<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
Amendment No. 3
to
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
(Name of Issuer)
BRUCKMANN, ROSSER, SHERRILL & CO., L.L.C.,
BRUCKMANN, ROSSER, SHERRILL & CO. II, L.P.,
BRSE, L.L.C.,
OSI ACQUISITION, INC.,
RICHARD D. DAVIDSON,
ROWLAND H. GEDDIE, III,
JAMES C. HILLMAN,
DANIEL F. O'SULLIVAN,
MICHAEL P. O'SULLIVAN,
THOMAS M. O'SULLIVAN, JR.,
PHILLIP J. PACEY,
E. THOMAS RIEGEL,
TYRONE E. RIEGEL,
STUART D. SCHOTTE,
TOMMY W. THIEMAN,
O'SULLIVAN PROPERTIES, INC., and
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
(Name of Persons Filing statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
------------------
688609 106
(CUSIP Number of Class of Securities)
<TABLE>
<S> <C>
STEPHEN F. EDWARDS ROWLAND H. GEDDIE, III, ESQ.
BRUCKMANN, ROSSER, SHERRILL & CO., L.L.C. O'SULLIVAN INDUSTRIES HOLDINGS, INC.
BRUCKMANN, ROSSER, SHERRILL & CO., II, L.P. 1900 GULF STREET
BRSE, L.L.C. LAMAR, MISSOURI 64759
126 EAST 56TH STREET, 29TH FLOOR (417) 682-3322
NEW YORK, NY 10022
(212) 521-3724
</TABLE>
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
Copies to:
<TABLE>
<S> <C>
LANCE C. BALK, ESQ. JEFFREY BAGNER, ESQ.
KIRKLAND & ELLIS FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
153 EAST 53RD STREET ONE NEW YORK PLAZA
NEW YORK, NY 10022 NEW YORK, NY 10004
(212) 446-4800 (212) 859-8136
</TABLE>
<PAGE>
This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [x] The filing of registration statement under the Securities
Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [x]
CALCULATION OF FILING FEE
- --------------------------------------------- ---------------------------------
Transaction Valuation* Amount of Filing Fee **
- --------------------------------------------- ---------------------------------
327,876,129.30 65,575.23
- --------------------------------------------- ---------------------------------
*For purposes of calculating fee only. This transaction applies to an aggregate
17,851,869 shares of Common Stock (the sum of (i) 16,248,988 outstanding shares
of Common Stock and (ii) 1,602,881 shares of Common Stock issuable upon the
exercise of currently exercisable stock options).
The per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11(b)(2) is $19.25.
The proposed maximum aggregate value of the transaction is $327,876,129.30 (the
product of (x) the aggregate number of shares (17,851,869), multiplied by (y)
the per share price ($19.25) less price with respect to the shares issuable upon
the exercise of stock options).
** 1/50th of 1% of the transaction valuation. The total fee is $65,575.23 paid
by federal wire transfer to the Commission on June 21, 1999.
[ ] Check box if any part of the fee is offset as provided by Rule
0-ll(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
- --------------------------------------------- ---------------------------------
Amount Previously Paid:
Form or Registration No.:
Filing Party:
Date Filed:
- --------------------------------------------- ---------------------------------
2
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3
("Transaction Statement") is being filed with the Securities and Exchange
Commission (the "Commission") by O'Sullivan Industries Holdings, Inc., a
Delaware corporation (the "Company"), Bruckmann, Rosser, Sherrill & Co. II,
L.P., a private equity fund ("BRS LP"), OSI Acquisition, Inc., a Delaware
corporation and wholly owned subsidiary of BRS LP ("Merger Sub"), the
following executive officers and directors of the Company who are
participating with BRS in the merger: Richard D. Davidson, Rowland H. Geddie,
III, James C. Hillman, Daniel F. O'Sullivan, Michael P. O'Sullivan, Thomas M.
O'Sullivan, Jr., E. Thomas Riegel, Tyrone E. Riegel, Phillip J. Pacey, Stewart
D. Schotte, Tommy W. Thieman (collectively, "Management"), O'Sullivan
Properties, Inc., a Missouri corporation controlled by Thomas M. O'Sullivan,
Sr. ("OPI"), and two affiliates of BRS LP: Bruckmann, Rosser, Sherrill & Co.,
L.L.C. ("BRS") and BRSE, L.L.C. ("BRSE, LLC"). BRS is the manager of BRS LP
pursuant to a Management Agreement dated May 21, 1999 between BRS and BRS LP.
BRSE, LLC is the general partner of BRS LP.
This Transaction Statement relates to the Amended and Restated
Agreement and Plan of Merger, dated as of October 18, 1999, as amended (the
"Merger Agreement"), between the Company and Merger Sub pursuant to which
Merger Sub will be merged with and into the Company (the "Merger"), with the
Company surviving the Merger. Merger Sub was organized at the direction of
BRS for the purpose of consummating the Merger. Concurrently with the filing
of this Transaction Statement, the Company is filing with the Commission a
preliminary proxy statement/prospectus on Form S-4 under the Securities and
Exchange Act of 1934, as amended (together with all annexes thereto, the
"Proxy Statement") relating to a special meeting of shareholders of the
Company. At such meeting, the shareholders of the Company will vote upon a
proposal to approve the Merger Agreement.
A copy of the Proxy Statement is attached hereto as Exhibit (d). A
copy of the Merger Agreement is attached as Appendix A to the Proxy Statement.
Upon the terms and subject to the conditions of the Merger
Agreement, at the Effective Time (as defined below): (i) Merger Sub will be
merged with and into the Company, with the Company continuing as the
surviving corporation (the "Surviving Corporation"); (ii) each share of
common stock of the Company, par value $1.00 per share, issued and
outstanding immediately prior to the Merger (other than shares held in the
Company's treasury or by any of its subsidiaries, some of the shares held by
members of the Company's senior management, three directors and an affiliate
of a fourth director participating with BRS in the Merger, and shares held by
shareholders who are entitled to and have perfected their dissenter's
appraisal rights) will be converted into the right to receive (i) $16.75 in
cash, without interest, and (ii) one share of 12% Senior Preferred Stock of
the Surviving Corporation, with a liquidation preference of $1.50 per share.
The "Effective Time" of the Merger will be the date and time of the filing of
a certificate of merger with the Delaware Secretary of State in accordance
with the Delaware General Corporation Law, which is scheduled to occur as
soon as practicable after the satisfaction or waiver of the closing
conditions contained in the Merger Agreement.
The information in the Proxy Statement and this Transaction
Statement concerning the Company after the completion of the Merger has been
supplied by BRS or Management, information about O'Sullivan before the
completion of the Merger has been supplied by the Company and information
about BRS, BRS LP, BRSE, LLC and the Merger Sub has been supplied by BRS.
3
<PAGE>
CROSS REFERENCE SHEET
(PURSUANT TO GENERAL INSTRUCTION F TO SCHEDULE 13E-3)
All references are to portions of the Proxy Statement which are
incorporated herein and made a part hereof by reference.
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM
NUMBER AND CAPTION RESPONSE/CAPTION IN PROXY STATEMENT
------------------ -----------------------------------
<S> <C> <C>
1. Issuer and Class of Security Subject to
the Transaction.
(a)........................................ "The Companies-O'Sullivan Industries Holdings, Inc." and
"Where You Can Find More Information".
(b)........................................ "The Special Meeting-Votes Required for Approval of the
Merger Agreement and the Merger".
(c)-(d).................................... "Market Price and Dividends".
(e)........................................ Not applicable.
(f)........................................ Appendix D to Proxy Statement-"Transactions involving
O'Sullivan Common Stock by BRS, Bruckmann, Rosser,
Sherrill & Co. II, L.P., BRSE, LLC, O'Sullivan and
Executive Officers and Directors of O'Sullivan."
2. Identity and Background. This Transaction Statement is being jointly filed by
the issuer of the class of equity securities which is
the subject of the Rule 13E-3 transaction, and its
affiliates, Merger Sub, BRS, BRS LP, BRSE, LLC,
each member of Management, and OPI.
(a)-(d).................................... Appendix E - "Information Relating to
BRS, Bruckmann, Rosser, Sherrill & Co. II, L.P.,
BRSE, LLC, and their Respective Principals and the
Executive Officers and Directors of OSI, O'Sullivan and
O'Sullivan Properties, Inc." to the Proxy Statement.
(e)-(f).................................... None of the directors or executive officers of the Company,
Merger Sub, OPI or any member of BRS or BRSE, LLC:
(a) was, during the last five years, convicted in a criminal
proceeding (excluding traffic violations or similar
4
<PAGE>
<CAPTION>
SCHEDULE 13E-3 ITEM
NUMBER AND CAPTION RESPONSE/CAPTION IN PROXY STATEMENT
------------------ -----------------------------------
<S> <C> <C>
proceedings) or (b) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and
as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining further violations of, or
prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
(g)........................................ Each director and executive officer of the Company, Merger
Sub, OPI, and each member of BRS and BRSE, LLC,
is a citizen of the United States.
3. Past Contacts, Transactions or
Negotiations.
(a)(1)..................................... None.
(a)(2)..................................... "Special Factors- Background to the Merger"; "-Conflicts of
Interest; Arrangements with Management".
(b)........................................ "Summary-Conflicts of Interest; Arrangements with Management";
"Special Factors-Background of the Merger"; "-Conflicts of
Interest; Arrangements with Management".
4. Terms of the Transaction.
(a)........................................ "Summary-The Merger"; "-What You Will Receive in the
Merger"; "-Completion of the Merger"; "-Termination of
the Merger Agreement"; "-Compensation Payable if Merger
Not Completed"; "-Conflicts of Interest, Arrangements with
Management" and "The Merger Agreement".
(b)........................................ "Special Factors -Conflicts of Interest; Arrangements with
Management -EQUITY INVESTMENT AND CASH PAYMENTS;
-TREATMENT OF STOCK OPTIONS" and "Appraisal Rights of
Dissenting Shareholders".
5. Plans or Proposals of the Issuer or Affiliate
(a)........................................ None.
(b)........................................ None.
(c)........................................ "Special Factors-Consequences of the Merger; Plans for
O'Sullivan after the Merger-DIRECTORS OF O'SULLIVAN
AFTER THE MERGER".
(d)........................................ "Special Factors-Financing of
5
<PAGE>
<CAPTION>
SCHEDULE 13E-3 ITEM
NUMBER AND CAPTION RESPONSE/CAPTION IN PROXY STATEMENT
------------------ -----------------------------------
<S> <C> <C>
the Merger" and "-Description of O'Sullivan
Capital Stock After the Merger".
(e)........................................ None.
(f)........................................ "Special Factors-Consequences of the Merger; Plans for
O'Sullivan after the Merger" and "-Effects of the Merger
on O'Sullivan Capital Stock".
(g)........................................ None.
6. Source and Amount of Funds or Other Consideration.
(a)........................................ "Special Factors-Financing of the Merger".
(b)........................................ "Special Factors-Estimated Fees and Expenses of the Merger"
and "The Merger Agreement-Termination Fees".
(c)(1) and (c)(2).......................... "Special Factors-Financing of the Merger-SENIOR SECURED
CREDIT FACILITY"; AND "-SENIOR SUBORDINATED NOTES" AND SENIOR
DISCOUNT NOTES.
(d)........................................ Not applicable.
7. Purpose(s), Alternatives, Reasons and Effects.
(a)........................................ "Special Factors-Purpose of the Merger" and "-Reasons for
the Merger; Recommendation of the Board of Directors".
(b)........................................ "Special Factors-Reasons for the Merger; Recommendation
of the Board of Directors".
(c)........................................ "Special Factors-Purpose of the Merger" and "-Reasons for
the Merger; Recommendation of the Board of Directors".
(d)........................................ "Special Factors-Consequences of the Merger; Plans for
O'Sullivan After the Merger"; "-Effects of the Merger on
O'Sullivan Capital Stock"; "-Federal Income Tax Consequences"
and "-Accounting Treatment of the Merger".
8. Fairness of the Transaction.
(a)........................................ "Special Factors-Fairness of the Merger" and "-Reasons for
the Merger; Recommendation of the Board of Directors".
(b)........................................ "Special Factors-Fairness of the Merger" and "-Reasons for
the Merger; Recommendations of the Board of Directors".
(c)........................................ "The Special Meeting-Votes Required for Approval of the
Merger Agreement and Merger".
(d)........................................ "Summary-Opinion of O'Sullivan's Financial Advisor" and
"Special Factors-Background to the Merger".
6
<PAGE>
<CAPTION>
SCHEDULE 13E-3 ITEM
NUMBER AND CAPTION RESPONSE/CAPTION IN PROXY STATEMENT
------------------ -----------------------------------
<S> <C> <C>
(e)........................................ "Summary-Recommendation of the Board of Directors" and
"Special Factors-Reasons for the Merger; Recommendation
of the Board of Directors".
(f)........................................ "Special Factors-Background to the Merger"
9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)........................................ "Summary-Opinion of O'Sullivan's Financial Advisor" and
"Special Factors-Opinion of O'Sullivan's Financial Advisor".
(b)........................................ "Summary-Opinion of O'Sullivan's Financial Advisor" and
"Special Factors-Opinion of O'Sullivan's Financial Advisor".
(c)........................................ "Summary-Opinion of O'Sullivan's Financial Advisor" and
"Special Factors-Opinion of O'Sullivan's Financial Advisor".
10. Interest in Securities of the Issuer.
(a)........................................ "Special Factors-Beneficial Ownership of Common Stock".
(b)........................................ "Appendix D to Proxy Statement-Transactions involving
O'Sullivan Common Stock by BRS, Bruckmann, Rosser,
Sherrill & Co. II, L.P., BRSE, LLC, O'Sullivan and the
Executive Officers and Directors of O'Sullivan."
11. Contracts, Arrangements or Understandings with Respect to the Issuer's Securities
"Special Factors-Consequences of the Merger; Plans for
O'Sullivan After the Merger" and "-Conflicts of Interest;
Arrangements with Management".
12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction.
(a)........................................ "Special Factors-Consequences of the Merger; Plans for
O'Sullivan After the Merger" and "-Conflicts of Interest;
Arrangements with Management".
(b)........................................ "Summary-Recommendation of the Board of Directors" and
"Special Factors-Reasons for the Merger; Recommendation
of the Board of Directors".
13. Other Provisions of the Transaction.
(a)........................................ "Appraisal Rights of Dissenting Shareholders".
(b)........................................ Not applicable.
(c)........................................ Not applicable.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM
NUMBER AND CAPTION RESPONSE/CAPTION IN PROXY STATEMENT
------------------ -----------------------------------
<S> <C> <C>
14. Financial Information.
(a)........................................ "Selected Historical Financial Information";
"-Selected Unaudited Pro Forma Financial Information" and
"Unaudited Pro Forma Financial Data".
(b)........................................ "Unaudited Pro Forma Financial Data".
15. Persons and Assets Employed, Retained or Utilized.
(a)........................................ "The Special Meeting-Solicitation of Proxies".
(b)........................................ "The Special Meeting-Solicitation of Proxies".
16. Additional Information. The Proxy Statement and the Appendices attached thereto.
17. Material to be Filed as Exhibits
(a)(1)*.................................... Commitment Letter dated October 17, 1999 among Lehman
Brothers Inc. and Lehman Commercial Paper Inc., BRS and
Merger Sub.
(a)(2)*.................................... Commitment Letter dated October 17, 1999 between BRS L.P.
and Merger Sub.
(b)*....................................... Form of Opinion of Salomon Smith Barney dated October 18,
1999 (attached as Appendix B to the Proxy Statement).
Financial Analysis Presentation materials prepared by Salomon Smith
Barney in connection with providing its opinion to the Special
Committee on October 18, 1999.
(c)*....................................... Amended and Restated Agreement and Plan of Merger dated as of October 18,
1999 between the Company and Merger Sub (attached as Appendix A to the
Proxy Statement).
(d)*....................................... Amendment No. 3 to Form S-4 of O'Sullivan Industries
Holdings, Inc.
(e)**...................................... Section 262 of the Delaware General Corporation Law
(attached as Appendix C to the Proxy Statement).
(f)........................................ Not applicable.
</TABLE>
- -----------------
* Filed herewith.
** Previously filed.
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The information set forth in "The Companies-O'Sullivan
Industries Holdings, Inc." and "Where You Can Find More
Information" of the Proxy Statement is incorporated herein by
reference.
8
<PAGE>
(b) The information set forth in "The Special Meeting-Votes
Required for Approval of the Merger Agreement and the Merger"
of the Proxy Statement is incorporated herein by reference.
As of June 24, 1999, there were approximately 855 holders
of record of O'Sullivan common stock.
(c)-(d) The information set forth in "Market Price and Dividends" of
the Proxy Statement is incorporated herein by reference.
(e) Not applicable.
(f) Appendix D to Proxy Statement-"Transactions involving
O'Sullivan Common Stock by BRS, Bruckmann, Rosser, Sherrill &
Co. II, L.P., BRSE, LLC, O'Sullivan and the Executive
Officers and Directors of O'Sullivan".
Item 2. Identity and Background.
(a)-(d) The information set forth in Appendix E-
"Information Relating to BRS, Bruckmann, Rosser, Sherrill &
Co. II, L.P., BRSE, LLC, and their Respective Principals and
the Executive Officers and Directors of OSI, O'Sullivan and
O'Sullivan Properties, Inc." of the Proxy Statement is
incorporated herein by reference.
(e)-(f) None of the directors or executive officers of the Company,
Merger Sub, OPI or any member of BRS or BRSE, LLC: (a) was,
during the last five years, convicted in a criminal proceeding
(excluding traffic violations or similar proceedings) or (b)
was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result
of such proceeding was or is subject to a judgment, decree or
final order enjoining further violations of, or prohibiting
activities subject to, federal or state securities laws or
finding any violation of such laws.
(g) Each director and executive officer of the Company, Merger Sub
and OPI, and each member of BRS and BRSE, LLC is a citizen
of the United States.
Item 3. Past Contacts, Transactions or Negotiations.
(a)(1) None.
(a)(2) The information set forth in "Special Factors-Background to
the Merger"; "-Conflicts of Interest; Arrangements with
Management" of the Proxy Statement is incorporated herein
by reference.
(b) The information set forth in "Summary-Conflicts of Interest;
Arrangements with Management"; "Special Factors-Background
of the Merger"; "-Conflicts of Interest; Arrangements with
Management" of the Proxy Statement is incorporated herein
by reference.
Item 4. Terms of the Transaction.
(a) The information set forth in "Summary-The Merger"; "-What You
Will Receive in the Merger"; "-Completion of the Merger";
"-Termination of the Merger Agreement"; "-Compensation Payable
if Merger Not Completed"; "-Conflicts of Interest,
Arrangements
9
<PAGE>
with Management" and "The Merger Agreement" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in "Special Factors -Conflicts of
Interest; Arrangements with Management -EQUITY INVESTMENT AND
CASH PAYMENTS; -TREATMENT OF STOCK OPTIONS" and "Appraisal
Rights of Dissenting Shareholders" of the Proxy Statement is
incorporated herein by reference.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) None.
(b) None.
(c) The information set forth in "Special Factors-Consequences of
the Merger; Plans for O'Sullivan after the Merger-DIRECTORS
OF O'SULLIVAN AFTER THE MERGER" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth in "Special Factors-Financing the
Merger" and "-Description of O'Sullivan Capital Stock After
the Merger" of the Proxy Statement is incorporated herein by
reference.
(e) None.
(f) The information set forth in "Special Factors-Consequences of
the Merger; Plans for O'Sullivan after the Merger" and
"-Effects of the Merger on O'Sullivan Capital Stock" of the
Proxy Statement is incorporated herein by reference.
(g) None.
Item 6. Source and Amount of Funds or Other Consideration.
(a) "Special Factors- Financing of the Merger" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in "Special Factors-Estimated Fees
and Expenses of the Merger" and "The Merger Agreement-
Termination Fees" of the Proxy Statement is incorporated
herein by reference.
(c)(1) The information set forth in "Special Factors-Financing of
and the Merger-SENIOR SECURED CREDIT FACILITY"; AND "-SENIOR
(c)(2) SUBORDINATED NOTES AND SENIOR DISCOUNT NOTES" of the Proxy
Statement is incorporated herein by reference.
(d) Not applicable
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth in "Special Factors-Purpose of the
Merger" and "-Reasons for the Merger; Recommendation of the
Board of Directors" of the Proxy Statement is incorporated
herein by reference.
10
<PAGE>
(b) The information set forth in "Special Factors-Reasons for the
Merger; Recommendation of the Board of Directors" of the Proxy
Statement is incorporated herein by reference.
(c) The information set forth in "Special Factors-Purpose of the
Merger" and "-Reasons for the Merger; Recommendation of the
Board of Directors" of the Proxy Statement is incorporated
herein by reference.
(d) The information set forth in "Special Factors-Consequences of
the Merger; Plans for O'Sullivan After the Merger"; "-Effects
of the Merger on O'Sullivan Capital Stock"; "-Federal
Income Tax Consequences" and "-Accounting Treatment of the
Merger" of the Proxy Statement is incorporated herein by
reference.
Item 8. Fairness of the Transaction.
(a) The information set forth in "Special Factors-Fairness of the
Merger" and "-Reasons for the Merger; Recommendation of the
Board of Directors" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in "Special Factors-Fairness of the
Merger" and "-Reasons for the Merger; Recommendations of the
Board of Directors" of the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in "The Special Meeting-Votes
Required for Approval of the Merger Agreement and Merger" of
the Proxy Statement is incorporated herein by reference.
(d) The information set forth in "Summary-Opinion of
O'Sullivan's Financial Advisor" and "Special
Factors-Background to the Merger" of the Proxy Statement is
incorporated herein by reference.
(e) The information set forth in "Summary-Recommendation of the
Board of Directors" and "Special Factors-Reasons for the
Merger; Recommendation of the Board of Directors" is
incorporated herein by reference.
(f) The information set forth in "Special Factors-Background to
the Merger" is incorporated herein by reference.
Item 9 Reports, Opinions, Appraisals and Certain Negotiations.
(a) The information set forth in "Summary-Opinion of O'Sullivan's
Financial Advisor" and "Special Factors-Opinion of
O'Sullivan's Financial Advisor" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "Summary-Opinion of O'Sullivan's
Financial Advisor" and "Special Factors-Opinion of
O'Sullivan's Financial Advisor" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth in "Summary-Opinion of O'Sullivan's
Financial Advisor" and "Special Factors-Opinion of
O'Sullivan's Financial Advisor" of the Proxy Statement is
incorporated herein by reference.
Item 10. Interest in Securities of the Issuer.
(a) The information set forth in "Special Factors-Beneficial
Ownership of Common Stock" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "Appendix D to Proxy Statement -
Transactions involving O'Sullivan Common Stock by BRS,
Bruckmann, Rosser, Sherrill & Co. II, L.P., BRSE, LLC,
O'Sullivan and the Executive Officers and Directors of
O'Sullivan" of the Proxy Statement is incorporated herein
by reference.
11
<PAGE>
Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
The information set forth "Special Factors-Consequences of the Merger;
Plans for O'Sullivan After the Merger" and "-Conflicts of Interest;
Arrangements with Management" of the Proxy Statement is incorporated
herein by reference.
Item 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction.
(a) The information set forth in "Special Factors-Consequences of
the Merger; Plans for O'Sullivan After the Merger"
"-Conflicts of Interest; Arrangements with Management" of
the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "Summary-Recommendation of the
Board of Directors" and "Special Factors-Reasons for the
Merger; Recommendation of the Board of Directors" of the
Proxy Statement is incorporated herein by reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth in "Appraisal Rights of Dissenting
Shareholders" of the Proxy Statement is incorporated herein by
reference.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) The information set forth in "Selected Historical Financial
Information"; "-Selected Unaudited Pro Forma Financial
Information" and "Unaudited Pro Forma Financial Data"
of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "Unaudited Pro Forma Financial
Data" of the Proxy Statement is incorporated herein by
reference.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) The information set forth in "The Special Meeting-Solicitation
of Proxies" of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth in "The Special Meeting-Solicitation
of Proxies" of the Proxy Statement is incorporated herein by
reference.
Item 16. Additional Information.
The Proxy Statement and the Appendices attached thereto.
12
<PAGE>
Item 17. Material to be filed as Exhibits.
(a)(1) Commitment Letter dated October 17, 1999 among Lehman Brothers Inc.
and Lehman Commercial Paper Inc., BRS and Merger Sub.
(a)(2) Commitment Letter dated October 17, 1999 between Bruckmann, Rosser,
Sherrill & Co. II, L.P. and Merger Sub.
(b) Opinion of Salomon Smith Barney included as Appendix B to the Proxy
Statement.
Financial Analysis Presentation materials prepared by Salomon Smith
Barney in connection with providing its opinion to the Special
Committee on October 18, 1999.
(c) Amended and Restated Agreement and Plan of Merger, dated October 18,
1999, between O'Sullivan Industries Holdings, Inc. and OSI
Acquisition Inc. included as Appendix A to the Proxy Statement.
(d) Amendment No. 3 to Form S-4 of O'Sullivan Industries Holdings, Inc.
(e) Section 262 of the Delaware General Corporation Law included as
Appendix C to the Proxy Statement.
(f) Not applicable.
13
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
October 18, 1999 O'SULLIVAN INDUSTRIES HOLDINGS, INC.
By: /s/ Richard D. Davidson
--------------------------------------
Name: Richard D. Davidson
Title: President and Chief Operating Officer
OSI ACQUISITION CORP.
By: /s/ Stephen F. Edwards
--------------------------------------
Name: Stephen F. Edwards
Title: President
BRUCKMANN, ROSSER, SHERRILL & CO. II, L.P.
By: BRSE, L.L.C., its general partner
By: /s/ Stephen F. Edwards
---------------------------------
Name: Stephen F. Edwards
Title: Manager
BRUCKMANN, ROSSER, SHERRILL & CO., L.L.C.
By: /s/ Stephen F. Edwards
---------------------------------
Name: Stephen F. Edwards
Title: Manager
BRSE, L.L.C.
By: /s/ Stephen F. Edwards
---------------------------------
Name: Stephen F. Edwards
Title: Manager
/s/ Richard D. Davidson
--------------------------------------
RICHARD D. DAVIDSON
14
<PAGE>
/s/ Rowland H. Geddie, III
--------------------------------------
ROWLAND H. GEDDIE, III
/s/ James C. Hillman
--------------------------------------
JAMES C. HILLMAN
/s/ Daniel F. O'Sullivan
--------------------------------------
DANIEL F. O'SULLIVAN
/s/ Michael P. O'Sullivan
--------------------------------------
MICHAEL P. O'SULLIVAN
/s/ Thomas M. O'Sullivan, Jr.
--------------------------------------
THOMAS M. O'SULLIVAN, JR.
/s/ Phillip J. Pacey
--------------------------------------
PHILLIP J. PACEY
/s/ E. Thomas Riegel
--------------------------------------
E. THOMAS RIEGEL
/s/ Tyrone E. Riegel
--------------------------------------
TYRONE E. RIEGEL
/s/ Stuart D. Schotte
--------------------------------------
STUART D. SCHOTTE
/s/ Tommy W. Thieman
--------------------------------------
TOMMY W. THIEMAN
O'SULLIVAN PROPERTIES, INC.
By: /s/ Thomas M. O'Sullivan, Sr.
----------------------------------
Name: Thomas M. O'Sullivan, Sr.
Title: President
15
<PAGE>
EXHIBIT INDEX
(a)(1)* Commitment Letter dated October 17, 1999 among Lehman Brothers Inc.
and Lehman Commercial Paper Inc., BRS and Merger Sub.
(a)(2)* Commitment Letter dated October 17, 1999 between Bruckmann, Russer,
Sherrill & Co. II, L.P. and Merger Sub.
(b)* Opinion of Salomon Smith Barney included as Appendix B to the Proxy
Statement.
Financial Analysis Presentation materials prepared by Salomon Smith
Barney in connection with providing its opinion to the Special
Committee on October 18, 1999.
(c)* Amended and Restated Agreement and Plan of Merger dated October 18,
1999 between O'Sullivan Industries Holdings, Inc. and OSI
Acquisition Inc. included as Appendix A to the Proxy Statement.
(d)* Amendment No. 3 to Form S-4 of O'Sullivan Industries Holdings, Inc.
(e)** Section 262 of the Delaware General Corporation Law included as
Appendix C to the Proxy Statement.
(f) Not applicable.
- -----------------
* Filed herewith.
** Previously filed.
<PAGE>
99(a)(1)
LEHMAN COMMERCIAL PAPER INC. LEHMAN BROTHERS INC.
3 WORLD FINANCIAL CENTER 3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285 NEW YORK, NEW YORK 10285
October 17, 1999
COMMITMENT LETTER
Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
29th Flr.
New York, New York 10022
OSI Acquisition Inc.
126 East 56th Street
29th Flr.
New York, New York 10022
Ladies and Gentlemen:
This commitment letter agreement (together with all exhibits and schedules
hereto, the "COMMITMENT LETTER") will confirm the understanding and agreement
among Lehman Commercial Paper Inc., as Administrative Agent under both the
Credit Facilities and the Interim Loan Agreement referred to below, ("LCPI" or
the "ADMINISTRATIVE AGENT"), Lehman Brothers Inc., as exclusive advisor,
bookmanager and lead arranger ("LEHMAN BROTHERS"), Bruckmann, Rosser, Sherrill &
Co., Inc. (collectively with certain of its employees, directors and their
affiliates, the "SPONSOR") and OSI Acquisition Inc., a newly formed wholly owned
subsidiary of the Sponsor (the "COMPANY") in connection with the proposed
financing for the acquisition of all of the issued and outstanding common stock
(except for that portion of common stock retained by members of the management
or their designees) of O'Sullivan Industries Holdings, Inc., a Delaware
corporation (together with each of its subsidiaries, the "ACQUIRED BUSINESS").
We understand that the Company proposes to sign an amended agreement with the
Acquired Business (the "ACQUISITION AGREEMENT") whereby the Company will acquire
all of the issued and outstanding common stock (except for that portion of
common stock retained by members of the management or their designees) of the
Acquired Business through a merger with and into the Acquired Business (the
"ACQUISITION"). As used below, the defined term "Company" shall mean both the
Company prior to the Acquisition and the Company together with the Acquired
Business, after giving effect to the Acquisition.
You have advised us that the total funds needed to finance the Acquisition
(including fees and expenses (which will not exceed $24.5 million) and the
refinancing of approximately $17.3 million of existing debt of the Acquired
Business) will be approximately $358.1 million (including $24.7 million of
senior preferred stock) and that such funds will be provided as follows: (i)
$125.0 million of borrowings by the Company under the Senior Term Loan
Facilities, with an additional $40.0 million Revolving Credit Facility which the
Sponsor anticipates will not be drawn at closing (collectively, the "CREDIT
FACILITIES")
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Bruckmann, Rosser, Sherrill & Co.
OSI Acquisition Inc.
2p.
among the Company, LCPI and the financial institutions party thereto, (ii)
the issuance by O'Sullivan Industries, Inc. of $110.0 million in aggregate
principal amount of Senior Subordinated Notes due 2009 and the issuance by
O'Sullivan Industries Holdings, Inc. of Senior Discount Notes due 2009 yielding
gross proceeds of $25.0 million (collectively, the "NOTES") and (iii) up to
$58.9 million of equity securities (the "EQUITY FINANCING") to be contributed to
the Company in cash by the Sponsor or its affiliates or retained by members of
the management of the Acquired Business. Following the Acquisition, the Company
and its respective subsidiaries will not have any debt or equity outstanding
except as described in this paragraph and $24.7 million of senior preferred
stock issued as part of the merger consideration.
1. THE COMMITMENTS.
(a) You have requested (i) that LCPI (collectively with each other
financial institution that becomes a lender under the Credit Facilities, "SENIOR
LENDERS") commit to provide the entire amount of the Credit Facilities upon the
terms and subject to the conditions set forth or referred to in this Commitment
Letter and in the Summary of Terms of Credit Facilities attached hereto as
Exhibit A (the "CREDIT FACILITIES TERM SHEET") and (ii) that LCPI (collectively
with each other investor that becomes a lender under the Interim Loans (as
defined below), the "INTERIM LENDERS;" the Interim Lenders and the Senior
Lenders being referred to herein collectively as the "LENDERS") commit to
provide the Company $135.0 million in interim loans (the "INTERIM LOANS"), upon
the terms and subject to the conditions set forth or referred to in this
Commitment Letter and in the Summary of Terms of Interim Loans attached hereto
as Exhibit B (the "INTERIM LOANS TERM SHEET").
(b) Based on the foregoing, LCPI is pleased to confirm by this
Commitment Letter its commitment to you (the "SENIOR LOAN COMMITMENT") to
provide or cause one of its affiliates to provide the entire amount of the
Credit Facilities.
(c) Based on the foregoing, LCPI is pleased to confirm by this
Commitment Letter its commitment to you (the "INTERIM LOAN COMMITMENT"), to
provide or cause one of its affiliates to provide the entire amount of the
Interim Loans. You further agree that if LCPI determines in its sole discretion
that it would be advisable to structure the Interim Loans as securities to
facilitate syndication of the Interim Loan Commitments or for any other reason,
that the documentation contemplated by this Commitment Letter will be
appropriately modified to provide for an issuance of interim notes having terms
as nearly identical as practicable to those of the Interim Loans.
(d) Pursuant to an Engagement Letter, dated as of October 17, 1999
(the "ENGAGEMENT LETTER"), among you and Lehman Brothers, as further
consideration for the Interim Loan Commitments, you have engaged Lehman Brothers
to act as your exclusive underwriter, exclusive initial purchaser and/or
exclusive placement agent in connection with the sale of the Permanent
Securities (as defined in the Engagement Letter) and in connection with certain
other matters.
(e) It is agreed that Lehman Brothers will act as the sole and
exclusive advisor, bookmanager and lead arranger for the Credit Facilities and
the Interim Loans and that LCPI will act as the sole and exclusive
Administrative Agent for the Credit Facilities and the Interim Loans. Each of
Lehman Brothers and LCPI will perform the duties and exercise the authority
customarily performed and exercised by it in its respective role. You agree that
no other agents, co-agents, arrangers or bookmanager will be appointed, no other
titles will be awarded and no compensation (other than that expressly
contemplated by
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the Credit Facilities Term Sheet or the Fee Letters referred to below) will be
paid in connection with the Credit Facilities or the Interim Loans unless you
and we shall so agree.
(f) The commitments and agreements of the Lenders described herein
are subject to the negotiation, execution and delivery on or before November 30,
1999 of definitive documentation with respect to the Credit Facilities and the
Interim Loans, satisfactory to the Lenders and their respective counsel and to
the other conditions set forth or referred to in the Credit Facilities Term
Sheet, the Interim Loan Term Sheet and the Funding Conditions attached hereto as
Exhibit C. Those matters that are not covered by the provisions hereof or of the
Credit Facilities Term Sheet or the Interim Loan Term Sheet are subject to the
approval and agreement of the applicable Lenders, the Sponsor and the Company.
2. FEES AND EXPENSES. In consideration of the execution and delivery of
this Commitment Letter by LCPI as a Senior Lender, you agree jointly and
severally to pay the fees and expenses set forth in Annex A-I to the Credit
Facilities Term Sheet and in the Credit Facilities Fee Letter, dated the date
hereof, in each case, as provided therein and subject to paragraph 9 hereof. In
consideration of the execution and delivery of this Commitment Letter by each of
the Interim Lenders, you agree jointly and severally, but subject to paragraph 9
hereof, to pay the fees and expenses contemplated by the Interim Loan Fee
Letter, dated the date hereof (each of the Interim Loan Fee Letter and the
Credit Facilities Fee Letter being referred to as a "FEE LETTER" and
collectively as the "FEE LETTERS").
3. INDEMNIFICATION.
(a) The Sponsor and the Company hereby jointly and severally agree
to indemnify and hold harmless each of LCPI, Lehman Brothers, the other Interim
Lenders and each of their respective affiliates and each of their respective
officers, directors, employees, affiliates, advisors and agents (each, an
"INDEMNIFIED PERSON") from and against any and all losses, claims, damages and
liabilities to which any such indemnified person may become subject arising out
of or in connection with this Commitment Letter, the Credit Facilities, the
Interim Loans, the Term Loans, the Exchange Notes, the use of the proceeds
therefrom, the Acquisition, any of the other transactions, or securities
contemplated by this Commitment Letter or the Engagement Letter, any other
transaction related thereto or any claim, litigation, investigation or
proceeding relating to any of the foregoing, regardless of whether any
indemnified person is a party thereto, and to reimburse each indemnified person
upon demand for all legal and other expenses incurred by it in connection with
investigating, preparing to defend or defending, or providing evidence in or
preparing to serve or serving as a witness with respect to, any lawsuit,
investigation, claim or other proceeding relating to any of the foregoing
(including, without limitation, in connection with the enforcement of the
indemnification obligations set forth herein); PROVIDED, HOWEVER, that no
indemnified person shall be entitled to indemnity hereunder in respect of any
loss, claim, damage, liability or expense to the extent that it is found by a
final, non-appealable judgment of a court of competent jurisdiction that such
loss, claim, damage, liability or expense resulted directly from the gross
negligence or willful misconduct of such indemnified person. In no event will
any indemnified person be liable for consequential damages as a result of any
failure to fund any of the Credit Facilities or the Interim Loans contemplated
hereby or otherwise in connection with the Credit Facilities or Interim Loans.
(b) The Sponsor and the Company further agree that, without the
prior written consent of LCPI as Senior Lender and each of the Interim Lenders,
which consent will not be unreasonably withheld, none of them will enter into
any settlement of a lawsuit, claim or other proceeding arising out of this
Commitment Letter or the transactions contemplated by this Commitment Letter
unless such settlement
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Bruckmann, Rosser, Sherrill & Co.
OSI Acquisition Inc.
4p.
includes an explicit and unconditional release from the party bringing such
lawsuit, claim or other proceeding of all indemnified persons.
(c) The Sponsor, the Company and the Lenders agree that if any
indemnification or reimbursement sought pursuant to this Section 3 is judicially
determined to be unavailable for a reason other than the gross negligence or
willful misconduct of such indemnified person, then, whether or not a Senior
Lender or an Interim Lender is the indemnified person, the Sponsor and the
Company, on the one hand, and the Senior Lenders or the Interim Lenders, as the
case may be, on the other hand (PRO RATA in accordance with their respective
Commitments), shall contribute to the losses, claims, damages, liabilities and
expenses for which such indemnification or reimbursement is held unavailable (i)
in such proportion as is appropriate to reflect the relative benefits to the
Sponsor and the Company, on the one hand, and the Senior Lenders or the Interim
Lenders, as the case may be, on the other hand, in connection with the
transactions to which such indemnification or reimbursement relates, or (ii) if
the allocation provided by clause (i) above is judicially determined not to be
permitted, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) but also the relative faults of the Sponsor
and the Company, on the one hand, and the Senior Lenders or the Interim Lenders,
on the other hand, as well as any other equitable considerations; PROVIDED,
HOWEVER, that in no event shall the amount to be contributed by a Senior Lender
or an Interim Lender pursuant to this paragraph exceed the amount of the fees
actually received by such Senior Lender or Interim Lender under this Commitment
Letter or the applicable Fee Letter.
4. EXPIRATION OF COMMITMENT. Each Lender agrees to hold its respective
Commitment available for you until the earlier of (i) the termination of the
Acquisition Agreement, (ii) the consummation of the Acquisition without the
funding of the Credit Facilities or Interim Loans, as the case may be, and (iii)
5:00 p.m., New York City time, on November 30, 1999. The date and time of
expiration of the Senior Loan Commitment and the Interim Loan Commitment is
sometimes referred to herein as the "COMMITMENT EXPIRATION DATE."
5. CONFIDENTIALITY.
(a) This Commitment Letter and the Engagement Letter and the terms
and conditions contained herein and therein shall not be disclosed by the
Sponsor to any person or entity (other than the Acquired Business or such of
your and their agents and advisers as need to know and agree to be bound by the
provisions of this paragraph and as required by law) without the prior written
consent of the applicable Lenders. The Fee Letters and the terms and conditions
contained therein shall not be disclosed by the Sponsor to any person or entity
(other than such of your agents and advisers as need to know and agree to be
bound by the provisions of this paragraph and as required by law) without the
prior written consent of the applicable Lenders.
(b) You acknowledge that Lehman Brothers and its affiliates (the
term "Lehman Brothers" being understood to refer hereinafter in this paragraph
to include such affiliates, including LCPI) may be providing debt financing,
equity capital or other services (including financial advisory services) to
other companies in respect of which you may have conflicting interests regarding
the transactions described herein and otherwise. Lehman Brothers will not use
confidential information obtained from you by virtue of the transactions
contemplated by this Commitment Letter or their other relationships with you in
connection with the performance by Lehman Brothers of services for other
companies, and Lehman Brothers will not furnish any such information to other
companies. You also acknowledge that Lehman Brothers has no obligation to use in
connection with the transactions contemplated by this Commitment
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Letter, or to furnish to you, confidential information obtained from other
companies.
6. ASSIGNMENT AND SYNDICATION.
(a) The parties hereto agree that LCPI and Lehman Brothers shall
have the right to syndicate the Credit Facilities, the Interim Loans and/or the
Senior Loan Commitments and the Interim Loan Commitments (collectively, the
"COMMITMENTS") to a group of financial institutions or other investors
identified by us in consultation with you. Lehman Brothers will manage all
aspects of any such syndication, including decisions as to the selection of
institutions to be approached and when they will be approached, the acceptance
of commitments, the amounts offered, the amounts allocated and the compensation
provided. The Sponsor and the Company agree to use all commercially reasonable
efforts to assist Lehman Brothers and LCPI in any such syndication process,
including, without limitation, (i) ensuring that the syndication efforts benefit
materially from the existing lending relationships of the Sponsor and the
Company, (ii) direct contact between senior management and advisors of the
Sponsor and the Company and the proposed Lenders, (iii) assistance in the
preparation of Confidential Information Memoranda and other marketing materials
to be used in connection with any syndication, including causing such
Confidential Information Memoranda to conform to market standards as reasonably
determined by Lehman Brothers and LCPI and (iv) the hosting, with Lehman
Brothers, of one or more meetings of prospective Lenders, and, in connection
with any such Lender meeting, your consultation with Lehman Brothers and LCPI
with respect to the presentations to be made at such meeting, and your making
available appropriate officers and representatives to rehearse such
presentations prior to such meetings, as reasonably requested by Lehman Brothers
and LCPI. You also agree that, at your expense, you will work with Lehman
Brothers and LCPI to procure a rating for the Credit Facilities and/or the
Interim Loans by Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group.
(b) To assist Lehman Brothers and LCPI in their syndication efforts,
you agree promptly to prepare and provide to Lehman Brothers and LCPI all
information with respect to the Company, the Acquired Business, the Acquisition
and the other transactions contemplated hereby, including all financial
information and projections (the "PROJECTIONS"), as they may reasonably request.
You hereby represent and covenant that (i) all information other than the
Projections (the "INFORMATION") that has been or will be made available to
Lehman Brothers and LCPI by you or any of your representatives is or will be,
when furnished, complete and correct in all material respects and does not or
will not, when furnished, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements are made and (ii) the Projections that have been or will
be made available to Lehman Brothers and LCPI by you or any of your
representatives have been or will be prepared in good faith based upon
reasonable assumptions. You understand that in arranging and syndicating the
Credit Facilities and the Interim Loans we may use and rely on the Information
and Projections without independent verification thereof.
(c) To ensure an orderly and effective syndication of the Senior
Loans and the Interim Loans, you agree that, from the date hereof until the
later of the termination of the syndication as determined by Lehman Brothers and
90 days following the date of initial funding under the Senior Loans and the
Interim Loans, you will not, and will not permit any of your affiliates to,
syndicate or issue, attempt to syndicate or issue, announce or authorize the
announcement of the syndication or issuance of, or engage in discussions
concerning the syndication or issuance of, any debt facility or debt or
preferred equity security of the Company or any of its subsidiaries (other than
the indebtedness contemplated hereby), including any renewals or refinancings of
any existing debt facility, without the prior written consent of Lehman
Brothers.
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OSI Acquisition Inc.
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Upon the Closing Date, any assignment or syndication of the Credit Facilities
and the Interim Loans shall be governed by the provisions of the definitive
documentation relating thereto.
(d) Lehman Brothers and LCPI shall be entitled, after consultation
with the Company, to change the pricing, terms and structure of the Credit
Facilities if Lehman Brothers and LCPI determine that such changes are advisable
to ensure a successful syndication of the Credit Facilities; PROVIDED, that in
no event will (i) the Applicable Margin be increased by more than 50 basis
points without the consent of the Company, (ii) the aggregate amortization
during the first three years of the Credit Facilities exceed $11.0 million or
(iii) the final maturity on the Tranche B Term Loan Facility be reduced to less
than six years. The provisions of this Section 6(d) shall survive the closing of
the Credit Facilities until the termination of syndication as determined by
Lehman Brothers, and the Company agrees to enter into, and to cause, such
amendments to the final documentation as may be necessary or reasonably
requested by Lehman Brothers to document any changes to the Credit Facilities
made pursuant to this Section 6(d).
7. SURVIVAL. The provisions of this Commitment Letter relating to the
payment of fees and expenses, indemnification and contribution and
confidentiality, and the provisions of Section 8 below will survive the
expiration or termination of any commitment hereunder or this Commitment Letter
(including any extensions) and the execution and delivery of definitive
financing documentation.
8. CHOICE OF LAW; JURISDICTION; WAIVERS.
(a) This Commitment Letter shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of laws thereof. To the fullest extent permitted by
applicable law, the Sponsor and the Company hereby irrevocably submit to the
jurisdiction of any New York State court or Federal court sitting in the County
of New York in respect of any suit, action or proceeding arising out of or
relating to the provisions of this Commitment Letter or either of the Fee
Letters and irrevocably agree that all claims in respect of any such suit,
action or proceeding may be heard and determined in any such court. The Sponsor
and the Company hereby waive, to the fullest extent permitted by applicable law,
any objection that they may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in any such court, and any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. The parties hereto hereby waive, to the fullest extent
permitted by applicable law, any right to trial by jury with respect to any
action or proceeding arising out of or relating to this Commitment Letter or
either of the Fee Letters.
(b) No Senior Lender or Interim Lender shall be liable in any
respect for any of the obligations or liabilities of any the other Senior Lender
or Interim Lender under this letter or arising from or relating to the
transactions contemplated hereby.
9. ACQUIRED BUSINESS TO BECOME A PARTY; TERMINATION OF CERTAIN SPONSOR
OBLIGATIONS. The Sponsor and the Company hereby agree to cause the Acquired
Business (including each of the Guarantors) to become jointly and severally
liable, effective upon the closing of the Acquisition, for any and all
liabilities and obligations of the Sponsor or the Company relating to or arising
out of any of the Sponsor's or the Company's duties, responsibilities and
obligations hereunder. The obligations of the Sponsor under Sections 2 and 3 of
this Agreement shall terminate once this Agreement has become a legal, valid and
binding agreement of the Acquired Business and such Guarantors.
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10. MISCELLANEOUS.
(a) This Commitment Letter may be executed in one or more
counterparts, each of which will be deemed an original, but all of which taken
together will constitute one and the same instrument. Delivery of an executed
signature page of this Commitment Letter by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
(b) Neither the Company nor the Sponsor may assign any of their
respective rights, or be relieved of any of their respective obligations,
without the prior written consent of each of the Lenders. In connection with any
syndication of all or a portion of the Senior Loan Commitments and/or the
Interim Loan Commitments, the rights and obligations of each of the Lenders
hereunder may be assigned, in whole or in part, as provided above, and upon such
assignment, such Lender shall be relieved and novated hereunder from the
obligations of such Lender with respect to any portion of its Senior Loan
Commitment or Interim Loan Commitment that has been assigned as provided above.
(c) This Commitment Letter and the attached Exhibits and Schedules
set forth the entire understanding of the parties hereto as to the scope of the
Commitment and the obligations of the Lenders hereunder. This Commitment Letter
shall supersede all prior understandings and proposals, whether written or oral,
between any of the Lenders and you relating to any financing or the transactions
contemplated hereby. This Commitment Letter shall be in addition to the
agreements of the parties contained in the Engagement Letter.
(d) This Commitment Letter has been and is made solely for the
benefit of the Sponsor, the Company, the Lenders, the indemnified persons, and
their respective successors and assigns, and nothing in this Commitment Letter,
expressed or implied, is intended to confer or does confer on any other person
or entity any rights or remedies under or by reason of this Commitment Letter or
the agreements of the parties contained herein.
(e) As you know, the Lenders, including Lehman Brothers, may be full
service financial firms and as such from time to time may effect transactions
for their own account or the account of customers, and hold long or short
positions in debt or equity securities or loans of companies that may be the
subject of the transactions contemplated by this Commitment Letter.
(f) Lehman Brothers also will provide financial advisory services to
the Company with respect to the transaction to which this Commitment Letter
relates. The Company agrees that Lehman Brothers has the right to place
advertisements in financial and other newspapers and journals at its own expense
describing its services to the Company, provided that Lehman Brothers will
submit a copy of any such advertisements to the Company for its approval, which
approval shall not be unreasonably withheld.
(g) This Commitment Letter supersedes that certain Commitment
Letter, dated April 30, 1999, by and among the parties hereto (the "Original
Commitment Letter"). This Commitment Letter speaks as of the date of the
Original Commitment Letter except with respect to any specific amendments in
which case this Commitment Letter speaks as of the date hereof.
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If you are in agreement with the foregoing, kindly sign and return
to us the enclosed copy of this Commitment Letter.
Very truly yours,
LEHMAN COMMERCIAL PAPER INC.
By:
Name: /s/ William Gallagher
Title: Authorized Signatory
LEHMAN BROTHERS INC.
By: /s/ Mark W. Filipski
Name:
Title: Authorized Signatory
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Accepted and agreed to as of the
date first above written:
BRUCKMANN, ROSSER, SHERRILL & CO., INC.
By: /s/ Stephen F. Edwards
Name:
Title: Authorized Signatory
OSI ACQUISITION INC.
By: /s/ Stephen F. Edwards
Name:
Title: Authorized Signatory
<PAGE>
EXHIBIT A TO COMMITMENT LETTER
SUMMARY OF TERMS OF CREDIT FACILITIES
SET FORTH BELOW IS A SUMMARY OF CERTAIN OF THE TERMS OF THE
SENIOR TERM LOAN FACILITIES, THE REVOLVING CREDIT FACILITY AND THE
DOCUMENTATION RELATED THERETO. CAPITALIZED TERMS USED AND NOT OTHERWISE
DEFINED HEREIN HAVE THE MEANINGS SET FORTH IN THE COMMITMENT LETTER TO WHICH
THIS SUMMARY OF TERMS IS ATTACHED AND OF WHICH IT FORMS A PART.
I. PARTIES
COMPANY The Company.
GUARANTORS Each of the Company's direct and indirect
subsidiaries (other than certain foreign
subsidiaries (the "GUARANTORS"; the Company
and the Guarantors, collectively, the "CREDIT
PARTIES").
ADVISOR, LEAD ARRANGER
AND BOOK MANAGER Lehman Brothers Inc. (in such capacity, the
"ARRANGER").
ADMINISTRATIVE AGENT Lehman Commercial Paper Inc. (in such
capacity, the "ADMINISTRATIVE AGENT").
SENIOR LENDERS A syndicate of banks, financial institutions
and other entities arranged by the
Administrative Agent after consultation with
the Company (collectively, the "SENIOR
LENDERS").
II. TYPES AND AMOUNTS OF CREDIT FACILITIES
SENIOR TERM LOAN FACILITIES Senior Term Loan Facilities (the "SENIOR TERM
LOAN FACILITIES") in an aggregate amount equal
to $125.0 million (the loans thereunder, the
"SENIOR TERM LOANS") as follows:
TRANCHE A TERM LOAN FACILITY A 6-year term loan facility (the "TRANCHE A
TERM LOAN FACILITY") in an aggregate principal
amount equal to $35.0 million (the loans
thereunder, the "TRANCHE A TERM LOANS"). The
Tranche A Term Loans shall be repayable in
quarterly installments in amounts to be agreed
upon until the date that is 6 years after the
Closing Date (as defined below).
TRANCHE B TERM LOAN FACILITY A 7 1/2-year term loan facility (tHE "TRANCHE
B Term LOAN FACILITY") in an aggregate
principal amount equal to $90.0 million (the
loans thereunder, the "TRANCHE B TERM LOANS").
The Tranche B Term
A-1
<PAGE>
Loans shall be repayable in 30 consecutive
quarterly installments in amounts to be
agreed.
AVAILABILITY The Senior Term Loans shall be made in a
single drawing on the Closing Date (as defined
below).
PURPOSE The proceeds of the Senior Term Loans shall be
used to finance the Acquisition and to pay
related fees and expenses.
REVOLVING CREDIT FACILITY 6-year revolving credit facility (the
"REVOLVING CREDIT FACILITY");
FACILITY together with the Senior Term Loan Facilities,
(the "CREDIT FACILITIES") in an aggregate
principal amount equal to $40.0 million (the
loans thereunder, the "REVOLVING CREDIT
LOANS").
AVAILABILITY The Revolving Credit Facility shall be
available on a revolving basis during the
period commencing on the Closing Date and
ending on the sixth anniversary thereof (the
"REVOLVING CREDIT TERMINATION DATE").
LETTERS OF CREDIT A portion of the Revolving Credit Facility not
in excess of $15.0 million shall be available
for the issuance of letters of credit (the
"LETTERS OF CREDIT") by a Senior Lender to be
selected in the syndication process (in such
capacity, the "ISSUING SENIOR LENDER"). No
Letter of Credit shall have an expiration date
after the earlier of (i) one year after the
date of issuance and (ii) five business days
prior to the Revolving Credit Termination
Date; PROVIDED that any Letter of Credit with
a one-year tenor may provide for the renewal
thereof for additional one- year periods
(which shall in no event extend beyond the
date referred to in clause (ii) above).
Drawings under any Letter of Credit shall be
reimbursed by the Company (whether with its
own funds or with the proceeds of Revolving
Credit Loans) on the same business day. To the
extent that the Company does not so reimburse
the Issuing Senior Lender, the Senior Lenders
under the Revolving Credit Facility shall be
irrevocably and unconditionally obligated to
reimburse the Issuing Senior Lender on a PRO
RATA basis.
SWING LINE LOANS A portion of the Revolving Credit Facility not
in excess of $5.0 million shall be available
for swing line loans (the "SWING LINE LOANS")
from a Senior Lender to be selected in the
syndication process (in
A-2
<PAGE>
such capacity, the "SWING LINE SENIOR LENDER")
on same-day notice. Any such Swing Line Loans
will reduce availability under the Revolving
Credit Facility on a dollar-for-dollar basis.
Each Senior Lender under the Revolving Credit
Facility shall acquire, under certain
circumstances, an irrevocable and
unconditional PRO RATA participation in each
Swing Line Loan.
MATURITY The Revolving Credit Termination Date.
PURPOSE The proceeds of the Revolving Credit Loans
shall be used to finance the working capital
needs of the Company and its subsidiaries in
the ordinary course of business.
III. CERTAIN PAYMENT PROVISIONS
FEES AND INTEREST RATES As set forth on Annex A-I.
OPTIONAL PREPAYMENTS AND
COMMITMENT REDUCTIONS Loans may be prepaid in minimum amounts to be
agreed upon. Optional prepayments of the
Senior Term Loans shall be applied to the
Tranche A Term Loans and the Tranche B Term
Loans ratably and to the installments thereof
ratably in accordance with the then
outstanding amounts thereof and may not be
reborrowed. Notwithstanding the foregoing, so
long as any Tranche A Term Loans are
outstanding, each holder of Tranche B Term
Loans shall have the right to refuse up to
100% of such prepayment allocable to its
Tranche B Term Loans and the amount so refused
will be applied to prepay the Tranche A Term
Loans.
MANDATORY PREPAYMENTS AND
COMMITMENT REDUCTIONS The following amounts shall be applied to
prepay the Senior Term Loans and reduce the
Revolving Credit Facility:
(a) 100% of the net proceeds of any sale,
issuance or incurrence of certain
indebtedness after the Closing Date by the
Company or any of its subsidiaries (subject
to certain carve outs to be agreed on);
PROVIDED, HOWEVER, that such net proceeds
shall first be applied to any outstanding
amounts owed to the Interim Lenders under
the Interim Loans or the Term Loans;
(a) 100% of the net proceeds of any sale or
other
A-3
<PAGE>
disposition (including as a result of
casualty or condemnation) by the Company or
any of its subsidiaries of any assets
(except for the sale of inventory in the
ordinary course of business and certain
other dispositions to be agreed on); and
(a) 75% of excess cash flow (to be defined
in a mutually satisfactory manner) for each
fiscal year of the Company (commencing with
the fiscal year in which the Closing Date
occurs); PROVIDED, HOWEVER that such amount
shall be reduced to 50% during such time
that the Maximum Leverage (to be defined)
is less than 3.0 to 1.0.
All such amounts shall be applied, FIRST, to
the prepayment of the Senior Term Loans and,
SECOND, to the permanent reduction of the
Revolving Credit Facility. Each such
prepayment of the Senior Term Loans shall be
applied to the Tranche A Term Loans and the
Tranche B Term Loans and to the installments
thereof ratably in accordance with the then
outstanding amounts thereof and may not be
reborrowed. Notwithstanding the foregoing, so
long as any Tranche A Term Loans are
outstanding, each holder of Tranche B Term
Loans shall have the right to refuse up to
100% of such prepayment allocable to its
Tranche B Term Loans and the amount so refused
will be applied to prepay the Tranche A Term
Loans.
I. COLLATERAL The obligations of each Credit Party in
respect of the Credit Facilities shall be
secured by a perfected first priority security
interest in all of its tangible and intangible
assets (including, without limitation,
intellectual property, real property and all
of the capital stock of the Company and each
of its direct and indirect domestic
subsidiaries, and 2/3 of the capital stock of
certain of its first tier foreign
subsidiaries) except (i) with respect to those
assets subject to liens in connection with
Industrial Revenue Refunding Bonds issued to
refund and redeem the bonds used to finance
the cost of the acquisition and construction
of the Company's Virginia manufacturing
facility, which shall be secured by a
perfected second priority security interest
and (ii) for those assets as to which the
Administrative Agent shall determine in its
sole discretion that the costs of obtaining
such a security interest are excessive in
relation to the value of the security to be
afforded thereby.
A-4
<PAGE>
II.CERTAIN CONDITIONS
INITIAL CONDITIONS.............. The availability of the Credit Facilities is
subject to the conditions set forth on Exhibit
C to the Commitment Letter.
ON-GOING CONDITIONS............. The making of each extension of credit shall
be conditioned upon (i) the accuracy of all
representations and warranties in the
definitive financing documentation with
respect to the Credit Facility (the "CREDIT
DOCUMENTATION") (including, without
limitation, the material adverse change and
litigation representations) and (ii) there
being no default or event of default in
existence at the time of, or after giving
effect to the making of, such extension of
credit.
III. CERTAIN DOCUMENTATION
MATTERS The Credit Documentation shall contain
representations, warranties, covenants and
events of default customary for financings of
this type and other terms deemed appropriate
by the Senior Lenders, including, without
limitation:
REPRESENTATIONS AND WARRANTIES.. Financial statements (including pro forma
financial statements); absence of undisclosed
liabilities; no material adverse change;
corporate existence; compliance with law;
corporate power and authority; enforceability
of Credit Documentation; no conflict with law
or contractual obligations; no material
litigation; no default; ownership of property;
liens; intellectual property; taxes; Federal
Reserve regulations; ERISA; Investment Company
Act; subsidiaries; environmental matters;
solvency; labor matters; accuracy of
disclosure; creation and perfection of
security interests; and Year 2000 Matters.
AFFIRMATIVE COVENANTS........... Delivery of financial statements, reports,
accountants' letters, projections, officers'
certificates and other information requested
by the Senior Lenders; payment of other
obligations; continuation of business and
maintenance of existence and material rights
and privileges; compliance with laws and
material contractual obligations; maintenance
of property and insurance; maintenance of
books and records; right of the Senior Lenders
to inspect property and books and records;
notices of defaults, litigation and other
material events; compliance with
A-5
<PAGE>
environmental laws; further assurances
(including, without limitation, with respect
to security interests in after-acquired
property); and agreement to obtain within 90
days after the Closing Date interest rate
protection in amount and upon terms to be
agreed.
FINANCIAL COVENANTS............. Financial covenants (including, without
limitation, minimum interest and fixed charge
coverage and tangible net worth and maximum
leverage).
NEGATIVE COVENANTS.............. Limitations on: indebtedness (including
preferred stock of subsidiaries); liens;
guarantee obligations; mergers,
consolidations, liquidations and dissolutions;
sales of assets; leases; dividends and other
payments in respect of capital stock; capital
expenditures; investments, loans and advances;
optional payments and modifications of
subordinated and other debt instruments;
transactions with affiliates; sale and
leasebacks; changes in fiscal year; negative
pledge clauses; changes in lines of business.
EVENTS OF DEFAULT............... Nonpayment of principal when due; nonpayment
of interest, fees or other amounts after a
grace period to be agreed upon; material
inaccuracy of representations and warranties;
violation of covenants (subject, in the case
of certain affirmative covenants, to a grace
period to be agreed upon); cross-default;
bankruptcy events; certain ERISA events;
material judgments; actual or asserted
invalidity of any guarantee or security
document, subordination provisions or security
interest; and a change of control (the
definition of which is to be agreed).
VOTING.......................... Amendments and waivers with respect to the
Credit Documentation shall require the
approval of Senior Lenders holding not less
than a majority of the aggregate amount of the
Senior Term Loans, Revolving Credit Loans
participations in Letters of Credit and
Swingline Loans and unused commitments under
the Credit Facilities, except that (i) the
consent of each Senior Lender affected thereby
shall be required with respect to (a)
reductions in the amount or extensions of the
scheduled date of amortization or final
maturity of any Loan, (b) reductions in the
rate of interest or any fee or extensions of
any due date thereof, (c) increases in the
amount or extensions of the expiry date of any
Senior Lender's commitment and (d)
modifications to the pro rata provisions of
the Credit Documentation and (ii) the consent
of 100% of
A-6
<PAGE>
the Senior Lenders shall be required with
respect to (a) modifications to any of the
voting percentages and (b) releases of all or
substantially all of the Guarantors or all or
substantially all of the collateral. In
addition, the consent of Senior Lenders
holding a majority of the aggregate amount of
the Tranche A Term Loans or the Tranche B Term
Loans, as the case may be, shall be required
with respect to certain modifications
affecting the Senior Term Loan Facilities.
ASSIGNMENTS AND PARTICIPATIONS.. The Senior Lenders shall be permitted to
assign and sell participations in their Loans
and commitments, subject, in the case of
assignments (other than assignments (i) by the
Administrative Agent, (ii) to another Senior
Lender or to an affiliate of a Senior Lender
or (iii) of funded Senior Term Loans), to the
consent of the Administrative Agent and the
Company (which consent in each case shall not
be unreasonably withheld). Non-pro rata
assignments shall be permitted. In the case of
partial assignments (other than to another
Senior Lender or to an affiliate of a Senior
Lender), the minimum assignment amount shall
be $5.0 million, and, after giving effect
thereto, the assigning Senior Lender shall
have commitments and Loans aggregating at
least $2.5 million, in each case unless
otherwise agreed by the Company, and the
Administrative Agent. Participants shall have
the same benefits as the Senior Lenders with
respect to yield protection and increased cost
provisions. Voting rights of participants
shall be limited to those matters with respect
to which the affirmative vote of the Senior
Lender from which it purchased its
participation would be required as described
under "Voting" above. Pledges of Loans in
accordance with applicable law shall be
permitted without restriction. Promissory
notes shall be issued under the Credit
Facilities only necessary to upon request.
YIELD PROTECTION................ The Credit Documentation shall contain
customary provisions (i) protecting the Senior
Lenders against increased costs or loss of
yield resulting from changes in reserve, tax,
capital adequacy and other requirements of law
and from the imposition of or changes in
withholding or other taxes and (ii)
indemnifying the Senior Lenders for "breakage
costs" incurred in connection with, among
other things, any prepayment of a Eurodollar
Loan (as defined in
A-7
<PAGE>
Annex A-I) on a day other than the last day of
an interest period with respect thereto.
EXPENSES AND INDEMNIFICATION ... The Company shall pay (i) all reasonable
out-of- pocket expenses of the Administrative
Agent and the Arranger associated with the
syndication of the Credit Facilities and the
preparation, execution, delivery and
administration of the Credit Documentation and
any amendment or waiver with respect thereto
(including the reasonable fees, disbursements
and other charges of counsel) and (ii) all
out-of-pocket expenses of the Administrative
Agent and the Senior Lenders (including the
fees, disbursements and other charges of
counsel) in connection with the enforcement of
the Credit Documentation.
The Administrative Agent, the Arranger and the
Senior Lenders (and their affiliates and their
respective officers, directors, employees,
advisors and agents) will have no liability
for, and will be indemnified and held harmless
against, any loss, liability, cost or expense
incurred in respect of the financing
contemplated hereby or the use or the proposed
use of proceeds thereof (except to the extent
resulting from the gross negligence or willful
misconduct of the indemnified party).
GOVERNING LAW AND FORUM......... State of New York.
SENIOR LENDERS' COUNSEL......... Latham & Watkins.
A-8
<PAGE>
ANNEX A-I
INTEREST AND CERTAIN FEES
INTEREST RATE OPTIONS............. The Company may elect that the Loans
comprising each borrowing bear interest at
a rate PER ANNUM equal to:
(i) the Base Rate plus the Applicable
Margin; or
(ii) the Eurodollar Rate plus the
Applicable Margin.
PROVIDED, that all Swing Line Loans shall
bear interest based upon the Base Rate.
As used herein:
"BASE RATE" means the highest of (i) the
rate of interest publicly announced by
Bankers Trust Company as its prime rate in
effect at its principal office in New York
City (the "PRIME RATE"), (ii) the
secondary market rate for three-month
certificates of deposit (adjusted for
statutory reserve requirements) PLUS 1%
and (iii) the federal funds effective rate
from time to time PLUS 0.5%. "APPLICABLE
MARGIN" means a percentage determined in
accordance with the pricing grid attached
hereto as Annex A-II. "EURODOLLAR RATE"
means the rate (adjusted for statutory
reserve requirements for eurocurrency
liabilities) at which eurodollar deposits
for one, two, three or six months (as
selected by the Company) are offered in
the interbank eurodollar market.
INTEREST PAYMENT DATES............ In the case of Loans bearing interest
based upon the Base Rate ("BASE RATE
LOANS"), quarterly in arrears. In the case
of Loans bearing interest based upon the
Eurodollar Rate ("EURODOLLAR LOANS"), on
the last day of each relevant interest
period and, in the case of any interest
period longer than three months, on each
successive date three months after the
first day of such interest period.
COMMITMENT FEES................... The Company shall pay a commitment fee
calculated at the applicable rate PER
ANNUM set forth in Annex A-II on the
average daily unused portion of the
Revolving Credit Facility, payable
quarterly in arrears. Swing Line Loans
shall, for purposes of the commitment fee
calculations only, not be deemed to be a
utilization of the Revolving Credit
Facility.
LETTER OF CREDIT FEES............. The Company shall pay a commission on all
outstanding Letters of Credit at a PER
ANNUM rate equal to the
A-I-1
<PAGE>
Applicable Margin then in effect with
respect to Eurodollar Loans on the face
amount of each such Letter of Credit. Such
commission shall be shared ratably among
the Senior Lenders participating in the
Revolving Credit Facility and shall be
payable quarterly in arrears.
In addition to letter of credit
commission, a fronting fee calculated at a
rate PER ANNUM to be agreed upon by the
Company and the Issuing Bank on the face
amount of each Letter of Credit shall be
payable quarterly in arrears to the
Issuing Senior Lender for its own account.
In addition, customary administrative,
issuance, amendment, payment and
negotiation charges shall be payable to
the Issuing Senior Lender for its own
account.
DEFAULT RATE...................... At any time when the Company is in default
in the payment of any amount of principal
due under the Credit Facilities, such
amount shall bear interest at 2% above the
rate otherwise applicable thereto. Overdue
interest, fees and other amount shall bear
interest at 2% above the rate applicable
to Base Rate Loans.
RATE AND FEE BASIS................ All PER ANNUM rates shall be calculated on
the basis of a year of 360 days (or 365
days, in the case of Base Rate Loans the
interest rate payable on which is then
based on the Prime Rate) and the actual
number of days elapsed.
A-I-2
<PAGE>
ANNEX A-II
PRICING GRID - SENIOR TERM LOANS AND REVOLVING CREDIT LOANS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Ratio of Applicable Margin- Commitment Applicable Margin- Base Rate
Total Eurodollar Loans[2] Fee[2] Loans[2]
Debt to
EBITDA(1)
- --------------------------------------------------------------------------------
Tranche A Tranche B Tranche A & Tranche B
& Revolver Revolver
<S> <C> <C> <C> <C> <C>
> 4.0 : 1.0 3.25% 3.50% 0.50% 2.25% 2.50%
- -
> 3.0 : 1.0 3.00% 3.50% 0.50% 2.00% 2.50%
- -
< 3.0 : 1.0 2.50% 3.50% 0.375% 1.50% 2.50%
</TABLE>
(1) This ratio shall be calculated based on the total debt and EBITDA of
O'Sullivan Industries, Inc. and its subsidiaries and shall exclude all debt of
O'Sullivan Industries Holdings, Inc., including the Senior Discount Notes due
2009 yielding gross proceeds of $25.0 million.
(2) Notwithstanding the foregoing grid, the Applicable Margin and Commitment Fee
Rate for Tranche A Term Loans and the Revolving Credit Loans for the period from
the Closing Date until the date of delivery to the Administrative Agent of the
Company's financial statements for the first two fiscal quarters following the
Closing Date will be 3.25% (Eurodollar Rate Loans), 2.25% (Base Rate Loans) and
0.50% (Commitment Fee Rate) respectively.
A-II-1
<PAGE>
EXHIBIT B TO COMMITMENT LETTER
SUMMARY OF TERMS OF INTERIM LOANS
SET FORTH BELOW IS A SUMMARY OF CERTAIN OF THE TERMS OF THE INTERIM LOANS
AND THE INTERIM LOAN AGREEMENT. CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS SET FORTH IN THE COMMITMENT LETTER TO WHICH THIS
SUMMARY OF TERMS IS ATTACHED AND OF WHICH IT FORMS A PART.
COMPANY The Company.
ARRANGER Lehman Brothers.
ADMINISTRATIVE AGENT AND
DOCUMENTATION AGENT LCPI.
LOANS $135.0 million of Increasing Rate Loans due
2000 (the "INTERIM LOANS").
SUBORDINATION The Interim Loans and all obligations with
respect thereto will be subordinated in right
of payment to the payment in full of all
obligations of the Company under the Credit
Facilities and certain refinancings thereof on
terms satisfactory to the Lenders in their sole
discretion. The Company will not be permitted
to incur any indebtedness that is subordinated
to any borrowings under the Credit Facilities
and senior to any other indebtedness of the
Company. Nothing in the subordination
provisions will prevent any holder of Interim
Loans from receiving and retaining any proceeds
originally received by the Company or any
subsidiary of the Company that were used to
repay Interim Loans to the extent required
under the "Mandatory Repayment" provision
described below, and the same may be retained
by such holder free and clear of any claims by
holders of any debt, pursuant to these
subordination provisions or otherwise.
USE OF PROCEEDS Proceeds from the Interim Loans will be used to
fund, in part, the Acquisition.
MATURITY 365 days from the date of initial funding (the
"MATURITY DATE"). The initial date of funding
of the Interim Loans is hereinafter referred to
as the "CLOSING DATE," which shall be no later
than November 30, 1999.
MANDATORY ROLLOVER If (i) the Interim Loans are not repaid in full
on or prior to the Maturity Date and (ii) the
conditions precedent set forth in Exhibit B to
the Commitment Letter are satisfied, then the
Interim Loans will be automatically extended on
the Maturity Date into Term Loans due 2009 of
the Company (the "TERM LOANS") in an aggregate
principal amount equal to the
B-1
<PAGE>
aggregate principal amount of Interim Loans so
extended. The Term Loans will have the terms
set forth in Annex B-I to the Commitment
Letter. Under certain circumstances, Term Loans
may be exchanged by the holders thereof for
Exchange Notes. The Exchange Notes will have
the Terms set forth in Annex B-I to the
Commitment Letter. The Exchange Notes will be
issued, undated, on the Closing Date and placed
in an escrow account and held by a mutually
agreeable fiduciary pending such exchange.
INTEREST The Interim Loans will bear interest at a
variable PER ANNUM rate equal to the sum of (i)
a base rate to be selected by the Company on
the date of funding equal to either (a) the
one- or three-month London Interbank Offered
Rate, reset monthly or quarterly, as the case
may be (the "LIBOR RATE"), or (b) the Base Rate
(as defined in the Credit Facilities Term
Sheet), in each case calculated on the basis of
the actual number of days elapsed in a year of
360 days, plus (ii) a spread (the "SPREAD")
equal to (a) 600 basis points in case of the
LIBOR Rate or (b) 500 basis points in case of
the Base Rate. The Spread will increase by 50
basis points upon each 90-day anniversary of
the date of funding of the Interim Loans. The
interest rate on the Interim Loans (i) will not
at any time exceed 18% PER ANNUM and (ii) will
not at any time be less than 11% PER ANNUM. To
the extent that the total interest payable on
the Interim Loans on any interest payment date
exceeds 14% PER ANNUM, the Company shall have
the option to pay such excess interest by
capitalizing such interest as additional
Interim Loans. Interest will be payable
quarterly, in arrears, on the Maturity Date and
on the date of any prepayment of the Interim
Loans. Notwithstanding the limitations set
forth in this paragraph, interest will accrue
on any overdue amount (whether interest or
principal, including default interest), to the
extent lawful, at a rate PER ANNUM equal to 200
basis points over the then current interest
rate on the Interim Loans, until such amount
(plus all accrued and unpaid interest) is paid
in full. For Interim Loans outstanding after
the Maturity Date, interest will be payable on
demand at the default rate.
GUARANTEES The Interim Loans will be guaranteed by each
affiliate of the Company that guarantees all or
a portion of the indebtedness under the Credit
Facilities (the "GUARANTORS"). A subsidiary's
guarantee will be released upon the sale of
such subsidiary, subject to use of the proceeds
therefrom to repay Interim Loans and/or
borrowings under the Credit Facilities.
MANDATORY REPAYMENT The Company will repay Interim Loans
with the net proceeds from (i) any direct or
indirect public offering or private placement
of the Notes, the High Yield Securities or any
other
B-2
<PAGE>
debt securities of the Company or any of the
Company's subsidiaries or any equity securities
of the Company or any direct or indirect parent
holding company of the Company, (ii) the
incurrence of any other indebtedness by the
Company or any subsidiary of the Company or any
direct or indirect parent holding company of
the Company (other than under the Credit
Facilities and certain permitted indebtedness
as in effect on the Closing Date) and (iii) any
future issuances or sales of stock of
subsidiaries or sales of assets (subject to
customary ordinary course exceptions) by the
Company or any subsidiary of the Company,
subject, in the case of clauses (ii) and (iii)
only, to the required prior repayment of any
amount outstanding under the Credit Facilities,
in each case at 100% of the principal amount of
the Interim Loans repaid, plus accrued fees and
all accrued and unpaid interest and fees to the
date of the repayment.
CHANGE OF CONTROL Each holder of Interim Loans will be entitled
to require the Company, and the Company must
offer, to repay the Interim Loans held by such
holder at a price of 101% of principal amount,
plus accrued fees and all accrued and unpaid
interest to the date of repayment, upon the
occurrence of a Change of Control (as defined
in the Interim Loan Agreement).
OPTIONAL REPAYMENT The Interim Loans may be repaid, in whole or in
part on a pro rata basis, at the option of the
Company at any time upon five business days'
prior written notice at a price equal to 100%
of the principal amount thereof, plus accrued
fees and all accrued and unpaid interest to the
date of repayment.
PAYMENTS Payments by the Company will be made by wire
transfer of immediately available funds.
TRANSFERABILITY With the consent of the Administrative Agent
(which consent shall not be unreasonably
withheld) (other than in the case of transfers
or sales to Permitted Assignees pursuant to
which no consent is required), each of the
Interim Lenders will be free to sell or
transfer all or any part of its Interim Loans
to any third party and to pledge any or all of
the Interim Loans to any commercial bank or
other institutional lender. Participations will
not require the consent of the Company or the
Administrative Agent.
AMENDMENTS Modifications to the terms of the Interim Loan
Agreement may be made with the consent of the
holders of a majority in aggregate principal
amount of the Interim Loans then outstanding,
except that without the consent of each holder
of Interim Loans affected thereby, no
modification or change may (i) extend the
maturity or time of payment of interest of any
Interim Loans, (ii) reduce the rate of interest
or the principal amount of any Interim Loans,
(iii) alter the repayment
B-3
<PAGE>
provisions of the Interim Loans, (iv) change
the subordination provisions in a manner that
would adversely affect the holders of the
Interim Loans or (v) reduce the percentage of
holders necessary to modify or change the
Interim Loans.
COST AND YIELD PROTECTION The Interim Lenders shall receive cost and
yield protection customary for facilities and
transactions of this type, including but not
limited to breakage costs incurred in
connection with any repayment of the Interim
Loans on a day other than the last day of an
interest period, compensation in respect of
prepayments, taxes (including but not limited
to gross-up provisions for withholding taxes
imposed by any domestic or foreign governmental
authority, including taxes relating to gross-up
payments), changes in capital requirements,
guidelines or policies or their interpretation
or application, illegality, change in
circumstances, reserves and other provisions
deemed necessary by the Interim Lenders to
provide customary protection for U.S. and
non-U.S. financial institutions.
REPRESENTATIONS AND
WARRANTIES The Interim Loan Agreement will contain such
representations and warranties of the Company
and the Guarantors as are customary for
financings of this kind or deemed appropriate
by the Interim Lenders for this transaction in
particular (in their sole discretion).
COVENANTS The Interim Loan Agreement will contain such
covenants of the Company and the Guarantors as
are usual and customary for financings of this
kind or as are otherwise deemed appropriate by
the Interim Lenders for this transaction in
particular (in their sole discretion).
CONDITIONS PRECEDENT The obligation of each of the Interim Lenders
to provide or cause one of its affiliates to
provide the Interim Loans will be subject to
the conditions set forth on Annex C to the
Commitment Letter.
EVENTS OF DEFAULT; REMEDIES The Interim Loan Agreement will contain such
events of default as are customary for
financings of this kind or deemed appropriate
by the Interim Lenders for this transaction in
particular (in their sole discretion),
including, without limitation, compliance with
the Interim Loan Fee Letter. If the Company or
the Sponsor fails to comply with the provisions
of the Interim Loan Fee Letter in any material
respect at any time, then the Interim Lenders
shall be entitled to unilaterally amend the
provisions of the Interim Loan Agreement (and
related documents) relating to interest rate,
optional redemption, maturity, the issuance of
warrants and registration rights so as to
reflect the terms of the High Yield Securities
and warrants that would have been issued in
accordance with the Interim Loan Fee Letter had
the Company and the Sponsor complied
B-4
<PAGE>
therewith.
GOVERNING LAW State of New York.
INTERIM LENDERS' COUNSEL Latham & Watkins.
B-5
<PAGE>
ANNEX B-I
SUMMARY OF TERMS OF TERM LOANS AND EXCHANGE NOTES
CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE THE MEANINGS ASSIGNED
TO THEM IN THE COMMITMENT LETTER TO WHICH THIS ANNEX B-I IS ATTACHED.
COMPANY....................... The Company.
TERM LOANS.................... On the Maturity Date, subject to satisfaction
of the conditions set forth below, the
outstanding Interim Loans will be automatically
extended into Term Loans. The Term Loans will
be governed by the provisions of the Interim
Loan Agreement and, except as expressly set
forth below, shall have the same terms as the
Interim Loans.
EXCHANGE NOTES................ At any time on or after the Maturity Date, a
holder of Term Loans may exchange, in
connection with the transfer of a Term Loan to
any person other than a person who was an
Interim Lender on the Maturity Date and with
the consent of the Administrative Agent, all or
a portion of the Term Loans to be transferred
for Exchange Notes having a principal amount
equal to the principal amount of the Term Loan
for which it is exchanged and having a fixed
interest rate equal to the interest rate on the
Term Loan at the time of transfer. The Company
will issue Exchange Notes under an indenture
that complies with the Trust Indenture Act of
1939, as amended (the "INDENTURE"). The Company
will appoint a trustee reasonably acceptable to
the Administrative Agent. The Exchange Notes
and the Indenture will be fully executed and
deposited into escrow on the Closing Date.
MATURITY...................... The Term Loans and the Exchange Notes will
mature on the ninth anniversary of the Maturity
Date (the "FINAL MATURITY DATE").
CONDITIONS PRECEDENT.......... The obligation of each of the Interim Lenders
to convert the Interim Loans to Term Loans will
be subject to the following conditions:
1. NO DEFAULTS. No event of default, or
event which with the giving of notice or the
lapse of time, or both, would become an
Event of Default shall have occurred and be
continuing under the Interim Loan Agreement,
the Engagement Letter, the Fee Letter or any
other document executed in connection
therewith (collectively, the "INTERIM LOAN
DOCUMENTATION") and no payment default shall
have occurred and be continuing under the
Credit Facilities.
1. PAYMENT OF FEES AND ACCRUED INTEREST. The
Company shall
B-I-1
<PAGE>
have paid in immediately available funds all
accrued and unpaid interest with respect to
the Interim Loans and all fees then due and
owing, in accordance with the terms of the
Interim Loan Documentation.
1. SHELF REGISTRATION. The Shelf
Registration Statement (as defined under the
heading "Registration Rights" below) with
respect to the Exchange Notes shall have
been filed with the Securities and Exchange
Commission.
INTEREST RATE................. The Term Loans will bear interest at an
increasing rate equal to the Initial Rollover
Rate plus the Rollover Spread (as defined
below). The interest rate on the Term Loans in
effect at any time shall not exceed 18% PER
ANNUM or be less than 13.5% PER ANNUM. To the
extent interest payable on the Term Loans on
any quarterly interest payment date is at a
rate that exceeds 14% PER ANNUM, the Company
shall have the option to pay such excess
interest by capitalizing such interest as
additional Term Loans. Notwithstanding the
limitations set forth in this paragraph,
interest will accrue on any overdue amount
(whether interest or principal, including
defaulted interest), to the extent lawful, at a
rate PER ANNUM equal to 200 basis points over
the then current interest rate, until such
amount (plus all accrued and unpaid interest)
is paid in full.
"INITIAL ROLLOVER RATE" shall be determined as
of the Maturity Date of the Interim Loans and
shall equal the interest rate borne by the
Interim Loans on the day immediately preceding
the Maturity Date.
"ROLLOVER SPREAD" shall be 50 basis points
during the 90-day period commencing on the
Maturity Date. The Rollover Spread shall
increase by 50 basis points upon each 90-day
anniversary of the Maturity Date.
Interest on the Term Loans and Exchange Notes
will be payable quarterly in arrears on the
first business day of each fiscal quarter of
the Company, on the Maturity Date of the Term
Loans and Exchange Notes and on the date of any
prepayment thereof.
SUBORDINATION................. Same as Interim Loans.
GUARANTEES.................... Same as Interim Loans.
MANDATORY REPAYMENT........... Same as Interim Loans.
CHANGE OF CONTROL............. Same as Interim Loans.
OPTIONAL REPAYMENT............ Except as set forth below, the Term Loans may
be repaid or redeemed, in whole or in part, at
the option of the Company at any time upon five
business days' prior written notice at a price
equal to 100% of the principal amount thereof,
plus accrued fees
B-I-2
<PAGE>
and all accrued and unpaid interest to the date
of repayment. The Exchange Notes will be
redeemable at any time, in whole or in part, at
the option of the Company, subject to a
customary make-whole premium of treasuries plus
50 basis points.
YIELD PROTECTION.............. Same as Interim Loans.
PAYMENTS...................... Same as Interim Loans.
COVENANTS..................... Same as Interim Loans, in the case of the Term
Loans. The Exchange Notes will have covenants
customary for an indenture governing a high
yield note issue (but more restrictive in
certain respects, as determined by the
Administrative Agent in its sole discretion).
EVENTS OF DEFAULT............. Same as Interim Loans, in the case of the Term
Loans. The Exchange Notes will have events of
default that are customary for an indenture
governing a high yield note issue (but more
restrictive in certain respects, as determined
by the Administrative Agent in its sole
discretion).
TRANSFERABILITY............... Unlimited except as otherwise provided by law.
DEFEASANCE PROVISIONS......... None with respect to Term Loans. The Exchange
Notes will have defeasance provisions customary
for high yield securities.
AMENDMENTS.................... Same as Interim Loans.
REGISTRATION RIGHTS........... Prior to the Maturity Date, the Company will be
required to file a shelf registration statement
with respect to the Exchange Notes (a "SHELF
REGISTRATION STATEMENT"). The filing of the
Shelf Registration Statement will be a
condition precedent to the extension of Interim
Loans to Term Loans. The Company and the
Guarantors, jointly and severally, will pay
liquidated damages in the form of increased
interest of 50 basis points on the principal
amount of Exchange Notes outstanding to holders
of Exchange Notes (i) if the Shelf Registration
Statement is not declared effective by the SEC
within 60 days of the Maturity Date, until such
Shelf Registration Statement is declared
effective, and (ii) during any period of time
(subject to customary exceptions) following the
effectiveness of the Shelf Registration
Statement that such Shelf Registration
Statement is not available for sales
thereunder. After 12 weeks, the liquidated
damages shall increase by 50 basis points, and
shall increase by 50 basis points for each
12-week period thereafter to a maximum increase
in interest of 200 basis points (such damages
to be payable in the form of additional
Exchange Notes, if the interest rate thereon
exceeds 14% PER ANNUM). In addition, unless and
until the Company has caused the Shelf
Registration Statement to become effective, the
holders of the Exchange Notes will have the
right to "piggy-back" in the registration of
B-I-3
<PAGE>
any debt or preferred equity securities
(subject to customary scale-back provisions)
that are registered by the Company (other than
on a Form S-4) unless all the Exchange Notes
will be redeemed or repaid from the proceeds of
such securities. The Company will be required
to effect an "A/B" exchange offer to all
holders of Exchange Notes within 60 days of the
issuance of the Exchange Notes if the holders
of a majority in principal amount of the
Exchange Notes then outstanding so request.
B-I-4
<PAGE>
EXHIBIT C TO COMMITMENT LETTER
FUNDING CONDITIONS
CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE THE MEANINGS ASSIGNED TO THEM
IN THE COMMITMENT LETTER TO WHICH THIS EXHIBIT C IS ATTACHED AND OF WHICH IT
FORMS A PART. THE AVAILABILITY OF THE INTERIM LOANS AND THE CREDIT FACILITIES IS
CONDITIONED UPON SATISFACTION OF, AMONG OTHER THINGS, THE CONDITIONS PRECEDENT
SUMMARIZED BELOW (THE DATE UPON WHICH ALL SUCH CONDITIONS PRECEDENT SHALL BE
SATISFIED AND THE INTERIM LOANS AND CREDIT FACILITIES WILL BE FUNDED, THE
"CLOSING DATE") ON OR BEFORE NOVEMBER 30, 1999.
2. Each Credit Party shall have executed and delivered definitive financing
documentation with respect to the Interim Loans and the Credit Facilities
in form and substance satisfactory to the Lenders containing the terms and
conditions described herein and other terms and conditions customary for
similar transactions and the conditions thereto shall have been satisfied,
including lien searches, solvency opinions, environmental reports and
legal opinions.
3. There shall not exist (PRO FORMA for the Acquisition and the financing
thereof) any default or event of default under the Credit Facilities, the
Interim Loan Agreement or under any other material indebtedness or
agreement of the Company or the Acquired Business.
4. The Company shall have received (i) up to $58.9 million in cash or
contributed capital from the issuance or retention of its equity
securities to the Sponsor, its affiliates, or by members of the management
of the Acquired Business and (ii) and shall have issued $24.7 million of
its preferred stock, in each case, on terms satisfactory to the Lenders it
being understood that the terms and conditions on Exhibit A to the
Sponsor's bid letter dated April 30, 1999 are satisfactory. The capital
structure of each Credit Party after the Acquisition shall be as described
in the Commitment Letter.
5. The Acquisition shall have been consummated for an aggregate purchase
price not exceeding $358.1 million (including fees and expenses not
exceeding $24.5 million in the aggregate) pursuant to documentation
satisfactory to the Lenders, and no provision thereof shall have been
waived, amended, supplemented or otherwise modified.
6. The Sponsor and the Company shall have complied with all of their
obligations under and agreements in the Commitment Letter, the Engagement
Letter and the Fee Letters, including without limitation, their
obligations with respect to the marketing of High Yield Securities.
7. There shall not have occurred or become known to the Lenders any event,
development or circumstance that has caused or could reasonably be
expected to cause a material adverse condition or material adverse change
in or affecting (i) the Acquisition, (ii) the condition (financial or
otherwise), results of operation, assets, liabilities, management,
prospects or value of the Company and its subsidiaries, taken as a whole,
or the Acquired Business and its subsidiaries, taken as a whole, or that
calls into question in any material respect the projections previously
supplied to the Lenders or any of the material assumptions on which the
projections were prepared or (iii) the validity or enforceability of any
of the Credit Documentation or the documents relating to the Interim Loans
or the rights and remedies of the Administrative Agent and the Lenders
thereunder. The Lenders hereby acknowledge that the decisions in the
litigation with Tandy Corporation since April 30, 1999 do not in and of
themselves constitute such a material adverse change.
C-1
<PAGE>
8. There shall not have occurred any material adverse change, as determined
by the Lenders in their sole discretion, since October 14, 1999, in the
financial or capital markets generally, or in the markets for bank loan or
bridge loan syndication, or high yield debt in particular or affecting the
syndication or funding of bank loans or bridge loans (or the refinancing
thereof) that may have a material adverse impact on the ability to sell or
place the Notes or the High Yield Securities or to syndicate the Credit
Facilities or the Interim Loans.
9. All governmental and third party approvals (including landlords' and other
consents) necessary or, in the discretion of the Administrative Agent,
advisable in connection with the Acquisition, the financing contemplated
hereby and the continuing operations of the Company and its subsidiaries
shall have been obtained and be in full force and effect, and all
applicable waiting periods shall have expired without any action being
taken or threatened by any competent authority that would restrain,
prevent or otherwise impose adverse conditions on the Acquisition or the
financing thereof.
10. The Lenders shall have received audited and unaudited financial statements
of the Company, the Guarantors and the Acquired Business and all other
completed or probable acquisitions (including pro forma financial
statements) meeting the requirements of Regulation S-X for a form S-1
registration statement under the Securities Act of 1933, as amended,
including an audit of the twelve months ended June 30, 1999 of the
Acquired Business, and all such financial statements shall be satisfactory
in form to the Lenders.
C-2
<PAGE>
Exhibit 99(a)(2)
October 17, 1999
OSI Acquisition, Inc.
c/o Bruckmann, Rosser, Sherrill & Co. II, L.P.
126 East 56th Street, 29th Floor
New York, NY 10022
Dear Sirs:
This letter will confirm the commitment of Bruckmann, Rosser,
Sherrill & Co., L.P. ("BRS" or "us"), and its affiliates to purchase or cause
others to purchase from O'Sullivan Industries Holdings, Inc., a Delaware
corporation ("O'Sullivan"), senior discount notes due 2009 yielding gross
proceeds of $25.0 million (the "Senior Discount Notes"). The proceeds to
O'Sullivan from the purchase of the Senior Discount Notes will be used to
provide a portion of the financing for the acquisition of O'Sullivan pursuant to
the Agreement and Plan of Merger (as defined below).
Our commitment is subject to (i) the satisfaction, or waiver by you,
of the conditions to your obligations contained in an agreement and plan of
merger dated May 17, 1999 between Newco and O'Sullivan, as amended (the
"Agreement and Plan of Merger"), (ii) O'Sullivan receiving the cash proceeds of
financings which, together with the proceeds from the purchase of the Senior
Discount Notes, are sufficient to consummate the transactions contemplated by
the Agreement and Plan of Merger (the "Merger"), satisfy all fees and expenses
to be paid in connection with the Merger and to provide for the ongoing working
capital needs of the Company subsequent to the consummation of the Merger, all
on terms and conditions acceptable to BRS (it being understood that the terms
and conditions specifically set forth in the Commitment Letters (as defined in
the Agreement and Plan of Merger) are satisfactory to BRS), and (iii) the
contemporaneous closing of the Merger.
This commitment will be effective upon your acceptance of the terms
and conditions of this letter and will expire on the earlier to occur of (i) the
termination of the Agreement and Plan of Merger and (ii) November 30, 1999.
<PAGE>
October 17, 1999
Page 2
EXECUTION COPY
Nothing in this Agreement is intended, nor shall anything herein be
construed, to confer any rights, legal or equitable, in any person other than
you and O'Sullivan, which is expressly made a third party beneficiary hereof.
* * *
<PAGE>
October 17, 1999
Page 3
EXECUTION COPY
Please confirm the above agreement by signing and returning to me a
copy of this letter.
Very truly yours,
Bruckmann, Rosser, Sherrill & Co. II, L.P.
By: /s/ Stephen F. Edwards
______________________________
Stephen F. Edwards
Managing Director
Accepted as of the date
first above written:
OSI Acquisition, Inc.
By: /s/ Stephen F. Edwards
______________________________
Name: Stephen F. Edwards
Title: President
<PAGE>
O'Sullivan Industries Holdings, Inc.
Confidential
Presentation to:
O'Sullivan Industries Holdings, Inc.
The Board of Directors
October 18, 1999
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
Confidential Material
The following pages contain material that was provided to Salomon Smith Barney
by O'Sullivan Industries Holdings, Inc. ("O'Sullivan" or the "Company") in the
context of examining a potential transaction involving O'Sullivan. The
accompanying material was compiled or prepared on a confidential basis solely
for use by the Board of Directors of O'Sullivan (the "Board") and not with a
view toward public disclosure under any securities laws or otherwise. The
information utilized in preparing this material was obtained from management,
public and other sources. Any estimates and projections for O'Sullivan contained
herein have been prepared or approved by O'Sullivan's management or are based on
public sources, or are based upon such estimates and projections, and involve
numerous and significant subjective determinations, which may or may not prove
to be correct. No representation or warranty, express or implied, is made as to
the accuracy or completeness of such information and nothing contained herein
is, or shall be relied upon as, a representation whether as to the past or the
future. Because this material was prepared for use in the context of an oral
presentation to the Board, which is familiar with the business and the affairs
of O'Sullivan, neither O'Sullivan nor Salomon Smith Barney nor any of their
respective legal or financial advisors or accountants takes any responsibility
for the accuracy or completeness of any of the material if used by persons other
than the Board. Neither O'Sullivan nor Salomon Smith Barney undertakes any
obligation to update or otherwise revise the accompanying materials.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Table of Contents
1 OVERVIEW OF PROCESS
2 TRANSACTION SUMMARY
3 HISTORICAL TRADING ANALYSIS
4 VALUATION SUMMARY
APPENDIX
A. VALUATION OF PIK PREFERRED
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
1 OVERVIEW OF PROCESS
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
OVERVIEW OF PROCESS
[GRAPHIC OMITTED]
(1) Indications of interest as of May, 1999
(2) Consisting of $16.75 in cash and $1.50 in preferred stock. Preferred stock
valued at approximately $0.60 (approximately 40% of face) and total
consideration valued at $17.35.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
2
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
2 TRANSACTION SUMMARY
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
TRANSACTION OVERVIEW
<TABLE>
<CAPTION>
$ in millions
- --------------------------------------------------------------------------------
SUMMARY
<S> <C> <C>
Consideration (a) $18.25 ($16.75 in cash and $1.50 in 12% PIK non-voting preferred stock)
Enterprise Valuation (a) $17.35 Consideration Value / Share
17.6 Fully Diluted Shares
---------- ----------------------------
307 Market Cap
(16) Less: Options Proceeds
---------- ----------------------------
291 Equity Value
22 Net Debt
---------- ----------------------------
$313 Enterprise Value
Structure / Accounting One-Step Merger / Recapitalization
Debt Financing Commitments: $125 million senior arranged by Lehman
$10 million existing debt assumed
$110 million senior subordinated managed by Lehman
plus unfunded $40 million revolver (Lehman)
$25 million Holding Company discount notes
$24.5 million PIK Preferred
Equity Financing Commitments: $59 million provided by BRS and members of management
Primarily conditioned upon Company
compliance with agreement and funding of
debt commitment [Debt funding commitments
based on no material adverse change from
current market conditions]
Timing 1 to 2 months depending upon SEC review process
Break-up Fee $9.5 million plus expenses reimbursement (up to $2.0 million)
</TABLE>
(a) Assumes preferred stock valuation of approximately 40% of face value and
total consideration valuation of approximately $17.35.
Source: Unless otherwise stated, financial information from O'Sullivan.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
4
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
B.R.S. Proposed Capital Structure
- --------------------------------------------------------------------------------
Sources
$125 million senior debt financing *
$10 million existing debt assumed
$110 million senior subordinated financing
$25 million Holding Company discount notes
$24.5 million of PIK Preferred stock
$59 million equity from BRS and management
================================================================================
$353.5 million total sources
- --------------------------------------------------------------------------------
Sources
$306 million to Company's equity holders:
- $281 million in cash (net of $15.7 million of option proceeds); and
- $25 million in PIK Preferred Stock
$22.5 million repayment/assumption of existing net indebtedness
$25 million fees and expenses
================================================================================
$353.5 million total uses
- --------------------------------------------------------------------------------
- ----------
*Does not includea a $40 million revolving credit facility which will remain
undrawn at closing.
Source: BRS financing commitments as of October 17, 1999 rounded to nearest
half million.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
5
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
3 HISTORICAL TRADING ANALYSIS
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Historical Stock Price Performance - LTM
DAILY DATA: OCTOBER 15, 1998 THROUGH OCTOBER 15, 1999
Date Price Volume
19981015 $9.31 67.2
19981016 $9.94 31.5
19981019 $10.19 43.0
19981020 $10.19 20.6
19981021 $10.56 29.2
19981022 $10.56 42.8
19981023 $10.81 9.2
19981026 $10.94 44.3
19981027 $10.94 5.5
19981028 $11.06 24.3
19981029 $10.88 9.3
19981030 $10.94 16.0
19981102 $10.44 24.0
19981103 $10.75 9.6
19981104 $10.88 5.0
19981105 $11.00 20.0
19981106 $11.13 7.4
19981109 $10.94 10.3
19981110 $10.81 3.3
19981111 $10.88 36.1
19981112 $10.75 7.4
19981113 $10.06 43.6
19981116 $10.00 50.6
19981117 $10.13 15.0
19981118 $9.88 9.7
19981119 $10.13 6.0
19981120 $9.94 4.0
19981123 $9.63 49.6
19981124 $9.75 88.6
19981125 $9.69 5.6
19981127 $9.69 1.8
19981130 $10.06 24.0
19981201 $10.25 9.3
19981202 $10.19 17.9
19981203 $9.81 17.0
19981204 $9.56 35.2
19981207 $9.63 39.0
19981208 $9.69 8.6
19981209 $9.69 8.8
19981210 $9.75 7.4
19981211 $9.81 6.5
19981214 $9.44 21.5
19981215 $9.50 47.5
19981216 $9.44 11.3
19981217 $9.56 14.0
19981218 $10.31 33.2
19981221 $10.44 47.2
19981222 $10.63 30.9
19981223 $10.56 35.9
19981224 $10.50 1.7
19981228 $10.44 24.7
19981229 $10.50 19.8
19981230 $10.63 23.6
19981231 $10.50 17.3
19990104 $10.00 130.0
19990105 $10.19 99.3
19990106 $10.38 89.6
19990107 $10.88 64.6
19990108 $10.81 51.6
19990111 $10.94 43.4
19990112 $10.81 12.1
19990113 $10.63 35.0
19990114 $10.75 27.1
19990115 $11.00 11.4
19990119 $11.88 68.1
19990120 $12.38 142.8
19990121 $11.75 28.7
19990122 $11.81 37.0
19990125 $12.25 32.4
19990126 $12.50 26.0
19990127 $12.56 40.2
19990128 $12.75 33.9
19990129 $12.75 40.0
19990201 $12.88 19.4
19990202 $12.81 14.1
19990203 $12.19 17.5
19990204 $12.06 10.0
19990205 $11.75 27.8
19990208 $12.00 26.1
19990209 $11.75 18.4
19990210 $11.25 52.8
19990211 $11.31 6.1
19990212 $11.00 22.7
19990216 $10.88 55.1
19990217 $10.56 34.0
19990218 $11.13 41.5
19990219 $11.00 62.4
19990222 $11.00 45.2
19990223 $11.19 21.8
19990224 $10.19 54.6
19990225 $10.50 76.8
19990226 $10.50 10.5
19990301 $10.50 26.6
19990302 $10.44 17.9
19990303 $10.19 21.5
19990304 $10.25 4.1
19990305 $10.44 25.1
19990308 $10.56 21.6
19990309 $12.13 339.0
19990310 $11.88 122.7
19990311 $11.56 57.2
19990312 $12.00 57.0
19990315 $11.75 50.8
19990316 $11.63 32.8
19990317 $11.63 77.6
19990318 $12.13 74.6
19990319 $11.94 42.0
19990322 $12.06 21.6
19990323 $12.94 83.6
19990324 $12.63 142.0
19990325 $14.94 354.2
19990326 $15.25 158.6
19990329 $14.81 128.6
19990330 $13.94 169.1
19990331 $13.81 262.3
19990401 $13.94 125.0
19990405 $13.94 142.9
19990406 $14.13 118.2
19990407 $14.50 84.6
19990408 $15.06 131.5
19990409 $15.44 112.2
19990412 $15.56 44.8
19990413 $15.69 78.2
19990414 $15.38 199.4
19990415 $15.56 100.7
19990416 $16.06 148.7
19990419 $15.50 55.7
19990420 $15.63 124.2
19990421 $15.94 70.9
19990422 $15.63 73.1
19990423 $15.75 63.2
19990426 $15.75 36.3
19990427 $15.69 71.3
19990428 $15.50 85.8
19990429 $15.63 36.0
19990430 $15.75 63.9
19990503 $17.44 233.5
19990504 $17.44 126.0
19990505 $18.00 325.7
19990506 $19.00 217.8
19990507 $18.56 109.7
19990510 $18.38 102.7
19990511 $17.88 70.1
19990512 $18.25 115.3
19990513 $17.75 35.4
19990514 $17.63 31.7
19990517 $17.38 44.4
19990518 $16.63 209.6
19990519 $16.44 204.2
19990520 $16.75 90.0
19990521 $16.56 40.8
19990524 $16.56 30.0
19990525 $16.50 13.8
19990526 $16.50 40.2
19990527 $16.25 115.7
19990528 $16.63 46.8
19990601 $16.69 18.0
19990602 $16.31 44.5
19990603 $16.56 28.9
19990604 $16.38 30.6
19990607 $16.56 52.0
19990608 $16.50 27.2
19990609 $16.63 26.2
19990610 $17.00 29.2
19990611 $16.31 126.8
19990614 $16.06 29.1
19990615 $16.19 59.1
19990616 $16.44 51.9
19990617 $16.19 48.2
19990618 $16.06 43.0
19990621 $16.44 57.6
19990622 $16.31 55.2
19990623 $16.25 46.0
19990624 $16.25 66.1
19990625 $16.25 63.1
19990628 $16.25 33.3
19990629 $16.38 27.9
19990630 $17.00 37.0
19990701 $16.44 26.2
19990702 $16.63 26.7
19990706 $16.44 24.4
19990707 $16.25 44.9
19990708 $16.13 71.1
19990709 $16.25 46.1
19990712 $16.38 24.3
19990713 $16.44 12.3
19990714 $16.38 51.4
19990715 $16.31 26.5
19990716 $16.31 70.7
19990719 $16.25 35.3
19990720 $16.13 48.4
19990721 $16.31 32.4
19990722 $16.19 13.7
19990723 $16.13 25.2
19990726 $15.88 45.9
19990727 $15.69 127.8
19990728 $15.69 24.0
19990729 $15.56 31.8
19990730 $15.75 20.7
19990802 $15.63 86.8
19990803 $15.25 55.2
19990804 $14.75 206.4
19990805 $15.00 83.7
19990806 $14.75 23.8
19990809 $14.06 89.3
19990810 $14.31 37.6
19990811 $15.00 35.3
19990812 $15.00 11.2
19990813 $15.25 56.9
19990816 $15.63 49.6
19990817 $15.75 39.1
19990818 $15.50 27.3
19990819 $15.25 50.1
19990820 $15.06 41.7
19990823 $15.50 29.5
19990824 $15.25 34.9
19990825 $15.38 40.6
19990826 $15.50 13.0
19990827 $15.38 11.4
19990830 $15.50 10.1
19990831 $15.75 69.5
19990901 $15.69 2.9
19990902 $15.44 53.0
19990903 $15.81 11.5
19990907 $16.06 34.5
19990908 $16.13 9.4
19990909 $15.38 78.3
19990910 $15.38 18.9
19990913 $15.50 5.7
19990914 $15.38 34.4
19990915 $15.31 36.7
19990916 $14.94 37.7
19990917 $15.00 33.5
19990920 $14.63 59.8
19990921 $14.50 38.6
19990922 $15.25 62.6
19990923 $15.31 97.8
19990924 $15.00 43.4
19990927 $15.00 58.2
19990928 $14.94 29.3
19990929 $14.88 49.7
19990930 $15.00 33.0
19991001 $15.13 35.3
19991004 $14.94 34.5
19991005 $15.19 30.9
19991006 $15.00 36.8
19991007 $14.81 83.1
19991008 $14.94 30.3
19991011 $15.00 21.7
19991012 $15.00 81.4
19991013 $14.94 45.4
19991014 $14.94 30.3
19991015 $14.94 92.7
SALOMON SMITH BARNEY
--------------------
A member of citigroup
7
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
LTM Relative Stock Price Performance
DAILY DATA: OCTOBER 15, 1998 THROUGH OCTOBER 15, 1999
Date OSU Furniture Manufacturers IndeS&P 500 Index
19981015 100 100 100
19981016 106.7% 108.4% 100.9%
19981019 109.4% 111.3% 101.4%
19981020 109.4% 119.2% 101.6%
19981021 113.4% 120.3% 102.1%
19981022 113.4% 119.2% 103.0%
19981023 116.1% 117.2% 102.2%
19981026 117.4% 118.0% 102.4%
19981027 117.4% 118.1% 101.7%
19981028 118.8% 114.0% 102.0%
19981029 116.8% 117.0% 103.7%
19981030 117.4% 119.3% 104.9%
19981102 112.1% 127.8% 106.1%
19981103 115.4% 129.5% 106.0%
19981104 116.8% 134.6% 106.8%
19981105 118.1% 138.5% 108.2%
19981106 119.5% 138.3% 108.9%
19981109 117.4% 135.4% 107.9%
19981110 116.1% 131.6% 107.7%
19981111 116.8% 128.4% 107.0%
19981112 115.4% 127.8% 106.7%
19981113 108.1% 127.2% 107.5%
19981116 107.4% 127.1% 108.4%
19981117 108.7% 127.0% 108.8%
19981118 106.0% 123.3% 109.3%
19981119 108.7% 126.2% 110.0%
19981120 106.7% 128.4% 111.1%
19981123 103.4% 132.1% 113.4%
19981124 104.7% 136.0% 112.9%
19981125 104.0% 135.4% 113.3%
19981126 0.0% 134.7% 0.0%
19981127 104.0% 133.9% 113.8%
19981130 108.1% 132.3% 111.1%
19981201 110.1% 133.0% 112.2%
19981202 109.4% 131.6% 111.8%
19981203 105.4% 130.6% 109.8%
19981204 102.7% 134.9% 112.3%
19981207 103.4% 134.4% 113.4%
19981208 104.0% 135.7% 112.8%
19981209 104.0% 134.5% 113.0%
19981210 104.7% 131.2% 111.2%
19981211 105.4% 131.6% 111.4%
19981214 101.3% 128.2% 108.9%
19981215 102.0% 128.8% 111.0%
19981216 101.3% 127.0% 110.9%
19981217 102.7% 122.6% 112.6%
19981218 110.7% 121.2% 113.4%
19981221 112.1% 124.6% 114.8%
19981222 114.1% 124.4% 114.9%
19981223 113.4% 127.0% 117.3%
19981224 112.8% 127.3% 117.1%
19981225 0.0% 127.4% 0.0%
19981228 112.1% 127.5% 117.0%
19981229 112.8% 131.0% 118.6%
19981230 114.1% 133.7% 117.6%
19981231 112.8% 137.9% 117.4%
19990101 0.0% 136.1% 0.0%
19990104 107.4% 134.4% 117.2%
19990105 109.4% 132.6% 118.8%
19990106 111.4% 135.2% 121.5%
19990107 116.8% 136.0% 121.2%
19990108 116.1% 137.4% 121.7%
19990111 117.4% 138.6% 120.7%
19990112 116.1% 141.6% 118.3%
19990113 114.1% 141.4% 117.8%
19990114 115.4% 143.7% 115.7%
19990115 118.1% 148.3% 118.7%
19990118 0.0% 149.1% 0.0%
19990119 127.5% 149.9% 119.5%
19990120 132.9% 147.6% 120.0%
19990121 126.2% 146.5% 117.9%
19990122 126.8% 144.7% 117.0%
19990125 131.5% 144.9% 117.8%
19990126 134.2% 143.6% 119.6%
19990127 134.9% 142.7% 118.7%
19990128 136.9% 143.7% 120.8%
19990129 136.9% 140.5% 122.2%
19990201 138.3% 144.1% 121.5%
19990202 137.6% 144.4% 120.5%
19990203 130.9% 143.6% 121.4%
19990204 129.5% 141.5% 119.2%
19990205 126.2% 139.3% 118.3%
19990208 128.9% 139.8% 118.7%
19990209 126.2% 138.0% 116.1%
19990210 120.8% 133.7% 116.8%
19990211 121.5% 133.8% 119.7%
19990212 118.1% 132.6% 117.4%
19990215 0.0% 131.8% 0.0%
19990216 116.8% 131.0% 118.6%
19990217 113.4% 128.5% 116.9%
19990218 119.5% 132.4% 118.1%
19990219 118.1% 134.4% 118.3%
19990222 118.1% 134.9% 121.4%
19990223 120.1% 134.6% 121.4%
19990224 109.4% 133.1% 119.7%
19990225 112.8% 130.4% 118.9%
19990226 112.8% 132.1% 118.2%
19990301 112.8% 133.3% 118.0%
19990302 112.1% 135.2% 117.0%
19990303 109.4% 133.4% 117.2%
19990304 110.1% 133.4% 119.0%
19990305 112.1% 137.5% 121.8%
19990308 113.4% 137.8% 122.5%
19990309 130.2% 140.1% 122.2%
19990310 127.5% 138.7% 122.8%
19990311 124.2% 136.4% 123.9%
19990312 128.9% 133.8% 123.6%
19990315 126.2% 132.8% 124.8%
19990316 124.8% 132.0% 124.7%
19990317 124.8% 130.4% 123.9%
19990318 130.2% 129.0% 125.7%
19990319 128.2% 128.2% 124.0%
19990322 129.5% 123.9% 123.8%
19990323 138.9% 120.9% 120.5%
19990324 135.6% 127.3% 121.1%
19990325 160.4% 131.9% 123.2%
19990326 163.8% 132.9% 122.5%
19990329 159.1% 131.1% 125.1%
19990330 149.7% 129.6% 124.2%
19990331 148.3% 128.7% 122.8%
19990401 149.7% 127.6% 123.5%
19990402 0.0% 126.3% 0.0%
19990405 149.7% 125.0% 126.1%
19990406 151.7% 120.6% 125.8%
19990407 155.7% 119.6% 126.7%
19990408 161.7% 126.4% 128.3%
19990409 165.8% 127.0% 128.7%
19990412 167.1% 128.2% 129.7%
19990413 168.5% 130.3% 128.9%
19990414 165.1% 134.8% 126.8%
19990415 167.1% 137.6% 126.3%
19990416 172.5% 147.2% 125.9%
19990419 166.4% 153.1% 123.1%
19990420 167.8% 151.1% 124.7%
19990421 171.1% 147.4% 127.6%
19990422 167.8% 145.1% 129.7%
19990423 169.1% 142.7% 129.5%
19990426 169.1% 144.5% 129.8%
19990427 168.5% 145.2% 130.1%
19990428 166.4% 148.8% 129.0%
19990429 167.8% 154.7% 128.2%
19990430 169.1% 148.8% 127.5%
19990503 187.2% 154.1% 129.3%
19990504 187.2% 154.2% 127.2%
19990505 193.3% 153.7% 128.6%
19990506 204.0% 152.6% 127.2%
19990507 199.3% 151.7% 128.4%
19990510 197.3% 153.9% 128.0%
19990511 191.9% 153.8% 129.4%
19990512 196.0% 156.5% 130.2%
19990513 190.6% 162.4% 130.6%
19990514 189.3% 156.4% 127.7%
19990517 186.6% 154.4% 127.9%
19990518 178.5% 149.8% 127.3%
19990519 176.5% 147.3% 128.3%
19990520 179.9% 149.3% 127.8%
19990521 177.9% 146.8% 127.0%
19990524 177.9% 144.6% 124.7%
19990525 177.2% 139.4% 122.6%
19990526 177.2% 140.4% 124.6%
19990527 174.5% 139.2% 122.3%
19990528 178.5% 143.6% 124.3%
19990531 0.0% 144.9% 0.0%
19990601 179.2% 146.3% 123.6%
19990602 175.2% 145.1% 123.6%
19990603 177.9% 146.1% 124.1%
19990604 175.8% 145.6% 126.8%
19990607 177.9% 147.4% 127.4%
19990608 177.2% 149.4% 125.8%
19990609 178.5% 143.4% 125.9%
19990610 182.6% 141.2% 124.4%
19990611 175.2% 137.8% 123.5%
19990614 172.5% 140.5% 123.5%
19990615 173.8% 141.6% 124.2%
19990616 176.5% 141.6% 127.0%
19990617 173.8% 146.5% 127.9%
19990618 172.5% 146.1% 128.2%
19990621 176.5% 148.7% 128.8%
19990622 175.2% 149.4% 127.5%
19990623 174.5% 149.9% 127.3%
19990624 174.5% 147.7% 125.6%
19990625 174.5% 150.5% 125.6%
19990628 174.5% 150.6% 127.1%
19990629 175.8% 152.6% 129.0%
19990630 182.6% 165.8% 131.0%
19990701 176.5% 156.5% 131.8%
19990702 178.5% 154.7% 132.8%
19990705 0.0% 153.9% 0.0%
19990706 176.5% 153.1% 132.5%
19990707 174.5% 149.9% 133.3%
19990708 173.2% 148.2% 133.1%
19990709 174.5% 148.2% 134.0%
19990712 175.8% 150.6% 133.6%
19990713 176.5% 149.3% 133.0%
19990714 175.8% 153.6% 133.5%
19990715 175.2% 154.7% 134.6%
19990716 175.2% 151.9% 135.4%
19990719 174.5% 154.6% 134.4%
19990720 173.2% 153.3% 131.5%
19990721 175.2% 155.3% 131.7%
19990722 173.8% 153.9% 129.9%
19990723 173.2% 153.3% 129.5%
19990726 170.5% 152.7% 128.7%
19990727 168.5% 154.5% 130.1%
19990728 168.5% 152.9% 130.3%
19990729 167.1% 153.8% 128.0%
19990730 169.1% 154.1% 126.8%
19990802 167.8% 151.3% 126.8%
19990803 163.8% 146.6% 126.2%
19990804 158.4% 141.4% 124.6%
19990805 161.1% 139.8% 125.4%
19990806 158.4% 138.1% 124.1%
19990809 151.0% 136.1% 123.9%
19990810 153.7% 131.9% 122.3%
19990811 161.1% 134.6% 124.3%
19990812 161.1% 133.6% 123.9%
19990813 163.8% 132.1% 126.7%
19990816 167.8% 135.1% 127.0%
19990817 169.1% 138.9% 128.3%
19990818 166.4% 138.8% 127.2%
19990819 163.8% 138.1% 126.4%
19990820 161.7% 136.4% 127.6%
19990823 166.4% 138.8% 129.9%
19990824 163.8% 139.3% 130.2%
19990825 165.1% 140.0% 131.9%
19990826 166.4% 138.1% 130.0%
19990827 165.1% 135.1% 128.7%
19990830 166.4% 135.0% 126.4%
19990831 169.1% 132.9% 126.1%
19990901 168.5% 134.2% 127.1%
19990902 165.8% 132.4% 125.9%
19990903 169.8% 135.4% 129.6%
19990906 0.0% 135.8% 0.0%
19990907 172.5% 136.3% 128.9%
19990908 173.2% 134.1% 128.3%
19990909 165.1% 132.8% 128.7%
19990910 165.1% 131.5% 129.0%
19990913 166.4% 131.1% 128.3%
19990914 165.1% 131.3% 127.6%
19990915 164.4% 128.2% 125.8%
19990916 160.4% 128.6% 125.9%
19990917 161.1% 129.9% 127.5%
19990920 157.0% 131.1% 127.5%
19990921 155.7% 129.2% 124.8%
19990922 163.8% 128.8% 125.1%
19990923 164.4% 124.6% 122.2%
19990924 161.1% 126.7% 121.9%
19990927 161.1% 127.1% 122.5%
19990928 160.4% 126.6% 122.4%
19990929 159.7% 125.6% 121.1%
19990930 161.1% 134.3% 122.5%
19991001 162.4% 130.7% 122.5%
19991004 160.4% 131.5% 124.5%
19991005 163.1% 130.6% 124.2%
19991006 161.1% 128.1% 126.5%
19991007 159.1% 127.1% 125.8%
19991008 160.4% 129.4% 127.5%
19991011 161.1% 129.1% 127.5%
19991012 161.1% 128.0% 125.4%
19991013 160.4% 133.5% 122.7%
19991014 160.4% 139.1% 122.5%
19991015 160.4% 137.7% 119.1%
SALOMON SMITH BARNEY
--------------------
A member of citigroup
8
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS,INC.
Historical Stock Price Performance - 2 Year
DAILY DATA OCTOBER 15, 1997 THROUGH OCTOBER 15, 1999
Date Price Volume
19971015 $13.75 104.3
19971016 $13.69 139.5
19971017 $13.19 66.0
19971020 $13.38 47.8
19971021 $13.69 24.0
19971022 $13.63 40.9
19971023 $13.31 36.8
19971024 $13.25 52.3
19971027 $13.06 51.2
19971028 $13.13 82.5
19971029 $13.81 110.9
19971030 $13.63 41.5
19971031 $13.88 38.3
19971103 $13.94 86.6
19971104 $13.94 62.4
19971105 $13.69 25.3
19971106 $13.50 53.3
19971107 $13.44 17.6
19971110 $13.25 51.5
19971111 $13.31 7.2
19971112 $13.00 15.0
19971113 $13.13 15.6
19971114 $13.38 40.8
19971117 $13.44 16.4
19971118 $13.00 31.0
19971119 $13.06 20.3
19971120 $13.75 35.6
19971121 $13.50 36.1
19971124 $13.31 40.1
19971125 $13.13 6.0
19971126 $12.88 42.4
19971128 $12.75 13.3
19971201 $13.13 131.1
19971202 $13.13 61.8
19971203 $13.13 71.1
19971204 $13.25 80.0
19971205 $13.00 129.7
19971208 $12.88 61.1
19971209 $12.63 70.7
19971210 $12.50 73.4
19971211 $12.38 134.0
19971212 $12.25 18.3
19971215 $12.38 25.3
19971216 $11.13 301.1
19971217 $10.50 113.1
19971218 $9.88 203.1
19971219 $9.81 284.9
19971222 $9.69 130.0
19971223 $9.75 156.7
19971224 $9.94 27.1
19971226 $10.00 21.0
19971229 $10.19 102.3
19971230 $10.00 173.7
19971231 $10.00 117.2
19980102 $10.13 104.9
19980105 $10.13 164.9
19980106 $10.00 46.3
19980107 $9.88 197.1
19980108 $9.81 126.3
19980109 $9.69 36.2
19980112 $9.38 64.9
19980113 $10.19 126.9
19980114 $9.75 90.8
19980115 $9.81 99.0
19980116 $9.94 47.7
19980120 $9.63 109.0
19980121 $9.50 23.6
19980122 $9.75 191.8
19980123 $9.75 58.1
19980126 $9.81 17.7
19980127 $9.75 55.0
19980128 $9.94 107.1
19980129 $10.06 76.5
19980130 $10.06 35.8
19980202 $10.31 90.9
19980203 $10.06 52.6
19980204 $10.06 21.7
19980205 $10.31 50.9
19980206 $10.38 72.5
19980209 $10.38 48.3
19980210 $10.44 34.6
19980211 $10.50 85.5
19980212 $10.50 48.8
19980213 $10.63 12.5
19980217 $10.88 24.8
19980218 $11.00 25.6
19980219 $11.06 18.3
19980220 $11.06 17.7
19980223 $11.31 29.3
19980224 $11.88 48.4
19980225 $11.88 34.1
19980226 $11.56 21.4
19980227 $11.44 10.6
19980302 $11.50 16.6
19980303 $11.38 5.2
19980304 $11.25 25.2
19980305 $11.19 35.2
19980306 $11.38 8.1
19980309 $11.75 42.8
19980310 $11.50 33.2
19980311 $11.81 20.4
19980312 $11.94 33.9
19980313 $12.44 33.4
19980316 $12.13 19.4
19980317 $11.94 11.5
19980318 $12.63 43.8
19980319 $12.88 14.5
19980320 $12.69 30.6
19980323 $12.69 48.0
19980324 $12.25 31.9
19980325 $12.56 10.6
19980326 $12.69 21.7
19980327 $12.63 36.1
19980330 $12.69 28.6
19980331 $12.75 55.1
19980401 $12.69 11.8
19980402 $12.75 319.3
19980403 $13.13 76.5
19980406 $13.63 157.3
19980407 $13.25 76.7
19980408 $13.25 27.4
19980409 $13.31 12.9
19980413 $13.50 16.6
19980414 $14.38 65.2
19980415 $14.88 97.8
19980416 $15.19 70.2
19980417 $15.25 60.0
19980420 $15.25 76.5
19980421 $15.50 105.6
19980422 $15.75 116.5
19980423 $14.88 52.1
19980424 $15.00 47.1
19980427 $15.06 21.9
19980428 $15.25 33.2
19980429 $15.00 84.7
19980430 $15.13 102.2
19980501 $15.38 21.6
19980504 $15.44 17.9
19980505 $16.00 47.0
19980506 $16.44 76.6
19980507 $16.06 14.1
19980508 $16.06 26.9
19980511 $15.81 15.0
19980512 $15.75 7.7
19980513 $15.69 2.3
19980514 $15.75 11.3
19980515 $15.88 19.6
19980518 $15.88 4.9
19980519 $15.88 16.1
19980520 $15.94 31.0
19980521 $15.94 8.7
19980522 $15.88 10.9
19980526 $15.69 31.8
19980527 $15.38 29.7
19980528 $15.06 15.1
19980529 $15.00 26.0
19980601 $14.94 18.7
19980602 $14.75 11.8
19980603 $14.81 44.7
19980604 $14.88 21.6
19980605 $14.94 15.4
19980608 $14.81 13.2
19980609 $14.75 14.3
19980610 $14.81 20.5
19980611 $14.75 5.5
19980612 $15.00 36.7
19980615 $15.00 11.7
19980616 $14.88 5.5
19980617 $14.69 2.8
19980618 $14.31 17.1
19980619 $14.19 19.7
19980622 $14.06 12.3
19980623 $14.19 12.4
19980624 $14.63 24.2
19980625 $14.44 17.3
19980626 $14.31 5.6
19980629 $14.44 19.5
19980630 $14.00 105.9
19980701 $13.88 24.2
19980702 $13.88 57.9
19980706 $13.75 52.0
19980707 $13.69 11.5
19980708 $13.75 13.9
19980709 $13.88 2.2
19980710 $13.81 2.4
19980713 $13.88 28.7
19980714 $14.00 14.9
19980715 $13.94 5.1
19980716 $13.94 3.6
19980717 $13.81 11.5
19980720 $13.94 13.6
19980721 $13.44 7.6
19980722 $13.44 3.3
19980723 $12.81 21.5
19980724 $13.00 18.1
19980727 $12.69 24.6
19980728 $12.19 37.4
19980729 $11.63 78.4
19980730 $11.56 15.3
19980731 $11.06 17.0
19980803 $10.94 4.1
19980804 $10.00 57.3
19980805 $10.19 99.8
19980806 $11.25 61.6
19980807 $11.69 14.1
19980810 $12.00 12.0
19980811 $11.75 23.7
19980812 $11.88 22.3
19980813 $11.63 78.3
19980814 $11.75 19.8
19980817 $11.81 6.2
19980818 $11.81 15.1
19980819 $11.81 9.7
19980820 $11.50 26.9
19980821 $11.19 12.3
19980824 $10.63 27.4
19980825 $10.50 59.8
19980826 $10.25 25.2
19980827 $10.06 11.5
19980828 $9.81 50.2
19980831 $9.81 22.4
19980901 $9.00 59.7
19980902 $8.94 44.1
19980903 $8.94 20.1
19980904 $9.00 20.0
19980908 $9.00 47.3
19980909 $8.94 21.4
19980910 $8.75 11.6
19980911 $9.25 26.8
19980914 $9.38 30.8
19980915 $9.38 25.1
19980916 $9.38 38.8
19980917 $9.25 3.1
19980918 $9.75 28.1
19980921 $9.63 16.6
19980922 $9.31 24.5
19980923 $9.31 12.0
19980924 $9.69 31.2
19980925 $9.63 4.8
19980928 $9.75 21.8
19980929 $9.69 3.4
19980930 $9.69 270.2
19981001 $9.50 10.6
19981002 $9.44 3.9
19981005 $9.06 57.4
19981006 $9.00 6.5
19981007 $9.00 6.7
19981008 $8.88 8.4
19981009 $8.81 45.8
19981012 $8.88 14.7
19981013 $8.75 21.5
19981014 $8.94 18.0
19981015 $9.31 67.2
19981016 $9.94 31.5
19981019 $10.19 43.0
19981020 $10.19 20.6
19981021 $10.56 29.2
19981022 $10.56 42.8
19981023 $10.81 9.2
19981026 $10.94 44.3
19981027 $10.94 5.5
19981028 $11.06 24.3
19981029 $10.88 9.3
19981030 $10.94 16.0
19981102 $10.44 24.0
19981103 $10.75 9.6
19981104 $10.88 5.0
19981105 $11.00 20.0
19981106 $11.13 7.4
19981109 $10.94 10.3
19981110 $10.81 3.3
19981111 $10.88 36.1
19981112 $10.75 7.4
19981113 $10.06 43.6
19981116 $10.00 50.6
19981117 $10.13 15.0
19981118 $9.88 9.7
19981119 $10.13 6.0
19981120 $9.94 4.0
19981123 $9.63 49.6
19981124 $9.75 88.6
19981125 $9.69 5.6
19981127 $9.69 1.8
19981130 $10.06 24.0
19981201 $10.25 9.3
19981202 $10.19 17.9
19981203 $9.81 17.0
19981204 $9.56 35.2
19981207 $9.63 39.0
19981208 $9.69 8.6
19981209 $9.69 8.8
19981210 $9.75 7.4
19981211 $9.81 6.5
19981214 $9.44 21.5
19981215 $9.50 47.5
19981216 $9.44 11.3
19981217 $9.56 14.0
19981218 $10.31 33.2
19981221 $10.44 47.2
19981222 $10.63 30.9
19981223 $10.56 35.9
19981224 $10.50 1.7
19981228 $10.44 24.7
19981229 $10.50 19.8
19981230 $10.63 23.6
19981231 $10.50 17.3
19990104 $10.00 130.0
19990105 $10.19 99.3
19990106 $10.38 89.6
19990107 $10.88 64.6
19990108 $10.81 51.6
19990111 $10.94 43.4
19990112 $10.81 12.1
19990113 $10.63 35.0
19990114 $10.75 27.1
19990115 $11.00 11.4
19990119 $11.88 68.1
19990120 $12.38 142.8
19990121 $11.75 28.7
19990122 $11.81 37.0
19990125 $12.25 32.4
19990126 $12.50 26.0
19990127 $12.56 40.2
19990128 $12.75 33.9
19990129 $12.75 40.0
19990201 $12.88 19.4
19990202 $12.81 14.1
19990203 $12.19 17.5
19990204 $12.06 10.0
19990205 $11.75 27.8
19990208 $12.00 26.1
19990209 $11.75 18.4
19990210 $11.25 52.8
19990211 $11.31 6.1
19990212 $11.00 22.7
19990216 $10.88 55.1
19990217 $10.56 34.0
19990218 $11.13 41.5
19990219 $11.00 62.4
19990222 $11.00 45.2
19990223 $11.19 21.8
19990224 $10.19 54.6
19990225 $10.50 76.8
19990226 $10.50 10.5
19990301 $10.50 26.6
19990302 $10.44 17.9
19990303 $10.19 21.5
19990304 $10.25 4.1
19990305 $10.44 25.1
19990308 $10.56 21.6
19990309 $12.13 339.0
19990310 $11.88 122.7
19990311 $11.56 57.2
19990312 $12.00 57.0
19990315 $11.75 50.8
19990316 $11.63 32.8
19990317 $11.63 77.6
19990318 $12.13 74.6
19990319 $11.94 42.0
19990322 $12.06 21.6
19990323 $12.94 83.6
19990324 $12.63 142.0
19990325 $14.94 354.2
19990326 $15.25 158.6
19990329 $14.81 128.6
19990330 $13.94 169.1
19990331 $13.81 262.3
19990401 $13.94 125.0
19990405 $13.94 142.9
19990406 $14.13 118.2
19990407 $14.50 84.6
19990408 $15.06 131.5
19990409 $15.44 112.2
19990412 $15.56 44.8
19990413 $15.69 78.2
19990414 $15.38 199.4
19990415 $15.56 100.7
19990416 $16.06 148.7
19990419 $15.50 55.7
19990420 $15.63 124.2
19990421 $15.94 70.9
19990422 $15.63 73.1
19990423 $15.75 63.2
19990426 $15.75 36.3
19990427 $15.69 71.3
19990428 $15.50 85.8
19990429 $15.63 36.0
19990430 $15.75 63.9
19990503 $17.44 233.5
19990504 $17.44 126.0
19990505 $18.00 325.7
19990506 $19.00 217.8
19990507 $18.56 109.7
19990510 $18.38 102.7
19990511 $17.88 70.1
19990512 $18.25 115.3
19990513 $17.75 35.4
19990514 $17.63 31.7
19990517 $17.38 44.4
19990518 $16.63 209.6
19990519 $16.44 204.2
19990520 $16.75 90.0
19990521 $16.56 40.8
19990524 $16.56 30.0
19990525 $16.50 13.8
19990526 $16.50 40.2
19990527 $16.25 115.7
19990528 $16.63 46.8
19990601 $16.69 18.0
19990602 $16.31 44.5
19990603 $16.56 28.9
19990604 $16.38 30.6
19990607 $16.56 52.0
19990608 $16.50 27.2
19990609 $16.63 26.2
19990610 $17.00 29.2
19990611 $16.31 126.8
19990614 $16.06 29.1
19990615 $16.19 59.1
19990616 $16.44 51.9
19990617 $16.19 48.2
19990618 $16.06 43.0
19990621 $16.44 57.6
19990622 $16.31 55.2
19990623 $16.25 46.0
19990624 $16.25 66.1
19990625 $16.25 63.1
19990628 $16.25 33.3
19990629 $16.38 27.9
19990630 $17.00 37.0
19990701 $16.44 26.2
19990702 $16.63 26.7
19990706 $16.44 24.4
19990707 $16.25 44.9
19990708 $16.13 71.1
19990709 $16.25 46.1
19990712 $16.38 24.3
19990713 $16.44 12.3
19990714 $16.38 51.4
19990715 $16.31 26.5
19990716 $16.31 70.7
19990719 $16.25 35.3
19990720 $16.13 48.4
19990721 $16.31 32.4
19990722 $16.19 13.7
19990723 $16.13 25.2
19990726 $15.88 45.9
19990727 $15.69 127.8
19990728 $15.69 24.0
19990729 $15.56 31.8
19990730 $15.75 20.7
19990802 $15.63 86.8
19990803 $15.25 55.2
19990804 $14.75 206.4
19990805 $15.00 83.7
19990806 $14.75 23.8
19990809 $14.06 89.3
19990810 $14.31 37.6
19990811 $15.00 35.3
19990812 $15.00 11.2
19990813 $15.25 56.9
19990816 $15.63 49.6
19990817 $15.75 39.1
19990818 $15.50 27.3
19990819 $15.25 50.1
19990820 $15.06 41.7
19990823 $15.50 29.5
19990824 $15.25 34.9
19990825 $15.38 40.6
19990826 $15.50 13.0
19990827 $15.38 11.4
19990830 $15.50 10.1
19990831 $15.75 69.5
19990901 $15.69 2.9
19990902 $15.44 53.0
19990903 $15.81 11.5
19990907 $16.06 34.5
19990908 $16.13 9.4
19990909 $15.38 78.3
19990910 $15.38 18.9
19990913 $15.50 5.7
19990914 $15.38 34.4
19990915 $15.31 36.7
19990916 $14.94 37.7
19990917 $15.00 33.5
19990920 $14.63 59.8
19990921 $14.50 38.6
19990922 $15.25 62.6
19990923 $15.31 97.8
19990924 $15.00 43.4
19990927 $15.00 58.2
19990928 $14.94 29.3
19990929 $14.88 49.7
19990930 $15.00 33.0
19991001 $15.13 35.3
19991004 $14.94 34.5
19991005 $15.19 30.9
19991006 $15.00 36.8
19991007 $14.81 83.1
19991008 $14.94 30.3
19991011 $15.00 21.7
19991012 $15.00 81.4
19991013 $14.94 45.4
19991014 $14.94 30.3
19991015 $14.94 92.7
SALOMON SMITH BARNEY
--------------------
A member of citigroup
9
<PAGE>
O'SULLIVAN INDUSTRIES, INC.
Historical Stock Price Performance Since IPO
WEEKLY DATA: JANUARY 28, 1994 THROUGH OCTOBER 15, 1999
Date Price Volume
19940128 $24.13 7,182.4
19940204 $22.63 2,395.3
19940211 $23.38 1,254.7
19940218 $23.38 1,187.4
19940225 $23.00 356.3
19940304 $21.88 607.7
19940311 $21.63 767.2
19940318 $22.13 469.2
19940325 $21.50 624.5
19940331 $19.50 674.2
19940408 $21.75 958.3
19940415 $20.75 374.5
19940422 $19.25 359.1
19940429 $19.50 366.6
19940506 $18.75 558.5
19940513 $16.38 548.9
19940520 $11.25 8,252.9
19940527 $11.25 1,389.9
19940603 $11.75 352.7
19940610 $11.50 409.0
19940617 $11.38 297.7
19940624 $11.00 600.5
19940701 $12.50 566.9
19940708 $12.50 483.6
19940715 $13.63 711.7
19940722 $12.88 467.7
19940729 $13.88 346.5
19940805 $13.38 188.2
19940812 $13.25 514.8
19940819 $11.00 1,331.5
19940826 $12.13 1,571.0
19940902 $12.75 594.6
19940909 $13.00 207.0
19940916 $12.63 443.1
19940923 $12.00 267.5
19940930 $12.00 492.5
19941007 $11.88 425.9
19941014 $12.50 147.4
19941021 $12.75 215.9
19941028 $12.50 287.7
19941104 $12.63 268.2
19941111 $12.25 223.5
19941118 $12.13 165.1
19941125 $11.50 186.8
19941202 $11.50 339.0
19941209 $11.50 443.0
19941216 $11.75 376.6
19941223 $11.63 606.3
19941230 $12.63 315.2
19950106 $12.75 359.4
19950113 $12.38 185.3
19950120 $11.25 339.3
19950127 $9.88 1,389.2
19950203 $9.88 329.8
19950210 $9.63 630.9
19950217 $9.63 157.7
19950224 $9.25 783.1
19950303 $9.63 371.9
19950310 $9.63 246.2
19950317 $9.50 183.3
19950324 $10.50 564.4
19950331 $10.00 297.5
19950407 $9.75 157.4
19950413 $8.13 1,616.0
19950421 $8.00 366.8
19950428 $8.00 326.2
19950505 $8.13 215.0
19950512 $8.13 209.3
19950519 $7.88 181.2
19950526 $7.88 216.4
19950602 $7.75 127.3
19950609 $7.75 130.9
19950616 $7.88 179.6
19950623 $7.50 336.8
19950630 $7.63 175.3
19950707 $7.75 132.6
19950714 $8.88 526.1
19950721 $8.50 317.4
19950728 $8.50 118.5
19950804 $8.50 234.4
19950811 $8.75 191.7
19950818 $7.75 239.4
19950825 $8.00 168.3
19950901 $8.25 302.5
19950908 $8.38 196.2
19950915 $8.00 175.1
19950922 $7.88 179.1
19950929 $7.75 195.9
19951006 $8.13 216.6
19951013 $8.00 222.6
19951020 $8.00 142.1
19951027 $7.50 140.2
19951103 $7.63 119.8
19951110 $7.25 220.3
19951117 $6.88 265.0
19951124 $6.88 236.8
19951201 $6.50 437.6
19951208 $6.50 345.0
19951215 $6.50 461.4
19951222 $6.13 448.6
19951229 $6.63 551.1
19960105 $6.38 236.6
19960112 $6.25 200.2
19960119 $5.88 144.4
19960126 $6.13 271.6
19960202 $6.00 382.6
19960209 $6.38 176.3
19960216 $5.50 504.6
19960223 $5.63 509.0
19960301 $5.50 192.2
19960308 $6.50 434.6
19960315 $6.63 265.0
19960322 $6.00 132.2
19960329 $5.88 1,179.2
19960404 $5.88 300.9
19960412 $6.13 373.4
19960419 $6.75 458.2
19960426 $7.00 404.7
19960503 $7.00 648.3
19960510 $7.00 223.4
19960517 $7.63 537.7
19960524 $8.00 780.2
19960531 $7.63 423.6
19960607 $7.25 196.2
19960614 $7.00 173.2
19960621 $7.13 727.3
19960628 $7.38 656.0
19960705 $7.13 157.7
19960712 $7.88 399.3
19960719 $7.13 356.7
19960726 $7.13 91.7
19960802 $7.75 151.4
19960809 $7.50 182.0
19960816 $7.38 188.1
19960823 $8.25 965.1
19960830 $9.25 831.1
19960906 $9.00 343.8
19960913 $9.63 482.2
19960920 $8.63 399.2
19960927 $8.88 366.0
19961004 $9.00 270.2
19961011 $9.25 163.0
19961018 $10.25 962.7
19961025 $10.88 474.1
19961101 $11.25 873.8
19961108 $12.13 568.5
19961115 $12.25 501.8
19961122 $11.63 462.3
19961129 $11.13 326.6
19961206 $10.63 482.8
19961213 $11.38 301.7
19961220 $13.38 1,049.9
19961227 $13.38 239.9
19970103 $13.75 213.7
19970110 $14.50 361.6
19970117 $12.63 485.7
19970124 $12.75 443.3
19970131 $12.88 173.0
19970207 $11.88 288.2
19970214 $11.75 1,066.5
19970221 $11.13 156.9
19970228 $10.75 279.1
19970307 $12.25 220.7
19970314 $11.88 383.7
19970321 $12.00 148.7
19970327 $12.63 148.3
19970404 $12.75 145.3
19970411 $12.75 184.0
19970418 $14.00 672.5
19970425 $13.50 547.3
19970502 $14.00 109.7
19970509 $15.25 556.2
19970516 $15.00 319.4
19970523 $15.63 175.8
19970530 $15.63 127.2
19970606 $14.75 160.5
19970613 $15.38 149.0
19970620 $15.38 147.0
19970627 $15.19 218.6
19970703 $16.00 286.4
19970711 $15.38 127.1
19970718 $15.63 153.0
19970725 $14.56 205.8
19970801 $13.25 303.5
19970808 $12.88 2,076.5
19970815 $12.38 682.7
19970822 $13.19 703.2
19970829 $13.19 251.5
19970905 $14.06 208.0
19970912 $14.19 309.5
19970919 $12.44 1,426.4
19970926 $12.63 889.6
19971003 $12.31 520.1
19971010 $12.44 414.8
19971017 $13.19 424.6
19971024 $13.25 201.8
19971031 $13.88 324.4
19971107 $13.44 245.2
19971114 $13.38 130.1
19971121 $13.50 139.4
19971128 $12.75 101.8
19971205 $13.00 473.7
19971212 $12.25 357.5
19971219 $9.81 927.5
19971226 $10.00 334.8
19980102 $10.13 498.1
19980109 $9.69 570.8
19980116 $9.94 429.3
19980123 $9.75 382.5
19980130 $10.06 292.1
19980206 $10.38 288.6
19980213 $10.63 229.7
19980220 $11.06 86.4
19980227 $11.44 143.8
19980306 $11.38 90.3
19980313 $12.44 163.7
19980320 $12.69 119.8
19980327 $12.63 148.3
19980403 $13.13 491.3
19980409 $13.31 274.3
19980417 $15.25 309.8
19980424 $15.00 397.8
19980501 $15.38 263.6
19980508 $16.06 182.5
19980515 $15.88 55.9
19980522 $15.88 71.6
19980529 $15.00 102.6
19980605 $14.94 112.2
19980612 $15.00 90.2
19980619 $14.19 56.8
19980626 $14.31 71.8
19980702 $13.88 207.5
19980710 $13.81 82.0
19980717 $13.81 63.8
19980724 $13.00 64.1
19980731 $11.06 172.7
19980807 $11.69 236.9
19980814 $11.75 156.1
19980821 $11.19 70.2
19980828 $9.81 174.1
19980904 $9.00 166.3
19980911 $9.25 107.1
19980918 $9.75 125.9
19980925 $9.63 89.1
19981002 $9.44 309.9
19981009 $8.81 124.8
19981016 $9.94 152.9
19981023 $10.81 144.8
19981030 $10.94 99.4
19981106 $11.13 66.0
19981113 $10.06 100.7
19981120 $9.94 85.3
19981127 $9.69 145.6
19981204 $9.56 103.4
19981211 $9.81 70.3
19981218 $10.31 127.5
19981224 $10.50 115.7
19981231 $10.50 85.4
19990108 $10.81 435.1
19990115 $11.00 129.0
19990122 $11.81 276.6
19990129 $12.75 172.5
19990205 $11.75 88.8
19990212 $11.00 126.1
19990219 $11.00 193.0
19990226 $10.50 208.9
19990305 $10.44 95.2
19990312 $12.00 597.5
19990319 $11.94 277.8
19990326 $15.25 760.0
19990401 $13.94 685.0
19990409 $15.44 589.4
19990416 $16.06 571.8
19990423 $15.75 387.1
19990430 $15.75 293.3
19990507 $18.56 1,012.7
19990514 $17.63 355.2
19990521 $16.56 589.0
19990528 $16.63 246.5
19990604 $16.38 122.0
19990611 $16.31 261.4
19990618 $16.06 231.3
19990625 $16.25 288.0
19990702 $16.63 151.1
19990709 $16.25 186.5
19990716 $16.31 185.2
19990723 $16.13 155.0
19990730 $15.75 250.2
19990806 $14.75 455.9
19990813 $15.25 230.3
19990820 $15.06 207.8
19990827 $15.38 129.4
19990903 $15.81 147.0
19990910 $15.38 141.1
19990917 $15.00 148.0
19990924 $15.00 302.2
19991001 $15.13 205.5
19991008 $14.94 215.6
19991015 $14.94 271.5
SALOMON SMITH BARNEY
--------------------
A member of citigroup
10
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Historical Price Trading Range
PRICE TRADING RANGE FOR LTM AND 2 YEARS PRIOR TO MBO ANNOUNCEMENT ON MARCH 24,
1999
Last Two Years Last Twelve Months
$8.00 1% 2%
$9.00 12% 15%
$10.00 13% 22%
$11.00 7% 15%
$12.00 31% 19%
$13.00 13% 7%
$14.00 12% 7%
$15.00 9% 12%
$16.00 2% 2%
SALOMON SMITH BARNEY
--------------------
A member of citigroup
11
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Wall Street Research
<TABLE>
<CAPTION>
Prior to Post
MBO Announcement Mbo Announcement
------------------------------------------------ -----------------------------------------------
Firm Merrill Lynch First Union Merrill Lynch A.G. Edwards
--------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Analyst Celeste Elia John Baugh Celeste Elia Stephen East
Date March 9, 1999 March 15, 1999 April 15, 1999 March 29, 1999
Recommendations Accumulate Outperform Accumulate Buy
Target / Transaction $14.50 $16.00 $16.00 - $18.00 $20.00
Price (12 Months) (12 Months)
FY 1999 EPS $1.28 $1.25 $1.35 $1.26
FY 2000 EPS $1.50 $1.45 $1.55 $1.44
</TABLE>
SALOMON SMITH BARNEY
--------------------
A member of citigroup
12
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
4 VALUATION SUMMARY
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Valuation Matrix
[GRAPHIC OMITTED]
SALOMON SMITH BARNEY
--------------------
A member of citigroup
14
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Summary of Valuation
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
* 1 month prior to MBO announcement
SALOMON SMITH BARNEY
--------------------
A member of citigroup
15
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Summary of Valuation Methods
(Dollars in millions, except per share data)
[GRAPHIC OMITTED]
(a) Equity Market Cap = Enterprise Value - Net Debt of $22.3 million.
Source: Company data, unless otherwise noted
SALOMON SMITH BARNEY
--------------------
A member of citigroup
16
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Comparable Company Analysis
[GRAPHIC OMITTED]
SALOMON SMITH BARNEY
--------------------
A member of citigroup
17
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Selected Precedent Transaction Multiples
($ in millions)
SELECTED TRANSACTIONS IN THE FURNISHINGS INDUSTRY
<TABLE>
<CAPTION>
Firm FV/LTM
--------------------
Date Acquiror Target Value Sales EBITDA EBIT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
09/28/99 (1) La-Z-Boy LADD Furniture $299 0.5x 6.4x 9.2x
(2)
05/06/99 (2) Falcon Products Shelby Williams Industries 142 0.8 7.3 8.4
05/05/99 (3) Investor Group (Trivest) WinsLoew Furniture 265 1.8 7.7 8.3
03/24/98 (2) E.M. Warburg, Pincus & Co. Knoll Inc. (Remaining 40% stake) 492 1.3 5.9 7.2
04/01/98 (3) Bush Industries Fournier Furniture 20 0.8 NA NA
03/30/98 (2) Dorel Industries Ameriwood Industries Intl. Corp. 46 0.5 NM NM
08/05/96 (3) CVC Corp. Masco Corp. - Home Furnishing* 1,080 0.6 6.7 11.6
05/14/96 (2) Leggett & Platt Pace Industries 318 0.8 NA NA
01/02/96 (3) Furniture Brands Intl. Thomasville Corp. 339 0.6 6.7 8.8
-------------------------------------------------------------------
Median 0.8x 6.7x 8.6x
Mean 0.9 6.8 8.9
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Date Target Company Description
- -------------------------------------------------------------------------
<S> <C>
09/28/99 Manufactures residential furniture
05/06/99 Manufactures furnishings for lodging and food service
industries
05/05/99 Manufactures aluminum casual furniture and contract seating
03/24/98 Manufactures office furniture
04/01/98 Manufactures ready-to-assemble furniture
03/30/98 Manufactures ready-to-assemble furniture
08/05/96 Manufactures high-end furniture
05/14/96 Manufactures engineered aluminum die cast components
01/02/96 Manufactures premium furniture
</TABLE>
(1) Pending.
(2) Contracted, did not sign Confidentiality Agreement with O'Sullivan.
(3) Parties who entered into Confidentiality Agreements with O'Sullivan.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
18
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, IND.
Discounted Cash Flows
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Source: Projections based on company forecasts and extrapolations and
discussions with Company management.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
19
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Leveraged Buyout Analysis
[GRAPHIC OMITTED]
Source: Projections based on Company forecasts and extrapolations and
discussions with Company management.
(a) The amount of preferred stock and Holding Company debt are adjusted while
maintaining a fixed amount of sponsor equity and Operating Company debt at
the various purchase prices.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
20
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Premiums Paid Analysis
PREMIUMS PAID IN ALL CASH OR CASH/STOCK
TRANSACTIONS VALUED BETWEEN $250MM AND $400MM FROM TWO
YEARS PRIOR TO ANNOUNCEMENT THROUGH 10/15/99
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
SALOMON SMITH BARNEY
--------------------
A member of citigroup
21
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Appendix
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
VALUATION OF PIK PREFERRED
SALOMON SMITH BARNEY
--------------------
A member of citigroup
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Overview of PIK Preferred Stock
TERMS
- -----
- - Ranks senior to all other equity securities of the company for
dividend, repurchase, and liquidation purposes
- - No voting rights
- - Dividends
o 12% per annum
o Cumulative
o Paid in kind
- - Due on change of control
- - Mandatory redemption date - 8/31/2011 (approximately 12 years)
ISSUES AND CONSIDERATIONS
- -------------------------
- - Not a material component of valuation (less than 10% of consideration)
- - Illiquid
- - No / Limited Sponsorship
- - Taxable
- - Dividends Taxable (potentially $0.04 per share per year)
SALOMON SMITH BARNEY
--------------------
A member of citigroup
24
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
Valuation of PIK Preferred Stock
PIK PREFERRED VALUATION
- -----------------------
- - Generally priced at 200-300 basis points premium to Holding Company
debt
- - Assuming Holding Company debt of 14.0% (plus warrants) the preferred
market rate would be approximately 18.0% - 20.0% *
Value of PIK Preferred (as a % of face)
<TABLE>
<CAPTION>
Discount Rate 5 Year DCF 10 Year DCF 12 Year DCF
- --------------------- ------------------------------ ----------------------------- ------------------------------
<S> <C> <C> <C>
18.0% 77% 59% 53%
20.0% 71 50 44
- --------------------- .............................. ............................. ..............................
</TABLE>
- - While the theoretical value of the preferred consideration would range
between approximately 50% and 70% of face value, the preferred stock
may trade lower due to other issues, such as limited liquidity.
- - For valuation purposes, the preferred stock is valued at approximately
40% of face.
* Additional premium reflects the additional costs of the warrants attached to
the Holding Company notes.
SALOMON SMITH BARNEY
--------------------
A member of citigroup
25
- --------
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1999
REGISTRATION NO. 333-81631
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2511 43-1659062
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
1900 GULF STREET
LAMAR, MISSOURI 64759-1899
(417) 682-3322
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
ROWLAND H. GEDDIE, III
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
1900 GULF STREET
LAMAR, MISSOURI 64759-1899
(417) 682-3322
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY BAGNER LANCE BALK
FRIED, FRANK, HARRIS, SHRIVER & KIRKLAND & ELLIS
JACOBSON 153 EAST 53RD STREET
ONE NEW YORK PLAZA NEW YORK, NY 10022-4675
NEW YORK, NEW YORK 10004 (212) 446-4800
(212) 859-8000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC.
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROXY STATEMENT/PROSPECTUS, DATED OCTOBER
18, 1999,
WILL BE AMENDED OR COMPLETED
[LOGO]
PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of O'Sullivan Industries Holdings, Inc. agreed to a
merger with a company formed by the principals of Bruckmann, Rosser, Sherrill &
Co., LLC, a private equity firm.
Upon completion of the merger, each share of O'Sullivan common stock becomes
$16.75 in cash and one share of senior preferred stock of O'Sullivan. O'Sullivan
will continue in existence as the surviving corporation of the merger. However,
some of the shares of O'Sullivan common stock and options to acquire shares that
are held by the management participants in the buyout will be exchanged for
equity interests in the surviving corporation. The management participants in
the buyout include 32 members of management, three directors and an affiliate of
a fourth director. The remaining equity of the surviving corporation will be
owned by BRS and its affiliates. Under Delaware law, stockholders who do not
vote in favor of the merger transaction have the right to dissent from the
merger and receive the "fair value" of their shares in cash.
We cannot complete the merger unless holders of a majority of the
outstanding shares of O'Sullivan common stock vote to approve the merger
agreement at a special stockholders meeting. Your vote is very important.
Details of the Merger Agreement, the terms of the senior preferred stock and
other important information are included in this document. A copy of the Merger
Agreement is attached as Appendix A. This document is a proxy statement for
soliciting proxies for the special stockholders meeting. This document is also a
prospectus relating to the senior preferred stock to be issued in the merger. WE
URGE YOU TO READ THE DOCUMENT CAREFULLY.
FOR RISKS RELATING TO THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 13.
Sincerely,
/s/ Daniel F. O'Sullivan
Daniel F. O'Sullivan
Chairman of the Board
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAS BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Proxy Statement/Prospectus dated October , 1999, was first mailed to
stockholders
on or about October , 1999.
<PAGE>
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 1999
To the Stockholders of O'Sullivan Industries Holdings, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of O'Sullivan Industries Holdings, Inc. ("O'Sullivan") will be held on
November 17, 1999, at 9:00 a.m., local time, at the Embassy Suites Kansas City
Airport Hotel, 7640 Northwest Tiffany Springs Parkway, Kansas City, Missouri for
the following purpose:
To consider and vote on a proposal to approve and adopt the Amended and
Restated Agreement and Plan of Merger, dated as of October 18, 1999 (the
"Merger Agreement"), between O'Sullivan and OSI Acquisition, Inc. ("OSI"), a
Delaware corporation, and approve the related merger, pursuant to which
(a) OSI will merge with and into O'Sullivan (the "Merger"), (b) O'Sullivan
will be the surviving corporation in the Merger and (c) each share of common
stock of O'Sullivan, par value $1.00 per share (the "Shares"), issued and
outstanding immediately prior to the Merger (other than Shares held in
O'Sullivan's treasury or by any of its subsidiaries, some of the Shares held
by management participants in the buyout and Shares for which appraisal
rights are perfected in accordance with Delaware law) will be converted into
the right to receive (i) $16.75 in cash, without interest, and (ii) one
share of 12% Senior Preferred Stock of O'Sullivan, as the surviving
corporation in the Merger, with a liquidation preference of $1.50 per share.
O'Sullivan reserves the right to abandon the Merger at any time prior to the
consummation of the Merger upon the terms and subject to the conditions of the
Merger Agreement.
The board of directors of O'Sullivan has fixed the close of business on
September 29, 1999 as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. Only stockholders of
record at that time will be entitled to notice of and to vote at the Special
Meeting. A list of O'Sullivan stockholders entitled to vote at the Special
Meeting will be available for examination, during ordinary business hours, at
the office of Blackwell, Sanders Peper, Martin L.L.C. at 2300 Main Street, Suite
1100, Kansas City, Missouri during the ten-day period prior to the Special
Meeting.
A form of Proxy and a Proxy Statement/Prospectus containing more detailed
information with respect to the matters to be considered at the Special Meeting
accompany this notice.
THE BOARD OF DIRECTORS, WITH DIRECTORS WHO ARE MANAGEMENT PARTICIPANTS IN
THE BUYOUT ABSTAINING, UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER.
You are cordially invited and urged to attend the Special Meeting in person.
If you attend the Special Meeting and desire to revoke your Proxy and vote in
person you may do so. In any event, a Proxy may be revoked at any time before it
is voted.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
<TABLE>
<S> <C>
By Order of the Board of Directors,
/s/ Rowland H. Geddie, III
------------------------------------------------
Rowland H. Geddie, III
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
</TABLE>
Lamar, Missouri
October , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Questions and Answers About the Merger...................... 1
Summary..................................................... 3
The Merger................................................ 3
What You Will Receive in the Merger....................... 3
Opinion of O'Sullivan's Financial Advisor................. 3
Votes Required; Record Date for Voting.................... 3
Recommendation of the Board of Directors.................. 3
Accounting Treatment...................................... 4
Completion of the Merger.................................. 4
Financing of the Merger................................... 4
Termination of the Merger Agreement....................... 4
Compensation Payable if Merger Not Completed.............. 5
Conflicts of Interests; Arrangements with Management...... 5
Federal Income Tax Consequences........................... 5
Selected Historical Financial Information................... 6
Selected Unaudited Pro Forma Financial Information........ 8
Market Prices and Dividends............................... 10
Recent Developments......................................... 11
Risk Factors................................................ 13
Cautionary Statement Regarding Forward-Looking
Information............................................... 17
Special Factors............................................. 18
Background to the Merger.................................. 18
Reasons for the Merger; Recommendations of the Board of
Directors............................................... 22
Opinion of O'Sullivan's Financial Advisor................. 25
Forecasts................................................. 31
Purpose of the Merger..................................... 31
Fairness of the Merger.................................... 32
Structure of the Merger................................... 33
Financing of the Merger................................... 34
Effect of the Merger on O'Sullivan Capital Stock.......... 36
Description of O'Sullivan Capital Stock After the
Merger.................................................. 36
Beneficial Ownership of Common Stock...................... 40
Security Ownership of the Surviving Corporation After the
Merger.................................................. 42
Consequences of the Merger; Plans for O'Sullivan After the
Merger.................................................. 42
Conflicts of Interest; Arrangements with Management....... 43
Federal Income Tax Consequences........................... 48
Regulatory Matters........................................ 51
Accounting Treatment of the Merger........................ 52
Tax Sharing and Tax Benefit Reimbursement Agreement with
Tandy................................................... 52
Litigation Challenging the Merger......................... 53
Estimated Fees and Expenses of the Merger................. 53
The Special Meeting......................................... 54
Matters to be Considered at the Special Meeting........... 54
Votes Required for Approval of the Merger Agreement....... 54
How Shares Will Be Voted at the Special Meeting........... 54
How to Revoke a Proxy..................................... 54
Solicitation of Proxies................................... 55
Rights of Stockholders Not Voting for the Merger.......... 55
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
The Companies............................................... 55
O'Sullivan Industries Holdings, Inc....................... 55
OSI Acquisition, Inc...................................... 65
BRS....................................................... 65
The Merger Agreement........................................ 66
The Merger................................................ 66
Effective Time of the Merger.............................. 66
Exchange Procedures....................................... 66
Representations and Warranties............................ 66
Covenants................................................. 68
No Solicitation of Transactions........................... 69
Board's Covenant to Recommend............................. 70
Benefit Plans............................................. 70
Indemnification and Insurance............................. 70
Conditions................................................ 70
Termination............................................... 71
Termination Fees.......................................... 72
Other Expenses............................................ 74
Appraisal Rights of Dissenting Stockholders................. 74
Unaudited Pro Forma Financial Data.......................... 76
Sources and Uses of Cash Proceeds and Equity................ 83
Legal Matters............................................... 84
Experts..................................................... 84
Stockholder Proposals for 1999 Annual Meeting............... 84
Where You Can Find More Information......................... 85
Appendix A -- Amended and Restated Agreement and Plan of
Merger
Appendix B -- Opinion of Salomon Smith Barney Inc.
Appendix C -- Section 262 of the Delaware General
Corporation Law
Appendix D -- Transactions Involving O'Sullivan Common Stock
by BRS, Bruckmann, Rosser, Sherrill & Co. II,
L.P., BRSE, LLC, O'Sullivan and Executive
Officers and Directors of O'Sullivan
Appendix E -- Information Relating to BRS, Bruckmann,
Rosser, Sherrill & Co. II, L.P., BRSE, LLC and
Their Respective Principals and the Executive
Officers and Directors of OSI, O'Sullivan, and
O'Sullivan Properties, Inc.
Appendix F -- O'Sullivan Industries Holdings, Inc.
Form 10-K for the fiscal year ended June 30,
1999
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS O'SULLIVAN'S BOARD OF DIRECTORS RECOMMENDING APPROVAL OF THE MERGER?
A: After O'Sullivan's senior management expressed a desire to acquire
O'Sullivan on November 10, 1998, the O'Sullivan board of directors
established a special committee of independent directors to explore various
alternatives for O'Sullivan. With the assistance of Salomon Smith
Barney Inc., the special committee requested that interested third parties
submit proposals to acquire O'Sullivan. After this process was completed,
the proposal submitted by Bruckmann, Rosser, Sherrill & Co. II, L.P. was
selected. The special committee believes that BRS's revised proposal
provides the best available alternative for O'Sullivan and its stockholders.
Q: WHO IS BRUCKMANN, ROSSER, SHERRILL & CO., L.L.C.?
A: BRS is a private equity firm formed in 1995 that specializes in leveraged
acquisitions. BRS seeks to acquire quality businesses with proven operating
management. BRS professionals currently manage two funds, with total
committed capital of more than $1.2 billion. Since its formation in 1995,
BRS has completed 15 acquisitions, including acquisitions in the
manufacturing and retailing industries. From the mid-1980's until BRS's
formation, the principals of BRS worked together as senior officers of
Citicorp Venture Capital. While at Citicorp Venture Capital, the principals
of BRS completed 25 acquisitions, including the furniture companies
Chromcraft Revington, Inc. and CORT Business Services Corporation.
Q: WHAT WILL O'SULLIVAN STOCKHOLDERS RECEIVE FOR EACH O'SULLIVAN SHARE IF THE
MERGER IS COMPLETED?
A: Upon completion of the merger, each share of O'Sullivan common stock becomes
$16.75 in cash and one share of senior preferred stock of O'Sullivan.
However, some of the shares of O'Sullivan common stock and options to
acquire shares held by management participants in the buyout will be
exchanged for common stock, junior preferred stock and options to acquire
junior preferred stock of the surviving corporation.
Q: WHAT ARE THE TERMS OF THE SENIOR PREFERRED STOCK TO BE RECEIVED IN THE
MERGER?
A: Each share of senior preferred stock will initially have a liquidation value
of $1.50. The annual dividend rate for each share of senior preferred stock
is 12% of the liquidation value. We do not anticipate paying the dividends
on the senior preferred stock in cash. Moreover, under the terms of the debt
to be issued by O'Sullivan in the transaction, O'Sullivan may be limited or
prohibited from paying dividends on the senior preferred stock in cash.
Instead, upon a liquidation of O'Sullivan or a redemption of the senior
preferred stock, holders of the senior preferred stock will be entitled to
receive cash in an amount equal to the value of all accrued unpaid dividends
plus the liquidation value of the senior preferred stock. On the twelfth
anniversary of the completion of the merger, O'Sullivan is required to
redeem the senior preferred stock for the total liquidation value plus all
unpaid dividends.
Q: WILL THE NEW PREFERRED STOCK OF O'SULLIVAN BE LISTED ON A NATIONAL SECURITIES
EXCHANGE?
A: No. We do not expect that the shares of preferred stock of O'Sullivan will
be listed on any national securities exchange or any inter-dealer quotation
system.
Q: IF I DO NOT SUPPORT THE MERGER, DO I HAVE ANY ALTERNATIVES?
A: Yes. If you do not vote to approve the merger agreement and you follow the
required procedures, you may receive the fair cash value of your shares as
appraised by the Delaware Court of Chancery. This payment will only be made
if the merger is completed and if you exercise your appraisal rights.
1
<PAGE>
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, just indicate on your proxy
card how you want to vote. Sign, mail and date the proxy card in the
enclosed prepaid return envelope marked "Proxy" as soon as possible. By
doing so, your shares will be represented and voted at the special meeting
to be held at 9:00 a.m., local time, on November 17, 1999 at the Embassy
Suites Kansas City Airport Hotel, 7640 Northwest Tiffany Springs Parkway,
Kansas City, Missouri. In order for us to complete the merger, holders of a
majority of the outstanding common shares of O'Sullivan must approve the
merger agreement. IF YOU DO NOT VOTE YOUR SHARES, THE EFFECT WILL BE A VOTE
AGAINST THE MERGER AGREEMENT. THE BOARD OF DIRECTORS, WITH THE DIRECTORS WHO
ARE MANAGEMENT PARTICIPANTS IN THE BUYOUT ABSTAINING, UNANIMOUSLY RECOMMENDS
VOTING "FOR" THE MERGER AGREEMENT.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your shares will not be voted unless you follow the directions your
broker provides to you regarding how to vote your shares.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy card is voted.
Just send in a later dated, signed proxy card to our Corporate Secretary
before the meeting or attend the meeting in person and vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions for
exchanging your O'Sullivan stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger by the end of 1999. However, we cannot
assure you as to when or if the merger will occur. We must first obtain the
approval of our stockholders at the special meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions please contact us at:
O'Sullivan Industries Holdings, Inc.
1900 Gulf Street
Lamar, Missouri 64759
(417) 682-8248
Attention: Rowland H. Geddie, III
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. THIS
SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. WE
URGE YOU TO READ CAREFULLY THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS REFERRED
TO IN THIS DOCUMENT TO FULLY UNDERSTAND THE MERGER. THE TERMS "O'SULLIVAN,"
"WE," "OUR," AND "US" REFER TO O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND ITS
SUBSIDIARIES, BOTH BEFORE AND AFTER THE COMPLETION OF THE MERGER. WE HAVE
INCLUDED PAGE AND CAPTION REFERENCES TO DIRECT YOU TO MORE COMPLETE INFORMATION
IN THE DOCUMENT. FOR A GUIDE AS TO WHERE YOU CAN OBTAIN MORE INFORMATION ON
O'SULLIVAN GENERALLY, SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 85.
THE MERGER
Under the merger agreement, as amended on October 18, 1999, a recently
created corporation named OSI Acquisition, Inc. will merge into O'Sullivan.
Principals of Bruckmann, Rosser, Sherrill & Co., L.L.C., a private equity firm,
formed OSI. We will be the surviving corporation in the merger. OSI will cease
to exist as a corporation after the merger. Some members of management are
participating with BRS in the buyout of O'Sullivan. The management participants
in the buyout include 32 members of management, three directors and an affiliate
of a fourth director. After completion of the merger, the management
participants in the buyout will own a total of approximately 27.1% of the common
stock of the surviving corporation. BRS and its affiliates will own the balance.
See "Special Factors--Security Ownership of the Surviving Corporation After the
Merger" on page 42.
WHAT YOU WILL RECEIVE IN THE MERGER
If we complete the merger, each share of common stock becomes $16.75 in cash
and one share of senior preferred stock of O'Sullivan. Each option to purchase
one share of common stock held by directors, officers and employees of
O'Sullivan will generally become one share of senior preferred stock plus cash
equal to the difference between $16.75 and the exercise price of that option.
This consideration will not be paid for some of the holdings of the management
participants in the buyout.
OPINION OF O'SULLIVAN'S FINANCIAL ADVISOR (SEE PAGE 25)
The O'Sullivan special committee received a written opinion from Salomon
Smith Barney Inc. The written opinion states that the merger consideration, as
of October 18, 1999, was fair from a financial point of view to the holders of
O'Sullivan common stock, other than the management participants in the buyout.
SALOMON SMITH BARNEY'S OPINION TO THE SPECIAL COMMITTEE IS NOT A RECOMMENDATION
TO ANY STOCKHOLDER AS TO HOW TO VOTE. We have attached Salomon Smith Barney's
opinion to this document as Appendix B. The opinion describes important
considerations, assumptions and limitations. We encourage you to read the
opinion carefully in its entirety.
VOTES REQUIRED; RECORD DATE FOR VOTING (SEE PAGE 54)
You may vote at the special stockholders meeting if you owned O'Sullivan
common stock at the close of business on September 29, 1999. To approve the
merger agreement, the holders of a majority of outstanding O'Sullivan common
stock entitled to vote at the special meeting must vote in favor of doing so. If
you do not vote your shares, the effect will be a vote against the merger
agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS (SEE PAGE 70)
The board recommends that you vote in favor of the merger agreement. Four of
the members of our board of directors have conflicts of interest since they are
management participants in the buyout. These four directors abstained from
voting to approve the merger agreement. The remaining four directors, who are
the members of the special committee, voted unanimously to approve the merger
agreement. See "Special Factors--Conflicts of Interests; Arrangements with
Management" on page 43.
3
<PAGE>
ACCOUNTING TREATMENT (SEE PAGE 52)
We expect the merger to qualify for recapitalization accounting. Under this
method, the historical basis of the assets and liabilities of O'Sullivan will
not be affected.
COMPLETION OF THE MERGER (SEE PAGE 70)
Before we can complete the merger, a number of conditions must be satisfied.
These include:
- approval of the merger agreement by holders of a majority of our
outstanding shares of common stock;
- the absence of any legal prohibitions against the merger;
- OSI receiving financing in an amount necessary to complete the merger;
- appraisal rights not being requested for more than 5% of our outstanding
shares;
- the absence of any material adverse change in our business;
- O'Sullivan receiving necessary consents under our loan agreements; and
- material compliance with our obligations under the merger agreement.
We will complete the merger shortly after all of the conditions to the merger
have been satisfied or waived. We expect to complete the merger by the end of
1999, but we cannot be certain when or if the conditions will be satisfied or
waived.
FINANCING OF THE MERGER (SEE PAGE 34)
BRS and OSI require approximately $360 million to complete the merger and
pay related fees and expenses.
Lehman Brothers Inc. and Lehman Commercial Paper Inc. have agreed to provide
the necessary debt financing, if a number of conditions are satisfied. These
conditions include:
- OSI having received from BRS and management participants in the buyout
$58.9 million in cash and equity of O'Sullivan;
- no event having occurred that affects O'Sullivan's business in a material
adverse manner;
- no material adverse change in the financial markets since October 14, 1999
that may prevent Lehman from being able to sell the debt financing to
third parties;
- the merger being completed for a total purchase price of not more than
$358.1 million, including fees and expenses not greater than
$24.5 million; and
- Lehman having received satisfactory lien searches, solvency opinions,
environmental reports and legal opinions.
BRS has agreed to purchase up to $58.9 million of equity of OSI and to
provide or cause others to provide $25.0 million of debt financing if a number
of conditions are satisfied. These conditions include:
- the conditions to OSI's obligations under the merger agreement being
satisfied; and
- OSI having received sufficient cash to complete the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 71)
O'Sullivan and OSI may agree to terminate the merger agreement at any time
without completing the merger, even after our stockholders have approved it.
In addition, either O'Sullivan or OSI may decide to terminate the merger
agreement if:
- the merger has not been completed by November 30, 1999;
- our stockholders fail to approve the merger agreement; or
- the other party breaches its representations or obligations under the
merger agreement in a material manner.
If a more favorable proposal to acquire O'Sullivan is made by a third party,
we also have the right to terminate the merger agreement if the special
committee believes that the board of directors is under a fiduciary obligation
to do so.
4
<PAGE>
COMPENSATION PAYABLE IF MERGER NOT COMPLETED (SEE PAGE 72)
If the merger is not completed because of a possible alternative transaction
with a third party not affiliated with BRS, we may be required to compensate
OSI. This compensation is limited to $11.5 million in cash, including
termination fees and reimbursement of OSI's expenses. The requirement to pay
this compensation could discourage other companies from trying or proposing to
combine with O'Sullivan before the completion of the merger.
CONFLICTS OF INTERESTS; ARRANGEMENTS WITH MANAGEMENT (SEE PAGE 43)
Management participants in the buyout have interests in the merger that may
conflict with those of the other O'Sullivan stockholders. These interests
include:
- some of the shares of O'Sullivan common stock and options to acquire
shares that are held by management participants in the buyout will be
exchanged for common stock, junior preferred stock and options to acquire
junior preferred stock of the surviving corporation. These shares will not
become $16.75 per share and one share of senior preferred stock;
- agreements with our executive officers and key managers generally provide
them with a cash payment and the continuation of benefits if their
employment is terminated up to 24 months after a change in control of
O'Sullivan. The merger would constitute a change in control of O'Sullivan
for this purpose; and
- some of the management participants in the buyout will continue to serve
as officers and directors of the surviving corporation.
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 48)
The merger will be a taxable transaction to you for United States federal
income tax purposes and also may be a taxable transaction to you for state,
local, foreign and other tax purposes.
You should consult your own tax advisor for a full understanding of the tax
consequences.
5
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth our selected consolidated historical
financial data for the years ended and at June 30, 1995 through 1999. These data
were derived from our audited consolidated financial statements. You should read
the data presented below together with, and qualified by reference to, our
consolidated financial statements and related notes for the three years in the
period ended June 30, 1999 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are included in our 1999
Annual Report on Form 10-K. Our Form 10-K is included as Appendix F to this
document. See "Where You Can Find More Information" on page 85.
6
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.............................................. $269,306 $291,766 $321,490 $339,407 $379,632
Costs and expenses:
Cost of sales........................................ 208,176 229,262 230,578 244,086 267,630
Selling, marketing and administrative................ 45,489 52,691 62,137 69,212 74,962
Merger-related expenses.............................. -- -- -- -- 1,143
Restructuring charge................................. -- 5,212 -- -- --
-------- -------- -------- -------- --------
Total costs and expenses............................... 253,665 287,165 292,715 313,298 343,735
Operating income......................................... 15,641 4,601 28,775 26,109 35,897
Interest expense, net.................................... 2,382 3,831 2,327 2,468 2,844
-------- -------- -------- -------- --------
Income before income taxes............................... 13,259 770 26,448 23,641 33,053
Income tax provision..................................... 5,038 433 10,050 8,742 11,900
-------- -------- -------- -------- --------
Net income............................................... $ 8,221 $ 337 $ 16,398 $ 14,899 $ 21,153
======== ======== ======== ======== ========
Earnings per common share:
Basic.................................................. $ 0.49 $ 0.02 $ 0.98 $ 0.91 $ 1.32
Diluted................................................ $ 0.49 $ 0.02 $ 0.96 $ 0.89 $ 1.30
Weighted average shares outstanding:
Basic.................................................. 16,820 16,820 16,786 16,339 15,973
Diluted................................................ 16,820 16,822 17,056 16,715 16,330
Other Data:
Book value per share (a)................................. $ 8.36 $ 8.42 $ 9.19 $ 9.79 $ 11.34
Ratio of earnings to fixed charges....................... 6.19 1.19 10.98 9.21 10.87
Cash flow provided by operating activities............... $ 13,188 $ 25,345 $ 23,512 $ 27,209 $ 25,441
Cash flow used for investing activities.................. (30,355) (4,403) (15,825) (28,359) (15,779)
Cash flow provided (used) by financing activities........ 17,334 (21,000) (1,218) (4,015) (7,732)
EBITDA (b)............................................... 23,106 13,836 38,735 37,669 49,859
Depreciation and amortization............................ 7,465 9,235 9,960 11,560 13,962
Capital expenditures..................................... 30,355 4,403 15,825 28,359 15,779
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (in thousands):
Working capital.......................................... $ 86,058 $ 71,136 $ 82,045 $ 72,893 $ 85,262
Total assets............................................. 228,477 212,317 232,607 250,314 266,967
Long-term debt........................................... 51,000 30,000 30,000 30,000 22,000
Stockholders' equity..................................... 140,624 141,615 156,790 163,670 185,136
</TABLE>
- ------------------------------
(a) Book value per share represents stockholders' equity divided by the diluted
weighted average shares outstanding during this period.
(b) EBITDA means earnings before interest expense and interest income, income
taxes, depreciation and amortization. EBITDA is presented here to provide
additional information about our operations. This item should be considered
in addition to, but not as a substitute for or superior to, operating
income, net income, cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles. EBITDA
may differ in the method of calculation from similarly titled measures used
by other companies.
7
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial data have been derived
from the unaudited pro forma financial data which were prepared by us to
illustrate the estimated effects of recapitalization accounting and the
financing of the merger. In addition, the unaudited pro forma financial data do
not purport to represent what the results of operations or financial position of
O'Sullivan would actually have been if the recapitalization and financing of the
merger had in fact occurred on these dates or to project the results of
operations or financial position of O'Sullivan for any future period or date.
The following data should be read in conjunction with, and are qualified by
reference to, the "Unaudited Pro Forma Financial Data" and related notes. See
"Unaudited Pro Forma Financial Data" on page 76 and "Where You Can Find More
Information" on page 85.
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1999
PRO FORMA
----------
<S> <C>
Statement of Operations Data:
Net sales................................................. $ 379,632
Costs and expenses:
Cost of sales........................................... 267,630
Selling, marketing and administrative................... 74,962
---------
Total costs and expenses.................................. 342,592
Operating income.......................................... 37,040
Interest expense, net..................................... 31,283
---------
Income before income taxes................................ 5,757
Income tax provision...................................... 1,800
---------
Net income................................................ 3,957
Preferred stock dividends................................. (11,738)
---------
Net loss attributable to common stockholders.............. (7,781)
=========
Loss attributable per common share:
Basic................................................... $ (5.69)
Diluted................................................. $ (5.69)
Weighted average shares outstanding:
Basic................................................... 1,368
Diluted................................................. 1,368
Other Data:
Book value (deficit) per common share..................... $ (42.17)
Pro forma EBITDA(a)....................................... 51,002
Depreciation and amortization............................. 13,962
Capital expenditures...................................... 15,779
Selected Ratios:
Ratio of earnings to combined fixed charges and preferred
stock dividends......................................... (b)
Ratio of earnings to fixed charges........................ 1.18
Ratio of pro forma EBITDA to interest expense............. 1.63
Ratio of senior debt to pro forma EBITDA.................. 2.45
Ratio of total debt to pro forma EBITDA................... 5.29
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1999
PRO FORMA
--------------
(IN THOUSANDS)
<S> <C>
Balance Sheet Data:
Total assets.............................................. $275,642
Total liabilities......................................... 323,476
Long term debt............................................ 270,000
Stockholders' deficit..................................... (57,691)
</TABLE>
- ------------------------
(a) EBITDA means earnings before interest expense and interest income, income
taxes and depreciation and amortization. EBITDA is presented here to provide
additional information about our operations. This item should be considered
in addition to, but not as a substitute for or superior to, operating
income, net income, cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles. EBITDA
may differ in the method of calculation from similarly titled measures used
by other companies.
(b) Fixed charges and preferred stock dividend requirements exceed pro forma
earnings by $5,981,000 for the year ended June 30, 1999.
9
<PAGE>
MARKET PRICES AND DIVIDENDS
The following table shows the range of the high and low sale prices of
O'Sullivan common stock as reported by the New York Stock Exchange. Our fiscal
year begins on July 1 of each year. We have not paid any dividends on our common
stock.
<TABLE>
<CAPTION>
HIGH LOW
------------ ------------
<S> <C> <C>
Fiscal Year 1998
First Quarter............................................. $16 7/16 $11 3/4
Second Quarter............................................ 14 9 1/4
Third Quarter............................................. 12 15/16 9 3/8
Fourth Quarter............................................ 16 7/16 12 7/16
Fiscal Year 1999
First Quarter............................................. 14 1/16 8 11/16
Second Quarter............................................ 11 3/16 8 3/4
Third Quarter............................................. 15 5/16 9 7/16
Fourth Quarter............................................ 19 1/4 13 3/8
Fiscal Year 2000
First Quarter............................................. 16 7/8 14
Second Quarter............................................ 15 1/4 14 5/8
(through October 15, 1999)
</TABLE>
10
<PAGE>
RECENT DEVELOPMENTS
[Lead-in text to come]
O'SULLIVAN FIRST QUARTER RESULTS
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998 % CHANGE
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................. $ $
Cost of sales.........................................
-------- --------
Gross profit..........................................
Gross profit percent..................................
Selling, marketing and administrative.................
Merger related expenses...............................
-------- --------
Operating income......................................
Net interest expense..................................
-------- --------
Income before income taxes............................
Income taxes..........................................
-------- --------
Net income............................................ $ $
======== ========
Earnings per share:
Basic............................................... $ $
Diluted............................................. $ $
Weighted average shares outstanding:
Basic...............................................
Diluted.............................................
</TABLE>
11
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1999 1998 1999
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ $ $
Trade receivables, net..............................
Inventories, net....................................
Prepaid expenses and other assets...................
-------- -------- --------
Total current assets..............................
Property, plant and equipment, net....................
Other assets..........................................
Goodwill, net.........................................
-------- -------- --------
$ $ $
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
-------- -------- --------
Accounts payable....................................
Accrued liabilities.................................
Income taxes payable................................
Current portion--long term debt.....................
-------- -------- --------
Total current liabilities.........................
Long term debt--less current
Non-current liabilities...............................
Deferred taxes........................................
-------- -------- --------
Stockholders' Equity.................................. $ $ $
======== ======== ========
</TABLE>
12
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING MATTERS IN DECIDING WHETHER TO VOTE IN
FAVOR OF THE MERGER AGREEMENT. YOU ALSO SHOULD CONSIDER THE OTHER INFORMATION
INCLUDED AND INCORPORATED BY REFERENCE IN THIS DOCUMENT.
THERE MAY NOT BE A TRADING MARKET FOR YOUR SENIOR PREFERRED STOCK.
The senior preferred stock is a new issue of securities for which there is
currently no established trading market. If your shares of senior preferred
stock are traded, they may trade at a substantial discount from their
liquidation value. Any discount would depend upon:
- the market demand for the senior preferred stock;
- the market for similar securities;
- our financial condition and performance;
- prevailing dividend and interest rates; and
- general economic conditions.
We cannot assure you that a trading market for our senior preferred stock
will develop. The absence of a trading market adversely affects the liquidity of
your shares. It may be difficult for you to sell your shares. We do not intend
to apply for the listing of the senior preferred stock on any securities
exchange or for quotation through any over-the-counter market. See "Special
Factors--Description of O'Sullivan Capital Stock After the Merger".
YOUR SENIOR PREFERRED STOCK WILL GENERALLY HAVE NO VOTING RIGHTS.
As holders of senior preferred stock, you will have no voting rights
regarding the conduct of our business. You will have the right to vote only on
matters relating to the senior preferred stock. This includes the right to vote
with respect to:
- the authorization of any series of our stock with a dividend or
liquidation preference senior to the senior preferred stock, and
- any change to the terms of the senior preferred stock after the merger.
See "Special Factors--Description of O'Sullivan Capital Stock After the Merger".
CASH PAYMENT FOR YOUR SENIOR PREFERRED STOCK DEPENDS UPON O'SULLIVAN'S SUCCESS.
After the completion of the merger, we will have a high level of debt. These
debt obligations will rank ahead of the senior preferred stock. We cannot assure
you that we will generate cash flow sufficient to repay our debt obligations. If
we cannot pay our debt obligations, holders of the senior preferred stock may
not receive a cash payment for their interest and liquidation value of the
stock. Furthermore, under Delaware law, O'Sullivan may not repurchase the senior
preferred stock on the twelfth anniversary of the completion of the merger if at
that time its remaining assets are not sufficient to pay its outstanding
obligations.
After the completion of the merger, we will have $270 million of
indebtedness. Of this amount, according to BRS, $125 million of new debt will
have a floating interest rate estimated at this time to be initially about 9.25%
to 9.5%, $110 million of new debt will have a fixed interest rate estimated at
this time to be about 12.5% and $25 million of new debt will have a fixed
interest rate estimated at this time to be about 13.5%. In addition, an existing
$10 million of industrial revenue bonds will remain outstanding. These bonds
will have a floating interest rate estimated at this time to be about 8.5%.
These interest rates will not be known until the time of the completion of the
merger. They may be higher or lower than the rates indicated. The floating
interest rate may change from time to time for
13
<PAGE>
reasons unrelated to O'Sullivan's performance. See "Special Factors--Description
of O'Sullivan Capital Stock After the Merger".
OUR PAYMENTS TO TANDY MAY BE SIGNIFICANTLY HIGHER THAN WE CURRENTLY ANTICIPATE
IF TANDY'S DISAGREEMENT WITH US OVER OUR TAX SHARING AND TAX BENEFIT
REIMBURSEMENT AGREEMENT IS NOT RESOLVED FAVORABLY TO US.
On June 29, 1999, Tandy filed suit in a Texas court against us. The suit
relates to a potential reduction in our tax benefit payments to Tandy that would
result from our increased interest expense after completion of the merger. Tandy
claims that this reduction would violate the tax sharing and tax benefit
reimbursement agreement. Although we believe that our interpretation of the tax
sharing agreement will ultimately prevail over Tandy's interpretation, we cannot
assure you of this. If Tandy were to prevail, our increased interest expense
following the merger would not be taken into account in determining our annual
payments to Tandy. For example, based on current estimates, our payments to
Tandy would be approximately $3 million greater than we currently anticipate
over the next two fiscal years combined. However, if our earnings are
significantly less than current estimates, then the difference between the
amount we believe we would owe to Tandy and the amount Tandy believes we would
owe under the tax sharing agreement would be significantly greater. If
necessary, we would fund these increased payment obligations from cash flow from
operations, borrowing under the revolving credit agreement, or other sources of
capital. See "Special Factors--Tax Sharing and Tax Benefit Reimbursement
Agreement with Tandy".
OFFICERS AND DIRECTORS OF O'SULLIVAN HAVE AGREEMENTS AND OTHER ARRANGEMENTS THAT
MAY CREATE POTENTIAL CONFLICTS OF INTEREST WITH O'SULLIVAN STOCKHOLDERS
REGARDING THE MERGER.
When considering the recommendation of the board of directors, you should be
aware that the management participants in the buyout have interests which are
different from yours. These persons will continue to participate in the earnings
and growth of O'Sullivan after the completion of the merger. Some of these
persons will continue as directors and officers of the surviving corporation.
Some of them have rights under termination protection agreements. These
interests may create potential conflicts of interest. The board of directors was
aware of these possible conflicts when they approved the merger. See "Special
Factors--Conflicts of Interest; Arrangements with Management".
THE TERMINATION FEES PROVIDED FOR UNDER THE MERGER AGREEMENT MAY DISCOURAGE
OTHER COMPANIES FROM TRYING TO COMBINE WITH US EVEN IF THESE BIDS OFFER HIGHER
IMMEDIATE VALUE TO STOCKHOLDERS.
- We have agreed to termination fees that could discourage other companies
from trying or proposing to combine with us in an alternative transaction.
- If the merger with OSI is not completed because of a possible alternative
transaction, we may be required to compensate OSI up to $11.5 million.
- If any of these termination fees were to be paid, we would experience a
material negative impact on our financial condition and results of
operations.
See "The Merger Agreement--Termination Fees".
OUR PROFITS WOULD BE REDUCED IF THE PRICES OUR SUPPLIERS CHARGE US FOR RAW
MATERIALS INCREASE.
We purchase large quantities of raw materials, including particleboard and
fiberboard. We are dependent on outside suppliers for all of our raw material
needs. Therefore, we are subject to changes in the prices charged by our
suppliers. In the past, our profits have been reduced by price increases in the
prices of particleboard and fiberboard.
In the fourth quarter of fiscal year 1999, some of our particleboard
suppliers increased their prices by approximately 3%. In October 1999, one of
these suppliers further increased its prices by approximately 3%. In fiscal year
1999, we spent approximately $85 million on these products. Also in
14
<PAGE>
fiscal year 1999, the price of corrugated cartons we purchased decreased by
approximately 8% between June 1998 and March 1999. In March 1999, some of our
corrugated carton suppliers announced that they intended to increase prices by
approximately 8%. In fiscal year 1999, we spent approximately $15 million on
corrugated cartons. We anticipate that these price increases may be partially
offset by other factors. These factors include raw material price decreases,
savings from our value engineering program designed to reduce costs without
compromising product quality or appearance, increased productivity in our
manufacturing operations and higher selling prices for new products at the
retail level. However, we cannot assure you that these efforts will reduce the
effect of the price increases already implemented or any future price increases.
BECAUSE WE SELL OUR PRODUCTS TO A SMALL NUMBER OF CUSTOMERS, OUR REVENUE WOULD
BE REDUCED IF ONE OF OUR CUSTOMERS SIGNIFICANTLY REDUCED ITS PURCHASES OF OUR
PRODUCTS OR WERE UNABLE TO FULFILL ITS FINANCIAL OBLIGATIONS TO US.
Similar to other large ready-to-assemble furniture manufacturers, our sales
are concentrated among a relatively small number of customers. If one of these
customers is unable to fulfill its obligations to us or reduces its purchases
from us, our revenues would be reduced.
During fiscal 1999, our two largest customers accounted for approximately
34.0% of our net sales. OfficeMax accounted for 20.9% and Office Depot accounted
for 13.1% of these sales. Consistent with industry practice, we do not have long
term contracts with any of our customers. Consequently, our sales depend upon
our continuing ability to deliver attractive products at reasonable prices.
There can be no assurance that we will be able to sell to these or other
customers on an economically advantageous basis in the future or that customers
will continue to buy our products.
For fiscal year 1999, the accounts receivable balances of our largest five
customers comprised approximately 62% of our total receivables balance. In
March 1999, one of our large customers, Service Merchandise Co., filed for
bankruptcy protection. Montgomery Ward & Co., another large customer, also filed
for bankruptcy protection in July 1997 and emerged from bankruptcy in
August 1999. In fiscal year 1999, sales to Service Merchandise were
approximately 7% of our gross annual sales. During that year, sales to
Montgomery Ward were approximately 3% of our gross annual sales. Service
Merchandise has announced that it plans to reorganize and continue its
operations. Sales to Service Merchandise and Montgomery Ward may decline or
cease altogether. We cannot assure you that we will be able to replace any
reduction in these sales. We are currently shipping to Service Merchandise while
it operates under Chapter 11 bankruptcy court protection. This protection gives
vendors some priority among claims in the event of liquidation. We cannot assure
you that other customers will not experience similar financial difficulties in
the future. Because our sales are concentrated among a small number of
customers, our revenues could decrease significantly if this occurs.
OUR SALES MAY DECREASE IF THERE IS A REDUCTION IN RETAIL SALES GENERALLY,
ESPECIALLY IF THE REDUCTIONS OCCUR IN THE INDUSTRIES WHICH WE BELIEVE ARE
CONTRIBUTING TO THE GROWTH OF THE READY-TO-ASSEMBLE FURNITURE INDUSTRY.
Most of our sales are to major retail chains. In recent years, the retail
environment in North America has been highly competitive. If there is a
reduction in the overall level of retail sales, our sales could also decline. We
believe that the increase in sales of ready-to-assemble furniture over the last
several years has occurred in part because there has been an increase in sales
of personal computers and home entertainment electronic equipment. If the level
of sales of these types of electronic equipment decreases, our sales could also
decrease.
WE OPERATE IN THE HIGHLY COMPETITIVE READY-TO-ASSEMBLE SEGMENT OF THE FURNITURE
INDUSTRY.
The industry in which we operate is highly competitive. Some of our
competitors are significantly larger and have greater financial, marketing and
other resources.
15
<PAGE>
Along with some of our competitors, we have continued to increase production
capacity significantly as the market for ready-to-assemble furniture has grown.
In fiscal year 1996, these increases in capacity created some surplus in
production capacity in the ready-to-assemble furniture industry. This extra
capacity heightened competition in the industry. This increased competition put
pressure on us to reduce our prices and consequently reduced our profits. The
current increases in the industry's production capacity could again cause excess
capacity and heightened competition if our sales do not increase as much as we
expect. We cannot assure you that we will be able to compete successfully in the
future or that competitive pressure will not reduce our profits in the future.
THE INTERESTS OF OUR PRINCIPAL COMMON STOCKHOLDERS MAY NOT BE ALIGNED WITH THE
INTERESTS OF THE HOLDERS OF THE SENIOR PREFERRED STOCK.
Immediately after the completion of the merger, affiliates of BRS will own
securities representing approximately 72.9% of the voting power of our
outstanding common stock. By reason of their ownership, they will control our
affairs and policies. There may be circumstances in which the interest of BRS
and its affiliates could be in conflict with the interests of the holders of the
senior preferred stock. For example, BRS and its affiliates may have an interest
in pursuing transactions that, in their judgment, could enhance their common
equity investment, even though such transactions might involve risks to the
holders of the senior preferred stock.
16
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document contains forward-looking statements about the merger and about
our financial condition, results of operations, plans, objectives, future
performance and business. This includes information relating to cost savings,
benefits, revenues and earnings estimated to result from the merger. It also
includes statements using words like "believes," "expects," "anticipates",
"plans" or "estimates" or similar expressions.
These forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those predicted by the forward-looking
statements. Factors and possible events which could cause results to differ
include:
- expected significant indebtedness that may limit our financial and
operational flexibility;
- costs or difficulties related to the merger are greater than expected;
- changes from anticipated levels of sales, whether due to future national
or regional economic and competitive conditions, customer acceptance of
existing and new products, or otherwise;
- pricing pressures due to excess capacity in the ready-to-assemble
furniture industry, as occurred in 1995, or customer demand in excess of
our ability to supply product;
- raw material cost increases, particularly in particle board and
fiberboard, as occurred in 1994 and 1995;
- transportation cost increases;
- loss of or reduced sales to significant customers as a result of a merger,
acquisition, bankruptcy, liquidation or any other reason, as occurred with
the liquidation of Best Products in 1996 and could occur with Service
Merchandise Co., Inc. and Montgomery Ward & Co., Inc.;
- actions of current or new competitors that increase competition with our
products or prices;
- the consolidation of manufacturers in the ready-to-assemble furniture
industry;
- increased advertising costs associated with promotional efforts;
- failure by O'Sullivan or a major supplier or vendor to identify and remedy
all critical year 2000 compliance issues;
- pending or new litigation, including the litigation involving Tandy, or
governmental regulations;
- other uncertainties which are difficult to predict or beyond our control;
and
- the risk that we incorrectly analyze these risks and forces, or that the
strategies we develop to address them could be unsuccessful.
Because these forward-looking statements involve risks and uncertainties,
actual results may differ significantly from those predicted in these
forward-looking statements. You should not place a lot of weight on these
statements. These statements speak only as of the date of this document or, in
the case of any document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements attributable to
O'Sullivan or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
17
<PAGE>
SPECIAL FACTORS
BACKGROUND TO THE MERGER
After the market price of the O'Sullivan common stock fell 47% from $16 7/16
per share on May 6, 1998 to $8 5/16 per share on September 10, 1998, members of
management concluded that the common stock was significantly undervalued.
Management did not believe that this decrease in value was warranted.
Accordingly, management began to consider alternative actions to increase
stockholder value. These actions included:
- increasing the visibility of O'Sullivan in the financial community through
increased participation in investor conferences, internet conferences and
other means;
- attempting to secure additional coverage of O'Sullivan by analysts in
investment banking firms;
- exploring strategic acquisitions;
- considering a substantial dividend to O'Sullivan stockholders;
- increasing the size of the stock repurchase program authorized by the
Board in May 1997; and
- exploring a possible sale of O'Sullivan to a financial or strategic buyer.
Management tried to increase O'Sullivan's visibility in the financial
community without success. Efforts to secure additional financial analyst
coverage also failed. We conducted a due diligence review of an acquisition
candidate in fall 1998, but we determined that this transaction would not
increase our earnings per share. While a substantial cash dividend to our
stockholders would provide cash to the stockholders, management believed that
the dividend would depress the stock price further. Management also believed
that this dividend might not change the investment community's view of
O'Sullivan. In addition, we would have to incur substantial indebtedness to pay
a large dividend. Therefore, this alternative was rejected. In August 1998, our
Board of Directors decided not to expand the size of our stock repurchase
program.
On September 24, 1998, Richard D. Davidson, President and Chief Operating
Officer of O'Sullivan, and Daniel F. O'Sullivan, Chairman of the Board of
O'Sullivan, met with representatives of Merrill Lynch & Co. to discuss finding a
financial buyer to work with management to increase stockholder value through a
purchase of O'Sullivan. Messrs. Davidson and O'Sullivan did not provide any
non-public information regarding O'Sullivan to Merrill Lynch or its
representatives. Messrs. Davidson and O'Sullivan did not limit Merrill Lynch to
prospective purchasers who would agree to continued management participation in
the surviving Merrill Lynch entity of any buyout.
Merrill Lynch identified several potential financial buyers, including BRS.
Messrs. Davidson and O'Sullivan met with four potential buyers on October 12 and
13, 1998. On October 27, 1998, Mr. Davidson and Thomas M. O'Sullivan, Jr., Vice
President-Sales of O'Sullivan, met with representatives of a fifth potential
buyer. This potential buyer was BRS. BRS was represented by Messrs. Harold
O. Rosser and Stephen F. Edwards. In each of the five presentations, management
discussed business, products, sales, operations, financial results and prospects
of O'Sullivan. The presentations were based on material prepared by Merrill
Lynch from public information about O'Sullivan and the furniture industry.
Non-public information about O'Sullivan was not provided or used in any of these
discussions. Management did not place any limits or conditions on potential
transactions with the prospective purchasers in these discussions.
None of the four potential buyers who participated in the earlier meetings
elected to pursue a transaction with O'Sullivan. However, following the meeting
with BRS, Mr. Davidson discussed with BRS terms upon which BRS might propose to
purchase O'Sullivan. General terms of management's participation in this
proposal were also discussed. These terms included the ability of management to
invest in the surviving corporation.
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On November 10, 1998, our board of directors received a proposal from BRS
for the possible acquisition of O'Sullivan for approximately $14.00 per share in
cash. The closing price of O'Sullivan's common stock on November 9, 1998 was
$10 15/16 per share. The BRS proposal was made with the participation of some
members of senior management and four directors of O'Sullivan. The proposal was
conditioned upon due diligence and negotiation of the terms of a definitive
agreement. The board rejected the proposal as inadequate.
After members of senior management expressed continued interest in acquiring
O'Sullivan for a possibly higher price, the board determined in early
December 1998 that a special committee of independent directors should be
established to consider the management proposal. William Bousquette, Charles
Hanson, Stewart Kasen and Ronald Stegall, the independent directors, were named
to serve as members of the special committee.
On December 21, 1998, the special committee held its first meeting. The
committee decided to explore alternatives for O'Sullivan. These alternatives
included making approaches to strategic as well as financial parties who were
potentially interested buyers. BRS was contacted as one of the potential
financial buyers. If an acceptable proposal was not received, the special
committee was prepared to recommend that O'Sullivan continue as an independent
public company. The committee elected William Bousquette to serve as its
chairman. The committee also retained Fried, Frank, Harris, Shriver & Jacobson
to serve as counsel to the special committee and Salomon Smith Barney to act as
its financial advisor.
With the assistance of Salomon Smith Barney, the special committee
identified a number of potential candidates believed to be potentially
interested in acquiring O'Sullivan. In mid-February 1999, at the direction of
the special committee, Salomon Smith Barney contacted these candidates to
determine their interest. Each candidate expressing an interest was given the
opportunity to examine non-public information regarding O'Sullivan following the
execution of a confidentiality agreement. On March 2, 1999, the special
committee reviewed with Salomon Smith Barney the status of the process.
Each interested party was asked to indicate by March 22, 1999, on a
preliminary and non-binding basis, the price per share of common stock it was
considering for a possible transaction. Seven parties provided indications of
interest. BRS was one of these interested parties.
Around March 22, 1999, O'Sullivan entered into termination protection
agreements with 24 of its director-level managers. The agreements were executed
to induce these key managers to remain with O'Sullivan if a change in control
occurs or is threatened. See "--Conflicts of Interest; Arrangements with
Management--TERMINATION PROTECTION AGREEMENTS."
On March 24, 1999, the special committee reviewed with Salomon Smith Barney
the preliminary indications of interest received. The committee also determined
that each of the interested parties should be invited to receive management
presentations about O'Sullivan. The management presentations were conducted
during April 1999. In addition, a form of merger agreement was prepared by Fried
Frank and provided to the interested parties. Each interested party was asked to
make a final offer and submit comments on the merger agreement no later than
April 30, 1999.
After the market closed on March 24, 1999, at the committee's direction,
O'Sullivan issued a press release making public the formation of the special
committee. The press release stated that the special committee was exploring
various alternatives for O'Sullivan, including a possible sale of the company.
The press release also noted that management had made a proposal to acquire
O'Sullivan. The closing price of the common stock on March 24, 1999 was $12.63.
On or about April 30, 1999, two offers were submitted. Both offers included
a number of conditions, including requests for further due diligence. BRS
offered the highest per share price at $18.00 in cash plus one share of senior
preferred stock with a liquidation value of $1.25. At the same time, the other
interested party had communicated that it was working diligently to enhance the
value
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of its proposal. On May 4, 1999, the special committee reviewed with Salomon
Smith Barney and Fried Frank the two offers submitted. The special committee
instructed Salomon Smith Barney and Fried Frank to initiate negotiations with
BRS in an effort to establish greater certainty of closing the transaction.
On May 6, 1999, Fried Frank and Salomon Smith Barney met with BRS and its
counsel to discuss the terms and conditions of the BRS proposal. These
discussions continued over the next several days. To increase the certainty of
closing, we asked BRS to drop conditions to its proposal that were not included
in the merger agreement we provided to BRS and other interested parties. BRS
expressed its willingness to drop some of its conditions. One of the conditions
dropped by BRS was its request for a letter from Tandy Corporation. This
condition would have required us to deliver written acknowledgement from Tandy
that our increased interest expense after completion of the merger would be
taken into account in determining the payments required to be made by us under
the tax sharing and tax benefit reimbursement agreement. At our request, BRS
also agreed to make O'Sullivan a third party beneficiary to BRS's commitment
letter to OSI. At the same time, BRS lowered the cash component of its offer by
$0.50, from $18.00 to $17.50. BRS also informed us that it would be unwilling to
proceed with the proposed merger without a termination fee being granted by
O'Sullivan. See "--Tax Sharing and Tax Benefit Reimbursement Agreement with
Tandy" and "The Merger Agreement--Termination Fees".
The special committee met again on May 10, 1999. The committee reviewed with
Fried Frank and Salomon Smith Barney the status of the offers and related legal
and financial considerations. The special committee instructed Fried Frank and
Salomon Smith Barney to attempt to arrive at a definitive agreement with BRS, if
possible, but to continue discussions with the other interested party.
The special committee also concluded that if the BRS proposal were accepted,
it would be appropriate that Daniel O'Sullivan's resignation as chairman of the
board be accelerated if the merger agreement were terminated. Mr. O'Sullivan had
previously agreed to resign as chairman of the board on March 31, 2000 if no
successor is selected by that time. Mr. O'Sullivan had already resigned as chief
executive officer on October 16, 1998. In conversations held during the week of
May 10, Mr. O'Sullivan agreed to the proposal that could accelerate his
resignation as chairman of the board.
On May 11, 1999, after further negotiations, BRS modified its offer to
increase the liquidation value of each share of senior preferred stock to be
issued in the merger by $0.50 per share to $1.75.
On May 13, 1999, at a meeting of the special committee, Fried Frank and
Salomon Smith Barney reviewed with the committee legal and financial aspects of
the proposed transaction with BRS. The special committee instructed Fried Frank
to continue to negotiate with BRS.
In the evening of May 13, 1999, Fried Frank met with BRS counsel seeking to
narrow the open issues. Our general counsel, Rowland Geddie, participated in
this meeting by telephone conference. On the morning of May 14, 1999, Fried
Frank met with BRS and its counsel to continue the negotiations. During that
period, discussions were also held with the other interested party.
On May 16, 1999, the special committee reviewed with Fried Frank and Salomon
Smith Barney the status of the proposals from BRS and the other interested
party. The special committee determined that the other party's offer was
financially inferior to the BRS offer. In addition to BRS's offer being at a
higher price, the other party's offer was conditioned on further due diligence
review. The need for additional due diligence raised concerns about the timing
of a transaction with this third party. Salomon Smith Barney also reviewed with
the special committee the financial analyses that it performed in its evaluation
of the merger consideration then offered by BRS. Based on the assumption that
the terms of the merger agreement at that time would remain substantially the
same, Salomon Smith Barney orally delivered its opinion as to the fairness, from
a financial point of view, of the merger consideration to the holders of
O'Sullivan common stock, other than the management
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participants in the buyout. After further discussion and consideration, the
special committee unanimously approved a transaction with BRS. This approval was
contingent on final negotiation of the merger agreement with terms approved by
the chairman of the special committee and ratification by the full board.
The full board of directors met later in the day on May 16, 1999. The
special committee presented its recommendations in favor of a merger with BRS.
Fried Frank gave its legal presentation and Salomon Smith Barney gave its
financial presentation. After further discussion and consideration, the board of
directors, with the directors who are management participants in the buyout
abstaining, unanimously approved and adopted the original merger agreement and
the merger with any changes that may be approved by the special committee. The
board of directors, with Daniel O'Sullivan abstaining, also voted unanimously to
amend Daniel O'Sullivan's retirement agreement so that his resignation as
chairman of the board would become effective on the earlier of March 31, 2000
and the termination of the merger agreement.
On the afternoon of May 16, 1999, Fried Frank initiated final negotiations
with BRS and its counsel. Negotiations continued until the morning of May 18,
1999 when the definitive terms of the original merger agreement were finalized
and the original merger agreement was executed. On May 18, 1999, before the
opening of trading on the NYSE, we issued a press release announcing that we had
signed the original merger agreement with OSI.
On or about September 21, 1999, BRS advised the special committee through
its financial and legal advisors that unfavorable developments in the high yield
debt market required a restructuring of the financing of the merger. This
restructuring included a commitment by BRS and the management participants in
the buyout to increase their equity investment in the merger by approximately
$5 million. The special committee was also advised that no change in the
consideration being paid to the stockholders of O'Sullivan would be required.
The special committee met on September 27, 1999 and reviewed with its legal and
financial advisors the new financing structure proposed by BRS and its
investment bank, Lehman Brothers. Salomon Smith Barney informed the special
committee that the new financing structure, as then proposed, did not affect the
validity of Salomon Smith Barney's opinion of May 17, 1999. The special
committee directed Fried Frank to file with the SEC as soon as possible an
amendment to the Form S-4 registration statement reflecting these changes to the
financing of the merger. After being reviewed by BRS, Lehman Brothers and their
legal advisors, an amended Form S-4 was filed with the SEC on October 1, 1999.
On October 13, 1999, BRS advised Salomon Smith Barney that, given
unfavorable developments in the high yield debt markets, a reduction in the
merger consideration of $1.00 in cash per share was needed in order to obtain
the financing necessary to complete the merger. During a special committee
meeting later that afternoon at which representatives of Salomon Smith Barney
and Fried Frank were present, the special committee instructed Salomon Smith
Barney to convey a counter-proposal to BRS as soon as possible. The
counter-proposal included a willingness to accept a $1.00 reduction in the per
share merger consideration, consisting of a $0.50 reduction in the cash
component and a $0.50 reduction in the liquidation value of the senior preferred
stock. However, the special committee's counter-proposal was conditioned upon
BRS agreeing to pay O'Sullivan $2.0 million if the merger is not completed by
November 30, 1999 other than as a result of a failure of O'Sullivan to comply
with its obligations under the merger agreement. In addition, the special
committee wanted to review the terms of the revised commitment letter to be
received by OSI from Lehman Brothers.
In the evening of October 14, 1999, BRS responded to the special committee
with a proposal which would reduce the cash component of the merger
consideration by $0.75 per share and reduce the liquidation value of the senior
preferred stock by $0.25 per share. As part of this proposal, BRS and the
management participants in the buyout would increase their equity investment in
the merger by $4.8 million. BRS would also obtain revised commitment letters
from Lehman Brothers. However, BRS
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was unwilling to agree to pay O'Sullivan the $2.0 million requested by the
special committee in the event the merger was not completed by November 30,
1999.
In the morning of October 15, 1999, Stephen Edwards of BRS called the
special committee chairman, William Bousquette. Mr. Edwards assured Mr.
Bousquette of BRS's commitment to, and optimism for completing, the merger on
the terms of BRS's most recent proposal. Later that day, the special committee
met to consider BRS's revised proposal. Representatives of Salomon Smith Barney
and Fried Frank participated in the meeting. The special committee concluded
that the BRS proposal increased the likelihood that the necessary debt financing
would be obtained and that the merger would be completed before November 30,
1999. The special committee decided that it would be willing to amend the merger
agreement to reflect BRS's latest proposal. The special committee requested
confirmation from both BRS and Lehman Brothers that they would remain committed
to completing the merger regardless of any development in the litigation
involving the tax sharing agreement with Tandy.
In the evening of October 15, 1999, Mr. Bousquette spoke with a
representative of Lehman Brothers. The representative of Lehman Brothers assured
Mr. Bousquette that Lehman Brothers is committed to obtaining the necessary debt
financing so that the merger could be completed before November 30, 1999. The
legal and financial advisors for both O'Sullivan and BRS worked throughout the
weekend to finalize the details necessary for amending the merger agreement and
related matters. A progress report was made by these advisors to the special
committee in the evening of October 16, 1999. A revised commitment letter was
received by the special committee during the evening of October 17, 1999. This
revised commitment letter acknowledged that the decisions in the litigation
involving the tax sharing agreement with Tandy since April 30, 1999 do not in
and of themselves constitute a material adverse change relating to O'Sullivan.
In the morning of October 18, 1999, the special committee met with
representatives from Fried Frank and Salomon Smith Barney to review the final
terms of the amended merger agreement and the revised commitment letter.
Immediately following that meeting the full board of O'Sullivan met. Fried Frank
gave its legal presentation and Salomon Smith Barney gave its financial
presentation regarding the revised terms of the merger. Salomon Smith Barney
also delivered to the special committee its opinion as to the fairness, from a
financial point of view, of the revised merger consideration which would be
received by the holders of O'Sullivan common stock, other than the management
participants in the buyout. The special committee unanimously recommended that
the full board approve and adopt the amended merger agreement. The full board of
directors, with the directors who are management participants in the buyout
abstaining, unanimously approved and adopted the amended and restated merger
agreement and the merger with any changes that may be approved by the special
committee.
An amended merger agreement was signed on October 18, 1999. Before the
opening of trading on the NYSE, we issued a press release announcing the revised
terms of the merger.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS
On October 18, 1999, the board of directors approved the amended merger
agreement and the merger and recommends approval of the amended merger agreement
and the merger by the O'Sullivan stockholders. This approval was unanimously
supported by the four members of the special committee. The remaining four
directors--Richard D. Davidson, Daniel F. O'Sullivan, Thomas M. O'Sullivan, Sr.
and Tyrone E. Riegel--abstained because they are management participants in the
buyout. The board of directors determined that the amended merger agreement and
the merger are fair to the stockholders who are not management participants in
the buyout. The board of directors also determined that the process by which
these determinations were made was appropriate to ensure a fair price. The
process included the establishment of the special committee, the auction process
and the arm's length negotiations with BRS. In reaching these determinations,
the board of directors adopted
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the financial analyses and opinion of Salomon Smith Barney as well as the
unanimous recommendations of the special committee. The Board considered the
following material factors that supported its decision:
(1) the merger will provide O'Sullivan stockholders a premium for their
shares compared to the market price at the time we publicly announced a
possible sale of O'Sullivan;
(2) information concerning comparable transactions in the furniture
industry, which transactions involved sales prices comparable to the
price being paid in the merger on an earnings multiple basis;
(3) the merger agreement with OSI was the result of an auction process and
arm's length negotiations in which the special committee was assisted by
its legal and financial advisors. See "--Background to the Merger";
(4) O'Sullivan publicly announced on March 24, 1999 that it formed the
special committee to consider alternatives, including a possible sale of
the company, and that management had submitted a buyout proposal;
(5) various alternatives to the merger, including the alternative of
remaining independent, and the risks associated with those alternatives;
(6) the current and past trading prices of O'Sullivan common stock compared
to the common stock of other furniture manufacturers;
(7) the opinion of Salomon Smith Barney as to the fairness, from a financial
point of view, of the merger consideration to the holders of O'Sullivan
common stock, other than the management participants in the buyout. See
"--Opinion of O'Sullivan's Financial Advisor";
(8) the terms and conditions of the merger agreement, including the right of
the board of directors to terminate the agreement if its fiduciary duties
required that action in the event a superior proposal from a third party
is made. See "The Merger Agreement"; and
(9) the past performance and reputation of BRS in making acquisitions.
In making its determination that the amended merger agreement and the merger
are fair to the stockholders who are not management participants in the buyout
and in recommending that the unaffiliated stockholders vote "FOR" the adoption
of the amended and restated merger agreement, the board of directors considered
a number of additional factors. These factors included:
- ENHANCED CERTAINTY OF COMPLETION. Unfavorable developments in the high
yield debt markets since May 17, 1999, the date of the original merger
agreement, have occurred. BRS advised the special committee that, given
these developments, there was significant uncertainty as to whether the
financing necessary to complete the merger could be obtained. The board of
directors believes that agreeing to amend the terms of the merger
agreement increases the likelihood of completing the merger.
- RISKS OF NON-COMPLETION. The price of O'Sullivan common stock has been
trading below the cash value of the merger consideration. The board of
directors believes that this discounted trading price reflected the
uncertainty in the financing markets and a lack of public confidence that
the original merger agreement would be completed. If the merger is not
completed, the board of directors believes that the trading levels of
O'Sullivan common stock may drop further, possibly by a significant
amount. By how much the stock price will be affected and when it would
recover cannot be predicted.
- UNCERTAINTY OF ALTERNATIVE TRANSACTIONS. If the merger is not completed,
the ability of O'Sullivan to attract and complete an alternative
transaction would be uncertain, particularly given the
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auction process previously conducted by the special committee and the
unfavorable developments in the high yield debt market since the auction
process was begun. No alternative transaction could be completed in the
same time period as the merger could be completed if the conditions to the
merger are satisfied.
The board of directors also considered a variety of risks and other
potentially negative factors concerning the merger. These included the
following:
(1) our only recourse in the event of a wrongful termination or material
breach of the merger agreement is against OSI, a company without assets;
(2) the obligation of OSI to complete the merger is conditioned upon
obtaining financing. The financing may not be received by OSI for reasons
beyond the control of O'Sullivan. See "--Financing of the Merger";
(3) the uncertainty of the value of the senior preferred stock. In this
regard, the factors considered included:
- there is no trading market for the senior preferred stock;
- the senior preferred stock will not be listed on any securities
exchange or for quotation through any over-the-counter market;
- the senior preferred stock will generally have no voting rights;
- the surviving corporation may be limited or prohibited from paying
dividends on the senior preferred stock in cash due to its debt
obligations;
- under Delaware law, O'Sullivan may not repurchase the senior preferred
stock on the twelfth anniversary of the completion of the merger if at
that time its remaining assets are not sufficient to pay its
outstanding obligation; and
- that Salomon Smith Barney utilized an estimated value for the senior
preferred stock of approximately 40% of its face amount. See "Risk
Factors" and "--Opinion of O'Sullivan's Financial Advisor";
(4) the termination fees that we may have to pay to OSI may discourage
others from proposing an alternative transaction that may be more
advantageous to our stockholders; and
(5) the potential conflicts of interest of the management participants in
the buyout.
After considering these factors, and taking into account the recommendation
of the special committee, the board of directors concluded that the positive
factors outweighed the negative factors. Because of the variety of factors
considered, the board of directors did not find it practicable to, and did not
make specific assessments of, quantify or otherwise assign relative weights to
the specific factors considered in reaching our determination. The determination
was made after consideration of all of the factors together. In addition,
individual members of the board of directors may have given different weights to
different factors.
The special committee and the board of directors did not consider it
necessary to require approval of the merger by at least a majority of our
stockholders who are not management participants in the buyout. The special
committee and the board believe that the approval of at least a majority of all
our stockholders is sufficient because of the other procedural safeguards which
are in place ensure the procedural fairness of the merger. These safeguards
include:
- Our board of directors established a special committee to consider
alternatives involving O'Sullivan;
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- The committee was comprised of four independent directors, who will have
no continuing interest in O'Sullivan after completion of the merger;
- The special committee selected its choice of investment bankers and
lawyers, without the involvement of the management of O'Sullivan;
- The selection of OSI as the company to acquire O'Sullivan was the result
of an auction process which was publicly disclosed;
- The special committee was actively involved in evaluating other
alternatives available to O'Sullivan;
- The special committee negotiated the terms of the merger with the
assistance of its investment bankers and lawyers; and
- The voting power of the management participants in the buyout,
representing less than 4.0% of the total voting power of O'Sullivan's
common stock, is small.
THE BOARD OF DIRECTORS, WITH DIRECTORS WHO ARE MANAGEMENT PARTICIPANTS IN
THE BUYOUT ABSTAINING, UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE AMENDED MERGER AGREEMENT AND THE APPROVAL OF THE
MERGER.
OPINION OF O'SULLIVAN'S FINANCIAL ADVISOR
O'Sullivan retained Salomon Smith Barney to act as exclusive financial
advisor to the special committee and requested that Salomon Smith Barney
evaluate the fairness, from a financial point of view, of the merger
consideration provided in the merger. On October 18, 1999, at a meeting of the
O'Sullivan board of directors held to evaluate and approve the revised terms of
the merger, Salomon Smith Barney delivered to the O'Sullivan special committee
an oral opinion to the effect that, as of the date of the opinion and based upon
and subject to the matters stated in the opinion, the merger consideration was
fair, from a financial point of view, to the holders of O'Sullivan common stock,
other than the management participants in the buyout. This opinion was confirmed
by delivery of a written opinion dated October 18, 1999, the date of the amended
merger agreement.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the amended merger agreement, and the terms of the senior
preferred stock attached as an exhibit to the amended merger agreement;
- held discussions with senior officers, directors and other representatives
and advisors of O'Sullivan and senior officers and other representatives
of BRS concerning the business, operations and prospects of O'Sullivan;
- examined publicly available business and financial information relating to
O'Sullivan;
- reviewed financial forecasts and other information and data for O'Sullivan
that the management of O'Sullivan provided to or discussed with Salomon
Smith Barney;
- reviewed the financial terms of the merger as described in the amended
merger agreement;
- reviewed current and historical market prices and trading volumes of
O'Sullivan common stock;
- reviewed the financial condition, historical and projected earnings and
other operating data of O'Sullivan;
- reviewed the capitalization of O'Sullivan and the surviving corporation;
- considered, to the extent publicly available, the financial terms of other
similar recent transactions that it considered relevant in evaluating the
merger;
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- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations it
considered relevant in evaluating those of O'Sullivan;
- approached, and held discussions with, third parties to solicit
indications of interest in the possible acquisition of O'Sullivan; and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as it deemed appropriate in arriving at its
opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data that it reviewed and considered. With respect to
these financial forecasts and other information and data, the management of
O'Sullivan advised Salomon Smith Barney that they were reasonably prepared and
reflected the best currently available estimates and judgments of the management
of O'Sullivan as to the future financial performance of O'Sullivan.
Salomon Smith Barney assumed, with the consent of O'Sullivan, that the
merger will be recorded as a recapitalization for financial reporting purposes.
Salomon Smith Barney did not express any opinion as to what the value of the
senior preferred stock or other securities of the surviving corporation actually
will be when issued in the merger or the price at which the senior preferred
stock or other securities of the surviving corporation will trade or otherwise
be transferable after the merger. Salomon Smith Barney did not make and was not
provided with an independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of O'Sullivan. It also did not make any
physical inspection of the properties or assets of O'Sullivan. Salomon Smith
Barney expressed no view as to, and its opinion does not address, the relative
merits of the merger as compared to any alternative business strategies that
might exist for O'Sullivan or the effect of any transaction in which O'Sullivan
might engage. Salomon Smith Barney's opinion was necessarily based on
information available, and financial, stock market and other conditions and
circumstances existing and disclosed, to it as of the date of its opinion.
Although Salomon Smith Barney evaluated the merger consideration from a
financial point of view, it was not asked to and did not recommend the specific
consideration payable in the merger. The merger consideration was determined
through negotiation between O'Sullivan and BRS. No other instructions or
limitations were imposed by O'Sullivan on Salomon Smith Barney with respect to
the investigations made or procedures followed by it in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED OCTOBER 18,
1999, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS APPENDIX B AND SHOULD
BE READ CAREFULLY IN ITS ENTIRETY. SALOMON SMITH BARNEY'S OPINION IS DIRECTED TO
THE O'SULLIVAN SPECIAL COMMITTEE AND RELATES ONLY TO THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE
PROPOSED MERGER. THE SUMMARY OF SALOMON SMITH BARNEY'S OPINION INCLUDED IN THIS
DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses. A copy of
Salomon Smith Barney's written presentation to the special committee relating to
its opinion has been filed as an exhibit to the Rule 13e-3 Transaction Statement
on Schedule 13E-3 filed by O'Sullivan with the Securities and Exchange
Commission and will be available for inspection and copying at the principal
executive offices of O'Sullivan during regular business hours by any interested
stockholder of O'Sullivan or stockholder representative who has been so
designated in writing and may be inspected and copied, and obtained by mail,
from the SEC.
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The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is difficult to summarize.
Accordingly, Salomon Smith Barney believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors or focusing
on information presented in tabular format, without considering all analyses and
factors or the narrative description of the analyses, could create a misleading
or incomplete view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion. Many of these factors are beyond the
control of O'Sullivan. No company, transaction or business used in those
analyses as a comparison is identical to O'Sullivan or the proposed merger, nor
is an evaluation of those analyses entirely mathematical; rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis do not necessarily reflect actual
values or future results or values. Those values may be significantly more or
less favorable than those suggested by the analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, these analyses and estimates are inherently subject to
substantial uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the O'Sullivan special committee in its evaluation of the merger
and should not be viewed as determinative of the views of the O'Sullivan special
committee, board or management with respect to the merger consideration or the
proposed merger.
The following is a summary of the material financial analyses that Salomon
Smith Barney performed in connection with the rendering of its opinion dated
October 18, 1999. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND THESE FINANCIAL
ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE
TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES.
CONSIDERING THE DATA SET FORTH BELOW WITHOUT CONSIDERING THE FULL NARRATIVE
DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE METHODOLOGIES AND
ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING OR INCOMPLETE
VIEW OF SALOMON SMITH BARNEY'S FINANCIAL ANALYSES.
SELECTED COMPANIES ANALYSIS
Using publicly available information, Salomon Smith Barney analyzed the
market values and trading multiples of O'Sullivan and the following 11 selected
publicly traded companies in the furniture manufacturing industry:
- Bassett Furniture Industries Inc.
- Bush Industries, Inc.
- CompX International Inc.
- Dorel Industries Inc.
- Ethan Allen Interiors Inc.
- Furniture Brands International, Inc.
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- Herman Miller, Inc.
- HON INDUSTRIES, Inc.
- La-Z Boy Inc.
- Ladd Furniture, Inc.
- Steelcase Inc.
Salomon Smith Barney compared market values as a multiple of, among other
things, latest 12 months and estimated calendar year 1999 net income and
adjusted market values, calculated as equity market, plus debt, minority
interest, preferred stock, out-of-the-money convertible securities, less
investments in unconsolidated affiliates and cash, as multiples of latest
12 months revenues, earnings before interest, taxes, depreciation and
amortization, and earnings before interest and taxes. All multiples were based
on closing stock prices on October 15, 1999. Net income estimates for the
selected companies were based on publicly available research analysts' estimates
and net income estimates for O'Sullivan were based both on internal estimates of
the management of O'Sullivan and on publicly available research analysts'
estimates.
Salomon Smith Barney then applied a range of selected multiples implied by
the selected companies of latest 12 months and estimated calendar year 1999 net
income and latest 12 months revenues, earnings before interest, taxes,
depreciation and amortization, and earnings before interest and taxes to
corresponding financial data for O'Sullivan. This analysis resulted in the
following implied per share equity reference range for O'Sullivan, as compared
to the per share equity value for O'Sullivan implied by the merger consideration
utilizing an estimated value for the preferred stock component of the merger
consideration of approximately 40% of its face value:
<TABLE>
<CAPTION>
Implied Per Share Equity Per Share Equity Value for O'Sullivan
Reference Range for O'Sullivan Implied by the Merger Consideration
------------------------------ -------------------------------------
<S> <C>
$15.96 - $19.21 $17.35
</TABLE>
PRECEDENT TRANSACTIONS ANALYSIS
Using publicly available information, Salomon Smith Barney reviewed the
purchase prices and implied transaction value multiples paid or proposed to be
paid in the following nine selected transactions in the furniture manufacturing
industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
- - La-Z Boy Inc. LADD Furniture, Inc.
- - Falcon Products, Inc. Shelby Williams Industries, Inc.
- - Trivest Inc. WinsLoew Furniture, Inc.
- - E.M. Warburg, Pincus & Co. Knoll Inc. (remaining 40% stake)
- - Bush Industries, Inc. Fournier Furniture, Inc.
- - Dorel Industries Inc. Ameriwood Industries International Corp.
- - Citicorp Venture Capital Ltd. Masco Corp. (home furnishing)
- - Leggett & Platt, Inc. Pace Industries, Inc.
- - Furniture Brands International, Inc. Thomasville Furniture Industries, Inc.
</TABLE>
Salomon Smith Barney compared the transaction values implied by the purchase
prices in the selected transactions as multiples of latest 12 months revenues,
earnings before interest, taxes, depreciation and amortization, and earnings
before interest and taxes. All multiples were based on financial information
available at the announcement date of the relevant transaction.
Salomon Smith Barney then applied a range of selected multiples implied by
the selected transactions of latest 12 months revenues, earnings before
interest, taxes, depreciation and amortization, and earnings before interest and
taxes to corresponding financial data of O'Sullivan. This
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<PAGE>
analysis resulted in the following implied per share equity reference range for
O'Sullivan, as compared to the per share equity value for O'Sullivan implied by
the merger consideration utilizing an estimated value for the preferred stock
component of the merger consideration of approximately 40% of its face value:
<TABLE>
<CAPTION>
Implied Per Share Equity Per Share Equity Value for O'Sullivan
Reference Range for O'Sullivan Implied by the Merger Consideration
------------------------------ -------------------------------------
<S> <C>
$17.00 - $20.65 $17.35
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS
Salomon Smith Barney derived an implied equity reference range for
O'Sullivan by performing a five-year discounted cash flow analysis on the
stand-alone unlevered free cash flows of O'Sullivan for the fiscal years 2000
through 2004, based on internal estimates of the management of O'Sullivan. The
range of estimated terminal values for O'Sullivan was calculated by applying
terminal value multiples of 6.0x to 7.0x to O'Sullivan's projected 2004 earnings
before interest, taxes, depreciation and amortization. The cash flows and
terminal values were discounted to present value using discount rates ranging
from 12.0% to 14.0%. This analysis resulted in the following implied per share
equity reference range for O'Sullivan, as compared to the per share equity value
for O'Sullivan implied by the merger consideration utilizing an estimated value
for the preferred stock component of the merger consideration of approximately
40% of its face value:
<TABLE>
<CAPTION>
Implied Per Share Equity Per Share Equity Value for O'Sullivan
Reference Range for O'Sullivan Implied by the Merger Consideration
------------------------------ -------------------------------------
<S> <C>
$17.33 - $21.40 $17.35
</TABLE>
LEVERAGED BUYOUT ANALYSIS
Salomon Smith Barney derived an implied equity reference range for
O'Sullivan by performing a leveraged buyout analysis based on internal estimates
of the management of O'Sullivan and estimated rates of return for a financial
buyer. Applying a range of terminal value multiples of 6.5x to 7.5x to
O'Sullivan's projected 2003 earnings before interest, taxes, depreciation and
amortization resulted in a rate of return of approximately 25% to 40% for the
five-year period ending 2003. This analysis resulted in the following implied
per share equity reference range for O'Sullivan, as compared to the per share
equity value for O'Sullivan implied by the merger consideration utilizing an
estimated value for the preferred stock component of the merger consideration of
approximately 40% of its face value:
<TABLE>
<S> <C>
Implied Per Share Equity Per Share Equity Value for O'Sullivan
Reference Range for O'Sullivan Implied by the Merger Consideration
- ---------------------------------- -----------------------------------------
$15.50 - $18.50 $17.35
</TABLE>
PREMIUMS ANALYSIS
Salomon Smith Barney analyzed the premiums paid in 41 transactions completed
during the past two years having transaction values of between $250 million and
$400 million involving cash or cash/ stock consideration. Salomon Smith Barney
analyzed the premiums in these transactions based on the target company's stock
price one day and one month prior to public announcement of the transaction.
This analysis indicated the following premiums in the selected transactions, as
compared to the following implied premiums for O'Sullivan in the merger based on
the stock price of O'Sullivan common stock on October 15, 1999, the last trading
day prior to public announcement of the amended merger agreement, on May 17,
1999, the last trading day prior to public announcement of the merger, during
the 30 trading day average prior to May 17, 1999, on March 24, 1999, which is
the date of the
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<PAGE>
public announcement of the proposed management buyout of O'Sullivan, and one
month, three months, six months and twelve months prior to March 24, 1999:
<TABLE>
<CAPTION>
PREMIUM PREMIUM ONE
ONE DAY PRIOR TO MONTH PRIOR
PUBLIC TO PUBLIC
PREMIUMS ANNOUNCEMENT ANNOUNCEMENT
IMPLIED ------------------- -------------------
PERIOD IN THE MERGER MEAN MEDIAN MEAN MEDIAN
------ ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
19.2% 15.6% 32.9% 24.6%
October 15, 1999............................... 16.2%
May 17, 1999................................... (0.1%)
30 Trading Day Average (April 6, 1999 - May 17,
1999)........................................ 5.8%
Management Buyout Public Announcement Date
(March 24, 1999)............................. 37.4%
One Month Prior to March 24, 1999
(February 24, 1999).......................... 70.3%
Three Months Prior to March 24, 1999
(December 24, 1998).......................... 65.2%
Six Months Prior to March 24, 1999
(September 24, 1998)......................... 79.1%
Twelve Months Prior to March 24, 1999
(March 24, 1998)............................. 41.6%
</TABLE>
OTHER FACTORS
In rendering its opinion, Salomon Smith Barney considered other factors,
including a review of:
- historical and projected financial results of O'Sullivan;
- the history of trading prices and volume for O'Sullivan common stock and
the relationship between movements in O'Sullivan common stock, movements
in the common stock of selected companies and movements in the S&P 500
Index;
- selected published analysts' reports on O'Sullivan; and
- valuation of the preferred stock component of the merger consideration
based on a discount rate of 18.0% to 20.0% for periods of five, ten and
twelve years.
FEE ARRANGEMENTS AND OTHER RELATIONSHIPS
Under the terms of its engagement, O'Sullivan agreed to pay Salomon Smith
Barney a retainer fee of $150,000 at the time Salomon Smith Barney was retained
by the special committee and an opinion fee of $500,000 at the time Salomon
Smith Barney delivered its opinion dated May 17, 1999 relating to the original
merger agreement. In its May 17, 1999 opinion, Salomon Smith Barney used
substantially similar valuation methodologies as those reflected in its
October 18, 1999 opinion based on information available, and other conditions
and circumstances existing, on May 17, 1999. These earlier analyses have been
superceded by the financial analyses underlying Salomon Smith Barney's
October 18, 1999 opinion. Contingent upon completion of the merger, O'Sullivan
also agreed to pay Salomon Smith Barney a transaction fee equal to 1.0% of the
total consideration payable and liabilities assumed in the merger. The total
consideration payable in the merger, including assumed liabilities, is currently
estimated to be approximately $335 million. The retainer fee and the opinion fee
will be credited against the transaction fee. O'Sullivan has also agreed to
reimburse Salomon Smith Barney for its travel and other reasonable out-of-pocket
expenses, including the reasonable fees and expenses of its legal counsel, and
to indemnify Salomon Smith Barney and related persons against liabilities,
including liabilities under the federal securities laws, arising out of its
engagement.
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In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of O'Sullivan for their own account or
for the account of customers and, accordingly, may at any time hold a long or
short position in those securities. In addition, Salomon Smith Barney and its
affiliates, including Citigroup Inc. and its affiliates, may maintain
relationships with O'Sullivan, BRS and their respective affiliates.
O'Sullivan selected Salomon Smith Barney based on its experience, expertise
and reputation. Salomon Smith Barney is an internationally recognized investment
banking firm that, as a customary part of its business, evaluates businesses and
their securities in mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
FORECASTS
The financial forecasts included in this document have been prepared by, and
are the responsibility of, O'Sullivan. PricewaterhouseCoopers LLP has neither
examined nor compiled the accompanying financial forecasts and, accordingly,
PricewaterhouseCoopers LLP does not express an opinion or any other form of
assurance with respect thereto. The PricewaterhouseCoopers LLP report
incorporated by reference in this document relates to O'Sullivan's historical
financial information. It does not extend to the financial forecasts and should
not be read to do so.
O'Sullivan's management conducts strategic planning which typically includes
a financial forecast of future operations. Some of this information was shared
with Salomon Smith Barney. This information included management forecasts for
earnings before interest, taxes, depreciation and amortization. These forecasts
were:
<TABLE>
<S> <C>
Fiscal year Forecasts
- --------------------------------------------- ---------------------------------------------
2000 $57.6 million
2001 $63.0 million
2002 $67.2 million
2003 $71.2 million
2004 $74.8 million
</TABLE>
The forecasts for fiscal years 2000, 2001 and 2002 were shared with interested
potential buyers, each of whom received a management presentation.
These internal financial forecasts were prepared for internal budgeting and
planning only and not with a view to public disclosure or compliance with
published guidelines of the Commission or the guidelines established by the
American Institute of Certified Public Accountants regarding projections or
forecasts. While presented with numerical specificity, the forecasts are based
on a variety of assumptions relating to O'Sullivan's business and are inherently
subject to significant uncertainties and contingencies that are beyond the
control of management. Accordingly, actual results may differ materially from
those forecasted. The inclusion of the forecasts in this document should not be
regarded as a representation by O'Sullivan or any other person that these
forecasts are or will prove to be correct. Except to the extent required under
the federal securities laws, O'Sullivan does not intend to make publicly
available any update or other revisions to any of these forecasts to reflect
circumstances existing after the date of the preparation of the forecasts. See
"Risk Factors" and "Cautionary Statement Regarding Forward-Looking Information."
PURPOSE OF THE MERGER
The reason that BRS and the management participants in the buyout are
engaging in the merger is to acquire O'Sullivan. BRS and management participants
in the buyout believe that O'Sullivan's future business prospects can be
improved through BRS's active participation on the board of directors and in the
areas of strategic planning, acquisitions and financial matters. BRS's
assessment is based upon
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<PAGE>
publicly available information regarding O'Sullivan, due diligence
investigations by BRS of O'Sullivan and BRS's investment experience. In
addition, BRS and management participants in the buyout believe that O'Sullivan
will have greater operating flexibility to focus on its long-term value by
emphasizing growth and operating cash flow without the constraint of the public
market's emphasis on quarterly earnings. While BRS and the management
participants in the buyout believe that there will be significant opportunities
associated with their investment in O'Sullivan, there are also substantial risks
that they may not be fully realized.
Some members of management decided to pursue a buyout of O'Sullivan in the
fall of 1998 because they believed that O'Sullivan's stock price was
undervalued. They believed that a sale of O'Sullivan would provide a higher
value for stockholders. Management participants in the buyout believe that the
consideration offered in the merger is fair to the O'Sullivan's stockholders who
are not participating in the buyout. Management participants in the buyout also
believe that opportunities exist to improve O'Sullivan's performance further as
a private company. For these reasons, they are accepting the risk of investing
in the surviving corporation. See "--Fairness of the Merger."
The proposed acquisition of O'Sullivan has been structured as a merger of
OSI into O'Sullivan in order to permit the cancellation of all of O'Sullivan's
common stock, other than the shares being converted into common stock of the
surviving corporation by the management participants in the buyout, and to
preserve O'Sullivan's corporate identity and existing contractual arrangements
with third parties.
A large portion of the cash consideration paid to O'Sullivan's stockholders
will be financed through borrowings by O'Sullivan. The amount of debt financing
available to O'Sullivan is limited by the amount of money lenders are willing to
lend as well as the ability of O'Sullivan to make payments of interest and
principal on the debt incurred. By providing part of the merger consideration in
the form of senior preferred stock, OSI was able to offer to the stockholders a
greater total payment than if only cash consideration were offered.
The management participants in the buyout will receive shares of common
stock and series B junior preferred stock in exchange for some of their shares
of O'Sullivan common stock. They are investing in O'Sullivan together with BRS
and will receive the same types of securities as BRS. By retaining an interest
in the common equity of O'Sullivan, the management participants will continue to
participate in any future increases in the value of O'Sullivan. The management
participants in the buyout and BRS will receive preferred stock that is junior
to the senior preferred stock because the merger agreement requires that the
preferred stock received by O'Sullivan's selling stockholders rank ahead of
O'Sullivan's other equity securities.
FAIRNESS OF THE MERGER
BRS and management participants in the buyout believe the merger is fair to
O'Sullivan's unaffiliated stockholders. However, none of BRS, any of its
affiliates or the management participants in the buyout has undertaken any
formal evaluation of the fairness of the merger to O'Sullivan's stockholders.
Moreover, neither BRS nor the management participants in the buyout participated
in the deliberations of the special committee or received advice from the
special committee's financial advisor. Consequently, neither BRS nor the
management participants in the buyout are in a position to specifically adopt
the conclusions of the special committee with respect to the fairness of the
merger to the stockholders who are not management participants in the buyout.
Because of the variety of factors considered, BRS did not find it practicable to
make specific assessments of, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. The determination
of BRS and the management participants in the buyout that the merger is fair was
made after consideration of all the factors together. These factors include:
(1) the current and past trading prices of O'Sullivan common stock compared
to the common stock of other furniture manufacturers;
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<PAGE>
(2) the merger will provide O'Sullivan's stockholders a premium for their
shares compared to the market price at the time O'Sullivan publicly
announced a possible sale of O'Sullivan;
(3) the merger agreement was the result of an auction process and arm's
length negotiations in which the special committee was assisted by its
financial and legal advisers;
(4) O'Sullivan has advised BRS that its proposal was believed to be the best
alternative for O'Sullivan and its stockholders;
(5) O'Sullivan publicly announced on March 24, 1999 that it formed the
special committee to consider alternatives including a possible sale of
the company and that management had submitted a buyout proposal;
(6) the establishment of the special committee to evaluate its proposal as
well as other alternatives;
(7) the unanimous recommendation of the special committee. See "--Reasons
for the Merger; Recommendations of the Board of Directors"; and
(8) the fact that the special committee received a written opinion of its
independent financial advisor as to the fairness, from a financial point
of view, of the merger consideration to the holders of O'Sullivan common
stock, other than the management participants of the buyout. See
"--Opinion of O'Sullivan's Financial Advisor".
BRS and the management participants in the buyout believe these analyses and
factors provide a reasonable basis for them to believe that the merger is fair
to the holders of O'Sullivan common stock. This belief should not, however, be
construed as a recommendation to O'Sullivan's stockholders by BRS or the
management participants in the buyout to vote to approve the merger.
BRS did not consider the net book value, the going concern value or the
liquidation value of O'Sullivan to be material factors in determining the
fairness of the merger to O'Sullivan's unaffiliated stockholders. BRS does not
believe that these factors have any significant impact on the market trading
prices of O'Sullivan's common stock. BRS did not rely on any report, opinion or
appraisal in determining the fairness of the merger to O'Sullivan's unaffiliated
stockholders, but does not disagree with the conclusion expressed by Salomon
Smith Barney in its opinion to the special committee regarding the fairness,
from a financial point of view, of the merger consideration to the holders of
O'Sullivan common stock, other than the management participants in the buyout.
Except as otherwise disclosed in this document, BRS is not aware of any firm
offers made in the last eighteen months by an unaffiliated person to merge or
consolidate with O'Sullivan, to acquire all or any substantial part of the
assets of O'Sullivan or to acquire control of O'Sullivan. For the reasons cited
above and based upon their involvement in the process leading up to the merger,
BRS and the management participants in the buyout believe that the procedures
used by the special committee were fair to O'Sullivan's stockholders who are not
management participants in the buyout. These procedures include the entire
auction process and the fact that the merger must be approved by a majority of
all of O'Sullivan's stockholders, including management participants in the
buyout. See "--Reasons for the Merger; Recommendations of the Board of
Directors".
STRUCTURE OF THE MERGER
The acquisition has been structured as a one-step merger of OSI into
O'Sullivan. Each share of O'Sullivan common stock, other than the shares of
stockholders who elect to pursue their appraisal rights, will become $16.75 in
cash and one share of senior preferred stock. Some of the shares of O'Sullivan
common stock and options held by the management participants in the buyout will
be exchanged for common stock, junior preferred stock and options to acquire
junior preferred stock of the surviving company. After completion of the merger,
OSI will cease to exist.
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<PAGE>
FINANCING OF THE MERGER
The total amount of funds necessary to fund the merger and related
transactions is expected to be approximately $360 million. According to BRS,
these funds are expected to come from the following sources:
- an equity investment in O'Sullivan by an affiliate of BRS of approximately
$45.3 million in cash in exchange for shares of common stock and series B
junior preferred stock of the surviving corporation;
- an equity investment in O'Sullivan by the management participants in the
buyout of approximately $13.7 million resulting from an exchange of some
of their common stock of O'Sullivan, approximately $700 thousand in cash
and options to acquire common stock of O'Sullivan for shares of common
stock, series B junior preferred stock of the surviving corporation and
options to acquire series A junior preferred stock. The O'Sullivan common
stock will be valued at $18.25 per share for this purpose;
- the issuance in the merger of approximately $24.6 million of senior
preferred stock by the surviving corporation to the existing stockholders
of O'Sullivan other than for some of the shares of the management
participants in the buyout, based upon the liquidation value of these
shares;
- borrowings by O'Sullivan's operating subsidiary, O'Sullivan Industries,
Inc., totaling approximately $125 million under a senior secured credit
facility with a floating interest rate estimated at this time to be
initially about 9.25% to 9.5%, the issuance of $110 million of senior
subordinated notes with a fixed rate estimated at this time to be about
12.5%, and the assumption of $10 million of existing variable rate
industrial revenue bonds with a floating interest rate estimated at this
time to be about 8.5%; and
- the issuance by O'Sullivan of senior discount notes due 2009 yielding
gross proceeds of
$25 million with a fixed interest rate estimated at this time to be about
13.5% and the possible issuance of warrants to purchase common stock of the
surviving corporation.
BRS has advised O'Sullivan that the sources and terms of the borrowings
described above may be changed before completion of the merger.
The surviving corporation expects to repay this debt from its cash flow from
operations and/or the proceeds from new debt or equity financings. These
interest rates will not be known until the time of the completion of the merger.
They may be higher or lower than the rates indicated. The floating rate may
change from time to time for reasons unrelated to O'Sullivan's performance.
OSI has obtained a commitment from Lehman Commercial Paper Inc. and Lehman
Brothers Inc. to provide O'Sullivan with a senior secured credit facility in a
total amount of $165 million and to purchase $135 million of interim loans due
2000. The obligations under this commitment are subject to the satisfaction of
the following conditions:
- OSI having received from BRS and management participants in the buyout
$58.9 million in cash and equity of O'Sullivan;
- no event having occurred that affects O'Sullivan's business in a material
adverse manner;
- no material adverse change in the financial markets that may prevent
Lehman from being able to sell the debt financing to third parties;
- the merger being completed for a total purchase price of not more than
$358.1 million, including fees and expenses not greater than
$24.5 million; and
- Lehman having received satisfactory lien searches, solvency opinions,
environment reports and legal opinions.
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<PAGE>
SENIOR SECURED CREDIT FACILITY
According to BRS, the senior secured credit facility will be comprised of
the following:
- a $35 million tranche A term loan facility repayable in 24 quarterly
installments, in amounts to be agreed upon;
- a $90 million tranche B term loan facility repayable in 26 consecutive
quarterly installments, beginning 15 months after the completion of the
merger; and
- a $40 million revolving credit facility maturing six years after the
completion of the merger, which will include a $15 million letter of
credit subfacility and a $5 million swing line subfacility. We expect that
this revolving credit facility will be undrawn at the time of the
completion of the merger.
According to BRS, O'Sullivan Industries, Inc. will be the borrower under the
senior secured credit facility. All present and future domestic subsidiaries of
O'Sullivan Industries, Inc. will guarantee the senior secured credit facility.
In addition, the senior secured credit facility will be secured by the
following:
- substantially all of the assets of O'Sullivan Industries, Inc. and its
present and future domestic subsidiaries; and
- a pledge of all of the capital stock of O'Sullivan Industries, Inc.'s
present and future domestic subsidiaries and 65.0% of the capital stock of
O'Sullivan Industries, Inc.'s present and future direct foreign
subsidiaries.
SENIOR SUBORDINATED NOTES AND SENIOR DISCOUNT NOTES
According to BRS, O'Sullivan Industries, Inc. expects to issue $110 million
in senior subordinated notes. These senior subordinated notes will be senior
subordinated obligations of O'Sullivan Industries, Inc., ranking behind all of
the existing and future senior indebtedness of O'Sullivan Industries, Inc.,
including indebtedness under the senior secured credit facility. The senior
subordinated notes will be unconditionally guaranteed by each of the domestic
subsidiaries of O'Sullivan Industries, Inc. O'Sullivan expects to issue senior
discount notes due 2009 yielding gross proceeds of $25 million. These senior
discount notes will be senior obligations of O'Sullivan and they will
effectively rank behind all the existing and future indebtedness of O'Sullivan
Industries.
In the event the senior subordinated notes and the senior discount notes
cannot be placed prior to the completion of the merger, OSI has a commitment
from Lehman Commercial Paper Inc. and Lehman Brothers Inc. to provide O'Sullivan
with $135 million of interim loans due 2000. The interim loans would rank the
same as the senior subordinated notes and/or the senior discount notes. If
issued, these notes will have a maturity date that is 365 days from the
completion of the merger and will automatically convert upon maturity into term
loans that mature in 2009. The interest rate on both the interim loans and the
term loans increases each quarter, up to a maximum rate.
The conversion of the interim loans into term loans is conditioned upon:
- the absence of any event of default;
- the payment of all interest through the date of conversion;
- the payment of all fees, including a conversion fee payable to Lehman
Commercial Paper Inc. and Lehman Brothers Inc.; and
- the surviving corporation having filed a shelf registration statement with
the SEC to cover the resale of exchange notes which may be issued in
exchange for term loans.
According to BRS, the documents for these debt securities will contain
affirmative, negative and financial covenants and events of default customary
for issuances of similar debt securities of this size and type.
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<PAGE>
EFFECT OF THE MERGER ON O'SULLIVAN CAPITAL STOCK
The O'Sullivan common stock and the preferred stock purchase rights are
currently listed on the NYSE. Following the completion of the merger, neither
the senior preferred stock nor any other class or series of O'Sullivan's capital
stock will be listed on the NYSE or any other national securities exchange and
will not be quoted on the NASDAQ Stock Market, Inc. The surviving corporation
will, however, remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act in respect of the senior preferred stock and the
senior subordinated notes upon completion of the exchange offer.
DESCRIPTION OF O'SULLIVAN CAPITAL STOCK AFTER THE MERGER
COMMON STOCK
Following completion of the merger, the surviving corporation will be
authorized to issue a total of 2,000,000 shares of common stock, par value $1.00
per share.
The holders of common stock of the surviving corporation will be entitled to
one vote per share on all matters submitted for action by the stockholders.
There is no provision for cumulative voting with respect to the election of
directors. Accordingly, the holders of more than 50% of the shares of common
stock of the surviving corporation will be able to elect all of the directors
and the holders of the remaining shares will not be able to elect any directors.
All shares of common stock of the surviving corporation will be entitled to
share in dividends as the board of directors of the surviving corporation may
from time to time declare from legally available sources. The right to dividends
will be junior to the rights of holders of the senior preferred stock of the
surviving corporation.
Upon liquidation or dissolution of O'Sullivan, whether voluntary or
involuntary, all shares of common stock of the surviving corporation are
entitled to share equally in the assets available for distribution to
stockholders after payment of all prior obligations of O'Sullivan. These prior
obligations include the rights of any holder of senior preferred stock of the
surviving corporation.
PREFERRED STOCK
Following completion of the merger, O'Sullivan will be authorized to issue a
total of 19,000,000 shares of preferred stock, par value $1.00 per share. The
preferred stock outstanding after the completion of the merger will consist of
approximately 16,429,000 shares of senior preferred stock and 514,810 shares of
series B junior preferred stock. There will also be outstanding options to
acquire 61,190 shares of series A junior preferred stock. The board of directors
of the surviving corporation will have the right without stockholder action to
issue the remaining shares of preferred stock in series. The terms of these
series may be determined by our board. However, this right to determine the
terms of new series of preferred stock will be limited by the terms of the
senior preferred stock and the junior preferred stock.
SENIOR PREFERRED STOCK
LIQUIDATION VALUE. Each share of senior preferred stock will have a
liquidation value of $1.50.
36
<PAGE>
RANK. The senior preferred stock will rank ahead of all other classes of
our equity securities with respect to redemption rights and rights on
liquidation, winding up and dissolution. The senior preferred stock will rank
behind all of our existing and future indebtedness and other obligations.
DIVIDENDS
- The lending facilities to which we will be a party will prohibit or
restrict our payment of cash dividends.
- Holders of senior preferred stock will be entitled to receive cash
dividends only if they are declared by our board of directors and if we
have funds available for the payment of the dividends.
- Dividends will accrue on the senior preferred stock on a daily basis at a
rate of 12% per year.
- If we do not pay dividends in cash on June 30 or December 31 of each year,
then dividends will also accrue on all the unpaid dividends as of that
date.
- A share of senior preferred stock will accrue dividends from the date the
merger is completed until the liquidation value is paid.
- Dividends will cease to accrue on a share of senior preferred stock on the
date we pay the redemption price.
REPURCHASE OF OTHER EQUITY SECURITIES. As long as any senior preferred
stock is outstanding, we may not repurchase, redeem or otherwise acquire any of
our other equity securities. We will be permitted, however, to repurchase common
stock from employees at the time they leave our employment.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of
O'Sullivan, each holder of senior preferred stock will be entitled to be paid
the liquidation value of the senior preferred stock plus accrued and unpaid
dividends. The holders of senior preferred stock will not be entitled to any
further payment. Holders of senior preferred stock must be paid before any
holders of our other equity securities receive any payments for their shares.
If the assets remaining after distribution to holders of indebtedness and
other obligations are insufficient to permit payment to all of the holders of
senior preferred stock, any remaining assets will be distributed on a
proportionate basis to the holders of senior preferred stock. Holders of senior
preferred stock must be paid before any holders of our other equity securities
which rank behind the senior preferred stock receive any payments.
None of the following events will be deemed to be a liquidation, dissolution
or winding up of O'Sullivan:
- our consolidation or merger into or with any other entity or entities;
- our sale or transfer of all or any part of our assets; or
- the reduction of our capital stock.
REDEMPTIONS
- OPTIONAL REDEMPTION. We may, at our option, redeem the senior preferred
stock at any time.
- MANDATORY REDEMPTION. We are required to redeem all of the outstanding
shares of senior preferred stock on the twelfth anniversary of the
completion of the merger.
37
<PAGE>
- CHANGE OF CONTROL. We are required to redeem all of the outstanding shares
of senior preferred stock if an unaffiliated third party acquires more
than 50% of our outstanding common stock on a fully diluted basis.
- REDEMPTION PAYMENT. We will be obligated to pay an amount equal to the
liquidation value plus accrued and unpaid dividends for each share of
senior preferred stock redeemed. We will only be required to make a
payment to a holder of senior preferred stock when that holder surrenders
his shares at our principal office. If we do not have sufficient funds
available for the redemption of all shares of senior preferred stock, we
will redeem the maximum number of shares possible on a proportionate
basis.
- NOTICE OF REDEMPTION. We will mail a written notice of redemption to each
record holder of shares of senior preferred stock. We will mail this
notice not more than thirty (30) nor fewer than three (3) days before the
date on which the redemption is to be made. If fewer than the total number
of shares of senior preferred stock represented by any certificate are
redeemed, a new certificate representing the number of unredeemed shares
of senior preferred stock will be issued to the holder without cost to
that holder. We will issue this new certificate within three (3) business
days after surrender of the certificate for redemption.
- NO RIGHTS AFTER REDEMPTION. After we pay the redemption price, all rights
of the holder of that share of senior preferred stock will end, including
the right to receive dividends.
- REDEEMED OR OTHERWISE ACQUIRED SHARES OF SENIOR PREFERRED STOCK. Any
shares of senior preferred stock that are redeemed or otherwise acquired
by us will be canceled. These shares will not be reissued by us.
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of senior preferred stock
will not have any rights to receive shares of any other class or series of our
capital stock.
NO PREEMPTIVE RIGHTS. Holders of senior preferred stock will not have any
preemptive rights to acquire any unissued shares of our capital stock.
VOTING RIGHTS. Except as otherwise required by law, the senior preferred
stock will not have any voting rights. No terms of the senior preferred stock
may be changed unless the approval of the holders of at least 51% of the shares
of senior preferred stock outstanding is obtained.
JUNIOR PREFERRED STOCK
The junior preferred stock will consist of series A junior preferred stock
and series B junior preferred stock. The terms of the series A junior preferred
and series B junior preferred will be identical except as to liquidation value.
LIQUIDATION VALUE. Each share of series A junior preferred stock will have
an initial liquidation value of $150.00. Each share of series B junior preferred
stock will have an initial liquidation value of $100.00.
RANK. The junior preferred stock will rank ahead of all other classes of
our equity securities other than senior preferred stock with respect to dividend
rights and rights on liquidation, winding up and dissolution. The junior
preferred stock will rank behind all of our existing and future indebtedness and
other obligations and the senior preferred stock.
DIVIDENDS.
- The lending facilities to which we will be a party will prohibit or
restrict our payment of cash dividends.
38
<PAGE>
- Holders of junior preferred stock will be entitled to receive cash
dividends only if they are declared by our board of directors and if we
have funds available for the payment of the dividends.
- Dividends will accrue on the junior preferred stock on a daily basis at a
rate of 14% per year.
- If we do not pay dividends in cash on June 30 or December 31 of each year,
then dividends will also accrue on all the unpaid dividends as of that
date.
- Dividends will cease to accrue on a share of junior preferred stock on the
date we pay the redemption price.
REPURCHASE OF OTHER EQUITY SECURITIES. As long as any junior preferred
stock is outstanding, we may not repurchase, redeem or otherwise acquire any of
our equity securities that rank behind the junior preferred stock. We will be
permitted, however, to repurchase common stock from employees at the time they
leave our employment.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of
O'Sullivan, each holder of junior preferred stock will be entitled to be paid
the liquidation value of the junior preferred stock plus accrued and unpaid
dividends. The holders of junior preferred stock will not be entitled to any
further payment. Holders of junior preferred stock must be paid before any
holders of our other equity securities which rank behind the junior preferred
stock receive any payments for their shares.
If the assets remaining after distribution to holders of indebtedness, other
obligations and the senior preferred stock are insufficient to permit payment to
all of the holders of junior preferred stock, any remaining assets will be
distributed on a proportionate basis to the holders of the junior preferred
stock. This distribution will be made on the basis of the liquidation value.
None of the following events will be deemed to be a liquidation, dissolution
or winding up:
- our consolidation or merger into or with any other entity or entities;
- our sale or transfer of all or any part of our assets; or
- the reduction of our capital stock.
REDEMPTIONS
- LIMITATION. We may not redeem the junior preferred stock if any senior
preferred stock remains outstanding.
- OPTIONAL REDEMPTION. After the senior preferred stock has been redeemed,
we may, at our option, redeem the junior preferred stock at any time.
- MANDATORY REDEMPTION. There is no mandatory date or event when we are
required to redeem any of the outstanding shares of junior preferred
stock.
- REDEMPTION PAYMENT. We will be obligated to pay an amount equal to the
liquidation value plus accrued and unpaid dividends for each share of
junior preferred stock redeemed. We will only be required to make a
payment to a holder of junior preferred stock when that holder surrenders
his shares at our principal office. If we do not have sufficient funds
available for the redemption of all shares of junior preferred stock, we
will redeem the maximum number of shares possible on a proportionate
basis.
- NOTICE OF REDEMPTION. We will mail a written notice of redemption to each
record holder of shares of junior preferred stock. We will mail this
notice not more than thirty (30) nor fewer than three (3) days before the
date on which the redemption is to be made. If fewer than the total number
of shares of junior preferred stock represented by any certificate are
redeemed, a
39
<PAGE>
new certificate representing the number of unredeemed shares of junior
preferred stock will be issued to the holder without cost to that holder.
We will issue this new certificate within three (3) business days after
surrender of the certificate for redemption.
- NO RIGHTS AFTER REDEMPTION. After we pay the holder the redemption price,
all rights of the holder will end, including the right to receive
dividends.
- REDEEMED OR OTHERWISE ACQUIRED SHARES OF JUNIOR PREFERRED STOCK. Any
shares of junior preferred stock that are redeemed or otherwise acquired
by us will be canceled. These shares will not be reissued by us.
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of junior preferred stock
will not have any rights to receive shares of any other class or series of our
capital stock.
NO PREEMPTIVE RIGHTS. Holders of junior preferred stock will not have any
preemptive rights to acquire any unissued shares of our capital stock.
VOTING RIGHTS. Except as otherwise required by law, the junior preferred
stock will not have any voting rights. No terms of the junior preferred stock
may be changed unless the approval of the holders of at least 51% of the shares
of both series of junior preferred stock outstanding, together as a single
class, is obtained.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Based on public filings made with the SEC, the following are the only
persons who own more than 5% of the shares of O'Sullivan's common stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------ ----------------- ----------
<S> <C> <C>
Tweedy, Browne Company L.L.C................................ 1,485,009 9.3%
TBK Partners, L.P.
Vanderbilt Partners, L.P.
52 Vanderbilt Avenue
New York, New York 10017
Reich and Tang Asset Management L.P......................... 1,331,700 8.3%
600 Fifth Avenue
New York, New York 10020
Dimensional Fund Advisors, Inc.............................. 944,700 5.9%
1299 Ocean Avenue, 11(th) Floor
Santa Monica, CA 90401
ICM Asset Management, Inc................................... 832,800 5.2%
601 W. Main Avenue, Suite 97
Spokane, WA 99201
</TABLE>
We had 16,091,495 shares of common stock outstanding on September 29, 1999.
The following table provides information regarding the beneficial ownership of
O'Sullivan's common stock as of September 29, 1999 for:
- our executive officers and Terry Crump who is currently an employee but
was an executive officer until August 31, 1999;
- our directors; and
- all of our directors and executive officers as a group.
40
<PAGE>
Except under applicable community property laws, joint ownership and as
otherwise indicated, each stockholder identified in the table possesses sole
voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
SHARES OPTIONS SAVINGS AND
BENEFICIALLY BENEFICIALLY PROFIT SHARING TOTAL PERCENT
NAME OWNED OWNED PLAN SHARES OWNED
- ---- ------------------------ ------------ -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Daniel F. O'Sullivan............... 47,946 263,300 1,721 312,967 1.9%
Richard D. Davidson................ 120,378 165,000 945 286,323 1.8%
Tyrone E. Riegel................... 32,497 148,500 1,549 182,546 1.1%
Terry L. Crump..................... 23,949 106,670 916 131,535 *
Thomas M. O'Sullivan, Jr........... 36,527 71,000 3,192 110,719 *
Michael P. O'Sullivan.............. 28,239 67,500 5,004 100,742 *
Rowland H. Geddie, III............. 11,426 71,000 5,344 87,770 *
E. Thomas Riegel................... 13,461 71,000 2,720 87,181 *
Phillip J. Pacey................... 9,539 24,000 3,202 36,741 *
Stuart D. Schotte.................. 186 7,000 203 7,390 *
Tommy W. Thieman................... 18,248 31,500 4,768 54,516 *
James C. Hillman................... 22,855 71,000 4,563 98,418 *
William C. Bousquette.............. 14,224 9,000 0 23,224 *
Charles G. Hanson.................. 25,000 8,000 0 33,000 *
Stewart M. Kasen................... 8,417 7,000 0 15,417 *
Thomas M. O'Sullivan, Sr........... 167,084 9,000 0 176,084 1.1%
Ronald G. Stegall.................. 0 9,000 0 9,000 *
Directors and executive officers as
a group (17 persons)............. 579,976 1,139,470 34,127 1,753,573 10.2%
</TABLE>
- ------------------------
* Less than 1.0%.
The shares for Mr. Daniel F. O'Sullivan include 500 shares owned by his
wife. Mr. O'Sullivan disclaims beneficial ownership of the shares held by his
wife.
The shares for Mr. Thomas M. O'Sullivan, Sr. include 154,738 shares owned by
O'Sullivan Properties, Inc. and 1,139 shares owned by his wife. Mr. Thomas M.
O'Sullivan, Sr. and his wife own all of the voting stock of O'Sullivan
Properties, Inc. Mr. O'Sullivan disclaims beneficial ownership of the shares
held by his wife.
The shares for Thomas M. O'Sullivan, Jr. include 4,995 shares he holds as
custodian for his minor son and 13,036 shares held by a limited partnership in
which he and his wife are general partners. Mr. O'Sullivan disclaims beneficial
ownership of the shares held by his son and the partnership.
The shares for Mr. Michael P. O'Sullivan include 9,567 shares he holds as
custodian for his minor children and 405 shares owned by his wife.
Mr. O'Sullivan disclaims beneficial ownership of the shares held by his minor
children and his wife.
The shares for Mr. James C. Hillman include 4,880 shares owned by his son.
Mr. Hillman disclaims beneficial ownership of the shares held by his son.
Some of the shares held in the Savings and Profit Plan may not be sold by
the plan participants prior to the stockholder's retirement or the termination
of his employment.
Since all options to acquire shares of common stock will become exercisable
upon completion of the merger, we have treated all options as being beneficially
owned. These include options which are not presently exercisable.
41
<PAGE>
SECURITY OWNERSHIP OF THE SURVIVING CORPORATION AFTER THE MERGER
The following table sets forth the anticipated beneficial ownership of the
securities of O'Sullivan immediately after the completion of the merger. Based
on information provided by BRS, the amounts set forth below assume a total
equity contribution of $58.9 million. Of this amount, approximately
$45.3 million is assumed to be provided by BRS and its affiliates and
approximately $13.7 million is assumed to be provided by the management
participants in the buyout. These amounts do not include the options to acquire
common stock which may be granted to the employees of O'Sullivan after
completion of the merger. The actual investment of each management participant
in the buyout has not been definitively determined and may be changed. The
investment of BRS includes shares to be held by employees and affiliates of BRS.
<TABLE>
<CAPTION>
SHARES OF OPTIONS TO PURCHASE SHARES OF SERIES
NAME OF COMMON PERCENTAGE OF SHARES OF SENIOR SERIES A JUNIOR B JUNIOR
BENEFICIAL OWNER STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
- --------------------------------------- --------- -------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
BRS.................................... 996,600 72.85% 0 0 442,933
Richard P. Davidson.................... 79,211 5.79% 23,943 9,906 21,270
Daniel F. O'Sullivan................... 9,972 0.73% 195,660 4,432 --
Tyrone E. Riegel....................... 21,265 1.55% 100,659 3,378 3,644
O'Sullivan Properties, Inc. (affiliate
of Thomas M. O'Sullivan, Sr.)........ 21,735 1.59% 100,612 -- 9,660
Michael P. O'Sullivan.................. 30,566 2.23% 4,302 6,176 4,980
Thomas M. O'Sullivan, Jr............... 33,075 2.42% 7,662 5,844 6,426
James C. Hillman....................... 27,251 1.99% 6,266 6,117 4,002
Rowland H. Geddie, III................. 24,759 1.81% 4,597 6,375 2,636
E. Thomas Riegel....................... 19,816 1.45% 19,384 4,503 2,311
Tommy W. Thieman....................... 19,104 1.40% 4,253 2,899 3,600
Phillip J. Pacey....................... 13,665 1.00% 4,870 1,991 1,653
Stuart D. Schotte...................... 11,209 82.00% 96 493 2,496
Management participants in the buyout
as a group (36 persons).............. 371,400 27.15% 632,791 61,190 71,877
</TABLE>
Each management participant in the buyout is a citizen of the United States
and has a business address at 1900 Gulf Street, Lamar, Missouri 64759-1899.
O'Sullivan Properties, Inc. has a business address at 1101 Gulf Street, Lamar,
Missouri 64759. While Mr. Thomas M. O'Sullivan, Sr. is participating in the
buyout through O'Sullivan Properties, we are treating him as a management
participant in the buyout for purposes of this document.
CONSEQUENCES OF THE MERGER; PLANS FOR O'SULLIVAN AFTER THE MERGER
As a result of the completion of the merger:
(1) all of the common stock of O'Sullivan will be owned by BRS, its
affiliates and the management participants in the buyout;
(2) all other current stockholders of O'Sullivan will not participate in
O'Sullivan's future earnings and growth other than the right to receive
dividends on, and the liquidation value of, the senior preferred stock;
(3) BRS, its affiliates and the management participants in the buyout will
have the opportunity to benefit from any earnings and growth of
O'Sullivan, and will bear the risk of any decrease in O'Sullivan's value;
(4) O'Sullivan will incur a significant amount of indebtedness;
(5) O'Sullivan may issue warrants in connection with some of its debt;
(6) O'Sullivan's common stock will no longer be traded on the NYSE, price
quotations will no longer be available and the registration of the
O'Sullivan common stock under the Exchange Act will be terminated;
(7) the senior preferred stock will be registered under the Exchange Act;
42
<PAGE>
(8) the present board of directors of O'Sullivan will be replaced by the
board of directors of OSI, which will be comprised of Messrs. Richard D.
Davidson, Stephen F. Edwards, Daniel F. O'Sullivan and Harold O. Rosser;
and
(9) the officers of O'Sullivan will be the officers of the surviving
corporation.
Following the completion of the merger, BRS and its affiliates expect that
the business and operations of O'Sullivan will be continued substantially as
they are currently being conducted. The board of directors and management of the
surviving corporation will, however, continue to evaluate O'Sullivan's business,
operations, corporate structure and organization and will make changes as they
deem appropriate.
CONFLICTS OF INTEREST; ARRANGEMENTS WITH MANAGEMENT
When you consider the recommendations of the board of directors, you should
be aware that the management participants in the buyout may have interests in
the merger that are different from your interests. These interests may create
potential conflicts of interest. The board of directors was aware of these
interests when it approved the merger agreement.
EQUITY INVESTMENT AND CASH PAYMENTS
One day prior to the completion of the merger, BRS will purchase some of the
shares of common stock held by some of the management participants in the
buyout. The consideration paid for each of those shares by BRS will consist of
$16.75 in cash and one share of senior preferred stock of OSI. Each share of OSI
senior preferred stock held by the management participants in the buyout will
then be exchanged for one share of senior preferred stock of the surviving
corporation in the merger. Consequently, with respect to those shares of common
stock held by the management participants in the buyout that will not become
common stock and series B junior preferred stock of the surviving corporation,
the management participants in the buyout will have received the same
consideration for each share of common stock as our unaffiliated stockholders in
the merger.
In the recapitalization that will occur at the same time as the completion
of the merger, some of the shares of common stock held by the management
participants in the buyout will become shares of common stock and series B
junior preferred stock of the surviving corporation. It is anticipated that the
shares of common stock held by the management participants in the buyout will
represent approximately 27.1% of the outstanding common stock of the surviving
corporation. Some of the stock options to acquire shares of common stock that
are held by management participants in the buyout will become options
exercisable into shares of junior preferred stock of the surviving corporation.
In addition, it is presently anticipated that options to acquire 5% of the
common stock of the surviving corporation will be granted to its employees under
a benefits plan. No decision has been made as to which employees will
participate in this plan. Some of these employees may be management participants
in the buyout.
The following table sets forth the anticipated investments that management
participants in the buyout will make in the surviving corporation. The
investments will be made in the form of existing shares of common stock,
existing options to acquire common stock and cash. Existing shares of common
stock have been valued at $18.25 for this purpose. Each existing option to
acquire common stock has been valued at the difference between $18.25 and the
exercise price. The table also sets forth the merger consideration anticipated
to be received by these persons in the merger for the existing
43
<PAGE>
shares of O'Sullivan common stock that are not being invested in the surviving
corporation as part of the buyout:
<TABLE>
<CAPTION>
MERGER CONSIDERATION
INVESTMENT IN THE TO BE RECEIVED
SURVIVING CORPORATION -----------------------------
----------------------------------------- SHARES OF
EXISITING SENIOR
EXISTING SHARES OPTIONS TO PREFERRED STOCK
OF COMMON ACQUIRE (NUMBER OF
STOCK COMMON STOCK CASH SHARES) CASH
--------------- ------------ -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Richard D. Davidson........... $2,174,824 $ 990,639 $ 31,354 23,943 $ 234,872
Daniel F. O'Sullivan.......... -- 443,200 9,972 195,660 2,211,621
Tyrone E. Riegel.............. 372,559 337,766 13,066 100,659 1,051,668
O'Sullivan Properties
(affiliate of Thomas M.
O'Sullivan, Sr.)............ 987,746 -- -- 100,602 1,685,258
Michael P. O'Sullivan......... 506,523 617,594 22,021 4,302 72,059
Thomas M. O'Sullivan, Jr...... 657,061 584,443 18,616 7,662 93,868
James C. Hillman.............. 409,164 611,718 18,247 6,266 88,197
Rowland H. Geddie, III........ 200,394 637,500 88,009 4,597 77,000
E. Thomas Riegel.............. 236,345 450,309 14,615 19,384 203,064
Phillip J. Pacey.............. 168,969 199,149 9,947 4,870 66,000
Tommy W. Thiemen.............. 327,846 289,859 51,222 4,253 71,238
Stuart D. Schotte............. 1,095 49,281 259,733 96 1,608
Management participants in the
buyout as a group
(36 persons)................ $6,841,385 $6,118,964 $717,717 632,791 $ 7,526,595
</TABLE>
As of the record date for the special meeting, the management participants
in the buyout owned a total of 634,413 shares of O'Sullivan common stock and
held options to purchase a total of 1,247,141 shares of O'Sullivan common stock.
Appendix D to this document includes information relating to transactions since
April 20, 1999 involving O'Sullivan's common stock effected by or on behalf of
BRS, O'Sullivan and their affiliates and directors and executive officers who
are management participants in the buyout.
ARRANGEMENTS WITH BRS
MANAGEMENT SERVICES AGREEMENT
After completion of the merger, O'Sullivan will enter into a management
services agreement with BRS. Under this agreement, BRS will provide:
- general management services;
- assistance with the identification, negotiation and analysis of
acquisitions and dispositions;
- assistance with the negotiation and analysis of financial alternatives;
and
- other services agreed upon by BRS.
In exchange for these services, beginning in 2001, BRS will receive an
annual fee equal to the greater of:
- 1.5% of O'Sullivan's annual consolidated earnings before interest, taxes,
depreciation and amortization; or
- $750,000.
44
<PAGE>
AGREEMENTS RELATING TO EQUITY IN THE SURVIVING CORPORATION
BRS, its affiliates and the management participants in the buyout will enter
into agreements relating to their investment in the surviving corporation.
According to BRS, these agreements will not impose any restrictions on the
voting rights of the management participants in the buyout, other than voting
for the election of directors of the surviving corporation. These agreements
will provide for:
- restrictions on transfer;
- the right of BRS to require the management participants in the buyout to
sell their interests in the surviving corporation if BRS decides to sell
its interest in the surviving corporation;
- the right of management participants in the buyout to sell their interests
in the surviving corporation on the same terms as BRS or any of its
affiliates sells its interests in the surviving corporation;
- the right to register their securities of the surviving corporation under
the Securities Act;
- the right of management participants in the buyout to purchase additional
shares to retain their percentage interest in the surviving corporation if
the surviving corporation issues additional securities to BRS or any of
its affiliates; and
- the right of the surviving corporation to repurchase the common stock
interest of a management participant in the buyout if that person is no
longer employed by the surviving corporation.
TREATMENT OF STOCK OPTIONS
All options to acquire O'Sullivan common stock will vest and become
exercisable at the time of the completion of the merger. Some of the options to
acquire O'Sullivan common stock that are held by management participants in the
buyout will be converted into equity of the surviving corporation. All other
options to acquire O'Sullivan common stock will be canceled. The amount and type
of payments made for those canceled options will depend upon the exercise price
of the option.
EXERCISE PRICE EQUAL TO OR LESS THAN $16.75
Each holder of an option with an exercise price equal to or less than $16.75
will receive for each share covered by that option:
- one share of senior preferred stock; and
- cash in an amount equal to the difference between the exercise price and
$16.75.
EXERCISE PRICE GREATER THAN $16.75
Each holder of an option with an exercise price greater than $16.75 will
receive for each share covered by that option a fraction of one share of senior
preferred stock. The numerator of this fraction will be the difference between
$18.25 and the exercise price of the option. The denominator of the fraction
will be $1.50. All options held by a person will be aggregated. Any fraction of
a share of senior preferred stock will be paid in cash on the basis of $1.50 per
share.
As of June 22, 1999, there were options outstanding to purchase a total of
1,592,881 shares of O'Sullivan's common stock at a weighted average exercise
price of approximately $9.84 per share.
TERMINATION PROTECTION AGREEMENTS
O'Sullivan has termination protection agreements with its executive officers
and key managers. If the employment of a protected employee is terminated by us
within a period of up to 24 months after
45
<PAGE>
a change in control, the employee will be entitled to receive various benefits.
The completion of the merger is a change of control for purposes of these
agreements. These benefits include:
1. a cash payment equal to up to the current base salary and highest bonus
received in the previous three years;
2. a cash payment equal to up to the bonus earned by the employee in the
year of termination, calculated on a pro rated basis on the date of
termination;
3. a cash payment equal to accrued and unpaid vacation pay;
4. for executive officers only, a cash payment for an automobile allowance
of up to 12 months;
5. continued life and health insurance coverage for up to 12 months;
6. a lump sum payment, adjusted for taxes, to the employee in an amount
equal to the protected employee's unvested profit sharing account in the
Savings and Profit Sharing Plan;
7. a cash payment based on the amount that the protected employee would
have received under our Deferred Compensation Plan had he continued to
work for O'Sullivan until he attained the age of 65;
8. all outstanding stock options vest and become immediately exercisable;
9. O'Sullivan will be required to purchase for cash any shares of
unrestricted common stock and options for shares at the fair market
value;
10. up to one year of outplacement services;
11. for executive officers only, if the protected employee moves more than
20 miles from his primary residence in order to accept permanent
employment within 36 months after leaving O'Sullivan, we will repurchase
the protected employee's primary residence; and
12. if the employee is required to pay an excise tax under Section 4999 of
the Internal Revenue Code of 1986, we will pay the employee an additional
amount to offset the effect of the tax.
O'Sullivan entered into termination protection agreements with 24 of its
director-level managers on about March 22, 1999. At that time, the Special
Committee was exploring the possible sale of O'Sullivan. In response to the
expressed concerns about their future with O'Sullivan, the agreements were
executed to provide key managers with a measure of personal security and to
induce them to remain with O'Sullivan even if a change in control were to occur
or be threatened. The benefits provided under these agreements allow these
managers to remain less distracted from their jobs in the face of a threatened
or actual change in control of O'Sullivan.
The agreements for executive officers also provide for cash payments in lieu
of matching payments under the Stock Purchase Program and the Savings and Profit
Sharing Plan. The agreements for executive officers also provide that, in some
circumstances, they may voluntarily leave the employment of O'Sullivan after a
change in control and receive the benefits under the protection agreements.
These circumstances include:
- an adverse change in the executive's status, title or duties;
- a reduction in the executive's salary or bonus;
- relocation of the executive's office to a site which is more than 20 miles
from its present location;
- a reduction in the executive's benefit levels;
- the insolvency or bankruptcy of O'Sullivan; or
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- the executive leaves the employment of O'Sullivan for any reason during
the 60-day period beginning on the first anniversary of the change in
control.
However, for purposes of the merger, each of the executive officers who is a
management participant in the buyout has waived his right to receive benefits
under the protection agreements in these circumstances, other than a reduction
in his salary or bonus.
The table below sets forth the total payments that may be received by each
of the executive officers and all persons having protection agreements as a
group if these persons are terminated following the completion of the merger.
The values of non-cash benefits have been included on the basis of their
estimated fair value. These amounts do not include any payments to be received
for shares of O'Sullivan common stock or options to acquire O'Sullivan common
stock. These amounts also do not include payments which we would make to offset
the effect of excise taxes or to purchase any executive officer's home. We have
assumed for this purpose that the merger was completed on September 30, 1999.
<TABLE>
<CAPTION>
OFFICER AMOUNT
------- ----------
<S> <C>
Richard Davidson............................................ $ 611,457
President and Chief Operating Officer
Tyrone E. Riegel............................................ $ 474,132
Executive Vice President-Manufacturing
Terry L. Crump.............................................. $ 390,983
former Executive Vice President and Chief Financial
Officer
Thomas M. O'Sullivan, Jr.................................... $ 298,452
Vice President-Sales
E. Thomas Riegel............................................ $ 295,384
Vice President-Strategic Operations
Rowland H. Geddie, III...................................... $ 284,988
General Counsel, Vice President and Secretary
Michael P. O'Sullivan....................................... $ 276,650
Vice President-Marketing
James C. Hillman............................................ $ 255,022
Vice President-Human Resources
Phillip J. Pacey............................................ $ 201,232
Vice President-Finance and Treasurer
Stuart D. Schotte........................................... $ 167,876
Vice President-Supply Chain Management
Tommy W. Thieman............................................ $ 167,173
Vice President-Manufacturing-Lamar
All persons having a protection agreement (33 persons)...... $5,246,574
</TABLE>
SEVERANCE AGREEMENTS
We are required to make payments to Daniel O'Sullivan under his retirement
and consulting agreement with O'Sullivan until he becomes 65 years old. During
this period, Mr. O'Sullivan will provide consulting, marketing and promotion
services with respect to our manufacturing activities and relations with major
customers as requested by us from time to time. Mr. O'Sullivan has also agreed
not to compete with O'Sullivan during this period. Payments under this agreement
amount to an aggregate of $2.2 million. Upon his retirement, Mr. O'Sullivan's
unvested stock options will vest and be exercisable for five years. The value
associated with acceleration of the vesting of unvested options and the
extension of the exercise period for his stock options is approximately
$161,000.
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In August 1999, O'Sullivan entered into a severance agreement with Terry
Crump, who was Executive Vice President and Chief Financial Officer at that
time. Pursuant to the agreement, Mr. Crump resigned as an officer of O'Sullivan
effective August 31, 1999, although he remains an employee. Under this
agreement, O'Sullivan agreed to pay Mr. Crump the benefits he would receive
under his Termination Protection Agreement if the merger closes. If the merger
does not close, O'Sullivan will pay Mr. Crump one year's salary, will maintain
his medical and life insurance for up to one year and will pay for outplacement
services.
SPECIAL COMMITTEE COMPENSATION
Each member of the special committee has received $5,000 for service on the
committee. William Bousquette, chairman of the special committee, received an
additional $15,000 for his service on the committee. In addition, each committee
member is entitled to receive $1,000 for each special committee meeting attended
in person and $500 for each meeting attended by telephone.
DIRECTORS OF O'SULLIVAN AFTER THE MERGER
Richard D. Davidson, Stephen F. Edwards, Daniel F. O'Sullivan, and Harold O.
Rosser will be the directors of O'Sullivan after the completion of the merger.
Messrs. Edwards and Rosser will be new directors of O'Sullivan. A brief
description of their business experience is set forth in Appendix E.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of all material federal income tax consequences of the
merger and the ownership and disposition of the senior preferred stock received
in the merger is for general information only and is based upon currently
existing provisions of the Internal Revenue Code of 1986, as amended, the
Treasury regulations promulgated or proposed thereunder, judicial authority and
current administrative rulings and pronouncements of the Internal Revenue
Service, all of which are subject to change, possibly with retroactive effect.
The summary does not address any foreign, state, or local tax consequences of
the merger and the ownership and disposition of the senior preferred stock
received in the merger.
QUALIFICATIONS
The summary assumes that the O'Sullivan common stock is, and the senior
preferred stock to be issued in the merger will be, held as a capital asset.
Moreover, the summary does not address all tax consequences of the merger that
may be relevant to O'Sullivan stockholders in light of their particular
circumstances or to some types of stockholders subject to special treatment
under federal income tax law, including:
- insurance companies,
- tax-exempt organizations,
- financial institutions,
- S Corporations,
- employees of O'Sullivan,
- investment companies,
- broker-dealers,
- dealers in securities or currencies,
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- traders in securities or currencies,
- foreign corporations,
- persons who are not citizens or residents of the United States,
- persons who acquired their shares by exercising employee stock options or
otherwise as compensation, or
- persons who hold our common stock as part of a "straddle," "hedge,"
conversion transaction or other integrated investment composed of a share
of O'Sullivan common stock and one or more other investments.
Furthermore, the summary does not address the tax treatment of the following
persons:
- persons who actually own, or are deemed to constructively own under
Section 302(c) of the Internal Revenue Code, O'Sullivan common stock
immediately after the merger or who acquire, actually or constructively,
O'Sullivan common stock after the merger, and
- persons who exercise dissenter's rights in the merger.
EACH HOLDER OF O'SULLIVAN COMMON STOCK SHOULD CONSULT THE HOLDER'S OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE HOLDER OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND
OTHER TAX LAWS.
THE MERGER
The receipt of cash and shares of senior preferred stock for O'Sullivan
common stock under the merger by holders will be a taxable event for federal
income tax purposes. A holder of O'Sullivan common stock will be treated as
having disposed of O'Sullivan common stock in a sale or exchange and will
recognize gain or loss equal to the difference between (1) the sum of the amount
of cash received and the fair market value of the shares of senior preferred
stock received and (2) the holder's tax basis in the shares of O'Sullivan common
stock. The gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the holder's holding period for O'Sullivan common stock
exceeds one year.
DISTRIBUTIONS ON SENIOR PREFERRED STOCK
CASH DISTRIBUTIONS
Cash distributions on the senior preferred stock received will be taxable to
a holder as ordinary dividend income to the extent that the cash amount does not
exceed O'Sullivan's current or accumulated earnings and profits for federal
income tax purposes.
To the extent that the amount of any distribution on the senior preferred
stock exceeds O'Sullivan's current or accumulated earnings and profits for
federal income tax purposes, the distribution will be treated as a return of
capital, thus reducing the holder's adjusted tax basis in the senior preferred
stock. The amount of the excess distribution that is greater than the holder's
adjusted tax basis in the senior preferred stock will be treated as gain from a
sale or exchange. The gain will be capital gain and will be long-term capital
gain if the holder's holding period for the senior preferred stock exceeds one
year.
ACCRUED DIVIDENDS
The declaration and payment of cash dividends with respect to the senior
preferred stock will, after the effective time of the merger, be limited under
the terms of our financing arrangements. Dividends that are not declared
currently and which have not previously been declared and paid will be
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required to be paid at the time the senior preferred stock is redeemed or
exchanged or at the time O'Sullivan is liquidated. The tax treatment of
dividends that accrue is not free from doubt. O'Sullivan intends to take the
position that holders of the senior preferred stock are not required to include
any accrued and unpaid dividends in income until dividends are declared or paid
in cash, and O'Sullivan does not intend to treat any accruing but undeclared and
unpaid dividends as distributions to holders of the senior preferred stock under
the information reporting rules. Holders should be aware that the Internal
Revenue Service could take the position that dividends are includable in income
as they accrue prior to the time that dividends are declared or paid in cash.
DISCOUNT
The senior preferred stock is subject to mandatory redemption on the twelfth
anniversary of the date of its issuance. In addition, subject to restrictions,
the senior preferred stock is redeemable at any time or from time to time at
O'Sullivan's option. In the event that the fair market value of a share of the
senior preferred stock at the time of the merger is determined to be less than
its stated liquidation preference, holders of the senior preferred stock may be
required to treat a portion of the difference between the senior preferred
stock's liquidation preference and its fair market value as constructive
distributions of property includable in income on a periodic basis as it
accrues.
MANDATORY REDEMPTION FEATURE. The entire amount of a redemption premium
with respect to preferred stock that is subject to mandatory redemption is
taxable as a constructive distribution to the holder over the period from
issuance to the date of the mandatory redemption using a constant yield method.
The constructive distribution is treated as a dividend to the extent of
O'Sullivan's current or accumulated earnings and profits and otherwise subject
to the treatment described above for cash distributions.
The senior preferred stock will generally be considered to have a redemption
premium to the extent its mandatory redemption price exceeds its issue price
(i.e., its fair market value at the time of issuance) if the mandatory
redemption price exceeds the issue price by more than a DE MINIMIS amount. For
this purpose, the redemption premium will be treated as zero if the excess of
the mandatory redemption price over the issue price is less than 0.25% of the
redemption price multiplied by the number of complete years from the date of
issuance of the senior preferred stock until the senior preferred stock must be
redeemed.
OPTIONAL REDEMPTION FEATURE. Under applicable regulations, some optional
redemption features may also result in constructive distributions over the
period from the date of issue to the date of the optional redemption
distribution. We do not believe that the optional redemption rights will result
in constructive distributions to holders of the senior preferred stock under
these rules.
DIVIDENDS RECEIVED DEDUCTION
To the extent that dividends are treated as ordinary income, dividends
received by corporate holders generally will be eligible for the 70%
dividends-received deduction under Section 243 of the Internal Revenue Code.
There are, however, many exceptions and restrictions relating to the
availability of the dividends-received deduction, including restrictions
relating to (1) the holding period of the stock on which the dividends are
sought to be deducted, (2) debt-financed portfolio stock, and (3) taxpayers that
pay alternative minimum tax. Corporate stockholders should consult their own tax
advisor regarding the extent, if any, to which exceptions and restrictions may
apply to their particular factual situations.
EXTRAORDINARY DIVIDENDS
Under Section 1059 of the Internal Revenue Code, the tax basis of the senior
preferred stock that has been held by a corporate stockholder for two years or
less is generally reduced, but not below zero,
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by the non-taxed portion of an "extraordinary dividend" for which a
dividends-received deduction is allowed. To the extent that a corporate holder's
tax basis in its senior preferred stock would have been reduced below zero, the
holder must generally recognize gain upon receipt of an "extraordinary
dividend."
Generally, an "extraordinary dividend" is a dividend that (1) equals or
exceeds 5% of the holder's basis in the senior preferred stock (treating all
dividends that have ex-dividend dates within an 85-day period as a single
dividend) or (2) exceeds 20% of the holder's adjusted basis in the senior
preferred stock (treating all dividends having ex-dividend dates within 365-day
period as a single dividend). An "extraordinary dividend" also includes the
proceeds of a non-pro-rata redemption of the senior preferred stock, if
O'Sullivan has sufficient earnings and profits for tax purposes, without regard
to the period the corporate holder held the stock.
CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE POSSIBLE APPLICATION OF SECTION 1059 OF THE CODE TO THEIR OWNERSHIP OF THE
SENIOR PREFERRED STOCK.
SALE OR REDEMPTION OF THE SENIOR PREFERRED STOCK RECEIVED IN THE MERGER
Redemption of shares of the senior preferred stock for cash will be a
taxable event. A redemption of shares of the senior preferred stock for cash
will generally be treated as a sale or exchange and should result in gain or
loss equal to the difference between the amount of cash received and the
holder's adjusted tax basis in the senior preferred stock redeemed, except to
the extent that the redemption price includes dividends which have been declared
by the board of directors prior to the redemption (the dividends being
separately taxable as described above). Similarly, upon the sale of the senior
preferred stock, the difference between (1) the sum of the amount of cash and
the fair market value of other property received and (2) the holder's adjusted
basis in the senior preferred stock will be treated as gain or loss from a sale
or exchange of the senior preferred stock. This gain or loss will be capital
gain or loss and will be long-term capital gain or loss if the holder's holding
period for the senior preferred stock exceeds one year.
INFORMATION REPORTING AND BACKUP WITHHOLDING
O'Sullivan will be required to report information to the IRS with respect to
the payment of dividends on the senior preferred stock. Owners of O'Sullivan
common stock should be aware that O'Sullivan will be required in some cases to
withhold and remit to the United States Treasury 31% of amounts payable in the
merger or as dividends on, or in redemption of, senior preferred stock to any
person (1) who has provided either an incorrect tax identification number or no
number at all, (2) who is subject to backup withholding by the Internal Revenue
Service for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to O'Sullivan that he is not subject
to backup withholding or that he is an "exempt recipient." Backup withholding is
not an additional tax, but rather may be credited against the taxpayer's tax
liability for the year.
REGULATORY MATTERS
We cannot complete the merger until we give notification and furnish
information to the Federal Trade Commission and the Department of Justice and
the specified waiting period requirements under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 have been satisfied. We filed the required notification
and report forms with the Federal Trade Commission and the Department of Justice
on June 11, 1999. We received early termination of the antitrust review by the
regulatory authorities on or about June 25, 1999.
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ACCOUNTING TREATMENT OF THE MERGER
We expect the transaction to qualify as a recapitalization for accounting
purposes. If the transaction is accounted as a recapitalization, the historical
basis of O'Sullivan's assets and liabilities will not be affected. See
"Unaudited Pro Forma Financial Data".
TAX SHARING AND TAX BENEFIT REIMBURSEMENT AGREEMENT WITH TANDY
Prior to the initial public offering in 1994 of our common stock, we were
owned by Tandy Corporation. As part of the initial public offering, we entered
into a tax sharing and tax benefit reimbursement agreement with Tandy. The
structure of the public offering increased the basis in our assets for tax
purposes. This basis increase reduces the amount of gain we recognize upon sales
of our assets and increases our annual tax deductions for depreciation and
amortization. This increase in deductions reduces the amount of income taxes
that we pay. Under the tax sharing agreement, we agreed to pay Tandy nearly all
of any benefit we receive from this reduction in our taxable income. Our taxable
income is determined after taking into account all of our other deductible
expenses. The annual payment to Tandy under the tax sharing agreement was
$9.7 million for fiscal 1999, $11.7 million for fiscal 1998 and $6.0 million for
fiscal 1997. This agreement will remain in effect until 2033. However, under the
terms of the tax sharing agreement, O'Sullivan and Tandy are expected to
negotiate a final payment and termination date of the agreement in 2009.
Since the initial public offering, in determining the benefit payment to
Tandy under the tax sharing agreement, we have historically deducted our
interest expense. We will incur a significant increase in interest expense
associated with our higher debt levels in connection with the financing of the
merger. We believe that, if the merger is completed, this increased interest
expense should be taken into account in determining the payments which we would
be required to make to Tandy under the tax sharing agreement, and Tandy does
not. Under the tax sharing agreement, disputes between the parties should be
referred to the chief executive officers. If they are unable to resolve the
dispute, it is to be resolved by a public accounting firm or a law firm
reasonably satisfactory to Tandy and O'Sullivan.
On June 29, 1999, Tandy filed a complaint against us in the District Court
of Texas in Tarrant County. Tandy's complaint sought a court order compelling us
to submit to a dispute resolution process. Alternatively, the complaint sought a
declaratory judgment that after the merger O'Sullivan must continue to make
tax-sharing payments to Tandy as if the merger had not occurred.
On September 9, 1999, Tandy filed a motion for summary judgment in its
lawsuit against us. The motion argues that Tandy is entitled to a court order
requiring us to commence dispute resolution procedures under the tax sharing
agreement. Because we have made all payments required under the tax sharing
agreement and because no merger has occurred, we believe that Tandy's lawsuit is
premature since there cannot be a dispute under the tax sharing agreement with
respect to the increased interest resulting from the merger until the merger is
completed. Alternatively, Tandy argues that it is entitled to a court order
preventing us from deducting the interest expense related to the merger from our
tax-sharing payments to Tandy. Tandy's argument is based on a letter to that
effect, dated June 22, 1999, from PricewaterhouseCoopers LLC to an officer of
Tandy. Tandy claims that the June 22, 1999 letter entitles it to the relief it
seeks since PricewaterhouseCoopers LLC is our auditing firm. According to Tandy,
PricewaterhouseCoopers is necessarily an acceptable arbiter to O'Sullivan under
the tax sharing agreement's dispute resolution provisions.
PricewaterhouseCoopers, however, did not issue the letter in its capacity as our
auditor or as a neutral arbiter, but rather at the request of Tandy. Moreover,
PricewaterhouseCoopers states in the letter that the letter "does not constitute
a tax opinion or legal advice." We believe that the PricewaterhouseCoopers
letter does not entitle Tandy to relief because it is based on invalid facts and
assumptions supplied by Tandy. For example, the PricewaterhouseCoopers letter
incorrectly assumes that OSI will incur the debt used to finance the merger. The
PricewaterhouseCoopers letter relies on a letter provided by Tandy's outside
legal counsel.
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We have not seen that opinion. In fact, the debt used to finance the merger will
be incurred by O'Sullivan and its operating subsidiary, O'Sullivan Industries,
Inc. In addition, we have an opinion from outside counsel that supports
O'Sullivan's interpretation of the tax sharing agreement.
On October 8, 1999, the District Court ruled on Tandy's motion for summary
judgment. It found that the dispute resolution provision of the tax sharing
agreement was triggered, and ordered that we begin the dispute resolution
process according to the terms of the tax sharing agreement. The District Court
denied all other relief sought by Tandy, including Tandy's request that the
court find the PricewaterhouseCoopers letter of June 22, 1999 resolved the
dispute in Tandy's favor. The accounting or law firm which will serve as
arbitrator in the dispute resolution process, if the chief executive officers of
O'Sullivan and Tandy are unable to resolve the dispute, has not yet been
selected.
We are now and, after completion of the merger, expect to continue to be in
full compliance with the tax sharing agreement. We believe that Tandy's position
is without merit and intend to defend ourselves vigorously. See "Risk Factors."
LITIGATION CHALLENGING THE MERGER
On May 18, 1999, five lawsuits were filed as class actions by stockholders
in the Delaware Court of Chancery seeking to enjoin the merger or, in the
alternative, to rescind the merger and recover monetary damages. The complaints
name as defendants O'Sullivan, all of its directors and, in some cases, BRS. The
complaints allege that our directors breached their fiduciary duties by
approving the merger. The complaints also allege that the price terms of the
merger are inadequate and unfair to O'Sullivan's stockholders. In addition, the
complaints allege that the management participants in the buyout have conflicts
of interest that have prevented them from acting in the best interests of
O'Sullivan's stockholders and that make it inherently unfair for BRS and the
management participants in the buyout to acquire 100% of the O'Sullivan's stock.
In the cases naming BRS as a defendant, BRS is alleged to have aided and abetted
the alleged breaches of fiduciary duties. The defendants do not have to respond
to the lawsuits until after the plaintiffs have combined their complaints into
one complaint. A consolidated order was signed on July 22, 1999 by the court.
This order requires the plaintiffs to combine their complaints into one
complaint. However, no date has been set by which the defendants must move or
answer in response to the combined complaint. We believe that the claims are
without merit and intend to vigorously defend the lawsuits.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Fees and expenses for the merger are estimated at this time to be as
follows:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- -----------------------------
<S> <C>
Advisory fees and expenses.................................. $ 6,250,000
Debt financing fees and expenses............................ 10,000,000
Legal fees and expenses..................................... 2,500,000
Transaction fees and expenses............................... 4,750,000
Accounting fees and expenses................................ 300,000
Printing and mailing costs.................................. 500,000
Miscellaneous expenses...................................... 200,000
-----------------------------
Total................................................... $ 24,500,000
=============================
</TABLE>
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THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, stockholders of O'Sullivan will vote on a proposal
to approve and adopt the merger agreement and approve the merger. If the terms
and conditions of the merger agreement are met, OSI will merge with and into
O'Sullivan. After the completion of the merger, OSI will cease to exist and
O'Sullivan will be the surviving company with new owners.
The management participants in the buyout are not obligated to vote in favor
of the merger. These participants have not made any recommendation to our
stockholders for or against the merger. However, with the directors who are
management participants in the buyout abstaining, the board of directors has
unanimously:
- approved the merger agreement and the merger,
- determined that the consideration to be paid in the merger is fair to, and
in the best interests of, the stockholders, and
- recommended that stockholders of O'Sullivan vote "for" approval and
adoption of the merger agreement and approval of the merger.
VOTES REQUIRED FOR APPROVAL OF THE MERGER AGREEMENT
The affirmative vote of holders of a majority of the outstanding shares of
O'Sullivan common stock is required to approve the merger agreement. Each share
of O'Sullivan common stock is entitled to one vote.
Only holders of record of common stock at the close of business on
September 29, 1999 will be entitled to receive notice of and vote at the special
meeting. As of that date, there were 16,091,495 shares of O'Sullivan common
stock outstanding. Holders of a majority of the outstanding common stock
entitled to vote, present in person or represented by proxy, will constitute a
quorum for the transaction of business at the special meeting. We will count
properly executed proxies marked "Abstain" for purposes of determining whether
there is a quorum.
A list of O'Sullivan stockholders entitled to vote will be available for
examination at the office of Blackwell, Sanders, Peper, Martin L.L.C. at
2300 Main Street, Suite 1100, Kansas City, Missouri during the ten-day period
prior to the special meeting.
HOW SHARES WILL BE VOTED AT THE SPECIAL MEETING
If you abstain or fail to vote your shares, it will have the same effect as
voting against the merger. Shares represented by a proxy will be voted at the
special meeting as specified in the proxy. Properly executed proxies which do
not contain voting instructions will be voted "FOR" approval and adoption of the
merger agreement and approval of the merger.
Under New York Stock Exchange rules, your broker cannot vote O'Sullivan
common shares without specific instructions from you. Unless you follow the
directions your broker provides to you regarding how to vote your shares, your
shares will not be voted. This will have the same effect as voting against the
merger.
HOW TO REVOKE A PROXY
Your grant of a proxy on the enclosed proxy card does not prevent you from
voting in person or otherwise revoking your proxy.
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A stockholder may revoke a proxy at any time before its exercise by
delivering a duly executed revocation or a proxy bearing a later date to Rowland
H. Geddie, III, Vice President, General Counsel and Secretary, 1900 Gulf Street,
Lamar, Missouri 64759-1899.
In addition, you may revoke your proxy by voting your shares in person at
the special meeting.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the O'Sullivan board of
directors. We will arrange for and pay the costs of brokerage firms, fiduciaries
and other custodians to send solicitation materials to the beneficial owners of
shares held of record by those persons. We will also reimburse these brokerage
firms, fiduciaries and other custodians for their reasonable out-of-pocket
expenses. D.F. King will assist in the solicitation of proxies for a fee of
$10,000, plus reimbursement of reasonable out-of-pocket expenses. O'Sullivan
will indemnify our proxy solicitor against specific liabilities and expenses,
including liabilities and expenses under the federal securities laws.
RIGHTS OF STOCKHOLDERS NOT VOTING FOR THE MERGER
Stockholders who do not support the merger and who do not wish to receive
the cash and senior preferred stock consideration to be paid in the merger have
the right to demand that a court appraise their shares. These stockholders will
be entitled to receive in cash the fair value of their shares as determined by
the court if the merger is completed. In order to qualify for this right, a
stockholder must:
- be the owner of record on the date the stockholder demands appraisal and
not sell his or her shares before completion of the merger;
- not vote for the merger agreement;
- make a written demand for appraisal prior to the special meeting; and
- follow the other procedures required by law.
See "Appraisal Rights of Dissenting Stockholders" for a description of these
procedures.
THE COMPANIES
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
We are a leading designer, manufacturer and distributer of ready-to-assemble
furniture products, with over 45 years of experience. We sell primarily to the
rapidly growing home office and home entertainment markets. We manufacture
approximately 450 stock keeping units of ready-to-assemble furniture at retail
price points from $20 to $999. Our product offerings include ready-to-assemble
desks, computer workcenters, home entertainment centers, audio equipment racks,
pantries and microwave oven carts. We also manufacture a variety of other
ready-to-assemble furniture for home office, home entertainment and other home
uses. We design our products to provide high quality, value and ease of assembly
by the consumer using straight-forward, diagramed instructions.
We distribute our products primarily through office superstores, including
OfficeMax, Office Depot and Staples, discount mass merchants including Wal-Mart,
Target and Kmart, as well as through other retail channels. We own three modern
manufacturing facilities totaling over 2.1 million square feet that are
strategically located across the United States. This network of manufacturing
facilities positions us closer to our customers and reduces freight costs.
Freight costs represent a significant portion of total product cost. For the
fiscal year ended June 30, 1999, we had sales of $379.6 million, EBITDA of
$49.9 million and net income of $21.2 million.
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The $3.3 billion ready-to-assemble segment of the North American furniture
market grew at a compound annual growth rate of 11.6% from 1990 through 1998.
This was significantly faster than the 5.1% compound annual growth rate of the
total $57.9 billion domestic residential furniture market from 1990 to 1998. The
market for residential furniture, which includes upholstered furniture and wood
furniture shipped fully assembled by the manufacturer, is influenced by a
variety of factors, including home sales, housing starts and general economic
conditions. We believe the faster growth of ready-to-assemble furniture products
is the result of changes in the needs of consumers, changes in retail
distribution channels and improvements in product quality.
- CHANGES IN THE NEEDS OF CONSUMERS. Consumer demand for personal computers,
which has been accelerating in part due to the rapid growth of the
Internet, and for larger screen televisions and related equipment has
driven the demand for more sophisticated ready-to-assemble home office and
home entertainment furniture. We expect these trends to continue as the
number of households owning personal computers, home theaters and other
audio and video equipment expands;
- CHANGES IN RETAIL DISTRIBUTION CHANNELS. Office superstores and discount
mass merchants have altered the way many products are sold in the United
States. The ready-to-assemble furniture segment has been positively
impacted by the rapid growth and increased market share of these
retailers. These distribution channels accounted for over 50% of the
domestic sales of ready-to-assemble furniture in 1997; and
- IMPROVEMENTS IN PRODUCT QUALITY. Improvements in equipment, software and
manufacturing processes have enabled the ready-to-assemble furniture
industry to produce higher quality, more durable products. As a result of
these improvements, ready-to-assemble furniture has become more comparable
in quality and durability to wood furniture shipped fully assembled by the
manufacturer but remains relatively less expensive.
We believe that these trends will continue to drive the growth of the
ready-to-assemble segment of the retail furniture market.
COMPETITIVE STRENGTHS
We believe that we are able to compete effectively due to the following
strengths:
LEADING MARKET SHARE POSITION. We are the second largest North American
ready-to-assemble furniture manufacturer in terms of domestic sales, a position
that we have held for the last ten years. In calendar year 1998, our estimated
share of the ready-to-assemble furniture market was approximately 16%. Many of
our largest customers, including office superstores and discount mass merchants,
have substantial purchasing requirements across the country. We are able to
satisfy these requirements because of our large manufacturing capacity and our
innovative, high quality products.
LEADER IN PRODUCT QUALITY, INNOVATION AND DESIGN. We believe that we are
recognized as a leader in product quality, innovation and design in the
ready-to-assemble furniture industry. Our computer-aided design software and our
modern manufacturing processes enable us to develop more than 150 new products
per year. Consequently, about one-third of our products are new each year. Our
ability to innovate allows us to keep pace with changes in retailer and consumer
tastes and demands.
WELL-ESTABLISHED CUSTOMER RELATIONSHIPS. We have well established
relationships with many of the largest retailers of ready-to-assemble furniture
in the United States. These include office superstores like OfficeMax, Office
Depot and Staples. They also include national discount mass merchants, like
Wal-Mart, Target and Kmart. Over the past two years, we have also established
relationships with leading electronic superstores like Best Buy and Circuit
City. We believe we have a long history as a
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trusted vendor and have earned a reputation for product quality and innovation,
customer responsiveness and manufacturing flexibility.
RECENT CAPACITY EXPANSION AND SYSTEM UPGRADES POSITION US FOR GROWTH. We
recently completed a $20 million capacity expansion program in our Virginia
plant. This expansion increased our total manufacturing capacity by
approximately 15%. We also recently completed a $13 million manufacturing
equipment upgrade in our Missouri plant. In addition, we recently completed an
upgrade of our management information systems. This upgrade included a
corporate-wide conversion to JD Edwards software. We also installed new
point-of-sale analytical software that allows our sales force to better analyze
sales trends and consumer preferences. In addition, we installed
Pro-engineering, a computer-aided design software package. This software
enhances our product design capabilities and reduces the time before newly
conceived products reach the market.
LOW COST, GEOGRAPHICALLY DIVERSIFIED MANUFACTURING OPERATIONS. We believe
that we are a low-cost ready-to-assemble furniture producer due to our large
scale, modern facilities and efficient manufacturing processes. We are the only
major ready-to-assemble furniture manufacturer with a plant in each of the
eastern, central and western regions of the United States. This allows our
plants to receive particleboard and fiberboard from the manufacturers located
nearest to them. Our network of manufacturing facilities positions us closer to
our customers. It also reduces shipping costs, which represent a significant
proportion of product cost. We are the only major ready-to-assemble furniture
manufacturer with a manufacturing facility in the western United States, the
fastest growing region of the nation for ready-to-assemble furniture sales.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY OWNERSHIP. Our senior
management team has extensive experience in the ready-to-assemble segment of the
furniture industry. Our top twelve executives have been with us for an average
of over 17 years. In addition, we have broadened our management's expertise by
hiring executives from other leading manufacturers. Management participants in
the buyout will retain equity in O'Sullivan valued at a total of $13.7 million
in connection with the recapitalization and merger. This retained equity
includes an interest of approximately 27.1% in the outstanding common stock of
the surviving corporation. As a result of its substantial equity interest, we
believe the management participants in the buyout will have significant
incentive to continue to increase our sales and profitability.
GROWTH STRATEGY
Sales of ready-to-assemble furniture, although expanding more rapidly than
sales of traditional casegood furniture, still represent only about 5.7% of the
overall domestic residential furniture market. As the quality of
ready-to-assemble furniture continues to improve, and office superstores and
discount mass merchants continue to expand, we expect ready-to-assemble
furniture to gain additional market share.
The key elements of our growth strategy are as follows:
CONTINUE TO DEVELOP A BROAD RANGE OF INNOVATIVE, HIGH QUALITY PRODUCTS. We
are dedicated to offering a broad range of high quality products at a variety of
retail prices. We believe that by maintaining a broad product line, we can
appeal to a greater number of consumers and penetrate a larger number of
distribution channels. We seek to drive demand for our products and maintain
profitability in an otherwise price-rigid environment by providing a steady
supply of high quality product introductions. In fiscal year 1999, we introduced
approximately 150 new products.
FURTHER PENETRATE EXISTING AND NEW, GROWING DISTRIBUTION CHANNELS. Sales to
office superstores and discount mass merchants, our core distribution channels,
have grown at a compound annual growth rate of 14.6% since fiscal year 1995 to
over $250 million in fiscal year 1999. To increase sales to our existing
customer base, we have developed several initiatives. These initiatives include
dedicated product lines,
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enhanced customer service and tailored marketing programs. We have also focused
on increasing sales to other growing distribution channels. These channels
include electronic specialty retailers and home improvement centers. Many of
these retailers are increasing the ready-to-assemble furniture component of
their product mix.
LOWER PRODUCTION COSTS. Producing ready-to-assemble furniture cost
effectively is vital to our competitive position. This belief was the premise
for our recently completed capital expansion and management information systems
upgrade. Our capital investments have increased our total manufacturing capacity
and we are currently standardizing selected manufacturing processes to further
reduce set-up downtime. New equipment and employee training have also improved
our inventory management, order fulfillment rates and production efficiency. In
addition, our JD Edwards and Pro-engineering software have improved our customer
responsiveness and product design capability. We believe that we have not yet
fully realized the benefits of our capital expansion and management information
systems upgrade.
REMAIN COMMITTED TO CUSTOMER SERVICE. We are committed to providing
superior customer service to maintain strong relationships with our customers.
We strive to develop marketing strategies that are consistent with our
customers' needs and their position in the marketplace. The recent investments
we have made to improve our management information systems and increase our
manufacturing capacity should enable us to provide a higher level of customer
responsiveness, improve the look and quality of our products and enhance our
ability to forecast orders.
INDUSTRY OVERVIEW
GENERAL
The $3.3 billion domestic ready-to-assemble segment of the North American
retail furniture market is comprised of all sales of prefinished, or unfinished,
non-upholstered furniture purchased in component form and then assembled by the
consumer. Domestic ready-to-assemble furniture is generally made from
particleboard or fiberboard laminated to replicate the appearance of different
types of wood or other surfaces. Through improvements in product quality,
innovation and assembly, ready-to-assemble furniture manufacturers today can
offer a broad array of products ranging from $20 television and video cassette
recorder stands to $999 computer workcenters. Although technological advances
allow ready-to-assemble furniture manufacturers to imitate the look and
durability of casegood furniture, ready-to-assemble furniture manufacturers are
generally able to sell at lower prices due to lower raw material, manufacturing
and transportation costs.
The ready-to-assemble segment of the retail furniture market has grown at an
11.6% compound annual growth rate from 1990 to 1998, compared to the compound
annual growth rate of the United States gross domestic product of 5.0% over the
same period. We believe the growing popularity of ready-to-assemble furniture
products is the result of improvements in product quality, basic structural
changes in the retail distribution channels and increased demand created by the
changes in the needs of consumers.
IMPROVEMENTS IN PRODUCT QUALITY
During the past ten years, ready-to-assemble furniture has evolved and
improved dramatically. Industry studies and publications indicate that
consumers' attitudes regarding ready-to-assemble furniture have followed suit to
a large extent. Due to improvements in the ready-to-assemble furniture
manufacturing process, the quality of ready-to-assemble furniture, while lower
in cost, is now more comparable to that of wood furniture shipped assembled by
the manufacturer. Ready-to-assemble furniture manufacturers are able to provide
additional competitive advantages relative to assembled wood furniture. These
advantages include a broader range of surfaces and colors, enhanced design to
support the most recent home office/entertainment equipment and immediate
product availability.
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EXPANSION OF KEY CUSTOMERS
The growth in the office superstore and mass merchant retail channels has
fueled the growth of ready-to-assemble furniture in the United States. These
channels currently account for over 50% of all ready-to-assemble furniture
sales. Some mass merchants and office superstores have announced that they will
open new domestic stores in 1999. These include about 105 stores for OfficeMax,
105 stores for Office Depot, 100 stores for Wal-Mart, 60 stores for Target and
150 stores for Staples. We anticipate having our products included in the
majority of these new stores.
GROWTH IN HOME OFFICE FURNITURE
In 1998, sales of ready-to-assemble home office furniture accounted for a
majority of the overall home office furniture sales in the United States. As the
number of home office households and households owning one or more personal
computers continue to increase, we expect the demand for home office furniture
to increase as well. Home office households are projected to grow at a compound
annual growth rate of 7.4% from 1997 to 2002. Home office households with
personal computers are projected to grow at a compound annual growth rate of
11.0%, reaching 37.8 million by 2002 according to International Data
Corporation. Additionally, as the price of lower-end personal computers has
steadily declined below $1,000 in the past three years, computer ownership in
median and lower income households has increased significantly. Personal
computer shipments in 1998 increased to an estimated 12.8 million units, up
16.4% from 11.0 million units in 1997. The penetration rate of personal
computers in U.S. households due to declining prices and increased use of the
Internet is expected to increase from 43% in 1997 to 51% in 2001.
CONTINUING GROWTH AND INNOVATION IN THE HOME ENTERTAINMENT MARKET
The demand for larger television sets and related audio and video equipment
has created increased demand for ready-to-assemble furniture. In 1998, an
estimated 22.2 million televisions were sold in the United States. In 1998,
television sales increased 1.6%, to $6.1 billion from $6.0 billion in 1997.
During this period, the market for large screen televisions, defined as 32" or
larger, increased 57.1%, from $2.1 billion in 1997 to $3.3 billion in 1998.
Sales of large screen televisions for the first four months of 1999 were 30%
greater than the same period in 1998. The surge in overall sales and sales of
large screen televisions has occurred in part due to a general price decline.
For example, prices for 32" screen televisions have dropped 40% since 1996. Many
entertainment centers sold over the past decade accommodate televisions with a
maximum screen size of 27". These entertainment centers need to be replaced by
new furniture products to accommodate larger screen televisions.
PRODUCT OVERVIEW
We group our product offerings into three distinct categories:
- furniture for the home office, including desks, computer work centers,
bookcases, filing cabinets and computer storage racks;
- electronics display furniture, including home entertainment centers, home
theater systems, television and stereo tables and cabinets, and audio and
video storage racks; and
- home decor furniture, including microwave oven carts, pantries, living
room and recreation room furniture and bedroom pieces, including dressers,
night stands and wardrobes.
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The following is a description of some of our products.
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION KEY CUSTOMERS
------------ ----------- -------------
<S> <C> <C>
Living Dimensions............ Contemporary small OfficeMax, Office Depot, Best
office/home office and Buy, Office World, Circuit
entertainment furniture. City, Service Merchandise
Upscale features include
Armortop-Registered Trademark-
laminates and Quikfit-TM-
fastener system.
Ovations..................... Transition style Best Buy, Circuit City,
entertainment furniture Montgomery Ward
collection in both medium
Mystique Maple and light Snow
Maple finish.
Scandinavian................. Contemporary small Office Depot, OfficeMax,
office/home office and Ames, Target, Best Buy
entertainment furniture
collection in medium Alder
finish.
Xpressions-TM-............... Generation X targeted home Wal-Mart, Circuit City,
office and entertainment Meijer, Ames, Staples,
furniture collection. Montgomery Ward
Features include mini-stereo
system compatibility, lavish
media storage and youthful
high contrast, two-tone
finish.
French Gardens............... Country French style OfficeMax, Shopko, Montgomery
collection with antique Ward
Odessa Pine finish. Both home
office and entertainment
products.
Carmel Transitional styled home Ames, Montgomery Ward,
Valley-Registered Trademark-... office and entertainment Service Merchandise, Best Buy
furniture collection in a
medium oak finish.
</TABLE>
PRODUCT DESIGN AND DEVELOPMENT
We believe we are an industry leader in product quality and innovation. We
are committed to the continuing development of unique furniture that meets
consumer needs. With over 50% of our sales to the home office market, we believe
we are recognized as one of the industry's premier producers of contemporary
home office ready-to-assemble furniture. As evidence of our commitment to
quality and innovation, in the past year we introduced approximately 150
products, or approximately one third of our product line. In the
ready-to-assemble furniture industry, a new product can be a variation in color
or styling of an existing product. By providing a continuous supply of new
product introductions, we are able to drive demand for our products, which we
believe will allow us to maintain our profit margins in an otherwise price-rigid
environment.
We maintain an in-house product design staff that collaborates with our
marketing personnel and customers to develop new products based on demographic
and consumer information. The product design professionals then work with our
engineering division to produce full-scale prototypes. The engineering staff
uses computer-aided design Pro-engineering software, which provides the latest
three-dimensional graphics capabilities. Pro-engineering software allows a
design engineer to accelerate the
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time-to-completion for a new product design. This allows us to reduce the time
before newly conceived products reach the market. We then show our prototypes to
our customers to gauge interest. If initial indications of product appeal are
favorable, we usually can commence production within twelve weeks. In fiscal
year 1999, we spent approximately $800,000 on product design and development.
CUSTOMERS
Ready-to-assemble furniture is sold through a broad array of distribution
channels, including discount mass merchants, office superstores, electronic
superstores, national department stores and home centers. While the
ready-to-assemble segment historically has been dominated by discount mass
merchants like Wal-Mart, Target and Kmart, office superstores have quickly
become the second largest distribution channel. The office superstores are the
fastest growing channel with 21% of total 1997 ready-to-assemble furniture
sales. We have a leading market share position in both of the two major
distribution channels and longstanding relationships with key customers.
During fiscal 1999, our two largest customers accounted for approximately
34.0% of our net sales. OfficeMax accounted for 20.1% and Office Depot accounted
for 13.9% of these sales. See "Risk Factors."
SALES AND MARKETING
We manage our customer relationships both through our in-house sales force
and a network of independent sales representatives. Key accounts like OfficeMax
and Office Depot are called on jointly by our sales force and independent sales
representatives. Smaller customers are serviced mainly by independent sales
representatives, whose activities are reviewed by our in-house sales force. As
of June 30, 1999, we employed 15 people in our sales department and 14 people in
our marketing department.
We work extensively with our customers to meet their specific merchandising
needs. Through customer presentations and other direct feedback from the
customer and consumers, we identify the consumer tastes and profiles of a
particular retailer. With this information, we make product recommendations to
our customers. We maintain a close dialogue with customers to ensure that the
design and functional requirements of our products are fulfilled.
Our products are promoted by our customers to the public under cooperative
and other advertising agreements. Under these agreements, our products are
advertised in newspaper inserts and catalogs, among other publications. We
generally cover a portion of the customer's advertising expenses if the customer
places approved advertisements mentioning us and our products by name. We may
also provide support to some customers' advertising programs. We generally do
not advertise directly to consumers. We do, however, advertise in trade
publications to promote O'Sullivan as a producer of high quality
ready-to-assemble furniture.
We provide extensive service support needed by our customers. This support
includes designing and installing in-store displays, educating retailers' sales
forces and maintaining floor displays. We have been recognized for our
commitment to our retail partners and have earned several awards in recent
years. These awards include the 1998 Vendor of the Year award in the
ready-to-assemble furniture category from both Kmart and Shopko.
We participate in the eight-day furniture markets held in High Point, North
Carolina in April and October of each year. High Point is the principal
international market in the furniture industry. It attracts buyers from the
United States and abroad. We maintain over 16,000 square feet of leased showroom
space at High Point. We also maintain two other showrooms to market our product
lines. In addition, we participate in other trade shows, including the
international furniture show in Cologne, Germany.
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MANUFACTURING
We operate three modern manufacturing facilities, which are described more
fully below. They are located in Lamar, Missouri, South Boston, Virginia and
Cedar City, Utah. In total, our facilities have over 2.1 million square feet.
- LAMAR, MISSOURI: Opened in 1965, this facility has about 1.1 million
square feet. It is the largest of our three facilities and has the
capability to produce our entire product offering. This facility also
serves as our corporate headquarters.
- SOUTH BOSTON, VIRGINIA: Opened in 1989, our South Boston facility has been
expanded to approximately 480,000 square feet. This includes a 100,000
square foot expansion in 1993 and an additional 30,000 square foot
expansion in 1998. The South Boston facility has the capability to
manufacture substantially all of our products. As a part of our expansion
in 1998, we added a strip line, a laminator, a combi-former machine and a
new wrap line to the facility.
- CEDAR CITY, UTAH: This facility was opened in the spring of 1995. Our
newest plant encompasses about 530,000 square feet. It has about 25% of
the production capacity of our Lamar facility. We opened this facility in
Utah to be closer to western customers and particleboard suppliers in
order to reduce transportation costs. The building in Cedar City is now
utilizing approximately 50% of its available manufacturing space.
Consequently, it could accommodate substantial capacity expansion.
We have invested approximately $60 million in capital improvements to expand
production capacity, increase manufacturing efficiency and install a new
corporate-wide JD Edward management information system since the beginning of
fiscal year 1997. These efforts have provided significant production
improvements, including:
- IMPROVED PRODUCT STYLING AND EFFICIENCY: We were one of the first
ready-to-assemble furniture manufacturers to utilize combi-former
machines. This fall, we expect to install our fourth combi-former machine.
These machines provide a significant advantage in product styling by
creating rounded and other curved edges on furniture parts.
- IMPROVED MANUFACTURING EFFICIENCY: Our new equipment is highly automated
and efficient. However, it is also complex and requires extensive
training. As our employees have become more familiar with the new
equipment, their productivity has improved. We expect these improvements
to continue.
- INCREASED MANUFACTURING FLEXIBILITY: The new equipment installed at our
South Boston, Virginia plant has provided expanded capacity and
manufacturing flexibility. As a result, the South Boston facility is now
capable of manufacturing a broader spectrum of parts. Some of these parts
were formerly manufactured only in our Lamar plant. We believe that our
expanded manufacturing capacity will increase manufacturing flexibility,
reduce freight costs and allow us to better serve East Coast markets.
RAW MATERIALS
The materials used in our manufacturing operations include particleboard,
fiberboard, coated paper laminates, glass, furniture hardware and packaging
materials. Our largest raw material cost is particle board. We purchase all of
our raw material needs from outside suppliers. We buy our particle board and
fiberboard at market-based prices from several independent wood product
suppliers. We purchase other raw materials from a limited number of vendors.
These raw materials are generally available from other suppliers, although the
cost from alternate suppliers might be higher.
As is customary in the ready-to-assemble furniture industry, we do not
maintain long-term supply contracts with our suppliers. We do, however, have
long standing relationships with all of our key
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suppliers and encourage supplier partnerships. Our supplier base is sufficiently
diversified so that the loss of any one supplier in any given commodity should
not have a material adverse effect on our operations. We have never been unable
to secure needed raw materials. However, there could be adverse effects on our
operations and financial condition if we are unable to secure necessary raw
materials like particle board and fiberboard.
Because we purchase all of our raw materials from outside suppliers, we are
subject to fluctuations in prices of raw materials. For example, our results of
operations were significantly affected in fiscal year 1995 by higher particle
board and fiberboard prices. Future increases in the price of raw materials
could again affect our results of operations. See "Risk Factors".
COMPETITION
The residential furniture market is very competitive and includes a large
number of both domestic and foreign manufacturers. Our competitors include
manufacturers of both ready-to-assemble and assembled furniture. Although a
large number of companies manufacture ready-to-assemble furniture, the top five
ready-to-assemble furniture manufacturers accounted for an estimated 76% of the
domestic ready-to-assemble furniture market in 1998. Our top five competitors in
terms of market share of the ready-to-assemble segment are Sauder
Woodworking, Inc., Bush Industries, Inc., Dorel Industries, Inc., Mills Pride,
and Creative Interiors. Some of our competitors have greater sales volume and
financial resources.
We, along with some of our competitors, have continued to increase
production capacity significantly as the market for ready-to-assemble furniture
has grown. In fiscal year 1996, these increases in capacity created some surplus
in production capacity in the ready-to-assemble furniture industry. The current
increases in production capacity could again cause excess capacity and increased
competition if anticipated sales increases do not materialize. This could
adversely affect our margins and results of operations. See "Risk Factors".
PATENTS AND TRADEMARKS
We have a United States trademark registration and international trademark
registrations or applications for the use of the
O'Sullivan-Registered Trademark- name on furniture. We believe that the
O'Sullivan name and trademark are well-recognized and associated with high
quality by both our customers and consumers and are important to the success of
our business. Our products are sold under a variety of trademarks in addition to
O'Sullivan. Some of these names are registered trademarks. We do not believe
that the other trademarks we own enjoy the same level of recognition as the
O'Sullivan trademark. We also do not believe that the loss of the right to use
any one of these other trademarks would be material to our business. We hold a
number of patents and licenses. None of these patents and licenses are
individually considered by us to be material to our business.
SHIPPING
We offer customers the choice of paying their own freight costs or having us
absorb freight costs. If we absorb the freight costs, our product prices are
adjusted accordingly. When we pay freight costs, we use independent trucking
companies with whom we have negotiated competitive transportation rates.
BACKLOG
Our business is characterized by short-term order and shipment schedules of
generally less than two weeks. Accordingly, we do not consider backlog at any
given date to be indicative of future sales.
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SEASONALITY
We generally experience a somewhat higher level of sales in the second and
third quarters of our fiscal year in anticipation of and following the holiday
selling seasons.
PROPERTIES
We own three manufacturing facilities. We also lease distribution warehouses
in Lamar, Missouri and South Boston, Virginia. We utilize space in bonded
warehouses in Markham, Ontario for our Canadian operations and Oxfordshire,
United Kingdom for our European customers.
INSURANCE
We maintain liability insurance at levels that we believe are adequate for
our needs. We believe these levels are comparable to the level of insurance
maintained by other companies in the furniture manufacturing business.
EMPLOYEES
As of June 30, 1999, we had approximately 2,500 employees. 64% of these
employees are located in Lamar. None of our employees are represented by a labor
union. We believe that we have good relations with our employees.
ENVIRONMENTAL AND SAFETY REGULATIONS
Our operations are subject to extensive federal, state and local
environmental laws, regulations and ordinances. Some of our operations require
permits. These permits are subject to revocation, modification and renewal by
governmental authorities.
Governmental authorities have the power to enforce compliance with their
regulations. Violators may be subject to fines, injunction or both. Compliance
with these regulations has not in the past had a significant effect on our
earnings, capital expenditures or competitive position. We anticipate increased
federal and state environmental regulations affecting us as a manufacturer,
particularly regarding emissions and the use of various materials in our
production process. In particular, regulations to be issued under the Clean Air
Act Amendments of 1990 could subject us to new standards regulating emissions of
some air pollutants from our wood furniture manufacturing operations. We cannot
at this time estimate the impact of these new standards on our operations,
future capital expenditure requirements or the cost of compliance. We have
applied for air emission permits under Title V of the Clean Air Act Amendments
of 1990.
Our manufacturing process creates by-products, including sawdust and
particle board flats. At the South Boston facility, this material is given to a
recycler or disposed of in landfills. At the Lamar facility, the material has
been sent to a recycler and off-site disposal sites. Wood by-products generated
at the Cedar City facility are shipped to a local landfill. Our by-product
disposal costs were approximately $1.2 million for fiscal 1998, $1.0 million for
fiscal 1997, and $0.9 million for fiscal 1996.
Our manufacturing facilities ship waste products to various disposal sites.
If our waste products include hazardous substances and are discharged into the
environment, we are potentially liable under various laws. These laws may impose
liability for releases of hazardous substances into the environment. These laws
may also provide for liability for damage to natural resources. One example of
these laws is the federal Comprehensive Environmental Response, Compensation and
Liability Act. Generally, liability under this act is joint and several and is
determined without regard to fault. In addition to the Comprehensive
Environmental Response, Compensation and Liability Act, similar state or other
laws and regulations may impose the same or even broader liability for releases
of hazardous substances.
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We have been designated as a potentially responsible party under the
Arkansas Remedial Action Trust Fund Act for the cost of cleaning up a disposal
site in Diaz, Arkansas. We entered into a DE MINIMIS buyout agreement with some
of the other potentially responsible parties. We have contributed $2,000 to date
toward cleanup costs under this agreement. The agreement subjects potentially
responsible parties to an equitable share of any additional contributions if
cleanup costs exceed $9 million. In this event, we would be liable for our share
of the excess. Cleanup expenses have approached $9 million. The state has
approved a plan providing that groundwater at the site be monitored. No further
remediation activity is necessary unless further problems are discovered. The
monitoring activities should not require the potentially responsible parties to
make additional payments. We believe that the amounts we may be required to pay
in the future, if any, relating to this site will be immaterial.
Our operations also are governed by laws and regulations relating to
workplace safety and worker health, principally the Occupational Safety and
Health Act and related regulations. Additionally, some of our products must
comply with the requirements and standards of the United States Consumer
Products Safety Commission. We believe that we are in substantial compliance
with all of these laws and regulations.
OSI ACQUISITION, INC.
OSI is a newly formed Delaware corporation formed by principals of BRS for
the purpose of completing the merger. The address of OSI's principal executive
offices is c/o Bruckmann, Rosser, Sherrill & Co., L.L.C., 126 East 56th Street,
New York, NY 10022. OSI will not have any significant assets or liabilities,
except as described in this document. OSI will not engage in any activities
other than those related to completing the merger.
All of the outstanding capital stock of OSI is owned by BRS. Information
about the directors and executive officers of OSI is set forth in Appendix E to
this document.
BRS
BRS is a private equity firm formed in 1995 that specializes in leveraged
acquisitions. BRS seeks to acquire quality businesses in alliance with proven
operating management. BRS professionals currently manage two funds with total
committed capital of more than $1.2 billion. Since its formation, BRS has
completed 15 acquisitions, including acquisitions in the manufacturing and
retailing industries. From the mid-1980's until BRS's formation, the principals
of BRS worked together as senior officers of Citicorp Venture Capital. While at
Citicorp Venture Capital, the principals of BRS completed 25 acquisitions,
including furniture companies Chromcraft Revington, Inc. and Cort Business
Services Corporation.
Bruckmann, Rosser, Sherrill & Co. II, L.P., its affiliates and the
management participants in the buyout will own 100% of OSI immediately prior to
the completion of the merger. BRSE, LLC is the general partner of Bruckmann,
Rosser, Sherrill & Co. II, L.P. BRS is the manager of Bruckmann, Rosser,
Sherrill & Co. II, L.P. Information about the members of BRS and BRSE, LLC is
set forth in Appendix E to this document. The services of BRS and its affiliates
include forming OSI, planning the capital structure of OSI and the surviving
corporation, obtaining commitments for debt financing and negotiating definitive
agreements with respect to the financing and negotiation of the merger
agreement.
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THE MERGER AGREEMENT
This is a summary of the material provisions of the amended and restated
merger agreement, a copy of which is attached as Appendix A to this document.
You should refer to the full text of the merger agreement for details of the
merger and the terms and conditions of the merger agreement.
THE MERGER
When the merger is completed, OSI will be merged with and into O'Sullivan.
The separate corporate existence of OSI will cease and O'Sullivan will be the
surviving corporation in the merger. The merger will have the effects specified
in the Delaware General Corporation Law.
EFFECTIVE TIME OF THE MERGER
The merger will be completed when we file a certificate of merger with the
Secretary of State of the State of Delaware. However, we may agree to a later
time, and specify that time in the certificate of merger. We expect to complete
the merger by the end of 1999. We cannot assure you when, or if, all the
conditions to consummation of the merger will be satisfied or waived. See "THE
MERGER--Conditions".
EXCHANGE PROCEDURES
Citibank, N.A. will be the paying agent and exchange agent. After the merger
is completed, Citibank, N.A. will mail a letter of transmittal to each person
who held shares of O'Sullivan common stock at the time of the completion of the
merger. You should use that letter of transmittal in forwarding and exchanging
O'Sullivan stock certificates. Instructions for doing so will be included in the
letter of transmittal. After an O'Sullivan stock certificate and a letter of
transmittal is received by Citibank, N.A., you will be entitled to receive
$16.75 in cash plus one share of senior preferred stock of O'Sullivan for each
share of O'Sullivan common stock surrendered. Citibank, N.A. will cancel the
surrendered certificates. DO NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU
RECEIVE A LETTER OF TRANSMITTAL.
No interest will be paid on the cash payable upon surrender of any
certificate. In the event of a transfer of ownership of O'Sullivan common stock
that is not registered in the transfer records of O'Sullivan, documentary
evidence of the transfer and prior payment of applicable taxes will be required
by Citibank, N.A. before payment is made to the stockholder.
Any O'Sullivan stockholder who has not complied with the exchange procedures
within nine months after the completion of the merger may look only to
O'Sullivan for payment in exchange for his shares. Neither O'Sullivan, BRS,
Citibank, N.A. nor any other person will be liable to you for any amount
properly delivered to a public official under applicable abandoned property,
escheat or similar laws.
If your O'Sullivan stock certificate has been lost, stolen or destroyed, you
will only be entitled to receive payment for your common stock by making an
affidavit and, if required by O'Sullivan, posting a bond in an amount sufficient
to protect us against claims related to your stock certificate.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by us to
OSI, including representations and warranties relating to:
(1) due organization, power and standing and other corporate matters;
(2) authorization, execution, delivery and enforceability of the merger
agreement;
(3) compliance with applicable laws;
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(4) capital structure and securities;
(5) subsidiaries;
(6) conflicts under charter documents, violations of any instruments or law,
and required consents and approvals;
(7) documents filed with the SEC and the accuracy of the information in
those documents;
(8) litigation and liabilities;
(9) conduct of business in the ordinary course and the absence of adverse
changes and material adverse effects;
(10) tax matters;
(11) retirement and other employee benefit plans;
(12) labor matters;
(13) brokers' and finders' fees with respect to the merger;
(14) intellectual property and compliance with year 2000 computer issues;
(15) permits;
(16) environmental matters;
(17) title to assets;
(18) insurance;
(19) material contracts;
(20) receipt of a fairness opinion from Salomon Smith Barney;
(21) amendment of the shareholder rights agreement;
(22) undisclosed liabilities;
(23) real property;
(24) debt instruments;
(25) authorization of a trust for employee benefits and its inapplicability
to the merger;
(26) authority of the special committee;
(27) recommendation of the board of directors; and
(28) vote of the stockholders.
The merger agreement also contains representations and warranties made by
OSI to us, including representations and warranties relating to:
(1) due organization, power and standing, and other corporate matters;
(2) authorization, execution, delivery and enforceability of the merger
agreement;
(3) compliance with applicable laws;
(4) interim operations of OSI;
(5) financing of the merger;
(6) litigation; and
(7) capitalization.
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COVENANTS
O'Sullivan and its subsidiaries have agreed to conduct their operations in
the ordinary course of business consistent with past practice pending completion
of the merger. We have also agreed to use our commercially reasonable efforts
to:
- keep intact our business organization and goodwill;
- keep available the services of our officers and employees; and
- maintain satisfactory relationships with persons having existing business
relations with us.
In addition, we have agreed that before the completion of the merger, unless
OSI agrees in writing or as otherwise permitted by the merger agreement, neither
O'Sullivan nor any of its subsidiaries will:
(1) amend its certificate of incorporation or bylaws;
(2) issue, sell or pledge any shares of its capital stock or other ownership
interest;
(3) effect any stock split or otherwise change its capitalization;
(4) grant, confer or award any option, warrant, convertible security or
other right to acquire any shares of its capital stock;
(5) declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock;
(6) directly or indirectly redeem, purchase or otherwise acquire any shares
of its capital stock or capital stock of its subsidiaries;
(7) sell, lease, license, abandon, transfer, mortgage pledge or otherwise
encumber or subject to any lien or otherwise dispose of any of its
assets, other than in the ordinary course of business consistent with
past practice and which would not be material to O'Sullivan and its
subsidiaries taken as a whole;
(8) acquire by merger, purchase or any other manner, any business or entity
or otherwise acquire or make commitments to acquire any assets which
would be material, except for purchases of inventory, supplies, equipment
parts or capital equipment;
(9) incur or assume any long-term or short-term debt, except for working
capital purposes;
(10) assume, guarantee or otherwise become liable or responsible for the
obligations of any other person;
(11) make or forgive any loans, advances or capital continuations to, or
investments in, in an amount more than $10,000 for any one transaction or
$50,000 in total;
(12) grant any stock-related or performance awards, other than performance
awards in the ordinary course of business consistent with past practice
and, in the case of stock related awards, other than in a total amount
not to exceed 210,000 shares of common stock;
(13) enter into, amend or renew any employment, severance, consulting or
salary continuation agreements, grant any severance or termination pay or
grant any increases in compensation or benefits to employees other than
in the ordinary course of business consistent with past practice;
(14) adopt or amend in any respect or make any new grants or awards under
any employee benefit plan or arrangement;
(15) amend, change or waive the shareholders rights agreement;
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(16) amend, modify or waive any material term of any outstanding security of
O'Sullivan;
(17) fail to (A) maintain in all material respects any real property owed by
O'Sullivan or its subsidiaries, (B) timely pay in all material respects
all taxes, water and sewer rents, assessments and insurance premiums
affecting real property and (C) timely comply in all material respects
with the terms and provisions of all leases, contracts and agreements
relating to or affecting real property;
(18) enter into any labor or collective bargaining agreement, or any other
agreement or commitment to or relating to any labor union;
(19) adopt a plan of complete or partial liquidation;
(20) settle or compromise any material claims or litigation;
(21) take any action with respect to accounting policies or procedures,
except as may be required by law or generally accepted accounting
principles;
(22) make any material tax election or amend any material tax return or any
material insurance policy without notice to OSI;
(23) take, or agree or commit to take, any action that would, or is
reasonably likely to, make inaccurate any representation or warranty of
O'Sullivan under the merger agreement; or
(24) agree in writing or otherwise to take any of the foregoing actions.
O'Sullivan and OSI have also agreed to cooperate in the: (1) prompt
preparation and filing of documents under federal and state securities laws and
with applicable government authorities, (2) issuing of press releases and
(3) the delisting of O'Sullivan common stock from the NYSE.
NO SOLICITATION OF TRANSACTIONS
We are not permitted to solicit any offers, inquiries or proposals
regarding, or engage in, a merger, acquisition or similar transaction that
involves more than 10% of our capital stock or a material portion of our assets.
However, our special committee may engage in discussions about an unsolicited
proposal for a merger, asset sale or similar transaction with a third party
under limited circumstances. The conditions to engaging in these discussions
include:
- a confidentiality agreement being signed that is no less favorable to us
than the confidentiality agreement we have with BRS;
- outside legal counsel advising us that failure to engage in substantive
discussions with the third party carries a material risk that our board of
directors will breach its fiduciary duties; and
- the special committee determining after consulting with its financial and
legal advisors that the third party's proposal is:
- more favorable to our stockholders than the merger agreement;
- not subject to any material contingency which the third party is not
likely to overcome;
- reasonably likely to be consummated; and
- in the best interests of our stockholders.
The special committee has agreed to:
- advise OSI in writing of the receipt of any inquiries or proposals by a
third party made after May 17, 1999;
- furnish to OSI a copy of any written proposals; and
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- notify OSI of its intention to enter into any agreement with a third party
to acquire O'Sullivan.
BOARD'S COVENANT TO RECOMMEND
The board of directors agreed to recommend the approval and adoption of the
merger agreement to O'Sullivan stockholders.
The board of directors also agreed that, subject to its fiduciary duties
under applicable law, it will not withdraw or modify its approval or
recommendation of the merger agreement and the merger.
BENEFIT PLANS
After the completion of the merger, the surviving corporation has agreed to
honor all of the existing obligations under the O'Sullivan benefits plans and
employment agreements. For a period of one year following the completion of the
merger, we will provide employee benefits no less favorable in the aggregate
than those provided by O'Sullivan at the time the merger agreement was signed.
INDEMNIFICATION AND INSURANCE
Each present and former director and officer of O'Sullivan or any of its
subsidiaries, when acting in that capacity, will be indemnified by O'Sullivan
against all costs or expenses, judgments, fines, losses, claims, damages, or
liabilities related to any claim, action, suit, proceeding or investigation for
acts or omissions, existing or occurring before the merger, to the fullest
extent permitted under the Delaware General Corporation Law or other applicable
law. In addition, for a period of at least six years after the completion of the
merger, O'Sullivan will maintain a policy of directors' and officers' liability
insurance for acts and omissions occurring before the completion of the merger
with coverage in amount and scope at least as favorable as O'Sullivan's existing
directors' and officers' liability insurance coverage. If the existing
directors' and officers' liability insurance expires or terminates, or if the
annual premium is more than 300% of the last annualized premium paid before the
date on which the merger agreement was signed, O'Sullivan must obtain directors'
and officers' liability insurance in an amount and scope as it can obtain for
the remainder of that period for a premium not in excess of 300% per annum of
the last annualized premium paid before the date on which the merger agreement
was signed.
O'Sullivan will maintain all provisions in its certificate of incorporation
and bylaws that relate to indemnification of or liability insurance for all past
and present officers and directors of O'Sullivan, including provisions that
relate to the right to have expenses paid by O'Sullivan before a claim is
resolved. These provisions will be maintained for at least six years after
completion of the merger. In addition, if a claim arises within six years of
completion of the merger, these provisions will continue in effect with respect
to that matter until it is resolved. O'Sullivan will not change these provisions
except as required to do so by law or to enhance the indemnification rights of
past or present officers and directors, including the right to have expenses
paid by O'Sullivan before a claim is resolved.
CONDITIONS
Both O'Sullivan and OSI are required to complete the merger only if each of
the following conditions is met:
(1) the holders of a majority of the outstanding shares of O'Sullivan common
stock entitled to vote have approved and adopted the merger agreement and
approved the merger;
(2) the waiting period applicable to the consummation of the merger under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expires or
terminates;
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(3) there is no order, decree or injunction making the merger illegal or
otherwise prohibiting the completion of the merger;
(4) the registration statement on Form S-4, of which this document is a
part, is effective under the Securities Act;
(5) we have satisfied all state securities or "blue sky" laws;
(6) the representations and warranties of the other party in the merger
agreement are true and correct as of the closing date, except for those
representations made as of an earlier date, with the same force and
effect as if made on and as of the date of the completion of the merger,
except that representations and warranties which are not qualified as to
materiality or material adverse effect will be true and correct in all
material respects;
(7) the other party has materially complied with all agreements and
covenants required by the merger agreement; and
(8) the other party has furnished on the date of the completion of the
merger a certificate from its chairman, president or any vice president
stating that its representations and warranties are true and correct in
all material respects and that it has performed and complied in all
material respects with all of its obligations, covenants and agreements
under the merger agreement.
Additionally, the merger agreement obligates OSI to complete the merger only
if each of the following conditions are met:
(1) the holders of no more than 5% of the outstanding shares demand
appraisal rights;
(2) there has not been any material adverse change since the merger
agreement was signed in the business, results of operations, or financial
condition of O'Sullivan or on the ability of O'Sullivan to consummate the
merger or to conduct O'Sullivan's business consistent with past practice,
except for material adverse changes resulting from or relating to:
- the merger agreement;
- changes or conditions affecting the furniture industry or the
ready-to-assemble segment of the furniture industry;
- changes in economic, financial market, regulatory or political
conditions; or
- any matters disclosed by us at the time the merger agreement was
signed;
(3) OSI has received the cash proceeds of financings necessary to complete
the merger and to pay all related fees and expenses;
(4) OSI has entered into financing arrangements to provide adequate working
capital for O'Sullivan after the completion of the merger;
(5) O'Sullivan has terminated all agreements with its directors and
affiliates, except for agreements between us and our subsidiaries,
agreements disclosed by us at the time the merger agreement was signed
and agreements with BRS; and
(6) O'Sullivan has received necessary consents under our loan agreements.
O'Sullivan is not obligated to complete the merger unless OSI has deposited
the merger consideration with Citibank, N.A. the paying agent and exchange
agent.
TERMINATION
We may terminate the merger agreement and abandon the merger at any time
before we complete the merger with the written consent of OSI.
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Either O'Sullivan or OSI may terminate the merger agreement if:
(1) the merger does not occur by November 30, 1999;
(2) the O'Sullivan stockholders fail to approve the merger agreement and the
merger at the special meeting;
(3) any governmental entity issues a final and nonappealable order making
the merger illegal or permanently prohibiting the merger, as long as the
party seeking to terminate the merger agreement has used its reasonable
best efforts to have this order lifted or vacated; or
(4) any of the representations, warranties or obligations under the merger
agreement is materially breached, and the breach is not cured within five
days after written notice is received by the party alleged to be in
breach.
We may also terminate the merger agreement if we receive an unsolicited
proposal which the special committee believes would be more favorable to and in
the best interests of the O'Sullivan stockholders. However, before terminating
the merger agreement as a result of a more favorable proposal, the special
committee has to:
(1) receive a written opinion from a financial advisor that the unsolicited
proposal is fair from a financial point of view to the stockholders;
(2) receive outside legal advice that there is a material risk that failure
to approve the unsolicited proposal would constitute a material breach of
fiduciary duties under applicable law; and
(3) give written notice to OSI of our intention to terminate the merger
agreement at least two full business days prior to termination.
OSI may terminate the merger agreement if our board of directors withdraws
or modifies its favorable recommendation of the merger or if our board of
directors recommends any proposal for a merger, asset sale or similar
transaction with a third party.
TERMINATION FEES
We agreed to pay up to $11.5 million to OSI as a termination fee and for
reimbursement of OSI's expenses relating to the merger agreement in a limited
number of circumstances.
Specifically, we agreed to pay a termination fee and/or to reimburse OSI for
its out-of-pocket expenses if:
(1) OSI terminates the merger agreement because our board of directors
withdrew or modified its favorable recommendation of the merger or
because we materially breached our obligations under the merger
agreement.
- The amount of the termination fee will be $9.5 million.
- The termination fee will be paid to OSI at the time an agreement with a
third party for a merger, asset sale or similar transaction is
completed, if the third party agreement is:
- signed within 180 days of the termination of the merger
agreement, and
- completed within 360 days of the termination of the merger
agreement.
- We will reimburse OSI for up to $2.0 million in expenses within two
business days of termination of the merger agreement.
(2) We receive a third party proposal for a merger, asset sale or similar
transaction offering higher value for our stockholders and the merger
agreement is terminated after that time for any reason.
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- The amount of the termination fee will be $9.5 million.
- The termination fee will be paid to OSI at the same time an agreement
for a merger, asset sale or similar transaction with the third party
who had made the higher proposal is completed, if the third party
agreement is:
- signed within 180 days of the termination of the merger agreement, and
- completed within 360 days of the termination of the merger agreement.
- We will reimburse OSI for up to $2.0 million in expenses at the same
time as the execution of the agreement with the third party.
(3) We receive an unsolicited third party proposal for a merger, asset sale
or similar transaction and, after complying with our obligations under
the merger agreement, we decide to accept the third party proposal.
- The amount of the termination fee will be between $4.75 million and
$9.5 million.
- $4.75 million of the termination fee will be paid prior to our
termination of the merger agreement.
- We will pay to OSI an additional termination fee of $4.75 million at
the time of completion of an agreement for a merger, asset sale or
similar transaction with the same third party if completion occurs
within 360 days of our termination of the merger agreement.
- We will reimburse OSI for up to $2.0 million in expenses prior to our
termination of the merger agreement.
(4) OSI terminates the merger agreement because, after complying with our
obligations under the merger agreement, we recommended to our
stockholders a third party proposal for a merger, asset sale or similar
transaction.
- The amount of the termination fee will be between $4.75 million and
$9.5 million.
- $4.75 million of the termination fee will be paid within two business
days of termination of the merger agreement.
- We will pay to OSI an additional termination fee of $4.75 million at
the time of the completion of an agreement with the same third party if
completion occurs within 360 days of our termination of the merger
agreement.
- We will reimburse OSI for up to $2.0 million in expenses within two
business days of termination of the merger agreement.
(5) OSI terminates the merger agreement because we initiated, solicited,
facilitated or encouraged the submission of a third party proposal for a
merger, asset sale or similar transaction.
- The amount of the termination fee will be $9.5 million.
- The termination fee will be paid to OSI within two business days after
termination of the merger agreement.
- We will reimburse OSI for up to $2.0 million in expenses within two
business days of termination of the merger agreement.
We will only be required to pay to OSI its expenses and/or the termination
fee under these limited circumstances. In the event that these amounts are
payable under more than one of those circumstances, OSI may elect to be paid
pursuant to any one, but only one, of these provisions.
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OTHER EXPENSES
The merger agreement provides that the following expenses will be shared
equally by O'Sullivan and OSI:
- the filing fee for the filing of the registration statement with the SEC
covering the senior preferred stock, and
- the expenses incurred for printing and mailing this document.
All other costs and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger agreement will be paid
by the party incurring the expense.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
We describe here the steps which you must take if you are an O'Sullivan
stockholder and you wish to exercise appraisal rights with respect to the
merger. The description is not complete. You should read Section 262 of the
Delaware General Corporate Law which is attached to this document as
Appendix C. FAILURE TO TAKE ANY ONE OF THE REQUIRED STEPS MAY RESULT IN
TERMINATION OF YOUR DISSENTER RIGHTS UNDER THE DELAWARE GENERAL CORPORATE LAW.
If you are considering dissenting, you should consult your own legal advisor.
To exercise rights of appraisal, you must satisfy five conditions:
- you must be a stockholder of record on the date of your demand and you
must continue to be the record owner until the merger is completed;
- you must not vote in favor of the merger;
- you must deliver a written demand for appraisal of your shares before the
vote on the merger;
- within four months after the completion of the merger, you must file a
petition in court for a determination of the fair value of your common
stock; and
- if the court requests, you must send the court your certificates of common
stock so it can be noted on the certificate that demand for appraisal has
been made.
The following is a more detailed description of the conditions you must
satisfy to perfect your appraisal rights:
1. MUST BE A STOCKHOLDER OF RECORD. To be entitled to appraisal rights, you
must at the time of your appraisal demand be the record owner of the
shares of O'Sullivan common stock for which you are making the demand.
You must continue to be the record owner until the merger is completed.
If you have a beneficial interest in O'Sullivan common stock which is
held of record in the name of another person, you must act promptly to
cause the stockholder of record to follow the steps described below.
2. NO VOTE IN FAVOR OF THE MERGER. You must not vote your shares in favor
of the approval and adoption of the merger agreement and approval of the
merger. This requirement will be satisfied:
- if a properly executed proxy is submitted with instructions to vote
"against" the merger or to "abstain" from this vote;
- if no proxy is returned and no vote is cast at the special meeting in
favor of the merger; or
- if you revoke a proxy and later vote "against" the merger or "abstain"
from this vote.
A VOTE FOR THE MERGER IS A WAIVER OF YOUR APPRAISAL RIGHTS. A proxy that is
returned signed but on which no voting preference is indicated will be voted in
favor of the merger agreement and will
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constitute a waiver of your appraisal rights. Failure to vote does not
constitute a waiver of your appraisal rights.
3. FILING A WRITTEN DEMAND. You must serve a written demand for appraisal
upon O'Sullivan before the time of the special meeting. The demand must
specify your name and address. The demand must be sent to our Corporate
Secretary, Rowland H. Geddie, III. It must clearly inform us that you
intend to demand the appraisal of your shares. VOTING AGAINST THE MERGER
IS NOT A WRITTEN DEMAND AS REQUIRED BY SECTION 262 OF THE DELAWARE
GENERAL CORPORATE LAW. You must submit a separate written demand for
appraisal.
4. PETITIONS TO BE FILED IN COURT. Within four months after the completion
of the merger, you must file a petition in the Delaware Court of
Chancery, demanding appraisal of your shares. No later than 10 days after
the completion of the merger, we are required to notify each stockholder
who filed a written demand for appraisal that the merger has been
completed. Although O'Sullivan is also permitted to file a petition, we
have no intention to do so. The court will conduct a hearing to determine
the stockholders entitled to appraisal rights and to determine the fair
value of those shares. The court will then direct us to pay you the fair
value of your shares, together with interest, if any. The costs of the
proceeding will be paid as the court determines. This means that
dissenting stockholders may have to pay all or part of the court costs.
THE FAIR VALUE OF YOUR SHARES MAY BE HIGHER, THE SAME OR LOWER THAN THE
MARKET VALUE OF OUR COMMON STOCK ON THE DATE OF THE COMPLETION OF THE
MERGER OR THE MERGER CONSIDERATION. In determining fair value, the court
will not consider any value related to the fact that the merger is
completed or expected to be completed.
5. DELIVERY OF CERTIFICATES TO THE COURT FOR NOTATION. The Delaware Court
of Chancery may require stockholders who have demanded an appraisal of
their shares to submit their stock certificates to the Register of
Chancery for notation upon the certificate of the pendency of appraisal
proceedings. You must submit your certificates if the court so requests.
You have the right to withdraw your demand for appraisal within 60 days
after the completion of the merger. After this 60 day period has ended, you may
only withdraw your demand for appraisal with O'Sullivan's approval.
The right to appraisal of your common stock will terminate if:
- for any reason the merger is not completed;
- you fail to make a timely written demand on O'Sullivan;
- you fail to file a timely petition with the Delaware Court of Chancery;
- you do not, upon request of the court, timely surrender certificates for
notation that demand for appraisal has been made; or
- you withdraw your demand in writing within 60 days after the completion of
the merger or with our written approval.
If you have properly demanded appraisal of your common stock, your rights as
a stockholder will be suspended at the time of the completion of the merger.
After that time, you will not be entitled to vote your shares for any purpose or
be entitled to receive dividends or other distributions on your shares. If the
right to appraisal is terminated, you will receive the payments that had been
made to non-dissenting stockholders.
If holders of 5% or more of the total amount of outstanding O'Sullivan
common stock exercise appraisal rights, OSI will have the right to terminate the
merger agreement.
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UNAUDITED PRO FORMA FINANCIAL DATA
The following tables show selected financial data reflecting the merger that
we refer to as "pro forma" information. They are based on adjustments to the
historical consolidated financial statements to give effect to the merger using
recapitalization accounting and to the financing of the merger. The pro forma
information, while helpful in illustrating the financial characteristics of
O'Sullivan after the merger under one set of assumptions, does not attempt to
predict or suggest future results. The pro forma information also does not
attempt to show how we would actually have performed had the merger been
effective throughout these periods.
Pro forma balance sheet data is provided as of June 30, 1999, as if the
merger was completed on that date. The pro forma statement of operations data
for the fiscal year ended on June 30, 1999 gives effect to the merger as if it
was completed on July 1, 1998. The pro forma financial information is based on
assumptions which we believe are reasonable.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Assets
Cash and cash equivalents............................ $ 3,740 $ (1,325)(b) $ 2,415
Trade receivables, net............................... 63,268 63,268
Inventory............................................ 56,134 56,134
Prepaid expenses and other current assets............ 3,810 3,810
-------- --------- ---------
Total current assets............................... 126,952 (1,325) 125,627
Property, plant and equipment, net................... 96,684 96,684
Other non-current assets, net........................ 1,909 10,000 (a) 11,909
Goodwill, net........................................ 41,422 41,422
-------- --------- ---------
Total assets....................................... $266,967 $ 8,675 $ 275,642
======== ========= =========
Liabilities
Accounts payable..................................... $ 11,416 $ $ 11,416
Current portion of long-term debt.................... 4,000 (4,000)(c) --
Accrued liabilities.................................. 24,695 (2,355)(i) 22,340
Income taxes payable................................. 1,579 1,579
-------- --------- ---------
Total current liabilities.......................... 41,690 (6,355) 35,335
Existing long-term debt.............................. 22,000 (12,000)(c) 10,000
Senior secured credit facility....................... -- 125,000 125,000
Senior subordinated notes............................ -- 110,000 (d) 110,000
Senior discount notes................................ -- 25,000 (d) 25,000
Other non-current liabilities........................ 1,909 1,909
Deferred income taxes................................ 16,232 -- 16,232
-------- --------- ---------
Total liabilities.................................. 81,831 241,645 323,476
Mandatorily Redeemable Preferred Stock
Senior preferred (h)................................. -- 9,857 (e) 9,857
Stockholders' Equity (Deficit)
Series A junior preferred stock (h).................. -- -- (e) --
Series B junior preferred stock (h).................. -- 51,481 (e) 51,481
Common stock (h)..................................... 16,820 (16,820)(f) --
1,368 (e) 1,368
Additional paid-in capital........................... 87,549 (81,430)(f)(g) 6,119
Accumulated other comprehensive loss................. (43) -- (43)
Retained earnings (deficit).......................... 89,470 (178,609)(f)(i)
(27,477)(g) (116,616)
Treasury stock at cost............................... (8,660) 8,660 (f) --
-------- --------- ---------
Total stockholders' equity (deficit)................. 185,136 (232,970) (57,691)
-------- --------- ---------
Total liabilities and stockholders' equity
(deficit)........................................ $266,967 $ 8,675 $ 275,642
======== ========= =========
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
77
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(a) Reflects the payment of deferred financing fees related to the new
credit facility and senior subordinated notes. O'Sullivan has no
significant deferred financing fees in its historical balance sheet.
(b) Reflects non-recurring charges for the prepayment of the long-term New
York Life debt and the termination of the interest swap with NationsBank.
We recorded these amounts as a reduction of cash, with excess amounts
recorded as accounts payable liabilities.
<TABLE>
<CAPTION>
JUNE 30, 1999
(IN THOUSANDS) ---------------
<S> <C>
Prepayment penalty......................................... $ 800
NationsBank swap........................................... 525
------
Total.................................................. $1,325
======
</TABLE>
THESE AMOUNTS WILL BE DIFFERENT AT THE TIME OF THE MERGER. CURRENTLY, WE
DO NOT BELIEVE THAT THESE AMOUNTS WILL MATERIALLY DIFFER. HOWEVER, ACTUAL
DIFFERENCES, IF ANY, CANNOT BE CALCULATED AT THIS TIME DUE TO A NUMBER OF
VARIABLES WHICH CANNOT BE DETERMINED. THESE VARIABLES INCLUDE FUTURE
INTEREST RATES.
(c) Reflects the repayment of borrowings outstanding under the existing
credit facility with a portion of the proceeds from the new senior
secured credit facility.
(d) Reflects the borrowings under the new senior secured credit facility and
senior subordinated notes, and senior discount notes.
(e) Reflects the new shares of O'Sullivan securities issued to BRS and the
management participants in the buyout as well as shares of senior
preferred stock, valued at estimated fair value, to be issued in the
merger to the existing O'Sullivan stockholders, as follows:
<TABLE>
<CAPTION>
MANAGEMENT
PARTICIPANTS IN EXISTING
BRS THE BUYOUT STOCKHOLDERS TOTAL
(IN THOUSANDS) -------- --------------- ------------ --------
<S> <C> <C> <C> <C>
Mandatorily Redeemable Preferred Stock
Senior preferred........................ -- -- $ 9,857 $ 9,857
Stockholders' Equity:
Series A junior preferred............... -- -- -- --
Series B junior preferred............... $44,293 $7,188 $51,481
Common stock............................ $ 994 $ 371 $ 1,368
</TABLE>
Data for the management participants in the buyout exclude options to
purchase series A junior preferred stock with an estimated
"in-the-money" value of $6,119,000.
(f) Reflects the cancellation of shares of O'Sullivan common stock in the
merger, assuming that no stockholders exercise appraisal rights. At the
time of the merger, these shares will be purchased using debt proceeds of
$260 million, the issuance of the senior preferred stock and an equity
infusion of $58.9 million from BRS and the management participants in the
buyout. See "Special Factors--Financing of the Merger".
78
<PAGE>
(g) Reflects the fees and expenses anticipated to be paid to complete the
merger. These fees and expenses are excluded from the unaudited pro forma
condensed consolidated statement of operations since they are
nonrecurring and result directly from the completion of the merger.
<TABLE>
<CAPTION>
JUNE 30, 1999
(IN THOUSANDS) ---------------
<S> <C>
Prepayment penalty......................................... $ 800
Interest rate swap......................................... 525
Compensation expense--option exercises..................... 12,795
Merger related expenses.................................... 13,357
-------
Total.................................................. $27,477
=======
</TABLE>
(h) After the merger is completed, senior preferred stock, series A junior
preferred stock, series B junior preferred stock and common stock will
have the following shares authorized, issued and outstanding:
<TABLE>
<CAPTION>
ISSUED AND
AUTHORIZED OUTSTANDING
(IN THOUSANDS) ---------- ----------------
<S> <C> <C>
Senior preferred stock.......................... 19,000 16,429
Series A junior preferred stock................. 250 0
Series B junior preferred stock................. 750 515
Common stock.................................... 2,000 1,368
</TABLE>
(i) Reflects the elimination of accrued compensation expense for options
approved by the stockholders after the grant date. The offsetting
adjustment is made to paid-in capital.
79
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................. $379,632 -- $379,632
Costs and expenses:
Cost of sales........................................... 267,630 -- 267,630
Selling, marketing and administrative................... 74,962 $ -- (a) 74,962
Merger related expenses................................. 1,143 (1,143)(b) --
-------- -------- --------
Total costs and expenses.................................. 343,735 (1,143) 342,592
Operating income.......................................... 35,897 1,143 37,040
Interest expense, net..................................... 2,844 28,439 (c) 31,283
-------- -------- --------
Income (loss) before income taxes......................... 33,053 (27,296) 5,757
Income tax provision (benefit)............................ 11,900 (10,100)(d) 1,800
-------- -------- --------
Net income (loss)......................................... 21,153 (17,196) 3,957
Preferred stock dividends................................. -- (11,738)(e) (11,738)
-------- -------- --------
Net Income (loss) attributable to common stockholders..... $ 21,153 $(28,934)(f) $ (7,781)
======== ======== ========
Earnings (loss) attributable per common share
Basic................................................... $ 1.32 $ (5.69)
Diluted................................................. $ 1.30 $ (5.69)
Weighted average shares outstanding
Basic................................................... 15,973 1,368
Diluted................................................. 16,330 1,368
Other Data:
EBITDA (g).............................................. $ 49,859 $ 1,143(b) $ 51,002
Depreciation and amortization........................... 13,962 13,962
Capital expenditures.................................... 15,779 15,779
Selected Ratios:
Ratio of earnings to combined fixed charges and
preferred stock dividends............................. 10.87 (h)
Ratio of earnings to fixed charges...................... 10.87 1.18
Ratio of EBITDA to interest expense..................... 17.53 1.63
Ratio of senior debt to EBITDA.......................... 0.52 2.45
Ratio of total debt to EBITDA........................... 0.52 5.29
</TABLE>
See notes to the unaudited pro forma condensed statement of operations
80
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(a) Reflects the annual management fee to be paid to BRS after completion of the
merger. BRS is not entitled to the management fee until after the beginning
of 2001. See "Special Factors--Conflicts of Interest; Arrangements with
Management".
(b) In June 1999, we recognized certain merger related expenses incurred for
legal, accounting, printing and investment banking fees.
(c) Reflects the interest expense related to the existing variable rate
industrial revenue bonds, the new senior secured credit facility and the
senior subordinated notes after taking into account repayment of
O'Sullivan's existing long-term debt, as follows:
<TABLE>
<CAPTION>
ASSUMED
INTEREST RATE ANNUAL COST
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Existing variable rate industrial revenue bonds............. 8.50% $ 850
Senior Secured Credit Facility
Term loan A of $35 million................................ 9.25% 3,238
Term loan B of $90 million................................ 9.50% 8,550
Commitment fee............................................ 200
Senior subordinated notes................................... 12.50% 13,750
Senior discount notes....................................... 13.50% 3,375
Amortization of debt issue costs............................ 1,320
-------
Total pro forma interest expense............................ 31,283
Historical interest expense................................. (2,844)
-------
Pro forma adjustment...................................... $28,439
=======
</TABLE>
(d) Reflects the statutory tax rate of 37% for the periods ended June 30, 1999.
We believe that interest expense associated with merger-related debt is
deductible for federal and state income tax purposes. We also believe that
merger-related interest expense is deductible in determining the benefit
payment payable to Tandy under the tax sharing and tax benefit reimbursement
agreement. Whether the merger-related interest expense is or is not
deductible in determining the benefit payment to Tandy has no impact on our
tax provision, it merely impacts the timing of when payments will be made to
Tandy under the tax sharing agreement. O'Sullivan's cash flow after
completion of the merger will be unfavorably impacted if Tandy prevails in
its position that merger-related interest expense is not deductible in
determining the amount payable to Tandy under the tax sharing agreement. See
"Risk Factors" and "Special Factors--Tax Sharing and Tax Benefit
Reimbursement Agreement with Tandy".
(e) Senior preferred stock dividends accumulate and compound at a rate of 12%.
$1,232,000 has been included to provide for the annual addition to the value
of senior preferred stock from its estimated fair value of $0.60 per share
at the time of the completion of the merger to its liquidation value of
$1.50 per share in the year 2011. Junior preferred stock dividends
accumulate and compound at a rate of 14%. See "Special Factors--Description
of O'Sullivan Capital Stock After the Merger".
(f) Excluded from "net income (loss) available for common stockholders" are
one-time, non-recurring charges which do not affect future results of
operations. The charges reflect the prepayment penalty associated with the
existing New York Life debt, the termination of the interest rate swap
81
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
with NationsBank, compensation charges associated with the exercise of stock
options and fees and expenses associated with the merger which do not effect
future periods.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1999
(IN THOUSANDS) ---------------
<S> <C>
Prepayment penalty.......................................... $ 800
Interest rate swap.......................................... 525
Compensation expense-option exercises....................... 12,795
Merger related expenses..................................... 14,500
-------
Total................................................... $28,620
=======
</TABLE>
(g) EBITDA means earnings before interest expense and interest income, income
taxes, depreciation and amortization. EBITDA is presented here to provide
additional information about our operations. This item should be considered
in addition to, but not as a substitute for or superior to, operating
income, net income, cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles. EBITDA
may differ in the method of calculation from similarly titled measures used
by other companies.
(h) Fixed charges and preferred stock dividend requirements exceed earnings by
$5,981,000 for the year ending June 30, 1999.
82
<PAGE>
SOURCES AND USES OF CASH PROCEEDS AND EQUITY
According to BRS, the total sources and uses of the financing proceeds
related to the merger are estimated at this time to be as follows:
<TABLE>
<CAPTION>
($ IN MILLIONS)
<S> <C>
SOURCES OF FUNDS
Revolving Credit Facility................................... $ 0.0
Tranche A Term Loan......................................... 35.0
Tranche B Term Loan......................................... 90.0
-------
Total Senior Credit Facility............................ 125.0
Senior Subordinated Notes................................... 110.0
Senior Discount Notes....................................... 25.0
Assume Existing Debt........................................ 10.0
Senior Preferred Stock(b)................................... 24.6
Rollover Equity(a).......................................... 13.7
BRS Equity Investment(c).................................... 45.2
Excess Cash................................................. 4.6
-------
Total Sources............................................... $ 358.1
=======
USES OF FUNDS
Purchase Equity............................................. $ 292.6
Rollover Equity(a).......................................... 13.7
-------
Total Equity............................................ 306.3
Assume Existing Debt........................................ 10.0
Refinance Existing Debt..................................... 17.3
Transaction Expenses........................................ 24.5
-------
Total Uses.................................................. $ 358.1
=======
</TABLE>
- ------------------------
(a) Includes $7.2 million Series B Jr. Preferred Stock, $6.1 million options to
purchase Series A Jr. Preferred Stock and $0.4 million of common stock.
Included in rollover equity is cash invested of $0.7 million.
(b) At initial liquidation value of $1.50 per share. Senior preferred stock is
recorded at estimated fair value of $9.9 million on the proforma balance
sheet. The senior preferred stock is a non-cash transaction.
(c) Includes cash investment of $44.3 million Series B Jr. Preferred Stock and
$1.0 million of common stock.
83
<PAGE>
LEGAL MATTERS
The validity of the issuance of the senior preferred stock being offered by
this document will be passed upon by Kirkland & Ellis, New York, New York,
counsel for BRS.
EXPERTS
The consolidated financial statements as of June 30, 1999 and 1998 and for
each of the three years in the period ended June 30, 1999 included in this
document have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Our 1999 annual meeting of O'Sullivan stockholders is presently scheduled to
be held on November 12, 1999. If the merger has been completed before that time,
the annual meeting will not be held. In the event that the meeting is held, any
proposals of O'Sullivan stockholders intended to be presented at the 1999 annual
meeting must have been received by the Corporate Secretary by May 28, 1999 in
order to be considered for inclusion in 1999 annual meeting proxy materials. Any
stockholder proposal included in the proxy solicitation materials for our 1999
annual meeting or otherwise to be considered at the annual meeting will be
subject to the requirements of our bylaws and the proxy rules promulgated under
the Exchange Act.
Stockholders who wish to nominate persons for election as directors at the
1999 annual meeting must have given written notice of their intention to do so
to the Corporate Secretary on or before August 13, 1999. Each notice must set
forth:
(1) the name and address of the stockholder who intends to make the
nomination and of the persons to be nominated;
(2) a representation that the stockholder is a holder of record of stock
entitled to vote at the annual meeting and intends to appear in person or
by proxy at the meeting;
(3) a description of all arrangements or understandings between the
stockholder and each nominee and any other person pursuant to which the
nominations are to be made by the stockholder;
(4) other information regarding each nominee as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and
(5) the consent of each nominee to serve as a director of O'Sullivan if so
elected.
If a stockholder desires to present a proposal to the 1999 annual meeting,
but does not desire the proposal to be included in the proxy statement for the
annual meeting, notice of the proposal must have been delivered to and received
by the Corporate Secretary by September 12, 1999. If the meeting date is
changed, the notice is due at least 60 days before the meeting date. If the
changed date is publicly disclosed less than 70 days before the meeting, the
notice of a stockholder proposal is due within ten days after notice of the
meeting is mailed or publicly disclosed. Notice of a stockholder proposal must
include:
(1) a brief description of the proposal and the reasons for conducting the
business at the annual meeting;
(2) the name and address of the proposing stockholder and any other
stockholders known to be supporting the proposal;
84
<PAGE>
(3) the number of shares of common stock beneficially owned by the proponent
and his supporters as of the date of the stockholder's notice; and
(4) any financial interest of the proponent in the proposal.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities Act
that registers the distribution of the senior preferred stock to be issued in
the merger. In addition, BRS, OSI, O'Sullivan Properties, Inc. and the directors
and officers who are management participants in the buyout have filed with the
SEC a Rule 13E-3 Transaction Statement on Schedule 13E-3 under the Exchange Act.
The registration statement and the Schedule 13E-3 contain additional relevant.
The rules and regulations of the SEC allow us to omit some information included
in the registration statement or the Schedule 13E-3 from this document.
In addition, we file reports, proxy statements and other information with
the SEC under the Exchange Act. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street,
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, including O'Sullivan, who file electronically with the SEC. The address
of that site is http://www.sec.gov. You can also inspect reports, proxy
statements and other information about us at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that differs from, or adds to,
the information in this document or in our documents that are publicly filed
with the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the senior preferred stock or to
ask for proxies, or if you are a person to whom it is unlawful to direct these
activities, then the offer presented by this document does not extend to you.
The information contained in this document speaks only as of its date unless
the information specifically indicates that another date applies. Information in
this document about O'Sullivan after the completion of the merger has been
supplied by BRS or the management participants in the buyout, information about
O'Sullivan before the completion of the merger has been supplied by O'Sullivan
and information about BRS and OSI has been supplied by BRS.
85
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BETWEEN
OSI ACQUISITION, INC.
AND
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
DATED AS OF OCTOBER 18, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
ARTICLE 1..................................................................... A-1
1. Intentionally Omitted................................................ A-1
ARTICLE 2..................................................................... A-1
2. The Merger........................................................... A-1
2.1. The Merger.................................................. A-1
2.2. The Closing................................................. A-1
2.3. Effective Time.............................................. A-2
2.4. Certificate of Incorporation, Bylaws, Directors and Officers
of the Surviving Corporation................................ A-2
2.5. Additional Actions.......................................... A-2
ARTICLE 3..................................................................... A-2
3. Effect of the Merger on Securities of Purchaser and the Company...... A-2
3.1. Purchaser Stock............................................. A-2
3.2. Company Securities.......................................... A-3
3.3. Exchange of Certificates Representing Common Stock.......... A-4
3.4. Adjustment of Merger Consideration.......................... A-5
3.5. Dissenting Company Stockholders............................. A-5
3.6. Adjustment of Merger Consideration, the Retained Share
Merger Consideration and Option Consideration............... A-6
3.7. Withholding Taxes........................................... A-6
ARTICLE 4..................................................................... A-6
4. Representations and Warranties of the Company........................ A-6
4.1. Existence; Good Standing; Corporate Authority............... A-6
4.2. Authorization, Validity and Effect of Agreements............ A-7
4.3. Compliance with Laws........................................ A-7
4.4. Capitalization.............................................. A-7
4.5. Subsidiaries................................................ A-8
4.6. No Violation................................................ A-8
4.7. Company Reports............................................. A-9
4.8. Litigation.................................................. A-9
4.9. Absence of Certain Changes.................................. A-9
4.10. Taxes....................................................... A-9
4.11. Employee Benefit Plans...................................... A-10
4.12. Labor and Employment Matters................................ A-11
4.13. Brokers..................................................... A-11
4.14. Intellectual Property Rights; Year 2000 Compliance.......... A-11
4.15. Permits..................................................... A-12
4.16. Environmental Compliance.................................... A-12
4.17. Title to Assets............................................. A-13
4.18. Insurance Policies.......................................... A-13
4.19. Material Contracts.......................................... A-13
4.20. Opinion of Financial Advisor................................ A-14
4.21. Rights Agreement............................................ A-14
4.22. No Undisclosed Liabilities.................................. A-14
4.23. Real Property............................................... A-14
4.24. Debt Instruments............................................ A-15
4.25. Rabbi Trust................................................. A-15
4.26. Special Committee........................................... A-15
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
4.27. Board Recommendation........................................ A-15
4.28. Required Company Vote....................................... A-15
ARTICLE 5..................................................................... A-15
5. Representations and Warranties of Purchaser.......................... A-15
5.1. Existence; Good Standing; Corporate Authority............... A-15
5.2. Authorization, Validity and Effect of Agreements............ A-16
5.3. No Violation................................................ A-16
5.4. Interim Operations of Purchaser............................. A-16
5.5. Financing................................................... A-16
5.6. Litigation.................................................. A-16
5.7 Capitalization.............................................. A-16
ARTICLE 6..................................................................... A-17
6. Covenants............................................................ A-17
6.1. Alternative Proposals....................................... A-17
6.2. Interim Operations.......................................... A-18
6.3. Company Stockholder Approval; Proxy Statement............... A-20
6.4. Filings; Other Action....................................... A-21
6.5. Access to Information....................................... A-21
6.6. Publicity................................................... A-22
6.7. Further Action.............................................. A-22
6.8. Insurance; Indemnity........................................ A-22
6.9. Employee Benefit Plans...................................... A-23
6.10. State Takeover Laws......................................... A-24
6.11. Delisting................................................... A-24
6.12. Litigation.................................................. A-24
6.13. Rights Agreement............................................ A-24
6.14. Substitute Financing Commitments............................ A-24
ARTICLE 7..................................................................... A-24
7. Conditions........................................................... A-24
7.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-24
7.2. Conditions to Obligation of Purchaser to Effect the
Merger...................................................... A-25
7.3. Conditions to the Obligation of the Company................. A-26
ARTICLE 8..................................................................... A-26
8. Termination.......................................................... A-26
8.1. Termination................................................. A-26
8.2. Effect of Termination and Abandonment....................... A-27
8.3. Fees and Expenses........................................... A-28
8.4. Extension; Waiver........................................... A-29
ARTICLE 9..................................................................... A-29
9. General Provisions................................................... A-29
9.1. Nonsurvival of Representations and Warranties............... A-29
9.2. Notices..................................................... A-29
9.3. Assignment; Binding Effect.................................. A-29
9.4. Entire Agreement............................................ A-30
9.5. Governing Law............................................... A-30
9.6. Fee and Expenses............................................ A-30
9.7. Certain Definitions......................................... A-30
9.8. Headings.................................................... A-31
9.9. Interpretation.............................................. A-31
9.10. Waivers..................................................... A-31
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
9.11. Severability................................................ A-31
9.12. Enforcement of Agreement.................................... A-31
9.13. Counterparts................................................ A-32
9.14. Specific Performance........................................ A-32
9.15. Time Is of the Essence...................................... A-32
9.16. Waiver of Jury Trial........................................ A-32
9.17. Amendment................................................... A-32
Exhibits:
Exhibit 2.4(a) Certificate of Incorporation of the Surviving Corporation
Exhibit 3.2 Holders of Retained Shares
</TABLE>
A-iii
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated
as of October 18, 1999, between OSI Acquisition, Inc., a Delaware corporation
("Purchaser"), and O'Sullivan Industries Holdings, Inc., a Delaware corporation
(the "Company").
RECITALS
WHEREAS, the Company and Purchaser entered into this Agreement as of
May 17, 1999 (the "Original Agreement") and the Company and Purchaser hereby
desire to amend and restate the Original Agreement in its entirety;
WHEREAS, the Board of Directors of the Company (the "Company Board" or the
"Board") has (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger (as defined herein), are advisable and
are fair to and in the best interests of the stockholders of the Company,
(ii) determined that the consideration to be paid in the Merger is fair to and
in the best interests of the stockholders of the Company, (iii) approved this
Agreement and the transactions contemplated hereby, including the Merger,
(iv) resolved to recommend approval and adoption of this Agreement, the Merger
and the other transactions contemplated hereby by such stockholders and
(v) received a written opinion of the Financial Advisor (as defined in
Section 4.13) as set forth in Section 4.20 herein;
WHEREAS, the Company Board and the Board of Directors of Purchaser have
approved the merger of Purchaser with and into the Company with the Company as
the surviving corporation as set forth below (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement and the General
Corporation Law of the State of Delaware (the "DGCL"), whereby (i) each issued
and outstanding share of the common stock, par value $1.00 per share ("Common
Stock"), of the Company (other than shares held as treasury stock by the
Company, other than Retained Shares (as defined below) and other than Dissenting
Common Stock (as defined herein) (the "Shares") shall be converted into the
right to receive the Merger Consideration (as defined herein) and (ii) each
Retained Share shall be converted into the right to receive Retained Share
Merger Consideration (as defined herein);
WHEREAS, it is intended that the Merger be a recapitalization for financial
accounting purposes; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
1. [Intentionally Omitted]
ARTICLE 2
2. THE MERGER
2.1. THE MERGER. At the Effective Time (as defined in Section 2.3),
subject to the terms and conditions of this Agreement and the applicable
provisions of the DGCL, Purchaser shall be merged with and into the Company and
the separate corporate existence of Purchaser shall thereupon cease. The Company
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation"). The Merger shall have the effects specified
in the DGCL.
2.2. THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place (a) at the offices of
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New
York, at 10:00 a.m., local time, on the second business day following the
satisfaction (or waiver if permissible) of the conditions set forth in
Article 7, unless another place, date or time is agreed to in writing by the
Company and Purchaser. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
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2.3. EFFECTIVE TIME. Simultaneously with the Closing, the parties hereto
shall cause a Certificate of Merger meeting the requirements of Section 251 of
the DGCL to be properly executed and filed in accordance with such Section on
the Closing Date. The Merger shall become effective at the time of filing of the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the DGCL or at such later time which the parties hereto shall
have agreed upon and designated in such filing as the effective time of the
Merger (the "Effective Time").
2.4. CERTIFICATE OF INCORPORATION, BYLAWS, DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION. Unless otherwise agreed by the Company and Purchaser
prior to the Closing, at the Effective Time:
(a) The Amended and Restated Certificate of Incorporation of the Company
in the form attached as Exhibit 2.4(a) hereto (the "Certificate of
Incorporation") shall be at and after the Effective Time (until amended as
provided by law and by such Certificate of Incorporation) the certificate of
incorporation of the Surviving Corporation.
(b) The Bylaws of the Company as in effect immediately prior to the
Effective Time shall be at and after the Effective Time (until amended as
provided by law, its Certificate of Incorporation and its Bylaws, as applicable)
the Bylaws of the Surviving Corporation;
(c) The officers of the Company immediately prior to the Effective Time
shall continue to serve in their respective offices of the Surviving Corporation
from and after the Effective Time, until their successors are elected or
appointed and qualified or until their resignation or removal; and
(d) The directors of Purchaser immediately prior to the Effective Time
shall be the directors of the Surviving Corporation from and after the Effective
Time, until their successors are elected or appointed and qualified or until
their resignation or removal.
2.5. ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or desirable to
(a) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company or the Subsidiaries (as defined in
Section 4.1 hereof), or (b) otherwise carry out the provisions of this
Agreement, the Company and its officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such deeds, assignments or assurances in law and to take all
acts necessary, proper or desirable to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation and
otherwise to carry out the provisions of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of the Company
or otherwise to take any and all such action.
ARTICLE 3
3. EFFECT OF THE MERGER ON SECURITIES OF PURCHASER AND THE COMPANY.
3.1. PURCHASER STOCK. At the Effective Time, (a) each share of common
stock, $1.00 par value per share, of Purchaser that is outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and non-assessable share of common stock, $1.00 par
value per share, of the Surviving Corporation (the "Surviving Corporation Common
Stock"), (b) each share of senior preferred stock, $1.00 par value per share, of
Purchaser that is outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
non-assessable share of Senior Preferred Stock (as hereinafter defined) of the
Surviving Corporation, and (c) each share of junior preferred stock, $1.00 par
value per share, of Purchaser that is outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of series B junior preferred stock, $1.00
par value per share, of the Surviving Corporation (the "Series B Junior
Preferred Stock").
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3.2. COMPANY SECURITIES. (a) At the Effective Time, each Share issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive (i) $16.75 in cash, without interest thereon (the "Per
Share Cash Amount"), and (ii) one (1) share of Senior Preferred Stock (together
with the Per Share Cash Amount, the "Merger Consideration"). Each of the shares
of Common Stock beneficially owned by those persons whose names are set forth on
Exhibit 3.2 hereto (each a "Retained Share" and collectively the "Retained
Shares") shall be converted into the right to receive at the Effective Time, in
lieu of the Merger Consideration, (1) 0.1785 shares of Series B Junior Preferred
Stock and (2) 0.4016 shares of Surviving Corporation Common Stock (collectively,
the "Retained Share Merger Consideration") by delivery to the Company of a
written election, signed by such person, to receive the Retained Share Merger
Consideration in lieu of the Merger Consideration at least one business day
prior to the Effective Time. Any shares of Common Stock beneficially owned by
the persons listed on Exhibit 3.2 hereto for which a written election to receive
Retained Share Merger Consideration is not so delivered shall be converted into
the right to receive the Merger Consideration at the Effective Time.
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all shares of Common Stock (other than
Retained Shares) shall cease to be outstanding and shall be canceled and retired
and shall cease to exist, and each holder of shares of Common Stock (other than
Purchaser and holders of Retained Shares) shall thereafter cease to have any
rights with respect to such shares of Common Stock, except the right to receive,
without interest, the Merger Consideration in accordance with Section 3.3 upon
the surrender of a certificate or certificates (a "Certificate") representing
such shares of Common Stock.
(c) Each share of Common Stock issued and held in the Company's treasury
at the Effective Time shall, by virtue of the Merger, cease to be outstanding
and shall be cancelled and retired without payment of any consideration
therefor.
(d) For purposes of this Agreement, the term "Option" means each
unexercised option, warrant or other security (other than Retained Options, as
defined below, but otherwise including any Company Stock Option, as hereafter
defined) pursuant to which the holder thereof has the right to purchase Common
Stock from the Company (whether or not such option is vested or exercisable)
that is outstanding at the Effective Time. The term "Company Stock Options"
means each outstanding option to purchase shares of Common Stock (a "Company
Stock Option") issued under the Company Stock Option Plan (as defined in
Section 9.7 hereof), as amended from time to time. The Company shall use its
commercially reasonable efforts to modify or amend each Company Stock Option
Plan or take such other action as may be reasonably necessary or appropriate in
order that as of the Effective Time, each Option that by its terms is
exercisable from and after the Effective Time and has an exercise price which is
less than $18.25 per share, (each, an "In the Money Option") shall be
extinguished and represent at the Effective Time the right to receive one (1.0)
share of Senior Preferred Stock for each share of Common Stock issuable upon
exercise of such In the Money Option, and a cash amount equal to the product of
(w) the excess, if any, of the Per Share Cash Amount over the exercise price of
such Option (the "Cash Option Amount") multiplied by (x) the aggregate number of
shares of Common Stock issuable upon the exercise in full of such Option as of
the Effective Time; provided, however, that each In the Money Option with an
exercise price in excess of the Per Share Cash Amount shall entitle the holder
thereof to receive only a number of shares of Senior Preferred Stock equal to
the product of (y) a fraction, the numerator of which is equal to $18.25 minus
the exercise price and the denominator of which is $1.50 (the initial
liquidation preference of the Senior Preferred Stock), multiplied by (z) the
aggregate number of shares of Common Stock issuable upon the exercise in full of
such Option as of the Effective Time; provided further, that each holder of any
In the Money Options shall be entitled to receive cash in lieu of any fractional
shares of Senior Preferred Stock held thereby. The Company shall (i) use its
commercially reasonable best efforts to obtain any
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necessary consents from holders of Options to terminate the Company Stock Option
Plan; (ii) terminate the Company Stock Option Plan as of the Effective Time;
(iii) terminate the provisions in any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of the Company or any Subsidiary as of the Effective Time, and
(iv) use its commercially reasonable best efforts to ensure that following the
Effective Time no participant in the Company Stock Option Plan or other plans,
programs or arrangements of the Company or any of the Subsidiaries shall have
any right thereunder to acquire or participate in changes in value of equity
securities of the Company, the Surviving Corporation, or any of the
Subsidiaries. The Company Stock Options beneficially owned by each of those
persons whose names are set forth on Exhibit 3.2 hereto (each a "Retained
Option" and collectively the "Retained Options") shall be converted into the
right to receive at the Effective Time, in lieu of the consideration paid to
other holders of Company Stock Options described above (the "Option
Consideration") an option to acquire shares of Series A Junior Preferred Stock,
$1.00 par value per share, of the Surviving Corporation (the "Retained Option
Consideration") by delivery to the Company of a written election, signed by such
person, to receive Retained Option Consideration in lieu of the Option
Consideration at least one business day prior to the Effective Time. Any Company
Stock Options beneficially owned by the persons listed on Exhibit 3.2 hereto for
which a written election to receive Retained Option Consideration is not so
delivered shall be converted into the right to receive Option Consideration at
the Effective Time.
3.3. EXCHANGE OF CERTIFICATES REPRESENTING COMMON STOCK. (a) Prior to
the Effective Time, Purchaser shall appoint a commercial bank or trust company,
subject to the reasonable satisfaction of both Purchaser and the Company, to act
as paying agent, registrar and transfer agent hereunder for payment of the
Merger Consideration upon surrender of Certificates (the "Paying Agent").
Purchaser shall take all steps necessary to cause the Surviving Corporation at
the Closing to provide the Paying Agent with (i) cash in amounts necessary to
pay (the "Exchange Fund") (A) the Per Share Cash Amount for all the shares of
Common Stock pursuant to Section 3.2(a) and (B) the Options, pursuant to
Section 3.2(d), and (ii) a stock certificate issued in the name of the Paying
Agent (or its nominee) representing the number of shares of Senior Preferred
Stock deliverable pursuant to Section 3.2. The Paying Agent shall act as the
registrar and the transfer agent for the Senior Preferred Stock and shall be
authorized to issue to each holder of a Certificate a new certificate
representing that number of shares of Senior Preferred Stock to which such
holder is entitled as set forth in Section 3.3(b).
(b) As promptly as possible after the Effective Time, Purchaser shall
cause the Paying Agent to mail to each holder of record of shares of Common
Stock (other than the holders of record of Dissenting Common Stock, as defined
in Section 3.5) (i) a notice of the effectiveness of the Merger; (ii) a letter
of transmittal which shall specify that delivery shall be effected, and risk of
loss and title to such Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and which letter shall be in such form and have
such other provisions as are customary for letters of this nature and
(iii) instructions for effecting the surrender of such Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate to the Paying
Agent together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may be
reasonably required by the Paying Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor, and the Purchaser shall cause the
Paying Agent to issue to such holder, the amount of cash and the number of
shares of Senior Preferred Stock into which shares of Common Stock theretofore
represented by such Certificate shall have been converted pursuant to
Section 3.2, and the shares represented by the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or will accrue on the cash
payable upon surrender of any Certificate. In the event of a transfer of
ownership of Common Stock that is not registered in the transfer records of the
Company, payment may be made with respect to such Common Stock to such a
transferee if the Certificate representing such shares of Common Stock is
presented to the Paying Agent, accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid. Until surrender as contemplated by this Article 3, each
Certificate
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shall be deemed at any time after the Effective Time to evidence only the right
to receive upon surrender the Merger Consideration applicable to the shares of
Common Stock evidenced by such Certificate.
(c) The Merger Consideration issued upon surrender of Certificates in
accordance with this Section 3.3 shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Common Stock formerly
represented thereby. At or after the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of the shares of Common
Stock that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged as provided in this Article 3.
(d) Any portion of the Exchange Fund (including the proceeds of any
interest and other income received by the Paying Agent in respect of all such
funds) that remains undistributed to the former stockholders of the Company nine
months after the Effective Time shall be delivered to the Surviving Corporation
upon demand. Any former stockholders of the Company who have not theretofore
complied with this Article 3 shall, subject to Section 3.3(e), thereafter look
only to the Surviving Corporation for payment of any Merger Consideration,
without any interest thereon, that may be payable in respect of each share of
Common Stock such stockholder holds as determined pursuant to this Agreement.
All income earned in connection with the Exchange Fund shall be for the benefit
of the Surviving Corporation and, at the same time, all risks and losses
incurred by the Exchange Fund shall be borne by the Surviving Corporation.
Accordingly, Purchaser and the Surviving Corporation hereby guarantee or will
otherwise ensure that the Paying Agent has sufficient funds to pay the Merger
Consideration pursuant to this Section 3.3.
(e) None of Purchaser, the Company, the Surviving Corporation, the
Paying Agent or any other person shall be liable to any former holder of shares
of Common Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
which may be made against it with respect to such Certificate, the Paying Agent
will issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration payable in respect thereof pursuant to this Agreement.
3.4. ADJUSTMENT OF MERGER CONSIDERATION. In the event that, subsequent
to the date of this Agreement but prior to the Effective Time, the outstanding
shares of Common Stock shall have been changed into a different number of shares
or a different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, reclassification, split, combination, exchange,
recapitalization or other similar transaction, the Merger Consideration shall be
appropriately adjusted.
3.5. DISSENTING COMPANY STOCKHOLDERS. Notwithstanding any provision of
this Agreement to the contrary, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time and which are held by
holders of such shares of Common Stock who have properly exercised appraisal
rights with respect thereto in accordance with Section 262 of the DGCL (the
"Dissenting Common Stock") will not be exchangeable for the right to receive the
Merger Consideration, and holders of such shares of Dissenting Common Stock will
receive a notice of the effectiveness of the Merger and will be entitled to
receive payment of the appraised value of such shares of Common Stock in
accordance with the provisions of such Section 262 unless and until such holders
fail to perfect or effectively withdraw or lose their rights to appraisal and
payment under the DGCL. If, after the Effective Time, any such holder fails to
perfect or effectively withdraws or loses such right, such shares of Common
Stock will thereupon be treated as if they had been converted into and to have
become exchangeable for, at the Effective Time, the right to receive, upon
surrender as provided above, the
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Merger Consideration, if any, to which such holder is entitled without any
interest thereon. The Company will give Purchaser prompt notice of any demands
received by the Company for appraisals of shares of Common Stock prior to the
Effective Time and Purchaser shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Purchaser, make any payment with
respect to any demands for appraisal or offer to settle or settle any such
demands.
3.6. ADJUSTMENT OF MERGER CONSIDERATION, THE RETAINED SHARE MERGER
CONSIDERATION AND OPTION CONSIDERATION. The Merger Consideration, the Retained
Share Merger Consideration and the Option Consideration, each payable pursuant
to Section 3.2, have been calculated based upon the representations and
warranties made by the Company in Section 4.4. In the event that, at the
Effective Time, the actual number of shares of Common Stock outstanding and/or
the actual number of shares of Common Stock issuable upon the exercise of
outstanding options, warrants or similar agreements or upon conversion of
securities (including without limitation, as a result of any stock split, stock
dividend, including any dividend or distribution of securities convertible into
Shares, or a recapitalization) is more than as described in Section 4.4 (plus
any such issuances permitted pursuant to Section 6.2(b)(xii) hereof), the Merger
Consideration, the Retained Share Merger Consideration and the Option
Consideration shall be appropriately adjusted downward; provided that, no
adjustment shall be made pursuant to this Section 3.6 unless, at the Effective
Time, the actual number of shares of Common Stock outstanding plus the actual
number of shares of Common Stock issuable upon the exercise of all such options,
warrants or similar agreements or upon the conversion of securities is more than
1,000 (without giving effect to any securities issued pursuant to
Section 6.2(b)(xii) hereof) more than as described pursuant to Section 4.4. The
provisions of this Section 3.6 shall not, in any event, derogate from the
representation and warranty set forth in Section 4.4.
3.7. WITHHOLDING TAXES. Purchaser or the Company shall be entitled to
deduct and withhold, or cause the Paying Agent to deduct and withhold, from the
consideration otherwise payable to a holder of shares of Common Stock pursuant
to the Merger (i) any amounts required to be withheld as a result of a change in
the Internal Revenue Code of 1986, as amended (the "Code"), in any applicable
provision of state, local or foreign tax law, or in any regulatory or judicial
interpretation thereof, between the date of this Agreement and the date of
payment; and (ii) any amounts required to be withheld in connection with
payments made with respect to employee or director stock options. To the extent
that amounts are so withheld, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Common Stock in respect of which such deduction or withholding was made.
ARTICLE 4
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the
disclosure letter (and subject to the terms thereof), dated this date, delivered
by the Company to Purchaser (the "Company Disclosure Letter"), the Company
hereby represents and warrants to Purchaser as of the date of this Agreement as
follows:
4.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each of the Company
and its subsidiaries, O'Sullivan Industries, Inc., a Delaware corporation,
O'Sullivan Industries - Virginia, Inc., a Virginia corporation, and O'Sullivan
Industries International, Inc., a Barbados company (each, a "Subsidiary" and,
collectively, the "Subsidiaries") is (i) a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and (ii) is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state of the
United States in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified or to be in good standing would not
have, individually or in the aggregate, a material adverse effect on the
business, results of operations, or financial condition of the Company and the
Subsidiaries, taken as a
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whole, or on the ability of the Company to consummate the transactions hereunder
or on the ability of the Company and the Subsidiaries, taken as a whole, to
conduct its business after the Closing consistent with the manner conducted in
the past (a "Material Adverse Effect"), except any such effect resulting from or
arising in connection with (A) any of the Agreement, the transactions
contemplated by the Agreement or the announcement thereof, (B) changes or
conditions (including changes in generally accepted accounting principles
("GAAP"), law, regulation or judicial or other interpretation) affecting the
furniture industry generally or the ready-to-assemble segment of the furniture
industry generally, (C) changes in economic, financial market, regulatory or
political conditions generally or (D) any matters specifically disclosed in the
Company Disclosure Letter. Each of the Company and the Subsidiaries has all
requisite corporate power and authority to own or lease and operate its
properties in all material respects and carry on its business as now conducted
in all material respects. The Company has heretofore delivered to Purchaser true
and correct copies of the Company's Certificate of Incorporation and Bylaws as
currently in effect.
4.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby (the "Ancillary
Documents") and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Ancillary Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Directors, and no other approvals or corporate proceedings are necessary to
authorize the Company's execution and delivery of this Agreement and the
Ancillary Documents or to consummate the transactions contemplated hereby and
thereby other than the approval of this Agreement by the holders of a majority
of the shares of Common Stock. This Agreement has been, and any Ancillary
Document at the time of execution will have been, duly and validly executed and
delivered by the Company, and (assuming this Agreement and such Ancillary
Documents each constitutes a valid and binding obligation of Purchaser)
constitutes and will constitute the valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
4.3. COMPLIANCE WITH LAWS. Neither the Company nor any of the
Subsidiaries is in violation of any order of any foreign, federal, state or
local judicial, legislative, executive, administrative or regulatory body or
authority or any arbitration board or tribunal ("Governmental Entity"), or any
foreign, federal, state or local law, statute, ordinance, rule, regulation,
order, judgment or decree ("Laws") applicable to the Company or the Subsidiaries
or any of their respective properties or assets, the effect of which would,
individually or in the aggregate, be material to the Company and the
Subsidiaries taken as a whole.
4.4. CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock and 20,000,000 shares of
preferred stock, $1.00 par value, of which 100,000 shares have been designated
as Series A Junior Participating Preferred Stock ("Preferred Stock") in
connection with the Preferred Stock Purchase Rights (the "Rights") issued
pursuant to the Company's Rights Agreement, dated as of February 1, 1994,
between the Company and The First National Bank of Boston, as amended (the
"Rights Agreement"). As of May 12, 1999, (a) 16,048,988 shares of Common Stock
were issued and outstanding, (b) no shares of Preferred Stock were outstanding
and no other shares of preferred stock are issued and outstanding,
(c) 1,592,881 options for shares of Common Stock were outstanding and 1,927,264
shares of Common Stock were reserved for issuance upon the exercise of stock
options and (d) 770,962 shares of Common Stock were held by the Company in its
treasury. Except for the Rights and the aforementioned stock options, the
Company has no outstanding bonds, debentures, notes or other obligations
entitling the holders thereof to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter. All issued and outstanding shares of Common Stock are
duly authorized,
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validly issued, fully paid, nonassessable and free of preemptive rights. Except
for the Rights and the aforementioned stock options and other than pursuant to
the Company Benefit Plans (as defined in Section 4.11), there are no existing
options, warrants, calls, subscriptions, convertible securities, or other
rights, agreements or commitments which obligate the Company or the Subsidiaries
to (i) issue, transfer or sell any shares of capital stock of the Company or the
Subsidiaries or any other securities convertible into, or exercisable for, or
evidencing the right to subscribe for, any such shares of Common Stock or any
other capital stock of the Company or any of the Subsidiaries or (ii) purchase,
redeem or otherwise acquire any shares of Common Stock or any other capital
stock of the Company. Set forth in Section 4.4 of the Company Disclosure Letter
is a list of all outstanding options, warrants and rights to purchase shares of
Common Stock and the exercise prices relating thereto. After the Effective Time,
the Surviving Corporation will have no obligation to issue, transfer or sell any
shares of capital stock of the Company or the Surviving Corporation pursuant to
any Company Benefit Plan (as defined in Section 6.11). There are no voting
trusts or shareholder agreements to which the Company is a party with respect to
the voting of the capital stock of the Company and, to the Company's knowledge,
there are no such agreements among its stockholders that individually cover more
than 5% of the Company's outstanding capital stock other than those listed on
Schedule 4.4 of the Disclosure Letter. To the Company's knowledge, there are no
irrevocable proxies with respect to shares of capital stock of the Company or
any Subsidiary that cover more than 5% of the Company's outstanding capital
stock.
4.5. SUBSIDIARIES. The Company owns, directly or indirectly, all of the
outstanding shares of capital stock of, or other equity interests in, each of
the Subsidiaries. Each of the outstanding shares of capital stock of the
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by the Company free and clear of all
liens, pledges, security interests, claims or other encumbrances
("Encumbrances"). Schedule 4.5 in the Company Disclosure Letter sets forth for
each Subsidiary: (i) its authorized capital stock or share capital; (ii) the
number of issued and outstanding shares of capital stock or share capital; and
(iii) the holder or holders of such shares. Except for the Company's interests
in the Subsidiaries or as set forth in Schedule 4.5, neither the Company nor any
of the Subsidiaries owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or entity.
4.6. NO VIOLATION. Neither the execution and delivery by the Company of
this Agreement or any of the Ancillary Documents nor the consummation by the
Company of the transactions contemplated hereby or thereby will: (i) violate,
conflict with or result in a breach of any provision of the Certificate of
Incorporation or Bylaws of the Company or the Subsidiaries; (ii) violate,
conflict with, result in a breach of any provision of, constitute a default
under, result in the termination or in a right of termination of, accelerate the
performance required by or benefit obtainable under, result in the triggering of
any payment or other obligations pursuant to, result in the creation of any
Encumbrance upon any of the properties of the Company or the Subsidiaries under,
or result in there being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which the Company or
any of the Subsidiaries is a party, or by which the Company or any of the
Subsidiaries or any of their respective properties is bound (each, a "Contract"
and, collectively, "Contracts"), except for any of the foregoing matters which,
individually or in the aggregate, would not have a Material Adverse Effect; or
(iii) other than the filings provided for in Section 2.3 and the filings
required under the Securities Exchange Act of 1934, as amended ("Exchange Act"),
the Securities Act of 1933, as amended (the "Securities Act") and the
Hart-Scott-Rodino Act of 1976, as amended (the "HSR Act"), require any material
consent, approval or authorization of, or material declaration, filing or
registration with, any Governmental Entity, the lack of which could prevent the
consummation of the transactions contemplated hereby.
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4.7. COMPANY REPORTS. Since July 1, 1995, the Company has filed with the
Securities and Exchange Commission (the "SEC") all forms, reports, schedules,
statements and other documents required to be filed by it with the SEC pursuant
to the Exchange Act, the Securities Act and the SEC's rules and regulations
thereunder (collectively, including, without limitation, all exhibits, financial
statements and schedules included with such documents, the "Company Reports").
The Company has delivered or made available to Purchaser each Company Report,
each in the form (including exhibits and any amendments thereto) filed with the
SEC. At the time filed (or, if amended, at the time of such amended filing), or
in the case of registration statements, on their respective effective dates, the
Company Reports (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets of the Company included in the Company Reports fairly presents in all
material respects the consolidated financial position of the Company and the
Subsidiaries as of its date, and each of the consolidated statements of
operations, changes in stockholders' equity and cash flows of the Company
included in the Company Reports fairly presents in all material respects the
results of operations, changes in stockholders' equity or cash flows of the
Company and the Subsidiaries for the periods set forth therein, in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein.
4.8. LITIGATION. Except as set forth in the Company Reports, (i) there
are no claims, actions, suits, proceedings, arbitrations, investigations or
audits (collectively, "Litigation") by a Governmental Entity pending or, to the
knowledge of the Company, threatened against the Company or the Subsidiaries, at
law or in equity, (a) other than those in the ordinary course of business that,
individually or in the aggregate, would not have a Material Adverse Effect or
(b) that seek to, or are reasonably likely to, prevent or delay the consummation
of the Merger or otherwise prevent the Company from performing its obligations
under this Agreement and (ii) there are no claims, actions, suits, proceedings
or arbitrations by a non-Governmental Entity third party pending or, to the
knowledge of the Company, threatened against the Company or the Subsidiaries, at
law or at equity, (a) other than those in the ordinary course of business that
individually or in the aggregate, would not have a Material Adverse Effect, or
(b) that seek to, or are reasonably likely to, prevent or delay the consummation
of the Merger or otherwise prevent the Company from performing its obligations
under this Agreement.
4.9. ABSENCE OF CERTAIN CHANGES. Except as set forth in the Company
Reports, since July 1, 1998, the Company and the Subsidiaries have conducted
their business only in the ordinary course of such business consistent with past
practices, and there has not been (i) any event or state of fact that,
individually or in the aggregate, would have a Material Adverse Effect other
than such effect resulting or arising from any of the conditions set forth in
clauses (A), (B), (C) and (D) in Section 4.1 hereof; (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
its capital stock or any repurchase, redemption or any other acquisition by the
Company or the Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or the Subsidiaries;
or (iii) any material change in accounting principles, practices or methods.
4.10. TAXES. (a) The Company and the Subsidiaries have timely filed all
material Tax Returns (as defined below) required to be filed by each of them.
Except as would not have a Material Adverse Effect and except for those Taxes
(as defined below) being contested in good faith and for which adequate reserves
have been established in the financial statements included in the Company
Reports in accordance with GAAP, the Company and the Subsidiaries have paid all
Taxes required to be paid by each of them. There is no action, suit, claim or
assessment pending with respect to Taxes which, if upheld, would, individually
or in the aggregate, have a Material Adverse Effect. The Company and the
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Subsidiaries have withheld and paid over to the relevant taxing authority all
Taxes required to have been withheld and paid in connection with payments to
employees, independent contractors, creditors, stockholders or other third
parties, except for such Taxes which, individually or in the aggregate, would
not have a Material Adverse Effect. For purposes of this Agreement, (A) "Tax"
(and, with correlative meaning, "Taxes") means any federal, state, local or
foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any Governmental Entity, and
(B) "Tax Return" means any return, report or similar statement required to be
filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
(b) No claim has been made since July 1, 1994 by an authority in a
jurisdiction where any of the Company or the Subsidiaries does not file Tax
Returns asserting or alleging that the Company so not filing is or may be
subject to taxation by that jurisdiction.
(c) There is no dispute or claim concerning any Tax liability of any of
the Company or the Subsidiaries claimed or raised by any authority in writing.
Section 4.10 of the Disclosure Letter lists those Tax Returns which, to the
Company's knowledge, are currently the subject of audit.
(d) None of the Company nor any of the Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency, which waiver or extension is
currently in effect.
(e) None of the Company nor any of the Subsidiaries has filed a consent
under Code Section341(f) concerning collapsible corporations.
(f) None of the Company nor any of the Subsidiaries has any liability
for the Taxes of any Person other than itself and the liability for Taxes of
Tandy Corporation, TE Electronics Inc. and their affiliates (collectively,
"Tandy") pursuant to the Tax Sharing Agreement (1) under Treas. Reg.
Section1.1502-6 (or any similar provision of state, local, or foreign law), or
(2) by contract.
(g) None of the Company nor any of the Subsidiaries owns an interest in
an entity which is treated as a partnership or whose separate existence is
ignored for federal income tax purposes.
4.11. EMPLOYEE BENEFIT PLANS. (a) All material employee benefit plans,
compensation arrangements and other benefit arrangements of the Company or any
of the Subsidiaries covering employees or former employees of the Company or the
Subsidiaries (the "Company Benefit Plans") and all employee agreements
(excluding offer letters establishing the terms of at will employment and
non-U.S. employment agreements involving an annual salary of less than $100,000)
providing compensation, severance or other benefits to any employee or former
employee of the Company or the Subsidiaries are listed in the Company Reports or
are set forth in Schedule 4.11 of the Company Disclosure Letter. True and
complete copies of the Company Benefit Plans have been made available to
Purchaser. Any Company Benefit Plan intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") has
received a determination letter and, to the knowledge of the Company, continues
to satisfy the requirements for such qualification except for the absence of
which, individually or in the aggregate would not have a Material Adverse
Effect. Neither the Company nor any ERISA Affiliate of the Company maintains,
contributes to, or has since July 1, 1994 maintained or contributed to, any
benefit plan which is covered by Title IV of ERISA or Section 412 of the Code
and neither the Company nor any ERISA Affiliate is subject to any liability or
potential liability under Title IV of ERISA. No Company Benefit Plan nor the
Company nor any of the Subsidiaries has incurred any material liability or
penalty under Section 4975 of the Code or Section 502(i) of ERISA or, to the
knowledge of the Company, engaged in any transaction which is reasonably likely
to result in any such liability or penalty. Each Company Benefit Plan has been
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maintained and administered in compliance with its terms and with ERISA and the
Code to the extent applicable thereto, except for such non-compliance which,
individually or in the aggregate, would not have a Material Adverse Effect.
There is no pending or, to the knowledge of the Company, anticipated Litigation
against or otherwise involving any of the Company Benefit Plans and no
Litigation (excluding claims for benefits incurred in the ordinary course of
Company Benefit Plan activities) has been brought against or with respect to any
such Company Benefit Plan, except for any of the foregoing which, individually
or in the aggregate, would not have a Material Adverse Effect. Except as
described in the Company Reports or as required by Law, neither the Company nor
any of the Subsidiaries maintains or contributes to any plan or arrangement
which provides, or has any liability to provide, life insurance or medical or
other employee welfare benefits to any employee or former employee upon his
retirement or termination of employment. All material contributions or premium
payments required to be made under or pursuant to any employee benefit plan have
been made or properly accrued.
(b) For purposes of this Agreement "ERISA Affiliate" means any business
or entity which is a member of the same "controlled group of corporations,"
under "common control" or a member of an "affiliated service group" with an
entity within the meanings of Sections 414(b), (c) or (m) of the Code, or
required to be aggregated with the entity under Section 414(o) of the Code, or
is under "common control" with the entity, within the meaning of
Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed under
any of the foregoing Sections.
(c) All obligations and agreements of the Company or any of its
Subsidiaries that could obligate any such entity to make any payments that will
not be deductible under Code Section280G or Code Section162(m) have been
disclosed to Purchaser, its parent corporation or their advisers.
4.12. LABOR AND EMPLOYMENT MATTERS. Neither the Company nor any of the
Subsidiaries is a party to, or bound by, any collective bargaining agreement or
other Contracts or understanding with a labor union or labor organization.
Except for such matters which, individually or in the aggregate, would not have
a Material Adverse Effect and, as of the date hereof, there is no (i) unfair
labor practice, labor dispute (other than routine individual grievances) or
labor arbitration proceeding pending or, to the knowledge of the Company,
threatened against the Company or the Subsidiaries relating to their business,
(ii) to the knowledge of the Company, activity or proceeding by a labor union or
representative thereof to organize any employees of the Company or the
Subsidiaries, or (iii) lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to such employees.
4.13. BROKERS. Except for Salomon Smith Barney Inc. (the "Financial
Advisor"), no broker, finder or financial advisor is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement that is based upon any arrangement made by or on
behalf of the Company. The Company's fee arrangements with the Financial Advisor
have been disclosed to the Purchaser.
4.14. INTELLECTUAL PROPERTY RIGHTS; YEAR 2000 COMPLIANCE. (a) Other than
as set forth in the Disclosure Letter, (i) the Company and the Subsidiaries own
free and clear of any encumbrances or have a valid and enforceable right to use
pursuant to license, sub-license, agreement or permission, all Intellectual
Property used in the business of the Company as currently conducted (as defined
below), except where the lack thereof, individually or in the aggregate, would
not have a Material Adverse Effect, (ii) to the knowledge of the Company,
neither the Company nor any of the Subsidiaries has interfered with, infringed
upon or misappropriated any Intellectual Property rights of third parties in any
way, (iii) to the knowledge of the Company, no third party has infringed,
misappropriated or otherwise conflicted with any of the Intellectual Property of
the Company or the Subsidiaries, and (iv) all Intellectual Property owned or
used by the Company or the Subsidiaries immediately prior to the Effective Time
will be owned or available for use by the Company or the Subsidiaries on
substantially identical terms and conditions immediately subsequent to the
Effective Time. "Intellectual
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Property" means patents, patent applications, trademarks, service marks, logos,
trade names, domain names, corporate names, copyrights, computer software,
management information systems, inventions, know-how and trade secrets.
Schedule 4.14 of the Company Disclosure Letter sets forth a list of (i) all
material patents and registered Intellectual Property owned by the Company or
the Subsidiaries, and all pending patent applications and applications for the
registration of other Intellectual Property owned by the Company or the
Subsidiaries; (ii) all material trade or corporate names used by the Company and
the Subsidiaries; and (iii) all material licenses and rights granted by or to
the Company or the Subsidiaries with respect to Intellectual Property.
(b) The Company and the Subsidiaries have conducted a commercially
reasonable inventory and assessment of the hardware, software and computerized
machinery and equipment (the "Computer Systems") used by the Company and the
Subsidiaries in its businesses, in order to determine which parts of the
Computer Systems are not yet Year 2000 Compliant. Based on the above assessment,
the estimated aggregate cost of making the Computer Systems Year 2000 Compliant
will not be material. The Company and the Subsidiaries have made and are making
commercially reasonable efforts to ensure that all Computer Systems used or
relied on by the Company or the Subsidiaries in the conduct of their respective
businesses are Year 2000 Compliant, except where the lack of such compliance
would not have a Material Adverse Effect. For the purposes of this Agreement,
Year 2000 Compliant means that all Computer Systems recognize and shall
recognize the advent of the year 2000 and can correctly recognize and manipulate
date information relating to dates before, on or after January 1, 2000 and the
operation and functionality of all Computer Systems will not be affected by the
advent of the year 2000 or any manipulation of data featuring date information
relating to dates before, on or after January 1, 2000.
4.15. PERMITS. The Company and the Subsidiaries are in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any court,
governmental or regulatory authority necessary for the Company and the
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits"), except where the
failure to have any of the Company Permits, individually or in the aggregate,
would not have a Material Adverse Effect. As of the date hereof, all of the
Company's Permits are in full force and effect and no violation, suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company threatened, except where not being in full force and effect or the
violation, suspension or cancellation of such Company Permits, individually or
in the aggregate, would not have a Material Adverse Effect.
4.16. ENVIRONMENTAL COMPLIANCE. (a)(i) The Company and the Subsidiaries
are in material compliance with all applicable Laws relating to Environmental
Matters (as defined below) and have been in material compliance with such laws
since July 1, 1994; (ii) to the Company's knowledge, the Company and the
Subsidiaries have obtained, and are in material compliance with, all material
permits, licenses, authorizations, registrations and other governmental consents
required by applicable Laws relating to Environmental Matters; and (iii) to the
Company's knowledge, there are no past or present events, conditions, or
activities by the Company or the Subsidiaries that would prevent material
compliance or continued material compliance with any Law or give rise to any
material Environmental Liability (as defined below).
(b) As used in this Agreement, the term "Environmental Matters" means
any matter arising out of or relating to pollution or protection of the
environment, human safety or health, or sanitation, including matters relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes.
"Environmental Liability" shall mean any liability or obligation arising under
any Law or any applicable theory of law or equity (including any liability for
personal injury, property damage or remediation)
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that results from, or is based upon or related to, the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or
waste.
(c) The Company and the Subsidiaries have made available to Purchaser
all of the following to the extent in the Company's possession or control:
(i) environmental audits, compliance reports, "Phase I" and "Phase II" studies,
data and analysis of soil, air, water or groundwater sampling, and reports of
environmental cleanups relating to the Company and the Subsidiaries and their
respective facilities and operations, except for any such materials prepared in
the ordinary course of business; (ii) material notices of violations,
complaints, information requests and responses, compliance orders, consent
decrees relating to Environmental Matters that are either unresolved as of the
date of this Agreement or have arisen since July 1, 1994 and (iii) material
correspondence from persons alleging nuisance, injury, property damage or
environmental damage arising from odors, noise, releases of hazardous materials,
or pollutants or contaminants relating to the Company or the Subsidiaries or
their respective facilities or operations.
(d) Notwithstanding any other provisions in this Agreement, the
Company's representations and warranties with respect to Environmental Matters
shall be limited to this Section 4.16, and the Company makes no other
representations or warranties with respect to Environmental Matters.
4.17. TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title to all of their real and material personal properties and
assets reflected in the audited consolidated balance sheet of the Company as of
June 30, 1998 (the "1998 Balance Sheet") (other than assets disposed of since
June 30, 1998 in the ordinary course of business, and properties and assets
acquired since June 30, 1998), in each case free and clear of all Encumbrances
except for (i) Encumbrances which secure indebtedness reflected in the Company
Reports; (ii) liens for Taxes accrued but not yet payable; (iii) liens arising
as a matter of law in the ordinary course of business with respect to
obligations incurred after the date of the 1998 Balance Sheet, provided that the
obligations secured by such liens are not delinquent; and (iv) such
imperfections of title and Encumbrances, if any, as would not be likely to have
a Material Adverse Effect. The Company and the Subsidiaries own, or have valid
leasehold or license interests in, all properties and assets used in the conduct
of their business except where the absence of such ownership, leasehold or
license interest would not, individually or in the aggregate, have a Material
Adverse Effect.
4.18. INSURANCE POLICIES. The Company and the Subsidiaries have obtained
and maintained in full force and effect insurance with insurance companies or
associations in such amounts, on such terms and covering such risks, as is
customarily carried by reasonably prudent persons conducting businesses or
owning or leasing assets similar to those conducted, owned or leased by the
Company, except where the failure to obtain or maintain such insurance,
individually or in the aggregate, would not have a Material Adverse Effect.
4.19. MATERIAL CONTRACTS. Schedule 4.19 of the Company Disclosure Letter
sets forth a list of all (i) Contracts for borrowed money or guarantees thereof
involving a current availability of principal amount in excess of $1,000,000,
(ii) Contracts containing non-compete covenants by the Company or any of the
Subsidiaries, and (iii) other Contracts requiring the payment or receipt of
$5,000,000 or more per year (the items listed in clauses (i), (ii) and (iii),
collectively, the "Material Contracts"). Neither the Company nor any of the
Subsidiaries is, or has received any written notice or has any knowledge that
any other party is, in default in any material respect under any such Material
Contract. All Contracts to which the Company or any of the Subsidiaries is a
party, or by which any of their respective assets are bound, are valid and
binding, in full force and effect and enforceable against the Company or such
Subsidiary, as the case may be, and to the Company's knowledge, the other
parties thereto in accordance with their respective terms, subject to applicable
bankruptcy, insolvency or other
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similar laws relating to creditors' rights and general principles of equity,
except where the failure to be so valid and binding, in full force and effect or
enforceable, individually or in the aggregate, would not have a Material Adverse
Effect.
4.20. OPINION OF FINANCIAL ADVISOR. The Company has received the written
opinion of the Financial Advisor to the effect that, as of the date hereof, the
Merger Consideration is fair, from a financial point of view, to the holders of
Common Stock (other than any stockholders participating in the buying group with
Purchaser as contemplated by this Agreement).
4.21. RIGHTS AGREEMENT. Subject to the execution of the amendment to the
Rights Agreement by the Rights Agent, the Company has taken all actions
necessary to cause the Rights Agreement to be inapplicable to this Agreement and
any other action contemplated hereby (the "Disabling Actions"). The Board
resolution for the Disabling Actions is attached hereto as Schedule 4.21 of the
Company Disclosure Letter, is in full force on the date hereof, and shall be
effective as of the Closing. Other than the Disabling Actions and execution
thereof by the Rights Agent, no other actions, approvals or corporate proceeding
are necessary to cause the Rights Agreement to be inapplicable to this Agreement
and other actions contemplated hereby.
4.22. NO UNDISCLOSED LIABILITIES. Except (a) for liabilities incurred in
the ordinary course of business, (b) liabilities incurred in connection with the
transactions contemplated by this Agreement and (c) as disclosed in the Company
Reports or as set forth in the Company Disclosure Letter, since July 1, 1998,
the Company and the Subsidiaries have not incurred any liabilities (whether
accrued, contingent, absolute, determined, determinable or otherwise) which
would, individually or in the aggregate, have a Material Adverse Effect and that
would be required to be reflected in or reserved against a consolidated balance
sheet of the Company prepared in accordance with GAAP.
4.23. REAL PROPERTY. (a) Attached as Schedule 4.23(a) of the Company
Disclosure Letter is a legal description of each parcel of real property owned
by the Company or any of the Subsidiaries as of the date hereof (the "Owned
Property"). The Company or the Subsidiaries have good and marketable title in
and to all of the Owned Property, subject to no Encumbrances, encroachments,
leases, rights of possession or other defects in title (collectively, "Liens"),
except as described on Schedule 4.23(a) of the Company Disclosure Letter and
except for Liens which would not, individually or in the aggregate, materially
interfere with the use, value or marketability of such property.
(b) Attached as Schedule 4.23(b) of the Company Disclosure Letter is a
list of all written leases, subleases and other occupancy agreements, including
all amendments, extensions and other modifications (the "Leases") for real
property to which the Company or any Subsidiary is a party (the "Leased
Property"; the "Owned Property" and the "Leased Property" collectively, the
"Real Property"). The Company or the Subsidiaries have a good and valid
leasehold interest in and to all of the Leased Property. To the Company's
knowledge, each Lease is in full force and effect and is enforceable in
accordance with its terms. As of the date hereof there exists no default or
condition which, with the giving of notice, the passage of time or both could
become a default under any Lease, except where such default or condition would
not, individually or in the aggregate, have a Material Adverse Effect. The
Company has previously delivered or made available to Purchaser true and
complete copies of all the Leases. Except as described on Schedule 4.23(b) of
the Company Disclosure Letter, no consent, waiver, approval or authorization is
required from the landlord under any material Lease as a result of the execution
of this Agreement or the consummation of the transactions contemplated hereby.
(c) As of the date hereof, the Real Property constitutes all of the real
property owned, leased, occupied or otherwise utilized in connection with the
business of the Company and the Subsidiaries. The Real Property is in all
material respects sufficient and appropriate for the conduct of the business of
the Company and the Subsidiaries as of the date hereof. Other than the Company,
the Subsidiaries and the landlords under the Leases, there are no parties in
possession or parties having any current or
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future right to occupy any of the Real Property. Except for any non-compliance
or violation which, individually or in the aggregate, would not have a Material
Adverse Effect, (i) the Owned Property and all plants, buildings and
improvements located thereon conform to all applicable building, zoning and
other laws, ordinances, rules and regulations; (ii) there exists no violation of
any covenant, condition, restriction, easement, agreement or order affecting any
portion of the Owned Property. All improvements located on the Owned Property
have direct access to a public road adjoining such Owned Property. No such
improvements or accessways encroach on land not included in the Owned Property
and no such improvement is dependent for its access, operation or utility on any
land, building or other improvement not included in the Owned Property, except
as would not have a Material Adverse Effect. There is no pending or, to the
knowledge of the Company or the Subsidiaries, any threatened condemnation
proceeding affecting any portion of the Owned Property.
4.24. DEBT INSTRUMENTS. (a) The Disclosure Letter contains a list of
(i) all loan or credit agreements, notes, bonds, mortgages, indentures and other
agreements and instruments pursuant to which any Indebtedness (as hereinafter
defined) of the Company or any of the Subsidiaries is outstanding or may be
incurred and (ii) the respective principal amounts outstanding thereunder as of
the date hereof.
(b) As of May 15, 1999, the total outstanding amount of Indebtedness
(including any interest and all prepayment penalties, fees or expenses which
would be due if such Indebtedness was paid on May 15, 1999) was not more than
$40,000,000.
4.25. RABBI TRUST. The Company has taken all actions necessary to
terminate the authorization of the Rabbi Trust adopted by the Company Board at
the January 22, 1994 special meeting of the Company Board (the "Rabbi Trust
Authorization"). The Board resolution for such actions is attached as
Schedule 4.25 of the Company Disclosure Letter, is in effect on the date hereof
and will remain effective as of the Closing. No other actions, approvals or
corporate proceedings are necessary to terminate the Rabbi Trust Authorization.
4.26. SPECIAL COMMITTEE. The Special Committee has all requisite
authority pursuant to resolutions of the Board (the "Special Committee
Authorization") to act on behalf of the Company with respect to this Agreement
and the transactions contemplated hereby, subject to applicable law. A copy of
the Special Committee Authorization has been provided to Purchaser and the
Special Committee Authorization has not been modified or revoked as of the date
hereof and shall be effective as of the Closing.
4.27. BOARD RECOMMENDATION. The Company Board, at a meeting duly called
and held, has (a) determined that this Agreement and the transactions
contemplated hereby, taken together, are advisable and in the best interests of
the Company and its shareholders, and (b) subject to the other provisions
hereof, resolved to recommend that the holders of the Common Stock approve this
Agreement and the transactions contemplated hereby, including the Merger.
4.28. REQUIRED COMPANY VOTE. The affirmative vote of a majority of the
votes cast by the shares of Common Stock entitled to vote, is the only vote of
the holders of any class or series of the Company's securities necessary to
approve this Agreement, the Ancillary Documents, the Merger and the other
transactions contemplated hereby and thereby.
ARTICLE 5
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
and warrants to the Company as of the date of this Agreement as follows:
5.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware and has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted,
except where the failure to have such power and authority, individually or in
the aggregate, would not materially adversely affect Purchaser.
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5.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Purchaser has the
requisite corporate power and authority to execute and deliver this Agreement
and the Ancillary Documents and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
Ancillary Documents and the consummation by Purchaser of the transactions
contemplated hereby and thereby have been duly and validly authorized by the
board of directors of Purchaser and no other corporate proceedings are necessary
to authorize this Agreement and the Ancillary Documents or to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and any
Ancillary Documents at the time of execution will have been, duly and validly
executed and delivered by Purchaser, and (assuming this Agreement and such
Ancillary Documents each constitutes a valid and binding obligation of the
Company) constitutes and will constitute the valid and binding obligations of
Purchaser, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
5.3. NO VIOLATION. Neither the execution and delivery of this Agreement
or any of the Ancillary Documents by the Purchaser, nor the consummation by it
of the transactions contemplated hereby or thereby, will (i) violate, conflict
with or result in any breach of any provision of the certificate of
incorporation or by-laws of the Purchaser; (ii) other than the filings provided
for in Section 2.3 and the filings required under the Exchange Act, the
Securities Act and the HSR Act, require any material consent, approval or
authorization of, or material declaration, filing or registration with, any
Governmental Entity, the lack of which, individually or in the aggregate, could
prevent the Purchaser from consummating the transactions contemplated hereby,
(iii) violate any Laws applicable to the Purchaser or any of its respective
assets, except for violations which, individually or in the aggregate, would not
have a material adverse effect on the ability of the Purchaser to consummate the
transactions contemplated hereby, and (iv) violate, conflict with or result in a
breach of any provision of, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, result in the
termination or in a right of termination of, accelerate the performance required
by or benefit obtainable under, result in the creation of any Encumbrance upon
any of the properties of the Purchaser under, or result in there being declared
void, voidable, or without further binding effect, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust or any
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Purchaser is bound, except for any of the
foregoing matters which, individually or in the aggregate, would not have a
material adverse effect on the Purchaser.
5.4. INTERIM OPERATIONS OF PURCHASER. Purchaser was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations as contemplated
hereby.
5.5. FINANCING. Attached hereto as the disclosure letter delivered by
Purchaser to the Company (the "Purchaser Disclosure Letter") are commitment
letters from (i) Lehman Brothers Inc. and Lehman Commercial Paper Inc. with
respect to the debt financing (the "Lehman Commitment Letters"), and
(ii) Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS") with respect to the
purchase of equity of the Surviving Corporation and with respect to the BRS
commitment to purchase or cause others to purchase senior discount notes of the
Surviving Corporation (together with the Lehman Commitment Letters, the
"Commitment Letters"), all with respect to the funds necessary for the
consummation of the transactions contemplated hereby.
5.6. LITIGATION. There are no claims, actions, suits, proceedings or
arbitrations pending against Purchaser or, to the knowledge of Purchaser,
threatened against Purchaser, BRS or any of their affiliates, at law or at
equity, that seek to, or are reasonably likely to, prevent or delay the
consummation of the Merger or otherwise prevent Purchaser from performing its
obligations under this Agreement.
5.7. CAPITALIZATION. Immediately prior to the Effective Time, the
authorized capital stock of the Purchaser shall consist of (i) 2,000,000 shares
of common stock, $1.00 par value per share, (ii) 1,000,000 shares of senior
preferred stock, par value $1.00 per share, and (iii) 1,000,000 shares of junior
preferred stock, par value $1.00 per share.
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ARTICLE 6
6. COVENANTS.
6.1. ALTERNATIVE PROPOSALS. (a) Except as contemplated hereby, the
Company agrees that, prior to the earlier of the Effective Time and the
termination of this Agreement pursuant to Section 8.1, it shall not, and shall
not authorize or permit any of the Subsidiaries to, and shall use its reasonable
best efforts to cause its and the Subsidiaries' directors, officers, employees,
agents, representatives or affiliates, directly or indirectly, not to, solicit,
initiate, encourage or facilitate (including by way of furnishing or disclosing
non-public information) any inquiries or the making of any proposal with respect
to any merger, consolidation, share exchange, business combination or similar
event involving the Company or any of the Subsidiaries, or the acquisition of
more than 10% of the capital stock of the Company or any of the Subsidiaries or
rights with respect thereto, or any material portion of the assets (except for
sales of inventory in the ordinary course of business consistent with past
practice) of the Company or any of the Subsidiaries (an "Alternative
Transaction") or negotiate, explore or otherwise engage in substantive
discussions with any Person (other than Purchaser or its respective directors,
officers, employees, agents, representatives and affiliates), or enter into any
agreement, with respect to any Alternative Transaction or enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Merger or any other transactions contemplated by this
Agreement; provided that the Company may, prior to the date of the Stockholders
Meeting, in response to a bona fide unsolicited written proposal with respect to
an Alternative Transaction received from a third party after the date of this
Agreement (an "Acquisition Proposal"), if, and to the extent that such person
first enters into a confidentiality agreement with the Special Committee (as
hereinafter defined) on terms no less favorable to the Company than the terms
contained in the Confidentiality Agreement (the "Confidentiality Agreement"),
dated February 26, 1999, between the Financial Advisor on behalf of the Special
Committee and BRS, furnish or disclose non-public information to, and negotiate,
explore or otherwise engage in substantive discussions with, or enter into any
such agreement, arrangement or understanding with, such third party, if and so
long as (i) the Special Committee determines in good faith by a majority vote,
after consultation with the Financial Advisor (or other nationally reputable
financial advisor) and legal advisors that such proposal (A) is more favorable
to the stockholders of the Company (other than any stockholders participating in
the buying group with Purchaser as contemplated by this Agreement) from a
financial point of view than the transactions contemplated by this Agreement
(including any adjustment to the terms and conditions proposed in writing by
Purchaser in response to such Acquisition Proposal), (B) is not subject to any
material contingency, to which the other party thereto has not reasonably
demonstrated in its written offer its ability to overcome or address, including
the receipt of government consents or approvals (including any such approval
required under the HSR Act), and (C) is reasonably likely to be consummated and
is in the best interests of the Stockholders of the Company (provided that, only
for purposes of clauses (B) and (C) above, the Special Committee or its advisors
shall be permitted to contact such third party and its advisors solely for the
purpose of clarifying the proposal and any material contingencies and the
likelihood of consummation) and (ii) the Company has received advice from its
outside legal counsel that there is a material risk that failure to negotiate,
explore or otherwise engage in substantive discussions with, or enter into an
agreement with such third party will constitute a breach of the Board's
fiduciary duties under applicable law; provided that, immediately prior to
entering into an agreement for an Alternative Transaction, the Company shall
have complied with the provisions of Section 8.1(c) hereof, and the Company
shall comply with Section 8.3 hereof. Nothing in this Section 6.1 shall prohibit
the Company or the Special Committee from making such disclosures to the
Company's stockholders which, in the judgment of the Special Committee based
upon the advice of outside counsel, is required under applicable law.
(b) The Special Committee shall as promptly as practicable advise
Purchaser in writing of the receipt by the Special Committee or its
representatives, agents or advisors of any inquiries or proposals
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(including any modifications or resubmissions of any proposals made prior to the
date hereof) made after the date hereof, and of its intention to enter into any
agreement, relating to an Alternative Transaction and any actions taken pursuant
to Section 6.1(a) hereof and furnish to Purchaser a copy of such written
proposals, if any.
(c) Neither the Company nor any of the Subsidiaries shall cancel,
terminate, amend, modify or waive any of the terms of any confidentiality or
standstill agreement executed with respect to the Company by any other party
prior to or after the date of this Agreement.
6.2. INTERIM OPERATIONS. (a) From the date of this Agreement until the
Effective Time, except as set forth in Schedule 6.2(a) of the Company Disclosure
Letter, unless Purchaser has consented in writing thereto, the Company shall,
and shall cause the Subsidiaries to, (i) conduct its operations according to its
ordinary course of business consistent with past practice; (ii) use its
commercially reasonable efforts to preserve intact its business organizations
and goodwill, keep available the services of its officers and employees, and
maintain satisfactory relationships with those persons having business
relationships with them; (iii) upon the discovery thereof, promptly notify
Purchaser of the existence of any breach of any representation or warranty
contained herein (or, in the case of any representation or warranty that makes
no reference to Material Adverse Effect, any breach of such representation or
warranty in any material respect) or the occurrence of any event that would
cause any representation or warranty contained herein no longer to be true and
correct (or, in the case of any representation or warranty that makes no
reference to Material Adverse Effect, to no longer be true and correct in any
material respect); and (iv) promptly deliver to Purchaser true and correct
copies of any report, statement or schedule filed with the SEC subsequent to the
date of this Agreement.
(b) From and after the date of this Agreement until the Effective Time,
unless Purchaser has consented in writing thereto, the Company shall not, and
shall not permit the Subsidiaries to, (i) amend its Certificate of Incorporation
or Bylaws; (ii) issue, sell or pledge any shares of its capital stock or other
ownership interest in the Company (other than issuances of Common Stock in
respect of any exercise of stock options outstanding on the date hereof and
disclosed in the Company Disclosure Letter) or the Subsidiaries, or any
securities convertible into or exchangeable for any such shares or ownership
interest, or any rights, warrants or options to acquire or with respect to any
such shares of capital stock, ownership interest, or convertible or exchangeable
securities (except as permitted under clause (xii) of this Section 6.2(b));
(iii) effect any stock split or otherwise change its capitalization as it exists
on the date hereof; (iv) grant, confer or award any option, warrant, convertible
security or other right to acquire any shares of its capital stock or securities
convertible into or exchangeable for any shares of its capital stock or any
stock appreciation rights, phantom stock plans or profit sharing plans (except
as permitted under clause (xii) of this Section 6.2(b)) or take any action to
cause to be exercisable any otherwise unexercisable option under any existing
stock option plan (except as otherwise required by the terms of such
unexercisable options); (v) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital stock or
other ownership interests (other than such payments by the Subsidiaries to the
Company); (vi) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or capital stock of the Subsidiaries; (vii) sell,
lease, license, abandon, transfer, mortgage pledge or otherwise encumber or
subject to any lien or otherwise dispose of any of its assets (including capital
stock of the Subsidiaries), other than the sale or disposition of inventory in
the ordinary course of business, the disposition of damaged, non-saleable or
defective inventory consistent with past practice, or the sale, lease or other
disposition of assets consistent with past practice which, individually or in
the aggregate, are not material to the Company and the Subsidiaries taken as a
whole; (viii) acquire by merger, purchase or any other manner, any business or
entity or otherwise acquire or make commitments to acquire any assets which
would be material, individually or in the aggregate, to the Company and the
Subsidiaries taken as a whole, except for purchases of inventory, supplies,
equipment parts or capital equipment in the ordinary course of business
consistent with past practice; (ix) incur or assume any long-term or
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short-term debt, except for working capital purposes in the ordinary course of
business consistent with past practice under the Company's existing credit
agreements set forth in Schedule 4.19 of the Company Disclosure Letter in
accordance with the terms thereof; (x) assume, guarantee or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except for the obligations of the Subsidiaries
permitted under this Agreement; (xi) make or forgive any loans, advances or
capital continuations to, or investments in, any other person other than loans
and advances to officers or employees in the ordinary course of business
consistent with past practice, but in no event in an amount more than $10,000
for any one transaction or $50,000 in the aggregate; (xii) grant any
stock-related or performance awards, other than performance awards in the
ordinary course of business consistent with past practice pursuant to the terms
and conditions of the Company Benefits Plans and, in the case of stock related
awards, other than in an aggregate amount not to exceed 210,000 shares of Common
Stock (including any options, warrants, convertible securities or other rights
to acquire Common Stock); (xiii) other than in the ordinary course of business
consistent with past practice, enter into, amend or renew any employment,
severance, consulting or salary continuation agreements with any officers,
directors or employees, grant any severance or termination pay to any director,
officer or employee or grant any increases in compensation or benefits to
employees other than in the ordinary course of business consistent with past
practice or as set forth in the Disclosure Letter; (xiv) except to the extent
required by this Agreement, law or in the ordinary course of business consistent
with past practice, adopt or amend in any respect or make any new grants or
awards under any employee benefit plan or arrangement; (xv) amend, change or
waive (or exempt any person or entity, other than the Purchaser, from the effect
of) the Rights Agreement, except in connection with the exercise of fiduciary
duties by the Board as set forth in Section 6.1 of this Agreement or as
contemplated by Section 4.21; (xvi) amend, modify or waive any material term of
any outstanding security of the Company and the Subsidiaries, except as required
by this Agreement; (xvii) fail to (A) maintain in all material respects any real
property to which the Company and the Subsidiaries have ownership (including,
without limitation, the furniture, fixtures, equipment and systems therein) in
its current condition, subject to reasonable wear and tear and subject to any
casualty or condemnation, (B) timely pay in all material respects all taxes,
water and sewer rents, assessments and insurance premiums affecting such real
property and (C) timely comply in all material respects with the terms and
provisions of all leases, contracts and agreements relating to or affecting such
real property and the use and operation thereof; (xviii) enter into any labor or
collective bargaining agreement, memorandum of understanding, grievance
settlement or any other agreement or commitment to or relating to any labor
union; (xix) adopt a plan of complete or partial liquidation or adopt
resolutions providing for complete or partial liquidation, dissolution,
consolidation, merger, restructuring or recapitalization, other than the Merger;
(xx) settle or compromise any material claims or litigation, except in the
ordinary course of business, modify, amend or terminate any of its material
contracts or waive, release or assign any material rights or claims, or make any
payment, direct or indirect, of any material liability before the same becomes
due and payable in accordance with its terms; (xxi) take any action, other than
in the ordinary course of business, with respect to accounting policies or
procedures (including tax accounting policies and procedures), except as may be
required by law or GAAP; (xxii) make any material tax election or amend any
material Tax Return or any material insurance policy naming it as beneficiary or
a loss payable payee to be canceled or terminated without notice to Purchaser;
(xxiii) take, or agree or commit to take, any action that would, or is
reasonably likely to, make any representation or warranty of the Company
hereunder inaccurate at, or as of any time prior to, the Effective Time or in
any of the conditions to the Merger set forth in Article VIII not being
satisfied, or omit, or agree or commit to omit, to take any action necessary to
prevent any such representation or warranty from being inaccurate in any
material respect at any such time or to prevent any such conditions from not
being satisfied; or (xxiv) agree in writing or otherwise to take any of the
foregoing actions.
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6.3. COMPANY STOCKHOLDER APPROVAL; PROXY STATEMENT. (a) The Company,
acting through the Board, shall, in accordance with the DGCL, its Certificate of
Incorporation and its Bylaws (i) call a meeting of its stockholders (the
"Stockholders Meeting") as soon as reasonably practicable after the registration
statement on Form S-4 with respect to the Senior Preferred Stock (the
"Form S-4") becomes effective for the purpose of voting upon the Merger and this
Agreement, in accordance with the DGCL, its Certificate of Incorporation and its
Bylaws, and (ii) subject to its fiduciary duties under applicable law, recommend
to its stockholders the approval of the Merger and this Agreement and the
Company shall not withdraw or modify such recommendation.
(b) Purchaser will prepare and file after consultation with the Company,
and the Company will cooperate with Purchaser in the preparation and filing of,
the Schedule 13E-3 and the Form S-4 with the SEC with respect to the
transactions contemplated by this Agreement. Purchaser shall use its reasonable
best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "blue sky" permits or approvals required to
carry out the Merger (provided that Purchaser should not be required to qualify
to do business in any jurisdiction in which it is not now so qualified.) In
connection with the Stockholders' Meeting contemplated by Section 6.3(a) above,
the Company shall prepare and file a preliminary proxy statement (the
"Preliminary Proxy") relating to the transactions contemplated by this Agreement
which shall be included as part of the registration statement on Form S-4 to be
filed by Purchaser with the SEC. Purchaser and the Company shall use their
reasonable best efforts, as applicable, to respond to the comments of the SEC
thereon so as to cause the Form S-4 to be declared effective by the SEC. The
Company shall use its reasonable best efforts to cause a final proxy statement
(together with the Preliminary Proxy, the "Definitive Proxy Statement") to be
mailed to the Company's stockholders as soon as reasonably practicable. Each
party to this Agreement will notify the other party promptly of the receipt of
the comments of the SEC, if any. Each party hereto will supply the other party
(as appropriate) with copies of all correspondence between such party or its
representatives, on the one hand, and the SEC or members of its staff, on the
other hand, with respect to the Schedule 13E-3, the Form S-4 or the Definitive
Proxy Statement. If at any time prior to the Stockholders' Meeting, (i) any
event should occur relating to the Company or any of the Subsidiaries that
should be set forth in an amendment of, or a supplement to, the Schedule 13E-3,
the Form S-4 or the Definitive Proxy Statement, or (ii) any event should occur
relating to Purchaser, BRS or any of its Affiliates, or relating to the plans of
any such persons for the Surviving Corporation after the Effective Time of the
Merger, or relating to the Financing, that should be set forth in an amendment
of, or a supplement to, the Schedule 13E-3, the Form S-4 or the Definitive Proxy
Statement, then the Company or Purchaser (as applicable), will, upon learning of
such event, promptly inform the other party of such event, and Purchaser or the
Company, as the case may be, will prepare, file and, if required, mail such
amendment or supplement to the Company's stockholders; provided that, prior to
the filing or mailing of any such amendment or supplement, each party shall be
afforded the opportunity to comment thereon. Purchaser will furnish to the
Company the information relating to Purchaser, BRS and their Affiliates, and the
plans of such persons for the Surviving Corporation after the Effective Time of
the Merger, and relating to the Financing, that is required to be set forth in
the Definitive Proxy Statement under the Exchange Act and the rules and
regulations of the SEC thereunder, or as may be reasonably requested in
connection with any of the forgoing. The Company will furnish to Purchaser the
information relating to the Company and the Subsidiaries that is required to be
set forth in the Schedule 13E-3 or the Form S-4 under the Exchange Act and the
rules and regulations of the SEC thereunder, or as may be reasonably requested
in connection with any of the foregoing.
(c) Purchaser represents and warrants that the Schedule 13E-3 and the
Form S-4 will comply as to form in all material respects with the Exchange Act
and, at the respective times filed with the SEC, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided
that Purchaser makes no
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representation or warranty as to any information included in the Schedule 13E-3
and the Form S-4 (or any amendment or supplement thereto) that was provided by
the Company. The Company represents and warrants that none of the information
supplied by the Company in writing for inclusion in the Form S-4 and the
Schedule 13E-3 (or any amendment or supplement thereto) will, at the respective
times provided to Purchaser for filing with the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(d) The Company represents and warrants that the Definitive Proxy
Statement will comply as to form in all material respects with the Exchange Act
and, at the time filed with the SEC and distributed to stockholders of the
Company, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that the Company makes no representation or
warranty as to any information included in the Definitive Proxy Statement (or
any amendment or supplement thereto) that was provided by Purchaser. Purchaser
represents and warrants that none of the information supplied by Purchaser in
writing for inclusion in the Definitive Proxy Statement (or any amendment or
supplement thereto) will, at the respective times provided to the Company for
filing with the SEC or distributing to the stockholders of the Company, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
6.4. FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Company and Purchaser shall: (a) use all reasonable best efforts
to cooperate with one another in (i) determining which filings are required to
be made prior to the Effective Time with, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time from,
Governmental Entities or other third parties in connection with the execution
and delivery of this Agreement and any other Ancillary Documents and the
consummation of the transactions contemplated hereby and thereby and
(ii) timely making all such filings and timely seeking all such consents,
approvals, permits, authorizations and waivers; and (b) use all reasonable best
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement. Without limiting the
foregoing, Purchaser and the Company shall (and shall cause their respective
subsidiaries, and use all reasonable best efforts to cause their respective
affiliates, directors, officers, employees, agents, attorneys, accountants and
representatives, to) consult and fully cooperate with and provide assistance to
each other in (i) seeking early termination of any waiting period under the HSR
Act and (ii) in general, consummating and making effective the transactions
contemplated by this Agreement. Prior to making any application to or filing
with any Governmental Entity in connection with this Agreement, each party shall
provide the other party with drafts thereof and afford the other party a
reasonable opportunity to comment on such drafts. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Purchaser and
the Surviving Corporation shall take all such necessary action.
6.5. ACCESS TO INFORMATION. (a) From the date of this Agreement until
the Effective Time, the Company shall, and shall cause the Subsidiaries to,
(i) give Purchaser and its lenders and authorized representatives full access to
all books, records, personnel, offices and other facilities and properties of
the Company and the Subsidiaries and their accountants and accountants' work
papers, (ii) permit Purchaser and its authorized representatives and lenders to
make such copies and inspections thereof as Purchaser may reasonably request and
(iii) furnish Purchaser and its authorized representatives and lenders with such
financial and operating data and other information with respect to the business
and properties of the Company and the Subsidiaries as Purchaser and its
authorized representatives and lenders may from time to time reasonably request;
provided that the lenders shall subject to the
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exceptions contained in Section 6.5(b) below have agreed in writing to be bound
by the terms contained in the Confidentiality Agreement; and provided, further,
that no investigation or information furnished pursuant to this Section 6.5
shall affect any representation or warranty made herein by the Company or the
conditions to the obligations of Purchaser to consummate the transactions
contemplated by this Agreement. The Company agrees to use its reasonable best
efforts to cause its and the Subsidiaries' officers, employees, consultants,
agents, accountants and attorneys to cooperate with Purchaser and its lenders
and authorized representatives in connection with such review of the Company and
the Financing, including the preparation by Purchaser and its financing sources
of any offering memorandum or other documents related to such Financing.
(b) All confidential information obtained by or provided to Purchaser
and its authorized representatives and lenders pursuant to this Section 6.5 or
otherwise shall be subject to the terms and conditions of the Confidentiality
Agreement, other than such information which would customarily be (i) contained
in any offering memorandum prepared in connection with the registration,
offering, placement, or syndication of financing, (ii) disclosed in the process
of marketing the financing or (iii) contained in any filing with the SEC, the
New York Stock Exchange ("NYSE") or any other national securities exchange.
6.6. PUBLICITY. Except as otherwise required by applicable law or by any
rule or regulation of the NYSE on the advice of counsel, each party hereto shall
not, and shall cause its affiliates not to, issue any press release, make any
public statement or make any filing with any Governmental Entity or national
securities exchange with respect to this Agreement or the transactions
contemplated hereby without providing, and using commercially reasonable efforts
to provide, the other party hereto the opportunity to review and comment thereon
(subject to time restraints imposed by applicable law); provided that, except as
required by applicable law, the Company shall not use the name of BRS or any
Affiliate thereof without BRS's prior written consent (which consent will not be
unreasonably withheld).
6.7. FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger and the
transactions contemplated hereby. Each of the parties hereto agrees to use its
reasonable best efforts to effect all necessary registrations and filings, and
to use its reasonable best efforts to take, or cause to be taken, all other
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
Merger.
6.8. INSURANCE; INDEMNITY. (a) Purchaser will cause the Surviving
Corporation to maintain in effect for not less than six years after the
Effective Time, the Company's current directors and officers insurance policies,
if such insurance is obtainable (or policies of at least the same coverage
containing terms and conditions no less advantageous to the current and all
former directors and officers of the Company) with respect to acts or failures
to act prior to the Effective Time; provided, however, that in order to maintain
or procure such coverage, the Surviving Corporation shall not be required to
maintain or obtain policies providing such coverage except to the extent such
coverage can be provided at an annual cost of no greater than three times the
most recent annual premium paid by the Company prior to the date hereof (the
"Cap"); and provided, further, that if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of the Cap,
Purchaser or the Surviving Corporation shall only be required to obtain as much
coverage as can be obtained by paying an annual premium equal to the Cap.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify and hold harmless to the fullest extent permitted under applicable
law, each person who is, or has been at any time prior to the date hereof or who
becomes prior to the Effective Time, an officer or director of the Company or
any of the Subsidiaries (each, an "Indemnified Party") against all losses,
claims, damages,
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liabilities, reasonable costs or reasonable expenses (including reasonable
attorneys' fees), judgments, fines, penalties and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation arising out
of or pertaining to acts or omissions, or alleged acts or omissions, by them in
their capacities as such, which acts or omissions occurred prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time. In the event of any such claim, action, suit, proceeding or investigation
(an "Action"), the Surviving Corporation shall control the defense of such
Action with counsel selected by the Surviving Corporation, which counsel shall
be reasonably acceptable to the Indemnified Party; provided, however, that the
Indemnified Party shall be permitted to participate in the defense of such
Action through counsel selected by the Indemnified Party, which counsel shall be
reasonably acceptable to the Surviving Corporation, at the Indemnified Party's
expense. Notwithstanding the foregoing, if there is any conflict between the
Surviving Corporation and any Indemnified Parties or there are additional
defenses available to any Indemnified Parties, the Indemnified Parties shall be
permitted to participate in the defense of such Action with counsel selected by
the Indemnified Parties, which counsel shall be reasonably acceptable to the
Surviving Corporation, and Purchaser shall cause the Surviving Corporation to
pay the reasonable fees and expenses of such counsel, as accrued and in advance
of the final disposition of such Action to the full extent permitted by
applicable law; provided, however, that the Surviving Corporation shall not be
obligated to pay the reasonable fees and expenses of more than one counsel for
all Indemnified Parties in any single Action except to the extent that the
Surviving Corporation and any Indemnified Party have conflicting interests in
the outcome of such Action.
(c) The Surviving Corporation shall keep in effect for a period of not
less than six years from the Effective Time (or, in the case of matters
occurring prior to the Effective Time which have not been resolved prior to the
sixth anniversary of the Effective Time, until such matters are finally
resolved) all provisions in the Surviving Corporation's Certificate of
Incorporation and By-Laws that provide for exculpation of director and officer
liability and indemnification (and advancement of expenses related thereto) of
the past and present officers and directors of the Company to the fullest extent
permitted by the DGCL and such provisions shall not be amended except as either
required by applicable law or to make changes permitted by law that would
enhance the rights of past or present officers and directors to indemnification
or advancement of expenses.
(d) If Purchaser or the Surviving Corporation or any of their respective
successors or assigns (i) shall consolidate with or merge into any other
corporation or other entity and shall not be the continuing or surviving
corporation or entity of the consolidation or merger or (ii) shall transfer all
or substantially all of its properties and assets to any individual, corporation
or other entity, then and in each such case, proper provisions shall be made so
that the successors and assigns of Purchaser or the Surviving Corporation shall
assume all of the obligations set forth in this Section 6.8.
(e) The provisions of this Section 6.8 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.
6.9. EMPLOYEE BENEFIT PLANS. (a) For a period of one year following the
Effective Time, Purchaser shall cause the Surviving Corporation to provide
employees of the Company and any of the Subsidiaries employee benefits no less
favorable in the aggregate to such employees than those provided by the Company
and the Subsidiaries on the date hereof.
(b) From and after the Effective Time, the Surviving Corporation and the
Subsidiaries shall honor, pay and perform all of their respective covenants and
obligations under all employment, stock plan, severance, termination protection,
consulting and other employee agreements between the Company or any of the
Subsidiaries and any officer, director or employee of the Company or any of the
Subsidiaries, in accordance with the terms thereof as in effect immediately
prior to the date hereof, and (ii) the Company Benefit Plans or, subject to
clause (a) immediately above, any replacements or substitutes thereof.
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(c) For purposes of determining eligibility and vesting (but not for
benefit accrual) under any Purchaser benefit plans, employees of the Company or
any of the Subsidiaries (each a "Company Employee" and collectively "Company
Employees") shall be credited with their years of service with the Company or
the Subsidiaries. To the extent that any Purchaser benefit plan in which a
Company Employee participates after the Effective Time provides medical, dental,
vision or other welfare benefits, Purchaser shall cause all pre-existing
condition exclusions and actively at work requirements of such plan to be waived
for such employee and his or her covered dependents except to the extent such
employee and his or her covered dependents were subject to such requirements
under the applicable Company Benefit Plans, and Purchaser shall cause any
eligible expenses incurred by such employee on or before the Effective Time to
be taken into account under such plan for purposes of satisfying all deductible,
coinsurance and maximum out-of-pocket requirements applicable to such employee
and his or her covered dependents for the applicable plan year.
6.10. STATE TAKEOVER LAWS. The Company shall take all reasonable steps
to exempt the transactions contemplated by this Agreement, including the Merger,
from the requirements of any applicable state takeover law and to assist in any
challenge by Purchaser to the validity or applicability to the transactions
contemplated by this Agreement, including the Merger, of any state takeover law.
6.11. DELISTING. Each of the parties hereto shall cooperate with each
other in taking, or causing to be taken, all actions necessary to delist all of
the Company's securities from the NYSE and to terminate registration under the
Exchange Act; provided that such delisting and termination shall not be
effective until after the Effective Time.
6.12. LITIGATION. The Company shall give Purchaser, at its own cost and
expense, the opportunity to participate in the defense or settlement of any
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement; provided, however, that no such settlement shall
be agreed to without Purchaser's consent, which consent shall not be
unreasonably withheld.
6.13. RIGHTS AGREEMENT. As soon as practicable after the date hereof,
the Company shall use its reasonable best efforts to cause the Rights Agent to
execute the amendment to the Rights Agreement as set forth in Section 4.21
hereof.
6.14. SUBSTITUTE FINANCING COMMITMENTS. If for any reason any portion of
the Financing shall not be available, Purchaser shall use its reasonable best
efforts to secure one or more substitute financing commitments on terms no less
favorable to Purchaser than those contained in the Commitment Letters until the
earlier of the termination of this Agreement and November 30, 1999. The terms of
any such substitute financing commitments shall not require the issuance of any
equity, shall not contain any incremental fees and if provided as a senior
subordinated note offering, shall be on terms and conditions satisfactory to
Purchaser in its sole discretion.
ARTICLE 7
7. CONDITIONS.
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to consummate the Merger shall be subject to
the satisfaction or waiver, where permissible, prior to the Effective Time, of
the following conditions:
(a) If approval of this Agreement and the Merger by the holders of
Common Stock is required by applicable law, this Agreement and the Merger shall
have been approved by the requisite vote of such holders.
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(b) There shall not have been issued any injunction, or issued or
enacted any Law, which prohibits or has the effect of prohibiting the
consummation of the Merger or makes such consummation illegal.
(c) Any waiting period (and any extension thereof) under the HSR Act
applicable to the Merger shall have expired or terminated.
(d) The Form S-4 shall have become effective prior to the mailing of the
Definitive Proxy Statement to the Company's stockholders and no stop order
suspending the effectiveness of the Form S-4 shall then be in effect.
(e) All consents, approvals, authorizations, orders, registrations,
filings, qualifications, licenses or permits as may be required under state
securities or "blue sky" laws in connection with the shares of Senior Preferred
Stock to be issued pursuant to the Merger shall have been obtained.
7.2. CONDITIONS TO OBLIGATION OF PURCHASER TO EFFECT THE MERGER. The
obligation of Purchaser to consummate the Merger is subject to the satisfaction,
at or prior to the Effective Time, of each of the following conditions (unless
expressly waived in writing by Purchaser prior to the Closing):
(a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all respects on the date hereof and on
and as of the Closing Date as though made on and as of the Closing Date (without
giving effect to any amendments to the Company Disclosure Letter made without
the prior written consent of Purchaser), except for representations and
warranties which are not qualified as to Material Adverse Effect, which shall be
true and correct in all material respects; provided that representations and
warranties made as of a specified date need be true and correct only as of such
specified date;
(b) The Company and the Subsidiaries shall have performed in all
material respects each obligation and agreement, and shall have complied in all
material respects with each covenant to be performed and complied with by it or
them hereunder, at or prior to the Effective Time;
(c) The Company shall have furnished Purchaser with a certificate, dated
as of the Closing Date, signed on its behalf by its Chairman, President or any
Vice President to the effect that the conditions set forth in Sections 7.2(a)
and (b) have been satisfied;
(d) The Dissenting Common Stock, if any, shall not include greater than
5% of the issued and outstanding Shares;
(e) There shall have been no material adverse change from the date
hereof in the business, results of operations, or financial condition of the
Company and the Subsidiaries, taken as a whole, or on the ability of the Company
and the Subsidiaries taken as a whole to consummate the transactions hereunder
or to conduct its business consistent with the manner conducted in the past
other than such effect resulting or arising from any of the conditions set forth
in clauses (A), (B), (C) and (D) in Section 4.1 hereof;
(f) Purchaser shall have received the cash proceeds of financings in an
amount necessary to consummate the Merger and the other transactions
contemplated hereby and to pay all fees and expenses in connection therewith and
to provide adequate working capital for the Surviving Corporation, all on terms
and conditions satisfactory to Purchaser (it being understood that the terms and
conditions specifically set forth in the Commitment Letters are satisfactory to
Purchaser);
(g) The Company shall have terminated all agreements and transactions
(other than intra-Company agreements and transactions) with any of its directors
or affiliates, except as set forth in Schedule 7.2(g) of the Company Disclosure
Letter or in the Company Reports, or entered into with Purchaser, BRS or any of
their affiliates; and
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(h) The Company shall have obtained consents or waivers in form and
substance reasonably satisfactory to Purchaser with respect to the agreements
set forth in Schedule 7.2(h) of the Company Disclosure Letter.
7.3. CONDITIONS TO THE OBLIGATION OF THE COMPANY. The obligation of the
Company to consummate the Merger is subject to the satisfaction, at or before
the Effective Time, to each of the following conditions (unless expressly waived
in writing prior to the Closing):
(a) The representations and warranties of Purchaser set forth in this
Agreement shall be true and correct in all respects on the date hereof and on
and as of the Closing Date as though made on and as of the Closing Date (without
giving effect to any amendments to the Purchaser Disclosure Letter made without
the prior written consent of the Company), except for representations and
warranties which are not qualified as to materiality or material adverse effect,
which shall be true and correct in all material respects; provided that
representations and warranties made as of a specified date need be true and
correct only as of such specified date;
(b) Purchaser shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects with
each covenant to be performed and complied with by it or them hereunder, at or
prior to the Effective Time;
(c) Purchaser shall have furnished the Company with a certificate, dated
as of the Closing Date, signed on its behalf by its Chairman, President or any
Vice President to the effect that the conditions set forth in Sections 7.3(a)
and (b) have been satisfied; and
(d) Purchaser shall have deposited the Merger Consideration with the
Paying Agent simultaneously with the Closing.
ARTICLE 8
8. TERMINATION.
8.1. TERMINATION. This Agreement, notwithstanding approval thereof by
the stockholders of the Company, may be terminated at any time prior to the
Effective Time (each a "Termination"):
(a) by mutual written consent of the Company and the Purchaser;
(b) by the Purchaser or the Company:
(i) if the Effective Time shall not have occurred on or before
November 30, 1999;
(ii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited, or
if any court of competent jurisdiction in the United States or other
Governmental Entity shall have issued an order, judgment, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment, decree, ruling or other
action shall have become final and non-appealable (provided, that the
party seeking to terminate this Agreement pursuant to this clause
(ii) shall have used all reasonable best efforts to remove such judgment,
injunction, order, decree or ruling); or
(iii) upon a vote at a duly held meeting, or upon any adjournment
thereof, the stockholders of the Company shall have failed to give any
approval required by applicable law.
(c) by the Company at any time prior to the Stockholder's Meeting, by
action of the Special Committee, if the Company shall have received after the
date hereof an Acquisition Proposal from a third party for an Alternative
Transaction that was not initiated, solicited or encouraged by the Company or
any of the Subsidiaries in violation of this Agreement and that does not
materially violate or breach any confidentiality or standstill agreement
executed by such party with respect to the
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Company and (i) the Special Committee determines in good faith by a majority
vote, after consultation with its financial and legal advisors, that such
Acquisition Proposal is (A) more favorable to the stockholders of the Company
(other than any stockholders participating in the buying group with Purchaser as
contemplated by this Agreement) from a financial point of view than the
transactions contemplated by this Agreement (including any adjustment to the
terms and conditions proposed in writing by Purchaser in response to such
Acquisition Proposal), (B) not subject to any material contingency, to which the
other party thereto has not reasonably demonstrated in its written offer its
ability to overcome or address, including the receipt of government consents or
approvals (including any such approval required under the HSR Act), and (C)
reasonably likely to be consummated and in the best interests of the
stockholders of the Company, (ii) the Special Committee has received both (W)
advice from its outside legal counsel that there is a material risk that failure
to approve such an Acquisition Proposal will constitute a breach of the
Company's fiduciary duties under applicable law and (X) a written opinion (a
copy of which has been delivered to Purchaser) from the Financial Advisor that
the Alternative Transaction is fair from a financial point of view to the
stockholders of the Company (other than any stockholders participating in the
buying group in such transaction); provided that, any such termination shall not
be effective unless: (Y) the Special Committee has provided Purchaser with
written notice that it intends to terminate this Agreement pursuant to this
Section 8.1(c), identifying the Alternative Transaction (and the parties
thereto) then determined to be more favorable, and delivering to Purchaser a
copy of the written agreement for such Alternative Transaction in the form to be
entered into, and (Z) at least two full business days after the Company has
provided the notice referred to in clause (Y) above, the Special Committee
delivers to Purchaser a written notice of termination of this Agreement pursuant
to this Section 8.1(c), and (iii) upon delivery of the termination notice
referred to in clause (ii) above, the Company has delivered to Purchaser a check
or wire transfer of same day funds in the amount of Purchaser's Transaction
Expenses and one half (i.e., 50%) of the Termination Fee (as defined in Section
8.3 hereof) and written acknowledgment from the Company and such other parties
to the Alternative Transaction that the Company and such other parties have
irrevocably waived any right to contest or object to such payment;
(d) by the Purchaser if the Board (i) withdraws or modifies in a manner
adverse to Purchaser the Board's favorable recommendation of the Merger or (ii)
shall have recommended any Acquisition Proposal with a party other than
Purchaser or any of its Affiliates;
(e) by the Purchaser at any time prior to the Effective Time, if the
Company shall be in material breach of its obligations hereunder (including a
material breach of its representations or warranties) and such breach is not
cured within five days after notice thereof is received by the Company (provided
that the Company shall not be entitled to a cure period for a material breach of
Section 6.1 hereof); or
(f) by the Company at any time prior to the Effective Time, if Purchaser
shall be in material breach of its obligations hereunder (including a material
breach of its representations or warranties) and such breach is not cured within
five days after notice thereof is received by Purchaser.
8.2. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article 8,
all obligations of the parties hereto shall terminate, except the obligations of
the parties pursuant to this Section 8.2 and Sections 6.5(b), 6.6, 8.3, 9.5 and
9.6. Nothing herein shall prejudice the ability of the non-breaching party from
seeking damages from any other party for any breach of this Agreement, including
without limitation, attorneys' fees and the right to pursue any remedy at law or
in equity. Specifically, and without limiting the generality of the foregoing,
Purchaser agrees that termination of this Agreement shall be its sole and
exclusive remedy for any nonwillful breach by the Company of its
representations, warranties and covenants under this Agreement and the Company
agrees that termination of this Agreement shall be its sole and exclusive remedy
for any nonwillful breach by Purchaser of its representations, warranties and
covenants under this Agreement; provided, that, no such termination shall
relieve the Company or
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Purchaser from liability for damages arising from (a) any willful or intentional
breach of this Agreement, or (b) their obligations under this Section 8.2,
Section 8.3 and Article 9.
8.3. FEES AND EXPENSES. (a) In the event that this Agreement shall have
been terminated by Purchaser pursuant to Section 8.1(d)(i) or Section 8.1(e),
(i) the Company shall pay to Purchaser the Purchaser's Transaction Expenses (as
defined below) within two business days after termination of this Agreement and
(ii) if the Company enters into a definitive agreement for an Alternative
Transaction with a third party with a purchase price per share for the Shares
having a value greater than the per share Merger Consideration (a "Superior
Agreement") within 180 days after such termination of this Agreement and such
Alternative Transaction is consummated within 360 days after that termination of
the Agreement, then the Company shall make a payment to Purchaser of $9,500,000
(the "Termination Fee") contemporaneously with the consummation of the
Alternative Transaction. "Purchaser's Transaction Expenses" shall mean an
amount, not to exceed $2,000,000, equal to Purchaser's actual out-of-pocket
expenses (as the same may be estimated in writing signed by the chairman or
president of Purchaser in good faith prior to the date of such payment, subject
to an adjustment payment between the parties upon definitive determination of
such costs) directly attributable to the proposed acquisition of the Company
(including negotiation and execution of this Agreement and reasonable attorneys'
fees and expenses) and the attempted financing and completion of the Merger.
(b) In the event that (i) the Company receives an Acquisition Proposal
from a third party (the "Third Party Bidder") subsequent to the date hereof and
prior to termination of this Agreement, (ii) this Agreement is thereafter
terminated, and (iii) a Superior Agreement is entered into with that same Third
Party Bidder within 180 days after such termination of this Agreement, then the
Company shall pay to Purchaser the Purchaser's Transaction Expenses
contemporaneously with the execution of such Superior Agreement. If the Superior
Agreement with that same Third Party Bidder is consummated within 360 days after
the termination of this Agreement, then the Company shall pay to Purchaser the
Termination Fee contemporaneously with such consummation.
(c) In the event that this Agreement shall have been terminated (1) by
the Company pursuant to Section 8.1(c) hereof (in which case the Company shall
have paid to Purchaser the Purchaser's Transaction Expenses plus 50% of the
Termination Fee as a condition precedent to such termination), and the Company
consummates the Alternative Transaction contemplated by that Superior Agreement
within 360 days after the termination of this Agreement pursuant to Section
8.1(c) hereof, then the Company shall pay to Purchaser the balance of the
Termination Fee (i.e., the remaining 50%) contemporaneously with such
consummation or (2) by Purchaser pursuant to Section 8.1(d)(ii) hereof, (A) the
Company shall pay to Purchaser the Purchaser's Transaction Expenses plus 50% of
the Termination Fee within two business days following such termination and, (B)
if the Company then enters into a Superior Agreement within 180 days after a
termination by Purchaser pursuant to Section 8.1(d)(ii) and consummates the
Alternative Transaction contemplated by that Superior Agreement within 360 days
after such termination, then the Company shall pay to Purchaser the balance of
the Termination Fee (i.e., the remaining 50%) contemporaneously with such
consummation.
(d) In the event that this Agreement shall have been terminated by the
Purchaser pursuant to Section 8.1(e) hereof as a result of the Company's
material breach of Section 6.1 hereof, the Company shall pay to Purchaser the
Purchaser's Transaction Expenses and the entire Termination Fee within two
business days after such termination.
(e) The Company shall only be required to pay to Purchaser the
Purchaser's Transaction Expenses and the Termination Fee under the limited
circumstances set forth in paragraphs (a), (b), (c) and (d) of this Section 8.3.
In the event that the Purchaser's Transaction Expenses and/or the Termination
Fee are payable under more than one such circumstance, Purchaser may elect to be
paid pursuant to any one, but only one, of these provisions. Any payments to be
made to Purchaser shall be made by check or wire transfer of same day funds.
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(f) Purchaser agrees that in the event that Purchaser has received both
the Purchaser's Transaction Expenses and the Termination Fee in cash when
required to be received pursuant to this Article 8, it shall not (i) assert or
pursue in any manner, directly or indirectly, any claim or cause of action based
in whole or in part upon alleged tortious or other interference with rights
under this Agreement against any entity or person submitting an Acquisition
Proposal or (ii) assert or pursue in any manner, directly or indirectly, any
claim or cause of action against the Company or any of its officers or directors
based in whole or in part upon its or their receipt, consideration,
recommendation, or approval of an Alternative Transaction or the Company's
exercise of its right to terminate this Agreement; provided that, the Company
and any third parties to a Superior Agreement irrevocably waive in writing their
right, if any, to contest or object to payment of the Termination Fee or any
portion thereof which shall have been paid or be due to Purchaser in accordance
with this Article 8.
8.4. EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereto, by action taken by its board of directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE 9
9. GENERAL PROVISIONS.
9.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement, or in any instrument delivered
pursuant to this Agreement, shall survive the Effective Time.
9.2. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by facsimile, to the applicable party at the
following addresses or facsimile numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
<TABLE>
<S> <C>
IF TO PURCHASER: IF TO THE COMPANY:
OSI Acquisition, Inc. O'Sullivan Industries Holdings, Inc.
c/o Bruckmann, Rosser, Sherill & Co., Inc. 1900 Gulf Street
126 E. 56th Street, 29th Floor Lamar, Missouri 64759
New York, New York Attention: Rowland H. Geddie, III, Esq.
Attention: Stephen F. Edwards Facsimile: (417) 682-8113
Facsimile: (212) 521-3799
With a copy to: With a copy to:
Kirkland & Ellis Fried, Frank, Harris, Shriver & Jacobson
153 East 53rd Street One New York Plaza
New York, New York 10022 New York, New York 10004
Attention: Kirk A. Radke, Esq. Attention: Jeffrey Bagner, Esq.
Facsimile: (212) 446-4900 Facsimile: (212) 859-4000
</TABLE>
9.3. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that Purchaser
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may assign its rights hereunder (i) to a wholly owned subsidiary of Purchaser or
(ii) for collateral security purposes to any source of financing to BRS,
Purchaser or the Surviving Corporation; and, further provided that nothing shall
relieve the assignor from its obligations hereunder. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Sections 6.8 and 6.9, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
9.4. ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreement,
the Schedules, the Exhibits, the Ancillary Documents and any other documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto.
9.5. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws. Each of the Company, Purchaser and Merger Sub hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Delaware and of the United States of America
located in the State of Delaware (the "Delaware Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the Delaware Courts and agrees not to plead or claim in any Delaware Court
that such litigation brought therein has been brought in an inconvenient forum.
9.6. FEE AND EXPENSES. Except as provided in Section 8.3, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby (including without
limitation, fees and disbursements of counsel, financial advisors and
accountants) shall be paid by the party incurring such costs and expenses (it
being expressly understood that all costs and expenses related to HSR filings
shall be borne by Purchaser) and the filing fees with respect to the Form S-4
and expenses of printing and mailing the Proxy Statement shall be borne equally
by the Company and Purchaser. All transfer taxes incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
Surviving Corporation other than as provided in Section 3.3(b) hereof.
9.7. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
(i) "affiliate" of a Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person.
(ii) "Company Stock Option Plan" means the Company's Amended and
Restated 1994 Incentive Stock Plan, as amended.
(iii) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(iv) "Equity Letters" means the equity commitment letter dated April 30,
1999 from BRS to Purchaser.
(v) "Financing" means the financing pursuant to the terms of the Equity
Letters and the Financing Letters.
(vi) "Financing Letters" means each of the engagement letters dated
April 30, 1999 from Lehman Brothers Inc. and Lehman Brothers Commercial Paper
Inc. to BRS and Purchaser and the commitment letter dated April 30, 1999 from
Lehman Brothers Inc. to BRS and Purchaser.
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(vii) "Indebtedness" means all indebtedness of the Company and the
Subsidiaries, including, without limitation, (i) all obligations of any of the
Company and the Subsidiaries for borrowed money or evidenced by bonds,
debentures, notes, letters of credit or other similar instruments, (ii)
obligations as lessee under capital leases, (iii) obligations to pay the
deferred purchase price of property or services, except amounts payable arising
in the ordinary course of business and amounts owed pursuant to the Tandy Tax
Sharing Agreement, (iv) all debts of others guaranteed or otherwise supported by
any of the Company and the Subsidiaries or secured by a lien on any of the
assets of any of the Company and the Subsidiaries, (v) all amounts owed by any
of the Company and the Subsidiaries or obligations of any of the Company and the
Subsidiaries to any Affiliate of the Company and the Subsidiaries, (vi) unfunded
liabilities under the Company's Deferred Compensation Plan and (vii) any
interest, principal, prepayment penalty, fees, or expenses in respect of those
items listed in clauses (i) through (v) of this defined term.
(viii) "knowledge" of any party hereto shall mean the actual knowledge
of any of the executive officers of that party without further inquiry by such
officers.
(ix) "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, entity or
group (as defined in the Exchange Act).
(x) "Senior Preferred Stock" means the senior preferred stock, par value
$1.00 per share, of the Surviving Corporation, the terms of which are set forth
in the Certificate of Incorporation attached as Exhibit 2.4(a) hereto.
(xi) "Special Committee" means the Special Committee of the Board of
Directors of the Company.
(xii) "Tax Sharing Agreement" means the Amended and Restated Tax Sharing
and Tax Benefit Reimbursement Agreement dated as of June 19, 1997 among Tandy
Corporation, a Delaware corporation, TE Electronics Inc., a Delaware
corporation, and the Company.
9.8. HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever. The table of contents contained in this
Agreement is for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.9. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be understood to be followed by the words "without
limitation."
9.10. WAIVERS. No action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement or in any of the Ancillary Documents. The waiver by any party hereto
of a breach of any provision hereunder shall not operate or be construed as a
waiver of any prior or subsequent breach of the same or any other provision
hereunder.
9.11. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
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9.12. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically (without requirement to post a bond) the terms and
provisions hereof in any Delaware Court, this being in addition to any other
remedy to which they are entitled at law or in equity.
9.13. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which, when so executed and delivered, shall
be an original. All such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
9.14. SPECIFIC PERFORMANCE. The parties hereto each acknowledge that, in
view of the uniqueness of the subject matter hereof, the parties hereto would
not have an adequate remedy at law for money damages in the event that this
Agreement were not performed in accordance with its terms, and therefore agree
that the parties hereto shall be entitled to specific enforcement of the terms
hereof in addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
9.15. TIME IS OF THE ESSENCE. The parties hereto acknowledge that time
is of the essence in the performance of this Agreement.
9.16. WAIVER OF JURY TRIAL. Each of the parties hereto waives any right
to a trial by jury in any litigation or proceeding to enforce or defend any
right under this Agreement or any other document required in connection with the
transactions contemplated hereby. Each of the parties hereto further agree that
any such litigation or proceeding shall be tried before a court and not before a
jury.
9.17. AMENDMENT. Subject to applicable law, at any time prior to the
Effective Time, whether before or after the adoption of this Agreement by the
stockholders of the Company, the parties hereto may modify or amend this
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after the adoption
of this Agreement by the stockholders of the Company, no amendment shall be made
which by law would require the further approval of such stockholders, without
such further approval.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
<TABLE>
<S> <C> <C> <C>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
ATTEST:
By: By: /s/ RICHARD D. DAVIDSON
---------------------------------------- ----------------------------------------
OSI ACQUISITION, INC.
ATTEST:
By: By: /s/ STEPHEN F. EDWARDS
---------------------------------------- ----------------------------------------
</TABLE>
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<PAGE>
EXHIBIT 2.4(A)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
ARTICLE I
The name of the corporation is O'Sullivan Industries Holdings, Inc.
(hereinafter called the "CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the state of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
A. AUTHORIZED SHARES.
The total number of shares of capital stock which the Corporation has
authority to issue is 20,000,000 shares, consisting of:
(1) 2,000,000 shares of Common Stock, par value $1.00 per share (the
"COMMON STOCK");
(2) 19,000,000 shares of Preferred Stock, par value $1.00 per share
(the "PREFERRED STOCK"), of which 17,000,000 shares are further designated as
Senior Preferred Stock (the "SENIOR PREFERRED STOCK"), 100,000 shares are
further designated Series A Junior Preferred Stock (the "SERIES A JUNIOR
PREFERRED STOCK") and 1,000,000 shares are further designated Series B Junior
Preferred Stock (the "SERIES B JUNIOR PREFERRED STOCK"). The Series A Junior
Preferred Stock and the Series B Junior Preferred Stock are sometimes referred
to herein collectively as the "Junior Preferred Stock" and each share of
Series A Junior Preferred Stock and Series B Junior Preferred Stock as a "Junior
Preferred Share."
In addition to any other consent or approval which may be required pursuant
to this Certificate of Incorporation, no amendment or waiver of any provision of
this Section A shall be effective without the prior approval of the holders of a
majority of the then outstanding Common Stock.
B. PREFERRED STOCK.
1. ISSUE IN SERIES. Preferred Stock may be issued from time to time in one
or more series, each such series to have the terms stated herein and, if
applicable, in the resolution of the Board of Directors of the Corporation (the
"BOARD OF DIRECTORS") providing for its creation under paragraph 2 below. All
shares of any one series of Preferred Stock will be identical, but shares of
different series of Preferred Stock need not be identical or rank equally except
insofar as provided by law or herein.
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2. CREATION OF SERIES. The Board of Directors shall have the authority by
resolution to cause to be created one or more series Preferred Stock and, prior
to the issuance of any shares of any such series, to determine and fix the
powers, designations, preferences, qualifications privileges, options and other
relative, participating, optional, or special rights and limitations of each
such series.
C. SENIOR PREFERRED STOCK.
Except as otherwise provided in this Section C or as otherwise required by
applicable law, all shares of Senior Preferred Stock (each such share, a "SENIOR
SHARE") shall be identical in all respects and shall entitle the holders thereof
to the same rights and privileges, subject to the same qualifications,
limitations and restrictions.
1. DIVIDENDS.
1A. GENERAL OBLIGATION. When and as declared by Board of Directors and
to the extent permitted under the General Corporation Law of Delaware (the
"DGCL"), the Corporation shall pay preferential dividends to the holders of
the Senior Preferred Stock as provided in this Section 1. Except as
otherwise provided herein, dividends on each Senior Share shall accrue on a
daily basis at the rate of 12% per annum of the sum of the Liquidation Value
thereof plus all accumulated and unpaid dividends thereon, from and
including the date of issuance of such Senior Share to and including the
date on which the Liquidation Value of such Senior Share (plus all accrued,
accumulated and unpaid dividends thereon) is paid. Such dividends shall
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. The date on which the Corporation initially issues any
Senior Share shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such Senior Share is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Senior Share.
1B. DIVIDEND REFERENCE DATES. To the extent not paid on June 30 and
December 31 of each year, beginning on December 31, 1999 (the "DIVIDEND
REFERENCE DATES"), all dividends which have accrued on each Senior Share
outstanding during the six-month period (or other period in the case of the
initial Dividend Reference Date) ending upon each such Dividend Reference
Date shall be accumulated and remain accumulated dividends with respect to
such Senior Share until paid.
1C. DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except as otherwise
provided herein, if at any time the Corporation pays less than the total
amount of dividends then accrued with respect to the Senior Preferred Stock,
such payment shall be distributed ratably among the holders of Senior Shares
based upon the number of Shares held by each such holder.
2. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, each holder of Senior Preferred Stock shall be entitled to be paid,
before any distribution or payment is made upon any Junior Securities, an amount
in cash equal to the aggregate Liquidation Value (plus all accrued, accumulated
and unpaid dividends) of all Senior Shares held by such holder and the holders
of Senior Preferred Stock shall not be entitled to any further payment. If upon
any such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets to be distributed among the holders of the Senior Preferred
Stock are insufficient to permit payment to such holders of the aggregate amount
which they are entitled to be paid, then the entire assets to be distributed
shall be distributed ratably among such holders based upon the aggregate
Liquidation Value (plus all accrued, accumulated and unpaid dividends) of the
Senior Preferred Stock held by each such holder. Neither the consolidation or
merger of the Corporation into or with any other entity or entities, nor the
sale or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 2.
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3. REDEMPTIONS.
3A. REDEMPTION PAYMENT. For each Senior Share which is to be redeemed,
the Corporation shall be obligated to pay to the holder thereof upon
surrender by such holder at the Corporation's principal office of the
certificate representing such Senior Share (the "REDEMPTION DATE") an amount
in immediately available funds equal to the Liquidation Value of such Senior
Share (plus all accrued, accumulated and unpaid dividends thereon). If the
funds of the Corporation legally available for redemption of Senior Shares
on any Redemption Date are insufficient to redeem the total number of Senior
Shares to be redeemed on such date, those funds which are legally available
shall be used to redeem the maximum possible number of Senior Shares ratably
among the holders of the Senior Shares to be redeemed based upon the
aggregate Liquidation Value of such Senior Shares (plus all accrued,
accumulated and unpaid dividends thereon) held by each such holder. At any
time thereafter when additional funds of the Corporation are legally
available for the redemption of Senior Shares, such funds shall immediately
be used to redeem the balance of the Senior Shares which the Corporation has
become obligated to redeem on any Redemption Date but which it has not
redeemed.
3B. NOTICE OF REDEMPTION. The Corporation shall mail written notice of
each redemption of any Senior Preferred Stock to each record holder of
Senior Preferred Stock not more than 30 nor less than three days prior to
the date on which such redemption is to be made. In case fewer than the
total number of Senior Shares represented by any certificate are redeemed, a
new certificate representing the number of unredeemed Senior Shares shall be
issued to the holder thereof without cost to such holder within three
business days after surrender of the certificate representing the redeemed
Senior Shares.
3C. DETERMINATION OF THE NUMBER OF EACH HOLDER'S SENIOR SHARES TO BE
REDEEMED. The number of Senior Shares to be redeemed from each holder
thereof in redemptions hereunder shall be the number of Senior Shares
determined by multiplying the total number of Senior Shares to be redeemed
times a fraction, the numerator of which shall be the total number of Senior
Shares then held by such holder and the denominator of which shall be the
total number of Senior Shares then outstanding.
3D. DIVIDENDS AFTER REDEMPTION DATE. No Senior Share is entitled to
any dividends accruing after the date on which the Liquidation Value of such
Senior Share (plus all accrued, accumulated and unpaid dividends thereon) is
paid in full to the holder thereof. On such date all rights of the holder of
such Senior Share shall cease, and such Senior Share shall not be deemed to
be outstanding.
3E. REDEEMED OR OTHERWISE ACQUIRED SENIOR SHARES. Any Senior Shares
which are redeemed or otherwise acquired by the Corporation shall be
canceled and shall not be reissued, sold or transferred.
3F. OTHER REDEMPTIONS OR ACQUISITIONS. Neither the Corporation nor any
Subsidiary shall redeem or otherwise acquire any Senior Preferred Stock,
except as expressly authorized herein or pursuant to a purchase offer made
pro rata to all holders of the Senior Preferred Stock on the basis of the
number of Senior Shares owned by each such holder. So long as any shares of
Senior Preferred Stock remain outstanding, the Corporation shall not redeem,
purchase or otherwise acquire any Junior Securities; PROVIDED, that the
Corporation may purchase Junior Securities from present or former employees
pursuant to written contracts with such employees.
3G. OPTIONAL REDEMPTIONS. The Corporation may, at its option, redeem
at any time or from time to time, from any source of funds legally available
therefor, in whole or in part, the Senior Preferred Stock.
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<PAGE>
3H. SCHEDULED REDEMPTION. The Corporation shall redeem all outstanding
shares of Senior Preferred Stock on the 12th anniversary of the date of
issuance of such Senior Shares at a price per share equal to the Liquidation
Value thereof (plus all accrued, accumulated and unpaid dividends thereon).
3I. MANDATORY REDEMPTION. The Corporation shall redeem all outstanding
shares of Senior Preferred Stock upon the consummation of a Change in
Control at a price per share equal to the Liquidation Value thereof (plus
all accrued, accumulated and unpaid dividends thereon).
4. VOTING RIGHTS. Except as otherwise required by law, the Senior
Preferred Stock shall have no voting rights.
5. REGISTRATION OF TRANSFER. The Corporation shall keep at its principal
office a register for the registration of Senior Preferred Stock. Upon the
surrender of any certificate representing Senior Preferred Stock at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Senior Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Senior Shares as is requested by the holder of the surrendered certificate and
shall be substantially identical in form to the surrendered certificate, and
dividends shall accrue on the Senior Preferred Stock represented by such new
certificate from the date to which dividends have been fully paid on such Senior
Preferred Stock represented by the surrendered certificate.
6. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Senior Shares of Senior Preferred Stock, and in the case of any such
loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to
the Corporation (provided that if the holder is an institutional investor its
own agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like kind
representing the number of Senior Shares represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends shall accrue on the Senior
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
7. DEFINITIONS. The following definitions apply only to this Section C.
"CHANGE IN CONTROL" means any transaction or series of related
transactions as a result of which any Unaffiliated Third Party acquires more
than 50% of the Common Stock outstanding on a fully diluted basis at the time of
such transaction.
"COMMON STOCK" means the Corporation's Common Stock and any capital
stock of any class of the Corporation hereafter authorized which is not limited
to a fixed sum or percentage of par or stated value in respect to the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Corporation.
"JUNIOR SECURITIES" means any of the Corporation's equity securities,
other than the Senior Preferred Stock.
"LIQUIDATION VALUE" of any Senior Share as of any particular date shall
be equal to $1.50 per Senior Share.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
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<PAGE>
"REDEMPTION DATE" is defined in paragraph 3A.
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of Senior Shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing general partner of such partnership, association or other
business entity.
"UNAFFILIATED THIRD PARTY" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Corporation's
Common Stock on a fully diluted basis (a "5% Owner"), who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust of
the benefit of such 5% Owner and/or such other Persons.
8. AMENDMENT AND WAIVER. No amendment, modification or waiver shall be
binding or effective with respect to any provision of this Section C without the
prior written consent of the holders of at least 51% of the Senior Preferred
Stock outstanding at the time.
9. NOTICES
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any holder of Senior Preferred Stock at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
10. ISSUANCE OF ADDITIONAL SHARES OF SENIOR PREFERRED STOCK.
The Corporation shall not increase the authorized number of shares of Senior
Preferred Stock above 17,000,000 shares.
D. JUNIOR PREFERRED STOCK.
Except as otherwise provided in this Section D or as otherwise required by
applicable law, all shares of any one series Junior Preferred Stock shall be
identical in all respects and shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications, limitations and
restrictions.
1. DIVIDENDS.
1A. GENERAL OBLIGATION. When and as declared by the Board of Directors
and to the extent permitted under the DGCL, the Corporation shall pay
preferential dividends to the holders of the Junior Preferred Stock as
provided in this Section 1. Except as otherwise provided herein, dividends
on each share of Junior Preferred Stock shall accrue on a daily basis at the
rate of 14% per annum of the sum of the Liquidation Value thereof plus all
accumulated and unpaid dividends thereon, from and including the date of
issuance of such Junior Preferred Share to and including the date on which
the Liquidation Value of such Junior Preferred Share (plus all accrued,
accumulated and unpaid dividends thereon) is paid in full. Such dividends
shall accrue whether or
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<PAGE>
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of
dividends. The date on which the Corporation initially issues any Junior
Preferred Share shall be deemed to be its "date of issuance" regardless of
the number of times transfer of such Junior Preferred Share is made on the
stock records maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such Junior Preferred
Share.
1B. JUNIOR PREFERRED DIVIDEND REFERENCE DATES. To the extent not paid
on each June 30 and December 31 of each year beginning June 30, 2000 (the
"JUNIOR PREFERRED DIVIDEND REFERENCE DATES"), all dividends which have
accrued on each Junior Preferred Share outstanding during the six-month
period (or other period in the case of the initial Junior Preferred Dividend
Reference Date) ending upon each such Junior Preferred Dividend Reference
Date shall be accumulated and shall remain accumulated dividends with
respect to such Junior Preferred Share until paid.
1C. DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. If at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Junior Preferred Stock, such payment shall be distributed
ratably among the holders of the Junior Preferred Stock based upon the
number of Junior Preferred Shares held by each such holder.
1D. PRIORITY OF JUNIOR PREFERRED STOCK. Subject to the terms of the
Senior Preferred Stock, so long as any Junior Preferred Stock remains
outstanding, neither the Corporation nor any Subsidiary shall declare or pay
any cash dividends or make any cash distributions with respect to or redeem,
purchase or otherwise acquire for cash, directly or indirectly, any
Series A and B Junior Securities, if at the time of or immediately after any
such redemption, purchase, acquisition, dividend or distribution the
Corporation has failed to pay the full amount of dividends accrued on the
Junior Preferred Stock or the Corporation has failed to make any redemption
of the Junior Preferred Stock required hereunder.
2. LIQUIDATION. Subject to the terms of the Senior Preferred Stock upon
any liquidation, dissolution or winding up of the Corporation, the holders of
the Junior Preferred Stock shall be entitled to be paid, before any distribution
or payment is made upon any Series A and B Junior Securities, an amount in cash
equal to the aggregate Liquidation Value (plus all accrued, accumulated and
unpaid dividends) of all such Junior Preferred Shares held by such holder, and
the holders of Junior Preferred Stock shall not be entitled to any further
payment. If upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Junior Preferred Stock are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid, then the entire assets to
be distributed shall be distributed ratably among such holders based upon the
aggregate Liquidation Value (plus all accrued, accumulated and unpaid dividends)
of the Junior Preferred Stock held by each such holder. Neither the
consolidation or merger of the Corporation into or with any other entity or
entities, nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section 2.
3. REDEMPTIONS.
3A. OPTIONAL REDEMPTIONS. Subject to the terms and conditions of the
Senior Preferred Stock, the Corporation may at any time redeem all or any
portion of the Junior Preferred Stock then outstanding at a price per Junior
Preferred Share equal to the Liquidation Value thereof (plus all accumulated
and accrued and unpaid but not yet accumulated dividends thereon); provided,
that all optional redemptions pursuant to this Section 3A are made PRO RATA
among the holders of Junior Preferred Stock based upon the aggregate
Liquidation Value of such Junior Preferred Stock (plus all accrued,
accumulated and unpaid dividends thereon) held by each such holder.
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3B. REDEMPTION PRICE. For each Junior Preferred Share which is to be
redeemed, the Corporation shall be obligated on the Redemption Date to pay
to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such Junior Preferred
Share) an amount in immediately available funds equal to the Liquidation
Value thereof (plus all accrued, accumulated and unpaid dividends thereon).
If the Corporation's funds which are legally available for redemption of
Junior Preferred Shares on any Redemption Date are insufficient to redeem
the total number of Junior Preferred Shares to be redeemed on such date,
those funds which are legally available shall be used to redeem the maximum
possible number of Junior Preferred Shares PRO RATA among the holders of the
Junior Preferred Shares to be redeemed based upon the aggregate Liquidation
Value of such Junior Preferred Shares (plus all accrued, accumulated and
unpaid dividends thereon) held by each such holder, and other Junior
Preferred Shares not so redeemed shall remain issued and outstanding until
redeemed in accordance with the terms thereof. At any time thereafter when
additional funds of the Corporation are legally available for the redemption
of Junior Preferred Shares, such funds shall immediately be used to redeem
the balance of the Junior Preferred Shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed.
3C. NOTICE OF REDEMPTION. The Corporation shall mail written notice of
each redemption of Junior Preferred Stock to each record holder not more
than thirty (30) nor less than ten days prior to the date on which such
redemption is to be made. Upon mailing any notice of redemption which
relates to a redemption at the Corporation's option, the Corporation shall
become obligated to redeem the total number of Junior Preferred Shares
specified in such notice at the time of redemption specified therein. In
case fewer than the total number of Junior Preferred Shares represented by
any certificate are redeemed, a new certificate representing the number of
unredeemed Junior Preferred Shares shall be issued to the holder thereof
without cost to such holder within three business days after surrender of
the certificate representing the redeemed Junior Preferred Shares.
3D. DETERMINATION OF THE NUMBER OF EACH HOLDER'S JUNIOR PREFERRED
SHARES TO BE REDEEMED. Except as otherwise provided herein, the number of
Junior Preferred Shares of Junior Preferred Stock to be redeemed from each
holder thereof in redemptions hereunder shall be the number of Junior
Preferred Shares determined by multiplying the total number of Junior
Preferred Shares to be redeemed times a fraction, the numerator of which
shall be the total number of Junior Preferred Shares then held by such
holder and the denominator of which shall be the total number of shares of
Junior Preferred Stock then outstanding.
3E. DIVIDENDS AFTER REDEMPTION DATE. No Junior Preferred Share is
entitled to any dividends accruing after the date on which the Liquidation
Value of such Junior Preferred Share (plus all accrued, accumulated and
unpaid dividends thereon)is paid in full to the holder thereof. On such date
all rights of the holder of such Junior Preferred Share shall cease, and
such Junior Preferred Share shall not be deemed to be outstanding.
3F. REDEEMED OR OTHERWISE ACQUIRED JUNIOR PREFERRED SHARES. Any Junior
Preferred Shares which are redeemed or otherwise acquired by the Corporation
shall be canceled and shall not be reissued, sold or transferred.
3G. OTHER REDEMPTIONS OR ACQUISITIONS. So long as any shares of Junior
Preferred Stock remain outstanding, the Corporation shall not redeem,
purchase or otherwise acquire any Series A and B Junior Securities;
PROVIDED, that the Corporation may purchase Series A and B Junior Securities
from present or former employees pursuant to written contracts with such
employees.
4. VOTING RIGHTS. The shares of Junior Preferred Stock shall not have any
voting rights attaching to them, except as required by applicable law.
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5. REGISTRATION OF TRANSFER. The Corporation shall keep at its principal
office a register for the registration of Junior Preferred Stock. Upon the
surrender of any certificate representing Junior Preferred Stock at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
Junior Preferred Shares represented by the surrendered certificate. Each such
new certificate shall be registered in such name and shall represent such number
of Junior Preferred Shares as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Junior Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such Junior Preferred Stock represented by the surrendered
certificate.
6. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing Junior Preferred Shares of any class of Junior Preferred Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is an
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Junior Preferred Shares of
such class represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate, and
dividends shall accrue on the Junior Preferred Stock represented by such new
certificate from the date to which dividends have been fully paid on such lost,
stolen, destroyed or mutilated certificate.
7. DEFINITIONS. The following definitions apply to this Section D only.
"LIQUIDATION VALUE" of any share of (i) Series A Junior Preferred Stock
shall be an amount equal to $150.00 per share and (ii) Series B Junior Preferred
Stock shall be an amount equal to $100.00 per share.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"REDEMPTION DATE" as to any Junior Preferred Share means the date
specified in the notice of any redemption at the Corporation's option or the
applicable date specified herein in the case of any other redemption; PROVIDED,
that no such date shall be a Redemption Date unless the applicable Liquidation
Value (plus all accumulated and accrued and unpaid but not yet accumulated
dividends thereon) is actually paid, or set aside for payment in full on such
date, and if not so paid or set aside for payment in full, the Redemption Date
shall be the date on which such Liquidation Value (plus all accrued and unpaid
dividends thereon) is fully paid.
"SERIES A AND B JUNIOR SECURITIES" means any of the Corporation's equity
securities other than the Senior Preferred Stock and the Junior Preferred Stock.
"SUBSIDIARY" means with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled directly
or indirectly, by any person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a
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Person or Persons shall be deemed to have a majority ownership interest in a
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of partnership, association or other business
entity gains or losses or shall be or control the managing director or general
partner of such partnership, association or other business entity.
8. AMENDMENT AND WAIVER. No amendment, modification or waiver shall be
binding or effective with respect to any provision of Section D without the
prior written consent of the holders of Junior Preferred Stock representing more
than fifty percent (50%) of the aggregate Liquidation Value (plus all
accumulated and accrued and unpaid but not yet accumulated dividends thereon) of
such Junior Preferred Stock then outstanding.
9. NOTICES. Except as otherwise expressly provided, all notices referred
to herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested, postage prepaid and shall be deemed to have been
given when so mailed (i) to the Corporation, at its principal executive offices
and (ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
E. COMMON STOCK.
Except as otherwise provided in this Section E or as otherwise required by
applicable law, all shares of Common Stock shall be identical in all respects
and shall entitle the holders thereof to the same rights and privileges, subject
to the same qualifications, limitations and restrictions.
1. VOTING RIGHTS. The holders of Common shall be entitled to one vote per
share on all matters to be voted on by the stockholders of the Corporation.
2. DIVIDENDS. Subject to the provisions of the Preferred Stock, as and
when dividends are declared or paid thereon, whether in cash, property or
securities of the Corporation, the holders of Common Stock shall be entitled to
participate in such dividends ratably on a per share basis.
3. LIQUIDATION. Subject to the provisions of the Preferred Stock, the
holders of the Common Stock shall be entitled to participate ratably on a per
share basis in all distributions to the holders of Common Stock in any
liquidation, dissolution or winding up of the Corporation.
4. STOCK SPLITS. If the Corporation in any manner subdivides or combines
the outstanding shares of one class of Common Stock, the outstanding shares of
each other class of Common Stock shall be proportionately subdivided or combined
in a similar manner.
5. REGISTRATION OF TRANSFER. The Corporation shall keep at its principal
office (or such other place as the Corporation reasonably designates) a register
for the registration of shares of Common Stock. Upon the surrender of any
certificate representing shares of any class of Common Stock at such place, the
Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of such class represented by the surrendered certificate and the
Corporation shall forthwith cancel such surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares of such class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
6. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the
Corporation (provided that an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably
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satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
7. NOTICES. All notices referred to herein shall be in writing, and shall
be delivered by registered or certified mail, return receipt requested, postage
prepaid, and shall be deemed to have been given when so mailed (i) to the
Corporation at its principal executive offices and (ii) to any stockholder at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise specified in a written notice to the Corporation by such
holder).
8. ACTION BY WRITTEN CONSENT. Any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken and bearing the dates
of signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
9. AMENDMENT AND WAIVER. No amendment or waiver of any provision of this
Section E shall be effective without the prior consent of the holders of a
majority of the then outstanding shares of Common Stock.
ARTICLE V
The name and mailing address of the Corporation is as follows:
O'Sullivan Industries Holdings, Inc.
1900 Gulf Street
Lamar, Missouri 64759
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, repeal, alter, amend and
rescind the bylaws of the Corporation, except as may be otherwise be provided in
such bylaws.
ARTICLE VII
The Corporation expressly elects not to be governed by Section 203 of the
DGCL.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. GENERAL
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
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partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
B. DERIVATIVE ACTIONS.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, provided that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
C. INDEMNIFICATION IN CERTAIN CASES.
To the extent that a present or former director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections A and B of this
Article VIII, or in defense of any claim, issue or matter therein, he shall he
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
D. PROCEDURE.
Any indemnification under Sections A and B of this Article VIII (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections A and B.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
E. ADVANCES FOR EXPENSES.
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the present or former director, officer, employee or agent to repay
such
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amount if it shall be ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
F. RIGHTS NOT EXCLUSIVE.
The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this Article VIII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office.
G. INSURANCE.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VIII.
H. SURVIVAL OF RIGHTS.
The indemnification and advancement of expenses provided by, or granted
pursuant to this Article VIII shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
I. DEEMED A CONTRACT.
The foregoing provisions of this Article VIII shall be deemed to be a
contract between the Corporation and each person who serves in any capacity
specified in this Article VIII at any time while this Article VIII, as amended,
is in effect, and any repeal or modification of this Article VIII shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, prosecution, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
J. MERGER OR CONSOLIDATION.
For purposes of this Article VIII, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, fiduciaries or
agents, so that any person who is or was a director, officer, employee,
fiduciary or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under this Article VIII with
respect to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had continued.
ARTICLE IX
The Corporation reserves the right, subject to any provision set forth
herein or in the Merger Agreement dated as of May 17, 1999 between the
Corporation and OSI Acquisition, Inc. (as amended from time to time), to amend
or repeal any provisions contained in this Certificate of Incorporation from
time to time and at any time in the manner now or hereafter prescribed by the
laws of the State
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of Delaware, and all rights conferred upon stockholders and directors are
granted subject to such reservation.
ARTICLE X
A director (including former directors) of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; PROVIDED, HOWEVER, that the
foregoing shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the DGCL is hereinafter amended to permit further elimination or
limitation of the personal liability of directors (including former directors),
then the liability of such director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the DGCL as so amended. Any repeal or
modification of this Article X by the stockholders of the Corporation or
otherwise shall not adversely affect any right or protection of a director
(including former directors) of the Corporation existing at the time of such
repeal or modification.
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<PAGE>
EXHIBIT 3.2 TO THE
AMENDED AND RESTATED MERGER AGREEMENT
HOLDERS OF RETAINED SHARES
<TABLE>
<S> <C>
Bruckmann, Rosser, Sherrill & Co. II, Thomas J. Tirdil
L.P. Robert G. Gillespie
Richard D. Davidson David E. Pittman
Daniel F. O'Sullivan David S. Thiesse
Michael P. O'Sullivan Wade A. Maple
Phillip J. Pacey Gary R. Blankenship
Tyrone E. Riegel Jason Stansberry
Thomas M. O'Sullivan, Jr. Joe J. Whyman
James C. Hillman John R. Cox
Rowland H. Geddie, III Larry G. Edge
Stuart Schotte Leonard R. Saldana
E. Thomas Riegel Maureen M. Wood
Tommy W. Thieman Max W. Simmons
Clifford Bickel, Jr. Michael L. Franks
David R. Turney Neil Boston
John D. Blevins Ronald E. Wegener
Neil C. Ruggeberg Kenneth S. Ladd
D. Patrick O'Sullivan Terry J. Braden
Randall Day O'Sullivan Properties, Inc.
Timothy E. Riegel
</TABLE>
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<PAGE>
APPENDIX B
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
October 18, 1999
The Special Committee of the Board of Directors
O'Sullivan Industries Holdings, Inc.
1900 Gulf Street
Lamar, Missouri 64759
Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of O'Sullivan Industries
Holdings, Inc. ("O'Sullivan"), other than Rollover Holders (defined below), of
the Merger Consideration (defined below) to be received by such holders pursuant
to the terms and subject to the conditions set forth in the Amended and Restated
Agreement and Plan of Merger, dated as of October 18, 1999 (the "Merger
Agreement"), between OSI Acquisition, Inc. ("OSI"), an entity formed solely for
the purposes of engaging in the transactions contemplated by the Merger
Agreement by Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS"), and O'Sullivan. As
more fully described in the Merger Agreement, (i) OSI will be merged with and
into O'Sullivan (the "Merger") and (ii) each outstanding share of the common
stock, par value $1.00 per share, of O'Sullivan (the "O'Sullivan Common Stock")
will be converted into the right to receive (i) $16.75 in cash (the "Cash
Consideration") and (ii) one share of newly issued senior preferred stock, par
value $1.00 per share, of the surviving corporation in the Merger (the
"Surviving Corporation"), with a liquidation preference of $1.50 per share (the
"Senior Preferred Stock" and, together with the Cash Consideration, the "Merger
Consideration"). We have been advised by representatives of O'Sullivan that
certain stockholders and option holders will, in connection with the
transactions contemplated by the Merger, have the right to exchange a portion of
their shares of O'Sullivan Common Stock or options to purchase such shares, as
the case may be, for newly issued securities of the Surviving Corporation or
options to purchase such securities (such stockholders and option holders, the
"Rollover Holders"); provided that, the Rollover Holders will be entitled to
receive approximately 27% of the common equity securities of the Surviving
Corporation.
In arriving at our opinion, we reviewed the Merger Agreement and the terms
of the Senior Preferred Stock attached as an exhibit thereto, and held
discussions with certain senior officers, directors and other representatives
and advisors of O'Sullivan and certain senior officers and other representatives
of BRS concerning the business, operations and prospects of O'Sullivan. We
examined certain publicly available business and financial information relating
to O'Sullivan as well as certain financial forecasts and other information and
data for O'Sullivan which were provided to or otherwise discussed with us by the
management of O'Sullivan. We reviewed the financial terms of the Merger as set
forth in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of O'Sullivan Common Stock; the
financial condition, historical and projected earnings and other operating data
of O'Sullivan; and the capitalization of O'Sullivan and the Surviving
Corporation. We considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected which we
considered relevant in evaluating the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations we considered relevant in evaluating those
of O'Sullivan. In connection with our engagement, we were requested to approach,
and we held discussions with, third parties to solicit indications of interest
in the possible acquisition of O'Sullivan. In addition to the foregoing, we
conducted such other analyses and examinations and considered such other
information and financial, economic and market criteria as we deemed appropriate
in arriving at our opinion.
<PAGE>
The Special Committee of the Board of Directors
O'Sullivan Industries Holdings, Inc.
October 18, 1999
Page 2
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of O'Sullivan that such forecasts and other
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of O'Sullivan as
to the future financial performance of O'Sullivan. We have assumed, with your
consent, that the Merger will be recorded as a recapitalization for financial
reporting purposes. We are not expressing any opinion as to what the value of
the Senior Preferred Stock or other securities of the Surviving Corporation
actually will be when issued pursuant to the Merger or the price at which the
Senior Preferred Stock or other securities of the Surviving Corporation will
trade or otherwise be transferable subsequent to the Merger. We have not made or
been provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of O'Sullivan nor have we made any
physical inspection of the properties or assets of O'Sullivan. We express no
view as to, and our opinion does not address, the relative merits of the Merger
as compared to any alternative business strategies that might exist for
O'Sullivan or the effect of any other transaction in which O'Sullivan might
engage. Our opinion is necessarily based upon information available to us, and
financial, stock market and other conditions and circumstances existing and
disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to O'Sullivan in
connection with the proposed Merger and will receive a fee for such services, a
significant portion of which is contingent upon the consummation of the Merger.
We have in the past provided investment banking services to BRS and its
affiliates unrelated to the proposed Merger. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of
O'Sullivan for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with O'Sullivan, BRS and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Special Committee of the Board of Directors of O'Sullivan in
its evaluation of the proposed Merger, and our opinion is not intended to be and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on any matters relating to the proposed Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the holders of O'Sullivan Common Stock
(other than the Rollover Holders).
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
B-2
<PAGE>
APPENDIX C
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated
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therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given; provided that, if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial
C-3
<PAGE>
upon the appraisal prior to the final determination of the stockholder entitled
to an appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
APPENDIX D
TRANSACTIONS INVOLVING O'SULLIVAN COMMON STOCK BY BRS, BRUCKMANN, ROSSER,
SHERRILL & CO. II, L.P., BRSE, LLC, O'SULLIVAN AND EXECUTIVE OFFICERS
AND DIRECTORS OF O'SULLIVAN
PURCHASES OF O'SULLIVAN COMMON STOCK BY THE EXECUTIVE OFFICERS AND DIRECTORS OF
O'SULLIVAN
<TABLE>
<CAPTION>
SHARES AVERAGE
NAME QUARTER ENDED PURCHASED PRICE RANGE PRICE
---- ------------------ --------- ------------------- --------
<S> <C> <C> <C> <C>
Daniel F. O'Sullivan............... June 30, 1998 10,700 $7.50 $ 7.50
Richard D. Davidson................ September 30, 1996 40,000 $7.50 to $8.375 $ 7.97
March 31, 1997 30,000 $12.75 to $13.00 $12.83
September 30, 1997 10,000 $12.375 to $12.50 $12.48
December 31, 1997 30,000 $9.50 $ 9.50
September 30, 1998 5,000 $13.50 to $13.9375 $13.68
Terry L. Crump..................... September 30, 1996 2,000 $8.625 $ 8.63
March 31, 1997 2,000 $10.875 $10.88
September 30, 1997 8,080 $6.1875 $ 6.19
Thomas M. O'Sullivan, Jr........... March 31, 1997 2,300 $10.75 to $10.875 $10.82
Michael P. O'Sullivan.............. September 30, 1998 3,000 $8.3125 $ 8.31
Rowland H. Geddie, III............. March 31, 1997 500 $11.00 $11.00
September 30, 1998 500 $9.00 $ 9.00
Phillip J. Pacey................... September 30, 1997 2,000 $12.31 to $12.63 $12.46
December 31, 1997 2,000 $9.38 to $13.38 $11.38
June 30, 1998 1,400 $9.63 to $9.75 $ 9.69
Tommy W. Thieman................... September 30, 1997 2,300 $12.73 $12.73
</TABLE>
The information set forth in this table does not include shares purchased
through the Stock Purchase Program and the Savings & Profit Sharing Plan, stock
option grants or units purchased under the Deferred Compensation Plan. Some of
these units may be paid in the form of O'Sullivan common stock.
<PAGE>
The following table sets forth purchases of O'Sullivan common stock by
O'Sullivan's executive officers and directors within 60 days preceding
October 22, 1999. All of the shares were purchased under O'Sullivan's employee
benefit plans, the Stock Purchase Program and the Savings and Profit Sharing
Plan. Under these plans, each participant may adjust the level of contribution
from the participant's salary and bonus from month to month. No executive
officer or director of O'Sullivan has adjusted his contribution level since May
1, 1998. The monthly contributions to the plans are matched by O'Sullivan and
paid to the trustee or custodian for each plan. The trustee or custodian then
purchases shares of O'Sullivan common stock on behalf of each participant. These
shares are purchased from O'Sullivan or through private or public transactions.
These purchases are made at fair market value at the time of each purchase.
<TABLE>
<CAPTION>
STOCK PURCHASE
SAVINGS PLAN PROGRAM
PURCHASES PURCHASES
-------------------- --------------------
PRICE PER PRICE PER
NAME SHARE SHARES SHARE SHARES
- ---- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Daniel F. O'Sullivan
September 1999......................................... 16.24 61 $15.47 1,213
October 1999........................................... $15.00 159
Richard D. Davidson
September 1999......................................... $ 16.24 205 $15.47 873
October 1999........................................... $15.00 132
Tyrone E. Riegel
September 1999......................................... $ 16.24 203 $15.47 636
October 1999........................................... $ 15.23 13 $15.00 118
Terry L. Crump
September 1999......................................... $ 16.24 61 $15.47 488
October 1999........................................... $ 15.23 35 $15.00 108
Thomas M. O'Sullivan, Jr.
September 1999......................................... $ 16.24 351 $15.47 317
October 1999........................................... $ 15.23 49 $15.00 84
Rowland H. Geddie, III
September 1999......................................... $ 16.24 710 $15.47 308
October 1999........................................... $ 15.23 77 $15.00 78
E. Thomas Riegel
September 1999......................................... $ 16.24 281 $15.47 309
October 1999........................................... $ 15.23 45 $15.00 78
James C. Hillman
September 1999......................................... $ 16.24 604 $15.47 263
October 1999........................................... $ 15.23 68 $15.00 69
Michael P. O'Sullivan
September 1999......................................... $ 16.24 666 $15.47 293
October 1999........................................... $ 15.23 77 $15.00 78
Phillip J. Pacey
September 1999......................................... $ 16.24 445 $15.47 178
October 1999 $ 15.23 65 $15.00 66
Tommy W. Thieman...........................................
September 1999......................................... $ 16.24 476 $15.47 179
October 1999........................................... $ 15.23 60 $15.00 61
Stuart D. Schotte..........................................
September 1999......................................... $ 16.24 121 $15.47 57
October 1999........................................... $ 15.23 13 $15.00 20
</TABLE>
D-2
<PAGE>
PURCHASES OF O'SULLIVAN COMMON STOCK BY O'SULLIVAN INDUSTRIES HOLDINGS INC.
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE PURCHASE
QUARTER ENDED PURCHASED LOW HIGH PRICE PER SHARE
------------- --------- -------- -------- ----------------
<S> <C> <C> <C> <C>
September 30, 1996 90,000 7.13 8.66 $ 8.08
December 31, 1996 63,900 11.00 12.63 11.90
March 31, 1997 48,500 12.13 13.00 12.46
June 30, 1997 94,800 14.75 15.50 15.02
September 30, 1997 295,100 12.08 13.56 12.51
December 31, 1997 349,700 9.55 13.94 10.24
March 31, 1998 182,500 9.50 12.63 10.67
June 30, 1998 171,600 12.44 15.94 13.55
September 30, 1998 132,100 8.88 13.69 12.21
December 31, 1998 125,000 9.50 9.50 9.50
March 31, 1999 --
June 30, 1999 --
September 30, 1999 --
</TABLE>
PURCHASES OF O'SULLIVAN COMMON STOCK BY BRS, BRUCKMANN, ROSSER, SHERRILL & CO.
II, L.P. AND BRSE, LLC
None
D-3
<PAGE>
APPENDIX E
INFORMATION RELATING TO BRS, BRUCKMANN, ROSSER, SHERRILL & CO. II, L.P.,
BRSE, LLC AND THEIR RESPECTIVE PRINCIPALS AND
THE EXECUTIVE OFFICERS AND DIRECTORS OF
OSI, O'SULLIVAN, AND O'SULLIVAN PROPERTIES, INC.
(I) The name, business address, present principal occupation or employment and
five-year employment history of each member of BRSE, LLC, a Delaware
limited liability company, are set forth below. BRSE, LLC is the general
partner of Bruckmann, Rosser, Sherrill & Co. II, L.P. Bruckmann, Rosser,
Sherrill & Co. II, L.P is an affiliate of BRS. The business address of each
member of BRSE, LLC is 126 East 56(th) Street, 29(th) Floor, New York, New
York.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- --------------------------------------------------------
<S> <C>
Bruce C. Bruckmann........................ Mr. Bruckmann was an officer of Citicorp Venture
Capital Ltd. from 1983 through 1994. Prior to joining
Citicorp Venture Capital Ltd., Mr. Bruckmann was an
associate at the New York law firm of Patterson,
Belknap, Webb & Tyler. He received his A.B. from Harvard
College and his J.D. from Harvard Law School.
Mr. Bruckmann is a director of Mohawk Industries, Inc.,
AmeriSource Health Corporation, Chromcraft Revington
Corporation, Cort Business Services Corporation,
Jitney-Jungle Stores of America, Inc., Town Sports
International, Inc., Anvil Knitwear, Inc., California
Pizza Kitchen, Inc., Mediq Incorporated, Acapulco
Restaurants, Inc. and Penhall International, Inc.
Harold O. Rosser.......................... Mr. Rosser was an officer of Citicorp Venture Capital
Ltd. from 1987 through 1994. Previously, he spent 12
years with Citicorp/Citibank in various management and
corporate finance positions. Mr. Rosser earned his B.S.
from Clarkson University and attended Management
Development Programs at Carnegie-Mellon University and
the Stanford University Business School. He is a
director of Jitney-Jungle Stores of America, Inc., B&G
Foods, Inc., California Pizza Kitchen, Inc., American
Paper Group, Inc., Acapulco Restaurants, Inc. and
Penhall International, Inc. Mr. Rosser is also Chairman
of the Board of Trustees of Hope Church in Wilton,
Connecticut.
Stephen C. Sherrill....................... Mr. Sherrill was an officer of Citicorp Venture Capital
Ltd. from 1983 through 1994. Previously, he was an
associate at the New York law firm of Paul, Weiss,
Rifkind, Wharton & Garrison. He earned his B.A. at Yale
University and his J.D. at Columbia Law School.
Mr. Sherrill is a director of Galey & Lord, Inc.,
Jitney-Jungle Stores of America, Inc., Doane Pet Care
Enterprises, Inc., B&G Foods, Inc., HealthPlus
Corporation, Alliance Laundry Systems LLC and Mediq
Incorporated. He is also a member of the Board of
Trustees of Philips Academy and the Board of Overseers
of Memorial Sloan-Kettering Cancer Center.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS ADDRESS AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- --------------------------------------------------------
<S> <C>
Stephen F. Edwards........................ Mr. Edwards was an officer of Citicorp Venture Capital
Ltd. from 1993 through 1994. From 1988 through 1991, he
was an associate at Citicorp Venture Capital Ltd. Prior
to joining Citicorp Venture Capital Ltd., Mr. Edwards
worked with Citicorp/Citibank in various corporate
finance positions. He received his B.A. from Yale
University and his M.B.A. from the Harvard Business
School. Mr. Edwards is a director of Town Sports
International, Inc., Anvil Knitwear, Inc., and American
Paper Group, Inc.
Paul D. Kaminski.......................... Mr. Kaminski joined Bruckmann, Rosser, Sherrill & Co.
II, L.P. at its inception in 1995. From 1984 to 1995,
Mr. Kaminski worked in Coopers & Lybrand's Acquisition
Advisory Services practice in the Detroit, London and
New York Offices. At Coopers & Lybrand, he was
responsible for providing due diligence and acquisition
structuring services to a variety of merchant banks and
corporations. Mr. Kaminski received his degree from the
University of Michigan and is a Certified Public
Accountant.
</TABLE>
(II) The name and position of each director and executive officer of
OSI Acquisition Inc. are set forth below. The principal occupation or
employment, business address and material occupations, positions, offices
or employment for the past five years of each director and executive
officer of OSI Acquisition Inc. is set forth in part I above.
<TABLE>
<CAPTION>
NAME POSITION WITH OSI ACQUISITION INC.
- ---- --------------------------------------------------------
<S> <C>
Stephen F. Edwards........................ President, Secretary, Director
Harold O. Rosser.......................... Vice President, Secretary, Director
</TABLE>
(III) The principal occupation or employment, business address and material
occupations, positions, offices or employment for the past five years of
each director and executive officer of O'Sullivan Industries
Holdings, Inc. who is a management participant in the buyout is set forth
below. The business address of each such person is 1900 Gulf Street,
Lamar, Missouri 64759-1899.
<TABLE>
<CAPTION>
NAME POSITION WITH O'SULLIVAN INDUSTRIES HOLDINGS, INC.
- ---- --------------------------------------------------------
<S> <C>
Daniel F. O'Sullivan...................... Mr. O'Sullivan was named President, Chief Executive
Officer and a Director of O'Sullivan in November 1993
and became Chairman of the Board in December 1993. He
relinquished the position of President of O'Sullivan in
July 1996. He resigned as Chief Executive Officer in
October 1998. He served as President of O'Sullivan
Industries, Inc. from 1986 until July 1996, and was
appointed Chairman of the Board and Chief Executive
Officer in 1994. He also serves as Chairman of the Board
of O'Sullivan Industries--Virginia, Inc. Mr. O'Sullivan
has been employed by O'Sullivan since September 1962.
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH O'SULLIVAN INDUSTRIES HOLDINGS, INC.
- ---- --------------------------------------------------------
<S> <C>
Richard D. Davidson....................... Mr. Davidson was named President and Chief Operating
Officer of O'Sullivan and its subsidiaries in July 1996.
He was named a Director of O'Sullivan Industries and
O'Sullivan--Virginia in July 1996 and of O'Sullivan in
August 1996. For more than five years prior to October
1995, he served as a Senior Vice President of Sunbeam
Corporation and as President of Sunbeam's Outdoor
Products Division.
Tyrone E. Riegel.......................... Mr. Riegel has been Executive Vice President of
O'Sullivan Industries since July 1986 and a Director
since March 1994. He was appointed as Executive Vice
President and a Director of O'Sullivan in November 1993.
Mr. Riegel also serves as Executive Vice President and a
Director of O'Sullivan--Virginia. Mr. Riegel has been
employed by O'Sullivan since January 1964.
Thomas M. O'Sullivan, Jr.................. Mr. O'Sullivan has been Vice President-Sales of
O'Sullivan and its subsidiaries since 1993. Prior to his
appointment as Vice President-Sales, Mr. O'Sullivan was
the National Sales Manager for O'Sullivan Industries and
O'Sullivan--Virginia. Mr. O'Sullivan has been employed
by O'Sullivan since June 1979.
Rowland H. Geddie, III.................... Mr. Geddie has been Vice President, General Counsel and
Secretary of O'Sullivan and its subsidiaries since
December 1993. He was appointed a Director of O'Sullivan
Industries and O'Sullivan--Virginia in March 1994.
E. Thomas Riegel.......................... Mr. Riegel has been Vice President--Strategic Operations
of O'Sullivan and its subsidiaries since November 1995.
From 1993 until November 1995, he was Vice
President--Marketing of O'Sullivan and its subsidiaries.
Mr. Riegel has been employed by O'Sullivan since May
1971.
James C. Hillman.......................... Mr. Hillman has been Vice President--Human Resources of
O'Sullivan since November 1993 and of O'Sullivan
Industries since 1980. He also serves as Vice
President--Human Resources of O'Sullivan--Virginia. Mr.
Hillman has been employed by O'Sullivan since May 1971.
Michael P. O'Sullivan..................... Mr. O'Sullivan has been Vice President--Marketing of
O'Sullivan and its subsidiaries since November 1995. He
served as National Sales Manager of O'Sullivan and
O'Sullivan Industries from 1993 until November 1995.
Mr. O'Sullivan has been employed by O'Sullivan since
1985.
Phillip J. Pacey.......................... Mr. Pacey was appointed Vice President-Finance of
O'Sullivan and its subsidiaries in July 1999. From
November 1995 until July 1999, he served as Treasurer of
O'Sullivan and its subsidiaries. From 1994 until
November 1995, Mr. Pacey served as Corporate Tax
Manager of Savannah Foods & Industries, Inc., a sugar
refiner and marketer.
Tommy W. Thieman.......................... Mr. Thiemann was appointed Vice President-Manufacturing-
Lamar in July 1999 for O'Sullivan and its subsidiaries.
Since
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION WITH O'SULLIVAN INDUSTRIES HOLDINGS, INC.
- ---- --------------------------------------------------------
<S> <C>
1987, he has served as the Plant Manager in Lamar.
Mr. Thieman has been employed by O'Sullivan since 1972.
Stuart D. Schotte......................... Mr. Schotte was appointed Vice President-Supply Chain
Management in July 1999 for O'Sullivan and its
subsidiaries. From February 1998 until July 1999, he
served as Controller of O'Sullivan and its subsidiaries.
From July 1996 until February 1998, Mr. Schotte served
as Director of Financial Analysis and Planning for Fast
Food Merchandisers, Inc. From October 1994 to July 1996,
he was in public practice as a certified public
accountant. From March 1993 to October 1994, he served
as Corporate Controller for Savannah Foods & Industries,
Inc.
</TABLE>
(IV) The name and position of each director and executive officer of O'Sullivan
Properties, Inc. is set forth below. The business address of O'Sullivan
Properties, Inc. is 1011 Gulf Street, Lamar, Missouri, 64759-1899.
O'Sullivan Properties, Inc. is a Missouri corporation. The sole director is
indicated by an asterisk.
<TABLE>
<CAPTION>
NAME POSITION WITH O'SULLIVAN PROPERTIES, INC.
- ---- --------------------------------------------------------
<S> <C>
Thomas M. O'Sullivan, Sr.*................ Chairman and Chief Executive Officer
Jason D. Bartlett......................... President
Jeffrey Tucker............................ Vice President
Betty L. Kuhn............................. Secretary and Treasurer
</TABLE>
E-4
<PAGE>
APPENDIX F
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _________________
Commission file number: 1-12754
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1659062
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Gulf Street, Lamar, Missouri 64759-1899
--------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 682-3322
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
Common Stock, par value $1.00 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of September 15, 1999, 16,086,329 shares of common stock of O'Sullivan
Industries Holdings, Inc. were outstanding, and the aggregate market value of
the voting stock held by non-affiliates of O'Sullivan Industries Holdings, Inc.
was $237,062,571, based on the New York Stock Exchange composite trading closing
price and using the definition of beneficial ownership contained in Rule
16a-1(a)(2) promulgated pursuant to the Securities Exchange Act of 1934 and
excluding shares held by directors and executive officers, some of whom may not
be held to be affiliates upon judicial determination.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Index to Exhibits begins on page 57.
Page 1 of 84
<PAGE>
PART I
ITEM 1. BUSINESS.
HISTORY AND OVERVIEW
O'Sullivan Industries Holdings, Inc., a Delaware corporation, is a
leading designer, manufacturer and distributer of ready-to-assemble furniture in
the United States. O'Sullivan was incorporated in November 1993 and acquired
O'Sullivan Industries, Inc. in February 1994, immediately prior to the sale of
its common stock in a public offering by TE Electronics Inc., a subsidiary of
Tandy Corporation. Prior to the Offerings, O'Sullivan Industries, Inc. operated
as a wholly owned subsidiary of TE. Subsequent to the Offerings, neither Tandy
nor TE has had any continuing ownership interest in O'Sullivan.
O'Sullivan owns manufacturing, warehouse and distribution facilities in
Lamar, Missouri, South Boston, Virginia and Cedar City, Utah. O'Sullivan
commenced operations at the Lamar, Missouri plant in 1965, and the South Boston,
Virginia facility became operational in 1989. We phased in production at the
Cedar City, Utah facility in the spring of 1995.
O'Sullivan Industries Holdings, Inc. is a holding company that owns
O'Sullivan Industries, Inc., a Delaware corporation. O'Sullivan Industries, Inc.
owns O'Sullivan Industries - Virginia, Inc., a Virginia corporation. Generally,
"O'Sullivan" refers to O'Sullivan Industries Holdings, Inc. and its
subsidiaries.
O'Sullivan engages in one industry segment: the design, manufacture and
sale of RTA furniture.
MERGER AGREEMENT
On March 24, 1999, O'Sullivan announced that members of its senior
management team, in conjunction with a financial buyer, had made a proposal
to O'Sullivan's Board of Directors to acquire O'Sullivan, subject to
requisite financing. On May 18, 1999, O'Sullivan announced that it had
entered into a definitive merger agreement with an investment group that
includes members of O'Sullivan's senior management and Bruckmann, Rosser,
Sherrill & Co., LLC.
Under the merger agreement, O'Sullivan will be the surviving entity
after the merger. Certain directors and members of senior management are
participating with BRS in the buyout of existing O'Sullivan stockholders. After
the completion of the merger, the management participants in the merger will own
a total of approximately 28.4% of the common stock of the surviving corporation.
BRS and its affiliates will own the balance.
Upon completion of the merger, each share of O'Sullivan common stock
becomes $17.50 in cash and one share of senior preferred stock of O'Sullivan.
However, some of the shares of O'Sullivan common stock and options to acquire
shares that are held by the management participants in the buyout will be
exchanged for equity interests in the surviving corporation. The management
participants in the buyout include 32 members of management, three directors and
an affiliate of a fourth director. BRS has advised O'Sullivan that affiliates of
BRS will own the balance of the equity. BRS has also advised O'Sullivan that
O'Sullivan Industries, Inc. will incur all but $25 million of debt borrowed to
finance the recapitalization and merger; the remainder will be borrowed by
O'Sullivan Industries Holdings, Inc. Under Delaware law, stockholders who do not
vote in favor of the merger transaction have the right to dissent from the
merger and receive the "fair value" of their shares in cash.
THE RTA FURNITURE SEGMENT
We are a leading designer, manufacturer and distributer of
ready-to-assemble furniture products, with over 45 years of experience. We sell
primarily to the rapidly growing home office and home entertainment markets. We
manufacture approximately 450 stock keeping units of ready-to-assemble furniture
at retail price points from $20 to $999. Our product offerings include
ready-to-assemble desks, computer workcenters, home
1
<PAGE>
entertainment centers, audio equipment racks, pantries and microwave oven carts.
We also manufacture a variety of other ready-to-assemble furniture for home
office, home entertainment and other home uses. We design our products to
provide high quality, value and ease of assembly by the consumer using
straight-forward, diagramed instructions.
We distribute our products primarily through office superstores,
including OfficeMax, Office Depot and Staples, discount mass merchants including
Wal-Mart, Target and Kmart, as well as through other retail channels. We own
three modern manufacturing facilities totaling over 2.1 million square feet that
are strategically located across the United States. This network of
manufacturing facilities positions us closer to our customers and reduces
freight costs. Freight costs represent a significant portion of total product
cost. For the fiscal year ended June 30, 1999, we had sales of $379.6 million,
EBITDA of $49.9 million and net income of $21.2 million.
The $3.1 billion ready-to-assemble segment of the North American
furniture market grew at a compound annual growth rate of 11.6% from 1990
through 1998. This was significantly faster than the 5.1% compound annual growth
rate of the total $57.9 billion domestic residential furniture market from 1990
to 1998. The market for residential furniture, which includes upholstered
furniture and wood furniture shipped fully assembled by the manufacturer, is
influenced by a variety of factors, including home sales, housing starts and
general economic conditions. We believe the faster growth of ready-to-assemble
furniture products is the result of changes in the needs of consumers, changes
in retail distribution channels and improvements in product quality.
- CHANGES IN THE NEEDS OF CONSUMERS. Consumer demand for personal
computers, which has been accelerating in part due to the rapid growth
of the Internet, and for larger screen televisions and related
equipment has driven the demand for more sophisticated
ready-to-assemble home office and home entertainment furniture. We
expect these trends to continue as the number of households owning
personal computers, home theaters and other audio and video equipment
expands.
- CHANGES IN RETAIL DISTRIBUTION CHANNELS. Office superstores and
discount mass merchants have altered the way many products are sold in
the United States. The ready-to-assemble furniture segment has been
positively impacted by the rapid growth and increased market share of
these retailers. These distribution channels accounted for over 50% of
the domestic sales of ready-to-assemble furniture in 1997.
- IMPROVEMENTS IN PRODUCT QUALITY. Improvements in equipment, software
and manufacturing processes have enabled the ready-to-assemble
furniture industry to produce higher quality, more durable products. As
a result of these improvements, ready-to-assemble furniture has become
more comparable in quality and durability to wood furniture shipped
fully assembled by the manufacturer but remains relatively less
expensive.
We believe that these trends will continue to drive the growth of the
ready-to-assemble segment of the retail furniture market.
COMPETITIVE STRENGTHS
We believe that we are able to compete effectively due to the following
strengths:
LEADING MARKET SHARE POSITION. We are the second largest North American
ready-to-assemble furniture manufacturer in terms of domestic sales, a position
that we have held for the last ten years. In calendar year 1998, our estimated
share of the ready-to-assemble furniture market was approximately 16%. Many of
our largest customers, including office superstores and discount mass merchants,
have substantial purchasing requirements across the country. We are able to
satisfy these requirements because of our large manufacturing capacity and our
innovative, high quality products.
LEADER IN PRODUCT QUALITY, INNOVATION AND DESIGN. We believe that we
are recognized as a leader in product quality, innovation and design in the
ready-to-assemble furniture industry. Our computer-aided design software and our
modern manufacturing processes enable us to develop more than 150 new products
per year.
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Consequently, about one-third of our products are new each year. Our
ability to innovate allows us to keep pace with changes in retailer and consumer
tastes and demands.
WELL-ESTABLISHED CUSTOMER RELATIONSHIPS. We have well established
relationships with many of the largest retailers of ready-to-assemble furniture
in the United States. These include office superstores like OfficeMax, Office
Depot and Staples. They also include national discount mass merchants, like
Wal-Mart, Target and Kmart. Over the past two years, we have also established
relationships with leading electronic superstores like Best Buy and Circuit
City. We believe we have a long history as a trusted vendor and have earned a
reputation for product quality and innovation, customer responsiveness and
manufacturing flexibility.
RECENT CAPACITY EXPANSION AND SYSTEM UPGRADES POSITION US FOR GROWTH.
We recently completed a $20 million capacity expansion program in our Virginia
plant. This expansion increased our total manufacturing capacity by
approximately 15%. We also recently completed a $13 million manufacturing
equipment upgrade in our Missouri plant. In addition, we recently completed an
upgrade of our management information systems. This upgrade included a
corporate-wide conversion to JD Edwards software. We also installed new
point-of-sale analytical software that allows our sales force to better analyze
sales trends and consumer preferences. In addition, we installed
Pro-engineering, a computer-aided design software package. This software
enhances our product design capabilities and reduces the time before newly
conceived products reach the market.
LOW COST, GEOGRAPHICALLY DIVERSIFIED MANUFACTURING OPERATIONS. We
believe that we are a low-cost ready-to-assemble furniture producer due to our
large scale, modern facilities and efficient manufacturing processes. We are the
only major ready-to-assemble furniture manufacturer with a plant in each of the
eastern, central and western regions of the United States. This allows our
plants to receive particleboard and fiberboard from the manufacturers located
nearest to them. Our network of manufacturing facilities positions us closer to
our customers. It also reduces shipping costs, which represent a significant
proportion of product cost. We are the only major ready-to-assemble furniture
manufacturer with a manufacturing facility in the western United States, the
fastest growing region of the nation for ready-to-assemble furniture sales.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY OWNERSHIP. Our
senior management team has extensive experience in the ready-to-assemble segment
of the furniture industry. Our top twelve executives have been with us for an
average of over 17 years. In addition, we have broadened our management's
expertise by hiring executives from other leading manufacturers. Management
participants in the recapitalization and merger will retain equity in O'Sullivan
valued at a total of $13.2 million in connection with the recapitalization and
merger. This retained equity includes an interest of approximately 28.4% in the
outstanding common stock of the surviving corporation. As a result of its
substantial equity interest, we believe the management participants in the
buyout will have significant incentive to continue to increase our sales and
profitability.
GROWTH STRATEGY. Sales of ready-to-assemble furniture, although
expanding more rapidly than sales of traditional casegood furniture, still
represent only about 5.7% of the overall domestic residential furniture market.
As the quality of ready-to-assemble furniture continues to improve, and office
superstores and discount mass merchants continue to expand, we expect
ready-to-assemble furniture to gain additional market share. The key elements of
our growth strategy are as follows:
CONTINUE TO DEVELOP A BROAD RANGE OF INNOVATIVE, HIGH QUALITY PRODUCTS.
We are dedicated to offering a broad range of high quality products at a variety
of retail prices. We believe that by maintaining a broad product line, we can
appeal to a greater number of consumers and penetrate a larger number of
distribution channels. We seek to drive demand for our products and maintain
profitability in an otherwise price-rigid environment by providing a steady
supply of high quality product introductions. In fiscal year 1999, we introduced
approximately 150 new products.
FURTHER PENETRATE EXISTING AND NEW, GROWING DISTRIBUTION CHANNELS.
Sales to office superstores and discount mass merchants, our core distribution
channels, have grown at a compound annual growth rate of 14.6% since fiscal year
1995 to over $250 million in fiscal year 1999. To increase sales to our existing
customer base, we have developed several initiatives. These initiatives include
dedicated product lines, enhanced customer
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service and tailored marketing programs. We have also focused on increasing
sales to other growing distribution channels. These channels include electronic
specialty retailers and home improvement centers. Many of these retailers are
increasing the ready-to-assemble furniture component of their product mix.
LOWER PRODUCTION COSTS. Producing ready-to-assemble furniture cost
effectively is vital to our competitive position. This belief was the premise
for our recently completed capital expansion and management information systems
upgrade. Our capital investments have increased our total manufacturing capacity
and we are currently standardizing selected manufacturing processes to further
reduce set-up downtime. New equipment and employee training have also improved
our inventory management, order fulfillment rates and production efficiency. In
addition, our JD Edwards and Pro-engineering software implementations have
improved our customer responsiveness and product design capability. We believe
that we have not yet fully realized the benefits of our capital expansion and
management information systems upgrade.
REMAIN COMMITTED TO CUSTOMER SERVICE. We are committed to providing
superior customer service to maintain strong relationships with our customers.
We strive to develop marketing strategies that are consistent with our
customers' needs and their position in the marketplace. The recent investments
we have made to improve our management information systems and increase our
manufacturing capacity should enable us to provide a higher level of customer
responsiveness, improve the look and quality of our products and enhance our
ability to forecast orders.
INDUSTRY OVERVIEW
GENERAL. The $3.1 billion domestic ready-to-assemble segment of the
retail furniture market is comprised of all sales of prefinished, or unfinished,
non-upholstered furniture purchased in component form and then assembled by the
consumer. Domestic ready-to-assemble furniture is generally made from particle
board or fiberboard laminated to replicate the appearance of different types of
wood or other surfaces. Through improvements in product quality, innovation and
assembly, ready-to-assemble furniture manufacturers today can offer a broad
array of products ranging from $20 television and video cassette recorder stands
to $999 computer workcenters. Although technological advances allow
ready-to-assemble furniture manufacturers to imitate the look and durability of
casegood furniture, ready-to-assemble furniture manufacturers are generally able
to sell at lower prices due to lower raw material, manufacturing and
transportation costs.
The ready-to-assemble segment of the retail furniture market has grown
at an 11.6% compound annual growth rate from 1990 to 1998, compared to the
compound annual growth rate of the United States gross domestic product of 5.0%
over the same period. We believe the growing popularity of ready-to-assemble
furniture products is the result of improvements in product quality, basic
structural changes in the retail distribution channels and increased demand
created by the changes in the needs of consumers.
IMPROVEMENTS IN PRODUCT QUALITY. During the past ten years,
ready-to-assemble furniture has evolved and improved dramatically. Industry
studies and publications indicate that consumers' attitudes regarding
ready-to-assemble furniture have followed suit to a large extent. Due to
improvements in the ready-to-assemble furniture manufacturing process, the
quality of ready-to-assemble furniture, while lower in cost, is now more
comparable to that of wood furniture shipped assembled by the manufacturer.
Ready-to-assemble furniture manufacturers are able to provide additional
competitive advantages relative to assembled wood furniture. These advantages
include a broader range of surfaces and colors, enhanced design to support the
most recent home office/entertainment equipment and immediate product
availability.
EXPANSION OF KEY CUSTOMERS. The growth in the office superstore and
mass merchant retail channels has fueled the growth of ready-to-assemble
furniture in the United States. These channels currently account for over 50% of
all ready-to-assemble furniture sales. Some mass merchants and office
superstores have announced that they will open new domestic stores in 1999.
These include about 105 stores for OfficeMax, 105 stores for Office Depot, 100
stores for Wal-Mart, 60 stores for Target and 150 stores for Staples. We
anticipate having our products included in the majority of these new stores.
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GROWTH IN HOME OFFICE FURNITURE. In 1998, sales of ready-to-assemble
home office furniture accounted for most of the overall home office furniture
sales in the United States. As the number of home office households and
households owning one or more personal computers continue to increase, we expect
the demand for home office furniture to increase as well. Home office households
are projected to grow at a compound annual growth rate of 7.4% from 1997 to
2002. Home office households with personal computers are projected to grow at a
compound annual growth rate of 11.0%, reaching 37.8 million by 2002.
Additionally, as the price of lower-end personal computers has steadily declined
below $1,000 in the past three years, computer ownership in median and lower
income households has increased significantly. Personal computer shipments in
1998 increased to an estimated 12.8 million units, up 16.4% from 11.0 million
units in 1997. The penetration rate of personal computers in U.S. households due
to declining prices and increased use of the Internet is expected to increase
from 43% in 1997 to 51% in 2001.
CONTINUING GROWTH AND INNOVATION IN THE HOME ENTERTAINMENT MARKET. The
demand for larger television sets and related audio and video equipment has
created increased demand for ready-to-assemble furniture. In 1998, an estimated
22.2 million televisions were sold in the United States. In 1998, television
sales increased 1.6%, to $6.1 billion from $6.0 billion in 1997. During this
period, the market for large screen televisions, defined as 32" or larger,
increased 57.1%, from $2.1 billion in 1997 to $3.3 billion in 1998. Sales of
large screen televisions for the first four months of 1999 were 30% higher than
during the same period in 1998. The surge in overall sales and sales of large
screen televisions has occurred in part due to a general price decline. For
example, prices for 32" screen televisions have dropped 40% since 1996. Many
entertainment centers sold over the past decade accommodate televisions with a
maximum screen size of 27". These entertainment centers need to be replaced by
new furniture products to accommodate larger screen televisions.
PRODUCT OVERVIEW. We group our product offerings into three distinct
categories:
- furniture for the home office, including desks, computer work centers,
bookcases, filing cabinets and computer storage racks;
- electronics display furniture, including home entertainment centers,
home theater systems, television and stereo tables and cabinets, and
audio and video storage racks; and
- home decor furniture, including microwave oven carts, pantries, living
room and recreation room furniture and bedroom pieces, including
dressers, night stands and wardrobes.
The following is a description of some of our products.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION KEY CUSTOMERS
------- ----------- -------------
<S> <C> <C>
Living Dimensions....... Contemporary small office/home OfficeMax, Office Depot, Best
office and entertainment Buy, Office World, Circuit City,
furniture. Upscale features Service Merchandise
include Armortop(R)laminates and
Quickfit(TM) fastener system.
Ovations................ Transition style entertainment Best Buy, Circuit City,
furniture collection in both medium Montgomery Ward
Mystique Maple and light Snow Maple
finish.
Scandinavian............ Contemporary small office/home Office Depot, OfficeMax, Ames,
office and entertainment furniture Target, Best Buy
collection in medium Alder Finish.
</TABLE>
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<TABLE>
<CAPTION>
PRODUCT DESCRIPTION KEY CUSTOMERS
------- ----------- -------------
<S> <C> <C>
Xpressions(TM).......... Generation X targeted home office Wal-Mart, Circuit City, Meijer,
and entertainment furniture Ames, Staples, Montgomery Ward
collection. Features include
mini-stereo system compatibility,
lavish media storage and youthful
high contrast, two-tone finish.
French Gardens.......... Country French style collection OfficeMax, Shopko, Montgomery Ward
with antique Odessa Pine finish.
Both home office and entertainment
products.
Carmel Valley(R)........ Transitional styled home office and Ames, Montgomery Ward, Service
entertainment furniture collection Merchandise, Best Buy
in a medium oak finish.
</TABLE>
PRODUCT DESIGN AND DEVELOPMENT
We believe we are an industry leader in product quality and
innovation. We are committed to the continuing development of unique furniture
that meets consumer needs. With over 50% of our sales to the home office market,
we believe we are recognized as one of the industry's premier producers of
contemporary home office ready-to-assemble furniture. As evidence of our
commitment to quality and innovation, in the past three years we introduced an
average over 150 products per year. In the ready-to-assemble furniture industry,
a new product can be a variation in color or styling of an existing product. By
providing a continuous supply of new product introductions, we are able to drive
demand for our products, which we believe will allow us to maintain our profit
margins in an otherwise price-rigid environment.
We maintain an in-house product design staff that collaborates with our
marketing personnel and customers to develop new products based on demographic
and consumer information. The product design professionals then work with our
engineering division to produce full-scale prototypes. The engineering staff
uses computer-aided design Pro-engineering software, which provides the latest
three-dimensional graphics capabilities. Pro-engineering software allows a
design engineer to accelerate the time-to-completion for a new product design.
This allows us to reduce the time before newly conceived products reach the
market. We then show our prototypes to our customers to gauge interest. If
initial indications of product appeal are favorable, we usually can commence
production within twelve weeks. In fiscal year 1999, we spent approximately
$800,000 on product design and development.
CUSTOMERS
Ready-to-assemble furniture is sold through a broad array of
distribution channels, including discount mass merchants, office superstores,
electronic superstores, national department stores and home centers. While the
ready-to-assemble segment historically has been dominated by discount mass
merchants like Wal-Mart, Target and Kmart, office superstores have quickly
become the second largest distribution channel. The office superstores are the
fastest growing channel with 21% of total 1997 ready-to-assemble furniture
sales. We have a leading market share position in both of the two major
distribution channels and longstanding relationships with key customers. In
fiscal year 1998, over 60% of our sales were made through the office superstore
and discount mass merchant channels. In that same period, sales to OfficeMax
accounted for 20.1% of our total sales and Office Depot accounted for 11.6% of
our total sales. Similar to other large ready-to-assemble furniture
manufacturers, our sales are fairly concentrated.
SALES AND MARKETING
We manage our customer relationships both through our in-house sales
force and a network of independent sales representatives. Key accounts like
OfficeMax and Office Depot are called on jointly by our
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sales force and independent sales representatives. Smaller customers are
serviced mainly by independent sales representatives, whose activities are
reviewed by our in-house sales force. As of June 30, 1999, we employed 15 people
in our sales department and 14 people in our marketing department.
We work extensively with our customers to meet their specific
merchandising needs. Through customer presentations and other direct feedback
from the customer and consumers, we identify the consumer tastes and profiles of
a particular retailer. With this information, we make product recommendations to
our customers. We maintain a close dialogue with customers to ensure that the
design and functional requirements of our products are fulfilled.
Our products are promoted by our customers to the public under
cooperative and other advertising agreements. Under these agreements, our
products are advertised in newspaper inserts and catalogs, among other
publications. We generally cover a portion of the customer's advertising
expenses if the customer places approved advertisements mentioning us and our
products by name. We may also provide support to some customers' advertising
programs. We generally do not advertise directly to consumers. We do, however,
advertise in trade publications to promote O'Sullivan as a producer of high
quality ready-to-assemble furniture.
We provide extensive service support to our customers. This support
includes designing and installing in-store displays, educating retailers' sales
forces and maintaining floor displays. We have been recognized for our
commitment to our retail partners and have earned several awards in recent
years. These awards include the 1998 Vendor of the Year award in the
ready-to-assemble furniture category from both Kmart and Shopko.
We participate in the eight-day furniture markets held in High Point,
North Carolina in April and October of each year. High Point is the principal
international market in the furniture industry. It attracts buyers from the
United States and abroad. We maintain over 16,000 square feet of leased showroom
space at High Point. We also maintain two other showrooms to market our product
lines. In addition, we participate in other trade shows, including the
international furniture show in Cologne, Germany.
MANUFACTURING
We operate three modern manufacturing facilities, which are described
more fully below. They are located in Lamar, Missouri, South Boston, Virginia
and Cedar City, Utah. In total, our facilities have over 2.1 million square
feet.
- LAMAR, MISSOURI: Opened in 1965, this facility has about 1.1 million
square feet. It is the largest of our three facilities and has the
capability to produce our entire product offering. This facility also
serves as our corporate headquarters.
- SOUTH BOSTON, VIRGINIA: Opened in 1989, our South Boston facility has
been expanded to approximately 480,000 square feet. This includes a
100,000 square foot expansion in 1993 and an additional 30,000 square
foot expansion in 1998. The South Boston facility has the capability
to manufacture substantially all of our products. As a part of our
expansion in 1998, we added a strip line, a laminator, a combi-former
machine and a new wrap line to the facility.
- CEDAR CITY, UTAH: This facility was opened in the spring of 1995. Our
newest plant encompasses about 530,000 square feet. It has about 25%
of the production capacity of our Lamar facility. We opened this
facility in Utah to be closer to western customers and particleboard
suppliers in order to reduce transportation costs. The building in
Cedar City is now utilizing approximately 50% of its available
manufacturing space. Consequently, it could accommodate substantial
capacity expansion.
We have invested approximately $60 million in capital improvements
to expand production capacity, increase manufacturing efficiency and install
a new corporate-wide JD Edwards management information system since the
beginning of fiscal year 1997. These efforts have provided significant
production improvements, including:
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- IMPROVED PRODUCT STYLING AND EFFICIENCY: We were one of the first
ready-to-assemble furniture manufacturers to utilize combi-former
machines. This fall, we expect to install our fourth combi-former
machine. These machines provide a significant advantage in product
styling by creating rounded and other curved edges on furniture parts.
- IMPROVED MANUFACTURING EFFICIENCY: Our new equipment is highly
automated and efficient. However, it is also complex and requires
extensive training. As our employees have become more familiar with the
new equipment, their productivity has improved. We expect these
improvements to continue.
- INCREASED MANUFACTURING FLEXIBILITY: The new equipment installed at our
South Boston, Virginia plant has provided expanded capacity and
manufacturing flexibility. As a result, the South Boston facility is
now capable of manufacturing a broader spectrum of parts. Some of these
parts were formerly manufactured only in our Lamar plant. We believe
that our expanded manufacturing capacity will increase manufacturing
flexibility, reduce freight costs and allow us to better serve East
Coast markets.
RAW MATERIALS
The materials used in our manufacturing operations include
particleboard, fiberboard, coated paper laminates, glass, furniture hardware and
packaging materials. Our largest raw material cost is particleboard. We purchase
all of our raw material needs from outside suppliers. We buy our particleboard
and fiberboard at market-based prices from several independent wood product
suppliers. We purchase other raw materials from a limited number of vendors.
These raw materials are generally available from other suppliers, although the
cost from alternate suppliers might be higher.
As is customary in the ready-to-assemble furniture industry, we do not
maintain long-term supply contracts with our suppliers. We do, however, have
long standing relationships with all of our key suppliers and encourage supplier
partnerships. Our supplier base is sufficiently diversified so that the loss of
any one supplier in any given commodity should not have a material adverse
effect on our operations. We have never been unable to secure needed raw
materials. However, there could be adverse effects on our operations and
financial condition if we are unable to secure necessary raw materials like
particleboard and fiberboard.
Because we purchase all of our raw materials from outside suppliers, we
are subject to fluctuations in prices of raw materials. For example, our results
of operations were significantly affected in fiscal year 1995 by higher
particleboard and fiberboard prices. Future increases in the price of raw
materials could again affect our results of operations.
COMPETITION
The residential furniture market is very competitive and includes a
large number of both domestic and foreign manufacturers. Our competitors include
manufacturers of both ready-to-assemble and assembled furniture. Although a
large number of companies manufacture ready-to-assemble furniture, the top five
ready-to-assemble furniture manufacturers accounted for an estimated 76% of the
domestic ready-to-assemble furniture market in 1998. Our top five competitors in
terms of market share of the ready-to-assemble segment are Sauder Woodworking,
Inc., Bush Industries, Inc., Dorel Industries, Inc., Mills Pride, and Creative
Interiors. Some of our competitors have greater sales volume and financial
resources.
We, along with some of our competitors, have continued to increase
production capacity significantly as the market for ready-to-assemble furniture
has grown. In fiscal year 1996, these increases in capacity created some surplus
in production capacity in the ready-to-assemble furniture industry. The current
increases in production capacity could again cause excess capacity and increased
competition if anticipated sales increases do not materialize. This could
adversely affect our margins and results of operations.
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PATENTS AND TRADEMARKS
We have a United States trademark registration and international
trademark registrations or applications for the use of the O'Sullivan(R) name on
furniture. We believe that the O'Sullivan name and trademark are well-recognized
and associated with high quality by both our customers and consumers and are
important to the success of our business. Our products are sold under a variety
of trademarks in addition to O'Sullivan. Some of these names are registered
trademarks. We do not believe that the other trademarks we own enjoy the same
level of recognition as the O'Sullivan trademark. We also do not believe that
the loss of the right to use any one of these other trademarks would be material
to our business. We hold a number of patents and licenses. None of these patents
and licenses are individually considered by us to be material to our business.
SHIPPING
We offer customers the choice of paying their own freight costs or
having us absorb freight costs. If we absorb the freight costs, our product
prices are adjusted accordingly. When we pay freight costs, we use independent
trucking companies with whom we have negotiated competitive transportation
rates.
BACKLOG
Our business is characterized by short-term order and shipment
schedules of generally less than two weeks. Accordingly, we do not consider
backlog at any given date to be indicative of future sales.
SEASONALITY
We generally experience a somewhat higher level of sales in the second
and third quarters of our fiscal year in anticipation of and following the
holiday selling seasons.
PROPERTIES
We own three manufacturing facilities. We also lease distribution
warehouses in Lamar, Missouri and South Boston, Virginia. We utilize space in
bonded warehouses in Markham, Ontario for our Canadian operations and
Oxfordshire, United Kingdom for our European customers.
INSURANCE
We maintain liability insurance at levels that we believe are adequate
for our needs. We believe these levels are comparable to the level of insurance
maintained by other companies in the furniture manufacturing business.
EMPLOYEES
As of June 30, 1999, we had approximately 2,500 employees. 64% of these
employees are located in Lamar. None of our employees are represented by a labor
union. We believe that we have good relations with our employees.
ENVIRONMENTAL AND SAFETY REGULATIONS
Our operations are subject to extensive federal, state and local
environmental laws, regulations and ordinances. Some of our operations require
permits. These permits are subject to revocation, modification and renewal by
governmental authorities. Governmental authorities have the power to enforce
compliance with their regulations. Violators may be subject to fines, injunction
or both. Compliance with these regulations has not in the past had a significant
effect on our earnings, capital expenditures or competitive position. We
anticipate increased federal and state environmental regulations affecting us as
a manufacturer, particularly regarding emissions and the use of various
materials in our production process. In particular, regulations to be issued
under the Clean Air Act Amendments of 1990 could subject us to new standards
regulating emissions of some air
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pollutants from our wood furniture manufacturing operations. We cannot at this
time estimate the impact of these new standards on our operations, future
capital expenditure requirements or the cost of compliance. We have applied for
air emission permits under Title V of the Clean Air Act Amendments of 1990.
Our manufacturing process creates by-products, including sawdust and
particleboard flats. At the South Boston facility, this material is given to a
recycler or disposed of in landfills. At the Lamar facility, the material has
been sent to a recycler and off-site disposal sites. Wood by-products generated
at the Cedar City facility are shipped to a local landfill. Our by-product
disposal costs were approximately $1.8 million for fiscal 1999, $1.2 million for
fiscal 1998, and $1.0 million for fiscal 1997.
Our manufacturing facilities ship waste products to various disposal
sites. If our waste products include hazardous substances and are discharged
into the environment, we are potentially liable under various laws. These laws
may impose liability for releases of hazardous substances into the environment.
These laws may also provide for liability for damage to natural resources. One
example of these laws is the federal Comprehensive Environmental Response,
Compensation and Liability Act. Generally, liability under this act is joint and
several and is determined without regard to fault. In addition to the
Comprehensive Environmental Response, Compensation and Liability Act, similar
state or other laws and regulations may impose the same or even broader
liability for releases of hazardous substances.
We have been designated as a potentially responsible party under the
Arkansas Remedial Action Trust Fund Act for the cost of cleaning up a disposal
site in Diaz, Arkansas. We entered into a DE MINIMIS buyout agreement with some
of the other potentially responsible parties. We have contributed $2,000 to date
toward cleanup costs under this agreement. The agreement subjects potentially
responsible parties to an equitable share of any additional contributions if
cleanup costs exceed $9 million. In this event, we would be liable for our share
of the excess. Cleanup expenses have approached $9 million. The state has
approved a plan providing that groundwater at the site be monitored. No further
remediation activity is necessary unless further problems are discovered. The
monitoring activities should not require the potentially responsible parties to
make additional payments. We believe that the amounts we may be required to pay
in the future, if any, relating to this site will be immaterial.
Our operations also are governed by laws and regulations relating to
workplace safety and worker health, principally the Occupational Safety and
Health Act and related regulations. Additionally, some of our products must
comply with the requirements and standards of the United States Consumer
Products Safety Commission. We believe that we are in substantial compliance
with all of these laws and regulations.
ITEM 2. PROPERTIES.
O'Sullivan owns three manufacturing, warehouse and distribution
facilities. The Lamar, Missouri facility, which also serves as O'Sullivan's
headquarters, consists of approximately 1,094,000 square feet. The South Boston,
Virginia facility has approximately 480,000 square feet, and the Cedar City,
Utah facility has approximately 530,000 square feet.
O'Sullivan has minimal unused land at Lamar on which it could build new
production or warehouse facilities. It does have excess land at South Boston and
Cedar City which may be used for expansion.
O'Sullivan also leases space for showrooms in High Point, North
Carolina and Bentonville, Arkansas. It leases warehouse space in Lamar, Missouri
and South Boston, Virginia.
O'Sullivan's Canadian operations are in a leased facility in Markham,
Ontario. O'Sullivan's United Kingdom operations are in a leased facility in
Oxfordshire.
O'Sullivan considers its owned and leased facilities to be adequate for
the needs of O'Sullivan and believes that all of its owned and leased properties
are well maintained and in good condition.
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ITEM 3. LEGAL PROCEEDINGS.
TANDY LITIGATION. Prior to the initial public offering in 1994 of our
common stock, we were owned by Tandy Corporation. As part of the initial public
offering, we entered into a tax sharing and tax benefit reimbursement agreement
with Tandy. The structure of the public offering increased the basis in our
assets for tax purposes. This basis increase reduces the amount of gain we
recognize upon sales of our assets and increases our annual tax deductions for
depreciation and amortization. This increase in deductions reduces the amount of
income tax that we pay. Under the tax sharing agreement, we agreed to pay
Tandy nearly all of the benefit we receive from this reduction in our taxable
income, as determined after taking into account all of our other deductible
expenses. The payment to Tandy under the tax sharing agreement was $9.7
million for fiscal 1999, $11.7 million for fiscal 1998 and $6.0 million for
fiscal 1997. This agreement will remain in effect until 2033. However, under
the terms of the tax sharing agreement, O'Sullivan and Tandy are expected to
negotiate a final payment and termination date of the agreement in 2009.
Since the initial public offering, in determining the payment to Tandy
under the tax sharing agreement, we have historically deducted our interest
expense. We will incur a significant increase in interest expense associated
with our higher debt levels in connection with the financing of the merger. On
June 29, 1999, Tandy filed a petition in the 352nd District Court of Texas in
Tarrant County. The petition alleges that any reduction in our tax benefit
payments from our increased interest expense incurred in financing the merger
would violate the tax sharing agreement.
On September 9, 1999, Tandy filed a motion for summary judgment in its
lawsuit against us. The motion argues that Tandy is entitled to a court order
requiring us to commence dispute resolution procedures under the tax sharing
agreement. Because we have made all the payments required under the tax sharing
agreement and because no merger has occurred, we believe that Tandy's lawsuit is
premature since there cannot be a dispute under the tax sharing agreement with
respect to the increased interest resulting from the merger until the merger is
completed. Alternatively, Tandy argues that it is entitled to a court order
preventing us from deducting the interest expense related to the merger from our
tax-sharing payments to Tandy. Tandy's argument is based on a letter to that
effect, dated June 22, 1999, from PricewaterhouseCoopers LLP to an officer of
Tandy. Tandy claims that the June 22, 1999 letter entitles it to the relief it
seeks since PricewaterhouseCoopers is our auditing firm. According to Tandy,
PricewaterhouseCoopers should necessarily be an acceptable arbiter to O'Sullivan
under the tax sharing agreement's dispute resolution provisions.
PricewaterhouseCoopers, however, did not issue the letter in its capacity as our
auditor or as a neutral arbiter, but rather at the request of Tandy. Moreover,
PricewaterhouseCoopers states in the letter that the letter "does not constitute
a tax opinion or legal advice."
We believe the PricewaterhouseCoopers letter does not entitle Tandy
to relief because, among other invalid assumptions supplied by Tandy, that
letter incorrectly assumes that OSI Acquisition, Inc. will incur the debt
used to finance the merger. The PricewaterhouseCoopers letter relies on an
opinion provided by Tandy's outside counsel. We have not seen that opinion.
In fact, the debt used to finance the merger will be incurred by O'Sullivan
Industries Holdings, Inc. and its operating subsidiary, O'Sullivan
Industries, Inc. In addition, we have received an opinion from our outside
counsel that supports our interpretation of the tax sharing agreement. A
hearing on the motion for summary judgment is scheduled for October 1, 1999.
We believe Tandy's lawsuit is without merit and intend to defend ourselves
vigorously.
We are and expect to continue to be in full compliance with the tax
sharing agreement after the recapitalization transactions. Although we
believe that our interpretation of the tax sharing agreement will ultimately
prevail over Tandy's interpretation, we cannot assure you of this. If Tandy
were to prevail, our increased interest expense following the merger would
not be taken into account in determining our annual payments to Tandy. For
example, if Tandy were to prevail based on current earnings estimates our
payments to Tandy would be approximately $5.0 million greater than we
currently anticipate over the next two fiscal years combined. However, if our
earnings are significantly less than current estimates, then the difference
between the amount we believe we would owe to Tandy and the amount Tandy
believes we would owe would be significantly greater. If necessary, we would
fund these increased payment obligations from cash flow from operations,
borrowings under the revolving credit agreement or other sources of capital.
11
<PAGE>
LITIGATION CHALLENGING THE MERGER. On May 18, 1999, five lawsuits were
filed as class actions by stockholders in the Delaware Court of Chancery seeking
to enjoin the merger or, in the alternative, to rescind the merger and recover
monetary damages. The complaints name as defendants O'Sullivan, all of its
directors and, in some cases, BRS. The complaints allege that our directors
breached their fiduciary duties by approving the merger. The complaints also
allege that the price terms of the merger are inadequate and unfair to
O'Sullivan's stockholders. In addition, the complaints allege that the
management participants in the buyout have conflicts of interest that have
prevented them from acting in the best interests of O'Sullivan's stockholders
and that make it inherently unfair for BRS and the management participants in
the buyout to acquire 100% of the O'Sullivan's stock. In the cases naming BRS as
a defendant, BRS is alleged to have aided and abetted the alleged breaches of
fiduciary duties. The defendants do not have to respond to the lawsuits until
after the plaintiffs have combined their complaints into one complaint. The
court issued an order on July 22, 1999 requiring the plaintiffs to combine their
complaints into one complaint. However, no date has been set by which the
defendants must move or answer in response to the combined complaint. We believe
that the claims are without merit and intend to defend the lawsuits vigorously.
In addition, we are a party to various pending legal actions arising in
the ordinary operation of our business. These include product liability claims,
employment disputes and general business disputes. We believe that these actions
will not have a significant negative effect on our operating results and
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of O'Sullivan
during the quarter ended June 30, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
O'Sullivan's common stock is traded on the New York Stock Exchange
under the symbol "OSU". The following table sets forth the high and low sale
prices of O'Sullivan's common stock, as reported by the New York Stock Exchange,
for the periods indicated:
<TABLE>
<CAPTION>
FISCAL 1999 QUARTER ENDED High Low
------------------------- ---- ---
<S> <C> <C>
September 30, 1998 $ 14.06 $ 8.69
December 31, 1998 $ 11.19 $ 8.75
March 31, 1999 $ 15.31 $ 9.44
June 30, 1999 $ 19.25 $ 13.38
<CAPTION>
FISCAL 1998 QUARTER ENDED High Low
------------------------- ---- ---
<S> <C> <C>
September 30, 1997 $ 16.44 $ 11.75
December 31, 1997 $ 14.00 $ 9.25
March 31, 1998 $ 12.94 $ 9.38
June 30, 1998 $ 16.44 $ 12.44
</TABLE>
As of September 15, 1999, there were approximately 838 stockholders of
record. No dividends have been paid or declared since our initial public
offering in 1994.
We currently intend to retain all earnings to finance the development
of our operations and to repay the indebtedness we expect to incur in connection
with the merger. We do not anticipate paying cash dividends on our shares of
common stock in the near future. Our future dividend policy will be determined
by our Board of Directors on the basis of various factors, including but not
limited to our results of operations, financial condition, business
opportunities and capital requirements. The payment of dividends is subject to
the requirements of Delaware law, as well as restrictive financial covenants in
our debt agreements.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION.
The selected historical consolidated results of operations and balance
sheet data for the five years ended June 30, 1999 are derived from O'Sullivan's
audited financial statements. This selected consolidated financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the "Consolidated Financial Statements
and Related Notes" included on the following pages.
<TABLE>
<CAPTION>
For the year ended June 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA:
Net sales $ 379,632 $ 339,407 $ 321,490 $ 291,766 $ 269,306
Cost of sales 267,630 244,086 230,578 229,262 208,176
--------- --------- --------- --------- ---------
Gross profit 112,002 95,321 90,912 62,504 61,130
Selling, marketing and administrative 74,962 69,212 62,137 52,691 45,489
Merger related expenses 1,143 -- -- -- --
Restructuring charge -- -- -- 5,212 --
--------- --------- --------- --------- ---------
Operating income 35,897 26,109 28,775 4,601 15,641
Interest expense, net 2,844 2,468 2,327 3,831 2,382
--------- --------- --------- --------- ---------
Income before income tax provision 33,053 23,641 26,448 770 13,259
Income tax provision 11,900 8,742 10,050 433 5,038
--------- --------- --------- --------- ---------
Net income $ 21,153 $ 14,899 $ 16,398 $ 337 $ 8,221
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share
Basic $ 1.32 $ 0.91 $ 0.98 $ 0.02 $ 0.49
Diluted $ 1.30 $ 0.89 $ 0.96 $ 0.02 $ 0.49
Weighted Average Shares Outstanding
Basic 15,973 16,339 16,786 16,820 16,820
Diluted 16,330 16,715 17,056 16,822 16,820
Cash flow provided by operating activities $ 25,441 $ 27,209 $ 23,512 $ 25,345 $ 13,188
Cash flow used for investing activities (15,779) (28,359) (15,825) (4,403) (30,355)
Cash flow provided (used by) financing activities (7,732) (4,015) (1,218) (21,000) 17,334
EBITDA (1) $ 49,859 $ 37,669 $ 38,735 $ 13,836 $ 23,106
Depreciation and amortization 13,962 11,560 9,960 9,235 7,465
Capital expenditures 15,779 28,359 15,825 4,403 30,355
<CAPTION>
June 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 85,262 $ 72,893 $ 82,045 $ 71,136 $ 86,058
Total assets 266,967 250,314 232,607 212,317 228,477
Long-term debt 22,000 30,000 30,000 30,000 51,000
Stockholders' equity 185,136 163,670 156,790 141,615 140,624
</TABLE>
(1) EBITDA means earnings before interest expense and interest income, income
taxes, depreciation and amortization. EBITDA is presented here to provide
additional information about our operations. This item should be considered
in addition to, but not as a substitute for or superior to, operating
income, net income, cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles.
EBITDA may differ in the method of calculation from similarly titled
measures used by other companies.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE MORE
DETAILED INFORMATION IN THE HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE
RELATED NOTES THERETO, APPEARING ELSEWHERE IN THIS REPORT.
OVERVIEW.
The domestic ready-to-assemble furniture market has experienced
significant growth over the past several years and has emerged as a key
component of the overall U.S. home and office furnishings industry. Our company
is the second largest ready-to-assemble furniture manufacturer in the United
States in terms of domestic sales with over 45 years of experience. We design,
manufacture and distribute a broad range of RTA furniture products--bookcases,
cabinets, computer workcenters, desks, entertainment centers and stereo
racks--with retail prices ranging from $20 to $999. In recent years, we have
committed substantial resources to the development and implementation of a
diversified sales, marketing and product strategy in order to capitalize on
growth opportunities presented by emerging retail channels of distribution and
changes in consumer demographics and preferences. We have structured our
business to offer a wide variety of RTA furniture products through increasingly
popular retail distribution channels, including office superstores, discount
mass merchants, electronic superstores, department stores, home improvement
centers and home furnishings retailers. We continue to strive towards building
long-term relationships with quality retailers in existing and emerging high
growth distribution channels to develop and sustain our future growth.
In order to provide superior products and service to our demanding
customer base and maintain margin integrity, we have adopted the following three
pronged strategy:
- We introduce innovative products that redefine categories such as
entertainment centers and computer workcenters, thereby allowing us to replace
our existing retail footprint with new products that enable us to maintain or
improve gross margins. Examples of such innovative products include our
Cockpit(R) computer workcenters and Xpressions(TM) Mini-Audio Stand.
- We have developed an upscale brand, Intelligent Designs(R), that has
allowed us to penetrate the upper end of the ready-to-assemble furniture market.
Intelligent Designs products generally capture higher price points and generate
better gross margins.
- We strive continuously to improve our manufacturing systems and generate
higher productivity in order to lower costs and maintain or improve margins.
In fiscal 1998, we implemented several strategic business initiatives
including a $20 million capacity expansion program in our Virginia plant, which
increased our total manufacturing capacity by approximately 15%, and a $13
million manufacturing equipment upgrade in our Missouri plant. In addition, we
completed an upgrade of our management information systems, which included a
corporate-wide conversion to JD Edwards software, the installation of a new
point-of-sale analytical software that allows our sales force to analyze sales
trends and consumer preferences more accurately and the installation of
Pro-engineering, a computer-aided design software package which enhances our
product design capabilities and reduces the time before newly conceived products
reach the market. We believe that we have not yet fully realized the benefits of
our capital expansion and management information systems upgrade.
We purchase large quantities of raw materials including particleboard
and fiberboard. We are dependent on our outside suppliers for all of these raw
materials. Therefore, we are subject to changes in the prices charged by our
suppliers. In the past, our profits have been reduced by price increases of
these commodities.
In the fourth quarter of fiscal 1999, some of our particleboard
suppliers announced that they intended to pass price increases of approximately
3% on to their customers, including us. In fiscal 1999, we spent about $85.0
million on particleboard and fiberboard. Also, in fiscal 1999, the price we paid
for corrugated cartons decreased around 8% from July 1998 to March 1999. In
March 1999, some of our corrugated carton suppliers
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<PAGE>
announced that they intend to implement a price increase of approximately 8%. In
fiscal 1999, we purchased around $15.0 million of corrugated cartons.
We expect that these price increases, some of which were implemented in
the second calendar quarter of 1999, may be partially offset by other factors.
These factors include price decreases in other raw materials, our value
engineering program designed to reduce costs without compromising product
quality or appearance, increased productivity in our manufacturing operations
and higher selling prices. There can be no assurance, however, that these
efforts will reduce the effect of the price increases already implemented or any
future price increases.
RESULTS OF OPERATIONS.
The following table sets forth the approximate percentage of items
included in the Consolidated Statement of Operations and EBITDA relative to net
sales for the three-year period ended June 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
===== ===== =====
Cost of sales 70.5% 71.9% 71.7%
Gross margin 29.5% 28.1% 28.3%
Selling, marketing and administrative expenses 19.7% 20.4% 19.3%
Merger related expenses 0.3% -- --
Operating income 9.5% 7.7% 9.0%
Interest expense, net 0.7% 0.7% 0.7%
Income tax expense 3.1% 2.6% 3.2%
Net income 5.6% 4.4% 5.1%
Depreciation and amortization 3.7% 3.4% 3.1%
EBITDA (1) 13.1% 11.1% 12.1%
</TABLE>
(1) Excludes merger related expenses recognized in June 1999.
YEAR ENDED JUNE 30, 1999 COMPARED TO THE YEAR ENDED JUNE 30, 1998.
NET SALES. Net sales increased by $40.2 million, or 11.9%, to $379.6
million in fiscal 1999, up from $339.4 million in fiscal 1998. The increase in
net sales was primarily driven by a 10.9% increase in the number of units sold
and, to a lesser extent, a 1.0% increase in the average selling price. Strong
increases in net sales to the national discount mass merchant, electronic
specialty retailer and office superstore channels accounted for approximately
$44.3 million of the sales increase, offset by a $4.1 million decline in sales
to the regional mass merchant, department store/catalog showroom, home
improvement, original equipment manufacturer and export channels. Consumer
demand for our products was driven by market growth fueled by the robust growth
of the sub-$1,000 computer market, sales efforts targeted toward specific
rapidly growing customers, the success of new product introductions, additional
floor space and resources provided by retailers for ready-to-assemble furniture
and new store openings by certain retailers.
In March 1999, Service Merchandise Co., one of our largest customers,
filed for bankruptcy protection under Chapter 11. In addition, Montgomery Ward &
Co. recently exited Chapter 11 on August 2, 1999. If Service Merchandise,
Montgomery Ward or another major customer liquidates or ceases or substantially
reduces its purchases of products from us, we cannot assure you that we will be
able to replace these sales.
GROSS PROFIT. Our gross profit for fiscal year 1999 was $112.0 million,
an increase of $16.7 million, or 17.5%, from $95.3 million in fiscal 1998. This
increase was attributable to higher net sales and an improvement in the gross
profit margin, which increased by 140 basis points to 29.5% in fiscal 1999 from
28.1% in fiscal 1998. The increase in gross margin was primarily attributable to
increased unit sales and, to some extent, lower
15
<PAGE>
material costs due to our on-going value-engineering program and improved
manufacturing productivity. These increases were somewhat offset by the increase
in net sales to discount mass merchants which normally has lower gross profit
margins.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES. Selling, marketing and
administrative expenses increased by $5.8 million, or 8.3%, to $75.0 million in
fiscal 1999, from $69.2 million in fiscal 1998. The increase in selling,
marketing and administrative expenses was due primarily to $3.2 million of
higher advertising and out-bound freight expense directly associated with higher
net sales levels and customer mix and $2.3 million in higher profit sharing and
incentive compensation costs resulting from our improved financial results.
These increases were partially offset by lower commission expense resulting from
management's emphasis on reducing costs, and to some extent lower bad debt
expense related to the purchase and initiation of credit insurance during fiscal
1999. As a percentage of sales, selling, marketing and administrative expenses
decreased by 70 basis points to 19.7% of sales in fiscal 1999 from 20.4% of
sales in fiscal 1998 primarily from improved economies of scale.
MERGER RELATED EXPENSES. In June 1999, we recorded merger related
expenses of $1.1 million pre-tax for accounting, legal, printing and investment
banking services associated with the pending merger. Additional merger related
expenses will be incurred during fiscal year 2000.
DEPRECIATION AND AMORTIZATION. Our depreciation and amortization
expenses increased $2.4 million, or 20.7%, to $14.0 million in fiscal 1999 from
$11.6 million in fiscal 1998. The increase in depreciation and amortization
expense was due to capital additions of $15.8 million in fiscal 1999 and $28.4
million in fiscal 1998. The expenditures were primarily for capacity expansion
in our Virginia plant and upgrading manufacturing equipment in our Missouri
plant.
OPERATING INCOME. Operating income, including merger related expenses,
increased by $9.8 million in fiscal 1999 compared to fiscal 1998. Excluding
merger related expenses, our operating income increased by $10.9 million, or
41.9%, to $37.0 million in fiscal 1999 from $26.1 million in fiscal 1998.
NET INTEREST EXPENSE. Net interest expense increased by $0.4 million to
$2.8 million in fiscal 1999. The increase was due largely to the refinancing of
our $10.0 million of industrial revenue bonds in the second quarter of this
fiscal year, which triggered a one-time charge of $0.3 million to pay the call
premium.
INCOME TAX EXPENSE. Income tax expense increased by $3.2 million, or
36.8%, to $11.9 million in fiscal 1999 from $8.7 million in fiscal 1998. Our
effective tax rate for fiscal 1999 was 36.0%, down slightly from 37.0% in fiscal
1998.
NET INCOME. As a result of the above factors, net income increased by
$6.3 million, or 42.3%, to $21.2 million in fiscal 1999 from $14.9 million in
fiscal 1998. Excluding merger related expenses, net income increased by $7.0
million to $21.9 million for fiscal 1999.
EBITDA. EBITDA, which we define as earnings before interest income and
interest expense, income taxes and depreciation and amortization, increased by
$12.2 million, or 32.3%, to $49.9 million in fiscal 1999. The increase in EBITDA
for fiscal 1999 was driven by increased sales volumes, productivity gains in our
three manufacturing plants, improved absorption of overhead costs associated
with increased net sales and increased year end finished inventory and the
success of our value analysis program. These gains were somewhat offset by
increased profit sharing and incentive compensation costs as well as higher
outbound freight and advertising expenses associated with sales volume increases
and customer mix.
YEAR ENDED JUNE 30, 1998 COMPARED TO THE YEAR ENDED JUNE 30, 1997.
NET SALES. Net sales increased $17.9 million, or 5.6%, to $339.4
million in fiscal year 1998, up from $321.5 million in fiscal 1997. The average
selling price per unit increased 13.1% in fiscal 1998, while the number of units
sold decreased by 5.9%, reflecting the growth in the office superstore channel,
which sells products with higher average price points. Sales decreases in the
national discount mass merchant, department store/catalog showroom, home
improvement, and original equipment manufacturer channels were more than
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<PAGE>
offset by increased sales through the office superstore, regional mass merchant,
electronic specialty retailer and export channels. These sales increases were
the result of targeted sales efforts toward the regional retail chains, the
addition of new customers in the electronics channel, and the continued success
of products in the office superstore channels.
The decrease in the national discount mass merchant channel was due to
the volatile order pattern of one major mass merchant in the fourth quarter of
fiscal 1997 and the first half of fiscal 1998. The decrease in the department
store/catalog showroom channel reflected the bankruptcy and subsequent
liquidation of Best Products Co., Inc. in September 1996. Lower sales through
the home improvement channel were a result of the largest home improvement
company's discontinuance of ready-to-assemble furniture products other than
storage products for the home. Original equipment manufacturer sales continued a
decline that began in fiscal 1995 because of a decreased emphasis on this lower
margin business.
In September 1996, one of our then-largest customers, Best Products
Co., Inc., filed for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code. Best Products Co., Inc. subsequently liquidated its assets and
ceased doing business. Sales to Best Products were zero in fiscal 1998 and $6.0
million in fiscal 1997.
In July 1997, another of our large customers, Montgomery Ward & Co.,
filed for bankruptcy protection under Chapter 11. Sales to Montgomery Ward were
down slightly overall in fiscal 1998 compared to fiscal 1997.
Montgomery Ward exited bankruptcy protection on August 2, 1999.
GROSS PROFIT. Our gross profit increased to $95.3 million in fiscal
1998 from $90.9 million in fiscal 1997 but decreased slightly as a percentage of
sales, to 28.1% from 28.3%. A change in customer mix favoring the office
superstore market over the national discount mass merchant channel provided
higher margins, which were offset by lost efficiencies from the installation of
new manufacturing software systems and the installation of new equipment,
including the related training of employees and adaptation of manufacturing
processes.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES. Selling, marketing and
administrative expenses were $69.2 million, or 20.4% of sales, in fiscal 1998,
compared with $62.1 million, or 19.3% of sales, in fiscal 1997. The increase was
due primarily to the higher advertising costs associated with our promotional
efforts with certain customers and higher outbound freight costs resulting from
a change in the freight program of a large customer. Fiscal 1997 expenses also
included bad debt expenses for the bankruptcies of Montgomery Ward & Co. and
Best Products Co., Inc.
DEPRECIATION AND AMORTIZATION. Our depreciation and amortization
expenses increased to $11.6 million in fiscal 1998 from $10.0 million in fiscal
1997. The increased expense resulted from capital additions of $28.4 million in
fiscal 1998 and $11.2 million during the second half of fiscal 1997. The
expenditures were primarily for manufacturing capacity expansion and increased
capabilities, as well as a major software system implementation.
OPERATING INCOME. Operating income decreased by $2.7 million to $26.1
million in fiscal 1998. The decrease was due primarily to manufacturing
inefficiencies associated with the installation of new manufacturing equipment,
training of employees on the new equipment, software systems installation, and
the related adaptation of manufacturing processes. Additionally, operating
income was reduced by higher advertising costs from promotional efforts with
certain customers and higher outbound freight costs due to a change in the
freight program of a large customer.
NET INTEREST EXPENSE. Net interest expense increased by $0.2 million to
$2.5 million in fiscal 1998. The increase was due primarily to lower cash
balances from increased capital expenditures and our stock repurchase program.
INCOME TAX EXPENSE. Our effective tax rate for fiscal 1998 was 37.0%,
down slightly from 38.0% in fiscal 1997.
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<PAGE>
NET INCOME. Net income decreased by $1.5 million to $14.9 million in
fiscal 1998. The decrease was due primarily to lost manufacturing efficiencies
discussed above with respect to cost of sales and gross margin, as well as
higher promotional costs and increased outbound freight costs.
EBITDA. EBITDA decreased $1.1 million to $37.7 million in fiscal 1998.
Earnings were less in fiscal 1998 because of manufacturing inefficiencies
associated with the installation of new manufacturing software systems and
equipment and the related training of employees and adaptation of manufacturing
processes, as well as higher promotional costs with certain customers and
outbound freight costs.
BACKLOG.
Our business is characterized by short-term order and shipment
schedules of generally less than two weeks. Accordingly, we do not consider
backlog at any given date to be indicative of future sales.
LIQUIDITY AND CAPITAL RESOURCES.
HISTORICAL. As of June 30, 1999, we had cash and cash equivalents
amounting to $3.7 million. Net working capital was $85.8 million at June 30,
1999 compared to $72.9 million at June 30, 1998. The $12.9 million increase in
net working capital resulted primarily from increased investment in inventories
of $9.4 million. Forecasted fourth quarter sales to certain customers did not
materialize because these customers delayed purchases to decrease their
inventory. We believe this adjustment will be short term and that order patterns
should return to normal during the first quarter of fiscal 2000.
Cash provided by operating activities for fiscal 1999 amounted to $25.5
million, compared with $27.2 million in fiscal 1998. Net income increased $6.3
million compared with the prior year. Also, we incurred increased non-cash
charges for depreciation and amortization of $2.4 million over the prior year.
These increases were offset by the higher investment in inventories of $9.4
million compared to $2.6 million in fiscal 1998 and a decrease in accounts
payable of $0.2 million compared to an increase of $5.4 million in fiscal 1998.
We used the cash flow provided by operating activities primarily to fund capital
expenditures and to make our first annual payment of $4.0 million for long-term
debt.
As of June 30, 1999, we had total debt of $26.0 million. We issued
$20.0 million of 8.01% notes in a 1995 private placement to insurance companies.
These notes are payable in $4.0 million increments from fiscal 1999 to fiscal
2003, and we made our first $4.0 million payment in May 1999. Of the $16.0
million remaining on these notes, $12.0 million is classified as long-term and
$4.0 million is classified as the current portion of long-term debt. One of our
subsidiaries was the obligor on $10.0 million of 8.25% industrial revenue bonds
that were to mature on October 1, 2008. On October 1, 1998, we refinanced these
bonds with new, 10-year variable interest rate industrial revenue bonds. We
recognized the $0.3 million premium on the early retirement of the bonds as a
loss in our second quarter of fiscal 1999.
As of June 30, 1999, we had an unsecured $25.0 million revolving credit
facility with a bank that expires on February 28, 2001. As of June 30, 1999, we
had no borrowings outstanding under this facility.
On May 6, 1997, our Board of Directors authorized the purchase of up to
five percent of the outstanding shares of our common stock over a 24-month
period. We completed the purchases under the program in October 1998. Funding
for the purchases came from available working capital and existing borrowing
facilities.
We also purchase common stock for our employee benefit programs. During
fiscal 1999, we purchased approximately $2.8 million in common stock and
transferred $3.0 million to our employee benefit plans.
We use derivative financial instruments to reduce interest rate risks.
We do not hold or issue derivative financial instruments for trading purposes.
Effective October 1, 1998, we have a forward starting interest rate swap
agreement with a notional principal amount of $10.0 million. The effective date
of the agreement was October 1, 1998, and the termination date is October 1,
2008. We have contracted to pay a fixed rate of 7.13% and receive a floating
interest rate during the duration of the swap agreement. The swap has the effect
of hedging
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<PAGE>
our exposure to an increase in interest rates under our refinanced industrial
revenue bonds. We have designated this swap as a hedge against future cash flow
exposure.
The fair value of the forward starting swap agreement was approximately
$0.5 million at June 30, 1999. This amount represents the amount that we would
have to pay to terminate the swap. We have not recognized this amount in our
consolidated financial statements, because it is accounted for as a hedge.
RETIREMENT CHARGE. In October 1998, Mr. Daniel F. O'Sullivan, Chairman
of the Board of Directors and Chief Executive Officer, completed negotiations of
a retirement and consulting agreement with us contingent upon our hiring his
successor. In May 1999, the original retirement agreement was amended, removing
a contingency relating to the hiring of his successor. The retirement agreement
contains standard noncompetition provisions. The present value of all future
payments under this agreement have been capitalized and recorded as an
intangible asset. The noncompetition asset will be recognized on a straight line
basis over the term of the agreement with Mr. O'Sullivan commencing on the
earlier of his retirement or March 31, 2000. Based on a retirement date of March
31, 2000, the amortization period would be approximately 6.3 years. Payments
under this agreement will total approximately $2.2 million over the next seven
years.
FOLLOWING THE RECAPITALIZATION AND MERGER.
Following the recapitalization and merger, our primary liquidity
requirements will be to pay our debt, including our interest expense under the
senior credit facilities and our senior subordinated notes, to provide working
capital to make payments to Tandy under the tax sharing and tax benefit
reimbursement agreement and to make capital expenditures and possibly
acquisitions. BRS has advised us that, at June 30, 1999, on a pro forma basis
after giving effect to the transactions, our consolidated indebtedness would
have been $285.0 million, consisting of $125.0 million under the senior credit
facilities, $125 million in the senior subordinated notes issued by O'Sullivan
Industries, Inc., and $25.0 million in senior discount notes issued by
O'Sullivan and $10.0 million of variable rate industrial revenue bonds.
Capital expenditures for fiscal year 1999 were $15.8 million compared
to $28.4 million for fiscal year 1998. We have budgeted total capital
expenditures for fiscal 2000 of approximately $17.0 million. Our ability to make
capital expenditures is subject to certain restrictions under the senior credit
facilities.
Our principal source of cash to fund our liquidity needs will be net
cash from operating activities and borrowings under the senior credit
facilities. BRS has advised us that, the senior credit facilities are comprised
of a $40.0 million six-year revolving credit facility and a $125.0 million term
loan facility consisting of a $35 million six-year term loan and a seven and
one-half year $90.0 million term loan. The senior credit facilities are subject
to certain financial and operational covenants and other restrictions, including
among others, a requirement to maintain certain financial ratios and limitations
on our ability to incur additional indebtedness.
Our ability to make payments on and to refinance our indebtedness,
including these notes, and to fund planned capital expenditures and to make
payments to Tandy under the tax sharing and tax benefit reimbursement agreement
will depend on our ability to generate cash in the future. This ability, to some
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based on our current
level of operations and anticipated cost savings and operating improvements, we
believe that our cash flow from operations, available cash and available
borrowings under our senior credit facilities will be adequate to meet our
liquidity needs for the foreseeable future.
We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that we will realize operating
improvements on schedule or that future borrowings will be available to us under
our
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<PAGE>
senior credit facilities in an amount sufficient to enable us to service our
indebtedness, including these notes, or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness, including these
notes, on or before maturity. We might not be able to refinance any of our
indebtedness, including our senior credit facilities and these notes, on
commercially reasonable terms or at all.
MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000.
Almost all companies must address whether their computer systems and
applications will recognize and process dates after December 31, 1999. In prior
years, many computer programs were written using two digits rather than four to
define the applicable year. These programs were written without considering the
impact of the upcoming change of the century and may experience problems
handling dates beyond the year 1999. This could cause computer applications to
fail, manufacturing operations to be disrupted, a temporary inability to process
transactions and create other erroneous results unless corrective measures are
taken.
We have established and developed a multi-step Year 2000 readiness plan
for our internal systems including computer hardware (mainframe and personal
computers), computer software, application programs, manufacturing equipment and
office equipment (phone and fax systems). The plan includes development of
corporate awareness, assessment of internal systems, assessment of customer and
vendor readiness, project planning, project implementation (including
remediation, upgrading and replacement), validation testing and contingency
planning. The readiness plan is reviewed approximately every two to three weeks
to determine progress and completion of various milestones.
In fiscal 1998, we completed the final rollout of an enterprise
software package to support our expanded sales and multiple plant, multiple
warehouse locations and replace an older non-compliant year 2000 system. The
vendor of the software package states that the software is Year 2000 compliant
except for minor issues for which remedial programming has been provided. We are
testing and implementing the remedial programming. We are continuing our testing
efforts to verify the vendor's statement of compliance and expect to complete
this testing about October 31, 1999. We are utilizing internal resources to
complete testing of the systems.
We have implemented electronic communications capabilities to ensure
that order, shipping and invoicing data for dates after December 31, 1999 can be
processed. This testing and verification is complete. We have successfully
tested Year 2000 data with the National Retail Federation and have received its
Year 2000 compliance certification. We are also processing Year 2000 compliant
order, shipping and invoicing data with certain of our electronic data
interchange customers. We will continue to test and implement Year 2000
compliant electronic communications with other customers as they update their
systems to Year 2000 capabilities.
We have reviewed critical business systems and have completed a review
of our computerized machinery and equipment for Year 2000 compliance issues. We
have reviewed about 1,900 pieces of equipment, and we have installed modified
software in the equipment we determined needed modifications to be Year 2000
compliant.
In addition, our ability to produce our products is dependent upon
timely receipt of raw materials. Accordingly, we have requested our suppliers to
provide information regarding their efforts to address Year 2000 compliance
issues. Every major supplier responded that it has evaluated and addressed its
Year 2000 compliance issues or is in the process of doing so. If a major
supplier does not resolve its Year 2000 compliance issues and is unable to
provide us with timely deliveries of quality materials after December 31, 1999,
we expect to locate and use alternative suppliers, although it is possible that
we may be unable to do so, or may be able to do so only at increased cost. For
example, if it is apparent that certain material vendors or transportation
companies may not achieve Year 2000 compliance, we intend to increase our raw
materials inventory for strategic materials necessary to continue production of
product for our customers.
Based upon current information, we estimate that aggregate amounts
expended to resolve Year 2000 issues should not exceed $500,000. These costs are
made up of approximately $225,000 for modification of information systems
software, which represents approximately 5% of the total information services
budget for fiscal 1999, and approximately $275,000 represents costs of upgrading
electronics for manufacturing and
20
<PAGE>
communication equipment. We expect to fund these expenditures through available
cash from operations or through use of the bank revolver. All of these amounts
will be deducted from income at the time the liability is incurred. As of June
30, 1999, we have spent approximately $93,000 in connection with our compliance
plan.
We have developed the basics of a contingency plan to address
situations that may result if O'Sullivan or its vendors or customers are unable
to achieve Year 2000 readiness of critical operations. We are vulnerable to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions. This is most likely the worse case scenario for
O'Sullivan involving the Year 2000. For example, if the electrical grid failed
for any of our manufacturing facilities, we would not be able to manufacture
product for our customers. If natural gas for winter heating failed or was
severely restricted, we would not be able to heat our buildings for our
employees and could affect the functioning of certain laminating equipment.
Anticipating the possibility of such failure or restriction, we plan to increase
our finished goods inventory for our customers. If some automated processes fail
in spite of our remediation efforts, we will resort to manual processes using
regular and, if necessary, temporary staffing in order to perform the additional
workload resulting from Year 2000 related malfunctions.
The costs of the project and the dates on which we believe we will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources. However, these expectations are
subject to uncertainties. If we do not identify and fix all Year 2000 problems
in critical operations, our results of operations and our financial condition
could be materially impacted. There can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated.
MARKET RISK.
Our market risk is affected by changes in interest rates, foreign
currency exchange rates, and certain commodity prices. Under our policies, we
may use natural hedging techniques and derivative financial instruments to
reduce the impact of adverse changes in market prices. We do not hold or issue
derivative instruments for trading purposes, and we have no material sensitivity
to changes in market rates and prices on our derivative financial instrument
positions.
We have market risk in interest rate exposure, primarily in the United
States. We manage interest rate exposure through our mix of fixed and floating
rate debt. Interest rate swaps may be used to adjust interest rate exposures
when appropriate based on market conditions. For qualifying hedges, the interest
differential of swaps is included in interest expense. We believe our foreign
exchange risk is not material.
Due to the nature of our product lines, we have material sensitivity to
some commodities. We manage commodity price exposures primarily through the
duration and terms of our vendor contracts. A 1.0% change in these commodity
prices would affect our earnings by approximately $0.7 million.
SEASONALITY.
Historically, we have generally experienced a somewhat higher level of
sales in the second and third quarters of our fiscal year in anticipation of and
following the holiday selling season.
INFLATION.
We do not believe that inflation has had a material effect on the
results of operations presented in these financials.
INCOME TAXES.
Prior to our initial public offering in 1994, we were owned by Tandy
Corporation. As part of the initial public offering, we entered into a tax
sharing and tax reimbursement agreement with Tandy. The structure of the public
offering increased our basis in our assets for tax purposes. This basis increase
raises our tax deductions for
21
<PAGE>
depreciation and amortization each year. This reduces the amount of income taxes
we pay to the IRS. Under the tax sharing and tax benefit reimbursement
agreement, we agreed to pay Tandy nearly all of any benefit we receive from the
increased depreciation and amortization which reduces our taxable income, as
determined after taking into account all of our other deductible expenses, by
the increase in these deductions. This agreement will remain in effect after
the merger.
Since the initial public offering, in determining the benefit payment
to Tandy under the tax sharing and tax benefit reimbursement agreement, we have
deducted our interest expense. We will incur a significant increase in interest
expense associated with our higher debt levels in connection with the financing
of the merger. We believe that our increased interest expense should be taken
into account in determining the payments that we are required to make to Tandy.
LITIGATION.
On June 29, 1999, Tandy filed suit in a Texas court against us. The
suit relates to a potential reduction in our tax benefit payments to Tandy that
would result from our increased interest expense after the completion of the
merger. Tandy claims that this reduction would violate the tax sharing and tax
reimbursement agreement. Although we believe that our interpretation of the tax
sharing agreement will ultimately prevail over Tandy's interpretation, we cannot
assure you of this. If Tandy were to prevail, our increased interest expense
following the merger would not be taken into account in determining our annual
payments to Tandy. For example, based on current earnings estimates, our
payments to Tandy would be approximately $5.0 million greater than we currently
anticipated over the next two fiscal years combined. However, if our earnings
are significantly less than current estimates, then the difference between the
amount we believe we would owe to Tandy and the amount Tandy believes we would
owe would be significantly greater. If necessary, we would fund the increased
payment obligations from cash flow from operations, borrowing under the
revolving credit agreement, or other sources of capital.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION.
Certain portions of this Report, and particularly the Management's
Discussion and Analysis of Financial Condition and Results of Operation and the
Notes to the Consolidated Financial Statements in Part II of this report, the
portions of Item 1 in Part I captioned "Raw Materials," "Competition," "Working
Capital--Business and Credit Risk Concentrations" and "Environmental and Safety
Regulations" and Item 2 in Part I contain forward-looking statements. These
include information relating to cost savings, benefits, revenues and earnings
estimated to result from the merger. These statements can be identified by the
use of future tense or dates or terms such as "believe,""would," "expect,"
"anticipate" or "plan." These forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those predicted by the
forward-looking statements. Factors and possible events which could cause
results to differ include:
- expected significant indebtedness that may limit our financial and
operational flexibility;
- costs or difficulties related to the merger are greater than expected;
- changes from anticipated levels of sales, whether due to future
national or regional economic and competitive conditions, customer
acceptance of existing and new products, or otherwise;
- pricing pressures due to excess capacity in the ready-to-assemble
furniture industry, as occurred in 1995, or customer demand in excess
of our ability to supply product;
- raw material cost increases, particularly in particleboard and
fiberboard, as occurred in 1994 and 1995;
- transportation cost increases;
- loss of or reduced sales to significant customers as a result of a
merger, acquisition, bankruptcy, liquidation or any other reason, as
occurred with the liquidation of Best Products in 1996 and could occur
with Service Merchandise Co., Inc. and Montgomery Ward & co., Inc.;
- actions of current or new competitors that increase competition with
our products or prices; o the consolidation of manufacturers in the
ready-to-assemble furniture industry;
- increased advertising costs associated with promotional efforts;
22
<PAGE>
- failure by O'Sullivan or a major supplier or vendor to identify and
remedy all critical year 2000 compliance issues;
- pending or new litigation or governmental regulations such as the
pending litigation involving Tandy;
- other uncertainties which are difficult to predict or beyond our
control; and
- the risk that we incorrectly analyze these risks and forces, or that
the strategies we develop to address them could be unsuccessful.
Because these forward-looking statements involve risks and
uncertainties, actual results may differ significantly from those predicted in
these forward-looking statements. You should not place a lot of weight on these
statements. These statements speak only as of the date of this document or, in
the case of any document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements attributable
to O'Sullivan or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this item is incorporated herein by
reference to the section entitled "Market Risk" in O'Sullivan's Management's
Discussion and Analysis of Results of Operations and Financial Condition (Part
II, Item 7).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Immediately following are the report of independent accountants, the
consolidated balance sheets of O'Sullivan Industries Holdings, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of operations, cash flows and changes in stockholders' equity for
each of the three years in the period ended June 30, 1999, and the notes
thereto.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
O'Sullivan Industries Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of O'Sullivan Industries Holdings, Inc. and its subsidiaries at June
30, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of O'Sullivan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Worth, Texas
August 4, 1999
24
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
June 30,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 3,740 $ 1,810
Trade receivables, net of allowance for doubtful
accounts of $2,416 and $2,289, respectively 63,268 61,548
Inventories, net 56,134 46,727
Prepaid expenses and other current assets 3,810 3,762
--------- ---------
Total current assets 126,952 113,847
Property, plant and equipment, net 96,684 93,378
Other assets 1,909 --
Goodwill, net of accumulated amortization 41,422 43,089
--------- ---------
Total assets $ 266,967 $ 250,314
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
---------
Current liabilities:
Accounts payable $ 11,416 $ 14,031
Current portion of long-term debt 4,000 4,000
Accrued liabilities 24,695 22,613
Income taxes payable 1,579 310
--------- ---------
Total current liabilities 41,690 40,954
Long-term debt, less current portion 22,000 30,000
Other non-current liabilities 1,909 --
Deferred income taxes 16,232 15,690
--------- ---------
Total liabilities 81,831 86,644
Commitments and contingent liabilities
(Notes 3 and 14)
Stockholders' equity:
Preferred stock; $1.00 par value, 20,000,000
shares authorized, none issued -- --
Common stock; $1.00 par value, 100,000,000
shares authorized, 16,819,950 issued 16,820 16,820
Additional paid-in capital 87,549 87,809
Retained earnings 89,470 68,317
Accumulated other comprehensive loss (43) (36)
Less common stock in treasury at cost, 770,962
shares in 1999; 798,231 shares in 1998 (8,660) (9,240)
--------- ---------
Total stockholders' equity 185,136 163,670
--------- ---------
Total liabilities and stockholders' equity $ 266,967 $ 250,314
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
25
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
For the year ended June 30,
--------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 379,632 $ 339,407 $ 321,490
Costs and expenses:
Cost of sales 267,630 244,086 230,578
Selling, marketing and administrative 74,962 69,212 62,137
Merger related expenses 1,143 -- --
--------- --------- ---------
Total costs and expenses 343,735 313,298 292,715
--------- --------- ---------
Operating income 35,897 26,109 28,775
Other income (expense):
Interest expense (3,110) (2,847) (2,642)
Interest income 266 379 315
--------- --------- ---------
Income before income tax provision 33,053 23,641 26,448
Income tax provision 11,900 8,742 10,050
--------- --------- ---------
Net income $ 21,153 $ 14,899 $ 16,398
--------- --------- ---------
--------- --------- ---------
Earnings per common share:
Basic $ 1.32 $ 0.91 $ 0.98
Diluted $ 1.30 $ 0.89 $ 0.96
Weighted average common shares outstanding:
Basic 15,973 16,339 16,786
Diluted 16,330 16,715 17,056
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
26
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the year ended June 30,
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 21,153 $ 14,899 $ 16,398
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 13,962 11,560 9,960
Bad debt expense 524 1,581 3,178
Loss on disposal of assets 223 11 599
Deferred income taxes 481 414 1,000
Employee option amortization 749 749 749
Deferred compensation 160 -- --
Changes in current assets and liabilities:
Trade receivables (2,244) (4,468) (8,269)
Inventories (9,407) (2,569) (2,677)
Other assets 13 (335) (792)
Accounts payable, income taxes payable and other liabilities (173) 5,367 3,366
-------- -------- -------
Net cash flows provided by operating activities 25,441 27,209 23,512
-------- -------- -------
Cash flows used for investing activities:
Capital expenditures (15,779) (28,359) (15,825)
-------- -------- -------
Cash flows used for financing activities:
Repayment of long-term debt (14,000) -- --
Borrowings on long-term debt 10,000 -- --
Net addition to (repayment of) revolver (4,000) 4,000 --
Purchase of common stock for treasury (2,811) (11,584) (3,527)
Exercise of stock options 100 274 --
Sale of common stock to employee benefit plans 2,979 3,295 2,309
-------- -------- -------
Net cash flows used for financing activities (7,732) (4,015) (1,218)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents 1,930 (5,165) 6,469
Cash and cash equivalents, beginning of year 1,810 6,975 506
-------- -------- -------
Cash and cash equivalents, end of year $ 3,740 $ 1,810 $ 6,975
-------- -------- --------
-------- -------- -------
Supplemental cash flow information:
Interest paid $ 3,110 $ 2,847 $ 2,631
Income taxes paid 10,150 11,650 5,983
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
27
<PAGE>
O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common stock paid-in Retained Treasury stock comprehensive stockholders' Comprehensive
Shares Dollars capital Earnings Shares Dollars income (loss) equity income
------ --------- --------- --------- ------ -------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 16,820 $ 16,820 $ 87,757 $ 37,020 -- $ -- $ 18 $ 141,615
Net income 16,398 16,398 $ 16,398
Other comprehensive
income (5) (5) (5)
Purchase of common
Stock (297) (3,527) (3,527)
Sale of common stock 198 203 2,111 2,309
------ --------- --------- --------- ---- -------- -------- --------- --------
Balance, June 30, 1997 16,820 16,820 87,955 53,418 (94) (1,416) 13 156,790 16,393
--------
--------
Net income 14,899 14,899 $ 14,899
Other comprehensive
income (49) (49) (49)
Purchase of common
stock (999) (11,584) (11,584)
Exercise of stock
options, net of
tax benefit (263) 38 582 319
Sale of common stock 117 257 3,178 3,295
------ --------- --------- --------- ---- -------- -------- --------- --------
Balance, June 30, 1998 16,820 16,820 87,809 68,317 (798) (9,240) (36) 163,670 14,850
--------
--------
Net income 21,153 21,153 $ 1,153
Other comprehensive
income (7) (7) (7)
Purchase of common
stock (258) (2,811) 555 (2,811)
Exercise of stock
options, net of
tax benefit (53) 14 205 152
Sale of common stock (207) 271 3,186 2,979
------ --------- --------- --------- ---- -------- -------- --------- --------
Balance, June 30, 1999 16,820 $ 16,820 $ 87,549 $ 89,470 (771) $ (8,660) $ (43) $ 185,136 $ 21,146
--------
--------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION.
O'Sullivan Industries Holdings, Inc. ("O'Sullivan"), a Delaware
corporation, is a domestic producer of ready-to-assemble ("RTA") furniture.
O'Sullivan's RTA furniture includes desks, computer tables, cabinets, home
entertainment centers, audio equipment racks, microwave oven carts and a wide
variety of other RTA furniture for use in the home, office and home office. The
products are distributed primarily through office superstores, discount mass
merchants, mass merchants (department stores and catalog showrooms), home
centers, electronics retailers, furniture stores, OEM and internationally.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of O'Sullivan and its wholly owned subsidiaries. All significant
intercompany transactions, balances and profits have been eliminated.
PERVASIVENESS OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and related revenues and expenses, and disclosure of gain and loss
contingencies at the date of the financial statements. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand
and all highly liquid investments with original maturities of three months or
less.
BUSINESS AND CREDIT RISK CONCENTRATIONS: The largest five customer
accounts receivable balances accounted for approximately 62% and 56% of the
trade receivable balance at June 30, 1999 and 1998, respectively. Credit is
extended to customers based on evaluation of the customer's financial condition,
generally without requiring collateral. Exposure to losses on receivables is
dependent on each customer's financial condition. Therefore, O'Sullivan would be
exposed to a large loss if one of its major customers were not able to fulfill
its financial obligations. O'Sullivan maintains certain limited credit insurance
which helps reduce, but not eliminate, exposure to potential credit losses. In
addition, O'Sullivan monitors its exposure for credit losses and maintain
allowances for anticipated losses.
REVENUES: Revenue is recognized at the date product is shipped to
customers.
INVENTORIES: Inventories are stated at the lower of cost, determined
on a first-in, first-out (FIFO) basis, or market.
PROPERTY, PLANT AND EQUIPMENT: Depreciation and amortization of property,
plant and equipment is calculated using the straight-line method, which
amortizes the cost of the assets over their estimated useful lives. The ranges
of estimated useful lives are: buildings--30 to 40 years; machinery and
equipment--3 to 10 years; leasehold improvements--the lesser of the life of the
lease or asset. Maintenance and repairs are charged to expense as incurred.
Renewals and betterments which materially prolong the useful lives of the assets
are capitalized. The cost and related accumulated depreciation of property
retired or sold are removed from the accounts, and gains or losses on disposal
are recognized in the statement of operations.
AMORTIZATION OF EXCESS PURCHASE PRICE OVER NET TANGIBLE ASSETS OF
BUSINESSES ACQUIRED: Cost in excess of net assets acquired is amortized over a
40-year period using the straight-line method. Accumulated amortization at June
30, 1999 and 1998 approximated $26,419,000 and $24,752,000, respectively.
29
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS: Long-lived assets (I.E., property, plant
and equipment and goodwill) held and used are reviewed for possible impairment
whenever events or changes in circumstances indicate that the net book value of
the asset may not be recoverable. O'Sullivan recognizes an impairment loss if
the sum of the expected future cash flows (undiscounted and before interest)
from the use of the asset is less than the net book value of the asset. The
amount of the impairment loss is measured as the difference between the net book
value of the assets and the estimated fair value of the related assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques, as appropriate. Unless otherwise disclosed, the fair value
of financial instruments approximates their recorded values due primarily to the
short-term nature of their maturities.
DERIVATIVES: O'Sullivan utilizes derivative financial instruments to
reduce interest rate risks. O'Sullivan does not hold or issue derivative
financial instruments for trading purposes. Amounts to be paid or received under
the agreement are accrued as interest rates change and are recognized over the
life of the agreement as adjustments to interest expense.
ADVERTISING COSTS: Advertising costs are expensed the first time the
advertising takes place. Cooperative advertising costs are accrued and expensed
when the related revenues are recognized. Advertising expense for fiscal 1999,
1998 and 1997 was $21,147,000, $19,625,000 and $15,248,000, respectively.
INCOME TAXES: Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE: Environmental remediation and
compliance expenditures that relate to current operations are expensed or
capitalized, as appropriate. Expenditures that relate to an existing condition
caused by past operations and that do not contribute to current or future
revenue generation are expensed. Liabilities are recognized when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with completion of
a feasibility study or O'Sullivan's commitment to a formal plan of action. To
date, environmental expenditures have not been material, and management is not
aware of any material environmental related contingencies.
SIGNIFICANT FOURTH QUARTER ADJUSTMENTS: During the fourth quarter of
fiscal 1999, O'Sullivan recorded merger related expenses which are fully
described in Note 4. During the fourth quarter of fiscal 1997, bad debt charges
approximating $700,000, net of tax, were recorded due to the bankruptcy filing
of a major customer.
EARNINGS PER SHARE: Basic EPS excludes dilution and is computed by
dividing net income by the weighted average number of shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The dilutive effect of outstanding options issued by
O'Sullivan are reflected in diluted EPS using the treasury stock method. Under
the treasury stock method, options will only have a dilutive effect when the
average market price of common stock during the period exceeds the exercise
price of the options.
30
<PAGE>
The following is a reconciliation of the numerator and denominator used in
the basic and diluted EPS calculation:
<TABLE>
<CAPTION>
For the year ended June 30,
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Income available to common stockholders (numerator) $21,153 $14,899 $16,398
------- ------- -------
------- ------- -------
Weighted average shares outstanding (basic EPS denominator) 15,973 16,339 16,786
Effect of dilutive stock options 357 376 270
------- ------- -------
Weighted average shares, plus assumed conversions (diluted EPS denominator) 16,330 16,715 17,056
------- ------- -------
------- ------- -------
</TABLE>
ACCOUNTING FOR STOCK-BASED COMPENSATION: O'Sullivan accounts for stock
based compensation pursuant to the intrinsic value based method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES. O'Sullivan has made pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
FAS 123 had been applied. See Note 10.
COMPREHENSIVE INCOME: Effective July 1, 1998, O'Sullivan adopted Statement
of Financial Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE
INCOME. O'Sullivan has reported the components of comprehensive income in the
accompanying consolidated statement of changes in stockholders equity.
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. For O'Sullivan, other comprehensive income consists of foreign currency
translation adjustments. The tax benefit related to other comprehensive loss
approximated $4,000, $31,000 and $3,000 for the years ended June 30, 1999, 1998
and 1997, respectively.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS: In June 1999, the FASB issued SFAS
No. 138, which delayed the effective date of SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Accordingly, O'Sullivan will
adopts SFAS No. 133 effective July 1, 2000. This new accounting standard will
require that derivative instruments be measured at fair value and recognized in
the balance sheet as either assets or liabilities, as the case may be. The
treatment of changes in the fair value of a derivative (I.E., gains and losses)
will depend on its use and designation. O'Sullivan will initially report gains
and losses on derivatives designated as hedges against the cash flow effect of a
forecasted transaction as a component of other comprehensive income and,
subsequently, reclassify the gains and losses into earnings when the forecasted
transaction affects earnings. If SFAS 133 had been adopted on July 1, 1998, the
net change in the interest swap would reduce other accumulated comprehensive
income at June 30, 1999 by $336,000 (a current period increase to comprehensive
income of $267,000 offset by an accumulated loss at June 30, 1998 of $603,000).
Management has no intention of retiring the swap prior to the retirement of the
bonds.
RECLASSIFICATIONS: Certain items in the prior years' financial
statements have been reclassified to conform with the current year's
presentation.
NOTE 3 - PENDING MERGER.
On March 24, 1999, O'Sullivan announced that members of its senior
management team, in conjunction with a financial buyer, had made a proposal to
O'Sullivan's Board of Directors to acquire O'Sullivan, subject to requisite
financing. On May 18, 1999, O'Sullivan announced that it had entered into a
definitive merger
31
<PAGE>
agreement with an investment group that includes members of O'Sullivan's senior
management and Bruckmann, Rosser, Sherrill & Co., LLC ("BRS").
Under the merger agreement, O'Sullivan will be the surviving entity after
the merger. Certain directors and members of senior management are participating
with BRS in the buyout of existing O'Sullivan stockholders. After the completion
of the merger, the management participants in the buyout will own a total of
approximately 28.4% of the common stock of the surviving corporation. BRS and
its affiliates will own the balance.
The merger agreement stipulates that each share of outstanding common stock
of O'Sullivan will be exchanged for $17.50 in cash and one share of senior
preferred stock with an initial liquidation value of $1.75 per share. Unpaid
dividends, accruing at the rate of 12% per annum, will be added to the
liquidation value during the period that the senior preferred stock is
outstanding. Some of the shares of O'Sullivan common stock and options held by
the management participants in the buyout will be exchanged for common stock,
junior preferred stock and options to acquire junior preferred stock of the
surviving company.
BRS has advised us that BRS and the management participants in the merger
will require approximately $370 million to complete the merger and pay related
fees and expenses. BRS has advised us that approximately $285 million will be
funded via debt proceeds. The completion of the merger is subject to stockholder
approval, requisite regulatory approvals, obtaining suitable financing and the
absence of material adverse changes in O'Sullivan's business.
NOTE 4 - MERGER RELATED EXPENSES.
O'Sullivan is expensing merger related costs as incurred in connection with
the pending merger discussed in Note 3. As a result, during the fourth quarter
of fiscal year 1999, O'Sullivan recognized certain merger related expenses of
approximately $1.1 million incurred for legal, accounting, printing and
investment banker fees. The merger related expenses have been included as a
separate line item in the accompanying consolidated statement of operations.
Additional merger related expenses will be incurred during fiscal year 2000.
NOTE 5 - INVENTORY.
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Finished goods $39,623 $26,892
Work in process 6,263 6,835
Raw materials 10,248 13,000
------- -------
$56,134 $46,727
------- -------
------- -------
</TABLE>
32
<PAGE>
NOTE 6 - PROPERTY, PLANT & EQUIPMENT.
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
Land $ 1,034 $ 1,034
Buildings and improvements 42,289 41,216
Machinery and equipment 111,505 92,950
Construction in progress 3,068 10,466
--------- ---------
157,896 145,666
Less: Accumulated depreciation (61,212) (52,288)
--------- ---------
$ 96,684 $ 93,378
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization expense was $12,295,000, $9,893,000 and
$8,293,000 for fiscal 1999, 1998, and 1997, respectively, of which $9,912,000,
$8,200,000, and $7,309,000 respectively, was included in cost of sales.
In fiscal 1999, equipment with a net book value of $273,000 was disposed of
for $50,000. In fiscal 1997, machinery and tooling with a net book value of
$743,000 was disposed of for $46,000 and a note receivable of $98,000. The loss
is classified as cost of sales in the accompanying consolidated statement of
operations.
NOTE 7 - ACCRUED LIABILITIES.
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
June 30,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Accrued employee compensation $14,591 $11,467
Accrued advertising 9,055 9,402
Other current liabilities 1,049 1,744
------- -------
$24,695 $22,613
------- -------
------- -------
</TABLE>
NOTE 8 - LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS.
<TABLE>
<CAPTION>
June 30,
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Revolving credit agreement $ -- $ 4,000
Senior notes 16,000 20,000
Industrial revenue bonds 10,000 10,000
-------- --------
Total debt 26,000 34,000
Less current portion of senior notes (4,000) (4,000)
-------- --------
Total long-term debt $ 22,000 $ 30,000
-------- --------
-------- --------
</TABLE>
33
<PAGE>
Aggregate annual principal payments subsequent to June 30, 1999 are summarized
as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 4,000
2001 4,000
2002 4,000
2003 4,000
2004 --
Thereafter 10,000
--------
$ 26,000
--------
--------
</TABLE>
REVOLVING CREDIT AGREEMENT - O'Sullivan has a variable-rate, unsecured
$25.0 million revolving credit facility with a bank that expires on February 28,
2001. As of June 30, 1999 there were no borrowings outstanding under this
facility.
SENIOR NOTES - O'Sullivan issued $20.0 million of 8.01% notes in a 1995
private placement to certain insurance companies. These notes are payable in
annual $4 million increments from fiscal 1999 to fiscal 2003. The first $4
million payment on the notes was made in May 1999. Of the $16 million remaining
on these notes, $12 million is classified as long-term and $4 million is
classified as the current portion of long-term debt.
Under the terms of the Note Purchase Agreements, O'Sullivan is required
to meet certain financial ratios, including a funded debt-to-earnings ratio
requirement, a minimum net worth requirement and an earnings to fixed charges
ratio requirement. The agreements also contain a prepayment penalty.
INDUSTRIAL REVENUE BONDS - A subsidiary of O'Sullivan was the obligor
on $10 million of 8.25% industrial revenue bonds ("IRB's") that were to mature
on October 1, 2008. On October 1, 1998, O'Sullivan refinanced these bonds with
new, ten year variable interest rate IRB's. The $300,000 premium on the early
retirement of the bonds was recognized as a loss in the second quarter of fiscal
1999 and is included in interest expense in the accompanying consolidated
statement of operations. Interest on the IRB's is paid quarterly. The loan is
secured by a $10.3 million standby letter of credit under the revolving credit
facility.
Effective October 1, 1998, O'Sullivan entered into a forward starting
interest rate swap agreement with a notional principal amount of $10 million
which terminates October 1, 2008. Pursuant to the agreement, O'Sullivan pays a
fixed rate of 7.13% and receives a floating interest rate for the duration of
the swap agreement (5.0% at June 30, 1999). The swap has the effect of hedging
O'Sullivan's exposure to an increase in interest rates under the refinanced
IRB's discussed above. O'Sullivan has designated the swap as a hedge against
future cash flow exposure. The fair value of this interest rate swap at June 30,
1999 was approximately $525,000. This amount represents the amount O'Sullivan
would have to pay to terminate the swap. This amount has not been recognized in
the accompanying consolidated financial statements since it is accounted for as
a hedge.
34
<PAGE>
NOTE 9 - INCOME TAXES.
The income tax provision consists of the following:
<TABLE>
<CAPTION>
For the year ended June 30,
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 10,890 $ 7,886 $ 9,955
State 529 442 473
-------- -------- --------
11,419 8,328 10,428
Deferred 481 414 (378)
-------- -------- --------
$ 11,900 $ 8,742 $ 10,050
-------- -------- --------
-------- -------- --------
</TABLE>
The following table reconciles O'Sullivan's federal corporate statutory rate and
its effective income tax rate:
<TABLE>
<CAPTION>
For the year ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 1.6 1.7 1.7
Goodwill amortization 1.1 1.3 1.2
Other, net (1.7) (1.0) 0.1
Effective tax rate 36.0% 37.0% 38.0%
</TABLE>
<TABLE>
<CAPTION>
June 30,
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
DEFERRED TAX ASSETS:
ad debt reserve $ 895 $ 847
Insurance reserves 592 755
Accrued compensation 1,184 898
Other 154 93
-------- --------
Total deferred tax assets 2,825 2,593
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation and amortization (16,318) (15,690)
Inventories (98) (39)
Other (372) (346)
-------- --------
Total deferred tax liabilities (16,788) (16,075)
-------- --------
Net deferred tax liability $(13,963) $(13,482)
-------- --------
-------- --------
REPORTED AS:
Current assets
(included in prepaid expenses and other current assets) $ 2,269 $ 2,208
Noncurrent liabilities-deferred income taxes (16,232) (15,690)
-------- --------
Net deferred tax liability $(13,963) $(13,482)
-------- --------
-------- --------
</TABLE>
In connection with the 1994 initial public offerings of O'Sullivan's
common stock, Tandy Corporation, TE Electronics Inc. and O'Sullivan entered into
a Tax Sharing and Tax Benefit Reimbursement Agreement. Pursuant to the tax
agreement, Tandy is primarily responsible for all U.S. federal income taxes,
state income taxes and foreign income taxes with respect to O'Sullivan for all
periods ending on or prior to the date of
35
<PAGE>
consummation of the Offerings and for audit adjustments to such federal income
and foreign income taxes. O'Sullivan is responsible for all other taxes owing
with respect to O'Sullivan, including audit adjustments to state and local
income and for franchise taxes.
O'Sullivan and Tandy made an election under Sections 338(g) and
338(h)(10) of the Internal Revenue Code with the effect that the tax basis of
O'Sullivan's assets was increased to the deemed purchase price of the assets. An
amount equal to such increase was included in income in the consolidated federal
income tax return filed by Tandy. This additional tax basis results in increased
income tax deductions and, accordingly, reduced income taxes payable by
O'Sullivan. Pursuant to the tax agreement, O'Sullivan pays Tandy nearly all of
the federal tax benefit expected to be realized with respect to such additional
basis. Amounts payable to Tandy pursuant to the tax agreement are recorded as
current federal income tax expense in the accompanying consolidated statements
of operations. Income tax expense thus approximates the amount which would be
recognized by O'Sullivan in the absence of the tax agreement. Although the
amount of the payment required to be made in a particular year under the tax
agreement may differ somewhat from the difference in that tax year between
O'Sullivan's actual taxes and the taxes that O'Sullivan would have owed had the
increase in basis not occurred, the aggregate amount of payments required to be
made by O'Sullivan to Tandy over the life of the tax agreement will not differ
materially from the difference over the life of the tax agreement between
O'Sullivan's actual taxes and the amount of taxes that O'Sullivan would have
owed had the increase in basis not occurred. Consequently, such payments should
have no effect on O'Sullivan's earnings and should not have a material effect on
its cash flow. The tax agreement provides for adjustments to the amount of tax
benefit payable in the event of certain material transactions, such as a
business combination or significant disposition of assets. During fiscal 1999,
1998 and 1997, $9.7 million, $11.7 million and $6.0 million, respectively, were
paid to Tandy pursuant to this agreement. See Note 14.
NOTE 10 - STOCK OPTIONS.
Under O'Sullivan's Amended and Restated 1994 Incentive Stock Plan,
designated officers, employees, employee directors and consultants of O'Sullivan
are eligible to receive awards in the form of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock grants
or performance awards. Annually, non-employee directors receive options to
purchase 2,000 shares of common stock (increased from 1,000 shares beginning in
fiscal 1998). The purchase price of common stock subject to an option shall not
be less than the market value of the stock on the date of the grant and for a
term not to exceed ten years. An aggregate of 2,000,000 shares of common stock
have been reserved for issuance under the Plan, no more than 300,000 of which
may be awarded as restricted stock or performance awards. In fiscal 1994,
O'Sullivan awarded restricted shares of common stock totaling 19,950 shares. The
restrictions on these shares lapsed in fiscal 1999.
In July 1996, the compensation committee granted, subject to
stockholder approval, options to purchase 625,250 shares of common stock to
O'Sullivan's officers and other key employees. Depending on whether certain
performance objectives were met, the options would become exercisable in
one-third increments on each of the first three anniversaries of the date of the
grant and would expire ten years after the date of the grant. To the extent
performance objectives were not met, the options would become exercisable on
August 10, 2003 and would expire September 10, 2003. As a result of O'Sullivan's
Company's performance in fiscal 1997, the options became exercisable over three
years through fiscal 1999 and will expire in July 2006. The stockholders
approved the grants in November 1996; accordingly, O'Sullivan recognized
compensation expense of approximately $2.2 million over the three year vesting
period, which amount was based on the difference between the exercise price and
the fair market value of common stock on the date of stockholder approval.
O'Sullivan recognized compensation expense of $749,000 in each of fiscal 1999,
fiscal 1998 and fiscal 1997 related to the granting of these options.
36
<PAGE>
Additionally, during fiscal 1997, the Board of Directors granted
options to purchase 284,150 shares of common stock that were not based on
performance objectives. Full vesting terms ranged from three to five years with
the options expiring ten years from the date of the grant. The exercise prices
for these options were equal to the fair market value on the respective dates of
grant; therefore, no compensation expense was recognized.
Summary of Stock Option Transactions
(share amounts in thousands)
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998 June 30, 1997
--------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,544 $ 9.77 1,215 $ 7.61 324 $ 9.14
Grants 91 10.60 378 15.90 909 7.31
Exercised (14) 7.23 (38) 7.13 (1) 7.50
Canceled (28) 10.00 (11) 9.32 (17) 8.02
----- ----- -----
Outstanding at end of year 1,593 9.84 1,544 9.77 1,215 7.61
----- ----- -----
----- ----- -----
Exercisable at end of year 928 8.82 500 8.45 145 10.04
----- ----- -----
----- ----- -----
Weighted average fair value of
options granted during the year $ 5.38 $ 7.95 $ 6.53
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Shares Weighted Weighted
Range of Outstanding at Weighted Average Average Shares Average
Exercise Prices 6/30/99 Remaining Exercise Exercisable at Exercise
(000's) Contractual Life Price 6/30/99 (000's) Price
- ------------------- -------------- ---------------- -------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 6.18 - $7.59 1,001 6.9 years $ 7.21 704 $ 7.24
$ 7.60 - $9.49 9 6.7 years 8.65 7 8.49
$ 9.50 - $11.39 89 9.4 years 10.60 - -
$ 11.40 - $13.29 138 5.9 years 12.52 123 12.54
$ 13.30 - $15.192 10 8.2 years 13.38 3 13.38
$ 15.20 - $16.10 346 8.0 years 16.09 91 16.09
-------------- ---------------
$ 6.18 - $16.10 1,593 7.2 years $ 9.84 928 $ 8.82
-------------- ---------------
-------------- ---------------
</TABLE>
O'Sullivan has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for options granted except
as mentioned above. Had compensation cost for O'Sullivan's stock option plans
been determined based on the fair value at the grant date for awards in fiscal
1999, 1998 and fiscal 1997 in accordance with the provisions of FAS 123,
O'Sullivan's net income and net income per share would have been reduced to the
pro forma amounts indicated below (in thousands, except per share amounts):
37
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net income As reported $ 21,153 $ 14,899 $ 16,398
Pro forma 19,765 13,729 15,521
Basic earnings per share As reported 1.32 0.91 0.98
Pro forma 1.23 0.85 0.92
Diluted earnings per share As reported 1.30 0.89 0.96
Pro forma 1.22 0.84 0.92
</TABLE>
We estimate the fair value of each option grant on the date of grant
using the Black-Scholes option-pricing model based upon the following weighted
average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate 5.10% 6.24% 6.70%
Dividend yield None None None
Volatility factor 42.57% 37.56% 47.84%
Weighted average expected life (years) 6.0 6.6 6.8
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. The effects of applying
SFAS 123 in this pro forma disclosure are not indicative of the impact on future
years as the pro forma amounts above do not include the impact of stock option
awards granted prior to fiscal 1996.
NOTE 11 - EMPLOYEE BENEFIT PLANS.
O'Sullivan maintains a stock purchase program that is available to most
employees. The stock purchase program (the "SPP"), as amended, allows a maximum
employee contribution of 5%, while O'Sullivan's matching contribution is 25%,
40% or 50% of the employee's contribution, depending on the length of the
employee's participation in the program. The matching contributions to the stock
purchase program were $700,000, $700,000 and $600,000 in fiscal years 1999, 1998
and 1997, respectively.
O'Sullivan also has a Savings and Profit Sharing Plan in which most
employees are eligible to participate. Under the savings or Section 401(k)
portion of the plan, employees may contribute from 1% to 15% of their
compensation (subject to certain limitations imposed by the Internal Revenue
Code), and O'Sullivan makes matching contributions equal to 50% of the first 5%
of eligible employee contributions. Under the profit sharing portion of the
plan, O'Sullivan may contribute annually an amount up to 7.5% of O'Sullivan's
pre-tax earnings, subject to Board approval. Employer matching contributions are
invested in O'Sullivan common stock. Employer matching contributions vest
immediately, while profit sharing contributions vest 100% when the employee has
five years of service with O'Sullivan. For fiscal 1999, 1998 and 1997,
O'Sullivan accrued approximately $2.5 million, $1.7 million and $2.0 million,
respectively, for the profit sharing portion of the plan. The matching
contributions to the savings portion of the plan were $800,000, $700,000 and
$600,000 in fiscal year 1999, 1998 and 1997 respectively.
Employees can direct the voting of O'Sullivan common stock attributable
to their Stock Purchase Program and Savings and Profit Sharing Plan accounts.
Effective July 1, 1997, O'Sullivan implemented its Deferred
Compensation Plan. This plan is available to employees of O'Sullivan deemed to
be "highly compensated employees" pursuant to the Internal Revenue Code.
O'Sullivan will make certain matching and profit sharing accruals to the
accounts of participants. All amounts deferred or accrued under the terms of the
plan represent unsecured obligations of O'Sullivan to the
38
<PAGE>
participants. Matching and profit sharing accruals under the this plan were not
material in fiscal 1999 or fiscal 1998.
NOTE 12 - TERMINATION PROTECTION AGREEMENTS.
O'Sullivan has entered into Termination Protection Agreements with most
of its officers. These Termination Protection Agreements, all of which are
substantially similar, have initial terms of two years which automatically
extend to successive one-year periods unless terminated by either party. If the
employment of any of these officers is terminated, with certain exceptions,
within 24 months following a change in control, the officers are entitled to
receive certain cash payments, as well as the continuation of fringe benefits
for a period of up to twelve months. Additionally, all benefits under the
Savings and Profit Sharing Plan and the Deferred Compensation Plan vest, all
restrictions on any outstanding incentive awards or shares of restricted common
stock will lapse and such awards or shares will become fully vested, all
outstanding stock options will become fully vested and immediately exercisable,
and O'Sullivan will be required to purchase for cash, on demand made within 60
days following a change in control, any shares of unrestricted common stock and
options for shares at the then current per-share fair market value. The
agreements as amended in February 1996 also provide one year of outplacement
services for the officer and that, if the officer moves more than 20 miles from
his primary residence in order to accept permanent employment within 36 months
after leaving O'Sullivan, O'Sullivan will, upon request, repurchase the
officer's primary residence at a price determined in accordance with the
agreement.
In March 1999, O'Sullivan entered into 24 Termination Protection
Agreements with its director-level managers, three of whom were promoted to
officers in July 1999. The Termination Protection Agreements (all of which are
substantially similar) have initial terms of two years which automatically
extend for successive one-year periods unless terminated by either party. If the
employment of any of these employees is terminated (with certain exceptions)
within twelve months following a "Change in Control," or in certain other
instances in connection with a Change in Control, the employees are entitled to
receive a cash payment equal to the total of six months salary and one-half of
their respective annual bonus (twelve months salary and an annual bonus amount
in certain instances). The employees would also be entitled to the continuation
of certain insurance benefits (life insurance, disability, medical, dental and
hospitalization benefits) for a period of up to six (or twelve) months. The
agreements also provide for outplacement services for the employee.
Under the Termination Protection Agreements, a "Change in Control" will
be deemed to have occurred if either (i) any person or group acquires beneficial
ownership of 15% of the voting securities of O'Sullivan, (ii)
39
<PAGE>
there is a change in the composition of a majority of the Board of Directors
within any two-year period which is not approved by certain of the directors who
were directors at the beginning of the two-year period; (iii) the stockholders
of O'Sullivan approve a merger, consolidation or reorganization involving
O'Sullivan; (iv) there is a complete liquidation or reorganization involving
O'Sullivan; or (v) O'Sullivan enters into an agreement for the sale or other
disposition of all or substantially all of the assets of O'Sullivan.
NOTE 13 - STOCKHOLDER RIGHTS PLAN.
O'Sullivan has adopted a Stockholder Rights Plan under which one right
(a "Right") was issued with respect to each share of common stock. Each Right
entitles the holder to purchase from O'Sullivan a unit consisting of one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share, at a purchase price of $110 per Right, subject to
adjustment in certain events.
The Rights are currently attached to all certificates representing
outstanding shares of common stock, and separate certificates for the Rights
will be distributed only upon the occurrence of certain specified events. The
Rights will separate from the common stock and a "Distribution Date" will occur
upon the earlier of (i) ten days following a public announcement that a person
or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of common stock, or (ii) ten business days (or such
later date as may be determined by O'Sullivan's Board of Directors before the
Distribution Date occurs) following the commencement of a tender offer or
exchange offer that would result in a person becoming an Acquiring Person.
The Rights Plan was amended in March 1999 to change the Rights Agent
and to conform the plan to recent Delaware court decisions.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on February 1, 2004, unless earlier redeemed or
exchanged by O'Sullivan.
In the merger agreement discussed in Note 3 above, O'Sullivan agreed to
amend the stockholder rights plan so that OSI Acquisition, Inc. will not be an
Acquiring Person.
NOTE 14 - COMMITMENTS AND CONTINGENCIES.
O'Sullivan leases warehouse space, computers and certain other
equipment under operating leases. As of June 30, 1999, minimum future lease
payments for all noncancellable lease agreements were as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 1,611
2001 1,102
2002 753
2003 515
2004 338
Thereafter 66
-------
Total $ 4,384
-------
-------
</TABLE>
Amounts incurred by O'Sullivan under operating leases (including
renewable monthly leases) were $1,679,000, $1,367,000 and $936,000 in 1999, 1998
and 1997, respectively.
On May 18, 1999, five lawsuits were filed as class actions by
stockholders in the Delaware Court of Chancery seeking to enjoin the merger or,
in the alternative to rescind the merger and recover monetary damages (See Note
3). The complaints name as defendants O'Sullivan, all of its directors and, in
some cases, BRS. The complaints allege that O'Sullivan's directors breached
their fiduciary duties by approving the merger. The
40
<PAGE>
complaints also allege that the price terms of the merger are inadequate and
unfair to O'Sullivan's stockholders. In addition, the complaints allege that the
management participants in the buyout have conflicts of interest that have
prevented them from acting in the best interests of O'Sullivan's stockholders
and that make it inherently unfair for BRS and the management participants in
the buyout to acquire 100% of the O'Sullivan's stock. In the cases naming BRS as
a defendant, BRS is alleged to have aided and abetted breaches of fiduciary
duties. The defendants do not have to respond to the lawsuits after the
plaintiffs have combined their complaints into one complaint. The court issued
an order on July 22, 1999 requiring the plaintiffs to consolidate their
complaints into one complaint. However, no date has been set by which the
defendants must move or answer in response to the combined complaint. Management
believes that the claims are without merit and intends to vigorously defend the
lawsuit.
On June 29, 1999, Tandy filed suit in a Texas court against O'Sullivan.
The suit relates to a potential reduction in O'Sullivan's tax benefit payments
to Tandy that would result from increased interest expense after the completion
of the merger. Tandy claims that this reduction would violate the tax sharing
and tax reimbursement agreement.
On September 9, 1999, Tandy filed a motion for summary judgment in its
lawsuit. The motion argues that Tandy is entitled to a court order requiring
O'Sullivan to commence dispute resolution procedures under the tax sharing
agreement. Because O'Sullivan has made all the payments required to be made
under the tax sharing agreement and because no merger has occurred, O'Sullivan
believes that Tandy's lawsuit is premature since there cannot be a dispute under
the tax sharing agreement with respect to the increased interest resulting from
the merger until the merger is completed. Alternatively, Tandy argues that it is
entitled to a court order preventing O'Sullivan from deducting the interest
expense related to the merger from O'Sullivan's tax-sharing payments to Tandy.
Tandy's argument is based on a letter to that effect, dated June 22, 1999, from
PricewaterhouseCoopers LLP to an officer of Tandy. The PricewaterhouseCoopers
letter relies on an opinion provided by Tandy's outside counsel. O'Sullivan has
not seen a copy of that opinion. Tandy claims that the June 22, 1999 letter
entitles it to the relief it seeks since PricewaterhouseCoopers is O'Sullivan's
auditing firm. According to Tandy, PricewaterhouseCoopers should necessarily be
an acceptable arbiter to O'Sullivan under the tax sharing agreement's dispute
resolution provisions. PricewaterhouseCoopers, however, did not issue the letter
in its capacity as O'Sullivan's auditor or as a neutral arbiter, but rather at
the request of Tandy. Moreover, PricewaterhouseCoopers states in the letter that
the letter "does not constitute a tax opinion or legal advice." O'Sullivan
believes the PricewaterhouseCoopers letter does not entitle Tandy to relief
because, among other invalid assumptions supplied by Tandy, that letter
incorrectly assumes that OSI Acquisition, Inc. will incur the debt used to
finance the merger. In fact, the debt used to finance the merger will be
incurred by O'Sullivan Industries Holdings, Inc. and its operating subsidiary,
O'Sullivan Industries, Inc. O'Sullivan has received an opinion from its outside
counsel that supports O'Sullivan's interpretation of the tax sharing agreement.
A hearing on the motion for summary judgment is scheduled for October 1, 1999.
O'Sullivan believes Tandy's lawsuit is without merit and intends to defend
itself vigorously.
In addition, O'Sullivan is a party to various legal actions arising in
the ordinary course of its business. O'Sullivan does not believe that any such
pending actions will have a material adverse effect on its results of operations
or financial position. O'Sullivan maintains liability insurance at levels which
it believes are adequate for its needs.
O'Sullivan's operations are subject to extensive federal, state and
local laws, regulations and ordinances relating to the generation, storage,
handling, emission, transportation and discharge of certain materials,
substances and waste into the environment. Permits are required for certain of
O'Sullivan's operations and are subject to revocation, modification and renewal
by governmental authorities. In general, compliance with air emission
regulations is not expected to have a material adverse effect on O'Sullivan's
business, results of operations or financial condition.
41
<PAGE>
O'Sullivan's manufacturing facilities ship waste product to various
disposal sites. O'Sullivan has been designated as a potentially responsible
party under the Arkansas Remedial Action Trust Fund Act in connection with the
cost of cleaning up one site in Diaz, Arkansas and has entered into a DE MINIMIS
buyout agreement with certain other potentially responsible parties, pursuant to
which it has contributed $2,000 to date toward cleanup costs. O'Sullivan
believes that amounts it may be required to pay in the future, if any, will be
immaterial.
In October 1998, Mr. Daniel F. O'Sullivan, Chairman of the Board of
Directors and Chief Executive Officer, completed negotiations of a retirement
and consulting agreement with O'Sullivan contingent upon the hiring of his
successor. In May 1999, the original retirement agreement was amended, removing
a contingency relating to the hiring of his successor. The retirement agreement
contains standard noncompetition provisions. The present value of all future
payments to Mr. O'Sullivan under this agreement have been capitalized and
recorded as an intangible asset. The noncompetition asset will be amortized on a
straight line basis over the term of the agreement with Mr. O'Sullivan
commencing on the earlier of his retirement or March 31, 2000. Based on a
retirement date of March 31, 2000, the amortization period would be
approximately 6.3 years. The noncompetition asset of $1.9 million, which
represents the present value of the future payments to be paid pursuant to the
agreement, and the corresponding liability of $1.9 million, are included in the
accompanying consolidated balance sheet.
During fiscal 1999, O'Sullivan also recorded compensation expense
equal to the intrinsic value of Mr. O'Sullivan's outstanding options in
conjunction with the acceleration of the vesting of Mr. O'Sullivan's unvested
options and the extension of the exercise period for all of Mr. O'Sullivan's
options. The compensatory charge related to the options, combined with the
associated legal and other costs, approximated $235,000.
NOTE 15 - SHARE REPURCHASE PROGRAM.
On May 2, 1997, the Board of Directors authorized the purchase of up to
five percent of the outstanding shares of O'Sullivan's common stock during the
next 24 months. Purchases were completed in October 1998, after spending
approximately $9.5 million for 840,000 shares.
NOTE 16 - MAJOR CUSTOMERS AND INTERNATIONAL OPERATIONS.
Sales to three customers exceeded 10% of net sales in at least one of
the prior three fiscal years. Sales to such customers as a percentage of net
sales were:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer A 20.9% 20.1% 17.1%
Customer B 13.1% 11.6% 12.3%
Customer C 7.6% 9.7% 12.0%
</TABLE>
There are no material foreign operations or export sales.
NOTE 17 - QUARTERLY OPERATING RESULTS - UNAUDITED (in thousands, except per
share data).
<TABLE>
<CAPTION>
Fiscal 1998 (By Quarter)
--------------------------------------
1 2 3 4
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $87,673 $97,786 $108,529 $85,644
Gross profit 24,893 28,099 32,809 26,201
Net income 3,715 4,733 7,732 4,974(a)
Basic earnings per common share 0.23 0.30 0.48 0.31
Diluted earnings per common share 0.23 0.29 0.47 0.30
Fiscal 1999 (By Quarter)
--------------------------------------
1 2 3 4
------- ------- -------- -------
Net sales $77,141 $85,524 $ 92,325 $84,417
Gross profit 22,738 23,386 24,653 24,544
Net income 3,603 3,424 3,814 4,058
Basic earnings per common share 0.22 0.21 0.24 0.25
Diluted earnings per common share 0.22 0.20 0.23 0.25
</TABLE>
(a) See Note 2 regarding significant fourth quarter adjustments.
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following sets forth certain information with respect to the
business experience of each Director of O'Sullivan during the past five years
and certain other directorships held by Director. References to service with
O'Sullivan in this section include service with O'Sullivan Industries, Inc. our
wholly owned subsidiary.
CLASS III DIRECTORS--TERM EXPIRING 1999.
WILLIAM C. BOUSQUETTE, 62, an independent financial consultant, was appointed a
director of O'Sullivan in December 1993. From January 1995 through December 31,
1996, Mr. Bousquette was the Senior Vice President and Chief Financial Officer
of Texaco, Inc., an integrated petroleum company. From January 1994 to January
1995 and from November 1990 to January 1993, he was Executive Vice President and
Chief Financial Officer of Tandy Corporation, a retailer of consumer electronics
products. From January 1993 to January 1994, he was Chief Executive Officer of
TE Electronics Inc., a subsidiary of Tandy. From 1983 until O'Sullivan's initial
public offerings in February 1994, Tandy and TE owned all of the stock of
O'Sullivan. Mr. Bousquette is also a director of Cyprus Amax Minerals Company, a
mining company; and InterTAN, Inc., a retailer of consumer electronics products
with locations in Canada, Australia and the United Kingdom.
STEWART M. KASEN, 60, was appointed President and Chief Executive Officer of
Factory Card Outlet, Inc. in May 1998; he has served as Chairman since 1997.
Factory Card Outlet is a retailer of special occasion merchandise which filed
for protection under Chapter 11 of the United States Bankruptcy Code in 1999.
Mr. Kasen was the Chief Executive Officer of Best Products Co., Inc., a chain of
retail stores, from October 1989 to April 1996. Best Products filed a petition
for bankruptcy under the United States Bankruptcy Code in September 1996, and
Best Products was subsequently liquidated. Mr. Kasen is also a director of
Markel Corporation, an underwriter of specialty insurance products; K2 Inc., a
manufacturer of sporting goods and recreational products; and The Elder-Beerman
Stores Corp., a regional department store. Mr. Kasen joined O'Sullivan's Board
of Directors in August 1996.
DANIEL F. O'SULLIVAN, 58, was named President, Chief Executive Officer and a
Director of O'Sullivan in November 1993 and became Chairman of the Board in
December 1993. He relinquished the position of President of O'Sullivan in July
1996 and resigned as Chief Executive Officer in October 1998. He served as
President of O'Sullivan Industries, Inc. from 1986 until July 1996, and was
appointed Chairman of the Board and Chief Executive Officer in 1994. He also
serves as Chairman of the Board and Chief Executive Officer of O'Sullivan
Industries -Virginia, Inc. Mr. O'Sullivan has been employed by O'Sullivan since
September 1962. Under the terms of his retirement and consulting agreement with
O'Sullivan, Mr. O'Sullivan is to retire as Chairman in March 2000.
CLASS I DIRECTORS--TERM EXPIRING 2000.
RICHARD D. DAVIDSON, 51, was named President and Chief Operating Officer of
O'Sullivan, O'Sullivan Industries, Inc. and O'Sullivan Industries -Virginia,
Inc. in July 1996. He was named a Director of O'Sullivan Industries and
O'Sullivan Industries - Virginia, Inc. in July 1996 and O'Sullivan Holdings in
August 1996. For more than five years prior to October 1995, he served as a
Senior Vice President of Sunbeam Corporation and as President of Sunbeam's
Outdoor Products Division.
43
<PAGE>
RONALD G. STEGALL, 51, has been President and Chief Executive Officer of
Arlington Equity Partners, a venture capital investment firm, since 1992. Mr.
Stegall is Chairman of the Board of InterTAN, Inc., a retailer of consumer
electronics products with locations in Canada, Australia and the United Kingdom,
and is a director of Hastings Entertainment, Inc., a retailer of books, audio
and video recordings and software, and Gadzooks, Inc. an apparel and accessory
retailer. From 1987 through 1991, he was Chairman and Chief Executive Officer of
BizMart, Inc., a chain of office products superstores subsequently sold to
OfficeMax, Inc. Mr. Stegall was appointed a director of O'Sullivan in July 1994.
CLASS II DIRECTORS--TERM EXPIRING 2001.
CHARLES G. HANSON, 86, retired on December 31, 1993 from his career as the
founder, President and Chief Executive Officer of Stuart Hall Co., a commercial
stationery manufacturer, following the sale of Stuart Hall to The Newell Co. He
is also a member of the Board of Trustees of the Eisenhower Medical Center and
the Barbara Sinatra Children's Center. Mr. Hanson was appointed a director of
O'Sullivan in March 1995.
THOMAS M. O'SULLIVAN, SR., 77, was appointed director of O'Sullivan in December
1993. He founded O'Sullivan Industries in 1954 and served as its President until
June 1986. He has been President of O'Sullivan Properties, Inc., a real estate
investment company, since December 1986.
TYRONE E. RIEGEL, 56, has been Executive Vice President of O'Sullivan
Industries, Inc. since July 1986 and a Director since March 1994. He was
appointed as Executive Vice President and a Director of O'Sullivan in November
1993. Mr. Riegel also serves as Executive Vice President and a Director of
O'Sullivan Industries - Virginia, Inc. Mr. Riegel has been employed by
O'Sullivan since January 1964.
EXECUTIVE OFFICERS.
O'Sullivan's executive officers, and their ages and positions with
O'Sullivan as of September 1, 1999, are as follows:
<TABLE>
<CAPTION>
OFFICER
NAME AGE SINCE(1) POSITION(S)
<S> <C> <C> <C>
Daniel F. O'Sullivan 58 1969 Chairman of the Board
Richard D. Davidson 51 1996 President and Chief Operating Officer and Director
Tyrone E. Riegel 56 1969 Executive Vice President and Director
Phillip J. Pacey 34 1999 Vice President-Finance and Treasurer
Thomas M. O'Sullivan, Jr. 44 1993 Vice President-Sales
Rowland H. Geddie, III 45 1993 Vice President, General Counsel and Secretary
E. Thomas Riegel 55 1993 Vice President-Strategic Operations
James C. Hillman 54 1973 Vice President-Human Resources
Michael P. O'Sullivan 40 1995 Vice President-Marketing
Tommy W. Thieman 48 1999 Vice President-Manufacturing-Lamar
Stuart D. Schotte 37 1999 Vice President-Supply Chain Management
</TABLE>
- ----------
(1) Includes officer positions held with O'Sullivan Industries, Inc.
PHILLIP J. PACEY was appointed Vice President-Finance and Treasurer of
O'Sullivan, O'Sullivan Industries, Inc. and O'Sullivan Industries -Virginia,
Inc. in July 1999. From November 1995 until July 1999, he served as Treasurer of
O'Sullivan, O'Sullivan Industries, Inc. and O'Sullivan Industries - Virginia,
Inc. From 1994 until November 1995, Mr. Pacey served as Corporate Tax Manager of
Savannah Foods and Industries, Inc., a sugar refiner and marketer.
44
<PAGE>
THOMAS M. O'SULLIVAN, JR. has been Vice President-Sales of O'Sullivan,
O'Sullivan Industries, Inc. and O'Sullivan Industries - Virginia, Inc. since
1993. Mr. O'Sullivan has been employed by O'Sullivan since June 1979.
ROWLAND H. GEDDIE, III has been Vice President, General Counsel and
Secretary of O'Sullivan, O'Sullivan Industries, Inc. and O'Sullivan Industries
- -Virginia, Inc. since December 1993. He was appointed a Director of O'Sullivan
Industries, Inc. and O'Sullivan Industries - Virginia, Inc. in March 1994.
E. THOMAS RIEGEL has been Vice President-Strategic Operations of
O'Sullivan, O'Sullivan Industries, Inc. and O'Sullivan Industries -Virginia,
Inc. since November 1995. From June 1993 until November 1995, he was Vice
President-Marketing of O'Sullivan, O'Sullivan Industries, Inc. and O'Sullivan
Industries - Virginia, Inc. Mr. Riegel has been employed by O'Sullivan since May
1971.
JAMES C. HILLMAN has been Vice President-Human Resources of O'Sullivan
since November 1993 and of O'Sullivan Industries, Inc. since 1980. He also
serves as Vice President-Human Resources of O'Sullivan Industries - Virginia,
Inc. Mr. Hillman has been employed by O'Sullivan since May 1971.
MICHAEL P. O'SULLIVAN has been Vice President-Marketing of O'Sullivan,
Industries and O'Sullivan Industries - Virginia, Inc. since November 1995. He
served as National Sales Manager of O'Sullivan Industries, Inc. and O'Sullivan
Industries - Virginia, Inc. from July 1993 until November 1995. Mr. O'Sullivan
has been employed by O'Sullivan since 1984.
TOMMY W. THIEMAN was appointed Vice President-Manufacturing-Lamar in
July 1999 for O'Sullivan and O'Sullivan Industries, Inc. Since 1987, he has
served as the Plant Manager in Lamar. Mr. Thieman has been employed by
O'Sullivan since 1984.
STUART D. SCHOTTE was appointed Vice President-Supply Chain Management
in July 1999 for O'Sullivan , O'Sullivan Industries, Inc. and O'Sullivan
Industries - Virginia, Inc. From February 1998 to July 1999, Mr. Schotte served
as Controller for O'Sullivan Holdings, O'Sullivan Industries, Inc. and
O'Sullivan Industries -Virginia, Inc. From July 1996 until February 1998, Mr.
Schotte served as Director of Financial Analysis and Planning for Fast Food
Merchandisers, Inc. From October 1994 to July 1996, he was a certified public
accountant. From March 1993 to October 1994, he served as Corporate Controller
for Savannah Foods and Industries, Inc.
CERTAIN RELATIONSHIPS. Daniel F. O'Sullivan, Thomas M. O'Sullivan, Jr.
and Michael P. O'Sullivan are brothers. Tommy W. Thieman is the brother-in-law
of Daniel F. O'Sullivan, Thomas M. O'Sullivan, Jr. and Michael P. O'Sullivan.
Tyrone E. Riegel and James C. Hillman were, prior to the deaths of their
respective spouses, brothers-in-law of Daniel F. O'Sullivan, Thomas M.
O'Sullivan, Jr. and Michael P. O'Sullivan. Tyrone E. Riegel and E. Thomas Riegel
are brothers. Thomas M. O'Sullivan, Sr., a Director and the founder of
O'Sullivan, is the father of Daniel F. O'Sullivan, Thomas M. O'Sullivan, Jr. and
Michael P. O'Sullivan, is the father-in-law of Tommy W. Thieman and is the
former father-in-law of Tyrone E. Riegel and James C. Hillman.
45
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table reflects the cash and non-cash compensation for the
chief executive officer of O'Sullivan and the four next most highly compensated
executive officers at June 30, 1998.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
---------------------- ------------
Securities All Other
Fiscal Salary Bonus Underlying Stock Compensation
Name and Principal Position Year ($) ($) Options (#)(2) ($)(3)
<S> <C> <C> <C> <C> <C>
Daniel F. O'Sullivan 1999 275,000 229,279 -- 44,107
Chairman of the Board 1998 273,269 74,856 80,000 35,939
1997 229,807 210,849 136,000 21,096
Richard D. Davidson 1999 225,000 174,263 -- 37,104
President and 1998 224,423 56,942 65,000 31,760
Chief Operating Officer 1997 205,961 178,809 100,000 18,119
Tyrone E. Riegel 1999 195,000 116,276 -- 35,009
Executive Vice President 1998 194,615 38,062 28,000 35,441
1997 184,856 121,268 84,500 26,503
Terry L. Crump(4) 1999 160,000 95,460 -- 28,576
Executive Vice President and 1998 159,423 31,284 28,000 27,366
Chief Financial Officer 1997 144,904 85,531 61,750 20,710
Thomas M. O'Sullivan, Jr. 1999 130,000 54,422 -- 24,222
Vice President-Sales 1998 129,615 17,922 12,000 23,660
1997 119,904 55,226 41,000 20,915
</TABLE>
- ----------
(1) For the years shown, the named officers did not receive any annual
compensation not properly categorized as salary or bonus, except for certain
perquisites and other personal benefits. The amounts for perquisites and other
personal benefits for the named officers are not shown because the aggregate
amount of such compensation, if any, for each of the Named Officers during the
fiscal year shown does not exceed the lesser of $50,000 or 10% of total salary
and bonus reported for such officer.
(2) Includes all options granted during fiscal years shown under the
O'Sullivan Incentive Stock Plan. No stock appreciation rights were granted with
any options.
46
<PAGE>
(3) In fiscal 1999, other compensation for the named officers
consisted of the following:
<TABLE>
<CAPTION>
STOCK DEFERRED
PURCHASE COMPENSATION
SPSP MATCHING PROGRAM PLAN MATCHING
GROUP LIFE AND PROFIT ("SPP") AND
INSURANCE AUTO SHARING MATCHING PROFIT SHARING
NAME PREMIUMS ALLOWANCE CONTRIBUTIONS CONTRIBUTIONS CONTRIBUTIONS
---- -------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Daniel F. O'Sullivan $ 3,150 $ -- * $ 11,474 $ 8,747 $ 20,737
Richard D. Davidson $ 2,016 $ 8,500 $ 11,474 $ 5,639 $ 9,495
Tyrone E. Riegel $ 3,150 $ 8,154 $ 11,474 $ 5,827 $ 6,405
Terry L. Crump $ 1,218 $ 8,154 $ 11,474 $ 3,826 $ 3,904
Thomas M. O'Sullivan, Jr. $ 490 $ 7,827 $ 10,909 $ 3,698 $ 1,656
</TABLE>
* Mr. Daniel F. O'Sullivan has the use of a company-owned automobile as
a perquisite.
The table does not include amounts payable in the event of a Change in
Control. See "Change in Control Protections".
(4) Mr. Crump resigned as an officer of O'Sullivan on August 31, 1999.
SEVERANCE AGREEMENTS.
In October 1998, O'Sullivan entered into a Retirement and Consulting
Agreement, Release and Waiver of Claims with Daniel F. O'Sullivan. Under the
retirement agreement, as amended in May 1999, Mr. O'Sullivan resigned as Chief
Executive Officer in October 1998 and is to retire as Chairman of the Board in
March 2000. Upon his retirement, O'Sullivan has agreed to pay Mr. O'Sullivan
$42,160 per month for 36 months and then to pay him $11,458 per month until
he reaches age 65. O'Sullivan will also provide Mr. O'Sullivan with health
insurance. Upon his retirement, Mr. O'Sullivan's unvested stock options will
vest and be exercisable for five years or until their earlier expiration. Mr.
O'Sullivan will provide consulting services, if requested, to O'Sullivan
until he reaches age 65, and has agreed not to compete with O'Sullivan during
the period he is a consultant.
In August 1999, O'Sullivan entered into a severance agreement with
Terry Crump, its Executive Vice President and Chief Financial Officer at the
time. Pursuant to the agreement, Mr. Crump resigned as an officer of O'Sullivan
effective August 31, 1999, although he remains an employee. In the Agreement,
O'Sullivan agreed to pay Mr. Crump the benefits he would receive under his
Termination Protection Agreement if the merger closes. If the merger does not
close, O'Sullivan will pay Mr. Crump one year's salary, will maintain his
medical and life insurance for up to one year and will pay for certain
outplacement services.
OPTION GRANTS IN THE LAST YEAR
During the fiscal year ended June 30, 1999, no options were granted to
the named officers.
47
<PAGE>
OPTION EXERCISES IN THE LAST YEAR
AND YEAR-END OPTION VALUES
The following table summarizes information on outstanding options to
purchase common stock held by the named officers as of June 30, 1999. No options
were exercised by officers or directors during the fiscal year ended June 30,
1999.
<TABLE>
<CAPTION>
VALUE OF VALUE OF
SHARES SHARES EXERCISABLE UNEXERCISABLE
NAME EXERCISABLE UNEXERCISABLE OPTIONS OPTIONS
@ 6/30/99 @ 6/30/99 @ 6/30/99 @ 6/30/99
<S> <C> <C> <C> <C>
Daniel F. O'Sullivan 139,248 124,052 $ 1,100,853 $ 601,479
Richard D. Davidson 78,657 86,343 644,122 398,882
Tyrone E. Riegel 94,030 54,470 784,092 341,565
Terry L. Crump 64,215 42,455 549,398 264,846
Thomas M. O'Sullivan, Jr. 48,563 22,437 351,016 142,046
</TABLE>
CHANGE IN CONTROL PROTECTIONS
O'Sullivan has termination agreements with its executive officers. If
the employment of a protected employee is terminated by us within a period of up
to 24 months after a change in control, the employee will be entitled to receive
various benefits. The completion of the merger is a change of control for
purposes of these agreements. These benefits include:
1. a cash payment equal to the current base salary and highest bonus
received in the previous years;
2. a cash payment equal to the bonus earned by the employee in the year
of termination, calculated on a pro rated basis on the date of
termination;
3. a cash payment equal to accrued and unpaid vacation pay;
4. a cash payment for an automobile allowance of 12 months;
5. continued life and health insurance coverage for up to 12 months;
6. a lump sum payment, adjusted for taxes, to the employee in an amount
equal to the protected employee's unvested profit sharing account in
the Savings and Profit Sharing Plan;
7. a cash payment based on the amount that the protected employee would
have received under our Deferred Compensation Plan had he continued to
work for O'Sullivan until he attained the age of 65;
8. all outstanding stock options vest and bonus become immediately
exercisable;
9. O'Sullivan will be required to purchase for cash any shares of
unrestricted common stock and options for shares at the fair market
value;
10. one year of outplacement services;
11. for certain executive officers, if the protected employee moves more
than 20 miles from his primary residence in order to accept permanent
employment within 36 months after leaving O'Sullivan, we will
repurchase employee's primary residence; and
12. if the executive officer is required to pay an excise tax under
Section 4999 of the Internal Revenue code of 1986, we will pay the
employee an additional amount to offset the effect of the tax.
The agreements for certain executive officers also provide for cash
payments in lieu of matching payments under the Stock Purchase Program and the
Savings and Profit Sharing Plan. The agreements for certain executive officers
also provide that, in some circumstances, they may voluntarily leave the
employment of
48
<PAGE>
O'Sullivan after a change in control and receive the benefits under the
protection agreements. These circumstances include:
- an adverse change in the executive's status, title or duties;
- a reduction in the executive's salary or bonus;
- relocation of the executive's office to a site which is more than 20
miles from its present location;
- a reduction in the executive's benefit levels;
- the insolvency or bankruptcy of O'Sullivan; or
- the executive leaves the employment of O'Sullivan for any reason
during the 60-day period beginning on the first anniversary of the
change in control
However, for purposes of the merger, each of the executive officers who
is a management participant in the buyout has waived his right to receive
benefits under the protection agreements in these circumstances, other than a
reduction in his salary or bonus.
The table below sets forth the total payments that may be received by
each of the named officers if these persons are terminated following the
completion of the merger. The values of non-cash benefits have been included on
the basis of their estimated fair value. These amounts do not include any
payments to be received for shares of O'Sullivan common stock or options to
acquire O'Sullivan common stock. These amounts also do not include payments
which we would make to offset the effect of excise taxes or to purchase any
executive officer's home. We have assumed for this purpose that the merger was
completed on September 30, 1999.
<TABLE>
<CAPTION>
OFFICER AMOUNT
------- -------
<S> <C>
Richard Davidson........................................... $ 611,457
President and Chief Operating Officer
Tyrone E. Riegel........................................... $ 474,132
Executive Vice President
Terry L. Crump............................................. $ 390,983
Executive Vice President and Chief Financial Officer
Thomas M. O'Sullivan, Jr................................... $ 298,452
Vice President-Sales
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee are William C. Bousquette,
Stewart M. Kasen and Ronald G. Stegall. No member of the Compensation Committee
was an officer or employee of O'Sullivan Company or its subsidiaries during the
fiscal year ended June 30, 1999. None was formerly an officer of O'Sullivan or
any of its subsidiaries, except that Mr. Bousquette was a Vice President of
O'Sullivan Industries, Inc. from July 12, 1991 until February 7, 1994. In
addition, no executive officer of O'Sullivan serves on the board of directors or
the compensation committee of another entity where a committee member is
employed.
DIRECTORS' COMPENSATION
Directors of O'Sullivan who are not employees of O'Sullivan or its
subsidiaries are paid an annual retainer of $25,000. The chairmen of the
compensation committee and the audit committee each receive an additional $1,000
per year. Expenses of attendance at meetings are paid by O'Sullivan. No fees are
paid for
49
<PAGE>
attendance at Board or compensation or audit committee meetings. Employees of
O'Sullivan do not receive additional compensation for their service as a
director other than payment of expenses, if any, to attend a meeting.
Each non-employee director automatically receives nonqualified stock
options to purchase 2,000 shares of common stock on the first trading day in
September of each year that he or she serves as a director. The option exercise
price is set at the fair market value (as defined in the ISP) of a share of
common stock on the first trading day immediately preceding the date of grant.
The options vest in three equal increments on the first, second and third
anniversaries of the date of grant.
Effective July 1, 1997, O'Sullivan implemented its Stock Plan for
Directors, which was approved by the stockholders of O'Sullivan at the 1997
Annual Meeting. Under the plan, directors may elect to receive their fees and
retainers in common stock or restricted common stock rather than cash. Common
stock is distributed quarterly, and is priced at the average of the closing
prices on the last day of each month in a quarter. If a director elects to
receive restricted stock, the purchase price is the same as for unrestricted
common stock; the shares are issued in his name but are held in escrow by
O'Sullivan. Restrictions on restricted stock under the plan lapse upon the death
or disability of the director, retirement of the director at age 55 or older,
involuntary termination of service as a director, a vote of a majority of the
members of the Board other than the participating director or a change in
control of O'Sullivan. If a participating director ceases to be a director of
O'Sullivan for any other reason, the restricted stock issued to him is forfeited
to O'Sullivan.
During fiscal 1999, the Board established a special search committee
and a special committee. These new committees entailed substantial additional
responsibilities and time commitments on the directors serving on the
committees. Accordingly, the Board approved additional compensation for the
directors serving on the committees. Members of the special search committee
received one-time retainers of $5,000 each, plus $1,000 for each meeting
attended. Members of the special committee received a one-time retainer of
$5,000, a fee of $1,000 for each meeting attended in person and $500 for each
meeting attended by telephone conference. Additionally, Mr. Bousquette received
a $10,000 retainer for his substantial services as chairman of the special
committee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's
directors, Executives and any persons holding 10% or more of Common Stock are
required to report their ownership of the Company's securities and any change in
that ownership to the Securities and Exchange Commission and the New York Stock
Exchange. Specific due dates for these reports have been established and the
Company is required to report in this report any failure to file by these dates
during the fiscal year ended June 30, 1999. All of these filing requirements
were satisfied by the Company's directors and Executives during fiscal 1999.
50
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
BENEFICIAL OWNERSHIP OF COMMON STOCK.
To our knowledge, the following are the only persons who own more than
5% of the shares of O'Sullivan's common stock:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
<S> <C> <C>
Tweedy, Browne Company L.L.C. ........ 1,485,009 9.3%
TBK Partners, L.P.
Vanderbilt Partners, L.P. ............
52 Vanderbilt Avenue
New York, New York 10017
Reich and Tang Asset Management L.P.... 1,331,700 8.3%
600 Fifth Avenue
New York, New York 10020
Dimensional Fund Advisors, Inc. ...... 944,700 5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
ICM Asset Management ................. 832,800 5.2%
601 W. Main Avenue, Suite 97
Spokane, WA 99201
</TABLE>
We had 16,086,329 shares of common stock outstanding on September 15,
1999. The following table provides information regarding the beneficial
ownership of O'Sullivan's common stock as of August 27, 1999 for:
- our executive officers;
- our directors; and
- all of our directors and executive officers as a group.
51
<PAGE>
Except under applicable community property laws, joint ownership and as
otherwise indicated, each stockholder identified in the table possesses sole
voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
SAVINGS
SHARES OPTIONS AND
NAME BENEFICIALLY BENEFICIALLY PROFIT TOTAL PERCENT
OWNED OWNED PLAN SHARES OWNED
------------ ------------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Daniel F. O'Sullivan....................... 46,733 263,300 1,545 311,578 1.9%
Richard D. Davidson........................ 119,506 165,000 740 285,246 1.8%
Tyrone E. Riegel........................... 31,861 148,500 1,346 181,707 1.1%
Terry L. Crump............................. 23,460 106,670 834 130,806 *
Thomas M. O'Sullivan, Jr................... 36,211 71,000 2,841 110,052 *
Michael P. O'Sullivan...................... 27,946 67,500 4,337 99,783 *
Rowland H. Geddie, III..................... 11,118 71,000 4,634 86,752 *
E. Thomas Riegel........................... 13,152 71,000 2,439 86,591 *
Tommy W. Thieman........................... 18,070 31,500 4,292 53,862 *
Phillip J. Pacey........................... 9,361 24,000 2,757 36,118 *
Stuart D. Schotte.......................... 129 7,000 82 7,211 *
James C. Hillman........................... 22,592 71,000 3,959 97,551 *
William C. Bousquette...................... 14,224 9,000 0 23,224 *
Charles G. Hanson.......................... 25,000 8,000 0 33,000 *
Stewart M. Kasen........................... 8,417 7,000 0 15,417 *
Thomas M. O'Sullivan, Sr................... 167,084 9,000 0 165,084 1.1%
Ronald G. Stegall.......................... 0 9,000 0 9,000 *
Directors and executive officers as a group
(17 persons)............................ 574,863 1,129,470 29,829 1,744,140 10.1%
</TABLE>
- ----------
* Less than 1.0%
The shares for Mr. Daniel F. O'Sullivan include 500 shares owned by
his wife. Mr. O'Sullivan disclaims beneficial ownership of the shares held by
his wife.
The shares for Mr. Thomas M. O'Sullivan, Sr. include 154,738 shares
owned by O'Sullivan Properties, Inc. and 1,139 shares owned by his wife. Mr.
Thomas M. O'Sullivan, Sr. and his wife own all of the voting stock of O'Sullivan
Properties, Inc. Mr. O'Sullivan disclaims beneficial ownership of the shares
held by his wife.
The shares for Thomas M. O'Sullivan, Jr. include 4,995 shares he holds
as custodian for his minor son and 13,036 shares held by a limited partnership
in which he and his wife are general partners. Mr. O'Sullivan disclaims
beneficial ownership of the shares held by his son and the partnership.
The shares for Mr. Michael P. O'Sullivan include 9,567 shares he holds
as custodian for his minor children and 405 shares owned by his wife. Mr.
O'Sullivan disclaims beneficial ownership of the shares held by his minor
children and his wife.
The shares for Mr. James C. Hillman include 4,880 shares owned by his
son. Mr. Hillman disclaims beneficial ownership of the shares held by his son.
Some of the shares held in the Savings and Profit Plan may not be sold
by the plan participants prior to the stockholder's retirement or the
termination of his employment.
52
<PAGE>
Since all options to acquire shares of common stock will become
exercisable upon completion of the proposed merger of OSI Acquisition, Inc. into
O'Sullivan Holdings, we have treated all options as being beneficially owned.
These include options which are not presently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 1999, Casey O'Sullivan, a son of Daniel F. O'Sullivan,
worked as a salesman successively for companies that provide O'Sullivan
corrugated boxes for its products. Sun Container provided O'Sullivan with
corrugated boxes with a sales price aggregating $401,000 during fiscal 1999, of
which $55,000 was supplied during the time Casey O'Sullivan was employed by Sun.
Bennet Packaging has long been one of O'Sullivan's suppliers; O'Sullivan paid
Bennett $5,790,000 during fiscal 1999, of which $2,936,000 was paid during the 6
months Casey O'Sullivan was an employee of Bennett. O'Sullivan has followed the
practice of awarding purchase orders for cartons for a model to the lowest
bidder for the carton.
O'Sullivan has in the past rented storage and office space from
O'Sullivan Properties, Inc. O'Sullivan Properties is controlled by Thomas M.
O'Sullivan, Sr. During fiscal 1999, O'Sullivan did not rent any space from
O'Sullivan Properties, but it paid O'Sullivan Properties $12,000 during fiscal
1999 in connection with the termination of a lease.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
The following consolidated statements of O'Sullivan Industries
Holdings, Inc. and subsidiaries are filed as part of this report:
<TABLE>
<S> <C>
Report of Independent Accountants........................... 24
Consolidated Balance Sheets as of June 30, 1999 and 1998.... 25
Consolidated Statements of Operations for each of the
three years in the period ended June 30, 1999 ............. 26
Consolidated Statements of Cash Flows for each of the
three years in the period ended June 30, 1999.............. 27
Consolidated Statements of Changes in Stockholders'
Equity for each of the three years in the period ended
June 30, 1999.............................................. 28
Notes to Consolidated Financial Statements.................. 29
</TABLE>
(a)(2) FINANCIAL STATEMENTS SCHEDULES
Schedules have been omitted because they are not required or
are not applicable or the information required to be set forth therein
either is not material or is included in the financial statements or
notes thereto.
(a)(3) EXHIBITS:
A list of exhibits required to be filed as part of this report
is set forth in the Index to Exhibits, which immediately precedes such
exhibits, and is incorporated herein by reference.
53
<PAGE>
(b) Reports on Form 8-K
i) Current Report on From 8-K dated May 17, 1999 (Item 5 with
respect to information relating to Agreement and Plan of
Merger between O'Sullivan and OSI Acquisition, Inc.
ii) Amendment No. 1 to Current Report on Form 8-K/A dated June
17, 1999 (Item 5 with respect to amendment of Agreement and
Plan of Merger between O'Sullivan and OSI Acquisition, Inc.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 and 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, on the 28th day of
September, 1999.
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
By /S/ DANIEL F. O'SULLIVAN
-----------------------------------
Daniel F. O'Sullivan
Chairman of the Board
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>
<S> <C> <C>
/S/ DANIEL F. O'SULLIVAN Chairman of the Board September 28, 1999
- -------------------------------
Daniel F. O'Sullivan
/S/ RICHARD D. DAVIDSON President and Chief Operating
- ------------------------------- Officer and Director September 28, 1999
Richard D. Davidson (PRINCIPAL EXECUTIVE OFFICER)
/S/ TYRONE E. RIEGEL Executive Vice President September 28, 1999
- ------------------------------- and Director
Tyrone E. Riegel
/S/ PHILLIP J. PACEY Vice President-Finance,
- ------------------------------- and Treasurer September 28, 1999
Phillip J. Pacey (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/S/ WILLIAM C. BOUSQUETTE Director September 28, 1999
- -------------------------------
William C. Bousquette
/S/ CHARLES G. HANSON Director September 28, 1999
- -------------------------------
Charles G. Hanson
Director September 28, 1999
- -------------------------------
Stewart M. Kasen
/S/ THOMAS M. O'SULLIVAN, SR. Director September 28, 1999
- -------------------------------
Thomas M. O'Sullivan, Sr.
/S/ RONALD G. STEGALL Director September 28, 1999
- -------------------------------
Ronald G. Stegall
</TABLE>
55
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporate Law (the "DGCL") provides that
a corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement in connection with specified actions, suits, or
proceedings whether civil, criminal, administrative, or investigative (other
than action by or in the right of the corporation--a "derivative action"), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of the action, and the statute requires court approval before
there can be any indemnification where the person seeking indemnification has
been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
bylaws, disinterested director vote, stockholder vote, agreement, or otherwise.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty by the director, as a director, except for
liability for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
(iii) payment of unlawful dividends or unlawful stock purchases or redemptions,
or (iv) any transaction from which the director derived an improper personal
benefit.
Article Tenth of the Certificate of Incorporation of O'Sullivan Industries
Holdings, Inc. provides that a director of the corporation shall not be
personally liable to O'Sullivan or its stockholders for monetary damages for
breach of fiduciary duty as a director; PROVIDED, HOWEVER, that the foregoing
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is hereafter amended to permit further elimination or limitation of the
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL as so amended. Any repeal or modification of Article Tenth by the
stockholders of the corporation or otherwise shall not adversely affect any
right or protection of a director of the corporation existing at the time of
that repeal or modification.
Under O'Sullivan's Bylaws the corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed
II-1
<PAGE>
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
Notwithstanding any contrary determination in the specific case and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery of the State of Delaware or any other
court of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under O'Sullivan's Bylaws. The basis of such
indemnification by a court shall be a determination by the court that
indemnification of the director or officer is proper in the circumstances
because the person has met the applicable standards of conduct set forth in
O'Sullivan's Bylaws.
O'Sullivan maintains directors' and officers' liability insurance which
provides for payment, on behalf of the directors and officers thereof and its
subsidiaries, of certain losses of such persons (other than matters uninsurable
under law) arising from claims, including claims arising under the Securities
Act of 1933, as amended, for acts or omissions by such persons while acting as
directors or officers thereof and/or its subsidiaries, as the case may be.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger, dated as
of October 18, 1999, between O'Sullivan Industries Holdings,
Inc. and OSI Acquisition, Inc. (included in the Proxy
Statement/Prospectus as Appendix A).
3.1 Certificate of Incorporation of O'Sullivan Industries
Holdings, Inc. (incorporated by reference to Exhibit 3.1 of
Registration Statement on Form S-1, dated November 24, 1993,
Commission file number 33-72120).
3.2 Bylaws of O'Sullivan Industries Holdings, Inc. (incorporated
by reference to Exhibit 3.2 of Registration Statement on
Form S-1, dated November 24, 1993, Commission file number
33-72120).
4.1 Terms of senior preferred stock (included in Exhibit 2.4(a)
to the Amended and Restated Agreement and Plan of Merger
attached as Exhibit 2.1).
*5.1 Opinion of Kirkland & Ellis regarding the legality of the
shares being issued in the Merger.
**12.1 Statements regarding the computation of ratios.
**23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24 Power of Attorney of directors of O'Sullivan Industries
Holdings, Inc.
*99.1 Form of Proxy of O'Sullivan Industries Holdings, Inc.
*99.2 Consent of Salomon Smith Barney Inc.
*99.3 Consent of Stephen F. Edwards.
*99.4 Consent of Harold O. Rosser.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under
the Securities Act of 1933, if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in this
Registration Statement; provided, however, that the undertakings set
forth in paragraphs (1)(i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended that are incorporated by reference
in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933 each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(B) The undersigned Registrant hereby undertakes, that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(C) The undersigned Registrant hereby undertakes:
(1) To deliver or cause to be delivered with the prospectus, to each
person whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or
Rule 14c-3 under the Exchange Act; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are
not set forth in the prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given, the
II-3
<PAGE>
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(D) The undersigned Registrant hereby undertakes:
(1) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment
to the Registration Statement and will not be used until such amendment
is effective, and that, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(E) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(F) The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 and 13 of
this Form S-4, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the Registration
Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Lamar, Missouri on the 18th day of
October, 1999.
<TABLE>
<S> <C> <C>
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
By: /s/ RICHARD D. DAVIDSON
-----------------------------------------
Name: Richard D. Davidson
Title: President, Chief Operating
Officer and Director
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Operating
/s/ RICHARD D. DAVIDSON Officer and Director
------------------------------------------- (Principal Executive October 18, 1999
Richard D. Davidson Officer)
Vice President--Finance and
/s/ PHILLIP J. PACEY Treasurer (Principal
------------------------------------------- Financial and Accounting October 18, 1999
Phillip J. Pacey Officer)
/s/ DANIEL F. O'SULLIVAN
------------------------------------------- Chairman of the Board of October 18, 1999
Daniel F. O'Sullivan Directors
*
------------------------------------------- Director October 18, 1999
William C. Bousquette
*
------------------------------------------- Director October 18, 1999
Charles G. Hanson
*
------------------------------------------- Director October 18, 1999
Stewart M. Kasen
*
------------------------------------------- Director October 18, 1999
Thomas M. O'Sullivan, Sr.
*
------------------------------------------- Director October 18, 1999
Tyrone E. Riegel
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Director October 18, 1999
Ronald G. Stegall
</TABLE>
<TABLE>
<S> <C>
/s/ ROWLAND H. GEDDIE, III
-------------------------------------------
Rowland H. Geddie, III
October 18, 1999
*By: Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger, dated as
of October 18, 1999, between O'Sullivan Industries Holdings,
Inc. and OSI Acquisition, Inc. (included in the Proxy
Statement/Prospectus as Appendix A).
3.1 Certificate of Incorporation of O'Sullivan Industries
Holdings, Inc. (incorporated by reference to Exhibit 3.1 of
Registration Statement on Form S-1, dated November 24, 1993,
Commission file number 33-72120).
3.2 Bylaws of O'Sullivan Industries Holdings, Inc. (incorporated
by reference to Exhibit 3.2 of Registration Statement on
Form S-1, dated November 24, 1993, Commission file number
33-72120).
4.1 Terms of senior preferred stock (included in Exhibit 2.4(a)
to the Amended and Restated Agreement and Plan of Merger
attached as Exhibit 2.1).
*5.1 Opinion of Kirkland & Ellis regarding the legality of the
shares being issued in the Merger.
**12.1 Statements regarding the computation of ratios.
**23.1 Consent of PricewaterhouseCoopers LLP.
*23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24 Power of Attorney of directors of O'Sullivan Industries
Holdings, Inc.
*99.1 Form of Proxy of O'Sullivan Industries Holdings, Inc.
*99.2 Consent of Salomon Smith Barney Inc.
*99.3 Consent of Stephen F. Edwards.
*99.4 Consent of Harold O. Rosser.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
