================================================================= O'SULLIVAN BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2005 (ISSN XXXX-XXXX) October 18, 2005 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- O'SULLIVAN BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Marie Therese V. Profetana, Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of O'SULLIVAN BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO O'SULLIVAN BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF O'SULLIVAN INDUSTRIES [00002] O'SULLIVAN INDUSTRIES' BALANCE SHEET AT MARCH 31, 2005 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] O'SULLIVAN INDUSTRIES' CHAPTER 11 DATABASE [00005] O'SULLIVAN INDUSTRIES' 20 LARGEST UNSECURED CREDITORS [00006] O'SULLIVAN INDUSTRIES HOLDINGS' TWO LARGEST CREDITORS [00007] O'SULLIVAN INDUSTRIES-VIRGINIA'S 20 LARGEST CREDITORS [00008] O'SULLIVAN FURNITURE'S LARGEST UNSECURED CREDITOR [00009] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00010] DEBTORS' MOTION TO OBTAIN $35,000,000 OF DIP FINANCING [00011] DEBTORS' MOTION FOR ADEQUATE PROTECTION STIPULATION [00012] OVERVIEW OF O'SULLIVAN'S PLAN OF REORGANIZATION KEY DATE CALENDAR ----------------- 10/14/05 Voluntary Petition Date 10/14/05 Chapter 11 Plan & Disclosure Statement Filed 10/29/05 Deadline to File Schedules of Assets & Liabilities 10/29/05 Deadline to File Statements of Financial Affairs 10/29/05 Deadline to File Lists of Leases and Contracts 11/03/05 Deadline to Provide Utilities With Adequate Assurance 12/13/05 Deadline to make decisions about lease depositions 01/12/06 Deadline to remove actions under FRBP 9027 02/11/06 Expiration of Exclusive Plan Proposal Period 04/12/06 Expiration of Exclusive Solicitation Period 10/14/07 Deadline to Commence Avoidance Actions Organizational Meeting to Form Creditors' Committees First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO O'SULLIVAN BANKRUPTCY NEWS ----------------------------------------------------------------- O'SULLIVAN BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of O'SULLIVAN BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) O'SULLIVAN BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of O'SULLIVAN BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF O'SULLIVAN INDUSTRIES ----------------------------------------------------------------- O'Sullivan Industries Holdings, Inc. 10 Mansell Court East, Suite 100 Roswell, Georgia 30076 Telephone (678) 939-0800 Fax (678) 939-0814 http://www.osullivan.com/ O'Sullivan designs, manufactures, and distributes ready-to- assemble furniture and related products, including desks, computer work centers, bookcases, filing cabinets, home entertainment centers, commercial furniture, garage storage units, television, audio, and night stands, dressers, and bedroom pieces. O'Sullivan sells its products primarily to large retailers including OfficeMax, Lowe's, Wal-Mart, Staples, and Office Depot. In addition, O'Sullivan Furniture operates two retail stores that sell products that the Company manufactures directly for end-user customers. O'Sullivan had approximately $250 million in net sales for FY 2005, which ended on June 30, 2005. The Company's headquarters is in the Atlanta, Georgia, area, with manufacturing facilities in Lamar, Missouri; and South Boston, Virginia. O'Sullivan has approximately 250 salaried employees and approximately 1,050 wage earning employees, none of whom are members of any union. Corporate Structure O'Sullivan Industries Holdings, Inc., owns all of the outstanding common stock of O'Sullivan Industries, Inc., which is the primary operating company. The Operating Company, in turn, owns all of the outstanding common stock of O'Sullivan Industries - Virginia, Inc., and O'Sullivan Furniture Factory Outlet, Inc. In addition, Industries owns O'Sullivan Industries UK Ltd., a non-debtor foreign subsidiary that was recently formed under the laws of England and Wales for the sole purpose of entering into a real property lease. O'Sullivan has branch operations in the United Kingdom and Canada. O'Sullivan also has four wholly owned subsidiaries in Australia, which are no longer operating, and are in the process of winding down. Recent Strategic Initiatives In June 2004, O'Sullivan hired Robert S. Parker as President and Chief Executive Officer and Mr. Parker as Executive Vice President and Chief Financial Officer. With new senior management, the Company began implementing certain cost-cutting measures and strategic initiatives, including the creation of a new sales and marketing organization, the expansion of new product lines, including their commercial office furniture line, garage storage line, and certain new consumer packaged goods lines, and the enhancement of sourcing opportunities from abroad. Road to Bankruptcy Rick A. Walters, the Company's vice president and chief financial officer, relates that O'Sullivan has been and continue to be negatively impacted by increased competition within their industry, including foreign competition. "In addition, consumer demand for RTA furniture has waned in recent years. Furthermore, the costs of particleboard and fiberboard, the primary raw materials used in [O'Sullivan's] products, increased significantly in 2004 and have not fallen materially since." Mr. Walters adds that the full benefits of the Company's strategic initiatives have not yet been realized. As a result, Mr. Walters says, O'Sullivan's EBITDA decreased from $22,500,000 for FY 2004 to $1,340,000 for FY 2005. In addition, the Debtors have and continue to experience liquidity constraints. In July 2005, in consideration of these and other circumstances, O'Sullivan hired a financial advisor to assist in the exploration of strategic alternatives, including various out-of-court restructuring alternatives and the possible reorganization of its capital structure. O'Sullivan has concluded that a reorganization of its debt structure is the alternative most likely to maximize the value of the Company's assets. According to Mr. Walters, O'Sullivan has negotiated with certain holders of approximately 83-84% in principal amount of the Senior Secured Notes and believe that it has reached agreement on the primary terms of a reorganization. ----------------------------------------------------------------- [00002] O'SULLIVAN INDUSTRIES' BALANCE SHEET AT MARCH 31, 2005 ----------------------------------------------------------------- O'SULLIVAN INDUSTRIES HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEET As of March 31, 2005 Assets Current assets: Cash and cash equivalents $4,584,000 Trade receivables, net 29,067,000 Inventories, net 39,893,000 Prepaid expenses and other current assets 2,455,000 ------------- Total current assets 75,999,000 Property, plant and equipment, net 53,666,000 Other assets 7,102,000 Goodwill, net of accumulated amortization 38,088,000 ------------- Total assets $174,855,000 ============= Liabilities and Stockholders' Deficit Current liabilities: Accounts payable $11,787,000 Accrued advertising 9,670,000 Accrued liabilities 16,463,000 Payable to RadioShack - ------------- Total current liabilities 37,920,000 Long-term debt 223,016,000 Mandatorily redeemable senior preferred stock 30,084,000 Other liabilities 11,229,000 Payable to RadioShack 70,067,000 ------------- Total liabilities 372,316,000 Commitments and contingent liabilities Stockholders' deficit: Junior preferred stock, Series A - Junior preferred stock, Series B 110,643,000 Junior preferred stock, Series C 1,000 Class A common stock 14,000 Class B common stock 7,000 Additional paid-in capital 13,057,000 Retained deficit (323,321,000) Notes receivable from employees - Treasury stock, at cost - Accumulated other comprehensive income 2,138,000 ------------- Total stockholders' deficit ($197,461,000) ------------- Total liabilities and stockholders' deficit $174,855,000 ============= ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- Company Arranges Up to $35 Million of Debtor-in-Possession Financing, Continues to Serve Customers as Usual; Reorganization Plan to Be Filed With the Court Has Support of 83% of Senior Secured Note Holders ROSWELL, Georgia -- October 14, 2005 -- At the close of business today, O'Sullivan Industries Holdings, Inc. (OTC: OSULP - News) and certain of its direct and indirect subsidiaries will file voluntary petitions for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court for the Northern District of Georgia in Atlanta. The company, with headquarters in Roswell, Georgia, is a leading designer, manufacturer and distributor of ready-to- assemble furniture and other products. Subsidiaries included in the filing are O'Sullivan Industries, Inc., O'Sullivan Industries - Virginia, Inc. and O'Sullivan Furniture Factory Outlet, Inc. To expedite the court proceedings, O'Sullivan also will file a plan of reorganization and a disclosure statement, the material economic terms of which have the support of holders of approximately 83% of its senior secured notes. The plan must be approved by the U.S. Bankruptcy Court. O'Sullivan said it has received a commitment for up to $35 million of debtor-in-possession (DIP) financing from CIT Group/Business Credit, Inc. The DIP facility, together with funds from operations, should provide the liquidity necessary to enable O'Sullivan to meet its obligations to its suppliers, customers and employees during the Chapter 11 reorganization process. Robert S. Parker, president and chief executive officer of O'Sullivan Industries, said the filing would not cause a reduction in O'Sullivan's 1,300-person workforce and that O'Sullivan would ask the court to protect employees' wages and benefits. He assured O'Sullivan's customers that it has sufficient inventory to keep them supplied and intends to provide uninterrupted service throughout the reorganization process. Parker said the bankruptcy filing is an essential and necessary step in the turnaround that has been underway since the new management team began to come on board in June 2004. "We are taking this step to deal with O'Sullivan's debt burden and not because of operational issues," he said. "This will ultimately be a positive step in O'Sullivan's efforts to become an even stronger leader in the ready-to-assemble furniture industry. As a result of obtaining the support of a clear majority of our senior secured note holders in advance of the filing, we are in a position to complete the reorganization process in less time than is customary in many Chapter 11 proceedings. "While we would have liked to achieve a consensual restructuring outside of Chapter 11, O'Sullivan's debt burden and complex capital structure left us no choice but to take this step. We regret the impact this action will have on our suppliers and other impaired creditors." He continued, "O'Sullivan has a skilled and dedicated workforce, an expanding line of competitive products, and an established brand name available through the top retailers across the United States. We are well positioned to continue to provide product to our customers during the reorganization process, and we are confident that this process will not affect our ongoing delivery of outstanding customer service. New Leadership is Rebuilding Company "Since we began assembling the new management team at O'Sullivan 15 months ago, our focus has been on turning this company around," said Parker. "The company has made tremendous strides in accomplishing that goal. We believe we have turned the corner operationally, and there are signs of progress with respect to our sales." Parker cited the following key initiatives and accomplishments: -- Transforming the sales organization to work in closer partnership with retailers; -- Aligning the sales and marketing strategy with specific product categories; -- Implementing a disciplined consumer-focused new product development process; -- Expanding into new product categories; -- Improving operating efficiency, cutting waste, and reducing spending; -- Reducing inventory by $13 million; and -- Establishing a talented sourcing organization. He said, "Our customers, vendors and employees know that O'Sullivan's new leadership has already improved the company and its ways of doing business. There will be more improvements to come, but to get there O'Sullivan has had to address its capital structure." Plan of Reorganization The plan of reorganization . . . [describes] how the various classes of creditors would be treated in the reorganization. The plan is subject to review and approval by the U.S. Bankruptcy Court. Under the proposed plan: -- Holders of O'Sullivan Industries 10.63% senior secured notes would receive, in full satisfaction of their claims, their pro rata share of 10 million shares of new O'Sullivan Holdings common stock and $10 million in principal amount of new secured notes. -- General unsecured creditors of O'Sullivan Industries Holdings, Inc., and its subsidiaries, including holders of O'Sullivan Industries, Inc., 13.375% senior subordinated notes, would receive no payment for their claims. All outstanding obligations of O'Sullivan Industries Holdings, Inc. would be cancelled under the proposed plan and would receive no distribution of any kind. All outstanding shares of O'Sullivan Industries Holdings preferred stock, common stock, warrants and options would be cancelled under the proposed plan and would receive no distribution of any kind. While O'Sullivan is in Chapter 11 reorganization, investments in its securities will be highly speculative. Shares of O'Sullivan Industries Holdings, Inc.'s currently outstanding preferred stock and common stock almost certainly will have no value after the restructuring. As a result of the bankruptcy filing, O'Sullivan did not file its annual report on Form 10-K yesterday. It expects to file these reports upon completion of the documents. About O'Sullivan Industries O'Sullivan has been in business since 1954. The company designs, manufactures and distributes ready-to-assemble furniture and related products, including a growing line of desks, computer work centers, home entertainment centers, bookcases, shelving, stands for televisions and audio equipment, bedroom furniture pieces, garage storage units and commercial furniture. The majority of O'Sullivan products are sold through large retailers and office supply stores. O'Sullivan employs approximately 1,300 people, primarily at production facilities in Lamar, Missouri, and South Boston, Virginia. The company has its headquarters in the Atlanta suburb of Roswell. ----------------------------------------------------------------- [00004] O'SULLIVAN INDUSTRIES' CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead Debtor: O'Sullivan Industries, Inc. a/k/a O'Sullivan Furniture 10 Mansell Court E, Suite 100 Roswell, Georgia 30076 Bankruptcy Case No.: 05-83049 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- O'Sullivan Industries Holdings, Inc. 05-83076 O'Sullivan Industries-Virginia, Inc. 05-83087 O'Sullivan Furniture Outlet, Inc. 05-83102 Chapter 11 Petition Date: October 14, 2005 Court: Northern District of Georgia (Atlanta) Judge: C. Ray Mullins Debtors' Bankruptcy Counsel: Joel H. Levitin, Esq. Dechert LLP 30 Rockefeller Plaza New York, New York Tel: (212) 698-3558 Debtors' Local Counsel: James C. Cifelli, Esq. Gregory D. Ellis, Esq. Lamberth, Cifelli, Stokes & Stout, PA East Tower, Suite 550 3343 Peachtree Road, Northeast Atlanta, Georgia 30326 Tel: (404) 262-7373 Debtors' Financial Advisor: Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, New York 10020 Debtors' Restructuring Advisor: FTI Consulting 1201 W. Peachtree Street, Suite 500 Atlanta, Georgia 30309 Tel: (404) 460-6265 http://www.fticonsulting.com/ Debtors' PR Consultant: Edward Howard & Co. 1360 East 9th Street, 7th Floor Cleveland, Ohio 44114-1716 Tel: (216) 781-2400 Fax: (216) 781-8810 Debtors' Notice Agent: The Garden City Group, Inc. 105 Maxess Road Melville, New York 11747 Tel: 631-470-5000 Fax: 631-470-5100 Financial Condition at Sept. 30, 2005: (1) O'Sullivan Industries, Inc. Total Assets: $161,335,000 Total Debts: $254,178,000 (2) O'Sullivan Industries Holdings, Inc. Total Assets: $158,433 Total Debts: $132,151,000 (3) O'Sullivan Industries-Virginia, Inc. Estimated Assets: $50 Million to $100 Million Estimated Debts: More than $100 Million (4) O'Sullivan Furniture Outlet, Inc. Estimated Assets: $100,000 to $500,000 Estimated Debts: More than $100 Million ----------------------------------------------------------------- [00005] O'SULLIVAN INDUSTRIES' 20 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ Senior Subordinated Notes Bond debt $102,420,000 Sixth & Marquette Minneapolis, MN 55479 Sun Container Trade debt $792,208 515 South First Street Mount Vernon, IL 62864 Haffle America Company Trade debt $397,311 3901 Cheyenne Drive Archdale, NC 27263 Yellow Freight System Inc. Trade debt $347,656 10990 Roe Avenue Overland Parks, KS 66211 Fibre Converters Inc. Trade debt $319,064 37450 Schoolcraft Road Livonia, MI 48150 Nickander Associates Trade debt $299,022 112 park 32 West Nobleville, IN 46061 DNP America LLC Trade debt $235,802 Hendren Plastics Trade debt $226,197 Federal Express Corp. Trade debt $225,674 Guardian Industries Trade debt $187,034 Temple Inland Corp Trade debt $180,607 Impact Resource Group Trade debt $151,429 G L Resources (Comtrad) Trade debt $139,938 Toppan Printing Company Trade debt $134,901 Sealed Air Corporation Trade debt $130,344 Woodcraft Industries Inc. Trade debt $126,719 National Marketing Service Trade debt $114,137 Collins Products Trade debt $104,213 Supreme Screw Products, Inc. Trade debt $84,571 Flakeboard Company Ltd. Trade debt $83,769 ----------------------------------------------------------------- [00006] O'SULLIVAN INDUSTRIES HOLDINGS' TWO LARGEST CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ BancBoston Investments, Inc. Debt $29,755,832 100 Federal Street 19th Floor Boston, MA 02110 Radio Shack/Tandy Agreement Unknown 1800 One Tandy Center Forth Worth, TX 76102 ----------------------------------------------------------------- [00007] O'SULLIVAN INDUSTRIES-VIRGINIA'S 20 LARGEST CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ Senior Subordinated Notes Bond debt $102,420,000 Sixth & Marquette Minneapolis, MN 55479 Fibre Converters Inc Trade debt $232,579 37450 Schoolcraft Road Livonia, MI 48150 Haffle America Company Trade debt $206,660 3901 Cheyenne Drive Archdale, NC 27263 Aconcagua Timber Corp Trade debt $197,117 Nickander Associates Trade debt $189,392 Stone Container Corp Trade debt $130,274 Toppan Printing Company Trade debt $126,567 Sealed Air Corp Trade debt $79,890 Sierrapine Ltd Trade debt $76,230 Packaging Corporation of Trade debt $74,965 America Tri State Foam Trade debt $73,046 Pallet-One Trade debt $71,838 Sun Container Trade debt $71,831 Akzo Nobel Coatings Inc Trade debt $53,957 Supreme Screw Products, Inc Trade debt $42,893 Jowat Corporation Trade debt $41,388 Overnite Transportation Trade debt $38,791 Flakeboard Company LTd. Trade debt $38,312 CDM Lamines Inc. Trade debt $34,558 Tarheel Paper & Supply Co Trade debt $32,710 ----------------------------------------------------------------- [00008] O'SULLIVAN FURNITURE'S LARGEST UNSECURED CREDITOR ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ Senior Subordinated Notes Bond debt $102,420,000 Sixth & Marquette Minneapolis, MN 55479 ----------------------------------------------------------------- [00009] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- O'Sullivan Industries, Inc., and its debtor-affiliates anticipate that during the course of their Chapter 11 cases, it will be necessary to file numerous motions and applications seeking relief on behalf of all of the Debtors. Rick A. Walters, the Company's vice president and chief financial officer, believes that procedural consolidation and joint administration of the Debtors' Chapter 11 cases will further the interests of judicial economy and administrative expediency by, among other things, obviating the need to file duplicate motions, enter duplicate orders, or forward duplicate notices to creditors and other parties-in-interest. Rule 1015(b) of the Federal Rules of Bankruptcy Procedure authorizes the Court to order the joint administration of the bankruptcy cases of a debtor and its affiliates. Mr. Walters asserts that the Debtors are "affiliates," as that term is defined in Section 101(2) of the Bankruptcy Code. Accordingly, the Debtors propose that all pleadings and papers filed in their jointly-administered Chapter 11 cases be captioned: UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION ) Chapter 11 In re: ) Judge Mullins ) O'SULLIVAN INDUSTRIES, INC., et al., ) Cases Nos.: 05-83049, ) 05-83076, 05-83087 and ) 05-83102 ) Debtors. ) (Jointly Administered ) Under Case No. _____________________________________) 05-83049) ----------------------------------------------------------------- [00010] DEBTORS' MOTION TO OBTAIN $35,000,000 OF DIP FINANCING ----------------------------------------------------------------- Without access to fresh financing, the Debtors won't have enough cash to continue their daily operations and reorganize their business. The Debtors and their professionals have considered several methods of obtaining debtor-in-possession financing on the best terms possible. Of the financing proposals received, the Debtors decided to enter into an agreement with The CIT Group/Business Credit, Inc., GoldenTree Asset Management L.P., and a consortium of lenders. Rick A. Walters, the Company's vice president and chief financial officer, relates that under the DIP Financing Agreement: -- CITBC would provide the Debtors with a $30,000,000 revolving credit facility, with a $20 million Letter of Credit subline; and -- GoldenTree would provide the Debtors with up to $5 million under a term loan. The DIP Term Loan, which essentially would serve as a "backstop" for the DIP Revolver, would be triggered and become available to the Debtors in the event that: (i) availability under the Revolver is less than $2.6 million, or (ii) the aggregate amount of: (a) loans outstanding under the DIP Revolver, (b) undrawn Letters of Credit, (c) the Debtors' reimbursement obligations under letters of credit on which demand for payment has been made, and (d) the face amount of letters of credit authorized by CITBC exceeds $29.5 million. All borrowings under the Term Loan would be in $1 million dollar increments, Mr. Walters says. The Debtors will use the DIP Financing proceeds to repay the prepetition obligations outstanding to General Electric Capital Corporation under a prepetition credit agreement and, by doing so: (i) to maintain and replenish their inventory and supplies; (ii) to meet payroll and other current operating expenses including, without limitation, utilities, advertising, and other promotional services, and lease and tax obligations; and (iii) generally, to continue their ongoing operations and to generate revenues to allow them to progress towards the ultimate goal of reorganization. To secure the obligations due to the Lenders under the DIP Facility, O'Sullivan would grant the Lenders a Lien on all of the Debtors' assets. All direct borrowings and reimbursement obligations under the DIP Loans at all times, subject and subordinate to a $1,500,000 carve-out: -- would be entitled to superpriority administrative status, with priority over all other costs and expenses; and -- would be secured by a perfected first priority lien on all of the Debtors' assets. The interest rate under the DIP Revolver would be computable and payable monthly, in arrears, at the Debtors' option: Applicable Applicable Average Borrowing Revolver LIBOR Revolver Index Level Availability Margin Margin ----- ----------------- -------------- -------------- I >=$10,000,000 3.00% 1.00% II >=$7,500,000 3.50% 1.50% <$10,000,000 III >=$5,000,000 4.00% 2.00% <$7,500,000 IV <$5,000,000 4.50% 2.50% The interest rate under the DIP Term Loans would be payable in arrears at the end of a LIBOR Period at a rate equivalent to LIBOR plus 8.5% per annum. The Lenders are entitled to a number of fees, including a $350,000 facility fee for the benefit of CITBC, a $100,000 facility fee for the benefit of the Term Lenders, a $50,000 Collateral Management Fee payable to CITBC at closing, a Line of Credit Fee, Letter of Credit Fees, and Expenses and Attorneys' Fees. The DIP Financing Agreement matures at the earliest of: (i) October [__], 2006, (ii) the date of the termination of the Lenders' obligations to make Advances and incur Letter of Credit Obligations or permit existing DIP Loans to remain outstanding, and (iii) the date of (a) indefeasible prepayment in full by the Debtors of the DIP Loans, (b) the cancellation and return of all Letters of Credit or the cash collateralization of all Letter of Credit Obligations, and (c) the permanent reduction of the Commitments to $0. The Debtors agree to abide by two key financial covenants so long as any loans are outstanding under the DIP Facility: (A) The Debtors promise the DIP Lenders that earnings before interest, taxes, depreciation and amortization will not fall below: Minimum Testing Period EBITDA -------------- -------- Month ended Nov. 30, 2005 ($500,000) Two-month period ended Dec. 31, 2005 $0 Three-month period ended Jan. 31, 2006 $1,000,000 Three-month period ended Feb. 28, 2006 $1,000,000 Each three-month period thereafter $1,500,000 (B) The Debtors agree to limit their capital expenditures to: Maximum Testing Period CapEx -------------- -------- Three-month period ended Dec. 31, 2005 $400,000 Three-month period ended Mar. 31, 2006 $400,000 Three-month period ended June 30, 2006 $400,000 Three-month period ended Sept. 30, 2006 $400,000 The DIP Financing Agreement contains various Events of Default similar to traditional events of default contained in financing agreements outside of the Chapter 11 context. Among others, the Events of Default include: (i) the Debtors file a plan of reorganization that fails to pay the Lenders in full, (ii) the Final Order is not entered immediately following the expiration of the Interim Order, or (iii) the Debtors' cases are dismissed or converted to cases under Chapter 7 of the Bankruptcy Code. As adequate protection for any priming liens granted to the Lenders under the DIP Financing Arrangement, the Debtors propose to: (a) repay the prepetition obligations outstanding to GECC under the Prepetition Credit Agreement, plus (b) issue back to back letters of credit equal to 105% of the face amount of all letters of credit outstanding under the Prepetition Credit Agreement, and (c) tender $500,000 into a segregated account held by GECC for the payment of certain indemnification claims. In addition, GECC would be granted second-priority, perfected liens on and security interests in all existing or after-acquired real and personal property of the Debtors to secure the prepetition obligations under the Prepetition Credit Agreement. Any committee and all non-debtor parties-in-interest would have 60 days from the Petition Date to investigate the validity, perfection, and enforceability of GECC's liens and the amount and allowability of its claim or to assert any other claims or causes of action against GECC. A full-text copy of the 76-page DIP Financing Agreement is available for free at: http://bankrupt.com/misc/o'sullivanDIPAgreement.pdf The CIT Group/Business Credit, Inc., is represented by Bruce W. Moorhead, Jr., Esq., and Russell S. Bogue, III, Esq., at Hunton & Williams LLP, in Atlanta, Georgia. ----------------------------------------------------------------- [00011] DEBTORS' MOTION FOR ADEQUATE PROTECTION STIPULATION ----------------------------------------------------------------- The Debtors are party to a Credit Agreement, dated as of September 29, 2003, with General Electric Capital Corporation, as agent, letter of credit issuer, and lender, and a consortium of lenders, providing for up to $40,000,000 of revolving loans and letters of credit. The Debtors also entered into an Indenture with The Bank of New York, as trustee. O'Sullivan Industries, Inc., issued $100 million principal amount of 10.63% senior secured notes due 2008. The Senior Secured Notes are guaranteed by O'Sullivan Industries Holdings, Inc., O'Sullivan Industries - Virginia, Inc., and O'Sullivan Furniture Factory Outlet, Inc. As of the Petition Date, the Debtors owe $100 million, plus accrued and unpaid interest, costs, fees and other charges under the Senior Secured Notes. GoldenTree Asset Management L.P., Mast Credit Opportunities I, (Master) Ltd., and BreakWater Fund Management, LLC, held, collectively, approximately $84.35 million principal amount of the Senior Secured Notes, which represents approximately 84% of the outstanding principal balance of the Senior Secured Notes. The Debtors' obligations under the Prepetition Credit Agreement and the Note Documents are secured by liens and security interest in the Debtors' assets, including accounts receivable, inventory, deposit accounts, certain books and records and certain intellectual property rights. GoldenTree, Mast and BreakWater, acting as an ad hoc committee of Senior Secured Noteholders, have discussed and negotiated the terms upon which they would consent to the Debtors' use of the collateral securing the Debtors' obligations under the Senior Secured Notes and the granting of the priming liens provided for in the DIP Agreement. The members of the Ad Hoc Committee and the Debtors have proposed to enter into a Stipulation and Consent Order Pursuant to Sections 361, 363 and 364(d)(1) of the Bankruptcy Code and Rule 4001 of the Federal Rules of Bankruptcy Procedure Providing Trustee for Senior Secured Noteholders with Adequate Protection in Connection with Debtors' Authorization to Obtain Secured Postpetition Financing and Use Cash Collateral. A full-text copy of the 21-page Adequate Protection Stipulation is available for free at: http://bankrupt.com/misc/o'sullivanSTIPULATION.pdf GoldenTree, Mast and BreakWater are represented by David. M. Friedman, Esq., and Richard F. Casher, Esq., at Kasowitz, Benson, Torres & Friedman LLP, in New York, and Dennis Connolly, Esq., at Alston & Bird LLP, in Atlanta, Georgia. The Debtors propose to use of their lenders' cash collateral in accordance with 21-week budget: O'Sullivan Industries, Inc. 21-Week DIP Cash Flow Projections DIP Cash Flow - Based on 5-Year Business Plan From October 16, 2005 to March 5, 2006 Gross Sales $89,184,000 Cash Receipts 78,157,000 Cash Disbursements: Manufacturing Related Disbursements (40,278,000) Payroll, Taxes and 401K (22,721,000) Insurance (5,622,000) GE Capital Credit Card (650,000) Commissions (575,000) Royalties - Lowe's (624,000) Royalties - Other (146,000) Utilities (1,924,000) Leases (175,000) Professional Fees (4,783,000) KERP - Trustee Fees (20,000) DIP Commitment Fees (800,000) Interest (561,000) CAPEX (612,000) Other Disbursements (4,222,000) ----------- Total Cash Disbursements (83,713,000) ----------- Net Cash Change (5,556,000) ----------- Adjusted Beginning DIP Balance 3,465,000 (Repayments) (3,714,000) Draw 9,269,000 ----------- Adjusted Ending DIP Balance $9,020,000 ----------- ----------------------------------------------------------------- [00012] OVERVIEW OF O'SULLIVAN'S PLAN OF REORGANIZATION ----------------------------------------------------------------- O'Sullivan Industries, Inc., and its debtor-affiliates delivered to the Court their Chapter 11 Plan of Reorganization and Disclosure Statement at the same time they filed for bankruptcy. The Plan groups claims against and interests in the Debtors into nine classes. Class Description Treatment ----- ----------- --------- n/a Administrative Claims Unimpaired Estimated Recovery: 100% n/a DIP Facility Claims Unimpaired Estimated Recovery: 100% n/a Tax Claims Unimpaired Estimated Recovery: 100% 1 Priority Claims Unimpaired Estimated Recovery: 100% 2A Senior Credit Facility Unimpaired Claims Holders as of the Effective Date will have an Allowed Claim for all amounts included in the definition of Senior Credit Facility Claims, if any. Estimated Recovery: 100% 2B Other Secured Claims Unimpaired against a debtor At their election, Reorganized O'Sullivan Industries, Reorganized O'Sullivan Virginia, or Reorganized OFFO will either: (a) pay the Allowed amount of the applicable Class 2B Claim in full on the later of the Effective Date or the Allowance Date of that Claim; (b) return the underlying collateral to the Holder of the Claim; (c) Reinstate the Claim in accordance with the provisions of Section 1124(2) of the Bankruptcy Code; (d) pay the Claim in the ordinary course; or (e) treat the Claim in a manner otherwise agreed to by the Holder thereof. Estimated Recovery: 100% 2C Senior Secured Notes Impaired and entitled to Claims vote; each Holder will receive the Holder's Pro Rata share of: (a) 10 million shares of New O'Sullivan Holdings Common Stock; and (b) the New Notes in the aggregate principal amount of $10 million. Estimated Recovery: 82.8% 3 General Unsecured Impaired and not entitled to Claims vote; No distribution of any kind will be made. These Claims will be discharged and cancelled. The Senior Subordinated Notes will all be cancelled and be deemed terminated of no force and effect. Estimated Recovery: 0% 4 All other claims vs. Impaired and not entitled to O'Sullivan Holdings vote; No distribution of any kind will be made. These claims will be discharged and cancelled. Estimated Recovery: 0% 5 Intercompany Claims Impaired and not entitled to vote; Except to the extent determined by the Debtors, all Intercompany Claims will be reviewed by the Debtors and adjusted, continued, or discharged, as appropriate. 6 Existing Equity Impaired and not entitled to Interests in vote; All outstanding shares O'Sullivan Holdings of O'Sullivan Holdings Preferred Stock and O'Sullivan Holdings Common Stock, and any and all other Interests in O'Sullivan Holdings, if any, will all be cancelled and be deemed terminated and of no force and effect. No distribution of any kind will be made. Estimated Recovery: 0% 7 Old Stock of the Unimpaired Debtors' Subsidiaries At the election of the Reorganized Debtors, each Old Stock equity interest: (a) will be unaffected by the Plan, in which case the holder will continue to hold the Interest following the Effective Date; or (b) will be cancelled and new equity will be issued pursuant to the Plan. Upon confirmation of the plan, some non-debtor subsidiaries will be dissolved. The Debtors do not identify these to-be-Dissolved Entities [but they most likely are Furniture Zone Australasia Pty. Ltd., ACN 090 567 052 Pty. Ltd., O'Sullivan Furniture Asia Pacific Pty. Ltd, O'Sullivan Industries (Australia) Pty. Ltd., and O'Sullivan Industries UK Ltd.]. As of the Effective Date, the Boards of Directors of each of the Reorganized Debtors will initially have the same seven-person board of directors consisting of: (i) the Chief Executive Officer of the Reorganized Debtors, and (ii) six directors to be designated by the Senior Secured Noteholders' Representative. The ownership of the capital stock of the Reorganized Subsidiaries following the Effective Date will be unaffected by the Plan. On the Effective Date, Reorganized O'Sullivan Holdings will issue new common stock and new notes. Valuation Analysis The Debtors' financial advisor, Lazard Freres & Co., conducted a valuation analysis for the purpose of determining value available for distribution to Holders of Allowed Claims and Allowed Equity Interests pursuant to the Plan and to analyze the relative recoveries. Based in part on information provided by the Debtors, Lazard has concluded solely for purposes of the Plan that estimated total value available for distribution to Holders of Allowed Claims and Allowed Equity Interests ranges from approximately $99 million to $118 million, with a midpoint of $108.5 million as of an assumed Effective Date of March 31, 2006. Based on a projected March 31, 2006 debt balance, net of cash, of approximately $29.1 million, Lazard's mid-point estimated Distributable Value implies a value for the New O'Sullivan Holdings Common Stock of $79.4 million. Assuming 10,000,000 shares of New O'Sullivan Holdings Common Stock are distributed to the Holders of Allowed Claims pursuant to the Plan, the value of New O'Sullivan Holdings Common Stock is equal to $7.94 per share. Reorganization Beats Liquidation The Debtors prepared a liquidation analysis, which reflects the estimated cash proceeds, net of liquidation-related costs, that would be available to their creditors as of October 14, 2005, pursuant to a Chapter 7 liquidation. Under the absolute priority rule, no junior creditor would receive any distribution until all senior creditors are paid in full, and no equity holder would receive any distribution until all creditors are paid in full. The Debtors have determined that confirmation of the Plan will provide creditors with a recovery that is not less than they would receive pursuant to a liquidation of the Debtors under Chapter 7 of the Bankruptcy Code. Liquidation Analysis (in thousands) Hypothetical Liquidation Range ------------------------------ Recovery % Amount Book ----------- ---------- Value Low High Low High ------ --- ---- --- ---- Assets Current Assets Cash and Cash Equivalents - - - Trade Receivables, Net $23,149 57.9% 73.3% $13,393 $16,965 Inventories, Net 37,543 24.4% 31.4% 9,170 11,790 Prepaid Expenses and other Current Assets 5,497 0% 0% - - ------- ------- ------- Total Current Assets 66,189 22,563 28,755 Non-Current (Fixed) Assets Property, plant and equipment, net 48,858 24.5% 30.7% 11,983 14,979 Goodwill, net and other non-current assets 44,354 0% 0% - - ------- ------- ------- 93,212 11,983 14,979 ------- ------- ------- TOTAL ASSETS $159,401 $34,546 $43,734 ======= ======= ======= Distribution of Liquidation Proceeds (in thousands) Amount Low High --- ---- Gross Current Asset Proceeds Available for Distribution $22,563 $28,755 Gross Non-Current (Fixed) Asset Proceeds Available for Distribution 11,983 14,979 ------- ------- Gross Liquidation Proceeds 34,546 43,734 Chapter 7 Administrative Claims Trustee and receiver fees 864 1,093 Counsel for trustee & other professional fees 2,700 2,700 Wind-down Costs 6,000 6,000 ------- ------- Chapter 7 Administrative Claims 9,564 9,793 ------- ------- Net Current Asset Proceeds Available for Distribution 16,317 22,315 Net Non-Current (Fixed) Asset Proceeds Available for Distribution 8,666 11,625 ------- ------- Total Net Proceeds Available for Distribution $24,983 $33,940 ======= ======= Less: Senior Credit Facility (Class 2A) Claims $14,417 $14,417 Recovery Amount 14,417 14,417 % Recovery 100% 100% Less: 10.63% Senior Secured Notes Claims $107,930 $107,930 Recovery Amount 10,566 19,524 % Recovery 9.8% 18.1% ------- ------- Net Proceeds Available for Unsecured Claims - - Less: General Unsecured (Class 3) Claims $110,330 $110,330 Recovery Amount - - % Recovery 0% 0% Less: All Other (Class 4) Claims against O'Sullivan Holdings(o) $29,053 $29,053 Recovery Amount - - % Recovery 0% 0% A full-text copy of O'Sullivan's Disclosure Statement and Chapter 11 Plan of Reorganization is available for free at: http://bankrupt.com/misc/o'sullivandisclosurestatement.pdf *** End of Issue No. 1 ***