<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 29, 2000
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.)
2751 Centerville Road Suite 3131
Wilmington, Delaware 19803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 416-0717
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Stock, $0.01 par value per share None
Preferred Shares Purchase Rights None
</TABLE>
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
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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, 2000 of the voting stock held by non-affiliates
of the registrant: $5,447,232
At May 1, 2000, the registrant had 4,943,018 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT
This Report on Form 10-K contains certain forward-looking statements
that involve risks and uncertainties. The cautionary statements contained in
this Report should be read as being applicable to all related forward-looking
statements wherever they appear in this Report. The Company's actual results in
the future could differ materially from those discussed here. Important factors
that could cause or contribute to such differences include those discussed in
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS and elsewhere in this Report.
GENERAL
Oakhurst Company, Inc. ("Oakhurst" or "the Company") was formed as part
of a merger transaction in 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 SCPI's outstanding common stock and all of the
SCPI Series A Preferred Stock, and as a result, it owns 90% of the voting stock
of SCPI.
Pursuant to the 1991 merger, SCPI became a special, limited purpose
subsidiary that concentrates on its historical distribution business, while any
growth and expansion opportunities are to be pursued by Oakhurst or its
subsidiaries. Because Oakhurst's ownership of SCPI is primarily in the form of
preferred stock, Oakhurst retains most of the value of SCPI and Oakhurst's
income from SCPI is determined by the Series A Preferred stock dividend. This
form of ownership was designed to facilitate the preservation of SCPI's net
operating loss carry-forwards and capital losses.
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 operates seven facilities in New
York, Connecticut, New Jersey and Pennsylvania. After experiencing operating
losses at Dowling's, Oakhurst's Board of Directors decided to dispose of this
subsidiary. In June 2000, the Company entered into an agreement to sell
Dowling's by way of merger for consideration equivalent to the amount of
revolver debt expected to be owed by Dowling's at the merger closing. Closing is
subject to, among other things, the acquirer obtaining the necessary replacement
financing within 120 days.
Through SCPI and Dowling's, Oakhurst's principal business in recent
years has been the distribution of products to the automotive after-market. The
remaining automotive distribution business is conducted by SCPI under the trade
name "Steel City Products" and involves the distribution of automotive parts and
accessories and non-food pet supplies from a facility in McKeesport,
Pennsylvania.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998, Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights, discussed further below. In connection with the
formation of OTI, Oakhurst and OTI completed certain agreements with KTI, Inc.
("KTI") a waste-to-energy and recycling company that merged into Casella Waste
Systems, Inc. in December 1999.
The December 1998 agreements with KTI included the purchase by KTI of
approximately 1.7 million shares of Oakhurst's common stock at a price of $0.50
per share for gross proceeds of $865,000 (the "Equity Proceeds"). In conjunction
with the purchase of stock, KTI committed to lend Oakhurst under a loan
agreement (the "KTI Loan") up to a minimum of $11.5 million. In December 1998,
OTI initially acquired a 50% equity interest in, and became the managing member
of, New Heights Recovery & Power, LLC ("New Heights")
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which is re-developing an existing waste tire recycling facility in Ford
Heights, Illinois into a fully-integrated recycling and waste-to-energy
facility.
In addition to the New Heights investment, in January 1999 OTI utilized
an aggregate of approximately $2.7 million from the Equity Proceeds and the KTI
Loan to enable it to make a minority investment in Sterling Construction
Company, ("Sterling") a profitable, privately-held Texas-based pipe laying and
road building contractor that is expected to participate in the significant
increase in infrastructure and highway spending in Texas. In October 1999
certain shareholders of Sterling exercised their right to sell a second tranche
of equity to OTI. Cash for the second equity purchase was obtained through the
issuance of notes secured by such equity, of which a part is due to two officers
and directors of Oakhurst.
Recognizing its investment in Sterling and increases in the estimated
capital costs and start-up losses at New Heights, in July 2000 Oakhurst, OTI and
KTI completed a modification of the KTI Loan (the "KTI Loan Modification")
pursuant to which OTI's obligation to fund the first two phases and certain
Phase Three expenditures of the New Heights Business Plan was limited to $9
million and KTI agreed to fund $3 million for such purposes directly to New
Heights. Accordingly, OTI's equity interest in such investments in New Heights
was decreased from 50% to 37.5%, with the reduction of 12.5% being acquired by
KTI in return for its $3 million direct investment in New Heights. In addition,
OTI's obligation to fund certain start-up losses at New Heights will be limited
to 75% of such losses, funded through advances under the KTI Loan, with the
balance to be funded directly by KTI. Furthermore, the KTI Loan Modification
provides for any further capital expenditures to be financed through New
Heights' internally generated cash and/or through financing raised by New
Heights. To the extent that such funding is insufficient, the parties to the KTI
Loan Modification have agreed to negotiate the terms on which they will each
make future investments.
The New Heights and Sterling investments were made with the expectation
that they may offer opportunities in the future for Oakhurst to take advantage
of its substantial tax loss carryforwards. New Heights is structured as a
limited liability company ("LLC") so that any distributions to OTI from New
Heights' future operating profits or any gain on the eventual sale of the
facility should be largely sheltered from federal taxation by Oakhurst's tax
loss carry-forwards.
STEEL CITY PRODUCTS, INC. ("SCPI")
BACKGROUND
SCPI was incorporated in West Virginia in 1959 and in 1963 became known
as Heck's, Inc. 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").
SCPI was reincorporated in Delaware under the name Hallwood Industries
Incorporated in fiscal 1991. The name was changed to Steel City Products, Inc.
in fiscal 1993.
The Steel City Products automotive distribution business which was
founded in 1947 was acquired by SCPI in 1969. The operations of SCPI comprise
the distribution of automotive parts and accessories under the name Steel City
Products. In fiscal 1997, SCPI established a division to distribute non-food pet
supplies.
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, lights and wheel covers) 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 1997, SCPI
introduced non-food pet supplies to its merchandise selection. Although the pet
supplies were not typical of SCPI's historical merchandise mix, management
determined that the availability of existing
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customers which sell both pet supplies and automotive accessories, combined with
SCPI's distribution expertise and infrastructure, offered an opportunity for
increased sales. SCPI's automotive and pet operations are conducted from a
leased facility in McKeesport, Pennsylvania.
Historically, much of SCPI's business has been 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. However, in recent years a
growing proportion of its customers electronically transmit their own 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. 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. 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 purchases. 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 to SCPI for such inventory build-ups and
in turn, SCPI grants extended payment terms to many of its customers to
facilitate their inventory build-ups.
Although SCPI's non-food pet supply business experiences different
seasonal trends from its automotive business the effect of this is not material
to the overall business.
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, hardware stores, variety and drug stores
and other automotive accessory distributors. Most customers are based in the
northeastern United States, although stores operated by some customers are
located outside of that area. There are no foreign sales.
SCPI's customers are continually affected by changes in the retail
environment, including 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. Some customers have changed their buying practices to acquire certain
merchandise direct from manufacturers rather than through distributors such as
Steel City Products.
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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 SCPI's customer base. Sales in fiscal 2000 increased by 11%
compared with sales in fiscal 1999 and 1998. SCPI continues to pursue new
customer relationships that, if concluded, could increase sales in fiscal 2001;
however, there can be no assurance that new business can be secured.
Following the discontinuance of the Dowling's Fleet Service segment,
sales attributable to SCPI represent 100% of Oakhurst's consolidated sales. The
following table shows sales to SCPI's customers that individually accounted for
more than 10% of sales during any of the latest three fiscal years (dollars in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 29, 2000 February 28, 1999 February 28, 1998
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% of % of % of
Sales Sales Sales Sales Sales Sales
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<S> <C> <C> <C> <C> <C> <C>
Ames $3,144 16% $1,955 11% $2,178 12%
Kroger $2,037 10% $1,745 9% $1,263 7%
</TABLE>
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 merchandise selection, price, service
levels, 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.
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 the Chairman, Bernard
H. Frank (a founder of Steel City Products in 1947) and the President, Terrance
Allan have many years of service with SCPI and are employed under long-term
contracts.
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. The union contract was recently
renewed for a three year term through November 2002.
OAKHURST TECHNOLOGY, INC. (OTI)
BACKGROUND
In December 1998 Oakhurst formed OTI to take advantage of the
restructuring opportunity at New Heights. OTI initially acquired a 50% equity
interest in, and became the managing member of, New Heights
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which is re-developing an existing waste tire recycling facility in Ford
Heights, Illinois, into a fully integrated recycling and waste-to-energy
facility. In January 1999 OTI utilized an aggregate of approximately $2.7
million from the Equity Proceeds and the KTI Loan to enable it to make a
minority investment in and acquire a convertible subordinated note of, Sterling,
a profitable privately-held Texas-based pipe laying and road building contractor
that is expected to participate in the significant increase in infrastructure
and highway spending in Texas. OTI increased its equity investment in Sterling
from 7% to 12% in October 1999 when certain shareholders of Sterling exercised
their right to sell a second tranche of equity to OTI.
Recognizing its investment in Sterling and increases in the estimated
capital costs and start-up losses at New Heights, in July 2000 Oakhurst, OTI and
KTI completed a modification of the KTI Loan (the "KTI Loan Modification")
pursuant to which OTI's obligation to fund the first two phases and certain
Phase Three expenditures of the New Heights Business Plan was limited to $9
million and KTI agreed to fund $3 million for such purposes directly to New
Heights. Accordingly, OTI's equity interest in such investments in New Heights
was decreased from 50% to 37.5%, with the reduction of 12.5% being acquired by
KTI in return for its $3 million direct investment in New Heights. In addition,
OTI's obligation to fund certain start-up losses at New Heights will be limited
to 75% of such losses, funded through advances under the KTI Loan, with the
balance to be funded directly by KTI. Furthermore, the KTI Loan Modification
provides for any further capital expenditures to be financed through New
Heights' internally generated cash and/or through financing raised by New
Heights. To the extent that such funding is insufficient, the parties to the KTI
Loan Modification have agreed to negotiate the terms on which they will each
make future investments.
The New Heights and Sterling investments were made with the expectation
that they may offer opportunities in the future for Oakhurst to take advantage
of its substantial tax loss carryforwards. New Heights is structured as a
limited liability company ("LLC") so that any distributions to OTI from New
Heights' future operating profits or any gain on the eventual sale of the
facility should be largely sheltered from federal taxation by Oakhurst's tax
loss carry-forwards.
INVESTMENT IN NEW HEIGHTS
The New Heights facility (formerly known as "Ford Heights") is located
south of Chicago and was built in 1996 by CGE Ford Heights, LLC ("CGE") at a
cost of approximately $120 million. It was designed to shred and burn waste
tires to produce electricity. Except for preliminary testing, the facility never
operated, due to the retroactive repeal of the Illinois Retail Rate legislation,
which would have subsidized the Ford Heights and other co-generation facilities'
electricity rates. As a result of the repeal of the legislation, Ford Heights
was deemed uneconomic and CGE sought Chapter 11 bankruptcy protection.
Through the efforts of the CGE bondholders, a business plan proposed by
KTI for the restructuring of the facility's operations and development of an
"environmental campus" (the "Business Plan") was adopted as the basis of a plan
of reorganization and CGE, renamed New Heights, emerged from bankruptcy in
December 1998. KTI's management has specific experience in the turnaround of
co-generation facilities.
Upon the confirmation of the New Heights Reorganization Plan in
December 1998, all of CGE's outstanding debt was converted to 100% of the equity
in New Heights, and KTI designated OTI as its affiliate initially to acquire 50%
of such equity, through the commitment to fund defined capital expenditures,
start-up losses and working capital related to the Business Plan.
OTI was appointed the managing partner of New Heights and New Heights
engaged KTI Operations, a wholly-owned subsidiary of KTI, to manage the New
Heights facility, pursuant to an Operating and Maintenance Agreement.
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In July 1999, after receiving the appropriate permits the New Heights
facility began waste tire operations involving the collection of waste tires and
their processing into crumb rubber and related by-products. Phase I of the
Business Plan was completed in September 1999. Phase II of the Business Plan
includes the permitting and start-up of waste to energy operations. The
necessary permits were received in February 2000, a power supply agreement was
entered into with a local utility for the summer of 2000, and in early July the
New Heights generator began commercial production of power from burning waste
tires.
DISCONTINUED OPERATIONS - DOWLING'S FLEET SERVICE CO., INC.
Dowling's Fleet Service Co., Inc. was acquired by Oakhurst in fiscal
1995 and has historically been one of the largest regional distributors of
automotive radiators and related products in the northeastern United States. In
recent years, the radiator replacement market has undergone significant changes,
including aggressive competition, consolidation within the industry, and direct
selling by manufacturers to installers, and thus operating results at Dowling's
have generally declined. In fiscal 2000, Dowling's reported a loss of
approximately $400,000, and the Board of Directors of Oakhurst decided to
dispose of the business. In June 2000, the Company entered into an agreement to
sell Dowling's through a merger with an importer of radiators for consideration
equivalent to the amount expected to be owed at the merger closing by Dowling's
under the revolving debt agreement. The merger closing is subject to, among
other things, the acquirer obtaining necessary replacement financing within 120
days, and the portion of the revolver applicable to Dowling's has been extended
for such period. In addition, prior to the merger closing the acquirer will
advance Dowling's up to $500,000 in working capital loans, has agreed to defer
payment by Dowling's of approximately $250,000 in amounts owed for prior
merchandise shipments to Dowling's, and will make further shipments of
merchandise to Dowling's on customary terms, all in return for a subordinated
security interest in all of Dowling's assets and a pledge of the stock of
Dowling's owned by Oakhurst. Until the merger closing the acquirer may appoint a
majority of the directors of Dowling's, and the business will be managed by the
Dowling's Board.
ITEM 2. PROPERTIES
Since December 1997, SCPI has operated its business from a leased,
67,000 square-foot building located in an industrial park in McKeesport,
Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2000.
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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 began trading on the OTC Bulletin Board also under the symbol OAKC.
The following table sets forth the high and low bid prices by fiscal
quarter for Oakhurst's common stock for fiscal years 2000 and 1999.
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
Quarterly High Quarterly Low Quarterly High Quarterly Low
<S> <C> <C> <C> <C>
Quarter 1 $1.63 $0.88 $1.13 $0.75
Quarter 2 $1.56 $0.94 $0.97 $0.44
Quarter 3 $1.31 $1.03 $0.50 $0.44
Quarter 4 $1.44 $1.19 $2.13 $0.45
</TABLE>
There were approximately 3,600 holders of record of Oakhurst's common
stock on May 1, 2000.
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Item 6. Selected Financial Information [TO BE INSERTED]
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The corporate structure resulting from the 1991 merger, whereby Steel
City Products Inc. ("SCPI") became a special, limited purpose, majority-owned
subsidiary of Oakhurst Company, Inc. ("Oakhurst") was designed to 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 $158 million of net operating loss carry-forwards and
capital losses. 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 principal business historically has been the distribution of
products to the automotive after-market. Its largest business, and its one
remaining automotive distributor following the disposal of Dowling's (see below)
is conducted by SCPI under the trade name "Steel City Products", and involves
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, 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 an executive and a
former executive of Dowling's with an aggregate balance remaining at February
29, 2000 of $110,000. In March 1996, Dowling's acquired all of the outstanding
capital stock of G&O, a radiator distributor based in Philadelphia,
Pennsylvania.
Due to operating losses at Dowling's of approximately $400,000 in
fiscal 2000, the Board of Directors decided to dispose of the business. In June
2000, the Company entered into an agreement to sell Dowling's through a merger
with an importer of radiators for consideration equivalent to the amount
expected to be owed at the merger closing by Dowling's under the revolving debt
agreement. The merger closing is subject to, among other things, the acquirer
obtaining necessary replacement financing within 120 days, and the portion of
the revolver applicable to Dowling's has been extended for such period. In
addition, prior to the merger closing the acquirer will advance Dowling's up to
$500,000 in working capital loans, has agreed to defer payment by Dowling's of
approximately $250,000 in amounts owed for prior merchandise shipments to
Dowling's, and will make further shipments of merchandise to Dowling's on
customary terms, all in return for a subordinated security interest in all of
Dowling's assets and a pledge of the stock of Dowling's owned by Oakhurst. Until
the merger closing the acquirer may appoint a majority of the directors of
Dowling's, and the business will be managed by the Dowling's Board.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst Technology,
Inc. ("OTI") in order to take advantage of the restructuring opportunity at New
Heights, as discussed below. Also in December 1998, Oakhurst entered into an
agreement with KTI, Inc. ("KTI"), a publicly-traded waste-to-energy and
recycling company that merged into Casella Waste Systems, Inc. in December 1999,
that provided for the purchase by KTI of approximately 1.7 million shares of
Oakhurst's common stock at a price of $0.50 per share for gross proceeds of
$865,000 (the "Equity Proceeds"). In conjunction with the private placement of
stock, KTI committed to lend Oakhurst up to $11.5 million under a loan agreement
(the "KTI Loan"), as discussed further below. In December 1998 OTI initially
acquired a 50% equity interest in, and became the managing member of, New
Heights Recovery & Power, LLC ("New Heights") which is re-developing an existing
waste tire recycling facility in Ford Heights, Illinois into a fully integrated
recycling and waste-to-energy facility.
Through February 29, 2000, OTI has invested approximately $7.2 million
in the New Heights project, reflecting the capital commitments and funding of
start-up losses required by the first two phases of the Business
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Plan. In July 1999, after receiving the appropriate permits the New Heights
facility began waste tire operations involving the collection of waste tires and
their processing into crumb rubber and related by- products. Phase I of the
Business Plan was completed in September 1999. Phase II of the Business Plan
includes the permitting and start-up of waste to energy operations. The
necessary permits were received in February 2000, a power supply agreement was
entered into with a local utility for the summer of 2000, and in early July the
New Heights generator began commercial production of power from burning waste
tires.
In addition to New Heights, in January 1999 OTI made a minority
investment totaling approximately $2.7 million in Sterling Construction Company,
("Sterling") a profitable, privately-held Texas-based pipe laying and road
building contractor that is expected to participate in the significant increase
in infrastructure and highway spending in Texas.
The equity interest in Sterling of approximately 7% was increased to
approximately 12% in October 1999 when certain shareholders of Sterling
exercised their right to sell a second tranche of equity to OTI. The cost of the
second equity tranche was approximately $1.36 million and was financed through
the issuance of notes, of which an aggregate of $559,000 is due to two officers
and directors of Oakhurst. Of the notes, which are secured by the second equity
tranche, $800,000 is re-payable by OTI in October 2000, and $559,000 is due in
April 2001. The notes bear interest at the rate of 14%.
Recognizing its investment in Sterling and increases in the estimated
capital costs and start-up losses at New Heights, in July 2000 Oakhurst, OTI and
KTI completed a modification of the KTI Loan (the "KTI Loan Modification")
pursuant to which OTI's obligation to fund the first two phases and certain
Phase Three expenditures of the New Heights Business Plan was limited to $9
million and KTI agreed to fund $3 million for such purposes directly to New
Heights. Accordingly, OTI's equity interest in such investments in New Heights
was decreased from 50% to 37.5%, with the reduction of 12.5% being acquired by
KTI in return for its $3 million direct investment in New Heights. In addition,
OTI's obligation to fund certain start-up losses at New Heights will be limited
to 75% of such losses, funded through advances under the KTI Loan, with the
balance to be funded directly by KTI. Furthermore, the KTI Loan Modification
provides for any further capital expenditures to be financed through New
Heights' internally generated cash and/or through financing raised by New
Heights. To the extent that such funding is insufficient, the parties to the KTI
Loan Modification have agreed to negotiate the terms on which they will each
make future investments.
Activities of New Heights are reported on the equity method of
accounting. The investment in Sterling is reported on the cost method of
accounting. OTI also has a $1.35 million subordinated note receivable from
Sterling, which is convertible into shares of common stock of Sterling, at any
time at the option of OTI, or upon the closing of a defined public offering of
Sterling. Assuming conversion of the note, OTI would own between approximately
16% and 17% of Sterling, including the equity which was purchased in October
1999.
For its fiscal year ended September 1999 Sterling's revenues were $64
million and Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") was $8.5 million. For the six months ended March 2000 Sterling's
results reflected revenues of $40.0 million and EBITDA of $5.5 million.
SALE OF SUBSIDIARY
In June 2000, Oakhurst entered into an agreement to sell Dowling's, a
wholesale distributor of automotive radiators and related parts, through a
merger with an importer of radiators, for consideration equivalent to the amount
expected to be owed at the merger closing by Dowling's under the revolving
credit agreement (see Note 5 to the Consolidated Financial Statements). The
Company recorded a loss on the disposal of Dowling's of approximately $2.0
million, of which $1.7 million related to the write-off of the excess of cost
over net assets acquired associated with the acquisition of Dowling's in fiscal
1995 and $300,000 resulted from expected operating losses from March 1, 2000
through the anticipated merger closing date.
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<PAGE> 12
In fiscal 2000, Dowling's reported an operating loss of approximately
$400,000. Dowling's reported losses of $185,000 and $63,000 in fiscal 1999 and
1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING
In addition to cash derived from the operation of its subsidiaries,
Oakhurst's liquidity and financing requirements have historically been
determined principally by the working capital needed to support the automotive
distribution subsidiaries' levels of business, together with the need for
capital expenditures and the cash required to repay debt. Each such 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.
Credit Facility and Revolver
In March 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 then 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 initially bore interest at the
Citibank N.A. base rate plus 1.5%. Borrowings under the Revolver are subject to
a borrowing base that is calculated according to defined accounts receivable and
inventory levels of Oakhurst's automotive subsidiaries. The Credit Facility had
an initial term of two years and contained various restrictive financial
covenants. The Credit Facility is secured by the accounts receivable,
inventories and fixed assets of Oakhurst and its automotive 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 reduced the maximum amount available under the Revolver
to $7 million, subject to a borrowing base, and amended certain financial
covenants. 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 renewal fee of $35,000. The Credit Facility provided 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 December 1997, the Fixed Asset Loan was repaid in full, from the
proceeds of the sale of SCPI's warehouse.
In March 1999, the Credit Facility was renewed for one year and amended
to provide for only a revolving line of credit (the "Revolver"), to increase
certain borrowing base percentages, increase the interest rate to Citibank N.A.
base rate plus 2%, and amend the financial covenants.
In July 2000 Oakhurst and SCPI entered into an agreement with the
institutional lender to identify SCPI as the Borrower (cross-collateralized by
Oakhurst), to provide for a three year term and reduce the total Revolver to
$4.0 million, subject to a borrowing base. Management believes that the Revolver
will provide adequate funding for SCPI's working capital, debt service and
capital expenditure requirements, including seasonal fluctuations for at least
the next twelve months.
Also in July 2000, an agreement was entered into with the institutional
lender for an extension until October 28, 2000 of the $2.75 million Revolver
applicable to Dowling's, and, assuming the closing of the merger, for the waiver
by the lender of a financial covenant default as at February 29, 2000. It is
expected that
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<PAGE> 13
the acquirer of Dowling's will obtain replacement financing prior to October 28,
2000, so that upon the closing of the merger amounts outstanding from Dowling's
under the Revolver will be repaid. Management believes that continued funding to
Dowling's under the Revolver, together with the acquirer's commitment to make
working capital loans to Dowling's, to defer payment of certain amounts to it by
Dowling's and to ship merchandise, together with a reduction in debt and
extension of terms made by another Dowling's supplier, will be sufficient to
enable Dowling's to operate until the merger closing, which management believes
is likely to occur. In the event closing does not occur, management would expect
to liquidate Dowling's.
KTI Loan
Upon the confirmation of the New Heights Reorganization Plan in
December 1998, all of CGE's outstanding debt was converted to 100% of the equity
in New Heights, and KTI designated OTI as its affiliate initially to acquire 50%
of such equity, through the commitment to fund defined capital expenditures,
start-up losses and working capital related to the Business Plan.
In December 1998, Oakhurst entered into a loan agreement with KTI, Inc.
(the "KTI Loan") pursuant to which KTI committed to fund up to a minimum of
$11.5 million. Such amount may be increased to a maximum of $17 million to the
extent that the defined funding for the New Heights Business Plan and start-up
losses, described below, exceed the minimum specified therein. The KTI Loan
bears interest at a fixed rate of 14%, payable quarterly and is due in April
2001. The KTI Loan is subject to an Intercreditor Agreement between KTI and the
Revolver lender, and is secured by a pledge of all the capital stock of OTI and
all of OTI's equity interest in New Heights. The Intercreditor Agreement
provides, inter alia, that (i) the KTI Loan is subordinated to the Revolver,
except as to the revenues, dividends or assets of OTI, the proceeds of which may
be used to repay the KTI Loan; (ii) the Revolver is subordinated to the
revenues, dividends or assets of OTI; (iii) KTI has no security interest in the
Revolver collateral; (iv) the Revolver lender has no security interest in the
KTI collateral and (v) cash flow from Oakhurst's operations other than OTI may
be used to repay the KTI Loan, subject to the approval of the Revolver lender,
so long as the Revolver is not in default.
Also in December 1998 the Company's subsidiary, OTI, entered into an
Investment Agreement with New Heights pursuant to which OTI agreed to fund
defined capital expenditures, costs of obtaining permits, start-up losses and
working capital of the New Heights waste-to-energy facility in Ford Heights,
Illinois, and to receive in return an initial 50% of the equity of New Heights.
The funding requirements are specified in a Business Plan that provides for
three phases. Phase One of the Business Plan provided for the removal of
approximately 70,000 tons of scrap tires from the New Heights site and the
establishment of a crumb rubber processing facility and was completed in
September 1999. Phase Two provides for the permitting and start-up of
waste-to-energy operations and requires an investment (including the Phase One
investment) of at least $8.5 million and not more than $13.5 million. The
appropriate permits were issued in February 2000, a power supply agreement was
entered into with a local utility for the summer of 2000, and in early July the
New Heights generator began commercial production of power from burning waste
tires. Phase Three of the Business Plan provides for the building of an
environmental campus at New Heights, requiring funding of at least $12 million
and not more than $17 million, including the Phase One and Two investments.
Pursuant to the Investment Agreement, KTI agreed to provide, directly
or through OTI as its affiliate, the funding required to satisfy the New Heights
Business Plan. As such, KTI and Oakhurst entered into the KTI Loan. Funds drawn
by Oakhurst under the KTI Loan have been invested in OTI, principally to
facilitate the financing of the New Heights Business Plan. At February 29, 2000,
approximately $9.5 million had been borrowed, of which $7.2 million had been
invested in the New Heights project.
In addition to New Heights, in January 1999 OTI made a minority
investment totaling approximately $2.7 million in Sterling Construction Company,
("Sterling") a profitable, privately-held Texas-based pipe laying and road
building contractor that is expected to participate in the significant increase
in infrastructure and highway spending in Texas.
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<PAGE> 14
In October 1999 OTI increased its equity investment in Sterling from 7%
to approximately 12% when certain shareholders of Sterling exercised their right
to sell a second tranche of equity. The cost of the second equity tranche was
approximately $1.36 million and was financed through the issuance of notes which
are secured by the second equity tranche, of which an aggregate of $559,000 is
due to two officers and directors of Oakhurst. Of the notes, $800,000 is
re-payable by OTI in October 2000, and $559,000 is due in April 2001. The notes
bear interest at the rate of 14%.
Recognizing its investment in Sterling and increases in the estimated
capital costs and start-up losses at New Heights, in July 2000 Oakhurst, OTI and
KTI completed a modification of the KTI Loan (the "KTI Loan Modification")
pursuant to which OTI's obligation to fund the first two phases and certain
Phase Three expenditures of the New Heights Business Plan was limited to $9
million and KTI agreed to fund $3 million for such purposes directly to New
Heights. Accordingly, OTI's equity interest in such investments in New Heights
was decreased from 50% to 37.5%, with the reduction of 12.5% being acquired by
KTI in return for its $3 million direct investment in New Heights. OTI's
obligation to fund certain start-up losses at New Heights will be limited to 75%
of such losses, funded through advances under the KTI Loan, with the balance to
be funded directly by KTI. In addition, the KTI Loan will be secured by a pledge
of the equity and debt investment in Sterling which were acquired in January
1999.
Furthermore, the KTI Loan Modification provides for any further capital
expenditures to be financed through New Heights' internally generated cash
and/or through financing raised by New Heights. To the extent that such funding
is insufficient, the parties to the KTI Loan Modification have agreed to
negotiate the terms on which they will each make future investments.
Management believes that the KTI Loan, as amended, will provide
adequate financing for the capital expenditures and start-up costs committed
pursuant to the New Heights Business Plan.
Other Debt
In October 1998, SCPI obtained from the Redevelopment Authority of the
City of McKeesport a low-interest loan (the "Subordinated Loan"), subordinated
to the Revolver, in the amount of $98,000 and carrying interest at 5% per annum.
The loan, which funded leasehold improvements at SCPI, is being repaid in
monthly installments through October 2003.
At February 29, 2000, Oakhurst's debt primarily consisted of (i) a
balance of $9.5 million outstanding under the KTI Loan; (ii) revolving debt
under the Revolver with a balance of approximately $4.7 million (of which
approximately $1.5 million related to Dowling's is expected to be repaid upon
the disposal of that business); (iii) the notes related to the Sterling equity
purchase (the "OTI Notes") of approximately $1.4 million; (iv) the SCPI Creditor
Notes of $144,000; (v) notes payable of $110,000 that were issued in connection
with the fiscal 1995 acquisition of Dowling's (the "DFS Notes"); and (vi) the
Subordinated Loan of $74,000.
The DFS notes bear interest at 6% and provide for repayment in
quarterly installments of $22,000 each, together with accrued interest thereon.
Such notes are not expected to be assumed by the purchaser of Dowling's.
The Creditor Notes were issued by SCPI in connection with the
bankruptcy of Retail Acquisition Corp. (see Note 8 to the consolidated financial
statements) and have been discounted using an imputed interest rate of 7.5%.
CAPITAL EXPENDITURES
Capital expenditures made by SCPI and Oakhurst or its wholly-owned
subsidiaries during fiscal 2000 totaled $428,000, mostly related to new vehicles
and a computer system upgrade by Dowling's.
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<PAGE> 15
TAX LOSS CARRY-FORWARDS
At February 29, 2000, SCPI and Oakhurst had net operating tax loss
carry-forwards and capital losses (the "Tax Benefits") of approximately $158
million, which expire in the years 2001 through 2013 and which shelter most
income of SCPI, Oakhurst or its subsidiaries from federal income taxes. A change
in control of SCPI or Oakhurst in any three-year period 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 and the New Rights Plan, described below,
was adopted in December 1998.
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 of their future income and that of any consolidated
affiliate would not be shielded from federal taxation, thus reducing funds
otherwise available for corporate purposes (see Note 7 to the consolidated
financial statements).
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The New Heights facility was originally constructed solely to burn
scrap tires, but the retroactive repeal of the Illinois Retail Rate legislation
which would have provided subsidized rates for the electricity produced by the
facility, made it uneconomic. The Business Plan proposed by KTI provides for a
number of substantial changes to the structure and operations of the facility,
including inter alia, (i) collection of sufficient waste tires for crumb rubber
production and to fuel the generating facility; (ii) operation of a cryogenic
crumb rubber system; (iii) development of end uses for crumb rubber; (iv)
obtaining permits to test and operate the waste-to-energy facility, and (iv)
introducing other waste streams for burning or recycling. KTI has been engaged
by OTI pursuant to an Operating and Maintenance Agreement, to develop these
functions and operate the facility. KTI has extensive experience in the
turnaround and management of waste-to-energy facilities and in 1998 it acquired
RTI (now known as KTI Recycling), a company that produces and operates systems
for the recycling of scrap tires into crumb rubber. Management believes that the
capital expenditures, start-up losses and working capital requirements needed at
New Heights will be adequately funded by OTI through Oakhurst's borrowings under
the KTI Loan, as amended, by KTI, and by future cash flow and project financing;
that future operations of New Heights will provide sufficient funds to OTI to
repay the KTI Loan and that, if such operations are successful, the value of
OTI's equity interest in New Heights could be significant. However, the start-up
and operation of the facility and related functions involves many risks and such
success cannot be assured.
RESULTS OF OPERATIONS
Operations for the year ended February 29, 2000 include the results for
Steel City Products together with OTI and the administrative costs of SCPI and
Oakhurst. As previously discussed, an agreement to sell Dowling's was signed in
June 2000, and accordingly, results of Dowling's have been reflected as
discontinued operations throughout the periods presented.
FISCAL YEAR ENDED FEBRUARY 29, 2000 COMPARED WITH FISCAL YEAR ENDED FEBRUARY 28,
1999
Compared with the prior year, sales at SCPI increased by approximately
$2.0 million. Sales to existing automotive customers increased by $2.5 million,
principally due to additional sales to a significant customer of SCPI which had
acquired additional stores through a merger in the current year, and through
additional product offerings to other customers. Sales to new automotive
customers aggregated approximately $660,000 in fiscal 2000. These increased
sales were offset in part by decreased sales to existing automotive customers of
$1.4
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<PAGE> 16
million, as these customers chose to purchase items directly from the
manufacturer or downsized their automotive departments.
Sales of non-food pet supplies increased by approximately $300,000 to
$2.3 million compared with the prior year. Sales to new customers accounted for
approximately $130,000 of the increase.
Gross profits increased by $551,000 in fiscal 2000 compared with the
prior year, due to the increased revenues and to higher margins earned on
certain product lines. Buying and occupancy expenses increased by $15,000 in the
current fiscal year, resulting from higher depreciation expense.
Operating, selling and administrative expenses increased by $145,000 in
the current fiscal year. Expenses at SCPI increased by approximately $84,000 due
to higher administrative expenses and increased commissions resulting from the
higher sales volume. Expenses at OTI increased by approximately $240,000
compared with the prior year, as fiscal 2000 represented OTI's first full year
of operations. These increases were offset in part by a reduction in
administrative personnel and lower office expenses at the corporate level.
There was an increase in the provision for doubtful accounts of $32,000
due to the higher receivable levels sustained by SCPI in the current year.
Interest expense increased by $880,000 compared to the prior year
resulting primarily from interest on the KTI loan for the entire fiscal year. In
addition, interest expense at OTI increased by $71,000 reflecting interest on
the notes which were issued in connection with the purchase of the second equity
tranche in Sterling Construction in October, 1999.
There was a loss from equity investment of approximately $1.7 million
related to OTI's investment in New Heights, which represents OTI's share of New
Heights' net loss for the fiscal year resulting from start- up activities at the
facility. The New Heights facility began operations in July 1999.
There was a loss from discontinued operations of approximately
$400,000, representing the loss incurred by Dowling's in the current year,
compared with losses at Dowling's in the prior year of $185,000. The loss was
due to reduced sales as customers have begun to purchase product directly from
the manufacturers, combined with fewer radiator failures industry-wide and
increased competition.
Reflecting the decision in fiscal 2000 to dispose of Dowling's, a loss
on disposal was recorded of $2.0 million, primarily resulting from the write-off
of goodwill associated with the acquisition of Dowling's in fiscal 1995 and
including an estimated $300,000 loss for operations from March 1, 2000 through
the anticipated merger closing date.
FISCAL YEAR ENDED FEBRUARY 28, 1999 COMPARED WITH FISCAL YEAR ENDED FEBRUARY 28,
1998
Sales at SCPI increased by approximately $200,000. Sales to existing
SCPI automotive customers decreased by $700,000, primarily as a result of
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 $450,000.
Sales of non-food pet supplies by SCPI were approximately $2.0 million
in the current year, compared with $1.4 million in the prior year. Sales by SCPI
of pet supplies first began in the second quarter of fiscal 1997.
Gross profits decreased by $181,000 in fiscal 1999 compared with the
prior year, due to a decrease in gross margin of 1.1% and an increase in buying
and occupancy expenses of $29,000. The decrease in gross margin was largely
attributable to several sales promotions during the second quarter of fiscal
1999. The increase in buying and occupancy expenses resulted from costs related
to operating from rented facilities
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<PAGE> 17
throughout fiscal 1999, while in the prior year operations were conducted from
an owned warehouse that was sold in December 1997.
Operating, selling and administrative expenses decreased by
approximately $304,000 when compared with fiscal 1998. Expenses at SCPI were
lower by $138,000, due principally to lower officers and administrative
salaries. Overhead reductions at the corporate level aggregated approximately
$150,000. Offsetting these expense decreases, OTI recorded net operating
expenses of $59,000 in the fourth quarter of fiscal 1999, principally due to
salary expense.
There was a decrease in the provision for doubtful accounts of $112,000
due to certain recoveries obtained by SCPI from bankrupt former customers.
Interest expense decreased by $65,000 compared to the prior year. The
decrease was due principally to the repayment of the Fixed Asset Loan by SCPI in
December 1997 and to lower interest on the Revolver due to lower interest rates
and loan balances through most of the year. Offsetting these savings was
interest on the KTI Loan of $53,000.
There was a loss from affiliates of approximately $150,000 related to
OTI's equity investment in New Heights, which represents OTI's share of New
Heights' net loss for the period from December 1998 to February 1999, resulting
from start-up activities at the facility.
Prior year results of operations included a gain of approximately $1.8
million resulting from the sale of the SCPI warehouse in December 1997.
Income tax expense decreased by approximately $1.0 million in fiscal
1999, due primarily to a charge to deferred tax expense in the prior year
attributable to additional reserves against the deferred tax asset.
Discontinued operations reflect the operations of Dowling's Fleet
Service, which reported a loss of $185,000 in fiscal 1999 compared with a loss
of $63,000 in fiscal 1998. The decrease in profit was due to aggressive
competition in Dowling's markets and unusually mild weather throughout fiscal
1999 which led to a general decrease in demand for radiator products.
ITEM 7(A). QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Oakhurst is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading or speculation in derivative financial instruments.
Oakhurst's primary market risk exposure is related to interest rate risk. The
Company manages its interest rate risk by attempting to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Independent Auditors' Report....................................................... F-1
Consolidated Balance Sheets: February 29, 2000 and February 28, 1999............... F-2
Consolidated Statements of Operations for the fiscal years ended
February 29, 2000, February 28, 1999 and February 28, 1998....................... F-3
Consolidated Statements of Stockholders' Equity (Deficiency) for the fiscal years
Ended February 29, 2000, February 28, 1999 and February 28, 1998................. F-4
Consolidated Statements of Cash Flows for the fiscal years ended
February 29, 2000, February 28, 1999 and February 28, 1998........................ F-5
Notes to Consolidated Financial Statements......................................... F-6
Financial Statement Schedules for the fiscal years ended February 29,
2000, February 28, 1999 and February 28, 1998:
Schedule II - Valuation and Qualifying Accounts................................ F-21
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS.
The by-laws of Oakhurst Company, Inc. ("Oakhurst" or the "Company")
provide for such number of directors as is determined from time to time by the
Board of Directors. There are currently nine directors divided into three
classes, each class having a term of three years or until his successor is
elected.
<TABLE>
<CAPTION>
AGE AT MAY CURRENT TERM DIRECTOR
NAME 1, 2000 EXPIRES* SINCE CLASS
------------------------- ---------- ------------ -------- -----
<S> <C> <C> <C> <C>
John D. Abernathy 62 1999 1994 I
Robert M. Davies 49 1999 1996 I
Martin J. Sergi 42 1999 1999 I
Mark Auerbach 62 2000 1991 II
Bernard H. Frank 79 2000 1995 II
Ross Pirasteh 62 2000 1999 II
Joel S. Lever 48 1998 1994 III
Maarten D. Hemsley 50 1998 1998 III
Jack Polak 87 2001 2000 III
</TABLE>
*the director also serves until a successor is elected
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.
("SCPI"). Mr. Abernathy is a certified public accountant.
Robert M. Davies. Chairman and Chief Executive Officer. Mr. Davies has been the
Company's Chairman and Chief Executive Officer since May 1997 and was its
President from May 1997 to January 1999. Mr. Davies had previously been a member
of Oakhurst's Board from 1991 until 1994. 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 wholly-owned subsidiary, Oakhurst Technology, Inc. ("OTI") and
of SCPI. Mr. Davies also serves as a director of Maxicare Health Plans, Inc., a
health maintenance organization based in California. Mr. Davies is a managing
director of Menai Capital, L.L.C., a private equity advisory company.
Martin J. Sergi. Mr. Sergi has been a senior executive officer and director of
KTI, Inc. ("KTI") since 1985 and most recently served as its President. Upon the
completion of the merger between Casella Waste Systems, Inc.
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<PAGE> 20
("Casella") and KTI in December 1999, Mr. Sergi was appointed Executive Vice
President of Casella. Mr. Sergi is licensed as a certified public accountant in
New York.. He was elected to Oakhurst's and OTI's Boards of Directors in January
1999.
Mark Auerbach. Mr. Auerbach was Chairman, President and Chief Executive Officer
of the Company from December 1995 to May 1997 and was Chief Financial Officer of
the Company and of SCPI from December 1995 to January 1999. 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 of the Company
since May 1994 and was its Chief Operating Officer from May 1994 to January
1999. He is a founder of SCPI, 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.
Ross Pirasteh. Mr. Pirasteh has served as Chairman of the Board of Directors of
KTI since May 1996 and was a management consultant to KTI from 1995 to 1996,
providing consulting with respect to bank financing and structural organization.
Upon the completion of the merger between Casella and KTI in December 1999, Mr.
Pirasteh was elected Chairman of the Board of Casella. In 1994, he also acted as
a consultant to various other companies with respect to bank financing and
capital funding. Mr. Pirasteh has been an entrepreneurial investor for the past
five years, investing in real estate and privately held companies. In January
1999, Mr. Pirasteh was elected to Oakhurst's and OTI's Boards of Directors.
Joel S. Lever. Mr. Lever is a senior member of the law firm of Kurzman &
Eisenberg, LLP where he 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 SCPI, as well as a director of several private companies.
Maarten D. Hemsley. Mr. Hemsley was re-elected to the Board of Directors of the
Company and of SCPI in December 1998. He had been an employee and director of
Oakhurst or SCPI for many years prior to 1995. In December 1995, he resigned his
positions with the Company and SCPI but continued to provide consulting services
to both companies through his wholly-owned business, Bryanston Management, Ltd.
Mr. Hemsley currently serves as President, Chief Operating Officer and Chief
Financial Officer of Oakhurst and is Chief Financial Officer of SCPI. He was
elected to the Board of Directors of OTI in January 1999. Mr. Hemsley has been
President of Bryanston Management, Ltd., a financial consultancy firm, since
1993. Mr. Hemsley also serves as a managing director of Menai Capital, L.L.C., a
private equity advisory company.
Jack Polak. Mr. Polak has been an Investment Counselor for much of his
professional career, and has served on the Board of Directors of several public
companies. He currently serves as a director of C.C.A. Industries, a publicly
held company which manufactures and markets health and beauty products. Mr.
Polak was elected to Oakhurst's Board in March, 2000 as a nominee of KTI.
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. The
business histories of executive officers who are also directors (Messrs. Davies
and Hemsley) are set forth above under the heading "Directors."
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<PAGE> 21
Roger M. Barzun (58): 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 (48) : President, Steel City Products, Inc. Mr. Allan has been
an officer of SCPI for more than the last five years. He was appointed President
in May 2000.
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 dueing 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 29, 2000 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, SCPI.
SUMMARY COMPENSATION TABLE.
The following table sets forth all compensation for the 2000, 1999 and
1998 fiscal years allocated or paid on or before February 29,2000 to those who
served as the Company's Chief Executive Officer during fiscal 2000 and to the
other executive officers of the Company who were serving at the end of the 2000
fiscal year for services rendered in all capacities to the Company and its
subsidiaries and whose total annual salary and bonus exceeded $100,000 in fiscal
2000. Also included is the compensation paid to an executive officer of SCPI who
is not, however, an executive officer of the Company.
-20-
<PAGE> 22
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- ------------------------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPENSA-
FISCAL SALARY BONUS COMPENSATION OPTIONS/SARS TION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)* (#) ($)
----------------------------- ------ --------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Davies (1) (6) 2000 120,000 -- -- -- --
Chairman & 1999 70,300 -- -- 288,000 --
Chief Executive Officer 1998 50,000 -- -- 203,000 --
Maarten D. Hemsley (2) (6) 2000 125,000 -- -- -- --
President, Chief Operating 1999 19,823 -- -- 192,000 --
Officer and Chief
Financial Officer
Bernard H. Frank (3) 2000 110,434 25,000 -- -- 13,908(4)
Executive Vice President 1999 110,000 6,250 -- -- 13,908
1998 50,050 7,364 -- -- 13,908
Terrance W. Allan (5) 2000 115,885 15,000 -- 9,750 --
President 1999 115,001 -- -- -- --
SCPI 1998 126,490 15,000 -- -- --
</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. Davies was elected Chairman, Chief Executive Officer and President in
May 1997.
2. In December 1998, Mr. Hemsley was elected President, Chief Operating
Officer and Chief Financial Officer.
3. 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.
4. 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.
5. Mr. Allan is compensated only by SCPI, except with respect to stock options
and stock awards.
6. Employment agreements for Messrs. Davies and Hemsley include the voluntary
deferral of 10% of their salary until such time as the Board of Directors
determines the Company has sufficient cash flow to permit the payment. In
fiscal 1999, the amount deferred for Mr. Davies was $2,500 and for Mr.
Hemsley was $3,600. In fiscal 2000, deferred amounts were $6,000 and $8,500
for Mr. Davies and Mr. Hemsley, respectively.
----------------------
-21-
<PAGE> 23
OPTION GRANTS IN THE LAST FISCAL YEAR.
The following table sets forth certain information with respect to stock
options granted to the individuals named in the Summary Compensation Table,
above, during the fiscal year ended February 29, 2000.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
---------------------------------------------------------- --------------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO
SECURITIES EMPLOYEES IN EXERCISE EXPI-
UNDERLYING FISCAL YEAR PRICE RATION 5% 10%
NAME OPTIONS (%) ($)(2) DATE ($) ($)
-------------------------- -------------- ---------------- ---------- ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MAARTEN HEMSLEY -- -- -- -- -- --
ROBERT M. DAVIES -- -- -- -- -- --
BERNARD H. FRANK(1) 7,750 18.9% $1.00 8/8/2009 $4,874 $12,352
TERRANCE W. ALLAN(1) 9,750 23.8% $1.00 8/8/2009 $6,132 $15,539
</TABLE>
----------
1. ONE FOURTH OF THESE OPTIONS BECAME EXERCISABLE AT THE DATE OF GRANT; THE
BALANCE VESTS OVER THREE YEARS.
2. THE 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.
-22-
<PAGE> 24
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 29, 2000 ($1.22) or the
day closest to the Company's February 29, 2000 fiscal year end on which trades
were made, with respect to stock options held at that date by each of the
individuals named in the Summary Compensation Table, above. The "value" of
unexercised in-the-money options is the difference between the market value of
the Common Stock subject to the options at February 29, 2000 and the exercise
price of the option shares. During fiscal 2000, there were no option exercises
by any of these individuals.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
NUMBER OF SECURITIES UNDERLYING MONEY OPTIONS AT FISCAL YEAR
UNEXERCISED OPTIONS AT FISCAL YEAR END END
(#) ($)
--------------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert M. Davies 436,992 96,000 200,990 69,120
Maarten D. Hemsley 372,424 64,000 118,035 14,080
Bernard H. Frank 70,265 5,812 426 1.279
Roger M. Barzun 31,000 5,000 5,175 1,725
Terrance W. Allan 31,769 7,312 536 1,609
</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. Messrs. Pirasteh and Sergi waived their
initial option grant under this plan. During fiscal 2000, each non-employee who
did not otherwise receive compensation from the Company received 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.
See also "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements," following, for a description of compensation
arrangements during fiscal 2000 between the Company and Messrs. Davies and
Hemsley.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
Mr. Davies. Mr. Davies was elected Chairman, President and Chief Executive
Officer of the Company in May 1997. He had previously been a director of the
Company from 1991 until 1994. He was compensated at the rate of $5,000 per month
under a one-year consulting agreement until June 1998, when he entered into an
employment agreement at the same rate of pay. Mr. Davies also receives
reimbursement of expenses incurred by him in carrying out his duties and
responsibilities. In October 1998, Mr. Davies voluntarily took a 10% salary
reduction, which may be paid in the future at the discretion of Oakhurst's
Board. In December 1998, Mr. Davies also entered into an employment agreement
with OTI which provides for a base salary of $60,000, plus a car allowance. Both
the Oakhurst and OTI employment agreements expire on February 28, 2001.
Mr. Hemsley. Mr. Hemsley had been employed by and was a director of Oakhurst or
SCPI for several years prior to 1995. In 1995, he resigned his positions with
the Company and entered into a consulting agreement with Oakhurst through his
wholly-owned company, Bryanston Management, Ltd. In December 1998, Mr. Hemsley
was elected to the Board of Directors and was appointed President, Chief
Operating Officer and Chief Financial Officer of Oakhurst subject to an
employment agreement at the same rate of compensation as the Bryanston
consulting agreement of $85,000 per annum (of which 10% is deferred under a
voluntary salary reduction, which may be paid in the future at the discretion of
the Board of Directors). In December 1998, Mr.
-23-
<PAGE> 25
Hemsley also entered into an employment agreement with OTI which provides for a
base salary of $40,000 annually, plus a car allowance. Both the Oakhurst and OTI
employment agreements expire on February 28, 2001.
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 was 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 Company'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. In fiscal 2000, Mr. Frank was paid $25,000 in respect of this bonus
plan.
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. Allan. SCPI has a year-by-year employment agreement with Mr. Allan
(sometimes hereinafter referred to as the "executive") commencing September 1,
1993 that provides for a base salary of $115,050. The agreement provides for the
payment of an annual management bonus based upon the defined profits of SCPI's
operating division. The aggregate amount of such management bonus payable each
year to the executive and to all other executives is not to exceed 8% of such
defined profits and the allocation thereof is made by the Compensation Committee
of the Company based on recommendations of Mr. Frank as Chief Executive Officer.
Mr. Allan is also entitled to an executive bonus calculated as a percentage of
defined annual profits of the SCPI that exceed $2,000,000. The agreement was
extended in September 1996 and has been renewed on a year-to-year basis. The
agreement provides for payment to Mr. Allan of up to twenty-four months of base
salary plus continued benefits, in the event of a change in control of SCPI, as
defined.
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 was entitled to a
minimum salary of $56,250; participation in benefit plans made available to
other executives; reimbursement of Company-related business expenses; and
payment in a lump sum of six months' salary in the event his employment is
terminated without cause. In October 1998, in light of the time requirements of
the Company, Mr. Barzun agreed to reduce his salary to $25,000 annually. In
March 1999, Mr. Barzun received a $5,000 bonus for his efforts in respect of the
organization of OTI.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During fiscal 2000, Mr. Davies was a member of the Compensation Committee
of the Company and of SCPI. Mr. Frank serves on the Compensation Committee of
SCPI and is a director and officer of SCPI and of the Company.
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.
In December 1998, KTI purchased approximately 1.7 million shares of
Oakhurst's common stock, representing 35% of the common stock outstanding after
the purchase, at the market price of $0.50 per share. In conjunction with the
private placement of stock, KTI committed under a loan agreement to lend
Oakhurst up to $11.5 million (see Notes 1 and 5 to the Consolidated Financial
Statements). Funding under the KTI Loan is to be used principally to enable OTI
to finance the Business Plan for New Heights, pursuant to an Investment
Agreement between New Heights, OTI and KTI (see Note 13 to the Consolidated
Financial Statements). In
-24-
<PAGE> 26
addition, KTI agreed to provide, directly or through OTI, the funding
requirements of the New Heights Business Plan. In December 1998, New Heights
appointed KTI to manage its facility, pursuant to an Operating and Maintenance
Agreement and OTI entered into a non-exclusive License Agreement for the use of
waste rubber recycling technology owned by KTI's subsidiary, KTI Recycling.
Pursuant to these transactions, in January 1999, KTI nominated two directors,
Messrs. Pirasteh and Sergi, to each of the Boards of Directors of Oakhurst and
OTI. In March 2000, Mr. Polak was elected to the Board of Directors of Oakhurst
as KTI's third nominee under the Investment Agreement between KTI and Oakhurst.
In October 1999, certain shareholders of Sterling Construction exercised
their right to sell a second tranche of equity to OTI, thus increasing's OTI's
equity ownership from 7% to 12%. The equity purchase was financed through the
issuance of notes, of which $559,000 is due to Mr. Davies and Mr. Hemsley. The
notes provide for interest payments at the rate of 14% per annum and are payable
in April 2001.
See also "Compensation of Directors" and "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements."
REPORT ON EXECUTIVE COMPENSATION IN THE 2000 FISCAL YEAR.
This report has been prepared by the Compensation 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 29, 2000. All members of the Committee 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 certain information concerning an executive
officer of 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".
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. Compensation was determined to be
appropriate by the members of the Committees serving at the time based on the
nature of the position; the expertise and responsibility that the position
requires; the Chief Executive Officers' 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 fiscal 2000 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.
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, any 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 fifty years experience with
the business, of the performance of each
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<PAGE> 27
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 2000 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 1999 and 2000 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 2000.
Stock Options. The Committee believes 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 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.
<TABLE>
<CAPTION>
The Compensation Committee The Stock Plans Committee
<S> <C>
Joel S. Lever John D. Abernathy
John D. Abernathy Joel S. Lever
Ross Pirasteh
Robert M. Davies
</TABLE>
----------------------
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, 1995 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.
-26-
<PAGE> 28
[GRAPH]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Oakhurst Company, Inc. 100.00 35.17 33.33 33.33 46.30 36.15
DJ Global US 100.00 134.16 165.88 222.79 257.95 307.13
Dow Jones Retailers - Other 100.00 107.97 128.33 174.50 245.91 277.10
</TABLE>
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, 2000. 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, 2000, 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.
This table sets forth each person, other than management, known by the
Company 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>
KTI, Inc. (1)
700 Boulevard East
Guttenberg, NJ 07093 1,730,056 35.0%
Anthony N. Puma (2)
6014 Castle Creek Road
Arlington, TX 76017 266,667 5.4%
</TABLE>
----------
(1) These shares were purchased at the market value of $0.50 per share in
December 1998 as part of a financing transaction between Oakhurst and KTI.
In December 1999 KTI merged with Casella Waste Systems, Inc.
(2) These shares were issued as part of the purchase by the Company of Puma
Products, Inc. from Mr. Puma in fiscal 1995. In fiscal 1997, the Company
sold Puma Products, Inc. back to Mr. Puma.
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 and by all directors, all such named individuals
and all executive officers of the Company as a group.
-27-
<PAGE> 29
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK PERCENTAGE OF CLASS
------------------------ ---------------------- -------------------
<S> <C> <C>
John D. Abernathy 115,996 (1) 2.30%
Mark Auerbach 135,996 (2) 2.68%
Robert M. Davies 634,492 (3) 11.79%
Bernard H. Frank 71,972 (4) 1.44%
Maarten D. Hemsley 463,812 (5) 8.73%
Joel S. Lever 146,815 (6) 2.91%
Ross Pirasteh 36,334 (7)(11) *
Martin J. Sergi 156,334 (7)(11) 3.08%
Jack Polak 28,000 *
Roger M. Barzun 32,269 (8) *
Terrance W. Allan 37,160 (9) *
All directors and executive
officers as a group (10
persons): 1,859,180 (10) 29.51%
</TABLE>
--------------
* Rounds to less than 1%
1. This number includes shares issuable under outstanding stock options
that are presently exercisable at prices ranging from $0.88 to $3.375
per share.
2. These shares are issuable under outstanding stock options that are
presently exercisable at prices ranging from $0.88 to $3.375 per share.
3. This number includes 340,992 shares issuable under outstanding stock
options that are exercisable at prices ranging from $0.50 to $3.37 per
share.
4. This number includes 76,077 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 308,424 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $0.50 to
$2.75 per share.
6. This number includes 97,996 shares issuable under outstanding stock
options that are presently exercisable at prices ranging from $0.88 to
$3.375 per share.
7. 50,000 shares each were issued to Mr. Pirasteh and Mr. Sergi upon their
election to the Oakhurst Board of Directors, one-third of which were
immediately exercisable. The options were issued at $0.50 per share.
8. This number includes 26,000 shares issuable under outstanding stock
options that are exercisable at prices ranging from $0.88 to $2.00 per
share.
9. This number includes 39,081 shares issuable under outstanding stock
options that are exercisable 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.
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<PAGE> 30
10. This number includes 1,135,394 shares issuable under outstanding stock
options that are exercisable within 60 days of May 1, 1999 at prices
ranging from $0.50 to $3.375 per share.
11. Messrs. Pirasteh and Sergi are directors and officers of KTI and
Casella (into which KTI merged in December 1999) and stockholders of
Casella and therefore under rules of the Securities and Exchange
Commission may be deemed to be beneficial owners of the 1.7 million
shares of Oakhurst held by KTI, although each of them disclaims
beneficial ownership.
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.
----------------------
-29-
<PAGE> 31
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 29, 2000 and February
28, 1999
Consolidated Statements of Operations for the fiscal years
ended February 29, 2000, February 28, 1999 and
February 28, 1998
Consolidated Statements of Stockholders' Equity (Deficiency)
for the fiscal years ended February 29, 2000,
February 28, 1999 and February 28, 1998
Consolidated Statements of Cash Flows for the fiscal years
ended February 29, 2000, February 28, 1999 and
February 28, 1998
Notes to Consolidated Financial Statements
2. The following Financial Statement Schedules for the fiscal
years ended February 29, 2000, February 28, 1999 and
February 28, 1998 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
consolidated 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.
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 as
Exhibit 4.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1998).
-30-
<PAGE> 32
x/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).
10.3 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).
x/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).
x/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).
x/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).
x/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).
10.13 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).
x/10.14 Amendment to Consulting Agreement and Amended Non-Qualified
Stock Option Agreement between Mark Auerbach and Oakhurst
Company, Inc.
-31-
<PAGE> 33
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 as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1998).
10.19 Lease agreement between Regional Industrial Development
Corporation and Steel City Products, Inc. dated as of November
11, 1997 (filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28,
1998).
10.20 Rights Agreement, dated as of December 29, 1998 between
Oakhurst Company, Inc. and American Stock Transfer and Trust
Company, including the form of Certificate of Designation, the
form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C, respectively. (Filed as
Exhibit 99.1 to the Company's Registration Statement on Form
8-A filed on January 5, 1999).
x/10.21 Amendment to the 1994 Omnibus Stock Plan, amended as of
December 18, 1998 (filed as Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1999).
10.22 Fourth Amendment to the Loan and Security Agreement between
Oakhurst and its subsidiaries and FINOVA Capital Corporation,
dated as of December 29, 1998 (filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1999).
10.23 Investment Agreement among Oakhurst Company, Inc., Oakhurst
Technology, Inc. and KTI, Inc. dated as of December 29, 1998
(filed as Exhibit 10.23 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1999).
10.24 Intercreditor Agreement among Oakhurst Company, Inc., KTI,
Inc. and FINOVA Capital Corporation dated December 29, 1998
(filed as Exhibit 10.24 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1999).
-32-
<PAGE> 34
10.25 Stock Purchase and Investment Agreement between Oakhurst
Technology, Inc. and Sterling Construction Company dated as of
January 19, 1999 (filed as Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1999).
10.26 Note Purchase Agreement between Sterling Construction Company
and Oakhurst Technology, Inc. dated as of January 19, 1999
(filed as Exhibit 10.26 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1999).
x/10.27 Employment agreement between Oakhurst Company, Inc. and Robert
M. Davies dated as of December 29, 1998 (filed as Exhibit
10.27 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999).
x/10.28 Employment agreement between Oakhurst Technology, Inc. and
Robert M. Davies dated as of December 29, 1998 (filed as
Exhibit 10.28 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999).
x/10.29 Employment agreement between Oakhurst Company, Inc. and
Maarten D. Hemsley dated as of December 18, 1998 (filed as
Exhibit 10.29 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999).
x/10.30 Employment agreement between Oakhurst Technology, Inc. and
Maarten D. Hemsley dated as of December 1, 1998 (filed as
Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999).
18.1 Letter regarding change in accounting principle (filed as
Exhibit 18.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999).
21 Subsidiaries at February 29, 2000:
Steel City Products, Inc. - Delaware
Dowling's Fleet Service Co., Inc. - New York
Oakhurst Management Corporation - Texas
Oakhurst Technology, Inc - Delaware
*27 Financial Data Schedule (EDGAR transmission only).
27.1 Restated Financial Data Schedule for the quarter ended
November 30, 1998 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1998) (EDGAR
transmission only).
27.2 Restated Financial Data Schedule for the quarter ended August
31, 1998 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1998) (EDGAR transmission only).
27.3 Restated Financial Data Schedule for the quarter ended May 31,
1998 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1998) (EDGAR transmission only).
27.4 Restated Financial Data Schedule for the year ended February
28, 1998 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1998) (EDGAR transmission only).
27.5 Restated Financial Data Schedule for the quarter ended
November 30, 1997 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1997) (EDGAR
transmission only).
-33-
<PAGE> 35
27.6 Restated Financial Data Schedule for the quarter ended August
31, 1997 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1997) (EDGAR transmission only).
27.7 Restated Financial Data Schedule for the quarter ended May 31,
1997 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1997) (EDGAR transmission only).
27.8 Restated Financial Data Schedule for the year ended February
28, 1997 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1997) (EDGAR transmission only).
99.1 Financial statements for New Heights Recovery and Power LLC
for the year ended December 31, 1999 (to be filed by
amendment).
----------
x/ Management contract or compensatory plan or arrangement.
* Filed herewith
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the last quarter covered by
this report:
-34-
<PAGE> 36
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: July 12, 2000 By: /s/ Robert M. Davies
------------------------
Robert M. Davies
Chief Executive Officer
(duly authorized officer)
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 of Directors July 12, 2000
------------------------------------------- and Chief Executive Officer
Robert M. Davies (principal executive officer)
/s/ Maarten D. Hemsley President, Chief Financial July 12, 2000
------------------------------------------- Officer and Director (principal
Maarten D. Hemsley financial and accounting officer)
Director
/s/ John D. Abernathy Director July 12, 2000
-------------------------------------------
John D. Abernathy
/s/ Mark Auerbach Director July 12, 2000
-------------------------------------------
Mark Auerbach
/s/ Bernard H. Frank Director July 12, 2000
-------------------------------------------
Bernard H. Frank
/s/ Joel S. Lever Director July 12, 2000
-------------------------------------------
Joel S. Lever
/s/ Ross Pirasteh Director July 12, 2000
-------------------------------------------
Ross Pirasteh
/s/ Jack Polak Director July 12, 2000
-------------------------------------------
Jack Polak
/s/ Martin J. Sergi Director July 12, 2000
-------------------------------------------
Martin J. Sergi
</TABLE>
-35-
<PAGE> 37
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 29, 2000 and February 28, 1999,
and the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years ended February 29, 2000, and February
28, 1999 and 1998. Our audits also included the consolidated financial statement
schedule listed at Item 14(a)(2). These consolidated financial statements and
consolidated financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and the consolidated 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 29, 2000 and February 28, 1999, and the results of
their operations and their cash flows for the years ended February 29, 2000 and
February 28, 1999 and 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, the consolidated 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
Pittsburgh, Pennsylvania
July 12, 2000
-F1-
<PAGE> 38
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash ........................................................................... $ 152 $ 241
Trade accounts receivable, less allowance of $367 and $388, respectively ....... 3,446 3,330
Other receivables .............................................................. 244 158
Inventories .................................................................... 6,803 6,045
Other .......................................................................... 135 159
-------- --------
Total current assets ....................................... 10,780 9,933
-------- --------
Property and equipment, at cost ..................................................... 2,322 2,045
Less accumulated depreciation .................................................. (1,515) (1,344)
-------- --------
807 701
-------- --------
Investments:
Equity ......................................................................... 5,336 1,125
Other .......................................................................... 2,745 1,379
Note receivable ..................................................................... 1,330 1,330
Excess of cost over net assets acquired, net ........................................ 156 2,080
Other assets ........................................................................ 279 328
-------- --------
9,846 6,242
-------- --------
$ 21,433 $ 16,876
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable ............................................................... $ 7,259 $ 5,662
Accrued compensation ........................................................... 503 509
Current maturities of long-term obligations .................................... 2,743 218
Current maturities of long-term obligations, related parties ................... 88 88
Accrued interest ............................................................... 838 78
Other accrued expenses ......................................................... 359 399
-------- --------
Total current liabilities .................................. 11,790 6,954
-------- --------
Long-term obligations:
Long-term debt ................................................................. 3,172 4,669
Long-term debt, related parties ................................................ 10,076 3,408
Other long-term obligations .................................................... 180 177
-------- --------
13,428 8,254
-------- --------
Commitments and contingencies ....................................................... -- --
Stockholders' equity (deficiency):
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 4,943,018 shares .............................................. 49 49
Additional paid-in capital ..................................................... 47,204 47,204
Deficit (Reorganized on August 26, 1989) ....................................... (51,037) (45,584)
Treasury stock, at cost, 207 common shares ..................................... (1) (1)
-------- --------
Total stockholders' equity (deficiency) .................... (3,785) 1,668
-------- --------
$ 21,433 $ 16,876
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F2-
<PAGE> 39
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Sales ........................................................ $ 20,142 $ 18,092 $ 17,879
Other income ................................................. 379 411 212
----------- ----------- -----------
20,521 18,503 18,091
----------- ----------- -----------
Cost of goods sold, including occupancy and
buying expenses ............................................ 16,254 14,755 14,340
Operating, selling and administrative expenses ............... 4,213 4,061 4,365
Provision for doubtful accounts .............................. 58 26 138
Amortization of excess of cost over net assets acquired ...... 6 6 6
Interest expense ............................................. 1,243 358 423
Income from the sale of real estate .......................... -- -- (1,760)
Income on assets held for sale - H&H and Puma (See Note 2) ... -- -- (72)
----------- ----------- -----------
21,774 19,206 17,440
----------- ----------- -----------
(Loss) income from continuing operations before loss on equity
investment and income taxes ................................ (1,253) (703) 651
Loss from equity investment .................................. (1,734) (150) --
Current income tax expense ................................... (10) (8) (3)
Deferred income tax expense .................................. -- -- (1,000)
----------- ----------- -----------
Loss from continuing operations .............................. (2,997) (861) (352)
Discontinued operations (See Note 2):
Loss from operations ....................................... (428) (185) (63)
Loss on disposal ........................................... (2,028) -- --
----------- ----------- -----------
(2,456) (185) (63)
----------- ----------- -----------
Net loss ..................................................... $ (5,453) $ (1,046) $ (415)
=========== =========== ===========
Basic and diluted net loss per share:
Continuing operations ...................................... $ (0.61) $ (0.25) $ (0.11)
Discontinued operations .................................... (0.49) (0.05) (0.02)
----------- ----------- -----------
Net loss per share ......................................... $ (1.10) $ (0.30) $ (0.13)
=========== =========== ===========
Weighted average number of shares outstanding used in
computing basic and diluted per share amounts .............. 4,943,018 3,501,075 3,206,179
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F3-
<PAGE> 40
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY
STOCK CAPITAL DEFICIT STOCK TOTALS
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1997 ................ $ 32 $ 46,529 ($44,123) (1) $ 2,437
Net loss .................................... (415) (415)
Employee stock award ........................ * 6 6
-------- -------- -------- -------- --------
Balance at February 28, 1998 ................ 32 46,535 (44,538) (1) 2,028
Net loss .................................... (1,046) (1,046)
Employee stock award ........................ * 6 6
Issuance of common stock, net of expenses ... 17 663 680
-------- -------- -------- -------- --------
Balance at February 28, 1999 ................ 49 47,204 (45,584) (1) 1,668
Net loss .................................... (5,453) (5,453)
-------- -------- -------- -------- --------
Balance at February 29, 2000 ................ $ 49 $ 47,204 ($51,037) (1) ($ 3,785)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F4-
<PAGE> 41
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations .......................................... $(2,997) $ (861) $ (352)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ......................................... 212 150 259
Deferred tax expense .................................................. -- -- 1,000
Gain on sale of real estate ........................................... -- -- .(1,761)
Loss on retirement of assets .......................................... -- 4 6
Employee stock awards ................................................. -- 6 6
Loss from equity investment ........................................... 1,734 150 --
Other changes in operating assets and liabilities:
Accounts receivable ................................................... (279) 509 (166)
Inventories ........................................................... (850) 5 (624)
Accounts payable ...................................................... 842 (265) 220
Other ................................................................. 584 3 138
------- ------- -------
Net cash provided by (used in) operating activities of:
Continuing operations .................................................... (754) (299) (1,274)
Discontinued operations .................................................. 335 (168) 414
------- ------- -------
Net cash provided by (used in) operating activities .......................... (419) (467) (860)
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment ...................................... (71) (188) (293)
Proceeds from the sale of real estate .................................... -- -- 2,657
Increase in investment ................................................... (7,311) (3,983) --
------- ------- -------
Net cash (used in) provided by investing activities .......................... (7,382) (4,171) 2,364
------- ------- -------
Cash flows from financing activities:
Net borrowings under revolving credit agreement .......................... 386 716 (80)
Proceeds from issuance of long-term debt ................................. 7,555 3,540 --
Issuance of common stock, net of expenses ................................ -- 680 --
Principal payments on long-term obligations .............................. (154) (104) .(1,381)
Deferred loan costs ...................................................... (75) -- (35)
------- ------- -------
Net cash provided by (used in) financing activities .......................... 7,712 4,832 .(1,496)
------- ------- -------
Net (decrease) increase in cash .............................................. (89) 194 8
Cash at beginning of year .................................................... 241 47 39
------- ------- -------
Cash at end of year .......................................................... $ 152 $ 241 $ 47
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for operating activities from continuing operations:
Interest ................................................................. $ 466 $ 352 $ 450
======= ======= =======
Income taxes, net of refunds received .................................... $ 1 $ 10 $ 16
======= ======= =======
Supplemental disclosure of non-cash financing activities:
Capital lease obligations incurred for new equipment ..................... $ -- $ 144 $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-F5-
<PAGE> 42
OAKHURST COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying consolidated financial statements include the accounts
of subsidiaries for which the Company has a greater than 50% ownership interest
and all significant intercompany accounts and transactions have been eliminated
in consolidation.
Continuing operations
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 SCPI's outstanding
common stock 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. Oakhurst controls approximately 90% of the voting power
of SCPI. The accompanying consolidated financial statements reflect this control
and include the accounts of SCPI. Until December 1998, Oakhurst's principal
business was the distribution of automotive aftermarket products.
In December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of a restructuring
opportunity at New Heights Recovery and Power, LLC ("New Heights") (see Notes 5
and 13) and entered into an agreement with KTI, Inc. (a waste-to-energy and
recycling company that merged with Casella Waste Systems, Inc. in December 1999)
("KTI") pursuant to which KTI purchased approximately 1.7 million shares of
Oakhurst's common stock at a price of $0.50 per share for gross proceeds of
$865,000 (the "Equity Proceeds") and under a loan agreement (the "KTI Loan") KTI
committed to lend Oakhurst up to a minimum of $11.5 million. In December 1998,
OTI initially acquired a 50% equity interest in, and became the managing member
of, New Heights which is re-developing an existing waste tire recycling facility
in Ford Heights, Illinois into a fully integrated recycling and waste-to-energy
facility.
In addition to the New Heights investment, in January 1999 OTI utilized
an aggregate of approximately $2.7 million from the Equity Proceeds and the KTI
Loan to enable it to make a minority investment in Sterling Construction
Company, ("Sterling") a profitable, privately-held Texas-based pipe laying and
road building contractor that is expected to participate in the significant
increase in infrastructure and highway spending in Texas. In October 1999
certain shareholders of Sterling exercised their right to sell a second tranche
of equity to OTI. Cash for the second equity purchase was obtained through the
issuance of notes secured by the second equity tranche, of which a part is due
to two officers and directors of Oakhurst.
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.
Discontinued operations
During fiscal 2000, the Board of Directors decided to sell Dowling's
Fleet Service Co, Inc. ("Dowling's"). In June 2000, Oakhurst entered into an
agreement to sell Dowling's through a merger with an importer of
-F6-
<PAGE> 43
radiators. Accordingly, results for Dowling's have been presented as
discontinued operations in the statement of operations and the statement of cash
flows.
Use of Estimates:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, 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 continuing operations at February 29, 2000 consisted of
two businesses. SCPI is a wholesale distributor operating under the trade name
Steel City Products principally selling automotive accessories, primarily to
discount retail chains, hardware, drug and supermarket retailers and to
automotive specialty stores, based mainly in the Northeastern United States.
SCPI also distributes non-food pet supplies, primarily to supermarket retailers.
OTI is principally engaged in investments in the recycling and waste-to-energy
business.
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 as determined
by the first-in first-out (FIFO) method, or market.
Property and Equipment:
Depreciation and amortization are computed using the straight-line
method. Estimated useful lives used for computing depreciation and amortization
are: leasehold improvements, 3-10 years; and office furniture, warehouse
equipment and vehicles, 3-10 years. Depreciation expense for continuing
operations was approximately $115,000, $101,000, and $115,000 in fiscal 2000,
1999 and 1998, respectively, and for discontinued operations was approximately
$186,000, $170,000, and $162,000 in fiscal 2000, 1999 and 1998, respectively.
Investments:
Oakhurst accounts for investments in affiliated companies with a 20% or
greater ownership interest on the equity basis of accounting and accordingly,
consolidated results of operations include Oakhurst's share of the income or
loss of New Heights.
Oakhurst utilizes the cost method of accounting for investments in
which it has less than a 20% ownership interest and there is no readily
determinable market value; accordingly, its investment in Sterling Construction
Company is recorded at cost.
-F7-
<PAGE> 44
Excess of Cost 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 29, 2000 and February 28, 1999 are
net of accumulated amortization of approximately $115,000 and $983,000
respectively.
Oakhurst periodically evaluates its long-lived assets to assess whether
the carrying values have been impaired, using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Results of
discontinued operations for fiscal 2000 include the write-off of approximately
$1.7 million of the Excess of Cost over Net Assets Acquired related to the
acquisition of Dowling's in fiscal 1995.
Revenue Recognition:
Revenues are recognized at the time products are shipped.
Federal and State Income Taxes:
Oakhurst accounts for income taxes using an asset and liability
approach. 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 7).
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.
Earnings Per Share:
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 29, 2000, there were options to purchase
1,730,257 shares of common stock outstanding that were not included in the
computation of diluted earnings per share because of the antidilutive effect on
the net loss per share.
New Accounting Standards:
In June 1998, SFAS No. 133 "Accounting for Derivitive Instruments and
Hedging Activities" was issued, which is required to be adopted in years
beginning after June 15, 2000. The Company does not anticipate that the adoption
of SFAS No. 133 will have a significant effect on the financial position or
results of operations of the Company.
2. SALE OF SUBSIDIARY
In fiscal 2000, Oakhurst's Board of Directors decided to dispose of
Dowling's. In June 2000, the Company entered into an agreement to sell Dowling's
through a merger with an importer of radiators for consideration equivalent to
the amount expected to be owed at the merger closing by Dowling's under the
revolving credit
-F8-
<PAGE> 45
agreement (see Note 5). The merger closing is subject to, among other things,
the acquirer obtaining necessary replacement financing within 120 days, and the
Revolver has been extended for such period. In addition, prior to the merger
closing the acquirer will advance Dowling's up to $500,000 in working capital
loans, has agreed to defer payment by Dowling's of approximately $250,000 in
amounts owed for prior merchandise shipments to Dowling's, and will make further
shipments of merchandise to Dowling's on customary terms, all in return for a
subordinated security interest in all of Dowling's assets and a pledge of the
stock of Dowling's owned by Oakhurst.
The Company has recorded a loss on disposal of Dowling's of $2.0
million, principally reflecting the write- off of $1.7 million related to the
excess of cost over net assets acquired and a $300,000 provision for expected
operating losses from March 1, 2000 through the anticipated merger closing date.
The assets and liabilities of Dowling's included in the consolidated
balance sheet at February 29, 2000 consisted of the following:
<TABLE>
<S> <C>
Assets:
Cash .................................................... $ 110
Trade accounts receivable ............................... 952
Other receivables ....................................... 198
Inventories ............................................. 2,007
Other current assets .................................... 28
Property and equipment, net ............................. 422
Other assets ............................................ 579
------------
Total assets ................................... $ 4,296
============
Liabilities:
Accounts payable ........................................ $ 2,375
Accrued compensation .................................... 128
Current portion of long-term debt ....................... 1,573
Other current liabilities ............................... 220
------------
Total liabilities .............................. $ 4,296
============
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ ------------
<S> <C> <C>
Leasehold improvements ........................... $ 468 $ 468
Office furniture,
warehouse equipment and vehicles ............ 1,854 1,577
------------ ------------
2,322 2,045
Less accumulated depreciation .................... (1,515) (1,344)
------------ ------------
$ 807 $ 701
============ ============
</TABLE>
In December 1997, SCPI sold its warehouse in Pittsburgh, Pennsylvania for a
gross sales 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.
-F9-
<PAGE> 46
4. SUMMARY FINANCIAL INFORMATION
In December 1998, OTI acquired an initial 50% interest in, and became the
managing member of, New Heights. In August 1999 the valuation of the impact of
adopting fresh-start accounting upon New Heights' emergence from bankruptcy in
December 1998 was completed. Accordingly, summarized financial information is
provided herein for New Heights at February 29, 2000 and for the fiscal year
then ended:
<TABLE>
<S> <C>
Current assets ......................... $ 247
Non-current assets ..................... 29,783
Current liabilities .................... 1,891
Non-current liabilities ................ 2,216
Net equity ............................. $ 25,923
Total revenues ......................... $ 760
Net loss ............................... $ (3,468)
</TABLE>
In May 2000, the Company acquired an 80% ownership interest in Seaglass,
Inc. from KTI along with certain advances made from KTI to Seaglass, Inc. in
return for an increase in the KTI loan of approximately $1.1 million. Oakhurst
immediately contributed the Seaglass common stock and advances to OTI which in
turn contributed them to New Heights.
5. LINE OF CREDIT AND LONG-TERM OBLIGATIONS
Long-term obligations, including the present value of the Creditor
Notes (see Note 8), consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
------------ ------------
<S> <C> <C> <C>
KTI Loan, due April 2001 ....................................................... $ 9,495 $ 3,299
Revolving Credit Agreement, $1,483 due in October 2000, the
balance due in May 2003 .................................................. 4,655 4,595
Sterling Notes, due October 2000 and April 2001 ................................ 1,359 --
Dowling's Notes, due quarterly through March 2001 .............................. 110 198
Capital lease obligations for computer and warehouse equipment,
due monthly through October 2003 ......................................... 286 167
Creditor Notes (Note 8) ........................................................ 144 147
Notes payable for vehicle financing, due monthly through June, 2003 ............ 90 --
Subordinated loan for leasehold improvements
due monthly through October 2003 ......................................... 74 92
Other .......................................................................... 46 62
------------ ------------
16,259 8,560
Less current portion ........................................................... (2,831) (306)
------------ ------------
$ 13,428 $ 8,254
============ ============
</TABLE>
In March 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 then 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").
-F10-
<PAGE> 47
Borrowings under the Credit Facility initially bore interest at the
Citibank N.A. base rate plus 1.5%. Borrowings under the Revolver are subject to
a borrowing base that is calculated according to defined accounts receivable and
inventory levels of Oakhurst's automotive subsidiaries. The Credit Facility had
an initial term of two years and contained various restrictive financial
covenants. The Credit Facility is secured by the accounts receivable,
inventories and fixed assets of Oakhurst and its automotive 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 reduced the maximum amount available under the Revolver
to $7 million, subject to a borrowing base, and amended certain financial
covenants. 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 renewal fee of $35,000. The Credit Facility provided 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 December 1997, the Fixed Asset Loan was repaid in full, from the
proceeds of the sale of SCPI's warehouse.
In March 1999, the Credit Facility was renewed for one year and
amended to provide for only a revolving line of credit (the "Revolver"), to
increase certain borrowing base percentages, increase the interest rate to
Citibank N.A. base rate plus 2%, and amend the financial covenants.
In July 2000 Oakhurst and SCPI entered into an agreement with the
institutional lender to identify SCPI as the Borrower (cross-collateralized by
Oakhurst), to provide for a three year renewal term and to reduce the total
Revolver to $4.0 million, subject to a borrowing base. At the same time, an
agreement was entered into with the institutional lender for an extension until
October 28, 2000 of the $2.75 million Revolver facility applicable to Dowling's,
and, assuming the closing of the merger, for the waiver by the lender of a
financial covenant default as at February 29, 2000. It is expected that the
acquirer of Dowling's will obtain replacement financing prior to October 28,
2000, so that upon the Closing of the Merger Agreement amounts outstanding from
Dowling's under the Revolver will be repaid.
At February 29, 2000, the borrowing base under the Revolver was
approximately $5.7 million. During fiscal 2000, the borrowing base ranged from
$5.0 million to $5.7 million, and averaged approximately $5.5 million.
The Dowling's Notes 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.
The notes are expected to remain an obligation of Oakhurst under the terms of
the proposed merger without acceleration of payment.
In October 1998, SCPI obtained from the Redevelopment Authority of the
City of McKeesport a low- interest loan (the "Subordinated Loan"), subordinated
to the Revolver, in the amount of $98,000 and bearing interest at 5% per annum.
The loan, which funded leasehold improvements at SCPI, is being repaid in
monthly installments through October 2003.
In December 1998, Oakhurst entered into a Multiple Advance Term Loan
Facility (the "KTI Loan") with KTI pursuant to which KTI committed to loan up to
a minimum of $11.5 million. Such amount may increase to a maximum of $17 million
to the extent that the funding for the New Heights Business Plan exceeds the
minimum specified therein (see Note 13). The KTI Loan bears interest at a fixed
rate of 14%, payable quarterly and is due in April 2001. The KTI Loan is subject
to an Intercreditor Agreement between KTI and the institutional lender of the
Revolver, and is secured by a pledge of all the capital stock of OTI, and all of
OTI's equity interest in New Heights. Funds drawn by Oakhurst have been invested
in OTI to facilitate the funding of the New Heights Business Plan and the
investment in Sterling.
-F11-
<PAGE> 48
The Sterling Notes bear interest at the rate of 14% per annum. Of
these notes which are secured by the second equity tranche, $800,000 is
repayable to a third party in October 2000, and $559,000 is repayable in April
2001 to two officers and directors of Oakhurst.
The obligations mature during each fiscal year as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL
------
<S> <C>
2001.......................... $ 2,831
2002.......................... 10,141
2003.......................... 70
2004.......................... 3,217
2005.......................... --
---------
$ 16,259
=========
</TABLE>
6. FINANCIAL INSTRUMENTS
Financial instruments at February 29, 2000 and February 28, 1999
consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 FEBRUARY 28, 1999
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
KTI Loan ......................................... $ 9,495 $ 9,495 $ 3,299 $ 3,299
Revolver ......................................... 4,655 4,655 4,595 4,595
OTI Notes ........................................ 1,359 1,359 -- --
Note Receivable from Sterling .................... 1,330 1,330 1,330 1,330
Creditor Notes ................................... 144 247 147 295
Subordinated Loan ................................ 74 74 92 92
</TABLE>
The fair values of the instruments were based upon the rate available
to the Company for instruments of the same maturities.
7. INCOME TAXES AND DEFERRED TAX ASSET
At February 29, 2000, Oakhurst has, for tax reporting purposes,
estimated net operating tax loss carry- forwards and capital loss carryforwards
of approximately $158 million which expire in the fiscal years 2001 through
2013. Under SFAS No. 109, Oakhurst records as an asset net of a valuation
allowance, the estimated future benefit of its net operating tax loss
carry-forwards, capital losses and other tax benefits. At the balance sheet date
the deferred tax asset is fully reserved by the valuation allowance.
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 change
the tax asset to an amount that management believes will more likely than not be
realized.
In fiscal 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. 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 in prior years, 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 fiscal 1990.
-F12-
<PAGE> 49
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 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense .............................. $ 10 $ 4 $ 313
Current tax benefit from utilization of
net operating tax loss carryforwards ........... -- -- (297)
------------ ------------ ------------
10 4 16
Increase in valuation allowance
of the deferred tax asset ...................... 1,848 263 703
Deferred tax (benefit) expense ................... (1,848) (263) 297
------------ ------------ ------------
Income tax expense ............................... $ 10 $ 4 $ 1,016
============ ============ ============
</TABLE>
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 29, FEBRUARY 28, FEBRUARY 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Tax (benefit) expense at the U.S.
federal statutory rate ......................... $ (1,857) $ (354) $ 204
State income tax expense,
net of refunds and federal benefit ............. 10 4 11
Increase in deferred tax asset
valuation allowance ............................ 1,848 263 703
Non-deductible costs ............................. 9 91 98
------------ ------------ ------------
Income tax expense ........................... $ 10 $ 4 $ 1,016
============ ============ ============
</TABLE>
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 29, 2000, expire as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
2001 .......................... $ 12,000
2002 .......................... 52,000
2003 .......................... 22,000
2004 .......................... 49,000
2005 .......................... 15,000
2010........................... 1,000
2011........................... 2,000
2012........................... 3,000
2013 .......................... 2,000
----------
$ 158,000
==========
</TABLE>
8. DISCONTINUED RETAIL OPERATIONS
SCPI disposed of its former Retail Division to 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.
-F13-
<PAGE> 50
SCPI remained contingently liable for certain of those 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 have been discounted using an imputed interest rate
of 7.5%. Imputed interest expense of approximately $9,000 and $34,000 is
included in results of continuing operations for fiscal 1999 and 1998,
respectively. There was no interest expense associated with the Creditor Notes
in fiscal 2000. In addition, income of $127,000 associated with the expiration
of unpresented Creditor Notes is included in results of continuing operations
for fiscal 1999.
The accompanying statements of cash flows reflect any cash payments
associated with the disposal of the former Retail Division as discontinued
operations.
9. STOCK OPTIONS
In fiscal 1995, the Board of Directors and shareholders approved two
stock option plans, the 1994 Omnibus Stock Plan (the "1994 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 1994 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
1998 and 1997 options issuable under the plan were increased by 450,000 and
350,000 options, respectively. The options generally vest over a four year
period and expire ten years from the date of the grant. None of these options
has 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 on every May 1, each
non-employee director holding office on such date shall receive 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 has been exercised.
In December 1998, the Board of Directors approved the 1998 Omnibus
Stock Plan (the "1998 Omnibus Plan"). Under the 1998 Omnibus Plan, the exercise
price of the options granted may not be less than the fair market value of the
common stock on the date of grant and the term of the grant may not exceed ten
years. The 1998 Omnibus Plan provides for the issuance of 700,000 shares. The
options generally vest over a three year period. None of the options granted
under the 1998 Omnibus Plan has 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 exercise 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.
-F14-
<PAGE> 51
The following tables summarize the activity under the four plans:
<TABLE>
<CAPTION>
1998 Omnibus Plan(a) 1994 Omnibus Plan(b) Director Plan Fiscal 1992 Grant(c)
Shares Price range Shares Price range Shares Price range Shares Price range
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Granted 600,000 $ 0.50 -- -- 9,000 $ 0.84 -- --
Expired -- -- (14,350) $ 1.00-3.88 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Outstanding at 2/99: 600,000 $ 0.50 887,784 $ 0.88-3.88 66,000 $ 0.84-3.38 128,573 $ 2.00-2.75
Granted 41,000 $ 1.00 -- -- 9,000 $ 0.84 -- --
Expired -- -- (2,100) $ 3.38-3.88 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Outstanding at 2/00: 641,000 $ 0.50-1.00 885,684 $ 0.88-3.88 75,000 $ 0.84-3.38 128,573 $ 2.00-2.75
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
(a) Of the 600,000 options issued in fiscal 1999, one third are immediately
exercisable, one third vest in December 1999 and one third vest in
December 2000. The 41,000 options issued in fiscal 2000 vest over a
four year period, with one-quarter of the total being immediately
exercisable.
(b) Of the options granted in fiscal 1997, 49,500 were immediately
exercisable. Of the options granted in fiscal 1998, 50,000 vested in
May 1998 and 305,000 were to vest upon the earlier of the achievement
of certain defined objectives, a change of control of the Company, or
the ninth anniversary of the grant date. Upon consummation of the
transaction with KTI in December 1998, the 305,000 options became fully
vested.
(c) In December 1998, the options issued under the Fiscal 1992 grant were
extended three years and one month beyond the date of the KTI closing
(December 29, 1998).
The following table summarizes information about stock options
outstanding and exercisable at February 29, 2000:
<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 - $3.88 885,684 6.24 $ 1.50 870,434 $ 1.51
$0.50 - $1.00 641,000 8.85 $ 0.53 410,250 $ 0.51
$1.00 - $3.38 66,000 6.25 $ 1.89 75,000 $ 1.89
$2.00 - $2.75 128,573 1.92 $ 2.58 128,573 $ 2.58
--------- --------- --------- ---------
1,730,257 $ 1.24 1,484,257 $ 1.35
========= ========= ========= =========
</TABLE>
At February 28, 1999, options were exercisable for 1,252,055 shares at a
weighted average exercise price of $1.50 per share.
-F15-
<PAGE> 52
As described in Note 1, the Company accounts for its stock-based compensation
using the intrinsic value method. The net loss during fiscal 2000, 1999 and 1998
would have been increased by $35,000, $306,000 and $50,000 or $0.01, $0.09 and
$0.02 per share, respectively, had the Company used the fair value method to
determine compensation costs instead of the intrinsic value method. The pro
forma adjustments were calculated using the Black-Scholes option pricing model
using the following assumptions in each year:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 6.00% 6.00% 6.00%
Expected volatility 78.0% 93.0% 68.0%
Expected life of options 10.00 years 10.00 years 8.33 years
Expected dividends none none none
</TABLE>
10. EMPLOYEE PENSION PLAN
Oakhurst and its subsidiaries maintain a profit-sharing 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 $20,000, $33,200 and $60,000 in
fiscal 2000, 1999 and 1998, respectively.
11. OPERATING LEASES
The Company leases its subsidiaries' warehouses under operating leases which
expire over the next six 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.
Minimum annual rentals for all operating leases having initial non-cancelable
lease terms in excess of one year are as follows for continuing operations (in
thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
2001........................................ $ 252
2002........................................ 247
2003........................................ 205
-----
Total future minimum rental payments $ 704
=====
</TABLE>
Total rent expense for all operating leases amounted to approximately
$253,000, $253,000 and $43,000 for continuing operations and $342,000, $389,000,
and $401,000, for discontinued operations in fiscal 2000, 1999 and 1998,
respectively.
12. SEGMENT INFORMATION
The Company has historically operated as a wholesale distributor to the
automotive aftermarket. SCPI, operating under the trade name Steel City
Products, principally sells automotive accessories, primarily to discount retail
chains, hardware, drug and supermarket retailers and to automotive specialty
stores. Its customers are based primarily in the Northeastern United States. OTI
was formed in December 1998 and holds investments principally in the recycling
and waste-to-energy business. Each entity is managed by its own decision makers
and is comprised of unique customers, suppliers and employees. In fiscal 2000,
the Board of Directors of Oakhurst decided to dispose of Dowling's, a wholesale
distributor of automotive radiators and related products mostly serving radiator
shops in the Northeast. Thus, results for Dowling's have been presented in the
tables below as discontinued operations. The Company's operations are organized
into the three continuing management segments included in the following table
(in thousands):
-F16-
<PAGE> 53
<TABLE>
<CAPTION>
Fiscal 2000 CONSOLIDATED
------------
SEGMENTS SCPI DOWLING'S OTI(a) CORPORATE TOTAL
-------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 20,142 -- -- -- $ 20,142
======== ======== ======== ======== ========
Operating profit (loss) $ 800 $ (192) $ (618) $ (10)
Interest expense (1,243)
--------
Loss before equity investment and income taxes (1,253)
Net loss in equity affiliate(a) (1,734) (1,734)
Income taxes (10)
--------
Loss from continuing operations (2,997)
--------
Loss from discontinued operations (428) (428)
Loss from disposal of discontinued business segment (2,028) (2,028)
--------
Net loss $ (5,453)
========
Depreciation and amortization $ 174 $ 1 $ 37 $ 212
Segment assets $ 7,903 $ 3,986 $ 9,447 $ 97 $ 21,433
Investment in equity affiliate -- -- $ 5,336 -- $ 5,336
Capital expenditures $ 68 $ 2 $ 1 $ 71
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1999 CONSOLIDATED
------------
SEGMENTS SCPI DOWLING'S OTI(a) CORPORATE TOTAL
-------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 18,092 -- -- -- $ 18,092
======== ======== ======== ======== ========
Operating profit (loss) $ 539 $ (46) $ (838) $ (345)
Interest expense (358)
--------
Loss before equity investment and income taxes (703)
Net loss in equity affiliate(a) (150) (150)
Income taxes (8)
--------
Loss from continuing operations (861)
Loss from discontinued operations (185) (185)
--------
Net loss $ (1,046)
========
Depreciation and amortization $ 100 $ 1 $ 49 $ 150
Segment assets $ 6,797 $ 4,083 $ 3,968 $ 2,028 $ 16,876
Investment in equity affiliate -- -- $ 1,125 -- $ 1,125
Capital expenditures $ 177 $ 3 $ 8 $ 188
</TABLE>
-F17-
<PAGE> 54
<TABLE>
<CAPTION>
Fiscal 1998 CONSOLIDATED
------------
SEGMENTS SCPI(c) DOWLING'S CORPORATE(b) TOTAL
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ 17,879 -- -- $ 17,879
======== ======== ======== ========
Operating profit (loss) $ 2,102 $ (1,028) $ 1,074
Interest expense (423)
--------
Income before taxes 651
Income taxes (1,003)
--------
Loss from continuing operations (352)
Loss from discontinued operations (63) (63)
--------
Net loss $ (415)
========
Depreciation and amortization $ 174 $ 85 $ 259
Segment assets $ 7,215 $ 4,878 $ 2,223 $ 14,316
Capital expenditures $ 280 $ 13 $ 293
</TABLE>
(a) The loss in equity affiliate relates to OTI's ownership share of New
Heights loss
(b) In fiscal 1998, SCPI sold its warehouse facility in Pittsburgh,
Pennsylvania and recorded a gain of $1.8 million on the sale. SCPI
moved its operations to a newer, leased facility in McKeesport,
Pennsylvania.
13. COMMITMENTS AND CONTINGENCIES
SCPI has an employment agreement with a senior executive that provides
termination rights in the event of a change in control of SCPI, as defined. The
rights include payments of up to twenty-four months of the executive's base
salary, along with continuation of benefits and certain other payments. The
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
agreement was 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, Dowling's entered into an employment agreement with a
senior executive that provided for certain termination rights in the event that
the executive's employment were to be terminated without cause. The employment
agreement will be assumed by the purchaser of Dowling's pursuant to the Merger
Agreement (see Note 2).
In December 1998, Oakhurst entered into employment agreements with two
senior executives of Oakhurst 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 in February 2001. Also in December 1998,
OTI entered into employment agreements with the same senior executives that
provide for certain termination rights in the event that the executive's
employment were to be terminated by OTI without cause. These employment
agreements also expire in February 2001.
In December 1998 the Company's subsidiary, OTI, entered into an
Investment Agreement with New Heights pursuant to which OTI agreed to fund
defined capital expenditures, costs of permitting, start-up losses and working
capital of the New Heights waste-to-energy facility in Ford Heights, Illinois,
and to receive in return an initial 50% equity interest in New Heights. The
funding requirements are specified in a Business Plan that
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<PAGE> 55
provides for three phases. Phase One of the Business Plan provides for the
removal of approximately 70,000 tons of scrap tires from the New Heights site
and the establishment of a crumb rubber processing facility. Phase One was
completed in September 1999. Phase Two provides for the permitting and start-up
of waste-to-energy operations, and requires an investment (including the Phase
One investment) of at least $8.5 million and not more than $13.5 million. The
appropriate permits were issued in January 2000, a power supply agreement was
entered into with a local utility for the summer of 2000, and in early July the
New Heights generator began commercial production of power from burning waste
tires. Phase Three of the Business Plan provides for the building of an
environmental campus at New Heights, requiring funding of at least $12 million
and not more than $17 million (including the Phase One and Two investments).
Recognizing its investment in Sterling and increases in the estimated
capital costs and start-up losses at New Heights, in July 2000 Oakhurst, OTI and
KTI completed a modification of the KTI Loan (the "KTI Loan Modification")
pursuant to which OTI's obligation to fund the first two phases and certain
Phase Three expenditures of the New Heights Business Plan was limited to $9
million and KTI agreed to fund $3 million for such purposes directly to New
Heights. Accordingly, OTI's equity interest in such investments in New Heights
was decreased from 50% to 37.5%, with the reduction of 12.5% being acquired by
KTI in return for its $3 million direct investment in New Heights. In addition,
OTI's obligation to fund certain start-up losses at New Heights will be limited
to 75% of such losses, funded through advances under the KTI Loan, with the
balance to be funded directly by KTI. Furthermore, the KTI Loan Modification
provides for any further capital expenditures to be financed through New
Heights' internally generated cash and/or through financing raised by New
Heights. To the extent that such funding is insufficient, the parties to the KTI
Loan Modification have agreed to negotiate the terms on which they will each
make future investments.
Management believes that future operations of New Heights will provide
sufficient funds to repay the KTI Loan and that, if such operations are
successful, the value of OTI's equity interest in New Heights could be
significant. However, the start-up and operation of the facility and related
functions involves many risks and such success cannot be assured.
At February 29, 2000, the Company had a $3.8 million deficiency in
stockholders' equity and its current liabilities exceeded its current assets by
approximately $1.0 million. Management believes that the continuing operations
of SCPI together with the extension of SCPI's revolving credit facility and the
amended KTI loan will enable the Company to continue to meet its obligations
through Fiscal 2001.
14. NOTE RECEIVABLE
As part of OTI's investment in Sterling, OTI acquired $1.33 million of
Sterling's convertible subordinated notes. The note receivable bears interest at
the rate of 8%, payable quarterly, and is due in its entirety on December 31,
2005.
The note is convertible into shares of common stock of Sterling, at any
time at the option of OTI.
15. MINORITY INTEREST
Under the 1991 merger (see Note 1) SCPI was 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 were necessary, in
accordance with periodic determinations, to maintain Oakhurst's aggregate stock
ownership of SCPI at 90%. Revaluations of SCPI required subsequent to fiscal
1994 have not been completed.
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
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<PAGE> 56
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.
16. RELATED PARTY TRANSACTIONS
Two of the Company's senior executives and directors are principals of
a private equity advisory firm that introduced to OTI the investment in
Sterling. Upon making the investment, OTI paid the advisory firm a customary
introduction fee of $40,000 and granted the advisory firm a participation in any
gain on the eventual sale of the investment, in both cases at the same rates as
paid or granted by other investors in the transaction. A $20,000 introduction
fee and related equity interest was due in respect of the second equity tranche
acquired by OTI in October 1999, but the introduction fee has not yet been paid.
-F20-
<PAGE> 57
SCHEDULE II
OAKHURST COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------------------------- ---------- ----------
BALANCE AT CHARGED CHARGES TO BALANCE
BEGINNING TO 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 29, 2000 .......................... $ 388 $ 136 $ -- $ 157(A) $ 367
========== ========== ========== ====== ==========
February 28, 1999 .......................... $ 461 $ 101 $ -- $ 174(A) $ 388
========== ========== ========== ====== ==========
February 28, 1998 .......................... $ 555 $ 165 $ -- $ 259(A) $ 461
========== ========== ========== ====== ==========
</TABLE>
(A) Amounts were deemed uncollectible.
-F21-
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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.
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 as
Exhibit 4.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1998).
</TABLE>
<PAGE> 59
<TABLE>
<S> <C>
x/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).
10.3 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).
x/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).
x/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).
x/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).
x/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).
10.13 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).
x/10.14 Amendment to Consulting Agreement and Amended Non-Qualified
Stock Option Agreement between Mark Auerbach and Oakhurst
Company, Inc.
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
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 as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1998).
10.19 Lease agreement between Regional Industrial Development
Corporation and Steel City Products, Inc. dated as of November
11, 1997 (filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28,
1998).
10.20 Rights Agreement, dated as of December 29, 1998 between
Oakhurst Company, Inc. and American Stock Transfer and Trust
Company, including the form of Certificate of Designation, the
form of Rights Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C, respectively. (Filed as
Exhibit 99.1 to the Company's Registration Statement on Form
8-A filed on January 5, 1999).
x/10.21 Amendment to the 1994 Omnibus Stock Plan, amended as of
December 18, 1998 (filed as Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1999).
10.22 Fourth Amendment to the Loan and Security Agreement between
Oakhurst and its subsidiaries and FINOVA Capital Corporation,
dated as of December 29, 1998 (filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1999).
10.23 Investment Agreement among Oakhurst Company, Inc., Oakhurst
Technology, Inc. and KTI, Inc. dated as of December 29, 1998
(filed as Exhibit 10.23 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1999).
10.24 Intercreditor Agreement among Oakhurst Company, Inc., KTI,
Inc. and FINOVA Capital Corporation dated December 29, 1998
(filed as Exhibit 10.24 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1999).
</TABLE>
<PAGE> 61
<TABLE>
<S> <C>
10.25 Stock Purchase and Investment Agreement between Oakhurst
Technology, Inc. and Sterling Construction Company dated as of
January 19, 1999 (filed as Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1999).
10.26 Note Purchase Agreement between Sterling Construction Company
and Oakhurst Technology, Inc. dated as of January 19, 1999
(filed as Exhibit 10.26 to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1999).
x/10.27 Employment agreement between Oakhurst Company, Inc. and Robert
M. Davies dated as of December 29, 1998 (filed as Exhibit
10.27 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1999).
x/10.28 Employment agreement between Oakhurst Technology, Inc. and
Robert M. Davies dated as of December 29, 1998 (filed as
Exhibit 10.28 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999)..
x/10.29 Employment agreement between Oakhurst Company, Inc. and
Maarten D. Hemsley dated as of December 18, 1998 (filed as
Exhibit 10.29 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999).
x/10.30 Employment agreement between Oakhurst Technology, Inc. and
Maarten D. Hemsley dated as of December 1, 1998 (filed as
Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999).
18.1 Letter regarding change in accounting principle (filed as
Exhibit 18.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1999).
21 Subsidiaries at February 29, 2000:
Steel City Products, Inc. - Delaware
Dowling's Fleet Service Co., Inc. - New York
Oakhurst Management Corporation - Texas
Oakhurst Technology, Inc - Delaware
*27 Financial Data Schedule (EDGAR transmission only).
27.1 Restated Financial Data Schedule for the quarter ended
November 30, 1998 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1998) (EDGAR
transmission only).
27.2 Restated Financial Data Schedule for the quarter ended August
31, 1998 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1998) (EDGAR transmission only).
27.3 Restated Financial Data Schedule for the quarter ended May 31,
1998 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1998) (EDGAR transmission only).
27.4 Restated Financial Data Schedule for the year ended February
28, 1998 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1998) (EDGAR transmission only).
27.5 Restated Financial Data Schedule for the quarter ended
November 30, 1997 (filed as exhibit #27 to the Company's Form
10-Q for the quarter ended November 30, 1997) (EDGAR
transmission only).
</TABLE>
<PAGE> 62
<TABLE>
<S> <C>
27.6 Restated Financial Data Schedule for the quarter ended August
31, 1997 (filed as exhibit #27 to the Company's Form 10-Q for
the quarter ended August 31, 1997) (EDGAR transmission only).
27.7 Restated Financial Data Schedule for the quarter ended May 31,
1997 (filed as exhibit #27 to the Company's Form 10-Q for the
quarter ended May 31, 1997) (EDGAR transmission only).
27.8 Restated Financial Data Schedule for the year ended February
28, 1997 (filed as exhibit #27 to the Company's Form 10-K for
the year ended February 28, 1997) (EDGAR transmission only).
99.1 Financial statements for New Heights Recovery and Power LLC
for the year ended December 31, 1999 (to be filed by
amendment).
</TABLE>
----------
x/ Management contract or compensatory plan or arrangement.
* Filed herewith
