SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20743
OPEN PLAN SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1515256
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4299 Carolina Avenue, Building C
Richmond, Virginia 23222
(Address of Principal Executive Offices) (Zip Code)
(804) 228-5600
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes No X
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price for the Common Stock as reported by
the Nasdaq Stock Market on May 11, 2001 the aggregate market value of the Common
Stock held by non-affiliates of the registrant was $1,343,082.
The number of shares of Common Stock outstanding as of May 11, 2001 was
4,337,391.
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business...................................................................... 1
Item 2. Properties.................................................................... 7
Item 3. Legal Proceedings............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......... 9
Item 6. Selected Financial Data....................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................... 23
Item 8. Financial Statements and Supplementary Data................................... 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 47
Item 11. Executive Compensation........................................................ 49
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 53
Item 13. Certain Relationships and Related Transactions................................ 56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 57
PART I
ITEM 1. BUSINESS
Open Plan Systems, Inc. (the "Company") was incorporated under the laws
of the Commonwealth of Virginia on September 11, 1989. The Company
remanufactures and markets modular office Work Stations. The Company operates
remanufacturing facilities in Richmond, Virginia and Lansing, Michigan.
The Office Furniture Industry
The trend in the office furniture industry for the past 25 years has
been away from a simple desk and file design to a sophisticated Work Station
design because of the flexibility and productivity advantages that such Work
Stations provide. Work Stations have become more sophisticated as the usage of
computers and telecommunications equipment has increased in modern offices.
The Company competes in the office furniture industry with national and
regional manufacturers of new office furniture and with local and regional
remanufacturers of used office furniture. Steelcase, Inc. ("Steelcase"), Herman
Miller, Inc. ("Herman Miller") and Haworth, Inc. ("Haworth") constitute the
dominant manufacturers, collectively representing approximately two-thirds of
the installed base of Work Stations. Each of these manufacturers has created a
unique system for connecting panels, power and telecommunications raceways,
resulting in virtually no interchangeability between products of different
manufacturers. Each manufacturer's Work Stations provide for several hundred
variations. In recent years, more sophisticated telecommunications, power
distribution and wire management elements have been added to Work Stations as
computer usage has increased in offices. With respect to independent
remanufacturers of used Work Stations, the Company believes that the vast
majority of such remanufacturers are local operations serving a single city or
metropolitan area from a single sales office.
Since the mid-1980s, end-users have had four primary options when
considering changes in their existing Work Stations: (i) acquire upgraded power
components, new fabric and panel trim from the Work Station manufacturer to be
retrofitted on existing Work Stations, frequently during installation in a new
facility; (ii) acquire new Work Stations from a manufacturer or dealer while
disposing of existing furniture and Work Stations to a broker or remanufacturing
company; (iii) acquire remanufactured Work Stations while disposing of the old
furniture and Work Stations to brokers or the remanufacturer; and (iv) acquire
"as is" Work Stations.
The business of remanufacturing Work Stations grew steadily during the
1990's and is expected by the Company to continue to grow in the 2000's. The
Company believes this growth is principally due to the greater availability of
high quality remanufactured Work Stations at prices below manufacturers' retail
list prices for new Work Stations, thereby providing end-users with substantial
value. In addition, the growth of the remanufacturing business has been assisted
by the increased availability of used Work Stations for remanufacturing. Used
Work Stations have become more readily available in recent years due to an
increased base of installed Work Stations and corporate events such as mergers,
acquisitions, divestitures, downsizings and relocations. The adoption of
recycling programs or policies by businesses has also been a major factor
leading to increased demand for remanufactured Work Stations.
Overview of the Company's Operations
The Company's primary business is the remanufacture of modular office
Work Stations. The Company purchases used Work Stations from end-users, brokers
and dealers and transports the Work Stations to its facilities in Richmond,
Virginia and Lansing, Michigan. The Work Stations are
1
disassembled, inventoried by usable component parts and stored. The Company then
restores the used Work Stations through the remanufacturing process to meet
specific customer needs. Remanufacturing typically includes sanding, painting,
laminating, reupholstering and updating electrical components.
The Company's design staff works with customers to optimize use of
available office space through customized space plans. Customers are able to
choose from among several colors of paint, over 300 unique laminates and over
1,000 different fabrics. After the initial sales call, the Company responds,
typically within 72 hours, to the customer's needs with a proposal which
includes a computer aided design of the space, the number of Work Stations and
the cost. The Company has the ability to generate proposals at the customer's
site using a personal computer or, in the case of complex designs, proposals are
developed by the Company with its group of in-house designers. Once a purchase
order is received, the fabric selected by the customer is applied to the panels,
and the various components of the Work Stations are assembled for shipping. The
Work Stations sold by the Company's direct sales force are installed at the
customer's offices by the Company's employees or by approved outside installers
providing the Company with control over the entire process. The Company's
inventory of disassembled component parts generally permits shipping within two
to four weeks of receiving a purchase order, depending on the product and the
selected fabrics. The Company believes that its ability to provide high quality
Work Stations at discounted prices, coupled with its emphasis on superior
customer service through its design staff and Company trained or approved
installers, gives it a competitive advantage over manufacturers and other
remanufacturers of Work Stations.
The Company's Richmond, Virginia and Lansing, Michigan facilities
include all of the equipment required to remanufacture Work Stations, including
closed and open painting and drying booths as well as sanding, woodworking and
reupholstering equipment. Plant layout has been designed to facilitate the
efficient flow of materials and streamline the remanufacturing process through
disassembly, storage, remanufacturing and shipping. Quality control for the
remanufactured products occurs at various stages during the remanufacturing
process, including the final quality control verifications at shipment and upon
installation.
The Company sells Work Stations primarily through 15 Company-owned
direct sales offices. The Company believes that each of the 50 largest
metropolitan areas of the United States will support a sales office. In
marketing its products, the Company utilizes several innovative programs,
including its asset banking program, which allows customers to trade-in used
Work Stations in exchange for a credit towards future purchases. Additionally,
the Company sells products through certain authorized dealers throughout the
country.
Products
The Company's principal products are remanufactured Herman Miller,
Haworth and Steelcase Work Stations. The Company first began remanufacturing and
selling remanufactured Steelcase Work Stations during 2000 with the product
rollout at NeoCon, a trade show, in June, 2000.
The Company believes that its Work Stations offer significant
advantages over the traditional desk, free-standing file and permanent drywall
office layout. Work Stations enable businesses to house more people in a given
area, while still providing adequate amounts of space per person, because Work
Stations combine moveable panels, work surfaces, storage units, lighting and
electrical distribution into a single integrated unit. The end result is less
square feet of office space per worker and, therefore, lower facility costs per
employee.
Work Stations often are acoustically treated to provide conversational
privacy required by closer quarters. Because Work Stations usually are lower
than ceiling height, lighting, heating, ventilation and
2
air conditioning are not confined to individual spaces, allowing distribution
among more workers which reduces building operating costs. Work Stations
incorporate electrical circuitry necessary to operate today's computers and
telecommunications equipment. The Company's Work Stations meet the safety
standards established by Underwriters Laboratories. The Company believes it is
one of only a very few remanufacturers whose Work Station components are listed
with Underwriters Laboratories.
The Company customizes its Work Stations to accommodate specific job
functions. The Company offers its Work Stations with or without power access in
a variety of panel heights, widths, paint colors and fabrics. Work surfaces,
drawer and file pedestals, storage components and accessories are offered with
various size and finish options.
The core of the Work Station is a panel two inches thick with widths
varying from 12 inches to 60 inches. Panel heights vary from 34 inches to 96
inches. The panel frame may be covered with a laminated surface or, most
frequently, fabric over an acoustical batting to which removable, slotted steel
side rails and top caps are attached to accommodate the customized
interconnection of panels and the hanging of work surfaces or other components.
Electrical outlets and space for telephone and computer cables are provided by
removable raceways of metal and plastic attached at the base of the panel. The
Company also sells certain products which allow telephone and computer cables to
be mounted at worksurface height.
In addition to Work Stations, the Company also sells new office chairs,
desks and other office furniture products purchased from pre-selected strategic
partners. These products typically are drop shipped directly from the vendor to
the Company's customer, with the Company rarely taking possession of these
products. The Company continues to develop relationships and partnerships with
its vendors to enhance the quality and cost-effectiveness of these products.
Inventory
The number of installed Work Stations has increased steadily over the
past 25 years and is now believed to exceed 30 million. The gradual aging of
this installed base of Work Stations has resulted in the increased availability
of used Work Stations for remanufacturing. The Company continuously seeks
opportunities to purchase used Work Stations throughout the United States
through competitive bids or private negotiations with end-users, brokers and
dealers.
Manufacturers of new Work Stations have developed trade-in programs to
assist their dealers in encouraging their customers to purchase their most
current products. Trade-ins also have been used to entice customers of dealers
and manufacturers to trade-in a competitor's Work Stations for new Work
Stations. While each manufacturer has a slightly different approach to the
trade-in market, these manufacturers typically contact a list of brokers or
remanufacturers, such as the Company, to solicit the highest bid for the entire
inventory.
At the time the Company purchases inventory, it disassembles the Work
Stations and ships the disassembled Work Stations to its facilities where the
Company determines whether the specific parts should be cleaned and sold as part
of its "As Is" sales program or stored as inventory and subsequently
remanufactured and sold. The Company strives to ship all of its customers'
orders within four weeks or less. The Company has initiated a two week lead time
program to accommodate shorter lead times from customers that will use a limited
selection of fabrics and laminates. The Company also has the ability to purchase
certain strategic new parts and accessories which are in short supply in the
used furniture market, thereby eliminating the need to purchase additional Work
Stations for these specific parts. The Company believes its ability to acquire,
on an opportunistic basis, used Work Stations at attractive prices
3
and hold them for future sale gives it a competitive advantage over other
remanufacturers with less capital.
Distribution
Sales Offices. The Company currently operates 15 sales offices, located
in the metropolitan areas of Richmond, Washington D.C., Atlanta, Nashville,
Chicago, New York, Philadelphia, Raleigh, Norfolk, Cincinnati, Lansing, Detroit,
Indianapolis, Boston and Mexico City, Mexico. The Company's sales offices in
Indianapolis and Mexico City were opened in 2000, and the Company's sales office
in Boston was opened in the first quarter of 2001. The Company believes that
marketing and distributing its Work Stations through a direct sales force
located in geographically dispersed sales offices gives it a competitive
advantage over independent remanufacturing competitors who typically are local
companies with limited sales and distribution capacity outside of their
immediate market area. Approximately 90% of the Company's sales historically
have been made to end-users by the Company's own sales representatives. In 2001,
the Company intends to continue its focus on improving the performance of its
existing sales offices.
Marketing and distributing its Work Stations through its own sales
staff provides the Company with several distinct advantages. It eliminates the
costs and additional price mark-up associated with wholesale distribution, it
enables the Company to retain direct control and oversight of its products and
the selling process, and it permits the Company to control the delivery of
quality design and installation services to each customer.
Dealer Network. In addition to its own sales staff, the Company
maintains a dealer network in those markets that are not sufficiently developed
to support a sales office or in larger markets to supplement the efforts of the
direct sales force. The dealer network allows the Company to market Work
Stations on a cost-effective basis to a larger number of businesses than may be
reached by the Company's sales representatives. Approximately 10% of the
Company's sales historically have been made through dealers. The Company
believes that its limited dealer network complements its strategy of expanding
revenues through its own sales offices. All dealer agreements are non-exclusive
and may be terminated at any time.
"As Is" Sales. A small but profitable portion of the Company's sales is
made to brokers, end-users and others who buy used Work Stations from the
Company on an "as is" basis. The Company's "As Is" program involves the
selective purchase of used Work Stations in good condition that do not require
substantial repair or other alteration. The "As Is" program appeals to customers
seeking sizable quantities of quality Work Stations at "budget" prices.
Sales and Marketing
General. The Company's sales and marketing strategy relies primarily
upon offering quality products at competitive prices and providing superior
customer service. Each sales office advertises through direct mail, newspapers,
business magazines and journals. The Company often uses booth displays at trade
shows for national organizations of purchasing managers, facility managers,
interior designers, architects and local business groups. The Company is firmly
committed to advertising as the Company's primary marketing strategy and
constantly re-evaluates the most efficient means of reaching prospective
customers.
The Company's marketing also emphasizes its commitment to the
environment. Through its remanufacturing process, the Company reuses or recycles
several million pounds of office systems furniture each year that might
otherwise be deposited in landfills. Some companies have adopted
4
recycling policies or programs that require those businesses to purchase
recycled products in varying quantities. Because the Company's remanufactured
Work Stations are a recycled product, the Company may have a marketing advantage
over manufacturers of new Work Stations.
Asset Banking. The Company developed its Asset Banking program in 1994
as a means to offer additional services to larger middle market and Fortune 500
businesses who reconfigure, dismantle and warehouse large quantities of Work
Stations as an ongoing part of their operations. The Asset Banking program
allows businesses to trade-in used Work Stations by "depositing" them with the
Company in exchange for a "credit" toward future purchases of the Company's
remanufactured Work Stations. Work Stations "deposited" by customers become part
of the Company's inventory of used Work Stations that can be remanufactured.
When a business with a "credit" chooses to purchase Work Stations at
then-prevailing prices, the customer can make a complete or partial "withdrawal"
from its account to pay for the Work Stations. The effect of the program is to
make a customer's used Work Stations renewable assets. The program eliminates
the customer's inventory, storage and maintenance costs for Work Stations not in
use, while at the same time positioning the Company for a future sale and
increasing the Company's inventory which can be immediately remanufactured and
sold. The Company also provides value-added services, such as design and project
management, without charge to the customer to enhance the attractiveness of the
program. The Company is currently able to offer both Herman Miller and Haworth
Work Stations in the program and anticipates adding Steelcase Work Stations to
the program.
Government Services Administration. The United States Government
Services Administration ("GSA") in 1996 approved the Company's inclusion on the
New Introductory Schedule as a distributor of Work Stations and other related
products and services to the federal government. This has enabled the Company to
sell its remanufactured Work Stations to the federal government as well as
develop a previously untapped source of supply through trade-ins and "asset
banking." The GSA program was a solid contributor to 2000 sales volume and the
Company believes that it can continue to expand this program.
Rental Program. The Company's rental program offers an alternative to
ownership of Work Stations. Under the rental program, the Company rents Work
Stations for a minimum term of six months. Rates charged by the Company vary
with the term of the rental, with higher rates being charged for shorter terms.
Rent payments typically are due monthly from customers during the term of the
rental. Upon expiration of the term of the rental, the Work Stations are
returned to the Company and can be rented again or remanufactured and sold. The
rental program is an attractive alternative for those customers with capital
spending constraints. In addition, customers who wish to evaluate long-term
furniture requirements are able to defer a commitment to purchase Work Stations
while meeting their short-term requirements for office furniture. The rental
program has not contributed significantly to the Company's past revenues due to
the limited number of rentals which have occurred to date under the program.
Customers
The Company's customers range from small businesses to Fortune 500
companies. The Company is not dependent upon any single customer or any single
group of customers for a significant portion of its sales. In 2000, the largest
customer accounted for less than 5% of sales. The loss of any one customer would
not have a material adverse effect on the Company.
Competition
The Company experiences intense competition in both the purchase of
used Work Stations and the sale of remanufactured and "as is" Work Stations. In
purchasing used Work Stations, the Company
5
competes with manufacturers, dealers, brokers and other remanufacturers. The
competition between remanufacturers, manufacturers and dealers generally takes
place in connection with trade-ins by end-users of used Work Stations for new
Work Stations. Brokers typically purchase used Work Stations for resale to
end-users and customers which may include the Company, while other
remanufacturers generally purchase Work Stations for their own remanufacturing
activities.
The Company also competes with manufacturers, dealers, brokers and
other remanufacturers in the sale of its remanufactured and "As Is" Work
Stations. Competition is primarily based upon price, delivery time, design,
quality and customer service. Certain manufacturers, such as Steelcase,
remanufacture their own brand of used Work Stations for resale to customers.
These manufacturers and their dealers are able to offer both new and
remanufactured Work Stations to customers. The Company believes it has a
competitive advantage over such manufacturers and other remanufacturers due to
its direct sales force, pricing, customer service and commitment to reusing
product. However, manufacturers and dealers of new Work Stations have certain
competitive advantages including established distribution channels and marketing
programs, substantial financial strength, long-term customers and ready access
to component parts. Manufacturers also can sell new Work Stations at very
substantial discounts which reduces the Company's pricing advantage.
The Company believes it is the largest independent remanufacturer of
Work Stations in the United States based on gross revenues. Unlike most
independent remanufacturers, which are typically local operations serving a
single city or metropolitan area from a single sales office, the Company is able
to compete effectively in many markets through its distribution channels. The
Company also believes that its remanufacturing services are more comprehensive
than the services provided by most other remanufacturers. Many remanufacturers
provide minor repair services, but lack the personnel, equipment and facilities
necessary to remanufacture Work Stations completely. The Company's production
facilities include all of the equipment required to produce remanufactured Work
Stations including sanding, painting, drying, woodworking and reupholstering
equipment.
Intellectual Property
The Company is the owner of a service mark for "Open Plan Systems"
registered with the United States Patent and Trademark Office. The Company has
applied for trademarks on "Sustainable Office Systems," "Sustainable Office
Services" and "Common Sense at Work."
Original equipment manufacturers have obtained United States' patents
on certain component parts and design and manufacturing processes associated
with their own Work Stations. Management of the Company believes its
remanufacturing of Work Stations does not infringe any patents held by these
manufacturers. However, there can be no assurance that infringement claims will
not be asserted against the Company. If such claims were asserted, the Company
could incur significant costs and diversion of resources defending such claims
and, in the event the Company did not prevail in its defense, the Company could
incur substantial damages that could have a material adverse effect on the
Company's financial condition and results of operations.
The Company intends to continue to review existing patents applicable
to Work Stations in the ordinary course of its business.
Seasonality and Backlog
The Company currently has no discernable pattern of seasonality.
Because the Company typically ships Work Stations within four weeks of an order,
a substantial portion of the Company's revenue in each quarter results from
orders placed by customers during that quarter. As a result, the
6
Company's revenues and profits are difficult to predict and may fluctuate from
quarter to quarter. The Company typically does not have any significant backlog
of customer orders because it generally ships products within four weeks of
receipt of an order.
Employees
As of December 31, 2000, the Company had 227 full time employees. The
Company also had two part time employees. The Company believes that its
continued success depends on its ability to attract and retain highly qualified
personnel. None of the Company's employees are covered by a collective
bargaining agreement. The Company considers its relations with employees to be
good.
Government Regulation
The Company's operations are subject to a variety of federal, state and
local environmental laws and regulations including those which limit the
discharge, storage, handling and disposal of hazardous materials. The Company's
principal environmental concerns relate to the handling and disposal of paints
and solvents. Management believes that the Company is in material compliance
with applicable federal, state and local environmental regulations. Compliance
with these regulations has not in the past had any material effect on the
Company's earnings, capital expenditures or competitive position; however, the
effect of such compliance in the future cannot be determined. Regulations
implementing the federal Clean Air Act, as amended in 1990, may require reduced
emissions of volatile organic compounds and hazardous air pollutants, including
certain emissions resulting from the Company's use of paints and solvents in the
remanufacturing process. As a result, the Company may be required to install
emission controls or to institute changes in its remanufacturing processes in
order to comply with these reduced emission standards. The furniture industry
and its suppliers are attempting to develop water-based paint and finishing
materials to replace commonly-used organic-based paints and finishes which are a
major source of regulated emissions. The Company cannot at this time estimate
the impact of these new standards on the Company's operations and future capital
expenditure requirements or estimate the cost of compliance.
The Company's operations are also governed by laws and regulations
relating to work-place safety and worker health, principally the Occupational
Safety and Health Act and accompanying regulations and various state laws and
regulations. The Company does not believe that future compliance with current
laws and regulations will have a material adverse effect on its financial
condition or results of operations.
Insurance
The Company maintains liability insurance policies covering a number of
risks, including business interruption, property, commercial crime,
comprehensive general liability and workers compensation and employer's
liability insurance. The Company believes that its insurance coverage is
adequate.
ITEM 2. PROPERTIES
The Company leases 180,000 square feet of space at its facility in
Richmond, Virginia and 91,000 square feet of space at its facility in Lansing,
Michigan. The Richmond lease expires in July 2002. The Company subleases
approximately 36,000 square feet at its Richmond facility. The Lansing lease
expired in September 2000, and the Company now leases its Lansing facility on a
month-to-month basis pending completion of a new 70,000 square foot facility in
Lansing. The new facility is expected to be completed
7
in the Summer of 2001. The new facility is being financed by $2,500,000 variable
rate limited obligation revenue bonds (Open Plan Systems, Inc. Project), Series
2000 of the Michigan Strategic Fund. The bonds will be redeemed on the following
schedule: $100,000 on June 1st in years 2001 through 2007, $200,000 on June 1st
in years 2008 through 2013, and $300,000 on June 1st in years 2014 and 2015.
The Company also has other leases for its sales offices throughout the
jurisdictions in which it operates. The Company owns substantially all of its
equipment, including office and manufacturing equipment. The Company believes
that its properties are maintained in good operating condition and are suitable
for their purposes.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company is a party or
pertaining to any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market for Common Stock. The Company's Common Stock has been listed on
the Nasdaq National Market under the symbol "PLANE" since April 26, 2001. Prior
to that time, the Common Stock was listed on the Nasdaq National Market under
the symbol "PLAN."
On April 24, 2001, the Company received a Nasdaq Staff Determination
notifying the Company that the Common Stock is scheduled to be delisted from The
Nasdaq Stock Market. The Staff Determination was based on the Company's failure
to file its Annual Report on Form 10-K for the year ended December 31, 2000 in a
timely manner, as required by Nasdaq's continued listing requirements. On April
30, 2001, the Company requested a written hearing before a Nasdaq Listing
Qualifications Panel to review the Staff Determination and to stay the delisting
pending the issuance of a written determination following the hearing. In order
to more fully address the issues raised by the Staff, however, the Company
subsequently requested that the hearing be changed to an oral hearing to be held
on May 25, 2001. The Staff granted the Company's request. As a result of the
failure to file the Form 10-K in a timely manner, Nasdaq has appended an "E" to
the Company's trading symbol, indicating a lack of compliance with the
Securities and Exchange Commission requirements.
On May 3, 2001, the Company received a notification from the Staff that
its Common Stock had failed to maintain a minimum market value of public float
of $5,000,000 over the previous 30 consecutive trading days as required by
Nasdaq's continued listing requirements. The notification provided the Company
until August 1, 2001 to regain compliance with this requirement. On May 15,
2001, the Company received further notification from the Staff that its Common
Stock had failed to maintain a minimum bid price of $1.00 per share over the
previous 30 consecutive trading days as required by Nasdaq's continued listing
requirements. The notification provided the Company until August 13, 2001 to
regain compliance with this requirement. The Company does not currently satisfy
either of these requirements.
In the event of delisting from The Nasdaq Stock Market, the Company
expects that the Common Stock would be eligible for trading on the OTC Bulletin
Board provided the Company is current with respect to its filings with the
Securities and Exchange Commission; however, there can be no assurance that
there will be a market maker for the Company's securities or that an active
market will develop or be maintained on the OTC Bulletin Board.
The following table shows, for the periods indicated, the high and low
closing sales prices per share for the Common Stock as reported by the Nasdaq
National Market.
Calendar Year High Low
- ------------- ---- ---
1999
First Quarter ..........................................$ 2.92 $ 2.12
Second Quarter..........................................$ 3.13 $ 2.25
Third Quarter...........................................$ 2.50 $ 2.00
Fourth Quarter..........................................$ 2.44 $ 2.00
9
2000
First Quarter ..........................................$ 2.88 $ 1.28
Second Quarter..........................................$ 2.19 $ 1.63
Third Quarter...........................................$ 2.13 $ 1.50
Fourth Quarter..........................................$ 2.00 $ 1.50
As of May 11, 2001, there were approximately 83 holders of record of
the Company's Common Stock.
Dividend Policy. Since the Company's initial public offering in 1996,
the Company has not declared or paid any cash dividends or distributions on its
common stock. The Company currently intends to retain earnings of the Company to
support operations and to finance expansion and therefore does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. In
addition, the Company's debt agreements prohibit the payment of dividends
without the consent of the lender. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital Resources"
with respect to the Company's ability to pay dividends. The payment of cash
dividends in the future will depend upon such factors as earnings levels,
capital requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors.
10
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for the Company
for each of the five years in the period ended December 31, 2000. All of the
selected financial data are extracted from the Company's audited financial
statements and should be read in conjunction with the financial statements and
the notes thereto included under "Item 8. Financial Statements and Supplementary
Data" of this Form 10-K.
Year Ended December 31 2000 1999 1998 1997 1996
- ---------------------- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Operations Data
Net sales....................................... $42,675 $35,058 $33,676 $31,968 $22,398
Cost of sales................................... 33,158 24,332 25,765 23,593 15,160
------------------------------------------------------------------
Gross profit.................................... 9,517 10,726 7,911 8,375 7,238
Operating expenses:.............................
Amortization of intangibles..................... 274 213 275 275 70
Selling and marketing........................... 8,144 7,336 7,220 6,524 3,410
General and administrative...................... 3,395 2,529 2,811 2,607 1,584
Arbitration costs............................... 142 1,067 - - -
Operational restructuring....................... - - 1,290 - -
------------------------------------------------------------------
Total operating expenses........................ 11,955 11,145 11,596 9,406 5,064
------------------------------------------------------------------
Operating (loss) income......................... (2,438) (419) (3,685) (1,031) 2,174
Interest expense................................ 446 201 236 70 141
Other (income) expense, net..................... 52 (24) 12 (84) (284)
------------------------------------------------------------------
(Loss) income before income taxes............... (2,936) (596) (3,933) (1,017) 2,317
(Benefit) expense for income taxes (1).......... 1,571 (1,378) - (269) 376
------------------------------------------------------------------
Net (loss) income (2)(3)........................ $(4,507) $782 $(3,933) $(748) $1,941
==================================================================
Pro Forma Data (4)
Pro forma income before income taxes............ $2,317
Pro forma provision for income taxes............ 930
------------
Pro forma net earnings.......................... $1,387
============
Income (loss) per share......................... $(1.03) $.17 $(.86) $(.17) --
==================================================================
Pro forma net earnings per share................ $.38
==================================================================
Diluted weighted average shares outstanding..... 4,395 4,594 4,582 4,472 3,676
==================================================================
Balance Sheet Data
Working capital................................. 4,722 8,229 9,517 11,765 13,272
Total assets.................................... 23,332 23,619 20,005 26,314 23,710
Long-term debt ................................. 227 163 - - 304
Shareholders' equity............................ 10,803 15,455 15,346 20,043 20,791
_____________
(1) The effect of establishing a valuation allowance against net deferred tax
assets in the fourth quarter of 2000 resulted in a net expense for income
taxes of approximately $1.6 million. (See Note 8.) See Note 13 of the Notes
to consolidated financial statements for information on fourth quarter 2000
adjustments relating to inventory and other items.
(2) Net income for 1999 includes the impact of arbitration costs of $1.1
million in connection with a dispute with former officers of the Company.
11
(3) Net income for 1999 includes the effect of the reversal of the valuation
allowance against net deferred tax assets of $1.3 million.
(4) The pro forma income data reflects a provision for income taxes as if the
Company's earnings had been subject to federal and state income taxes as a
regular corporation for 1996. Pro forma earnings per common share are based
on the weighted average common shares outstanding increased by the 270,000
shares of common stock deemed to be outstanding, which represents the
approximate number of common shares deemed sold by the Company at the
initial public offering of $10 per share to fund the final S-Corporation
distribution of $2,695,000 to the Company's shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Delay in Completion of 2000 Audit
Reasons for the Delay. In the process of preparing the Company's
financial statements for the year ended December 31, 2000, the Company's
management and its independent auditors determined that certain balance sheet
accounts, including, but not limited to, inventory, accounts receivable and
cash, had not been periodically reconciled to subsidiary records so as to permit
the timely preparation of year end financial statements. The fiscal 2000 year
end closing process and the subsequent time consuming task of reconciling these
accounts were further complicated by the unexpected departures of the Company's
Chief Financial Officer and Controller in December 2000 and its Assistant
Controller in March 2001.
As a result of the Chief Financial Officer and Controller's departure,
the Company was left at year end 2000 without the continuity customarily
provided by a key member of its financial management team. The departure of the
Company's Assistant Controller during the process of resolving the recordkeeping
issues and preparing financial statements caused further delay as the Company
then had to recruit and hire two outside experienced financial consultants to
assist in the year end closing process and the preparation of the Company's Form
10-K for the year ended December 31, 2000. The absence of employees familiar
with the Company's operations, information systems, banking arrangements and
accounting transactions for the year severely hampered the Company's ability to
quickly address the accounting deficiencies and to complete customary year end
closing procedures.
The various delays caused by the time consuming task of resolving the
recordkeeping issues and by the turnover in financial personnel during the year
end closing and audit process led to the filing of the Form 10-K after its due
date. Furthermore, the Company's Form 10-Q for the three months ended March 31,
2001 has not yet been filed. As a result of the late filing of the Form 10-K,
the Company received a Nasdaq Staff Determination notifying the Company that its
Common Stock was scheduled to be delisted from The Nasdaq Stock Market. The
Company has requested a hearing and stayed the delisting until May 25, 2001. For
further information on the delisting proceedings, see "Item 5 - Market for
Registrant's Common Equity and Related Stockholder Matters."
Accounting Deficiencies and Adjustments. The Company's senior
management and the Audit Committee of the Board of Directors have been advised
by the Company's independent auditors that because of the lack of experienced
financial and accounting personnel as a result of the turnover at the Company
and the Company's inability to reconcile accounts in a timely manner, there
exists a material weakness in the Company's internal controls and procedures.
Certain weaknesses in the Company's inventory cost accounting and management
information systems and inventory procedures also contributed to the accounting
difficulties.
12
No evidence of misappropriation of funds or other malfeasance has been
discovered by senior management or financial consultants retained by the
Company.
During the fourth quarter of 2000, the Company recorded charges (on a
pretax basis) of approximately $3.0 million. The largest of these charges
relates to inventory adjustments (recorded in cost of sales) of approximately
$2.4 million caused by book to physical variances resulting from physical
inventory observations as well as the write-off of certain obsolete and
slow-moving inventory items. The remainder of these charges relates to increases
in the allowance for doubtful accounts of $220,000 as well as various
adjustments required by year-end accounting reconciliations and other matters.
The Company has recorded these charges in the fourth quarter of 2000, as it
cannot determine the amount of charges applicable to preceding interim periods.
In connection with the fiscal 2000 year end closing process, certain
weaknesses were discovered in the Company's inventory systems and related
procedures that may require replacement or upgrading of the Company's inventory
cost accounting and management information systems and additional training of
personnel. These system and procedural weaknesses led to the Company performing
an additional physical inventory count at March 31, 2001 to assist in
determining year end inventory balances.
Also, the Company discovered that monthly cash account reconciliations
had not been adequately performed during 2000. In addition, the Company had
changed banks and bank accounts twice during the year, and the linkages between
the Company's general ledger cash accounts and its bank accounts were
insufficiently structured. Accordingly, a $269,000 aggregate cash adjustment was
recorded as a part of the $3.0 million in charges taken in the fourth quarter of
2000. The Company has performed cash account reconciliations for the months of
January, February and March 2001.
Remedial Actions. The Board of Directors of the Company has taken and
intends to take appropriate remedial actions to assure that the accounting
difficulties encountered during 2000 are resolved. In the short term, as
discussed above, two experienced financial consultants were retained by senior
management and the Board of Directors to provide full time interim financial
assistance, including assisting in the completion of the financial statements
for 2000 and the first quarter of 2001. At the direction of the Audit Committee,
these consultants have reinstituted proper accounting reconciliation procedures.
Continued enforcement of such procedures should prevent a reoccurrence of the
recordkeeping problems experienced in 2000. In addition, with respect to
inventory, the Audit Committee expects to review and evaluate the inventory cost
accounting and management information systems, as well as related procedures,
and make recommendations to the Board of Directors. The Board of Directors
intends to effect any necessary improvements to such systems and procedures as
soon as practicable. In the interim, in order to mitigate additional problems,
quarterly physical inventory counts have been implemented, beginning with the
quarter ended March 31, 2001. Finally, the Company is actively searching for a
permanent Chief Financial Officer and Controller to fill current vacancies.
Until such positions are filled, the Audit Committee is taking an enhanced
oversight role in the financial management of the Company in order to assure
that internal controls and procedures are followed.
Results of Operations
Comparison of Years Ended December 31, 2000 and 1999
Net Sales. Net sales for the year ended December 31, 2000 increased to
$42.7 million from $35.1 million for the year ended December 31, 1999, an
increase of 21.7%. The increased volume was the result of continuing demand for
remanufactured office systems, increased sales at nine of the Company's 12 sales
offices open more than one year and sales contributions from offices opened
during 2000 in Indianapolis and Mexico City, Mexico. Sales to the Company's GSA
and National Accounts customers
13
also contributed to the increased 2000 sales. The Company's sales strategy
remains focused on a direct sales force in those markets of sufficient potential
to justify the investment required, supplemented by dealer sales in other
markets. The Company's sales office in Boston was not opened until the first
quarter of 2001 and, accordingly, did not contribute to sales in 2000.
Although net sales have increased steadily over the past few years,
management believes that the recent slowing of the economy may have precipitated
a softening of the market for office furniture which, if it persists, is likely
to have an adverse impact on net sales during 2001. At this time, management is
unable to predict the length of time or the extent to which such softening of
the market will affect the Company.
Gross Margin. The Company's gross margin decreased from $10.7 million
or 30.6% for the year ended December 31, 1999 to $9.5 million or 22.3% for the
year ended December 31, 2000. The lower gross margin in 2000 was caused by book
to physical variances resulting from physical inventory observations as well as
the write-off of certain obsolete and slow-moving inventory items totaling
approximately $2.4 million in the fourth quarter (see Note 13) and production
inefficiencies as production was quickly ramped up during the summer of 2000 to
support the Company's new sales offices. The Company continues to work to
optimize the economic trade-off in utilizing re-manufacturing versus new
components in its Work Stations. Additionally, the Company is continuing to
focus on its quality management process to reduce costs associated with
nonconformance to customer requirements.
Selling and Marketing Expenses. Selling and marketing expenses
increased by 11.0% to $8.1 million for the year ended December 31, 2000 from
$7.3 million for the year ended December 31, 1999. This increase is largely due
to the opening of new sales offices in Indianapolis and Mexico City, Mexico and
additions to the sales staff in the Company's existing sales offices. Selling
and marketing expenses as a percentage of sales decreased from 20.9% in 1999 to
19.2% in 2000.
General and Administrative Expenses. General and administrative
expenses increased by 36.0% to $3.4 million for the year ended December 31, 2000
from $2.5 in the year ended December 31, 1999. This increase was primarily due
to the start-up of the Mexico City, Mexico operation and the opening of new
sales offices during the year. General and administrative expenses as a
percentage of sales increased from 7.2% in 1999 to 8.0% in 2000.
Other Income and Expenses. Total other expenses increased from $177,000
for the year ended December 31,1999 to $498,000 for the year ended December 31,
2000. This increase was due to an increase in outstanding borrowings on the
Company's line of credit, fees related to changing banking relationships from
the Company's former bank to the Company's current bank and increased interest
expense associated with the issuance of the Industrial Revenue Bonds to fund the
construction of the Company's new Lansing, Michigan production facility (see
Note 6 of the Notes to consolidated financial statements).
Income Taxes. Prior to 1999, as a result of operating losses and the
uncertainty of the realization of the potential tax benefits of future
deductions, the Company did not recognize potential income tax benefits of
approximately $1.3 million. During the last quarter of 1999, the Company
determined that it was more probable than not that these tax benefits would be
realized and reversed the valuation allowance associated with the income tax
benefits. However, during the fourth quarter of 2000, as a result of operating
losses and the uncertainty of the realization of potential tax benefits of
future deductions, the Company offset potential income tax benefits of
approximately $2.5 million with a valuation allowance resulting in a net expense
for income taxes of approximately $1.6 million. The Company will reevaluate the
potential realizability of net deferred tax assets in future periods. (See Note
8 of the Notes to consolidated financial statements for additional information.)
14
Net Income (Loss). The net loss for the year ended December 31, 2000
was $4.5 million versus net income of $782,000 for the year ended December 31,
1999. The net loss in 2000 was due principally to losses associated with the
opening of new sales offices, $3.0 million in fourth quarter charges (see Note
13) and the establishment in the fourth quarter of a $2.5 million valuation
allowance related to deferred tax assets associated with potential income tax
benefits resulting in a net expense for income taxes of approximately $1.6
million.
Comparison of Years Ended December 31, 1999 and 1998
Net Sales. Net sales for the year ended December 31, 1999 increased to
$35.1 million from $33.7 million for the year ended December 31, 1998, an
increase of 4.2%. The increased volume was the result of continuing demand for
remanufactured office systems and increased sales at 10 of the Company's 12
sales offices. During 1998, three sales offices were closed as part of the
operational restructuring recorded in the second quarter and discussed in detail
below. The Company's GSA and National Accounts business also contributed to the
overall 1999 results. The Company also benefited from improved retention of its
sales people and the average experience level of its sales people increasing by
almost one year during 1999.
Operational Restructuring. The Company recorded a charge of $1.3
million in the second quarter of 1998. The restructuring charge of $1.3 million
recognized the costs related to three important strategic initiatives: 1) A
return to a focus on the core remanufacturing business; 2) streamlining and
consolidation of warehouse operations; and 3) consolidation of existing sales
offices and reductions in sales training staff. Pursuant to the restructuring
plan, the Company refocused on producing remanufactured product, reduced excess
warehouse space, divested certain assets associated with the new Work Station
manufacturing capabilities, and streamlined operations and reduced sales and
administrative staffing by approximately 30 people.
The restructuring charge recorded included approximately $400,000 for
lease termination costs, $600,000 for asset writedowns, and $100,000 for other
costs associated with streamlining operations. During the third and fourth
quarters of 1998, the Company disposed of all fixed assets included in the
restructuring and incurred substantially all of the severance and lease
termination costs associated with the restructuring plan.
Under the restructuring plan, the Company reduced its warehousing
capacity in Dallas, Atlanta, Cincinnati and Richmond as well as at its Lansing,
Michigan facility. The plan called for the reduction of 156,000 square feet of
leased warehouse space. Additionally, the Company divested certain metal working
equipment and wrote off its investment in new software acquired to support new
furniture manufacturing operations. This supported the Company's return to its
focus on remanufacturing.
As part of the sales office restructuring program implemented at the
end of the second quarter of 1998, the Company closed its sales offices in
Dallas, Charlotte and Baltimore and reduced sales training staff in certain
other markets. The sales offices closed contributed less than $800,000 in sales
during 1998. The thrust of this program was to reduce the number of low
production sales offices and personnel.
Gross Margin. The Company's gross margin increased from $7.9 million or
23.5% for the year ended December 31, 1998 to $10.7 million or 30.5% for the
year ended December 31, 1999. The Company's margins improved as cost reduction
activities continued to be implemented. The Company benefited from reduced
warehousing space and consolidation of certain purchasing activities. The
Company is now experiencing the cost savings that were expected from the
operational restructuring in the prior year.
15
Selling and Marketing Expenses. Selling expenses increased by 1.4% to
$7.3 million for the year ended December 31, 1999 from $7.2 million for the year
ended December 31, 1998. Selling expenses, however, decreased as a percentage of
sales. The increase in selling expenses was the result of the Company's efforts
to grow the business during the second half of 1999. The Company increased its
visibility through targeted marketing programs, a new sales and marketing
brochure and by becoming more visible in trade shows.
General and Administrative Expenses. General and administrative
expenses decreased by 10.7% to $2.5 million for the year ended December 31, 1999
from $2.8 million for the year ended December 31, 1998. This was primarily
related to decreases in corporate management and personnel expenses as the
result of the Company's restructuring in 1998. During 1999, the Company incurred
significant litigation and severance expenses related to two former officers of
the Company. This litigation was resolved in December 1999 with the Company
ultimately paying $85,000 in severance to the two former officers.
Arbitration Costs. Arbitration costs of approximately $1.1 million in
1999 relate to the indemnification claims by the Company against the former
shareholders of TFM, which was acquired in 1996. These costs included legal fees
and other related costs, including those awarded by the arbitration panel to the
former TFM shareholders.
Other Income and Expenses. Total other expenses decreased from $248,000
for the year ended December 31, 1998 to $177,000 for the year ended December 31,
1999. The primary reasons for the decrease is a reduction in outstanding
borrowings during the year as the Company paid down its line of credit and
increased collections of finance charges on past due accounts.
Income Taxes. The Company recorded a tax benefit for the year of $1.4
million as opposed to no benefit being recorded in 1998. Prior to 1999, as a
result of operating losses and the uncertainty of the realization of the
potential tax benefits thereof, the Company did not record potential income tax
benefits of $1.3 million. During the last quarter of 1999, the Company
determined that it was more probable than not that these tax benefits would be
realized and reversed the valuation allowance associated with the income tax
benefits.
Net Income (Loss). The net income for the year ended December 31, 1999
was $782,000 versus a net loss of $3.9 million for the year ended December 31,
1998. The net loss in 1998 was principally caused by higher production costs
relative to sales revenue, higher selling expenses and the operational
restructuring charge. The Company benefited in 1999 from increased margins,
reduced expenses and reversal of the valuation allowance on income taxes with
offsetting amounts related to costs noted above related to increased litigation
expenses, resulting in an increase in net income.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash used in operations was
$7,000 for the year ended December 31, 2000 versus net cash provided by
operations of $762,000 for the year ended December 31, 1999. The change in net
cash from operations in fiscal 2000 was due principally to the size of the net
loss in 2000 and payment of $569,000 in legal fees awarded by the arbitration
panel to the former TFM shareholders.
Cash Flows from Investing Activities. Net cash used in investing
activities was $3.2 million in 2000 versus $1.8 million in 1999. At December 31,
2000, the Company had approximately $2.2 million in cash and cash equivalents
restricted as to use under the agreements relating to the Industrial Revenue
Bonds that were issued during 2000. In addition, the Company used $276,612 of
cash in 2000 to
16
purchase the land on which the new Lansing production facility is being
constructed. In 1999, the Company paid approximately $1.0 million to the former
shareholders of TFM in connection with an arbitration proceeding relating to the
1996 acquisition of TFM.
Cash Flows from Financing Activities. Net cash provided by financing
activities was $3.4 million in 2000 versus net cash provided by financing
activities of $999,000 in 1999. The increase in 2000 was due primarily to
borrowings of $2.5 million in connection with the issuance and sale of
Industrial Revenue Bonds to construct the new Lansing production facility and
other capital expenditures. In 1999, the Company repurchased shares of stock
from the Company's founder at a net cost of $673,000 and borrowed money to fund
fixed asset acquisitions and payments to former officers.
During the first quarter of 2000, the Company announced a stock
repurchase program for up to 100,000 shares of Common Stock. Pursuant to the
program, the Company repurchased 50,500 shares during 2000 and an additional
15,000 shares in the first quarter of 2001. The total cost of the repurchased
shares was approximately $114,000.
The Company does not have any material commitments for capital
expenditures other than with respect to the Lansing facility. The ability to
complete construction of the Lansing facility could be adversely impacted by the
Company's violations of certain debt covenants. See "Violations of Loan
Covenants" and "Expected Future Cash Flows" below and Note 6 to the consolidated
financial statements.
Violations of Loan Covenants. The Company maintains two bank credit
facilities consisting of a letter of credit facility associated with the
issuance of $2.5 million of Industrial Revenue Bonds to finance the construction
of a new production facility and a revolving line of credit. At December 31,
2000, the revolving line of credit provided for a maximum borrowing amount of
$5,250,000 at variable interest rates. The letter of credit facility and
revolving line of credit agreements require the Company to meet various
restrictive covenants, including a defined tangible net worth, an interest
coverage ratio and certain other covenants. At December 31, 2000 and thereafter,
the Company was not in compliance with certain of the covenants contained in the
letter of credit facility and the revolving line of credit agreements. As a
result of the covenant violations as well as the significant net loss in fiscal
year 2000, the Company's auditors, in its report, have expressed substantial
doubt as to the Company's ability to continue as a going concern. See "Forward
Looking Statements" below and Note 1 to the consolidated financial statements.
In May 2001, the Company entered into a forbearance agreement whereby
the bank agreed to temporarily waive its existing right to declare defaults
relating to the Company's failure to comply with certain loan covenants through
June 30, 2001. The forbearance agreement provides that the bank will refrain
from exercising any rights based on such a default, including accelerating the
maturity of the loans under the two credit facilities, until after June 30,
2001. Conditions to the forbearance agreement include a cap on borrowings under
the line of credit of $4,650,000. As of May 23, 2001, approximately $4.1 million
was outstanding. Also, any disbursements by the Company of the approximately
$2.2 million in remaining proceeds from the Industrial Revenue Bond held as
restricted cash by the Company are subject to the approval of the bank in its
sole discretion. Finally, the Company has agreed to pay the bank a forbearance
fee of $89,368, which may be credited against any fees associated with any
subsequent credit arrangements. Pursuant to the forbearance agreement, the bank
maintains the right to declare a default and accelerate the loans under the two
facilities after June 30, 2001 if the parties have not entered into amendments
to the existing loan arrangements.
Prior to June 30, 2001, the Company and the bank will seek to negotiate
a permanent waiver of the Company's loan covenant violations, as well as revised
loan covenants. These negotiations could
17
result in new terms which are less favorable than current terms under existing
loan agreements and could involve a reduction in availability of funds, an
increase in interest rates and shorter maturities, among other things. If the
Company is not successful in securing these waivers and loan covenant
amendments, it may have to seek new financings from other lenders. Such
alternative financing arrangements could likewise be less favorable to the
Company than its existing credit facilities. If the Company is unable to either
procure permanent covenant violation waivers and covenant amendments with
respect to existing facilities or acceptable alternative financing, such
failures could have a material adverse effect on the Company's financial
condition and results of operations. No assurance can be given that the Company
will be able to obtain such permanent covenant violation waivers and revised
loan covenants or refinance its existing obligations.
Expected Future Cash Flows. The Company can give no assurance that its
current cash balances plus cash flows from operations, if any, and borrowings
available under its line of credit will be adequate to fund its expected
operating and capital needs for the next twelve months. The adequacy of the
Company's cash resources is primarily dependent on the Company's operating
results over the next twelve months and its ability to renegotiate its credit
arrangements with its existing bank or procure alternate financing, all of which
are subject to substantial uncertainties.
Based on preliminary estimates, the Company expects to report a net
loss for the first quarter of 2001. Cash flow from operations for the 2001 year
will be dependent, among other things, upon the effect of the current economic
slowdown on the Company's sales, and new management's ability to implement plans
to reduce expenses and improve the Company's operating performance and financial
position.
Under the May 2001 forbearance agreement between the Company and the
bank, the Company's line of credit was reduced from $5,250,000 to $4,650,000. As
of May 23, 2001, the Company had approximately $550,000 available under the
facility. In addition, the forbearance agreement prohibits the Company from
utilizing the approximately $2.2 million of remaining cash proceeds from the
Company's Industrial Revenue Bonds related to the new Lansing, Michigan
production facility now under construction without the prior approval of the
bank. Assumimg timely completion of the project, the approximately $1.9 million
remaining to be paid on the project will be due on or before June 30, 2001,
including a progess payment of approximately $613,000 due in early June 2001.
The Company is unable to determine at this time whether the bank will permit
such payments. The failure to return to profitabilty and optimize operating cash
flow in the short term, obtain the bank's permission to utilize the bond
proceeds for progress payments on the Lansing facility, and successfully
renegotiate its credit agreements with the bank or procure alternate financing,
could have a material adverse effect on the Company's liquidity position and
capital resources.
Seasonality and Impact of Inflation
The Company has no discernable pattern of seasonality. Because the
Company typically ships Work Stations within four weeks of an order, a
substantial portion of the Company's revenues in each quarter results from
orders placed by customers during that quarter. As a result, the Company's
results may vary from quarter to quarter.
Inflation has not had a material impact on the Company's net sales or
income to date. However, there can be no assurances that the Company's business
will not be affected in the future by inflation.
Market Risk
The Company is exposed to changes in interest rates primarily from its
revolving line of credit arrangement and from the letter of credit facility
related to the Industrial Revenue Bonds issued to fund
18
the construction of the new production facility in Lansing, Michigan. The
Company's interest expense is affected by changes in short-term interest on the
debt outstanding under the revolving line of credit and Industrial Revenue
Bonds. These borrowings bear interest at variable rates (the "Borrowing Rates").
Assuming: (i) the Borrowing Rates vary by 100 basis points from their current
levels in any given month and (ii) the Company maintains an aggregate
outstanding debt balance subject to these Borrowing Rates of $5.7 million during
the month of variance, interest expense would vary by approximately $5,000 for
that month. The Company does not use derivative instruments.
Forward-Looking Statements
The foregoing discussion and the description of the Company's business
set forth in Part I, Item 1 of this Annual Report on Form 10-K contains certain
forward-looking statements, which may be identified by phrases such as "the
Company expects" or words of similar effect. In addition, from time to time, the
Company may publish forward-looking statements relating to such matters as
anticipated financial performance, business prospects and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. The following important factors, among other things,
in some cases have affected, and in the future could affect, the Company's
actual results and could cause the Company's actual results for fiscal year 2001
and any interim period to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. The Company
assumes no duty to update any of the statements in this report.
Material Weakness in Internal Controls. In connection with their audit
of the Company's fiscal 2000 consolidated financial statements, the Company's
independent auditors reported to the Company's Audit Committee and Board of
Directors that they had found material weaknesses in the Company's internal
accounting controls. The Audit Committee continues to review the Company's
internal accounting controls with its independent auditors and with its
financial consultants engaged to assist in the audit to evaluate improvements to
the Company's internal controls and to implement appropriate changes where
necessary. The Company has already taken initial steps to remedy certain
weaknesses in its control functions; however, it is anticipated that additional
steps will be necessary, including possible replacement or upgrading of its
inventory tracking and valuation software systems, and that they will be
implemented over a period of time. The Company is unable to predict when such
processes will be completed or the costs associated therewith.
Ability to Continue as a Going Concern. The report of the Company's
independent auditors in connection with the Company's financial statements as of
and for the year ended December 31, 2000 contains an explanatory paragraph as to
the Company's ability to continue as a going concern. Among the factors
contributing to the substantial doubt about the Company's ability to continue as
a going concern are significant losses for the year ended December 31, 2000 and
the Company's violation of covenants with respect to significant debt
obligations. For the year ended December 31, 2000, the Company had a loss before
income taxes of $2,936,000 and a net loss of $4,507,000. Based on preliminary
estimates, the Company expects to report a net loss for the first quarter of
2001.
As of December 31, 2000, the Company had classified $2,400,000 of its
long-term debt as current liabilities because of its failure to meet
requirements contained in the instruments governing these debt obligations. Such
amount may be accelerated by the Company's bank as a result of the Company's
violations of debt covenants. In May 2001, the Company entered into a
forbearance agreement whereby the bank agreed to temporarily waive its existing
right to declare defaults relating to the Company's failure to comply with
certain loan covenants through June 30, 2001. The forbearance agreement provides
that the bank will refrain from exercising any rights based on such a default,
including accelerating the maturity of the loans under the two credit
facilities, until after June 30, 2001. Conditions to the forbearance agreement
include a cap on borrowings under the line of credit of $4,650,000. As of
19
May 23, 2001, approximately, $4.1 million was outstanding. Also, any
disbursements by the Company of the approximately $2.2 million in remaining
proceeds from the Industrial Revenue Bond held as restricted cash by the Company
are subject to the approval of the bank in its sole discretion. Finally, the
Company has agreed to pay the bank a forbearance fee of $89,368, which may be
credited against any fees associated with any subsequent credit arrangements.
Pursuant to the forbearance agreement, the bank maintains the right to declare a
default and accelerate the loans under the two facilities after June 30, 2001 if
the parties have not entered into amendments to the existing loan arrangements.
Prior to June 30, 2001, the Company and the bank will seek to negotiate
a permanent waiver of the Company's loan covenant violations, as well as revised
loan covenants. These negotiations could result in new terms which are less
favorable than current terms under existing loan agreements and could involve a
reduction in availability of funds, an increase in interest rates and shorter
maturities, among other things. If the Company is not successful in securing
these waivers and loan covenant amendments, it may have to seek new financings
from other lenders. Such alternative financing arrangements could likewise be
less favorable to the Company than its existing credit facilities. If the
Company is unable to either procure permanent covenant violation waivers and
covenant amendments with respect to existing facilities or acceptable
alternative financing, such failures could have a material adverse effect on the
Company's financial condition and results of operations. No assurance can be
given that the Company will be able to obtain such permanent covenant violation
waivers and revised loan covenants or refinance its existing obligations or that
the Company will be able to continue operations as a going concern.
Turnover in Management; Uncertainties Regarding Management Recruitment
and Retention. In June 2000, the Chief Financial Officer of the Company left to
pursue other interests and thereafter the Controller of the Company was elected
to fill the vacant position. In December 2000, the recently appointed Chief
Financial Officer departed the Company. In March 2001, the Assistant Controller
of the Company also resigned his position. To address the resulting shortage in
executive financial management personnel, the Company engaged two experienced
financial consultants on a temporary basis to assist the Company in completing
the 2000 financial statements. In April 2001, Mr. Hobey, the Chief Executive
Officer of the Company, announced he was retiring from the Company .
Although the Board of Directors has established an ad hoc committee to
assess candidates for these positions and engaged an executive search firm to
locate a Chief Executive Officer, as of May 23, 2001 no replacements have been
named and it is uncertain as to when the offices of Chief Financial Officer and
Controller will be filled or Mr. Hobey's replacement named. There can be no
assurances that the Company can successfully attract and retain the executive
management talent and other qualified personnel desired by the Board of
Directors. In addition, the Company cannot predict the effect that continued
uncertainty in the recruitment or retention of management will have on
customers, suppliers, employees or the public perception of the Company.
Violations of Loan Covenants. At December 31, 2000 and thereafter, the
Company was not in compliance with certain of the covenants contained in its
letter of credit facility and revolving line of credit agreements with its bank.
In May 2001, the Company entered into a forbearance agreement whereby the bank
agreed to temporarily waive its existing right to declare defaults relating to
the Company's failure to comply with certain loan covenants through June 30,
2001. The Company and the bank will seek to negotiate permanent covenant
violation waivers and revised covenants prior to such date. Failure to reach
agreement with its bank or procure alternative financing from other lenders
could have a material adverse effect on the Company's financial condition and
results of operations. See "Ability to Continue as a Going Concern" above.
Soft Market for Office Furniture. Although net sales have increased
steadily over the past few years, management believes that the recent slowing of
the economy may have precipitated a softening of
20
the market for office furniture which, if it persists, is likely to have an
adverse impact on net sales during 2001. At this time, management is unable to
predict the length of time or the extent to which such softening of the market
will affect the Company.
Dependence on Sales Office Profitability. The Company depends heavily
on its sales offices to provide revenue growth. The Company opened three new
offices during 2000 and the first quarter of 2001. The Company's experience
indicates that it takes several years for a sales office to develop adequate
sales volumes to generate expected returns. Until that time, the Company's
selling expenses increase faster than the gross profit generated from those
sales. An inability to increase revenues of new sales offices to levels that
would offset the continuing expenses of such sales offices may adversely affect
the profitability of the Company's business.
Potential Limitations on Future Growth. The Company's growth in the
future will be dependent in part on the Company's ability to manage growth
effectively, including the improvement of the Company's financial and management
information systems, the expansion of the Company's manufacturing and
remanufacturing operations and the recruitment and retention of executive staff
and key employees. The Company also will be required to manage working capital
and generate cash flow from operations to meet the needs of an expanding
business. There can be no assurances that the Company's future growth will not
be limited by insufficient cash flow or the lack of adequate financing required
to fund such growth.
Impact of Customer Preferences and Technological Advances on Sales.
Certain potential customers may prefer new Work Stations to the Company's
remanufactured Work Stations due to various factors, including the more
developed and better financed marketing efforts of new Work Station
manufacturers and such potential customers' reluctance to purchase
remanufactured products because of image, perceived questions of quality or
other factors. In addition, technological advances are frequently incorporated
into new Work Stations by the leading manufacturers, particularly with respect
to electrical circuits necessary for more advanced computer and
telecommunications features. Although the Company has the ability to incorporate
these technological advances in its remanufactured Work Stations, any such
incorporation may increase remanufacturing costs and may reduce the price
advantage of remanufactured Work Stations over newly manufactured Work Stations.
Dependence Upon Supply of Work Stations and Component Parts. The
Company presently purchases only used Herman Miller, Steelcase and Haworth Work
Stations in its remanufacturing operations. The Company does not have any
binding agreements relating to the purchase of used Herman Miller, Steelcase or
Haworth Work Stations for remanufacturing and generally purchases such used Work
Stations from end-users, brokers and dealers through competitive bids or
directly negotiated transactions. Although the Company in the past has not
experienced a shortage of used Work Stations at competitive prices, the success
of the Company in the future will depend in part upon its continued ability to
obtain Herman Miller, Steelcase and Haworth used Work Stations for
remanufacturing in sufficient quantities and at competitive prices. While the
Company believes that the availability of used Work Stations for remanufacturing
will increase as the installed base of Work Stations increases and ages, there
may be periods of tight supply as the demand for used Work Stations increases
which could have a material adverse effect on the Company's business and
profitability.
The Company also purchases new and used component parts for use in the
remanufacture of Work Stations. Although the Company can manufacture certain of
the component parts needed to remanufacture Work Stations, there can be no
assurances that shortages of certain component parts or higher prices for such
parts will not occur in the future. An inability to produce or purchase
necessary component parts in adequate quantities and at competitive prices could
have a material adverse effect on the Company's results of operations and
financial condition.
21
No Assurance of Expansion of Product Lines and Business. The Company
has concentrated its business on remanufacturing Work Stations manufactured by
Herman Miller and Haworth. The Company has only recently expanded its product
line to include Steelcase Work Stations. The Company has limited experience in
remanufacturing Work Stations of manufacturers other than Herman Miller and
Haworth. Due to the differences in and lack of interchangeability of the various
Work Stations and certain component parts produced by the major manufacturers,
the Company's expansion of its product line will require additional training of
production personnel, the establishment of additional sources of supply of used
Work Stations and component parts and, in some cases, the establishment of
different remanufacturing processes. As a result of these factors, there can be
no assurance that the Company will be able to expand successfully its product
line or maintain its gross margins.
Dependence Upon Primary Remanufacturing Facilities. The Company
primarily remanufactures Herman Miller Work Stations at its facility in
Richmond, Virginia, and Haworth Work Stations at its facility in Lansing,
Michigan. Although the Company presently maintains $2,000,000 of business
interruption insurance on the Richmond facility and $250,000 of such insurance
on the Lansing facility, a lengthy interruption of its remanufacturing
operations at the Richmond or Lansing facilities would have a material adverse
effect on the Company's results of operations and financial condition.
Potential Fluctuations in Quarterly Results. Because the Company
typically ships Work Stations within four weeks of an order, a substantial
portion of the Company's revenue in each quarter results from orders placed by
customers in that quarter. Accordingly, quarterly revenue levels are subject to
substantial fluctuations and are often difficult to predict. Fluctuations in
operating results could result in volatility in the price of the Company's
Common Stock. If revenue levels are below expectations, operating results will
be adversely affected.
Competition. Competition in the Work Station segment of the office
furniture industry is intense. The Company competes with many other companies in
the sale of its new and remanufactured products as well as in the purchase of
"as is" Work Stations and component parts for use in the Company's
remanufactured Work Stations. In the sale of remanufactured Work Stations, the
Company competes with manufacturers of new Work Stations and their
remanufacturing subsidiaries, other independent remanufacturers and dealers of
"as is" Work Stations. In the purchase of used Work Stations that are the
primary source of the Company's supply for its remanufacturing operations, the
Company competes with the manufacturers of new Work Stations and their
remanufacturing subsidiaries, both of which sometimes provide a trade-in
allowance to purchasers of their products, other independent remanufacturers and
Work Station brokers and dealers. In addition, local remanufacturers may have a
competitive advantage over the Company in pricing due to the cost of shipping
Work Stations from its production facilities in Virginia and Michigan to
out-of-state customers.
Sales of the Company's remanufactured Work Stations depend on
maintaining a successful balance between price and quality so that its Work
Stations are positioned in the marketplace to provide a product that is (i)
comparable or superior in quality, design and appearance to higher cost new Work
Stations and (ii) superior in quality, features and appearance to lower cost "as
is" Work Stations. Failure by the Company to maintain this balance due to
increased competition in either the purchase or sale of Work Stations could
adversely affect the Company's business. Additionally, certain of the Company's
competitors have greater financial, technical, manufacturing, marketing, sales
and other resources than the Company.
Environmental Regulations. The Company is subject to a variety of
federal, state and local governmental regulations related to the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous chemicals used
in its manufacturing processes. Regulations implementing the federal Clean Air
22
Act, as amended in 1990, may require reduced emissions of volatile organic
compounds and hazardous air pollutants, including certain emissions resulting
from the Company's use of paints and solvents in the remanufacturing process. As
a result, the Company may be required to install emission controls or to
institute changes in its remanufacturing processes in order to comply with these
reduced emission standards. There can be no assurance that these and other
changes in environmental regulations in the future will not result in the need
for capital expenditures or otherwise impose financial burdens on the Company.
Further, such regulations could restrict the Company's ability to expand its
operations. Any failure by the Company to obtain required permits for, control
the use of, or adequately restrict the discharge of, hazardous substances under
present or future regulations could subject the Company to substantial liability
or could cause its manufacturing operations to be suspended. Such liability or
suspension of manufacturing operations could have a material adverse effect on
the Company's results of operations and financial condition.
Risk of Patent Infringement Claims. Newly manufactured Work Stations
contain numerous patented component parts. Although the Company is not aware of
any existing or threatened patent infringement claims asserted against it and
does not believe that its remanufacturing of Work Stations infringes the
proprietary rights of any third parties, there can be no assurance that
infringement claims will not be asserted against the Company. In addition, the
Company manufactures or purchases certain new and used component parts included
in its remanufactured Work Stations. To the extent that such activities involve
purchasing or manufacturing component parts similar to patented component parts,
the Company could become subject to claims of patent infringement if the
manufacture or use of such component parts infringed the proprietary rights of
third parties. In addition, the existence of third party proprietary rights
could limit the Company's ability to produce or use certain component parts.
Damages for violation of third party proprietary rights could be substantial and
could have a material adverse effect on the Company's financial condition and
results of operation. Regardless of the validity or the successful assertion of
such claims, the Company would incur significant costs and diversion of
resources with respect to the defense thereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to this Item is included under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk" of this Form 10-K.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements of the Company
are included in this report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Notes to consolidated financial statements
24
Report of Independent Auditors
Board of Directors and Shareholders
Open Plan Systems, Inc.
We have audited the accompany consolidated balance sheets of Open Plan Systems,
Inc. (the "Company") as of December 31, 2000 and 1999 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Open Plan Systems,
Inc. at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, during 2000 the Company had a significant
loss from operations. In addition, the Company has not complied with certain
covenants of its loan agreements with its lender. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1 to the
consolidated financial statements. The consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.
The selected quarterly financial data included in Note 16 contains information
that we did not audit, and, accordingly, we do not express an opinion on that
data. We did not complete a review of the quarterly data in accordance with
standards established by the American Institute of Certified Public Accountants
due to inadequacies in the Company's internal control for the preparation of
interim financial information.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
May 23, 2001
25
OPEN PLAN SYSTEMS, INC.
Consolidated Balance Sheets
(amounts in thousands)
December 31,
2000 1999
--------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 244 $ 13
Cash and cash equivalents externally restricted under
bond indenture agreement 2,190 -
Accounts receivable, net 7,834 7,144
Inventories 6,278 7,862
Prepaids and other 458 638
Refundable income taxes - 188
Deferred income taxes - 385
--------------------------------------------------
TOTAL CURRENT ASSETS 17,004 16,230
Property and equipment, net 2,393 2,272
Goodwill, net 3,664 3,898
Deferred income taxes - 1,093
Other 271 126
--------------------------------------------------
TOTAL ASSETS $ 23,332 $ 23,619
==================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,595 $ 62
Revolving line of credit 3,366 2,419
Trade accounts payable 3,709 3,464
Accrued compensation and related costs 1,121 238
Other 631 813
Customer deposits 860 1,005
--------------------------------------------------
TOTAL CURRENT LIABILITIES 12,282 8,001
Long-term debt 227 163
Other long-term liabilities 20 -
--------------------------------------------------
TOTAL LIABILITIES 12,529 8,164
Commitments and Contingencies -
Shareholders' equity:
Common stock, no par value:
Authorized shares - 50,000
Issued and outstanding shares - 4,352 - 2000 18,561 18,651
- 4,403 - 1999
Additional capital 137 137
Accumulated deficit (7,840) (3,333)
Accumulated other comprehensive income 4 -
Notes receivable from employees for sale of stock (59) -
--------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 10,803 15,455
--------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 23,332 $ 23,619
==================================================
See accompanying notes to consolidated financial statements.
26
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Operations
(amounts in thousands, except per share amounts)
Years Ended December 31,
2000 1999 1998
-----------------------------------------------
Net sales $42,675 $35,058 $33,676
Cost of sales 33,158 24,332 25,765
-----------------------------------------------
Gross profit 9,517 10,726 7,911
Operating expenses:
Amortization of intangibles 274 213 275
Selling and marketing 8,144 7,336 7,220
General and administrative 3,395 2,529 2,811
Arbitration costs 142 1,067 -
Operational restructuring - - 1,290
-----------------------------------------------
11,955 11,145 11,596
-----------------------------------------------
Operating loss (2,438) (419) (3,685)
Other (income) expense:
Interest expense 446 201 236
Other, net 52 (24) 12
-----------------------------------------------
498 177 248
-----------------------------------------------
Loss before income taxes (2,936) (596) (3,933)
Expense (benefit) for income taxes 1,571 (1,378) -
-----------------------------------------------
Net (loss) income $(4,507) $ 782 $(3,933)
===============================================
Basic and diluted (loss) income per share $ (1.03) $ .17 $ (.86)
===============================================
Diluted weighted average common shares outstanding 4,395 4,594 4,582
===============================================
Basic weighted average common shares outstanding 4,395 4,593 4,582
===============================================
See accompanying notes to consolidated financial statements.
27
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 2000, 1999 and 1998
(amounts in thousands)
Accumulated Notes Receivable
Other - Employees
Common Additional Accumulated Comprehensive from Sale of
Stock Capital Deficit Income Stock Total
------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $20,088 $137 $(182) - - $20,043
Issuance of common stock 352 - - - - 352
Reduction in connection with prior
year's acquisition (1,116) - - - - (1,116)
Net loss for 1998 - - (3,933) - - (3,933)
------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 19,324 137 (4,115) - - 15,346
Issuance of common stock 400 - - - - 400
Purchase of common stock (1,073) - - - - (1,073)
Net income for 1999 - - 782 - - 782
------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 18,651 137 (3,333) - - 15,455
Purchase of common stock (90) - - - - (90)
Net loss for 2000 - - (4,507) - - (4,507)
Foreign currency translation
adjustments - - - $4 - 4
Net increase in notes receivable
from employees for sale of - - - - $(59) (59)
stock
------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $18,561 $137 $(7,840) $4 $(59) $10,803
================================================================================================
See accompanying notes to consolidated financial statements.
28
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year Ended December 31,
2000 1999 1998
-----------------------------------------------
Operating activities
Net (loss) income $ (4,507) $ 782 $ (3,933)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Provision for losses on receivables 469 57 166
Depreciation expense 808 760 788
Amortization expense 274 213 275
Operational restructuring - - 1,290
Loss on disposal of property and equipment 38 10 18
Deferred income taxes 1,478 (1,478) (4)
Changes in operating assets and liabilities:
Accounts receivable (1,159) (912) (969)
Inventories 1,584 (954) 3,847
Prepaids and other current assets 180 34 1
Refundable income taxes 188 117 490
Other non-current assets (185) 300 (60)
Trade accounts payable 245 1,469 (416)
Customer deposits (145) 5 159
Accrued and other liabilities 725 359 (458)
-----------------------------------------------
Net cash provided by (used in) operating activities (7) 762 1,194
Investing activities
Net increase in cash and cash equivalents restricted under bond
indenture agreement (2,190) - -
Proceeds from sale of property and equipment 16 33 131
Arbitration payment for 1996 acquisition - (996) -
Purchases of property and equipment (983) (787) (484)
Net increase in notes receivable from employees for sale of stock (59) - -
-----------------------------------------------
Net cash used in investing activities (3,216) (1,750) (353)
Financing activities
Net borrowings (repayments) on revolving line of credit 947 1,467 (1,158)
Proceeds from borrowings on long-term debt 2,671 247 -
Principal payments on long-term debt (74) (42) (106)
Purchase of common stock (90) (1,073) -
Proceeds from sale of common stock - 400 352
-----------------------------------------------
Net cash provided by (used in) financing activities 3,454 999 (912)
-----------------------------------------------
Change in cash and cash equivalents 231 11 (71)
-----------------------------------------------
Cash and cash equivalents at beginning of year 13 2 73
-----------------------------------------------
Cash and cash equivalents at end of year $ 244 $ 13 $ 2
===============================================
Supplemental disclosures
Interest paid 500 $ 179 $ 236
===============================================
Income taxes paid $ 24 $ - $ -
===============================================
See accompanying notes to consolidated financial statements.
29
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Open Plan Systems, Inc. (the "Company") is a remanufacturer and marketer of
modular office Work Stations. The Company remanufactures Herman Miller,
Steelcase and Haworth product lines and markets these products through Company
sales offices located in the East Coast and Mid-West regions of the United
States. In addition, the Company also sells new chairs, desks, and other office
furniture products purchased from other manufacturers. The following is a
description of the Company's more significant accounting policies.
Going Concern Matters
The accompanying consolidated financial statements have been prepared on a going
concern basis that contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, for the year ended December 31, 2000, the
Company had a loss before income taxes of $2,936,000 and a net loss of
$4,507,000. In addition, as of December 31, 2000 the Company was not in
compliance with certain debt covenants, thereby requiring long term debt to be
reclassified as current liabilities. (See Note 6.) These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The primary factors contributing to the Company's net loss of $4,507,000 for the
year ended December 31, 2000 were losses associated with the opening of new
sales offices, $3.0 million in fourth quarter charges (see Note 13) and the
establishment in the fourth quarter of a $2.5 million valuation allowance
related to deferred tax assets associated with potential income tax benefits
resulting in a net expense for income taxes of approximately $1.6 million. (See
Note 8.) The Company is actively searching for a new chief executive officer who
will be charged with formulating, in conjunction with the Board of Directors,
and quickly implementing a plan to cut costs and improve the Company's operating
performance. The Company is also seeking a Chief Financial Officer and
Controller to fill current vacancies. Until such positions are filled, the Audit
Committee of the Board of Directors is taking an enhanced oversight role in the
financial management of the Company. Also, two experienced financial consultants
were retained by senior management and the Board of Directors to provide interim
financial assistance, including assisting in the completion of the financial
statements for the year ended December 31, 2000 and the first quarter of 2001.
At December 31, 2000, the Company was not in compliance with certain loan
covenants of its long term debt agreements. Further, the $2.5 million in
borrowings associated with its Industrial Revenue Bonds have been classified as
current as the Company was not in compliance with certain loan covenants
governing these instruments. Under the terms of such obligations, amounts
borrowed thereunder can be accelerated by the Company's lender.
In May 2001, the Company entered into a forbearance agreement whereby the bank
agreed to temporarily waive its existing right to declare defaults relating to
the Company's failure to comply with certain loan covenants through June 30,
2001. The forbearance agreement provides that the bank will refrain from
exercising any rights based on such a default, including accelerating the
maturity of the loans under the two credit facilities, until after June 30,
2001. Conditions to the forbearance agreement include a cap on borrowings under
the line of credit of $4,650,000. Also, any disbursements by the Company of the
30
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
proceeds from the Industrial Revenue Bond held as restricted cash by the Company
are subject to the approval of the bank in its sole discretion. Pursuant to the
forbearance agreement, the bank maintains the right to declare a default and
accelerate the loans under the two facilities after June 30, 2001 if the parties
have not entered into amendments to the existing loan arrangements.
Prior to June 30, 2001, the Company and the bank will seek to negotiate a
permanent waiver of the Company's loan covenant violations, as well as revised
loan covenants. These negotiations could result in new terms which are less
favorable than current terms under existing loan agreements and could involve a
reduction in availability of funds, an increase in interest rates and shorter
maturities, among other things. If the Company is not successful in securing
these waivers and loan covenant amendments, it may have to seek new financings
from other lenders. Such alternative financing arrangements could likewise be
less favorable to the Company than its existing credit facilities. If the
Company is unable to either procure permanent covenant violation waivers and
covenant amendments with respect to existing facilities or acceptable
alternative financing, such failures could have a material adverse effect on the
Company's financial condition and results of operations. No assurance can be
given that the Company will be able to obtain such permanent covenant violation
waivers and revised loan covenants or refinance its existing obligations or that
the Company will be able to continue operations as a going concern.
Principles of Consolidation
The accompanying consolidated financial statements include all of the accounts
of the Company, its wholly-owned subsidiary (which was merged into the Company
in May 1999) and its majority-owned joint venture. All significant intercompany
balances and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of average cost or market. Jobs in process
and finished goods include both the direct and indirect costs of manufacturing
such products.
Property and Equipment
Property and equipment is stated on the basis of cost. Depreciation of equipment
and vehicles is provided by straight-line or accelerated methods over the
estimated useful lives of the related assets, generally three to seven years.
Improvements to leased properties are amortized on a straight-line basis over
the shorter of the term of the respective lease or the estimated useful lives of
the related assets.
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over
the fair value of net assets acquired and is being amortized on the
straight-line method over a period of 20 years. The carrying
31
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
value of goodwill is periodically evaluated by management based on expectations
of undiscounted cash flows of the related business units to determine if there
has been an impairment in value. Accumulated amortization was $938,000 and
$704,000 at December 31, 2000 and 1999, respectively.
Revenue Recognition
Revenues from product sales and related cost of sales (including shipping costs)
are recognized upon shipment of products. Title and risk of loss pass to the
customer upon shipment. Revenue from installation is recognized when
installation is complete.
Advertising
Production costs associated with advertising are expensed as incurred.
Communication costs associated with advertising are reported as advertising
expense as the related space is used. Prepaid advertising costs were $77,000 and
$177,000 at December 31, 2000 and 1999, respectively. Advertising costs charged
to expense totaled $1,018,000 in 2000, $918,000 in 1999 and $887,000 in 1998.
Income Taxes
Deferred income taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years the differences are expected to reverse.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." For
2000, 1999 and 1998, there was no difference between basic and diluted earnings
per share. Stock options of 889,750 for 2000, 866,000 for 1999 and 799,000 for
1998 have been excluded from the calculation of earnings per share in 2000, 1999
and 1998, respectively, as their impact would have been anti-dilutive.
32
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income and Foreign Currency Translation
Foreign currency transactions and financial statements are translated in U.S.
dollars at current exchange rates except income and expenses, which are
translated at average exchange rates during each reporting period. Adjustments
resulting from translations of financial statements are reflected as a component
of comprehensive income.
Accounting Pronouncements
The Company is subject to the provisions of Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition in Financial Statements." SAB 101, as amended, did
not have a material impact on the Company's consolidated financial statements.
The Company adopted the provisions of SFAS No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities," as amended, effective January 1,
2001. The implementation of this new standard did not have a material effect on
the Company's results of operations or financial position.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE 2. MEXICAN SUBSIDIARIES
In January 2000, the Company entered into a Joint Venture Agreement to open a
new sales office in Mexico City, Mexico. The Company contributed approximately
$50,000, for an 80% interest in the venture. The Joint Venture Agreement created
two new companies, Open Plan Systems, S. de R.L. de C.V. and Open Plan
Servicios, S. de R.L. de C.V., each of which is 80% owned by the Company. The
Company has reported minority interest related to the earnings and the equity of
the minority partner in the accompanying consolidated financial statements.
NOTE 3. INVENTORIES
Inventories are in two main stages of completion and consisted of the following
(in thousands $):
December 31,
2000 1999
------------------------------
Components and fabric $ 4,494 $ 5,243
Jobs in process and finished goods 1,784 2,619
------------------------------
$ 6,278 $ 7,862
==============================
33
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 4. ACCOUNTS RECEIVABLE
Accounts receivable are shown net of the allowance for doubtful accounts in the
amounts of $499,000 and $205,000 at December 31, 2000 and 1999, respectively.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment by major classification was as follows (in thousands $):
December 31
2000 1999
------------------------------
Production and warehouse equipment $ 2,526 $ 2,292
Office equipment 1,355 1,211
Vehicles 697 510
Leasehold improvements 667 561
Construction-in-process 345 101
------------------------------
5,590 4,675
Accumulated depreciation and amortization (3,197) (2,403)
------------------------------
$ 2,393 $ 2,272
==============================
NOTE 6. INDEBTEDNESS
Long-term debt includes notes payable related to vehicle purchases and the
Industrial Revenue Bonds, discussed below. Future scheduled maturities of
long-term debt are as follows: $195,000 in 2001; $193,000 in 2002; $165,000 in
2003; $138,000 in 2004; $131,000 in 2005; and $2,000,000 thereafter.
In June 2000, the Company issued $2.5 million Michigan Strategic Fund Industrial
Revenue Bonds ("Industrial Revenue Bonds") for construction of a new production
facility in Lansing, Michigan. The proceeds were placed into an escrow account
with the trustee until such time as they are used for building the facility.
(See Note 9 for additional information.) At the same time, the Company entered
into a letter of credit facility with a bank to secure the financing on the
facility. At December 31, 2000, the Company had $2,190,000 of cash and cash
equivalents externally restricted under the bond indenture agreement, which is
disclosed in the consolidated balance sheets. Borrowings associated with the
Industrial Revenue Bonds totaled $2.5 million at December 31, 2000 and bore
interest at a weekly variable tax exempt rate of interest based upon the credit
worthiness of the underlying letter of credit (5.05% at December 31, 2000). The
obligations are secured by substantially all of the assets of the Company. The
bond indenture and related agreements requires the Company to meet certain
restrictive covenants, including defined tangible net worth, an interest
coverage ratio and certain other covenants. The Company was not in compliance at
December 31, 2000 with certain of the covenants.
34
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
During December 1998, the Company negotiated a new revolving line of credit with
a financial institution. The credit facility provided for borrowings up to
$5,000,000 through December 2001. During April 2000, the Company negotiated a
new revolving line of credit with a financial institution, and the prior line of
credit negotiated during December 1998 was paid off in its entirety. The new
line of credit is secured by substantially all assets of the Company. The new
credit facility provided for borrowings up to 80% of eligible accounts
receivable plus the lesser of 50% of eligible inventory or $2,000,000, with a
maximum borrowing amount of $5,000,000. The maximum borrowing amount was
increased, pursuant to an amendment by the parties dated August 1, 2000, to
$5,250,000. Borrowings under the line of credit bear interest at a floating
rate, which is linked to either LIBOR or prime. Outstanding borrowings under the
line amounted to $3,366,000 at December 31, 2000 and bore interest at a rate of
8.87%. At December 31, 2000, the Company had $1,884,000 available under its line
of credit. The letter of credit and line of credit facilities (the "agreement")
are cross-collateralized. The agreement requires the Company to meet certain
restrictive covenants, including a defined tangible net worth, an interest
coverage ratio and certain other covenants.
At December 31, 2000 and thereafter, the Company was not in compliance with
certain of the covenants contained in the letter of credit facility and the
revolving line of credit agreement. The Company's independent auditors, in its
report, have expressed substantial doubt as to the Company's ability to continue
as a going concern. See Note 1 to the consolidated financial statements.
In May 2001, the Company entered into a forbearance agreement whereby its bank
agreed to temporarily waive its existing right to declare defaults relating to
the Company's failure to comply with certain loan covenants through June 30,
2001. The forbearance agreement provides that the bank will refrain from
exercising any rights based on such a default, including accelerating the
maturity of the loans under the two credit facilities, until after June 30,
2001. Conditions to the forbearance agreement include a cap on borrowings under
the line of credit of $4,650,000. Also, any disbursements by the Company of the
approximately $2.2 million in remaining proceeds from the Industrial Revenue
Bond held as restricted cash by the Company are subject to the approval of the
bank in its sole discretion. Pursuant to the forbearance agreement, the bank
maintains the right to declare a default and accelerate the loans under the two
facilities after June 30, 2001 if the parties have not entered into amendments
to the existing loan arrangements.
Prior to June 30, 2001, the Company and the bank will seek to negotiate a
permanent waiver of the Company's loan covenant violations, as well as revised
loan covenants. These negotiations could result in new terms which are less
favorable than current terms under existing loan agreements and could involve a
reduction in availability of funds, an increase in interest rates and shorter
maturities, among other things. If the Company is not successful in securing
these waivers and loan covenant amendments, it may have to seek new financings
from other lenders. Such alternative financing arrangements could likewise be
less favorable to the Company than its existing credit facilities. If the
Company is unable to either procure permanent covenant violation waivers and
covenant amendments with respect to existing facilities or acceptable
alternative financing, such failures could have a material adverse effect on the
Company's financial condition and results of operations. No assurance can be
given that the Company
35
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
will be able to obtain such permanent covenant violation waivers and revised
loan covenants or refinance its existing obligations.
During 2000, interest of $505,000 was incurred on debt balances, of which
$59,000 was capitalized relative to the construction of the new production
facility in Lansing, Michigan.
NOTE 7. SHAREHOLDERS' EQUITY
The Company currently maintains two stock option plans: the 1996 Stock Incentive
Plan (the "Incentive Plan") and the 2000 Stock Option Plan for Non-Employee
Directors (the "2000 Outside Director's Plan"). During 2000, but prior to the
annual meeting of shareholders in 2000, the Company also maintained a 1996
Option Plan for Non-Employee Directors (the "1996 Outside Director's Plan"). The
Company's 1996 Outside Director's Plan terminated, pursuant to its terms,
following the annual meeting of shareholders in 2000, and was replaced by the
2000 Outside Director's Plan; however, options granted under the 1996 Outside
Director's Plan remained outstanding in accordance with their terms.
36
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED)
The maximum aggregate number of shares of common stock that may be issued
pursuant to the Incentive Plan is 400,000. The Incentive Plan provides for
grants of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, and/or phantom stock to any officer,
director, or key employee of the Company. The Incentive Plan will terminate in
March 2006.
The exercise price of non-qualified stock options granted under the Incentive
Plan must be equal to at least the fair market value of the common stock on the
date of grant. The aggregate fair market value of common stock (determined as of
the date of the option grant) for which a non-qualified stock option, or related
stock appreciation rights (no stock appreciation rights have been issued) may
for the first time become exercisable in any calendar year may not exceed
$100,000. These options have a term of seven years. Transactions involving the
Incentive Plan are as follows:
Average
Exercise
Shares Price
-------------------------
Outstanding at December 31, 1998 185,000 $4.97
Issued 67,000 $2.63
-------------------------
Outstanding at December 31, 1999 252,000 $4.35
Issued 47,500 $1.88
Cancelled (35,750) $3.30
=========================
Outstanding at December 31, 2000 263,750 $4.04
=========================
The options outstanding at December 31, 2000 and 1999 had a weighted average
remaining contractual life of four and five years, respectively. For options
outstanding at December 31, 2000, 78,125 options had exercise prices between
$5.97 and $9.88 and 185,625 options had exercise prices between $1.88 and $3.88.
For options outstanding at December 31, 1999, 84,375 options had exercise prices
between $5.97 and $9.88 and 167,625 options had exercise prices between $2.44
and $3.88. At December 31, 2000, there were 67,188 and 117,375 options that were
exercisable with weighted average exercise prices of $7.92 and $2.61,
respectively. At December 31, 1999, there were 53,906 and 84,250 options that
were exercisable with weighted average exercise prices of $8.01 and $2.61,
respectively. The options granted in 2000 and 1999 had a weighted average fair
value at grant date of $.82 and $1.25 per share, respectively.
On March 15, 2000, the Company's Board of Directors approved the 2000 Outside
Director's Plan. The 2000 Outside Director's Plan was approved by a vote of the
Company's shareholders at the 2000 annual meeting of shareholders. The maximum
aggregate number of shares of common stock that may be issued pursuant to the
2000 Outside Director's Plan is 25,000. The 2000 Outside Director's Plan is
scheduled to terminate following the annual meeting of shareholders in 2005.
Under the 2000 Outside Director's Plan, each non-employee director of the
Company serving on the Board of Directors on May 15, 2000 was granted an option
to purchase 1,000 shares of common stock of the Company. Thereafter, each
non-employee director serving on the Board of Directors shall receive an option
to purchase 1,000 shares of common stock on the first business day following
each annual meeting of shareholders. The exercise
37
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED)
price of stock options granted under the 2000 Outside Director's Plan must be
equal to the fair market value of the common stock on the date of grant. Each
option is first exercisable on the date, which is six months from the date of
grant of the option and shall continue to be exercisable for a term of ten
years, subject to certain exceptions. At December 31, 2000, the Company had
7,000 options outstanding and exercisable. These options had weighted average
remaining contractual lives of nine years. The exercise price for these options
was $2.00. In 2000, the Company granted 7,000 options under the 2000 Outside
Director's Plan with exercise prices of $2.00. The weighted average fair value
of these options at grant date was $.88 per share.
The 1996 Outside Directors' Plan terminated in 2000 following the annual meeting
of shareholders. Under the 1996 Outside Directors' Plan, each non-employee
director of the Company serving on the Board of Directors on July 1, 1996 was
granted an option to purchase 1,000 shares of common stock of the Company.
Thereafter, each non-employee director serving on the Board of Directors
received an option to purchase 1,000 shares of common stock on the first
business day following each annual meeting of shareholders. The exercise price
of stock options granted under the 1996 Outside Directors' Plan must be equal to
the fair market value of the common stock on the date of grant. Each option is
first exercisable on the date, which is six months from the date of grant of the
option and shall continue to be exercisable for a term of ten years, subject to
certain exceptions. At December 31, 2000 and 1999, respectively, the Company had
19,000 and 20,000 options outstanding and exercisable. These options outstanding
at December 31, 2000 and 1999 had weighted average remaining contractual lives
of seven and nine years, respectively. The exercise prices for these options
were 4,000 at $11.75; 4,000 at $5.97; 5,000 at $2.14; and 6,000 at $2.81 for
2000 and 4,000 at $11.75; 4,000 at $5.97; 6,000 at $2.14; and 6,000 at $2.81 for
1999. In 1999, the Company granted 6,000 options under the 1996 Outside
Directors' Plan with an exercise price of $2.81. The weighted average fair value
of these options at grant date was $1.20 per share. 1,000 options with an
exercise price of $2.14 were cancelled during 2000.
The Company has elected to recognize expense for stock-based compensation under
these plans based upon the intrinsic value based method as prescribed by
Accounting Principles Board Opinion No. 25. If the Company had accounted for its
stock options based upon fair values at the date of grant, consistent with FASB
Statement No. 123, the net loss would have increased by $59,000, or $.01 per
share, for the year ended December 31, 2000, the net income would have decreased
by $92,000, or $.02 per share for the year ended December 31, 1999 and the net
loss would have increased by $323,000, or $.07 per share for the year ended
December 31, 1998. These amounts are not indicative of future effects of
applying the fair value based method since the vesting period was used to
measure compensation expense. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model assuming a
risk-free interest rate of 5.6%, dividend yield of 0.0%, a weighted average
expected life of the option of 5 years in 2000 and 1999 and 6 years in 1998 and
a volatility factor of .403 for 2000, .461 for 1999 and .522 for 1998.
In 2000, the Company established the Loan Program (the "Program") to facilitate
purchase of shares of the Company's common stock pursuant to the Company's
Employee Stock Purchase and Bonus Plan (the "Stock Purchase Plan"). Under the
Program an eligible participant may borrow an amount equal to the full purchase
price of shares (at fair market value) of common stock purchased under the Plan.
A total of
38
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 7. SHAREHOLDERS' EQUITY (CONTINUED)
150,000 shares have been authorized for acquisition under the Program, subject
to adjustment as a result of various changes in the capitalization of the
Company. Any shares authorized but not acquired under the Program will remain
available under the Plan for acquisition outside this Program. This Program was
only offered through June 15, 2000. At December 31, 2000, loans to employees
totaling approximately $59,000 were outstanding under the Program.
In June 1998, the Company sold 200,000 shares of common stock to Great Lakes
Capital, LLC (GLC) for $2.175 per share and granted nonqualified stock options
to GLC as follows:
Number of Exercise
Shares Price
-------------------------------------
150,000 $3.00
150,000 $4.50
150,000 $6.00
150,000 $7.50
The GLC options were not granted under the Incentive Plan. All of the options
are exercisable and expire June 30, 2003. These options had a weighted average
fair value at grant date of $.76 per share.
Additionally, the Company and GLC entered into a Voting and Standstill Agreement
whereby GLC will beneficially own no more than 21% of the issued and outstanding
shares of the Company on a fully diluted basis (as described in the Agreement),
provided that the shares GLC and its affiliates may acquire pursuant to the
Incentive Plan and Outside Directors Plan shall not be deemed to be additional
shares. The Voting and Standstill Agreement was later amended, pursuant to an
amendment dated July 21, 2000, to increase the beneficial ownership limitation
to 25%.
In 2000, the Company's Board of Directors approved the repurchase of up to
100,000 shares of the Company's common stock. For the year ended December 31,
2000, the Company repurchased 50,500 shares of its common stock at an aggregate
cost of $90,000.
On September 15, 1999, the Company and certain investors purchased 993,542
shares of Common Stock held by the Company's founder at a price of $2.50 per
share. The transaction resulted in the Company purchasing approximately 430,000
shares of stock. In an event related to this transaction, the Company then
immediately resold 160,000 shares of Common Stock to affiliates of GLC for $2.50
per share. This resulted in a net redemption by the Company of approximately
270,000 shares.
The Company has not declared dividends for any of the three years in the period
ended December 31, 2000.
39
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 8. INCOME TAXES
The expense (benefit) for income taxes is comprised of the following (in
thousands $):
2000 1999 1998
---------------- ----------------- ----------------
Current:
Federal $ - $ 89 $ 3
State and foreign 93 11 1
---------------- ----------------- ----------------
93 100 4
Deferred:
Federal 1,322 (1,322) (3)
State and foreign 156 (156) (1)
---------------- ----------------- ----------------
1,478 (1,478) (4)
---------------- ----------------- ----------------
$ 1,571 $ (1,378) $ -
================ ================= ================
A reconciliation of the expense (benefit) from income taxes for the year ended
December 31, 2000, 1999 and 1998 and the amount computed by applying the U.S.
statutory federal income tax rate of 34% to income (loss) before income taxes is
as follows (in thousands $):
2000 1999 1998
-------------------------------------------------------
Income tax expense (benefit) at U.S. statutory rates $ (998) $ (203) $ (1,337)
State taxes, net of federal benefit (117) (14) (157)
Amortization of intangibles 93 73 86
Other, net 105 78 96
Change in valuation allowance 2,488 (1,312) 1,312
-------------------------------------------------------
Total income tax expense (benefit) $ 1,571 $ (1,378) $ -
=======================================================
The deferred income tax balances at December 31, 2000 and December 31, 1999
consisted of the following (in thousands $):
2000 1999
------------------------------------
Deferred tax assets
Accounts receivable allowances $ 190 $ 78
Accrued liabilities 19 222
Net operating losses 2,235 1,143
Other 31 86
Valuation allowance (2,488) -
Deferred tax liabilities:
Tax versus book depreciation 13 (51)
------------------------------------
$ - $ 1,478
====================================
40
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 8. INCOME TAXES (CONTINUED)
Prior to 1999, as a result of operating losses and the uncertainty of the
realization of the potential tax benefits of future deductions, the Company did
not recognize potential income tax benefits of approximately $1.3 million.
During the last quarter of 1999, the Company determined that it was more
probable than not that these tax benefits would be realized and reversed the
valuation allowance associated with the income tax benefits. However, during the
fourth quarter of 2000, as a result of operating losses and the uncertainty of
the realization of potential tax benefits of future deductions, the Company
offset potential income tax benefits of approximately $2.5 million with a
valuation allowance resulting in a net expense for income taxes of approximately
$1.6 million. The Company will reevaluate the potential realizability of net
deferred tax assets in future periods.
Net operating loss carryforwards of approximately $6.0 million begin to expire
in 2013.
NOTE 9. COMMITMENTS AND CONTINGENCIES
On April 30, 2000, the Company signed a contract for the construction of a new
production facility in Lansing, Michigan. The Company purchased a 5-acre
building site and is in the process of constructing an approximately 70,000
square-foot facility. The Company expects this project to be completed in July
of 2001. Total costs are currently estimated to approximate $2.5 million. The
ability to complete construction could be impacted by the Company's violations
of certain debt covenants. (See Note 6.)
Lease Agreements
The Company leases office space and production facilities in Richmond and
Lansing. The Lansing lease expired in September 2000, and the Company now leases
its Lansing facility on a month-to-month basis pending the completion of
construction of the new facility in Lansing.
In addition, the Company leases its sales offices under operating lease
agreements expiring in various periods through February 2005. Certain
automobiles are also leased under terms not exceeding three years. All of these
leases are accounted for as operating leases.
Future minimum lease payments were as follows at December 31, 2000 (in thousands
$):
Year Lease Payments
--------- --------------------
2001 $ 1,194
2002 837
2003 483
2004 50
2005 4
--------------------
$ 2,568
====================
41
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense amounted to $1,177,000 in 2000, $875,000 in 1999 and $1,164,000 in
1998.
Legal Matters
A portion of the potential consideration for the 1996 acquisition of Immaculate
Eagle, Inc. (d/b/a TFM Remanufactured Office Furniture) ("TFM") was 87,500
shares of common stock of the Company, which was placed in escrow, with an
agreed upon value of $1.3 million, as security for indemnification obligations
of the former shareholders of TFM. In addition, under the terms of the TFM
purchase agreement, if the closing sales price of the Company's common stock on
October 1, 1998 was less than $15 per share, the Company was to make a cash
payment to the former shareholders of TFM equal to the difference between the
closing sales price on that date and $15, multiplied by the 87,500 shares of
common stock (subject to certain adjustments, including claims by the Company
for indemnification). The Company's common stock traded at $2.25 per share on
October 1, 1998 and, accordingly, the amount potentially payable to the former
TFM shareholders was $1,115,625.
Prior to October 1, 1998, management of the Company reviewed the circumstances
of the TFM acquisition and concluded the indemnification obligations of the
former TFM shareholders exceeded the $1.3 million agreed value of the stock in
escrow. The Company served notice of the indemnification claims to the former
TFM shareholders. The former shareholders of TFM disputed the indemnification
claims and pursuant to the purchase agreement, the matter went to arbitration.
Based on the indemnification claims, the aggregate $1,115,625 difference between
the stock's market price on October 1, 1998 and the $15 value assumed in the TFM
purchase agreement was recorded as a reduction in goodwill and shareholders'
equity.
In December 1999, the arbitration panel ruled that the former TFM shareholders
had breached their warranties in three instances and awarded the Company
$120,000. As a result, the Company paid approximately $1 million to the former
TFM shareholders, which was recorded as an increase in goodwill. The former TFM
shareholders were also awarded reimbursement of certain legal fees and other
costs and those amounts are included in the arbitration costs of $1,067,000
reflected in the consolidated statements of operations.
In June 2000, the Company received the final results of certain arbitration
matters related to the finalization of the purchase price for TFM. The final
arbitration award required the Company to pay $564,000 in fees and expenses to
the former shareholders of TFM and the arbitrators. As a result, the Company
took additional expense of $142,000 in the second quarter of 2000 to record the
final results of these proceedings in the financial statements. The Company paid
all amounts to these parties in July 2000.
NOTE 10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering substantially all employees
meeting eligibility requirements. Under the plan, participants may elect to
contribute a specified portion of their compensation to the plan on a tax
deferred basis. The Company will match one-half of the participant's
42
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 10. EMPLOYEE BENEFIT PLAN (CONTINUED)
contributions up to six percent of compensation. The Company may make additional
contributions at its discretion.
The Company recorded total expense related to the plan of $166,000 in 2000,
$147,000 in 1999 and $126,000 in 1998.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company incurred legal fees of $136,000 in 2000, $594,000 in 1999 and
$258,000 in 1998 to a law firm in which one of the Company's directors was a
principal during 1998, 1999 and through February 1, 2000. The Company also had
approximately $1,300 and $150,000 in accounts payable to this firm at December
31, 2000 and 1999, respectively.
The Company purchased and leased a total of 8 and 12 vehicles in 2000 and 1999,
respectively, from a company whose chairman is a director of the Company. The
Company purchases directors and officers insurance from a company whose
President is a director of the Company.
NOTE 12. CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of accounts receivable. The Company markets its
products and services to customers located primarily in the Eastern and Mid-West
regions of the United States. Production is primarily in response to specific
customer orders and larger jobs typically require advance deposits. The Company
performs credit evaluations of its customers prior to delivery or commencement
of services and normally does not require collateral. Payments are typically due
within 30 days of billing. The Company maintains an allowance for doubtful
accounts and losses have historically been within management's expectations.
The carrying values of amounts classified as current assets, current
liabilities, cash and cash equivalents externally restricted under a bond
indenture agreement, and long-term debt approximate fair value.
NOTE 13. SIGNIFICANT FOURTH QUARTER 2000 ADJUSTMENTS
During the fourth quarter of 2000, the Company recorded charges (on a pretax
basis) of approximately $3.0 million. The largest of these charges relates to
inventory adjustments (recorded in cost of sales) of approximately $2.4 million
caused by book to physical variances resulting from physical inventory
observations as well as the write-off of certain obsolete and slow-moving
inventory items. The remainder of these charges relates to increases in the
allowance for doubtful accounts of $220,000 as well as various adjustments
required by year-end accounting reconciliations and other matters. The Company
has recorded these charges in the fourth quarter of 2000, as it cannot determine
the amount of charges applicable to preceding interim periods. See Note 8 for
information on income taxes.
43
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 14. OPERATIONAL RESTRUCTURING
During the second quarter of 1998, the Company recorded a restructuring charge
of $1,290,000 related to warehouse consolidation, returning to a focus on
remanufacturing and consolidating sales offices. Significant components of the
operational restructuring charge were $138,000 for severance pay, $418,000
related to anticipated payouts under lease agreements and estimated losses of
$627,000 on the disposal of certain fixed assets. In connection with this plan,
the Company reduced sales and administrative staffing by approximately 30
people.
The Company has disposed of all the fixed assets contemplated in the
restructuring and incurred all costs associated with the restructuring plan. No
adjustment to the original charge recorded was necessary.
NOTE 15. VALUATION AND QUALIFYING ACCOUNTS
Activity related to valuation and qualifying accounts is as follows:
Allowance for Inventory
Doubtful Obsolescence
Accounts Reserve
-------- -------
Balance December 31, 1997 152 --
Charges to expense 166 314
Deductions - net write-off of uncollectible accounts (43)
Balance December 31, 1998 275 314
Charges to expense 57 --
Deductions - net write-off of uncollectible accounts or (126) (88)
obsolete inventory, as applicable
Balance December 31, 1999 206 226
Charges to expense 480 (55)
Deductions - net write-off of uncollectible accounts or (187) (36)
obsolete inventory, as applicable (1)
Balance December 31, 2000 499 135
- -----------
(1) This does not include the write-off of obsolete and slow-moving inventory in
the fourth quarter of 2000 in conjunction with the physical counts of inventory.
44
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 2000
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Results of operations for each of the quarters during the years ended December
31, 2000 and 1999 are as follows (in thousands, except per share data):
Quarter Ended
---------------------------------------------------------------
March June September December
31st 30th 30th 31st(1)
Year ended December 31, 2000
Net sales $ 9,333 $ 10,459 $ 10,398 $ 12,485
Gross Profit $ 2,913 $ 2,771 $ 3,013 $ 820
Operating income (loss) $ 324 $ (342) $ 324 $ (2,744)
Income (loss) before income taxes $ 228 $ (466) $ 201 $ (2,899)
Net income (loss) $ 124 $ (267) $ 120 $ (4,484) (1)
Earnings (loss) per common share $ .03 $ (.06) $ .03 $ (1.03)
Year ended December 31, 1999
Net sales $ 7,509 $ 8,878 $ 8,945 $ 9,726
Gross Profit $ 2,121 $ 2,849 $ 2,874 $ 2,882
Operating income (loss) (2) $ 63 $ 226 $ 137 $ (845)
Income (loss) before income taxes (2) $ 26 $ 185 $ 101 $ (908)
Net income (loss) (2) $ 26 $ 185 $ 101 $ 470 (3)
Earnings (loss) per common share $ .01 $ .04 $ .02 $ .11
- -----------
(1) Net income (loss) for fourth quarter of 2000 includes the effect of
establishing a valuation allowance against net deferred tax assets
resulting in a net expense for income taxes of approximately $1.6
million. See Note 13 for information on fourth quarter 2000 adjustments
relating to inventory and other items.
(2) Results of operations for 1999 include the impact of arbitration costs
of $1.1 million, of which $786,000 was recorded in the fourth quarter.
(3) Net income for the fourth quarter of 1999 includes the effect of the
reversal of the valuation allowance against net deferred tax assets of
approximately $1.3 million.
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following information sets forth the names, ages, principal
occupations and business experience for the past five years for all directors.
Theodore L. Chandler, Jr., age 49, has been Senior Executive Vice
President of LandAmerica Financial Group, Inc., a title insurance and financial
services company, since February 1, 2000. Prior to that time, Mr. Chandler
served as a Vice President and a director of the law firm of Williams, Mullen,
Clark & Dobbins in Richmond, Virginia, positions he held for more than five
years. He is a director of LandAmerica and Hilb, Rogal and Hamilton Company. Mr.
Chandler is a member of the Audit Committee and the Executive Committee and has
been a director of the Company since 1996.
J. Wesley Hall, age 63, retired as Chairman of National Card Control,
Inc., a credit card services company and wholly-owned subsidiary of Cendant
Corporation, a position he held for more than five years, in December 2000. Mr.
Hall is a member of the Compensation Committee and has been a director of the
Company since 2000.
John L. Hobey, age 54, has been Chief Executive Officer of the Company
since June 1998. From July 1997 to June 1998, he was employed by Great Lakes
Capital, LLC, an affiliate of the Company ("Great Lakes"), and he currently
remains a principal of Great Lakes. Prior to July 1997, Mr. Hobey was Chief
Executive Officer of the Olofsson Corporation, a machine tool manufacturer in
Lansing, Michigan, a position he held for more than five years. He is a member
of the Executive Committee and has been a director of the Company since 1998.
Anthony F. Markel, age 59, has been President of Markel Corporation, an
insurance brokerage company, since 1992. Mr. Markel is a director of Markel and
Hilb, Rogal & Hamilton Company. He is Chairman of the Executive Committee and a
member of the Compensation Committee. Mr. Markel has been a director of the
Company since 1989 and Chairman of the Board of the Company since 1998.
Robert F. Mizell, age 44, has been Senior Vice President and a director
of Davenport & Company LLC, an investment banking company, since 1988. Mr.
Mizell directs Davenport's Corporate Finance Department, and he is also
President of Davenport Financial Advisors, LLC. He is Chairman of the Audit
Committee and a member of the Executive Committee and has been a director of the
Company since 1996.
Edwin W. Mugford, age 65, has been President and Chief Executive
Officer of Royal Oldsmobile-Isuzu Inc., an automobile dealership located in
Richmond, Virginia, since 1971. Mr. Mugford has also been President of Key Royal
Reinsurance Company Ltd., an automobile insurance company located in Richmond,
Virginia, since 1995. He is a member of the Compensation Committee and has been
a director of the Company since 1998.
Troy A. Peery, Jr., age 55, has been a private investor and owner of
Peery Enterprises, Inc. since January 1999. From 1985 until his retirement in
November 1998, he was President and Chief Operating Officer and director of
Heilig-Meyers Company, a national retailer of home furniture and furnishings
headquartered in Richmond, Virginia. He is a director of S&K Famous Brands, Inc.
Mr. Peery is Chairman of the Compensation Committee and has been a director of
the Company since 1989.
47
William Sydnor Settle, age 67, has been Chairman of Great Lakes
Capital, Inc. ("GLC"), a company primarily engaged in leveraged buyouts of other
entities and an affiliate of Great Lakes, since 1990. Mr. Settle is also
Chairman and a principal of Great Lakes. He is a member of the Audit Committee
and has been a director of the Company since 1998.
Executive Officers
The following information sets forth the names, ages, principal
occupations and business experience for the past five years for all executive
officers and significant employees. Such information with respect to John L.
Hobey, Chief Executive Officer, is set forth above.
Stephen P. Hindle, age 44, has been Vice President - Sales & Marketing
of the Company since January 31, 2000. Mr. Hindle was Regional Vice President of
the Company from December 1997 to December 1999, Regional Sales Manager from
January 1997 to November 1997 and Director of Marketing from March 1996 to
December 1996.
Robert E. O'Neil, Jr., age 51, has been Vice President - National
Accounts of the Company since December 1997. From November 1996 to November
1997, he was Vice President - Sales of the Company. From September 1994 to
November 1996, he was Vice President - Sales of Superior Chaircraft Corporation,
a seating manufacturing company.
Timmouthy G. Zemer, age 32, has been Vice President - Operations of the
Company since May 1997. From June 1994 to May 1997, he was Director of
Operations of the Company.
48
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth, for the fiscal years ended December 31,
2000, 1999 and 1998, the compensation paid by the Company to the Company's Chief
Executive Officer, and each other executive officer earning in excess of
$100,000 during 2000, in all capacities in which they served:
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------- ----------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options (#) Compensation (1)
- ------------------ ---- ------ ----- ------------ ----------- ----------------
John L. Hobey (2) 2000 $168,846 $ -- * 25,000 $4,628
Chief Executive Officer 1999 160,000 -- * 25,000 4,591
1998 83,962 -- * 25,000 --
William F. Crabtree (3) 2000 125,308 -- * 12,500 2,002
Former Chief Financial 1999 120,000 -- * 12,500 3,302
Officer 1998 69,322 -- * 12,500 1,937
Stephen P. Hindle (4) 2000 109,576 5,000 * 1,500 3,263
Vice President - Sales &
Marketing
Robert E. O'Neil, Jr. 2000 124,973 5,000 * 1,000 3,617
Vice President - National 1999 119,931 5,000 * 2,500 3,619
Accounts 1998 119,931 10,000 * -- 9,270
Neil F. Suffa (5) 2000 97,500 5,000 * 1,500 2,928
Former Chief Financial 1999 72,531 5,000 * 3,500 2,302
Officer and Corporate 1998 63,769 5,000 * 2,500 1,913
Controller
Timmouthy G. Zemer (6) 2000 99,423 5,000 * 1,000 2,992
Vice President -
Operations
__________________
* The dollar value of perquisites and other personal benefits received by the
named executive officer during the fiscal year did not exceed the lesser of
$50,000 or 10% of the total amount of salary and bonus reported for that
year.
(1) The amounts shown represent employer contributions for each of the named
executive officers to the Company's 401(k) Plan to match elective deferral
contributions made by each to such Plan.
(2) Mr. Hobey's employment with the Company commenced on June 17, 1998.
(3) Mr. Crabtree's employment with the Company commenced on June 17, 1998 and
terminated on July 1, 2000. The amounts shown for 2000 include payments to
Mr. Crabtree under the terms of a severance agreement with the Company.
(4) Mr. Hindle became an executive officer of the Company on January 31, 2000.
The amounts shown for 2000 include all compensation paid to Mr. Hindle by
the Company from January 1, 2000.
49
(5) Mr. Suffa's employment with the Company terminated on December 31, 2000.
(6) Mr. Zemer became an executive officer of the Company on October 25, 2000.
The amounts shown for 2000 include all compensation paid to Mr. Zemer by
the Company from January 1, 2000.
The executive officers of the Company participate in other benefit
plans provided to all full-time employees of the Company who meet eligibility
requirements, including group health, dental, disability and life insurance.
Stock Options
The following table contains information concerning grants of stock
options to the executive officers named in the Summary Compensation Table during
the fiscal year ended December 31, 2000:
Option Grants In Last Fiscal Year
(Individual Grants)
Percent of Total
Number of Securities Options Granted to Exercise or Grant Date
Underlying Options Employees in Base Price Expiration Present Value
Name Granted (1) Fiscal Year ($/Sh) (2) Date (3) ($) (4)
- ---- ----------- ----------- ---------- -------- -------
John L. Hobey 25,000 52.6% $1.875 1/31/06 $20,500
William F. Crabtree 12,500 (5) 26.3% $1.875 1/31/06 $10,250
Stephen P. Hindle 1,500 3.2% $1.875 1/31/06 $1,230
Robert E. O'Neil, Jr. 1,000 2.1% $1.875 1/31/06 $820
Neil F. Suffa 1,500 (6) 3.2% $1.875 1/31/06 $1,230
Timmouthy G. Zemer 1,000 2.1% $1.875 1/31/06 $820
___________________
(1) The options listed in the table were granted on January 31, 2000 and vest
25% per year commencing six months after the date of grant.
(2) The exercise price for the options listed in the table was the average of
the high and low trading prices of the Common Stock on the date of grant.
The exercise price may be paid in cash, in shares of Common Stock of the
Company valued at fair market value on the date of exercise, or pursuant to
a cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all required withholding and other deductions.
(3) The options listed in the table expire January 31, 2006. An earlier
expiration date may apply in the event of the optionee's termination of
employment, retirement, death or disability.
(4) The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model assuming a risk-free interest rate of
5.6%, dividend yield of 0.0%, a weighted average expected life of the
option of 5 years and a volatility factor of .403 for 2000.
(5) The options granted to Mr. Crabtree expired on September 29, 2000 following
the termination of his employment with the Company.
(6) All options held by Mr. Suffa expired on March 31, 2001 following the
termination of his employment with the Company.
50
Option Exercises and Holdings
None of the executive officers named in the Summary Compensation Table
exercised options during the fiscal year ended December 31, 2000. The following
table sets forth information with respect to the value of all unexercised stock
options held by such officers as of the end of the fiscal year:
Fiscal Year End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End (1)
-------------------------- ----------------------
Name Exercisable Unexerciseable Exercisable Unexerciseable
- ---- ----------- -------------- ----------- --------------
John L. Hobey 56,250 18,750 -- --
William F. Crabtree -- (2) -- (2) -- --
Stephen P. Hindle 17,875 2,375 -- --
Robert E. O'Neil, Jr. 23,375 5,125 -- --
Neil F. Suffa 12,593.75 (3) 3,656.25 (3) -- --
Timmouthy G. Zemer 18,218.75 4,031.25 -- --
_______________
(1) The value of the unexercised options at fiscal year end is calculated by
determining the difference between the fair market value of the Common
Stock on December 31, 2000 and the exercise price of such options. The
average of the high and low sales prices of the Common Stock of the Company
on the last trading day prior to December 31, 2000, as reported by The
Nasdaq National Market, was $1.625. All of the options identified in the
table had an exercise price that was higher than $1.625 on December 31,
2000, and therefore all of the options were out-of-the money on that date.
(2) All options held by Mr. Crabtree expired on September 29, 2000 following
the termination of his employment with the Company.
(3) All options held by Mr. Suffa expired on March 31, 2001 following the
termination of his employment with the Company.
Directors' Compensation
Each non-employee director of the Company receives an annual retainer
of $5,000 payable quarterly, a fee of $1,000 for each Board meeting attended and
a fee of $500 for each committee meeting attended. Each director is also
reimbursed for certain expenses incurred in connection with attendance at Board
and committee meetings.
Effective May 12, 2000, the Company adopted the 2000 Stock Option Plan
for Non-Employee Directors (the "2000 Outside Directors' Plan"). The maximum
aggregate number of shares of Common Stock that may be issued pursuant to the
2000 Outside Directors' Plan is 25,000. The 2000 Outside Directors' Plan is
administered by the Compensation Committee of the Board of Directors of the
Company, and will terminate following the annual meeting of shareholders in
2005. The 2000 Outside Directors' Plan replaced the 1996 Stock Option Plan for
Non-Employee Directors (the "1996 Outside Directors' Plan"), which terminated
following the annual meeting of shareholders in 2000. All
51
outstanding options granted under the 1996 Outside Director's Plan remained
outstanding in accordance with their terms.
Under the 2000 Outside Directors' Plan, each non-employee director of
the Company serving on the Board of Directors receives an option to purchase
1,000 shares of Common Stock on the first business day following each annual
meeting of shareholders. The exercise price of stock options granted under the
2000 Outside Directors' Plan is equal to the fair market value of the Common
Stock on the date of grant. Each option is granted for a term of ten years and
is first exercisable on the date that is six months from the date of grant of
the option. Options granted under the 2000 Outside Directors' Plan may be
exercised in whole or in part at any time upon payment by the optionee of the
exercise price in cash or by surrendering previously-owned shares of Common
Stock to the Company with a fair market value not less than the exercise price.
In addition, the Company will cooperate in a cashless exercise of an option upon
the request of a participant.
Prior to its termination, under the 1996 Outside Directors' Plan, each
non-employee director of the Company serving on the Board of Directors received
an option to purchase 1,000 shares of Common Stock on the first business day
following each annual meeting of shareholders. The terms of the options granted
under the 1996 Outside Directors' Plan were similar to the terms of the options
that are being granted under the 2000 Outside Directors' Plan.
Compensation Committee Interlocks and Insider Participation
Theodore L. Chandler, Jr. served on the Compensation Committee of the
Board of Directors until May 12, 2000. Prior to February 1, 2000, he was a
member of the law firm of Williams, Mullen, Clark & Dobbins, which serves as
counsel to the Company.
52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock as of March 9, 2001, by each
director and nominee of the Company, by those current and former executive
officers named in the Summary Compensation Table set forth under the caption
"Executive Compensation" in Item 11 above, and by all of the directors and
executive officers as a group.
Amount and Nature of Beneficial Ownership (1)
----------------------------------------------------------
Acquirable Within Percent of
Name Common Stock 60 Days (2) Class (3)
- ---- ------------- ----------- ---------
Theodore L. Chandler, Jr. 25,000 5,000 *
William F. Crabtree 211,000 (4) 600,000 (5) 16.4%
J. Wesley Hall 375,900 1,000 8.7%
Stephen P. Hindle 200 17,875 *
John L. Hobey 262,211 (4) 656,250 (5) 18.4%
Anthony F. Markel 559,035 (6) 5,000 13.0%
Robert F. Mizell 27,500 5,000 *
Edwin W. Mugford 157,545 2,000 3.7%
Robert E. O'Neil, Jr. 3,000 45,875 1.1%
Troy A. Peery, Jr. 174,376 5,000 4.1%
William Sydnor Settle 260,211 (4) 602,000 (5) 17.5%
Neil F. Suffa 7,093 12,593.75 (7) *
Timmouthy G. Zemer 5,973 18,218.75 *
All directors and executive
officers as a group (11
persons) 1,646,951 763,218.75 47.1%
___________________
* Percentage of ownership is less than one percent of the outstanding shares
of Common Stock of the Company.
(1) Beneficial ownership has been determined in accordance with the provisions
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), under which, in general, a person is deemed to be a
beneficial owner of a security if he has or shares the power to vote or
direct the voting of the security or the power to dispose or direct the
disposition of the security, or if he has the right to acquire beneficial
ownership of the security within 60 days.
(2) The amounts shown represent shares of Common Stock that can be purchased
upon the exercise of vested stock options.
(3) Percentages for shares beneficially owned are based on 4,337,391 shares of
Common Stock issued and outstanding at March 9, 2001.
(4) The amount shown includes 204,000 shares of Common Stock beneficially owned
by Great Lakes, of which Messrs. Crabtree, Hobey and Settle are principals.
(5) The amount shown includes 600,000 shares of Common Stock that may be
acquired pursuant to stock options held by Great Lakes, of which Messrs.
Crabtree, Hobey and Settle are principals.
53
(6) The amount shown includes 264,817 shares of Common Stock beneficially owned
by a family limited partnership. Mr. Markel has sole voting and dispositive
power for the general partner of the family limited partnership.
(7) The options shown in the table for Mr. Suffa expired unexercised on March
31, 2001.
Security Ownership of Certain Beneficial Owners
The persons, groups or other entities known by the Company to be
beneficial owners of more than five percent of the outstanding shares of Common
Stock as of March 9, 2001 are set forth in the following table:
Name and Address Number of Shares
of Beneficial Owner Beneficially Owned (1) Percent of Class (2)
- ------------------- ---------------------- --------------------
Great Lakes Capital, LLC 1,047,250 (3) 21.0%
W. Sydnor Settle
Thomas H. Corson
William F. Crabtree
John L. Hobey
Charles B. Kaufmann, III
Thomas J. McGrath
310 South Street
Morristown, NJ. 07960
Anthony F. Markel 564,035 (4) 13.0%
c/o Markel Corporation
4521Highwoods Parkway
Glen Allen VA 23060-6148
Royce & Associates, Inc. 407,600 (5) 9.4%
Charles M. Royce
1414 Avenue of the Americas
New York, New York 10019
SAFECO Resource Series Trust 331,900 (6) 7.7%
10865 Willows Road NE
Redmond, Washington 98052
SAFECO Asset Management Company
601 Union Street, Suite 2500
Seattle, Washington 98101
SAFECO Corporation
SAFECO Plaza
Seattle, Washington 98185
J. Wesley Hall 376,900 (7) 8.7%
15 Broad Run Road
Manakin-Sabot, VA 23103
John C. Cullather 232,650 (8) 5.4%
16 Ellensview Circle
Richmond, Virginia 23226
54
__________________
(1) Beneficial ownership has been determined in accordance with the provisions
of Rule 13d-3 under the Exchange Act, under which, in general, a person is
deemed to be a beneficial owner of a security if he has or shares the power
to vote or direct the voting of the security or the power to dispose or
direct the disposition of the security, or if he has the right to acquire
beneficial ownership of the security within 60 days.
(2) Percentages for shares beneficially owned are based on 4,337,391 shares of
Common Stock issued and outstanding at March 9, 2001.
(3) In Amendment No. 2 to a Joint Schedule 13D filed with the SEC on September
12, 2000, Great Lakes Capital, LLC reported beneficial ownership of 804,000
shares of Common Stock. Of that amount, Great Lakes reported that it had
sole voting and dispositive power with respect to 204,000 shares of Common
Stock and it would have, upon the exercise of certain stock options, sole
voting and dispositive power with respect to an additional 600,000 shares
of Common Stock. Each of Messrs. Settle, Corson, Crabtree, Hobey, Kaufmann
and McGrath reported that he had sole voting and dispositive power with
respect to 56,211, 53,211, 7,385, 58,211, 6,771 and 3,211 shares of Common
Stock, respectively. Each of Messrs. Settle, Crabtree and Hobey reported
that he would have, upon the exercise of certain stock options, sole voting
and dispositive power with respect to an additional 2,000, 25,000 and
37,500 shares of Common Stock, respectively. The amounts reported in the
Joint Schedule 13D have been adjusted for purposes of the table to reflect
the expiration of Mr. Crabtree's options on September 29, 2000 following
the termination of his employment with the Company and the vesting of
options held by Mr. Hobey with respect to an additional 18,750 shares of
Common Stock.
(4) Mr. Markel has beneficial ownership of 564,035 shares of Common Stock, of
which 299,218 shares are held directly and 264,817 shares are held
indirectly through a family limited partnership. Mr. Markel has sole voting
and dispositive power for the general partner of the family limited
partnership.
(5) In Amendment No. 1 to Schedule 13G filed with the SEC on February 5, 2001,
Royce & Associates, Inc. and Charles M. Royce reported beneficial ownership
as of December 31, 2000 of 407,600 shares of Common Stock.
(6) In Amendment No. 5 to Schedule 13G filed with the SEC on January 23, 2001,
SAFECO Resource Series Trust, SAFECO Asset Management Company and SAFECO
Corporation reported beneficial ownership as of December 31, 2000 of
331,900 shares of Common Stock. The Schedule 13G reported that such shares
were owned beneficially by registered investment companies for which SAFECO
Asset Management Company serves as investment adviser and included the
shares beneficially owned by SAFECO Resource Series Trust.
(7) In Amendment No. 1 to Schedule 13D filed with the SEC on May 17, 2001, J.
Wesley Hall reported beneficial ownership as of that date of 376,900 shares
of Common Stock. Mr. Hall reported that he had sole voting and dispositive
power with respect to all such shares.
(8) In a Schedule 13D filed with the SEC on August 17, 2000, John C. Cullather
reported beneficial ownership as of June 18, 2000 of 232,650 shares of
Common Stock. Of that amount, Mr. Cullather reported that he had sole
voting and dispositive power with respect to 226,144 shares of Common Stock
and shared voting and dispositive power with respect to 7,506 shares of
Common Stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who beneficially own more than 10% of the
Company's Common Stock to file initial reports of ownership and reports of
changes in ownership of Common Stock with the Securities and Exchange
Commission. Such persons are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely upon a review of the copies of such reports furnished to
the Company, the Company believes that all applicable Section 16(a)
55
filing requirements were satisfied for events and transactions that occurred in
2000, except that Stephen P. Hindle inadvertently filed late a Form 3 in March
2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management
John L. Hobey, the Company's Chief Executive Officer, William F.
Crabtree, the Company's former Chief Financial Officer, and William Sydnor
Settle, a director of the Company, are principals of Great Lakes and GLC. Great
Lakes, GLC and the Company entered into a Management and Consulting Agreement
(the "Consulting Agreement") and the Voting and Standstill Agreement (the
"Standstill Agreement") in June 1998. Great Lakes, GLC and the Company agreed to
certain amendments to the Standstill Agreement in July 2000 to allow Great Lakes
and certain of its affiliates to acquire additional shares of Common Stock for
investment purposes.
Under the Consulting Agreement, Great Lakes agreed to provide certain
management and consulting services to the Company for an 18-month period,
including making available to the Company two of its members, Messrs. Hobey and
Crabtree, to serve as Chief Executive Officer and Chief Financial Officer,
respectively, of the Company. In connection with the Consulting Agreement,
Messrs. Hobey and Crabtree each entered into a written employment agreement with
the Company for a term of 18 months commencing on June 17, 1998. The Company
also appointed Messrs. Hobey and Settle to its Board of Directors. In connection
with the execution of the Consulting Agreement, Great Lakes purchased 200,000
shares of Common Stock directly from the Company. Also, as consideration for
services under the Consulting Agreement, Great Lakes acquired an option to
purchase up to 600,000 shares of the Common Stock (the "Option"). The Option is
fully vested and immediately exercisable by Great Lakes in blocks of 150,000
shares each at exercise prices of $3.00, $4.50, $6.00 and $7.50, respectively.
The option expires June 30, 2003.
Under the Standstill Agreement, GLC and Great Lakes would, during the
duration of the Agreement, take such actions as may be required so that the
shares of Common Stock beneficially owned and entitled to be voted by GLC and
Great Lakes and their affiliates would be voted (i) with respect to the nominees
to the Board of Directors of the Company, in accordance with the recommendations
of the Board, and (ii) with respect to any election contest initiated by any
person in connection with a tender offer, in the same proportion as the total
votes cast by or on behalf of all of the Company's shareholders (other than GLC,
Great Lakes and their affiliates). In all other matters to be voted upon by the
Company's shareholders, Great Lakes and its affiliates are permitted under the
Standstill Agreement to vote in their independent judgment, notwithstanding the
recommendation of the Board of Directors. The Standstill Agreement also
prohibits Great Lakes and its affiliates from beneficially owning greater than
25% of the outstanding shares of the Company's common stock.
Anthony F. Markel, Chairman of the Board and a director of the Company,
is the President and a director of Markel. Evanston Insurance Company, a wholly
owned subsidiary of Markel, provided directors and officers insurance to the
Company during 2000 at fees that are customary for such services.
56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedules and reports
included in this Annual Report on Form 10-K
(1) Financial Statements
The response to this portion of Item 14 is submitted as a
separate section of this report.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts, for each of
the three years in the period ending December 31, 2000, is
included in Note 15 of the Notes to consolidated financial
statements on page 44 of this Annual Report on Form 10-K.
Schedules other than that listed above have been omitted
because such schedules are not required or are not
applicable.
(3) The exhibits that are required to be filed or incorporated
by reference herein are as follows:
Exhibit No. Document
----------- --------
3.1 Amended and Restated Articles of Incorporation,
incorporated by reference to Exhibit 3(i) of the
Company's Registration Statement on Form SB-2, as
amended, File No. 333-3188 (the "Form SB-2").
3.2 Amended and Restated Bylaws, incorporated by
reference to Exhibit 3.2 of the Company's Form 10-K
for the fiscal year ended December 31, 1999, as
amended by Form 10-K/A (Amendment No. 1), File No.
0-20743.
4 Form of Stock Certificate, incorporated by reference
to Exhibit 4 of the Form SB-2.
10.1 Buy-Sell Agreement, dated May 15, 1996, between the
Company and Gregory P. Campbell, incorporated by
reference to Exhibit 10.8 of the Form SB-2.
10.2 Form of Employee Non-Qualified Stock Option
Agreement, incorporated by reference to Exhibit 10.10
of the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, File No.
0-20743.
10.3 Form of Non-Employee Director Non-Qualified Stock
Option Agreement, incorporated by reference to
Exhibit 10.11 of the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996,
File No. 0-20743.
57
10.4 Management and Consulting Agreement, dated June 17,
1998, between the Company and Great Lakes Capital,
LLC, incorporated by reference to Exhibit 10 of the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, File No. 0-20743.
10.5 Voting and Standstill Agreement, dated June 17, 1998,
between the Company, Great Lakes Capital, LLC and
Great Lakes Capital, Inc., incorporated by reference
to Exhibit 10 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, File
No. 0-20743.
10.6 Registration Rights Agreement, dated June 17, 1998,
between the Company and Great Lakes Capital, LLC,
incorporated by reference to Exhibit 10 of the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, File No. 0-20743.
10.7 Amendment No. 1 to Voting and Standstill Agreement,
dated as of July 21, 2000, between the Company, Great
Lakes Capital, LLC and Great Lakes Capital, Inc.,
incorporated by reference to Exhibit 10.1 of the
Company's Form 8-K dated July 21, 2000, File No.
0-20743.
10.8 Amendment No. 1 to Registration Rights Agreement,
dated as of July 21, 2000, between the Company and
Great Lakes Capital, LLC, incorporated by reference
to Exhibit 10.2 of the Company's Form 8-K dated July
21, 2000, File No. 0-20743.
10.9 Stock Purchase Agreement, dated as of August 31,
1999, by and between Stan A. Fischer, the Company and
A.G. Bertozzi, J. Cullather, J. Wesley Hall, Anthony
F. Markel, Gary L. Markel, Robert F. Mizell, E.W.
Mugford and Troy A. Peery, Jr. incorporated by
reference to Exhibit 99.2 of the Company's Form 8-K
filed September 30, 1999, File No. 0-20743.
10.10 Stock Redemption and Sale Agreement, made effective
as August 31, 1999, by and between the Company and
Thomas H. Carson, William F. Crabtree, John L. Hobey,
Charles Kaufmann and W. Sydnor Settle, incorporated
by reference to Exhibit 99.3 of the Company's Form
8-K filed September 30, 1999, File No. 0-20743.
10.11 Commercial Lease Contract, dated May 1, 1998, between
Liberty Property Limited Partnership and the Company,
incorporated by reference to Exhibit 10.14 of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999, as amended by Form 10-K/A
(Amendment No. 1), File 0-20743.
10.12 Commercial Lease Contract, dated September 18, 1998,
between Quality Dairy Company and the Company,
incorporated by reference to Exhibit 10.15 of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1999, as amended by Form 10-K/A
(Amendment No. 1), File 0-20743.
58
10.13 Open Plan Systems, Inc. 1996 Stock Incentive Plan, as
amended on May 12, 2000.*
10.14 Open Plan Systems, Inc. 1996 Stock Option Plan For
Non-Employee Directors, as amended May 12, 2000,
incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000.
10.15 Open Plan Systems, Inc. 2000 Stock Option Plan for
Non-Employee Directors, as amended May 12, 2000,
incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, File No. 0-20743.
10.16 Open Plan Systems, Inc. Employee Stock Purchase and
Bonus Plan and Prospectus, incorporated by reference
to Exhibit 4.3 of the Company's Registration
Statement on Form S-8, File No. 333-38588.
10.17 Severance and Release Agreement, dated July 1, 2000,
between the Company and William F. Crabtree,
incorporated by reference to Exhibit 10.1 of the
Company's Form 8-K dated July 1, 2000, File No.
0-20743.
10.18 Loan Agreement between Michigan Strategic Fund and
the Company, dated June 1, 2000.*
10.19 Reimbursement and Security Agreement between the
Company and Wachovia Bank, N.A., dated June 1, 2000.*
10.20 Commitment Letter between the Company and Wachovia
Bank, dated March 15, 2000.*
10.21 Amendment to Commitment Letter between the Company
and Wachovia Bank, dated August 1, 2000.*
10.22 Waiver letter between the Company and Wachovia Bank,
N.A., dated May 23, 2001.*
21 Subsidiaries of the Company.*
23 Consent of Ernst & Young LLP.*
_________________
* Filed herewith
(b) Reports on Form 8-K.
None.
(c) Exhibits
The response to this portion of Item 14 is submitted as a
separate section of this report.
59
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
OPEN PLAN SYSTEMS, INC.
Dated: May 23, 2001 By: /s/ John L. Hobey
-------------------------------
John L. Hobey
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John L. Hobey Chief Executive Officer May 23, 2001
- ------------------------------------------ and Director
John L. Hobey (Principal Executive, Financial
and Accounting Officer)
/s/ Theodore L. Chandler, Jr. Director May 23, 2001
- ------------------------------------------
Theodore L. Chandler, Jr.
/s/ J. Wesley Hall Director May 23, 2001
- ------------------------------------------
J. Wesley Hall
/s/ Anthony F. Markel Director May 23, 2001
- ------------------------------------------
Anthony F. Markel
/s/ Robert F. Mizell Director May 23, 2001
- ------------------------------------------
Robert F. Mizell
/s/ Edwin W. Mugford Director May 23, 2001
- ------------------------------------------
Edwin W. Mugford
/s/ Troy A. Peery, Jr. Director May 23, 2001
- ------------------------------------------
Troy A. Peery, Jr.
/s/ W. Sydnor Settle Director May 23, 2001
- ------------------------------------------
W. Sydnor Settle
EXHIBIT INDEX
Exhibit No. Document
----------- --------
3.1 Amended and Restated Articles of Incorporation, incorporated
by reference to Exhibit 3(i) of the Company's Registration
Statement on Form SB-2, as amended, File No. 333-3188 (the
"Form SB-2").
3.2 Amended and Restated Bylaws, incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K for the fiscal year
ended December 31, 1999, as amended by Form 10-K/A (Amendment
No. 1), File No. 0-20743.
4 Form of Stock Certificate, incorporated by reference to
Exhibit 4 of the Form SB-2.
10.1 Buy-Sell Agreement, dated May 15, 1996, between the Company
and Gregory P. Campbell, incorporated by reference to Exhibit
10.8 of the Form SB-2.
10.2 Form of Employee Non-Qualified Stock Option Agreement,
incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, File No. 0-20743.
10.3 Form of Non-Employee Director Non-Qualified Stock Option
Agreement, incorporated by reference to Exhibit 10.11 of the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, File No. 0-20743.
10.4 Management and Consulting Agreement, dated June 17, 1998,
between the Company and Great Lakes Capital, LLC,
incorporated by reference to Exhibit 10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, File No. 0-20743.
10.5 Voting and Standstill Agreement, dated June 17, 1998, between
the Company, Great Lakes Capital, LLC and Great Lakes
Capital, Inc., incorporated by reference to Exhibit 10 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, File No. 0-20743.
10.6 Registration Rights Agreement, dated June 17, 1998, between
the Company and Great Lakes Capital, LLC, incorporated by
reference to Exhibit 10 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, File No.
0-20743.
10.7 Amendment No. 1 to Voting and Standstill Agreement, dated as
of July 21, 2000, between the Company, Great Lakes Capital,
LLC and Great Lakes Capital, Inc., incorporated by reference
to Exhibit 10.1 of the Company's Form 8-K dated July 21,
2000, File No. 0-20743.
10.8 Amendment No. 1 to Registration Rights Agreement, dated as of
July 21, 2000, between the Company and Great Lakes Capital,
LLC, incorporated by reference
to Exhibit 10.2 of the Company's Form 8-K dated July 21,
2000, File No. 0-20743.
10.9 Stock Purchase Agreement, dated as of August 31, 1999, by and
between Stan A. Fischer, the Company and A.G. Bertozzi, J.
Cullather, J. Wesley Hall, Anthony F. Markel, Gary L. Markel,
Robert F. Mizell, E.W. Mugford and Troy A. Peery, Jr.
incorporated by reference to Exhibit 99.2 of the Company's
Form 8-K filed September 30, 1999, File No. 0-20743.
10.10 Stock Redemption and Sale Agreement, made effective as August
31, 1999, by and between the Company and Thomas H. Carson,
William F. Crabtree, John L. Hobey, Charles Kaufmann and W.
Sydnor Settle, incorporated by reference to Exhibit 99.3 of
the Company's Form 8-K filed September 30, 1999, File No.
0-20743.
10.11 Commercial Lease Contract, dated May 1, 1998, between Liberty
Property Limited Partnership and the Company, incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, as amended by
Form 10-K/A (Amendment No. 1), File 0-20743.
10.12 Commercial Lease Contract, dated September 18, 1998, between
Quality Dairy Company and the Company, incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, as amended by
Form 10-K/A (Amendment No. 1), File 0-20743.
10.13 Open Plan Systems, Inc. 1996 Stock Incentive Plan, as amended
on May 12, 2000.*
10.14 Open Plan Systems, Inc. 1996 Stock Option Plan For
Non-Employee Directors, as amended May 12, 2000, incorporated
by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000.
10.15 Open Plan Systems, Inc. 2000 Stock Option Plan for
Non-Employee Directors, as amended May 12, 2000, incorporated
by reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000,
File No. 0-20743.
10.16 Open Plan Systems, Inc. Employee Stock Purchase and Bonus
Plan and Prospectus, incorporated by reference to Exhibit 4.3
of the Company's Registration Statement on Form S-8, File No.
333-38588.
10.17 Severance and Release Agreement, dated July 1, 2000, between
the Company and William F. Crabtree, incorporated by
reference to Exhibit 10.1 of the Company's Form 8-K dated
July 1, 2000, File No. 0-20743.
10.18 Loan Agreement between Michigan Strategic Fund and the
Company, dated June 1, 2000.*
10.19 Reimbursement and Security Agreement between the Company and
Wachovia Bank, N.A., dated June 1, 2000.*
10.20 Commitment Letter between the Company and Wachovia Bank,
dated March 15, 2000.*
10.21 Amendment to Commitment Letter between the Company and
Wachovia Bank, dated August 1, 2000.*
10.22 Waiver letter between the Company and Wachovia Bank, N.A.,
dated May 23, 2001.*
21 Subsidiaries of the Company.*
23 Consent of Ernst & Young LLP.*
____________________
* Filed herewith