<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
Amendment No. 1
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.,
PHILIP 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, Philip 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 Agreement and Plan of Merger,
dated as of May 17, 1999 (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 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
"Preliminary 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 Preliminary Proxy Statement is attached hereto as Exhibit
(d). A copy of the Merger Agreement is attached as Appendix A to the Preliminary
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) $17.50 in
cash, without interest, and (ii) one share of 12% Senior Preferred Stock of
the Surviving Corporation, with a liquidation preference of $1.75 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).................................... "Questions and Answers about the Merger"; "Special
Factors-Consequences of the Merger; Plans for O'Sullivan
after the Merger-MEMBERS OF OUR SENIOR MANAGEMENT
PARTICIPATING WITH BRS IN THE MERGER"; AND "-EMPLOYMENT
PROTECTION AGREEMENTS" and 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".
(b)........................................ "Summary-Conflicts of Interest"; "Special
Factors-Background of the Merger "; "Special
Factors-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 AND OFFICERS OF
O'SULLIVAN".
(d)........................................ "Senior Preferred Stock" and "Special Factors-Financing of
5
<PAGE>
<CAPTION>
SCHEDULE 13E-3 ITEM
NUMBER AND CAPTION RESPONSE/CAPTION IN PROXY STATEMENT
------------------ -----------------------------------
<S> <C> <C>
the Merger".
(e)........................................ None.
(f)........................................ "Special Factors-Consequences of the Merger; Plans for
O'Sullivan after the Merger" and "-Effects of the Merger;
New York Stock Exchange Delisting".
(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" and "The
Merger Agreement-Termination Fees".
(c)(1) and (c)(2).......................... "Special Factors-Financing of the Merger-SENIOR SECURED
CREDIT FACILITY"; "-INCREASING RATE LOANS, TERM LOANS AND EXCHANGE
NOTES" AND "-SENIOR SUBORDINATED 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; New
York Stock Exchange Delisting"; "-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-Vote 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-MEMBERS OF OUR SENIOR MANAGEMENT
PARTICIPATING WITH BRS IN THE MERGER" and "-EQUITY
INVESTMENT AND CASH PAYMENTS".
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-MEMBERS OF OUR SENIOR MANAGEMENT
PARTICIPATING WITH BRS IN THE MERGER".
(b)........................................ "Summary-Recommendation of the Board of Directors" and
"Special Factors-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)........................................ "Summary-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)*....................................... Commitment Letter dated April 30, 1999 among Lehman
Brothers Inc. and Lehman Commercial Paper Inc., BRS and
Merger Sub (incorporated by reference to the Current Report
on Form 8-K filed by O'Sullivan on May 18, 1999).
(b)**...................................... Form of Opinion of Salomon Smith Barney dated May 17,
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 May 16, 1999.
(c)**...................................... Agreement and Plan of Merger dated as of May 17, 1999
between the Company and Merger Sub (attached as Appendix
A to the Proxy Statement).
(d)***..................................... Amendment No. 1 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>
- -----------------
* Incorporated by reference to Current Report on Form 8-K filed by
O'Sullivan on May 18, 1999.
** Previously filed.
*** Filed herewith.
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 "Questions and Answers about the
Merger"; "Special Factors -Consequences of the Merger; Plans
for O'Sullivan after the Merger -MEMBERS OF OUR SENIOR
MANAGEMENT PARTICIPATING WITH BRS IN THE MERGER"; "-EMPLOYMENT
PROTECTION AGREEMENTS" and 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" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "Summary-Conflicts of Interest";
"Special Factors-Background of the Merger"; "Special
Factors-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
AND OFFICERS OF O'SULLIVAN" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth in "Senior Preferred Stock" and
"Special Factors-Financing 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; New York Stock Exchange Delisting" 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" 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"; "-INCREASING RATE
(c)(2) LOANS, TERM LOANS AND EXCHANGE NOTES" AND "-SENIOR
SUBORDINATED 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; New York Stock Exchange Delisting"; "-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-Vote
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-MEMBERS OF OUR SENIOR MANAGEMENT
PARTICIPATING WITH BRS IN THE MERGER" and "-EQUITY INVESTMENT AND CASH
PAYMENTS". 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-MEMBERS OF
OUR SENIOR MANAGEMENT PARTICIPATING WITH BRS IN THE MERGER" 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-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 "Summary-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) Commitment Letter dated April 30, 1999 among Lehman Brothers Inc.
and Lehman Commercial Paper Inc., BRS and Merger Sub (incorporated
by reference to the Current Report on Form 8-K filed by O'Sullivan
on May 18, 1999).
(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 May 16, 1999.
(c) Agreement and Plan of Merger, dated May 17, 1999, between O'Sullivan
Industries Holdings, Inc. and OSI Acquisition Inc. included as Appendix
A to the Proxy Statement.
(d) Amendment No. 1 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.
August 23, 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/ Philip J. Pacey
--------------------------------------
PHILIP 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)* Commitment Letter dated April 30, 1999 among Lehman Brothers Inc.
and Lehman Commercial Paper Inc., BRS and Merger Sub (incorporated
by reference to the Current Report on Form 8-K filed by O'Sullivan
on May 18, 1999).
(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 May 16, 1999.
(c)** Agreement and Plan of Merger, dated May 17, 1999, between O'Sullivan
Industries Holdings, Inc. and OSI Acquisition Inc. included as Appendix
A to the Proxy Statement.
(d)*** Amendment No. 1 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.
- -----------------
* Incorporated by reference to the Current Report on Form 8-K filed by
O'Sullivan on May 18, 1999.
** Previously filed.
*** Filed herewith.
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1999
REGISTRATION NO. 333-81631
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
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 (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</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:
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
--------------------------
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 AUGUST 23,
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
$17.50 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 .
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 , 1999, was first mailed to
stockholders
on or about , 1999.
<PAGE>
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 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
, 1999, at , local time, at [ , Kansas City, Missouri]
for the following purpose:
To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of May 17, 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) $17.50 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 $1.75 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
August 27, 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
[ , 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
, 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....................................... 21
Opinion of O'Sullivan's Financial Advisor............................................................... 23
Forecasts............................................................................................... 29
Purpose of the Merger................................................................................... 29
Fairness of the Merger.................................................................................. 30
Structure of the Merger................................................................................. 31
Financing of the Merger................................................................................. 32
Effect of the Merger on O'Sullivan Capital Stock........................................................ 33
Description of O'Sullivan Capital Stock After the Merger................................................ 33
Beneficial Ownership of Common Stock.................................................................... 38
Security Ownership of the Surviving Corporation After the Merger........................................ 40
Consequences of the Merger; Plans for O'Sullivan After the Merger....................................... 40
Conflicts of Interest; Arrangements with Management..................................................... 41
Federal Income Tax Consequences......................................................................... 46
Regulatory Matters...................................................................................... 49
Accounting Treatment of the Merger...................................................................... 49
Tax Sharing and Tax Benefit Reimbursement Agreement with Tandy.......................................... 50
Litigation Challenging the Merger....................................................................... 50
Estimated Fees and Expenses of the Merger............................................................... 51
The Special Meeting....................................................................................... 52
Matters to be Considered at the Special Meeting......................................................... 52
Votes Required for Approval of the Merger Agreement..................................................... 52
How Shares Will Be Voted at the Special Meeting......................................................... 52
How to Revoke a Proxy................................................................................... 52
Solicitation of Proxies................................................................................. 53
Rights of Stockholders Not Voting for the Merger........................................................ 53
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
The Companies............................................................................................. 53
O'Sullivan Industries Holdings, Inc..................................................................... 53
OSI Acquisition, Inc.................................................................................... 63
BRS..................................................................................................... 63
The Merger Agreement...................................................................................... 64
The Merger.............................................................................................. 64
Effective Time of the Merger............................................................................ 64
Exchange Procedures..................................................................................... 64
Representations and Warranties.......................................................................... 64
Covenants............................................................................................... 66
No Solicitation of Transactions......................................................................... 67
Board's Covenant to Recommend........................................................................... 68
Benefit Plans........................................................................................... 68
Indemnification and Insurance........................................................................... 68
Conditions.............................................................................................. 68
Termination............................................................................................. 69
Termination Fees........................................................................................ 70
Other Expenses.......................................................................................... 72
Appraisal Rights of Dissenting Stockholders............................................................... 72
Unaudited Pro Forma Financial Data........................................................................ 74
Sources and Uses of Cash Proceeds and Equity.............................................................. 82
Legal Matters............................................................................................. 83
Experts................................................................................................... 83
Stockholder Proposals for 1999 Annual Meeting............................................................. 83
Where You Can Find More Information....................................................................... 84
Appendix A -- 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.
</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 the BRS proposal provides the
best 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 $800,000,000. 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
$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 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 $1.75. 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, the amount of the dividends will be added to the liquidation value
of the senior preferred stock. On the twelfth anniversary of the completion
of the merger, O'Sullivan is required to redeem for cash each share of
senior preferred stock for the total liquidation value.
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.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, just indicate on your proxy
card
1
<PAGE>
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 , local time, on , 1999 at [ , 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 in the third calendar quarter 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
and regulatory clearance from the United States antitrust authorities.
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 84.
THE MERGER
Under the merger agreement, 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 28.4% 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 40.
WHAT YOU WILL RECEIVE IN THE MERGER
If we complete the merger, each share of common stock becomes $17.50 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 $17.50 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 23)
The O'Sullivan special committee received a written opinion from Salomon
Smith Barney Inc. The written opinion states that the merger consideration, as
of May 17, 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 52)
You may vote at the special stockholders meeting if you owned O'Sullivan
common stock at the close of business on August 27, 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 68)
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 41.
3
<PAGE>
ACCOUNTING TREATMENT (SEE PAGE 49)
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 68)
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;
- expiration of time periods under applicable federal antitrust laws;
- 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 in the third
calendar quarter of 1999, but we cannot be certain when or if the conditions
will be satisfied or waived.
FINANCING OF THE MERGER (SEE PAGE 32)
BRS and OSI require approximately $370 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 up
to $47.2 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
$372.0 million, including fees and expenses not greater than $23.0
million; and
- Lehman having received satisfactory lien searches, solvency opinions,
environmental reports and legal opinions.
BRS has agreed to purchase up to $47.2 million of equity of OSI 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 69)
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
4
<PAGE>
- 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.
COMPENSATION PAYABLE IF MERGER NOT COMPLETED (SEE PAGE 70)
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 41)
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 $17.50 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 46)
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 as of the dates and for the periods indicated. The selected
statement of operations and balance sheet data for the years ended and at June
30, 1994 through 1998 were derived from our audited consolidated financial
statements. The selected statement of operations and balance sheet data for the
nine months ended and at March 31, 1998 and 1999 were derived from our unaudited
consolidated financial statements prepared by us which, in our opinion, include
all normal, recurring adjustments that are necessary for the fair presentation
of financial position and results of operations for each respective period. The
interim results are not necessarily indicative of the results to be expected for
a full fiscal year or for any future period. 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 ended June 30, 1998, included
in our 1998 Annual Report on Form 10-K, our interim consolidated financial
statements for the nine months ended March 31, 1998 and 1999, included in our
March 31, 1999 Quarterly Report on Form 10-Q and "Management's Discussion and
Analysis of Financial Condition and Results of Operations", each of which is
incorporated herein by reference. See "Where You Can Find More Information" on
page 84.
6
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................... $ 270,729 $ 269,306 $ 291,766 $ 321,490 $ 339,407 $ 254,990 $ 293,988
Costs and expenses:
Cost of sales................. 200,930 208,176 229,262 230,578 244,086 184,213 208,187
Selling, marketing and
administrative.............. 45,291 45,489 52,691 62,137 69,212 51,778 58,240
Restructuring charge.......... -- -- 5,212(a) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses........ 246,221 253,665 287,165 292,715 313,298 235,991 266,427
Operating income.................. 24,508 15,641 4,601 28,775 26,109 18,999 27,561
Interest expense, net............. 1,286 2,382 3,831 2,327 2,468 1,801 2,284
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
cumulative effect of change in
accounting principle............ 23,222 13,259 770 26,448 23,641 17,198 25,277
Income tax provision.............. 9,128 5,038 433 10,050 8,742 6,357 9,098
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of
change in accounting
principle....................... 14,094 8,221 337 16,398 14,899 10,841 16,179
Cumulative effect of change in
accounting principle............ 2,025(b) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income........................ $ 16,119 $ 8,221 $ 337 $ 16,398 $ 14,899 $ 10,841 $ 16,179
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per common share (c):
Basic........................... $ 0.84(e) $ 0.49 $ 0.02 $ 0.98 $ 0.91 $ 0.66 $ 1.01
Diluted......................... $ 0.84(e) $ 0.49 $ 0.02 $ 0.96 $ 0.89 $ 0.65 $ 1.00
Weighted average shares
outstanding:
Basic........................... 16,820 16,820 16,820 16,786 16,339 16,440 15,951
Diluted......................... 16,820 16,820 16,821 17,056 16,715 16,783 16,250
Other Data:
Book value per share (c).......... $ 7.89 $ 8.36 $ 8.42 $ 9.19 $ 9.79 $ 9.59 $ 11.05
Ratio of earnings to fixed
charges......................... 17.17 6.19 1.19 10.98 9.21 9.15 10.58
Cash flow provided (used) by
operating activities............ $ (6,014) $ 13,188 $ 25,345 $ 23,512 $ 27,209 $ 20,322 $ 14,604
Cash flow used for investing
activities...................... (14,331) (30,355) (4,403) (15,825) (28,359) (22,860) (13,294)
Cash flow provided (used) by
financing activities............ 20,172 17,334 (21,000) (1,218) (4,015) (2,661) (1,251)
EBITDA (d)........................ 30,728 23,106 13,836 38,735 37,669 27,394 37,928
Depreciation and amortization..... 6,220 7,465 9,235 9,960 11,560 8,395 10,367
Capital expenditures.............. 14,404 30,355 4,403 15,825 28,359 22,860 13,294
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
Balance Sheet Data (in thousands):
Working capital................... $ 76,433 $ 86,058 $ 71,136 $ 82,045 $ 72,893 $ 75,755 $ 85,005
Total assets...................... $ 197,204 $ 228,477 $ 212,317 $ 232,607 $ 250,314 $ 249,130 $ 272,023
Long-term debt.................... $ 28,000 $ 51,000 $ 30,000 $ 30,000 $ 30,000 $ 34,000 $ 29,000
Stockholders' equity.............. $ 132,756 $ 140,624 $ 141,615 $ 156,790 $ 163,670 $ 160,955 $ 179,567
</TABLE>
- ----------------------------------
(a) In March 1996, we adopted a business restructuring plan to cut costs and
better utilize working capital. The plan included the discontinuance of
certain product lines which had received marginal acceptance in the
marketplace ($4.2 million), costs associated with the initial training of
terminated employees at our Utah facility ($0.4 million), write-off of
certain machinery that was used to manufacture the discontinued product
lines ($0.2 million) and the modification of the business structure of an
international division ($0.4 million). The above restructuring plan resulted
in a pre-tax charge of $5.2 million, or $3.2 million after taxes. This
charge was recognized in the third quarter of fiscal 1996. Proceeds from the
disposal of discontinued products approximated $1.5 million and were
received in fiscal 1997.
(b) In the first quarter of fiscal 1994, we adopted Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes.
(c) The Company completed its recapitalization and initial public offering
during 1994. In accordance with Staff Accounting Bulletin 98, historical
earnings per share and weighted average shares outstanding have been
presented for 1994 assuming the recapitalization had been completed as of
the beginning of the year. Book value per share represents stockholders'
equity divided by the diluted weighted average shares outstanding during
this period.
(d) 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.
(e) Represents income before cumulative effect of change in accounting
principle. The earnings per share for 1994 applicable to the cumulative
effect of change in accounting principle was $0.12. Net income per share in
1994 would be $0.96.
7
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected 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 74 and "Where You Can Find More
Information" on page 84.
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE
YEAR MONTHS
ENDED ENDED
JUNE 30, MARCH 31,
1998 1999 INTERIM
PRO FORMA PRO FORMA
----------- ------------
<S> <C> <C>
Statement of Operations Data:
Net sales............................................................................ $ 339,407 $ 293,988
Costs and expenses:
Cost of sales...................................................................... 244,086 208,187
Selling, marketing and administrative.............................................. 69,962 58,803
----------- ------------
Total costs and expenses............................................................. 314,048 266,990
Operating income..................................................................... 25,359 26,998
Interest expense, net................................................................ 30,045 22,533
----------- ------------
Income (loss) before income taxes.................................................... (4,686) 4,465
Income tax provision (benefit)....................................................... (1,739) 1,398
----------- ------------
Net income (loss).................................................................... (2,947) 3,067
Preferred stock dividends............................................................ (10,252) (7,689)
----------- ------------
Net loss attributable to common stockholders......................................... $ (13,199) $ (4,622)
----------- ------------
----------- ------------
Loss attributable per common share:
Basic.............................................................................. $ (11.58) $ (4.05)
Diluted............................................................................ $ (11.58) $ (4.05)
Weighted average shares outstanding:
Basic.............................................................................. 1,140 1,140
Diluted............................................................................ 1,140 1,140
Other Data:
Book value (deficit) per common share................................................ $ -- $ (77.32)
Pro forma EBITDA(a).................................................................. 36,919 37,365
Selected Ratios:
Ratio of earnings to combined fixed charges and preferred stock dividends............ (b) (b)
Ratio of earnings to fixed charges................................................... (c) 1.20
Ratio of pro forma EBITDA to interest expense........................................ 1.23 1.66
Ratio of senior debt to pro forma EBITDA............................................. 4.47 4.42
Ratio of total debt to pro forma EBITDA.............................................. 7.86 7.76
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MARCH 31,
1999 INTERIM
PRO FORMA
-------------
<S> <C>
(IN
THOUSANDS)
Balance Sheet Data:
Total assets..................................................................................... $ 280,154
Total liabilities................................................................................ 347,506
Long term debt................................................................................... 290,000
Stockholders' deficit............................................................................ (88,143)
</TABLE>
- ------------------------
(a) Includes the annual management fee to be paid to BRS after completion of the
merger. The management fee for the nine month period ended March 31, 1999
has been pro-rated. See "Special Factors--Conflicts of Interest;
Arrangements with Management".
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 earnings by
$20,959,000 for the year ended June 30, 1998 and $7,550,000 for the nine
months ended March 31, 1999.
(c) Fixed charges exceed earnings by $4,686,000 for the year ended June 30,
1998.
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
(through August 16, 1999)
</TABLE>
10
<PAGE>
RECENT DEVELOPMENTS
On August 4, 1999, we publicly reported our fiscal 1999 fourth quarter and
full year financial results.
For the fiscal 1999 fourth quarter, net income was $3.8 million or $0.23 per
diluted share compared to net income of $4.1 million or $0.25 per diluted share
for the fiscal 1998 fourth quarter ended June 30. Net sales for the 1999 fourth
quarter were $85.6 million, up 1.5 percent from net sales of $84.4 million for
the comparable quarter a year ago.
For the full fiscal year ended June 30, 1999 net income was $19.9 million or
$1.22 per diluted share compared to net income of $14.9 million or $0.89 per
diluted share for fiscal 1998. Net sales for fiscal 1999 were up 11.9 percent to
$379.6 million from $339.4 million for fiscal 1998.
Excluding merger-related expenses of $0.7 million after-tax or $0.04 per
diluted share and the special charge to recognize retirement benefits for the
company's chairman of $1.4 million after-tax or $0.08 per diluted share, the
fiscal 1999 fourth quarter net income was $5.9 million or $0.35 per diluted
share. Excluding these same charges, the full year fiscal 1999 net income was
$22.0 million or $1.35 per diluted share.
At the time of our public announcement on August 4, 1999, we released the
following additional financial information on our fourth quarter and full year
results:
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales......................................................... $ 85,644 $ 84,417 $ 379,632 $ 339,407
Cost of sales..................................................... 59,443 59,873 267,630 244,086
---------- ---------- ---------- ----------
Gross profit...................................................... 26,201 24,544 112,002 95,321
Gross profit percent.............................................. 30.6% 29.1% 29.5% 28.1%
Selling, marketing and administrative............................. 16,487 17,434 74,727 69,212
Merger related expenses........................................... 1,143 -- 1,143 --
Special charge.................................................... 2,144 -- 2,144 --
---------- ---------- ---------- ----------
Operating income.................................................. 6,427 7,110 33,988 26,109
Net interest expense.............................................. 560 667 2,844 2,468
---------- ---------- ---------- ----------
Income before income taxes........................................ 5,867 6,443 31,144 23,641
Income taxes...................................................... 2,115 2,385 11,213 8,742
---------- ---------- ---------- ----------
Net income........................................................ $ 3,752 $ 4,058 $ 19,931 $ 14,899
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share:
Basic........................................................... $ 0.23 $ 0.25 $ 1.25 $ 0.91
Diluted......................................................... $ 0.23 $ 0.25 $ 1.22 $ 0.89
Weighted shares outstanding:
Basic........................................................... 16,040 16,038 15,973 16,339
Diluted......................................................... 16,572 16,511 16,330 16,715
</TABLE>
11
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 3,740 $ 1,810
Trade receivables, net.......................................... 63,268 61,548
Inventories, net................................................ 56,134 46,727
Prepaid expenses and other assets............................... 3,810 3,762
---------- ----------
Total current assets.......................................... 126,952 113,847
Property, plant and equipment, net................................ 96,684 93,378
Goodwill, net..................................................... 41,422 43,089
---------- ----------
$ 265,058 $ 250,314
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 11,416 $ 14,031
Accrued liabilities............................................. 24,535 22,613
Income taxes payable............................................ 1,228 310
Current portion--long term debt................................. 4,000 4,000
---------- ----------
Total current liabilities..................................... 41,179 40,954
Long term debt--less current...................................... 22,000 30,000
Non-current liabilities........................................... 2,069 --
Deferred taxes.................................................... 15,896 15,690
Stockholders' Equity.............................................. 183,914 163,670
---------- ----------
$ 265,058 $ 250,314
---------- ----------
---------- ----------
</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 $290.0 million of
indebtedness. Of this amount, $175 million will have a floating interest rate
estimated at this time to be initially about 8.25% to 8.5% and $115 million will
have a fixed interest rate estimated at this time to be about 12.0%. 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 reasons unrelated to O'Sullivan's performance.
See "Special Factors--Description of O'Sullivan Capital Stock After the Merger".
13
<PAGE>
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. As a result, our payments to Tandy would be significantly
higher than we currently anticipate. 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 these 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 in the prices of
particleboard and fiberboard.
In the fourth quarter of fiscal year 1999, some of our particleboard
suppliers announced that they intend to increase their prices by approximately
3% IN FISCAL YEAR 1999, WE SPENT APPROXIMATELY $85.0 MILLION ON THESE PRODUCTS.
Also in 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 $15.0 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
14
<PAGE>
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 1998 and the nine months ending March 31, 1999, our two
largest customers accounted for approximately 34.1% and 35.3%, respectively, of
our Gross Annual Sales. Officemax accounted for 21.4% and 22.9% and Office Depot
accounted for 12.7% and 12.4%, respectively, 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.
At March 31, 1999, the accounts receivable balances of our largest five
customers comprised approximately 71.8% 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 occurrs.
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 than we do.
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
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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 71.6% 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.
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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 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.
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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 offered by BRS. Based on the assumption that the
terms of the merger agreement 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 participants in the buyout. After
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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 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 merger agreement were finalized and the
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 merger agreement with OSI.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The board of directors has approved the merger agreement and the merger and
recommends approval of the 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 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 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;
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(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.
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 70% 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:
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- Our board of directors established a special committee to consider
alternatives involving O'Sullivan;
- 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 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 May 16, 1999, at a meeting of the
O'Sullivan special committee held to evaluate the proposed 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 May 17, 1999, the date of the merger
agreement.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the merger agreement and the terms of the senior preferred stock
attached as an exhibit to the 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 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;
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- considered, to the extent publicly available, the financial terms of other
similar recent transactions that it considered relevant in evaluating the
merger;
- 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 MAY 17, 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
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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 Commission.
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. 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.
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- Ethan Allen Interiors Inc.
- Furniture Brands International, Inc.
- 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 latest 12
months and estimated calendar year 1999 net income and adjusted market values,
calculated as equity market, plus net debt, 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 May 14, 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 70% 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>
$17.79 - $21.23 $18.75
</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 eight selected transactions in the furniture manufacturing
industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- - 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.
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<PAGE>
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 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 70% 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>
$16.42 - $19.60 $18.75
</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 6.5x to 7.5x 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 11.0% 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
70% 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>
$18.44 - $23.65 $18.75
</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 45% 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 70% 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
- ---------------------------------------- -----------------------------------------------
$18.00 - $21.00 $18.75
</TABLE>
PREMIUM ANALYSIS
Salomon Smith Barney analyzed the premiums paid in 36 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
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<PAGE>
following implied premiums for O'Sullivan in the merger based on the stock price
of O'Sullivan common stock on May 14, 1999, the last trading day prior to the
date of the merger agreement, during the 30 trading day average prior to May 14,
1999, on March 24, 1999, which is the date of the 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>
18.4% 15.3% 30.5% 23.2%
May 14, 1999.............................................. 6.4%
30 Trading Day Average (April 5, 1999 - May 14, 1999)..... 15.2%
Management Buyout Public Announcement Date
(March 24, 1999)........................................ 48.5%
One Month Prior to March 24, 1999
(February 24, 1999)..................................... 84.0%
Three Months Prior to March 24, 1999
(December 24, 1998)..................................... 78.6%
Six Months Prior to March 24, 1999
(September 24, 1998).................................... 93.5%
Twelve Months Prior to March 24, 1999
(March 24, 1998)........................................ 53.1%
</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 12.75% to 13.75% 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 attached as Appendix B. 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 $350 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
29
<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;
30
<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. Based upon its
involvement in the negotiations with O'Sullivan, BRS believes that the
procedures used by the special committee in negotiating the merger agreement
were fair to O'Sullivan's stockholders who are not management participants in
the buyout.
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 $17.50 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.
31
<PAGE>
FINANCING OF THE MERGER
The total amount of funds necessary to fund the merger and related
transactions is expected to be approximately $370 million. These funds are
expected to come from the following sources:
- an equity investment by an affiliate of BRS of approximately $37.1 million
in cash in exchange for shares of common stock and series B junior
preferred stock of the surviving corporation;
- an equity investment by the management participants in the buyout of
approximately $12.1 million resulting from an exchange of some of their
common stock of O'Sullivan, approximately $440 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 $19.25 per share for this purpose;
- the issuance in the merger of approximately $29.1 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; and
- borrowings by O'Sullivan totaling approximately $165 million under a
senior secured credit facility with a floating interest rate estimated at
this time to be initially about 8.25% to 8.5%, the issuance of $115
million of senior subordinated notes with a fixed rate estimated at this
time to be about 12.0%, 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%.
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 $225 million and to purchase $115 million of senior subordinated
variable rate 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 up
to $47.2 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
$372.0 million, including fees and expenses not greater than $23.0
million; and
- Lehman having received satisfactory lien searches, solvency opinions,
environment reports and legal opinions.
SENIOR SECURED CREDIT FACILITY
The senior secured credit facility will be comprised of the following:
- a $40 million tranche A term loan facility repayable in 19 quarterly
installments, beginning 15 months after the completion of the merger, in
amounts to be agreed upon;
- a $125 million tranche B term loan facility repayable in 25 consecutive
quarterly installments, beginning 15 months after the completion of the
merger; and
32
<PAGE>
- a $60 million revolving credit facility maturing six years after the
completion of the merger, with a $20 million letter of credit subfacility
and a $10 million swing line subfacility. We expect that this revolving
credit facility will be undrawn at the time of the completion of the
merger.
O'Sullivan will be the borrower under the senior secured credit facility.
All present and future domestic subsidiaries of O'Sullivan 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 and its present and future
domestic subsidiaries; and
- a pledge of all of the capital stock of O'Sullivan's present and future
domestic subsidiaries and 65.0% of the capital stock of O'Sullivan's
present and future direct foreign subsidiaries.
SENIOR SUBORDINATED NOTES
OSI expects to issue $115 million in senior subordinated notes. These senior
subordinated notes will be our senior subordinated obligations, ranking behind
all of our existing and future senior indebtedness, including indebtedness under
the senior secured credit facility. The senior subordinated notes will be
unconditionally guaranteed by each of our subsidiaries.
In the event the senior subordinated notes cannot be placed prior to the
completion of the merger, OSI has obtained a commitment from Lehman Commercial
Paper Inc. and Lehman Brothers Inc. to provide O'Sullivan with $115 million of
senior subordinated variable rate loans due 2000. The senior subordinated
variable rate loans would rank the same as the senior subordinated 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 senior subordinated
variable rate loans and the term loans increases each quarter, up to a maximum
rate.
The conversion of the senior subordinated variable rate 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.
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.
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 $.01
per share.
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<PAGE>
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 18,000,000 shares of preferred stock, par value $1.00 per share. The
preferred stock outstanding after the completion of the merger will consist of
approximately 16,633,000 shares of senior preferred stock and 433,264 shares of
series B junior preferred stock. There will also be outstanding options to
acquire 46,737 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 an
initial liquidation value of $1.75. On each June 30 and December 31, we will add
to the liquidation value of the shares of senior preferred stock any unpaid
dividends that have accrued on those shares during the six months leading up to
each of these dates. This amount will be added to the liquidation value of each
share. When we refer to the liquidation value, we are referring to the total of
the initial liquidation value plus all dividends that have been added to it.
Dividends that have not yet been added to the liquidation value are referred to
as "accrued dividends". Once accrued dividends have been added to the
liquidation value, they are no longer accrued dividends.
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<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 of the liquidation value of the senior preferred
stock.
- 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.
- TIME OF 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.
- 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.
35
<PAGE>
- 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. On each June 30 and
December 31, we will add to the liquidation value of the outstanding shares of
junior preferred stock any unpaid dividends that have accrued on those shares
during the six months leading up to each of these dates.
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. Dividends will accrue on the junior preferred stock on a daily
basis at a rate of 14% per year of the liquidation value of the junior preferred
stock.
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
36
<PAGE>
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.
- TIME OF 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 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.
37
<PAGE>
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 16,048,988 shares of common stock outstanding on May 31, 1999. The
following table provides information regarding the beneficial ownership of
O'Sullivan's common stock as of May 31, 1999 for:
- our executive officers;
- our directors; and
- all of our directors and executive officers as a group.
38
<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 TOTAL PERCENT
NAME OWNED OWNED PLAN SHARES OWNED
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Daniel F. O'Sullivan............................... 46,441 263,300 1,598 311,339 1.9%
Richard D. Davidson................................ 119,279 165,000 803 285,082 1.8%
Tyrone E. Riegel................................... 31,652 148,500 1,418 181,570 1.1%
Terry L. Crump..................................... 23,302 106,670 834 130,806 *
Thomas M. O'Sullivan, Jr........................... 36,069 71,000 2,866 109,935 *
Michael P. O'Sullivan.............................. 27,815 67,500 4,302 99,617 *
Rowland H. Geddie, III............................. 10,981 71,000 4,597 86,578 *
E. Thomas Riegel................................... 13,014 71,000 2,463 86,477 *
Phillip J. Pacey................................... 9,389 24,000 2,704 36,093 *
Stuart D. Schotte.................................. 131 7,000 60 7,191 *
Tommy W. Thieman................................... 18,100 31,500 4,253 53,853 *
James C. Hillman................................... 22,475 71,000 3,935 97,410 *
William C. Bousquette.............................. 13,874 7,000 0 20,874 *
Charles G. Hanson.................................. 25,000 6,000 0 31,000 *
Stewart M. Kasen................................... 8,332 5,000 0 13,332 *
Thomas M. O'Sullivan, Sr........................... 166,704 7,000 0 173,704 1.1%
Ronald G. Stegall.................................. 0 7,000 0 7,000 *
Directors and executive officers as a group (17
persons)......................................... 572,558 1,129,470 29,833 1,731,861 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.
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.
39
<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. The
amounts set forth below assume a total equity contribution of $49.2 million. Of
this amount, approximately $37.1 million is assumed to be provided by BRS and
its affiliates and $12.1 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
SHARES OF OPTIONS TO PURCHASE 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.................................... 816,000 71.60% 0 -- 362,667
Richard P. Davidson.................... 67,167 5.89% 83,253 4,171 22,435
Daniel F. O'Sullivan................... 9,972 .87% 205,493 4,432 --
Tyrone E. Riegel....................... 17,948 1.57% 113,124 3,083 2,936
O'Sullivan Properties, Inc. (affiliate
of Thomas M. O'Sullivan, Sr.)........ 21,735 1.91% 103,424 -- 9,660
Michael P. O'Sullivan.................. 26,078 2.29% 24,557 4,408 5,225
Thomas M. O'Sullivan, Jr............... 28,203 2.47% 27,847 4,558 6,019
James C. Hillman....................... 23,127 2.03% 25,767 4,451 4,221
Rowland H. Geddie, III................. 21,017 1.84% 16,353 5,667 2,067
E. Thomas Riegel....................... 16,829 1.48% 32,640 3,463 2,410
Tommy W. Thieman....................... 16,226 1.42% 12,466 2,223 3,382
Phillip J. Pacey....................... 11,010 .97% 13,300 1,193 1,743
Stuart D. Schotte...................... 9,038 .79% 96 563 1,847
Management participants in the buyout
as a group (36 persons).............. 324,000 28.40% 839,640 46,737 70,597
</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'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;
(6) the senior preferred stock will be registered under the Exchange Act;
40
<PAGE>
(7) 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
(8) the officers of O'Sullivan will be the officers of the surviving
corporation, except that Terry L. Crump, an Executive Vice President and
Chief Financial Officer, will not continue as an officer or employee.
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
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 28.4% 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 $19.25 for this purpose. Each existing option to
acquire common stock has been valued at the difference between $19.25 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
41
<PAGE>
shares of O'Sullivan common stock that are not being invested in the surviving
corporation as part of the buyout:
<TABLE>
<CAPTION>
INVESTMENT IN THE MERGER CONSIDERATION
SURVIVING CORPORATION TO BE RECEIVED
------------------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C>
SHARES OF
SENIOR
EXISTING EXISITING PREFERRED
SHARES OPTIONS TO STOCK
OF COMMON ACQUIRE (NUMBER OF
STOCK COMMON STOCK CASH SHARES) CASH
-------------- -------------- ---------- -------------- -------------
Richard D. Davidson.................. $ 2,293,965 $ 417,098 $ 16,688 83,253 $ 864,459
Daniel F. O'Sullivan................. -- 443,200 9,972 205,493 2,456,700
Tyrone E. Riegel..................... 300,206 308,344 11,342 113,124 1,287,976
O'Sullivan Properties (affiliate of
Thomas M. O'Sullivan, Sr.)......... 987,746 -- -- 103,424 1,809,911
Michael P. O'Sullivan................ 534,272 440,766 14,321 24,557 284,166
Thomas M. O'Sullivan, Jr............. 615,488 455,778 14,659 27,847 336,733
James C. Hillman..................... 431,579 445,149 13,631 25,767 294,007
Rowland H. Geddie, III............... 211,372 566,694 16,366 16,353 201,680
E. Thomas Riegel..................... 246,423 346,288 11,407 32,640 355,375
Phillip J. Pacey..................... 178,225 119,297 7,088 13,300 156,590
Tommy W. Thiemen..................... 345,806 222,294 8,617 12,466 159,120
Stuart D. Schotte.................... 1,155 56,281 192,601 96 1,680
Management participants in the buyout
as a group (36 persons)............ $ 6,940,953 $ 4,673,680 $ 442,700 839,640 $ 10,223,174
</TABLE>
As of the record date for the special meeting, the management participants
in the buyout owned a total of [605,026] shares of O'Sullivan common stock and
held options to purchase a total of [1,238,141] 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
In connection with 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, 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.
42
<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. 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 $17.50
Each holder of an option with an exercise price equal to or less than $17.50
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
$17.50.
EXERCISE PRICE GREATER THAN $17.50
Each holder of an option with an exercise price greater than $17.50 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
$19.25 and the exercise price of the option. The denominator of the fraction
will be $1.75. 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 $1.75 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
43
<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
44
<PAGE>
- 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
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 W. 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>
RETIREMENT AND CONSULTING AGREEMENT
We are required to make payments to Daniel O'Sullivan under his retirement
and consulting agreement with O'Sullivan. Payments under this agreement amount
to an aggregate of $2.2 million. Mr. O'Sullivan will also receive options to
acquire common stock with a value of $2.2 million. The net present value of the
payments, including the acceleration of unvested options, is approximately $2.1
million. We recorded a one-time, pre-tax charge of $2.1 million, or $1.4 million
after taxes, recognizing this cost in the quarter ending June 30, 1999.
45
<PAGE>
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,
- 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
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- 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 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
and increase the liquidation preference and/or the redemption price of the
senior preferred stock 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
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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, 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."
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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.
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".
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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 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 resulting from our increased interest expense incurred in financing the
merger would violate the tax agreement. Tandy's petition seeks a court order
compelling us to submit to a dispute resolution process. Alternatively, Tandy
seeks a declaratory judgment that after the completion of the merger we must
continue the payments to Tandy as if the merger had not occurred. We filed an
answer on July 26, 1999, taking the position that Tandy's lawsuit was premature.
We do not believe there could be a dispute under the tax sharing and tax benefit
reimbursement agreement until the merger is consummated. On August 10, 1999,
Tandy filed a motion to compel a meeting between the chief executive officers of
O'Sullivan and Tandy pursuant to the dispute resolution provision of the tax
agreement. Any such meeting would presume, however, that there is presently a
dispute under the tax agreement. Because the merger has not yet been
consummated, we do not believe that there presently is a dispute. The court will
hold a hearing on August 26, 1999 with respect to this motion. We believe
Tandy's lawsuit 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 lawsuit.
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ESTIMATED FEES AND EXPENSES OF THE MERGER
Estimated fees and expenses for the merger are as follows:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
Advisory fees and expenses..................................................... $ 5,950,000
Debt financing fees and expenses............................................... 9,113,000
Legal fees and expenses........................................................ 2,250,000
Transaction fees and expenses.................................................. 4,000,000
Accounting fees and expenses................................................... 100,000
Printing and mailing costs..................................................... 500,000
Miscellaneous expenses......................................................... 200,000
-------------
Total...................................................................... $ 22,113,000
-------------
-------------
</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 August
27, 1999 will be entitled to receive notice of and vote at the special meeting.
As of that date, there were [16,048,988] 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 [ , 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
nine months ended March 31, 1999, we had sales of $294.0 million, EBITDA of
$37.9 million and net income of $16.2 million.
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The $3.1 billion ready-to-assemble segment of the North American furniture
market grew at a compound annual growth rate of 11.0% from 1993 through 1998.
This was significantly faster than the 6.3% compound annual growth rate of the
total $57.9 billion domestic residential furniture market from 1993 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 particle board 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 $12.1 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 5.5% 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 1998, we introduced
more than 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 $3.1 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
11.0% compound annual growth rate from 1993 to 1998, compared to the compound
annual growth rate of the United States gross domestic product of 5.4% 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
over [60%] 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 . 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. 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 office/home OfficeMax, Office Depot, Best Buy,
office and entertainment furniture. Office World, Circuit City, Service
Upscale features include Merchandise
Armortop-Registered Trademark-
laminates and Quikfit-TM- fastener
system.
Ovations............................ Transition style entertainment Best Buy, Circuit City, Montgomery
furniture collection in both medium 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.
Xpressions-TM-...................... Generation X targeted home office Wal-Mart, Circuit City, Meijer,
and tertainment 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 with OfficeMax, Shopko, Montgomery Ward
antique Odessa Pine finish. Both
home office and entertainment
products.
Carmel Transitional styled home office and Ames, Montgomery Ward, Service
Valley-Registered Trademark-...... tertainment furniture collection in Merchandise, Best Buy
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 over 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 1998, we spent approximately $900,000 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 1998 and the nine months ending March 31, 1999, our two
largest customers accounted for approximately 34.1% and 35.3%, respectively, of
our gross annual sales. OfficeMax accounted for 21.4% and 22.9% and Office Depot
accounted for 12.7% and 12.4%, respectively, 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
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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 particle board 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 over $57.5 million in capital improvements to expand
production capacity, increase manufacturing efficiency and install a new
corporate-wide JD Edward's management information system since the beginning of
fiscal year 1997 through March 31, 1999. 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 particle board,
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
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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
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 65% 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 than us.
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 integral 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.
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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 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
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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.
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 $800,000,000. 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 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 in the third calendar quarter 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
$17.50 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; and
(6) litigation.
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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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<PAGE>
(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 as 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 March 31, 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, 1998 gives effect to the merger as if it
was completed on July 1, 1997. The pro forma statement of operations data for
the nine months ended March 31, 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 MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and cash equivalents... $ 1,869 $ (1,869)(b) $ --
Trade receivables, net...... 78,720 78,720
Inventory................... 48,880 48,880
Prepaid expenses and other
current assets............ 3,302 3,302
---------- ----------- ----------
Total current assets...... 132,771 (1,869) 130,902
Property, plant and
equipment, net............ 97,413 97,413
Other non-current assets,
net....................... -- 10,000(a) 10,000
Goodwill, net............... 41,839 41,839
---------- ----------- ----------
Total assets.............. $ 272,023 $ 8,131 $ 280,154
---------- ----------- ----------
---------- ----------- ----------
Liabilities
Accounts payable............ $ 17,056 $ 58(b) $ 17,114
Current portion of long-term
debt...................... 4,000 (4,000)(c) --
Accrued liabilities......... 23,726 (2,008)(i) 21,718
Income taxes payable........ 2,984 2,984
---------- ----------- ----------
Total current
liabilities............. 47,766 (5,950) 41,816
Existing long-term debt..... 29,000 (19,000)(c) 10,000
Senior secured credit
facility.................. -- 165,000(d) 165,000
Senior subordinated notes... -- 115,000(d) 115,000
Deferred income taxes....... 15,690 -- 15,690
---------- ----------- ----------
Total liabilities......... 92,456 255,050 347,506
Mandatorily Redeemable
Preferred Stock
Senior preferred (h)........ -- 20,791(e) 20,791
Stockholders' Equity (Deficit)
Series A junior preferred
stock (h)................. -- --(e) --
Series B junior preferred
stock (h)................. -- 43,326(e) 43,326
Common stock (h)............ 16,820 (16,820)(f) --
1,140(e) 1,140
Additional paid-in
capital................... 87,416 (82,742)(f)(g) 4,674
Foreign currency
translation............... (67) -- (67)
Retained earnings
(deficit)................. 84,496 (194,877)(f)(i)
(26,835)(g) (137,216)
Treasury stock at cost...... (9,098) 9,098(f) --
---------- ----------- ----------
Total stockholders' equity
(deficit)................. 179,567 (267,710) (88,143)
---------- ----------- ----------
Total liabilities and
stockholders' equity
(deficit)............... $ 272,023 $ 8,131 $ 280,154
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
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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>
(IN THOUSANDS) MARCH 31, 1999
-------------------
<S> <C>
Prepayment penalty........................................................ $ 950
NationsBank swap.......................................................... 977
------
Total................................................................. $ 1,927
------
------
</TABLE>
THESE AMOUNTS WILL BE DIFFERENT AT THE TIME OF THE MERGER.
(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.
(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
(IN THOUSANDS) BRS THE BUYOUT STOCKHOLDERS TOTAL
--------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
Mandatorily Redeemable Preferred Stock
Senior preferred.................................. -- -- $ 20,791 $ 20,791
Stockholders' Equity:
Series A junior preferred......................... -- -- -- --
Series B junior preferred......................... $ 36,267 $ 7,059 $ 43,326
Common stock...................................... $ 816 $ 324 $ 1,140
</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 $4,674,000.
(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
$280 million, the issuance of the senior preferred stock and an equity
infusion of $49.2 million from BRS and the management participants in the
buyout. See "Special Factors--Financing of the Merger".
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(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>
(IN THOUSANDS) MARCH 31, 1999
------------------
<S> <C>
Prepayment penalty........................................................ $ 950
Interest rate swap........................................................ 977
Compensation expense--option exercises.................................... 12,795
Merger related expenses................................................... 12,113
-------
Total................................................................. $ 26,835
-------
-------
</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
(IN THOUSANDS) AUTHORIZED OUTSTANDING
----------- ---------------------
<S> <C> <C>
Senior preferred stock...................................... 17,000 16,633
Series A junior preferred stock............................. 250 0
Series B junior preferred stock............................. 750 433
Common stock................................................ 2,000 1,140
</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.
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UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net Sales....................................................................... $ 339,407 $ -- $339,407
Costs and expenses:
Cost of sales................................................................. 244,086 244,086
Selling, marketing and administrative......................................... 69,212 750(a) 69,962
---------- ----------- ---------
Total costs and expenses........................................................ 313,298 750 314,048
Operating income................................................................ 26,109 (750) 25,359
Interest expense, net........................................................... 2,468 27,577(b) 30,045
---------- ----------- ---------
Income (loss) before income taxes............................................... 23,641 (28,327) (4,686)
Income tax provision (benefit).................................................. 8,742 (10,481)(c) (1,739)
---------- ----------- ---------
Net income (loss)............................................................... 14,899 (17,846) (2,947)
Preferred stock dividends....................................................... -- (10,252)(d) (10,252)
---------- ----------- ---------
Net Income (loss) Attributable to Common Stockholders........................... $ 14,899 $(28,098)(e) $(13,199)
---------- ----------- ---------
---------- ----------- ---------
Earnings (loss) Per Common Share
Basic......................................................................... $ 0.91 $ (11.58)
Diluted....................................................................... $ 0.89 $ (11.58)
Weighted Average Shares Outstanding
Basic......................................................................... 16,339 1,140
Diluted....................................................................... 16,715 1,140
Other Data:
EBITDA (h).................................................................... $ 37,669 $ (750)(a) $ 36,919
Depreciation and amortization................................................. 11,560 11,560
Capital expenditures.......................................................... 28,359 28,359
Selected Ratios:
Ratio of earnings to combined fixed charges and preferred stock dividends..... 9.21 (f)
Ratio of earnings to fixed charges............................................ 9.21 (g)
Ratio of EBITDA to interest expense........................................... 15.26 1.23
Ratio of senior debt to EBITDA................................................ 0.90 4.47
Ratio of total debt to EBITDA................................................. 0.90 7.86
</TABLE>
See notes to the unaudited pro forma condensed statement of operations
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UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net Sales..................... $ 293,988 $ -- $293,988
Costs and expenses:
Cost of sales............... 208,187 208,187
Selling, marketing and
administrative............ 58,240 563(a) 58,803
---------- ----------- ---------
Total costs and expenses...... 266,427 563 266,990
Operating income.............. 27,561 (563) 26,998
Interest expense, net......... 2,284 20,249(b) 22,533
---------- ----------- ---------
Income before income taxes.... 25,277 (20,812) 4,465
Income tax provision.......... 9,098 (7,700)(c) 1,398
---------- ----------- ---------
Net income.................... 16,179 (13,112) 3,067
Preferred stock dividends..... -- (7,689)(d) (7,689)
---------- ----------- ---------
Net Income (loss) Attributable
to Common Stockholders...... $ 16,179 $(20,801)(e) $ (4,622)
---------- ----------- ---------
---------- ----------- ---------
Earnings (loss) Per Common
Share
Basic....................... $ 1.01 $ (4.05)
Diluted..................... $ 1.00 $ (4.05)
Weighted Average Shares
Outstanding
Basic....................... 15,951 1,140
Diluted..................... 16,250 1,140
Other Data:
EBITDA (h).................. $ 37,928 $ (563)(a) $ 37,365
Depreciation and
amortization.............. 10,367 10,367
Capital expenditures........ 13,294 13,294
Selected Ratios:
Ratio of earnings to
combined fixed charges and
preferred stock
dividends................. 10.58 (f)
Ratio of earnings to fixed
charges................... 10.58 1.20
Ratio of EBITDA to interest
expense................... 16.61 1.66
Ratio of senior debt to
EBITDA.................... 0.87 4.42
Ratio of total debt to
EBITDA.................... 0.87 7.76
</TABLE>
See notes to the unaudited pro forma condensed statement of operations
79
<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. The management fee for the nine month period ended March 31, 1999
has been pro-rated. See "Special Factors--Conflicts of Interest;
Arrangements with Management".
(b) 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 NINE MONTHS
------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Existing variable rate industrial revenue bonds......................... 7.00% $ 700 $ 525
Senior Secured Credit Facility
Term loan A of $40 million............................................ 8.25% 3,300 2,474
Term loan B of $125 million........................................... 8.50% 10,625 7,969
Commitment fee........................................................ 300 225
Senior subordinated notes............................................... 12.00% 13,800 10,350
Amortization of debt issue costs........................................ 1,320 990
----------- ------------
Total pro forma interest expense........................................ 30,045 22,533
Historical interest expense............................................. (2,468) (2,284)
----------- ------------
Pro forma adjustment.................................................. $ 27,577 $ 20,249
----------- ------------
----------- ------------
</TABLE>
(c) Reflects the statutory tax rate of 37% for the periods ended June 30, 1998
and March 31, 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".
(d) Senior preferred stock dividends accumulate and compound at a rate of 12%.
$693,000 has been included to provide for the annual addition to the value
of senior preferred stock from its estimated fair value of $1.25 per share
at the time of the completion of the merger to its liquidation value of
$1.75 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".
(e) 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
80
<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>
NINE MONTHS ENDED
(IN THOUSANDS) MARCH 31, 1999
------------------
<S> <C>
Prepayment penalty............................................................................ $ 950
Interest rate swap............................................................................ 977
Compensation expense-option exercises......................................................... 12,795
Merger related expenses....................................................................... 12,113
-------
Total..................................................................................... $ 26,835
-------
-------
</TABLE>
(f) Fixed charges and preferred stock dividend requirements exceed earnings by
$20,959,000 for the year ending June 30, 1998 and $7,550,000 for the nine
months ending March 31, 1999.
(g) Fixed charges exceed earnings by $4,686,000 for the year ended June 30,
1998.
(h) EBITDA means earnings before interest expense and interest income, income
taxes, depreciation and amortization. EBITDA is presented here to provide
additional information about our operations. This item should be considered
in addition to, but not as a substitute for or superior to, operating
income, net income, cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles. EBITDA
may differ in the method of calculation from similarly titled measures used
by other companies.
81
<PAGE>
SOURCES AND USES OF CASH PROCEEDS AND EQUITY
The total sources and uses of the financing proceeds related to the merger
are estimated at this time to be as follows:
<TABLE>
<CAPTION>
AS OF MARCH 31,
1999
-------------------
<S> <C>
($ IN MILLIONS)
SOURCES OF FUNDS
Revolving Credit Facility.................................................................... $ 0.0
Tranche A Term Loan.......................................................................... 40.0
Tranche B Term Loan.......................................................................... 125.0
------
Total Senior Credit Facility............................................................. 165.0
Senior Subordinated Notes.................................................................... 115.0
Assume Existing Debt......................................................................... 10.0
Senior Preferred Stock(b).................................................................... 29.1
Rollover Equity(a)........................................................................... 12.1
BRS Equity Investment(c)..................................................................... 37.1
Excess Cash.................................................................................. 12.6
------
Total Sources................................................................................ $ 380.9
------
------
USES OF FUNDS
Purchase Equity.............................................................................. $ 311.8
Rollover Equity(a)........................................................................... 12.1
------
Total Equity............................................................................. 323.9
Assume Existing Debt......................................................................... 10.0
Refinance Existing Debt...................................................................... 24.9
Transaction Expenses......................................................................... 22.1
------
Total Uses................................................................................... $ 380.9
------
------
</TABLE>
- ------------------------
(a) Includes $7.1 million Series B Jr. Preferred Stock, $4.7 million options to
purchase Series A Jr. Preferred Stock and $0.3 million of common stock.
Included in rollover equity is cash invested of $0.4 million.
(b) At initial liquidation value of $1.75 per share. Senior preferred stock is
recorded at estimated market value of $20.8 million on the proforma balance
sheet. The senior preferred stock is a non-cash transaction.
(c) Includes cash investment of $36.3 million Series B Jr. Preferred Stock and
$0.8 million of common stock.
82
<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 financial statements incorporated in this document by reference to the
Annual Report on Form 10-K of O'Sullivan Industries Holdings, Inc. for the year
ended June 30, 1998 have been so incorporated 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 give 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 be 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;
83
<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.
The SEC allows us to "incorporate by reference" information into this
document. This means that O'Sullivan can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that we
have previously filed with the SEC. They contain important information about
O'Sullivan and its financial condition. Some of these filings have been amended
by later filings, which are also listed.
<TABLE>
<S> <C>
SEC FILINGS (FILE NO. 001-12754) DESCRIPTION OR PERIOD/AS OF DATE
Annual Report on Form 10-K Year ended June 30, 1998
Quarterly Reports on Form 10-Q Quarters ended September 30, 1998; December
31, 1998; and March 31, 1999
Current Reports on Form 8-K, as amended May 18, 1999
</TABLE>
We incorporate by reference additional documents that O'Sullivan may file
with the SEC between the date of this document and the date of the special
meeting. These documents include periodic reports, including Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through O'Sullivan or from the SEC through the SEC's web site at the
address provided above. Documents
84
<PAGE>
incorporated by reference are available from O'Sullivan without charge,
excluding any exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in this document. You can obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone at the following address:
O'Sullivan Industries Holdings, Inc.
1900 Gulf Street
Lamar, Missouri 64759
Attention: Rowland H. Geddie, III
(417) 682-3322
If you would like to request documents, please do so by , 1999
to receive them before the special meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
OSI ACQUISITION, INC.
AND
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
DATED AS OF MAY 17, 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
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
9.11. Severability...................................................................... A-31
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
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
Exhibits:
Exhibit 3.2 Retained Shares
Exhibit 5.5 Commitment Letters
Exhibit 9.7 Terms of Senior Preferred Stock
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 17, 1999,
between OSI Acquisition, Inc., a Delaware corporation ("Purchaser"), and
O'Sullivan Industries Holdings, Inc., a Delaware corporation (the "Company").
RECITALS
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."
<PAGE>
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
(the "Certificate of Incorporation") as in effect immediately prior to the
Effective Time 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, except that the Certificate of
Incorporation shall be amended to (i) eliminate the Series A Junior
Participating Preferred Stock, (ii) add the Senior Preferred Stock having the
rights, designations and preferences substantially as set forth in Exhibit 9.7
hereof and (iii) create the junior preferred stock, par value $1.00 per share,
on terms and conditions satisfactory to Purchaser in its sole discretion (such
junior preferred stock of the Surviving Corporation, hereinafter referred to as
the "Junior Preferred Stock");
(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, each share of common stock,
$.01 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, and each share of preferred stock, par value $1.00
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 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) $17.50 in cash, without interest thereon (the "Per
Share Cash Amount") and (ii) one (1) share of Senior Preferred Stock (as
hereinafter defined and, together with the Per Share Cash Amount, the "Merger
Consideration"). The persons set forth on the list attached hereto as Exhibit
3.2 shall have the right to elect, by written notice to the Company and the
Purchaser prior to the Effective Time, to exchange, in the aggregate, up to the
number of shares of Common Stock set forth on Exhibit 3.2 (each share of Common
Stock elected to be exchanged, a "Retained Share" and collectively, the
"Retained Shares") into the right to receive, in lieu of the Merger
Consideration, such number and type of Surviving Corporation securities as shall
be determined by the Purchaser and the electing person prior to the Effective
Time (the "Retained Share Merger Consideration"). Purchaser and each electing
person shall provide the Company, prior to the Effective Time, with the number
of shares of Common Stock for which the person elects to treat as Retained
Shares. The persons set forth on the attached Exhibit 3.2 shall be entitled to
receive in the aggregate no more than 27.0% of the Surviving Corporation's
common equity securities whether as Retained Share Merger Consideration or
pursuant to Section 3.1.
(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. At the Effective Time, each Retained Share shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become such number and type of shares of the
Surviving Corporation as shall be designated on Exhibit 3.2 to be provided by
Purchaser to the Company prior to the Effective Time and consented
to in writing by each stockholder listed thereon.
(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 $19.25 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 $19.25 minus
the
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exercise price and the denominator of which is $1.75 (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 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 persons
set forth on the list attached as Exhibit 3.2 shall have the right to elect, by
notice to the Company and the Purchaser prior to the Effective Time, to exchange
up to the number of Company Stock Options held by such person and set forth on
such Exhibit 3.2 (as agreed by the Purchaser prior to the Effective Time)
("Retained Options") into options to receive shares of the Surviving
Corporation's preferred securities. The number of Retained Options and the
number of new options for which the Retained Options may be exchanged, with
respect to each person set forth on such Exhibit 3.2, shall be designated on
Exhibit 3.2 and consented to in writing by each option holder listed thereon
prior to 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
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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 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
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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
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
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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 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
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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, 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
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conducted, except where the failure to have such power and authority,
individually or in the aggregate, would not materially adversely affect
Purchaser.
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 Exhibit 5.5 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 (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.
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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 of the
Surviving Corporation, par value $1.00 per share, the principal terms of which
are attached hereto as Exhibit 9.7.
(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.
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
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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.
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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EXHIBIT 9.7 (AMENDED)
O'SULLIVAN INDUSTRIES HOLDINGS, INC.
TERMS OF THE SENIOR PREFERRED STOCK
Certain capitalized terms used herein are defined in Section 5 hereof.
Section 1. DIVIDENDS.
1A. GENERAL OBLIGATION. When and as declared by the Corporation's board of
directors and to the extent permitted under the General Corporation Law of
Delaware, the Corporation shall pay preferential dividends to the holders of the
Senior Preferred Stock, par value $1.00 per share (the "Senior Preferred Stock")
as provided in this Section 1. Except as otherwise provided herein, dividends on
each share of the Senior Preferred Stock (a "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 Share to and including the date on which the Liquidation
Value of such 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 Share shall be deemed to be its "date of
issuance" regardless of the number of times transfer of such 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 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 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 shall remain accumulated dividends with respect to such 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 the Senior Preferred
Stock based upon the number of Shares held by each such holder.
Section 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 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.
Section 3. REDEMPTIONS.
3A. REDEMPTION PAYMENT. For each 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 Share (the "Redemption Date") an amount in immediately
available funds equal to the Liquidation Value of such Share (plus all accrued,
accumulated and unpaid dividends thereon). If the funds of the Corporation
legally available for redemption of Shares on any Redemption Date are
insufficient to redeem the total number of Shares to be redeemed on such date,
<PAGE>
those funds which are legally available shall be used to redeem the maximum
possible number of Shares ratably among the holders of the Shares to be redeemed
based upon the aggregate Liquidation Value of such 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 Shares, such funds will immediately be used to redeem the
balance of the Shares which the Corporation has become obligated to redeem on
any Redemption Date but that 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 3 days prior to the date on which
such redemption is to be made. In case fewer than the total number of Shares
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed 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 Shares.
3C. DETERMINATION OF THE NUMBER OF EACH HOLDER'S SHARES TO BE
REDEEMED. The number of Shares of Senior Preferred Stock to be redeemed from
each holder thereof in redemptions hereunder shall be the number of Shares
determined by multiplying the total number of Shares of Senior Preferred Stock
to be redeemed times a fraction, the numerator of which shall be the total
number of Shares of Senior Preferred Stock then held by such holder and the
denominator of which shall be the total number of Shares of Senior Preferred
Stock then outstanding.
3D. DIVIDENDS AFTER REDEMPTION. No Share is entitled to any dividends
accruing after the date on which the Liquidation Value of such 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 Share shall cease, and
such Share shall not be deemed to be outstanding.
3E. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any 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 Senior Preferred Stock on the basis of the number of Shares of
Senior Preferred Stock 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 [parameters of such
repurchases to be agreed between OSI Acquisition, Inc. and O'Sullivan Industries
Holdings, Inc.].
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.
3H. SCHEDULED REDEMPTIONS. The Corporation shall redeem all outstanding
Shares of Senior Preferred Stock on the 12th anniversary of the date of issuance
of such 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).
Section 4. VOTING RIGHTS. Except as otherwise required by law, the Senior
Preferred Stock shall have no voting rights.
2
<PAGE>
Section 5. DEFINITIONS.
"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 Share as of any particular date shall be equal to
$1.75.
"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" 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 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 Company'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 for
the benefit of such 5% Owner and/or such other Persons.
Section 6. AMENDMENT AND WAIVER. No amendment, modification or waiver
shall be binding or effective with respect to any provision hereof without the
prior written consent of the holders of at least 51% of the Senior Preferred
Stock outstanding at the time.
Section 7. 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 stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
3
<PAGE>
APPENDIX B
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
May 17, 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 Agreement and Plan of
Merger, dated as of May 17, 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) $17.50 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 $1.75 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 no more than 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.
May 17, 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 also will receive a fee upon the delivery of this opinion. 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
C-2
<PAGE>
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............................
</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 June 21,
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 PURCHASES PROGRAM PURCHASES
----------------------- -----------------------
PRICE PER PRICE PER
NAME SHARE SHARES SHARE SHARES
- ------------------------------------------------------------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Daniel F. O'Sullivan
May 1999............................................................ $ 17.8750 2 $ 17.4375 136
June 1999........................................................... 0 $ 16.7326 94
Richard D. Davidson
May 1999............................................................ $ 17.8750 17 $ 17.4375 104
June 1999........................................................... $ 16.57 21 $ 16.7326 72
Tyrone E. Riegel
May 1999............................................................ $ 17.8750 17 $ 17.4375 97
June 1999........................................................... 0 $ 16.7326 67
Terry L. Crump
May 1999............................................................ $ 17.8750 16 $ 17.4375 74
June 1999........................................................... 0 $ 16.7326 51
Thomas M. O'Sullivan, Jr.
May 1999............................................................ $ 17.8750 38 $ 17.4375 65
June 1999........................................................... $ 16.57 27 $ 16.7326 45
Rowland H. Geddie, III
May 1999............................................................ $ 17.8750 62 $ 17.4375 63
June 1999........................................................... $ 16.57 44 $ 16.7326 44
E. Thomas Riegel
May 1999............................................................ $ 17.8750 35 $ 17.4375 64
June 1999........................................................... $ 16.57 25 $ 16.7326 44
James C. Hillman
May 1999............................................................ $ 17.8750 52 $ 17.4375 54
June 1999........................................................... $ 16.57 38 $ 16.7326 37
Michael P. O'Sullivan
May 1999............................................................ $ 17.8750 58 $ 17.4375 60
June 1999........................................................... $ 16.57 42 $ 16.7326 41
</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 --
</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.
- ------------------------------------------ ---------------------------------------------------------------------
1987, he has served as the Plant Manager in Lamar. Mr. Thieman has
been employed by O'Sullivan since 1972.
<S> <C>
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>
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 Agreement and Plan of Merger, dated as of May 17, 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 as Exhibit 9.7 to the 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. (included on
signature page).
**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 23rd day of
August, 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 August 23, 1999
Richard D. Davidson Officer)
Executive Vice President
/s/ TERRY L. CRUMP and Chief Financial
- ------------------------------ Officer (Principal August 23, 1999
Terry L. Crump Financial and Accounting
Officer)
/s/ DANIEL F. O'SULLIVAN
- ------------------------------ Chairman of the Board of August 23, 1999
Daniel F. O'Sullivan Directors
*
- ------------------------------ Director August 23, 1999
William C. Bousquette
*
- ------------------------------ Director August 23, 1999
Charles G. Hanson
*
- ------------------------------ Director August 23, 1999
Stewart M. Kasen
*
- ------------------------------ Director August 23, 1999
Thomas M. O'Sullivan, Sr.
*
- ------------------------------ Director August 23, 1999
Tyrone E. Riegel
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director August 23, 1999
Ronald G. Stegall
</TABLE>
<TABLE>
<S> <C>
/s/ ROWLAND H. GEDDIE, III
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Rowland H. Geddie, III
August 23, 1999
*By: Attorney-in-fact
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II-6
<PAGE>
EXHIBIT INDEX
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<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 17, 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 as Exhibit 9.7 to the 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. (included on
signature page).
**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.
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* Previously filed.
** Filed herewith.
