................... 2,275 2,468
Other assets ...................................................................... 383 450
-------- --------
2,658 3,918
-------- --------
$ 14,031 $ 15,907
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $ 6,392 $ 6,106
Accrued compensation .......................................................... 519 394
Current maturities of long-term obligations ................................... 646 953
Current maturities of long-term obligations, related parties .................. 88 88
Accrued interest .............................................................. 76 88
Other accrued expenses ........................................................ 249 417
-------- --------
Total current liabilities .................................... 7,970 8,046
-------- --------
Long-term obligations:
Long-term debt ................................................................ 4,058 5,344
Long-term debt, related parties ............................................... 198 286
Other long-term obligations ................................................... 62 86
-------- --------
4,318 5,716
-------- --------
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 3,207,053 and 3,201,144 shares, respectively ................ 32 32
Additional paid-in capital .................................................... 46,535 46,529
Deficit (Reorganized on August 26, 1989) ...................................... (44,823) (44,415)
Treasury stock, at cost, 207 common shares .................................... (1) (1)
-------- --------
Total stockholders' equity ................................... 1,743 2,145
-------- --------
$ 14,031 $ 15,907
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F2-
<PAGE> 35
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Sales ...................................................... $ 32,307 $ 41,928 $ 47,339
Other income ............................................... 286 327 471
----------- ----------- -----------
32,593 42,255 47,810
----------- ----------- -----------
Cost of goods sold, including occupancy and
buying expenses ........................................ 26,119 32,459 37,321
Operating, selling and administrative expenses ............. 6,705 10,573 10,952
Provision for doubtful accounts ............................ 165 102 610
Amortization of excess of cost over net assets acquired .... 194 448 439
Interest expense ........................................... 634 843 646
Income from the sale of real estate ........................ (1,760) -- --
(Income) loss on assets held for sale -
H&H and Puma (see Note 2) .............................. (72) 3,493 --
----------- ----------- -----------
31,985 47,918 49,968
----------- ----------- -----------
Income (loss) from continuing
operations before income taxes ......................... 608 (5,663) (2,158)
----------- ----------- -----------
Current income tax (expense) benefit ....................... (16) (12) 115
Deferred income tax expense ................................ (1,000) (3,086) (2,000)
----------- ----------- -----------
(1,016) (3,098) (1,885)
----------- ----------- -----------
Loss from continuing operations ............................ (408) (8,761) (4,043)
Discontinued retail operations:
Income on disposal ..................................... -- -- 65
----------- ----------- -----------
Net loss ................................................... $ (408) $ (8,761) $ (3,978)
=========== =========== ===========
Basic and diluted per share amounts:
Loss from continuing operations ........................ $ (0.13) $ (2.74) $ (1.27)
Income from discontinued operations .................... -- -- 0.02
----------- ----------- -----------
Net loss ............................................... $ (0.13) $ (2.74) $ (1.25)
=========== =========== ===========
Weighted average number of shares outstanding
used in computing per share amounts .................... 3,206,179 3,200,140 3,194,021
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F3-
<PAGE> 36
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTALS
-------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 28, 1995 .... $ 32 $ 46,480 $(31,676) $ (1) $14,835
Net loss ........................ (3,978) (3,978)
Employee stock award ............ * 19 19
Other ........................... 23 23
-------- -------- -------- ------ --------
BALANCE AT FEBRUARY 29, 1996 .... 32 46,522 (35,654) (1) 10,899
Net loss ........................ (8,761) (8,761)
Employee stock award ............ * 7 7
-------- -------- -------- ------ --------
BALANCE AT FEBRUARY 28, 1997 .... 32 46,529 (44,415) (1) 2,145
Net loss ........................ (408) (408)
Employee stock award ............ * 6 6
-------- -------- -------- ------ --------
BALANCE AT FEBRUARY 28, 1998 .... $ 32 $ 46,535 $(44,823) $ (1) $ 1,743
======== ======== ======== ====== ========
</TABLE>
* Rounds to less than $1
The accompanying notes are an integral part of these
consolidated financial statements.
-F4-
<PAGE> 37
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations ......................................... $ (408) $(8,761) $(4,043)
Adjustments to reconcile loss from continuing
operations to net cash (used in) provided by operating activities:
Depreciation and amortization ........................................ 661 1,207 873
Deferred tax expense ................................................. 1,000 3,086 2,000
Gain on sale of real estate .......................................... (1,761) -- --
Loss on assets held for sale ......................................... -- 3,297 --
Loss on retirement of assets ......................................... 18 36 37
Employee stock award ................................................. 6 7 19
Other ................................................................ -- -- 23
Other changes in operating assets and liabilities:
Accounts receivable .................................................. (144) (255) 1,667
Inventories .......................................................... (480) 1,102 2,320
Accounts payable ..................................................... 286 760 (2,304)
Other ................................................................ 216 330 (467)
------- ------- -------
Net cash (used in) provided by operating activities of:
Continuing operations ................................................... (606) 809 125
Discontinued operations ................................................. (294) (255) (282)
------- ------- -------
Net cash (used in) provided by operating activities: ........................ (900) 554 (157)
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment ..................................... (347) (177) (430)
Proceeds from the sale of real estate ................................... 2,656 -- --
Acquisition of subsidiaries, net of cash acquired ....................... -- (79) --
Loss on assets held for sale ............................................ -- (196) --
Net change in the excess of cost over net assets acquired ............... -- -- (284)
Other ................................................................... 52 (25) --
------- ------- -------
Net cash provided by (used in) investing activities ......................... 2,361 (477) (714)
------- ------- -------
Cash flows from financing activities:
Net borrowings under revolving credit agreement ......................... 162 693 2,225
Proceeds from issuance of long-term debt ................................ -- 1,500 --
Repayment of notes payable .............................................. (105) -- (548)
Principal payments on long-term obligations ............................. (1,475) (2,276) (802)
Deferred loan costs ..................................................... (35) (273) --
------- ------- -------
Net cash (used in) provided by financing activities ......................... (1,453) (356) 875
------- ------- -------
Net increase (decrease) in cash ............................................. 8 (279) 4
Cash at beginning of year ................................................... 39 318 314
------- ------- -------
Cash at end of year ......................................................... $ 47 $ 39 $ 318
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for operating activities:
Interest .............................................................. $ 667 791 $ 903
======= ======= =======
Income taxes, net of refunds received ................................. $ 16 (3) $ 9
======= ======= =======
</TABLE>
Non-cash investing and financing activities:
Fiscal year ending February 28, 1997:
A note payable of $105, and non-compete agreement with a discounted
value of $274 were issued in connection with the acquisition of a
subsidiary (see Note 13). In addition, there were charges relating to
the disposal of two subsidiaries (see Note 2).
Fiscal year ending February 29, 1996:
Capital lease obligations of $76 were incurred in connection with
leases of new equipment.
A note and an earn-out payable totaling $825 were canceled in
connection with the settlement of an arbitration proceeding involving
the former owner of a subsidiary which was acquired in fiscal 1995,
and another earn-out payable was reduced by $400 as a result of the
earnings trends of another subsidiary also acquired in fiscal 1995.
The accompanying notes are an integral part of these
consolidated financial statements.
-F5-
<PAGE> 38
OAKHURST COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), 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 the issued and outstanding common and voting
preferred stock of SCPI. Accordingly, Oakhurst controls approximately 90% of the
voting power of SCPI. The accompanying consolidated 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"), of Dowling's Fleet Service Co., Inc.
("Dowling's") and of Puma Products, Inc. ("Puma") in January 1994, August 1994
and October 1994, respectively. In March 1995, Oakhurst formed Oakhurst
Management Corporation ("OMC"), a wholly-owned subsidiary, to coordinate the
provision of certain corporate administrative, legal, and accounting services to
the Company and its subsidiaries. In March 1996, Dowling's acquired the
outstanding capital stock of G&O Sales Company ("G&O") (see Note 13). In May
1997 and June 1997, Oakhurst sold the capital stock of H&H and Puma,
respectively (see Note 2). The accompanying consolidated financial statements
include the accounts of these subsidiaries for the respective periods of
ownership, and all significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principals, which 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Business Activities:
The Company's operations at February 28, 1998 consisted of two
subsidiaries primarily engaged in the wholesale distribution trade to the
automotive aftermarket. SCPI is a wholesale distributor operating under the
trade name Steel City Products selling principally automotive accessories
primarily to discount retail chains, hardware, drug and supermarket retailers
and to automotive specialty stores, based mainly in the Northeastern United
States. In fiscal 1996, SCPI also began the wholesale distribution of non-food
pet supplies, primarily to supermarket retailers. Dowling's is a wholesale
distributor of automotive radiators and related parts serving mostly radiator
repair shops in the New York, Connecticut, New Jersey and greater Philadelphia,
Pennsylvania markets. For the years ended February 28, 1997 and February 28,
1996, the Company's operations also included H&H and Puma. H&H was involved in
the retail and wholesale distribution and installation of automotive
accessories, including stereos, alarms and cellular phones, in western
Pennsylvania. Puma was a wholesale distributor of high quality truck and van
conversion products to automotive and truck converters, restylers and
accessories retailers.
-F6-
<PAGE> 39
Fiscal Year:
The Company's fiscal year ends on the last day of February.
Inventories:
The Company's inventories are stated at the lower of cost or market.
Cost is determined by the last in, first out method (LIFO) for 59% of the
Company's inventories at February 28, 1998 and 1997, and by the first in, first
out (FIFO) method for the remaining inventories. Had all the Company's
inventories been valued using the FIFO method, they would have been
approximately $285,000 and $388,000 higher than reported at February 28, 1998
and 1997, respectively.
Property and Equipment:
Depreciation and amortization are computed using the straight-line
method. Estimated useful lives used for computing depreciation and amortization
are: buildings, 15-40 years; building improvements, 5-20 years; leasehold
improvements, 3-10 years; and office furniture, equipment and vehicles, 3-10
years. Depreciation expense was approximately $278,000, $493,000 and $430,000 in
fiscal 1998, 1997 and 1996, respectively.
Excess of Costs Over Net Assets Acquired:
The excess of cost over net assets acquired is associated with the
acquisition of Oakhurst's subsidiaries and is amortized over periods ranging
from 15 to 40 years. The unamortized values at February 28, 1998 and 1997, are
net of accumulated amortization of approximately $795,000 and $601,000,
respectively. Oakhurst assesses whether its excess of costs over net assets
acquired and other long-lived assets are impaired at each balance sheet date
based upon an evaluation of undiscounted projected cash flow through the
remaining amortization period. If an impairment is determined, the amount of
such impairment is calculated based upon the estimated fair value of the asset.
Revenue Recognition:
Revenues are recognized at the time products are shipped.
Federal Income Taxes:
Oakhurst accounts for income taxes using an asset and liability
approach to accounting for income taxes. Deferred tax liabilities and assets are
recognized for the future tax consequences of events that have already been
recognized in the financial statements or tax returns. Net deferred tax assets
are recognized to the extent that management believes that realization of such
benefits is considered more likely than not. Changes in enacted tax rates or
laws may result in adjustments to the recorded deferred tax assets or
liabilities in the period that the tax law is enacted (see Note 6).
Stock-Based Compensation:
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
-F7-
<PAGE> 40
Earnings Per Share:
During fiscal 1998, Oakhurst adopted statement of Financial Accounting
Standards No. 128, "Earnings per Share". This standard requires presentation of
basic and diluted earnings per share and restatement of all prior period
earnings per share presented. Basic earnings or loss per share is computed by
dividing net earnings or loss by the weighted average number of common shares
outstanding during the year. The diluted earnings per share calculation assumes
the conversion of dilutive stock options into common shares. Loss per share
amounts do not include common stock equivalents since that would have an
antidilutive effect and reduce net loss per share. At February 28, 1998, there
were options to purchase 1,087,708 shares of common stock outstanding that were
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market value of the common
shares.
2. SALE OF SUBSIDIARIES
Effective as of May 31, 1997, Oakhurst entered into an agreement to
sell all of the capital stock of Puma, and in July 1997, Oakhurst entered into
an agreement to sell all of the capital stock of H&H. Because there was no net
realizable value relative to such subsidiaries, the results for fiscal 1997
included a charge related to the disposal of such subsidiaries representing the
net effect of the write-off of the net assets of the subsidiaries and the
related excess of costs over net assets acquired. The results for fiscal 1998
include other income from these two subsidiaries, including recoveries on
certain insurance claims related to H&H.
Effective as of May 31, 1997, the former owner of Puma who is a
director of Oakhurst, acquired the capital stock of Puma in exchange for his
repayment of the revolving debt attributable to Puma of approximately $400,000,
the cancellation of a note payable and an earn-out to him aggregating $1.2
million, the forgiveness of Oakhurst's intercompany debts to Puma, and the
payment by Oakhurst of $50,000. The agreement contains mutual releases and
provides for a payment to Oakhurst in the event of a re-sale of Puma's stock
within one year, equal to 12.5% of the excess of any such sales price (including
debt assumed by an acquirer) over $1 million. The buyer of Puma also acquired
all of the assets relating to SCPI's Wing-Tech division for the net book value
of approximately $170,000. As a result of the sale of Puma, Oakhurst was
relieved of contingent liabilities in respect of Puma's lease and employment
agreement obligations aggregating approximately $500,000.
Effective as of July 14, 1997, a Vice-President of H&H acquired the
capital stock of H&H in exchange for H&H's forgiveness of Oakhurst's
intercompany debt to H&H and the retention by Oakhurst of certain insurance
claims related to H&H. As a result of the sale of H&H, Oakhurst was relieved of
contingent liabilities in respect of H&H's lease and employment obligations
aggregating approximately $900,000.
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ -------------
<S> <C> <C>
Land ........................................... $ -- $ 170
Buildings ...................................... -- 830
Leasehold and building improvements ............ 451 520
Office furniture, equipment and vehicles ....... 1,331 1,319
------- -------
1,782 2,839
Less accumulated depreciation .................. (1,098) (1,311)
------- -------
$ 684 $ 1,528
======= =======
</TABLE>
In December 1997, SCPI sold warehouse in Pittsburgh, Pennsylvania to an
unrelated third party for a gross purchase price of approximately $2.8 million
in cash. Accordingly, in the fourth quarter of fiscal 1998 SCPI recorded a
pre-tax gain of approximately $1.8 million in connection with the sale. After
repayment of the term loan secured by the property, the net proceeds of
approximately $1.6 million were used to reduce revolving debt, to cover the
expenses of moving SCPI's operations to newer, leased premises and to make
certain improvements to such premises.
-F8-
<PAGE> 41
4. LINE OF CREDIT AND LONG-TERM OBLIGATIONS
Long-term obligations, including the present value of the Creditor
Notes (see Note 7), consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
----------- ------------
<S> <C> <C>
Creditor Notes, due annually through July 1998 ..................... $ 522 $ 809
Revolving Credit Agreement due in April 1999 ....................... 4,043 3,881
Dowling's Notes, due quarterly through March 2001 .................. 286 374
G&O non-compete payments, due monthly through March 1999 ........... 114 204
Capital lease obligations for computer and warehouse equipment,
due monthly through August 2001 .............................. 27 50
G&O acquisition note, paid in March 1997 ........................... -- 105
Fixed Asset Loan, repaid in December 1997 .......................... -- 1,268
Other .............................................................. 60 66
------- -------
5,052 6,757
Less current portion ............................................... (734) (1,041)
------- -------
$ 4,318 $ 5,716
======= =======
</TABLE>
On March 28, 1996, Oakhurst and its subsidiaries entered into a two
year revolving credit agreement with an institutional lender that provided for a
total facility for Oakhurst and its subsidiaries of $9.5 million, comprised of a
SCPI term loan of $1.5 million (the "Fixed Asset Loan"), secured by a mortgage
on SCPI's real estate, and a maximum revolving credit facility of $8 million
(the "Revolver") (collectively, the "Credit Facility").
Borrowings under the Credit Facility bear interest at the higher of the
Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings under the
Revolver are subject to a borrowing base that is calculated according to defined
levels of Oakhurst's subsidiaries' accounts receivable and inventories. The
Credit Facility had an initial term of two years, and contains restrictive
financial covenants, including among other things, the maintenance of defined
subsidiary and consolidated tangible net worth levels and consolidated current
ratio, and limitations on annual cash dividends. The Credit Facility is secured
by the accounts receivable, inventories, and fixed assets of Oakhurst and its
subsidiaries, contains certain Revolver prepayment penalties, and provides for
the payment of loan management fees, unused Revolver facility fees and
examination fees.
In June 1997, Oakhurst and its subsidiaries entered into an agreement
with the lender to amend the Credit Facility to reflect the dispositions of H&H
and Puma. The agreement principally reduced the maximum amount available under
the Revolver to $7 million, subject to a borrowing base, and amended certain
financial covenants, including the elimination of the consolidated tangible net
worth covenant. In September 1997, Oakhurst and its subsidiaries reached an
agreement with the lender to extend the Revolver beyond its initial two year
term to April 1999, and paid a fee of $35,000 in connection with the renewal.
The Credit Agreement provides for subsequent automatic renewal terms of one year
each upon payment of a renewal fee of 0.5% of the entire line, unless earlier
terminated as provided for in the Agreement. At February 28, 1998, the borrowing
base under the Revolver was approximately $4.7 million. During fiscal 1998, the
borrowing base ranged from $4.2 million to $6 million, and averaged
approximately $5.2 million.
In December 1997, the Fixed Asset Loan was repaid in full, from the
proceeds of the sale of SCPI's warehouse.
The Dowling's Notes that were issued in connection with the fiscal 1995
acquisition of Dowling's bear interest at 6% and provide for repayment in
quarterly installments of $22,000 each, together with accrued interest thereon,
beginning in June 1996.
-F9-
<PAGE> 42
The G&O Acquisition Note bore interest at 7% and was paid in full in
March 1997, together with accrued interest thereon. The G&O Non-Compete
Agreement provides for 36 monthly payments of $8,750 beginning in March 1996.
The G&O Non-Compete Agreement has been discounted using an imputed interest rate
of 9.75% (see Note 13).
Long-term obligations mature during each fiscal year as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL
------
<S> <C>
1999.......................... $ 734
2000.......................... 4,165
2001.......................... 101
2002.......................... 33
2003.......................... 12
Thereafter.......................... 7
------
$5,052
======
</TABLE>
5. FINANCIAL INSTRUMENTS
Financial instruments at February 28, 1998 and 1997 consist of the
following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, 1998 FEBRUARY 28, 1997
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Creditor Notes................ $ 522 $ 580 $ 809 $ 812
Revolving Credit Agreement
and Fixed Asset Loan ...... $ 4,043 $ 4,043 $ 5,149 $5,149
</TABLE>
The fair values of the instruments were based upon the rate available
to the Company for instruments of the same maturities. The Creditor Notes, which
are non-interest bearing, were discounted using a market rate of 11.75% to
determine current fair value.
6. INCOME TAXES AND DEFERRED TAX ASSET
At February 28, 1998, Oakhurst has, for tax reporting purposes,
estimated net operating tax loss carry-forwards of approximately $154 million
which expire in the years 2001 through 2012. Under SFAS No. 109, Oakhurst
records as an asset the future benefit of its net operating tax loss
carry-forwards and other tax benefits.
Fluctuations in market conditions and trends and other changes in the
Company's earnings base, such as subsidiary acquisitions and disposals, warrant
periodic management reviews of the recorded tax asset to determine if an
increase or decrease in the recorded valuation allowance is necessary to reduce
the tax asset to an amount that management believes will more likely than not be
realized. During the year ended February 29, 1996, SCPI experienced significant
changes in its customer base. As a result, management undertook an extensive
review of SCPI's operations to determine the impact of such changes on SCPI's
future levels of revenues and profits. In addition, the Company's other
operating subsidiaries were evaluated considering the then current trends and
historical operations. This review led to an increase of approximately $2.5
million in the deferred tax asset valuation allowance, with a corresponding
charge to deferred tax expense.
Subsequently, the Board of Directors of Oakhurst made the decision to
dispose of Puma and H&H, which led to a further increase of approximately $4.9
million in the valuation allowance of the deferred tax asset, with a
corresponding charge to deferred tax expense for the year ended February 28,
1997. In fiscal
-F10-
<PAGE> 43
1998, the valuation allowance was increased to the full value of the deferred
tax asset, resulting in an additional charge to deferred tax expense of $701,000
for the year ended February 28, 1998. If future profit levels exceed current
expectations, and economic or business changes warrant upward revisions in the
estimate of the realizable value of net operating tax loss carry-forwards, the
consequent reduction in the valuation allowance would result in a corresponding
deferred tax benefit in future results of operations to the extent of the
aggregate charges of approximately $8 million to deferred tax expense for fiscal
1998, fiscal 1997 and fiscal 1996, and any benefit in excess of such charge
would be reflected as an addition to paid-in capital. The accounting treatment
to increase paid-in capital results from SCPI's quasi-reorganization accounting
in 1990.
The deferred tax effects of temporary differences are not significant,
and current income taxes payable represent state income taxes.
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense (benefit) ............... $ 315 $ 12 $ (115)
Current tax benefit from utilization of
net operating tax loss carryforwards ...... (299) -- --
------- ------- -------
16 12 (115)
Increase in valuation allowance
of the deferred tax asset ................. 701 4,854 2,482
Deferred tax expense (benefit) .............. 299 (1,768) (482)
------- ------- -------
Income tax expense .......................... $ 1,016 $ 3,098 $ 1,885
======= ======= =======
</TABLE>
During the fiscal year ended February 29, 1996, SCPI settled a dispute
over a tax refund claimed from the state of Kentucky by SCPI's predecessor, and
accordingly, recorded a refund of approximately $142,000, including
approximately $35,000 in interest.
The income tax provision differs from the amount using the statutory
federal income tax rate of 34% applied to income or loss from continuing
operations for the following reasons (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Tax expense (benefit) at the U.S.
federal statutory rate ................. $ 207 $(1,925) $ (734)
State income tax expense (benefit),
net of refunds and federal benefit ..... 11 7 (75)
Increase in deferred tax asset
valuation allowance .................... 701 4,854 2,482
Non-deductible costs ..................... 97 162 212
------- ------- -------
Income tax expense ................... $ 1,016 $ 3,098 $ 1,885
======= ======= =======
</TABLE>
-F11-
<PAGE> 44
The availability of the net operating tax loss carry-forwards may be
adversely affected by future ownership changes of SCPI or Oakhurst; at this
time, such changes cannot be predicted. Oakhurst's estimated net operating tax
loss carry-forwards at February 28, 1998 expire as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
- ------
<S> <C>
2002 .......................... $ 12,000
2003 .......................... 52,000
2004 .......................... 22,000
2005 .......................... 49,000
2006 .......................... 13,000
2011........................... 1,000
2012........................... 2,000
2013 .......................... 3,000
--------
$154,000
========
</TABLE>
7. DISCONTINUED RETAIL OPERATIONS
SCPI disposed of its former Retail Division to an unrelated company,
Retail Acquisition Corp. ("RAC") in September 1990 when RAC acquired
substantially all the assets of the former division and assumed substantially
all of its liabilities. SCPI remained contingently liable for certain of these
liabilities. Subsequently, RAC was forced into bankruptcy, and in fiscal 1993,
SCPI participated in a global settlement pursuant to which SCPI issued $2.5
million of non-interest bearing notes (the "Creditor Notes") solely for the
benefit of contingent creditors. In return, SCPI and Oakhurst were relieved of
any further obligations to contingent creditors, except for payment on the
Creditor Notes.
The Creditor Notes, which are non-interest bearing, are payable in
equal annual installments through July 1998. The Creditor Notes have been
discounted using an imputed interest rate of 7.5%. Imputed interest expense of
approximately $34,000, $56,000 and $76,000 is included in results of continuing
operations for fiscal 1998, 1997 and 1996, respectively.
The accompanying statements of operations and cash flows reflect any
income or loss associated with the disposal of the former Retail Division as
discontinued operations.
8. STOCK OPTIONS
In fiscal 1995, the Board of Directors and shareholders approved two
stock option plans, the 1994 Omnibus Stock Plan (the "Omnibus Plan") and the
1994 Non-Employee Director Stock Option Plan (the "Director Plan"). Under both
plans, the exercise price of the option granted may not be less than the fair
market value of the common stock on the date of the grant, and the term of the
grant may not exceed ten years.
The Omnibus Plan initially provided for the issuance of a maximum of
350,000 shares of Oakhurst's common stock pursuant to the grant of incentive
stock options to employees of Oakhurst and its subsidiaries, and the grant of
non-qualified stock options, stock or restricted stock to employees,
consultants, directors and officers of Oakhurst and its subsidiaries. In fiscal
1997, the plan was increased by 150,000 shares, and in fiscal 1998, the Board of
Directors adopted an amendment to the plan whereby the maximum amount of shares
issuable under the Omnibus Plan was increased by 450,000 shares. The options
generally vest over a four year period and expire ten years from the date of the
grant. None of these options have been exercised.
The Director Plan (a "formula plan") provides for the issuance of up to
100,000 shares of common stock pursuant to options granted to directors who are
not employees of the Company. The plan provides that
-F12-
<PAGE> 45
on May 1 of each year, each non-employee director holding office on such date
receives a fully-exercisable, fully vested, ten year option to purchase 3,000
shares at the market value on such date. Each director's options expire upon
such director's resignation. None of these options have been exercised.
In fiscal 1992, the Board of Directors granted ten year options to
purchase 194,388 shares of Oakhurst's common stock to key employees and to
certain members of the Board of Directors. The exercise price of the
options, which was equal to the market value of the stock at the date of the
grant, was $2.75 and in fiscal 1996, the price of 49,984 of such options was
reduced to $2.00 per share. These options are fully vested, will remain
exercisable through 2001, and each employee's options expire upon such
employee's resignation.
As described in Note 1, the Company accounts for its stock-based
compensation using the intrinsic value method. There would have been no effect
on the Company's net earnings and earnings per share for fiscal 1998, 1997 and
1996 had the Company used the fair value method to determine compensation costs
instead of the intrinsic value method.
The following tables summarize the activity under the three plans:
<TABLE>
<CAPTION>
Omnibus Plan (a) Director's Plan (b) Fiscal 1992 Grant
---------------------- -------------------- ----------------------
Price Price Price
Shares Range Shares Range Shares Range
--------- ---------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 2/95: 313,084 $2.00-3.88 24,000 $2.00-2.75 179,395 $2.00-2.75
Granted 129,500 $1.25-2.00 24,000 $ 3.38 -- --
Expired -- -- (6,000) $2.75-3.38 -- --
-------- ---------- ------- ---------- ------- ----------
Outstanding at 2/96: 442,584 $1.25-3.88 42,000 $2.75-3.38 179,395 $2.00-2.75
Granted 49,900 $1.16-1.25 15,000 $ 1.22 -- --
Expired (21,850) $1.25-3.88 (9.000) $1.22-3.38 (29,992) $ 2.75
-------- ---------- ------- ---------- ------- ----------
Outstanding at 2/97: 470,634 $1.16-3.88 48,000 $1.22-3.38 149,400 $2.00-2.75
Granted 466,600 $0.88-1.00 12,000 $ 1.00 -- --
Expired (35,100) $1.16-3.88 (3,000) $ 2.75 (20,827) $ 2.00
-------- ---------- ------- ---------- ------- ----------
Outstanding at 2/98: 902,134 $0.88-3.88 57,000 $1.00-3.38 128,573 $2.00-2.75
======== ========== ======= ========== ======= ==========
</TABLE>
(a) In fiscal 1996, 105,000 options outstanding were repriced to $2.00. Of
the options granted in fiscal 1997, 100,000 vested over a one year
period. Of the options granted in fiscal 1997, 49,500 were immediately
exercisable. Of the options granted in fiscal 1998, 50,000 vest in May
1998 and 305,000 vest upon the earlier of the occurrence of certain
defined achievements, a change of control of the Company, or the ninth
anniversary of the grant date.
(b) In fiscal 1996, 49,984 options outstanding were repriced to $2.00 from
$2.75.
The following table summarizes information about stock options
outstanding and exercisable at February 28, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------- -----------------------
Weighted Weighted Weighted
average average average
Range of remaining exercise exercise
exercise price Number contractual price Number price
per share of shares life(years) per share of shares per share
- ----------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.88 - $3.88 902,134 8.33 $1.50 429,309 $2.09
$1.00 - $3.38 57,000 7.49 $2.22 57,000 $2.22
$2.00 - $2.75 128,573 3.50 $2.58 128,573 $2.58
--------- -------
1,087,707 614,882
========= =======
</TABLE>
At February 28, 1997, options were exercisable for 600,917 shares at a
weighted average exercise price of $2.25 per share. The corresponding amounts at
February 29, 1996, were 476,351 and $2.57 per share, respectively.
-F13-
<PAGE> 46
9. EMPLOYEE PENSION PLAN
Oakhurst and its subsidiaries maintain a defined contribution
profit-sharing retirement plan ("the Plan") covering substantially all persons
employed by the Company and its subsidiaries, whereby employees may contribute a
percentage of compensation, limited to maximum allowed amounts under the
Internal Revenue Code. The Plan provides for discretionary employer
contributions, the level of which, if any, may vary by subsidiary and is
determined annually by each company's Board of Directors. Total plan related
expense was approximately $60,000, $53,000 and $29,000 in fiscal 1998, fiscal
1997 and fiscal 1996, respectively.
10. LEASES
The Company leases its subsidiaries' warehouses under operating leases
which expire over the next five years. Generally, the leases are net leases that
require payment by the Company of executory expenses such as real estate taxes,
insurance, maintenance and other operating costs. The leases generally provide
for renewal options. Certain of these leases were with related parties (see Note
15).
Minimum annual rentals for all operating leases having initial
non-cancelable lease terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1999........................................ $ 627
2000........................................ 366
2001........................................ 247
2002........................................ 247
2003........................................ 206
-------
Total future minimum rental payments $1,693
======
</TABLE>
Total rent expense for all operating leases amounted to approximately
$402,000, $703,000 and $600,000 for fiscal 1998, 1997 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES
SCPI has employment agreements with two senior executives that provide
termination rights in the event of a change in control of SCPI, as defined. The
rights include payments ranging from six to twenty-four months of the
executives' base salaries, along with continuation of benefits and certain other
payments to each executive. Each agreement also provides for substantially the
same provisions in the event that the executive's employment were to be
terminated by SCPI without cause. The agreements were extended in August 1996 on
a year to year basis, and will continue under the same terms unless a notice of
non-renewal is given by either party 90 days prior to the anniversary date of
such renewal, or unless replaced by a new agreement.
In fiscal 1996, Oakhurst entered into employment agreements with
certain senior executives of Oakhurst and Dowling's that provide for certain
termination rights in the event that the executive's employment were to be
terminated by Oakhurst without cause. The employment agreements expire between
May 1998 and February 2001.
Management is unaware of any other significant contingencies.
-F14-
<PAGE> 47
12. MAJOR CUSTOMERS
Sales to each of those major customers representing individually more
than 10% of Oakhurst's consolidated sales were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 28, 1998 February 28, 1997 February 29, 1996
------------------ ------------------- -----------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
----- ----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Customer "A" -- -- -- -- $4,641 10%
Customer "B" -- -- -- -- $3,975 8%
</TABLE>
During the third quarter of fiscal 1996, customer A informed SCPI that
it had decided to change its source of supply, and sales to this customer ended
in January 1996.
In fiscal 1996, one of SCPI's then-largest customers (customer B) filed
for protection under the United States Bankruptcy Code and announced that it
would close all its stores. The fiscal 1996 provision for doubtful accounts
contains a write-off of approximately $150,000 relating to this customer.
13. ACQUISITION
On March 28, 1996, Dowling's acquired all of the outstanding capital
stock of G&O, a radiator distributor based in Philadelphia, Pennsylvania. The
purchase price of approximately $210,000 consisted of $105,000 in cash, with the
balance in the form of a note payable to the seller. The note carried interest
at 7%, and was paid in full on the first anniversary of the acquisition date,
together with interest thereon. The seller continues with G&O under a four year
employment agreement.
In connection with the acquisition, Dowling's entered into a
non-competition agreement with the seller that provides for aggregate payments
of $315,000 over a three-year period that began in March 1996, and for payments
of 7.5% of the defined profits of G&O for the first four years of ownership. The
value of the non-competition agreement has been discounted using an imputed
interest rate of 9.75%, and the related asset is being amortized over the life
of the agreement, which is ten years.
The acquisition was accounted for using the purchase method of
accounting. In connection with the acquisition, assets were acquired and
liabilities were assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.................. $279
Liabilities assumed............................ 67
----
Net assets acquired......................... $212
====
</TABLE>
14. CORPORATE REORGANIZATION
Under the merger (see Note 1), SCPI is required for a period of five
years following the merger to issue to Oakhurst (or cancel) such number of
shares of Series A Preferred Stock and/or common stock as shall be necessary, in
accordance with periodic determinations, to maintain Oakhurst's aggregate stock
ownership of SCPI at 90%. Revaluations of SCPI as of the end of fiscal 1997,
1996 and 1995 have not yet been completed. Management expects that the
revaluations as of the end of fiscal 1997 and 1996, when complete, will result
in a decrease in the valuation of SCPI because of changes in the business
climate and SCPI's customer base that occurred primarily during fiscal 1996.
Accordingly, Series A Preferred shares outstanding may be canceled once such
valuations are complete.
-F15-
<PAGE> 48
During fiscal 1993, the cumulative dividends on SCPI's Series A
Preferred Stock exceeded SCPI's net income for that year, thus creating a loss
attributable to SCPI's common stockholders in excess of Oakhurst's minority
interest and, accordingly, Oakhurst reduced to zero the minority interest
liability related to SCPI. At such time as SCPI's cumulative net income
attributable to common stockholders from the effective date of the merger
exceeds the cumulative Series A Preferred Stock dividends in arrears, Oakhurst
will again reflect the appropriate minority interest liability.
15. RELATED PARTY TRANSACTIONS
In fiscal 1994, H&H entered into a seven-year lease with Harold
Garfinkel, the President and former owner of H&H, for the principal property
from which it conducted its business. The purchaser of H&H assumed all future
obligations under the lease effective as of July 1998. The lease required annual
lease payments of $144,000. H&H paid Mr. Garfinkel $48,000 in fiscal 1998, and
$144,000 in each of fiscal 1997 and 1996 under this lease.
In fiscal 1995, Puma entered into a six-year lease with Anthony Puma,
the former Chairman of Puma, currently a director of Oakhurst, for the facility
from which it conducted its business. The purchaser of Puma assumed all future
obligations under the lease effective as of May 1998. The lease required minimum
annual lease payments of approximately $80,000. Puma paid Mr. Puma approximately
$20,000 in fiscal 1998, and $80,000 in each of fiscal 1997 and 1996 under this
lease.
In fiscal 1998, Oakhurst sold Puma to Anthony Puma, a director of
Oakhurst (see Note 2).
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Dollar amounts in thousands,
except per share data)
<TABLE>
<CAPTION>
FISCAL 1998 FIRST ECOND THIRD FOURTH
- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ................................... $ 8,291 $ 9,336 $ 7,880 $ 6,800
Gross profit ............................ 1,492 1,938 1,431 1,327
Net (loss) income ....................... (315) 97 (330) 140
Basic and diluted per share amounts:
Net (loss) income .................... $ (.10) $ .03 $ (.10) $ .04
Average number of shares outstanding .... 3,203,611 3,207,053 3,207,053 3,211,532
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997 FIRST SECOND THIRD FOURTH
- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ................................... $ 10,892 $ 11,454 $ 10,247 $ 9,335
Gross profit ............................ 2,412 2,577 2,221 2,259
Net loss ................................ (471) (432) (587) (7,271)
Basic and diluted per share amounts:
Net loss .............................. $ (.15) $ (.13) $ (.18) $ (2.27)
Average number of shares outstanding .... 3,197,183 3,201,144 3,201,144 3,201,144
</TABLE>
SCPI sold its real estate in December 1997, and accordingly, recorded a
pre-tax gain of approximately $1.8 million in the fourth quarter of fiscal 1998
in connection with the sale. The results for the fourth quarter of fiscal 1998
also include a deferred tax charge of approximately $1 million, of which
$701,000 related to an increase in the valuation allowance of the deferred tax
asset (see Note 6).
-F16-
<PAGE> 49
The net loss in the fourth quarter of fiscal 1997 was primarily caused
by two factors. As of the end of fiscal 1998, Oakhurst's Board of Directors had
made the decision to dispose of H&H and Puma, and because there was no net
realizable value relative to such subsidiaries, the results for fiscal 1997
include a charge of approximately $3.5 related to the disposal of such
subsidiaries, principally representing the net effect of the write- off of the
net assets of the subsidiaries and the related excess of costs over net assets
acquired attributable to these subsidiaries. In addition, the results for the
fourth quarter of fiscal 1997 include a net deferred income tax charge of
approximately $3.1 million relating to an increase in the valuation allowance of
the deferred tax asset.
-F17-
<PAGE> 50
SCHEDULE II
<TABLE>
<CAPTION>
OAKHURST COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGES TO CHARGES TO BALANCE
BEGINNING COSTS OTHER ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD AND EXPENSES -DESCRIBE - DESCRIBE OF PERIOD
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts deducted from trade accounts receivable:
Years ended:
February 28, 1998................. $ 555 $ 165 $ -- $ 259 (A) $ 461
=========== ========== ============ ========== ==============
February 28, 1997................. $ 558 $ 102 $ -- $ 105 (A) $ 555
=========== ========== ============ ========== ==============
February 29, 1996................. $ 282 $ 610 $ -- $ 334 (A) $ 558
=========== ========== ============ ========== ==============
</TABLE>
(A) Amounts were deemed uncollectible.
-F18-
<PAGE> 51
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed as
Appendix A to the Proxy Statement/Prospectus dated April 16, 1991
of the Company and Steel City Products, Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-K for the
fiscal quarter ended August 31, 1996).
3.2 By-laws - as amended through January 13, 1998 - filed herewith.
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see
Exhibit 2, above).
4.2 Certificate of Designations of Series A Junior Participating
Preferred Stock dated as of February 10, 1998 - filed herewith.
*10.1 Form of Option Agreement dated August 29, 1991 with directors
and executive officers (filed as Exhibit 10(b) to the Company's
Annual report on Form 10-K for the fiscal year ended February 29,
1992).
10.2 Agreement dated June 11, 1991 with Prudential-Bache Special
Situations Fund (filed as Exhibit 10(q) to the Annual Report on
Form 10-K of Steel City Products, Inc. for the fiscal year ended
March 3, 1990).
10.3 Purchase and Sale Agreement relating to the acquisition of
Dowling's Fleet Service Company, Inc. by Oakhurst Capital, Inc.,
also containing employment agreements with Robert Keane and
Joseph Quattrochi (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the period ended August 27,
1994).
10.4 Lease agreements by and between James Dowling and Dowling's Fleet
Service Company, Inc. (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1995).
*10.5 The 1994 Omnibus Stock Plan with form of option agreement (filed
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1995).
*10.6 The 1994 Non-Employee director Stock Option Plan with form of
option agreement (filed as Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1995).
10.7 Loan and Security Agreement; Schedule to Loan and Security
Agreement; Secured Promissory Note with FINOVA Capital
Corporation all dated March 28, 1996 (filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 29, 1996).
<PAGE> 52
10.8 Open-End Mortgage between Steel City Products, Inc. and FINOVA
Capital Corporation dated March 28, 1996 (filed as Exhibit 10.18
to the Company's Annual Report on Form 10-K for the fiscal year
ended February 29, 1996).
10.9 Consulting Agreement with Bryanston Management, Ltd, dated as of
December 19, 1995 (filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 29, 1996).
*10.10 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Joseph B. Quattrochi dated
as of March 1, 1996 (filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1997).
*10.11 Employment Agreement and Form of Promissory Note between
Dowling's Fleet Service, Co., Inc. and Robert M. Keane dated as
of March 1, 1996 (filed as Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1997).
*10.12 Employment Agreement between Laurence D. Finman and Oakhurst
Management Co., dated as of March 1, 1996 (filed as Exhibit 10.24
to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1997).
10.13 Non-Competition Agreement between G&O Sales Company and Arthur
Gruber dated as of March 12, 1996 (filed as Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997).
10.14 Amendment to Consulting Agreement and Amended Non-Qualified Stock
Option Agreement between Mark Auerbach and Oakhurst Company, Inc.
dated as of October 1, 1996 (filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997).
10.15 Stock Purchase and Sale Agreement between Anthony N. Puma, Puma
Products, Inc. and Oakhurst Company, Inc., dated as of June 10,
1997 (filed as Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 1997).
10.16 Stock Purchase and Sale Agreement between James Stein, H&H
Distributors, Inc. and Oakhurst Company, Inc., dated as of July
14, 1997 (filed as Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the first quarter ended May 31, 1997).
10.17 Agreement of Sale and Purchase by and between Steel City
Products, Inc. and Bearing Service Company of Pennsylvania dated
as of August 18, 1997 (filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the second quarter ended August
31, 1997).
10.18 Second and Third Amendments to the Loan and Security Agreement
between Oakhurst and its subsidiaries and FINOVA Capital
Corporation, dated effective June 1, 1997 and October 31, 1997,
respectively - filed herewith.
10.19 Lease agreement between Regional Industrial Development
Corporation and Steel City Products, Inc. dated as of - filed
herewith.
<PAGE> 53
11 Statement of re-computation of per-share earnings - filed
herewith.
21 Subsidiaries at February 28, 1998:
Steel City Products, Inc. - Delaware
Dowling's Fleet Service Company, Inc. - New York
Oakhurst Management Corporation - Texas
23 Consent of Deloitte & Touche LLP - filed herewith.
27 Financial Data Schedule (EDGAR transmission only) - filed
herewith.
- ----------
* Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 3.2
OAKHURST COMPANY, INC.
BY-LAWS
(As Amended Through January 13, 1998)
<PAGE> 2
OAKHURST COMPANY, INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I: OFFICES
<S> <C>
Section 1. Principal Office.........................................................................1
Section 2. Registered Office........................................................................1
Section 3. Other Offices............................................................................1
ARTICLE II: MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings........................................................................1
Section 2. Notice of Meeting........................................................................1
Section 3. Annual Meetings..........................................................................1
Section 4. Special Meetings.........................................................................1
Section 5. Quorum...................................................................................2
Section 6. Voting...................................................................................2
Section 7. Nomination of Director Candidates........................................................2
Section 8. List of Stockholders Entitled to Vote....................................................2
Section 9. Stock Ledger.............................................................................2
Section 10. Organization of Stockholders' Meetings...................................................3
Section 11. Order of Business........................................................................3
ARTICLE III: DIRECTORS
Section 1. Number and Election of Directors.........................................................3
Section 2. Vacancies................................................................................3
Section 3. Duties and Powers........................................................................3
Section 4. Meetings.................................................................................3
Section 5. Order of Business........................................................................3
Section 6. Quorum...................................................................................3
Section 7. Actions of Board.........................................................................3
Section 8. Meetings by Means of Conference Telephone................................................3
Section 9. Committees...............................................................................4
Section 10. Compensation.............................................................................4
Section 11. Interested Directors.....................................................................4
Section 12. Removal of Directors.....................................................................4
Section 13. Election of Officers.....................................................................4
ARTICLE IV: OFFICERS AND AGENTS
Section 1. Officers.................................................................................5
Section 2. Removal of Officers......................................................................5
Section 3. Agents and Employees.....................................................................5
Section 4. Power and Duties of the Chairman of the Board............................................5
Section 5. Powers and Duties of the President.......................................................6
Section 6. Vice Presidents..........................................................................6
Section 7. Secretary................................................................................6
</TABLE>
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<TABLE>
<S> <C>
Section 8. Assistant Secretary......................................................................6
Section 9. Treasurer................................................................................6
Section 10. Assistant Treasurer......................................................................6
Section 11. Corporate Comptroller....................................................................7
Section 12. Other Officers...........................................................................7
Section 13. Voting Securities Owned by the Corporation...............................................7
ARTICLE V: STOCK
Section 1. Form of Certificate .....................................................................7
Section 2. Lost Certificates........................................................................7
Section 3. Transfer of Certificated Stock...........................................................8
Section 4. Transfer of Uncertificated Stock.........................................................8
Section 5. Record Date..............................................................................8
Section 6. Ownership of Capital Stock...............................................................8
ARTICLE VI: NOTICES
Section 1. Notices..................................................................................8
Section 2. Waivers of Notice........................................................................8
ARTICLE VII: GENERAL PROVISIONS
Section 1. Dividends................................................................................9
Section 2. Disbursements............................................................................9
Section 3. Fiscal Year..............................................................................9
Section 4. Corporate Seal...........................................................................9
Section 5. Form of Records..........................................................................9
ARTICLE VIII: AMENDMENTS
Section 1 .........................................................................................9
Section 2. Entire Board of Directors ...............................................................9
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OAKHURST COMPANY, INC.
(Hereinafter called the "Corporation")
BY-LAWS
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ARTICLE I: OFFICES
Section 1. Principal Office. The principal office of the Corporation is located
at 3513 Concord Pike, Wilmington, Delaware 19803.
Section 2. Registered Office. The registered office of the Corporation in the
State of Delaware shall be c/o The Corporation Trust Company, 1209 Orange
Street, Wilmington, County of New Castle, Delaware 19801.
Section 3. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine.
ARTICLE II: MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the election of
directors or for any other purpose shall be held at the principal office of the
Corporation or such other place, either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Notice of Meetings. Written notice of Annual and Special Meetings
stating the place, date and hour of the meeting, and in the case of Special
Meetings, the business to be transacted at such meeting, shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 3. Annual Meetings. The Annual Meeting of Stockholders shall be held on
such date and at such time and place as may only be designated by the Board of
Directors from time to time pursuant to a resolution adopted by a majority of
the entire Board of Directors (as defined in Article VIII, Section 2). The date,
time and place of the Annual Meeting of Stockholders shall be stated in the
notice of the meeting, and at such Annual Meeting the stockholders shall elect,
by plurality vote, a class of the Board of Directors as set forth in the
Certificate of Incorporation, and shall transact such other business as may
properly be brought before the meeting. Such meeting may adjourn to a later
date, and no notice of the adjourned meeting shall be necessary if the place,
date, and time thereof are announced at the meeting at which the adjournment is
taken; provided, however, that if the date of any adjourned meeting is more than
thirty days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the date,
time and place of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
Section 4. Special Meetings. Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of Directors. The notice of
Special Meetings shall state the business to be transacted, and no business
other than that included in the notice or incidental thereto shall be transacted
at such meeting. Such meeting may adjourn to a later date, and no notice of the
adjourned meeting shall be necessary if the place, date, and time thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the date of any adjourned meeting is more than thirty days after the
date for which the meeting was originally noticed, or if a new record date is
fixed for the adjourned meeting, written notice of the place, date and time of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting in conformity herewith.
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At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 5. Quorum. Except as otherwise provided by law or by the Certificate of
Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented; provided, however,
that if the date of any adjourned meeting is more than 30 days after the date
for which the meeting was originally noticed, or if a new record date is fixed
for the adjourned meeting, a written notice of the place, date, and time of the
adjourned meeting shall be given to each stockholder entitled to vote at the
meeting in conformity herewith. At any such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed.
Section 6. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. All votes
for directors cast at any meeting of stockholders shall be by written ballot. No
action required or permitted to be taken by the stockholders of the Corporation
may be effected by any written consent by such stockholders without a meeting.
Section 7. Nomination of Director Candidates. Subject to the rights of holders
of any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or a committee appointed for that purpose by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally.
Section 8. List of Stockholders Entitled to Vote. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 9. Stock Ledger. The stock ledger of the Corporation shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by Section 8 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 10. Organization of Stockholders' Meetings. At every meeting of the
stockholders, the Chairman of the Board of the Corporation, or, in his absence,
the President, or, if both offices shall be held by the same person, any Vice
President shall call the meetings of the stockholders to order and shall act as
chairman of such meetings, and the Secretary of the Corporation, or, in the
absence of the Secretary, any Assistant Secretary or other person designated by
the chairman of the meeting, shall act as Secretary of such meetings. In the
absence of such officers, or any one of them, the meeting shall designate the
Chairman and/or Secretary, as the case may be.
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Oakhurst Company, Inc. By-Laws - continued
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Section 11. Order of Business. No formal order of business need be followed in
any meeting, Annual or Special, of the stockholders; provided, that at any
Special Meeting no business other than that included in the notice of the
Special Meeting or incidental thereto shall be transacted.
ARTICLE III: DIRECTORS
Section 1. Number and Election of Directors. The number of directors of the
Corporation which shall constitute the entire Board of Directors shall be such
number as was initially fixed by the Incorporator of the Corporation and
thereafter as fixed by the Board of Directors in accordance with the Certificate
of Incorporation. Except as provided in Section 2 of this Article, directors
shall be elected by a plurality of the votes cast at Annual Meetings of
Stockholders, and each director so elected shall hold office until the
expiration of the term for which such director is elected, or until his
successor is duly elected and qualified, or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors, death, resignation,
retirement, removal from office, disqualification or other cause may be filled
by the directors then in office in accordance with the Certificate of
Incorporation.
Section 3. Duties and Powers. The business of the Corporation shall be managed
by or under the direction of the Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
Section 4. Meetings. The Annual Meeting of the Board of Directors shall be held
immediately following the regular Annual Meeting of Stockholders, at the same
place. Other regular meetings of the Board of Directors may be held, either
within or without the State of Delaware, without notice at such time and at such
place as may from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the Chairman of the Board,
the President, or if both offices be held by the same person, any Vice
President, or any two directors. Notice thereof stating the place, date and hour
of the meeting shall be given to each director either by mail not less than
three days before the date of the meeting, by telephone or telegram on twenty-
four (24) hours' notice, or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate under the circumstances.
Such notice shall state the matters expected to come before the meeting.
Section 5. Order of Business. No formal order of business need be followed in
any meeting of the Directors, either regular or special.
Section 6. Quorum. Except as may be otherwise specifically provided by law, the
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Actions of Board. Unless otherwise provided by the Certificate of
Incorporation or these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
Section 8. Meetings by Means of Conference Telephone. Unless otherwise provided
by the Certificate of Incorporation or these By-Laws, members of the Board of
Directors of the Corporation, or any committee
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designated by the Board of Directors, may participate in a meeting of the Board
of Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 8 shall constitute presence in person at such meeting.
Section 9. Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
each committee to consist of two or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
absent or disqualified member. Any committee, to the extent allowed by law and
provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 10. Compensation. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 11. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose if (i) the material facts as to his or her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or her or their relationship or interest and as to the contract
or transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
Section 12. Removal of Directors. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, any director, or all 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 the then-outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting by written ballot
together as a single class at a meeting duly called for such purpose.
Section 13. Election of Officers. The directors shall elect the Chairman of the
Board, President, Vice Presidents, Treasurer, Secretary and Comptroller of the
Corporation, and may elect all other officers and agents, or, as to the latter,
may delegate their election to an officer and/or officers of the Corporation. In
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addition to the foregoing officers, the Board of Directors may designate such
other officers or officials as from time to time may be deemed advisable, and
may prescribe their duties. The directors shall have the power to fix salaries
of all officers, agents and employees of the Corporation, but in the absence of
action by the directors, such power shall be vested in the Chairman of the
Board, except as to his own salary and that of the President.
ARTICLE IV: OFFICERS AND AGENTS
Section 1. Officers. Officers of the Corporation shall be a Chairman of the
Board, a President, one or more Vice Presidents, a Secretary, a Treasurer and a
Corporation Comptroller, all of whom shall be chosen by the Board of Directors,
and, if from time to time designated and chosen by the Board of Directors, an
Assistant Secretary and an Assistant Treasurer. The Chairman of the Board and
the President shall be chosen from among the directors. Any two of the above
named offices, except those of the President and Secretary, may be held by the
same person, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity, if such instrument is required by law or by these
By-Laws to be executed, acknowledged, verified, or countersigned by any two or
more officers. The foregoing officers shall hold office until the next regular
Annual Meeting of the Board of Directors, held after the Annual Meeting of
Stockholders, and until their successors are elected and qualified, subject,
however, to removal, as herein elsewhere set forth. Any duty to be performed by
an officer of the Corporation may be performed by his duly authorized assistant
officer. In its discretion, the Board of Directors may leave unfilled for any
period as it may fix by resolution any office except those of President,
Treasurer and Secretary. In its discretion, the Board of Directors may create
additional offices, including Vice Presidents, with such duties and powers as
shall be determined from time to time by the Board of Directors, and may
designate individuals to fill such other offices.
Section 2. Removal of Officers. Any and all officers of the Corporation may be
removed at any time and their successors elected by a majority vote of the Board
of Directors at any regular or special meeting of the Directors.
Section 3. Agents and Employees. All agents and employees of the Corporation may
be appointed and their salaries fixed by the Board of Directors, or, in the
absence of action by the Board of Directors, by the Chairman of the Board (or by
the President if the office of Chairman of the Board be vacant), and except as
to the President, any Vice President, Secretary, Treasurer, and Corporate
Comptroller, they shall hold office during the will and pleasure of the Chairman
of the Board, subject to action by the Board of Directors. If such agents and
employees are appointed by the directors, they (except the above-specified
officers) may nevertheless be removed by the Chairman of the Board, unless he be
especially forbidden so to do by the directors.
Section 4. Power and Duties of the Chairman of the Board. The Chairman of the
Board shall be the Chief Executive Officer of the Corporation and shall have the
general direction of the affairs of the Corporation, except as otherwise
prescribed by the Board of Directors. He shall keep the Board of Directors fully
informed of the business of the Corporation; he may sign and execute all
authorized bonds, contracts or other obligations in the name of, and on behalf
of the Corporation; and, with the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, he shall sign all certificates of stock,
unless facsimile signatures are authorized; and, with the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer but without
further authorization than these presents, he may sign all checks and/or drafts
upon funds of the Corporation in its name and on its behalf, and any bank or
depository in which funds of the Corporation shall be deposited shall be fully
and conclusively protected in honoring any checks and/or drafts on behalf of the
Corporation signed by the Chairman of the Board. Subject to the action of the
Board of Directors, he shall have the power to fix the salaries of all officers,
agents and employees of the Corporation, except the President and shall have the
power to employ and discharge all agents and employees of the Corporation,
subject to the control of the Board of Directors, except the President, any
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Vice President, Secretary, Assistant Secretary, Treasurer, Assistant Treasurer
and Corporate Comptroller. He shall generally conduct the affairs of the
Corporation, and shall do and perform such other duties as from time to time may
be assigned to him by the Board of Directors.
Section 5. Powers and Duties of the President. The President shall direct the
operations of the Corporation, being responsible to the Chairman of the Board.
He shall, in the absence or incapacity of the Chairman of the Board, perform all
duties and functions of the Chairman of the Board. The President also may
execute contracts in the name of the Corporation, and appoint and discharge
agents and employees. He shall do and perform such other duties as may from time
to time be assigned to him by the Chairman of the Board or the Board of
Directors, and, except as herein otherwise provided, the President shall perform
all other duties incident to his office. If the office of Chairman of the Board
be vacant or if the same person is Chairman of the Board and President, the
President shall have all the powers and perform all the duties and functions of
the Chairman of the Board.
Section 6. Vice Presidents. At the request of the President or in his absence or
in the event of his inability or refusal to act (and if there be no Chairman of
the Board of Directors), the Vice President or the Vice Presidents if there is
more than one (in the order designated by the Board of Directors), shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Each Vice President
shall perform such other duties and have such other powers as the Board of
Directors from time to time may prescribe. If there be no Chairman of the Board
of Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall keep the minutes of all meetings of
the Board of Directors and the stockholders. The Secretary shall likewise attend
to the giving and serving of all notices of meetings, and shall affix the seal
of the Corporation to all certificates of stock and all authorized contracts and
obligations of the Corporation, and shall attest the same, and shall keep the
transfer books and stock ledgers of the Corporation, which books shall be at all
reasonable times open for examination to any director, and he shall in general
perform all of the duties incident to the office of the Secretary; and shall
have such other powers and duties as shall be from time to time conferred upon
him by the Board of Directors.
Section 8. Assistant Secretary. The Board of Directors may designate and choose
an Assistant Secretary, who shall have the usual powers and duties pertaining to
his office, together with such other powers and duties as may be assigned to him
by the Board of Directors. In case of the absence or disability of the
Secretary, the duties of the Secretary shall be performed by the Assistant
Secretary.
Section 9. Treasurer. The Treasurer shall have the custody of all the funds and
securities of the Corporation, and subject to the provisions of Section 4 of
this Article, shall have the power to sign checks and drafts of the Corporation,
and any depository in which the funds of the Corporation are deposited shall be
conclusively protected in honoring and acting upon any check or draft signed by
the Treasurer. The Treasurer shall sign all receipts and vouchers for payments
made to the Corpora- tion, and shall keep full and accurate account of all
moneys received and paid by him on account of the Corporation which shall truly
reflect all of the financial transactions and conditions of the Corporation, and
shall conform to the requirements of Article V hereof, and he shall generally
perform all acts incident to the position of Treasurer, and shall have such
further powers and duties as shall be from time to time conferred upon him by
the Board of Directors.
Section 10. Assistant Treasurer. The Board of Directors may designate and choose
an Assistant Treasurer, who shall have the usual powers and duties pertaining to
his office, together with such other powers and duties as may be assigned to him
by the Board of Directors. In case of the absence or disability of the
Treasurer, the duties of the Treasurer shall be performed by the Assistant
Treasurer.
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Section 11. Corporate Comptroller. The Corporate Comptroller shall be the Chief
Accounting Officer and shall maintain adequate records of all assets,
liabilities and transactions of the Corporation; shall see that adequate audits
thereof are currently and regularly made; shall, in conjunction with other
officers and department heads, initiate and enforce measures and procedures
whereby the business of the Corporation shall be conducted with the maximum
safety, efficiency and economy; and shall have such other powers and shall
perform such other duties as may be assigned to him by the Board of Directors.
He shall report to the Chairman of the Board, the President, a Vice President
and/or the Board of Directors as said Board of Directors may prescribe.
Section 12. Other Officers. Such other officers as the Board of Directors may
choose shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
Section 13. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice-President and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
ARTICLE V: STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed, in the name of the Corporation (i) by
the Chairman of the Board of Directors, the President or a Vice-President and
(ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation. The Board of Directors may appoint one or more Transfer
Agents and/or Registrars of transfers, and may require all certificates of
shares to bear the signature of such transfer agent or registrar. Where a
certificate is countersigned by (i) a transfer agent other than the Corporation
or its employee, or (ii) a registrar, other than the Corporation or its
employee, any other signature on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 3. Transfer of Certificated Stock. Title to a stock certificate and to
the shares represented thereby may be transferred only: (a) By the delivery of
the certificate endorsed either in blank or to a specified person by the person
appearing by the certificate to be the owner of the shares represented thereby;
or (b)
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by delivery of the certificate and a separate document containing a written
assignment of the certificate or a power of attorney to sell, assign or transfer
the same, or the shares represented thereby, signed by the person appearing by
the certificate to be the owner of the shares represented thereby. Such
assignment or power of attorney may be either in blank or to a specified person.
Section 4. Transfer of Uncertificated Stock. Title to uncertificated shares of
stock may be transferred only: (a) by an instruction to the Corporation by the
registered owner requesting that the transfer of the uncertificated share be
registered; or (b) by the delivery of a document containing a written power of
attorney to sell, assign, or transfer the uncertificated shares, signed by the
registered owner, and an instruction that the transfer of the uncertificated
shares be registered. Such power of attorney may be either in blank or to a
specified person. An instruction for purposes of this Section 4 is a writing
signed by the registered owner, or by a person with power of attorney,
requesting that the transfer be registered.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Ownership of Capital Stock. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof so far
as the Corporation is concerned. The words "trustee," "agent" or other like term
after the name of a person in whose name stock stands on the books of the
Corporation, without other words disclosing a trust, beneficiary of principal,
or other fiduciary relationship, shall be deemed descriptive of the person and
shall in no way restrict the right of such person to vote the shares of stock
for any purpose. The personal representative of a deceased stockholder shall be
entitled to vote the shares of stock of his decedent without having such shares
transferred to him. The pledgor shall have the sole right to vote shares of
stock pledged for any purpose, unless the agreement pledging such shares confers
that right upon the pledgee, or his or its agent, in which event the person so
authorized shall have such voting rights. No voting right shall be given to any
stock while owned by the Corporation nor shall any stock so held be entitled to
any dividend. Shares of its own stock held by the Corporation in any fiduciary
capacity may be voted by it in any case in which such shares could be voted by
the owner.
ARTICLE VI: NOTICES
Section 1. Notices. Whenever written notice is required by law, the Certificate
of Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, such notice may be given by mail, addressed to such
director, member of a committee or stockholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by telegram,
telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
- --------------------------------------------------------------------------------
Rev. January 13, 1998 Page 8 of 9
<PAGE> 12
Oakhurst Company, Inc. By-Laws - continued
- --------------------------------------------------------------------------------
ARTICLE VII: GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall begin on the
Sunday following the Saturday which is the closest to the end of February,
otherwise known as a 52/53 week year, unless otherwise provided by the Board of
Directors.
Section 4. Corporate Seal. The corporate seal shall consist of two concentric
circles, between which shall be inscribed the name of the Corporation. Within
the inner circle shall be inscribed the year of incorporation and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 5. Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account and
minute books, may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, microphotographs or any other information storage device, provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.
ARTICLE VIII: AMENDMENTS
Section 1. Subject to Article EIGHTH of the Certificate of Incorporation, these
By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws
may be adopted by the stockholders or by the Board of Directors; provided,
however, that notice of such alteration, amendment, repeal or adoption of new
By-Laws be contained in the notice of such meeting of stockholders or Board of
Directors as the case may be. All amendments must be approved by either the
holders of seventy-five (75%) percent of the outstanding capital stock entitled
to vote in the election of directors, voting together as a single class, or by a
majority of the entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article VIII and in these
By-Laws generally, the term "entire Board of Directors" means the total number
of directors which the Corporation would have if there were no vacancies in the
authorized number of directors.
-----------------------------
- --------------------------------------------------------------------------------
Rev. January 13, 1998 Page 9 of 9
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
OAKHURST COMPANY, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
--------------------------------------
Oakhurst Company, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on February 10, 1998:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 70,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $.01 per share (the "Common Stock"),
of the Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in
-1-
<PAGE> 2
each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
-2-
<PAGE> 3
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at
-3-
<PAGE> 4
any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
-4-
<PAGE> 5
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any such
case each share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all series of any other class of the Corporation's Preferred Stock.
Section 10. Section Amendment. The Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
[balance of page left intentionally blank]
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its President and attested by its
Secretary this 10th day of February, 1998.
/s/ Robert M. Davies
------------------------------
Name: Robert M. Davies
Title: President
Attest:
/s/ Roger M. Barzun
- ----------------------
Secretary
-6-
<PAGE> 1
EXHIBIT 10.18
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
effective as of June 1, 1997, is entered into between FINOVA CAPITAL CORPORATION
("FINOVA"), with a place of business at 355 South Grand Avenue, Los Angeles,
California, and Oakhurst Company, Inc. ("Oakhurst"), Steel City Products, Inc.
("SCPI"), Puma Products, Inc. ("Puma"), H & H Distributors, Inc. ("H & H"),
Dowling's Fleet Service Co., Inc. ("DFS"), Oakhurst Management Corporation
("OMC"), Oakhurst Holdings, Inc. ("OH"), and G & O Sales Company ("G&O"),
jointly and severally (individually "Borrower" and collectively "Borrowers"),
with the chief executive office of each Borrower located as follows: Oakhurst,
1001 Santerre Drive, Grand Prairie, Texas 75050; SCPI, 630 Alpha Drive,
Pittsburgh, Pennsylvania 15238; Puma, 1001 Santerre Drive, Grand Prairie, Texas
75050; H & H, 5101 Baum Boulevard, Pittsburgh, Pennsylvania 15224; DFS, 389 East
Third Street, Mount Vernon, New York 10550; OMC, 1001 Santerre Drive, Grand
Prairie, Texas 75050; OH, 3513 Concord Pike, Suite 3720, Wilmington, Delaware
19803; and G & O, 1522-24 Fairmont Avenue, Philadelphia, Pennsylvania 19130.
RECITALS
A. Borrowers and FINOVA have previously entered into that certain Loan
and Security Agreement dated as of March 28, 1996, as amended by that certain
First Amendment to Loan and Security Agreement dated as of June, 1996
(collectively, the "Loan Agreement"), pursuant to which FINOVA has made certain
loans and financial accommodations available to Borrowers. Terms used herein
without definition shall have the meanings ascribed to them in the Loan
Agreement.
B. As of the date hereof, Oakhurst has consummated the sale of (i) all
of its legal and beneficial ownership interest in the capital stock of Puma to
Anthony M. Puma (the "Puma Sale") and (ii) all of its legal and beneficial
ownership interest in the capital stock of H&H to James Stein (the "H&H Sale").
FINOVA consented to the Puma Sale and the H&H Sale pursuant to the terms of that
certain letter agreement dated as of June 12, 1997 (the "Consent Letter").
C. Pursuant to the terms of the Consent Letter, FINOVA has agreed, upon
the consummation of the H&H Sale, to enter into an amendment to the Loan
Agreement, in form and substance satisfactory to FINOVA, pursuant to the terms
of which (a) Puma and H & H shall cease to be Borrowers under the Loan Agreement
on a prospective, going forward basis, (b) the Tangible Net Worth Covenants for
Puma, H & H and all Borrowers on a consolidated basis, as set forth in Section
13.14 of the Schedule to the Loan Agreement, shall be deleted on a prospective,
going-forward basis, (c) the definition of "Current Liabilities" shall be
amended to exclude all principal amounts outstanding and accrued interest
thereon under the Revolving Loans and the Fixed Asset Loan and (d) the terms of
the Borrowers' credit line with FINOVA, as
<PAGE> 2
set forth in Sections 1.1 and 1.2 of the Schedule to the Loan Agreement, shall
be restructured to decrease from Nine Million Five Hundred Thousand Dollars
($9,500,000) to Eight Million Five Hundred Thousand Dollars ($8,500,000) the
amount of the Total Facility for all Loans, decrease from Eight Million Dollars
($8,000,000) to Seven Million Dollars ($7,000,000) the amount of the Total
Facility for Revolving Loans, decrease from Four Million Dollars ($4,000,000) to
Three Million Five Hundred Thousand Dollars ($3,500,000) the maximum aggregate
outstanding principal amount of Inventory Loans to the Borrowers, increase from
Three Million Eight Hundred Thousand Dollars ($3,800,000) to Four Million Two
Hundred Fifty Thousand Dollars ($4,250,000) the maximum amount of Receivables
Loans which may be advanced against Eligible Accounts of SCPI, increase from Two
Million Seven Hundred Thousand Dollars ($2,700,000) to Two Million Seven Hundred
Fifty Thousand Dollars ($2,750,000) the maximum amount of Inventory Loans which
may be advanced against Eligible Inventory of SCPI, increase from Two Million
Five Hundred Thousand Dollars ($2,500,000) to Two Million Seven Hundred Fifty
Thousand Dollars ($2,750,000) the maximum amount of Receivables Loans which may
be advanced against Eligible Accounts of DFS, and increase from One Million Four
Hundred Thousand Dollars ($1,400,000) to One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000) the maximum amount of Inventory Loans which may be
advanced against Eligible Inventory of DFS. D. Borrowersand FINOVA wish to amend
the Loan Agreement to effectuate the aforedescribed changes. NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Amendment of Definition of "Borrowers" to Delete Puma and H&H. The
introductory paragraph of the Loan Agreement is hereby amended to delete Puma
and H&H as "Borrowers", effective as of the date hereof.
2. Amendment of Section 1.1. (Total Facility). Section 1.1 of the
Schedule to Loan and Security Agreement (entitled "Total Facility") is hereby
amended and restated to read in its entirety as follows:
"The Total Facility for all Loans is Eight Million Five
Hundred Thousand Dollars ($8,500,000). The Total Facility for
Revolving Loans is Seven Million Dollars ($7,000,000)."
3. Amendment of Section 1.2.A. (Revolving Loans). Paragraph A. of
Section 1.2 of the Schedule to Loan and Security Agreement (entitled "Revolving
Loans") is hereby amended and restated to read in its entirety as follows:
"A. REVOLVING LOANS: a revolving line of credit to the
Borrowers consisting of loans against the Eligible Receivables
of each Borrower ("Receivable Loans") and against the Eligible
Inventory of each Borrower ("Inventory Loans" and, together
2
<PAGE> 3
with the Receivable Loans, the "Revolving Loans") in an
aggregate outstanding principal amount at any time for all
Borrowers which shall not exceed the lesser of:
(a) an amount of the Total Facility for Revolving
Loans; or
(b) the sum of
(i) the aggregate Receivable Loans
to the Borrowers, each in an amount
equal to eighty percent (80%) of the
net amount of each Borrower's
Eligible Receivables, but not to
exceed with respect to each
Borrower, the amounts set forth
below:
<TABLE>
<CAPTION>
Maximum Advance Against
Borrower Eligible Accounts
-------- -----------------
<S> <C>
Oakhurst $0
SCPI $4,250,000
DFS $2,750,000
OMC $0
OH $0
G&O $0;
</TABLE>
less a Dilution reserve equal to five percent (5%) of each
Borrower's total Eligible Receivables from time to time, which
Dilution reserve may be adjusted periodically by FINOVA, in
its reasonable credit judgment, upward or downward by the
percentage which Dilution varies from a prior period's total
Dilution by more than two and one-half percent (2.5%); plus
(ii) the aggregate Inventory Loans
to the Borrowers, each in an amount
equal to forty-five percent (45%) of
the value of each Borrower's
Eligible Inventory, calculated at
the lower of cost or market valued
and determined on a first-in,
first-out basis, but not to exceed
with respect to each Borrower, the
amounts set forth below:
<TABLE>
<CAPTION>
Maximum Advance Against
Borrower Eligible Inventory
-------- ------------------
<S> <C>
Oakhurst $0
SCPI $2,750,000
DFS $1,750,000
OMC $0
OH $0
G&O $0;
</TABLE>
3
<PAGE> 4
provided, however, that FINOVA shall advance Inventory Loans
to the Borrowers, subject to the foregoing subline limits, in
an amount equal to twenty-five percent (25%) of the value of
that portion of each Borrower's Inventory, which would
otherwise be deemed ineligible because such Inventory had been
held by a Borrower in excess of 180 days and therefore
considered slow moving, consisting of out-of-season Inventory
purchased under special purchase arrangements and held in
anticipation of being sold at the next seasonal market; and
provided further, however, that the aggregate outstanding
principal amount of Inventory Loans to the Borrowers shall not
exceed at any time Three Million Five Hundred Thousand
($3,500,000); and provided further, however, that the
aggregate outstanding principal amount of Inventory Loans and
Receivable Loans to the Borrowers shall not exceed at any time
the Total Facility for Revolving Loans of Seven Million
Dollars ($7,000,000)."
4. Amendment of Section 12.18. Paragraph (a) of Section 12.18 of the Loan
Agreement (entitled "Capitalization") is hereby amended and restated to read in
its entirety as follows, effective as of the date hereof:
"(a) All of the issued and outstanding shares of the capital stock
of DFS and OMC, and approximately ninety percent (90%) of the
issued and outstanding shares of the capital stock of SCPI, are
directly and beneficially owned and held by Oakhurst, all of the
issued and outstanding shares of the capital stock of G&O are
directly and beneficially owned and held by DFS, and all of the
issued and outstanding shares of the capital stock of OH are
directly and beneficially held by certain subsidiaries of Oakhurst
in the percentages set forth in the definition of "OH" below, and
all of such shares have been duly authorized and are fully paid
and non-assessable, free and clear of all claims, liens, pledges
and encumbrances of any kind, except as disclosed in writing to
FINOVA;"
5. Tangible Net Worth. The "Tangible Net Worth" section of Section 13.14 of
the Loan Agreement, as set forth on the Schedule, is hereby amended to read in
its entirety as follows, effective as of the date hereof:
"Tangible Net Worth: Each of the Borrowers listed below shall
maintain at all times a Tangible Net Worth of not less than the
amounts set forth opposite their names below:
<TABLE>
<CAPTION>
Borrower Tangible Net Worth
-------- ------------------
<S> <C>
SCPI $3,500,000
DFS $ 900,000
</TABLE>
4
<PAGE> 5
For the purpose of determining the Tangible Net Worth of each
Borrower listed above, the Fixed Asset Loan shall be allocated in
full to SCPI, and only direct Revolving Loan advances shall be
allocated to each Borrower."
6. Definitions. (a) The definition of "Current Liabilities" set forth in
Section 18 of the Loan Agreement is hereby amended to read in its entirety as
follows, effective as of the date hereof:
"Current Liabilities' at any date means the amount at which the
current assets of the Borrowers would be shown on a consolidated
balance sheet of the Borrowers as at such date, prepared in
accordance with GAAP, provided that amounts due from Affiliates
and investments in Affiliates shall be excluded therefrom, and
provided, further, that there shall also be excluded therefrom all
principal amounts outstanding and accrued interest thereon under
the Revolving Loans and the Fixed Asset Loan."
(b) Clause (vi) of the definition of "Eligible Receivables" set
forth in Section 18 of the Loan Agreement is hereby amended to read in its
entirety as follows, effective as of the date hereof:
"(viii) the account debtor's total obligations to the Borrowers
exceed fifteen percent (15%) of all Eligible Receivables on a
consolidated basis to the extent of such excess;"
(c) The definition of "H&H" set forth in Section 18 of the Loan
Agreement is hereby amended to read in its entirety as follows, effective
as of the date hereof:
"H&H'" means H&H Distributors, Inc., a Pennsylvania corporation."
(d) The definition of "OH" set forth in Section 18 of the Loan
Agreement is hereby amended to read in its entirety as follows, effective
as of the date hereof:
"OH' means Oakhurst Holdings, Inc., a Delaware corporation, a
co-borrower hereunder, with respect to which all of the issued and
outstanding capital stock is owned of record and beneficially by
the following subsidiaries of Oakhurst in the percentages stated:
SCPI-83.6%; and; DFS-16.4%".
(e) The definition of "Oakhurst" set forth in Section 18 of the
Loan Agreement is hereby amended to read in its entirety as follows,
effective as of the date hereof:
"Oakhurst' means Oakhurst Company, Inc., a Delaware corporation, a
co-borrower hereunder, and the direct parent of SCPI, DFS and
OMC."
(f) The definition of "Puma" set forth in Section 18 of the Loan
Agreement is hereby amended to read in its entirety as follows, effective
as of the date hereof:
"Puma' means Puma Products, Inc., a Texas corporation."
5
<PAGE> 6
7. Effectiveness of this Amendment. FINOVA must have received the following
items, in form and content acceptable to FINOVA, before this Amendment is
effective and before FINOVA is required to extend any credit to Borrowers as
provided for by this Amendment. The date on which all of the following
conditions have been satisfied is the "Closing Date".
(a) Amendment. This Amendment fully executed in a sufficient
number of counterparts for distribution to FINOVA and Borrowers.
(b) Authorizations. Evidence that the execution, delivery and
performance by each Borrower and each guarantor or subordinating creditor
of this Amendment and any instrument or agreement required under this
Amendment have been duly authorized.
(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement must be true and correct.
(d) Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this Agreement
shall have been delivered or executed or recorded and shall be in form and
substance satisfactory to FINOVA.
8. Fees and Expenses. Borrowers hereby confirm that pursuant to Section
13.1 of the Loan Agreement, Borrowers shall reimburse FINOVA for all costs, fees
and expenses incurred by FINOVA in connection with the negotiation, preparation,
execution, delivery, administration and enforcement of this Amendment,
including, but not limited to, attorneys' fees.
9. Representations and Warranties. The Borrowers, jointly and severally,
represent and warrant as follows:
(a) Authority. Each Borrower has the requisite corporate power and
authority to execute and deliver this Amendment, and to perform its
obligations hereunder and under the Loan Documents (as amended or modified
hereby) to which it is a party. The execution, delivery and performance by
each Borrower of this Amendment, and the performance by each Borrower of
each Loan Document (as amended or modified hereby) to which it is a party
have been duly approved by all necessary corporate action of such Borrower
and no other corporate proceedings on the part of such Borrower are
necessary to consummate such transactions;
(b) Enforceability. This Amendment has been duly executed and
delivered by each Borrower. This Amendment and each Loan Document (as
amended or modified hereby) is the legal, valid and binding obligation of
each Borrower hereto or thereto, enforceable against such Borrower in
accordance with its terms, and is in full force and effect;
(c) Representations and Warranties. The representations and
warranties contained
6
<PAGE> 7
in each Loan Document (other than any such representations or warranties
that, by their terms, are specifically made as of a date other than the
date hereof) are correct on and as of the date hereof as though made on and
as of the date hereof;
(d) No Default. No event has occurred and is continuing that
constitutes an Event of Default; and
(e) Consummation of Puma Sale and H&H Sale. The Puma Sale and the
H&H Sale have been consummated on such terms and conditions as previously
disclosed to FINOVA.
10. Choice of Law. THIS AMENDMENT SHALL BE INTERPRETED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF ARIZONA
GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. THE BORROWERS
HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF ARIZONA OR, AT THE SOLE
OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. THE BORROWERS WAIVE ANY OBJECTION OF FORUM NON CONVENIENS AND
VENUE. THE BORROWERS WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THEM,
AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 19.13 OF THE LOAN AGREEMENT FOR THE GIVING OF NOTICE. THE BORROWERS
FURTHER WAIVE ANY RIGHT THEY MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY
JUDGMENT ENTERED AGAINST THEM.
11. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment or the Consent by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Amendment or such Consent.
12. Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
any Borrower.
13. Reference to and Effect on the Loan Documents.
(a) Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof"
or words of like import referring to the Loan Agreement, and each reference
in the other Loan Documents to "the Loan Agreement", "thereof" or words of
like import referring to the Loan Agreement, shall
7
<PAGE> 8
mean and be a reference to the Loan Agreement as modified and amended
hereby.
(b) Except as specifically amended above, the Loan Agreement and
all other Loan Documents, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed and shall
constitute the legal, valid, binding and enforceable obligations of
Borrower to FINOVA.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any FINOVA or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
(d) To the extent that any terms and conditions in any of the Loan
Documents shall contradict or be in conflict with any terms or conditions
of the Loan Agreement, after giving effect to this Amendment, such terms
and conditions are hereby deemed modified or amended accordingly to reflect
the terms and conditions of the Loan Agreement as modified or amended
hereby.
14. Ratification. Borrowers hereby restate, ratify and reaffirm each and
every term and condition set forth in the Loan Agreement, as amended hereby, and
the Loan Documents effective as of the date hereof.
15. Estoppel. To induce FINOVA to enter into this Amendment and to continue
to make advances to Borrowers under the Loan Agreement, Borrowers hereby
acknowledge and agree that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against FINOVA with respect to
the Obligations.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
FINOVA CAPITAL CORPORATION
By: /s/ Jeffery D. Weiss
---------------------------
Name: Jeffery D. Weiss
-------------------------
Title: Vice President
------------------------
OAKHURST COMPANY, INC.
By: /s/ Robert Davies
---------------------------
Name: Robert Davies
-------------------------
Title: Chairman
------------------------
8
<PAGE> 9
STEEL CITY PRODUCTS, INC.
By: /s/ Robert M. Davies
---------------------------
Name: Robert M. Davies
-------------------------
Title: Vice President
------------------------
PUMA PRODUCTS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
H & H DISTRIBUTORS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
DOWLING'S FLEET SERVICE CO.
By: /s/ Robert M. Davies
---------------------------
Name: Robert M. Davies
-------------------------
Title: Vice President
------------------------
OAKHURST MANAGEMENT
CORPORATION
By: /s/ Robert M. Davies
---------------------------
Name: Robert M. Davies
-------------------------
Title: Vice President
------------------------
OAKHURST HOLDINGS, INC.
By: /s/ Robert M. Davies
---------------------------
Name: Robert M. Davies
-------------------------
Title: Vice President
------------------------
G & O SALES COMPANY
By: /s/ Robert M. Davies
---------------------------
Name: Robert M. Davies
-------------------------
Title: Vice President
------------------------
9
<PAGE> 10
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
effective as of October 31, 1997, is entered into between FINOVA CAPITAL
CORPORATION ("FINOVA"), with a place of business at 355 South Grand Avenue, Los
Angeles, California, and Oakhurst Company, Inc. ("Oakhurst"), Steel City
Products, Inc. ("SCPI"), Dowling's Fleet Service Co., Inc. ("DFS"), Oakhurst
Management Corporation ("OMC"), Oakhurst Holdings, Inc. ("OH"), and G & O Sales
Company ("G&O"), jointly and severally (individually "Borrower" and collectively
"Borrowers"), with the chief executive office of each Borrower located as
follows: Oakhurst, 1001 Santerre Drive, Grand Prairie, Texas 75050; SCPI, 630
Alpha Drive, Pittsburgh, Pennsylvania 15238; DFS, 389 East Third Street, Mount
Vernon, New York 10550; OMC, 1001 Santerre Drive, Grand Prairie, Texas 75050;
OH, 3513 Concord Pike, Suite 3720, Wilmington, Delaware 19803; and G & O,
1522-24 Fairmont Avenue, Philadelphia, Pennsylvania 19130.
RECITALS
A. Borrowers and FINOVA have previously entered into that certain Loan
and Security Agreement dated as of March 28, 1996, as amended by that certain
First Amendment to Loan and Security Agreement dated as of June, 1996 and that
certain Second Amendment to Loan and Security Agreement effective as of June 1,
1997 (collectively, the "Loan Agreement"), pursuant to which FINOVA has made
certain loans and financial accommodations available to Borrowers. Terms used
herein without definition shall have the meanings ascribed to them in the Loan
Agreement.
B. Borrowers have requested FINOVA to renew the term of the Loan
Agreement for a period of one year after the expiration of the Initial Term
(said Renewal Term to expire on March 28, 1999).
C. Subject to the terms and conditions set forth herein, FINOVA has
agreed to such renewal.
D. Borrowers and FINOVA wish to amend the Loan Agreement to effectuate
the aforedescribed changes.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Renewal of Term of Loan Agreement. FINOVA hereby confirms to
Borrowers that the term of the Loan Agreement shall be renewed for a period of
one year after the expiration of the Initial Term. Said Renewal Term shall
expire on March 28, 1999.
<PAGE> 11
2. Amendment of Section 16.4 of the Schedule to the Loan Agreement
(entitled "Termination Fee"). Section 16.4 of the Schedule to the Loan Agreement
(entitled "Termination Fee") is hereby amended, effective as of the date hereof,
to read in its entirety as follows:
"The Termination Fee provided in Section 16.4 shall be an
amount equal to the following:
(i) if the Borrowers terminate this Agreement prior
to the second anniversary of this Agreement or the end of any
Renewal Term, one percent (1%) of the Total Facility for
Revolving Loans."
3. Payment of Renewal Fee. In consideration of FINOVA's renewal of the
term of the Loan Agreement and the extension of the term of the Fixed Asset
Note, Borrowers hereby confirm to FINOVA that they shall pay to FINOVA, in
accordance with the provisions of Section 3.1 of the Loan Agreement, a renewal
fee ("Renewal Fee") equal to $35,000 (representing one half of one percent
(0.5%) of the Total Facility for Revolving Loans). Said Renewal Fee shall be
fully earned as of the date hereof and shall be paid by Borrowers to FINOVA as
follows: (A) $17,500 simultaneously with the execution hereof and (B) $17,500 on
November 26, 1997.
4. Effectiveness of this Amendment. FINOVA must have received the
following items, in form and content acceptable to FINOVA, before this Amendment
is effective and before FINOVA is required to extend any credit to Borrowers as
provided for by this Amendment. The date on which all of the following
conditions have been satisfied is the "Closing Date".
(a) Amendment. This Amendment fully executed in a sufficient
number of counterparts for distribution to FINOVA and Borrowers.
(b) Authorizations. Evidence that the execution, delivery and
performance by each Borrower and each guarantor or subordinating
creditor of this Amendment and any instrument or agreement required
under this Amendment have been duly authorized.
(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement must be true and correct.
(d) Payment of Fees. Payment by Borrowers of the fees
described in Section 5 of this Amendment.
(e) Other Required Documentation. All other documents and
legal matters in connection with the transactions contemplated by this
Agreement shall have been delivered or executed or recorded and shall
be in form and substance satisfactory to FINOVA, including, without
limitation, a certificate of the secretary of each Borrower as to board
resolutions and the incumbency of officers.
5. Fees and Expenses. Borrowers hereby confirm that pursuant to Section
13.1 of
2
<PAGE> 12
the Loan Agreement, Borrowers shall reimburse FINOVA for all costs, fees and
expenses incurred by FINOVA in connection with the negotiation, preparation,
execution, delivery, administration and enforcement of this Amendment,
including, but not limited to, attorneys' fees.
6. Representations and Warranties. The Borrowers, jointly and
severally, represent and warrant as follows:
(a) Authority. Each Borrower has the requisite corporate power
and authority to execute and deliver this Amendment,and to perform its
obligations hereunder and under the Loan Documents (as amended or
modified hereby) to which it is a party. The execution, delivery and
performance by each Borrower of this Amendment, and the performance by
each Borrower of each Loan Document (as amended or modified hereby) to
which it is a party have been duly approved by all necessary corporate
action of such Borrower and no other corporate proceedings on the part
of such Borrower are necessary to consummate such transactions;
(b) Enforceability. This Amendment has been duly executed and
delivered by each Borrower. This Amendment and each Loan Document (as
amended or modified hereby) is the legal, valid and binding obligation
of each Borrower hereto or thereto, enforceable against such Borrower
in accordance with its terms, and is in full force and effect;
(c) Representations and Warranties. The representations and
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically
made as of a date other than the date hereof) are correct on and as of
the date hereof as though made on and as of the date hereof; and
(d) No Default. No event has occurred and is continuing that
constitutes an Event of Default.
7. Choice of Law. THIS AMENDMENT SHALL BE INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. THE
BORROWERS HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF ARIZONA OR, AT THE
SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. THE BORROWERS WAIVE ANY OBJECTION OF FORUM NON CONVENIENS
AND VENUE. THE BORROWERS WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
THEM, AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET
FORTH IN SECTION 19.13 OF THE LOAN AGREEMENT FOR THE GIVING OF NOTICE. THE
BORROWERS FURTHER WAIVE ANY RIGHT THEY MAY OTHERWISE HAVE TO
3
<PAGE> 13
COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST THEM.
8. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment or the Consent by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Amendment or such Consent.
9. Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
any Borrower.
10. Reference to and Effect on the Loan Documents.
(a) Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Loan Agreement, and
each reference in the other Loan Documents to "the Loan Agreement",
"thereof" or words of like import referring to the Loan Agreement,
shall mean and be a reference to the Loan Agreement as modified and
amended hereby.
(b) Except as specifically amended above, the Loan Agreement
and all other Loan Documents, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed
and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to FINOVA.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any FINOVA or the Agent under
any of the Loan Documents, nor constitute a waiver of any provision of
any of the Loan Documents.
(d) To the extent that any terms and conditions in any of the
Loan Documents shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this
Amendment, such terms and conditions are hereby deemed modified or
amended accordingly to reflect the terms and conditions of the Loan
Agreement as modified or amended hereby.
11. Ratification. Borrowers hereby restate, ratify and reaffirm each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Loan Documents effective as of the date hereof.
12. Estoppel. To induce FINOVA to enter into this Amendment and to
continue to make advances to Borrowers under the Loan Agreement, Borrowers
hereby acknowledge and agree that, after giving effect to this Amendment, as of
the date hereof, there exists no Event of
4
<PAGE> 14
Default and no right of offset, defense, counterclaim or objection in favor of
Borrower as against FINOVA with respect to the Obligations.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.
FINOVA CAPITAL CORPORATION
By: /s/ Frank Moore
--------------------------
Name: Frank Moore
------------------------
Title: Vice President
-----------------------
OAKHURST COMPANY, INC.
By: /s/ Robert Davies
--------------------------
Name: Robert Davies
------------------------
Title: Chairman
-----------------------
STEEL CITY PRODUCTS, INC.
By: /s/ Robert Davies
--------------------------
Name: Robert Davies
------------------------
Title: Vice President
-----------------------
DOWLING'S FLEET SERVICE CO.
By: /s/ Robert Davies
--------------------------
Name: Robert Davies
------------------------
Title: Vice President
-----------------------
OAKHURST MANAGEMENT
CORPORATION
By: /s/ Robert Davies
---------------------------
Name: Robert Davies
-------------------------
Title: Vice President
------------------------
OAKHURST HOLDINGS, INC.
By: /s/ Robert Davies
---------------------------
Name: Robert Davies
-------------------------
Title: Vice President
------------------------
G & O SALES COMPANY
By: /s/ Robert Davies
----------------------------
Name: Robert Davies
--------------------------
Title: Vice President
-------------------------
5
<PAGE> 1
EXHIBIT 10.19
INDUSTRIAL CENTER OF MCKEESPORT
L E A S E
THIS LEASE is made this 11 day of November 1997, between REGIONAL
INDUSTRIAL DEVELOPMENT CORPORATION OF SOUTHWESTERN PENNSYLVANIA, a Pennsylvania
nonprofit corporation, hereinafter called "Lessor", and STEEL CITY PRODUCTS,
INC., a Delaware corporation, hereinafter called the "Lessee".
NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION 1
PREMISES AND TERM
The Lessor does hereby lease and demise unto the Lessee 66,722 square
feet in the McKeesport Industrial Manor building and the five (5) acre parcel
of land on which said building is located, situate at 200 Center Street (the
"Premises") in the RIDC Riverplace/Industrial Center of McKeesport property, in
the City of McKeesport, Allegheny County, Pennsylvania, as identified in
Exhibit "A", together with certain outdoor parking areas, and the non-exclusive
right to use in common with other tenants, all passageways, roadways, and
similar facilities serving other areas of the Industrial Center of McKeesport.
The term of this Lease shall commence and possession shall be given as
of 12:01 AM on October 15, 1997, (the "Commencement Date"). The term of this
Lease shall expire at 11:59 PM on December 31, 2002. (the "Expiration Date").
SECTION 2
EXTENSION BY MUTUAL CONSENT
If Lessee lawfully occupies the Premises after the end of the term
after having obtained Lessor's written consent to do so, this Lease and all its
terms, provisions, conditions, covenants, waivers, remedies and any and all of
Lessor's rights herein specifically given and agreed to, shall be in force for
one month thereafter and thereafter from month to month until either party
gives the other thirty (30) days written notice of its desire to terminate this
Lease.
1
<PAGE> 2
SECTION 3
BASE RENT AND ADDITIONAL RENT
A. BASE RENT
As rental ("Base Rent") for the Premises, Lessee shall pay to the
Lessor at its office in Pittsburgh beginning January 2, 1998 and on the first
business day of each successive calendar month, in advance and without demand,
deduction, or setoff, together with any escalations of rent provided in the
Lease, the sum of TWENTY THOUSAND FIVE HUNDRED SEVENTY-THREE AND 00/100 DOLLARS
($20,573.00).
B. ADDITIONAL RENT - REAL ESTATE TAXES
In the event the real estate taxes payable by Lessor on the Premises
for the fiscal year ending August 31, 1998 or any subsequent fiscal year of the
term hereof, shall exceed the amount payable by Lessor for such taxes for the
fiscal year ending August 31, 1997, then Lessee shall pay, as Additional Rent,
that excess amount.
In the event that Additional Rent is payable due to an increase in
real estate taxes, then Lessor shall furnish Lessee a written statement, with
copies of bills from the respective taxing authorities, which statement shall
show the computation of such excess. Such Additional Rent shall be paid within
thirty (30) calendar days following Lessee's receipt of Lessor's written
statement.
If at any time during the term hereof the methods of taxation
prevailing at the commencement of the term hereof shall be altered so that in
lieu of, or as a supplement to, or a substitute for the whole or any part of
the real estate taxes or assessments now levied, assessed, or imposed upon the
Premises, there shall be levied, assessed, or imposed any form of assessment,
tax, license fee, license tax, business license fee, business license tax,
excise tax, commercial rental tax, levy, charge, penalty, or other imposition
by the federal or state government, any political subdivision, municipality,
school district, or other taxing body, then Lessee shall pay, as the case may
be, all such taxes, assessments, levies, impositions and the charges or the
part thereof so measured or based, which are in lieu of or a substitute for the
whole or any part of the real estate taxes or assessments now levied, assessed
or imposed on the Premises that are in excess of the taxes payable with
2
<PAGE> 3
respect to the fiscal year ending August 31, 1997 (the "Excess Taxes"). Upon
failure of the Lessee to pay the same when due, Lessor shall have the right to
pay same and to collect the amount thereof from Lessee in the same manner as
Rent in arrears as hereinafter provided. Lessor shall promptly submit to
Lessee all real estate or other applicable tax notices when they are received
from the taxing bodies. Lessee shall pay all Excess Taxes on or before the due
payment date, and shall provide the Lessor with evidence of payments ten (10)
days prior to the date on which they would become delinquent. Lessee shall
also pay any taxes that may be assessed against its own real or personal
property.
C. ADDITIONAL RENT - MAINTENANCE AND OPERATIONS
If the expenses for maintaining and operating the Premises during the
fiscal year ending August 31, 1998 or during any fiscal year thereafter exceed
the expenses for maintaining and operating the Premises during the fiscal year
ending August 31, 1997, then the Lessee shall pay to the Lessor as Additional
Rent the portion of such excess attributable to the Premises, such Additional
Rent to be paid in twelve equal monthly installments with each regular monthly
Base Rent payment, commencing January 1 of the calendar year immediately
succeeding the fiscal year in which such excess occurs; provided, however, that
any such Additional Rent shall not be due and payable beyond the term of this
Lease. On or before December 15, 1998, and on or before December 15 of each
calendar year thereafter, the Lessor shall furnish to the Lessee a written
statement showing the computation of such excess, if any, for the preceding
fiscal year and showing the amount of Additional Rent for which the Lessee
shall be obligated under this paragraph.
The phrase "expenses for maintaining and operating the Premises" shall
be deemed to mean those expenses incurred during such operating year in respect
of the operation and maintenance of the Premises in accordance with accepted
principles of sound management and accounting practices as applied to the
operation and maintenance of industrial buildings, including premiums for
insurance carried by the Lessor. The term "insurance" shall include: fire and
3
<PAGE> 4
extended coverage insurance; vandalism and malicious mischief insurance, boiler
insurance; rent insurance; public liability insurance. Such expenses shall not
include (i) expenses for any capital improvement made to the land or building;
(ii) expenses for painting, redecorating or other work which the Lessor
performs; (iii) expenses for repairs or other work occasioned by fire,
windstorm or other insurable casualty; (iv) expenses incurred in leasing or
procuring new lessees, including lease commissions, advertising expenses and
expenses of renovating space for new lessees; (v) legal expenses in enforcing
the terms of any lease; (vi) interest or amortization payments on any mortgage;
(vii) wages, salaries or other compensation paid to any employees above the
grade of building superintendent; or (viii) wages, salaries or other
compensation paid for clerks or attendants in concessions operated by the
Lessor.
D. PAYMENT PROVISIONS
Lessee hereby covenants and agrees to pay the Base Rent hereby
reserved as and when due , and also all sums of money, charges or other amounts
required to be paid by the Lessee to the Lessor which shall be "rent" in
addition to the Base Rent provided for herein. Nonpayment of Additional Rent
when due shall constitute a default under this Lease, unless being disputed in
good faith, to the same extent, and shall entitle the Lessor to the same
remedies, as nonpayment of Base Rent.
Rent payments shall be made by check, payable to the Lessor, which
shall be delivered or mailed, postage prepaid, to:
Regional Industrial Development Corporation
Post Office box 360146M
Pittsburgh, Pennsylvania 15251-6146
SECTION 4
UTILITIES
Lessee agrees to pay to respective utility companies utility charges
for water, electricity, gas and sewerage, associated with the Premises and
separately metered to Lessee.
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In the event Lessee fails to pay the same when due, Lessor shall have
the right to pay the same and collect the amount thereof from Lessee in the
same manner as Additional Rent.
SECTION 5
USE
Lessee will not engage nor will Lessee permit any person or
corporation to engage upon the Premises in any trade or occupation which is in
violation of law. Lessee shall use the Premises only for its corporate purpose
and pursuant to Exhibit "C" entitled RIDC Protective Standards and Controls.
Anything in this Lease contained to the contrary notwithstanding,
Lessor covenants and represents that the Premises conform to the requirements
of all governments and governmental bodies having jurisdiction; and that the
Premises may lawfully be used for the purposes herein permitted.
SECTION 6
ALTERATIONS
Lessee acknowledges and agrees that possession of the Premises is to
be delivered to it in "as is" condition. The Lessor will address and correct
the items, with the exception of any work associated with the loading docks,
outlined in Exhibit "D" entitled Major Items Needing Attention which was
developed by Lessee. Exhibit "B" which is attached hereto and made a part
hereof is a "Floor Plan" of the Premises.
Any and all additions, alterations and improvements made by the Lessee
("Lessee's Improvements") shall be done in a good and workmanlike manner.
Prior to the commencement of construction of Lessee's Improvements,
Lessee shall furnish to Lessor the plans and specifications of the construction
work to be undertaken, shall furnish information as to the equipment to be
installed, and shall obtain Lessor's written approval of said plans and
specifications, which approval shall not be unreasonably withheld or delayed.
Lessee shall obtain all necessary permits required by governmental authorities
having jurisdiction prior to the commencement of construction of Lessee's
Improvements.
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Lessee's Improvements shall become the property of the Lessor and
shall remain upon and be surrendered with the Premises at the expiration or
earlier termination of this Lease.
It is not intended to include in the expression, Lessee's
Improvements, any mechanical equipment and trade fixtures installed by the
Lessee, all of which may be removed by Lessee on the expiration or earlier
termination of this Lease if (i) Lessee is not in default hereunder, (ii) such
removal does not damage the Premises, and (iii) any damage that may be
occasioned by any such removal shall be repaired by Lessee in a good and
workmanlike manner.
If Lessor so directs by written notice to Lessee, prior to the
expiration of this Lease, or within fifteen (15) days thereafter, the Lessee
shall promptly remove all of Lessee's Improvements plus any and all trade
fixtures or mechanical equipment which were placed in the Premises by Lessee
and which are designated in said notice and that were not previously agreed
upon by both Lessee and Lessor that they could remain as fixed realty. Lessee
shall repair any physical damage occasioned by such removal, and in default,
thereof, Lessor may effect said removals and repairs at Lessee's expense.
Lessee may bring such equipment, furniture, trade fixtures or other
personal property into the Premises as may be necessary for its business;
provided, however, that Lessee shall first notify Lessor of the type and nature
of such personal property to be brought onto the Premises. Should such
personal property be of an unusual size, type, or weight, so as to affect the
Premises, then Lessor reserves the right to restrict the use of same in the
Premises.
Lessee will not file, nor will it permit or suffer any contractor or
subcontractor, materialman or mechanic or other person under it to file, nor
shall any contractor, subcontractor, materialman or mechanic file any
mechanics' lien or other liens or claims for work done or materials furnished
in or about the Premises against the Premises or the structure of which it is a
part. Unless Lessor otherwise agrees, in writing, prior to the commencement of
any work on the Premises, Lessee shall file in the office of the Prothonotary
of Allegheny County a waiver of the right to file liens which shall be in the
usual form for such waivers, such form to be approved by the Lessor.
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Notwithstanding the foregoing, if any mechanics' or other lien shall
be filed against the Premises or the Complex purporting to be for labor or
material furnished or to be furnished at the request of Lessee, then Lessee
shall, at its expense, cause such lien to be discharged of record by payment,
bond or otherwise, within ten (10) days after the filing thereof. If Lessee
shall fail to cause such lien to be discharged of record within such ten-day
period, or, if such lien is contested by Lessee and Lessee fails to provide
adequate security for Lessor's protection, then Lessor may cause such lien to
be discharged by payment, bond or otherwise, without investigation as to the
validity thereof or as to any offsets or defenses thereto, and Lessee shall,
upon demand, reimburse Lessor for all reasonable amounts paid and costs
incurred including attorneys' fees, in having such lien discharged of record.
Lessee acknowledges and agrees that, except as expressly set forth in
this Lease, there have been no representations or warranties made by or on
behalf of Lessor with respect to the Premises. The taking of possession of the
Premises by Lessee shall establish that the Premises were at such time in
satisfactory condition, order and repair except with respect to latent defects.
SECTION 7
SIGNAGE
Lessee hereby agrees that it will not install or post any exterior
signs on or over the Premises except those approved in writing in advance by
Lessor which approval shall not be unreasonably withheld or delayed; and that
any such signs will conform to the requirements set forth under Exhibit "C".
SECTION 8
MAINTENANCE
Lessee covenants as follows:
a. That Lessee will, at its own expense, replace any glass broken
on the Premises and repair, restore, or replace all partitions and fixtures
that may be installed by it which are damaged or destroyed by any cause.
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b. That Lessee shall make all nonstructural repairs to the
interior of the Premises, including, but not limited to, repairs to the air
conditioners and heating units with a maintenance contract that is reasonably
satisfactory to Lessor, the plumbing and electrical fixtures, and the doors and
locks.
c. That Lessee shall make all repairs and, if necessary the
replacement, of any nature to any part of the Premises necessitated by the act
or neglect of the Lessee or its agents, employees or invites other than those
resulting from fire, casualty or other insurable cause.
d. That Lessee shall make no modifications to any parts of the
structure of the Premises without written approval of Lessor. This shall be
deemed to include the floor slabs, perimeter walls and the roof of the Premises
as well as any suspensions from the roof structure. A violation of this
covenant shall be deemed a default under this Lease entitling Lessor to
exercise any of the remedies provided for herein.
e. That Lessee will keep the entire Premises, including adjoining
sidewalks free of rubbish, debris, and also in such condition as the Board of
Health and Board of Fire Underwriters having authority in such matters may
lawfully require with the exception of damage caused by fire, casualty or other
insurable cause. Lessee further agrees at its sole cost and expense, to
perform, fully obey and comply with all ordinances, rules regulations and laws
of all public authorities, boards and officers, relating to the maintenance of
and occupancy of said Premises.
f. That Lessee shall remove no additions, improvements and
alterations made by Lessor or by Lessee except as herein provided, and shall
not alter the Premises or any part thereof, without in each case the consent of
Lessor in writing. Lessee shall, however, have the right, during the term of
this Lease, to remove its trade fixtures and mechanical equipment however
affixed to the realty, and Lessee covenants promptly to repair any damage
caused by any such removal; provided, however, that any such trade fixtures and
mechanical equipment, not required to be removed by Lessor pursuant to this
Lease, which shall not have been removed by Lessee on the expiration or sooner
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termination of the term of this Lease or any extended term hereof, shall be
deemed abandoned by Lessee and shall thereupon become the absolute property of
Lessor without compensation to Lessee.
Anything herein contained to the contrary notwithstanding, however, it
is agreed that the Lessor's consent shall be required for installation of
improvements, alterations, or repairs, whether or not such involve alteration
to the building structure, and that Lessor will not unreasonably withhold or
delay its consent as to the making of other installations, alterations,
additions or improvements which are reasonably required for the conduct of
Lessee's business on the Premises, provided that such installations,
alterations, additions or improvements do not adversely affect the structures
upon, or the overall visual environment of the Industrial Center of McKeesport.
g. That Lessee shall make, at its sole cost and expense, all
repairs necessary to maintain the Premises, pursuant to subparagraphs "a"
through "f" hereinabove written, and shall keep the Premises and the fixtures
therein in neat and orderly condition. If Lessee refuses or neglects to make
such repairs, or fails to diligently prosecute the same to completion, after
written notice from Lessor of the need therefore, and after a reasonable time
thereafter in which to make the same, Lessor may make such repairs at the
expense of Lessee and such expense shall be collectible as Additional Rent.
h. That a violation by Lessee, its employees or its agents of any
of the covenants above written in subparagraphs "a" through "g" shall be deemed
a default under this Lease entitling Lessor to exercise any of the remedies
provided for herein.
i. That Lessor shall not be obligated for any of such repairs to
the Premises until the expiration of a reasonable period of time after written
notice from Lessee that such repair is needed. In no event shall Lessor be
obligated under this section to repair any damage caused by any act, omission
or negligence of the Lessee or its employees, agents, invites, licensees,
sub-tenants or contractors.
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j. That Lessor shall not be liable by reason of any injury to or
interference with Lessee's business arising from the making of any repairs,
alterations, additions or improvements that are reasonably required in or to
the Premises or to any appurtenances or equipment therein unless such
inconvenience, injury, or interference shall be occasioned by the sole
negligence of Lessor, its agents, servants, and/or employees. There shall be
no abatement of rent because of such repairs, alterations, additions or
improvements, except as provided in Section 16 hereof. Lessor shall use its
best efforts with respect to repairs, alterations, additions and improvements
to avoid depriving Lessee of the use of the Premises except in case of damage
by fire or other casualty covered by Section 16.
B. Lessor covenants as follows:
a. That Lessor shall make all structural repairs in, to and about
the Premises needed to keep the Premises in good and tenantable condition.
b. That Lessor shall be responsible for the removal of snow from
the driveways and parking areas of the Industrial Center of McKeesport and will
salt areas where necessary.
c. That Lessor shall be responsible for the management of all
landscaped areas comprising a part of the Industrial Center of McKeesport.
d. That Lessor will certify that the Heating and Air Conditioning
has been inspected and in good operating condition prior to Lessee's occupancy.
SECTION 9
ASSIGNMENT AND SUBLETTING
Lessee may assign this Lease or sublet all or any part of the Premises
with the prior written consent of Lessor, which consent shall not be withheld
or delayed unreasonably; provided, however, that Lessee shall remain liable for
the payment of rent hereunder and the performance of the covenants and
conditions contained herein. No consent will be required for any assignment:
(1) to any present or future wholly-owned subsidiary or parent of Steel City
Products, Inc. or (2) to any successor in interest of the entire business of
Steel City Products, Inc. as a result of merger, consolidation, purchase,
assignment, or operation of law.
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SECTION 10
RIGHT OF ENTRY
Lessor, its employees and agents, shall have the right to enter the
Premises at all reasonable business hours for the purpose of examining or
inspecting the same, showing the same to prospective purchasers, mortgagees or
tenants of the Industrial Center of McKeesport, and making such alternations,
repairs, improvements or additions to the Premises or to the Industrial Center
of McKeesport as Lessor may deem necessary or desirable. Prior to Lessor or
its employees and agents entering the Premises, Lessor shall make its best
effort to provide reasonable notice to Lessee except in the event of an
emergency. Nevertheless, if representatives of Lessee shall not be present to
open and permit entry into the Premises at any time when such entry by Lessor
is necessary or permitted hereunder, then Lessor may enter by means of a master
key (or forcibly in the event of an emergency) without liability to Lessee and
without such entry constituting an eviction of Lessee or termination of this
Lease.
SECTION 11
SURRENDER
At the expiration of this Lease or sooner termination of the term of
this Lease or any extended term hereof, Lessee shall surrender the Premises to
Lessor, together with all additions, alterations and improvements thereto, in
broom clean condition and in the same condition it was in on the date of this
Lease except for ordinary wear and tear and damage by fire, casualty or other
insurable cause for which Lessee is not obligated to make repairs under this
Lease. Lessee, however, shall remove all of its trade fixtures.
Lessee expressly waives to Lessor the benefit of Act No. 20, approved
April 6, 1951, entitled "The Landlord and Tenant Act of 1951" requiring three
months' notice to vacate the Premises at the end of the term or upon forfeiture
of this Lease for breach of its conditions, and covenants and agrees to give up
quiet and peaceable possession without further notice from the Lessor or its
agent.
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SECTION 12
INDEMNIFICATION
Lessee hereby assumes all risk and liability, and covenants and agrees
to indemnify and save harmless Lessor and its respective officers, agents and
employees from and against any and all liability, claims, damages, loss and
expense arising from injury to or death of persons whomsoever, unless caused
solely by the act or negligence of Lessor or any of the other persons or
entities aforesaid, on the Premises, curbs, sidewalks, entrances or passageways
adjacent to or included in the Premises or in connection with the occupation or
use thereof.
Unless caused by Lessor's sole act or sole neglect, Lessor shall not
be liable for any injury or damage to any person or to any personal property of
any such person at any time on said Premises or structure or on or in the
streets, curbs, sidewalks, entrances or passageways adjacent thereto or
included therein by reason of any action of the elements or from any cause
whatsoever, including fire, wind, explosion or electrical current and those
which may arise from the use or condition of said Premises or structure or from
ice thereon, or from steam, gases, vapor, water, rain, snow or electrical
current which may leak into, issue or flow from any part of said structure, or
from the pipes, ducts, plumbing or wiring of the same, or from any other place
or quarter, or from any other cause, during said term of this Lease.
Lessor shall indemnify and save harmless Lessee against any and all
liability, claims, damages, loss and expense sustained by Lessee, caused solely
by the act or negligence of Lessor, its officers, agents or employees.
SECTION 13
LIABILITY INSURANCE
Lessee shall keep in effect at Lessee's expense during the term of
this Lease, comprehensive general liability insurance with minimum combined
single limits of $1,000,000 for bodily injury liability and property damage
liability, and Lessor shall be named as an additional insured. Certificates of
such insurance policies shall be furnished to Lessor and such policies shall be
subject to Lessor's reasonable approval.
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SECTION 14
FIRE AND CASUALTY INSURANCE
That Lessee shall not do or suffer to be done any act, matter or thing
whereby the fire and casualty insurance carried by Lessor on the building of
which the Premises are a part shall be suspended or rated as more hazardous
than at the commencement of this Lease. In case of breach of this covenant,
Lessee agrees to pay as Additional Rent any and all increase of premium for
insurance carried by Lessor caused in any way by the actions or occupancy of
Lessee.
SECTION 15
WAIVER OF SUBROGATION
The parties hereto for themselves and their insurers hereby waive any
right of subrogation against the other party.
SECTION 16
DAMAGE OR DESTRUCTION OF LEASED PREMISES
In case the Premises shall be structurally damaged by fire or other
cause insofar that the Premises can not be reasonably used for the purposes
required by Lessee, then, at the option of the Lessor and Lessee, to be
exercised by a notice in writing sent no later than thirty (30) days after such
damage, this Lease shall cease and come to an end as of the date of such
damage, and any fixed rent for the unexpired period paid in advance beyond the
date of such damage, shall be refunded by Lessor to Lessee.
If the said structure shall be damaged to an extent as stated in the
prior paragraph, neither Lessor nor Lessee shall exercise its aforesaid option,
the Lessor, with due diligence, shall restore the structure to a condition
equal to its condition before the damage, which will permit the full enjoyment
and use of the Premises. A proportion of the fixed rent herein reserved,
according to the extent that such damage and its repair shall interfere with
the full enjoyment and use of the Premises, shall be suspended and abated from
the date of such damage until said structure shall have been so restored.
The Lessee shall be obligated to repair, restore or replace and trade
fixtures and equipment installed by Lessee which may be damaged or destroyed by
any cause.
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SECTION 17
DEFAULT; REMEDIES OF LESSOR
If Lessee shall fail to pay rent or additional rent to Lessor when the
same is due and payable under the terms of this Lease and such default shall
continue for a period of ten (10) days after written notice thereof has been
given to Lessee by Lessor, or if the Lessee shall abandon or vacate or fail to
perform any other duty or obligation imposed upon it by this Lease and such
default shall continue for a period of thirty (30) days after written notice
thereof has been given to Lessee by Lessor, or if the Lessee shall be adjudged
bankrupt, or shall make a general assignment for the benefit of its creditors,
or if a receiver of any property of Lessee in or upon the Premises be appointed
in any action, suit, or proceeding by or against Lessee and such appointment
shall not be vacated or annulled within sixty (60) days, or if the interest of
Lessee in the Premises shall be sold under execution or other legal process,
then and in any such event Lessor shall have the right to enter upon the
Premises and again have, repossess, and enjoy the same as if this Lease had not
been made, and thereupon, at Lessor's option, this Lease shall terminate
without prejudice, however, to the right of Lessor to recover from Lessee all
rent due and unpaid up to the time of such reentry.
In the event of any such default and reentry, if Lessor does not elect
to terminate this Lease, Lessor shall have the right to: relet the Premises
for the remainder of the term, for the highest rent then obtainable and to
recover from Lessee the difference between the rent reserved by this Lease and
the amount obtained through such reletting plus the costs and expenses
reasonably incurred by Lessor in such reletting.
In the event any installment of Base Rent of Additional Rent shall
become overdue after notice to Lessee for a period in excess of five (5) days,
a "late charge" in the amount of five percent (5%) per month of such overdue
installment may be charged to Lessee by Lessor for the purpose of defraying the
expenses incident to handling such delinquent payments, which late charge shall
be payable monthly on the same day of the month as installments of Base Rent
and Additional Rent, until such overdue installment is paid. This charge shall
be in addition to, and not in lieu of, any other remedy Lessor may have and is
in addition to any reasonable fees and charges of any agents or attorneys which
Lessor is entitled to employ on any default hereunder, whether authorized
herein, or by law.
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In addition to the above described late charge, at Lessor's option,
any payment required to be made by Lessee under the provisions of this Lease
and not made by Lessee when and as due shall thereupon be deemed to be due and
payable by Lessee to Lessor with interest thereon from the date when the
particular amount became due to the date of payment thereof to Lessor. The
aforesaid interest shall be equal to the fluctuating rate per annum, announced
from time to time by Mellon Bank, N.A. as its "prime rate"; said rate to change
automatically effective as of the effective date of each change in the "prime
rate".
Notwithstanding any other provisions herein contained, in the event of
any such default, Lessor, at its option, may declare the unpaid rent for the
unexpired portion of the term of this Lease to be immediately due and payable,
and Lessor may exercise any one or more of the remedies herein provided or as
otherwise may be provided by law, all of such remedies being cumulative and not
exclusive.
SECTION 18
CONFESSION OF JUDGMENT
For value received and forthwith on every default of payment of rent
by Lessee under this Lease, or on any and every breach of covenant or agreement
by Lessee under the terms of this Lease, Lessee does hereby empower any
attorney of any court of record, within the United States or elsewhere, to
appear for Lessee and, with or without declaration filed, confess judgement
against Lessee, and in favor of Lessor, its successors or assigns, as of any
term, for the sum due by reason of said default, including unpaid rent for the
balance of the term, with costs of suit and attorney's commission of 10% for
collection. Said attorney, so empowered, shall also forthwith issue writ or
writs of execution hereon, with release of all errors and without stay of
execution. Exemption of any and all property from levy and sale by virtue of
any exemption law now in force or which may be hereafter passed is also
expressly waived by Lessee.
Lessor agrees that it will not confess judgement against Lessee if
such default or breach is cured within the applicable cure periods set forth in
Section 17.
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In case of violation of any of the covenants or agreements in this
Lease by Lessee, the Lessee's failure to cure the same within the grace periods
herein provided, shall authorize and empower the aforementioned attorney,
either in addition to or without such judgement for the amount due according to
the terms of this Lease, to appear for Lessee and confess judgment forthwith
against Lessee, and in favor of Lessor, in an amicable action of ejectment for
the Premises above described, with all the conditions, fees, releases, waivers
of stay of execution and waiver of exemption to accompany said confession of
judgment for said sum or sums due. Lessee further, at option of Lessor,
authorizes the entry of such action, confession of judgment therein, and
immediate issuing of a writ of possession without leave of court. Lessor may
then, without notice, re-enter and expel Lessee from the Premises, and also any
person holding under it, and in each case, this Lease, or a true copy thereof
shall be a sufficient warrant of any person.
Such authority shall not be exhausted by one exercise thereof, but
judgment may be confessed as aforesaid from time to time as often as any of
said rent or other charges reserved as rent shall fall due or be in arrears
beyond any applicable grace periods, or so long as Lessee is in violation of
any of the other terms of this Lease beyond any applicable grace periods, and
such powers may be exercised as well after the expiration of the original term
and/or during any extension or renewal of this Lease.
SECTION 19
EMINENT DOMAIN
In the event any material part of the building which forms a part of
the Premises is taken by paramount authority or in any way appropriated by the
exercise of the right of eminent domain, the rent herein set forth shall be
abated and liability therefore cease as of the date of such taking or
appropriation. This Lease shall terminate as of said date, and any prepaid
rent shall be returned to Lessee. The entire award for the Premises shall be
payable to Lessor, and Lessee shall not be entitled to any damages for the
value of the unexpired Lease term. However, Lessee shall be entitled to claim
damages for its trade fixtures and relocation expenses.
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SECTION 20
SUBORDINATION OF LEASE
This Lease is and shall remain subordinate and subject to any mortgage
or mortgages which are now or at any time shall be placed upon the freehold
interest of Lessor or any part thereof or to any assignment of the interest of
Lessor in this Lease. Lessee agrees to execute and deliver to Lessor, without
cost, any instrument which may be deemed necessary by Lessor to further effect
the subordination of this Lease to any such mortgage, mortgages or assignments,
except that such instrument shall provide that, so long as Lessee is not in
default hereunder, its possession will not be disturbed nor will its leasehold
interest be divested.
In the event of a foreclosure of any such mortgage, Lessee hereby
agrees that this Lease shall not terminate by reason thereof, and Lessee
further agrees to attorn to and to recognize as Lessor hereunder the mortgagee,
or any purchaser at a foreclosure sale or any purchaser of the Industrial
Center of McKeesport and improvements in lieu thereof, for the balance of the
term of this Lease, subject to all the terms and provisions hereof provided,
however, any such mortgagee or purchaser, which shall become the Lessor
hereunder shall not be:
(a) liable for any act or omission of Lessor,
(b) subject to any offsets or defenses which Lessee might have
against Lessor,
(c) bound by any rent or additional rent which Lessee may have
paid to Lessor for more than the current month, or
(d) bound by any amendment or modifications of this Lease without
its consent.
SECTION 21
ESTOPPEL CERTIFICATE
Lessee shall, at any time and from time to time, within twenty (20)
days following written request from Lessor, execute, acknowledge and deliver to
Lessor a written statement certifying that this Lease is in full force and
effect and unmodified (or, if modified, stating the nature of such
modification), certifying the date to which the rent
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reserved hereunder has been paid, and certifying that there are not, to
Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or
specifying such defaults if any are claimed. Any such statement may be relied
upon by any prospective purchaser or mortgagee of all or any part of the
Industrial Center of McKeesport or the real property on which the Industrial
Center of McKeesport is located. Lessee's failure to deliver such statement
within said twenty-day period shall be conclusive upon Lessee that this Lease
is in full force and effect and unmodified, and that there are no uncured
defaults in Lessor's performance hereunder.
SECTION 22
FORCE MAJEURE
In the event that either party shall be delayed or hindered in, or
prevented from, the performance of any work, service or other acts required
under this Lease to be performed by the party and such delay or hindrance is
due to strikes, lockouts, acts of God, governmental restrictions, enemy act,
civil commotion, fire or other casualty, or other causes of a like nature
beyond the control of the party so delayed or hindered, then performance of
such work, service or other act shall be excused for a period of such delay and
the period for the performance of such work, service or other act shall be
extended for a period equivalent to the period of such delay. In no event
shall such delay constitute a termination of this Lease. The provisions of
this paragraph shall not operate to excuse Lessee from the prompt payment of
rent, including such pro rata payments of rent as may be due under Section 3
hereof, after the commencement of the term. Written notice of any such delays,
other than temporary or emergency interruptions, shall be given to the other
party as well as written notice of the cessation of the same.
SECTION 23
RULES AND REGULATIONS
Lessee will comply with the following rules and regulations covering the
use of the Premises and will at all times observe, perform and abide by all
reasonable rules and regulations from time to time promulgated by Lessor for
the common use of the Industrial Center of McKeesport and the safety, care and
cleanliness of the Premises:
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(i) That it will not obstruct the use of the common areas
including the sidewalks and roadways.
(ii) That it will use the parking areas on the Premises only for
visitor, executive and employee parking;
(iii) That nothing shall be placed by the Lessee or its employees on
the outside of the Building or on the windows, window sills or projections; and
(iv) That Lessee for itself, its successors, assigns, employees and
agents, hereby agrees that it will refrain from going onto the roof of the
building for any purpose other than maintenance with the prior approval of
Lessor, which the Premises are a part or from making any modifications
including penetration to the roof surface and placing material or installations
on the roof without the prior written consent of Lessor.
Should any difficulties develop with respect to the roof, Lessor shall be
promptly notified.
SECTION 24
QUIET ENJOYMENT
If Lessee shall pay the rent and perform all its other obligations
hereunder, Lessor covenants that Lessee shall, during the term hereof, enjoy
quiet and peaceable possession of the Premises.
SECTION 25
ABANDONMENT OF PREMISES
If the Building at any time be abandoned, Lessor may enter by force,
without liability or prosecution or action therefor, and may distrain for rent
and also relet the Premises as agent of Lessee for any unexpired portion of the
term and receive the rent therefor and apply it on this Lease.
SECTION 26
NON-WAIVER BY LESSOR
A determining of the term, or the receipt of rent after default, or
after judgment or after execution, shall not deprive Lessor of other actions
against Lessee for possession, or for rent, or for damages to which it is
entitled.
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SECTION 27
NOTICES
Any notice or demand required by the provisions of this Lease to be
given to Lessor shall be deemed to have been given adequately if sent by
Certified Mail to Lessor at the following address: 7th Floor - 907 Penn
Avenue, Pittsburgh, PA 15222-3805.
Any notice or demand required by the provisions of this Lease to be
given to Lessee shall be deemed to have been given adequately if sent by
Certified Mail to Lessee at the following addresses: Steel City Products,
Inc., 200 Center Street, McKeesport, PA 15132, and Oakhurst Company Inc., 1001
Santerre Drive, Grand Prairie, Texas, 75050, attn: President.
Either party shall have the right to change its address by giving to
the other party fifteen (15) days' advance written notice of its intention to
make such change and of the substituted address at which any notice or demand
may be directed to it.
SECTION 28
SUCCESSORS AND ASSIGNS
The respective rights and obligations provided in this Lease shall
bind and shall inure to the benefit of the parties hereto, their legal
representative, heirs, successors and assigns; provided, however that no rights
shall inure to the benefit of any successor of Lessee, unless Lessor's written
consent for the transfer to such successor has first been obtained as provided
in Section 9.
SECTION 29
ENVIRONMENTAL MATTERS
(A) For purposes of this Lease:
(i) As used herein, the term "Environmental Laws" shall mean any and all
federal, state, or local laws, statutes, rules, regulations, ordinances,
interstate compacts, or judicial or administrative decrees, orders, decisions,
or permits relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or Hazardous Substances into the environment
(including, without limitation, ambient air, surface water, ground water or
subsurface strata); or otherwise relating to the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
such pollutants, contaminants or Hazardous Substances, including, without
20
<PAGE> 21
limitation, ambient air, surface water, ground water or subsurface strata); or
otherwise relating to the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of such pollutants, contaminants or
Hazardous Substances, including without limitation, the following statutes, as
amended and judicially and administratively interpreted through the date hereof,
and all regulations promulgated thereunder as of such date, including without
limitation all comparable statutes, regulations, and interpretations by the
Commonwealth of Pennsylvania: the Comprehensive Environmental Response,
Compensation and Liability Act, 42 USC Section 9601 et seq. ("CERCLA"); the
Clean Air Act, 42 USC Section 7401 et seq.; the Resource Conservation and
Recovery Act, 42 USC Section 4901 et seq. ("RCRA"); the Safe Drinking Water Act,
42 USC Section 300f et seq.; the Toxic Substance Control Act, 15 USC Section
2601 et seq.; the Clean Water Act, 33 U.S.C. Section 1251 et seq.; the
National Environmental Policy Act 42 U.S.C. Section 4321 et seq.; the Hazardous
Substances Cleanup Act, 35 Pa. C.S.A. Section 6020.101 et seq. ("HSCA"); the
Clean Streams Law, 35 Pa. C.S.A. Section 691.1 et seq.; the Solid Waste
Management Act, 35 Pa. C.S.A. Section 6018.101 et seq.; and the Pennsylvania
Storage Tank and Spill Prevention Act, 35 PS Section 6021.101 et seq.; and
(ii) As used herein, the term "Hazardous Substance" shall mean any and all
elements, compounds, chemical mixtures, contaminants, pollutants, or other
substances identified as "Hazardous Substances" under CERCLA or HSCA and all
comparable statutes and regulations, and any used or unused petroleum products.
(B) Lessee shall:
(i) Not cause or permit any Hazardous Substance to be placed, held,
located, released, spilled, transported or disposed of on, under, at or from
the Premises or any real estate contiguous thereto in contravention of any
Environmental Laws;
(ii) Except with respect to matters existing prior to the Commencement
Date or occurring after Lessee no longer occupies the Premises, contain at or
remove from the Premises or perform any other remedial action regarding any
Hazardous Substance, at Lessee's sole cost and expense, if, as and when such
containment, removal or other remedial
21
<PAGE> 22
action is required under any Legal Requirement and, whether or not so required,
perform any containment removal or remediation of any kind of any Hazardous
Substance in compliance with all Legal Requirements;
(iii) Not permit any subtenant or occupant of the Premises to engage in
any activity that could result in any liability, cost or expense to any such
subtenant, or occupant, lessee, Lessor or any other owner of the Premises or
any portion thereof or the creation of a lien on the Premises under any
Environmental Laws or under any similar applicable law or regulation;
(iv) Provide Lessor with written notice (and a copy as may be applicable)
of any of the following within ten (10) days thereof; (a) Lessee's obtaining
actual knowledge or notice of any kind of the presence, or any actual or
threatened release, of any Hazardous Substance on, under, at or from the
Premises not authorized or permitted under Environmental Laws; (b) Lessee's
receipt or submission, or Lessee's obtaining actual knowledge or notice of any
kind, of any report, citation, notice or other communication from or to any
federal, state or local government or quasigovernmental authority regarding any
Hazardous Substance in any way materially adversely affecting the Premises; or
(c) Lessee's obtaining actual knowledge or notice of any kind of the incurrence
of any cost or expense by any federal, state or local governmental or
quasigovernmental authority or any private party in connection with the
assessment, monitoring, containment, removal or remediation of any kind of any
Hazardous Substance on, under, at or from the Premises, or of the recording of
any lien on the Premises in connection with any such action or Hazardous
Substance on, under or at the Premises; and
(v) Defend all actions against the Lessor and pay, protect, indemnify and
save harmless the Lessor from and against any and all liabilities, losses,
damages, costs, expenses (including, without limitation, reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments of
any nature arising from Lessee's failure to comply with this Section 29. The
indemnity contained in this Section 29 shall survive the
22
<PAGE> 23
expiration or earlier termination of this Lease with respect to the obligations
and liabilities of Lessee hereunder, actual or contingent, which have arisen on
or prior to such expiration or earlier termination.
(vi) Pursuant to the Commonwealth of Pennsylvania Department of
Environmental Resources, ("PA DER"), industrial and commercial complexes and
individual businesses are required to develop preventative plans in conformance
with Chapter 75 of the PA DER regulations for intervention in the event of
accidental pollution of air, land or water. Said plans are referred to as
Preparedness, Prevention and Contingency Plans (PPC).
In the event that Lessee is required to submit to and obtain
approval from PA DER for Lessee's PPC, Lessee shall also submit to Lessor a
copy of both its PPC (and any revisions to same) and the PA DER written notice
to Lessee of PA DER's approval of said PPC.
By receipt of Lessee's PPC, Lessor assumes no responsibility
as to its accuracy, correctness, nor implementation.
SECTION 30
GOVERNING LAW
This Lease shall be construed, governed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania.
SECTION 31
SEVERABILITY
If any provisions of this Lease shall be held to be invalid, void or
unenforceable, the remaining provisions hereof shall in no way be affected or
impaired and such remaining provisions shall remain in full force and effect.
SECTION 32
GENDER
As used in this Lease, the word "person" shall mean and include, where
appropriate, an individual, corporation, partnership or other entity; the
plural shall be substituted for the singular, and the singular for the plural,
where appropriate;and words of any gender shall mean to include any other
gender.
23
<PAGE> 24
SECTION 33
OPTION TO RENEW
Lessee shall have the right and option to renew this Lease for one (1)
additional term of five(5) years following the termination of the term hereof,
provided: (i) that this Lease is in full force and effect immediately prior to
the date of the commencement of such renewal term; (ii) that the Lessee is not
in default under any of the provisions herein; and (iii) that the Lessee is in
full occupancy of the Premises for its own use and intends to continue such
occupancy. The term of the option term shall commence January 1, 2003 and
expire on December 31, 2008. The option term shall be exercised by Lessee
serving on Lessor written notice to that effect not later than June 30, 2002.
Said renewal shall be upon the same terms, covenants, conditions and
limitations as in this Lease provided, except that during the option term, the
monthly rental shall be the amount of the last month's rent due in the initial
term plus five (5%) percent. The notice of election to take the renewal term
shall be irrevocable and shall constitute an agreement between parties for a
renewal of this Lease as herein stated.
SECTION 34
ENTIRE AGREEMENT
There are no agreements, representations or understanding between the
parties other than those expressed herein. No modification of the terms hereof
shall be binding unless set forth in a writing signed by both parties hereto.
A one-time real estate brokerage commission in the amount of $66,719.00 is
payable by Lessor to Hill-Cleary and Associates. No further real estate
commissions will be payable for any lease extensions.
24
<PAGE> 25
WITNESS the due execution hereof as of the day and year first above written.
Attest: REGIONAL INDUSTRIAL DEVELOPMENT
/s/ Colleen Poreniski CORPORATION OF SOUTHWESTERN
- --------------------- PENNSYLVANIA
Secretary
(Corporate Seal)
BY /s/ Frank Brooks Robinson
-------------------------
President
Attest: STEEL CITY PRODUCTS, INC.
/s/ Bernard Frank BY: /s/ Terrance W. Allan
- ----------------- ---------------------
(Corporate Seal) President, C.O.O.
25
<PAGE> 1
EXHIBIT 11
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING SHARES
INCLUDING COMMON
STOCK EQUIVALENTS
-----------------
<S> <C>
Fiscal year ended February 28, 1998.......................... 3,211,738
Fiscal year ended February 28, 1997.......................... 3,200,147
Fiscal year ended February 29, 1996.......................... 3,195,721
WEIGHTED
AVERAGE
OUTSTANDING SHARES
OF COMMON STOCK
---------------
Fiscal year ended February 28, 1998.......................... 3,206,179
Fiscal year ended February 28, 1997.......................... 3,200,140
Fiscal year ended February 29, 1996.......................... 3,194,021
LOSS FROM
CONTINUING OPERATIONS
--------------------------
TOTAL(000's) PER SHARE
----------- ----------
Fiscal year ended February 28, 1998.......................... $ (408) $ (0.13)
Fiscal year ended February 28, 1997.......................... $ (8,761) $ (2.74)
Fiscal year ended February 29, 1996.......................... $ (4,043) $ (1.27)
NET LOSS
ATTRIBUTABLE TO COMMON
STOCKHOLDERS
--------------------------
TOTAL (000'S) PER SHARE
------------ ----------
Fiscal year ended February 28, 1998.......................... $ (408) $ (0.13)
Fiscal year ended February 28, 1997.......................... $ (8,761) $ (2.74)
Fiscal year ended February 29, 1996.......................... $ (3,978) $ (1.25)
</TABLE>
Note: Income per share amounts attributable to common stockholders are computed
on the basis of the weighted average number of outstanding common shares
and common stock equivalents determined by applying the treasury stock
method to stock options and warrants outstanding. Loss per share amounts
do not include common stock equivalents since that would reduce the net
loss per share.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-00173 of Oakhurst Company, Inc. on Form S-3 and Registration Statement No.'s
33-83040, 33-83038 and 33-83180 of Oakhurst Company, Inc. on Form S-8 of our
report dated May 22, 1998, appearing in the Annual Report on Form 10-K of
Oakhurst Company, Inc. for the year ended February 28, 1998.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 4,487
<ALLOWANCES> 461
<INVENTORY> 6,167
<CURRENT-ASSETS> 10,689
<PP&E> 1,782
<DEPRECIATION> 1,098
<TOTAL-ASSETS> 14,031
<CURRENT-LIABILITIES> 7,970
<BONDS> 4,318
0
0
<COMMON> 32
<OTHER-SE> 1,711
<TOTAL-LIABILITY-AND-EQUITY> 14,031
<SALES> 32,307
<TOTAL-REVENUES> 32,593
<CGS> 26,119
<TOTAL-COSTS> 26,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 165
<INTEREST-EXPENSE> 634
<INCOME-PRETAX> 608
<INCOME-TAX> 1,016
<INCOME-CONTINUING> (408)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (408)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
